HubSpot, Inc.

Good afternoon, and thank you for attending today's HubSpot Q4 and fiscal year 2022 earnings conference call. My name is Don Yeo, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. It is now my pleasure to hand the conference over to our host, Chuck McGlashy, Head of Investor Relations. Chuck, the floor is yours.

Thanks, operator. Good afternoon and welcome to HubSpot's fourth quarter and fiscal year 2022 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 Yamini Rangan, our Chief Executive Officer, Dharmesh Shah, our co-founder and CTO, 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, the expected impact of the restructuring, expected growth, FX movement, and business outlook, including our financial guidance for the first fiscal quarter and full year 2023. Forward-looking statements reflect our views only as of today and, as 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 in our Form 10-K, which will be filed with the SEC this afternoon for discussion of the risks and uncertainties that could cause 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 used or discussed in reconciliation of the differences between such measures can be found within our fourth quarter and fiscal year 2022 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 Executive Officer, Yamini Rangan. Yamini?

Thank you, Chuck, and welcome to everyone joining us on the call. Today, I want to focus on our Q4 results, reflect on 2022, and share our strategy for driving profitable growth going forward. Before we get started, I want to acknowledge the restructuring announcement we just made two weeks ago, where we decided to part ways with approximately 500 HubSpotters. This was the most difficult decision in HubSpot's history. and not one we took lightly, but one we believe is in the best interest of the company over the long term. I'll talk further about the rationale and the impact in a few minutes. Now onto our results. Q4 revenue grew 35% year over year in constant currency, and full year 2022 revenue grew 39% in constant currency. Our operating profit margin was 14% in Q4, and 10% for the full year. Total customers grew 24% to over 167,000 globally. Our bimodal strategy is clearly working. We saw strong net customer ads of 8,400 in Q4, driven by a strong quarter of free CRM signups, CMS Hub Free, which continues to open up our distribution channels, and the Starter Suite, which is delivering more value through better automation. At the same time, we also have momentum up market where we are delivering clear value for larger customers. In fact, large deals were the fastest growing area of our business in Q4. These results demonstrate that HubSpot's connected, easy to use, powerful platform is mission critical for our customers. In terms of the demand environment, I talked in November about what we are seeing with customers. including longer deal cycles, more decision makers, and increased budget scrutiny. While these trends and macro pressures persisted throughout Q4, they did not get materially worse. We continued to navigate this environment by demonstrating the value HubSpot can deliver. And we're increasingly becoming the platform of choice. We saw more multi-hub deals with the mix shifting even more to three and five hub deals. I'm pleased with how we continue to solve for the customer with product innovation while executing against our strategic priorities throughout 2022. Now, reflecting on 2022, it truly was a roller coaster of a year. Much like our peers, we experienced a perfect storm of uncertain macro, tighter customer budgets, and longer decision-making cycles. As I talk to our customers, a few shifts are increasingly clear. SMBs are doubling down on digital. Their businesses are now built on digital compared to pre-pandemic. They're not turning back. But instead of operating in a buy first, understand value later mode, they're now in a understand value deeply, buy cautiously mode. HubSpot has always resonated with customers because we deliver easy to buy, easy to use, and easy to manage solutions. Now in this environment, we're focused on helping our customers drive innovation and efficiency with a quick time to value with customers taking under eight weeks on average to activate and see value. Throughout 2022, we had two key areas of focus. Maintaining our fast pace of product innovation while driving consistent results. On the product side, innovation was just cranking. We relaunched Service Hub, added CMS Hub Free, and launched hundreds of new enhancements to meet our customers' evolving needs. Three areas I want to highlight. We drove more omnichannel execution with launches like our WhatsApp integration, more intelligence and insights with customer journey analytics and campaigns 2.0, and more connected commerce with payment subjects, recurring ACH, and payment schedules. It was a record year of innovation capped off by being rated by G2 as the number one global software company in 2023 and the number one product in both marketing and sales. Just awesome recognition and a strong testament to the progress we are making on driving innovation. Also, I'm happy to announce that we are promoting Andy Petrie to lead our product organization as EVP of product and user experience. Andy has had an incredible influence on our product over the past 13 years at HubSpot. He is one of the very early product leaders who drove the CRM platform vision, was the brains behind Operations Hub, and is exceptionally customer-centric. Andy will be filling the role formerly held by Steph Cuthbertson who made a personal decision to step down as Chief Product Officer at the end of 2022. I want to thank Steph for her contributions to HubSpot and wish her the very best. In terms of go-to-market execution, as customer behavior shifted in 2022, we adapted. We leaned more heavily into total cost of ownership and got even better at communicating the tremendous value of HubSpot. We did more team selling and delivered clear messaging to the multiple buyers and personas that are now part of the buying process. In short, we stepped up to the challenge, executed well and helped our customers navigate choppy waters. Now, let's shift gears to 2023. Our continued focus is on driving profitable growth, maintaining agility and executing efficiently. I'm confident in our ability to not only navigate uncertain times but also to emerge stronger. Here are some of the decisions we've made to help drive long-term profitable growth. First, in January, we announced plans to reduce our workforce by 7% and consolidate our facilities. We made this decision to thoughtfully align our people and resources to strategic business needs. We're also optimizing our real estate portfolio to better align with the needs of our hybrid workforce. These changes will help us drive profitable growth and enable us to invest more in innovation that solves for our customers long into the future. We're also taking steps to drive more efficiency over the long term. Specifically, we're looking at multiple areas within sales and marketing. On the direct sales side, we're investing in systems and automation to improve rep productivity internally. We're continuing our journey on product-led growth, both to scale the low end of our business with Starter and to drive demand for Pro and Enterprise in a more efficient manner. On the partner side, we're making important changes to our commission structure to align partner incentives with customer value. We're leaning into better reward partners who source demand, who co-sell alongside us, and engage deeply with our customers. These are multi-year initiatives and will lead to a more efficient direct product-led and partner sales motion that set us up for profitable growth and margin expansion. I want to wrap up by sharing our strategic objectives for 2023. While the environment may be uncertain, We operate in massive markets and are confidently pursuing our goal of becoming the number one CRM platform for scaling companies. Our first objective is to become the SMB market share leader in marketing, sales, and service. We are laser focused on these three mega markets and will enable more upmarket customers to adopt HubSpot with easier customization, greater extensibility, and better governance capabilities. We will help our customers drive revenue through improved customer journey and greater rep effectiveness. And we will lean into omni-channel by expanding channel to serve the changing needs of our customers. Our next objective is to continue on our journey to transform B2B commerce. We launched HubSpot Payments a little over a year ago, and early customer interests have been strong despite the macro environment. This year, as we continue to ramp, will be focused on driving greater awareness of our commerce capabilities and increase customer adoption while adding key functionality like native invoices, flexible billing, and flexible payment processing that our customers need. Third, we will double down on our bimodal strategy. Our strategy of focusing on volume of customer ads at the low end while expanding the value of customers at the upper end is working. We launched CMS3, introduced self-guided demos, moved automation down to our starter edition, and optimized signups. These initiatives drove results, and we added over 30,000 net new customers last year, with the majority landing on the starter CRM suite and expanding beyond. We will continue to find creative ways to make it even easier for customers to get started with HubSpot and get value out of our platform quickly. Our final objective is to build a high performing, sustainable, and equitable company. We are focused on foundational investments that can help us scale better. That includes better coaching and development for top talent, better performance culture, better systems, and better hybrid connection. We know when we invest in our employees' growth, we will drive better outcomes for our customers and for HubSpot. We have a clear opportunity ahead. to drive value for our customers, and we have the right strategy in place to drive profitable growth. With that, I'll hand it over to our CFO, Kate Bucher, to take you through our financial and operating results. Thanks, Shalini.