Q4 2020 HubSpot Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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John.
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Ladies and gentlemen, thank you for standing by and welcome to the hotspot Q4 2020 earnings Conference call.
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You have to hand, the conference over to your speaker today, Chuck <unk> head of Investor Relations. Thank you. Please go ahead.
Good afternoon, and welcome to hotspots fourth quarter and full year 2020 earnings conference call today, we'll be discussing the results announced on the press release that was issued after the market closed.
With me on the call. This afternoon is Brian Halligan, our Chief Executive Officer, and Chairman, Kate Bueker, Our Chief Financial Officer.
Before we start I'd like to draw your attention to the Safe Harbor statement included in today's press release.
This call, we'll make statements related to our business that may be considered forward looking within the meaning of section 2007 day of the Securities Exchange Act of 1933 as amended.
And section 20, <unk> of the Securities Exchange Act 34 Ism index.
All statements other than statements of historical fact are forward looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures.
<unk> growth and business outlook, including our financial guidance for the first fiscal quarter and full year 2021.
Forward looking statements reflect our views only as of today and except as required by law, we undertake no obligation to update or revise these forward looking statements.
Please refer to the cautionary language in today's press release, and our form 10-Q, which was filed with the SEC on November five 2020 for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations.
During the course of today's call, we'll refer to certain non-GAAP financial measures as defined by regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed and I reckon.
Filiation of the differences between such measures can be found within our fourth quarter and full year 2020 earnings press release in the investors section of our website.
Now, it's my pleasure to turn it over to <unk>, CEO and chairman Brian Halligan.
Thank you Chuck good afternoon folks. Thank you for joining US todays review hotspots fourth quarter and full year 2020 earnings results ex.
Actually proud of how our hotspot team closed out the year in Q4, we saw a nice reacceleration in revenue growth at 35% year over year during the quarter. We surpassed the 100000 customers then in December we crossed the $1 billion in <unk>, two terrific milestone on which to end the year.
So what's behind this reacceleration in growth.
This unusual year opened up everyone's on just how early we still are in the digital transformation on the economy. This is a trend we've been seeing for 14 years and with sped up for obvious reasons. This year.
You started to work with while they are born digital older scale ups, we work with who may have only been partially online on the path have you got to fully digitize their end to end experience hotspot.
Deal platform to enable all of these companies to build the rightful modern experiences for their customers.
Another trend we've seen is the shift in the market expectations for <unk> software.
People now expect it to work like the consumer software they used in their personal lives traditional enterprise CRM are cobbled together through lots of acquisitions and the resulting user experience, while it's pretty rough.
Our CRM crafted internally with the consumer like you on match with the scalable enterprise back in this approach is resonating very well on the marketplace.
All of our products in all of our geographies performed well in Q4 in particular, we saw strong growth in our enterprise here. This year, we did launches of our marketing hub enterprise product, our CMS hub enterprise product and our sales hub enterprise product. These all did well individually in the market, but the thing that really stood out was the number of companies buying too.
Or more of our hub, taking advantage of having their entire go to market on one platform with one day to model one representation of their customer and one user interface.
We're super pleased that our unique approach was recognized just the other day when hotspot was named the number two best Global software dollar. According to user reviews on <unk> crowd or words right between Microsoft and June So much has changed about the relationship between companies and their customers. This year.
So much opportunity still lies ahead after a strong finish to the year. The team is more motivated than ever to help our customers create remarkable end to end customer experiences and grow better in 2021.
With that 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 2021.
Fourth quarter revenue growth reaccelerate, it to 32% year over year in constant currency and 35% as reported.
Q4 subscription revenue grew 36% year over year, while services revenue increased 9% year over year on an as reported basis.
Full year 2020 revenue grew 30% in constant currency and 31% as reported.
Full year subscriber subscription revenue grew 32% while services revenue grew 5% again, both as reported.
We saw strong demand across all of our hubs in Q4, resulting in a reacceleration in new business growth along with record customer dollar net revenue retention rates.
In Q4, we added 8400 net customers.
Ending 2020 with nearly 104000 total customers.
42% year over year.
Average subscription revenue per customer of nearly $9800. It was up slightly sequentially, but down a few points year over year.
Domestic revenue grew 27% in Q4, while international revenue growth was 40% year over year on constant currency and 47% as reported.
International revenue represented 44% of total revenue in Q4 up three points year over year.
Deferred revenue as of the end of December was $317 million or 35% increase year over year.
Calculated billings was $309 million in Q4 growing 30% year over year in constant currency and 43% as reported.
This reacceleration in constant currency billings growth was driven by strong revenue performance on a positive mix shift towards professional and enterprise subscriptions in the quarter.
The remainder of my comments will refer to non-GAAP measures.
Fourth quarter and full year gross margins were 82% flat year over year.
Subscription gross margin was 85% while services gross margin was negative 20%.
Fourth quarter operating margin was 10% up slightly compared to the same period a year ago as a result of our strong revenue performance in the quarter.
Full year operating margin was 8% flat year over year.
We invested aggressively in our business over the last year to meet the significant demand for our products and drive innovation to fuel long term growth.
We plan to continue this investment approach in 2021.
At the end of the fourth quarter, we had 4225 employees up 25% year over year.
Net income in the fourth quarter was $20 million or <unk> 40 per diluted share net.
Net income for the full year was $64 million or $1 32 per diluted share.
Capex, including capitalized software development costs was $15 million or 6% of revenue for the fourth quarter and $59 million or 7% of revenue per the full year.
Free cash flow in the fourth quarter was $46 million or 18% of revenue and $79 million or 9% of revenue for the full year.
Finally, our cash and marketable securities totaled $1 $3 billion at the end of December.
With that let's dive into guidance for the first quarter and full year of 2021 for.
For the first quarter total revenue is expected to be in the range of $260 million to $265 million up 32% year over year at the midpoint non.
Non-GAAP operating income is expected to be between 17 and $19 million.
Non-GAAP diluted net income per share is expected to be between 28 and 30 <unk>.
This assumes $50 3 million fully diluted shares outstanding and for the full year of 2021 total revenue is expected to be in the range of $1, one six to 1.17 billion.
Up 32% year over year.
Non-GAAP operating income is expected to be between 98 and $102 million.
Non-GAAP diluted net income per share is expected to be between $1 51 and $1 59.
This assumes $50 7 million fully diluted shares outstanding.
As you adjust your models keep.
Keep in mind the following.
At current spot rates, we're forecasting an FX tailwind to as reported revenue of four points in Q1 and three points for the full year.
As many of you are aware, we will have some unusual year over year growth comparisons in 2021.
With that in mind I thought it would be helpful to provide some additional color on how we're thinking about the cadence of growth throughout 2021.
We anticipate revenue growth of 35 per cent in the first half of the year, followed by revenue growth of 30% in the second half of the year as comparisons become more difficult.
Our 'twenty 'twenty, one guidance assumes flat operating margins year over year.
Embedded in that guidance, we've assumed a healthy level of investment across the business to meet the market demand, we're seeing more normal levels of <unk> expense in the back half of the year and continued strong investment in R&D.
Lastly, we expect Capex as a percentage of revenue to be about 5% to 'twenty 'twenty, one and free cash flow to be about $130 million with seasonally stronger free cash flow in Q1 and Q4.
And with that I'll hand, the call back over to Brian for his closing comments.
Thanks, Kate those numbers reflect how nicely our customer flywheel is spinning well our employee flywheel is spinning nicely too. We were just recognized in the fourth best place to work in 2021 by Glassdoor last.
Last month comparably also highlighted hotspot as being the number one best workplace for women.
Top place to work for parents.
We endeavor not just talk the talk on diversity inclusion, but walk the walk we have a variety of initiatives underway, but two new ones that are particularly proud of our $20 million commitment to social impact investing in a new partnership with Howard University, which established a new standard for digital business on their campus.
The difficult years are always the ones that define you I'm grateful to every hub spire and our partner community for the way, we all pulled together and the year.
Our strong and start 2021 with momentum.
Super Grateful to the 100000 customers, who put their trust in us.
Thank you for your time, 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, while we compile the Q&A roster.
Your first question comes from Mark Murphy from Jpmorgan.
Thank you and congrats on a great finish to the year.
So Brian I have noticed what you pointed out that GTO crowd had ranked Microsoft hub spot and zoom.
As the top three software companies for 2021, I thought that was pretty amazing.
I'm wondering when we see that kind of prioritization that youre getting should we assume that marketing budgets are going to shift.
Pretty quickly to digital and to inbound this year.
Is that embedded in your assumption or do you see those signs or is it is it more to do with this surge you've had in the starter cohorts and maybe we're going to see that converting this year.
Hey, Mark.
Thanks for your question I was super pleased to see that.
Sandwiched between two terrific software companies zoom, and Microsoft and I think it's just a reflection of a lot of the bets we've made over the last couple of years.
Product has just gotten way better customers your way happier and they're giving us really good reviews. There on G too so really happy about it.
In terms of kind of the second part of your question.
I mean things are good.
We're seeing nice momentum kind of across all three.
So the product the enterprise the pro and the starter and across kind of all the geographies. So feeling good things or things are going really well. Thanks for your question.
And I had a quick follow up for Kate I was just wondering if you see much of a structural change for your real estate.
And your T D levels.
Pandemic World I think you said in the second half the TNT will normalize a bit.
But if you have more people working a bit more remotely is it possible there was an extra point or two of margin.
You know coming out the other side of this or do you kind of prefer to reinvest that.
Well I think the debt.
That you will hear over and over from US is that we believe theres a ton of opportunity ahead on that we're going to continue to reinvest in the business and so that's the comment that I would think generally.
We are as you pointed out assuming that we are largely remote.
For the first half a day here there are some modest assumption that we get back to travel at some point over the course of 2021, but it doesn't have a dramatic impact on our operating margins for the year.
Thank you.
Your next question comes from <unk> <unk> from Jefferies.
Hi, good evening and congrats on a.
Very strong finish to the year Kate maybe one for you and then one for Brian but first.
Brian mentioned are crossing the $1 billion, Mark and no debt.
That implies a pretty significant acceleration I think in back half bookings, especially in fourth quarter can you help us maybe understand how net retention looked and how that impacted it versus new customer bookings.
Yeah, I think the good news is that we had great things to say about both of those pieces in terms of retention.
Obviously shared in the prepared remarks that we had a record quarter for retention in it.
What I like about that is actually there's just a lot of components that are all.
Complementary and driving the retention in a positive direction.
It starts with the fact that we are we had record customer dollar retention and then our upgrade rates are also hitting new record levels in particular were seeing some strength.
In addition upgrade motion.
But I would just add to that some of the investments we've made are really paying off.
As a leading indicator, but NPS or net promoter score is something you've been talking about for a couple of years and this past year. It went way up.
You bet. Thanks, you've made are really paying off.
And then graduation rates.
Typically.
It's like a 300 person companies have been with Us 33.
3000 last time to graduate there I just think the power we've added to the platform is there.
Really been up and people are sticking around longer and enjoying the new isn't true.
Right now.
Brian So that brings me to a good follow up question.
The ones that I had for you was it crossing the $1 billion market is obviously incredibly impressive but as you as you think looking forward to going from one to two and a flywheel that you have today are there any changes we should anticipate or that your debt you'd think that need to be made or is it as it currently constructive can it get you can start to going to get.
You to that $152 billion level, just as we think about investments in 'twenty, one positioning you for that.
Well when I think of hotspot.
It's like the bottom of the second inning in our baseball game it still feels early there.
Market out there for CRM.
We're kind of mid transition from moving into the company from being on.
Marketing app to try to become the number one CRM per scaling company, so youre going to see us continue to improve the product improve the go to market improve the way, we execute we are sort of tireless and our desire to get better and to deliver more value to our customers. So.
It's not this isn't a steady state kind of company a lot more investment coming a lot more innovation more products existing products going to get better.
It still feels early in my head my friend.
Great well.
I wish your ongoing success and it's great to see everything paying off thanks again.
Got it.
Okay.
Your next question comes from standard Latzke from Morgan Stanley.
Perfect. Thank you so much.
Congratulations also on a very very strong end to 2020.
Maybe just on.
A couple of questions from my end on the macro right. What are you guys seeing across the world.
And how are you baking that into the growth acceleration that you provided for 2021 on the on the top line.
Moving to take that everyone's expecting you must.
And then I can talk about how we included that in guidance sure just sort of reiterate what I talked.
<unk> talked about earlier and we're.
There's a couple of drivers going on here I mean.
Covid, just sort of accelerated people digitally.
<unk> moves like I think everybody knew they needed to completely digitize their go to market and this just sort of accelerated it.
And so the demand has been strong I don't see that demand going back it feels like people are going to lean into the future going forward.
So the demand is strong our target market. So the whole market is growing and then our target market is also expanding if you think about it like we are moving from a marketing app to a CRM platform that CRM market is much bigger than the marketing app market and we're doing we're starting to do really well and make a lot of progress on there.
Sure.
So the market is large and growing.
We're just kind of really well positioned to lean into it and I also would just say stand like.
Our competitive positioning is super unique super compelling for prospects and customers. Our win rates are going up on our retention rates are going up like things are really good at some of those bets we've been making over the last couple of years, you've been talking about.
They're really starting to pay off for us over the last year.
Okay perfect.
Just a quick follow up the starter package promotion, which was which was a very.
Very smart strategic decision to make through the year.
On the promotional pricing there.
Are you guys thinking about that as you get into 2021 on some of those promoting the peripheral pricing is going to start rolling off what kind of.
Retention and conversion rates are you guys thinking about.
Yeah. Thanks for the question, we obviously are paying on kind of attention.
I would say just like stepping back on that one.
<unk>.
What we tried to do in making the changes on the pricing and packaging side, there was to just simplify things and bringing it together as a suite.
Putting forward like a $50 price point.
Just really simplify the buying process at the low end and the learning that we have there is that it.
Really.
Making it easy is super compelling.
And so we think that was a great choice to make.
We have been watching.
The upgrade rates closely we have been watching the usage rates closely and we're feeling good about both of those metrics.
Overall, we are feeling great about that started grocery clay.
Do have operational plans underway to try to maximize success on the renewal of those big cohorts and so we will continue to.
To share that as appropriate.
Perfect. Thank you so much and congratulations on a very strong quarter.
You're right.
Your next question comes from Terry Tillman from true Securities.
Hey, this is actually Nick on for Terry Thanks for taking my question.
Just wanted to touch on international a little bit. So it seems like international revenue growth is actually seemed to outpace domestic growth in recent quarters. I was just wondering if you guys could talk about how you are investing in that area to continue to drive strong growth.
We're on a national could potentially move to as a percentage of revenue longer term. Thanks.
Sure, Brian Nick I can take that.
Really happy with frankly, we're really happy with both the international growth and domestic growth.
Growth really picked up nicely I think.
It's just a testament to the market is quite big.
And I think it's growing.
Now when you look at the market versus U S vs is international.
Really all our segments are doing well across the geographies small business the mid market and the enterprise segment are doing well and then both of our channels seem to be doing well our direct channel in our indirect channel our partner channel seem to be doing well on it I think it's just a reflection that the product has gotten better the value prop is getting better a flywheel spinning really nicely maybe kicked up from NASA.
I think that as we.
Look on it.
International It has consistently been stepping up as a larger share of the overall revenue of the company and we would expect that that would continue over the next few years.
Your next question comes from Arjun Bhatia from William Blair.
Hey, Thank you.
Congrats on a on a strong quarter.
Brian maybe one for you you touched on kind of an evolution from an app to your platform.
Love to hear what you're seeing from your new customers in terms of product adoption are you seeing them actually.
The whole platform upfront, meaning the growth can you get all three solutions.
Regardless of the addition that they're on that Theyre, starting on do you see more platform adoption from these new customers that are coming on board.
Yes, great question.
The transition is going real well when I think about box I can't help but think about the <unk> Bill rule not sure if you're familiar with that but like if you have one client that can pull a thousand pounds.
And then you add a second client feel they can pull a thousand pounds. The really interesting thing that happened is that combined five salespeople 4000 pounds that's on.
We have on marketing Bob we have a sales number service suffered CMS we're on.
All built on this debt a tiered services underneath the UI is the same as the single data model.
Beautiful consumer like Brian ended and powerful enterprise back in and so we're seeing nice adoption about a nice pick up from new customers, who are buying the full suite, particularly the starter suite.
And lots of existing customers grow on marketing numbers built up buying other so getting really good facts, not particularly with new customers, but also the installed base.
Perfect. Thank you and one follow up if I can for Kate.
Thank you mentioned.
Hi record net retention rates as we look forward I think this has fluctuated in the past you get the fact that we're in a price now with the expansion motion with it can consistently stay above well above 100% or should we expect a little bit more fluctuation there going forward.
Yeah, I mean, that's a question we spend a lot of time talking about internally as well I think you just kind of turn the clock back a little debt.
At the time of the IPO.
We had sort of on net retention in the mid nineties.
Over the last couple of years that has stepped up and we've been saying.
In and around 100.
Look where we reached a new deal here in the last couple of quarters, and we're not calling a new normal but the performance over the last couple of quarters. Certainly gives me a lot of confidence that we'll be able to keep retention at or above 100.
Perfect. Thank you very much and congrats again.
Your next question comes from DJ Hynes from Canaccord Genuity.
Hey, Thanks, Congrats on all the accolades the momentum really impressive stuff here.
Brian I got a product question for you. So if you think about hub spot in the context of the CDP right now collecting the data across the various customer touch points, but my sense is is that you guys are really good at aggregating.
Aggregating the data that happens inside of the top spot where are you in terms of pulling in data. That's generated in other systems is that something that customers ask for is it important to the growth of the platform any color there would be helpful.
Excellent question Vijay.
Excellent question I do simple.
John.
<unk>.
Where we do a fantastic job.
Of collecting all kinds of data about all the touch points you have good prospects and customers whether that visitors to your website or other forms of chatting with you on the western or they have a call with your sales rep, whether they thought they wanted to ticket whatever it would be when we combine them together and have this one unified view of the customer that makes it incredibly valuable.
The whole organization, where youll see us go over time, it's getting better and better not just collecting that data, but it is managed by up spot, but with all of your front office applications and pulling all that together and making sense for for our prospects of it. So that's an area. We're investing in super excited about our customers want it and.
Awesome.
And then one follow up for <unk>.
<unk> net adds the last few quarters, but I think equally impressive is that.
<unk> been going up sequentially right. So.
Do you think we've seen a bottom floor that we see subscription revenue.
Yeah again, we're hitting on all the really hard ones here.
We were obviously very excited about the incremental net ads in Q4, I think the the thing that I liked about it.
Which it seems like were aligned on is that the customer growth was very balance.
Once you cross the starter and the professional enterprise and so it training.
Weighted also into a quarter over quarter increase in ASR P C.
Honestly, you're going to see some quarters, where you have less customer ads and.
Be at the high end and Youre going to see bigger increases enhance RPC youre going to see other quarters, where you have.
You know our concentration of the customer additions at the low end and a little bit more pressure in his RPC.
The good news is that when we look at the starter and we look at professional and enterprise each of those is expanding.
And so we feel good.
Yeah, Yeah, Okay, great. Thanks for the color guys congrats.
Okay.
Your next question comes from Brian Peterson from Raymond James.
Thanks for taking my question and I'll Echo my congratulations so Brian maybe just one for you.
Specifically about sales hub in some of our important conversations on I heard that the ability to kind of work with larger and larger teams is something thats kind of a common theme.
What are some of your largest deployments for sales hub and how large do you think they can ultimately be over the next three to five years.
Brian Thanks for the question.
<unk> has a ton of potential we re relief built up enterprise at inbound last year, and we've had very strong demand, Florida over the last few months.
And do you have a whole bunch of good stuff.
Core sales a better price.
That product can get very very we get very very bullish on that you've heard that.
Yeah.
In terms of the size of the group, we're definitely closing bigger deals we closed a couple of whoppers in Q4 with many hundreds of seats. So I.
And we just see a lot more deals on our pipeline with larger seat volume. So it's.
Our strategy and the investments are starting to pay off there on sales up on the deal sizes are getting big one of the things. We've just been working on like if I think of it.
Step back and think about it.
We're really strong on that and built on the very middle of the market 20 to 200 employees and I give us like an eight plus on our product market fit on a go to market market there, where we're working hard on is that 200 to 2000, what we call. The enterprise and then the two to $2 to 20 lots of investments going in <unk>.
Last year on this year in those areas and we think we think we're going to make a lot of progress there.
Good to hear thanks, Brian.
Your next question comes from Michael <unk> from Wells Fargo Securities.
Hey, there thank you and good afternoon.
It could be the initial guide on top line for the upcoming year really stands out.
Good out a bunch of reasons for it but anything else you can add if I'm looking at this right. Having initially guided 30 plus percent revenue growth in four years now so anything you'd call out that's just structurally different heading into this year versus prior years.
Okay, I hear us talk about this but like in a given quarter.
The stuff that's happening now.
We've made really over the last couple of years. So like what happened. This month doesn't really impact Q1 that much so I'm not sure that we're seeing.
Such good results and we have got good guidance and we've reaccelerate as like we've made some.
This is we're really done.
Back to the big step forward and.
We're just getting a return on some of the debt and then more markets bigger we moved from a marketing market, which is a cool market and not small and growing too.
On your whole darn front office CRM market is much much bigger than it was just a lot everyone needs. One it's not an optional thing.
And whether youre startup buying your first one or your scale up and Youre not happy with what you've got where just the great fit these days and we become a better fit over the last couple of years, our competitive advantages of increase.
It's a little bit boring in a little old school, but are now.
It's gotten better.
We win more deals and routine customers longer we delight our customers, it's a little bit of a very old fashion, but it works.
Long term vision is neither boring old fashion.
It was refreshing to hear.
I mean, the other question, we've just been getting a lot is around new customer trends and how to think about the sustainability of these elevated levels has the starter growth suite unlock something new you feel you can continue to tap into here or anything else. You can provide just to help us think through comparing.
The net adds you've seen this year versus prior historical periods.
Yeah, I mean, it definitely feels like we've sort of hit a new level.
See now three quarters, where he is.
Ill have broken away from that what we had been at that call. It three or 4000 customer adds per quarter and we feel good about our ability to continue to operate at that new level now that doesn't mean that I would translate into eight to 9000, a quarter I do think as I was talking about a little bit earlier there'll be.
Some variability from one quarter to the next.
Based on whether we're seeing some strength at the low end are our strength at the high end.
Thank you congrats on the results here, it's truly impressive.
Okay.
Your next question comes from drew Foster from Citi.
Yeah.
Hey, guys. Thanks for taking the question.
Brian.
Talking a lot about the growth and evolution of your portfolio to more of a front office platform and I'm just curious what youre seeing as sort of the biggest changes on that market more broadly in the context of.
How that changes your view of different areas that look like attractive adjacencies for your portfolio.
Yeah.
That's a good question.
Sort of back up and think about it like.
I've been I've been in this world of CRM literally since 1990, when I graduated college in many times over my career I was in the position of either buying and implementing or.
Or using a CRM.
And there has been tried and true playbook for how you do this because it's been around for a long time, where someone built in SFA application and then they buy a whole bunch of stuff and cobbled together.
Frank in CRM, and we're seeing that several of them in the market today and it's a good way to build the business.
We decided to kind of zag when everyone else was digging on that playbook, and we decided instead of Cobbling. This thing together, let practice sort of Apple style and make it a beautiful application our development team our product designers or user research people are really good the tools that we used in the platform. We use internally is so powerful.
And so we've decided to build it and we think it's unique and differentiated and it really matters to the end users in the ops people, who implement this stuff now given that underneath on the spot. We have this set of shared services and we've exposed them through four hubs today, but we arent done its still pretty early innings for hotspot is a lot more stuff on.
<unk> had been on our drawing boards, where we can that we can expose through additional hubs down the road I'm not going to show my hand, it when those hubs are coming on what they are but we're not done there's more opportunity out there for hotspots still early innings.
Got it okay.
Now about your newer hubs have been out in the wild for a few quarters, especially some of your enterprise releases I was wondering if you could give some anecdotes about sort of the role they're playing as new front doors to your business as you've talked about in the past.
There you are attracting new types of customers.
Just given how strong that customer number is that the last couple of quarters here. So any color would be helpful. Thank you.
Yes, thanks for the question.
Uh huh.
Thank him on spot as we have marketing hub, which is the EOG hub going really well growing fast at scale, a big market, we're going to continue to grow you got sales hub.
Good sized business now Wow, it's growing fast lots of opportunity there and then you've got CMS hub and the service hub those hubs to me look a lot like the sales hub look two three years into that evolution. So hopefully three years from now we have marketing hub and built up both at scale and then these two hubs are.
Cranking or a big businesses and then there's new hubs.
Coming along so it's sort of like.
And sort of like Horizon theory horizon theories on horizon, one best Horizon, two bets horizon III bets, we have sort of best along those horizons in the maturing it.
New bets that will come on line with a new hubs are doing well CMS sub debt service up doing well remind me a lot of sales Tom I think there'll be big businesses. The combination of the client still a combination of these things is going to be really really powerful overtime.
Awesome. Thank you.
Your next question comes from Christopher Merwin from Goldman Sachs.
Hey, Thanks, a lot for taking my question.
I wanted to ask about the service space, we're hearing more and more about messaging and chat bots being central and engaging with current and prospective customers. So can you talk a bit about what youre doing in that area and how you're capturing that data and helping reps close more deals.
Yeah.
Super interested in we're investing heavily in that.
If you take a step back you think about most of the communication that happened what they think of US as email and then just increasingly people want to do synchronous messaging and communication and that that comes to life through lots and lots of different ways. These day Luckily methods.
But one youre talking about.
Chat on the website and building blocks and automate that John that's an area. We've invested a lot in when you have a great offering in the market today. There are customers who are buying it works on your website if he's got on behalf of the work inside the App.
All of that debt.
It gets pulled into a central place and people to respond to those in real time, that's an area. We're super excited about that's an area of growth for us that's an area, where human behavior changing and I think on slide quite good thing on top of those cases and helping people deal with them. So it's a great question, we're really excited about that statement.
Great. Thank you and maybe just a quick follow up obviously I think you've talked about it a little bit before but accelerating growth next year.
I can see that pass through the margin, but yes, youre investing a lot in the long term here I mean is it possible to get a bit more granular on on some of those key areas specifically within go to market.
And R&D.
Sure.
We've been investing relatively heavily in R&D over the last several years and we're going to continue to do what we feel like we're getting nice returns on showing up on the retention rates net promoter score revenue growth like.
The leading indicators look good the lagging indicators look good too.
So we're going to keep investing there we're going to invest in their existing products. You saw we have a playbook, where we can go into an existing product.
Kind of relaunch it really go after it again and that works really well for US and then low built new hubs new capabilities, our R&D team.
Kind of on fire these days.
And those folks.
Kate you want to.
No I think on the go to market side, we continue to invest.
To be able to service the demand that we're seeing in the market I think we talked about the fact that we're investing.
Feel like we have this day on the go to market and product in the middle and net we're investing both upmarket and also touch on the low end.
Great. Thank you very much.
Your next question comes from Ken Wong from Guggenheim Partners.
Great. Thanks for taking my question.
Brian You mentioned earlier CMS and service it looks like we're two or three years into what you saw with sales as.
As we think about the kind of the maturity of those products.
Just a matter of time, you think before we get to a run rate like sales or is there some incremental watering seating loving that you guys have to get to to service hub from a product go to market perspective before before we maybe see those kind of results.
No lots of watery lots of fertilizing lots of work left to do.
You know I like it.
Let's just pick up service on the product is terrific, let's say Europe 75 person company, if Europe 500, or 750 person company.
The stuff, that's still missing and it kind of reminds me of built up a couple of years ago or 500, 750 person company life.
On your guidance.
On a GAAP very very simple you know, what the GAAP tomorrow and in our own way.
Leveraging the primary colors.
Those GAAP plenty of water plenty of fertilizer.
And I would say that also for the marketing hub product like we have.
That product out there for us.
<unk> working on a half years.
Still plenty of low hanging fruit on marketing our product, it's a terrific product, but even this year, it's going to get a lot better.
And so yeah, we don't see how spot is sort of ex thing like there's going to be a lot of innovation across new and existing hubs over time.
Got it great.
And Kate just on the margins. So the second year in a row that we've had flat margins and fully recognize it's a fantastic time to step on the gas given what we're seeing.
As we think going ahead should we should we think that you guys are more focused on the growth side versus the margin side.
In terms of how we should kind of adjust our models.
Yeah, I think that the message that you should hear from US is that the priority is on continuing to invest in the business to drive long term growth.
That said, we have a framework and over the long term, we will continue to follow that framework, but in the near term I think you Shouldnt expect a linear move.
Got it perfect. Thanks, a lot.
Your next question comes from Michael <unk> from Keybanc capital markets.
Hey, guys. Thanks for taking my question, so a strong quarter both on the net expansion of existing customers. It sounds like new customers came in at a high low price level too.
It was a bigger factor in both of those.
The addition of sell on higher level of additions or was it more attach of multiple hubs.
No it's relatively balance.
John.
We you know.
Those factors Theres, a bunch of stuff that plays into it.
Yeah, I would just say new and cross sell both performed well.
And then last quarter you.
You made a comment about billings in terms of duration that there was a duration headwind. This quarter is a strong billings quarter was there a duration tailwind in insurance this quarter.
Yes, there was.
And I think isn't it.
There's many people who listen to these calls and probably no billing does not my favorite metric out there theres just a lot of stuff that happens with billings that can confuse people.
That said.
On again over the long term constant currency revenue in constant currency billings are going to track one another you see quarter over quarter. Some volatility there by the way I'm getting like seven packages deliver so im hold true for this evening.
Yeah, I don't know how to set it up.
So last quarter, we did see.
Currency billings above constant currency revenue a few points of that is a result of the fact that we're getting some advantage from a duration extension that professional and enterprise editions performed really well and those tend to have longer billing terms than the lower end start on product.
There was another small debt here that was helpful. Some of the customers that we have given short term place to in Q2 at the onset of the pandemic, we're coming off of those.
Discounts are flexible payment terms and so they build again in Q4 it was a smaller factor.
And then the remaining.
Performance in billings it was really just strong bookings for the quarter.
Great.
Moving on to get the doorbell uptake.
[laughter], Larry I apologize I guess on equity.
John.
Yeah.
Your next question comes from Brian Macdonald from Needham.
Okay, Hey, this is Alex on for Ryan could you discuss the strategic rationale for the Hustle acquisition content creation and top of funnel on lead generation has never really been an issue for the business. My view. So how does this enhance the business or homes profitability to acquire new logos.
Great question.
Alex when we started the hot spot.
It was on this idea of inbound marketing and the problem with marketers is they're always renting space on someone else's assets, our radio show a television show on newspaper and increasingly more recently, a social network or a search engine and the idea behind the inbound marketing, but instead of renting space on somebody else's that debt with just creature.
One act that increased the number of though that debt and increase the return you're getting on those assets what I love about the hustle folks is they had some unbelievable asset they had a newsletter asset very very very modern and new newsletter those things youre taking out they have the best one in the in the business or again, they have a day.
Fantastic podcast.
Very deep research so it's a little bit of an aqua hired to get that terrific talent and all of those assets that we plan to invest in and grow over time. So we're super Super excited about the hustle, we think it's going to it's an unfair advantage on the marketing side for sure.
Your next question comes from Jennifer Lowe from UBS.
Great. Thank you.
Brian you made a.
Comment a couple of times about true scale up versus startup components of your business.
And in particular, given that a lot of those companies that may have been in market longer are now dealing with a selling environment, that's very different than how they sold in the past I'm just curious if you're seeing any difference and at the same time, we've matured your own product with the enterprise on pro Skus are you seeing a difference in how often you're replacing an existing technology that may not be meeting.
Current needs as opposed to how frequently you're landing in an environment, where there just really isn't preexisting technology.
Yeah, that's a terrific question Jennifer.
And its startup where typically the first legit system. They have in place like the first legit CRM, you'll put in place.
Which is where we want to be and then we wanted to deal with them.
Gail oftentimes someone has put in to try to put in a CRM. It just didn't go well too hard to set up on too hard to use has been complicated.
And they got it sort of partly setup and then they just did it.
Can you provide a better way to do this.
And they find hub spot and they implement us net net.
Starting to happen more and more we're talking about that for a while but we're starting to see more of that in the market I think it's a testament to our approach at the patient persons approach to build all this stuff.
But I think that patience is paying off.
I think our go to market, Jennifer really helps us in that area where anthem.
And to engage with one on traditional CRM players.
Into a free trial, Dr premium, but you got to deal with the whole bunch of sales reps to get anything done and we've got on Super modern approach to the way people do it and I think people like if they wanted to use a free product and give it a run they want to try it.
One on trial and gather one part per sales rep, and engage and learn about it and pricing and packaging and negotiating them and helping them get set up I think our approach to letting people really use it.
Matches the way they buy I also think it really highlights our strength is easy to use and set up its very monitored and I think on spots a little bit like zoom, you know, Jim Jim not only a better product, but their go to market is much lighter it's much easier to buy like we wanted to be more like that I think thats the future of that its more like that.
Okay, and then just maybe a more specific one.
It seems like relative to the headwinds that were happening in Q2, when everything went to shelter in place you know largely kind of recover some of the business that was negatively impacted by that is that a fair assessment or is there still more opportunity to improve on the recapture rate of business that might've been impaired earlier in 2020.
We're largely through the impact of Covid plays.
Okay. Thank you.
A bit.
Okay.
Your next question comes from Keith Bachman from Bank of Montreal.
Hi, Thank you too.
If I could just do a concurrently one is you talked about net adds and per.
Particularly on the follow on Michael <unk> question I, just wanted to hear some comments about.
This calendar year is there anything you want to call out in particular, just trying to understand how you think mix for net debt may have an impact on the model.
On the second question is in the past you've talked a little bit about.
Commerce could be an opportunity for a market and just wanted to hear some thoughts any updated thoughts on commerce in particular.
What the opportunity might be for hotspot in terms of your differentiated model. Thank you.
Let's take the first one on things like one day, yes, Sir.
In terms of new customer and I think what you saw this year 2020.
The initial step up that we saw in Q2, and then into Q3 was very much associated with the startup growth suite pricing and packaging change and then over the course of Q3 into Q4, what we saw is a much more balanced set of customer additions, which is what sort of leaves.
Can you to the comments that from one quarter to the next there is going to be some difference in the kind of customers, we add as we introduce different functionality and make pricing and packaging changes.
Keith on your Commerce question, we largely focused on <unk> and I kind of thinking like shopify, but they're the feedstock side.
Sure.
We do think there's opportunity zone increasingly on the EBITDA side, the way people want to buy is changing and increasingly they want a very light touch experience increasingly they want parts of their products and maybe all of their products even on the TV side.
<unk>, some sort of an E commerce each transaction. So that's an area. We're very interested analysis, we've moved down a bit and we're investigating and looking at but.
To be commerce is.
But I think a nice area of opportunity for startups and companies like the butter over the next several years due to being buying profit inevitably is going to change and I think that will change the better for the vendors and the buyer and won't be able to debt to help our customers with that over time.
Okay, great. Many thanks.
Your next question comes from current returns from Evercore ISI.
Great. Thanks, Thanks, very much for fitting me in and congrats on the results Brian you touched on on this in some of your prior comments, but I was just kind of curious.
How often the concept of a platform now comes up with both really new customers, meaning everybody's moving faster from a digital perspective, but as the new faster are they asking more about sort of I want to make a bet on our platform.
That's my first landing spot versus what you saw maybe a year or two ago, because I think we can all see the customer adoption that you guys are seeing is accelerating.
Curious if the conversations you're having around that platform. They are also changing have maybe the same pace.
Yeah, I think we are.
Net increasingly people are coming to us and buying the whole platform upfront and then just a lot of people who are marketing hub customers, who are maybe looking at a new CRM.
Just kind of a no brainer to buy up spot like they already know how to use the platform. It's a single view of the customer.
Kind of a no brainer. So it comes up more and more people wanting to buy the whole solutions coming up more and more.
Yeah.
On the investments we made on the last few years are paying off on and I would just add per debt.
With us on more work to do on it like I look at our platform as we made tremendous progress over the last couple of years, but there is when I talk to customers plenty of low hanging fruit for us on the platform side and plenty of things, we still want us to do and so we've got a lot of work left to do on it.
Okay, great. Thanks very much.
Your next question comes from Citi Pack Rajiv from Mizuho.
Thanks for taking my question and congratulation alright going back to some on your question about the on you talked about positive mix shift or prefer smaller enterprises.
So last year. After the pandemic broke you talked about volume, they're tough substation. So how much of this mixed shift influenced by those customers operating back versus this newer startup customer of the John last couple of quarters now upgrading into more.
Enterprise and professionals.
And have you already upgraded most of them with on the right. After March April.
Yeah, So what I would say, let me parse this into a couple of things.
Yeah.
You are absolutely right we gave.
Number of concessions that we gave.
Net of concessions to customers in Q2 as part of the initial.
Reaction to the pandemic and most of those took the form of.
Short term discounts on flexible payments, we are through the majority we are through most of those and so there is some impact in Q4, it's not huge.
The bigger impact on the duration. It comes from then the set of new customers that we're adding where we are more we are seeing more strength in that professional and enterprise tier.
Your next question comes from Derrick Wood from Cowen.
Great. Thanks for taking my question and congrats again on a strong quarter.
I wanted to come back to the notion of shifting from a marketing app to a CRM platform and clearly thats gaining momentum, but I wanted to maybe ask about what's going on in the channel and whether existing partners are kind of ballgame towards more of that broader platform approach.
Approach as well or perhaps there is a kind of a new <unk>.
Kind of cohort coming on board from the partner side, it would be nice to hear about how youre seeing the channel evolve.
Debt.
That's my question. Thank you.
The channel is definitely evolving like when we first started one spot it was on aging marketing partner channel I think we call it the partner channel.
We call it <unk> solution partner channel now because they arent moving from partners and there's two things going on some of those marketing agencies, just wondering the market. They're born marketers. They just like marketing and work on marketing hub and they've got a terrific business and theyre not changing.
Some of those marketing agencies, though are shifting to be much more of our CRM partner for their customers in a really shifted the way their business model works on their value prop works. So we're thrilled to see both of those frankly and then if we look at the mix of new partners coming in we definitely still have marketing agency style partners coming in but increasingly.
CRM implement or is it a little bit more technical of a partner doing a little bit of a bigger implementation more integration more customization. So it's a little bit of both where I think the opportunity is going to be amazing and when people can use our content management system and our CRM system combine those things together to create awesome.
For their customers, there's a lot of opportunity for partners there.
Great. Thanks for the color.
That was on our last question at this time I will turn the call over to Brian Halligan, CEO and chairman for closing remarks.
Thanks, everybody for joining me on the call today. Thanks, a lot appreciate it.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.