Q1 2025 HubSpot Inc Earnings Call
If you would like to enter the queue for questions. You may do so by dialing star followed by one one on your telephone keypad I would now like to hand, the conference over to senior director of Investor Relations Ryan Burkart. Please go ahead.
Ryan Burkart: Thanks, operator.
Speaker Change: Good afternoon, and welcome to hub spots first quarter 2025 earnings conference call.
They will be discussing the results announced in the press release that was issued after the market closed with me on the call. This afternoon as Jeremy <unk>, Our Chief Executive Officer, <unk> Shah, our cofounder and CTO and Kate Bueker, our Chief Financial Officer.
Speaker Change: 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'll make statements related to our business that may be considered forward looking within the meaning of section 27, a of the Securities Exchange Act of 1933 as amended and section 21 E of the Securities Exchange Act of $19 34 as amended.
Speaker Change: All statements other than statements of historical fact are forward looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures expected growth FX movement and business outlook, including our financial guidance for the second fiscal quarter and full year 2025.
Speaker Change: Forward looking statements reflect our views only as of today and.
Speaker Change: And except as required by law, we undertake no obligation to update or revise these forward looking statements.
Speaker Change: Please refer to the cautionary language in today's press release, and our Form 10-Q, which will be filed with the SEC. This afternoon for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations during.
Speaker Change: During the course of today's call, we'll refer to certain non-GAAP financial measures as defined by regulation G.
Speaker Change: The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between such measures can be found within our first quarter 2025 earnings press release in the Investor Relations section of our website.
Speaker Change: Now, it's my pleasure to turn the call over to hotspots, Chief Executive Officer Yamani Rocket Yao.
Speaker Change: Germany.
Speaker Change: Thank you Ryan and welcome everyone today I'll focus on our Q1 2025 results and the key trends driving our performance then I'll highlight the clear momentum we are seeing with AI adoption, how our spring spotlight innovations are accelerating it and why we believe hotspot is uniquely positioned to lead and win with <unk>.
Speaker Change: Hi.
Speaker Change: Got it.
Speaker Change: Q1 was a solid start for hotspot with revenue growing 18% year over year in constant currency total customers grew by 19% to over 258000 globally fueled by over 10000 net customer additions in the quarter.
Speaker Change: I'm also pleased to announce that our board of directors has authorized our first ever share repurchase program with up to 500 million under authorization a clear signal of the confidence we have in our business and the growth opportunity ahead.
Speaker Change: This strength is reflected in our Q1 results driven by three consistent pillars platform consolidation up market expansion and strength in customer acquisition Downmarket.
Speaker Change: Let's start with platform consolidation.
Speaker Change: Hotspots customer platform is becoming the clear choice for businesses looking to drive AI innovation, while reducing total cost of ownership, but that unified simpler tech stack.
Speaker Change: Over 37% of our problems customers by a R. R. R using four or more hubs up seven points year over year in Q1, we saw more new pro plus customers start with our full platform than ever before this.
Speaker Change: This is a clear signal that our platform for strategy is working.
Speaker Change: In upmarket, we continue to see real momentum driven by product innovation and go to market execution, we delivered key enterprise grade functionality that larger customers need including journey orchestration in marketing hub enterprise to run sophisticated workflows enhanced sandbox functionalities to support complex.
Speaker Change: Implementations and the launch of three new Datacenters in Sydney, Oregon and Montreal.
Speaker Change: As a result large deal growth was strong up 23% year over year with clear momentum among our install base.
Speaker Change: Our partners continue to be a key driver up market with cross selling up 41% in Q1.
Speaker Change: In that market, we see strength in customer acquisition, driven by pricing changes and improvements in the free to start a conversion.
Speaker Change: We made our product easy to buy and easy to upgrade and those changes are a clear tailwind.
Speaker Change: Free to startup and conversion is up year over year, driven by better onboarding product improvements and flexible monthly payment options.
Speaker Change: Our smart CRM and core seed offerings are gaining strong traction expanding our reach beyond traditional persona to include all admin and finance users who need powerful editing capabilities.
Speaker Change: 24% of our profile of customers on the seats model have purchased additional core seats.
Speaker Change: It's rewarding to see customers scale with top spot and the consistency of our results shows our platform is delivering real value.
Speaker Change: Okay before we move into AI innovation I want to acknowledge the macro environment uncertainty remains constant we entered the year with more growth conversations and while that has not shifted dramatically we're seeing a sharper focus on value hubs.
Speaker Change: Hotspot is built for moments like these and we have a proven playbook to communicate value as our crafted customer platform, we help businesses consolidate tools cut cost and unlock the power of a unified customer view, our ease of use and fast time to value allow customers to onboard quickly and see.
Speaker Change: Results with AI embedded across all hubs, we deliver immediate efficiency and we believe that AI is value is amplified further but companies prioritize driving productivity.
Speaker Change: In uncertain times hub spot is the predictable choice for scaling businesses.
Speaker Change: Okay with that let's shift gears and talk about AI innovation and momentum.
Speaker Change: Our strategy has been clear we will embed AI into every hub and every part of the platform one product one AI first customer platform no bolt ons, we've executed against that strategy by introducing hundreds of embedded features across hubs launching co pilot to help.
Speaker Change: <unk> go to market teams get work done faster and rolling out agents that can do the work for them.
Speaker Change: Have reinforced the strategy through strategic acquisitions, including framed out AI and dash works to accelerate our roadmap and that strategy is working.
Speaker Change: Over the past year content hub attach rates have tripled and service hub adoption has improved because of embedded AI.
Speaker Change: Copilot adoption has accelerated with the number of users who have engaged with co pilots more than doubling from 270000 users in Q4 to over 660000 in Q1.
Speaker Change: Our agents are gaining traction.
Speaker Change: Customer agent adoption has doubled in three months now serving over 202500 customers with average resolution rates of over 50% in some seeing 80% AI resolution.
Speaker Change: Service hub customers with customer agent close tickets, 39% faster than customers not using it prosper.
Speaker Change: Prospects agent now in public beta automatically researches target accounts personalizes outreach and engages prospects to help sales teams grow pipeline.
Speaker Change: We now have over 2300 customers activating on prospecting agents signaling clear demand.
Speaker Change: These wins are important not just because they show clear adoption and value, but because they validate our core belief.
Speaker Change: Our customers want AI embedded within hotspot not bolted on.
Speaker Change: Many have organizational mandates to drive AI initiatives and appreciate our ease of use and fast time to value.
Speaker Change: We are doubling down on customer agent because it's driving real results, we're seeing clear product market fit and therefore in June we are expand expanding it beyond service hub to all pro and enterprise customers across every hub.
Speaker Change: What's been fascinating is how customers are using customer agent across the entire journey not just for post sales support.
Speaker Change: They're answering marketing questions like whereas your next webinar or sales questions like how does the pricing work customer agent is already delivering value at every stage of the customer journey and that's why we believe customer agents will become the single most important AI agent every business will adopt.
Speaker Change: And the easiest way for companies to scale with AI.
Speaker Change: Starting June 2nd brief customer agent will be available through our existing credit space system. The.
Speaker Change: The same simple model, we introduced at inbound with Bruce intelligence.
Speaker Change: Here's how it's going to work.
Speaker Change: To make it easy for customers to get started Pearl and enterprise customers will receive a monthly allotment of credits included in their subscription. This means they can begin using customer agent immediately at no extra cost.
Speaker Change: As they see success and water scale customers can purchase additional credits either in flexible amount or in easy to choose packs, giving them full control and predictability over their staff.
Speaker Change: This is just a step in our broader strategy to monetize AI using both seats and credits.
Speaker Change: Overtime, we will extend credits based pricing to other AI agents and features staying true to our philosophy of delivering value before monetizing.
Speaker Change: While we believe this approach will be a strong long term growth driver because we are launching this midyear and adoption will take time to ramp we do not expect a material impact to our 2025 revenue from this change.
Speaker Change: Okay.
Speaker Change: Let's talk about how we are sustaining our momentum.
Speaker Change: We've continued to innovate rapidly and released over 200, new features at our first ever in person spring spotlight event.
Speaker Change: Our innovation focus on three clear themes deeply.
Speaker Change: Deeply embedding AI across the customer journey, advancing multi agent orchestration and driving upmarket scalability with.
Speaker Change: With significantly enhanced customer agent prospecting agent at constant agent to help customers market sell and support better for example content agents now proactively suggests blocked opex learns from market share provided context and automate internal block.
Speaker Change: Linking creating high quality targeted content faster.
Speaker Change: Respecting agent now combined hub spot and external data to personalize outreach delivering insights directly into sales workspace.
Speaker Change: Now as we lead the way in agent to human collaboration we are taking a major leap forward with agent to agent orchestration.
Speaker Change: Shift we believe will define how work gets done in the future.
Speaker Change: Spring spotlight, we introduced knowledge base agent a breakthrough in multi agent orchestration.
Speaker Change: As we watch customer agent adoption closely we saw a clear Patrick customers with strong well documented knowledge basis achieved the highest AI resolution rate.
Speaker Change: And to help more customers succeed we built knowledge base agent to work alongside customer agents automatically identifying knowledge gaps and drafting new articles from unstructured data like support tickets calls and emails.
Speaker Change: This is agent to agent orchestration and action to agents working together using unified hub spot data to deliver faster results.
Speaker Change: Alongside these AI advances, we have expanded our enterprise capabilities with powerful new features like lookalike list journey automation and multi account management and marketing hub enterprise plus enhanced workspaces for sales service and customer success teams together these innovations give.
Where's the confidence that by choosing hub spot.
Speaker Change: Our AI first and our future proofing their business for what's next.
Speaker Change: Our approach to AI is differentiated and that is what will set helps ballpark.
Speaker Change: We unify structured unstructured and external data at scale.
Speaker Change: Giving our AI a richer more complete foundation.
Speaker Change: We layer deep context across the entire customer journey brand toned voice customer interactions.
Speaker Change: <unk> only a true platform not point solutions, our agents can deliver with nearly two decades of experience serving SMB, we understand exactly what growing businesses need from AI and we're building features and agents that Delaware real outcomes not complexity.
Speaker Change: So agent Doc AI, we're incubating a vibrant AI agent ecosystem already engaging over one 7 million users and 17000 agent builders.
Speaker Change: We uniquely bring together data context customer focus and ecosystem innovation and that's why we're positioned to lead the next era of AI powered growth.
Speaker Change: With that I'll hand, it over to our CFO, Kate Bueker to walk you through our financial and operating results. Okay.
Speaker Change: Domine, let's turn to our first quarter 2025 financial results.
Speaker Change: Q1 revenue grew 18% year over year in constant currency and 16% on an as reported basis.
Speaker Change: Subscription revenue grew 16% year over year, while services and other revenue increased 13% on an as reported basis.
Speaker Change: Q1, domestic revenue grew 16% year over year.
Speaker Change: International revenue growth was 19% in constant currency and 15% as reported representing 47% of total revenue.
Speaker Change: We added over 10000 net new customers in Q1 modestly above our expectations and ended the quarter with a total of 258000 customers growing 19% year over year.
Speaker Change: Average subscription revenue per customer was $11000 in Q1 down 2% year over year in constant currency and 4% on an as reported basis.
Speaker Change: Over the next few quarters, we expect net additions to moderate to roughly 9000, an ASR PC growth to be approximately flat.
Speaker Change: We continue to see healthy customer dollar retention in Q1 holding in the high eighties.
Speaker Change: Net revenue retention was 102% in Q1 down two points sequentially as expected.
Speaker Change: For the full year of 2025, we continue to expect net revenue retention to be up a couple of points year over year.
Speaker Change: Primarily driven by the impact of our seat based pricing model change.
Speaker Change: Calculated billings were $767 million in Q1, growing 18% year over year in constant currency and 20% on an as reported basis.
Speaker Change: The remainder of my comments will refer to non-GAAP measures.
Speaker Change: Q1, operating margin was 14% down one point compared to the year ago period.
Speaker Change: As a reminder, there was a one point headwind to operating margins due to an increased company match rate for our 401K contributions that shifts more costs earlier in the year.
Speaker Change: Net income was $96 million in Q1, our $1 78 per fully diluted share.
Speaker Change: Free cash flow was $122 million or 17% of revenue in Q1.
Finally, our cash and marketable securities totaled $2 2 billion at the end of March.
Speaker Change: As Germany shared our board has authorized hub spot first ever share repurchase program of up to $500 million over the next 12 months.
Speaker Change: This reflects our strong conviction in our long term opportunity and our commitment to delivering shareholder value.
Speaker Change: Well look we will continue to prioritize investments in organic innovation and remain proactive with strategic M&A, our healthy balance sheet and strong free cash flow give us the flexibility to settle our convertible bond in June and execute this repurchase program, which will help offset dilution.
Speaker Change: Okay before I move into guidance I want to touch quickly on the macro environment.
Speaker Change: Thank you harmony said it perfectly uncertainty remains the only constant.
We haven't seen a significant change in our business trends, we are seeing a heightened focus on value and a higher level of uncertainty regarding the economic environment, which we expect to persist through the remainder of the year.
Speaker Change: With that let's dive into guidance for the second quarter and full year of 2025.
Speaker Change: For the second quarter total as reported revenue is expected to be in the range of 738% to $740 million up 16% year over year in both constant currency and on an as reported basis.
Speaker Change: non-GAAP operating profit is expected to be between 124 and $125 million, representing a 17% operating profit margin.
Speaker Change: non-GAAP diluted net income per share is expected to be between $2 10 and $2 12.
Speaker Change: This assumes $53 2 million fully diluted shares outstanding.
Speaker Change: And for the full year of 2025 total as reported revenue is now expected to be in the range of 3.036 to 3.044 billion.
Speaker Change: Up 16% year over year in both constant currency and on an as reported basis.
Speaker Change: non-GAAP operating profit is now expected to be between 558% and $562 million, representing an 18% operating profit margin.
Speaker Change: non-GAAP diluted net income per share is now expected to be between $9 29.
Speaker Change: And $9 37 times this assumes $53 3 million fully diluted shares outstanding.
Speaker Change: As you adjust your models please keep in mind the following.
Speaker Change: Our EPS guidance includes the impact from both the planned convertible bond settlement and our share repurchase program.
Speaker Change: We expect our repurchase program to be slightly dilutive to EPS in the second half of 2025 due to the lower interest income from reduced cash.
Speaker Change: That said the reduction in share count will build over the next 12 months to offset the lower interest income.
Speaker Change: We continue to expect Capex as a percentage of revenue to be roughly 5% and now expect free cash flow to be about $570 million for the full year of 2025 with seasonally stronger free cash flow in Q4.
Speaker Change: With that I will turn the call back over to you how many.
how many: Thank you so much Kate.
Speaker Change: As we close I want to express my heartfelt gratitude to Brian Halligan, our cofounder, who has decided to transition from his role as executive chair to a regular member of our board.
Speaker Change: After three and a half years as executive chair, Brian is stepping back to devote more time to work with the coil propeller ventures and his teaching role at M. I T.
Speaker Change: I am very grateful for Brian support guidance and investment to meet during his time as executive Chair, Brian will continue to serve as a board member a founder and a large shareholder supporting hub spot from the boardroom.
Speaker Change: Lorrie Norrington, our longstanding lead independent director will assume the board chair role.
Speaker Change: I want to thank our customers our partners and investors for the continued support and a huge huge thank you to all hubs borders 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.
Speaker Change: Thank you if you would like to ask a question. Please dial star followed by one one on your telephone keypad now if you change your mind. Please Giles star followed by one one again to exit the queue when preparing to ask your question. Please ensure your phone is unmatched.
Speaker Change: You did and limit yourself to one question per person.
Speaker Change: One moment for our first question.
Mark Murphy: First question today is from Mark Murphy.
Speaker Change: From JP Morgan.
Speaker Change: Thank you so much and congrats on a very steady performance.
Speaker Change: So I was hoping you could give us an update on the agent Dot AI and just as part of that.
Speaker Change: There is some talk about multi agent orchestration.
Speaker Change: Are you doing that.
Speaker Change: Across the hubs.
Speaker Change: So for instance, an agent in marketing hub how will it.
Speaker Change: Talk to an agent in sales hub and I'm trying to understand if you're going to use something like model context protocol or.
Speaker Change: Some other communication mechanisms that I have a quick follow up.
Speaker Change: Thanks for the questions. So on the agent that AI front. So as Yamana you mentioned agent that AI is one of our innovation bets and the thesis behind the bet is that the future is going to consist of.
Speaker Change: Tens of thousands hundreds of thousands of agents, all collaborating and working with each other to accomplish higher order goals and so we're kind of go behind <unk> to kind of.
Speaker Change: Empower Susan builders to build this next generation of agents and we're really pleased with the progress that that innovation that has made.
Speaker Change: Now one of the ways I think.
Speaker Change: Agents agent collaborations will happen with is with what what's called mobile context protocol, which you brought up.
Speaker Change: One context protocol is an open standard.
Speaker Change: That defines how AI applications that agents can communicate with a variety of tools and backend and services and so this benefits us in a couple of ways. One is earlier this week I am Super proud of the team launched.
Speaker Change: Into public beta our MCP server support which allows any AI application current and future to be able to communicate with hotspot backend over natural language interface that wasn't an ela Lim and so with.
Speaker Change: This unlocks potential is that now hub spot can be used by all sorts of applications. They can get to that data easily so think of it as a next generation API. So perhaps <unk> will build for classic application modeled context protocol allows agents to be able to consume services the flip side of it as hotspot.
Speaker Change: We'll also be in MCP clients. This will allow us to interact with all the third party systems that are out there and be able to bring that data into a normalized hybrid structured unstructured form so it kind of expands broadly the footprint of data that we will have access to so we're super excited both by the agent network is represented by <unk> and the opportunity that MCP.
Speaker Change: The model context protocol unlocks thanks for the question.
Speaker Change: Thank you one moment far next question.
Speaker Change: Our next question comes from the line of some odd Samana from Jefferies.
Speaker Change: Hi, Good evening and thank you for taking my question great to see the strong execution in a tough backdrop, maybe Kate for you just as I think about the revised guidance, it's obviously impressive.
Speaker Change: That implies a different shape of growth.
Speaker Change: At year progresses than where we started and so I was wondering if you could maybe just help us contextualize, how we should think about the quarterly progression.
And then maybe related to just on the margin side sticking with guidance how much youre absorbing in terms of Opex from M&A, because I'm guessing you would've revise that maybe higher otherwise just maybe help us understand that guidance just a little bit better. Thank you so much.
Speaker Change: Oh sure thing.
Speaker Change: I would just maybe start by saying well there are maybe a little bit more complex pieces to the puzzle the way that we've approached guidance for this quarter is very much consistent with the way we've always approached guidance. So maybe I'll take you through the pieces and it will help a little bit here.
Speaker Change: I think you're well aware foreign exchange has been quite volatile.
Speaker Change: Since we reported our earnings in February the U S dollar has weakened pretty meaningfully.
Speaker Change: Which is favorable to our as reported revenue results and we've flowed through to our full year guidance. So we flowed through $50 million of FX upside, which is all of the movement that we saw in rates between February and today.
Speaker Change: That said, we did not flow through our Q1 outperformance into the full year outlook and the decision not to do that.
Speaker Change: Is really a reflection of the increased macro uncertainty that you heard both harmony and I talk about in the prepared remarks.
Speaker Change: A couple of things maybe just to highlight as you think about our full year guide.
Speaker Change: He said it pretty clearly we have not seen any material headwinds to the business through April but the environment is obviously highly uncertain and we're actively monitoring trends in the business.
Speaker Change: Secondly, as always our guidance is going to reflect a range of scenarios that we run in preparation for this call.
Speaker Change: Have not assumed a full scale down turn in the economic situation. This year, but we do believe that our revised outlook is appropriately prudent and it really does reflect sort of a confident view of the business that we see today.
Speaker Change: In terms of the operating profit side and the impact of M&A.
Speaker Change: Honestly very small.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of our June Bhatia from William Blair.
Speaker Change: Thank you so much two questions one.
Speaker Change: So I'm not sure if I can follow up on.
Mark Murphy: Mark Murphy's one other question.
Speaker Change: Asia.
Speaker Change: Is it right to assume that the.
Speaker Change: The experience.
Speaker Change: In Asia, that's coming into help sponsored raise your body is going to be the same or not materially different.
Speaker Change: The agents the hotspot is building.
Speaker Change: When you are building yourself or are there differences that we should be thinking about just in terms of.
Speaker Change: The customer experience and how that gets developed and then one for just on the macro I know you pointed out a little bit.
Speaker Change: Customers are faced with.
Speaker Change: Higher focus on value I am curious, if youre seeing certain verticals certain end markets or certain types of customers be more hesitant than others or any way to kind of just to get a little bit more.
Speaker Change: Granularity into where you're seeing a higher focus on value. Thus far thank you let.
Speaker Change: Let me, let me talk with this and then I'll have Michele stepping on the agent I'll start with the.
Speaker Change: Overall macro question that you have.
Speaker Change: As we've said a couple of times here, we have not seen significant changes in demand patterns and that holds true by industry and segment and geography across all of those we're seeing very similar patterns across the board.
Speaker Change: Now look I think there's just a broader narrative that smbs, maybe disproportionately impacted by economic downturn and while we'll never say never we simply have not seen that play out in the business over the last few years and we've kind of been through a lot of pandemic, a downturn and macro uncertainty.
Speaker Change: And the reason for that is that we are a platform that is a must have we're not just a nice to have and what kind of the nerve center of our customers' revenue generating activities and.
Speaker Change: The platform that they rely on to connect to their end customers and grow our customer base is broad and diverse in so we're not reliant on one industry, one geography or specific segment and because of that broad.
Speaker Change: Customer base the results tend to be very resilient.
Speaker Change: Now you asked a question in terms of agents.
Speaker Change: Maybe I'll start with explaining our strategy our strategy is to embed AI deeply into every call but in across the whole platform to deliver our co pilot, which is a digital assistant for all front office employees and to deliver a set of agents that are first party agents that were.
Speaker Change: We're building that can help our customers accomplish work. So we're building an agent platform and that takes all of the unified structured unstructured data in the context, we have across our 258000 customers and bring that to bear that is kind of our strategy from a.
Speaker Change: Core a gentex.
Speaker Change: Celebrating of value from our customers' perspective now as <unk> explained we also have an innovation, that's where we want to have an ecosystem of vibrant.
Speaker Change: Developers all the agents then we're suddenly looking at that but the core part of our strategy is to build customer agent prospecting agents in Delaware value for our customers.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Gabriela Borges from Goldman Sachs.
Speaker Change: Schergen, Mountain Knight, you're seeing in the mid-market, so that 200 to 1000 employee cohort. Now that you have the additional HIPAA qualifications and compliance,
Speaker Change: How do you think about which customers or which cohort of customers? [inaudible]
Speaker Change: in the mid-market, makes the most sense for HubSpot, and when you have yourselves people giving you feedback, are there specific targets or specific types of customers either by vertical or by mindset? That works better as potential HubSpot customers versus perhaps staying on their existing provided. Thank you. Thank you.
Speaker Change: Hey, Gabriela. Thanks a lot for the question. I think, you know, just stepping back, we have been focusing on two to two thousand and you're absolutely right. The mid market portion of our segmentation is kind of between twenty five to two hundred. But I will say that, you know, your broader question on what are we seeing, which verticals, where do we see even further opening? I think the reason we have
Speaker Change: We've been able to consistently deliver results is because we're seeing momentum in all of our segment. [inaudible]
Speaker Change: We've had a strategy where we want to drive acquisition at the lower end and we want to continue to add value
Over the last few years you've seen us.
Speaker Change: and sophisticated in the needs of the customers and the upmarket segments and all of that has played through.
And again, as I mentioned slightly before,
Speaker Change: It's not in one segment or in one vertical and this you know is really driving a better product market fit for mid market and up market customers. [inaudible]
and we're doing it without compromising ease of use.
Speaker Change: When I talk to our customers, when I talk to our sales reps on where there's momentum, they will come back to the same reason.
Speaker Change: We have a clear value proposition for mid-market and up-market customers, which is easy to use, fast time to value and unified data. And because of that, there is just a ton of momentum in both mid-market as well as up-market.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from the line of Alex Zukin from Wolf Research .
Hey guys, thank you for your question. I guess maybe...
Speaker Change: Getting kind of the AI and macro question differently as you look at the the delta between
Speaker Change: Copilot were agentic adoption that you're noticing between the two various cohorts and anything even through the month of April in the pipeline around sales cycles that you're seeing maybe different between the enterprise versus versus low end pipeline. One.
Speaker Change: Yeah, Alex, thanks a lot for the question. So, you know, if I look at the sales pipeline, it remains healthy across all of the segments and we've not seen significant changes in pipeline quality or velocity on any one of those segments, whether it is down market, mid market or up market. And as you can imagine, we're monitoring all of the key leading indicators both top of funnel as well as pipeline conversion very closely. [inaudible]
Speaker Change: Now, if I were to give you color in terms of what's happening within the pipeline into one as well as the beginning of Q2, I would mark it like couple of different trends. The first one is we see a lot of multi-hub deals.
Speaker Change: and the consolidation of text text, the pattern that I talked about in the prepared remarks.
That is what is continuing to drive that trend.
Speaker Change: Our prospects are, you know, frustrated with disconnected coin solutions and hidden costs and overly complex implementations and set up and our message but also proven ability to simplify their tech stack and lower the total cost of ownership while delivering value is resonating and that's what we see in the pipeline. [inaudible]
Speaker Change: Now, in terms of AI, I have a ton of conversations, they really like the fact that AI is built into the platform.
Speaker Change: Many of our customers, and this is kind of a cross-segment, they have internal mandates of getting started with AI, and they come to us, and we are likely one of the first AI solutions that they're working with, and they appreciate the fact that it's embedded, it is easy to use, it's easy to get started with, and they are excited about how fast we're innovating, and I don't necessarily think that there is a difference between segment. And then, the real factor is, is that,
Speaker Change: There's someone within the customer who's leaning into AI. That tends to make the difference. But overall, we're winning because we are delivering clear value. We are helping our customers adopt AI quickly.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from the line of Rishi Jaluria from RBC [inaudible]
Roshi Jaluria: Oh, wonderful. Thanks so much for taking my questions and nice to see continued strong execution in a top macro environment. I wanted to drill a little bit more into pricing for all these AI solutions. Look, I totally understand the idea that you want to get it in front of customers go through use case discovery before really trying to collect money and I totally get that. I think that's the right thing to do. So, if we think about this idea of HubSpot credit for briefs.
Customer Agents, and expanding that.
Speaker Change: Hey, Rishi. Thank you so much for the question. I think it's like a two-part question that I'm going to try and answer. The first one is, how are you thinking about this credit space system? And then, how are you going to make it easy for your customers to kind of like adopt this? And both of those are super important and obviously something that we have been thinking about quite a bit. You know, maybe I'll start with grounding us on the philosophy of monetization. Our philosophy is to deliver value.
Speaker Change: and once we see consistent repeat value and we have high confidence, then we begin to add monetization lovers.
Speaker Change: That has served HubSpot really well throughout our history and that is exactly what we're doing with introducing customer agent as part of the credit-based system. And we launched credit-based pricing at inbound last year for breeze intelligence. And now because of the clear value and the adoption that we have seen with customer agent, we're adding customer agent to the same credit-based system.
Speaker Change: And really, the way we think about this is we want to make it super easy for our customers to get started.
Speaker Change: to start using and to scale with agents. And therefore the way it'll work is pro and enterprise customers will have an allotment of credits that is included within their subscription.
David Hynes,
That means...
Speaker Change: When they begin to start using customer agents, they can do that without adding additional cost.
Speaker Change: And as they increase usage and they want to scale, they can buy credit, and they can either buy pay as you go, or they can buy packs of credit. And this gives to the second part of your question, which is by having super easy packs of credit, it gives our customers, especially scaling businesses, predictability and control over their spend. And that's what we have seen even in the earlier adoption of breeze intelligence credit packs, if they want to
Speaker Change: Ability to be able to predict it, and that's exactly what we are doing. What you can expect is that we'll just have a universal credit system.
Speaker Change: And because we are a platform, not a point solution, that credit consumption will be based on the value that these agents will deliver and provide. So in the case of customer agents, it'll be the number of conversations that we enable with AI. In the case of prospecting agents, it might be the number of meetings that we book, so it'll consume credits based on the value that we are delivering. Thank you.
Speaker Change: I feel really good that we are expanding AI monetization to include both seat space and credit space component. And I feel the platform approach that we have taken to bring these agents to bear will really help us scale our monetization alongside the value that we are delivering to our customers.
Mars.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from the line of Parker Lane, from Steve Full.
Parker Lane: Yeah, I think, good afternoon. Thanks for taking the question. Kate, I think we anniversary the new seat-based pricing.
Speaker Change: You know, during this quarter, I was wondering, do you look at these stability of gross retention and what we see in NRR? What are you seeing from those cohorts of customers as we get to that anniversary mark? Is there perhaps better potential gross retention trends by landing people at the more appropriate levels or more suitable levels to their needs? Let's get started.
David Hynes,
Ryan Burkart: Yeah, Parker, thank you so much for the question. We are continuing to see really nice momentum, as it relates to the seat space pricing model change that we made about a year ago. What we are seeing is really strong and consistent. Let's see what we can do.
Seat Upgrade Trends, and that happens both because...
Ryan Burkart: Customers get started with the seats that they need and they grow from there and it also happens because customers are adopting more core seats.
Ryan Burkart: which is a reflection of the value that we're delivering in the core CRM, which we always knew. [inaudible]
Ryan Burkart: Migrations continue, they're going well, we continue to expect that most of the customer base will migrate by the end of 2025.
Ryan Burkart: And as we shared at Analyst Day, we expect that 50 to 60% of the MRR of our existing customer base will go through their first renewal by the end of 2025.
Um.
Ryan Burkart: I also share to my prepared remarks that net revenue retention is likely to be up a couple points this year. That is in large part a result of the tailwinds we're seeing from the seat space pricing model change. [inaudible]
Thank you. One moment for our next question. Thank you very much.
Speaker Change: Our next question comes from the line of Elizabeth Porter, from Oregon Stanley. [inaudible]
Elizabeth Porter: Great, thank you so much. I learned to follow up on the announcement about customer agent expanding beyond service hub. Just getting customer agent just went GA, I think earlier this year, can you just talk to some of the success that you're seeing that gives you confidence to roll out across the broader platform so soon? Thank you.
Speaker Change: and also given to the benefits of agents plus data. Over time, is there an opportunity using to use agents to push into more adjacent categories that may not necessarily be court hubs today? Thank you.
Speaker Change: Elizabeth, I love that question. I'll take both the parts there. And, you know, we're very excited about the momentum that you're seeing with customer agents. I talked a little bit about the adoption that you're seeing. We have over 2500 customers, average or 50 plus resolution rates.
Speaker Change: And in a number of cases, it just takes 15 to 30 minutes to set it up, especially if the customers have well-documented knowledge base and history of tickets. And so, this is...
Speaker Change: and a place where we feel very comfortable for customers to get started with and get value fast.
Speaker Change: But what is even more interesting, and you mentioned this, is when we were observing the early adoption patterns carefully, what we found is that customers are already using it beyond post sales support requests. [inaudible]
Speaker Change: and we're seeing customers already used it within marketing, someone asked them, hey, where's the next webinar, or where should I go for this particular event, customer agent is answering that same thing with sales, sales teams are leveraging it to handle inquiries on pricing and product features and driving better prospect engagement. So the big ah-ha for us is that one, you know, customers really want the context across the whole customer
Thanks so much guys. Thanks for having us.
Speaker Change: And so excited, excited about that. I think, you know, the second part of your question, you know, agents plus data does that have like a bigger impact, you know, look, we think that we're just getting started with AI. And if I were to frame it,
Speaker Change: You know, if everything that we did with our apps was to help people do their job, I think agents allow us...
to do the work.
Gold, over the next few years. Super exciting.
Thank you, one moment for our next question.
Speaker Change: Our next question comes from the line of Brad Sills from Bank of America [inaudible]
Speaker Change: Oh, wonderful. Thank you so much. I wanted to ask a question about agents as well here if I could.
Speaker Change: Did you give us a sense for, you know, how plug-and-play agents are in HubSpot? Is it as plug-and-play as what HubSpot's known for, the simplicity of...
getting out single-hub, multi-hub deals.
Speaker Change: Is there a certain amount of data prep that's involved here? We're kind of used to thinking about this as an effort for customers in a deployment cycle, the data layer and then the orchestration. [inaudible]
Speaker Change: Or are these just features that run within HubSpot and customers don't think of it any differently than that? So just if you could provide a little sense for the effort involved if at all to spin up an agent. [inaudible]
Speaker Change: Yeah, I would say that you'd have to expect that we'll take any technology.
Speaker Change: and will make it easy for our customers to adopt. I think that's why we have won and that's why we will continue to win in the agentic world as well, Brad. And maybe to answer your question a little bit of depth. [inaudible]
You know, agents can augment work for...
Every go-to-market employee.
Speaker Change: and in order for agents to do it effectively, you need a few things. [inaudible]
First of all, agents thrive on data.
Speaker Change: Structured data, unstructured data, external data, and we have always been fantastic at having that structure data. Now we're expanding and getting all of that unstructured data so we can give agents deep actionable insights from that data right out of the box. [inaudible]
The second thing is agents need context. [inaudible]
Speaker Change: Context across the whole customer journey, and then there's agents need intelligence. They need to be able to reason the need to be able to act and that's why our platform centric approach works. [inaudible]
Speaker Change: So, all of this, what does it translate into for our customers?
Speaker Change: All our customers will need data and if not, we'll help them get the data in a single unified matter. And once they have the data, then adopting agents is not such a big deal. Once they have the data...
Speaker Change: especially like for customer agents, we're seeing it takes like it seems 30 minutes, if you have well documented knowledge basis, if you have a history of support to get, if you have, you know, enough to feed that agent, it takes no more than that. So, you know, our job is to take complex technology and be world class at applying that technology to SMBs and that's what we're excited about and that's how we're driving the innovation cycle.
Thank you. One moment for our next question.
Operator: Our next question comes from the line of Joshua Reilly from Needham
Joshua Riley: All right, thanks for taking my question. How are you thinking about the normalization of upgrades in 2025 after a few years where you could argue there was some pent up demand building and how are you thinking about this contribution to net new ARR growth for the year versus the last few years? Thank you.
Joshua Riley: As you know, net revenue retention was kind of, you know, seasonally down a couple of points but the conversation we had last quarter was that we are going to see net revenue retention up a couple of points in 2025 relative. David Hynes, David Hynes,
Joshua Riley: to 2024. This is a reflection of a couple of things. [inaudible]
Joshua Riley: The first is really a continued strong customer dollar retention. We consistently see customer dollar retention hanging out in the high 80s, which is a very healthy number. And then what we are seeing in terms of upgrades and the year over year growth is very much...
Joshua Riley: focused around seed expansion. And we made the pricing model change to the new seed-based pricing model about a year ago. We are seeing seed upgrade rates.
Joshua Riley: B, you know, up year over year. And again, that's a combination of new customers who start on the new seat space pricing model.
Joshua Riley: Buying what they need, adopting more seats over time as their businesses grow. Hello.
Joshua Riley: And it's also a reflection of higher paid seat ratios. You know, we are monetizing the core CRM through our core seats. That was something new in the new pricing model. And we are seeing customers really see value in that core CRM functionality. Um.
Joshua Riley: And that's the main driver of the increased expansion year over year. [inaudible]
Thank you. One moment for our next question. Let's begin.
Speaker Change: Our next question comes from the line of Keith Bachman from BMO
Keith Bachman: Hi, thank you very much. I wanted to try to understand how you're thinking broadly about consumption revenue, adding to the model. So break it down, you did introduce, introduce rather consumption-based pricing last year.
Keith Bachman: 90% comes from traditional seat base and 10% comes from consumption, but any dynamics you could give us on how, at least philosophically, you're thinking about consumption, adding to growth over the longer term. Thank you. Thank you.
Speaker Change: Yeah, thanks, Keith. And I'll just start by appreciating the reiteration you had that...
Speaker Change: that the new credit-based model will not have a material impact on 2025. So, thank you.
That's said, like...
Speaker Change: Over the medium to long-term, we are really excited about the opportunity to drive top line growth through our consumption model, through credits on AI and other forms of consumption. That said, when you heard this from Yamini, we do believe that AI is a...
Speaker Change: Mix of seats and consumption through the credit system and it's honestly early for us to really understand how that balance will play out over time. I would say as we learn, we will continue to share more information with you. We will continue to share more information with you.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from the line of Ken Wong from Oppenheimer and Company
Speaker Change: Thank you for taking my question. Kate, you mentioned moderating customer net ads down to 9,000 from 9 to 10. Is that just kind of the seasonal dynamics of the back half or are you deliberately trimming that funnel a little bit due to the macro uncertainty? Thank you.
Speaker Change: Yes, thanks, Ken for the question. I think you know, like over the last few quarters, we've talked about 9 to 10,000 as the range to be focused on for net ads. You know, this quarter we came in a little bit above, which was nice.
Speaker Change: Maybe I would say the following, we continue to see healthy growth additions through all of our customer sizes. We continue to see really nice professional and enterprise net customer ads.
You at the starter tier. [inaudible]
Speaker Change: We are lapping these large cohorts of starter additions that were driven by pricing and packaging changes.
Speaker Change: And it's that expectation that that's going to continue here that leads us to point toward a net ads number that's closer to 9,000.
Speaker Change: Now you didn't ask the question but I'm going to answer it anyway, which is...
Speaker Change: What's going to happen to ASRPC as a result? Because that's frankly just an output. What's going to happen to ASRPC?
Speaker Change: Metric, InQ1, you saw ASRPC download single digits, which was in line with what we told you last quarter. We're going to expect over the next couple of quarters that ASRPC growth is basically going to be flat. [inaudible]
Thank you very much.
Thank you, one moment for our next question. Thank you.
Speaker Change: Our next question comes from the line of Jackson Ader from Keybank Capital Markets
Great, thanks for taking our questions, Kate, I think. [inaudible]
Speaker Change: Part of the expectation for net retention rates to improve also has to do with the pricing adjustment, right? The pricing increase of more than 5% upon
Speaker Change: upon renewal on the Seek Based Model. And I'm just curious, you know, given now that we're introducing more credit based pricing on the higher tiers.
Speaker Change: and uncertainty persists. Any kind of update on what you're thinking in terms of your willingness or flexibility for customers coming up for renewal on the pricing increase in the second half? Thank you.
Speaker Change: Yeah, thanks very much for the question. You are right that the debt revenue retention increase year over year is a combination of healthier seat upgrade rates and the pricing impact.
Speaker Change: You know, customers migrate from the old legacy model to the new seed space pricing model at a neutral ARR, and then when they come up for their first renewal, we said we would take up to 5%. That has been...
Speaker Change: The sort of total migration of customers over to the new seat space model has been going well, going very similar to plan. I think the expectation is that that will continue through the year.
Thank you.
Thank you
We have time for one more after this.
Speaker Change: Our next question comes from the line of Kirk Materne from Evercore ISI.
Kirk Maturne: Yeah, thanks very much for taking the question. I don't know how I want to take this, Dharmesh, or Kater, or Yamini, but I was just kind of curious. Can you give us an update on sort of the use of AI internally at HubSpot and maybe how that's trending? And if there's any sort of impact on you all from a, from a, I guess an op-ex growth perspective. I know there's a lot, you know, Dharmesh on your side. And in terms of coding agents and the benefits of those, we've heard a lot from some of your peers. So just want you to give us a quick update on that. Thanks. Thank you.
Kirk Maturne: Yeah, Kirk, I'm happy to take this question, this, and answer it, this, Yamini, look, we were very early in our pivot to using AI internally just as quickly as we pivoted from a product roadmap perspective. We've been experimenting and scaling internally, 2023, 2024 was a lot of experimentation and learning and this year, next year is going to be a lot of scaling from the lessons that we have learned and probably a highlight a few areas that we're using internally and getting into. Thank you very much.
Kirk Maturne: Hannah Value, the first one is support. Now, we've talked about support being a slam dunk use case in terms of leveraging AI. Last year, 35% of our support tickets were resolved with AI. Already in Q1, we're seeing up to 41% and we've been able to hold headcount flat. We've been able to hold headcount flat. We've been able to hold headcount flat. We've been able to hold headcount flat.
Kirk Maturne: within our support organization for the last 18 months, and we've been able to drive more proactive support based on how we're doing this. So that's an area. I'd say the prospecting is another one. You can imagine AI being super easy to look at accounts and send emails to accounts and set up meetings. And in Q1, we booked nearly 11,000 meetings using AI for our sales team. So it's...
Kirk Maturne: driving productivity there. And of course, marketing, we've been doing a lot of work internally with marketing, and we've been at the forefront of leveraging it, and we've seen clear improvements in email conversion rates, up to 80% improvement in email conversion rates through leveraging AI for personalization. Thank you.
Kirk Maturne: and we've been able to move most of our web chats that are now being handled by AI and automation. So within our go-to-market engine, there's just a ton of experimenting and scaling with AI and we feel really good about what that will lead to in terms of midterm and long-term efficiencies.
Kirk Maturne: At the same time, we're using it within our product organization, our developers are using AI to increase their productivity and one of the reasons we've been able to accelerate our pace of innovation over the last couple of days.
Kirk Maturne: Yours and certainly this last year has been leveraging AI. What is interesting is that the first gen of developer productivity was...
with our customers. So, feel very good about it.
Speaker Change: Thank you. This concludes the HubSpot Q1 2025 earnings call. Thank you to everyone who was able to join us today. You may now disconnect your lines.
Speaker Change: [music], okay to the city.