HubSpot, Inc.

Good afternoon and welcome to the HubSpot first quarter 2024 earnings conference call. My name is Harry and I'll be your operator today. If you would like to enter the queue for questions, you may do so by dialing star followed by one on your telephone keypad. If you change your mind, please dial star followed by two to exit the queue. And if you require any assistance, please dial star followed by zero to speak with an operator. Finally, in the interest of time, we respectfully ask that you limit yourselves to one question only today. And I will now hand over to Ryan Burkhart, Senior Director of Investor Relations, to begin. Please go ahead.

Thanks, operator. Good afternoon and welcome to HubSpot's first quarter 2024 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 Buecher, 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 Security 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 ability to realize the anticipated benefits of the clear bid acquisition, expected growth, FX movement, and business outlook, including our financial guidance for the second fiscal quarter and full year 2024. 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 we expect to file with the SEC on Friday, May 10th, for a 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 measures most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between such measures can be found within our first quarter and fiscal year 2024 earnings press release in the investor relations section of our website. Now it's my pleasure to turn the call over to HubSpot's Chief Executive Officer, Yamini Rangan. Yamini?

Thank you, Ryan, and welcome to everyone joining us on the call. I'll begin by sharing our Q1 2024 results, update you on what we are seeing from a demand perspective, and wrap up by highlighting our recent product launches from the spring spotlight and our ongoing efforts to accelerate innovation for our customers. We kicked off the year with solid revenue growth of 23% year over year in constant currency. We delivered another good quarter of operating margin growth with 120 basis points of margin expansion year over year, driving our operating margin to 15%. Total customers grew by 22% year over year to over 215,000 customers globally, driven by over 11,700 net customer additions in the quarter. I am thrilled to see more customers consolidating on HubSpot as their preferred customer platform for growth. Our Q1 results highlight consistency in why we win. Customers across all segments are consolidating on HubSpot because it is easy to use, easy to scale, and delivers fast time to value. In the lower end of our segments, we saw continued strength in Net Customer Addition, driven by free users upgrading to Starter and pricing optimization plays, including our seats model change, driving Starter and Pro customer growth. In upmarket, the big themes of the quarter were continued strength in Sales Hub and Multi Hub, as customers consolidate on HubSpot as their platform of choice. Sales Hub is emerging as a clear winner, driven by the innovative features we launched at Inbound. Our customers are adopting the new prospecting workspace and advanced sequences as a way to drive better alignment between marketing and sales. In addition, we've opened up our smart CRM to support UI customizations, deliver broader governance and permission capabilities, and deeper integration, like the sync with LinkedIn Sales Navigator, which is driving up market momentum. Our land and expense strategy is working, and we have three main front doors for customers. Marketing Hub, our original hub where we continue to innovate. Sales Hub, where we see huge momentum and multi-hub as customers consolidate on HubSpot. Over 35% of ProPlus customers are now on three or more hubs, and we have more room for growth as we drive innovation. We're thrilled to see the continued momentum in sales hub and multi-hub, and it's a clear validation that our strategy of going from app to suite to customer platform is working. Switching gears to macro, After a strong finish in Q4, we saw a return to weaker demand conditions in the first quarter, similar to what we experienced in 2023. The buyer urgency that we saw in December did not carry over into Q1. Instead, we saw a return to higher scrutiny of budgets, more decision makers getting involved, and a need for more demos and proof of concepts before signing off on purchase decisions. At the top, Of the funnel, we saw lead flow shift away from higher quality inbound and partner-sourced leads to lower quality rep-sourced leads. This shift, plus the lower buyer urgency, slowed down deal progression and, in some cases, pushed deals out of Q1 and into Q2. While deal close and upgrade rates remain under pressure, we continue to see strong customer dollar retention in the high 80s. which underscores the value that our unified customer platform delivers for our customers. Now for an update on seats. In early March, we introduced a pricing change based on seats to lower the price point to get started with HubSpot and remove the pricing friction for customers to upgrade from starter to professional edition. While we continue to be very excited about the model change for our customers and HubSpot, the timing and of the change caused a negative impact on our business in March that will likely persist for a couple of months. As a reminder, we expected this change to lead to lower initial ASP, higher volume of customers, and higher rates of upgrades over time. In March, we saw faster adoption of the SEEDS model by customers, which led to a more immediate impact of lower ASPs but a slower pickup in the volume of new customers. We're seeing more positive trends in April, but it's going to take a few months for the higher volume of additions to offset the initial lower price. Having said that, I want to be clear that we have high conviction that seeds pricing change is the right decision for our customers as it will allow them to get started and scale more easily with HubSpot. And it is the right decision for HubSpot as it will allow us to bring many more customers onto our platform, grow our net revenue retention rates as customers add more seats over time, and align pricing with the value we are creating from our AI-powered smart CRM. Okay, let's talk about product innovation, which has been a consistent theme over the past few years and gives me high confidence in our ability to drive durable growth. The pace of innovation has accelerated in our industry with AI, and we are setting that pace for scaling companies. Innovation is happening in days and weeks, not months or years. Marketing sales and service teams are going through a major technology shift, but keeping up with that innovation can be a full-time job in and of itself. So to make it easy for our customers to stay ahead, we've decided to have not one, but two big launches each year. Inbound and Spring Spotlight. You all have seen Inbound and our customers love the innovation that comes out each year. In April, we launched our first Spring Spotlight that featured over 100 new product releases with over 70 AI features. And we saw over 200 million earned media impressions and nearly double the engagement rate on social channels compared to Inbound 2023. Super exciting. I want to highlight three big areas of innovation from our spring spotlight for you. Content Hub, Service Hub, and HubSpot AI. HubSpot gave marketeers a better way to grow with inbound marketing, and we are now doing it again by reinventing content marketing. We're taking CMS Hub, which used to be about website and digital presence, and transforming it into Content Hub, powered by AI to create and manage content across the entire customer journey. As part of Content Hub, we launched AI content creation to make it easy to create multilingual content, content remix to make it easy to create full pipeline of content based on a single asset, and brand voice to make it easy to generate content that has consistent brand voice. Our goal is simple. We want AI to power every content use case and light the way into the future of content marketing. Let's talk about Service Hub I'm really excited about the innovation here. We believe that delighting current customers is even more important than acquiring new customers. So we're relaunching Service Hub to bring customer support and customer success teams together. To help scale customer support, Service Hub now includes advanced SLAs, more robust routing, and support management tools. To help customer success teams drive retention, we launched a new customer success workspace that can help CSMs handle their tasks, track their pipeline, and see customer health scores with clear next steps. Service Hub now includes more than a dozen AI-powered tools, like GPT-powered chatbots, real-time recommendations, and call summaries to speed up resolution. We're embedding AI to make Service Hub even more valuable and delivering a unified customer platform. As one of our customers Kaplan said, by bringing marketing sales and service teams together on HubSpot, we're removing the guesswork for our leaders and giving them the confidence that customers are getting what they need. As we set the pace of innovation with AI embedded across all hubs and our customer platform, we are keenly focused on driving adoption and usage. Adoption has continued to increase with over 50% of enterprise portals using AI features, along with over 25% of pro portals. Customers are leveraging AI for personalized content generation, call summarization, and are automating their go-to-market motions to drive productivity and growth. There is a lot more room to drive repeat usage, and we are laser focused on helping our customers grow with HubSpot AI. Overall, we're still in the early innings of transforming from a suite to a customer platform. We're becoming the de facto standard for scaling companies, and we are setting the pace of innovation with AI. This gives me confidence in our ability to drive long-term, durable growth. With that, I'll hand it over to our CFO, Kate Bucher, to take you through our financial and operating results.