Summary
HubSpot reported second quarter fiscal 2023 revenue of $529.1 million, up 25% from $421.8 million in the prior-year quarter. Year to date revenue reached $1.03 billion, up 26.1% from $817.4 million. Gross profit was $441.9 million, up 28.9%, and gross margin improved to 83.5% from 81.3%. Management credited hosting cost efficiencies from infrastructure optimization for the margin gain.
Profitability moved the other way. GAAP operating loss widened to $118.5 million from $52.3 million, and GAAP operating margin fell to (22.4%) from (12.4%). GAAP net loss was $118.9 million, or $2.39 per diluted share, against $56.4 million, or $1.18 per diluted share, a year earlier. Restructuring charges tied to the plan authorized in January 2023 and a heavy stock-based compensation load explain most of the swing. On a non-GAAP basis, which excludes those items, operating income was $74.2 million and the non-GAAP operating margin was 14.0%, up from 7.0%. Non-GAAP net income was $70.0 million, or $1.34 per diluted share, compared with $22.4 million, or $0.44 per diluted share.
Cash generation was the strongest part of the release. Operating cash flow was $76.5 million for the quarter, up 87.1% from $40.9 million, and $157.6 million for the first six months, up 28.0%. Free cash flow, a separate measure that subtracts purchases of property and equipment and capitalized software development costs, was $59.6 million versus $22.4 million. Capital expenditures were $10.9 million in the quarter, up 30.6%, and $14.2 million year to date, down 22.3%.
Backlog and customer metrics kept growing. Deferred revenue was $585.9 million, up 24.8% from a year earlier, and remaining performance obligations were $671.9 million, up 58.6%. Customers totaled 184,924 at June 30, 2023, up 23%, while average subscription revenue per customer was $11,432, up 2%. Headcount was 7,136 full-time employees, up 1%. The customer growth came mostly from lower-priced Starter products, which also held back average revenue per customer, and foreign currency translation weighed on that metric as well.
Guidance for the third quarter of 2023 sets non-GAAP operating income at $67.0 million to $69.0 million and non-GAAP net income per share at $1.22 to $1.24 on roughly 52.6 million diluted shares. Favorable foreign exchange is expected to be a one to two point tailwind to third quarter growth. For the full year 2023, non-GAAP operating income is guided to $293.0 million to $297.0 million and non-GAAP net income per share to $5.24 to $5.29 on about 52.3 million diluted shares, with foreign exchange a 50 basis point tailwind to full year growth.
Management described a still challenging macroeconomic environment. The risk list includes a history of losses, the ability to retain existing customers and add new ones, competition, differentiating on artificial intelligence and machine learning, regulatory developments on AI, geopolitical conflicts, inflation, foreign currency movement, and macroeconomic instability. Restructuring will keep consuming cash: HubSpot expects $20 million to $24 million of incremental charges over the next four years plus roughly $61.0 million of fixed rent payments on abandoned facilities. The company also said it does not expect to be profitable in the near term.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $529.1M | $501.6M | +5.5% | $421.8M | +25.5% |
| Gross profit | $441.9M | $419.6M | +5.3% | $342.8M | +28.9% |
| Gross margin | 83.5% | 83.6% | -0.1 pp | 81.3% | +2.2 pp |
| Research & development | $170.0M | $127.7M | +33.1% | $118.9M | +42.9% |
| Sales & marketing | $265.3M | $250.7M | +5.8% | $224.3M | +18.3% |
| General & administrative | $61.2M | $57.4M | +6.6% | $51.9M | +18.0% |
| Total operating expenses | $560.4M | $464.3M | +20.7% | $395.1M | +41.8% |
| Operating income (loss) | -$118.5M | -$44.8M | -164.7% | -$52.3M | -126.8% |
| Operating margin | -22.4% | -8.9% | -13.5 pp | -12.4% | -10.0 pp |
| Net income (loss) | -$118.9M | -$38.3M | -210.7% | -$56.4M | -111.0% |
| Net margin | -22.5% | -7.6% | -14.9 pp | -13.4% | -9.1 pp |
| Diluted EPS | -$2.39 | -$0.78 | -$1.61 | -$1.18 | -$1.21 |
| Customers | 184,924 | 177,298 | +4.3% | 150,865 | +22.6% |
Risks
The January 2023 Restructuring Plan cut about 7% of the workforce and consolidated leases. Restructuring charges were $63.9 million in the three months ended June 30, 2023 and $92.5 million in the six months ended June 30, 2023, primarily facilities costs for lease terminations and abandonments. The filing warns the plan may not reduce operating costs or improve margins as expected, may cause additional attrition, and may disrupt operations.
The filing materially expands AI risk, noting generative AI may require additional investment in proprietary datasets, machine learning models, and systems to test for accuracy and bias, plus new processes for content creator attribution or remuneration. It also warns competitors may use AI to render existing or future products less competitive or obsolete, and that AI computing costs may increase the cost profile of offerings.
MD&A states rising inflation and foreign exchange fluctuations have had, and may continue to have, an adverse impact on financial condition and operating results. Risk factors cite reduced customer spending, delayed purchasing decisions, extended billing terms, pricing discounts, higher interest rates, and recession risk as pressures that could limit growth and harm operating results.
The risk factors state that recent cybersecurity incidents and compromises affecting large institutions, including an incident that affected the company, suggest the risk of such events is significant. They also flag supply chain attacks such as SolarWinds, Log4j, and Kaseya, and note that a breach could lead to liability, remediation costs, and harm to competitive position.
The 2025 Notes are convertible at the option of holders during the calendar quarter ending September 30, 2023 because the stock price condition was met. If holders elect to convert, the company may be required to settle a portion or all of the obligation in cash, which could adversely affect liquidity, and the company could be required to reclassify outstanding principal as a current liability, materially reducing net working capital.
The Restructuring Plan's approximately 7% workforce reduction may negatively impact the ability to attract, integrate, retain, and motivate highly qualified employees and may harm reputation with current or prospective employees. The filing also cites a competitive hiring environment in the Greater Boston area and increased competition for remote talent worldwide.
Substantially all customer subscriptions are one year or less, and customers may renew for lower subscription tiers, fewer contacts or seats, or shorter contract lengths. The filing also notes deferred revenue is not recorded beyond amounts invoiced, so a decline in new or renewed subscriptions may not be immediately reflected in reported financial results but could reduce revenue in future quarters.
The company faces exposure to the Euro, British Pound Sterling, Australian Dollar, Singapore Dollar, Japanese Yen, Colombian Peso, and Canadian Dollar. MD&A states that growth in Average Subscription Revenue per Customer was partly offset by foreign currency translation, primarily from the decline in the value of the Euro and British Pound Sterling relative to the U.S. Dollar.
SaaS KPIs
All quarters →Average Subscription Revenue Per Customer
Non-GAAP Operating Margin
Non-GAAP Subscription Margin
Customers
Free cash flow
Non-GAAP Operating Cash Flow
Summary, forecast, risks and KPIs are extracted from HUBSPOT INC's SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.