HubSpot, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results; amounts below are in U.S. dollars. HubSpot provides a cloud-based CRM platform. It reported 128,144 customers in more than 120 countries at quarter-end.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $339.2 million | $228.4 million | $931.3 million | $631.0 million |
| Gross profit | $269.6 million | $185.8 million | $744.1 million | $511.3 million |
| Gross margin | 79% | 81% | 80% | 81% |
| Operating loss | $14.9 million | $15.5 million | $46.6 million | $43.2 million |
| Net loss | $13.7 million | $22.5 million | $61.5 million | $69.6 million |
| Operating cash flow | Not separately stated | Not separately stated | $143.5 million | $28.0 million |
- Q3 revenue grew 49% year over year; subscription revenue, 97% of total, grew 49%. Nine-month revenue grew 48%.
- Customer count increased from 95,634 to 128,144 year over year. Management also cited increased subscription revenue per customer, driven by Professional and Enterprise demand, upgrades, and customer mix.
- Q3 gross margin declined two percentage points, reflecting higher subscription and hosting costs, headcount, software amortization, and infrastructure spending. Operating expenses rose 41% in the quarter, but operating loss narrowed slightly as revenue grew.
- Q3 other income included a $10.7 million gain on strategic investments. Nine-month other income included $11.7 million of such gains. Nine-month net loss improved, while operating loss increased.
Cash, liquidity, and debt
- At September 30, cash and cash equivalents were $288.3 million; short- and long-term investments totaled approximately $997.1 million. Working capital was $861.2 million.
- Management said cash, cash equivalents, investments, and anticipated operating cash flows should be sufficient for working capital and operating needs for at least the next 12 months.
- Nine-month operating cash flow was $143.5 million. Investing activities used $169.7 million and financing activities used $57.3 million. Cash and cash equivalents declined from $378.1 million at December 31, 2020.
- Convertible notes had $482.2 million of principal outstanding at quarter-end: $22.2 million of 2022 Notes and $460.0 million of 2025 Notes. Their combined balance-sheet carrying amount was approximately $400.1 million, net of discounts and issuance costs. Both note series were eligible for holder conversion in Q4 2021; HubSpot expected to settle principal in cash.
- Operating lease liabilities totaled approximately $314.8 million. Disclosed lease obligations were $394.3 million, and vendor commitments were approximately $1.086 billion.
Outlook, commentary, and notable items
- Management plans continued investment in sales and marketing, research and development, customer support, data-center infrastructure, and international operations. It stated that it did not expect profitability in the near term.
- The filing gives no numerical revenue or earnings guidance. Management noted that interim results are not necessarily indicative of full-year results and that the pandemic’s broader effects remain uncertain.
- COVID-19 had not materially adversely affected financial results to date, but its future impact on customers, purchasing, renewals, and operations remained uncertain. The company was gradually reopening offices and used a hybrid-work model.
- HubSpot acquired The Hustle in February 2021; the acquisition was not material to reported revenue or earnings. The company also recorded a $4.3 million gain on an office lease termination and a $6.5 million fixed-asset disposal loss, a net $2.2 million operating expense.
- Stock-based compensation was $120.8 million for the first nine months, up from $90.0 million. The company reported no material pending litigation and said disclosure controls were effective.
Key investor verification points
- Whether customer growth, renewals, and expansion within existing accounts sustain subscription growth, and whether gross margins stabilize as hosting and support costs rise.
- How much of reported earnings and operating cash flow reflects noncash stock compensation, deferred revenue movements, and strategic-investment gains.
- Cash requirements and potential dilution related to convertible-note conversions, particularly the 2025 Notes, as well as the scale and timing of vendor and lease commitments.
- Management’s path to profitability given continued investment, operating losses, and its stated expectation of no near-term profitability.
- Exposure to competition, cybersecurity and service outages, privacy regulation, foreign-exchange movements, and the uncertain continuing effects of COVID-19.