HubSpot (HUBS) Beats On Q1 Earnings & Revenues, Ups '19 View

HubSpot, Inc. (NYSE:HUBS) delivered first-quarter 2019 non-GAAP earnings of 36 cents per share which soared 140% from the year-ago quarter. The figure also beat the Zacks Consensus Estimate by 44%.

Revenues of $151.8 million comfortably surpassed the Zacks Consensus Estimate of $148 million and surged 32.5% (35% on a constant currency basis) year over year The figure was also higher than management’s guided range of $146.5-$147.5 million.

Year-over-year growth in revenues can primarily be attributed to growing customer base, which surged 35% to 60,814. Moreover, higher Subscription and Professional services revenues positively impacted the reported quarter’s revenues.

Coming to price performance, shares of HubSpot have returned 44.7% year to date, substantially outperforming the industry’s rally of 28%.

Quarter in Detail

Subscription revenues (95% of the total revenues) increased 32.8% from the year-ago quarter to $144.2 million. Professional services and other revenues (almost 5%) were up 27.2% year over year to $7.6 million.

Total average subscription revenue per customer decreased 2% year over year to $9,811.

Deferred revenues (including current portion) grew 28% year over year to $193.5 million. Meanwhile, calculated billings, defined as revenues plus the change in deferred revenues came in at $160 million, surging 27% year over year (up 31% at cc). Management noted that unfavorable currency movements limited growth.

International revenues advanced 42% from the year-ago quarter (50% at cc), representing 39% of total revenues in the reported quarter.

Margin Highlights

Non-GAAP gross margin during the reported quarter came in at 82%, expanding 60 bps from the year-ago quarter. Non-GAAP subscription margin of 86.2% contracted 10 bps on a year-over-year basis.

Non-GAAP Research and development (R&D) expenses as a percentage of revenues expanded 40 bps to 18.5%. Meanwhile, non-GAAP Sales and marketing (S&M) and General and administrative (G&A) expenses contracted 240 bps and 80 bps to 44.2% and 10.9%, respectively, on a year-over-year basis.

The company reported non-GAAP operating income of $13 million, soaring 133.2% from the year-ago figure of $5.6 million. Non-GAAP operating margin expanded 370 bps on a year-over-year basis to come in at 8.6%.

Balance Sheet & Cash Flow

HubSpot ended the first quarter with cash and cash equivalents and short-term investments of $969.1 million up from $592.3 million recorded at the end of the previous quarter. Management attributed the increase to proceeds worth $343 million received from buyback of approximately 2.15 million shares concluded in February.

Cash flow from operations during the reported quarter came in at $37.7 million compared with $33.1 million reported in fourth quarter.

Free cash flow came in at $30.6 million compared with the previous quarter’s figure of $25.1 million.

Impressive Guidance

HubSpot forecasts revenues in the range of $156.5 million to $157.5 million for the second quarter of fiscal 2019. The Zacks Consensus Estimate is currently pegged at $155.9 million.

Management expects non-GAAP operating income in the band of $9.2-$10.2 million for the second quarter.

Moreover, HubSpot anticipates non-GAAP net income per share to be in the range of 24-26 cents. The Zacks Consensus Estimate is currently pegged at 23 cents.

Updated 2019 Outlook Holds Promise

For full-year 2019, HubSpot raised guidance. The company now expects revenues in the range of $655.5-$658.5 million up from previously guided range of $648-$652 million. The Zacks Consensus Estimate is currently pegged at $651.77 million.

Non-GAAP operating income is now projected in the range of $50-$52 million (prior guidance was in the range of $46-$50 million).

Non-GAAP net income per share is now anticipated to be in the range of $1.26-$1.30 (previously $1.08-$1.16). The Zacks Consensus Estimate is currently pegged at $1.15.

Conclusion

We believe portfolio expansion and collaborations bode well. The company is optimistic regarding the adoption of Marketing Hub Starter. Moreover, integration of its various in-house offerings is likely to improve subscription levels going ahead, consequently bolstering the top line.

Zacks Rank & Stocks to Consider

HubSpot carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the broader sector, include Ciena Corp. (NYSE:CIEN) , Cirrus Logic, Inc. (NASDAQ:CRUS) and Synopsys, Inc. (NASDAQ:SNPS) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Ciena, Cirrus Logic and Synopsys is pegged at 16.8%, 15% and 10%, respectively.

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