Q1 2024 HubSpot Inc Earnings Call

Ryan Burkart: Before we start, I'd like to draw your attention to the safe harbor statement included in today's press release. During this call, we will 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 ability to realize the anticipated benefits of the clear bid acquisition, Respected Growth, FX Movement, and Business Outlook, including our financial guidance for the second fiscal quarter and full year 2024.

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

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 $19 33, as amended and section 20 <unk> of the Securities Exchange Act of 1034 as amended.

Ryan Burkart: 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 ability to realize the anticipated benefits of the <unk> acquisition expected growth FX movement and business outlook, including our financial guidance.

For the second fiscal quarter and full year 2024.

Ryan Burkart: Forward-looking statements reflect our views only as of today, and, except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and our Forum 10 Q, which we expect to file with the SEC on Friday, May 10th, 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 will refer to certain non-GAAP financial measures as defined by Regulation G. The GAAP financial measures 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 first quarter and fiscal year 2024 earnings press release in the investor relations section of our website.

Forward looking statements reflect our views only as of today and except as required by law, we undertake no obligation to update or revise these forward looking statements.

Please refer to the cautionary language in today's press release, and our Form 10-Q, which we expect to file with the SEC on Friday May 10 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 will refer to certain non-GAAP financial measures as defined by regulation G.

The GAAP financial measures most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between such measures can be found within our first quarter and fiscal year 2024 earnings press release, and the Investor Relations section of our website.

Ryan Burkart: Now it's my pleasure to turn the call over to HubSpot's Chief Executive Officer, Yamini Rangan. Yamini? Thank you.

Speaker Change: Now, it's my pleasure to turn the call over to <unk>, Chief Executive Officer, Yamani Rondon Yamani.

Yamini Rangan: Thank you, Ryan, and welcome to everyone joining us on the call. I'll begin by sharing our Q1 2024 results, update you on what we are seeing from a demand perspective, and wrap up by highlighting our recent product launches from the spring spotlight and our ongoing efforts to accelerate innovation for our customers. Kicking off the year with solid revenue growth of 23% year-over-year in constant currency, we delivered another good quarter of operating margin growth with 120 basis points of margin expansion year over year, driving our operating margin to 15%. Total customers grew by 22% year over year to over 215,000 customers globally, driven by over 11,700 net customer additions in the quarter.

Yamini Rangan: Thank you, Brian and welcome to everyone joining us on the call I'll begin by sharing our Q1 2024 results update you on what we are seeing from a demand perspective, and wrap up by highlighting our recent product launches from the spring spotlight.

Yamini Rangan: Ongoing efforts to accelerate innovation for our customers.

Yamini Rangan: We kicked off the year with solid revenue growth of 23% year over year in constant currency.

We delivered another good quarter of operating margin growth with 120 basis points of margin expansion year over year, driving our operating margin to 15%.

Yamini Rangan: Total customers grew by 22% year over year to over 215000 customers globally, driven by over 11700 net customer additions in the quarter.

Yamini Rangan: I am thrilled to see more customers consolidating on HubSpot as their preferred customer platform for growth. Our Q1 results highlight consistency in why we win. Customers across all segments are consolidating on HubSpot because it is easy to use, easy to scale, and delivers fast-timed value. In the lower end of our segment, we saw continued strength in net customer addition, driven by free users upgrading to starter and pricing optimization plays, including our seat model change, driving starter and pro customer growth.

Yamini Rangan: I am thrilled to see more customers consolidating on hotspot as a preferred customer platform for growth.

Yamini Rangan: Our Q1 results highlight consistency in why we win customers across all segments are consolidating on hotspot because it is easy to use easy to scale and Denver's fast time to value.

Yamini Rangan: In the lower end of our segment. We saw continued strength in net customer additions driven by free users upgrading to starter and pricing optimization plays including our seats model change driving starter and pro customer growth.

Yamini Rangan: In the upmarket, the big themes of the quarter were continued strength in sales hub and multi-hub as customers consolidate on HubSpot as their platform of choice. Sales Hub is emerging as a clear winner driven by the innovative features we launched at InBounce. Our customers are adopting the new prospecting workspace and advanced sequences as a way to drive better alignment between marketing and sales. In addition, we've opened up our Smart CRM to support UI customization, deliver broader governance and permission capability, and deeper integration, like the SYNC with LinkedIn Sales Navigator, which is driving upmarket momentum. Our land and expense strategy is working, and we have three main front doors for customers.

In upmarket the big themes of the quarter were continued strength in sales hub and multi hub as customers consolidate on hotspot as their platform of choice.

Yamini Rangan: Sales hub is emerging as a clear winner driven by the innovative features we launched at inbound or.

Yamini Rangan: Our customers are adopting the new prospecting workspace and advanced sequences as a way to drive better alignment between marketing and sales.

In addition, we have opened up our smart CRM to support UI customization, Delaware broader governance and permission capability and deeper integrations like the sync with Linkedin sales navigator, which is driving upmarket momentum.

Yamini Rangan: Our land and expand strategy is working and we have three main front doors of our customers.

Yamini Rangan: Marketing Hub, our original hub, where we continue to innovate. Sales Hub, where we see huge momentum. And MultiHub, as customers consolidate on HubSpot.

Speaker Change: Marketing hub, our original hub, where we continue to innovate sales hub, where we see huge momentum and multi hub as customers consolidate on hotspot.

Yamini Rangan: Over 35% of ProPlus customers are now on three or more hubs, and we have more room for growth as we drive innovation. We're thrilled to see the continued momentum in Sales Hub and Multihub, and it's a clear validation that our strategy of going from app to suite to customer platform is working. Switching gears to macro, after a strong finish in Q4, we saw a return to weaker demand conditions in the first quarter, similar to what we experienced in 2020. The buyer urgency that we saw in December did not carry over into Q1.

Speaker Change: Over 35% of problems customers are now on three or more hub and we have more room for growth as we drive innovation.

Speaker Change: We're thrilled to see the continued momentum in sales hub and multi hub and it is a clear validation that our strategy of going from App to suite to customer platform is working.

Speaker Change: Switching gears to macro after a strong finish in Q4, we saw a return to weaker demand conditions in the first quarter similar to what we experienced in 2023.

Speaker Change: The buyer urgency that we saw in December did not carry over into Q1. Instead, we saw a return to higher scrutiny of budgets more decision makers getting involved and a need for more demos and proof of concept before signing off on purchase decisions.

Yamini Rangan: Instead, we saw a return to higher scrutiny of budgets, more decision makers getting involved, and a need for more demos and proof of concepts before signing off on purchase decisions. At the top of the funnel, we saw lead flow shift away from higher quality inbound and partner source leads to lower quality web source leads. This shift plus the lower buyer urgency slowed down deal progression and, in some cases, pushed deals out of Q1 and into Q2.

Yamini Rangan: At the top of the funnel, we saw lead flow shift away from higher quality inbound and partner sourced lead to lower quality rep source needs.

Yamini Rangan: This shift plus the lower buyer urgency slowed down deal progression and in some cases pushed deals out of Q1 and into Q2.

Yamini Rangan: While deal close and upgrade rates remain under pressure, we continue to see strong customer dollar retention in the high 80s, which underscores the value that our unified customer platform delivers for our customers. Now for an update on seats.

Speaker Change: While deal close and upgrade rate remained under pressure, we continue to see strong customer dollar retention in the high eighties, which underscores the value that our unified customer platform delivers for our customers.

Yamini Rangan: Now for an update on seats.

Yamini Rangan: In early March, we introduced a pricing change based on seats to lower the price point to get started with HubSpot and remove the pricing friction for customers to upgrade from starter to professional edition. While we continue to be very excited about the model change for our customers and HubSpot, the timing and speed of the change caused a negative impact on our business in March that will likely persist for a couple of months.

Speaker Change: In early March we introduced a pricing change based on seats to lower the price point to get started with hotspot and remove the pricing friction for our customers to upgrade some started to professional edition.

Speaker Change: While we continue to be very excited about the model change for our customers and hotspot the timing and speed of the change caused a negative impact on our business in March that will likely persist for a couple of months.

Yamini Rangan: As a reminder, we expected this change to lead to lower initial ASPs, higher volumes of customers, and higher rates of upgrades over time. In March, we saw faster adoption of the SEEDS model by customers, which led to a more immediate impact of lower ASPs, but a slower pickup in the volume of new customers. We're seeing more positive trends in April, but it's going to take a few months for the higher volume of additions to offset the initial lower price.

Speaker Change: As a reminder, we expected this change to lead to lower initial ASB higher volume of customers and higher rates of upgrades over time.

Speaker Change: In March we saw faster adoption of the seats model by customers, which led to a more immediate impact of lower asps, but a slower pickup in the volume of new customers.

Speaker Change: We're seeing more positive trends in April, but it's going to take a few months for the higher volume of additions to offset the initial lower price.

Yamini Rangan: Having said that, I want to be clear that we have high conviction that the seed pricing change is the right decision for our customers as it will allow them to get started and scale more easily with HubSpot. And it is the right decision for HubSpot as it will allow us to bring many more customers onto our platform, grow our net revenue retention rates as customers add more seats over time, and align pricing with the value we are creating from our AI-powered smart CRM.

Yamini Rangan: Having said that I wanted to clear that we have high conviction that seats pricing change is the right decision for our customers as it will allow them to get started and scale more easily with hub spot.

Speaker Change: And it is the right decision for hub spot as it will allow us to bring many more customers onto our platform grow our net revenue retention rate as customers add more seats overtime and align pricing with the value we are creating from our AI powered smart CRM.

Yamini Rangan: Okay, let's talk about product innovation, which has been a consistent theme over the past few years and gives me high confidence in our ability to drive durable growth. The pace of innovation has accelerated in our industry with AI, and we are setting the pace for scaling companies. Innovation is happening in days and weeks, not months or years. Sales and service teams are going through a major technological shift. But keeping up with that innovation can be a full-time job in and of itself. So to make it easy for our customers to stay ahead, we've decided to have not one but two big launches each year. Inbound and Spring Spotlight.

Speaker Change: Okay, let's talk about product innovation, which has been a consistent theme over the past few years and gives me high confidence in our ability to drive durable growth.

Speaker Change: The pace of innovation has accelerated in our industry with AI and they're setting that pay for scaling company.

Speaker Change: Innovation is happening in days and weeks not months or years.

Speaker Change: Marketing sales and service teams are going through a major technology shift, but keeping up with that innovation can be a full time job in and of itself. So to make it easy for our customers to stay ahead, we've decided to have not one but two big launches each year inbound and spring spotlight.

Yamini Rangan: You all have seen InBound, and our customers love the innovation that comes out each year. In April, we launched our first Spring Spotlight that featured over 100 new product releases with over 70 AI features. And we saw over 200 million earned media impressions and nearly double the engagement rate on social channels compared to Inbound 2023. Super exciting.

Speaker Change: You all have seen inbound and our customers love the innovation that comes out each year in April we launched our first spring spotlight that featured over 100, new product releases with over 70 AI features.

Speaker Change: And we saw over 200 million earned media impressions and nearly double the engagement rate on social channels compared to inbound 2023 Super exciting.

Yamini Rangan: I want to highlight three big areas of innovation from our Spring Spotlight for you: Content Hub, Service Hub, and HubSpot AI. HubSpot gave marketers a better way to grow with inbound marketing, and we are now doing it again by reinventing content marketing. We're taking CMS Hub, which used to be about the website and digital presence, and transforming it into Content Hub, powered by AI, to create and manage content across the entire customer journey.

Speaker Change: I want to highlight three big areas of innovation from our spring spotlight for Ya content hub service hub and hub spot AI.

Speaker Change: Hotspot gave market here is a better way to grow with inbound marketing and we are now doing it again by reinventing content marketing, we're taking CNS hub, which used to be about website and digital presence and transforming it into content hub powered by AI to create and manage content across the entire.

Yamini Rangan: <unk> journey.

Yamini Rangan: As part of Content Hub, we launched AI content creation to make it easy to create multilingual content, Content Remix to make it easy to create a full pipeline of content based on a single asset, and Brand Voice to make it easy to generate content that has a consistent brand voice. Our goal is simple.

Speaker Change: As part of content hub, we launched AI content creation to make it easy to create multi lingual content content remix to make it easy to create full pipeline of content based on a single asset and brand voice to make it easy to generate content that has consistent brand wise our goal is.

Speaker Change: Simple, we want AI to power every content use case and light the way into the future of content marketing.

Yamini Rangan: We want AI to power every content use case and light the way into the future of content marketing. Let's talk about Service Hub. I'm really excited about the innovation here. We believe that delighting current customers is even more important than acquiring new customers.

Speaker Change: Well, let's talk about service hub I'm really excited about the innovation here, we believe that the lighting current customers is even more important than acquiring new customers. So we're re launching service hub to bring customer support and customer success teams together to.

Yamini Rangan: So we're relaunching Service Hub to bring customer support and customer success teams together. To help scale customer support, Service Hub now includes advanced SLAs, more robust routing, and support management tools. To help customer success teams drive retention, we launched a new customer success workspace that can help CSMs handle their tasks, track their pipelines, and see customer health scores with clear next steps.

Speaker Change: To help scale customer support service hub now includes advanced Sle's more robust routing and support management tools.

Speaker Change: To help customer success teams drive retention, we launched a new customer success workspace that can help CSM handle that task track their pipeline and see customer health scores with clear next steps.

Yamini Rangan: Service Hub now includes more than a dozen AI-powered tools, like GPT-powered chatbots, real-time recommendations, and call summaries to speed up resolution. We're embedding AI to make Service Hub even more valuable and deliver a unified customer platform. As one of our customers, Kaplan said, by bringing marketing, sales, and service teams together on HubSpot, we're removing the guesswork for our leaders and giving them the confidence that customers are getting what they need. As we set the pace of innovation with AI embedded across all hubs and our customer platform, we are keenly focused on driving adoption and use.

Speaker Change: Service hub now includes more than a dozen AI powered tools like GPT powered chatbot real time recommendations and call summaries to speed up resolution.

Speaker Change: We're embedding AI to make service hub, even more valuable and delivering a unified customer platform.

Yamini Rangan: As one of our customers Kaplan said by bringing marketing sales and service teams together on hub spot, where we're moving the guesswork for our leaders and giving them the confidence that customers are getting what they need.

Speaker Change: As we set the pace of innovation with AI embedded across all hubs and our customer platform. We are keenly focused on driving adoption and usage adoption has continued to increase with over 50% of enterprise portal using AI features along with over 25% of <unk>.

Yamini Rangan: Adoption has continued to increase, with over 50% of enterprise portals using AI features, along with over 25% of pro portals. Customers are leveraging AI for personalized content generation, call summarization, and are automating their go-to-market activities to drive productivity and growth. There is a lot more room to drive repeat usage, and we are laser focused on helping our customers grow with HubSpot AI. Overall, we're still in the early innings of transforming from a software suite to a customer platform.

Yamini Rangan: <unk>.

Yamini Rangan: Customers are leveraging AI for personalized content generation call to amortization and are automating their go to market motions to drive productivity and growth.

Yamini Rangan: There is a lot more room to drive repeat usage and we are laser focused on helping our customers grow with hub spot AI.

Speaker Change: Overall, we're still in the early innings of transforming from a suite to a customer platform, we're becoming the de facto standard for scaling companies and we are setting the pace of innovation with AI.

Yamini Rangan: We're becoming the de facto standard for scaling companies, and we're setting the pace of innovation with AI. This gives me confidence in our ability to drive long-term, durable growth. With that, I'll hand it over to our CFO, Kate Bueker, to take you through our financial and operating results.

Yamini Rangan: This gives me confidence in our ability to drive long term durable growth with that I'll hand, it over to our CFO Kate Bueker to take you through our financial and operating results.

Kathryn A. Bueker: Yamini, let's turn to our first quarter 2024 financial results. Q1 revenue grew 23% year-over-year in both constant currency and on an as-reported basis. Q1 subscription revenue grew 23% year-over-year, while services and other revenue increased 15% on an as-reported basis. Q1 domestic revenue grew 21% year over year. International revenue growth was 24% in constant currency and 25% as reported, now representing 47% of total revenue. We added over 11,700 net new customers in the quarter, including the one-time addition of nearly 800 customers from the acquisition of Clearbit. This brings our total customer count to over 215,000, growing 22% year-over-year, fueled by our continued strong starter customer acquisition.

Kathryn A. Bueker: Thanks Chamonix.

Kathryn A. Bueker: Let's turn to our first quarter 2024 financial results.

Kathryn A. Bueker: Q1 revenue grew 23% year over year in both constant currency and on an as reported basis.

Kathryn A. Bueker: Q1 subscription revenue grew 23% year over year, while services and other revenue increased 15% on an as reported basis.

Kathryn A. Bueker: Q1, domestic revenue grew 21% year over year.

Kathryn A. Bueker: National revenue growth was 24% in constant currency and 25% as reported now representing 47% of total revenue.

Kathryn A. Bueker: We added over 11700 net new customers in the quarter, including the one time addition of nearly 800 customers from the acquisition of clear but.

Kathryn A. Bueker: This brings our total customer count to over 215000 growing 22% year over year fueled by our continued strong start our customer additions.

Kathryn A. Bueker: Average subscription revenue per customer was $11,400, flat and constant currency, and up 1% year-over-year on an as-reported basis. We continue to see a positive impact on ASPs from multi-hub adoption of our professional and enterprise customers, offsetting the impact of large new cohorts of low ASP starter customers in recent periods. In addition, Clearbit added approximately a one point benefit to AFP in Q1.

Kathryn A. Bueker: Average subscription revenue per customer was $11400.

Kathryn A. Bueker: In constant currency and up 1% year over year on an as reported basis.

Speaker Change: We continue to see a positive impact on asps for multi hub adoption of our professional and enterprise customers.

Speaker Change: Offsetting the impact of large new cohorts of low ASP starter customers in recent periods.

Speaker Change: In addition, <unk> added approximately a one point benefit to AFP in Q1.

Kathryn A. Bueker: As I shared in February, we expect to maintain net customer additions around $10,000 per quarter throughout 2024, with ASRPC down low single digits in constant currency. Gross retention held in the high 80s in Q1, and net revenue retention was 101% or 102% if you remove the impact of Clearbit in the quarter. While we have seen a stabilization in downgrade rates over the last couple of quarters, customer upgrade rates were more challenged in Q1.

Speaker Change: As I shared in February we expect to maintain net customer additions around 10000 per quarter throughout 2024 with ASR P. C down low single digits in constant currency.

Kathryn A. Bueker: Gross retention held in the high Eighty's in Q1, and net revenue retention was 101% or 102% if you remove the impact of clear bit in the quarter.

Speaker Change: While we have seen a stabilization in downgrade rates over the last couple of quarters customer upgrade rates were more challenged in Q1, we.

Kathryn A. Bueker: We expect similar trends to continue in the near term, with net revenue retention holding around current levels throughout 2024. Calculated billings were $641 million in Q1, growing 22% year-over-year in constant currency and 20% as reported. The remainder of my comments will refer to non-GAAP measures.

Speaker Change: We expect similar trends to continue in the near term with net revenue retention holding around current levels throughout 2024.

Speaker Change: Calculated billings were $641 million in Q1, growing 22% year over year in constant currency and 20% as reported.

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

Kathryn A. Bueker: Q1 operating margin was 15% of a point compared to the year-ago period. We continue to see solid progress towards our intermediate operating margin targets across the business. Net income was $89 million in Q1, or $1.68 per fully diluted share. Free cash flow was $104 million in Q1, for 17% of revenue. Finally, our cash and marketable securities totaled $1.8 billion at the end of March. In connection with the quarter close, we discovered an error in our calculation of cost of goods sold related to how we calculate a credit in our hosting agreement with AWS. As a result, we overstated our subscription cost of goods sold by a total of $14 million since Q4 of 2021.

Speaker Change: Q1, operating margin was 15% up one point compared to the year ago period.

Speaker Change: We continued to see solid progress towards our intermediate operating margin targets across the business.

Speaker Change: Net income was $89 million in Q1 or $1 68 per fully diluted share.

Speaker Change: Free cash flow was $104 million in Q1 or 17% of revenue.

Speaker Change: Finally, our cash and marketable securities totaled $1 8 billion at the end of March.

Kathryn A. Bueker: Calculating this credit correctly resulted in a $2 million pickup in operating income in each of Q1 2024 and Q1 2023. As you update your model, you should assume a positive $6 million contribution to operating income for the remainder of the year, which is included in our guidance. This had no impact on revenue, ARR, operating cash flow, and free cash flow in the current or prior period. We have concluded it was not material to prior periods, and we will be correcting the relevant financial statements for comparative purposes in our upcoming 10-Q, which we expect to file on Friday, May 10. Before we dive into guidance, I wanted to touch quickly on the macro environment.

Speaker Change: In connection with the quarter closed we discovered an error in our calculation of cost of goods sold related to how we calculate our credit and our hosting agreement with AWS.

Kathryn A. Bueker: As a result, we overstated our subscription cost of goods sold by a total of $14 million since Q4 of 2021.

Speaker Change: Calculating this credit correctly resulted in a $2 million pick up to operating income in each of Q1, 2024 and Q1 2023.

Speaker Change: As you update your models you should assume a positive $6 million contribution to operating income for the remainder of the year, which is included in our guidance.

Speaker Change: This had no impact on revenue.

Kathryn A. Bueker: Our operating cash flow and free cash flow in the current or prior periods.

Speaker Change: We have concluded it was not material to prior periods.

Speaker Change: We'll be correcting the relevant financial statements for comparative purposes in our upcoming 10-Q, which we expect to file on Friday may 10.

Kathryn A. Bueker: As Yamini shared, we continue to operate in a challenging external environment, and the buyer urgency we saw in December did not carry over into Q1. Customer decision making is measured, and budgets remain tight. Our guidance assumes that these weak conditions persist through 2024. Now, let's review our guidance for the second quarter and full year of 2024.

Kathryn A. Bueker: Before we dive into guidance I wanted to touch quickly on the macro environment.

Speaker Change: As harmony shared we continue to operate in a challenging external environment and the buyer urgency. We saw in December did not carry over into Q1.

Speaker Change: Customer decision, making is measured and budgets remain tight.

Speaker Change: Our guidance assumes that these weak conditions persist through 2024.

Kathryn A. Bueker: Total as-reported revenue is expected to be in the range of $617 to $619 million, up 17% year-over-year at the midpoint. We expect foreign exchange to be a one-point headwind to as-reported revenue growth in the quarter. Non-GAAP operating profit is expected to be between 92 and 93 million dollars. Non-GAAP diluted net income per share is expected to be between $1.62 and $1.64 cents. This assumes 53.3 million fully diluted shares outstanding and for the full year of 2024.

Speaker Change: Now lets review our guidance for the second quarter and full year of 2024.

Speaker Change: For the second quarter.

Kathryn A. Bueker: Total as reported revenue is expected to be in the range of $617 million to $619 million up 17% year over year at the midpoint.

Speaker Change: We expect foreign exchange to be a one point headwind to as reported revenue growth in the quarter.

Speaker Change: non-GAAP operating profit is expected to be between 92 and $93 million.

Kathryn A. Bueker: non-GAAP diluted net income per share is expected to be between $1 62 and $1 64.

Speaker Change: This assumes $53 3 million fully diluted shares outstanding.

Speaker Change: And for the full year of 2024.

Kathryn A. Bueker: 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 midpoint and consistent with our prior guidance. We now expect foreign exchange to be roughly a one point headwind to as reported revenue growth for the full year. Non-GAAP Operating profit is now expected to be between $426 and $430 million; non-GAAP diluted net income per share is now expected to be between $7.30 and $7.38.

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 and consistent with our prior guidance.

Kathryn A. Bueker: We now expect foreign exchange to be roughly a one point headwind to as reported revenue growth for the full year.

Speaker Change: non-GAAP operating profit is now expected to be between 426 and $430 million.

Kathryn A. Bueker: non-GAAP diluted net income per share is now expected to be between $7 30.

Speaker Change: And $7 and 38 this assumes $53 5 million fully diluted shares outstanding.

Kathryn A. Bueker: This assumes 53.5 million fully diluted shares outstanding. As you adjust your models, please keep in mind the following. We still 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 Q4. And with that, I will hand things back over to Yamini for her closing remarks.

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

Speaker Change: We still 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 Q4.

Speaker Change: And with that I will hand things back over to you nominee for her closing remarks.

Yamini Rangan: Thank you so much, Kate. I want to close by sharing what keeps us grounded and excited about the future. We ground ourselves on not what is changing today but what will not change for our customers. Our customers will need easy-to-use solutions that can help them grow. Our customers will need us to drive innovation so that they can compete with bigger companies in the age of AI. This is exactly what we are focused on.

Nominee: Thank you so much case I want to close by sharing what keeps us grounded and excited about the future we ground ourselves on not what is changing today, but what will not change for our customers our customers will need easy to use solutions that can help them grow our customers will need us to drive innovation.

Nominee: Patients so that they can compete with bigger companies and the age of AI. This is exactly what we are focused on our customer platform is gaining momentum with more front doors like sales hub and multi hub and they remain focused on the massive opportunity to help millions of organizations grow.

Yamini Rangan: Our customer platform is gaining momentum with more front doors like Sales Hub and Multi-Hub, and we remain focused on a massive opportunity to help millions of organizations grow. Now, I want to thank our customers, partners, and investors for the continued support. And a huge thank you to all HubSpotters around the world for staying focused on solving problems for our customers every single day. With that, Operator, let's please open up the call for questions.

Speaker Change: Okay I want to thank our customers partners and investors for their continued support and a huge thank you to all hubs partners around the world for staying focused on solving for our customers every single day with that operator, let's please open up the call for questions.

Operator: Thank you. If you would like to ask a question, please dial star followed by one on your telephone keypad. Now, if you change your mind, please dial star followed by two to exit the queue. And when preparing to ask your question, please ensure that your phone is unmuted. Again, in the interest of time today, we respectfully ask that you limit yourselves to one question. And our first question is from the line of Samad Samana of Jeffreys. Please go ahead. Your line is open.

Speaker Change: Thank you if you would like to ask a question. Please dial star followed by one on your telephone keypad now.

Speaker Change: If you change your mind, please dial star followed by choose to exit the Q and when preparing to ask your question. Please ensure that youll phone is on mute locally.

Samad Saleem Samana: Again in the interest of time stayed we respectfully ask that you limit yourselves to one question.

Speaker Change: My first question is from the line of so much Mona of Jefferies. Please go ahead. Your line is open.

Samad Saleem Samana: Great, thank you. Thanks for my questions. Hi Yamini.

Yamini Rangan: It's great to see healthy growth for HubSpot. You know, a lot of other SMB software vendors have struggled, and HubSpot has been able to maintain that durable 20% plus growth. So it's good to see that. Can you help us understand how much of that is more traction with larger customers offsetting SMB weakness? And if that's the case, as we think through the rest of 2024, can market share gains in that 500 to 5000 employee segment of the market keep powering this durable growth?

Mona: Great. Thank you. Thanks for taking my questions Hi, Amit, it's great to see that healthy growth for upside you know a lot of other SMB software vendors have a struggle then hubs has been able to maintain that durable 20% plus growth. So it's good to see that can you help us understand how much of that is more traction with larger customers.

Speaker Change: <unk> offsetting F&B weakness and if thats the case as we think through the rest of 2024 and market share gains in that 500 to 5000 employee segment of the market keep powering this durable growth.

Yamini Rangan: Hey, Samad, thank you so much for that question. Look, I think we are still operating in a very cautious buying environment. And we continue to see that caution across all of the segments within our customer base. However, having said that, within the environment, customers are consolidating on fewer platforms. And we are the platform of choice for customers within this environment. That's why we have continuously leaned in on lower total cost of ownership, higher value, and faster time to value.

Amit: Oh, Hey, tomorrow. Thank you so much for that question.

Amit: Look I think we're still operating in a very cautious buying environment.

Yamini Rangan: And we continue to see the caution across all of the segments within our customer base, having said that.

Speaker Change: Within the environment customers are consolidating on fewer platforms and we are the platform of choice for customers within this environment. That's why we are continuously leaned in on lower total cost of ownership higher value faster time to value that's been our playbook to all.

Yamini Rangan: That's been our playbook throughout kind of this soft period from a macro perspective. Now, you asked kind of what we see in the 500 to 2K segment versus the lower environment. We're seeing kind of cautious strength in both, right?

Yamini Rangan: Kind of the soft period from a macro perspective now.

Yamini Rangan: You asked kind of what we see in the.

Speaker Change: The 500 to two K segment versus the lower environment, we're seeing kind of.

Yamini Rangan: Cautious our strengths in both right in the lower environment. We are removing friction we are lowering the price and we are increasing the value and if you look at the entire customer platform, but that'd be Delaware for a starter suite customer. It is an exceptionally compelling value proposition, which is why we.

Yamini Rangan: In the lower environment, we are removing friction, we are lowering the price, and we are increasing the value. And if you look at the entire customer platform that we deliver for a starter suite customer, it is an exceptionally compelling value proposition, which is why we continue to see net ads gain strength there. And more importantly, what we really look for is when people buy HubSpot, they stay with HubSpot, which we see in that high 80s customer dollar retention. In terms of the upper end of the segment, it is time to value.

Speaker Change: Continuing to see the net adds gained strength there and more importantly, what we really look for is when people buy hubs bought they stayed with top spot, which we see in that high eighty's customer dollar retention in terms of upper end of the segment. It is time to value the number of conversations that I have with upmarket customers wear.

Yamini Rangan: The number of conversations that I have had with upmarket customers where they care about getting up and running and getting their teams using a customer platform in a few weeks instead of waiting for eight months, ten months, which is what happens with other legacy platforms, that is the reason we win. And we are doubling down on product innovation, but also doubling down in delivering that fast time to value. So it continues to be a hard environment, but we think in terms of durable growth, we are doing all of the right things in terms of going from an app to suite to a platform.

Speaker Change: They care about getting up and running and getting their teams using our customer platform in a few weeks instead of waiting for eight months 10 months, which is what happens with other legacy platforms that is the reason we've been and we are doubling down in product innovation, but also doubling down in Delaware.

Speaker Change: The fast time to value. So it continues to be a hot environment, but we think it's you know in terms of durable growth. We are doing all of the right things in terms of going from an app suite to a platform. We're focused across all of the segments and we are continuously focused on innovation with AI.

Yamini Rangan: We're focused across all of the segments, and we are continuously focused on innovation with AI and embedding it into the platform. Thank you so much for the question. Our next question today is from the line of Mark Murphy of J.P. Morgan. Please go ahead. Your line is open. Oh, thank you.

Speaker Change: And embedding it into the platform. Thank you so much for the question.

Speaker Change: Yeah.

Mark Ronald Murphy: Our next question today is from the line of Mark Murphy of J.P. Morgan. Please go ahead. Your line is open.

Speaker Change: Our next question today is from the line of Mark Murphy of Jpmorgan. Please go ahead. Your line is open.

Mark Ronald Murphy: Alright, Thank you Sue.

Mark Ronald Murphy: If you have any sense of the underlying driver of the buyer urgency.

Mark Ronald Murphy: Urgency having picked up in December and then weakening during.

Mark Ronald Murphy: During Q1, it seems like a bit of a.

Mark Ronald Murphy: Quick oscillation, there and just in terms of the buyer behavior year to date.

Mark Ronald Murphy: How does it feel if you compare it to one year ago. When we were a little closer to the timeline changes for interest rates and inflation.

Yamini Rangan: Yeah, Mark, this is Yamini. Thank you for the question. Let me share some of what we saw and maybe provide some contrast across the different periods that you mentioned. We saw choppiness in the environment in Q1, and very specifically, we saw tight budgets, more decision makers, more meetings, more demos, and even, for the first time, more proof of concepts before customers got ready to make purchase decisions. And as I mentioned before, this was different than what we saw in December, even accounting for the seasonality differences between Q4 and Q1.

Mark Ronald Murphy: Yeah, Mark this is how many thank you for the question.

Speaker Change: Now, let me share kind of what we saw and maybe provide some contrast across the different periods that you mentioned.

Speaker Change: We saw choppiness in the environment in Q1, and very specifically, we saw tight budget more decision makers more meetings more demos and even for the first time more proof of concepts before customers got ready to make purchase decisions and as I mentioned before.

Yamini Rangan: December felt more like an anomaly, and it felt like in Q1, we are back to a very cautious buying environment. Now, it certainly could be what you mentioned, which is just caution in terms of interest rates in the environment. So, it felt more like what we saw throughout 2023, and December felt like an anomaly.

Mark Ronald Murphy: This was different than what we saw in December even accounting for the seasonality differences between Q4 and Q1 December felt more like an anomaly and it felt like in Q1, we are back to a very cautious buying environment now it certainly could be you know what you mentioned which is.

Mark Ronald Murphy: Caution in terms of interest rates and the environment.

Yamini Rangan: So, you know, look, we know that month to month, quarter to quarter, the environment might look different. That's why we have consistently leaned on the same playbook, which in our case is communicating business value, communicating the value of consolidating and lowering the TCO and driving a product roadmap, which is built in with innovation. So, we continue to deliver the needs of the customers across. Thank you, Mark, for your questions.

Speaker Change: So it felt more like what we saw throughout 'twenty.

Speaker Change: Greed and December felt like an anomaly.

Speaker Change: So you know look we know that month to month quarter to quarter. The environment might look different that's why we have consistently leaned on the same playbook, which is in our case. The playbook is communicating business value communicating the value of consolidating and lowering the tcl and driving.

Speaker Change: Our product roadmap, which is built in the innovation. So we continue to deliver the needs for our customers across these segments.

Speaker Change: Mark for your question.

Yamini Rangan: Our next question today is from the line of Aleks Zukin of Wolf Research. Please go ahead. Your line is open. Hey guys, thanks for taking the question. I guess I wanted to maybe dig in a little bit on parsing macro versus micro if you think about buying buying urgently.

Aleksandr J. Zukin: Our next question today is from the line of Aleks Zukin of Wolf Research. Please go ahead. Your line is open.

Speaker Change: Our next question today is from the line of Alex Zukin of Wolfe Research. Please go ahead. Your line is open.

Aleksandr J. Zukin: Hey, guys. Thanks for taking the question I guess I wanted to maybe digging a little bit on par.

Aleksandr J. Zukin: Parsing macro versus micro if you think about buying buying urgency.

Aleksandr J. Zukin: Sales cycles demos, POC and you separate that buy.

Aleksandr J. Zukin: SMB versus maybe upper market are you did you feel like the pricing change maybe elongated sales cycles at all and then just a clarifying question for Kate.

Aleksandr J. Zukin: Idea of clear bit contributions to revenue and.

Aleksandr J. Zukin: Billings in the quarter.

Yamini Rangan: Yeah, I'll take that first question, Aleks, in terms of parsing macro and pricing. So we talked about the seat change; we launched the seat change in March. And what we specifically saw was a faster adoption by customers of the seat pricing model. And compared to what we saw in A and Z, and compared to what we saw in our pilot, we saw faster adoption, and that actually led to a faster decline in ASP, and we're beginning to see the velocity kind of pick up to be able to offset that ASP decrease.

Speaker Change: Yeah I'll take the first question, Alex in terms of parsing macro and pricing.

Yamini Rangan: So we talked about the seats change we launched the seats change in March and what we specifically saw was a faster adoption by customers of the seats pricing model.

Yamini Rangan: And compared to what we saw in ANZ and compared to what we saw in our pilot these off faster adoption and that actually led to a faster decline in ESP and we're beginning to see the velocity kind of like pick up to be able to offset that ASP decrease and a dog.

Yamini Rangan: And that is, you know, slightly different from the macro changes that we saw from macro changes. You said it exactly right where the buying environment is, you know, cautious; the environment requires more meetings, more calls, and more conversations before we get to the decision. And so I think it's very, very hard to kind of parse these out, but they both had slightly different impacts within the quarter. Kate, for the second part of the question. Yeah, sure. Aleks, please clear a bit.

Speaker Change: As you know slightly different than the macro changes that we saw from a macro changes you said it exactly right where the buying environment is cautious the environment requires more meetings more calls and more conversations before we get to the decision and so I think it's very very hard.

Yamini Rangan: Policy thought, but they both had slightly different impacts within the quarter Kate for the second part of the question Yeah sure Alex cleared it drove about a point and a half two revenue growth and billings growth in the first quarter and we still expect to clear, but it will provide about a point of growth for the full year.

Kathryn A. Bueker: Yeah, sure. Aleks, Clearbit drove about a point and a half of revenue growth and billings growth in the first quarter, and we still expect that Clearbit will provide about a point of growth for the full year.

Gabriela Borges: Our next question today is from the line of Carolyn Valenti of Goldman Sachs. Please go ahead. Your line is open.

Unknown Executive: Our next question today is from the line of Carolyn Valenti of Goldman Sachs. Please go ahead. Your line is open. Hey Kathleen, it's Gabriela. I wanted to ask you...

Speaker Change: Our next question today is from the line of Caroline Balinsky of Goldman Sachs. Please go ahead. Your line is open.

Caroline Balinsky: Hey, I've seen it kept morale I.

Unknown Executive: I wanted to ask you on how to think about for four years items are more impactful MACRA huh.

Caroline Balinsky: Revenue was the same it sounds like the macro environment, a little bit more through the quarter.

Speaker Change: Our company [laughter] dynamics are positive.

Speaker Change: No.

Speaker Change: Or had you always have a.

Speaker Change: A little bit of a macro degradation as you think about the full year. Thank you.

Kathryn A. Bueker: Yeah, Gabriela, thanks for the question. We are holding our full year guidance, and there are a few things that are leading us to do that. The first one that you heard from both Yamini and me in the script, as well as in some of Yamini's early comments about this fall: customers are still cautious about their set, right? There's also about $10 million of incremental FX headwind from the strengthening of the US dollar during this period over when we set guidance last time. And then the combination of the feed pricing model timing and the Q1 macro pressure is causing another $10 million or so of headwinds in the quarter-over-quarter expectation.

Speaker Change: Yeah. Thanks for the question.

Kathryn A. Bueker: We are holding our full year guidance and there are a few things that are.

Speaker Change: Leaving us to do that the first time that you heard from both Germany and in the script as well.

Kathryn A. Bueker: Well as some of you on these early comments on this call them customers are still cautious about their search right deal cycles are longer budgets are tighter and our foundational assumption in guidance at this stage.

Speaker Change: Teva will continue throughout 2024.

Kathryn A. Bueker: There's also about $10 million of incremental FX headwind from the strengthening of the U S. Dollar from this period over when we set guidance last time.

Speaker Change: And then the combination of the seed pricing model timing and the Q1 macro pressure is causing another $10 million or so of headwinds in the quarter over quarter expectation.

Kathryn A. Bueker: That said, there are some great things that we're seeing. Growth retention remains strong in the quarter. There are some marginal improvements in downgrade activity that we're seeing, particularly for seats and contacts. Our guidance philosophy hasn't changed. We want to have a high degree of confidence in the guidance that we share, and we think we achieved that in what we put forward today.

Speaker Change: That said there are some great things that we're seeing growth retention remains strong in the quarter. There was some marginal improvements in downgrade activity that we're seeing particularly for seats and contacts.

Kathryn A. Bueker: Our guidance philosophy hasn't changed.

Speaker Change: Want to have a high degree of confidence in the guidance that we share and we think we achieved that in what we've put forward today.

Keith Frances Bachman: Our next question today is from the line of Keith Bachman of BMO. Please go ahead. Your line is open.

Speaker Change: Our next question today is from the line of Keith Bachman of BMO.

Keith Frances Bachman: Yeah, thank you very much. I apologize for the background noise at the beginning. I wanted to come back to that for a second.

Keith Frances Bachman: Please go ahead your line is open.

Keith Frances Bachman: Okay.

Keith Frances Bachman: And the last question and really focus on seats and pricing. And so you mentioned that, Kate, that the transition was maybe a $10 million headwind, quarter over quarter. But how does that reflect, as you think, for the full year? Does the seat space pricing actually turn into a tailwind? Because there's greater adoption as you get to the end of the year. But maybe just talk about, you know, what happened during the quarter, but how you see that transition as we get to the exit run rate for the year. Thank you very much.

Keith Frances Bachman: Yes. Thank you very much I apologize for the background noise at the outset I wanted to come back to that for a second.

Keith Frances Bachman: And the last question and really focus on seats.

Keith Frances Bachman: Seats in pricing and so you mentioned that cases, the transition was maybe a $10 million headwind.

Keith Frances Bachman: Quarter over quarter.

Keith Frances Bachman: How does that inflect as you think for the full year it does.

Keith Frances Bachman: Pricing actually turn into a tailwind because there is greater adoption as we get through the year, but maybe just talk about.

Keith Frances Bachman: What happened during the quarter, but how you see that transitioning as.

Keith Frances Bachman: As we get through this.

Speaker Change: Run rate for the year. Thank you very much.

Yamini Rangan: Hey, Keith, this is Yamini. Let me maybe start by explaining the changes and what we expect, and then Kate can take the second part of how this impacts our guidance for 2024. So, just to step back, why did we make this change? We lowered the price of starter plan to make it easy for customers to get started with HubSpot. We removed seat minimums to make it easy for customers to upgrade to Pro and Enterprise.

Keith Frances Bachman: Hey, Keith This is yamani, let me maybe start with you know explaining what the changes in what we expect and then change can take the second part of how this impacts our guidance for 2024.

Yamini Rangan: So just to step back why did we make this change.

Yamini Rangan: We lowered the price of starter to make it easy for customers to get started with hub spot, we removed seat minimums to make it easy for customers to upgrade to pro and enterprise, but the real benefit of the model. This is why we like it. So much is it leads to fewer downgrades and more upgrades over a period of time so.

Yamini Rangan: But the real benefit of this model, this is why we like it so much, is that it leads to fewer downgrades and more upgrades over a period of time. So, in a nutshell, this pricing change allows us to acquire more customers who can start with exactly what they want and can buy more when they need it. And that is good for customers because it leads to healthier customer cohorts. And it's really good for HubSpot.

Yamini Rangan: In a nutshell this pricing change allows us to acquire more customers, who can start with exactly what they want and can buy more when they need it and that is good for customers because it leads to healthier customer cohorts, it's really good for hotspot.

Yamini Rangan: Now, as we mentioned in the prepared remarks, what surprised us is that we saw a higher percent of customers adopt seats in month one compared to what we saw in the pilot. So, we expected the ASP to go down, volume to go up, and they would offset each other immediately. But because more customers are adopting the model, we're seeing a sharper decline in ASPs, and it's going to take a couple of months for the volume of customer additions to catch up and offset that ASP decline.

Yamini Rangan: Now as we mentioned in the prepared remarks, what surprised US is that we saw a higher percent of customers adopt seats in month, one compared to what we saw in the pilot. So we expected the AFP to go down volume to go up and offset each other immediately but because more customers are adopting the model.

Yamini Rangan: We're seeing a sharper decline in Asps and it's going to take a couple of months for the volume of customer additions to catch up and offset that ASP decline. So there's a short term trade off but we are very convinced that this is right thing for customers. This is right thing for hotspot and therefore, it's the right thing for all of you as investors have.

Yamini Rangan: So, there is a short-term trade-off, but we are very convinced that this is the right thing for customers. This is the right thing for HubSpot, and therefore, it's the right thing for all of you as investors.

Speaker Change: You said that you know.

Speaker Change: I'll, let you talk about the guidance point, Yeah, Let me add a couple of specifics to the overall story that nominee's shared.

Kathryn A. Bueker: Yeah, let me add a couple of specifics to the overall story that Yamini shared. We expected to see customer ASPs fall as part of the CEAS model change. Because of the pace, it happened quickly in March, and we saw ASPs fall by 20% to 25%. This is very consistent with what we saw in the pilot that we ran in ASPs. In the pilot, we also saw an increase in veal velocity that roughly offset the lower ASI.

Kathryn A. Bueker: We expected to see customer Asps fall as part of the C model change.

Speaker Change: The pace it happened quickly in March and we saw these fall by 20% to 25%.

Speaker Change: Is very consistent with what we saw in the pilot that we ran in ANZ.

Speaker Change: And the pilot we also saw an increase in deal velocity that roughly offset the lower ASP.

Kathryn A. Bueker: And so the end result there was that new customer ARR was basically new, and because of the sort of sharp pace of adoption, we did not see the velocity in March step up enough to offset the lower ASI. Now, April was better, but not enough to make up for the lower new customer ARR to be neutral. And April's short cycle deals, which are kind of a leading indicator of what we would see, actually look very similar to the pilot, which is highly encouraging.

Speaker Change: And so the end result, there was that new customer <unk> was basically neutral.

Speaker Change: And because of the sort of sharp piece of adoption, we did not see the velocity in March.

Speaker Change: Up enough to offset the lower A&P.

Speaker Change: April was better but not enough to make up the new customer <unk> to be neutral.

Speaker Change: In April short cycle deals, which are kind of a leading indicator to what we would see actually look very similar to the pilot which is highly encouraging.

Kathryn A. Bueker: The other piece of good news is that the upgrade rate for customers that are on the new SEEDS model is higher and very similar to what we saw in the pilot in A&Z. It's about a six to eight point improvement in net revenue retention, depending on the edition.

Speaker Change: The other piece of good news is that the upgrade rate for customers that are on the new seats model is healthier and very similar to what we saw in the pilot in ANZ. It's about a six to eight point improvement in net revenue retention, depending on the addition to.

Kathryn A. Bueker: So the motion is creative; it's just going to take a little bit longer than we initially thought for that to play out. And, you know, as a result, what we now expect is that the cease model change is going to be neutral to overall ARR for 2020. Thank you. Our next question is from the line of Rishi Jaluria of RBC. Please go ahead. Your line is open.

Kathryn A. Bueker: So the motion is accretive it's just going to take a little bit longer than we initially thought for that to play out.

Speaker Change: You know as a result, we now expect that the speed model change is going to be neutral to overall <unk> for 2024.

Rishi Nitya Jaluria: Thank you. Our next question is from the line of Rishi Jaluria of RBC. Please go ahead. Your line is open. Oh, wonderful.

Speaker Change: Thank you. Our next question is from the line of Rishi <unk> of RBC. Please go ahead. Your line is open.

Rishi Nitya Jaluria: Wonderful. Thanks, so much for taking my question and I apologize for any background noise I wanted to dive a little bit deeper into clear, but can you give us a sense for how traction with the product and the integration is going and maybe how all the data that youre getting from clear, but can play into your broader AI strategy. Thanks.

Yamini Rangan: Hey, Rishi, thanks a lot for the question. It's the early days of Clearbit, but it's going really well. It's been a quarter and a half since the team got integrated into HubSpot. Now, if we take a step back, the vision that we have is really to bring that type of end-rich data and powerful AI tools so that they can drive insights into our entire customer platform. We think that this is a way for us to accelerate our overall customer platform vision, and we are seeing that play out. So, phase one of integration was really to bring the Clearbit product into the hands of our install-based customers, and that is, you know, going well. It's, again, early days.

Rishi Nitya Jaluria: Hey, Rishi. Thanks, a lot for the question. It's the early days with per batch and but it's going really well, it's been a quarter and a half since the team.

Yamini Rangan: You know got integrated into hub spot now if you take a step back the vision that we have is really to bring that type of enrich data and powerful AI tools. So that can drive insight into our entire customer platform. We think that this is a way for us to accelerate our overall customer platform vision.

Yamini Rangan: And we are seeing that play out so phase one off integration was really to bring the fair bit product into the hands of our installed based customers and that is going well. It's again early days, but really the thing that we are excited about is natively, bringing the company enrichment data.

Yamini Rangan: But really, the thing that we are excited about is natively bringing the company enrichment data, the intent data, and the contact enrichment data natively into HubSpot, so it can power all use cases. And this is the way we see the world operating. When you start thinking about a campaign, you already have information about the companies that look like your customers, and then you can apply AI tools on top of that so that your campaigns can be supercharged.

Yamini Rangan: The instant data and the contact enrichment data natively into hotspots. So it can power all use cases and this is the way we see the world operating when you when you start thinking about a campaign you already have the information about the company that looked like your customers and then you can apply.

Elizabeth Porter: So, the combination of end-rich data, AI, and a unified customer platform is really powerful, and we feel very good about where we are going in terms of that vision. Our next question today is from the line of Elizabeth Porter of Morgan Stanley. Please go ahead. Great, thank you so much. I wanted to ask again a question on the pricing change. It was great to see the faster

Yamini Rangan: <unk> AI tools on top of that so that youll campaigns can be supercharged. So the combination of enbridge data AI and a unified customer platform is really powerful and we feel very good about where we are going in that in terms of that vision.

Speaker Change: Yeah.

Elizabeth Porter: Our next question today is from the line of Elizabeth Porter of Morgan Stanley. Please go ahead. Your line is open.

Elizabeth Porter: Our next question today is from the line of Elizabeth.

Elizabeth Porter: Morgan Stanley. Please go ahead your line is open.

Elizabeth Porter: Okay.

Elizabeth Porter: Great. Thank you so much I wanted to ask again a question on the pricing change it was great to see the faster pickup of seats by existing customers, but I wanted to double click on.

Elizabeth Porter: The volume of from the new customer side.

Elizabeth Porter: What were some of the gating factors you think in attracting some of the new logos to the seat model.

Elizabeth Porter: About education.

Elizabeth Porter: And the availability of the new model or just any willingness less willingness to pick up maybe new solutions and then any go to market changes to kind of address it at new customer side.

Yamini Rangan: Why don't I just start, Elizabeth, with a bit of a clarification? We moved to the SEEDS model pricing for new customers only at the beginning of March. The existing customers will begin being migrated over to the SEEDS model in the back half of 2024. That's going to take some time. As we talked about last quarter, we're going to migrate customers at the same ARR at which they are currently on our platform, and then we will cap any increase on their subscription at 5% when they renew the following time.

Elizabeth Porter: Why don't I, just start with that.

Elizabeth Porter: Bit of a clarification on that.

Yamini Rangan: We move to the <unk> model pricing for new customers only at the beginning of March.

Yamini Rangan: The existing customers will begin being migrated over to the seat model in the back half of 'twenty 'twenty four that's going to take some time.

Yamini Rangan: You talked about last quarter, we're going to migrate customers at a at the same <unk>.

Yamini Rangan: They are currently on our platform and then we will cap any increase on their subscription at 5% when they renew their the following time.

Yamini Rangan: And look, I think in terms of your, is there resistance, or is there something else that we need to be doing? Customers like the model, and they're adopting the model. But, you know, if you step back and think about it, it is a big change in terms of the actual go-to-market motion. Our reps need to drive even faster velocity. They need to be able to say which ones are starter customers with one or two seats versus pro customers with more seats.

Speaker Change: And look I think like in terms of your is there a resistance or is there something else that we need to be doing customers like the model and they're adopting the model, but you know.

Yamini Rangan: If you step back and think about it it is a big change in terms of the actual go to market motion, our reps need to drive even faster velocity they need to be able to say, which ones are you know startup customers with one or two seats versus no pro customers with more seats and it takes us a minute to kind of like <unk>.

Yamini Rangan: Get that motion settle having said that we've driven a ton of enablement of our entire go to market motion. We have provided clarity in terms of how this needs to get approached by partners as well as our reps. So I think it's going to take a minute for the model to settle in but we're seeing the most important.

Yamini Rangan: And it takes us a minute to kind of like get that motion settled. Having said that, we have driven a ton of enablement for our entire go-to-market motion. We have provided clarity in terms of how this needs to be approached by partners as well as by the reps. So, I think it's going to take a minute for the model to settle in, but we're seeing the most important thing, which is customer adoption. Thank you. Our next question today is from the line of Kirk Materne of Evercourt ISI. Please go ahead. Your line is open. Oh, yeah. Thanks very much. Yamini, in terms of your partners, I mean, they're

Kirk Materne: Thing, which is customer adoption.

Kirk Materne: Thank you. Our next question today is from the line of Kirk Materne of Evercourt ISI. Please go ahead. Your line is open.

Kirk Materne: Thank you. Our next question today is from the line of Kirk My turn.

Kirk Materne: Evercore ISI. Please go ahead your line is open.

Kirk Materne: Hi, yes, thanks very much for you already in various of your partners I mean, there definitely seems to be a lot of interest around AI more broadly.

Kirk Materne: Is there any chance that youll proof of concepts can move into production and that can help upgrade rates by the end of the year or is it a longer term dynamic I know, it's a bit of a guessing game, but I was just kind of curious about how you see.

Kirk Materne: The functionality youre, bringing to bear with AI Youre, playing out over the course of the year I realize it's a multiyear journey, but just kind of curious on how that dynamic is going thus far.

Yamini Rangan: Yeah, it's a great question. And so maybe there are two parts to the dynamic. One part of your question is about AI usage and adoption. And the other part is the, you know, proof of concept. I would say the proof of concept is just a function of where, you know, we are from a cautious buying cycle perspective. Customers are looking at consolidating on a platform, and they want to be very, very sure. And so there's, like, some additional proof of concepts there.

Kirk Materne: Yeah, It's a it's a great question and so maybe.

Yamini Rangan: Two parts to that dynamic one part of your question is like AI.

Yamini Rangan: Usage and adoption and the other part is the proof of concept I would say the proof of concept is just a function of where we are from a cautious buying cycle perspective customers are looking at consolidating on our platform they want to be very very sure.

Yamini Rangan: In terms of AI, though, you know, we have It's been about a year, right? Last year, around this time, was when we launched our first set of products, and most of the products are now in GA.

Yamini Rangan: So there's like some additional proof of concept there in terms of AI, though.

Yamini Rangan: We have it's been about a year right last year about this time is when we launched our first set of products and most of the products are now in G. A in fact it in April as part of our new spotlight relaunched about 70 additional AI features and what we are.

Yamini Rangan: I think in terms of adoption is there are customers who are meeting with al they're looking at like every single departments within the go to market function and saying how can I leverage AI and those customers are moving fast and we can see that in terms of content use case adoption, we can see that in terms of.

Yamini Rangan: In fact, in April, as part of our new spotlight, we launched about 70 additional AI features. And what we are seeing, you know, in terms of adoption is that there are customers who are meeting with AI. They're looking at like every single department within the go-to-market function saying, "How can I leverage AI?", and those customers are moving fast. And we can see that in terms of content use case adoption, we can see that in terms of service, you know, summarization, as well as deflection of call adoption.

Yamini Rangan: Service, you know some modernization as well as deflection of call adoption and you can see that in terms of sales hub.

Yamini Rangan: Adoption of AI features but then there are you know a whole set of customers who are either just getting out of experimenting or figuring out. The first set of use cases, and then getting value and that is going to take time. So our focus this year is all about driving.

Yamini Rangan: And we can see that in terms of sales hub adoption of AI features, but then there are, you know, a whole set of customers who are either just getting out of experimenting or figuring out the first set of use cases and then getting value. And that is going to take time.

Yamini Rangan: Beep usage from a product perspective, you're focused on driving repeat usage from a go to market perspective, we are focused on educating customers. How their data is being used where they can drive productivity benefits as well as growth benefits and so it's going to take a little while for the AI usage, but we are really happy.

Yamini Rangan: So our focus this year is all about driving repeat usage. From a product perspective, you're focused on driving repeat usage. From a go-to-market perspective, we are focused on educating customers on how their data is being used, where they can drive productivity benefits, as well as growth benefits. And so it's going to take a little while for AI usage, but we are really happy with the level of innovation as well as leading customer adoption.

Yamini Rangan: With the level of innovation as well as meeting customer adoption.

Jeffrey Parker Lane: Thank you. Our next question today is from the line of Parker Lane of Stiefel. Please go ahead. Your line is open. Yeah, I think thanks for the question here. Yamini, address me on top of the funnel. You said you

Jeffrey Parker Lane: Thank you. Our next question today is from the line of Parker Lane from Stiefel. Please go ahead. Your line is open.

Yamini Rangan: Thank you. Our next question today is from the line of Park Helane of Stifel. Please go ahead. Your line is open.

Jeffrey Parker Lane: Yeah, Hi, thanks, Thanks for taking the question here.

Jeffrey Parker Lane: Danny.

Jeffrey Parker Lane: Can you top of funnel you said you saw lead flow shift away from high quality inbound to partner sourced leads to look with partners source leads to lower quality Rep source leads how would you characterize that lower quality rep sourced lead to set a particular type of customer that's showing up there is it those with worst retention.

Jeffrey Parker Lane: <unk> characteristics worse upgrade characteristics are a combination of all of that.

Yamini Rangan: Parker, great question. Thank you for asking me this question.

Jeffrey Parker Lane: Parker Great question. Thank.

Jeffrey Parker Lane: Thank you for asking me. This question, maybe I'll take a minute to explain what I meant so what we saw in Q1 was a mix shift from inbound and partner source leads to more breath source fleet now inbound leads or when customers come in raised their hand and say that.

Yamini Rangan: Maybe I'll take a minute to explain what I meant. So, what we saw in Q1 was a mixed shift from inbound and partner source leads to more web-source leads. Now, inbound leads are when customers come in, raise their hands, and say that they have a need, and we want to kind of move quickly. Partner source leads are when partners have had conversations with our prospects and bring us a qualified lead.

Yamini Rangan: We have a need and we want to kind of move quickly partner source needs are and partners have had conversations with our prospects and bring US a qualified lead. These two lead times tend to be more qualified and more ready to purchase.

Yamini Rangan: These two lead types tend to be more qualified and more ready to purchase. Now, at the beginning of the year, we saw a mixed shift down from those two sources, and we compensated for that by rep-sourced leads, you know, our reps talking to customers and calling customers. Now, the only difference is that the rep source leads take more time to progress in the sales pipeline. It's not an immediate interest and a ready-to-purchase customer that's coming into the pipeline.

Yamini Rangan: It takes more calls and more, you know, demand. So, the characteristics are that it takes longer, especially to progress, like, larger deals. And so, we saw that dynamic. But in terms of, you know, retention characteristics, they're pretty much the same, right? Once customers, you know, are part of HubSpot, they get onboarded, and they get activated, and we focus on kind of usage. So, hopefully, that explains that mixed shift comment I made. Thank you, Parker, for the question.

Yamini Rangan: Now in the beginning of the year, we saw a mix shift down from those two sources and be compensated that by Rep source leads our reps talking to customers, calling customers now the only difference is that the rep source leads take more time to progress in the sales pipeline, it's not an immediate interest.

Yamini Rangan: And are ready to purchase customer that's coming into the pipeline. It takes more calls and more you know demand. So the characteristics is that it takes longer.

Yamini Rangan: Especially the progress like larger deals and so we saw that dynamic but in terms of.

Yamini Rangan: Retention characteristics it it's pretty much the same right once customers.

Yamini Rangan: Or are.

Yamini Rangan: Part of hotspot, they get on boarded and they get activated and we focus on kind of the usage. So hopefully that explains that mix shift commentary made thank you Parker for the question.

Bradley Sills: Our next question today is from the line of Brad Sills of Bank of America Merrill Lynch. Please go ahead. Your line is open.

Yamini Rangan: Our next question today is from the line of Brad Sills with Bank of America Merrill Lynch. Please go ahead. Your line is open.

Bradley Sills: Oh, wonderful. Thank you so much.

Yamini Rangan: I wanted to ask a question around the AI roadmap here. Obviously, a lot of the innovation that you've highlighted here is going into the base product. I think in the past, you've said that you're kind of looking at some of the features that could go into premium-only versions. I'd just be curious if you're finding, you know, some use cases that you think are interesting that could do that. And what are your thoughts on just that being a catalyst? I know it's further out, but could that be a catalyst for, you know, premium mix and ASP growth? You know, just any of those dynamics would be great. Thank you.

Bradley Sills: Oh wonderful. Thank you so much I wanted to ask a question around the AI roadmap here, obviously, a lot of innovation that you've highlighted here that's going into the base product I think in the past you've said that you're kind of looking at some of the features that could go into a premium only versions I'd just be curious if youre if youre finding.

Yamini Rangan: Some use cases that you think are interesting that could do that and what's what are your thoughts on just that being a catalyst I know, it's further out but could that be a catalyst for premium mix and ASP growth.

Yamini Rangan: Just any of those dynamics I think it would be great. Thank you.

Yamini Rangan: Brad, thanks a lot for that question. In terms of AI and how we're thinking about it, maybe just to step back, our vision is to embed AI in all hubs and through our entire platform. And that's exactly what we're doing. We are moving very quickly to build a robust roadmap of AI features, and Spring Spotlight, which we just launched and announced, was full of those kinds of features. And if you think about our monetization strategy, it is threefold. When we embed AI across all hubs and across our entire CRM, it drives adoption. We're seeing more people actually start with the full platform.

Yamini Rangan: Brad Thanks, a lot for the question in terms of like AI and how we're thinking about it maybe just a step back our vision is to embed AI in all hubs and to our entire platform and that's exactly what we're doing we are moving very quickly to build a robust road map of AI.

Yamini Rangan: Features and spring spotlight that we just launched and announced was full of those kinds of features and if you think about our monetization strategy is three fold when we embed AI across all hubs and across our entire CRM. It drives adoption, we're seeing more people.

Yamini Rangan: Actually start with the full platform they get exposed to AI and we're beginning to see that lift in terms of overall adoption. The second thing and you're absolutely right. We've talked about more features being at the pro and enterprise tiers and in fact, we said that nearly 65% of the feature.

Yamini Rangan: They get exposed to AI, and we're beginning to see that lift in terms of overall adoption. The second thing, and you're absolutely right, we've talked about more features being at the pro and enterprise tiers. And in fact, we said that nearly 65% of the features that are becoming generally available in the first half of 2024 will be in the pro and enterprise tiers. And that's also where we are beginning to see more adoption.

Yamini Rangan: That are becoming generally available in the first half of 'twenty 'twenty four will be in the pro and enterprise tiers and that's also where we are beginning to see more adoption you know in the prepared remarks, I talked about 50% of enterprise customers.

Yamini Rangan: In the prepared remarks, I talked about 50% of enterprise customers experimenting and leveraging AI features, and 25% of pro customers are using AI features. And when you look at that, it falls into the buckets of content use cases, service use cases, as well as guided selling use cases. So, all of that shows that we are on the right path. And when we do that, we're going to see, you know, kind of the upgrade rates in terms of pro as well as enterprise. It's still early days, and so our focus is usage, repeat usage, and making it super easy for our customers to adopt and innovate with AI. Just one quick note.

Yamini Rangan: Well I experimenting and leveraging AI features and 25% of pro customers are using AI features and when you look at that it falls into the bucket of content to use cases service use cases as well as guided selling use cases, so all of that shows that.

Yamini Rangan: We are on the right path and when we do that we're going to see kind of the upgrade rates in terms of pro as well as enterprise. It's still early days and so our focus is usage, it's repeat usage and making it super easy for our customers to adopt and innovate with AI.

Dharmesh Shah: Just one quick note, this is Dharmesh. So if you think through last year, 2023 was the year of, you know, ChatGPT and ChatBots, and we were early to the game with our ChatSpot product. This year is going to be the year of Agent AI, where we have AI software that can move to a higher level of abstraction and take on higher order goals. And we, that's what we're kind of marching towards. And we think that's even higher-value functionality that we can add to the platform.

Yamini Rangan: Just one quick note. This is Darren mesh. So if you think through last year 2023 was the year of chat GPT and chat bots and you were early to the game with our <unk> product. This year is going to be the year of agent AI, where we have AI software that can move to a higher level of abstraction and take on higher order goals.

Dharmesh Shah: And we that's what we're kind of marching towards and we think thats, even higher value functionality that we can add to the platform.

Michael H. Berg: Thank you. Our next question today is from the line of Michael Turrin of Wells Fargo. Please go ahead. Your line is open.

Michael James Turrin: Thank you. Our next question today is from the line of Michael Turrin of Wells Fargo. Please go ahead. Your line is open. Oh, you got Michael Berg on from Michael Turrin here.

Dharmesh Shah: Thank you. Our next question today is from the line of Michael <unk> of Wells Fargo. Please go ahead. Your line is open.

Michael James Turrin: Oh, you got Michael Berg on for Michael turn here I, just wanted to ask on AI and around the competitive landscape and moving up market. It seems like you guys are moving at a very fast clip.

Michael James Turrin: Kind of a differentiated approach to a oh this helps any meaningful capacity and the competitive landscape, particularly up market.

Michael James Turrin: <unk>.

Michael James Turrin: Yeah.

Yamini Rangan: So, let me, let me take that. Thank you.

Michael James Turrin: So let me take that thank you. Thank you for that question.

Michael H. Berg: We have a very different approach for AI and AR. Our approach you know if you go back to 2014, we said everybody needs to have a great CRM and if you look at like 2023 last year at inbound. We said everybody has to have a great AI powered CRM and so our approach has been embed.

Yamini Rangan: Thank you for the question. Look, we have a very different approach to AI. And our approach, you know, if you go back to 2014, we said, everybody needs to have a great CRM. And if you look at, like, 2023, last year at InBound, we said, everybody has to have a great AI-powered CRM. And so our approach has been to embed all of the features into hubs, embed all of the features into the platform, and make it super easy for our customers to start with AI features and continue to grow with AI features.

Yamini Rangan: All of the features into hubs and bed all of the features into the platform and make it super easy for our customers to start with AI features and continue to grow with add features I think it's a very differentiated strategy one that leans into our strengths of easy to use fast time to value and that's very different from you know a lot of the competitor.

Yamini Rangan: I think it's a very differentiated strategy, one that leans into our strengths of easy to use and fast time to value. And that's very different from, you know, a lot of the competitors that are on the path of, you know, charging for AI features or getting started with a services engagement. And, you know, one of the things that we have recognized about AI is this. Go-to-market teams are, you know, they've had the same age-old problems, you know, over multiple decades. They spend too much time looking at information. They spend too much time collecting and gathering information instead of being in front of customers. They spend too much time capturing information that can then be part of the handoff.

Yamini Rangan: Is that are on the path of charging for AI features are getting started with our services engagement and you know I'm one of the things that we have recognized about AI is this go to market teams are you know they've had the same age old problems.

Yamini Rangan: Over multiple decades, they spend too much time looking at information they spend too much time collecting in gathering instead of being in front of customers. They spend too much time, capturing information that can then be part of handoff.

Yamini Rangan: AI creates a new approach to solving age-old go-to-market problems. And we want to do it in a way that is fundamentally easy for our customers to adopt. And so I do think that our approach is differentiated, and our approach is going to help our customers adopt it faster. I don't know if Dharmesh, you have more to add there. Yeah, just one quick note.

Yamini Rangan: <unk> creates a new approach to solving age or go to market problems and we want to do it in a way where it is fundamentally easy for our customers to adopt and so I do think that our approach is differentiated and our approach is going to help our customers adopt it faster I don't know if dumbass you have more of a.

Dharmesh Shah: Yeah, just one quick note. So HubSpot, you know, one of our core differentiators for a long time has been our unified customer platform. We have all the data in one place. And this makes it very differentiated from other players in the space, where the kind of step one in order to get value out of AI is you got to first figure out how to get all your data together and make sure everything sort of makes sense.

Dharmesh Shah: At the Yeah, just one quick note one of our core Differentiators for a long time has been our unified customer platform. We have all the data in one place and this makes it very differentiated from other players in the space, where the kind of step one in order to get value out of AI, if you've got to first figure out how to get all your data together and make sure everything's sort of makes sense from a <unk> pause at all.

Dharmesh Shah: From the get go, HubSpot is already together; it's already unified. And so that's what makes it possible for us to kind of embed AI across the entire platform, make it available to 100,000 companies, and learn from that feedback because we get adoption usage very, very quickly. So I think we have a kind of HubSpot-specific take on democratizing AI, making it accessible, and then learning really fast based on usage and leveraging our customer data platform.

Dharmesh Shah: Already together, it's already unified and so that's what makes it possible for us to kind of embedded AI across the entire platform make it available to hundreds of thousands of companies and learn from that feedback because we get adoption use it very very quickly. So I think we have a.

Dharmesh Shah: Hotspots specific take on democratizing, AI and making it accessible and then learning really fast based on the usage and leveraging our customer data platform.

Ken Wong: Our next question today is from the line of Ken Wong of Oppenheimer. Please go ahead. Your line is open. Great, thank you for taking my...

Ken Wong: Our next question today is from the line of Ken Wong of Oppenheimer. Please go ahead. Your line is open. Great, thank you for taking my question. I wanted to dive in on NRR with strong retention downgrade stable

Dharmesh Shah: Our next question today is from the line of Ken Wong of Oppenheimer. Please go ahead. Your line is open.

Ken Wong: Great. Thank you for taking my question I wanted to dive in on NR.

Ken Wong: With strong retention downgrade stable I guess is it fair to assume that the potential pressure that's embedded it's just purely a byproduct of upgrade.

Ken Wong: And then and then kind of secondarily any reason to think that there was any hesitation from customers ahead of seat licensing rolling out to the base in the second half that might have maybe caused some some pause on upgrade behavior.

Ken Wong: Yes.

Kathryn A. Bueker: Why don't I take that one? Net revenue retention in the quarter was 102 for the organic business, and when you add in the impact of Clearbit, it was 101. A couple of positive trends there. We've consistently seen that customer dollar retention has held really strongly in the high 80s, and we saw that again in Q1. The other thing that we've been seeing over the last couple of quarters is a stabilization in downgrades, particularly in seats and concerts.

Ken Wong: Yeah.

Speaker Change: Why don't I take that one.

Kathryn A. Bueker: Net revenue retention in the quarter was 102 for the organic business and when you add in the impact of clear, but it was 101.

Kathryn A. Bueker: Couple of positive trends there are we've consistently seen that customer dollar retention has held for us really strongly in the high eighties and we saw that again in Q1.

Kathryn A. Bueker: The other thing that we've been seeing over the last couple of quarters is a stabilization in downgrades I'm, particularly in seats and.

Kathryn A. Bueker: That said, you know, and I think that we are not the only ones that you've been hearing this from, upgrade rates were particularly challenging in the quarter. Even with some of the early positive signs that we saw in seed expansion with the new pricing model, we did still see significant pressure and growth. Thank you.

Kathryn A. Bueker: That said, yeah, and I think that we are not the only ones that you've been hearing this from upgrade rates were particularly challenging in the quarter, even with some of the early positive signs that we saw in seat expansion with the new pricing model.

Kathryn A. Bueker: We did still see significant pressure in upgrade rates.

Kathryn A. Bueker: Okay.

Terrell Frederick Tillman: Our next question is from the line of Terry Tillman of Truist. Please go ahead. Your line is open.

Kathryn A. Bueker: Thank you. Our next question is from the line of Terry Tillman of Truest. Please go ahead. Your line is open.

Terrell Frederick Tillman: Great. Thanks, so much for taking the question. This is Bobby Dion for Terry curious to learn more about the evolution of the customer success Org. Following several promotions announced in early April what was the thought process on leaving the chief customer officer role unfilled and could there be opportunities to drive more alignment between customer success sales and marketing as a result, thank you.

Yamini Rangan: Hey, Bobby, thank you so much for the question. Yes, we announced that our Chief Customer Officer, Rob, you know, left early April. And you're absolutely right; we decided that we were going to flatten the organization and have Marketing, Sales, and Customer Success report directly to me. You know, maybe a few years ago, we needed the Chief Customer Officer role, and we needed that role to bring together Marketing, Sales, and Customer Success and set a very unified strategy.

Terrell Frederick Tillman: Hey, Bobby Thank you so much for the question, Yes, we announced that our chief customer Officer, Rob you.

Yamini Rangan: You know left in early April and you're absolutely right. We decided that we were going to flatten the organization and have marketing sales and customer success and report directly to me.

Yamini Rangan: You know, maybe just step back a few years ago, we needed the chief customer officer role and we needed to go to bring together marketing sales customer success and set a very unified strategy and you'll probably remember that four and a half years ago. I joined that was the first time that you know I took that role and IDE.

Yamini Rangan: And you probably remember that four and a half years ago, I joined. That was the first time that I took that role. And I'd say that setting strategy for the organization and, more importantly, bringing Marketing, Sales, and Customer Success together has been working really well at HubSpot. Now, it's the time for, you know, speed and execution.

Yamini Rangan: Say that that strategy setting for the organization and more importantly, bringing marketing sales customer success together has been working really well at hub spot now, it's the time for speed and execution and I'm really thrilled that we have a very deep bench of leaders.

Yamini Rangan: Significant go to market as well as hub spot experienced for stepping up to lead there and as we mentioned in our press release earlier in April we have kept bodner, who has been our CMO for a very long time nine plus years and he is a leading voice within AI. He is stepping up you know and directly.

Tyler Maverick Radke: And I'm really thrilled that we have a very deep bench of leaders with significant go-to-market as well as HubSpot experience stepping up to lead there. And as we mentioned in our press release earlier in April, we have Kip Bodner, who has been our CMO for a very long time, nine plus years, and he's a leading voice within AI. He is stepping up, you know, and directly into the executive suite.

Tyler Maverick Radke: Into the executive suite and the same thing goes bar kitchen, King Air Who's been with US for a very long time has global perspective used to lead our international sales and a couple of years ago to come to Chief sales officer. He is stepping up to lead sales and then John Beck, who has been an amazing leader hub spot for about eight plus years in the market.

Tyler Maverick Radke: And the same thing goes for Christian Kinnear, who has been with us for a very long time, has a global perspective, used to lead our international sales, and a couple of years ago became the Chief Sales Officer; he's stepping up to lead sales. And then John Dick, who has been an amazing leader at HubSpot for about eight years in the marketing organization, is stepping up to lead our customer success team, and he is deeply passionate about the full customer journey.

Tyler Maverick Radke: The organization is stepping up to lead our customer success team and he is deeply passionate about the full customer journey. So we're really fortunate to have a deep bench of leaders and we decided that this is the right time for each of those lead us to step up directly and we have that pool.

Tyler Maverick Radke: So, we're really fortunate to have a deep bench of leaders, and we decided that this is the right time for each of those leaders to step up directly, and we have full clarity in terms of where we are going in terms of the strategy. So, pretty excited and looking forward to each of their contributions. Our next question is from the line of Tyler Radke of Citigroup. Please go ahead. Your line is open. Yeah, thanks for taking the question. Maybe I'll direct this at Kate.

Tyler Maverick Radke: Clarity in terms of where we are going in terms of the strategy, So pretty excited and looking forward to each of their contributions.

Tyler Maverick Radke: Our next question is from the line of Tyler.

Tyler Maverick Radke: Our next question is from the line of Tyler Radke of Citigroup. Please go ahead. Your line is open.

Tyler Maverick Radke: Yeah. Thanks for taking the question maybe I'll just this is Kate so obviously she said the color on the.

Tyler Maverick Radke: FX assumptions impacting the full year guide, but despite holding the full year guide constant you were able to raise operating income guidance. So could you just talk about.

Tyler Maverick Radke: Some of the incremental savings that you that you saw there and whether there's any incremental FX impact on that too.

Kathryn A. Bueker: Yeah, Tyler, thanks for the question. You know, I think you've heard this from me before, but we always try to really strike a balance between growth and profitability, and we continue to show progress against our profitability target. We remain comfortable that we're going to be in a good position to hit the 18 to 20% target by 2026 and then our longer-term target of 20 to 25% profitability. But coming back to 2024, this is a year where we're going to return to a more normal hiring cadence throughout the year.

Kate: Yeah, Tyler Thanks for the question.

Kathryn A. Bueker: Yeah, I think you've heard this from me before but we always try to really strike a balance between broken profitability.

Kathryn A. Bueker: And we continue to show progress against our profitability targets.

Kathryn A. Bueker: We remain comfortable that we're going to be in a good position to hit the 18% to 20% target by 2026, and then our longer term target of 20% to 25% probability, but coming back to 2024. This is a year, where we're going to return to a more normal hiring cadence throughout the year we.

Kathryn A. Bueker: We expect to end the year at about 10% growth from a headcount perspective, and we are investing disproportionately in R&D. We want to do that to drive innovation and to really continue to plant the seeds for long-term growth. We saw some of the fruits there in the recent spring spotlight, and we're funding this by driving continued leverage in our go-to-market organization, particularly across CF's marketing and our partner commissions, in addition to just continued optimization of our real estate. And so we expect that we'll be able to deliver more than a point of leverage concentrated this year in the back.

Kathryn A. Bueker: Back to end the year at about 10% growth from a head count perspective, and we're investing disproportionately in R&D.

Kathryn A. Bueker: We want to do that to drive innovation and to really plant continue to plant the seeds for.

Kathryn A. Bueker: For long term growth you saw some of the fruits there and the recent spring spotlight.

Kathryn A. Bueker: We're funding that through driving continued leverage in our go to market organization, particularly across marketing and our partner Commission. In addition to just continued optimization of our real estate footprint and so we expect that we'll be able to deliver more than a point of leverage.

Kathryn A. Bueker: Concentrated this year in the back.

Kathryn A. Bueker: Thank you. Our next question today is from the line of Arjun Bhatia of William Blair. Please go ahead. Your line is open.

Kathryn A. Bueker: Thank you. Our next question today is from the line of Arjun Bhatia of William Blair. Please go ahead. Your line is open.

Kathryn A. Bueker: Alright, great. Thanks for taking my question. This is Chris on for origin.

Arjun Rohit Bhatia: But what's the return to some of the commentary you made about demand sounds like it's pretty consistent with what we've heard from some of our peers in the space.

Arjun Rohit Bhatia: So there was some softening in front office demand during the first quarter that was at least somewhat unexpected but are there any areas of conservatism or sources of confidence in guidance that you'd like to highlight if these conditions were to continue to worsen.

Arjun Rohit Bhatia: Yeah, um, why don't I just sort of talk about how we approach guidance. As always, we endeavor to put forward guidance that we have a high degree of confidence that we can meet. We have a rigorous forecasting process. We have a rigorous guidance process that we've been using consistently for a very long time. And we do a lot of scenario analysis to try to land on guidance that we feel confident in our ability to achieve, and frankly, that reflects all of the risks and upsides that we face.

Arjun Rohit Bhatia: Yeah, why don't I, just sort of talk about how we approached guidance as always we endeavor to put forward guidance that we have a high degree of confidence that we can meet our we have a rigorous forecasting process, we have a rigorous guidance.

Arjun Rohit Bhatia: A process that we've been using consistently for a very long time, and we do a lot of scenario analysis to try to land on a guidance that we feel confident in our ability to achieve and frankly that reflects all of the risks and upside that we see.

Brian Christopher Peterson: Thank you. Our next question today is from the line of Brian C. Peterson of Raymond James. Please go ahead. Your line is open.

Arjun Rohit Bhatia: Thank you. Our next question today is from the line of Brian Peterson of Raymond James. Please go ahead. Your line is open.

Brian Christopher Peterson: Alright. Thank you this is jonathan to carry on for Brian today.

Speaker Change: So you mentioned the strength in sales and marketing specifically with front doors. This quarter, we heard a little bit last quarter sort of increased traction in service hub as an on ramp and hurt I've heard that from partners as well. So just curious if that's still a trend youre seeing for service to all of the conversations and wash 90 days. Thank you.

Yamini Rangan: Yeah, certainly. I think that, you know, when we think about front doors, we see three front doors: marketing, sales hub, and then multi-hub. And if you look at the most common combination in the multi-hub, it is marketing, sales, and service. So we're beginning to see our customers kind of adopt the full platform and start with, you know, multiple hubs. And specifically in terms of service hub, we made excellent progress this quarter

Speaker Change: Yeah, certainly I think that you know we when we think about the front doors, we see three front doors marketing sales hub and then multi hub and if you look at the most common in combination in multi club. It is marketing sales and service. So we're beginning to see our customers kind of adoptable.

Yamini Rangan: What form and start with multiple hubs and specifically in terms of our service hub, we made excellent progress this quarter right.

Yamini Rangan: We officially relaunched Service Hub as part of our spotlight, and it's been extremely well received. Kudos to the product team for making excellent progress there. And last year was a big year for Service Hub Pro. We did a ton of work to make the pro tier very powerful.

Yamini Rangan: Viciously relaunch service hub as part of our spotlight and it's been extremely well received kudos to the product team for making excellent progress there and last year was a big year for service hub Pro we did a ton of work to make the pro appear very powerful and this year.

Yamini Rangan: The focus has been on making all tiers of some service hub very competitive and powerful and if you look specifically at the spring spotlight, we launched advanced escalate more robust routing and support management tools and all of these are really aimed at serving our upmarket customers so that enterprise tier.

Yamini Rangan: And this year, the focus has been on making all tiers of some service hubs very competitive and powerful. And if you look specifically at the spring spotlight, we launched advanced SLAs, more robust routing, and support management tools, all of which are really aimed at serving our upmarket customers. So the enterprise tier just got even better.

Yamini Rangan: And then we also, for the first time, launched our customer success workspace. This is for CSM, our customer success persona. And we want to provide a unified workspace for them to be able to manage their entire books and also be a conduit for connecting the sales teams and the support teams together. So I think that's a huge, another area. And, you know, as always, we've been thinking about how we can, like, leapfrog the service hub with AI capabilities.

Yamini Rangan: Or just got even better and then we also for the first time launched you know our customer success workspace and this is for CSM or customer success persona, and we want to provide a unified workspace for them to be able to manage their entire books and also be a conduit.

Yamini Rangan: For connecting the sales teams and the support teams together. So I think that's a huge Ah another area and you know as always we've been thinking about how do we like the broad service hub with AI capabilities, and we certainly see our customers adopt our AI features within service hub. So overall I'm very pleased with the momentum in <unk>.

Yamini Rangan: Service up both from a product perspective, as well as from a customer adoption perspective, and really happy with the traction we see there.

Michael H. Berg: Thank you. Our next question is from the line of Michael Bidovic of Key Corp. Please go ahead. Your line is now open.

Yamini Rangan: And we certainly see our customers adopt our AI features within service hub. So overall, I'm very pleased with the momentum in service hub, both from a product perspective, as well as from a customer adoption perspective, and really happy with the traction we see there. Thank you. Our next question is from the line of Michael Bidovic of Key Corp. Please go ahead. Your line is now open. Hi, this is Mike Gunn for Jackson-Ader.

Yamini Rangan: Thank you. Our next question is from the line of Michael Binetti think of Keycorp. Please go ahead. Your line is now open.

Michael H. Berg: Hi, This is Mike on for Jackson Ader, just quickly on the partnerships and your channel partners you talked about seeing fewer partner sourced deals this quarter and having to rely more on direct sales sourcing, but I guess what are you seeing in terms of the different dynamics between call. It your direct sales mentioned that in your direct channel direct channel sales.

Michael H. Berg: And as soon as it relates to the pricing change. Thanks.

Yamini Rangan: Yeah.

Yamini Rangan: Yeah, I think on the pricing change, overall, not anything specific in terms of the change between partner as well as direct sales. Now, in terms of what we made as a comment earlier on partner-sourced deals, on the partner side, we've seen great success with our co-selling motion. And what that means is partners as well as our direct reps work together, and that co-selling is up 65% year over year.

Michael H. Berg: Yeah, I think the on the on the pricing change overall not nothing specific in terms of the change between partner as well as direct sales now in terms of what we made is a comment in earlier for partner sourced deals.

Yamini Rangan: Hmm mm.

Yamini Rangan: The partner side, we've seen great success with our core selling motion and what that means is partners as well as our direct reps work together and that co selling motion is up 65% year over year now on the flip side when that coastal emotion is really strong then partner spend a little bit.

Yamini Rangan: Now, on the flip side, when that co-selling motion is really strong, then partners spend a little bit of time, less time, generating and sourcing their own deals. And so we always want to have the right balance between that co-selling as well as partner sourcing, which is exactly what we are focused on right now. So we have rolled out partner enablement. We have rolled out a ton of resources to make sure that our partners and our direct teams work in a way where both the co-selling as well as the partner sourcing is in balance. And we're certainly seeing that in Q2. Thank you, and with no further time.

Yamini Rangan: Time less time in generating in sourcing their own deal and so we always want to have the right balance between that co selling as well as partner sourcing which is exactly what we are focused on right. Now. So we have rolled out partner enablement, we have rolled out the pent up resources to make sure that our partners and our direct team.

Yamini Rangan: This work in a way where both the cross selling as well as the partner sourcing is imbalance and we're certainly seeing that in our Q2.

Operator: Thank you. And with no further time for any questions, this will conclude the HubSpot first quarter 2024 earnings call. Thank you all for joining. You may now disconnect your lines.

Speaker Change: Thank you and with no further time for any questions. This will conclude the ups first quarter 2024 earnings call.

Operator: Thank you all for joining you may now disconnect your lines.

Operator: Yeah.

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Operator: Disconnect your lunch.