HubSpot, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; unaudited consolidated financial statements. HubSpot provides a cloud-based CRM platform, primarily through subscriptions. Subscription revenue was 98% of total revenue.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $529.1M (+25%) | $421.8M | $1,030.8M (+26%) | $817.4M |
| Subscription revenue | $517.7M (+26%) | $412.4M | $1,007.4M (+26%) | $797.4M |
| Gross profit / margin | $441.9M / 84% | $342.8M / 81% | $861.4M / 84% | $665.5M / 81% |
| Operating loss | $(118.5)M | $(52.3)M | $(163.3)M | $(63.4)M |
| Net loss | $(118.9)M | $(56.4)M | $(157.2)M | $(65.7)M |
| Diluted loss per share | $(2.39) | $(1.18) | $(3.17) | $(1.38) |
- Q2 revenue growth reflected customer growth and higher average subscription revenue per customer. Customers reached 184,924, up from 150,865 a year earlier; average subscription revenue per customer was $11,432 for Q2, versus $11,198.
- Management attributed the higher gross margin primarily to hosting-cost efficiencies. Operating expenses nevertheless rose substantially, including research and development (+43% in Q2) and sales and marketing (+18%).
- Six-month operating cash flow was $157.6M, compared with $123.1M a year earlier. Investing activities used $53.3M and financing activities provided $20.4M. Cash, cash equivalents and restricted cash ended the period at $460.4M.
- At June 30, cash and cash equivalents were $457.2M, with short- and long-term investments of $1,218.2M. Convertible notes had a $455.2M carrying value and $459.1M principal outstanding.
- Working capital was $1,060.4M. Current deferred revenue was $585.9M. Remaining performance obligations for contracts with original terms over one year were approximately $671.9M; about 91% is expected to be recognized over the next 24 months.
Material changes and unusual items
- Revenue accelerated in scale but losses widened year over year. The accumulated deficit was $799.6M at June 30, 2023.
- The January 2023 restructuring reduced the workforce by approximately 7% and consolidated office leases. Six-month restructuring charges were $92.5M: $65.6M facilities-related and $26.9M severance, benefits and other costs. Management estimated an additional $2M–$6M of lease-consolidation charges; actions were expected to be completed in 2023.
- Stock-based compensation was $211.0M for the first half, up from $126.9M. It is a significant non-cash expense and contributed to the difference between net loss and operating cash flow.
- Interest income rose to $24.0M for the first half from $2.6M, primarily due to higher yields on cash and investments. Income tax expense was $15.6M for the period despite the pretax loss, reflecting taxes in profitable non-U.S. jurisdictions and limits on U.S. net operating loss utilization.
Outlook, risks and contingencies
- Management said it does not expect near-term profitability and plans continued investment in sales and marketing, research and development, customer support, and data-center infrastructure. It believes existing cash, investments and anticipated operating cash flows will cover working-capital and operating needs for the next 12 months.
- The 2025 convertible notes became convertible at holders’ option during Q3 2023 after the stock-price conversion threshold was met. As of July 28, 2023, HubSpot had received no material conversion notices. The company expects to settle the notes’ principal in cash; conversions could affect liquidity and dilution.
- Key stated risks include customer renewals and spending amid economic uncertainty, competition and rapid technology change including AI, foreign-exchange movements, service availability and cybersecurity, privacy regulation, and execution of the restructuring plan.
- Operating lease minimum payments were $424.1M through lease terms, and non-cancelable vendor commitments totaled $912.3M. Extending leases beyond stated optional termination dates could add approximately $78.5M.
- HubSpot reported no material pending litigation. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether subscription growth, customer expansion and renewal trends persist, including the contribution of lower-priced Starter products and foreign-exchange effects.
- How operating expenses, stock-based compensation and restructuring costs affect the path to profitability and cash generation.
- Whether the restructuring delivers expected savings without impairing execution, employee retention or customer service.
- Potential cash settlement, conversion and dilution effects from the 2025 notes, along with the company’s liquidity and investment exposure.
- Trends in deferred revenue and remaining performance obligations, and the scale and timing of lease and vendor commitments.