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spk07: Good day and thank you for standing by. Welcome to the HubSpot Q2 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Chuck McClashing, Head of Investor Relations for HubSpot. Thank you. Please go ahead, sir.
spk00: Thanks, operator. Good afternoon and welcome to HubSpot's second quarter 2021 earnings conference call. Today, we'll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Brian Halligan, our co-founder and newly named executive chairman, Dharmesh Shah, our co-founder and CTO, Yamini Rangan, our chief customer officer and newly named CEO, and Kate Bucher, our chief financial officer. Before we start, I'd like to draw your attention to the safe harbor statement included in today's press release. During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical fact are forward-looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures, expected growth, the leadership transitions, and business outlook, including our financial guidance for the third fiscal quarter and full year 2021. Forward-looking statements reflect our views only as of today, and, except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and our Form 10-Q, which will be filed with the SEC this afternoon for discussion of the risks and uncertainties that could cause actual results to differ materially from expectations. During the course of today's call, we'll refer to certain non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure user discussed And a reconciliation of the differences between such measures can be found within our second quarter 2021 earnings press release in the investor relations section of our website. Now, it's my pleasure to turn over the call to HubSpot's chief customer officer, soon to be chief executive officer, Yamini Rangan. Yamini?
spk09: Thanks, Chuck, and greetings, everyone. Thank you for joining us today as we review HubSpot's second quarter 2021 earnings results. I know you've likely seen the exciting news that Brian will be taking on the role of Executive Chairman as of September 7th. We're all looking forward to having Brian back in action and stronger than ever when he returns next month. Brian will be joining the call here in a few minutes to talk about this path forward in this new capacity, as well as to share some reflections on the 15 years that have led us to today's news and this quarter's fantastic results. Before we do that, I want to focus on the business at hand, the great results from last quarter. We continue to operate from a broad position of strength with Q2 revenue growth accelerating to 47% year over year in constant currency and total customers growing 40% year over year to over 121,000. We've seen multi-product adoption grow to over half of our total customers, a great indicator that more companies are realizing the advantage of managing their entire front office on one platform with one data model, one view of their customers, and one user interface that's easy to use. A key driver of this continued growth is digital transformation we're seeing as more companies have had to adapt to doing business online. This shift towards digitally powered customer experiences is one that HubSpot has been evangelizing for the past 15 years. So we've been well positioned to meet the moment. As consumers increasingly expect remarkable digital experiences at each step of their journey, scaling companies need a powerful CRM platform to tie it all together. This makes CRM not just a nice-to-have solution, but an indispensable driver of long-term growth for our customers. A key part of that digital experience is the company website. This is the digital front door. Traditional website content management systems are often siloed from other essential front office functions. They're complex to manage. They lack speed, security, and scalability that companies need to grow their business. That's why we launched CMS Hub Professional and Enterprise last year, and we are continuing to invest in the platform with CMS Hub Starter launched yesterday. CMS Hub Starter is built as part of our CRM platform to give companies seamless access to all of their customer data. Having a CRM powered website enables both marketeers and developers to efficiently work together to build remarkable digital experiences and maximize the revenue generating opportunity. As part of that launch, we also adjusted the pricing of our CMS Hub professional and enterprise tiers to reflect the increased value we are delivering to our customers through SEO enhancements, dynamic pages, site trees, and increased limits and capacity with even more advanced features in the roadmap. We're still in early stages of this launch, but we are confident that CMS Hub Starter will fill a painful gap for marketeers and developers that are looking to spend less time managing their system and more time driving growth. Another important function of digital-first transformation is revenue operations. Last quarter, I talked about the launch of Operations Hub, a new product designed to transform the role of operations professionals and empower them to become strategic drivers of revenue and growth. I'm excited to share that we are continuing to hear positive feedback from customers and partners and that Operations Hub has performed nicely ahead of our internal growth expectations over the past quarter and a half. DataSync, our robust new integration engine, has quickly become one of the most compelling and popular free tools, particularly among small customers, exemplifying how Operations Hub will drive adoption of our CRM platform. We're also seeing strong adoption of programmable automation among larger companies who are looking to take full advantage of their data and deliver personalized experiences to their customers. One of our top solutions partners had this to say about the feature. Programmable automation makes HubSpot significantly more flexible. We've used it to build even the most advanced business processes in HubSpot, from ERP integrations to data enrichment, commissions calculations to renewal communications. With programmable automation in Operations Hub, if you can dream it, you can automate it. Thanks to the team at Aptitude Aid for sharing the feedback. We're so glad that they're seeing value in Operations Hub. Both Operations Hub and CMS Hub Starter are great examples of our commitment to crafting our CRM platform in-house rather than cobbling it together through clunky acquisitions. That focus on delivering a consumer-grade UI matched with a scalable enterprise backend sets us apart from traditional CRM platforms and puts HubSpot in a strong position to achieve our goal of becoming the number one CRM platform for scaling companies. With that, I'll turn it over to Kate to give an overview of our fantastic financial results.
spk08: Thanks, Shamini. Let's turn to our second quarter financial results and our guidance for the third quarter and full year of 2021. Second quarter revenue grew 47% year over year in constant currency and 53% as reported. Q2 subscription revenue grew 53% year over year, while services and other revenue increased 44%, both on an as reported basis. We continued to see strong performance across all of our hubs, tiers, and geographies in Q2. Revenue retention continued to be very strong in the quarter, once again benefiting from healthy customer dollar retention levels. In addition, our net revenue retention continued to benefit from a diverse set of upgrade drivers with particular strengths from addition upgrades, cross-sell activity, and seat expansions. As of Q2, 58% of our customers are getting value out of two or more hubs as they adopt HubSpot as a platform. Domestic revenue grew 42% in Q2, while international revenue growth was 54% year-over-year in constant currency and 68% as reported. International revenue represented 46% of total revenue in Q2, up four points year-over-year. We added over 7,100 net customers in the quarter, bringing our total customer count to 121,000, up 40% year-over-year. average subscription revenue per customer grew 8% year over year to approximately $10,200 as we saw a positive mix shift toward our professional and enterprise tiers, coupled with strong install-based selling in the quarter. We expect our strong install-based selling and positive product mix shift to continue through the second half of 2021. As a result, we anticipate second half net customer additions to sustain around these levels as we continue to compare against the robust starter growth suite customer additions from 2020. And we expect high single digits year-over-year growth in ASRPC in Q3 and Q4. Deferred revenue as of the end of June was $362 million, a 50% increase year-over-year. Calculated billings was $334 million, growing 60% year-over-year in constant currency and 65% as reported. This acceleration in constant currency billings growth was driven by strong business performance in the quarter in addition to an easier overall comparison as a result of the challenging business environment in the second quarter of 2020. The remainder of my comments will refer to non-GAAP measures. Second quarter, Gross margin was 81%, down a little over one point year over year. Subscription gross margin was 84%, while services gross margin was negative 5%. Second quarter operating margin was 9%, relatively flat as compared to the same period a year ago. Operating margin in the quarter exceeded our expectations, primarily as a result of our strong revenue performance. At the end of the second quarter, we had just under 5,000 employees, up 32% year over year. Net income in the second quarter was $22 million or 43 cents for fully diluted share. CapEx, including capitalized software development costs, was $16 million or 5% of revenue in Q2. Free cash flow in the quarter was $26 million or 8% of revenue. We continue to expect CapEx as a percentage of revenue to be about 5% in 2021 and now expect free cash flow to be between 170 and $175 million with a seasonally strong free cash flow quarter in Q4. Finally, our cash and marketable securities totaled $1.3 billion at the end of June. And with that, let's dive into guidance for the third quarter and full year of 2021. For the third quarter, Total revenue is expected to be in the range of $325 to $327 million, up 43% year-over-year at the midpoint. Non-GAAP operating income is expected to be between $27 and $29 million. Non-GAAP diluted net income per share is expected to be between 42 and 44 cents. This assumes 50.6 million fully diluted shares outstanding. And for the full year of 2021, Total revenue is now expected to be in the range of $1.268 to $1.272 billion, up 44% year-over-year at the midpoint. Non-GAAP operating income is now expected to be between $107 and $109 million. Non-GAAP diluted net income per share is now expected to be between $1.67 and $1.69. This assumes 50.5 million fully diluted shares outstanding. As you adjust your models, keep in mind the following. At current spot rates, we're forecasting an FX tailwind to as-reported revenue of two points in Q3, a neutral impact to Q4, and a three-point tailwind for the full year. Lastly, I look forward to seeing many of you again for our Virtual Analyst Day as part of our Inbound 21 event on October 12. And with that, I'll hand things over to Brian for some closing thoughts.
spk06: Thanks, Kate. It's a true pleasure to be able to speak with all of you again. I'm so proud of the entire HubSpot team that have been absolutely cranking during my time away, and I'm so thankful for the work that Yamini, Dharmesh, Kate, and the rest of the leadership team have done in my absence. My sincere thanks to all of you. I also want to say a huge thank you to all of you for the well wishes over the past couple of months. The road to recovery has been a long one, but I'm feeling really, really good. My head is 100% back. My body, well, that needs a little more physical therapy, but I'm making great progress and should get back to 100% quite soon. Now, back in June, we celebrated our 15-year anniversary of HubSpot's founding. When I look back at the last 15 years, I'm super proud of what we've been able to accomplish. We built a truly mission-driven organization, designed this all for the customer, and actually helped millions of organizations grow better. This past year, we've hit some exciting milestones, like passing a billion dollars in ARR and 100,000 customers. These are just the start. HubSpot's still in the very early innings and has a lot more value to provide to our customers, partners, and employees. One of the keys to the amount of success we've had so far is we haven't been afraid to take inspiration from the Warren Buffett quote that goes something like, someone is sitting in the shade today because someone planted a seed several years ago. That's HubSpot in a nutshell. We've been willing to plant seeds like shifting from a marketing app to a front office suite, shifting from a front office suite to a front office platform, shifting to a premium model, and many, many others that are all paying off quite nicely for us today. Lots of shade going on. Now, over the last six months, I've been thinking a lot about how I can have the most impact on HubSpot moving forward. And moving to the executive chairman role feels like a natural fit. As an executive member of the board, I'll be able to lean into the things that excite me, like planting and nurturing more of these seeds that will turn into big, shady trees for years to come. My transition to executive chairman would not be possible if we weren't super confident in Yamini's ability to lead HubSpot. When we hired Yamini, we knew we were getting an incredible leader with an amazing track record of holding high-impact roles at SAP, Workday, and Dropbox, who would be able to align marketing, sales, and service teams and create a more cohesive experience for our customers. But what we've actually gotten is so much more than that. Since the day Yamini arrived, she's made HubSpot better. From reducing friction for our customers to leading the company with clarity and empathy through the pandemic, Yamini has proven she's ready to take on the role of CEO to help both HubSpot and our customers and partners grow better. And she's just a perfect complement to Dharmesh and me to write the next chapter. I want to close out. by once again thanking Yamini for her terrific leadership over the past six months and offering my heartfelt congratulations to her on this exciting milestone. Dharmesh and I have no doubt that she's the right person to lead HubSpot moving forward, and I'm super excited about the journey ahead. I want to thank all of you for your time. Now, speaking of Yamini, over to you.
spk09: Thank you so much, Brian, for your kind words and for your incredible support during my time here at HubSpot. I'm deeply humbled, grateful and super excited to take on this new role in partnership with you, Dharmesh and the entire HubSpot team. It was your visionary leadership as founders that got us here today and that leadership will continue to be invaluable as HubSpot grows. I'm excited to continue working together to build innovative products for our customers, create a remarkable culture for our employees, and ultimately make HubSpot the number one CRM platform for scaling companies. Operator, please open up the call for some questions.
spk07: As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Our first question is from Samad Samana from Jefferies. Your line is open.
spk14: Hi, good evening. Welcome back, Brian. 2Q really represents Spade, the great company you and Dharmesh have built all these years, and Yamini's strong leadership steering it recently. Congrats on the move to executive chairman. Really happy you're staying. And Yamini, congrats on your move to the COC full-time. I'd love to hear from both of you a little bit more about how you two will be dividing up the core responsibilities going forward and where each of you will be focusing your individual attention. And then Yamini, maybe for you, it's obviously early, but you've been at the helm now for six months. It would be great to hear maybe if you could give us some thoughts about HubSpot's vision and strategy going forward.
spk06: Samad, I will kick it off and hand it to Yamini, but it is great to hear your voice, my friend. Thank you very much for asking the first question here. I'll say I feel fantastic. My head is fully recovered from my accident. I'm thrilled to be back at HubSpot in this room with my friends and colleagues. It's just a terrific time for me. Now, when I get hurt, I have a lot of time on my hands. I spend a lot of time in a hospital bed looking at the ceiling. And I was thinking about, you know, what can I do? How can I add value to HubSpot in a bigger way going forward? I've been at this 15 years, and, you know, what's next for me? And I thought, this is a good time. I'm going to become an executive chairman, and Yamini is going to become CEO, and it's going to be a one plus one equals three combination. Yamini, I hired Yamini yesterday. She is the perfect fit for this job and for this phase of growth to take us to the next level. She's just the perfect fit. She's had my job for the last six months. You guys see the numbers are fantastic. She's done a masterful job. I'm very, very, very bullish on her. In terms of dividing up what we're going to work on, we've talked a lot about that, and I'll let Yamini weigh in on her side. What I'm sort of focused on – as Executive Chair is, first and foremost, I plan to be Executive Chair, active and engaged Executive Chair. And you probably heard me tell the bad joke that I used to say on these calls that, you know, if I ever leave HubSpot, they're going to have to take me out on a stretcher or a straitjacket. You might have to have a snow mule to that list. But my main role is to help Yamini do as best as she can and keep this thing rolling. I do feel like it's the very early innings of HubSpot. The second thing that I've always enjoyed doing and helped drive is plant food seeds that turn into big shady trees that we've all enjoyed over the years. The Aptosweet tree we planted several years ago is still the small tree. There's a lot more growth to go in the sweet. We're just now planting the sweet to platform seed that's going to go really well. It's top of the first inning on that seed. This premium model that's a bet on culture. These are seeds we planted a long, long time ago that have all paid off. And I like that type of work. And I like product and product vision. So that's kind of where I'm going to be focused and then just helping you out with it. I'll let you handle it.
spk09: Yeah, well, thank you, Brian. And I have to say I'm so humbled, grateful, and super excited to take this new role and write the next chapter of growth at HubSpot. I will say I'm particularly excited because I get to work with two brilliant people, Brian and Dharmesh, who have done this for 15 years, who have fantastic experience. The three of us share a lot in common, a growth mindset, just curiosity, focus on product innovation, focus on customer centricity. And I think the combination of their experience plus my focus on scaling customers is going to be powerful. Last question about the vision and strategy. Our vision is clear. Our vision is to help millions of organizations grow better, and we're just getting started in accomplishing that vision. Our strategy over the last six months and over the last couple of years, it's been working, it's clear, and it's not changing. And if I had to articulate the strategy, it's threefold. First off, we want to build a best-in-class CRM platform for scaling companies. And we'll do this by expanding into new hubs, like you saw us do with Operations Hub last quarter. And we'll do this by investing heavily into our existing hub, like you heard about the CMS Hub this quarter. We have just a long way to go, a lot more to do in terms of the product. The second part of our strategy is fueling all of our segments. Now, we focus on the 1 to 2,000 segment, and historically, we've been really good at the 20 to 200, and we have unparalleled product market fit there. We've been investing heavily in the lower end of the segment, 1 to 20. And we'll continue to invest in the $200,000 to $2,000, so we have just a great enterprise class of products with consumer-grade ease of use, and this is working. And finally, the third part of the strategy I'm very excited about is that we want to continue to build an organization that can scale. We care deeply about our employees, we care deeply about diversity, and we want HubSpot to be the place that's really the best place for people to work and serve our customers. So I am super excited to get started on this journey and write the next chapter of growth at HubSpot.
spk14: Great. Thank you both for that detailed answer. And, Kate, I know the big news was the transition, but it wouldn't be a HubSpot quarter if I didn't ask on the financials. Just that Billings number was very, very strong. I know there's an easy comp there, but even if I look against a very strong 1Q, Maybe could you just help us unpack if there is anything that changed in terms of either duration or was just, were there more larger customers in the quarter that leaned toward enterprise and took more seats than normal? Just help us understand the really good amount of strength there.
spk08: Yeah, sure thing, Samad. The only approach was notable, and notably strong in Q2. Actually, there's not much out of the ordinary here. There's not a lot of big changes in duration here. The biggest driver of the billing performance was the strong bookings growth that we had in the quarter. The one thing that I would point out, and you kind of got it in the question, is that there is a relatively easier compare for billings relative to revenue in constant currency. You might remember last year in Q2 we ran a number of short-term customer release plays. that had a bit of a negative impact on our Q2 2020 billings. And so billings have just, frankly, a little bit of an easier comp than revenue.
spk14: Great. Thank you. Brian, we'll miss you on the call, but congrats again, and look forward to seeing you at future inbounds.
spk06: Yeah, I'll see you actually pretty soon. I'll be at the investor day at inbounds, so we'll see you soon.
spk07: And our next question is from Mark Murphy from J.B. Morgan. Your line is open.
spk04: Yes, thank you very much, Brian. As much as I enjoy reading your tweets, it's so much better to hear your voice live. So great to hear from you, and congrats to both of you on all these tremendous milestones. Yomi, let me start with this. I think you've talked in the past about bringing high-end features down to big market companies. I'm just wondering which features maybe have driven the greatest traction recently in some of the enterprise editions, whether it be custom objects or account-based marketing or different channels that are emerging. Just anything else that you see which might be resonating in the results here?
spk09: Yeah, thanks a lot, Mark. Good to hear your voice and appreciate your wishes for both Brian and myself. I'd say that enterprise, all of the product investments that we have been making in enterprise is working. Our strategy is really to build products that fit every one of our segments and our upmarket segments from 200 to 2,000. That's been a focus area for us. Now, last year, We powered up Marketing Hub, and a lot of the features that we announced at the beginning of the year deeply resonated with our customers. And at Inbound, we launched Sales Hub Enterprise, as you know, and Custom Objects, huge hit. A lot of the CPQ advanced features that we added, huge hit. In Q1 of this year, we added Conversation Intelligence. Now, this is a category in and of itself. The fact that we added it to power a hub and is now a seamless part of our whole suite, that is resonating deeply within the market. So our strategy for continuing to build powerhouse features while maintaining the ease of use, that is consumer-grade, I think that is what is working. And broadly, if you look at the up market, you know, we're just getting a fair share of a fast and growing market, and we'll continue to invest both on products as well as go to market to continue fueling that.
spk06: One thing that we've seen from our – go ahead, just kind of adding on there – You know, we talked about custom objects, which has been really well received. We're continuing to pull on that thread. We have custom objects, flexible data associations, things that customers have been asking for. And the idea there is for a company to be able to model its entire business within HubSpot. So the more flexible database gets, the more data we can hold there, and the higher percentage of that 202,000 segment we can serve well.
spk04: Okay, thank you for that. I appreciate the additional comment. And Yama, just as a quick follow-up, it sounds like you're mostly focused on executing on the pre-existing roadmap and strategy. You know, you've been a big part of it. It's been performing amazingly well. I think, you know, kind of following on Samad's question, I'm just wondering, do you carry, you know, some unique philosophies or maybe just think the time is right to make any kinds of uh little tweaks for you know for instance the the focus up market versus down market or the optimal number of hubs right and talking about uh conversation intelligence or um you know how deep to push on the operations side uh any of those vectors where you have a little different view
spk09: That's a great question. I think it goes back to the earlier thoughts in terms of strategy. Our strategy is clear. We have a focus on having the best CRM suite in the market. That means we'll continue to invest in our existing hubs and we'll continue to make new investments in additional hubs. And there's plenty of ideas. uh mark we just came from our annual strategy off-site in june and we have in our collective heads product innovation for the next 15 years and uh the focus on horizon one horizon two and horizon three bets have worked really well for the company and My job is to work with Brian and Dharmesh to really empower that type of innovation going forward as we've done. I also think that our focus in terms of all of the segments, you know, we've fired off every portion of our segments. And the way I look at it is how do we continue to optimize where we are strong which is the 20 to 200 segment. But how do we continue to optimize the product leg motion at the bottom end as well as the upmarket motion through the investments that we have? And so that will continue to be the focus. And I'm super excited. I think we have the right leadership team in product. We have the right leadership team and execution-focused team in the go-to-market. And I'm really excited to work with all of us.
spk04: Excellent. Thank you.
spk07: And our next question is from Brad Sills from Bank of America Securities. Your line is open.
spk03: Oh, great. Thanks, guys, and congratulations, Yamini and Brian, on your new roles.
spk06: Well-deserved both. And, Brian, great to hear from you as well. Great to hear your voice again. One of the things that stuck out for me in the quarter was the ASP acceleration, and a lot could be driving that. Obviously, you're executing upmarket. You're seeing operations hub traction with some of the early results there. My question is, where is the incremental ASP growth coming from when you look across all the different levers that could be driving that? Just larger customers, more enterprise uptake and upsell, operations hub, multiple products. There's a lot in there. If you could just maybe even just stack ranks, what's been driving that acceleration at ASP? Thank you.
spk08: Yeah, maybe I'll take a shot at it. I think that it's sort of interesting to see where we had a really strong quarter, and that will tell you where you're seeing the real drivers of the ASRPC growth. The first thing I would say is around new business, our new additions were particularly strong in the professional and enterprise tiers, which tend to have a larger ASP. We had a really strong quarter selling into the install base, including a record quarter for nominal upgrade from starter into professional and enterprise tiers. And then you also saw the fueling of the cross-sell with the addition of the operations hub. And then I guess the final thing that I would highlight is just an expansion in the number of seats that we're seeing of our professional and enterprise customers on the sales side.
spk07: Thank you. Our next question is from Stan Slotsky from Morgan Stanley. Your line is open.
spk05: Perfect. Thank you so much, guys. And congratulations on the very exciting moves within the company. And, Brian, obviously great to hear your voice back on these calls. Quick question from my end. You mentioned the pricing changes that you guys made to some of the products. Could you walk through the spirit of the pricing changes? You know, why and what? And as far as, like, the pricing changes, is it fair to say that you're going to follow a similar strategy as in the past of grandfathering existing customers when the pricing changes are mainly for new customers? And then I have a quick follow-up.
spk09: Yeah, thanks a lot, Stan, for the question. In general, our pricing philosophy is twofold. What you will see us do is continue to bring high-value added features down to our premium and starter tiers. And what this ensures is that we manage disruption within our install base versus allowing competitors to disrupt us. The second part of the strategy is that it also ensures that we keep innovating and adding new features to our higher tiers, pro and enterprise. And so that's our broader pricing philosophy. It's worked really well for us. That's exactly what you saw us do with CMS. As we have added more features to Enterprise and Pro, we feel pretty comfortable that we are delivering a lot more value to our customers, and therefore, there's confidence in kind of increasing that price. And in terms of your second question on grandfathering, very similar to before, we'll, you know, first roll this out. This will impact all of the new customers, and then over a period of time, we'll wrap up.
spk05: Got it, got it. That's very helpful. And then the follow-up on net revenue retention, I know you guys don't really give it every quarter, but just maybe qualitatively, directionally, how did it do relative to the really outstanding results you guys put up in Q1?
spk08: Yeah, thanks. We saw another really strong quarter of both customer and all retention and net revenue retention. The story that we would tell you about retention in Q2 is basically the same story that I told you about retention in Q1. It starts with that foundation of customer dollar retention where we've seen really healthy trends there since the back half of 2020. And then again, similar to last quarter, there were a real diversity in terms of the upsell motions that are really driving the positive net revenue retention.
spk07: Thank you. Our next question is from Ken Wong from Guggenheim Securities. Your line is open.
spk13: Great. Thanks for taking my question and kind of congrats across the board from me as well. Building on Stan's question just on CMS Hub, so just thinking about that, kind of the new basic skew there. Is this intended to get the laggards over to adopt, or should we view this as potentially a way to open the funnel into the HubSpot franchise using CMS?
spk06: That's a great question, Tim. Thank you. So taking a step back, if we think about CMS and why we're in that business, So CMS is one of the things that makes HubSpot unique. There are no other leading CRM platforms that have a legit content management system as part of their overall platform offering. If you ask yourself, well, why is that? I think the reason is because it's really hard to build a CMS. It's different from everything else. It's like picking up trombones, which is like, okay, well, it's kind of hard. You have to use that slidey thing to kind of find it, and there's no keys or anything like that, so it's difficult. By the way, sizing is an official musical term, in case you're wondering. But if you have a marching band, you need a trombone. That's what kind of completes the thing. And so if you want a full CRM platform, you need a CMS. And the reason is it's not just about putting a website up there. It's about making the website a window into the backend data, into the CRM itself, and bringing the customer in. It's about forging that connection. So we're really excited about it. In terms of why would we launch a starter tier, it's basically exactly what you were alluding to. We think getting this kind of web experience up is the first step, often, in the digital journey. And we want customers to take that first step correctly. So we want to bring as many people onto the platform using CMS Starter Suite as we possibly can. And it kind of gets them onto the CRM platform from HubSpot and helps us kind of grow from there. So we're super excited about the opportunity to open that.
spk07: Thank you. Our next question is from Alex Zuckin from Wolf Research. Your line is open.
spk05: Hey, thanks, guys. Well, Brian, first, great to have you back.
spk04: Sad to see you go. Yamini, really excited to work with you.
spk01: Maybe just the first question for Yamini.
spk05: If you think about what you see in the pipeline, what you see in customer behaviors as we look out to the second half and into a new post-COVID world, can you kind of compare and contrast that with either what you saw in the first half and what you saw in the second half of last year for us?
spk06: Yeah, I'll start that. I'm actually not going anywhere. I'm going to be executive chairman and super active. And hopefully for a long, long time, I'm going to be very active in HubSpot and helping guys strategy and partnering with Dominique. So, You're not getting rid of me that easily, my friend.
spk09: I would echo that. You know, Brian's like super active, always challenging us, always inspiring us. So that's pretty good. We're glad to have him back in full force. So, Alex, a question in terms of demand environment comparing first half and second half. Our demand environment is solid, similar to what we saw in the last quarter. Now, if you step back, our product is really unique relative to competition. I'd say we have a very, very strong value proposition that is resonating in the market. And Brian talked about sowing seeds. I think we've done enough product investments in the past few years, and you're seeing all of that pay off. We not only have that product market fit, but we also have a go-to-market fit. And the combination of those two are really helping us drive really strong financial results. In terms of pipeline, I'd say that the digital-first and digital-ready, both of those trends are here to stay. We're not going back from here. We are clearly seeing our customers modernizing their CRM platform from website to marketing to sales and service. They're all focused on delivering a connected customer experience, and that's the kind of customer interest that we're seeing from a pipeline. And in July, at the very beginning of the quarter, we actually gave our entire global employee base a week of rest. And we did that, you know, it was a very important choice. We care about culture. We care about employees. We wanted them to rest, recharge, and come back with a full focus in second half. And that was the right thing to do. And I think I'm really feeling good about second half and looking forward to what we're going to do in the second half.
spk07: Thank you. Our next question is from Drew Foster from CD Group. Your line is open.
spk03: hey guys thanks for taking the questions um great to hear you're doing well brian and congrats to everyone else on their new roles um you know given everything that's been said about kind of the importance of digital channels not going away can we get an update on where net logo retention stands today and as you reflect over sort of a more protracted period maybe two or three years what are kind of the one or two things playing the the biggest role there is it a greater share of customers using more products and just general stickiness
spk08: um the category more broadly rising in strategic importance maybe just give an update and touch on drivers there thanks yeah um you know we'll probably talk in a lot more detail around retention in general at the upcoming analyst day but i would give you maybe a couple of points to take away customer dollar retention which is not the same as logo retention but is sort of the baseline of how we think about it internally is very strong and showed specific improvement through the back half of 2020 and sort of stayed at that new elevated level for the first and second quarter of this year. And I think it sounds kind of elementary, but the truth is that what we're seeing is that our customers are just using the product more. And as it turns out, that leads to higher retention. And we are, as a result, enjoying really healthy core retention levels.
spk07: Thank you. Our next question is from Terry Tillman from Service Securities. Your line is open.
spk04: Yeah, thank you. And, Brian, congrats and good luck on the next chapter.
spk06: But I think on one of the last questions, I think you said you're going to stay on these calls going forward. So I'm going to – that's my base case.
spk04: So we'll see you on the next call. And good to have you back. And congrats, Yamini, as well. I guess my question just relates to, you know, it was echoed a couple of times in terms of installed-based selling strength.
spk06: I think it was mentioned by Yamini maybe and Kate, if I'm not mistaken. What I'm curious about is, has there been some things you've done internally on a programmatic basis to kind of turn that dial more and or investments? And is this more, should we see more of this in the future where there's more of a structural shift where you're just getting a lot more from the install base selling each quarter? Thank you.
spk09: Terry, thank you for the wishes. I really appreciate it. I think in terms of the, install base like our existing customers uh now have a lot more products that that they can adopt right and in the past uh couple of quarters we have introduced operations hub we have improved the additions on a number of hubs and so there's a lot more product for them to adopt and i think that product has gotten much better so when our customers are on one hub and then they see the value of a seamless single data model, single interface of other hubs that naturally pulls them in. So the product investments are probably the first ones that I talked about. I think the second part of it is that we certainly from a go-to-market perspective have invested more heavily in our customer success team, working more closely with our sales team and That helps us connect the dots in terms of install base, and that's certainly been part of it. Now, going forward, I think we want to have a balanced approach. We continue to acquire a lot of new customers because of the strong value proposition that we deliver, and we continue to sell into the install base. So you'll see the balance of both of these across our future quarters.
spk07: Thank you. Our next question is from DJ Heinz from Canaccord. Your line is open.
spk05: Hey, guys. Congrats, everyone, on the new roles and the continued success. It's awesome to see. Just a go-to-market question on Operations Hub. Is the buyer there somebody that you're already talking to when you're selling marketing and sales, or is it somebody else in the organization that sits on top of those efforts? I'm just trying to think about you know, the ease of cross-sell and whether in most cases it's with somebody you already know and that's familiar with HubSpot?
spk09: That's a great question, DJ. That's a fantastic question. I will say the buyer for Operations Hub is a revenue ops persona. Now, I spent a better part of a couple of decades in CRM running these operations teams, and They're really the nerve centers of go-to-market functions. They're sometimes the unsung heroes, but they have a really critical role to play, which is providing the single source of truth about customers to the VP of sales, to the head of marketing, the head of customer success, that's the persona. And they've always been involved in a CRM purchase, and now we're providing them the flexibility and the power for them to deliver insights into the front office. And if you really step back on operations hub, it's a couple things. It really helps our customers connect their tech stacks. It helps our customers clean up the data. It helps our customers automate the processes. And These three challenges are traditionally the ones that revenue operations teams and all of our customers struggle with. And so it's really helping that critical persona be very, very successful. And we've seen a lot of traction, as I mentioned in my prepared remarks. We are seeing very positive feedback from our customers as well as partners. And programmable automation has been on fire, really good traction. A clean use case of that is lead routing. You want to do advanced lead routing. You are able to take all of the data from CRM, but also figure out who's the rep capacity, rep seniority, rep is on vacation, rep is on sabbatical, and use all of that information to now be able to automate your processes. And so Operations Hub provides flexibility, automates processes, and supercharges our CRM suite.
spk07: Thank you. Our next question is from Brian Peterson from Raymond James. Your line is open.
spk06: Thanks for taking the question. And Brian, it's great to hear your voice and glad to hear you well. And congrats to both you and Yamini on the new roles. So maybe just, maybe this is a higher level question for me. I'm curious, if we're looking at the pace of net new customer ads, I'm curious, how much does the platform in the breadth of functionality between different areas come up? I guess I would think that Post-COVID, people are looking to maybe consolidate vendors and think about simplification of a digital go-to-market model. Is that something that's coming up in a lot more conversations? And how do we think about that impacting win rates? Thank you.
spk09: Yeah, Brian, I'll address that and then have maybe Kate or Dharmesh jump in. You're exactly right. If you think about our customers, they're coming through this whole pandemic saying, one, I need to digitize my entire front office. And the starting point could be very different. The starting point could be a bunch of point solutions. It could be Greenfield. They're using something like a spreadsheet. Or they have a legacy system, and they're looking at providing an entire connected customer experience. And therefore, having an all-in-one solution resonates pretty deeply with them. And that's part of what we are enabling through the CRM Suite, and we definitely see that motion beginning to happen. And I think we'll continue to invest in CRM Suite. Now, the CRM Suite is very powerful. One of the things that for us works is that when you get CRM Suite in the hands of new customers or existing customers, they now see the power of the entire platform there is higher product usage therefore we get much better feedback on the product therefore we can improve the product and it's a nice little flywheel in terms of how we can drive the quality of our product even higher and so there's a lot of goodness and certainly that's what we're seeing in terms of trends from our customers yeah one thing i'll add is that you know the
spk06: As you would expect, we see thousands of companies that want to make that digital transformation be digital first. But that kind of path to digital transformation is often paid with good intentions but really terrible IT implementations. It's so complicated because they have all these databases, multiple systems. So this kind of value proposition that HubSpot brings, which is we can simplify that. We can bring it all together into one operating system, one platform, one database, one experience, one company to call, is a very compelling value proposition because most of these mid-market companies
spk07: are dealing with that complexity as they scale and we help with that it's resonating really well thank you our next question is from parker lane from stifle your line is open
spk12: Yeah, hi, thanks for taking my question. You've done a tremendous job in the last few years of really making the platform applicable to customers of all sizes, with the starter and enterprise editions of all your tools. I was just wondering if you could talk about the multi-product adoption across those different tiers. Is it mostly weighted towards the enterprise customers that are using multiple HubSpot products? Are you seeing a lot of traction as well, to the point you were just making? at the starter level as well as getting them in the door and attaching some newer solutions around the initial land. Thanks.
spk08: Maybe I'll start with some numbers and pass it on to Yamini for a little bit more color and context. You know, we've talked about this for a number of quarters. The growth in our multi-product adoption, so customers who use two or more of our products, has been on this sort of steady trajectory up for a number of years now. And that has happened across all of the tiers from the enterprise to the starter. We did see a bit of a step function inflection last year. spring when we introduced the starter growth suite at that really simple $50 price point, easy to buy. And so we see a lot of uptake at that starter level of just the full set of HubSpot products. As I shared in my prepared remarks, we're at 58% of our customers who are using more than one HubSpot product. And when you look at that, new customers are probably 50-50 now, adopting multiple HubSpot products.
spk09: Yeah, I think to add to the commentary that Kate provided, I think if you step back, we saw something really important you know, having all of these products, which is we take a very crafted approach to CRM. It is not cobbled together through acquisitions. And if you step back and think about the single biggest challenge for customers, they're putting together very complex tech stacks and they're spending a lot of time on integration. They spend a lot of time on developers, you know, spend a lot of resources there. And yes, the customer experience their end customer experience is not great for that and therefore for us are you know the focus on multi-hub is to provide one data model a single view of the customer a simple interface that's easy to use that is crafted and not cobbled together and i think that's what our customers like and that's what is resonating with the market
spk07: Thank you. Our next question is from Ryan McDonald from Needham & Company. Your line is open.
spk06: Hello, this is Alex Naram on for Ryan. Congratulations on a strong quarter. I was hoping just to get a little bit of additional information on the strength in the international.
spk09: Yeah, Brian, thank you for that question. We saw very consistent growth both in North America and both at international. As we mentioned, international has been growing really well, I think year over year, a few points up from last year. If you step back on international, the market there and digital transformation is an earlier stage. A lot of the customers in international markets are looking at being digital-first, digital-ready, and really it's in earlier stages, which means there's an even bigger opportunity for us. I think the second part is that we've been investing steadily in a lot of the international markets from product localization in terms of content for lead management, in terms of customer-facing resources and even brand, and those investments are paying off. Our LTV2CAC is really solid in these markets, and so we'll continue to invest in international markets. I think the exact important part of it is that North America is a really big market, and that's doing well, too. I think we're seeing very balanced, consistent growth across all of the markets that we operate in, so very pleased about that.
spk07: Thank you. Our next question is from Citi Panigrahi from Missoula. Your line is open.
spk01: Hi, everybody. It's Matt Simon on for Citi. One quick question from me. Is there anything to be called out for the linearity of bookings this quarter? Your tone certainly suggests that there's some incremental conviction in the second half. I'm curious if something happened in the quarter that might have catalyzed that that may not have been asked more directly.
spk08: No, there's nothing that I would share around linear ebooking.
spk07: Thank you. Our next question is from Michael Turin from Wells Fargo. Your line is open.
spk12: Hey there. Thanks.
spk06: Good afternoon. Yamini, congrats on the promotion. I hope regardless you're planning to keep the hold music for earnings calls the same. I mean, I go to sleep, but it's much more pleasant with the jam music than the classical, so I certainly appreciate it. I mean, there have been some questions on it, but the average revenue per customer metric certainly stands out, as do comments on just expectations that trend can hold for the rest of the year. Can we just go back to that? I'm wondering if some of that's just tied to this being the other side of the strong customer ad strength we've seen over the past year and then just how much the new hubs and what you're doing with bundling also just helping out there. Thank you.
spk08: Yeah, I mean, I think you've got it in terms of the underlying theme. You know, we've talked about this in the past. There is a lot of quarter-over-quarter variability in those KPI metrics in particular, the customer additions and the ASRPCs. And what we saw this quarter was strong professional and enterprise trends, strong install-based selling trends. And as a result, what you're seeing is that ASRPC is up nicely year over year. And frankly, if you stripped out the starter and looked at ASRPC, it's up even more. And so we don't guide, as you know, to our KPI metrics. And frankly, we don't guide because that's not how we manage the business. And so I shared some commentary around back half in the prepared remarks around the expectations. We think that we should see net customer ads for the back half of the year in and around what we saw in Q2. And with that would come an ASRPC growth in those high single digits.
spk07: Thank you. Our next question is from Michael Turek from KeyBank Capital Markets. Your line is open.
spk11: Hey, guys. Of course, congrats to Brian and Yamini. Kate, just briefly, you mentioned it, but on the strength in the pro and enterprise edition, for new customers. Anything in particular drive that? Because obviously it's one thing to have added a starter a while ago at a lower price and have driven new customers. But to see that strength in the pro and enterprise for new customers is impressive. How did you get that?
spk08: Yeah, thanks. I mean, it's not a new thing for Q2. We talked about it last quarter as well. We had really strong new customer additions in pro and enterprise in Q1 and in Q2. And I think for all of the reasons that Yamini has talked about throughout the call.
spk07: Thank you. Our next question is from Glenn Brinksland from Piper Sandler. Your line is open.
spk10: Thank you. And Yamini, congrats on the promo. Brian, not only is it great to hear you're healthy, but also great to hear you're planning to remain active with the Butter team here. Again, wanted to go back to the durability of growth here. We've been trained here over the last four years not to think of ASRPC as a driver to growth. In fact, it's been a slight drag to growth over the last four years. This quarter, five-year high at 8%. It's emerged as an incremental growth lever to the business. My question is, are we entering a new period where we could see both strong new customer additions and this revenue expansion, ASRPC expansion as an incremental lever to growth, or is it too early to really weigh in on that? I get that you have some easy comparisons here, but it does feel like we are entering a new period here where this could be a nice incremental lever to growth as well.
spk08: Yeah, I guess what I would tell you is, and we've been talking about this over the last three quarters, is that we have seen really nice customer additions and quarter-over-quarter expansion of ASRPC. I think this quarter marks a little bit of a different milestone where we're seeing a real increase on a year-over-year basis as well. I think, you know, what you would be surprised if I declared something here. What I'm going to tell you is that we expect that we will continue to see variability quarter in and quarter out of ASRPC and new customer ads. And that's going to come as we innovate at the high end, innovate at the low end, you know, introduce new products. And so, you know, I think I shared our expectations for the back half of this year, but I don't think we are at a point where we would declare sort of a long-term trend at this point.
spk07: Thank you. Our next question is from Kirk Maturin from Evercore. Your line is open.
spk02: Thanks very much, and I'll echo the congrats to both Brian and Yamini. Yamini, maybe just on the pro and enterprise side of the business, seeing such good traction, I was just wondering how you think about the evolution of sort of your partner platform as you start talking to more of these customers that have maybe more bespoke needs? Are there things you're thinking about in terms of trying to leave various features for your partners to develop? Or are you thinking about sort of focusing on partners that might have more vertical expertise in certain areas where you're seeing trends? I guess just at a high level, how are you thinking about sort of the evolution of the partner ecosystem? Thanks.
spk06: Sure. So this is Dharmesh. You know, when we think of the ecosystem, there's actually multiple parts to it. There's the app platform or the app ecosystem where there's software companies building integrations and extending HubSpot. And there's the solutions partner ecosystem, which basically helps us service HubSpot and then bring it to different markets. Now, let's Yamini speak to the solutions partner side. On the app platform, we've seen great traction, more and more companies building and extending HubSpot and using our APIs. And the thing we love about that is that it really kind of spins the flywheel. The more of those applications we get, the more of our customer problem we solve. We've seen a strong correlation between the number of apps someone uses and their retention rates, and that's awesome. And the more apps we have, the more customers we get. So those things kind of feed each other and kind of fuel the flywheel. So the app platform itself is going really well, and I'll let Yami speak to the Solutions Partner Program.
spk09: YAMI NELSON- I think that's a really good commentary on the app side. I think on the solution partner side, we are diversifying our entire ecosystem. I mean, and our partners are continuing to, you know, go there in terms of CRM implementations, integrations, much more complex implementations, and we are really focused on this. Earlier this year, at Partner Kickoff, we went to our partners and we said, look, we want to scale with you. So the strategy has been scale with partners, which means we will sell more with partners and enable our partners to service our customers, and that's good for our customers, and that's good for partners, and therefore it's good for HubSpot. And in terms of the investments with our solution partner ecosystem, We'll continue to work on improved incentives. We have been investing pretty heavily on enabling our partners so they can go to market with us when we do product launches, and that's beginning to work. And we'll continue to invest in scaling services through the partners. And so we definitely see them as part of scaling HubSpot, and they play a critical role.
spk07: there are no further questions. I will now turn the call back over to Brian Halligan, Executive Chairman, for closing remarks.
spk06: Thanks, everyone, for joining and look forward to seeing you at the virtual analyst day in InMount.
spk07: Thank you, presenters. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.
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