Q4 2023 HubSpot Inc Earnings Call

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Matt: Good afternoon. Thank you for attending the HubSpot Q4 and full year 2023 earnings call. My name is Matt, and I'll be your moderator for today's call.

Good afternoon. Thank you for attending the hopes about Q4 and full year 2023 earnings call. My name is Matt and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call up an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad.

Operator: All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I'll now have to pass the conference over to our host, Ryan Burkart, Senior Director of Investor Relations. Brian, please go ahead.

I'll now pass the conference over to our host Ryan Burkart Senior director of Investor Relations. Brian. Please go ahead.

Ryan Burkart: Thanks, operator. Good afternoon, and welcome to HubSpot's fourth quarter fiscal year 2023 earnings conference call. Today we'll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Yamini Rangan, our Chief Executive Officer, Dharmesh Shah, our Co-Founder 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.

Ryan Burkart: Thanks, operator.

Ryan Burkart: Good afternoon, and welcome to <unk> fourth quarter and fiscal year 2023 earnings Conference call.

Ryan Burkart: Today, we'll be discussing the results announced in the press release that was issued after the market closed.

Ryan Burkart: With me on the call. This afternoon is yamani Ranjan, our Chief Executive Officer, <unk> Shah, our co founder and CTO and Kate Bueker, Our Chief Financial Officer.

Ryan Burkart: Before we start I'd like to draw your attention to the Safe Harbor statement included in today's press release.

Ryan Burkart: During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E 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, the expected timing and benefits of the Clearbit acquisition, expected growth, FX movement, and business outlook, including our financial guidance for the first fiscal quarter of full year 2024. Forward-looking statements reflect our views only as of today. Except as required by law, we undertake no obligation to update or revise these forward-looking statements.

Ryan Burkart: During this call we will make statements related to our business that may be considered forward looking within the meaning of section 27, a of the Securities Exchange Act of 1933 as amended.

Ryan Burkart: In section 21 E of the Securities Exchange Act of 1934 at the mandate.

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 timing and benefits of the <unk> acquisition expected growth.

Ryan Burkart: Next movement and business outlook, including our financial guidance for the first fiscal quarter and full year 2024.

Ryan Burkart: Forward looking statements reflect our views only as of today.

Ryan Burkart: And except as required by law, we undertake no obligation to update or revise these forward looking statements.

Ryan Burkart: 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 in our fourth quarter fiscal year 2023 earnings press release in the investor relations section of our website. Now, it's my pleasure to turn the call over to HubSpot's Chief Executive Officer, Yamini Rangan. Yamini?

Ryan Burkart: 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.

Ryan Burkart: During the course of today's call, we'll refer to certain non-GAAP financial measures as defined by regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure user discussed and a reconciliation of the differences between such measures can be found within our fourth quarter and fiscal year 2023 earnings.

Ryan Burkart: Yes release in the Investor Relations section of our website.

Ryan Burkart: Now, it's my pleasure to turn the call over to <unk>, Chief Executive Officer, Yamani Rangan nominee.

Yamini Rangan: Thank you, Ryan, and welcome to everyone joining us today. Let me start with our Q4 and 2023 results, share my observations on the macro environment as we step into a new year, and wrap up with our strategy for balancing growth, efficiency, and culture in 2024. We saw a solid finish to a good year despite the challenging macro environment. Q4 revenue grew 21% year-over-year in constant currency, and full year 2023 revenue grew 25% in constant currency. We delivered a standout operating profit margin of 17% in Q4 and 15% for the full year, up over 500 basis points year over year. Total customers grew 23% to over 205,000 customers globally, driven by nearly 11,000 net customer additions in the quarter, a new record for us.

Yamini Rangan: Thank you Ryan and welcome to everyone. Joining us today, let me start with our Q4 and 2023 results share my observations on the macro environment as we step into a new year and wrap up with our strategy for balancing growth efficiency and culture in 2024.

Yamini Rangan: We saw a solid finish to a good year, despite the challenging macro environment.

Yamini Rangan: Q4 revenue grew 21% year over year in constant currency and full year 2023 revenue grew 25% in constant currency.

We delivered a standout operating profit margin of 17% in Q4, and 15% for the full year up over 500 basis points year over year.

Yamini Rangan: Total customers grew 23% to over 205000 customers globally, driven by nearly 11000 net customer additions in the quarter, a new record for us.

Yamini Rangan: Our customers have high confidence in our ability to help them grow, and we're becoming the clear platform of choice for scaling companies. Our momentum in Q4 and 2023 results highlight two important aspects of our strategy that are worth mentioning. First, we're focused on crafting great products and continuously innovating to solve problems for the customer. And second, we are consistently driving go-to-market execution across digital, sales, and partner channels. At the lower end of the market, we saw exceptionally strong net ads driven by starter momentum. Our pricing optimization plays continue to work. Our value proposition of an easy-to-buy, easy-to-use platform is crystal clear.

Yamini Rangan: Our customers have high confidence in our ability to help them grow and are becoming the platform of choice for scaling company.

Yamini Rangan: Our momentum in Q4, and 2023 results highlight two important aspects of our strategy that are working.

Yamini Rangan: First we're focused on crafting great products and continuously innovating to solve for the customer and second we are consistently driving go to market execution across digital sales and partner channel.

Yamini Rangan: At the lower end of the market, we saw exceptionally strong net adds driven by start of momentum.

Yamini Rangan: Our pricing optimization plays continue to work our value proposition of an easy to buy easy to use platform is crystal clear and our effort to amplify this value in app in chat and across brand campaigns drove results in the quarter.

Yamini Rangan: And our efforts to amplify this value in-app, in-chat, and across brand campaigns drove results in the quarter. We improved our in-app onboarding and support to help customers get value faster, and our investments to drive retention are beginning to work. These efforts resulted in record net ads that we are pleased with.

Yamini Rangan: We improved our in App, onboarding and support to help customers get value faster and our investments to drive retention are beginning to work.

Yamini Rangan: These efforts resulted in record net adds that we're pleased with.

Yamini Rangan: In upmarket, the big themes in Q4 were large-scale strength, the sales hub, and multi-hub momentum. We saw a seasonally strong impact from large deals as more upmarket customers are consolidating on our platform. 60% of pro and enterprise customers are now on two or more hubs, and more customers are starting with multi-hubs. Pause to relaunch at inbound?

Yamini Rangan: You have market the big themes in Q4, where large deal strength sales hub and multi have momentum.

Yamini Rangan: We saw a seasonally strong impact from large deals as more upmarket customers are consolidating on our platform.

Yamini Rangan: 60% of pro and enterprise customers are now on to our more hubs and more customers are starting with multi hub.

Yamini Rangan: Post the relaunch of inbound sales hub is just cranking.

Yamini Rangan: Sales Hub is just cranking. Customers are getting value from AI-powered features like call summarization and forecasting and are driving sales productivity with the new prospecting tools. We can see from the results that doubling down here was the right choice.

Yamini Rangan: Customers are getting value from AI powered features like call summarization, and forecasting and on driving sales productivity with the new prospecting workspace.

Yamini Rangan: We can see from the results that doubling down here with the right choice sales hub was our fastest growing hub in the quarter in terms of new business with 18 of the top 25 wins, including sales hub.

Yamini Rangan: Sales Hub was our fastest growing hub in the quarter in terms of new business, with 18 of the top 25 wins, including sales. It is becoming a sustainable front door to HubSpot, and I'm thrilled with the momentum we are seeing after the relaunch. Overall, 2023 was a banner year for product innovation, with over 800 product enhancements across our hubs and entire platforms. We want to be the market share leader in marketing, sales, and service for scaling companies, and we doubled down on core hubs to deliver even more value to customers. In addition to relaunching Sales Hub, we enhanced Marketing Hub with more omnichannel features like Instagram Reels and introduced more robust insights with Customer Journey Analytics. With Service Hub, we introduced multiple knowledge bases, which was a top customer request and advanced our vision of a modern help desk. And of course, the big headline in 2023 was the launch of HubSpot AI. We were early with Gen AI beta launches and have embedded AI features across our entire platform and hubs. So customers can get the power of AI without needing to become AI experts.

It is becoming a sustainable front door to hub spot and I'm thrilled with the momentum we are seeing after the relaunch.

Yamini Rangan: Overall 2023 with a banner year for product innovation with over 800 product enhancements across our hubs an entire platform.

Yamini Rangan: We want to be the market share leader in marketing sales and service force scaling companies and we've doubled down on core hubs to deliver even more value to customers.

Yamini Rangan: In addition to Relaunching sales hub, we enhanced marketing hub with more Omnichannel features like Instagram real and introduced more robust insights with customer journey analytics.

Yamini Rangan: Service hub, we introduced multiple knowledge basis, which was a top customer request and advanced our vision of a modern helpdesk and of course, the big headline in 2023 was the launch of hub spot AI.

Yamini Rangan: We were already with Jenny I beta launches and have embedded AI features across our entire platform and hubs. So customers can get the power of AI without needing to become AI experts.

Yamini Rangan: Reflecting on 2023, we moved fast with AI to drive innovation for our customers. We doubled down on core hubs to further establish ourselves as the platform of choice for scaling companies. And we focused on consistent execution of our bimodal strategy. I'm thrilled with the innovation the team delivered in 2023 and look forward to driving even more value for our customers this year.

Yamini Rangan: Reflecting on 2023, we move fast with AI to drive innovation for our customers, we doubled down on core hubs to further establish ourselves as the platform of choice for scaling company and we're focused on consistent execution of our bimodal strategy.

Yamini Rangan: <unk> thrilled with the innovation the team delivered in 2023 and look forward to driving even more value for our customers. This year.

Yamini Rangan: Okay.

Yamini Rangan: I want to quickly touch on what we're seeing in the macro environment. Throughout 2023, we saw customers tightening their budgets, deal cycles taking longer, and overall scrutiny in the buying process. Though these trends continued in Q4, we saw some buyer urgency at the end of the year, driving sequential improvement in large deals. Customers are simplifying and consolidating on fewer, more effective platforms, and this translated to stable growth retention and more multi-hub wins for HubSpot. That said, we're not sounding the all clear just yet as we continue to see cautious buying and multiple decision makers involved in deals.

Yamini Rangan: I'll quickly touch on what we're seeing in the macro environment.

Yamini Rangan: Throughout 2023, we saw customers tightening their budgets deal cycles, taking longer and overall scrutiny in the buying process.

These trends continued in Q4, we saw some buyer urgency at the end of the year driving sequential improvement in large deals.

Yamini Rangan: Mers are simplifying and consolidating on fewer more effective platforms and this translated to stable gross retention and more multi hub wins for hotspot.

Yamini Rangan: That said, we're not sounding the all clear just yet as we continue to see cautious buying and multiple decision makers involved in deals.

Yamini Rangan: Overall, we expect this choppy environment to persist, and we will remain focused on HubSpot's specific growth drivers and execution in 2024. Shifting gears, I want to share context on the pricing change we recently announced and the strategic rationale behind it. As we've evolved from an app to a suite to a customer platform, we've had a simple strategy: make HubSpot easy to use and easy to buy.

Yamini Rangan: Overall, we expect this choppy environment to persist and we will remain focused on hotspot specific growth drivers and execution in 2024.

Speaker Change: Shifting gears I wanted to share context on the pricing change, we recently announced and the strategic rationale behind it.

Speaker Change: As we've evolved from an app to suite customer platform, we have had a simple strategy.

Speaker Change: Cup spot easy to use and easy to buy.

Yamini Rangan: We're doubling down on the strategy to make HubSpot even easier to buy. That's why we announced a new seed space pricing model on January 30th that will go into effect for all new customers on March 5th. For existing customers, pricing will remain the same at the time of the migration, but they will see a price increase of 5% or less at the time of their next renewal. There are three reasons for the shift.

Speaker Change: We're doubling down on the strategy to make hotspot even easier to buy.

Speaker Change: That's why we announced a new seat based pricing model on January 30th that will go into effect for all new customers on March 5th.

Speaker Change: For existing customers pricing will remain the same at the time of the migration, but they will see a price increase of 5% or less at the time of their next renewal.

Speaker Change: Now there are three reasons for the shift.

Yamini Rangan: First, we want to make it even easier for customers to get started with HubSpot. Therefore, we're removing seat minimums for the sales hub and service hub. This will remove friction for customers and will help us accelerate market share gains. Second, we want to make it easier for customers to upgrade from Starter. We have heard feedback that the price jump from Starter to Pro or Enterprise is high, so this is a point of friction as customers look to upgrade. So we're changing the pro and enterprise seat pricing for Sales Hub and Service Hub, and we are introducing view-only seats, core seats for users who want to edit, and specialized seats for users who need specific functionality like sales or service.

Speaker Change: First we want to make it even easier for customers to get started with top spot and therefore, we're removing seed minimums for sales hub and service hub.

Speaker Change: This will remove friction for customers and will help us accelerate market share gains.

Speaker Change: Second we want to make it easier for customers to upgrade from starter we've heard feedback that the price jump from starter to pro our enterprises hi.

Speaker Change: This is a point of friction as customers look to upgrade so we're changing the pearl and enterprise seed pricing for sales hub and service hub and we are introducing view only seats.

Speaker Change: More seats for users, who want to edit and specialized seats for users who need specific functionality like sales or service.

Yamini Rangan: This change will bridge the gap between starter and pro and drive more pro plus adoption and Upgrade. Third, and perhaps most importantly, we're aligning price to the value from our AI-powered smart CRM. We've invested heavily in our Smart CRM over the past few years to make it more customizable, extensible, and easier to integrate with. The easiest way for you to think about Smart CRM is that it's the unified customer record, which enables our customers to have a single view of their customers.

Speaker Change: This change will bridge the gap between starter and troll and drive more pro plus adoption.

Speaker Change: And upgrades.

Speaker Change: Third and perhaps most importantly, we're aligning price to the value from our AI powered smart CRM.

Speaker Change: We have invested heavily in our smart CRM over the past few years to make it more customizable extensible and easier to integrate with.

Speaker Change: The easiest way for you to think about smart CRM, it's the unified customer record, which enables our customers to have a single view of their customers.

Yamini Rangan: Now customers can continue to view the CRM for free, but will need a core feed to edit it. This expands our ability to monetize beyond core personas to ops admin finance personas who may need more powerful edit capabilities. In addition, we have embedded HubSpot AI across our entire platform and hubs, which means that customers at every tier can access AI features at no additional cost.

Speaker Change: Now customers can continue to view the CRM for free, but we'll need a court seat to edited.

Speaker Change: This expands our ability to monetize beyond core persona to ops admin finance persona, who may need more powerful editing capabilities.

In addition, we have embedded hub spot AI across our entire platform and hubs, which means that customers at every tier can access AI features at no additional cost.

Yamini Rangan: This differentiated strategy should drive even more adoption of HubSpot AI and drive more upgrades as we continue to add value in higher tiers. We launched the seat pricing changes as a pilot in ANZ in April 2023, and we have fine-tuned our execution based on customer partner and sales feedback. For the global launch in March, we are hyper-focused on enabling our teams and partners to communicate the value of the changes to customers. Overall, I'm really excited about our pricing model evolution. It's going to make HubSpot easier to buy and easier to scale as our product grows, while matching how we monetize the platform based on the value we deliver to customers.

Speaker Change: This differentiated strategy should drive even more adoption of hubs, what AI and drive more upgrades as we continue to add value and higher tiers.

We launched the seat pricing changes as a pilot in ANZ in April 2023, and we will fine tune our execution based on customer partner and sales team.

Speaker Change: For the global launch in March we are hyper focused on enabling our teams and partners to communicate the value of the changes to customers overall I'm really excited about our pricing model evolution is going to make hotspot easier to buy and easier to scale as our product growth while matching how we monetize the plaque.

Speaker Change: Form based on the value we deliver to customers.

Speaker Change: Okay.

Yamini Rangan: I want to wrap up by sharing our strategy for 2024 and how we are balancing growth, profitability, and culture to drive durable growth. Our strategy is working, and we have high conviction in our strategic choice. We remain focused on SMBs, a very large, growing, and underserved market, and we are well positioned to innovate and be a leader in this market. The way we differentiate is by making our products easy to buy, easy to adopt, and easy to use.

Speaker Change: I want to wrap up by sharing our strategy for 2024, and how we're balancing growth profitability and culture to drive durable growth.

Speaker Change: Our strategy is working and we have high conviction in our strategic choices.

Speaker Change: We remain focused on F&B, a very large growing and underserved market and we are well positioned to innovate and be a leader in this market.

Speaker Change: The way, we differentiate is by making our products easy to buy easy to adopt and easy to use.

Yamini Rangan: In 2024, we will double down on our playbook of driving the pace of product innovation, focusing on consistent execution, and building a high-performance, sustainable company. On the product side, you can expect to see us take big swings in AI, build deeper and more sophisticated upmarket functionality, and focus on driving product usage across all hubs and platforms. AI in 2023 was all about speed and being fast to market. 2024 is going to be all about delivering value.

Speaker Change: In 2024, we will double down on our playbook of driving the pace of product innovation, focusing on consistent execution and building a high performing sustainable company on.

Speaker Change: On the product side, you can expect to see us take big swings in AI.

Speaker Change: Deeper and more sophisticated upmarket functionality and focus on driving product usage across all hubs and platform.

Speaker Change: AI in 2023 was all about speed and being faster to market.

Speaker Change: 24 is going to be all about delivering value.

Yamini Rangan: We are doubling down on HubSpot AI use cases that are driving repeat usage and will innovate even more with AI agencies. With our core hubs, we will continue to go deep on the key use cases our customers need across marketing, sales, and service, and bring more upmarket sophistication to the sales hub and service hub specifically. In addition, access to rich contextual data is a top priority for our customers.

Speaker Change: We are doubling down on hotspot AI use cases that are driving repeat usage and we will innovate even more with AI agents.

Speaker Change: With our core hubs, we will continue to go deep on the key use cases, our customers need across marketing sales and service and bring more upmarket sophistication to sales hub and service hub specifically.

Speaker Change: In addition access to rich contextual data is a top priority for our customers.

Yamini Rangan: We are excited to evolve our data offering in 2024 following the Clearbit acquisition. In terms of going-to-market, we're focused on driving efficiency across all processes. We're scaling self-service to expand beyond acquisition to activation and engagement. We're investing in partner and rep productivity, and we will drive guided selling initiatives with AI to save reps time, surface insights, and power deeper conversations. And as a company, our goal is to create a culture where people can do their best work, and we're investing to help employees grow better, work better, and connect better.

Speaker Change: Excited to evolve our data offering in 2024, following the clear but acquisition.

Speaker Change: In terms of go to market, we're focused on driving efficiency across all motions.

Speaker Change: We're scaling self service to expand beyond acquisition to activation and engagement.

Speaker Change: We're investing in partner and Rep productivity.

Speaker Change: And we will drive guided selling initiatives with AI to say reps time surface insights and power deeper conversations.

Speaker Change: And as a company our goal is to create a culture, where people can do their best work and we're investing to help employees grow better work better and connect better.

Kate Bueker: As we look forward this year, we have momentum in a large market. A pricing evolution will allow us to accelerate acquiring and serving more customers, and the pace of product innovation will enable us to become the number one AI-powered customer platform for scaling companies. With that, I'll hand it over to our CFO, Kate Bueker, to take you through our financial and operating results. Thanks, Yamini.

Speaker Change: As we look forward this year, we have momentum in a large market.

Speaker Change: <unk> evolution will allow us to accelerate acquiring and serving more customers and the pace of product innovation will enable us to become the number one AI powered customer platform for scaling companies.

Speaker Change: With that I'll hand, it over to our CFO, Kate Bueker to take you through our financial and operating results.

Kate Bueker: Thanks, how many let's turn to our fourth quarter and full year 2023 financial results.

Kate Bueker: Let's turn to our fourth quarter and full year 2023 financial results. Q4 revenue grew 21% year-over-year in constant currency and 24% on an as-reported basis. Q4 subscription revenue grew 24% year-over-year, while services and other revenue increased 2% on an as-reported basis. Full year 2023 revenue grew 25% year over year in both constant currency and as reported. Full-year subscription revenues were 26% year-over-year, while services and other revenue increased 16%, both on an as-reported basis. Q4 domestic revenue grew 17% year over year.

Kate Bueker: Q4 revenue grew 21% year over year in constant currency and 24% on an as reported basis.

Kate Bueker: Q4 subscription revenue grew 24% year over year, while services and other revenue increased 2% on an as reported basis.

Kate Bueker: Full year 2023 revenue grew 25% year over year in both constant currency and as reported full.

Kate Bueker: Full year subscription revenue grew 26% year over year, while services and other revenue increased 16% both on an as reported basis.

Kate Bueker: Q4, domestic revenue grew 17% year over year.

Kate Bueker: International revenue growth was 27% in constant currency and 32% as reported, now representing 48% of total revenue. Clearbit revenue was de minimis in Q4. We added nearly 11,000 net new customers in the quarter, bringing our total customer count to over 205,000, growing 23% year over year, and surpassing a notable milestone of 200,000. This strength was once again driven by a significant volume of customer additions at the lowest. Average subscription revenue per customer was nearly $11,400, growing 1% on an as-reported basis and declining 1% year-over-year in constant current. However, our strong growth in our lower ASP starter customers more than offset the positive impact to ASRPC of the steady progress in our multi-hub adoption upmark. Our customer count and ASRPC metrics exclude the impact of the ClearBid acquisition in Q4.

Kate Bueker: International revenue growth was 27% in constant currency and 32% as reported now.

Kate Bueker: Now representing 48% of total revenue.

Kate Bueker: Clear, but revenue was de Minimis in Q4.

Kate Bueker: We added nearly 11000 net new customers in the quarter, bringing our total customer count to over 205000 growing 23% year over year and surpassing a notable milestone of 200000 customers.

Kate Bueker: This strength was once again driven by a significant volume of customer additions at the low end.

Kate Bueker: Average subscription revenue per customer was nearly $11400 growing 1% on an as reported basis and declining 1% year over year in constant currency.

Kate Bueker: Our strong growth in our lower ASP starter customers more than offset the positive impact to ask RPC of the steady progress in our multi hub adoption upmarket.

Kate Bueker: Our customer count in ASR PC metrics exclude the impact of the clear but acquisition in Q4.

Kate Bueker: Growth retention held steady in the high 80s in Q4, and net revenue retention was comfortably above 100 and flat sequentially. We continue to see customers actively scrutinize spending, resulting in continued pressure on net upgrades. We expect similar trends to continue in the short term, with net revenue retention likely staying in and around the current range in 2024. Calculated billings were $662 million in Q4, growing 21% year over year in constant currency and 22% as reported, driven by our strong large deal performance in Q4. This includes roughly half a point of contribution from the ClearBid acquisition. The remainder of my comments will refer to non-GAAP measures. Q4 operating margin was 17%, and full-year operating margin was 15%, both up significantly compared to the year-ago period. Our Q4 and 2023 operating margin increase was driven by our workforce reduction in Q1, product infrastructure optimization, the impact of the changes in our partner commission structure, and prudent and focused hiring throughout the year. Net income was $92 million in Q4, or $1.76 per fully diluted share.

Kate Bueker: Gross retention held steady in the high Eighty's in Q4, and net revenue retention was comfortably above 100 and flat sequentially.

Kate Bueker: We continue to see customers actively scrutinize spending resulting in continued pressure on net upgrades.

Kate Bueker: We expect similar trends to continue in the short term with net revenue retention likely staying in and around the current range in 2024.

Kate Bueker: Calculated billings were $662 million in Q4, growing 21% year over year in constant currency and 22% as reported driven by our strong large deal performance in Q4.

Kate Bueker: This includes roughly a half a point of contribution from the <unk> acquisition.

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

Kate Bueker: Q4, operating margin was 17% and full year operating margin was 15% both up significantly compared to the year ago period.

Kate Bueker: Our Q4 and 2023 operating margin increase was driven by our workforce reduction in Q1 product infrastructure optimization.

Kate Bueker: The impact of the changes in our partner commission structure, and prudent and focused hiring throughout the year.

Kate Bueker: Net income was $92 million in Q4 or $1 76.

Kate Bueker: For fully diluted share.

Kate Bueker: Free cash flow was $83 million in Q4, or 14% of revenue, and $292 million, or 13% of revenue for the full year. Finally, our cash and marketable securities totaled $1.7 billion at the end of December. Before we jump into guidance, I wanted to share some perspective on our expectations for the macro environment and provide some detail regarding the impact of the Clearbit acquisition and our pricing change on growth and KPIs for 2024. As Yamini shared, we continue to operate in a choppy and challenging environment. Despite some signs of stabilization and downgrades and buyer urgency in Q4, our current working assumption is that the macroeconomic environment will remain challenging in 2024.

Kate Bueker: Free cash flow was $83 million in Q4, or 14% of revenue and $292 million or 13% of revenue for the full year.

Kate Bueker: Finally, our.

Kate Bueker: Our cash and marketable securities totaled $1 7 billion at the end of December.

Speaker Change: Before we jump into guidance.

Speaker Change: Wanted to share some perspective on our expectations for the macro environment and provide some detail regarding the impact of the clear, but acquisition and our pricing change on growth and Kpis for 2024.

Speaker Change: As you know many shared we continue to operate in a choppy and challenging environment. Despite.

Speaker Change: Despite some signs of stabilization in downgrades and buyer urgency in Q4, our current working assumption is that the macroeconomic environment will remain challenging in 2024.

Kate Bueker: The introduction of our seats-based pricing model is an important foundational change to make it easier for prospects and customers to get started and grow with HubSpot. Our first focus will be selling to new customers in this model, and we expect less than a point of contribution to revenue growth in 2024 from this change. Over the longer term, we expect this to be a more material driver of the business, as new customers grow in this model, and we introduce the change to our existing customers. We believe that our continued success at the low end, coupled with the lower barrier to entry in our new pricing model, will allow us to maintain quarterly net customer additions around 10,000 in 2024. This will result in ASRPC growth that is down in the low single digits for the year. Finally, we officially closed the acquisition of Clearbit in December.

Speaker Change: The introduction of our seat based pricing model is an important foundational change to make it easier for prospects and customers to get started and grow with hub spot.

Speaker Change: Our first motion will be focused on selling to new customers in this model and we expect less than a point of contribution to revenue growth in 2024 from this change.

Speaker Change: Over the longer term, we expect this to be a more material driver to the business as new customers grow in this model and we introduced the change to our existing customers.

Speaker Change: We believe that our continued success at the low end, coupled with the lower barrier to entry in our new pricing model will allow us to maintain quarterly net customer additions around 10000 in 2024.

Speaker Change: This will result in ASR PC growth is down in the low single digits for the year.

Speaker Change: Finally, we officially closed the acquisition of clear, but in December in terms of 2024 contribution we expect the acquisition to drive roughly a point of growth to revenue.

Kate Bueker: In terms of 2024 contribution, we expect the acquisition to drive roughly a point of growth in revenue. Now, let's turn to our guidance for the first quarter and full year of 2024. For the first quarter, total as reported revenue is expected to be in the range of $596 to $598 million, up 19% year-over-year at the midpoint, non-GAAP operating profit is expected to be between $83 and $84 million, and non-GEP diluted net income per share is expected to be between $1.48 and $1.50. This assumes 53.1 million fully diluted shares outstanding and for the full year of 2024. Total as reported revenue is expected to be in the range of $2.55 to $2.56 billion, up 18% year-over-year at the mid-budget. Non-GAAP operating profit is expected to be between $408 and $412 million, and non-GAAP diluted net income per share is expected to be between $6.86 and $6.94. This assumes 53.6 million fully diluted shares outstanding.

Speaker Change: Now, let's turn to our guidance for the first quarter and full year of 2024.

Speaker Change: For the first quarter total as reported revenue is expected to be in the range of $596 million to $598 million up 19% year over year at the midpoint.

Speaker Change: non-GAAP operating profit is expected to be between 83 and $84 million.

Speaker Change: non-GAAP diluted net income per share is expected to be between $1 48, and a dog.

Speaker Change: 50.

Speaker Change: This assumes $53 1 million fully diluted shares outstanding.

Speaker Change: And for the full year of 2024.

Speaker Change: Total as reported revenue is expected to be in the range of $2 55 to $2 $5 $6 billion up 18% year over year at the midpoint.

Speaker Change: non-GAAP operating profit is expected to be between 408 and $412 million.

Speaker Change: non-GAAP diluted net income per share is expected to be between $6 86 and $6.94.

Speaker Change: This assumes $53 6 million fully diluted shares outstanding.

Kate Bueker: As you adjust your models, please keep in mind the following: we expect foreign exchange to have a neutral impact on both our Q1 and full year 2024 revenue growth. The impact of our pricing change and the ClearBid acquisition is included in our guidance. We expect non-GAAP operating profit margins to be approximately 14% in the first and second quarters and in the mid to high teens in the back half of the year.

Speaker Change: As you adjust your models please keep in mind the following.

Speaker Change: We expect foreign exchange to have a neutral impact on both our Q1 and full year 2024 as reported revenue growth.

Speaker Change: The impact of our pricing change and declare a bad acquisition is included in our guidance.

Speaker Change: We expect non-GAAP operating profit margin to be approximately 14% in the first and second quarters in the mid to high teens in the back half of the year.

Kate Bueker: We expect CapEx as a percentage of revenue to be roughly 4%, and free cash flow to be about $365 million for the full year of 2024, with seasonally stronger free cash flow in Q1 and Q4. And with that, I will hand things back over to Yamini for her closing remarks. Thanks so much, Kate.

Speaker Change: We expect capex as a percentage of revenue to be roughly 4%.

Speaker Change: Free cash flow to be about $365 million for the full year of 2024.

Speaker Change: With seasonally stronger free cash flow in Q1 and Q4.

Yamani: And with that I will hand things back over to yamani for her closing remarks.

Yamani: Thanks, So much Kate I want to close by highlighting our momentum in becoming the customer platform of choice for scaling companies.

Yamini Rangan: I want to close by highlighting our momentum in becoming the customer platform of choice for scaling companies. G2 recently released their annual Best Software Awards, and HubSpot was recognized as the number one sales product and the number one marketing product in 2024. This recognition is a strong testament to the pace of innovation we are driving and our focus on delivering value. My huge, heartfelt thank you to our employees who work tirelessly to solve problems for our customers. And a big thank you to our partners, customers, and shareholders for the continued support. With that, operator, let's please open up the call for questions. If you'd like to ask a question, please press star followed by one on your telephone keypad. If, for any reason, you'd like to remove that question, please press star followed by two.

Yamani: <unk> recently released their annual Best Software Awards and hotspot was recognized as the number one sales product and the number one marketing product in 2020 for.

Yamani: This recognition is a strong testament to the pace of innovation, we're driving in our focus on delivering value.

Yamani: Huge heartfelt. Thank you to our employees, who work tirelessly to solve for our customers and a big Thank you to our partners customers and shareholders for their continued support.

Speaker Change: With that operator, let's please open up the call for questions.

Speaker Change: If you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you can move to a question. Please press star followed by two again to ask a question press Star one as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking a question. We ask that you. Please limit yourself to one question.

Operator: Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We ask that you please limit yourselves to one question. We'll pause here briefly as questions are registered. The first question is from the line of Samad Samana with Jeffries.

Speaker Change: We will pay off you briefly as questions are registered.

First question is from the line of Smart Samana with Jefferies. Your line is now open.

Samad Samana: Your line is now open. Hi, thanks for my question. Congratulations on a strong finish to 2023. So, Yamini, you gave a lot of information about the pricing model change, and it was helpful. I want to maybe dig a little deeper there.

Samad Samana: Hi, Thanks for taking my question Congrats on a strong finish to 2023, but yeah. I mean, you gave a lot of information about the pricing model change and that was helpful.

Samad Samana: Can you dig a little deeper there it looks like the impact to customers will be minimal and it encourages them to try more up spot, but how do you expect this to impact I know you get the net adds number but what about the potential doors that customers enter through.

Yamini Rangan: It looks like the impact to customers will be minimal, and it encourages them to try more HubSpot. But, you know, how do you expect this to impact? I know you gave the net ads number, but what about the potential doors that customers enter through? Do you see maybe a shift from marketing, maybe more towards sales or service? Is that part of the intention here?

Samad Samana: Do you see maybe a shift from marketing maybe more towards sales or service is that part of the intention here.

Yamini Rangan: And whether it makes HubSpot more consistent with some of your enterprise competitors as far as their pricing is structured, especially as you gain more traction with mid-market customers? And then, Kate, I know you baked this into the guidance, but can you just give us, timing-wise, is it more of the back half that you expect the impact to guidance from the pricing model change? Thank you both so much, and congrats on a great quarter. Thanks a lot. Thanks a lot.

Samad Samana: And whether it makes us a lot more consistent with some of your enterprise competitors as far as their pricing is structured.

Samad Samana: Just especially as you gain more traction with mid market customers and Kate I know you've baked into the guidance, but can you just give us timing wise is it more back half that you expect the impact to.

The guidance from the pricing model change. Thank you so much and congrats on a great quarter.

Speaker Change: Thanks, a lot thanks a lot.

Speaker Change: Maybe to address multiple.

Yamini Rangan: Maybe to address multiple questions that you asked there, you know, we have always been easy to buy and easy to use, and we are just doubling down to make HubSpot even easier to buy. This change has been probably a couple of years in the making, and we got started with these changes by talking to our customers to hear from them in terms of where they experience points of friction in the buying journey and where they're seeing value. That's how we got started.

Speaker Change: Questions that you asked there.

Speaker Change: We have all have been easy to buy easy to use and we're just doubling down to make hotspot even easier to buy.

Speaker Change: This change has been probably couple of years in the making and we got started with these changes by talking to our customers.

Speaker Change: You're from them in terms of where they experienced points of friction in the buying journey and where theyre seeing value. That's how we got started and I talked about the three shifts and it's easy to see how this all adds up the first shift is we wanted to be super easy for customers to get started with a box.

Yamini Rangan: And I talked about the three shifts, and it's easy to see how this all adds up. The first shift is that we want it to be super easy for customers to get started with HubSpot, so we're removing the peak minimum. What we have seen in the pilot and what we expect in terms of this change is that it will result in more customers starting with HubSpot and a higher volume of starter customers over a period of time. The second thing we did is we reduced the price jump between starter and pro, and you've asked us this before. Our customers have consistently given us feedback that the jump from starter to pro is really high, and that's a point of friction for our customers. By lowering the price per seat for pro and enterprise, it reduces that friction.

Speaker Change: So we're removing the seed minimums, what we have seen in the pilot and what we expect in terms of this change is a good result in more customers starting with hub bought in higher volume.

Speaker Change: Total customers over a period of time. The second thing. We did is we reduced the price jump between starter in full and you've asked us before our customers have consistently given us the feedback that the jump from started to pro is really high and that's a point of friction for our customers by lowering.

Speaker Change: The price per seat for pro and enterprise it reduces that friction and again, we're seeing that in may.

Yamini Rangan: And again, we're seeing that in making this change, there are more customers that start with starter and then continue to upgrade into pro and enterprise, which is exactly what we want in order to have a great foundation for pricing. And, third, and probably most importantly, we're now monetizing the value of Smart CRM. We've invested pretty heavily in Smart CRM over the past few years. We've made it customizable.

Speaker Change: Making this change there are more customers that start with starter and then continue to upgrade into pro and enterprise, which is exactly what we want in order to be to.

Speaker Change: Have a great foundation for pricing and the third and probably most importantly.

Speaker Change: Were now monetizing the value of smart CRM.

Speaker Change: <unk> invested pretty heavily in our CRM over the past few years, we've made a customizable we've made it extensible we've made it easier to integrate with and this change allows us to monetize.

Yamini Rangan: We've made it extensible. We've made it easier to integrate with, and this change allows us to monetize. You asked specifically about how this compares to, you know, the rest and what we are beginning to see.

Speaker Change: You asked specifically about how does this compare to the rest and what are we beginning to see I think youre going to see more volume.

Yamini Rangan: I think, you know, you're going to see more volume because we have removed the friction both in terms of starter and pro, and then over a period of time, the biggest opportunity is really post-sales expansion and growth. When we sign up more customers, then reps have the capacity to go back and sell more in terms of cross-sell opportunities. When customers start with exactly what they need, then they will now buy more seats as they continue to expand, and CoreSeats is a new upgrade lever.

Speaker Change: We have removed the friction both in terms of starter control and then over a period of time. The biggest opportunity is really post sales expansion and growth when we find more customers than reps have the capacity to go back and sell more in terms of cross sell opportunities when customers stop.

Speaker Change: Talk with exactly what they need then they now will fly more seats as they continue to expand and core thesis of new upgrades lever. So this is a foundational shift that remove friction and provides value and gifts.

Yamini Rangan: So this is a foundational shift that removes friction and provides value and gives us the ability to continue to expand over the next multiple years. So we're really excited about it, Yeah, and Samad. I think the impact this year flows very naturally from what Yamini said, right, we're going to have more customers starting at a lower ASP but growing more over time. And so you'd naturally see that build more into the back. Thank you for your question. The next question is from the line of Parker Lane with Steeple.

Speaker Change: To continue to expand over the next multiple years. So we're really excited about this change.

Speaker Change: Yes, I think the impact in the year flows very naturally from what Dominic said right, we're going to have more customers starting at lower ASP, but growing more overtime and so you would naturally see that build more into the back half of the year.

Speaker Change: Okay.

Speaker Change: Thank you for your question next question is from the line of Parker Lane with Stifel. Your line is now open.

Operator: Your line is now open. Hey, team, thanks for taking the question. Yamini, I wanted to just sort of stay on that theme we're talking about here with the pricing and packaging changes. And when we look at the specialized in view only seat types, have you guys done any work to figure out how many of the potential seats that have not been addressed in the past can now be addressed under this package, not just on the new customer acquisition side but actually on the expansion side in those two areas? Yeah, so maybe just to address the basics. We now have three seat types. The first is just a view-only seat; you know, if anybody within the whole company wants to view it, that's the seat to use.

Parker Lane: Hey team. Thanks for taking the question I wanted to just stay on that theme, we're talking about here with the pricing and packaging changes and when we look at the specialized in view only feed types have you guys done work to figure out.

Parker Lane: How many of the potential seats that have not been addressed in the past can now be addressed under this package not just the new customer acquisition side, but actually on the expansion side and those two areas.

Parker Lane: Yeah.

Speaker Change: Maybe just to address the basic so we now have three C types. The first is just a view only seed.

Speaker Change: Is anybody within the oil company wants to view it that's the Cpus the second type of feed and this is probably the new change that we're introducing is key.

Yamini Rangan: The second type of seat, and this is probably the new change that we are introducing, is the core seat, and this is really associated with the smart CRM. And then the third is the specialized seat if you need, you know, a sales hub specialized functionality or service hub specialized functionality. To take a moment and maybe talk about the biggest change, which is that core seed, we talked about smart CRM at InBound, and the easiest way to think about smart CRM is that it's a core system of customer records. If you want contact information, you want company information, you want information on the interactions with your customers, all of that is associated with that smart CRM layer.

Speaker Change: Core fees.

Speaker Change: This is really associated with the <unk> CRM and then the third is a specialized feed if you need a sales hub specialized functionality or service hub specialized functionality to take a moment and maybe talk about the biggest change which is that core seed.

Speaker Change: We talked about Mark CRM at inbound and the easiest way to think about smart CRM is at the core system of customer of record. If you want contact information you. One company information you want information on the interaction and customer all of that is associated with the mark to the army.

Speaker Change: And over the past few years, and we look at where customers are spending the most time and getting value. They will tell you that it is from having a single unified view of the customer and what we have done with this.

Yamini Rangan: And over the past few years, as we look at where customers are spending the most time and getting value, they will tell you that it is from having a single unified view of the customer. And what we have done with this pricing model change is, if you want to view it, you can use the free seat, but if you want to edit anything within that core CRM, you will need to buy a core seat. So by monetizing that smart CRM, we're aligning the value that customers are getting with our monetization strategy. And it really goes back to our core pricing philosophy. We add value, and then when we know we've added a ton of value, then we align them on there. Thank you for your question. The next question is from the line of Mark Murphy with JP Morgan. Your line is now open. Thank you so much, Yamini.

Speaker Change: Rising model change is if you want to do it you can use a <unk>, but if you want to edit anything within the core CRM you will need to buy a foresee so by monetizing that smart CRM we're in.

Speaker Change: Aligning the value where customers are getting to our monetization strategy and it really goes back to our core pricing philosophy, we add value and that made me know we've added a ton of value and be aligned the monetization.

Speaker Change: Thank you for your question. Our next question is from the line of Mark Murphy with Jpmorgan. Your line is now open.

Speaker Change: Well, thank you so much Germany.

Mark Murphy: You stated that AI will be embedded across the entire platform and that customers can access it at no additional cost. So I'm curious, how might you handle a high-octane user or a campaign, which might incur a lot of LLM costs on the back end. So just in other words, should we look at this and say, well, it's a less than 5% price increase, and then it's free AI for everyone, or are you going to have other tokens or credits or SKUs or something like that for some of the higher AI usage scenarios? Yeah, that's a great question, Mark. I want to say that our AI is embedded; it is not free. And, you know, there is a difference between those two.

Mark Murphy: You stated that AI will be embedded across the entire platform in Custer.

Mark Murphy: Customers can access it at no additional cost so I'm I'm curious how might you handle a high octane user or.

Mark Murphy: Or a campaign.

Mark Murphy: We might incur a lot of L. L M.

Mark Murphy: Cost on the backend so just in other words should we look at this and say well it's.

Mark Murphy: It's a less than 5% price increase and then it's free AI for everyone or are you going to have other tokens or credits or skus something like that for some of the higher usage scenarios.

Speaker Change: Yeah. That's a great question, Mark I want to say that our AI is embedded it is not free.

Mark Murphy: You know there is a there's a difference between those two and maybe just step back. This is very very consistent with what we communicated as our AI monetization strategy at analyst day.

Yamini Rangan: And maybe just step back, this is very, very consistent with what we communicated as our AI monetization strategy at Analyst Day. You know, it's the very, very early stages of a very massive shift in the industry, and we are focused on driving value and making it super easy for scaling companies to just adopt AI. That's why we've taken this strategy.

Speaker Change: Yeah.

Speaker Change: Very very early stages on a very massive shift in the industry and we are focused on driving value and making it super easy for scaling companies to just adopt AI. That's why we've taken the strategy and we are embedding AI into platform and all of the hub.

Yamini Rangan: And, you know, we've embedded AI into the platform and all of the hubs. And by including AI in our platform and hubs, we're just driving acquisition of customers. That's number one.

Speaker Change: And by including the AI into our platform and hubs. We're just driving acquisition of customers. That's number one the second thing which is important to note is that while all of our tiers premium startup pro and enterprise have AI features.

Yamini Rangan: The second thing that is important to note is that while all of our tiers, premium, startup, pro, and enterprise, have AI features, we have a lot more features at the pro and enterprise tiers. In fact, 65% of the features that are becoming generally available in the first half of 2024 will be in the pro plus tier. So the way we think about it is that it'll drive a lot of upgrades and higher ASP in terms of tier upgrades. And then, longer term, when we drive even more sophisticated features like AI agents, then we may charge specifically for them. So going back to kind of your question on, you know, how do you make sure that it scales?

A lot more features at the parole and enterprise tiers and in fact, 65% of the features that are becoming generally available in the first half of 2024 will be in the probe lift here. So the way we think about it is that it will drive a lot of upgrades and higher ASP in terms of.

Sure upgrades and then longer term when we drive even more sophisticated features like AI agent then we may charge, specifically for it so going back to your kind of your question on you know how do you make sure that its scale right now we think we're in the early stages removed.

Yamini Rangan: Right now, we think we're in the early stages of removing friction, educating customers, driving adoption, and making sure there's repeat usage. That's the focus. And based on what we're seeing, we're not quite worried about, you know, the cost impact. But if we continue to introduce very sophisticated features where it has an impact, then we will, you know, charge for them. So that's how we're thinking

Speaker Change: Friction educating customers driving adoption, making sure. There's good feed usage, that's the focus and based on what we're seeing we're not worried about that.

Speaker Change: The cost impact.

Speaker Change: We continue to introduce very sophisticated features it has an impact and we will.

Speaker Change: A charge for it so that's how we're thinking about monetizing.

Operator: Thank you for your question. The next question is from the line of Elizabeth Elliott with Morgan Stanley. Your line is now open.

Thank you for your question.

The next question is from the line of Elisabeth Elliot with Morgan Stanley. Your line is now open.

Okay.

Elizabeth Elliott: Great, thank you very much. So your bimodal strategy has really enabled you to add a lot of low-end customers in 2023 and especially at the end of the year. So I wanted to get a better sense of how quickly customers typically upgrade. You know, it sounds like the price narrowing that price jump should be a bit of an accelerator. But just curious about when we could see the big upgrade opportunity and have that start to benefit ASRPC growth. Thank you.

Elisabeth Elliot: Great. Thank you very much.

Elisabeth Elliot: Bimodal strategy has really enabled do that a lot of that low end customers in 2023, and especially exiting the year. So I wanted to get a better sense of how quickly do customers typically upgrades. It sounds like the price narrowing that price jump should be in a bit of an accelerator, but just curious on when we could see the big upgrade opportunity in half.

Elisabeth Elliot: That start to benefit ASR PC growth. Thank you.

Kate Bueker: Yeah, thanks, Elizabeth, for the question. We are, again, pleased with the strength that we saw in our starter customer additions during the quarter. There are both strategic and financial reasons that we want to continue to lean into low-end customer acquisition. We think that the sort of significant volume of customers we have at the low end provides us with a nice competitive moat. It also makes our overall ecosystem more valuable, so both of those are strategic reasons.

Yes, Thanks Elizabeth further question.

Elisabeth Elliot: We are again pleased with the strength that we saw in our starter customer additions in the quarter.

Elisabeth Elliot: They're both strategic and financial reasons that we want to continue to lean into low end customer acquisition, we think that the sort of it.

Elisabeth Elliot: Significant volume of customers, we have at the low end provides us with a nice competitive moat. It also makes our overall ecosystem more valuable so both of those are strategic reason.

Kate Bueker: Starter upgrades, if you sort of look at the impact that they've had for us, represent probably a couple of points of net revenue retention for us. And, you know, we continue to see pretty healthy rates of upgrades from starter cohorts. About half of that happens within the first six months. There is still friction in that process.

Elisabeth Elliot: Starter upgrades, if you sort of look at the impact that they've had for us represent probably a couple of points of net revenue retention for us.

Elisabeth Elliot: And we continue to see pretty healthy rates of upgrades from starter cohorts.

Elisabeth Elliot: About.

Elisabeth Elliot: Most of about half of that happens within the first six months and there is still friction in that motion right now when you talked about the meaningful jump that we have in price between starter and professional.

Kate Bueker: Yamini talked about the meaningful jump that we have in price between starter and professional. So the dollars of upgrading from starter to professional are relatively low. That said, we think this pricing model should reduce the overall friction in that motion, and we're optimistic that we can really change the game on the starter upgrade rate with this new price. Thank you for your question. The next question is for Nilan O. Rishi Jalurio with RBC. Nilan, is that open?

Elisabeth Elliot: The dollars of upgrade from starter and professional are relatively small.

Elisabeth Elliot: That said, we think the seats pricing model.

Elisabeth Elliot: Should reduce the overall friction in that motion and we're optimistic that we can really change the game on the starter upgrade rate with this new pricing model.

Speaker Change: Thank you for your question next.

Speaker Change: The next question is from the line of Richie Deloria with RBC. Your line is now open.

Operator: Oh, wonderful. Thanks so much for taking the time to answer my questions. It's nice to see continued momentum in the business, but I wanted to drill a little bit more into the AI strategy. Obviously, you have really impressive innovation we've seen in AI, especially when we think about how you're innovating compared to some of your CRM competitors. I'd love to hear, number one, what sort of feedback have you had from customers in terms of new use cases that maybe you hadn't initially thought about. And second, and maybe more importantly, is this or has this started turning up as part of initial sales conversations and maybe a consideration that new customers are having when it comes to choosing you versus others? Thank you. Thank you, Rishi, for that question. So maybe the way I'd characterize it was 2023 was a year of experimentation.

Richard Davis: Wonderful. Thanks, so much for taking my questions nice to see continued momentum in the business.

Richard Davis: I wanted to drill a little bit more into the AI strategy.

Richard Davis: You have really impressive innovation, we've seen on the AI, especially when we think about how you're innovating compared to some of your share and competitors I'd love to hear maybe number one what sort of feedback have you had some questioners in terms of new use cases that maybe you had initially thought about and second and maybe more importantly is this park has.

Richard Davis: Started trending up as part of initial sales conversations and maybe a consideration that new customers are having when it comes to choosing you versus others. Thank you.

Speaker Change: Thank you Rishi for that question.

Speaker Change: So maybe the way I'd characterize it was 23 23 was a year of experimentation and this year is going to be all about delivering customer value and probably the most important leading indicators that we are looking for is repeat usage of AI feature so.

Yamini Rangan: And this year is going to be all about delivering customer value, and probably the most important leading indicator that we are looking for is repeat usage of AI features. So the focus for the product team, and the focus for the go-to-market team is really one, educating customers, and two, making sure that any feature that we have out is driving repeat usage. That's the focus.

Speaker Change: The focus for the product team to focus more on the go to market team, it's really one educating customers and to making sure that any feature of that would be capped out is driving repeat usage. That's the focus.

Yamini Rangan: You asked about what we're learning. We're definitely seeing a lot of adoption, but there is some signal, some noise. And as I look at our top maybe 20 customers who are leveraging AI effectively, there are a few key trends. The first one is prospecting and company research is really, really a big use case, and Chatspot is driving that. We have over 200,000 cumulative users on Chatspot and more than 20,000 monthly active users, and they're just wanting to use AI for better research companies, better preparation before they talk to customers, and that's great. Marketing, not a surprise at all, but the use cases in marketing that we started with the launch of content assistance last year are now getting well integrated into the flow of work. So, marketers using generative AI for creating blogs, creating emails, creating titles, taking one piece of content and then modifying that content into multiple channels, that is becoming very common, and we are seeing those use cases get into the daily action.

Speaker Change: Asked about what are we learning where we're definitely seeing.

Speaker Change: A lot of adoption, but there is some signal some noise and as I look at our top maybe 20 customers who are leveraging AI effectively there are few key trends.

The first one is prospecting and company research is really really a big use case and chatbot is driving that we have over 200000 cumulative users on jackpot and more than 20000 monthly active users and they're just wanting to use AI for better researching companies better.

Speaker Change: Preparation before they talk to customers and that's great.

Speaker Change: Marketing not a surprise at all.

Speaker Change: The use cases and marketing that we started with the launch of content. The system last year is now getting well integrated into the flow of work so marketers using <unk>.

Speaker Change: Generally the AI for creating blocks, creating email creating title taking one content and then you know.

Speaker Change: Modifying that content into multiple channels that is becoming very common and we are seeing those use cases get into the daily action.

Yamini Rangan: The third, and probably not a surprise again, is service up. Our highest usage in terms of features is summarizing conversations and then generating takeaways. That feature, and specifically there's something called the highlight command, and we're very surprised by this, but being able to highlight a particular text and then change the tone, expand the text, that is getting almost daily usage.

Speaker Change: Third and probably not a surprise again in service up.

Speaker Change: You know our highest usage in terms of features is summarizing conversation and then generating takeaways that feature and specifically, there's something call highlight command and were very surprised by this but being able to highlight.

Speaker Change: Particular tax and then change the tone changed the expand the text that is getting almost daily usage and so I think we're seeing you know areas, where it is deeply integrated into the flow of work and we're beginning to see much more usage.

Yamini Rangan: So, I think we're seeing areas where AI is deeply integrated into the flow of work, and we're beginning to see much more usage. We have a very robust roadmap of AI features that are coming up. A lot of those features are in kind of the pro plus categories, and I'm really excited to see the usage metrics go up. So, a lot of the work that we're going to be doing this year is looking for those usage patterns. Thank you for your question. The next question is from the line of Keith Bachman with BMO. Your line is now open.

Speaker Change: We have a very robust road map of AI features that's coming up a lot of those features are in kind of the profile of categories and.

Speaker Change: Really excited to see the usage metrics go up so a lot of the work that we're going to be doing this year is looking for those usage patterns.

Speaker Change: Thank you for your question next.

Speaker Change: The next question is from the line of Keith Bachman with BMO. Your line is now open.

Keith Frances Bachman: Yeah, many thanks. First, Kate, for you, I wanted to see if you could talk about how we should be thinking about billings growth versus revenue growth for 24. There was actually convergence in the December quarter, which was a bit sooner than we were thinking. And so, could you just at least directionally or provide some philosophical points of view about how we should be thinking about the variance or lack thereof between the revenue growth guidance that you've given and what we should be thinking about billings? And then, Yamini, just for you, if I could sneak another in, I wanted to see if you could revisit existing customers as it relates to the price change. We've gone through the information in detail, and you mentioned that those customers would see a 5% price bump at the time of renewal, but do they make a transition at the time of renewal to the new price plan, or can they continue on, and that's where the 5% So maybe I'll start.

Keith Frances Bachman: Yes, many thanks.

First for you I wanted to see if you could talk about how we should be thinking about.

Keith Frances Bachman: Billings growth versus the revenue growth for 'twenty four.

Keith Frances Bachman: It was actually convergence in the December quarter, which was a bit sooner than we were thinking.

Keith Frances Bachman: And so if you could just at least directionally or provide some philosophical point of view about how we should be thinking about the variance or lack thereof between the revenue growth guidance that you've given and what we should be thinking about billings.

Speaker Change: And then maybe just for you if I could sneak another and I wanted to see if you could revisit on existing customers as it relates to the price change we've gone to the information in detail and you mentioned that those customers.

Speaker Change: We would see a 5% price bump at the time of renewal, but are they or are they do they make a transition at the time of the rule to the new price plan or are they they can continue on and that's where the 5% bump happens.

Speaker Change: Yeah.

Speaker Change: So maybe I'll start thanks Keith.

Kate Bueker: Thanks, Keith. You are right on. The constant currency billings and constant currency revenue growth in Q4 were both 21 percent.

Speaker Change: You are right on the constant currency billings and constant currency revenue growth in.

Speaker Change: Q4 were both 21%.

Kate Bueker: There are a couple of things that helped close the gap between billings and revenue versus what we have seen over the last couple of quarters. The first is that we, and you heard Yamini talk about this in her prepared remarks, this was a good quarter for us in terms of big deals. And big deals tend to have longer billing terms, and so it showed up in billings for us in Q4. The other thing that's notable is that December was particularly strong for us.

Speaker Change: Yeah, there's a couple of things that helped close the gap between.

Speaker Change: Billings and revenue versus what we have seen over the last couple of quarters. The first is that we and you heard yamana to talk about this in her prepared remarks. It was a good quarter for us in terms of big deal and big deals tend to have longer billing terms and so it showed up in.

Speaker Change: In billings for us in Q4. The other thing. That's notable is December was particularly strong for us and so from a timing perspective, it helps to drive the the closure between billings and revenue.

Kate Bueker: And so from a timing perspective, it helps to drive the closure between billings. In terms of 2024, we probably, you know, we expect that billings growth and revenue growth, again, both in constant currency, will actually track pretty close to one another, plus or minus a percent or so from one quarter to the next. And Keith, on your question in terms of the impact of the pricing changes for existing customers. We are being very thoughtful in how we roll this out to our existing customers, and there are a couple of perhaps first principles as we do this. One, we don't want the customer experience, you know, as they go from one pricing model to another to even be noticeable. That's one, you know, principle.

Speaker Change: In terms of 2020 for.

Speaker Change: We probably we expect that billings growth and revenue growth again, both in constant currency will actually track pretty close to one another.

Speaker Change: Or minus a percent or so from one quarter to the next.

Speaker Change: And Keith on your question in terms of impact of the pricing changes for existing customers.

Speaker Change: We're being very thoughtful in how we roll this out for existing customers and couple of maybe first principle as we do this one we don't want the customer experience.

Speaker Change: They go from one pricing model to another to even be noticeable that's one.

Speaker Change: Principal and the second is we don't want any surprises for existing customers as they.

Yamini Rangan: The second is we don't want any surprises for existing customers as they kind of go through this pricing chain. So, as I mentioned, in March, what we're launching is only for new customers. The migration for existing customers to the new model, which means having view-only seats, having, you know, core seats, and having specialized seats, that migration will begin in mid-2024, and it will go through 2025 in waves, so that, again, the experience for customers is seamless. They probably won't even notice that they have been migrated on the back end to support the new seat model.

Speaker Change: Go through this pricing change so as I mentioned.

Speaker Change: In March what we're launching is only for new customers.

Speaker Change: Migration for existing customers to the new model, which means having you only see having you know core seats and having specialized seats that migration will begin mid 2024 and as we go through 2025 in waves. So that again the experience for customers with seamless they probably won't even notice.

Speaker Change: That they had been migrated on the back end to support the new seat model then at their first renewal after migration customers.

Yamini Rangan: Then, at the first renewal, after migration, customers can expect up to a 5% increase, no more than 5% increase, and that way, they have visibility in terms of the level of change that they can expect. We've started doing this as part of our pilot, and we're finding that it's a very seamless kind of change for existing customers with plenty of time for them to adjust to the new change. Thank you for your question. The next question is from the line of Kirk McTern with Evercore ISO.

<unk> up two 5% increase no more than 5% increase in that way they have visibility in terms of the level of change that they can expect we've started doing this as part of our ANZ pilot and we're finding that.

Speaker Change: It's a it's a very seamless kind of motion for existing customers with plenty of time for them to adjust to kind of emotion.

Speaker Change: Thank you for your question.

Speaker Change: Next question is from the line of Kirk <unk> with Evercore ISI. Your line is now open.

Operator: Your line is now open. Yeah, thanks very much. And I'll echo the congratulations on the quarter. Yamini, it's wonderful if you just talk a little about the strength in international versus the US, meaning are the trends, you know, they're either in the high end of the market or the low end of the market any different? Obviously, really good growth out of that segment. So why don't you just unpack that a little bit more?

Kirk: Yeah, Thanks, very much and I'll echo the congrats on the on the quarter.

Kirk: I just wonder if you could just talk a little bit about the strength in international versus the U S. Meaning are the trends there either in the high end of the market at all in the market any different obviously really good growth out of that segment. So why aren't you just.

<unk> that a little bit more thanks, so much.

Yamini Rangan: Thanks so much. Yeah, you know, overall, the strength is just as consistent across international borders and North America. We talked about the bigger trends that we saw in Q4, which are large-scale momentum, sales hub momentum, and multi-hub momentum. We kind of saw the same trend in North America as we saw within the international markets and, you know, very consistent with prior quarters. Thank you for your question. The next question is from Alana Ken Wong of Oppenheimer. Your line is now open.

Kirk: Yeah.

Speaker Change: Yeah, you know overall the strength just as consistent across international and North America, we talked about the bigger trends that we saw in Q4, which is large deal momentum sales hub momentum multipart momentum, we kind of saw this thing.

Speaker Change: <unk> trends in North America, as we saw within the international markets.

Speaker Change: Very consistent with prior quarters.

Speaker Change: Thank you for your question.

Speaker Change: Next question is from the line of Ken Wong with Oppenheimer. Your line is now open.

Speaker Change: Okay.

Ken Wong: Thanks for taking my question.

Operator: I wanted to maybe dive in on the strength in sort of down-marketing Q4; usually, that's more of an enterprise quarter, which you guys did emphasize as some strength. Did you guys run any unique plays to try to spark some of that demand in the long tail, or did that catch you guys by surprise as well? Yeah, Kenneth, Kate.

Ken Wong: Could you maybe dive in on the strength.

Ken Wong: And sort of down market in Q4, usually that's what the enterprise quarter, which you guys did emphasize it.

Ken Wong: Did you guys run in a unique place to try to spark some of that demand in the long tail or did that catch you guys by surprise as well.

Ken Wong: Yeah, Ken it's Kate I'll I'll start.

Kate Bueker: The success that we saw in the net additions at the low end in Q4 was very much consistent in terms of the themes that we've been talking about over the last couple of quarters here. It's very starter focused. We continue to see strong top of funnel demand. Frankly, the value proposition of our starter product is just really compelling. We constantly run experiments.

Kate Bueker: Look the success that we saw in the net additions at the low end in Q4 was very much.

Kate Bueker: Consistent in terms of the themes as we've been talking about over the last couple of quarters here.

Kate Bueker: It's very starter focused we continue to see strong top of funnel demand.

Kate Bueker: Frankly, the value proposition of our starter product is just really compelling.

Kate Bueker: We constantly run experiments there was nothing different in Q4 that I would note versus sort of our normal course, we continue to experiment with pricing and packaging and we continue to experiment in ways to reduce friction in the motion of a free user becoming a star.

Kate Bueker: There is nothing different in Q4 that I would note versus our normal course. We continue to experiment with pricing and packaging, and we continue to experiment in ways to reduce friction in the motion of a free user becoming a starter. Thank you for your question. The next question is from the line of Tyler Radke with Citigroup. Your line is now open.

Kate Bueker: At our customer.

Thank you for your question.

Next question is from the line of Tyler Radke with Citigroup. Your line is now open.

Operator: Yes, thanks for taking the question. I wanted to hit on Clearbit, which sounded like there was a modest contribution in Q4, but you are expecting that to ramp up to a point of growth next year. Can you just talk about, now that you've had a few months since the announcement, kind of what your plans are from a roadmap perspective, how you're thinking about pricing, and then what kind of the range bound is on that one point, and what's a scenario that could potentially drive upside to that? Thank you.

Kate Bueker: Okay.

Tyler Maverick Radke: Yes, thanks for taking the question.

Tyler Maverick Radke: I wanted to hit on clear bit, which it sounded like there was a modest contribution in Q4, but you are expecting that to ramp up to a point of growth next year can you just talk about now that you've had a few months.

Tyler Maverick Radke: Post the announcement kind of what your plans are from a roadmap perspective, how you're thinking about pricing.

Tyler Maverick Radke: And then how are you how are you kind of rate.

Tyler Maverick Radke: What kind of range bound is on that one points in.

Tyler Maverick Radke: What's the scenario that could potentially drive upside to that thank you.

Yamini Rangan: Yeah, I can start with the first part on the strategy and the vision. First of all, we're very pleased with successfully closing in December. We welcomed all of the Clearbit employees into HubSpot's family early January, and everyone's kind of excited to build something special.

Speaker Change: Yeah, I can start with the first part on the strategy Division first of all we are very pleased with the successfully closing in December we welcomed all of the pure but employees into our spot family early January and everyone's kind of excited.

Speaker Change: Excited to build something special.

Yamini Rangan: We do think that, you know, Clearbit can accelerate our vision of the customer platform. And if you take a step back, you know, we want to be able to bring together end-rich data, powerful AI tools that can drive insights from the data, and easy-to-use engagement hubs so that our customers can connect and grow. This is really driving and accelerating our vision of providing a customer platform, and we continue to get really good, positive feedback from customers and partners. They can see this vision come to life. In terms of how we're thinking about Clearbit, there are a couple of different phases.

We do think that you know pure but it can accelerate our vision of the customer platform and if you take a step back we want to be able to bring together and risk data.

Speaker Change: <unk> AI tools that can drive insights from that data and are easy.

Speaker Change: Easy to use engagement hub, so that our customers can connect and growth.

Speaker Change: This is really.

Speaker Change: Driving and accelerating our vision for providing our customer platform and we continue to get really good positive feedback from customers and partners. They can see this vision come to life.

Speaker Change: In terms of how we're thinking about here, but a couple of different phases. Initially we will look to get clearer, but data into our customer base, our customers want more enriched data and intent data. They wanted you know that is completely unified within the hubs and the platform and.

Yamini Rangan: Initially, we will look to get Clearbit data into our customer base. Our customers want more end-rich data and intent data. They want it, you know, that is completely unified within the hubs and the platform. And Clearbit has already been in our marketplace. There's a clear integration. And so it's a natural starting point for cross-selling into our installed base. And that motion has started.

Speaker Change: Pyramid has already been within our marketplace, there's a pure integration and so it's a natural starting point for cross selling into our install base and that motion had started.

Speaker Change: The medium term as we do with any of the acquisition, we want a more natively integrate the data into hub spot products and so that we can really fire up all of the use cases in marketing sales and our entire customer platform and we're starting with that journey.

Yamini Rangan: Probably in the medium term, as we do with any of the acquisitions, we want to more natively integrate the data into HubSpot products so that we can really fire up all of the use cases and marketing sales, and our entire customer platform. And we're starting with that journey, and we'll also be able to thoughtfully leverage all of our distribution to be able to take that native product to market. And so it'll happen in a couple of phases, but we are really excited about what is done for our vision, as well as how the initial few weeks have gone. Thank you for your question. The next question is from the line of Brad Sills with Bank of America. Your line is now open. Oh, great. Thank you so much.

Speaker Change: And we will also be able to thoughtfully leverage all of our distribution to be able to take that need a product to market and so it will happen in a couple of phases that we are really excited about what the Dol for vision as well as how the initial few weeks have gone by.

Speaker Change: Thank you for your question.

Speaker Change: The next question is from the line of Brad Sills with Bank of America. Your line is now open.

Brad Sills: Oh, great. Thank you so much.

Operator: I wanted to ask a question on just the model here and growth drivers here between, you know, customer count and ASRPC. Obviously, we're at a point now where the growth is really outsized towards customer count. Could we see a more balanced dispersion between customer count and ASRPC over time? What would be the keys to get back to that?

Brad Sills: I wanted to ask a question on just the model here and as growth drivers here between.

Brad Sills: Customer count in ASR PC, obviously, we're at a point now where the growth is really outsized towards customer count.

Brad Sills: Could we see a more balanced dispersion between customer count and Asps PC RPC over time will be the key is to get back to that.

Brad Sills: Is this just simply, is it the macro phenomenon where you're seeing that strength and starter addition? And as we get into potentially a better macro, you just see more of a balanced, you know, growth there. And then just one follow-up.

Brad Sills: Is this just simply is it the macro phenomenon, where youre seeing that strength in starter edition and as we get into potentially a better macro you just see more of a balanced.

Brad Sills: Growth there and then just one follow up.

Kate Bueker: I think it'd be helpful to clarify if there was any material contribution to Q4 deferred from Clearbit. Thank you so much. Yeah, maybe I'll just start with the last one, because it's super straightforward.

Brad Sills: It would be helpful to clarify if there was any material contribution to Q4 deferred from clear, but thank you so much.

Speaker Change: Yeah, maybe I'll just start with the last one because it's a super straightforward.

Kate Bueker: There was a very small amount of impact on the deferred revenue from Clearbit. The way that it's measured and reported is just the change from December until year-end. So it was very small.

Speaker Change: There was a very little amount of impact to the deferred revenue from clear bet. The way that it's measured and reported is just the change from December until year end. So it was very small.

Kate Bueker: In terms of the net ads in ASRPC, I would just say, Brad, over the time that I've been here, we have consistently gone through waves where we see outsized growth in net customer additions, followed by periods where we see outsized growth in the expansion of existing customers. I think we're at a point here where there are a lot of things happening, particularly with the seat model change, that are going to fuel a short-term focus on growth in that net ad number. But if you think about the way that Yamini talked about the impact of that seat model over time, that will drive an expansion motion that can become a tailwind for ASRPC. Thank you for your question. The next question is from the line of Alex Zukin with Wolf Research. Your line is now open.

Speaker Change: In terms of the net adds in ESR P. C. I would just say broad over the time that I've been here.

Speaker Change: Have consistently gone through waves, where we see outsized growth on net customer additions followed by periods, where we see outsized growth and the expansion of existing customers I think we're at a point here, where there was a lot.

Speaker Change: Sort of things happening, particularly with the C model chains that are going to fuel.

Speaker Change: A short term.

Speaker Change: Focus on growth and that net add number but if you think about the way that you only talked about the impact of that seat model over time.

Speaker Change: That will drive an expansion motion that can become a tailwind to a S. R. P C.

Speaker Change: Thank you for your question next question is from the line of Alex Zukin with Wolfe Research. Your line is now open.

Operator: This is Ryan on behalf of Alex. I just had a quick question on the potential uplift from the monetization opportunity of core seats from the CRM module, or just kind of put another way for a typical customer. Now that you're monetizing that, and you weren't before, you know, what's the kind of uplift to a typical contract from that specifically? Thanks.

Speaker Change: This is Ryan on for Alex just had a quick question on the potential uplift from the monetization opportunity of core seats from the CRM module or just kind of put another way for a typical customer now that you're monetizing that and you weren't before.

Ryan Burkart: Whats the kind of uplift to a typical contract from from that specifically.

Kate Bueker: Yeah, I think it's important to understand that this impact will happen for new customers only through largely 2024 and that after the migration, when we start to see renewals, you will see some similar growth trends out of the installed base. You know, the addition of the core seed, as you heard from Yamini, is really our ability or opportunity to monetize the CRM. And in our model, every active user on the platform will need to have a paid seat. The data points that we have are really from the pilot.

Speaker Change: Yeah, I think it's important to understand that this impact will happen for new customers only through largely 2024.

After the migration and we start to see renewals you will see some similar.

Speaker Change: Similar growth trends out of the installed base.

Speaker Change: The addition of the course need as you heard from harmony is really our ability or opportunity to monetize the CRM.

Speaker Change: And in our model every active user on the platform will lead top of paid seats.

Speaker Change: The data points that we havent really from the pilot and what we saw in the pilot. It was very strong assignment of core seats across the set of customers on the new model.

Kate Bueker: And what we saw in the pilot was a very strong allocation of core seats across the set of customers on the new model, which indicates to us that there is real value here. And you know, we should see, you know, a meaningful uplift in the percentage of users who will be on a paid service. Thank you for your question. The next question is from the line of Brian Peterson with Raymond James. Your line is now open. Hi, and awesome.

Speaker Change: Indicates to us that there is real value here and we should see it.

Speaker Change: Meaningful uplift in the percentage of users who will be on a P. C.

Speaker Change: Thank you for your question.

Speaker Change: Next question is from the line of Brian Peterson with Raymond James Your line is now open.

Speaker Change: Yeah.

Operator: My congratulations on the strong results. We've heard from some of your partners that Service Hub was stronger this quarter. I know you mentioned that the multi-product deals and Sales Hub are increasingly being a front door. But is Service Hub maybe another potential front door that you guys can walk through? And has that created any more prospects for TAM on the B2C side? Would love to get your thoughts there. Thanks, guys. Yeah, that's a great question.

And also my congrats on the strong results we've heard from some of your partners that service hub was stronger this quarter I know you mentioned, the multi product deals and sales have increasingly being a corridor, but if servicer, maybe another potential front door that you guys can walk through and has that created any more prospects with Pam on the BDC side would love to get your thoughts there. Thanks guys.

Speaker Change: Yeah. That's a great question, we are definitely pleased with the momentum in service hub, both from a product perspective, as well as customer adoption perspective.

Yamini Rangan: We are definitely pleased with the momentum in Service Hub, both from a product perspective and from a customer adoption perspective. As you know, last year was a pretty big year for Service Hub Pro. We did a ton of work to make the Pro gear very, very powerful, and we also added some differentiating features on the enterprise tiers.

Speaker Change: If you don't know if there was a pretty big Europe. Our service hub. So we did a ton of work to make the pro to your very very powerful and we also added some differentiating features on the enterprise tiers and based on the work that the team did we saw a lot more adoption up market when we talk about.

Yamini Rangan: Based on the work that the team did, we saw a lot more adoption upmarket. When we talk about multi-hub wins, there are more customers now starting with two, three hubs. And when we see that, the power of having all of your customer information in one platform, and therefore including Service Hub there, has become a common thing. So we're very, very happy about that. But I think we're not done yet.

Speaker Change: Multi hop when there are more customers now starting with two three hubs and when we see that we the power of having all of your customer information in one platform and therefore, including service up there has become patterns. So we're very very happy about that I think we're not done yet I think.

Yamini Rangan: I think there's just a tremendous amount of work that we're going to be doing in the Service Hub area this year to make it even more competitive. AI is a pretty big lever in terms of Service Hub, the kinds of use cases that we're seeing, the traction of use cases that we're seeing. I talked about summarizing conversations, highlighting commands for content generation, and editing answers.

Speaker Change: Just a tremendous amount of work that we're gonna be doing into service hub area. This year to make it even more competitive.

Speaker Change: AI is a pretty big lever interim self service off the kinds of use cases that we're seeing the traction of use cases that you're seeing I talked about summarizing conversations highlighting for basketball content generation and editing answers all of that is driving a lot more effectiveness you know within our.

Yamini Rangan: All of that is driving a lot more effectiveness within our Service Hub customers and also driving engagement, so we're very excited about the trajectory. Now, stepping back, we have a playbook with Sales Hub, and you can see it's working. When we focus the product organization, when we align the go-to-market team, we know how to get that to the front door. I think we can apply the same kind of playbook for Service Hub. It will go into the same trajectory as Sales Hub as we continue to innovate for our customers. Thank you for your question. The next question is from the line of Terry Tillman with Truist. Your line is now open. Great, thanks so much for taking the question. This is Bobby Deon for Terry.

Speaker Change: Our service customers and also driving engagement. So we're very excited about the trajectory now.

Speaker Change: In fact, we.

Speaker Change: We have a playbook with sales hub and you can see it working when we focus the product organization, but we aligned our go to market teams, we know how to get back to a front door. I think we can apply the same kind of playbook for service off it will get into the same trajectory.

Speaker Change: Sales, how best to continue to innovate for our customers.

Speaker Change: Thank you for your question. Our next question is from the line of Terry Tillman with Truth. Your line is now open.

Terry Tillman: Great. Thanks, so much for taking the question. This is <unk> on for Jerry I'm curious to get an update on the health and strength of partner channels are you seeing more partners adept at doing platform selling versus single have specializations. Thanks congratulations.

Operator: Here's to get an update on the health and strength of partner channels. Are you seeing more partners adept at doing platform selling versus single hub specializations? Thanks and congratulations. Yeah, thank you so much.

Terry Tillman: Yeah. Thank you so much.

Terry Tillman: The partner momentum continues to grow I just spent a bunch of time with partners. This week and we're all doing the kickoffs ready for 2024, and there continues to be good momentum and excitement within the partner channel as you know our partners contribute to about 40%.

Yamini Rangan: The partner momentum continues to grow. I just spent a bunch of time with partners this week, and we're all doing the kickoffs ready for 2024. And there continues to be good momentum and excitement within the partner channel. As you know, partners contribute to about 40% of our ARR, and that has continued to grow as we have scaled. Maybe to step back, we have a very, very clear strategy with partners. We've gone to our partners, and we said, we want to scale selling, co-selling, and servicing with you, and we want you to become experts on the entire customer platform. And this journey is something that has been in the making for the past three years, and partners have enrolled in the journey. More partners are now well-versed in overall CRM, the entire customer platform. They know the value proposition of multiple hubs.

Terry Tillman: Our IRR in that discontinued due.

Terry Tillman: So as we have scaled maybe.

Maybe just step back we have a very very clear strategy with partners.

Terry Tillman: Onto our partners can be said, we wanna skill selling co selling and servicing with you and we want you to become experts of the entire customer platform and this journey, it's something that has been in the making for the past three years and partners have enrolled in the journey more partners are now.

Terry Tillman: Well versed in you know overall CRM the entire customer platform. They know the value proposition multiple hubs, they're able to get our customers started with greater onboarding better engagement and then continuing to drive multiple hub adoption and so I think youre seeing Parker.

Yamini Rangan: They're able to get, you know, our customers started with greater onboarding, better engagement, and then continue to drive multiple hub adoption. And so I think you're seeing partners gain even more traction with us in the marketplace, and you're seeing partners drive multi-hub momentum as well as larger deals up market. And so it's become a really nice growth lever to continue to grow the ecosystem for us. Thank you for your question. Next question is from the line of Arjun Bhatia with William Blair. Your line is now open.

Terry Tillman: <unk> gained even more traction with us upmarket and Youre seeing partners drive Monte called momentum as well as like larger deals off market and so it's become a really nice growth lever to continue to grow the ecosystem broth.

Speaker Change: Thank you for your question next.

The next question is from the line of Arjun Bhatia with William Blair. Your line is now open.

Operator: Perfect. Thank you. And I'll add my congratulations on the pricing changes. I'm curious if when you think about the new customers, since that's going to go into effect first, does it actually change the incentive structures for new customers to buy the suite more? Or do you anticipate there could be more single product adoption from new customers at the landing point going forward and then eventually growing into multi-hub customers? Over time. Yeah, maybe the way I would think about it is that in the lower end of the market, and when customers are thinking about starters, it absolutely removes all friction. We've always had, you know, a great momentum in starters.

Speaker Change: Perfect.

Arjun Bhatia: Thank you and I'll add my congrats maybe Stu.

Arjun Bhatia: On the pricing changes I'm curious when you think about the new customers and so that's going to go into effect first because it actually changed the incentive structure is one of your customers to buy.

Arjun Bhatia: The suites more or do you anticipate there could be more single product.

Arjun Bhatia: Adoption from from new customers with the landing point going going forward of mine eventually growing.

Arjun Bhatia: Our multi hub customers overtime.

Arjun Bhatia: Yeah.

Arjun Bhatia: Maybe the way I would think about it is that in the lower end of the market and when customers are thinking about starter.

Arjun Bhatia: Absolutely removed all friction we've always had a great momentum.

Arjun Bhatia: <unk> and starter now that if you remove the seed minimums encourages you know.

Yamini Rangan: Now that we've removed the seat minimums, it encourages, you know, starter customers to start with the suite. And, you know, I'd say that the value proposition is exceptionally compelling. There is almost nothing out there with the value that we provide for the price per seat, and it has become such a compelling starting point, and it is all suite at the lower end and the lower tier.

Arjun Bhatia: <unk> customers to start with the suite and I'd say that the value proposition is exceptionally compelling there is almost nothing out there with the value that we provide for you know the price per seat and it has become such a compounding starting point and it is all suites at the lower end and the lower tier now.

Yamini Rangan: Now, upmarket, I don't think necessarily this pricing change is going to make everybody think about suite, and that's really not the point. What we want people to do is to start with a couple of hubs and then continue to drive adoption and then continue to get value over a period of time. What it does is it removes that friction point for the upgrade.

Arjun Bhatia: Market I don't think necessarily this pricing change is going to make everybody think about Sweden, that's really not the motion what they want people to do is to start with a couple of hubs and then continue to drive adoption and then continue to get value over a period of time, what it does is it removes the friction points.

Yamini Rangan: So, when we get a lot more customers at the starter tier, when we remove the friction, then more folks are going to, you know, go into the pro tier and the enterprise tier. And over a period of time, this sets up the foundation for, you know, accelerating customer acquisition and then continuing to show the value for those customers so that they continue to go upmarket with us. And so that's probably the way to think.

Arjun Bhatia: The upgrade so when we get a lot more customers with the startup and we removed the friction that more folks are going to go into the pro tier and the enterprise tier and over a period of time.

Arjun Bhatia: That's off the foundation for.

Arjun Bhatia: Accelerating customer acquisition, and then continuing to show the value for those customers. So that they continue to go upmarket with often so that's probably the way to think about it.

Operator: Thank you for your question. The next question is from the line of David Hynes with Canaccord Genuity. Your line is now open.

Speaker Change: Thank you for your question.

The next question is from the line of David Hynes with Canaccord Genuity. Your line is now open.

David E. Hynes: Hey, thanks guys. Yamini, can we just go back to the large deal activity? I think you characterized it as urgency, which is a term we haven't heard much of in software lately. Can you talk about, does it feel like there's a thawing maybe at the high end of your customer base with just the year-end phenomenon, you know, has there been any durability in those trends, any color on what you're seeing in the large deal front? Yeah, I know urgency is definitely not something that we've And so we definitely saw that towards the end of the quarter, especially with larger deals and multi-cup wins. In the upmarket, we saw customers wanting to consolidate into fewer effective platforms, both to reduce the total cost of ownership, as well as to get better visibility across sales and marketing as they set up for the new year. So a lot of the conversations that we had towards the end of the quarter were, how do we consolidate? How do we get better visibility so we can set up growth in 2024? I do think that our fast time to value, easy to adopt, but very powerful tools are just compelling.

David E. Hynes: Hey, Thanks, guys can we just go back to the large deal activity I think you characterize it as urgency, which the term we haven't heard much out and software lately.

David E. Hynes: Can you just talk about a few.

David E. Hynes: Like yours, that's fine maybe at the high end of your customer base would be just a year end phenomenon has there been any durability in those trends I mean any color what you're seeing in the large deal front would be interesting.

Yeah, I mean, I know urgency is definitely not something that we've learned in the past few quarters and so we definitely saw towards the end of the quarter.

David E. Hynes: Especially with larger deals and multi public win in.

David E. Hynes: In off market, we saw customers.

David E. Hynes: Wanting to consolidate into fewer effective platform or to reduce the total cost of ownership as well as to get better visibility across sales and marketing as they set up for the new year. So a lot of the conversations that we had towards the end of the quarter, where you know how do you consolidate how do we get better visibility. So we can set up a growth.

David E. Hynes: In 2024.

David E. Hynes: I do think that our fast time to value easy to.

David E. Hynes: To adopt but very powerful tools is just compelling and we saw that.

Yamini Rangan: And we saw that, you know, towards the end of the year. But, I think, like I said earlier in the prepared remarks, it doesn't mean that the whole environment has shifted. We're really not ready to call it all clear in terms of the patterns, but the value proposition of the market is certainly resonating, and that translated into large deals. Operator, I think we have time for maybe one more question. Final questions from the line of Michael Perron with Wells Fargo. Your line is now open. Hey, great. Thanks. I appreciate you squeezing me in. Nice job with the close of the year.

David E. Hynes: What's the end of the year.

David E. Hynes: I I think like I said earlier in the prepared remarks, it doesn't mean that the whole environment has shifted were really not ready to call. It you know all clear in terms of the Pac arm, but the value proposition upmarket. It's certainly resonating in that translated can do large deals right.

Speaker Change: Operator, I think we have time for maybe one more question.

Speaker Change: Final question is from the line of Michael <unk> with Wells Fargo. Your line is now open.

Michael: Hey, great. Thanks, I appreciate you squeezing me in nice job with the close of the year was hoping you could maybe compare and contrast, what you saw across customer segments exiting the year its pretty clear from the comments throughout the starter motion.

Operator: I was hoping you could maybe compare and contrast what you saw across customer segments exiting the year. It's pretty clear from the comments throughout that the starter motion has come through strong, but I was hoping we could maybe revisit the macro commentary you made across segments. And then in terms of guidance, what you're assuming sounded like macro does not improve in the current scenario, but just going back to that as a closing point, I think is helpful. Thank you.

Michael: Come through strong, but I was hoping we could maybe revisit the macro commentary you made it across segments and then in terms of guidance, what you're assuming sounded.

Michael: Sounded like macro does not improve in the current scenario, but just going back to that as a closing point I think it's helpful. Thank you.

Kate Bueker: Yeah, I mean, you definitely heard Yamini and me talk in our prepared remarks that we saw some early positive signs in Q4, but at the highest level, we're assuming that the macro conditions will remain challenging into 2020. Like, in general, our customers are still cautious, and we assume that our customers are going to continue to optimize their spend throughout 2020. That said, I do feel like we have seen some stabilization in customer trends. I believe we have a tighter handle on the overall environment and customer behavior entering 2024. So our overarching philosophy for guidance hasn't changed. We always endeavor to set financial guidance that we feel we have high confidence in.

Speaker Change: Yeah, I mean, you definitely her both Yamana and I talk in our prepared remarks that we saw some early positive signs in Q4, but at the highest level, we're assuming that the macro conditions remain challenging into 2024 like in general our customers are still cautious.

Speaker Change: And we assume that our customers are going to continue to optimize our spend throughout 2024.

Speaker Change: That's what I do feel like we have seen some stabilization in customer trends I believe we have a tighter handle on the overall environment and customer behavior entering 2024, so our overarching philosophy as per guidance hasn't changed.

Speaker Change: Always endeavor to start our financial guidance that we feel we have high confidence in achieving.

Kate Bueker: Thank you for your question. There are no additional questions waiting at this time, so I'll pass the conference back to Yamini Rangan, CEO, for any closing remarks. Well, thank you so much for your support, and we look forward to connecting back again in a quarter. That concludes the conference call. Thank you for your participation. You may now disconnect your lines.

Okay.

Speaker Change: Thank you for your question there are no additional questions waiting at this time, so I'll pass the conference back to your home and you rang and CEO for any closing remarks.

Speaker Change: Well. Thank you so much for your support and we look forward to connecting back again in the quarter.

Speaker Change: That concludes the conference call. Thank you for your participation you may now disconnect your lines.

Speaker Change: And back again in the quarter.