Summary
HubSpot's third quarter of fiscal 2022, ended September 30, 2022, delivered revenue of $443.96 million, up 30.9% from the prior-year quarter. Gross profit rose to $361.83 million, up 34.2%. Gross margin expanded to 81.5%, up from the prior-year quarter. The top line kept growing at a healthy clip, but the bottom line moved the other way. GAAP operating loss widened to $32.21 million. GAAP net loss widened to $31.41 million. Diluted EPS was negative $0.65, a wider loss than the prior-year quarter. Operating margin fell to negative 7.3%.
The company continued to add customers and expand average spend. Customers reached 158,905 at September 30, 2022, up 24% from September 30, 2021. Average Subscription Revenue Per Customer was $11,233 in the quarter, up 7% from the prior-year quarter. Management said growth in customers came mostly from increased demand for lower priced Starter products. Higher demand for Professional and Enterprise products lifted average subscription revenue per customer, though purchases of Starter products and foreign currency translation, mainly the weaker Euro and British Pound Sterling, worked against that metric.
Cash generation remained positive. Operating cash flow was $60.06 million in the quarter, up 40.8% from the prior-year quarter. Capital expenditures were $13.11 million, up 97.1% from the prior-year quarter. Free cash flow, a non-GAAP measure, was $35.5 million, down from $38.2 million in the prior-year quarter. Deferred revenue, current portion only, was $468.54 million, up 25.8% from the prior-year quarter. Remaining performance obligations were $465.00 million, up 41.0% from the prior-year quarter. Management cautioned that changes in deferred revenue are not an accurate indicator of future revenue because billing terms can vary.
Guidance points to continued growth but with a sizable foreign exchange drag. For the fourth quarter of 2022, HubSpot guided total revenue with unfavorable foreign exchange rates expected to be a 9 point headwind to fourth quarter 2022 revenue growth. Non-GAAP operating income is expected to be $47 million to $49 million. Non-GAAP net income per common share is expected to be $0.82 to $0.84. For full year 2022, foreign exchange is expected to be a 6 point headwind to full year 2022 revenue growth. Full year non-GAAP operating income is expected to be $152 million to $154 million. Full year non-GAAP net income per common share is expected to be $2.48 to $2.50.
Risks remain familiar and material. HubSpot has a history of losses and expects not to be profitable in the near term. The company faces competition from other marketing, sales, customer service, operations, and content management software providers. It must retain existing customers and add new ones, manage growth effectively, maintain and expand Solutions Partner relationships, and recruit and retain highly qualified personnel. Macroeconomic conditions add pressure. Management called out geopolitical conflicts, inflation, foreign currency movement, macroeconomic instability, recession risks, interest rates, and the COVID-19 pandemic as factors that could affect the business, the broader economy, and the company's ability to forecast future financial performance. The quarter showed solid demand and cash flow, but the widening GAAP losses and foreign exchange headwinds are clear watch items.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $444.0M | $421.8M | +5.3% | $339.2M | +30.9% |
| Gross profit | $361.8M | $342.8M | +5.5% | $269.6M | +34.2% |
| Gross margin | 81.5% | 81.3% | +0.2 pp | 79.5% | +2.0 pp |
| Research & development | $114.0M | $118.9M | -4.1% | $78.5M | +45.3% |
| Sales & marketing | $229.5M | $224.3M | +2.4% | $170.0M | +35.0% |
| General & administrative | $50.5M | $51.9M | -2.8% | $36.0M | +40.1% |
| Total operating expenses | $394.0M | $395.1M | -0.3% | $284.5M | +38.5% |
| Operating income (loss) | -$32.2M | -$52.3M | +38.3% | -$14.9M | -115.8% |
| Operating margin | -7.3% | -12.4% | +5.1 pp | -4.4% | -2.9 pp |
| Net income (loss) | -$31.4M | -$56.4M | +44.3% | -$13.7M | -128.7% |
| Net margin | -7.1% | -13.4% | +6.3 pp | -4.0% | -3.0 pp |
| Diluted EPS | -$0.65 | -$1.18 | +$0.53 | — | — |
| Customers | 158,905 | 150,865 | +5.3% | 120 | +132320.8% |
Risks
MD&A states U.S. inflation rates have increased to levels not seen in several decades and may result in decreased demand, higher operating and labor costs, and reduced profit margins. The filing also notes the current economic downturn may lead customers to reduce spending, delay purchasing decisions, or seek pricing discounts and extended billing terms.
Risk factors emphasize rapid headcount growth to 7,409 full-time employees as of September 30, 2022 from 5,895 as of December 31, 2021, which strains management and infrastructure and makes preserving company culture harder under the hybrid workplace model. MD&A reports employee-related costs increased across research and development, sales and marketing, and general and administrative functions.
Substantially all subscriptions are one year or less, and customers may renew for lower subscription tiers, fewer contacts or seats, or shorter contract lengths. MD&A notes customer growth was primarily driven by increased demand for lower priced Starter products, which could pressure average revenue per customer.
Rapid growth and organizational change strain management, administrative, operational, and financial infrastructure. MD&A shows operating expenses increased in FY2022 Q3 vs FY2021 Q3: research and development up 45%, sales and marketing up 35%, and general and administrative up 40%, while operating loss widened to $32.2 million from $14.9 million.
Company has a history of losses and may not achieve profitability in the near term. Net loss widened to $31.4 million in FY2022 Q3 from $13.7 million in FY2021 Q3, and accumulated deficit was $626.7 million as of September 30, 2022.
Risk factors highlight increasingly sophisticated cyber-attacks, ransomware, business email compromises, and supply chain attacks such as SolarWinds, Log4j, and Kaseya. The company stores customer and end-user data and provides extensive database access to its development team, and the Russia-Ukraine conflict may heighten retaliatory cyber-attack risk.
MD&A attributes part of the offset to Average Subscription Revenue per Customer growth to foreign currency translation, primarily the decline in the value of the Euro and British Pound Sterling relative to the U.S. Dollar. Other expense includes increased foreign currency transaction losses, and revenue growth may be adversely affected by FX in future periods.
Risk factors state the market is highly competitive and fragmented, and competitors may bundle marketing, sales, customer service, and content management software at little or no additional cost. If HubSpot cannot maintain pricing due to competitive pressures, margins will be reduced and operating results negatively affected.
Company has $460.0 million aggregate principal amount of 0.375% convertible senior notes due June 1, 2025. The conditional conversion feature, if triggered, could require cash settlement or reclassification of the notes as a current liability, reducing net working capital.
Comprehensive state privacy laws, including the CPRA effective January 1, 2023, CDPA, CPA, UCPA, and CTDPA, plus a proposed federal American Data Privacy and Protection Act, add compliance costs and may require changes to data collection or processing practices. Failure to comply could lead to fines, penalties, litigation, and adverse publicity.
Expansion outside the United States exposes HubSpot to regulatory, tax, labor, currency, and geopolitical risks, including the conflict between Russia and Ukraine. MD&A notes $111.2 million of cash and cash equivalents was held in accounts outside the United States at September 30, 2022.
Majority of platform functions are served from third-party data centers operated by Amazon Web Services in northern Virginia and Frankfurt, Google Cloud Platform in Frankfurt, and Rackspace in Dallas with a backup in Chicago. Interruptions or delays from these providers could impair platform delivery and reduce revenue.
Stock price has ranged from $25.79 to $866.00 through September 30, 2022, and may fluctuate due to revenue results, analyst estimates, macro conditions, and other factors. Past stockholder securities class action litigation following market volatility could subject the company to substantial costs.
Federal Reserve has raised and may again raise interest rates in response to inflation, which could increase borrowing costs and adversely impact the fair market value of securities in the company's investment portfolio. A sharp rise in rates could pose market liquidity and credit concerns.
SaaS KPIs
All quarters →Average Subscription Revenue Per Customer
Non-GAAP Operating Margin
Free cash flow
Total Customers
Summary, forecast, risks and KPIs are extracted from HUBSPOT INC's SEC filings for Q3 FY2022 (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.