Q1 2021 HubSpot Inc Earnings Call
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Good day, and thank you for standing by and welcome to the hub spot Q1, 'twenty one earnings call.
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Okay and on the conference over to your Speaker today, Chuck Mcglashan head of Investor Relations. Thank you. Please go ahead.
Thanks, operator.
Good afternoon, and welcome to hotspots first quarter 2021 earnings conference call.
And we will be discussing the results announced in the press release issued after the market closed.
With me on the call. This afternoon is <unk> Shah our co founder and Chief Technology Officer.
How many rangan, our chief customer Officer, Kate Bueker, our Chief Financial Officer.
Before we start I'd like to draw your attention to the Safe Harbor statement in today's press release.
During this call, we'll make statements related to our business and maybe considered forward looking within the meaning of section 27 of any of the Securities Exchange Act of <unk> 33 as amended.
And second 2001 of the of the Securities Exchange Act of making 30 for cement.
All statements other than statements of historical fact are forward looking statements, including those regarding management's expectations of future financial and operational performance.
Operational expenditures.
The growth.
And business outlook, including our financial guidance for the second fiscal quarter and full year 2021 forward looking statements reflect our views on the 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 will be filed with the SEC. This afternoon 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 user discussed and a reconciliation of the differences between such measures can.
And can be found within our first quarter 2021 earnings press release, and the Investor Relations section of our website.
Now, it's my pleasure to turn over the call. It the hotspots co founder and Chief Technology Officer, John that Shah.
Thanks, Chuck and greetings, everyone and thank you for joining US today as we review hotspots of first quarter 2021 earnings results the.
Before we jump in and I would like to give you a quick update on Brian. He is in good spirits and is well on its way to a full recovery and the.
And while we're all looking forward to having them back the harmony continues to lead day to day operations under her leadership the team remains energized and well positioned to continue helping both of them spot and our customers grow better now.
Now onto the results, which have been remarkable.
As we round the full year of living and working in the midst of of pandemic. We've continued to see very strong growth across the business.
Both revenue and customer growth accelerated from Q4. This has been driven in part by a significant demand for digital transformation more and more companies are shifting to a digitally powered if not digital first customer experience.
And just so happens that we've been evangelizing this transformation since our founding nearly 15 years ago.
And as Brian said, a few earnings calls ago. It feels like our vision matches of the moment we are in.
We've seen an acceleration of the company's adapting to doing business online and this has made CRM not just important but indispensable.
Digital first can't happen in one part of your customer journey and not another and a strong comprehensive CRM platform is the thing that ties it all together.
Our ambition is to become the number one CRM platform for scaling companies.
And we're working toward that goal and TT ways, one we're bringing high and features only available to larger enterprises down to mid market companies.
And two we're bringing of human friendly product and purchasing experience traditionally seen and small and mid market businesses up for larger enterprises.
Hotspot CRM platform is crafted in house, not cobbled together with acquisitions.
And that's why it's powerful and easy to use instead of being clunky and expensive like many traditional enterprise platforms.
<unk> is at the heart of what makes hub spot different.
We're continuing to invest significantly and the platform and recently introduced the hub spot CRM suite, which is designed to help our customers unlock the full power of our CRM platform the <unk>.
CRM suite replaces the gross we bundle and now includes the CMS hub and our new operations hub.
This gives customers access to all of our starter professional and enterprise products and a price point that delivers tremendous value there.
This is a win for our customers and moves us further towards being the number one CRM platform for scaling companies.
And I'm really excited about the progress we've made of the past year, but I'm, even more excited about the path ahead with.
With 2021 already off to a strong start we're in a great position to keep helping our customers create delightful end to end experiences for their customers and ultimately grow better.
With that I'll hand, it over to the army.
Thanks, so much damage.
One I am excited to share of business update and touch upon our go to market as well as our product innovation that you all.
And you just heard we've continued to see tremendous performance across the business like and acceleration of Q1 revenue growth, 37% dealer of our year in constant currency and customer growth of 45% year over year.
We set records in net new customer additions and revenue of attention for the quarter and are operating from a broad position strength.
Our products and geographies continued to perform well in Q1.
Focus on two particular areas of note in our go to market.
<unk> and partner alignment.
I wanted to keep the owners of our go to market strategy.
And the segmentation approach.
One of ought to be easy to buy easy.
And to use and easy to love for the customer segments, the Sir and are optimizing how we sell to and support our customers.
Historically, you've had great product and go to market and serving the needs of companies. The 20 to 200 employees.
Our goal is to expand the focus to drive increased efficiency and the $2 20 employee segment and improved sales productivity and the 202000 employee segment.
At the low and we're investing in automation and product and the growth, which frees up our sales team to focus on larger deals.
And at the high and we are investing in product and sales enablement to cater to the needs of larger company.
We are seeing strong customer addition, sensors the result of the simplification and automation at the low and balanced by strong is the driven at the high end.
These investments are translating into multi hub deal for platform deals and larger deals across the board.
We're still in early days of implementing the strategy and we feel really good about the traction we've seen thus far.
Another key pillar of our go to market strategy is investing and our partner ecosystem.
As we expand our platform we're seeing the types of partners, we have in our ecosystem continue to diversify that.
Diversification of our partners and the drive growth for us and the work to serve the needs of scaling the company and they're already starting to see the opportunity come to fruition.
According to a new white paper from IDC.
Ecosystem made up of application and solution partners is forecasted to grow faster than hotspot as the ecosystem revenue growth from nearly $5 billion in 2020 to over $12 billion and 2024.
This represents a broad based opportunity for hotspot and.
And our partners moving forward.
Now I want to switch gears little bit to talk about another important pillar of our business our product.
We recently expanded our suite of tools that the launch of operations hub.
This new hub is designed to transform the goal of operations professional and empower them to become strategic drivers of revenue and growth.
Through our research and and talking to customers. These hard very clearly and operations professional often have to do duplicate it and reactive work day.
This is because they operate and functional silos and lack of access to clean data and automated processes.
Operations team have essentially become reactive firefighters and we want to help transform them into proactive and strategic friction fighters.
Operations have breakdown silos between functional business unit and provides the foundation for revenue operations teams to work across the source of truth.
It helps our customers connect the Tex Tac clean the data and automate their processes.
It keeps them fast and flexible as the scale and.
And most importantly, it keeps the customer experience friction free some of them they can run better and to grow better.
As we've previously shared hotspots growth will be driven by a balance of continued investment and our existing hub, while also investing and new hub to address our customers' adjacent in front of me.
We know that revenue operations professionals are key decision makers for CRM and with the launch of operations hub, we've expanded our offering to an entirely new persona, while also making it easier than ever for companies to build their entire customer experience on the hub bought CRM platform.
And the first 10 days after the launch more than 500 customers purchased operations hub.
Incredibly excited about the momentum we've seen from customers since launch and the feedback we've heard from partners that far and feel strongly that operation and Tom will play an important part and the tough part becoming the CRM platform of choice for scanning company.
With that let me turn it over to Kate to walk through our financial results.
Thanks Harmony.
Let's turn to our first quarter financial results and our guidance for the second quarter and full year of 2021.
First quarter revenue grew 37% year over year and constant currency and 41% as reported.
Q1 subscription revenue grew 41% year over year, while services and other revenue increased 43% both on and as reported basis.
If you exclude the impact of nonrecurring hustle revenue and the quarter services and other revenue would have grown 33% and Q1.
And how many indicated we continue to see broad strength across all of our hubs tiers and geographies.
Q1 revenue retention set another all time high driven by record customer dollar retention and particular strength and addition upgraded and seat expansion activities.
Customers continue to adopt top spot as the platform and over 55% of our customers are getting value out of two or more hubs today.
Domestic revenue grew 33% and Q1, while international revenue growth was 42% year over year and constant currency and 51% as reported.
International revenue represented 45% of total revenue in Q1 up three points year over year.
We added a record 9900 net customers and the quarter, bringing our total customer count to nearly 114000 up 45% year over year.
Average subscription revenue per customer of nearly $9900 with other points sequentially, but down one point year over year.
Deferred revenue as of the end of March was $339 million of 40% increase year over year.
Calculated billings was $304 million.
In Q1, growing 43% year over year and constant currency and 47% as reported the.
This acceleration and constant currency billings growth was driven by a very strong business performance and the quarter and addition to and easier overall comparison as a result of the challenging business environment and March of 2020.
The remainder of my comments will refer to non-GAAP measures.
First quarter gross margin was 81% down slightly year over year.
Subscription gross margin was 84% while services gross margin was 8%.
If you exclude the impact of nonrecurring hustle revenue and associated gross profit services gross margin was near breakeven and the quarter consistent with our long term services margin target.
First quarter operating margin was 7% relatively flat as compared to the same period a year ago.
The revenue over performance in the quarter was largely offset by an increase and revenue related costs added expense from the hustle acquisition as well as incremental R&D costs associated with investments and our application infrastructure.
As I've discussed over the last couple of quarters.
And we plan to continue to invest aggressively across the business to meet the market demand, we're seeing for our products and drive innovation to fuel long term growth.
At the end of the first quarter, we had 4551 employees up 27% year over year.
Net income and the first quarter was $16 million for 31 per fully diluted share.
Capex, including capitalized software development costs was $11 million or for percent of revenue in Q1.
Free cash flow and the first quarter was $61 million or 22% of revenue.
We continue to expect Capex as a percentage of revenue to be about 5% and 2021, and now expect free cash flow to be between $155 and $160 million with another seasonally strong free cash flow quarter and Q4.
Finally, our cash and marketable securities totaled $1 $3 billion at the end of March.
And with that.
Let's dive into guidance for the second quarter and full year of 2021.
For the second quarter.
Total revenue is expected to be and the range of $293 million to $297 million up 45 per cent year over year at the midpoint.
Non-GAAP operating income is expected to be between 19% and $21 million.
Non-GAAP diluted net income per share is expected to be between 30 and 32 cents. This assumes $50 9 million fully diluted shares outstanding.
And for the full year of 2021 total.
Total revenue is now expected to be and the range of one to three seven to one point to $47 billion up 41% year over year at the midpoint.
Non-GAAP operating income is now expected to be between 104 and $106 million.
Non-GAAP diluted net income per share is now expected to be between $1 61, and $1 65. This assumes $50 8 million fully diluted shares outstanding.
As you adjust your models keep in mind the following.
Current spot rates, we're forecasting and FX tailwind to as reported revenue of six points and Q2 and still expect of three point tailwind for the full year.
And with that I'll hand things back over to Dr. Mesh for his closing remarks.
Thanks, Keith we're grateful to all of our customers and partners for their support, especially over the past year. The challenges of a global pandemic. It has impacted the lives and livelihoods of millions all over the world.
Especially go out for the people of India. They are fighting the humanitarian crisis with a sharp increase and the number of COVID-19 cases.
We wish all of those impacted around the world brighter days ahead.
I also want to extend my thanks for the hotspot team I am so proud of the work they have done over the past year to help our customers and partners.
And <unk>, 15th anniversary is coming up and a few weeks, but it still feels like our business is and the early innings as we continue to pursue our mission of helping millions of organizations grow better.
Thank you for your time.
Operator, please open up the call for some questions.
At this time I would like to remind everyone in order to ask a question press star one on your telephone keypad.
To withdraw your question press the pound key.
One of those for a moment to compile the Q&A roster.
Your first question comes from Brian Peterson from Raymond James.
Thanks for taking the questions and congrats on a really strong results.
And just to start and I know everyone starts and prayers are with Brian.
It's great to hear that he is doing better.
And really good hands and the simple principle results this quarter, but is there anything you can share in terms of the timetable for his return.
Thanks, Brian and now for the low wishes, so Brian is doing well and he is and good humor of.
For the team and I are in touch with and regularly and then you're talking about things outside of just the favorite Netflix show the time.
In terms of the uptake for the return we don't have anything definitive mind, we have Brian they take the time that he needs the heel and we look forward to having and back sometime later this year.
Great.
Great to hear that that is true okay with you guys and anything good spirits and maybe a follow up just on the demand environment. The shrike youre seeing this quarter.
Is that of function of just the ongoing shift towards digital transformation for Smes are there anything else that you might be seen in the market.
Yeah, Thanks, a lot Brian and I'll take the question the demand environment is solid and we saw an improvement and the demand patterns in the last couple of quarters of last year, and we're pleased to see that sustained in Q1 and.
And so we're seeing continued tailwind and I say to your point on digital transformation is ongoing and it's certainly accelerating within our customer base as they are focused on a lot of the digital first efforts.
We think we're still in the very early days and the arc of modern CRM and we think our customers are going to continue to hang in there I'd say in addition to the up our value proposition has got much stronger our Tam has gotten much bigger over the last few years as we've gone from marketing App.
The company, who of CRM platform the product investments. We've made are paying off and we have an ideal platform to help small and mid market companies digitize their front office. So our go to market is in lockstep with the product expansion and we're seeing very strong execution. So we feel really.
The good about the way things are lining up.
Your next question comes from Samad Samana from Jefferies.
Hi, good afternoon, and thanks for taking my question and first great to see 40% plus growth return at the scale for the first time since 2016, when that's the 200 doing basically on an annual basis. So congrats on the strong start for the year, maybe this one could be for either gotten many of our die matched but when I think.
Operations out of can you talk a little bit of about the vision for operations have been and why this was the next logical hub for you guys to come to market with and maybe what the early feedback from customers and partners and use cases.
And just maybe how you think about that impacting the Tam as well and net add one follow up for Kate.
Thanks for your questions and I'll start out and nobody can shine and later so when the upfront looks recruiting of new hub, we try to look for opportunities where the roll and the persona that we're targeting is very well defined and of those people have very well defined pinpoint and the case of operations of the people that were focused on our <unk>.
Sales ops marketing up and its kind of newly emerging revenue off of the rule. So those of the people and the three pinpoints are very distinct pinpoint number. One is every mid market company going through growth is using more and more applications within the infrastructure and has the deal with that kind of integration pain.
For two is all of those teams have either inherited are implemented these kind of fragmented disconnected data silos and so they're contending with that issue and number three there is so much of what's happening within the organization Thats, just manual and lots of manual work and kind of have the thrill of the humans of the problem. So those are free and kind of areas of areas of pain, and we want to do with with operations of <unk>.
If you think about kind of the evolution of that and roll the kind of start off of offered and the or had their heads buried into the systems and fragmented data silos, it's got a little bit better the kind of lift their heads up now.
And they're more like beam use now so the kind of look around not quite there yet, but we want to do with operations hub and pick them from immune and elevate the eagles, where they have much more visibility much more velocity and so I'm very excited about the opportunity behind operations that because these are not kind of problems of just a few customers have most of our customers of all three of these.
Pinpoint and so I think the opportunity is big.
I'll, let you how many of them.
Yeah, Yes, I completely agree with your dimension I would say the mod in terms of power and thinking about the opportunity I think it's certainly a good way in which we will bundle this as John.
And I should mention operations hub.
Supercharging and CRM and so the first opportunity for us and to put it into our CRM weakness of exactly what the abdominal and operation.
And to gather data across systems like that and make our CRM suite much more stickier and we also think there is an immediate cross sell opportunity because of growing installed base of customers and the initial reaction from both of our customers as well of partners and then really positive and we think both small as well of mid market customers are going to really adopt.
And that drives the solution and on the addressable opportunity I don't know if there was like a number of had been for you, but I do think it's the very large multibillion opportunities to consider no marketing operations not only opens up the additional 15 billion PR and market, but also of big analysis and the integration so the kind of.
Very excited about how incremental the opportunities and how the opened up for.
Great I appreciate that color and then K.
This was another impressive quarter, where but net sub adds was it's really really robust.
And yet as RPC increase the again quarter over quarter, we don't really see that very often with hotspots model.
It works and so would love to dig in and further what's driving that between net.
And net expansion at existing customers versus maybe larger initial lands or is there something else that maybe we're not even considering that we should factor in.
Yes, thanks for noticing.
We were certainly very happy with the 9900 net customer additions and the quarter.
Currently combined with another quarter of just of sequential growth of EBITDA.
<unk>.
I know the answer to your question and as frankly, it's the bit of both Q1 was another quarter, where we had a really balanced set of new customer additions across starter and professional and enterprise.
And you heard from Yamana and her prepared remarks, and increasingly we are seeing new customers and that professional and enterprise come on as multi product customers and we are also seeing.
Our sales landing bigger deals the asps of new customers are healthy.
We also have both highlighted another record retention quarter and Q1.
And certainly indicates a strong amount of upsell, which is another tailwind that we're seeing to.
The ASR so both of the things that you are highlighting are contributing to what trends we're seeing on those kpis.
Very helpful. Thanks for that and and congrats on the quarter and wishing Brian.
<unk> video recover wherever he is listen for them right now.
Thank you very much.
Your next question comes from Alex Zukin from Wolfe Research.
Hey, guys. Thanks for taking the question and the time and I'll Echo my well wishes to Brian and the rest of the team.
I've got a quick.
Just general question and then a follow up for Kate the first of all maybe just clearly you guys saw a really nice acceleration of domestic growth and international can you talk about any geographies or products in particular that are driving the strength here and the U S vs. Internationally of different is it the same love to understand that a little bit more.
John.
And Pat and thanks, a lot and for the question and I'll take that.
We are really happy with the moment momentum the before and it's kind of broad based across all of the geography U S is large and it seemed growth we really like the results there and went from 27% for 33% growth at the same time all of our international theater debt really well.
And the flywheel of spending across all of the fees and then if you take a step back.
We are still very much and early innings and early kind of market penetration and most of the markets that they're operating in and are Thomas really large the value proposition and strong and resonating across these markets.
The unit economics, and it's pretty strong the cost to acquire customer relative to lifetime value is really solid and these international markets and so we've continued to invest and so.
Really pleased with the balanced performance that we saw across all of the Geos.
That's awesome.
And then maybe one for you with respect to clearly another just wonderful quarter around retention is it fair to say you've got now of better visibility into the kind of a new normal.
And of dollar based net retention metric that you can share going forward.
And how should we think about.
And we start lap.
Lapping some of the tougher comps the linearity or the.
Not the linearity for the sequential step up and and kind of billings trends. Just so we don't get too far ahead of ourselves and model.
Yeah and.
Maybe I'll start with the retention question.
Alex Thanks, Yes, definitely good to see another.
Really strong retention quarter, we set another record.
No I think as you've seen we tend to share more detail around some of the kpis that things like analyst day and for that might be a good opportunity to reset.
With more specific expectation.
And we'll say is this.
The customer dollar retention was again really the key foundation.
And to the overall strength for retention and the quarter last year.
We saw of debt and customer dollar retention that started in March again occurred in Q2, and then and the back half of the year, what we saw and it really pronounced hiccup.
The customer dollar retention and that strength really continued into Q1.
And it frankly, where discovery of the it's pretty simple our customers are actually using the product more and as a result, they are retaining better.
And then on top of the customer dollar retention.
We are seeing really strong install base selling.
Across really a diverse set of drivers.
And in my prepared remarks, I called out of particular strength and the upgrades.
Both of them started of pro.
But also from pro to enterprise.
And the quarter of really strong and then where you know Additionally, seeing.
You know real benefits from the multi hub adoption and.
The customer base and was from some of the and expansion that we're starting to see as our sales customers and bigger.
And so lots of good stuff going on on the accounting side.
And as it relates to billings like as you know billings of Oh isn't noisy metric.
I think that we and we've consistently said, we're not going to guide to billing and we've tried to point of eight two.
And looking at billings growth.
The thing that tracks revenue growth and constant currency.
Q2 is going to be of strange quarter.
From a growth comparison, that's true for revenue of Theyre going to be true for billing.
In General I would just expect the billings is going to largely track revenue and maybe a bit more volatility around the FX is the product mix.
Your next question comes from stands for <unk> from Morgan Stanley.
Perfect. Thank you so much guys and congratulations on the very strong quarter and.
Wishing for a speedy recovery and return to Brian.
Couple of questions for for my and.
Wanted to get the direction and Bob because we don't we don't get the him very often on costs and we're excited to have him on.
On the on the operations hub hub.
How are you thinking about when you guys are of initially putting it together.
Balancing the low code capabilities.
That are inherent in the product with the need to make the product.
Really approachable to some of the smaller companies within your customer base given that the fact that they do have limited develop of resources.
First of all thank you for your confidence.
So operations hub of squarely in that kind of low code no code the category and and how about kind of driving past has always been to take functionality that is for.
<unk> been in the kind of Mega enterprises, and democratize, it and make it available for our kind of out of smaller and mid market customers. So operations out of as an example of our data thinking engine allows you to say, okay. Well. This particular field of this system. The Mac of this field and the system here and I'll say one of the updated and without writing any COVID-19, let's you kind of express and declare what you want the outcome to be.
And so that.
I think is at the at the heart of hotspot is doing is to make these things of that historically have been kind of hard to do a required debt teams to be able to have mere mortal operations experts that know the business be able to kind of model their business and run these automated processes without having to write a lot of code.
Yes.
And Thats, certainly really exciting and I am sure. That's that's the reason why you're seeing such strong customer uptake just 10 days after launch and maybe a quick follow up for our free cash.
Going back to.
And <unk>.
The really encouraging to see that go up sequentially quarter on quarter, along with the fact that you guys put up record net adds in the quarter, which kind of suggests to me that you are seeing pretty strong momentum and the enterprise.
The segment.
What are you actually and maybe qualitatively of what are you seeing up there and the upper end of the market and how much of your revamp within the marketing hub and the sales hub enterprise product is really driving the momentum that youre seeing there.
And I'm Gonna want Yamana.
And they start that one and maybe I will fill in any detail and Washington.
Yeah. Thanks, a lot and yes, I think youre right I think we've powered our enterprise tier and if you really take a step back.
The enterprise deal over the past couple of years and gotten really really strong so and most of you know marketing hub enterprise, we launched a year ago, that's been really valid resonated with customers account based marketing revenue attribution reporting and AI powered EBITDA the thing that the overall like really powerful features that are custom.
And asked for that's resonating really well in terms of the sales hub.
And we launched that and inbound with custom objects now lot of customers have been asking for petsmart. If the wireless so that does obviously really powerful new feature and then <unk> tools as well as sales tax and the reasons more more recently in Q1, we added conversation intelligence and.
That could also supercharged our sales hub enterprise the ton of momentum based on the investments, we've been making and product for a couple of years now and then I would say and that in addition, with the go to market side.
And now in lock step with product the optimize and fine tune our approach to different segments and we have all of those been really good.
Very well optimized in terms of the 'twenty 200 employee paid and.
And what we're doing right now and we are doubling down on the 200000 employee segment. We're fine tuning that approach, we are investing and sales enablement and sales process and.
It's not necessarily that we're moving upmarket, but what we're doing is we are and the segment and the optimizing the segment to get higher percentage of net and so in terms of the enterprise momentum and kind of simple and got better and.
She got better.
Well aligned and that puts us into the next year.
Got it and thank you guys.
Your next question comes from Mark Murphy from JP Morgan.
Yeah.
Yes. Thank you first Brian and case Youre listening I have enjoyed your hikers and of.
And also enjoyed your platelets well you are recovering so low.
Wanted to just thank you for all of the positive energy and it's a it's been quiet and inspiration and that we're looking forward to catching up with you soon.
Kate I have a question for you the <unk>.
Any of the current metrics.
Running kind of clearly above trend, where you can look at it and see that it's.
It's temporary I mean, the for example, I think we know you have where you have and.
FX tailwind there.
And it's an easy comp.
And there's probably a tiny contribution from hustle, but.
Is there anything else you would look at it and say you know for instance, retention and I think Alex was asking you about.
Retention or any other metrics that you would just say that there you can kind of tell they are running a little bit above the trend temporarily.
And it really feels like we're seeing a strength and the business that has some durability to it I think youre, calling out of couple of things that are relatively smaller that are temporary and FX and the sort of one quarter.
Impact on for some of the hustle and revenue, but those are relatively small.
The the product.
Lee.
The setting the current market need and we're seeing very positive trends across the board.
Okay.
Great and then a quick one.
For I guess for Derma or Germany.
I've heard all of the descriptions of what the the operations.
Those are the workflow engine as it kind of like of data integration framework as the the ticketing system is it like is it like of data quality.
Fabric, just anything that can help make the product a little more a little more tangible to us.
Sure I'll take this one.
You think about kind of three broad areas of functionality for which there and our products and other categories, especially on the enterprise and there is kind of a data synchronization of how do you manage the data better model with better there is automation and how do I kind of do automated processes against that data and other is reporting and intelligence.
And what operations of the overlap of imagine if I were on the whiteboard handling and the inner Brian drawing the Venn diagram operations hub at the intersection of those three things we want to get the data unified we want to be able to automate the processes and we want to be able to draw the data out and in meaningful ways and be able to make up of intelligent business decisions and that's the kind of broad based.
Your next question comes from DJ Hynes from Canaccord Genuity.
Hey, guys congrats on the stellar results and echo, although well wishes for Brian.
And I was hoping you could talk about the new pricing and packaging changes you've made the the CRM suite I guess, specifically how much of the decision to move further and this direction was driven by the.
And the learnings from the starter growth Street pricing changes that I guess, you made as part of your of COVID-19 relief measures last year, but versus maybe something else that youre seeing out there and the market. Thank you.
Yeah.
Thanks P J I'll take this one.
And if you step back and as we mentioned in our prepared remarks, our goal is to be the number one and CRM for scaling the company and interestingly and we looked at our pricing made and packaging base, we realized we actually didnt all of that and we needed a bundling strategy that is very much aligned.
<unk> vision and expanding footprint and maybe just recap last year, we offered a gross me and that's the specific to marketing sales and service hub and we wanted something that our customers that are interested in adopting the broad platform.
The program to do so and so the CRM suite not only new the old demob, the marketing sales and services, but also new.
And the operation and CMS and Tom and across the board, we're seeing more customers wanting to adopt the full suite of products and we want to make it very easy for them to be able to buy it and navigate the bulk of it and Dr points like what did we learn I think last year, when we introduced the startup of suite.
One of the biggest lessons we learned was that simplicity drive velocity, so we're going to double down on simplicity.
And I think we also want to make it very easy for our customers want and digitize their front office.
Buy and use our traffic.
So that the whole and pet.
Your next question comes from Brad Sills from Bofa Securities.
Oh, Great Hey, guys. Thanks for taking my question and I'll Echo the sentiment for for Brian and we wish them well and hope the.
I hope a speed of recovery for for Brian.
I wanted to ask another kind of follow up question. If you will to the operations hub. Please I mean, you could see a myriad of use cases here and it's applicable of the sales marketing service, even CMS, where do you see the most impact initially and then perhaps over time, where and the stack could you see operations hub provide that cash.
<unk> for the perhaps.
More and heavier attach and and kind of the core modules.
Yeah, Brian Thanks, a lot for that question.
Thank you do you think about the attach for operation, it's actually going to be across the board, Brian I think of the first thing is you're going to see the.
And the part of our CRM bundle and and a lot of value in terms of driving data synchronization of sort of worked long and youre going to the yet.
In a lot of the cross sell opportunities I mean.
The simple example, where maybe you need to calculate the commission and new.
GAAP closest the certain deal and Thats part of your sales now.
And now you can actually pull information about the deal the product item of <unk> for multiple data of losses and be able to calculate the mission that and example of power that can be in the banking of sales comp.
The same thing happens in terms of.
CMS and CRM at the empowering that you're going to be able to manually take some of the manual tasks and be able to automate the whether you want to showcase and certain things on your website, you can pretty easily automate. It so and then just going to be a cross.
Our suite and expanding portfolio of kept moving.
For power all of our fleet, though we're pretty pumped about the initial customer reaction.
Your next question comes from Arjun Bhatia from William Blair.
Yes.
And great quarter.
Can you just talk about the progress that you've made with the service hub over the last.
Year, I know, it's still relatively less mature than the sales side of the marketing hub debt.
Our new.
Are you starting to see.
That sort of the hub beginning to drive more net new business or is it still largely kind of the and a patch.
Two other hubs or part of the suite.
Thanks for the question So service hub has been growing.
Really well, it's actually further along and it's kind of evolution and and progress of the business of NPL pub was at a similar point and time, having said that right now most of the sales are still part of the overall suite.
We think over the course of the next year year and half of the years it'll actually have.
And it'll be another door into the upstart platform. So we will get independent sales service of deals the draw new customers to the platform. We think the opportunity is certainly there it's exciting and the.
The path to get the there was actually a relatively clear for us and we're excited about it.
Your next question comes from Ryan Macdonald from Needham and company.
Thank you for the question all of this is Alex on for Ryan. It seems like there's an increased level of focus momentum with sales hub and the CRM, particularly in the mid and upper end of the target market.
Greenfield opportunities or are you seeing and coupon rate win rates for some legacy CRM platforms of the market.
Thanks, a lot for that question.
I think we're seeing we're seeing pretty strong win rates across all of the segments.
And not just one segment across the board and I would say that there's plenty of greenfield opportunity left and the go into our customer base and there is still a ton of homegrown solution point solutions and sometimes even like spreadsheets that we are kind of replacing and.
And we stepped back we've taken a very different approach to CRM and Brian would stay at we kind of like bag when others are digging and we've taken a very different approach of crafting our solution and that actually resonates with our customer base, rather than maybe of cobble together approach.
And that might be okay for the larger portions of the segments and.
With the small and medium businesses, they don't want to pay the cobbling tax they want simple consumer like the user interface with the scalable of powerful backend and Thats. The approach that seems to be resonating really well and as I talk to decision makers and figure out the themes of why we are winning and really.
Down for a few thing for stock.
The quick time to value it takes of.
And relatively short amount of time, moving week to implement <unk> and begin to get value and doesn't take months or years, and it's pretty easy to adopt we've really focused on one of the hardest problems and CRM adoption and third our pace of product innovation. Those are the reasons why we continue to win and then.
We're pretty happy with sales, where we are.
And the landscape. Thank you.
Your next question comes from Terry Tillman from true Securities.
Yes, Thanks for taking my question and congrats on the great quarter, and also say I hope the Brian makes the back then.
My question is going to relate to CMS hub, it's been about a year since the launch of CMS hub.
And maybe you could talk about how the opportunities evolving with CMS hub also hearing from your partners about success selling it alongside just the modern CRM what makes it so special by combining the CMS with the CRM and thank you.
Thanks for that question of I Love. This question. So it's been about a year since the CMS hub of launch and if you look at the market on the lower and there are lots of tools that I think that was kind of a website publishing tools and they're great products for the lower end of market. There are a handful tools on the Mega enterprise side, where if you have you or will you spend thousands of dollars of hundreds of lives. It can solve the number of problems and the middle there.
She told and the market and here's why it's I think it's important is that it's not just about delivering a website and publishing the website and some content, it's about creating a connected customer experience, where the CMS actually talks of CRM. So I'll give you a quick examples of let's say you have your website up you have customers and you want some portion of your website for OLED.
Visible for people that have bought a certain product and have also logged the support ticket and the last 60 days now that sounds like a relatively simple example, but of pull that off with the kind of classic CMS. That's not connected the CRM. It would take a long time to take the developer talent and the piece of that data is already and the CRM. We already have the automation tools and you have the support system all connected.
And so exposed and that and kind of implementing that particular use case and thousands of like it is something near moral can do without requiring developer channel. So I think back for the sweet spot for of spot is combined the CMS of CRM together, which has really never been done before.
Your next question comes from Parker Lane from Stifel.
Hi, Thanks for taking my question Thomas you touched on it a little bit with the operations, but can you give us an update on the platform investments youre, making and and once you take the strategy looks like in the three to five year basis.
And I guess to that point, what opportunities you have for monetization across the ecosystem. Thanks.
Sure absolutely so.
And we're focused on right now is we're trying to be the number one CRM platform for scale and companies and I'll underline the word platform there will make for a vibrant platform is and you need a large pool of kind of developers and customers and partners kind of building and extending the functionality of up spot and Thats. The goal and so right now we're focused on is kind of enlarging the.
Some of the making it more vibrant we're spending a fair amount of time and the same way that the hotspot for product is a joy to us we want to have the box platform to be a joint development and agility of build on and so all of those of our monetization opportunities even today.
Want to be patient with that we want to kind of grow the ecosystem and we want to fuel that particular flywheel as much as we possibly can and defer the monetization discussion for a later date, they're definitely out there and there are and on our mind, but right now the focus is just growing the ecosystem and delivering as much value of the can that developer Canadian building the ramp there.
Your next question comes from Chris Merwin from Goldman Sachs.
Yeah.
Okay. Thanks for your likes for taking my question and then let me off of my well wishes to Brian and his recovery.
I wanted to ask one about operations of as well and specifically.
Specifically this of tool that ultimately is geared more towards your larger customers it looks like the <unk>.
And the website is for starter and pro but I imagine this is something that of course for smaller customers as well as your larger customers could use for all sorts of different use cases of justice.
But maybe you could talk a bit about the go to market strategy for growing the product and where you see kind of the initial fit within the customer segments and what that could look like over time as well.
Yeah.
Yeah, Chris. Thank you so much for that question.
I think it's actually going to be of pick for all segments that we are operating and small and middle of mid market customers I think in the smaller and of the car.
Our customer base. They are most likely not using anything which is why does the such an appealing opportunity for us.
And they still need to be able to get data across multiple systems, they still need to be able to automate the multiple manual processes and so I think it's going to be interesting there and you'd go a little bit upmarket into our mid market segment.
And currently maybe using the Q tools, maybe they're using something like our condo for business process automation or segment for connecting systems and again they are using for something they look for something simple right and they want to be able to automate the processes and have something simple and.
From a go to market perspective, we're going to focus on first the bundling opportunity as well as the cross sell opportunity over a period of time that can develop into being a front door itself, but we really think it's going to start with our current installed base as well as the bundle opportunity.
Your next question comes from Ken Wong from Guggenheim Securities.
Great. Thanks for taking my question just one quick one for me.
Realize at the single data point with Q1 and customer.
Customer adds jump up to 10000 net.
And as we've kind of look ahead with and also kind of factor and the fact that we're going to grow 40% should we think about 10-K is the right number of net adds going forward now.
Hey, Ken Thanks for the question and for your optimism.
As I said before we are happy with the 9900 net adds in the quarter.
And I think what we like is that we feel good about the fact that we have put that three to 4000, new customer as the quarter.
Behind us and it really feels like we can sustain something that is higher than that probably and more in that seven to 9000 range than what you are indicating.
Your next question comes from Michael <unk> from Wells Fargo Securities.
And Michael Your line is open.
Oh, Hey, there thanks and good afternoon.
And when you would go back to the retention strength for a moment and see if there's any color you can add on a feeder for vectors. The discounting we saw last year and one of the conversion rates, you're seeing there are holding consistent as well as the enterprise hubs and whether youre also of holding onto customers longer and maybe how many of you can also talk more about what youre doing to improve productivity on the 200 plus segment the comment.
And was interesting thank you.
Yeah. Thanks, Michael in terms of the impact of the customer players that we ran last year.
Really in March April and May predominantly and.
And you might remember that the players were designed to be very short term in nature and so the sort of renewal of the discount customers has happened for the most part and the back half of 2020 and.
And what we're seeing now is just the more normal course Prost.
Process for renewal at this point, so not a real impact on the retention statistic of associated with those customers.
In terms of of your question around our customers sticking around and with us and in the general answer is yes.
We have seen very strong customer dollar retention, which is the primary indicator of whether customers are really staring with hotspot for a longer period of time.
Q1 was yet another quarter, where we had a record customer dollar retention.
And yes, Michael in terms of the R. <unk>.
Around the investments and sales productivity.
Really where we've doubled down over the last 18 months, we've always been in that segment and now we're optimizing the kinds of investments, we're making are and a lot of training and enablement and ensuring that even in the remote world as new reps join we are focusing on their time to ramp we are focusing on.
The discipline within the sales process and we're also making sure that when our reps work day and work with our customer success and our.
The team that is talking.
And talking to our customers every day as well as partners, we're talking to our customers every day and so a lot of real nuts and ball productivity improvement measures that we're investing in.
Your next question comes from Michael <unk> from Keybanc capital markets.
Hey, guys. The first for Brian of course, and great quarter for one of the conductor, Brian Peterson and started on macro and I know you sort of the demand continued from last half of this quarter, but has there been any shifts and what customers want to invest in and do because we went from them just reacting.
To work from home last year to now of work from home plus the office and potential for longer and investment.
Framework, so any changes we've moved into 'twenty, one and what they are doing.
Yeah I can start on this one and then I'll, let Todd International Kate on time, and if there is other points I'd say in terms of where our customers are focused on their priorities and just looking at the our entire customer facing go to market and right. So all the way from if they don't have a day.
Little presence and getting started with the digital presence that they do half of digital presence, making sure that the entire customer experience all the way from websites and marketing to sales is completely digitized and.
A lot of.
The work that maybe needs to happen and that's kind of modernizing CRM, if not the shift of going from.
Just.
All kinds of marketing digital marketing the ship going to inside sales of the shift of having.
Very clean tech approach for customer service that is the big shift and we see customers and all stages of maturity and they are kind of leaning in and that's where we see the prioritization of some of the demand.
Your next question comes from Kirk the churn from Evercore ISI.
Yes, thanks for fitting them and glad to hear Brian is doing well and he is still very much in charge of the hold music before the earnings call. So I'm glad you're here.
The influence on that front.
Maybe you Mike could you talk a little bit more about the partnering opportunity for a long time.
The businesses that focus on the SMB area of didn't or the midsize, Eric and attract a whole lot of partners to that there's just never enough work for them. It seems as you've expanded your product platform now.
Now big enough you have enough influence with the customers that the partners are coming in and I was just kind of curious how that adds up to them influencing your pipeline your close rates, obviously, you're landing with more multi product deals at the outset. So I was just wondering to get a little more color around that how things are going on the partnering side. Thanks.
Yes, Thanks for Brian definitely control of a lot of our music interests here. So it still continues and yes in terms of.
Our partners here.
Toric Lee we had a lot of smaller marketing agencies and there were a set of services and providing Budd.
Partner channel is really diversified and kind of like and building on the expertise of you've heard me say in the opening remarks.
The part of our opportunity over the next few years is really huge nearly $12 billion by 2024, and if you look at our product portfolio of expanding we'd see there's tremendous opportunity for our partners to drive breadth of services to our customers more integrations more complex implementations and more breadth of services.
And so.
This year, we've really focused our attention to our partner channel on a couple of different fronts, one, making sure that theyre supporting and them in their diversification and building up their expertise because when they do really well our customers get tremendous value the engage with customers and they get so.
And so much value that the win for our customers and for our partners and when for hotspot and then we're also.
Investing heavily to make sure that the direct team and the partner team are working well together and traditionally has always been Hank and you bring up and earlier and Youre seeing the right kinds of opportunities and our direct team is now engaged they're bringing the earlier, we're seeing a lot of traction and when that happens there's a lot of information.
And sharing about what's right for the customer of that happens between the direct team and the partner team and so a lot of goodness in terms of how of the partners are engaging with our customers as well as with our teams internally.
Your next question comes from city pedigree of heat from Mizuho.
Hi, This is Michael Berg on for city of I wanted to say my congrats on a great quarter and some of my good wishes to Brian as well and I wanted to have one more follow up on the Starz for cohort that started and the pandemic loss share.
What's sort of.
Retention metrics of expansion metrics.
Cause that produce relative to prior cohorts and now I'll turn the year out and how can you see that moving forward.
Yes, thanks for the question.
Cost of that under the last few earnings calls, we paid very close attention to those cohorts of started our grocery customers.
And a variety of fronts and in particular.
And we were looking at are we attracting the same or similar sized customers to our starter product and the answer to that question for you talked about is yes are they upgrading at similar rates.
And in line with expectation the good news there was that the answer was yes. It continues to be of very strong tool for us in terms of net customer adds.
This is the first.
The first couple of months, where we see these big starter gross suite cohort come up for renewal and the good news is that the renewal rates of these initial cohorts has been very healthy.
Your next question comes from Derrick Wood from Cowen and company.
Oh, great. Thanks, it's Andrew on for Derek and congrats on the quarter and best to Brian.
For the many you've talked a lot of on the call about investing and more on enterprise and the sales productivity tools, but do you feel the need to build up more sales rep capacity and drive more revenue through our direct sales motion.
Yes. Thanks, a lot for the question. It's balanced right you got to do both and we have continued to hire across the different quarters and will continue to focus on improving the productivity and it's not just within our corporate segment and across all segments. We look at the one two.
<unk> thousand and segment and we of investments.
And the 1% to 20, where we are automating driving product net growth, where we have investments and the broadest I can think of it and like multiple engines in each of the engines are kind of getting optimized and fine tuned and it includes hiring but you did also include productivity enhancing initiatives, so it's pretty balanced across.
The ball.
And that was our last question at this time and I will hand, it back to you how many ran new chief customer officer for any last comments.
And thanks, everyone for joining us on the call and I do hope that you're all safe and healthy and we'll talk to you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.