HubSpot, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The consolidated financial statements are unaudited. HubSpot provides a cloud-based CRM platform, primarily to mid-market businesses, through subscription products and related professional services.
Key financial metrics
Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $281.4 | $199.0 | +41% |
| Subscription revenue | $270.3 | $191.2 | +41% |
| Gross profit / margin | $226.6 / 80.5% | $160.7 / 80.8% | +41%; margin broadly stable |
| Operating loss | $(15.0) | $(14.1) | Loss widened |
| Net loss | $(23.2) | $(17.7) | Loss widened |
| Diluted net loss per share | $(0.50) | $(0.41) | — |
| Cash from operating activities | $62.7 | $23.0 | Increased |
- Operating expenses were $241.7 million, up from $174.8 million. Research and development rose 48% to $68.4 million; sales and marketing rose 38% to $141.0 million.
- Cash and cash equivalents were $397.5 million at quarter-end; short- and long-term investments totaled $888.3 million. Working capital was $886.0 million.
- Convertible notes had approximately $541.4 million in principal outstanding at March 31, 2021: $81.4 million of 2022 Notes and $460.0 million of 2025 Notes. Their combined balance-sheet carrying value was approximately $444.4 million. Operating lease liabilities totaled approximately $296.2 million.
- Operating cash flow included a $27.5 million increase in deferred revenue and $32.4 million of stock-based compensation. Investing cash outflow was $17.6 million and financing cash outflow was $21.8 million.
Material changes versus the prior-year quarter
- Customer count grew from 78,776 to 113,925. Management attributed subscription growth mainly to more customers, supported by increased sales capacity and demand for lower-priced Starter products.
- Average subscription revenue per customer decreased from $10,018 to $9,886, reflecting customer mix and Starter product purchases.
- Revenue growth outpaced cost of revenue, leaving gross margin near 81%. However, higher operating expenses contributed to a larger operating and net loss.
- International customers generated approximately 45% of revenue, compared with 42% a year earlier.
- Operating cash flow increased to $62.7 million from $23.0 million. The company also repaid $44.5 million of 2022 Notes principal during the quarter.
Outlook, commentary, risks and unusual items
- Management said it did not expect to be profitable in the near term and planned continued investment in sales and marketing, research and development, customer support, and data-center infrastructure. It believed cash, investments, and expected operating cash flows would cover working-capital and operating needs for the next 12 months.
- The filing provides no specific numerical revenue or earnings guidance. Management said the broader effects of COVID-19 remained uncertain, while reporting no material adverse financial impact to date and no material COVID-related adjustment to the quarter’s statements.
- Both note issues were conditionally convertible during Q2 2021 following the stock-price conversion triggers. As of April 30, holders had submitted conversion notices for about $12.7 million of 2022 Notes, expected to be cash-settled in Q2; no 2025 Notes conversions had been indicated.
- The February acquisition of The Hustle had a reported purchase price of $17.2 million net of cash acquired. It added approximately $17.0 million of goodwill. The acquisition also produced a non-recurring $1.0 million income-tax benefit from a partial valuation-allowance release.
- Management identified customer renewal and expansion, competition, execution of product development and growth, service availability, cybersecurity, privacy regulation, and COVID-19 impacts as significant risks. The company reported no material pending litigation and no material change in internal control over financial reporting; disclosure controls were deemed effective.
Important facts for investors to verify
- Whether customer growth and subscription revenue continue while average subscription revenue per customer declines.
- How much of operating cash flow reflects durable operating performance versus deferred revenue, working-capital movements, and non-cash compensation.
- Cash requirements and timing for note conversions or settlements, particularly the 2022 Notes, and the remaining debt and lease obligations.
- Whether continued investment and rising operating expenses translate into improved operating leverage and a path to profitability.
- The filing contains inconsistent figures in risk-factor narrative for Q1 net loss and accumulated deficit; the financial statements report net loss of $23.2 million and accumulated deficit of $506.3 million at March 31, 2021.