Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Hubspot Q1, 2020 earnings Conference call.
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Right click lashing head of Investor Relations. Thank you. Please go ahead Sir.
Thanks, operator, good afternoon, and welcomed Hubspots first quarter to sell from 20 earnings Conference call.
Today, we'll be discussing the results announced the press release it was issued after the market close.
With me on the call. This afternoon, this brand halligan or Chief Executive Officer, and Chairman, you keep euchre or <unk> Chief Financial Officer.
Well, we start like to draw your attention to Safe Harbor statement included in today's press release.
During this call will make statements related to our business that may be considered forward looking within the meeting of section 27, eight the securities exchange active 1933 as amended.
Section 21 of the Securities exchange active 1934 as amended.
All statements as it and statements of historical fact or forward looking statements.
Including those regarding management expectations of future financial an operational performance and operational expenditures.
Tactic gross.
In business outlook, including our financial guidance for the second fiscal quarter and four year 2020.
Forward looking statements reflect our view on the as of today and except as required by law undertaking no obligation update or advice he's 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 F.C.C. This afternoon for discussion, but the risks and uncertainties that could cause actual results that differ materially from expectations.
During the course of today's call refer to a certain nongaap financial measures as defined by regulation chief.
The gap financial measure most directly comparable to each nongaap financial measure user discussed.
Reconciliation of the differences between such measures can be found within our first quarter 2020 earnings press release Indian best relation section of our website.
Now my pleasure to turn over the called top spot Seo and chairman right now.
Thanks Chuck.
The new boats, thanks for joining us today.
This call to talk about how the spot but.
Take a moment to recognize the told his pandemic has taken on so many people around the globe.
Closer to home rate here in the hopes by community. These are tough times.
All of you on the color seeing healthy in managing do this as well as you can.
Now, let's talk about spots first quarter earnings results. We came into this year with strong tailwinds constant currency revenue growth was 33% and Q1 Yep operating margins were just over 7% total <unk>, 30%. Your your surpassing 70000, while multiproduct adoption continue to.
Nicely, representing nearly 32000 customers on the product product, we kicked off the year when an exciting relies on the enterprise to your marketing.
Me I'm enterprise has always been easy to use but the re lunch made it more powerful than ever before the better attributes reporting count based marketing Vance chat targeting and much more we have an excellent offering that delivers great value for enterprise segment, now and that's borne out by customer reviews. This practice number one.
Six separate enterprise categories from G. to the <unk> suffer reviews.
Yeah, those tailwinds they continued through much of the first quarter or wherever in the middle of March They were met by strong headwinds is the world <unk> endeavor.
Rather than fight against that when we're trying to move with it through a series of plays designed to help our customers and partners bridged the gap to better time.
When the health break our immediate focus turned to helping our customers and partners and navigate the second economic downturn.
My we expediting she wants missions all solutions partners and we offered a six month Commission pregame it a platinum diamond elite partners.
Customers and prospects me too rapidly move there go to market strategies online took several steps.
E. mail and calling limits in edited a collection of features including meetings box in one to one video into work for easier.
He also reduced price diverse starter gross we buy over 50%, leaving the quarter. We did this to alleviate the financial strain for our customers on the starter products into enable more companies under <unk> to get started with up.
This resulted in the five fold increase in the Runrate of that offering at the end of the corridor.
Finally gave more timo lot of leeway to offer discounts and flexible came to terms at certain customers under more severe short term financial straight.
The way I like to think about the pandemic for a spot.
<unk> storm that blew into our business in the middle of March. The first few weeks. There was largely just to be 200 mile an hour Edwin hit the new business and retention side of our business it seems on it.
But.
Last few weeks of April the winds have shifted.
See we have 150 mile an hour ahead with now but that coupled with 100 mile an hour tailwind as business is picking up.
And when I take a step back that tailwind makes this world is seeing a surge of companies with historically flight school voter market low leaning into it Newschool online go to Mark them. All for the first time very platform, we sell and methodology, we teach with designed to help companies make this shit.
These trends represent a long term tailwind for hot spot and they think it's one that will last than your team volatility that we're all experiencing in the current diameter.
You have not stopped building for the future in April we introduced a new product with C.M.S. up.
Color to marketing hub enterprise, we want it to combine the ease of use growing company is what.
Power they need the result was the content management system designed to help growing businesses overcome that notoriously painful experience of managing websites scale. Many companies think they only have two options for managing the website that basic via bad very limited functionality or it technically complicated one with tons of it.
<unk> teen CMS up as a better fit for growing companies that need features like dynamic content adaptive testing in 24, seven security Mari and even some truly it starts to blur the gap between web sites in web at all without the heavy me.
We've been really pleased to see the positive reception at C.M.S. is happy with our customers that are partners. Despite the macro environment. In fact, given this rare moments in history. When humans are shifted integrating digital experiences that rival in person one C.M.F. sub might have come along it just the right.
But they said before.
Indeed tough times.
Said that helps spots in a good position they hope our customers in the market writ large weather.
And come out stronger on the other side.
Did that in for continued to invest in entity, we expected, meaning and even stronger position when we come up the other side.
Now before I ended over I want to share. Some news that are longtime president and Chief operating officer, J.D. Sherman decided to leave spot jds, but instrumental and deriving tough spots global growth over the last eight years in his left an indelible imprint on our customers partners and employees JT will stay on until July one little country.
He knew as an advisor until the end of the year.
He will leave behind a well oiled operating system in a world class scheme that will service exceptionally well in the years to code.
While I was sad to see him go I'm proud of it work we've done in ear to see and become a great CEO wherever you <unk>.
<unk> Hubspot the board of directors or employees around the world I want to say, thank you <unk> evolve rowing better because it yet.
Okay with that alternate over to cake now take a financial center guidance.
Thanks, Brian, Let's turn to our first quarter financial results and our guidance for the second quarter and full year 2020.
First quarter revenue growth, 33% year over year in constant currency and 31% as reported.
He wants subscription revenue from 33% ear every year well services revenue growth two per cent year over year, both on an as reported basis domestic revenue grew 25% and Keyuan well international revenue growth was 45%. Your every year in constant currency and 41% as reported.
International revenue represented 42% of total revenue in Q1 up three points year over year.
Deferred revenue as of the end of March with $242 million at 25% increase year over year.
Calculated failings was $207 million up 30% year over year on an as reported basis and 32% and constant currency.
Hubspot ended the first quarter was 78776 total customers, which was up 30% ear every year.
Customer net additions exceeded 5000 for the first time driven by a strength at the low end of our product portfolio, particularly in our starter sweet.
Average subscription revenue per customer and Q1 was $10018 up slightly most sequentially and year over year.
In addition to the proactive product changes Brian highlighted we have also taken some important steps to help alleviate the near term impact of covert 19 for our customers and our partners.
These include extending flexible payment terms offering customer friendly downgrade alternatives and pre paying some partner conditions.
As a result of these actions and the challenged economic environment, we saw headwind to revenue retention beginning and mid March.
To give you some additional color we saw our net revenue retention rate fall from over 100% through the first two months of the year two the low nineties in March with the majority of the decline coming from customer downgrades purses cancellation.
As you would expect we saw a larger optical return from customers and our one to 25 employees segment relative to our mid market customers.
Given the uncertain economic environment.
And the continued impact on our customer friendly programs, we anticipate our retention rates well trend lower and Q. too.
The remainder of my comments will refer to non gap measures.
First quarter gross margin plus 82% flat year over year.
Subscription, Chris Martin was 85% well service is gross margin was minus 3%.
For the <unk> first quarter operating margin was 7.3% down slightly compared to the same period last year.
Operating margins in the quarter exceeded our expectations as a result of strong revenue performance higher software capitalization.
And some expense savings related to cover at 19.
At the end of the first quarter, we had 3578 employees up 30% ear every year.
Like many businesses in mid March we moved quickly to shift our entire workforce tour remote working environment to protect our employees and our communities.
To the pandemic remote was already our third largest office and I believe our systems and employees have adapted well.
That's a reminder, we plan for higher headcount gross in the first half of 2020 as a result of our strong hiring last fall.
Continue to accept our head Congress to begin to slow in the second half of the year.
Plan to maintain high levels of investment and R. and D. in order to deliver on a robust product road map, well slowing hiring and G.N.A. and targeted sales and marketing functions to ensure continued financial flexibility.
Net income in the first quarter was $16.7 million for 35 cents per diluted chair.
<unk>, including capitalized software development cost was $16 million or eight per cent of revenue in the corridor driven by the completion of our Dublin facility bailed out and higher capitalized software development costs related to product innovation.
We continue to expect cap access a percentage of revenue to be about seven per cent in 2020.
Free castle in the first quarter was $7 million or 4% of revenue.
Free cash flow is negatively impacted by our 11 million dollar partner conditions pre payment and the extended payment tyrants, we offered to impacted customers.
Given these factors, we now expect free cash flow approximately $30 million for 2020.
<unk> ended the quarter with over a billion dollars of cash and marketable securities and as well position to whether this economic downturn.
As we look to the future we remained committed to our disciplined approach to managing expenses, while continuing to invest for the long term.
With that let's dive into guidance for the second quarter and full year of 2020.
For the second quarter total revenue is expected to be in the range of $195 million to $196 million up 20 per cent ear every year.
<unk> operating income is expected to be between 10.5 at $11.5 million.
Non got deleted net income per share is expected to be between 23 25 cents.
This is <unk> approximately 47.2 million fully deleted shares outstanding.
And for the full year of 2020.
Total revenue is now expected to be in the range of $800 million to $810 million up 19 per cent ear every year.
<unk> operating income is now expected to be between 40 and $42 million.
Gap diluted net income per share is now expected to be between 88 and 92 cents.
This assumes approximately 47.4 million fully deleted shares outstanding.
Our guidance reflects a view of the business that we are comfortable with given current economic conditions.
Our outlook assumes a challenging economic environment through the second quarter and incorporate a wider range of outcomes for the second half of the year.
As you adjust your models keep in mind the folly.
We expect an increased foreign exchange headwind to as reported rather now.
Occurrence about rates were now expecting a headwind of two points and both q. too and the full year 2020.
What's that Oh hand to call back over to Brian for his closing remarks.
<unk> like many of you have spent a lot of the time over the past couple of months speaking about resilience.
Privilege beyond the bounds to be part of a business. They can still operate be able to keep our team employed at our customers movie.
Oh for that every day.
That feeling of gratitude also comes with a sensor driving purpose. The only thing we can count on the road will look different on the other side of.
And when it does a winter company to have been part of helping as many businesses as possible Ben break.
Why we made the decisions we made over the last couple of months. That's why we continue to invest in its why wake up every day with conviction.
Customers are partners or investors in all the hub spars around the globe are in this fight with us.
Thank you.
Operator could we please 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.
Standby will be compiled the CUNY roster.
Your first question comes from the stands Latzky from Morgan Stanley.
Perfect. Thank you so much guys and I'm glad to see everybody is staying safe and healthy and J.D. you will certainly be messed up.
So maybe just diving into the results.
I think the biggest surprise that.
In that we're hearing thus far from investors is that you guys provided guidance for the full year.
Really expecting that what gives you the confidence to provide guidance.
During the so many other companies.
Have cold for your guidance and then I have a quick follow.
He wants to come up here.
So yes, obviously the current environment is a significant had been processed a significant had went for everyone. Ah. It's frankly, a bit unprecedented and that was not lost on us as we were thinking through how to approach guidance and what's in areas. We are running.
Q too, we're assuming that the economic environment remains week throughout the quarter. We took a bunch of actions early on to help our customers in our partners and do as well have impacts on our cue to resolve specifically and well you know Brian alluded to the fact that new businesses.
Stabilized towards the end of April you know, we so expect continued pressure on the net new booking from customer downgrade and to a lesser extent some cancellation.
[noise] ask for the full year, we always consider a range of outcome for full year Guide and you know in this environment that range. It outcomes is obviously wider then it has been in the past and you know.
Not an economist no one frankly knows when the recovery will happen in what it will look like but our guidance reflects a view the business that you know we're comfortable with today, even if it takes a while for their recovery could start to materialize.
Okay, perfect and then follow up.
For Brian.
Equally surprising that was the commentary that you're seeing actual tailwind.
Covert impact because it's really for saying some customers to abandon their old traditional ways are marketing and really move to digital marketing with everything that's happening in the physical world.
Where are you seeing that coming from and we really really what's pushing customers to make that commitment now versus you know hey, you know, let's let's wait it out let's wait six months until the things to stabilize and then I try to reassess.
Thank you.
Basic question then.
I just sort of take.
Way back.
Sort of its tail three cities here first.
You know two and a half of thought we were just crank it really cranky.
But as crazy as I can recall a spot.
Started mid March for about three weeks, there yeah real a mighty headwind in their 200 mile an hour Edwin on the new business side and big had waited on the.
Oh the retention rates.
Around the second week of April the last three four weeks.
The third base of the year.
They're they're heavily slowed a bit.
You know the cancellations in the downgrade.
Kind of.
Back into a new normal.
And then it tailwind kind of kicked in the tailwind stand is.
Sort of two pieces to that tail when one of it is what I talked about on the call sort of business is moving from apply more pay the online marketing it's a terrible.
<unk> marketing right now booting from out in down from outside sales insight.
Or value profit, our product pretty you'll match it really well on on the way people going a little bit want to go to market. These days.
The second Tailwinds.
Certain industries benefited from you know from covert 19, like you learning and medicine things like that.
It's like the second to last April and I have a habit.
Word as we get every every day and there was one day and particularly at the borders from Europe. One was from a company that this remote M.B.A. you can get your M.B.A. remote which is you could imagine is serving here and.
NAMIC, a anaemic environment and the other one is the company that makes a temperature scanners again company, that's really surfing and they made sizable waters on the space.
It kind of caught my eye that you know certainly some industries are falling off the public.
So I would describe hot spot as you know in mid March just <unk>.
No no tail with.
Well last three weeks, though that they had one is slowed down the tail when it's picked up so I'm feeling cautiously optimistic.
Perfect. Thank you so much.
Your next question comes from Alex you can from RBC capital markets.
Hi, yet still in rider on for a Alex could you speak a little bit too some of the customers where you are seeing heavier impacts you know the present and you qualification that you can give around percent your customers are in the industry.
And just maybe some of the trying to dig into some of the details that you've seen with regards to you know alleviating costs for isn't providing them with some flexibility as well as some of that turns around and getting new converting you prospects as well. Thanks.
Right.
I guess, what 12 think about spot we have three second it's we have you know to to 20 employees 20 to 200 employees 200 to 2000 employees. So people bucket as soon as death and B.
Kind of thing of US is more m. that s., our biggest segment that 22 200 segments.
That's kind of one thing to keep in mind to speak about small businesses in the impact.
In terms of industry.
Given what's going on I've taken a new interest what industry for it and started to appeal into it.
We have very little exposure to some of the hardest industries like restaurants in stores like a very.
Very small percentage for business or in at a very small restaurant scores airline Pete cruises, yeah, one of our Duran very little exposure to that so.
You know what are the things that the only thing good about how spot is people always after a while you big vertical clipper <unk>.
Kinda chuckle unsafe yet types are the looked at vertical for a puppy other section of the Pie chart would be the biggest then.
It's actually serving it's pretty well and these.
<unk> that's helpful. Thank you and then earlier in the cold I spoke to.
Multiproduct customers.
You may be speak to some of the difference is that you're seeing among your multi probably customers and within your single product customers as well.
Okay.
Sure.
Ah Argh Multiproduct customer total picked up again this quarter, we're close to 32000 multiproduct customers and we talked about in the past the court retention statistics for Multiproduct customers tend to be a little bit better then it for our single product customers.
We have seen that as it relates to.
To the turn characteristic continuing in the last couple of my.
<unk> Okay. Thank you.
The next question comes from <unk> from William Blair.
Hi, guys hope you're doing well.
Quick one for me you know it sounded like Brian you alluded to the first two and half months a year going a extremely well can you may be just flush out a little bit what was driving the acceleration in those first two and a half months and then the second part of the question is you look at April is there any way to.
Break down the trends between what's happening in marketing hub, which is not.
Necessarily versus salesman service, which which are priced more on a per seat basis.
You had to persuade <unk> sure.
Okay.
I mean, a lot of you, though with us for a long period of time and last year.
I think the rapid last year was sort of last year on the product.
Not allowed.
Safety features it's actually the exact off it was probably our best product you are we've ever had we we implemented the main sale methodology that it really has worked at it with a little bit of take a step back. So we go faster to stuff.
And the product the infrastructure is much better security, it's much better.
Much better usability much better.
And we're just starting to see that at the beginning of this year, we're getting the two steps forward, where we realize that marketing enterprise product with with very well on.
It was really good.
You, probably just saw that we we announced a C.M.S. a couple weeks ago.
And while we're announcing to view.
It releasing lots of new kind of Austin functionality actually.
<unk> promoter spores or is high Deborah we're starting to like get into Apple like range and some of our enough for motor sports for breaking records every month on that so product team was really cranky I think another thing that helped US was to go to market organization had a good planning session last year and <unk>, what's it much better.
Shapes coming into this last year so.
I would say this is obviously disappointing, but I feel like of where you are really really good she's coming into this crisis and I think we're going to come out of this crisis really good shape.
<unk>.
Kind of status stuff so that when this thing's over we're really good debt to us brokers that.
And then.
We look at retention characteristics across the Hobbs, what you're seeing is that the trends are relatively consistent across.
The husband our portfolio.
If you again sort of take a step back and look at retention in that first period of time that Brian talked about late March.
We saw really wise.
An increase in both cancellation and downgrades over that period, it with maybe a little bit more downgrade specific but it both both components were pretty significant what we've seen going into April is that the trend is a little bit different retention subjects statistics has fallen a little bit further.
Then they were in March but the composition that is different there's many more downgrades relative to cancellation.
Cheap right sizing is one of those things that we are seeing among others. Many of them are of the downgrade to our results of the customer friendly plays badly kicked off as we saw this unfold so.
Two two we won't be heavier downgrades versus cancellation hopefully over time, a good portion of those customers will be able to grow back again.
Injury next question comes from <unk> from Jeffrey's.
Hi, I hope L. are doing Wow, and Brian I wish we did this over them. So we can see round me on the background was raw hum, but it'll have to have a side.
My first question just on the new booking side I'm curious.
<unk> bookings how that shape has been from late March it now in early may and for the customers that are still booking hubspot is there any characteristics that are shared are they larger and larger side. The smaller side any thoughts on your book has to be helpful.
The Olympics.
I'm sure I think that.
Brian kind of alluded to that you know in March like like sort of shut down and the first step segments of the business that tech Doc was that sort of smaller customer base. So that kind of sad you know to to 20 segment of our business and I think it was just you know they were sort of faster.
Action, whereas that mid market segment of our population really was much more holding pattern and it wasn't until called the back half of April where we started to see some men in that part of our customer base.
I think the one thing that I would note and you'll see it as we potentially get into other areas. It a lot of the customers that we're adding our smaller in terms of just sheer volume of new customer ads were seeing really healthy adds up that started component and we are adding customers wet.
Much more flexible payment terms then we are used.
Great and then came maybe a follow up if I guess, if it's tough to tease out if you guys hadn't proactively provided the the flexible payment terms into flexible ability to downgrade, but I guess, how should we think about the inbound interest from customers wanting to downgrade versus what hubspot practically offered.
Oh I think if we look we about actually didn't looking hard at this and if we look.
Volume of downgrades that we see relative to call. It the normal course run rate and we look at the.
One layer down you know underneath the kinds of downgrades I would say probably a little more than half of the increased downgrades are associated with really the the directly associated with the proactive plays that we are running and others are.
You know motion that would be more customer drive it.
Let me out a little today.
Wonder if our strategies here are some was we wanted to we would far prefer someone down <unk> cancel obviously, just we keep them in our system for longer as this thing passes they can upgrade down the road. So we kind of.
We made a decision to make it easier to downgrade and we did that by one <unk>.
Richer reata, a whole bunch of cool optionality in near like one to one meeting video and Bob.
Really.
Darted for free.
If you bought the starter sweet product, we made that more or less expensive easier to downgrade to and then we gave a lot a room to our product line.
Managers would contributors on the sales and service side.
Offer you know temporary just fancy downgrade customers, we want to keep them in our system.
We had an initial wave of that that was.
Pretty good sized head when there for three weeks <unk> data rates are still higher than it would be normally but quieted down a little bit relative to that.
A little bit of our strategy.
We want to be like a coil springs. So you know we come into this thing you don't waste a crisis, we try to provide a bunch of mechanism or hardly see passwords whether it.
And at the same time, when we come out of this hopefully they've whether it nicely and they grow with us, but we also got a lot of other new customers in the system to breathe.
New started customers and <unk> this was really well in this thing's over.
Okay. Thanks for that their answers then to impressive breath, all things considered take care everybody.
Eczema. Thank you.
You're an X. question comes from Chris Merwyn from Goldman Sachs.
Great. Thanks, so much I just wanted to ask about the new M.S.
Which is looking at the site I didn't see it started price there, but I've, so you'd get prone enterprise. So just thinking about who this is maybe geared toward geared toward and his some does early adopters might be or these are slightly larger customers. Just curious anything you can say about the initial attraction there like so much.
Sure.
Let's talk a little bit about the C.M.S. per se.
How to contact management system since yeah, very early days a spot it's always been an add on product. It's always done okay. It's had it's hadn't that's meant.
About a year ago, we said, let's turn to add on to a whole big awesome. So we really ramped up or if that's been over the last year and so we did was trying to add on those for a likely funded into a poll the existing add on now is C.M.S. top row.
Really much better than that out on wise and nobody out at H.T.M.S.
Enterprise product, it's really good very excited about it now let me think about the C.M.S. industry, it, but it's actually a funny industry.
You've got a choice you can either by <unk> very light.
Easy to use.
Concept man.
You have those on the market one or two of them are public. So you probably know about them.
Or you can buy a very heavy pretty hard to use oftentimes open source content management system, where you're managing a lot of plugging. He got a lot of security, where you can eat a lot of developer in.
It's been like this hearing them for you can have one or the other historically and we just don't like that tradeoff, you've got like a ball straight off the what we've created it the content management system that has the ease of use of the rest of hubspots products, but layers in that real power and capability of some of the heavier products.
So far so give me getting really good reception on the product our partners in customers are buying it and I think it's gonna be a big big business borders down.
Great. Thank you and maybe just one part per K.
<unk> to that second half implied guidance anything you can say about some of that more specific assumptions you know you're making I guess, maybe in particular as it relates to gross revenue your attention that they could call that would that make the or would it wasn't one Cuba just thinking through what that might look like in the context of your guidance for the second half of the year.
Like.
Sure so.
We obviously talked about March as being in the low nineties, we talked about cute too as going down from there.
We would assume that are retention statistics remain under pressure for good part of the year, probably with you to being the low point and some modest improvement from there.
Perfect. Thank you.
You are an X. question comes from CD.
Pantographs he from Miss who hope.
Hi, Michael <unk>, you're on for city just a quick question also on the gross starter sweep noted those five times what it was previously.
What can we think of as a general rule of thumb for how much of the general starter population is on the full sweet now.
Oh, Okay. Yeah. It's a good question you know historically, what we have seen is that the strength of starter at have really been in that marketing starter product and I think what you saw with the new price for the gross Tweed that we introduced in mid month is like a material shift toward.
The new customer adoption of vigorously and I am sure I'm going to get the numbers exactly wrong about it edge sort of closer over the last month to being more of a 50 50 at across that sweet and marketing starter.
So customers. So just for clarification customers don't typically adjust the starter of.
Sales or service, they do either marketing or the full suite at this juncture.
See the marketing starter product has been a particularly popular product with a lot of real strong value and that's that's where we've seen like highest volume of ads over the recent you know history.
Okay, and then a quick follow up on on some more notes when you're talking about the downgrades.
If we can price reduction right now for the Crow Sweet.
You see people who are downgrading.
<unk> go to the full sweets or do they typically downgrade through the singular product.
So downgrades can take a bunch of forms I think the one that you're thinking about is right where you can have somebody who is the on you know enterprise or professional edition downgrade. Their addition to you know from enterprise to professional or professional to start or you could also have people reduced sort of volume of c.
Contacts.
There are there are other ways of downgrading as well like we've been helping west customers with sort of near term price point release. So.
There's a variety of things that end up hitting that downgrade number.
Okay.
In one last one on same though I think you put some time frame on the reduced price for the gross suites.
Are you thinking about that as for the next yeah, 12 months or so or until the retention rate or Huck, we think about how long the reduced price will be there for both mauling purposes that for general sense of how you'll be pricing.
I could take that we're we're talking about that now it's gone really well.
Kind of finding a new.
She used to the supply and demand curve, we have a big cities is on it.
Sure next question comes from Mark Murphy from J.P. Morgan.
[noise], yes. Thank you add G.D. I just wanted to say thanks for everything and all the best and I Hope you get in some migrate bone fishing here over the summer.
Brian I want to task you the the comment about the headwind turning into a combo.
Into the tail wind in recent weeks are you kind of interpreting that as the worst is behind US. It also if you could just clarify our you conveying the bookings are are getting all the way back to the original plan or.
Feel like more of a of a partial step on the way to recovery.
Yeah, more like a partial stuff more.
I kind of break it out in my head into new business coming in and then what's going on would be installed base.
Tailwinds definitely going on the news is coming in.
<unk>.
Coming back.
The thing that's interesting about it is our marketing departments on fire.
Marketing it involves marketing strategy of the previous drag it really paying all where the leap closed is great.
You know the least we get out of the free C.R.M. is great and different Academy has been on fire. So.
It's been good and you'd be able <unk> good it's been good.
Bounce back pretty well.
On the other side in the customer side.
The numbers are going to be a little funny to look out because because we made it pretty attractive to downgrade here, but the amount of downgrades in the attractiveness of those downgrade the taste of it.
It was really high there for three weeks, it's still higher than in in a steady state <unk>, but it's come down off the eyes I guess, that's how it is bright.
Okay, and then as a follow up for Kate I I'm, just curious when do you see the trough in in revenue growth for instance, as it should we be looking at this kind of mid teens growth in Q3, Q. for a as a decent guess as of now.
Like I I think the the tree trunk well reveal itself as the economy turns around but I would say you should estimating that you would see declines over the next couple quarters.
Understood. Thank you very much.
Your next question comes from <unk> from Guggenheim Securities.
Great. Thanks for take my question blank.
Talk about the appetite ever customers to attach new hubs in this particular environment is that something that you guys are still able to move forward or that's something we have to wait maybe until we we could clear this kobe had a covert fog.
I haven't noticed anything particularly.
Strange there I would say that.
Based on what I'm seeing that see a mess up attaches been pretty good at new C.M.S. enterprise product people are buying it so there the desire to do it.
I mean, I've seen companies or or several things going on one they're coming to the conclusion that they knew they <unk>. They knew they needed to insides feel they knew they do online marketing and they needed he needs to get rate at it and there are planning on doing it sometime in the next.
Years, you're having to do it now it's it's just a bird this year round.
Combined with you know some a couple of these industries are really are really growing in their budgets are increasing in the movie.
So that's kinda, how what we're seeing out in the market.
Got it thanks, thanks for that color and in Cape May be quickly I know you guys Yup look at subscription as a as a better reflection of your business, but any any thoughts on how how the fillings growth rate might look like in this type of environment.
Yeah, a couple of thoughts there so.
You know, we've always talks about billing growth and you know billings growth in revenue growth in concert currency should kind of track each other and you saw that happen yeah <unk>.
One of the things that.
The wedge between the growth in billings in the gross and revenue in constant currency is that either expansion or contraction billing terms that payment times and we are definitely seeing.
A reduction in billing term and so I would <unk> back that in the next couple quarters me you would see billings grows lag revenue growth in constant correct.
Great Super <unk>.
Your next question comes from Terry Tell me from some trust.
Hey, this is actually Nick on for Terry interesting. Our question. So I was just hoping you guys could take a little deeper on the net customer out and the color and they said it was primarily driven by those starter sweep just any other call you provide there would be helpful. Thanks.
Yeah, Yeah sure. So Q1 was a record quarter for us for new customers.
It was almost 5300 at the high water Mark for Us and it was really driven by that starter product. So we saw very strong additions and marketing starter. We saw a strong edition in the server sweet.
We're continuing to see that happen through April and so we're anticipating that we'll see you know another strong Porter.
New ads in Q. too I think with that I, just cautioned us to look at the S.R.P.C.N.N. you know think about what's gonna happen. There you know given that strong growth that that well when we would expect to see that the under pressure in the next quarter.
You're an X. question comes from Tom Roderick from Stiefel.
[noise] everybody. Thanks for taking my questions. So can we just talk for a second about <unk> duration and maybe with the mix of your customers look like a noticed on your website and formal offer out there for I think what was the 20% discount for.
Paying annually up front could you get a sense as to how many of the customers pay quarterly versus annually versus monthly and then as we break that apart for those customers that are down ticking I guess the the the thought behind the question is how soon do your sales reps get a chance to kind of get back in front of them and and and try to pick them.
Again, once things get better.
It's what I take the first part and then Brian can can handle that sort of sales aspect of it yeah.
You're asking a contract duration question there. The reality is that most of our contracts are annual contracts outside of that starter appear. The difference is the billing terms that we have customers that pay asked for the fall annual contractor from we have found that passed quarterly we have some that has monthly those are you know typically though.
Starter customers and what we saw was that marketing has always been annual upfront payment as we have gotten into the sales and service how those were typically more quarterly payment turn products.
And as our mix has shifted from marketing into sales and service, we've seen that payment duration come down that's why you've seen the billings growth in constant currency kind of lag revenue growth in concert currency over the last.
Year at 18 months.
We are seeing we are proactively being more flexible with payment terms. During this period of economic pressure and so you're going to see that are not just a sales and service hot but also in the marketing habit near term.
And I would just add the it's the same theory on payment terms is we're doing on discounting weird.
If a customer comes to us it's impacted by Kobe say gosh, we're just going to have a heck of a time.
I would cash flows in the next.
Yep three months, we will give him a discount we want to keep them in our system and we want to help them through it.
And I suspect that will be going on for the next three to six months that that will try to be generous there and then back down the <unk> their business <unk>.
Yeah, and Brian just on that on the thought of sort of not knowing if this is going to be 369 months type of deal in terms of how everybody's impacted there is a real opportunity here for.
Obviously for hot spot to put a good level of distance between some smaller competitors and really kind of step on the pedal you grew head count I think 30 per cent. This quarter. How are you thinking about your goals to continue to really invest aggressively I don't know if you want to sort of layout headcount goals for the year or anything you're thinking about with kind of a pause on on head count.
Near term, but just tickets through your thinking on on on when to put your put back on the pedal for investments in the business, particularly sort of sales and marketing go to market headcount.
Sure.
Kate was saying earlier no one knows what's gonna happen to be a call. It we're planning for U. shaped you know shape recovery.
And as part of that we're continuing to hire we want to hire sort of a really good yeah really good shape on the other side of this thing most of our decision than me, but that is mine.
You know.
It's all the way down on the gas pedal.
On the sales marketing genius.
A little bit tick it off a little on her.
It was all the way down <unk>, how long the R.D. side that are to be organization eight great progress last year in coming into this you are really good shape, we feel like our vision.
We can deliver for our customers. It's still early in the flight cycles is a lot more which up there so.
<unk>.
We were in great shape, when we're on the other side of this like.
Your next question comes from Ryan Mcdonald from need them.
Hi, Thanks for taking my question I don't want to get too far ahead of myself here, but in terms of the the downgrades in in sort of the favorable terms to help customers proactively downgrading help them out is there anything in built into that a into those terms that offers more favorable terms for them to when they're ready to upgrade again.
Not really the way we're structuring those days you come to us and say Hey, we're having a hard time and say, okay, let's structured deal for you.
Yeah, we can discount you down x. percent in most similar structure that that last for 90 days in summer structured that it's more like 180 days.
Ended that you come back to your price if it's 90 days when someone comes back because we have to 90 days.
Really still struggling.
Another 90 days and we'll be in good shape.
Quite sure will be flexible on that.
Bar.
Excellent and then just to follow up in terms of as you're looking at it was flip through April and starting to see I don't know the impact whether it's worsening or improving.
Are there any pockets or a surprising pockets of strang, sir or weakness that that have sort of either improved quicker than expected or or have remained worse than expected for longer. Thanks.
Yeah, the way I would.
Like if I think of the different segments of that to to 20 versus the 20 to 200 200 to 2000 to tune it 20.
Oh, it was very fast react to all this stuff.
Yeah.
They really froze, they're spending a lot of my as a downgrade you cancel.
The mid market incorporate just kind of.
They kind of gross.
Bore and they didn't downgrade or cancel it.
<unk> rate in the way I would describe it over the last three weeks.
You know those small segment the 220, they're starting to buy again and moved faster and try to <unk>.
There are still can't pulling at a higher rate than they were prior to close it but that is certainly slowed down.
Mid market the corporate for us that 2200, 202000, they kind of thought or on a little bit and they're they're starting to move and starting to buy your some downgrading some cancellation going on there but.
Not as heavy as it wasn't a small business.
And I would just remind everyone that like I looked at those three seconds to 20 2200 202000.
The 2200 is is the heaviest second for US that's kind of our sweet spot the largest trying to have already or.
Your next question comes from Brian Peterson from Raymond James.
It's a guy's Kevin here on for Brian. Thanks for taking my call I'm curious what the uptake has been for some of the free tools, you've made available to customers over the past several weeks or should we view that more as a bridge here in the near term to help customers or do you think that could also serve as a potential expansion opportunity on the other side.
Yeah. That's a really good question, we were just talking about that the other day, it's been well we see people are using some of those new features the Boston videos operations teachers. So.
State to we'll make some decisions over the coming weeks as to whether we'll leave those down near or we we put it back into the starter. It's a good question.
Do your next question comes from Brent Graceland from fiber Sandler.
Hi, This is Parker on for Brett we've nothing several companies disgust material changes to marketing budgets as a result, <unk> relative to the marketing hug are there any features that guys are kind of paid into can you help that can help offset the weaker marking spent in any color on how cost.
<unk> needs are kind of changing and patch the lane expand model for the small business customers.
Yeah.
People are definitely buying our marketing pub now they definitely slowed down for a few weeks, but they started buying again, our marketing product really fits the times, where you method this idea of doing.
Down marketing versus outside of marketing in that marketing is about created content.
Google Social media and pulling people in in a in a very low cost way tons of money on advertising.
V. or billboards or wherever your advertising your success in email is much more about the width of your brain than the with if your wallet sword value.
Varies from it.
It's the times I mean is at the same as it was before probably not but I think people are going to be buying our marketing product. That's a cure for what's going on not not the other way around.
Jerry next question comes from Turkey returned from every corner as I.
Oh, yes, thanks, very much Brian I I guess are you seeing any differences you with your customer base in terms of how they reacted you know internationally versus the U.S. or even when you're looking at on sort of a size range. It's it's pretty similar across different geography is and maybe just how are you thinking about that going forward if if it.
All you know if it's at all different thanks.
Yep.
Kind of address the size on international a tiny tiny that the U.S. every kind of get everywhere Asian, maybe a little bit before but I hate everywhere and it's sort of it all day to all kind of <unk> you know watch screwed like two ways like I've been talking about but one place where it hit, particularly hard and I think it'll take longer.
To recover is in emerging markets.
And in some of that some of the smaller emerging markets.
Those are markets, we don't have a whole lot of exposure to in so hard.
Luckily painful course, but it does look like those were it harder.
And art rebounding as quickly as some of the other big markets.
And your next question comes from Jennifer low from U.B.S.
Great. Thank you first I wanted to ask it to you know you mentioned that you were working kicks P.D. eight at commissions and a quarter to partners and giving them a six month advance if they ask for it and just the natural question on that can you just comment on enter the health of your partner Channel I know hot spot is a relatively small makes it.
Revenue overall, so if there's something they're asking for they concerned about their businesses or is this just you know what a gesture of good well can you talk a little bit about that.
Yeah, I think it was more the very good questions I've heard proactive on our part in the mid March we thought.
Partners for small business as most of our partners or a relatively small forever to get some bigger ones, but the vast majority are relatively small is.
We just wanted to make sure they have the task load. So they so often in aid kit.
Through a what's going on here, we want them to continue to hire at least not <unk>. It seems to invest in their business and you felt like that was very good for them.
And over long haul I think that'd be good for us. It's it's you who's up to how they healthy cooperative rolling partner channel.
Okay.
Yeah, No I think it was highly it was very well received by our partners. We offered the commission's prepayment are platinum at a bar event vast majority took a half on it yeah.
[laughter] can imagine they get and maybe just one more for me you know it it sounds and when we talked about sort of that the downdraft and how it affected all the hubs similarly or at least that that was my interpretation of what we said earlier, but if you look at <unk>, there's a discussion around that interest in marketing and it makes a lot of sense everyone's gotta market digitally.
And the new world, but keep comment on sales and service hubs and whether that has potential you can as similar kind of take an interest or if there's differences in and how those products are being received in the current environment and that's it for me.
Yeah, you know initially when I looked at this I thought would see a big surge in marketing and the others would stay flat, but it's kind of been across the board where they all kind of went down at the same time in there all kind of coming up at the same time. The the one that's coming up nicely that what you would hope we come up nicely gets to see a mess up the new getting nice.
But it's been.
For free consistent across all Thunder, what within the wire in one direction or the other.
Okay. Thank you.
Your next question comes from co G.I. Quito from Oppenheimer.
Thanks for taking my questions. Just one quick one here on the guidance I was wondering if they dig into a little bit more on the four year on which you commented on the wider range of outcomes I guess, how should we thinking about the outcomes on the bookends.
More specifically on the low end does does low and assume the macro bottoms and the second quarter and begins recover from there or is the low end up before your guide more like the macro bottom somewhere beyond the second quarter. Thanks for taking my question.
Yeah, I think yeah, Brian talked a bit about the scenarios that we are running internally bridging from this v. shape scenario that had a really sharp recovery. The u. shaped scenario, which is our current operating assumption that cause it takes just a bit longer to have the economy together.
Back on track and also this sort of an l. shape, which envisions a longer period, the economic recession, and we looked at all of those when we were thinking through and setting our guidance to make sure that we felt comforter.
<unk> across sort of a variety of outcome.
And I will now turn the call back over to Brian Halligan for closing remarks.
All of you stay safe and stay healthy and thanks for joining us on the call and we'll talk to next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Goodbye.
Mhm.