Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Hubspot Q4, 2019 earnings Conference call.
This time, all participants are in listen only mode.
After the speakers presentation, there will be a question and answer session. You asked a question during the session you will need to press star one 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 end the conference over to your speaker today Chuckling flashing head of Investor Relations. Thank you. Please go ahead.
Thanks, operator, good afternoon, and welcome to Hubspots fourth quarter and full year 2019 earnings conference call.
Today, we'll be discussing the results announced in the press release. It was issued after market closed with me on the call. This afternoon is Brian Hogan, our Chief Executive Officer in Germany, and keep Euchre, our Chief Financial Officer.
When we start I'd like to draw your attention to the Safe Harbor statement included in today's press release. During this call will make statements related to our business that maybe considered forward looking within the meaning of section 20 Sevena into Securities Exchange Act 1933 isn't.
Section 21.
The Securities Exchange Act of 1934 as amended.
All statements other than statements of historical fact are forward looking statements.
Putting statements regarding management's expectations of future financial and operational performance and operational expenditures expected growth and business outlook, including our financial guidance for the first fiscal quarter in full year 2020.
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 in our form 10-Q, which was filed with the FCC on November 5th.
It was 19 for a discussion of risks and uncertainties that could cause actual results may differ materially from expectations.
During the course of today's call will refer to certain non-GAAP financial measures is defined by regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used are discussed in a reconciliation of the differences between such measures.
Be found within our fourth quarter 2018 earnings press release.
The Investor Relations section of our website.
Now my pleasure to turn over the called Hubspot, CEO and Chairman Brian Hogan.
Thanks, Chuck Good afternoon folks. Thank you for joining us today to review Hubspots fourth quarter in full year 2019 earnings results.
Really happy with the way the hubs, but team closed out the year regroup full year in Q4 constant currency revenue by 34% 31%.
Expanded full year non-GAAP operating margins by two points in just over 8%.
Oil customers surpassed 73030% year over year.
Ulti product adoption grew to nearly 30000 customers.
That said well I'm pleased with our 2019 financial results.
Separately proud of how it became the year of the customer at Hubspot, whatever key principles as a company. The aim to do the right thing even when it's hard.
Sometimes this meant taking a couple of steps back so we can move multiple steps forward.
We invested heavily in our products this year with an emphasis on the on sexy, but critical pieces of it infrastructure security.
In usability.
The investments in our customers are showing to beer real fruit.
We closed up Q4 with revenue retention above 100% in a nice uptick in customer dollar retention year over year, which reached a record high in the second half of the year.
Most gratifying things we saw in Q4 were record high net promoter scores from our customers. We've been working on improving net promoter scores for years and its minutes suburban metric.
Big lift in Q4 from the investments we made.
This bodes well for future retention word of mouth.
I'm really proud of the efforts to improve our customers experience across the Hubspot platform in 2019.
No. It's not just the products that are customers are benefiting from its also or ecosystem. In 2019, we made great progress in making Hubspot. The center of our customers flywheel Q4, we passed over a million total software integrations install.
This into that we acquired pricing, which will enable our customers to synchronize more and more applications with your hubspot flywheel.
Just last week, we re launch or agency partner program into a new solutions partner program, which will attract a much more diverse set of partners that will enable our customers to grow better beyond marketing into sales and service.
The investments we made in 2019, I think were even better positioned to lead and differentiate in 2020, Hubspots always focused on making or suffer easy to use comes from our roots serving growing businesses that have no time for complexity over the years those customers have grown we've adapted to their needs income become more powerful too.
I want to stay on this point from them because it's important to how I see our place in the industry. There is that kind of an assumption in the software industry that is to become more powerful they have to sacrifice ease of use you can be easy or powerful pick one is the common expression.
During this choice of power versus either limit software platforms in the customers, who use them because honestly, what's the point of powerful software for too complicated in Colombia.
We wanted to sell this fall.
Looking at recent customer reviews and comments on our MPS seems like we're already starting to Hubspots marketing software just one top rank across six enterprise categories from GE to including overall leader that's usability best support in best results also one for being the easiest company to do business within the enterprise.
Category, along those lines, we started 2020 by re launching a powered up marketing of enterprise, adding account based marketing multi touch revenue attribution targeted chat partitioning higher usage limits in other advanced features while keeping usability at the Portland will be following that with more sophisticated product announcements across.
The platform this year to meet the needs of customers as the scale.
Relentlessly bouncing power in the ease of use across our offerings. We believe hubspot will be the platform you'll never outgrow.
The business side I'm happy to report that we fully caught up on her hiring.
Voted the number one best place to work in the United States in glass doors annual survey Wow voted the best place to work in Singapore.
That is a top company for women diversity and culture, all of which should help us continue recruiting top talent one of the most momentous hires the year was hiring or first ever chief customer Officer, Yemeni run again comes to Hubspot from Dropbox and Workday two companies, we admire very happy to have or.
She will enable us to grow even better.
2019 was an important year for us as the company gave US the foundation, we need to head into 2020, feeling well equipped and confident in our platform team in direction.
Believes that the most disruptive companies today are those that create a remarkable end to end customer experience. We're excited to short customers in 2020, just how remarkable that experience can get.
I'll hand, it over to Kate.
Thanks, Brian, let's turn to our fourth quarter and full year financial results and our guidance for the first quarter and full year of 2020.
Fourth quarter revenue grew 31% year over year in constant currency and 29% as reported.
Q4 subscription revenues grew 31%.
The year, we'll services revenue declined 2% year over year, both on an as reported basis.
Full year 2019 revenue grew 34% year over year in constant currency and 32% as reported.
Full year subscription revenues grew 33% year over year, well services revenue grew 12% year over year again, both as reported.
Domestic revenue grew 23% in Q4, well international revenue growth was 43% and year over year in constant currency and 39% as reported.
International revenue represented 41% of total revenue in Q4 up three points year over year.
Deferred revenue as of the end of December was $234 million, 26% increase year over year.
Calculated billings was $217 million up 30% year over year on an as reported basis and in constant currency.
Hubspot ended 2019 was 73483 total customers, which was up 30% year over year.
Average subscription revenue per customer in Q4 was $10047 up slightly both sequentially and year over year.
Please note we've excluded the impact of pricing in our total customer and average subscription revenue per customer metrics.
The remainder of my comments will refer to non-GAAP measures.
Fourth quarter gross margin was 82% down about a half a point year over year.
Subscription gross margin was 85% well services gross margin was negative 5%.
Full year gross margin was 82% at the half a point compared to 2018.
Fourth quarter operating margin was 9.5% down slightly compared to the same period last year.
Full year operating margin was 8.1% up two points versus 2018.
We're pleased that the operational changes and additional investments we made over the last couple of quarters allowed us to get back on our original hiring plan exiting 2019.
At the end of the fourth quarter, we had 3387 employees up 28% year over year, four point increasing growth from last quarter.
Net income for the fourth quarter was $21 million or 45 cents per diluted share.
Net income for the full year was $70 million or $1.50 cents per diluted share.
Capex, including capitalized software development costs.
It was $24 million were 13% of revenue in the corner and $54 million or 8% of revenue for the full year.
Free cash flow in the fourth quarter was $24 million.
13% of revenue and $65 million or 10% of revenue for the full year.
Finally, our cash cash equivalents and marketable securities totaled just over $1 billion at the end of December.
With that let's dive into guidance for the first quarter and full year 2020.
For the first quarter.
Total revenue is expected to be in the range of $192.5 million to $193.5 million up 27% year over year.
Non-GAAP operating income is expected to be between 9.5 and $10.5 million.
Non-GAAP diluted net income per share.
Is expected to be between 20 to 24 cents.
This assumes approximately 48.2 million fully diluted shares outstanding.
And for the full year of 2020.
Total revenue is expected to be in the range of $840.5 million to $844.5 million up 25% year over year.
Non-GAAP operating income is expected to be between 54 and $58 million.
Non-GAAP diluted net income per share is expected to be between one dollar and 24 and $1.32 cents.
This assumes approximately 48.6 million fully diluted shares outstanding.
I would just your models keep in mind the following.
Current spot rates were forecasting a foreign exchange had written to as reported revenue of one point for both Q1 and full year 2020.
Subscription revenue is expected to grow two points faster than total revenue in Q1, and one point faster than total revenue for the full year.
Given our strong 2019 back half hiring and the acquisition of high thinking Q4.
As was continued strong hiring in the first part of this year.
We expect margins to be down a little over three points year over year in the first half of 2020.
And to be flat in the second half of the year.
This translates into an expected one and a half point reduction operating margins for the full year 2020.
We expect free cash flow to be about $75 million for 2020 with seasonally stronger free cash flow in Q1, and Q4 and more muted free cash flow in Q2 in Q3.
We expect capex as a percentage of revenue to be about 7% in 2020.
Heavier spending levels in the first half of the year as we finished the build out of our Dublin location expand our Cambridge campus and kick off Buildouts in Berlin in San Francisco.
With that I'll hand, the call back over to Brian for his closing remarks.
Thanks Kate.
I did about the year ahead precisely because we made so many investments in 2019 to get our customer experience right believed that the companys stand out today in the company's that last will be the ones that did not reliant on creating a remarkable customer experience to their customers, whether it's the startup using our free tools are large companies.
Scaling their operations globally working to ensure that every hubspot user as an intuitive reliable and powerful platform on which to grow their business.
Field of technology, that's often fragmented or messily tied together working hard to build these single differentiated brand with products that work together perfectly genuinely helpful staff, when a customer MPS keeps going up.
We're not Wallace, but we are focused.
That makes me excited to come to work every day.
I want to close by thanking our customers our partners, our investors and all the hub spotters around the globe are helping to make that possible and advancing our mission to help millions of organizations grow better operator, let's open up the call for a few questions.
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 please standby will be compiled acuity roster.
Your first question comes from Mark Murphy from JP Morgan.
Yes. Thank you very much Brian your revenue guidance is pretty robust at this scale I'm wondering if we should infer that you kind of have a line of sight into.
Moving past the lag effects that you've talked about.
Project may in sale and having fallen behind on the hiring.
Do you feel as though you're kind of moving past that sometime in the next quarter or two and then kind of getting back on 100% Terra firma.
Terry.
Hi, Mark.
Yes, I do.
Yes, the Boston Red Sox fan and 2019 was kind of a bridge year for there for 2020 can be kind of a bridge year for the Red Sox lots are manager they just traded away a multi best in different price so going to bridge year 2019, with the bridge year for Hubspot. We did mean sale. We made huge investments. We took a couple of stepped back and the idea is get us ready.
For a three or four steps forward. This year. So that's an accurate assessment of what's on my mind I think we're going ever really good to hear this year.
Okay.
And.
That's a follow up you have remained.
Pretty intensely focused on the core SMB market.
How are you responding if and when you have a larger organization reach out to you know maybe they get tired of the.
The heavy price point or the income that product.
If it's good to be a pretty complex engagement argue sometimes churn them away. If it doesn't make sense or are you trying to engage with them, even if it's sort of.
Pulling you into a little higher realm.
I think one of the reasons I'm optimistic about this year and one of the.
A couple of things we got from the two steps back is this year that enterprise here of our product will improve a lot.
Like by reuse analogy like.
Three years ago somewhat by Hubspot as the striving to be growing with us and they graduate off of Hubspot to another system After junior High school.
You know, we're taking through college and grass, but we may not want to pay for law school year, Phd, but we want you at least through.
College in Grad school, and that's going to be an effort. This year and so we think we'll win more solid mid market accounts and we'll keep accounts longer so feeling good about that.
You are seeing the early taste of that.
Marketing Hum Enterprise, we just announced a couple of weeks back I've been talking about this type of functionality that people have needed on calls like what bigger accounts that are growing and good size need is the ability to partition different divisions and geographies in their marketing.
Instances in a more sophisticated way needs to be able to segmenting that weight getting to be able to segment based on account in sell into like let's say they are selling into GE needs to be able to do account based marketing and then they have been need to be able to take that advance segmentation in report in attribute what their their marketing activities are in their effect on them and to do.
Reporting in a much more sophisticated way those three things, we just released and our new marketing hub enterprise offerings. So.
We are after good start there.
Thank you for having the perfect analogy for both questions off the top of your head [laughter] Im done no more analogy.
Yes.
Your next question comes from Citi paying it right from Mizuho.
Thanks for taking my question just wanted to dig a little bit into each of these have ball marketing sales and service meat of lost you talked about marketing Javier.
25% to 20% growth and then cells on that percent and sort of is growing rapidly I'm wondering if you could characterize some of the performance and up this year and any color on those out sort of good grades.
Yes ill start with the adult supervision response.
Yes.
We will likely share that sort of hub level detail at our analyst day again. This year, it's something that we have shared over the last two years at that.
Right.
In the year, but is not something that we talk about on a quarter on quarter out basis.
Okay. That's.
Any color in terms of adoption of those.
I think it's going pretty well, it's been kind of steady as she goes at marketing products growing very steady way that sales products getting big and we're really excited about the opportunity there the service parts pretty new it's only a little over a year old.
And is growing nicely so feeling good about the three ups. We have those homes are going to get better a lot better over the next year two years.
In feeling good about a.
Big markets all right.
Okay and thanks for that just just on the progressing that moving up market. So for 2020 guidance. So how do you plan to ramp into them. So.
Adding more sell severance system engineers, moving up market and product features what's your expectation.
Baked into your guidance in terms of enterprise it ups and the 22 I missed that Keith can you asked a question again sorry.
So just for 2020, just wanted to understand your expectation from the enterprise segment moving off market what are the.
What's baked into that and your accent for in terms of hiring more I mean, adding more sell seven system engineers for.
Up market.
I think you'll see some investment there from us the product early you've seen here I just talked about marketing of enterprise. It think you'll see that layer of the product improve this year a lot.
And I think you'll see customer stickiness longer will win new account I wouldn't call as that we're selling into the fortune 500.
We have an opportunity be kind of the standard platform in that mid market company between five employees are two employees in 2000 employees and we want to be more attractive for a company between 202000 employees and we're making investments there in the product side, we're making some investments there in the go to market side to that I think will bear fruit.
Thank you.
Your next question comes from Richard Davis from Canaccord.
Hey, thanks very much.
So one question I was thinking when you guys went public I think you had a net dollar retention I think it would like 90 or something like that but you're at 100. So the question is do you need to add.
Another hub to get net dollar retention too.
A lot of people like 105 to 110 or is this a business.
Just by the structure of it that we should kind of say listen it will continue to grow whatever 25% to 30% here, but you know net dollar retention will always kind of be 100.
I'm just trying to figure that out we get questions on that.
Yes.
I think the reality is you're you're right in your history I think if you turn back the clock.
Total revenue retention for the company was in that sort of low to mid Ninetys, It's moved up pretty consistently over the last number of years and we are sort of and around 100 I think what we have said is that we're comfortable that we can maintain sort of 100 plus.
The things that have driven or that drives that revenue retention have changed overtime as we become much more of a suite company you see more of the up sell coming from things like cross sell.
In the sales hub for example people are adding incremental seed.
So we have a lot of levers and as we continue to add functionality into the enterprise, we will see more sort of the addition upgrades as well.
So I do think that where we remain comfortable that we can start at or above 100, and I think we will continue to see different trajectory is or different things contributing to.
The retention.
With that ill take that as a definite maybe.
[laughter] largely held baby.
So that's it and that's what to expect any more from a CFO. So thats good.
Thank you guys got it thank you so Mike.
Thanks Richard.
Your next question comes from Stan Zlotsky from Morgan Stanley.
Perfect. Thank you so much for taking my questions.
Two questions for me one is.
Could you walk us through the changes that you're making.
To the partner ecosystem to enable them to support the growth of the service hub.
And how are you thinking about.
Service hub growth into 2020, and then for Kate just could you help us break down the operating margin.
Okay guide down for for not guidance, but the 150 basis point impact for the full year and how much of the three points in the first half is due to the stepped up hiring versus dilutive acquisition of pricing. Thank you.
Okay that was like four point I know [laughter] no.
Good morning to the third party.
Two questions two part.
Okay I'll take that started that I think it's important we talk about that you asked me as a partner program.
And we talk about this on cost before Hubspot historically has been in the marketing software industry and we had a partner program that was historically marketing agencies and over the last couple of years. We've added sales have been service how can we move from helping people generate leads to helping people build a full flywheel and pull customers in service.
All the way through.
Uh huh.
That agency partner programs going well.
Some of our best agencies have moved from marketing selling the full solution are doing quite well the change. We just the now I think it was last week or yeah, just the other day.
What's really important when we changed our program that mean from an agency partner program to a solution partner program. This is something we've been piloting and I've talked about piloting for a while it was going pretty well and so weve rolled it out into production as a couple of weeks ago.
I think this will open the door to all sorts of new partners. There is.
Hundreds of thousands across the world of companies that are IP service company CRM Implementers. There is all sorts of interesting potential partner type that we hope to pull into our business and convert into partners. I think there will be good for business and be very good for our customers. So that's that's underway that the second change we.
Made wasn't just moving it from marketing agencies to all kinds of Implementers in CRM Implementers, but also to make it easier to become a partner we announced our provider partner program, which is basically a freemium model for bringing a partner into Hubspot and so just last week, we announced a major major.
Change not just rebrand a change of our partner program that I think is going to really benefit our customers are ecosystem. The way I kind of thinking about spots like we have a giant customer flywheel that spinning around what that's it's been faster there if the second flywheel, which is our.
Partner program will be solution partner programs, we want that thing spending as well and getting them both spinning together and that ecosystem is really key to helping bigger accounts implement and grow.
Bob.
All right and and on the large inside our operating profit guidance.
For 2020.
But at least rain consistent with the narrative, we've been talking about over the last six months.
We talk serving Q2 about the fact that we deliver more leverage in the front half of the year than we wanted to and that was really because we got behind on hiring and so as we caught up on hiring through Q3 in Q4.
And then sort of made the incremental investment in pricing.
Frankly, we continue to higher well into 2020 now we're starting to see that impact our PNM and our margins more specifically.
You can see that.
What we shared in the prepared remarks was that the impact is going to be much more acute in the front part of the year than it is in the back half of 2020, and that's because really the primary driver here is the head count ramp.
And you should frankly see the.
Majority of the anti leverage and investments that we're making on the R&D side of the business.
Is there is there a way too.
Break down the 150 basis point full year impact.
[music] margins.
Between how much is pricing versus how much is.
Ketchup in hiring.
We will provide a specific breakdown, but the more of that is the result of the fact that we've caught up on hiring and we see that sort of rolling into Q1 in Q2.
Got it okay. Thank you.
Your next question comes from Alex Zukin from RBC.
Hey, guys. Thanks for taking the questions. So I wanted to ask about just the evolving competitive landscape club market that you see.
And the kind of who you're trying to really go up against and Unsi and some of your.
In some of the competitive deals and then just another one for Kate on the on on the margins I guess, how should we think should we think about kind of 2020 as it is an incremental investment year margins kind of trough at this level and then we start going up from there were given kind of.
The continued product focus development, new hugs both organic inorganic is this.
A level that we should kind of stay consistent out for a couple of years as we brought in the product portfolio.
Hi Tech first ones.
Alex No there's no huge changes on the competitive landscape.
I would kind of characterize what were up two here at Hubspot.
Part of what keep talking about of the increase R&D investment is working very very hard to increase the value we delivered to our customers to help our customers deliver a delightful experience in that hoping to create more and better competitive differentiation from our customers.
ER products have always been really easy to use our net promoter scores are getting all time highs. We went all these awards from a from GE to and whatnot and now assurant to layer in more powerful functionality. So I think thats a really good combination and we're feeling good about it for this year.
Yes.
And on the margin side as you know we have a long term framework that balances growth and profitability and.
Since the IPO, we have effectively over delivered again.
Hey, Mark for a profitability expansion and we over delivered yet again in 2019, we still think thats the right framework over the long term, but we believe this is a business that can drive sustained topline growth and we want to make sure that we're continuing to invest there, but we believe at the same time profit.
We can deliver profitability and expanded profitability over the long term.
Just want to make sure that we're finding the right down between long term in short term.
Got it okay. Thanks, guys.
Your next question comes from Subodh Simona from Jefferies.
Hi, good evening, thanks for taking my questions.
Brian for you.
The other people that's enterprise question, but I don't see slightly differently would you say that you're being pulled up market more by large customers or is this a decision by the company to push off market and in that vein do you think that there'll be any changes to the go to market model and the pricing model, which is much more geared toward.
Our base.
I would say we're getting hold that was just in a meeting this morning that we run it's a recall the rhythm of the aftermarket business and we go through our top largest accounts in the top margins to kind of love us really easy to use.
But yes, there see like four or five things they really want us to do it on the marketing side. Some of those things, we just kind of ticked off some feeling a lot better about it there is some of that stuff on the sale side and service side that.
Our sites and so it's definitely a poll, we have an opportunity to keep these larger accounts and grow with them as they grow so yeah, it's a little bit like we finally got to it like lets just get to at this is a year. We can build some functionality in there for them deliver the mail for them I think we can really delight them with an awesome combination of fully.
These are really like consumer level easy to use combined with boy. These are really powerful two and one of the customers that were just talking to the analogy that uses grades are like back in the day, you could buy a Mac or you could buy a PC with windows on it and with Windows.
If you kind of know anything you can build applications you have developers yet a bunch of money can do really whatever you want that Matt with just beautiful software designed beautifully everything worked together beautifully there is an appropriate lumber of integrations in there.
He was like you guys are the Apple of this CRM industry and I think he's right Eric maybe over the Apple we're heading that way.
Great Thats up on that maybe a follow up for Kate.
On the business model side of that how should we think about maybe.
When you think about the guidance for 2020 does that factor in maybe larger customers more deferred revenue and Tim maybe kind of dead elongation of the Rev. Rec cycle or just how should we think about that billings and revenue outlook, then that that has that as the basis. That's one question.
Yeah, I mean, there's not a.
Step function change in any of those factors assumed in what we're guiding.
Your next question comes from Chris Merwin from Goldman Sachs.
Hi, This is Kevin tomorrow on for Chris Thanks for taking my question.
Net customer adds on nice uptick this quarter can you maybe talk a bit about the puts and takes there what drove the strength and then specifically on customer who can you remind us in terms of adoption how much is.
Typically cross selling versus.
New customers. Thanks.
Well I don't I'll start so.
On the customer account growth, we had 73000 customers growing 30%, we're feeling pretty good about that.
We're really happy with the customer additions in Q4, 4700, and sort of a new high watermark for us so.
Happy I would highlight generally the strength in marketing there across the board started through enterprises, So some really nice.
Additions in Q4.
You might remember in Q3, we talked about the fact that we launch for email and had a little bit of a impact on starter adds in Q3. So it's nice to see that kind of tick back up a little bit.
Kevin I didn't understand your question on customer hub.
Just trying to get a sense of and is that primarily cross selling to the existing customers.
Landing more with that product.
So I'm, assuming that you mean service when you're talking about customer hub.
Yes.
That's really means okay, yes, that's right.
Okay I get shipped up on how you took me up their service I was going pretty well.
I'd like to compared to how did sales have few year year and a half in and it's it's far bigger ports and get a larger install base growth and fall. It what's the magic of it is when one of our customers is using our content management system marketing and sales subsurface up Holy Crap is there a lot of power unlock when they all use all that stuff together and some a lot of.
A tough business is coming that way filled super early I think it's a nice nice opportunity in a big market for it.
Great. Thank you.
Your next question comes from Ken Wong from Guggenheim Securities.
Great. Thanks for taking my question. The first one for you Brian last quarter I think you mentioned as far as main sale. When do you guys were about 50% through.
Any update on that number and is this still something that you guys expect to wrap up in the first half of next year.
Hi, I'm glad you asked me about that I'm really happy with the with the main filled decision. We made in Q2 of last year and just to remind folks. It was it's a new approach the way we built product.
We've come to the realization that.
Josh people really really rely on us to run their entire front office, we are very important piece of our customers puzzle.
And we intend to be around a long long time, and so we want to put a lot of trust and Thats, we want to reward that trust. So mainsail was a new way of building product were really focused on the foundational issues security infrastructure speed ease of use and we basically had every team inside of Hubspot only work on that.
Build a single new feature we've made tremendous progress on that and most of the teams are out of there I don't think were I don't have that number at the top my head, but we made a lot of progress and thought them have updated it and feels like it's working Ken.
Our net promoter score so net promoter scores, we asked for customers, who question Hey on a skill and went to 10, how likely you'd or for hubspot to a colleague or friend and then why we've been tracking.
Our that metric for a long time, we have had we just haven't been able to budget. It's a very very hard number to move but the main sale has work and so in Q4, you see it site big lift in that number.
We were really excited about that but I think that bodes well for attention in the future I think it bodes well for cost to acquire customers in the future I think it's going to really I think we have a benefit a lot from the other thing that's happening now because most of the teams are out of this mode that we had them in last year, we're starting to build new products that we just came out with the marketing.
Enterprise and it combines that really the views that we put in that I net promoter score with a bunch more power. So.
Alan good about that means sale decision. It was definitely a couple of steps back in I definitely think we're going to go few steps forward because of it.
Got it appreciate the color there, Brian and then Kate.
Last quarter you guys also touched on just how new product mix was maybe a bit of a headwind of billings.
Is that something we should be factoring in for 2020, how are you guys thinking about the impact of product mix and billings growth.
Yeah, I would say as always billings as a complicated equation there are lot of moving pieces there.
I think if you looked at our Q4 billings.
We had some headwinds and tailwinds.
FX was sort of.
Headwind to revenue the in period move and help us a bit on.
Billing side, so largely offset that we also had really strong December finish we had a good solid marketing quarter. So that helped us there on the billing side. That's what we do continue to see a headwind on the duration from the shift in product away from marketing and into sales and service and we expect that will.
Sort of continue into 2000 plenty.
Perfect. Thanks, a lot in general what we've said is that billings growth and revenue growth in constant currency will trend together I still think thats the right way to think about it.
Great. Thanks.
Your next question comes from arch and body from William Blair.
Hi, guys. Thanks for taking my question.
It sounds like sales have its getting some really good traction Brian if you mentioned that in your and your opening remarks, just just curious what you're seeing in terms of.
New customers landing there versus versus across all motion from from existing marketing help customers. I think we're a few years away for a few years past the release now but just wondering is this should we start thinking of this as more of a standalone kind of viable product now or is it still something that's that's kind of best when when coupled with with marketing hub.
Yeah. It's bowl, it's because the thing we did on it that work was.
We use that we want to make that sales product. So good that it's not just for cross selling into the CE marketing customers that we wanted to be a magnet to pull new customers and then we can cross sell marketing is.
And.
That works extremely well it is a magnet that pulls tons, a new customers and we sell marketing to and vice versa lots of customers buying both together and so it's a viable on its own we have a lot of just using fills up customers.
And there theyre doing great and we have a lot of that use.
All three all four of our products together. So it's the answer is both on it.
Got it that's the that's helpful and then on the hiring from you know it's great to see that you've caught up just curious how you are you kind of managing the large influx of people that have come in into two age is your onboarding process kind of scaling to to handle that.
That's step up in hiring and maybe how are you thinking about managing some of those.
Some of those risks that come with bringing on so many people in such a tight window.
You feeling good feeling much better about that I mean, a year ago, we were in a bad spot there and we challenged her team to rethink the way we brought people in an onboard them and it took us a little while but they figured it out and they've done a fantastic job I'm really proud of them. So.
We're back on headcount.
And really pleased with the quality of folks that we're bringing in I don't get the interview all of them, but the people I mean are great certain parts of the organization just absolute recruiting machine going I think the thing that really helps us there is when some of these awards like the glass door Award.
In the best company to work for in the United States like.
Thats hard to do you need to have a remarkable culture and remarkable people to do that and I think we really do and it's starting to path for the quality is good the on boarding seems tight now I think we've come a long way in the last year.
Got it thanks, and congrats on the quarter.
Thanks.
Your next question comes from Terry Tillman from Suntrust.
Hey, guys is actually make on for Terry Thank for taking my questions.
Because the first one.
The various I'll, probably some working hub is most established I guess when those roles in catalyst going forward for sustaining above 20% growth.
Looking forward.
I think the new release, we just came out with marketing of enterprise. It's much much more powerful I think customers, who use marketing hub pro will upgrade I think customers for using marketing come enterprise and we're thinking about churning because we didn't have the sophistication will stick around and I think will win new competitive deals I think that will be a nice driver for us.
Got it Okay and then just quick follow ups. So have you seen.
Any greater activity.
Salesforce essential similar to competitively.
I haven't seen a big shifts there it's been out for a while we see a from time to time.
But it feels similar to the way it's spoke to the last couple quarters.
Got it okay. Thank you.
Your next question comes from Bryan Mcdonald from Needham.
Hi, Thanks for taking my question I guess first Brian for you.
It's not been a few quarters since you started to really add an enhanced that the functionality of the free CRM solution and around the that's what are you starting to see in terms of adoption trends of customers are they starting to move up to some of the higher higher.
Product suite of products are hover products off of that free solution or more into bundled solution are you seeing signs of that yet.
It's been steady progress on it I would say the free edition of our CRM is solid and getting better.
Our of our Onboarding of free users our growth team is doing really well on taking someone who is never use the CRM, let's say and getting them in using it themselves importing their contact inviting their colleagues and getting amount for the races are starting to work on getting people to the free to started at the pace to free to that started to the pro.
So making steady progress I think you'll see that hub improve over the course of this year. We've got big plans for in so I think there'll be continued steady progress there throughout 2020.
Awesome and then just as a quick follow up obviously, it's pretty early days since you announced the hiring of the new Chief customer officer, but is there any anything we should expect going 2020 here in terms of structural changes to the organization with that new person coming in thanks.
Yes.
Thank you for asking about that a couple of thoughts on how many.
There was a structural change we made to bring our ends so.
We combine sales marketing and services in Hubspot under Yamani. Its first time, we've done that I think it's also I'd like or title a lot of people call that type of role of Chief revenue Officer, We call Arthur Chief customer officer, if one or folks what her focus on creating great experience for customers, we think that will pay off in the numbers on the law.
Long haul.
But beyond that I don't expect major changes in the short term and we should just get out of training. She is whipped smart and everyone seems to be really jelling, whether some really happy with the hired so far what are the things I like about her is spent a long time of dropbox. So she understands that premium a light touch motion much better than we do.
And then she spent a long time of workday, so she understands that up market promotion.
Better than all of us do and so I think she's going to do great.
Excellent. Thank you.
Your next question comes from Jennifer Lowe from.
Great. Thank you.
Maybe just going back to the product priorities that last year main till it was a big focus and as you said earlier those resources are now being reallocated in many cases to other projects. There's been a discussion around enterprise theres been a lot discussion on how do you put the customer experience.
You think about what you're really focused on and want to see this today in the next year is it really more of that continuing to push more into the enterprise getting better at the low touch side of indicated you used the product or are you starting to think about at the analyst estimates discussion of more hubs in the future is that something that could see.
Sorry to be a focus this year or is that still a couple of years out in terms of what you're prioritizing the R&D resources.
Thanks, Jennifer.
A point of clarification on mainsail main sales a little bit like mass was higher you have needs for the bottom is things like security and infrastructure. The middle is things like speed and usability in the top is new features and new powerful functionality, what we challenge all the teams to do is to get through that entire her teeth.
Needs before they can build any new features or any new powerful functionality. So that lives that means they'll concept lives on its just that most of our teams now our through the bottom levels in the middle level. So that hierarchy and are on to building new features and functions. We don't want to do is get leave me on that stuff. So it's kind of a new way we build prop.
Most of those product teams have satisfied the bottom in middle levels and are off to the races on the new stuff.
Having said that when theyre when they're in the top part of that main Phil they're starting to build cool new products that marketing of enterprise.
Really.
It's in that shouldn't be surprising that that came out at the beginning in 2020, because we just really are getting through those bottom levels are the main sale through 2019 started really cranking on new stuff in 2020 in so there's going to be more activity. There. The hubs, we have are going to get better.
I see a new product this year feeling very very good about where we said.
Okay. Thank you.
Your next question comes from Michael turned from Wells Fargo Securities.
Hey, there thanks good afternoon.
Given the ramp back in hiring you've been working through and the back half of this past year, you still put up another quarter of 30 plus percent constant currency growth Im wondering if there's any way to quantify how much of an impact the shape of hiring may have had if any in terms of Q4 topline results and then how should we maybe think about the ramp in contribution from those newer.
Cohorts of employees here heading into 2020. Thank you.
Yeah, I think it's time to assume we would have grown faster falling behind them yes.
Yes, it's definitely a positive number quantifying it is obviously a bit more complicated I think the way you should think about it is that we got caught up on hiring really in the back half of Q3 throughout Q4 and it typically takes a rep like depends on where they live in the organization, but six to seven months for them.
Become fully productive.
And then you'll see that that takes a little bit of time to show up and things like revenue for example, and so we expect to see the impact kind of phased in over the course of 2020.
Yes.
Thank you.
Your next question comes from Kirkman turn from Evercore.
Right. Thanks for taking my questions Peter Levine in for Kirk. So just one how should we think about the the balance between international versus us investments.
Curious to know is the purchasing behavior any different than what you're seeing here at home.
Meeting our customers adopting the full full stack upfront versus just buying one to moving up just any color on the international side. Thanks.
International is going well.
The way, we do investment it's been pretty similar we look at the relative unit economics between the U.S. versus international markets and we invest for the unit economics are really strong.
We invest behind where the reps are significantly over quarter, we'll invest more in we'll look at lead flow look at all those factors and decide where internationally bill invest the truth is on the purchasing patterns in the hub in the hears and whatnot is pretty darn similar across the globe almost surprisingly similar.
In each of the international and domestic markets.
Brian I know.
Maybe it is worth asking but your last question you mentioned, maybe you will see a new hub.
In terms of where that can go.
We don't typically forecast that kind of thing.
Stay tuned.
Thank you.
Your next question comes from Koji Akita from Oppenheimer.
Great. Thanks for taking my questions just had a quick one here with close to a billion dollars and cash on the balance sheet.
Just to hear your thoughts on the M&A strategy going forward I guess is there any change in the way we should be thinking about.
The appetite in the scale of a potential target or the overall velocity of M&A activity. Thank you.
Hi, Koji.
We are definitely looking at deals if I had one word to describe how we think about it would be picky.
You want.
We wanted to be a good team that we respect we want the culture to work with Hubspot, we want it to be legit technology, we want to pay a reasonable price and then we would buy something we want to make sure it doesn't break sort of our Apple like.
Very easy to use in powerful at the same time, so we want to be careful about who who we acquire but we're definitely still on the market I think wont to be only deal we ever do.
But we just want to be careful in picky about who we acquire.
Great and just one follow up if I may front from a vertical standpoint, I was wondering what vertical is out there you are seeing strong end market demand right now and maybe what are some verticals that our focus areas to gain more awareness and over the next year. Thanks for taking my questions.
There's no big vertical for us per se, it's mostly be to be I'd say at Arnie. This is don't hold me to December, but roughly 70, 580% b to b versus B to C. In B to B services companies professional services company software companies Tech enabled services companies those are big Big.
Thanks verticals for us.
Your next question comes from Brian Peterson from Raymond James.
Thanks, guys, Kevin here on for Brian I know Theres still a number of moving pieces, but do you have any updated thoughts on how you think ASP trend over the intermediate term just given some of your comments on product development across the enterprise tier.
Yes. It was nice we had a little bit of an uptick in Q4 again with HSBC.
The biggest thing that's been driving ace RBC over the past.
Couple of years is really product mix and we continue to see positive trends.
The individual hog level.
I think we feel like we've seen a little bit of stability in and around 10000 range, which is nice and we're feeling that over the longer term. We we can start to see that pick up a little bit.
That's helpful and then it inbound you announced some enhancements for sales have been including a by now button.
Curious how debate on that was going and I guess any early customer feedback or adoption insights. So you could share there.
It's going well a lot of people are adopting that functionality and liking and our partners are implementing that for folks.
You will see a lot more of that kind of thing over time, I'm bullish about that that area between where the sales rep leaves off and where.
We are cash balance sheet, I think theres lots of room in there.
Got it thanks guys.
Your next question comes from Tom Roderick from Stifel.
Hey, good afternoon. Thanks for taking my questions. So Brian let me for the first one at you here just thinking about high single little bit more you've had it under your belt for a few months. So I know, it's still early but as you think about that product in its integration with your own product and go to market can you just talk a little bit more about how customers are embracing it and how you are.
Pushing it on go to market you've got over 200 application integration. So do you find your customers are more and more using it as a way to integrate with other applications. They might have in the front office side, and then utilizing that to bring the I think that data back and allow hubs spot to be the customer data of record are they using a more to integrate with your appliqu.
Actions across different pubs, just talk a little bit more by usage patterns and go to market with that product right now thanks.
Sure Tom I think it's going well, it's really good technology is really good team they're making.
Big enhancements to that synchronization engine to make it much more powerful for our customers like let's say it got a customer wants to think to Microsoft dynamics like how do you do that and make it is easy as possible and as powerful as possible. So they are working hard on some very very cool stuff, what you'll see over the long haul is that synchronization technology will be.
Bedded inside of Hubspot in different ways, and then powerful ways in so I think that acquisition can work out really well for us really happy with it.
Outstanding and then one just other product related question you touched on email marketing earlier, the free offering and in prior quarters. You. Just mentioned that that has been a product that maybe there is a little bit of cannibalization at the low end of the started marketing yeah. What are you seeing with respect to again adoption and usage patterns on that is it.
Having any impact on some of the lower end.
Core marketing hubs features and then what sort of adoption are you seeing an email marketing. Thanks.
I think the change we made was interesting as we enable we've put email marketing into our free layer products and our start aware products and that's been well received so we haven't seen any cannibalization of note from starter or pro.
There was a little in the numbers moved a little bit in the short term, but they kind of they study it themselves by September October on that change. So no big cannibalization I think it's going pretty well that started products pretty legit, they're free products pretty legit, and what we can get a lot better out I'll tell you is moving those free to start or pro to enterprise. That's still an area that we are.
Early in our investment cycle.
Outstanding. Thank you very much appreciate it.
And that was our last question at this time I will turn the call back over to Brian Allegan for any final remarks.
Thanks, Thanks, all of you for joining really appreciate it.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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