HubSpot, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results are compared with Q1 2023. HubSpot provides a cloud-based customer platform, including CRM and marketing, sales, service, operations, content and commerce products. Subscription revenue represented 98% of revenue.
Financial performance
Amounts below are in millions of U.S. dollars except per-share data, percentages and customer metrics.
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $617.4 | $501.6 | +23% |
| Subscription revenue | $603.8 | $489.7 | +23% |
| Gross profit / margin | $522.3 / 85% | $421.3 / 84% | Margin +1 percentage point |
| Operating loss | $(23.2) | $(43.1) | Loss narrowed |
| Net income (loss) | $5.9 | $(36.7) | Turned profitable |
| Diluted earnings (loss) per share | $0.12 | $(0.74) | — |
| Operating cash flow | $127.1 | $81.1 | +$46.0 |
| Cash and cash equivalents at period end | $447.8 | $325.2 | +$122.6 year over year |
Gross margin was approximately 84.6% versus 84.0%; operating margin was approximately (3.8)% versus (8.6)%. Cash flow from operations less purchases of property and equipment and capitalized software development costs was approximately $99.6 million, compared with $62.7 million in Q1 2023; this is a simple calculation, not a company-reported free-cash-flow measure.
Balance sheet and liquidity
- At March 31, 2024, cash and cash equivalents were $447.8 million, short-term investments $1.071 billion and long-term investments $311.5 million. Working capital was $1.026 billion.
- Total liabilities were $1.744 billion, including $456.7 million carrying value of convertible senior notes and $317.4 million of operating lease liabilities. Notes principal outstanding was approximately $459.1 million.
- Deferred revenue was $701.8 million in total. Remaining performance obligations for contracts with original terms over one year were approximately $827.1 million; about 91% is expected to be recognized within 24 months.
- Cash provided by operations was $127.1 million; investing activities used $74.1 million and financing activities provided $11.2 million. Investing cash flows included $21.6 million of capitalized software development costs.
Material changes and management commentary
- Revenue growth reflected customer count increasing to 216,060 from 177,298, primarily from demand for lower-priced Starter products. Average subscription revenue per customer rose to $11,447 from $11,365. The filing does not provide a numerical net revenue retention rate.
- Operating expenses increased to $545.6 million from $464.3 million. R&D rose 38% to $175.6 million and sales and marketing rose 20% to $300.3 million, primarily due to employee-related costs and, for sales and marketing, marketing programs.
- Net income included $13.2 million of other income, including a net $12.7 million gain on strategic investments ($16.4 million gain partly offset by $3.6 million impairment). Management said Q1 profitability was primarily due to a non-recurring investment gain and that it does not expect to be profitable in the next 12 months.
- Restructuring expense fell to $0.8 million from $28.6 million, as Q1 2023 included severance and other restructuring costs. Q1 2024 charges related to unused facilities; no restructuring liabilities remained at quarter-end.
- Stock-based compensation expense was $111.1 million, up from $83.0 million. The filing reports 50.8 million common shares outstanding at March 31 and 51.0 million at May 2.
- Clearbit, acquired in December 2023, is intended to add enriched B2B records to the platform; the filing notes acquired-technology amortization contributed to higher subscription costs.
Outlook, risks and contingencies
- Management expects to continue investing in sales and marketing, R&D—including AI and machine learning—customer support, and data-center infrastructure. It expects existing cash, investments and operating cash flows to meet working-capital and operating-resource needs for the next 12 months.
- The filing provides no numerical revenue or earnings guidance. Management highlights macroeconomic uncertainty, inflation and currency movements, competition and changing customer demand as potential factors affecting results.
- The 0.375% convertible notes mature June 1, 2025. They became convertible at holders’ option during Q2 2024 after the stock-price conversion condition was met; no conversion notices had been received as of May 3, 2024. HubSpot expects to settle principal in cash, subject to the note terms.
- Future minimum operating lease payments were $389.3 million and non-cancelable vendor commitments were $825.9 million. Extending leases beyond specified optional termination dates could add approximately $77.8 million. HubSpot also committed an additional $4.0 million to the Black Economic Development Fund.
- The company reported no material pending litigation and said disclosure controls were effective, with no material change in internal control over financial reporting during the quarter.
- Risks include customer renewals and expansion, competition (including AI-enabled offerings), cybersecurity and service availability, privacy and data regulation, foreign exchange exposure and the ability to sustain growth and profitability. A new foreign-exchange hedging program had an immaterial Q1 financial-statement impact.
Investor verification priorities
- Assess earnings quality: Q1 net income was supported by a net strategic-investment gain, while the company still reported an operating loss and does not expect near-term profitability.
- Track customer retention, expansion and product mix. The filing defines net revenue retention but does not state its value; growth in customers was led mainly by lower-priced Starter products.
- Review the Q1 correction of prior-period errors involving contractual vendor credits and deferred taxes. Management deemed the errors immaterial, but revised prior-period financial statements; verify consistency in subsequent filings.
- Monitor the convertible notes’ Q2 2024 conversion status and potential cash-settlement and liquidity effects.
- Evaluate the scale of stock-based compensation and the substantial lease and vendor commitments against operating cash generation and investment needs.