Q2 2022 HubSpot Inc Earnings Call
I'd like to register a question during the presentation you may do so by pressing star followed by one on your telephone keypad.
I would now like to hand over to Chuck Mcglashan head of Investor Relations. The floor is yours. Please go ahead.
Thanks, operator, good afternoon, and welcome to <unk> second quarter 2022 earnings Conference call.
Today, we'll be discussing the results announced in the press release that was issued after market close with me on the call. This afternoon as Elmar Heggen, our Chief Executive Officer, Dharma Shah, our cofounder and CTO 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.
During this call we will make statements related to our business that may be considered forward looking within the meaning of section 20 <unk> of the Securities Exchange Act of that 33 as amended.
And section 21 E of the Securities Exchange Act of 1934 as amended.
All statements other than statements of historical fact are forward looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures expected growth and business outlook, including our financial guidance for the third fiscal quarter and full year 2022.
Yeah.
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 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 2022 earnings press release, and the Investor Relations section of our website.
Finally, I'm excited to announce that we'll be hosting our annual analyst day at inbound on September seven and I look forward to seeing many of you. There the event will be live streamed on our IR website for those who can't make it in person. If you have any questions. Please reach out to.
IR dot inbound at hotspot Dot com.
Now, it's my pleasure to turn over the call to hotspots, Chief Executive Officer Yummy rocket harmony.
Thank you Chuck and welcome to everyone joining us on the call.
Today I want to focus on the Q2 result, what's driving performance and help our playbook for driving durable growth over the long term.
Alright, let's kick it off with our results this quarter.
Q2 was a solid quarter for hotspot with revenue growing 41% year over year in constant currency and total customers growing 25% year over year to more than 150000 globally with more than 60% you think multiple hubs BOP product.
These results were driven by strong product innovation, a deep understanding of what our customers need in order to grow today and focused execution.
As I talked to our customers. It is clear that smbs need to do more with less as they navigate the current macroeconomic environment.
They're looking for ways to consolidate the fragmented tech stack of point solutions improve inefficiencies and get better visibility into their customers' journey.
As a result hubs bots connected easy to use platform is mission critical for our customers.
Let's start with product innovation in the second quarter.
We're focused on delivering a world class front office platform by investing in our anchor of marketing sales and service.
By innovating with our newer hubs.
We made important strides in both areas in Q2.
Last time, we talked I shared the exciting news that marketing hub adjust surpassed the $1 billion in annual recurring revenue.
In Q2, we unlocked marketing automation features in the starter tier so that marketers can deliver a personalized touch without draining personal time.
Teams can now engage and convert customers faster by personalizing, and segmenting marketing effort and automating routine tasks.
This unlocks tremendous value for the starter tier.
On the upper end of the market, we're increasing marketing hub enterprise pricing in September to match. The additional value we have been delivering to customers over the last few years with more sophisticated functionality like revenue attribution reporting AI powered a b testing and more.
These changes are consistent with our pricing and packaging strategy of driving high value features down to starter, while fueling innovation at the higher tiers.
During our last call. We had also just relaunched service hub and over the past quarter. We've been pleased to see customer usage of features like ticket and inbox tools increase.
In Q2, we further enhanced service hub by launching inbound, calling so that customers can provide real time service and engagement over the phone.
With these developments, we are making meaningful progress with service hub to empower our customers to deliver an exceptional customer experience at scale.
Another big product milestone in Q2 was the launch of CMS hub three one.
<unk> is now well every business today starts with a website to connect with their customers.
Too often they are forced to choose between three content management systems with limited customization are robust solutions that are cost prohibitive, especially in this environment.
What differentiates CMS hub from other website building tool is that it's powered by a free CRM platform.
That means companies can easily build a beautiful website to attract visitors and leverage CRM to nurture that business across their entire front office.
All on hotspot.
That combination is powerful and unique.
As part of the launch in June we also introduced CMS website themes in our marketplace to give business builders the tools and the assets to get started online.
As a result, we've seen nearly 4000 CMS three sign ups in the first months since launch.
110% increase in marketplace transaction.
I'm really excited about these results and the large greenspace opportunity to drive premium growth with CMS free.
This pace of product innovation in the second quarter demonstrates that hotspot is making meaningful progress to become the platform of choice for scaling businesses.
Okay shifting gears I want to acknowledge that we like a number of companies saw lengthening of deal cycles and more decision makers getting involved in deals in June .
While we cannot predict how the macroeconomic environment will evolve in the second half I want to share the hub spot playbook for how we will navigate through the uncertainty in the short term, while driving the business towards strong durable growth over the long term.
Then in a few minutes Kate will talk about how we are planning to continue to grow profitability in this softer demand environment.
One of hotspots trend is that we focus on near term execution, while driving a clear long term strategy.
During times of uncertainty in the past we've continued to place strategic bets that will help us and our customers emerge stronger.
We ended the successfully throughout the pandemic by following three core principles.
<unk> for the customer sustained investments in product and execute with focus.
We're taking the same approach to drive durable growth now let.
Let me unpack each of these core principles.
During the pandemic solving for the customer was all about helping businesses become digitally enabled.
Now it is about helping customers become digitally powered by helping them consolidate on a single platform to drive efficiencies.
For example, take standard design and digital design and branding agency before hotspot. Their front office consisted of multiple point solutions that are cobbled together by different departments.
Our team help them consolidate all of their point solutions and moved their entire front office onto the <unk> platform.
Before implementing could stop it took them months to create landing pages and E mail campaigns.
Now it just takes a few days.
<unk> standardization has saved thousands of dollars by getting rid of point solutions.
This is exactly how our customers are reducing costs, increasing efficiency and growing better by consolidating on hotspot.
The second principle in our playbook is to sustain investments and product.
Throughout the pandemic, we maintained our investment in product innovation.
This enabled us to create the levers for long term growth with platform and payments and now we're continuing to build on that foundation.
In the second quarter, we enhanced our platform for our customers with more sophisticated needs by releasing new sales hub features that enables CRM customization and crafted data management.
We also continued to expand hub spot app ecosystem with our integration catalog growing nearly 40% year over year.
Moving forward, we will continue to invest in our developer strategy to drive customization and extensibility of our platform.
We also made meaningful progress in payments by launching new features including paid meetings form Enlink. In addition to recurring <unk> and our payments object.
These features are helping our customers unlock the power of our commerce enabled CRM.
Take the nonprofit trade group International Carwash Association as an example.
They're disconnected payment and fulfillment paths, we're creating customer friction and lots of manual processing.
They were already using hotspot marketing sales and service hub, when they decided to implement payments to connect the buyer's journey.
Since adopting payments they have increased e-commerce sales by 400% and setup the fulfillment process by nearly twofold.
This is a powerful example of how <unk> businesses can sell online and create new revenue streams with hubs block.
Looking ahead, we plan to sustain key investments and product so that we can emerge stronger as a platform of choice.
The third and final principle is to execute with focus.
Like every business there are many factors outside of our control due to uncertainty in the macro environment. So we will control the controllable.
We're focused on driving both direct and partner enablement, reaching our customers with relevant Tcl playbook and continuing to build a foundation for excellent execution.
These principles have helped guide hub spot to the position of strength we are in today.
The long term drivers of our business remains solid as hub spot continues to be mission critical for our customers and we're making meaningful progress towards becoming the number one CRM platform for scaling companies.
With that I'll.
I'll hand, it over to Kate to talk about our financial results and our strategy for driving profitable growth.
Thanks, Germany, let's turn to our second quarter 2022 financial results.
Second quarter revenue grew 41% year over year in constant currency and 36% on an as reported basis.
Q2 subscription revenue grew 37% year over year, while services and other revenue decreased 10% on an as reported basis.
Domestic revenue grew 35% year over year in Q2, while international revenue growth was 49% in constant currency and 37% as reported.
International revenue represented 46% of total revenue in Q2.
We added approximately 7100 net new customers in the quarter, bringing our total customer count to over 150000 up 25% year over year.
<unk> subscription revenue per customer grew 14% year over year in constant currency and 10% on an as reported basis to $11200.
This was driven by continued strength in multi hub adoption.
We saw healthy net revenue retention rates in Q2 on a continued strong foundation and customer dollar retention and nice cross sell and upsell activity.
Deferred revenue as of the end of June was $474 million.
31% increase year over year.
Calculated billings were $433 million in Q2, growing 39% year over year in constant currency and 30% as reported.
The remainder of my comments will refer to non-GAAP measures.
Second quarter gross margin was 82% up one point year over year.
Subscription gross margin was 85% in Q2 with services and other gross margin was negative 42%.
Second quarter operating margin was 7% down two points year over year.
There was approximately a one point headwind to operating profit margin from FX in the quarter.
Net income in the second quarter was $22 million or <unk> 44 per fully diluted share.
At the end of the second quarter, we had just over 7000 employees up 41% year over year.
Capex, including capitalized software development costs was $19 million or 4% of revenue in Q2, and free cash flow in the quarter was $22 million or 5% of revenue.
Finally.
Our cash and marketable securities totaled $1 $4 billion at the end of June .
So Germany highlighted we saw a softening in demand in June marked by lengthening deal cycles and more decision makers in deals.
In light of this increased macroeconomic pressure, we are taking several actions to drive our continued balance between growth and profitability.
We had a strong first half of hiring and have a talented team in place to execute against our strategic goals, which gives us the opportunity to slow our hiring in the second half of the year.
We will continue to maintain investments in product and engineering and grow revenue generating sales head count in the second half, but we will moderate head count growth in other areas of the business.
In addition, we are taking steps to pullback teenie facilities and other discretionary expenses in the second half of 2022.
Before I turn to our outlook.
I want to highlight the impact of foreign currency translation on our as reported financial results.
Dollar strengthened sharply throughout Q2 and into July , creating a meaningful incremental headwind to our 2022 as reported revenue and non-GAAP operating profit relative to the guidance. We provided on our May earnings call.
At current spot rates, we now expect FX to negatively impact full year 2022 revenue growth by six points up from our prior expectation of a five point headwind.
Finally, our.
Our guidance assumes continued macroeconomic headwinds throughout the remainder of the year.
And with that let's review our guidance for the third quarter and full year of 2022.
For the third quarter total.
Total as reported revenue is expected to be in the range of $425 million to $426 million of.
25% year over year at the midpoint.
We expect FX to be an eight point headwind to as reported revenue growth in the third quarter.
non-GAAP operating income is expected to be between 31% and $32 million.
non-GAAP diluted net income per share is expected to be between 50 and 52.
This assumes 51.0 million fully diluted shares outstanding.
And for the full year of 2022.
Total as reported revenue is now expected to be in the range of $1 69 to $1 695 billion up 30% year over year at the midpoint.
As I mentioned, we now expect FX to be a six point headwind to as reported revenue growth for the full year of 2022.
non-GAAP operating income is now expected to be between 143 and $144 million, which includes an incremental $5 million FX headwind versus our prior forecast.
non-GAAP diluted net income per share is now expected to be between $2 28 and $2 30.
This assumes $51 1 million fully diluted shares outstanding.
As you adjust your models keep in mind the following week.
Capex as a percentage of revenue to be roughly 5% and free cash flow to be about $200 million for the full year of 2022.
Including an incremental headwind of approximately $10 million from the strengthening of the U S dollar relative to our prior forecast.
And with that I'll hand things back over to you harmony for her closing remarks.
Thank you so much Kate.
I want to close by saying we are confident in <unk> future. Despite the headwinds we're seeing from the macro environment.
We have a clear strategy to drive long term durable and profitable growth and award winning culture and an incredible team solving for our customers every single day.
I want to thank our employees globally for their adaptability and commitment to our mission.
Lastly, I look forward to seeing many of you at our analyst day as part of our inbound 2022 event on September 7th.
With that operator, please open up the call for questions.
Thank you for our Q&A, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
If you change your mind, Please press star followed by <unk>.
One for Greg to ask your question. Please ensure your devices on muted Luckily.
Our first question today comes from so much demand from Jefferies. Your line is open. Please go ahead.
Hey, Good afternoon, let me start maybe you're saying if we step back. It's just an awesome performance to deliver the constant currency growth that you are with everything that's going on with the macro backdrop, I mean, 39% for billings and 42% for revenue growth is extremely impressive. So I just wanted to get that out of the way.
I wanted to double click on your commentary around what's happening with.
What you've seen in demand environment. So it's shifted for hub spot in a number of other companies. Since you gave the guidance for <unk> in your updated that full year guidance can you maybe walk through the linearity of demand trends that you saw in the quarter and what Youre, maybe seeing more broadly across your business in real time today.
Yeah. Thanks, a lot to come up with a question.
We are seeing two trends.
First off deal cycles are lengthening and more decision makers, specifically cfos and Ceos are getting pulled into deal for approvals.
Now in early May we were one of the first companies to transparently share that we saw deals taking longer in Europe and in June we saw these trends become more broad based across our segments and the geos that we serve.
Now why are these trends will have impact in the short term and it is reflected within our guidance. We are confident and have long term growth opportunity for a couple of reasons first of all why these deals are taking longer theyre coming down to platform and multi hub decision F&B is figuring out how to spend effective.
<unk> and Theyre looking at hotspot as the platform to run their front office. So we see deal closed favorably, but taking a little bit longer.
And second we're not a discretionary point solution, where the backbone for small and medium businesses. All of these businesses still need to market they need to sell them to service their customers and what is the system of record and engagement for customer data, So where mission critical and they are sticky so why.
We're seeing the demand trend softened a bit in the short term we are very confident in our strategy and long term growth. Thanks, a lot for that question for months.
Very helpful. And then maybe if I could ask you a quick follow up just as I think about.
Jan you talked about what youre seeing in terms of deals et cetera, but maybe could you help me get some color on what youre seeing in terms of retention trends within the install base and if theres been any change or anything worth calling out what youre seeing with your existing customers and maybe what youre assuming in the guidance around retention.
Yes sure thing.
We think about retention in two ways, we have a gross retention.
That is the base.
What we then ultimately have net revenue retention, which happens after the net upsell never.
Net retention in our quarter.
<unk> above that one can target that we've been talking about despite really the more difficult environment that we saw towards the end of the quarter.
I think the good news there is that underneath the gross retention remained really solid in the hi, E, which is the range that we've been talking about for a year or two now.
And then on the net retention side.
Another quarter of really strong install base selling.
Which are in particular addition upgrades and cross sell really led the way for us here in Q2.
In the back half of the year. So it's a good question I would expect that revenue will hang in there I would call it around 110.
For Q3 and Q4.
Okay, Great really appreciate it and again very impressive results in a tough backdrop.
Our next question comes from Arjun Bhatia from William Blair. Your line is open.
Perfect. Thank you so much for taking my questions. Maybe just a follow on to that can you talk a little bit about what youre seeing in terms of additions to the pipeline in velocity of deals that are being added understandably, it's taken a little bit longer as companies are scrutinizing spend more but as the.
<unk>.
As the shape of what's coming into the pipeline changing at all of the products. The customers are looking at.
Changing if you can give any color on that that'd be super helpful.
Yeah. Thanks, a lot origin for the question. So look I think the best way to think about is the more discrete changes our deal cycles elongated and more decision makers kind of getting involved.
And stop their budget as they do a doubleclick and kootenai as their investment and this is not just happening in one part it's kind of happening across geos segments and industries. There's.
There is not anything more specific that we see in terms of pipeline as it closed through from the top of the funnel all the way down now having said that as I talk to customers here from customers around the quarter. There are a couple of feet right customers are looking for clear revenue impact so the closer.
The solution is to driving the impact after the customer decision. So from our perspective, we are leading with a clear impact from having marketing sales service tied together. The other part that's changing is that customers want to be able to do more with less that means they are okay, giving up one point solution there.
Looking for more platform level solutions that are very cost effective so we're leading with our CRM platform as well as multi value proposition to have very clear GTO saving decision for our customers and so that's how I would think about the color.
Perfect. That's very helpful. Thank you very much.
Okay.
Yeah.
Okay.
Yeah.
Operator, I think we'll take the next question.
Okay.
Okay.
Yeah.
Okay.
It appears that we're having some technical difficulties here just hang with us.
Okay.
Hey, Gabriele it looks like your line is open.
Can you hear Oh, great Hi, good afternoon.
Yes.
One.
I'm going to be moderating the call from here on out.
Great.
Ask your question.
I have one for Anthony and one for Kate So theogony. The comment that you were just making on driving to a clear revenue impact I'm curious if you could share with us any nuance youre seeing within the front office categories are there some areas that you feel a more ripe for consolidation and others in the context of perhaps some of your company spin.
Perfect product cycles, and then a follow up question a suitcase. So you mentioned earlier the continued macro headwinds being incorporated into guidance could you share a little bit about what you're assuming about the trend that you are looking at June and extrapolating that things get worse are you looking at June and assuming things stay the same at this squishy June levels any color that would be helpful.
Yeah. Thanks, a lot Gabriel I'll start with the first one which is is there any color specifically around product for our segments.
I will say broadly.
As we look at how customers are focused on.
On <unk>.
You are deep prioritizing spend that is not closely tied to revenue examples of that could be like event, then grants and add them. Both are areas that there'd be prioritizing and they're prioritizing plan that clearly drive pipeline and is closer to revenue and examples of that are.
Marketing that continues to help them grow and so I think that's really a question of where they are prioritizing I think more broadly speaking there is.
Look at how many point solution do we have do we need all of you and is there an opportunity to eliminate some of these point solutions and consolidate on a platform like a bot and that's certainly a value proposition that we are leaning into cardboard multi hop sales as well as our entire suite sales.
Pass it to Kate for the second half.
Yes, Sir in terms of guidance I mentioned in my prepared remarks that we're factoring in a continuation of the current weaker environment that really means.
You saw a weakness through June and July and we're assuming that that continues through the rest of the year.
We're also assuming that foreign currency rates stay in and around current spot rates, which as you know is a one point incremental headwind to our growth for 2022, and we feel really good about our ability to deliver against that guidance.
The continued weaker environment, we see today or even something a little bit worse than that.
That makes sense and congrats on the corner.
Yeah.
Okay.
Our next question from Alex Zukin from Wolfe Research. Your line is open. Please go ahead.
Okay.
Hey, guys can you hear me okay.
Okay.
Perfect I guess I wanted to ask about just the <unk>.
The magnitude of incremental deterioration that that's kind of assumed.
In the guide maybe for subscription constant currency subscription revenue for the year and then any.
Is there anything in the payment terms that you are seeing lengthening that's impacting cash flow this year or <unk>.
Linearity or seasonality of billings in the second half.
Yeah, maybe I'll dive in there.
When we guided in May Alex.
The midpoint of our guide was 32, 5% growth for full year revenue and on an as reported basis and our update is for 30% at the midpoint on an as reported basis, which is a two 5% slow down one point of that is from FX.
And then the other point and a half is associated with macro and business performance.
I would like to remind you that our guidance includes six points of FX impact for the full year up from five so our constant currency revenue growth has moved from 37, 5% to 36% growth for 2022.
And then in terms of payment terms, we really haven't seen anything.
Of note I think the thing that we've seen most.
In certain new deals is exactly what you harmony was talking about which is a bit of a lengthening in the sales cycle.
And more decision makers really getting involved before things are signed.
Our next question comes from Brent <unk> from Piper Sandler. Your line is open. Please go ahead.
Thank you Jonathan.
For you here that the growth equation has benefited from both strong new customer adds and strong yes, RPC growth over the last couple of years as you think about entering a new period here, where customer growth starts to slow just tommy's lengthening sales cycles can you continue to drive.
Yes, RPC growth higher I asked that because we are entering a period here, where we're starting to hear more.
Narrative around vendor consolidation, which might play to <unk>.
Larger deal bundles, just trying to think through that equation as a potential offset.
To just slowing customer net adds.
Yeah, maybe this is K Adi will dive on and around.
Yes.
I think you've heard us say over a long period of time that we see a lot of opportunity both in continuing to drive new customer acquisition.
Also in our ability to sell more into our installed base.
And I think that the Kpis, we saw in Q2 really demonstrated that balance pretty nicely. We added 7000, plus new customers and we were able to grow double digit both in constant currency and on an as reported basis our RPC.
That being said I think if you look forward and we've talked a lot about the moderating macro environment, we'll probably see a little bit of a moderation similar to what we're saying in revenue across our kpis.
And so we don't.
Yes, really give guidance there, but we do think we would anticipate.
Hey, Bob.
Half of the year something that looks like six to 7000, new customers added in Q3 and Q4.
An ASR PC growth that looks closer to the 10% of the double digit in constant currency.
Okay.
Our next question comes from Keith Bachman from BMO capital markets. Your line is open.
Yes, Thank you I want to segue on that.
Could you talk a little bit more about the price increases.
I don't think you mentioned a percent.
Is there a range that you could share with us on how prices are increasing.
Where would that where would that be and then how would that flow into.
Both the ASR PC <unk>.
Revenues more broadly.
Sure Keith I'll take the first part of the question and then I'll have Dave.
Comment on the second part which is the impact.
From a pricing perspective, we will stay very consistent with our pricing and packaging philosophy that we've talked to you all about.
Tore innovation and build powerful features within the enterprise tier and over time, we will bring those high end features down to professional charter and premium edition, that's been our pricing and packaging philosophy for a while when we have added tremendous value then we look at pricing.
Changes and that's been very consistent so what I mentioned in the prepared remarks today is that with marketing hub. We have innovated we've added tons of incremental value over the last few years and the last time, we increased price for marketing hub enterprise was inbound 2018.
So that was like four years ago, and certainly added a lot of value. So what we did in July is that be announced an upcoming modest increase in terms of pricing that will be effective 91 for new customers, it's kind of in that 12% range and.
That announcement has gone out we are tracking the feedback from customers and it has been fine. So far so broadly we will continue to stay focused on driving a lot of value with our products and when we deliver value to customers, we look at pricing and packaging decisions and changes.
A copy to you.
Yeah sure.
In fact, I think it will take time for us to recognize the full impact of the incremental price on marketing hub enterprise customers go through the <unk>.
Renewal process and as we add new customers any impact for 2022 is incorporated in the guidance we shared earlier.
Let me now turn to Michael <unk> from Keybanc. Your line is open. Please go ahead.
Hey.
I'll start with Jason with geometry, so okay.
The cash flow guide came down more than you could guide came down so is there some impact there from cordless lengthening decision cycles.
In terms of working capital and then and then Yamana has a really high level question, but.
We sort of all <unk>.
As the overall runoff was great Oh, no pull forward.
Oh no no.
And our recent core Youre doing well, so I'm wondering how you're really thinking about how demand for our front office for your customer set has evolved.
Call it over the last two quarters.
Yes, Michael.
Youre right.
<unk> of the free cash flow estimate for the full year incorporates two things one is an incremental $10 million headwind from foreign exchange.
Cash flow and the other is.
That's in the demand environment.
Reflected in our revenue guidance.
Yes.
And so Michael I'll take the second part of the question in terms of how we see the demand for front office of Bob look I mean.
I'm coming straight out of the pandemic. It was massive tailwind every small medium business that needed to get connected to their customers needed some kind of digital marketing or sales or support and so I'd say that was just the acceleration bar adopting new solutions.
And I think now is much more about driving productivity and making sure that it is very close to revenue impact and it's also very very cost effective. So I think the nature of the conversations and therefore, the nature of the demand has shifted but broadly.
Our SMB customers. They are continuing on their path to digital transformation conversations and suddenly the rigor with which they look at a purchase decision has changed.
Our next question comes from Rishi <unk> with you.
From RBC capital markets. Your line is open.
Wonderful. Thanks, Thanks, so much for taking my questions. Firstly I just wanted to start on going back to the price increases.
Number one what has just been the general feedback from customers you've talked to you about the upcoming price increases and I know, it's baked into guidance, but should we expect there to be any potential pull forward of business.
What's the expectation of an upcoming price increase and then I've got a follow up for Kate.
Yeah, I'll start with that I mean look I think in terms of the price increase and the feedback as I mentioned.
Marketing hub enterprise has gone through.
Very very fast pace of innovation, we've added tremendous number of features there I mentioned revenue attribution reporting, but that's just the first of many we've done a lot in terms of Omnichannel marketing and building.
Our World Class marketing solutions, Paul innovations have gone in there which means.
Our customers understand they use it and they are leveraging F&B have not increased prices for the last four years. So the feedback from our customers. That's when the partners have been got it.
Given the level of innovation.
And we will keep tracking the feedback from our you know our partners at those customers.
And Keith.
I don't know if you want to add more in terms of how we think about doing that.
Yes.
I think that all product announcements carry with it some positive impact and momentum if not yes.
<unk> externally, but it's not a huge needle mover for us given the timeline and.
As I've said, it's all already there in the guidance.
Okay, Great. That's helpful and then Keith I just wanted to look at the.
<unk> line.
Historically your stock comp I think has been pretty responsible in relatively low for a company of your growth profile, but it looked like it spiked up.
A lot this quarter its 19% of revenue and I know, there's obviously a lot of moving pieces there any any onetime impacts that led to that big Spike and maybe taking a step back can you maybe walk us through philosophically, how you think about stock comp at hotspot and kind of the balance of stock versus cash. Thank you.
Yes.
You are right.
Q2 stock comp expense every year is a high watermark for us as a percentage of revenue because we do a catch up in expense for two quarters, and so that 19% in Q2 will be the high watermark for 2022.
The increase was driven by a few things one there is an impact we had a bunch of notable executive hires over the last six months and that is.
That impact.
And then the other big change is that we made a shift in our RFP investing from four years to three years for all of our employees.
We think it was an important change for us to make it increase the attractiveness of the our shoe and increase the retentive value of the <unk>.
And so those are really the two big drivers of the FCC increased.
That's.
Even with those changes we pay a lot of attention to stock comp as a percentage of revenue.
Also pay a lot of attention to dilution and we look at our management of those relative to our peer companies and we still compare very well against the software companies in general.
Okay.
Our next question comes from Keith Weiss from Morgan Stanley . Your line is open.
Great. This is always the best quarter on for Keith. Thank you so much.
The more volatile macro environment I wanted to see if there was anything you guys are doing to adapt the go to market strategy just more uncertain times in.
Any incremental focus on different customer segments, geos departments that might have more durability and spend for example, thank you.
Okay.
Yeah.
So on that thanks, a lot for the question.
Okay.
In terms of what.
What we are seeing is that.
It's very very consistent with what I said earlier there.
Saw broad based weakness in terms of the time it takes but really not that much more now in terms of our go to market strategy and then kind of an earlier question.
And how we are adapting.
To start if all with what are the customer conversations focused on and the customer conversations are focused clearly on revenue impact or PTO cost savings that how the nature has changed which means from Florida market strategy perspective, we're focused on both campaigns as well as arming our.
Our direct sales team the partner organization and our customer success organization with those.
Specific value messages now more broadly time of shift like this is doubling down on direct and partner enablement.
<unk> down on the right kind of messages wherever we can deliver value to our customers and overall additional regard within the sales process and sales execution.
I would.
I kind of look at it I don't know if.
Jay do you have anything else to add.
I think you got it.
Yes.
We know how to answer your <unk> from Bank of America Securities. Your line is open. Please go ahead.
Okay.
Oh, great. Thanks, so much and I'll echo the congratulations on very solid execution in a tough environment.
I wanted to ask about service hub first please if I could it's a major new revamp here and we're hearing positive feedback from the channel curious to get your perspective on.
That cycle. Please and then also with the move into higher levels of the organization for approvals could that mean that perhaps we see larger more strategic deals as those deals close.
Yeah.
Hey, Brad Thanks, a lot for both of your questions I'll start with the service hub one.
We're very happy with the traction that we are beginning to see following the relaunch.
And just as a general reminder, launched a number of feature in both Q1 estimate due including SLA mobile helps us inbound calling you name it like more of a very long list of.
Really needle moving features and the focus for us with Martha Paul has been providing a modern helped us that provide omnichannel support and great AI powered automation.
And the question that we ask after a major relaunch of our project product like that is our more customers buying the product or more customers using the product.
Are more customers happy with the product.
And all we are trending positively and in the right direction and in the past quarter.
Customer usage of features like ticket and inbox to increase and so overall the feedback from service hub has been very positive.
Partners are beginning to see this.
Traction in terms of the conversations we're having and so is our direct sales team. So I think that's one the second part of your question which is.
More decision makers more strategic deal it doesn't mean more platform a multiline club deal and that's exactly what we're seeing in conversations as you get.
Our CFO getting involved in these deals.
Quick question, they're asking.
What can be eliminated what can be consolidated and therefore for us it has been leaning into our platform message.
Well as the value proposition, which is really around the bar a very cohesive Ah connected easy to use platform now in the prepared remarks I gave you. An example of sandal that was exactly the nature of the conversation not they're already on a couple of hubs from hotspot.
What does it mean to have upfront at the platform and how does it drive both direct revenue impact as well as cost savings and that's the nature of the conversations you're having.
Sure.
That's great to hear thanks Dominic.
Yeah.
We now turn to Ken Wong from Oklahoma.
Your line is open.
Great. Thank you for taking my question a couple of quick ones here I, just wanted to maybe dive into that one and a half.
Point growth headwind due to macro thank you saw some.
Tossed out softness tossed out longer sales cycles in terms of some of the headwinds just wanted to just double check to see are you seeing is it just purely sales cycles lengthening or our customers walking away from the deal sizes.
As a reflection of the softness what's the right way to think about that movement.
And then the second piece just around pulling back spend is that more of a near term tactical response to macro or a broader shift in the growth and profitability algorithm.
Hey, Ken Thanks, a lot for the question in terms of.
The way to think about this is really more conversations and elongation of the sales cycle.
When you have additional executives get involved with.
We're spending the time on making sure that there is clarity and how our solutions actually impacts revenue and most of the time like I said in my prepared remarks, it actually comes back and we see it and then.
In the first or next couple of weeks those deals close and so I think the way to think about it is that elongation and more scrutiny in terms of the project and more scrutiny in terms of the decision, making but it result in favorable closing for a bot.
And we will continue to execute in a way that it going.
Going forward from there.
I think the second question that you had is this.
Is there more near term tactical response are more change to long term.
From a hub perspective.
We will reflect what our customers need at this momentum certainly we'll have.
Some changes.
In the near term in terms of how we are responding but longer term the secular trends for our customers remain really consistent.
Or in the middle of going from a marketing automation company to a CRM platform. We are in the middle of not just serving the smaller end of smbs, but really going up market and both of those continue to remain strong and they both provide durable longer term growth levers.
For us and we will continue to have those kinds of conversations with our customers.
I wanted to ask a quick question.
I'm sorry.
One quick thing to add on demand.
We just had our product strategy meeting which is.
Spent eight hours talking about what customers are asking for what partners are asking for and one continuing trend. We've seen is that customers still have ideas about what we've got.
I called it the whole thing Okay. We're done here.
Still asking for new features or asking for new development there.
There is years and years of innovation left across the front office, which is not a static industry, where everyone's kind of that okay. Well. We're done here, we're seeing just as much kind of demand in terms of innovation from our customers and partners that we have in the past that has not slowed down in the <unk>.
List of things that we wanted to you over the coming years is just as long as it's ever been.
Our next question comes from Michael <unk> from Wells Fargo Securities. Your line is open. Please go ahead.
Hey, there. Thanks I appreciate you taking the question.
I know, it's not necessarily the best metric to focus in on for your model, but billings grew 39% in constant currency on a tough compare.
Remind us of the puts and takes for that metric.
I mean, maybe it is seeing some impact, but why isn't that showing more impact given some of the later cycle characterizations. We've heard across software companies and then just any dynamics for us to be mindful of there given some moving pieces.
And assumptions and what Youre seeing here currently it's helpful. Thank you.
Yeah.
I guess, what I would say is that billings growth in constant currency and revenue growth in constant currency generally speaking are going to track one another and you're seeing that in the results that we put up in Q2.
The difference here is really just a point and a half which is not.
Particularly large I think we would expect the relative.
Trend over the back half of the year.
To remain as it is.
Okay.
Our next question comes from <unk> <unk> from Mizuho. Your line is open. Please go ahead.
Hi, Thanks for taking my question, Yeah, Thanks for setting a playbook.
How to navigate uncertainty.
When you compare contrast lost in our 2020.
Post Covid versus now and one thing you said digital enabled versus these daily power now.
Does that I know in 2020, you're more focused on creating more customer with that promotion.
Could you double click on how what's your strategy going to be now you see this slowdown is it more pending and we saw downgrades subscription downgrades.
Post pandemic.
Could you double double.
Double click how you are trying to be different.
At this time versus last what we saw in 2020.
Yeah. Thank you. Thanks, a lot for the question.
I I would say that going into the pandemic the conversations with customers and what the focus was was.
Just getting digitally enable and there was I would say almost a buying pre toward multiple point solutions and getting digitally powered right now as I have conversations with our customers.
Things have shifted first off the.
The conversation is much more about what is the level of revenue impact and what is the level of cost efficiency I can get that AR is front and center in a lot of the conversation so from our playbook perspective.
Going into the pandemic, we literally turned around had our sales organization customer success organization, all focused on helping small and medium businesses get online now our playbooks are turning around and it's really focused on driving revenue impact as well as cost savings.
For our customers and ensuring that they get the most out of the spend that they have had over the last couple of years and so when we talk about our playbook and solving for our customers really everything centers around what is that card top priority and how can we be very helpful. In terms of helping them meet.
Their challenges.
Yeah.
We now turn to Terry Tillman from <unk> Securities. Your line is open. Please go ahead.
Great. Thanks for taking the question. This is Robert on for Terry I. Appreciate the International car Wash group case study on payments, but curious to get some.
Feedback on what you've heard from customers using it.
And where customers are seeing other quantifiable impacts from embedding the future into CRM.
Yes, that's a great question, Robert I mean look I think from a payments perspective.
This is a strategic path and we are patient lead nurturing and we think it's a very big growth opportunity for us going into the future and it is actually worth reiterating that our payments and commerce for US is based on two very solid hypothesis. The first one is that <unk> businesses can grow.
Revenue by selling more online and it kind of seems very obvious with what we had seen in <unk>, but <unk> businesses are kind of slower in terms of doing that and so that is number one hypothesis. The second part of our hypothesis is that commerce context, which in CRM will help businesses.
Golf why because when you bring payments object data into a marketing campaign or in a sales conversation are you have the support conversation that is grounded in terms of what the customer have paid and what they have.
<unk> purchased from US then it really helps them grow. So those are our two main hypothesis and over the past year. Our conviction in terms of those two hypothesis has only grown.
The feedback from the customers that we're working with is that yes, we have.
Have now found new ways to sell online. This was the example that I gave in the prepared remark and death, bringing payments dashboard and connecting it with the CRM provides us more visibility into our customer not just before they become a customer of and after they become a customer and they continue to grow with us and so we will certainly.
Sure more examples as we go into the future, but broadly speaking both of those use cases and hypothesis are validated and we are continuing to focus on driving great customer experience. We've found the fed now we have to drive great customer experience from the time that they discover payments with some hotspots to the <unk>.
To close the transaction and continue to grow with us. So we're happy with what we're hearing from customers there.
Our next question comes from Kirk <unk> from Evercore ISI. Your line is open.
Yes, thanks very much.
Sorry, if you touched upon this but just to be clear on the deals that are getting elongated is there any.
Split towards you either expansion with existing customers or new customers. It sounds like it's just multi product deals that are bigger in nature from a spend perspective that are getting pushed I wasn't sure if that was impacting perhaps expansion more or net new.
If you could add any color there that'd be helpful.
Yes.
No question and look I think in terms of what we are seeing both an elongation more people, it's kind of across both install base as well as new.
Having said that I think it's a shorter term, we'll see the mix between installed base and new move around you know first off as I mentioned couple of times here, we're seeing consolidating.
Consolidation on fewer platforms and so if they already have marketing hub are they already have failed pump theyre looking at hotspot to further consolidate and that drives more often installed base mix and the second part of it is that our product portfolio has expanded.
Both in terms of breadth as well as in depth and our install base has grown pretty significantly in the last couple of years. So our direct and partner teams have means more into kind of a broader value proposition as well as install base and so while we see the mix between installed base of new move.
A little bit around month to month.
We see a very healthy balance at the look into the future, but based on what our customers are telling us as well as our product innovation cycle there.
Yeah.
Our final question comes from Tyler Mcginnis from UBS. Your line is open. Please go ahead.
Yeah, hi, thanks, so much for squeezing my question may be going up.
Michael question earlier, I believe when a duration and co terming has impacted billing for one quarter. The next so any thoughts on that you can provide on the impact that that might have had on a year over year basis, and I guess, just given the strength of this metric does that mean, the lower constant currency Rec. Rev Guide is more reflective of what you're seeing.
The pipeline today is maybe you know posted a quarter and is there any conservatism embedded in the guide that the slowdown could worse and then maybe just wanted to be mindful of that.
Yeah.
Yeah.
Tom that I would add around the billing side, we have been consistently seeing a little bit of a shortening of duration over the last couple of years and that just continued into Q2. So I was not new news there just a continuation of the trends that we've been seeing.
In terms of the guidance and.
You know I tried to cover this and Gabriela question, we assumed in the guidance that we were going to continue to see the softness in the macro environment that we saw through June and July .
And that would sort of sustain through the back half of the year. We are not assuming that we're going to see another step change down in the overall environment nor are we assuming that we're going to see a recovery here. It's really just like a status quo from what we saw over the last couple of months.
This concludes our Q&A I'll now hand back to Germany, Rangan CEO for final remarks.
Well I want to end by thanking all of our employees for their commitment to our mission as well as just the incredible work I also want to thank our customers partners and investors what is the board and honestly I look forward to seeing many of you at the analyst day at inbound in a couple of months. Thanks, a lot everyone.
Today's call is now concluded wed like to thank you for your participation you may now disconnect your lines.