Q2 2021 HubSpot Inc Earnings Call

Ladies and gentlemen.

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And ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.

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Good day, and thank you free standing by and welcome to the hub spot Q2, 2021earnings conference call.

At this time all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session.

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I would now like to hand, the conference over to your first speaker today.

Chuck Mclaughlin head of Investor Relations for hotspot. Thank you. Please go ahead Sir.

Thanks, operator, good afternoon, and welcome to have spot second quarter 2021 earnings conference call.

Today, we'll be discussing the results announced in the press release that was issued after the market close.

With me on the call. This afternoon is Brian Halligan, our cofounder and newly named Executive Chairman.

<unk> Shah our cofounder and CTO.

Yeah, and he wrong, and our chief customer officer, and newly named CEO, and 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.

During the <unk>.

The chart.

And maybe considered forward looking within the meaning of section 27, a of the Securities Exchange Act of 1933 as amended and.

And section 21 E of the Securities Exchange Act of 19 and 34 as amended.

All statements other than statements of historical fact of forward looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures.

<unk> gross and the leadership transitions and business outlook, including our financial guidance for the third 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 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 used or discussed and a reconciliation of the differences between such measures can be found within our second quarter 2021 earnings press release, and the Investor Relations section of our website.

Now, it's my pleasure to turn over the call to hubs much chief customer officer soon to be Chief Executive Officer, Yemen, and Iraq in Germany.

Thanks, Chuck and greetings, everyone and thank you for joining US today as we review hub spot second quarter 2021 earnings results.

I know you've likely seen the exciting news that Brian will be taking on the role of executive Chairman as of September 7th.

We're all looking forward to having Brian back in action and stronger than ever of and he returns next month.

Brian will be joining the call here and a few minutes to talk about the path forward and this new capacity as well as to share. Some reflections on the 15 years that have led us to today's news and this quarter's fantastic results.

Before we do that I want to focus on the business at hand, the great results from last quarter.

We continue to operate from abroad position of strength with Q2 revenue growth accelerating to 47% year over year and constant currency and total customers growing 40% year over year to over 121000.

We have seen multi product adoption grow to over half of our total customers a great indicator that more companies are realizing the advantage of managing their entire front office on 1 platform with 1 day to model 1 view of their customers and 1 user interface that's easy to use.

Yes.

A key driver of this continued growth is digital transformation, we're seeing as more companies have had to adapt to doing business online.

This shift towards digitally powered customer experiences is 1 that hotspot has been evangelize, Inc. For the past 15 years, so we've been well positioned to meet the moment.

As consumers increasingly expect a remarkable of digital experiences at each step of their journey scaling companies need of powerful CRM platform to tie it altogether the.

This makes the are not just the nice to have solution, but and indispensable driver of long term gross for our customers.

A key part of that digital experience is the company website. This is the digital front door.

Traditional website content management systems are often siloed from other essential front office functions, they're complex to manage the lack of speed security and scalability that companies need to grow their business.

And that's why we launched CMS hub professional and enterprise last year, and we are continuing to invest and the platform with CMS hub starter launched yesterday.

On the sub starter is built as part of our CRM platform to give companies seamless access to all of their customer data.

Having the CRM powered website enables both marketers and developers to efficiently work together to build a remarkable digital experiences and maximize the revenue generating opportunities.

As part of that launch we also adjusted the pricing of our CMS hub professional and enterprise tiers to reflect the increased value we are delivering to our customers through SCO enhancements dynamic pages side trees and increased limits and capacity with even more advanced features and the roadmap.

We're still in early stages of the launch, but we are confident that CMS hub starter will still of painful GAAP for marketers and developers that are looking to spend less time, managing their system and more time driving growth.

Another important function of digital first transformation is revenue operations.

Last quarter I talked about the launch of operations hub are new.

New product designed to transform the role of operations professional and empower them to become strategic drivers of revenue and growth I'm excited to share that we are continuing to hear positive feedback from customers and partners and that operations hub has performed nicely ahead of our internal growth expectations over the.

Last quarter and a half.

Data things are robust new integration engine has quickly become 1 of the most compelling and popular free tool, particularly amongst small customers exemplifying how operations hub will drive adoption of our CRM platform.

We're also seeing strong adoption of programmable automation among larger companies, who are looking to take full advantage of their data and Delaware personalized experiences to their customers.

1 of our top solutions partners had this to say about the future.

Programmable automation makes up of spot significantly more flexible we've used it to build even the most advanced business processes and hub spot from ERP integrations to data enrichment commissions calculations to renewal communications with the programmable automation in operations hub if you can.

And you can automate it.

Thanks to the team and attitude 8 for sharing the feedback we're so glad that they are seeing value in operations hub.

Well the operations hub and CMS hub starter are great examples of our commitment to crafting our CRM platform in house, rather than Cobbling together through clunky acquisitions.

That focus on delivering of consumer grade UI matched with the scalable enterprise back and sets us apart from traditional CRM platform and put the hub spot in a strong position to achieve our goal of becoming the number 1 and CRM platform for scaling the company.

With that I'll turn it over to Kate to give an overview of our fantastic financial results.

Thanks, Johnny.

Let's turn to our second quarter financial results and our guidance for the third quarter and full year of 2021.

Second quarter revenue grew 47% year over year and constant currency and 53% as reported.

Q2 subscription revenue grew 53% year over year, well services and other revenue increased 44% both on and as reported basis.

We continued to see strong performance across all of our hubs tiers and geographies and Q2.

Revenue retention continued to be very strong and the quarter.

Once again benefiting from healthy customer dollar retention levels in.

In addition, our net revenue retention continued to benefit from a diverse set of upgrade of drivers with particular strength from addition upgrades and cross sell activity and seat expansion.

As of Q2, 58% of our customers are getting value out of 2 or more hubs as they adopt hub spot as the platform.

Domestic revenue grew 42% and Q2, while international revenue growth was 54% year over year and constant currency and 68% as reported.

International revenue represented 46% of total revenue in Q2 up 4 points year over year, we added over 7100 net customers and the quarter, bringing our total customer count to 121000 up 40% year over year.

Average subscription revenue per customer grew 8% year over year to approximately $10200.

As we saw a positive mix shift toward our professional and enterprise tiers, coupled with strong install base selling and the quarter.

We expect our strong install base selling and positive product mix shift to continue through the second half of 2020.1 as.

As a result, we anticipate second half net customer additions to sustain around these levels of.

We continue to compare against the robust start of gross suite customer additions from 2020.

And we expect high single digits year over year gross and a S. R. P C and Q3 and Q4 deferred.

Deferred revenue as of the end of June was $362 million of 50% increase year over year calculated billings was $334 million.

Growing 60% year over year, and constant currency and 65% as reported.

This acceleration and constant currency billings growth was driven by strong business performance and the quarter and addition to and easier overall comparison as a result of the challenging business environment and the second quarter of 2020.

The remainder of my comments will refer to non-GAAP measures.

Second quarter gross margin was 81% down a little over 1 point year over year.

Subscription gross margin was 84% while services gross margin was negative 5 per cent.

Second quarter operating margin was 9% relatively flat as compared to the same period a year ago.

Operating margin and the quarter exceeded our expectations, primarily as a result of our strong revenue performance.

At the end of the second quarter, we had just under 5000 employees up 32% year over year.

Net income and the second quarter was $22 million or 43 cents per fully diluted share.

Capex, including capitalized software development costs was $16 million of 5% of revenue in Q2.

Free cash flow and the quarter was $26 million or 8% of revenue.

We continue to expect Capex as a percentage of revenue to be about 5 per cent in 2020, 1 and now expect free cash flow to be between 170 and $175 million with the seasonally strong free cash flow quarter and Q4 finally.

Our cash and marketable securities totaled $1.3 billion at the end of June.

And with that let's dive into guidance for the third quarter and full year of 'twenty 'twenty 1.

For the third quarter total revenue is expected to be and the range of $325 million to $327 million up 43% year over year at the midpoint.

Non-GAAP operating income is expected to be between 27 and $29 million.

Non-GAAP diluted net income per share is expected to be between 42 and 44 cents.

This assumes 50.6 million fully diluted shares outstanding.

And for the full year of 2021 total revenue is now expected to be and the range of 1 point to 6.8 to 1 point to $7.2 billion up 44% year over year at the midpoint.

Non-GAAP operating income is now expected to be between 107 and $109 million.

Non-GAAP diluted net income per share is now expected to be between $1.67 and $1.69.

This assumes $50.5 million fully diluted shares outstanding.

As you adjust your models keep in mind the following.

At current spot rates, we're forecasting and FX tailwind to as reported revenue of 2 points and Q3.

On neutral impact to Q4, and a 3 point tailwind for the full year.

Lastly, I look forward to seeing many of you again for our virtual analyst day as part of our inbound 'twenty 1 event on October 12.

And with that I'll hand things over to Brian for some closing thoughts.

Thanks, Kate is the true pleasure to be able to speak with all of you again.

So proud of the entire hub spot team they've been absolutely cranking during my time away and I'm. So thankful for the work the nominee Dar matched Kate and the rest of the leadership team have done and my absence my sincere. Thanks to all of you I.

I also want to say a huge thank you to all of you for the well wishes over the past couple of months. The road to recovery has been a long 1 but I'm feeling really really good my head is the 100% back my body, but all of that needs a little more physical therapy, but I'm, making great progress and should get back to a 100% quite soon.

Now back in June we celebrated our 15th year anniversary of hub spots founding and.

And I look back of the last 15 years I'm Super proud of what we've been able to accomplish rebuilt and truly mission driven organization designed to solve for the customer and actually help millions of organizations grow better.

This past year, we've had some exciting milestones like passing of $1 billion and they are on.

And of 100000 customers.

These are just the start hubs, while it's still in the very early innings and has a lot more value to provide to our customers partners and employees.

1 of the keys to the modest success. We've had so far is we haven't been afraid to take inspiration from the Warren Buffett quote that goes something like.

Someone is sitting in the shape today, because someone planted the seed several years ago.

And that's upside in a nutshell, we been willing to plant seeds like shifting from Oreo cleaning up to our front office suite shifting from a front office suite of front office platform shifting to a freemium model and many many others that are all paying off quite nicely for us today lots of share going on.

And over the last 6 months I've been thinking of a lot about how I can have the most impact on hotspot moving forward and moving to the executive chairman role feels like a natural fit as an executive member of the board I'll be able to lean into the things that excites me like planting and nurturing more of the seeds that will turn into big JV true.

<unk> for years to come.

And my transition to executive chairman would not be possible the word super confident and the nominees ability to lead hub spot. When we hired yamani. When you were getting and incredible leader with an amazing track record of holding high impact roles at SAP.

The day, and Dropbox, who will be able to align marketing sales and service teams and create a more cohesive experience for our customers, but what we've actually gotten it so much more than that since the day you know how many arrived she has made hotspot better from reducing friction for our customers to leading the company with the clarity and empathy through the <unk>.

Pandemic the harmony has proven and she is ready to take on the role of CEO to help both hotspot and our customers and partners grow better and she is just the perfect complements to the dermis and me to write the next chapter I want to close out.

And once again thinking of how many for terrific leadership over the past 6 months and operating my heartfelt congratulations to her on this exciting milestone our message and I have no doubt that she is the right person to lead hub spot moving forward and I'm Super excited about the journey ahead.

I want to thank all of you for your time and I'm speaking of your army over to you.

Thank you so much Brian for your kind words and for your incredible support during my time here at hotspot.

I'm deeply humbled grateful and Super excited to take on this new role in partnership with the U Dar mesh and the entire hotspot team.

It was your visionary leadership of founders that got US here today and that leadership will continue to be invaluable as hub spot growth.

I'm excited to continue working together to build innovative products for our customers create a remarkable culture for our employees and ultimately make hotspot. The number 1 CRM platform for scaling the company.

Operator, please open up the call for some questions.

As a reminder to ask the question you will need to press star 1 on your telephone to withdraw your question press the pound or husky.

Okay.

Our first question is from Samad Samana from Jefferies. Your line is open.

Hi, good evening and welcome back Brian.

<unk> really represents and Spain, the great job and you and dimension built all these years and and Yamana and strong leadership steer and get recently and congrats on the move to executive Chairman really happy or you're saying and the harmony. Congrats on your move to the CSD full time I'd love to hear from both of you a little bit more about how you too will be <unk>.

Adding up the core responsibility is going forward and.

And where each of you will be focusing your individual attention and then the army maybe for you on it. It's obviously early but you've been at the helm now for 6 months and it'd be great to hear maybe if you could give us some thoughts about hotspots of vision and strategy going forward.

Some on I will kick it off and hand, it to you on me, but it is great to hear your voice my friend. Thank you very much for asking the first question here.

I'll say I feel fantastic my head, it's fully recovered from the accident and throughout the back in the hope of spot in this room with my friends and colleagues is just the a terrific time for me now.

And now.

When they get hurt and a lot.

And I and my hands.

It's been a lot of time and and also been looking at the ceiling.

And I was thinking about what can I do how can I add value the hotspot and a bigger way going forward of and the Vanessa is 15 years and.

And what's next for me.

And I thought this is a good time I'm going to become the executive chairman and Yamana and it's going to become CEO and it's going to be a 1 plus 1 equals 3 combination.

M Yamani.

I heard of Germany. She is the perfect fit for this John and for this phase of growth to take it to the next level of she is just the perfect fit. She has had my job from the last 6 months you guys see the numbers are fantastic and you've done a masterful job and very very very bullish on.

In terms of dividing up what we're going to work on and we've talked a lot about that and I'll, let Jim.

Anyway, and and her side 1 of them.

Sort of focused on at the <unk>.

And of chair is first and foremost on I plan to the executive chair of active and engaged executive chair.

And you've probably heard me tell of the bad joke and I used to say on these calls that are.

If I ever leave folks thought they would have to take me out on the stretch or street jacket and might have to ask that all of you all to that list.

But my.

My name on and to help you on any new as best as she can and keep the thing rolling.

I do feel like it's the very early innings of hotspot and <unk>.

1 thing that I've always enjoyed doing and helped drive is plant the seeds to turn into big shaking the trees and we've all enjoyed over the years.

The App to suite tree, we pointed several years ago, it's still the small treat theres a lot more growth to go into the suite. We're just now planning the suites of platform feed that's going and it's going to go really well.

Top of the first inning on that feed the split the premium model the better agriculture. These are seeds, we planted long long long long time, together and won't play paid off and.

And I like that type of work and I like product and product vision. So that's kind of where I'm going to be focused and then just helping you on me how about you yeah, yeah well.

Brian and I have said, so humbled grateful and Super excited to take this new role and write the next chapter of growth of the top spot and smart.

I'm, particularly excited because I get to work with 2 brilliant people, Brian and Dan Nashville done. This for 15 years of fantastic experience. The 3 of of share a lot and common a growth mindset, just curiosity focus on product innovation and focus on customer centricity.

And I think the combination of their experience plus my focus on scaling customers, there's going to be powerful.

You asked the question about the vision and strategy of our vision is clear our vision is to help millions of organizations grow better and we're just getting started and.

The accomplishing the mission and our strategy over the last 6 months and over the last couple of years, it's been working it's clear and it's not changing and if I had to articulate the strategy is 3 fold first of all we wanted to build a best in class C. R. M platform for scaling the company and we will do.

Do this by expanding into new hubs like you saw the do it with operations hub last quarter, and we will do this by investing heavily into our existing hubs like you heard about the CMS hub. This quarter. We have just a long way to go a lot more to do in terms of the product the <unk>.

Second part of our strategy is fueling all of our segments now we focus on the 1 to 2000 and segment and historically they've been really good at the 20 to 200, and we have unparalleled product market fit there.

And investing heavily in the lower end of the segment 1 to 'twenty and we'll continue to invest in the 200 to 2000 and so we.

Have just a great you know enterprise class of product with consumer grade ease of use and this is working and.

Finally, the third part of the strategy I'm very excited about is that we want and continuing to build an organization that can scale, we care deeply about our employees and we care deeply about the diversity and we want of Fox of B. The place that's really the best place for people to work and serve our customers. So I'm Super excited.

Cited to get started on this journey and write the next chapter of growth of the tub Spa.

Great. Thank you for that and both of that detailed answer and Kate I know the the Big news was the transition, but it wouldn't be out of a soft quarter. If I. If I didn't ask on the financials just that the billings number was very very strong I know theres, an easy comp there, but even if I look at that the very strong 1 queue. Maybe can you just help us on.

Unpack if there is any anything that changed in terms of either duration or was just where theyre more larger customers and the quarter that lean towards enterprise and took more seats. The normal just help us understand the the really the.

Good amount of strength there yeah.

Yeah sure thing some on a billings growth with was notable and notably strong in Q2 are free.

There's not much out of the ordinary here, there's not a lot of big changes and duration.

The biggest driver of the billings performance was the strong bookings growth that we had in the quarter.

On the 1 thing that I would point on and you've kind of got it and the question is that there is a relatively easier compare.

And for billings relative to revenue and constant currency.

You might remember last year.

In Q2, we ran a number of short term customer relief plays that had a bit of a negative impact on our Q2.2020 billings and so of billings kind of just frankly, a little bit of an easier comps and revenue.

Great. Thank you, Brian what we'll Miss you on the call, but congrats again and look forward to seeing yet future inbound yeah. A few of you actually pretty soon at the LD and and the Investor day at the and inbound So we'll see you soon.

Yeah.

And our next question is from Mark Murphy from JP Morgan Your line is open.

Yeah.

Yes, Thank you very much Brian and as much as I enjoyed reading your tweets and so much better to hear your voice of lives though.

Great to hear from you and the congrats to both of you on.

And on all of these are tremendous milestones.

M.

Yummy and <unk>.

Some of this I think part of the past about bringing high and features down to the mid market companies I'm, just wondering which features that maybe have driven the greatest traction recently in and some of the enterprise editions, whether it be a custom objects or account based marketing or the different channels that are emerging just anything else did you see.

And it might be resonating and the results here.

Yeah.

Yeah. Thanks, Thanks, a lot more good to hear your voice and I appreciate your vicious for both Brian and myself.

And I I'd say the enterprise.

All of the product investments that we have made and making an enterprise is working our strategy is really to build products that fit every 1 of our segments and our upmarket segment from 200 to 2000 and that's been a focus area for US now last year.

We powered up marketing hub and the lot of the features that we announced at the beginning of the year deeply resonated with our customers and at inbound we launched sales hub enterprise as you know and custom objects huge hit a lot of the C. P. Q advanced features that would be added few.

Chad in Q1 of this year, we added conversation intelligence now this of category in and of itself and the fact that we added at the power of hub.

And is now of seamless part of our whole suite that is resonating deeply within the market. So our strategy for continuing to build powerhouse features while maintaining the ease of use of.

That is consumer grade think that and what is working and broadly if you look at the upmarket you know, we're just getting our fair share of our fast and growing market and will continue to invest both on product as low as go to market. The continue feeling that.

1 thing that we've seen okay.

Go ahead, and just kind of adding on there is that.

We talked about couple of objects, which has been really well received we're continuing to pull on that threat and we have custom objects flexible data association of things that customers have been asking for and the idea there is for.

For a company to be able to model of entire business within the hotspot. So the more flexible database gets the more data we can hold there and the higher percentage of that 202000 and segment of the.

And we can serve well.

Okay. Thank you for and I appreciate the additional color and.

The only because just of a quick follow up it sounds like you're mostly focused on executing on the on the preexisting of roadmap and strategy you've been a big part of it it's been performing amazingly well.

You know kind of following on some odd question, but I'm. Just wondering do you carry you know some unique philosophies or or maybe just think of.

The time is the right to make any kinds of little tweaks for instance of the the focus up market versus the market or the optimal number of hubs right.

The Congress conversation intelligence that are.

You know how deep the push on the operations side.

Any of those factors, where you have it is a little different view.

That's that's of Great question I think of it it goes back to the earlier thoughts in terms of strategy on.

Our strategy is clear.

We have of focus on having the best CRM suite and the market that means of it'll continue to invest and our existing clubs and we'll continue to make new investments.

<unk> and additional hubs and theres plenty of ideas.

Mark We just came from our annual strategy off site in June.

And we have and our collective heads and product innovation for the next 15 years and.

And the.

The focus on horizon, 1 horizon, 2 and horizon, 3 and bats have worked really well some of the company and my job is to work with Brian and Dar mesh and to really empower of that type of innovation going forward as we have thought and I also think that our focus in terms of all of the segments.

You know we're fired up every portion of our segment and the way I look at it is how do we continue to optimize where we are strong which is the 20 to 200 segment, but how do we continue to optimize the product led motion at the bottom and as well as the upmarket motion through the investment.

And that we have and so that will continue to be the focus and I'm Super excited I think we have the right leadership team and products. We have the right leadership team and execution focus team and the go to market and I'm really excited to work with all of them.

Excellent. Thank you.

And our next question is from Brad Sills from Bank of America Securities. Your line is open.

Oh, great. Thanks, guys and congratulations you harmony and Brian on your on.

On your new role well deserved false and Brian great to hear from you as well.

Great to hear your voice again.

1 of the things that stuck out for.

For me and the quarter was the ASP acceleration and a lack of driving that obviously, you're executing up market youre seeing operations hub traction. It's early with some of the early results. There. My question is where is the incremental ASP growth coming from when you. When you look across all of the different levers that could be driving that just larger customers more and.

The price uptake and and upsell operations hub multiple products, there's a lot and there. If you could just maybe you can just stack rank whats been driving that acceleration and ASP. Thank you yeah, maybe I'll take a shot of it I think that it's it's sort of interesting to see where we had a really strong quarter and that will tell you where youre seeing the real drive.

<unk> of the ASR the growth. The first thing I would say is around new business, our new additions were particularly strong in the professional and enterprise tiers, which tend to have a larger S. T.

We had a really strong quarter selling into the installed base, including a record quarter for nominal upgrade from the starter into professional and enterprise tiers.

And then you know you also saw the fueling of the cross sell with the addition of the operations hub and then I guess the final thing that I would highlight is just and expansion and the number of seats that we're seeing out of our professional and enterprise customers on the sales side.

Thank you. Our next question is from Stanislavski from Morgan Stanley. Your line is open.

Perfect. Thank you so much guys and.

And congratulations on the very exciting moved within the company and Brian Obviously, great to hear your voice back on these calls.

Quick question from my and you mentioned that the the pricing changes that you guys manage some of the of.

Some of the of the products could you walk through the end of the spirit.

The pricing changes, you know why and what and.

And as far as like the the pricing changes is it fair to say that the you're going to follow a similar strategy I was in the past of grandfathering of existing customers on the pricing changes are mainly for for new customers and then of a quick follow up.

Yeah. Thanks, a lot stamp on the question in general our pricing philosophy is twofold.

And what you will see US do is continue to bring high value added features down to our freemium and starter tier and what does insurers is that we manage disruption within our install base versus allowing competitors to disrupt off.

The second part of the strategy is that it also ensures that we keep innovating and adding new features to our higher tiers pro and enterprise and.

So that's our broader pricing philosophy, it's worked really well for us that's exactly what you saw the do with CMS.

And as we have added more features to enterprise and Pearl we feel pretty comfortable that we are delivering a lot more value to our customers and therefore, there's confidence and kind of increasing that price.

And in terms of your second question on Grandfathering very similar to before will you know first rolled this out the full impact all of the new customers and then over a period of time over on top.

Got it got it that's very helpful. And then the follow up on the net revenue retention I know you guys don't really.

It doesn't really give it every quarter, but just maybe qualitatively directionally how does the do relative to the the really outstanding results of the guys.

<unk> put up in the Q1.

Yeah. Thanks, we saw another really strong quarter of the.

Customer dollar retention and net revenue retention and you know the story that we would tell you about retention and Q2 and basically the same story that I told you that retention and Q1. It starts with that foundation of customer dollar retention, where we've seen really healthy are true.

And there since the back half of 2020 and then again similar to last quarter. There were a real diversity in terms of the upsell notions and are really driving the positive net revenue retention.

Thank you. Our next question is from Ken Wong from Guggenheim Securities. Your line is open.

Great. Thanks for taking my question and it and kind of congrats across the board from from me as well.

Building on on Stan's question, just on CMS hub, so just thinking about that kind of the new basic SKU. There is this intended to get the the laggards over to adopt or should we view this as potentially a way to open the funnel and.

And to the hub spot franchise of using using CMS.

So that's of Great question, Tim. Thank you, so taking a step back and we think about CMS and what and why we're in that business.

So yeah that was 1 of the things that makes hotspots from need there are no other leading CRM platforms that have a legit content management system as part of the overall platform offering and if yes.

But the whole why is that I think the reason is because it's really hard to build a CNS and it's different from everything else its like picking up from both.

Like it's like Okay, well, it's kind of hard you have to go and use that slide anything to kind of 5 of the keys or anything like that the difficult I always thought of it into the pick of the musical term and hence you were wondering but you know the reason, but if you have of March and Daniel needed from build and that's what kind of completes the thing and so if you need it if you want a full CRM platform you need a CMS and the reason it is not.

Just about putting a web site up there it's about making the website a window into the backend data into the CRM itself and bringing the customer and it's about fortinet connections and so we're really excited about it in terms of why would we launch and he started here. It's basically exactly what you were alluding to we think getting this kind of web experience up and the first step often and the digital journey and.

We want customers to take that first step correctly. So we want to bring as many people onto the platform you can see M. S star as soon as we possibly can and the kind of gets the all the the CRM platform from upside and helps us kind of grow from there. So we're super excited about the opportunity to open the.

Thank you. Our next question is from Alex is that kind of from Wolfe Research. Your line is open.

Hey, Thanks, guys.

Well, Brian first great great to have you back sad to see you go.

And they are really excited to work with you.

Maybe just the first question for you I mean, if you think about the what you see and the pipeline what you see and customer behaviors as we look out to the second half and then 2 of new post Covid World can you kind of compare and contrast that with either what you saw on the first half and what you saw on the second half of last year for us.

Hey, Alex I'll start that I'm actually not going anywhere I'm gonna be executive chairman and Super active.

And hopefully for a long long time, and get and be very active and hotspot and helping drive strategy and partnering with the army. So.

And not getting rid of me that easily my Brian.

[laughter] I would echo that.

And Brian like Super active always challenging us all of us and inspiring us. So that's a pretty good and we're glad to have him back at full force. So Alex the question in terms of.

Demand environment, and comparing first half and second half on demand environment the solid symbol.

Alert and what we saw and the last quarter. So if you step back.

And what act is really unique relative to competition competition and I'd say, we have a very very strong value proposition that is resonating and the market.

And Brian talked about sowing seeds, I think we've done enough product investments and the past few years and you think all of that to pay off we not only half of that product market fit but they also have a go to market fit and the combination of those 2 are really helping us drive really strong final.

The result.

In terms of pipeline.

I'd say that the digital first and digital ready.

Both of those trends are here to stay and we're not going back from here. We are clearly seeing of customers modernizing their CRM platform from website to marketing sales and service and they're all focused on delivering of connected customer experience and that's the kind of customer interest of you're seeing from a pie.

The flight and I in July.

Very beginning of the quarter, you actually gave our entire global employee base of week of rest and we did that.

You know it was the very important choice and care about culture, and we care about employees and we wanted them to rest recharge and come back with the full focus in the second half and that was the right thing to do and I think I'm really feeling good about the second half and looking forward to and what they're going to do and the second half.

Thank you. Our next question is from drew Foster from Citigroup. Your line is open.

Hey, guys. Thanks for taking the questions.

Great to hear you're doing well, Brian and congrats everyone else on their new roles.

Given everything that's been said about kind of the importance of digital channels and not going away and can we get an update on where net logo retention stands today and as you reflect over sort of of more protracted period, maybe 2 or 3 years, what are kind of the 1 or 2 things playing the the biggest role there or is it a greater share of customers using more products and just.

General and stickiness of the category more broadly rising and the strategic importance and maybe just give an update and touch on drivers there. Thanks.

Yeah, you know, we'll probably talk in a lot more detail around retention and general and the upcoming analyst day, but I would give you maybe a couple of points to take away.

The customer dollar retention, which is not the same as logo retention, but is sort of the baseline of how we think about it internally.

And is very strong and showed specific improvement through the back half of 2020 and sort of stayed out of that new elevated level.

The first and second quarter of this year.

And I think it sounds kind of elementary, but the the truth is that what we're seeing is that our customers are just using the product the bar and as it turns out that leads to higher retention.

And we are as a result of enjoying really healthy core retention level.

Thank you. Our next question is from Terry Tillman from tourists Securities. Your line is open.

Yes, Thank you and Brian and congrats and good luck on the next chapter, but I think on 1 of the last questions. I think you said youre going to stay on these calls going forward. So I'm going to that's my base case.

On the next call.

And good to have you back and congrats on your harmony as well.

I guess my question just relates to you know it was that go to a couple of times in terms of installed base selling strength.

I think it was mentioned by Yamana, and maybe and Kate if I'm not mistaking.

What I'm curious about is has there been some things you've done internally on of programmatic basis, the kind of turn that dial more and or investments and and is this more.

Should we see more of this and the future where there was more of a structural shift where you're just getting a lot more from the installed base of selling each quarter. Thank you.

Terry Thank you for the wishes of really appreciate it.

In terms of the install base like our existing customers now have a lot more product that they can adopt right and in the past.

A couple of quarters, we have introduced the operations hub, we have improved the additions on the number of hubs and so there's a lot more product for them to adopt and and I think of that product has gotten much better. So when our customers are on 1 hub and then they see the value of our seamless.

And good day to model of single interface of other hubs that naturally pulls them and.

So the product investments are probably the first ones that I've talked about I think the second part of it does that and we certainly from a go to market perspective have invested more heavily in our customer circuit of.

Our success team working more closely with our sales team and that helps us connect the dots in terms of installed base and that's certainly been part of it now going forward I'd say, we want to have a balanced approach. We would you know we continue to acquire a lot of new customers because of the strong value proposition.

And that the Delaware and the continued to sell into the installed base. So you'll see the balance of both of these across our future quarters.

Thank you. Our next question is from DJ Hynes from Canaccord. Your line is open.

Hey, guys congrats everyone on the new roles and the continued success, it's awesome to see.

Just a go to market question on operations hub is the buyer there is somebody that you're already talking to when you're selling marketing and sales or is it somebody else and the organization that sits on top of those efforts and I'm just trying to think about it.

And the ease of cross sell and whether in most cases, it's with somebody you already know and that's familiar with hotspot.

That's a great question D. J, that's fantastic question.

Let's say of the buyer for operations hub is a revenue of persona and now I spent the better part of the a couple of decades saw and CRM running these operations teams and Theyre really the nerve centres of go to market functions out of there are sometimes the unsung heroes that day.

Have a really critical role to play which is providing the single source of truth about customers 2 of the VP of sales to the head of marketing and the head of customer success, that's the persona and it's the they've always been involved in a CR and purchase and now we're providing them the flexibility and the.

Power for them to deliver insights into the front office and if you really step back on operations hub. It's a couple of things that really helps our customers connect their tech stack and it helps our customers clean up the data it helps our customers automate the processes and these 3 challenges are.

Traditionally the once that revenue operations teams and all of our customers struggle with and so it's really.

Helping that critical persona and be very very successful and.

And.

We've seen a lot of traction as I mentioned in my prepared remarks, we are seeing very positive feedback from our customers as well as partners and programmable automation has been on fire and really good traction of clean use case of that is the lead routing you want to do advanced lead routing.

You are able to take all of the data from CRM, but also figure out who's the rep capacity throughout the seniority rep is on vacation that up is on sabbatical and use all of that information can now be able to automate your of processes and so operations hub provides flexibility automates processes and supercharge.

And our CRM suite.

Thank you. Our next question is from Brian Peterson from Raymond James Your line is open.

Thanks for taking the question and and Brian and it's great to hear your voice and and glad to hear you well and congrats to both you and your harmony of the new roles. So maybe just.

The higher level question from me I'm curious if you were looking at the pace of net new customer adds and I'm curious how much does the platform and the breadth of functionality between different areas come up I guess I would think debt.

Post Covid people are looking to maybe consolidate vendors and it and think about simplification of the digital go to market model and that's something that's coming up and a lot more conversations and.

How do we think about that impacting win rates. Thank you.

Yeah, Brian I'll, Oh addressed that and then have maybe kate or that might jump in.

You're you're exactly right like if you think about our customers theyre coming through this whole pandemic thing 1 I need to digitize my entire front office and the starting points could be very different the starting point could be a bunch of point solutions. It could be greenfield of using something like a spreadsheet or they have a leg of.

The system.

And they're looking at providing and entire connected customer experience and therefore, having and all in 1 solution resonates pretty deeply with them and that's part of what we are enabling through the CRM suite and we definitely see.

That you know motion and beginning to happen and.

And I think we'll continue to invest and CRM suite now the Fiat and suite of like very powerful 1 of the things that for US works is that when you get CRM suite, and the hands of new customers or existing customers.

And I'll see the power of the entire platform there is higher product usage and therefore, we get much better feedback on the product. Therefore, we can improve the product and it's a nice little flywheel in terms of how we can drive the quality of our product even higher and so there's a lot of goodness and certainly that's what we're seeing in terms of trends from our house.

Yes, the 1 thing I'll add is that the.

We as you would expect to see thousands of companies that want to make that digital transformation. The digital first but that kind of path of digital transformation is often paid with the good intentions, but really terrible IC implementation of and so complicated because they have all the database and multiple systems. So there's kind of value proposition of hotspot brings which is we can simplify that we can bring it altogether 1 offering.

Just on 1 platform 1 database 1 experience 1 company the call is a very compelling value proposition because most of these mid market companies are dealing with that complexity out of the scale and we hope with that is resonating really well.

Thank you. Our next question is from Parker Lane from Stifel. Your line is open.

Yeah, Hi, Thanks for taking my question.

And you did a tremendous job and the last few years of really making the platform of applicable to customers of all sizes of the starter and enterprise editions of all of your tools. I was just wondering if you could talk about the multi product adoption across those different tiers is it mostly weighted towards the enterprise customers that are using multiple how the flow of products are you seeing a lot of traction as well.

To the point you were just making them at.

At the start of the level as well as getting them and the door and attaching some newer solutions around the initial land. Thanks.

And maybe.

Start with some numbers and pass it on to yummy for a little bit more color and context.

You know we've talked about this for a number of quarters the growth and our multi product adoption, so customers, who use 2 or more of our products has been on this sort of steady trajectory off for a number of years now and and that has happened across all.

All of the tiers from the enterprise of the starter we did see a bit of a step function of inflection left.

The spring when we introduced the starter gross suite and that really simple $50 price point and easy to buy and so we see a lot of uptake of that starter level of just the full set of hotspot products.

And I shared in my prepared remarks, we're at 50.

And 58% of our customers who are using more than 1 hotspot products.

And when you look at that new customers are probably 50, 50, now adopting multiple hotspot products upfront.

Yeah, I think got to add 2 of the commentary that Kate provided I think if you step back.

But we saw something really important.

Having all of these product, which is we take a very crafted approach to CRM is not cobbled together through acquisitions and.

If you step back and think about the single biggest challenge for customers and they're putting together a very complex tech stacks and they're spending a lot of time on integration and they've spent a lot of time on developers and I spent a lot of resources, there and yet the customer experience and customer experience.

There's not great for that and therefore for us are.

The focus on multi hub is to provide 1 data model of single view of the customer a simple interface. That's easy to use that is crafted and not cobbled together and I think that's what our customers life and that's what is resonating with and the market.

Thank you. Our next question is from Brian Macdonald from Needham and company. Your line is open.

Hello. This is Alex on for Brian Congratulations on the strong quarter I was hoping just to get a little bit of the additional information on the strength and the international.

Yeah, Brian. Thank you for that question and you will be.

All very consistent growth both in North America and international as we mentioned international has been growing really well I think year over year of few points up.

From last year the.

The if you step back on international the market, there and digital transformation is and earlier stage of lot of the customers are in international markets are looking at being digital first isn't ready and really it's an earlier stages, which means there's an even bigger opportunity for us I think the.

The second part is that we've been investing steadily in a lot of the international markets from product localization in terms of content for lead management in terms of customer facing resources, and even Brian and those investments are paying off.

Our LTV to CAC is really solid and these markets and so we'll continue to invest and international markets I think the exciting part of it of that North America is the really big markets and that's doing well too I think we have seen very balance consistent growth across all of the markets that the operate and so very pleased about that.

Thank you. Our next question is from the C. D plenty of Gray from Mizuho. Your line is open.

Hi, everybody, it's met them and on for city and 1 quick question from me is there anything and to be called out for the linearity of bookings. This quarter. Your tone certainly suggests that there is some incremental conviction and the second half I'm curious if something happened in the quarter that might of catalyze that that may not have been asked more directly.

No. There is nothing that I would there's nothing I would share around linearity of bookings.

Thank you. Our next question is from Michael Terror and from Wells Fargo. Your line is open.

Hey, there thanks, good afternoon congrats.

Congrats on the promotion and I hope regardless of your planning to keep the hold music for earnings calls the same.

I mean I.

I go to sleep, but it's much more pleasant with the the jam music of the classical so certainly and depreciated.

I mean, there have been some questions on it but the average revenue per customer metric certainly stands out.

As new comments on just expectations of that trend can hold for the rest of the year. So.

And we just go back to that and I'm wondering if some of that is just tied to the this being the other side of the strong customer adds strength, we've seen over the past year and then just how much the new hubs and and what Youre doing the bundling also just helping out there. Thank you.

Yeah, I mean, I think you've got it and.

Terms of the underlying theme.

You've talked about this and the past there is a lot of quarter over quarter variability in those kpis.

Metrics in particular of the customer additions and the S. RPC and you know what we saw this quarter was strong and prove.

On the enterprise trends.

From install base selling trends and as a result, what you're seeing is that as RPC is up nicely year over year and frankly, if you stripped out the starter and looked at a S. R. P. C. It's like of even more.

And so you know we don't guide as you know 2 of our.

Our kpis and metrics and the frankly, we don't guide because that's not how we manage the business.

And so I share some commentary around back half and the prepared remarks around the expectations. We think that we should see a net customer adds for the back half of the year in and around what we saw on Q2.

And with that would come and ask RPC growth and those high single digits.

Thank you. Our next question is from Michael <unk> from Keybanc capital markets. Your line is open hey, guys and of.

Of course, the rest to Brian as you know of any.

Just briefly you mentioned it but on the the strength and the and the pro.

And then of proposition.

And for new customers and in particular drunk drive that because obviously, it's the 1 thing to have and it started a while ago 2 of our price and have driven new customers to see the strength in the.

Pro and enterprise and for new customers is impressive.

Yeah. I mean this is it's not a new thing for Q3 and for Q2, we talked about it last quarter as well, we had really strong new customer additions and prominent enterprise and Q1 and in Q2 and.

And I think for all of the reasons that Yamana has talked about throughout the call.

Thank you. Our next question is from Brian <unk> from Piper Sandler Your line is open.

Thank you and in Germany, and congrats on the promo Brian not only is of great to hear your healthy but also of great to hear you're playing to remain active with the broader team here and.

And then wanted to go back to the durability of growth here. We've been trained here of the last 4 years not to think of.

RPC as a driver to gross in fact, it's been a slight drag the gross over the last 4 years this quarter 5 year high of 8% it's emerged as the incremental gross leverage of the business.

My question is are we entering of new period, where we could see both strong new customer additions and this revenue expansion and our PC expansion as the incremental lever gross for is it too early the.

To really weigh in on that and I get that you have some easy comparisons here, but it does feel like we are in and the new appeared here, where this could be of a nice incremental lever the growth as well.

Yeah I guess.

And I would tell you is and we've been talking about this over the last 3 quarters.

Is that we have seen really nice customer additions and quarter over quarter expansion of the S. RPC I think this quarter marks a little bit of of different.

The milestone, where we're seeing a real increase on a year over year basis as well.

I think.

You know what you would be surprised if I declare something here and what I'm going to tell you is that we expect that we will continue to see variability quarter in and quarter out of the ASR P C and new customer adds and that's going to come as we innovate at the high and innovate at the low and you know interest.

Moving to new products and so you know.

I think I shared our expectations for the back half of this year, but I don't think we are at a point, where we would declare them sort of a long term trend.

And at this point.

Yeah.

Thank you. Our next question is from Kurt from a turn from Evercore. Your line is open.

Thanks, very much and I'll echo the congrats to both Brian and John.

And maybe just on the pro and enterprise side of of the business seeing such good traction and I was just wondering how you think about the evolution of sort of your partner platform. As you start talking more of these customers that have maybe more of a smoke needs are the things youre thinking about in terms of trying to leave various features for your partners to develop or do you think about sort of.

Focusing on partners that might have more vertical expertise and certain areas, where youre seeing trends I guess just at a high level. How are you thinking about sort of the evolution of the the partner ecosystem. Thanks.

Sure so of the start of actually when we.

Think of the ecosystems of exactly multiple parts of where there's the kind of app platform of the app ecosystem of where their software companies building integrations and extending of spot and there's the solutions partner ecosystem, which from basically help of service hub spot and then bring it to different markets and I'll, Let me speak to the solutions partner side on the up platform, we've seen the great traction more and more companies.

<unk> and extending the upside and using our Apis and the thing we love about that is that it really kind of spend of the flywheel of the more of those applications, we get the more of our customer problems. We solve a we've seen a strong correlation between the number of absolute and uses and the retention rates of that's awesome and the more apps, we have the more customers. We get so those things kind of feed each other and kind of fuel the flight.

And also the.

And the upcycle and itself is going really well and I'll, let tell you all of these because of the solutions part of the program.

Thank God that does really good commentary on the App side I think on the solution partner side.

We are diversifying our entire ecosystem and our partners are continuing to.

Go there in terms of CRM implementations and integrations much more complex implementations and we.

Really focused on those earlier this year and partner kickoff.

We went to our partners and we said look we want to scale with you. So the strategy has been scaled with the partners, which means we will sell more with the partners and enable our partners to service our customers and that's good for our customers and that's good for our partners and therefore, it's good for hub spot and.

And in terms of the investments with our solution partner ecosystem.

On a continuing to work on improved incentives, we have been investing pretty heavily on.

Enabling our partners. So they can go to market with us when we do product launches and that's the beginning to work and we'll continue to invest and scaling services through the partners and so.

We definitely see them as part of scaling hub spot and they play a critical role.

There are no further questions I will now turn the call back over to Brian Halligan Executive Chairman for closing remarks, thanks, everyone for joining and look forward to seeing you at the virtual analyst day and inbound.

Thank you presenters ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.

And then.

The Florida.

Okay.