Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the HubSpot Q1 2019 Earnings Conference Call. All lines have I will now turn the call over to Chuck McGlashing, Head of Investor Relations. You may begin your conference.
Thanks, operator. Good afternoon, and welcome to HubSpot's 1st quarter earnings conference call. Today, we'll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Brian Halligan, our Chief Executive Officer and Chairman and Keith Bueker, our Chief Financial Officer. Before we start, I'd like to draw your attention to the Safe Harbor statement included in today's press release.
During this call, we'll make statements related to our business that may be considered forward looking within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical fact are forward looking statements. Including statements regarding management's expectations of future financial and operational performance and operational expenditures, expected growth, and business outlook, including our financial guidance for the 2nd fiscal quarter of 2019. 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 to our Form 10 K, which filed with the SEC on February 12, 2019, for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations.
During the course of today's call, we'll refer to certain non GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non GAAP financial measure used or discussed, and a reconciliation of the differences between each non GAAP financial measure and the comparable GAAP financial measure can be found within our first quarter 2019 earnings press release in the Investor Relations section of our website at hubspot dot com. Now, it's my pleasure to turn over the call to HubSpot's CEO and Chairman, Brian Hallican.
Thanks Chuck. Good afternoon folks. Thank you for joining us today as we review HubSpot's first quarter 2019 earnings results. We're off to a strong start to the year overall. 35% revenue growth in constant currency, 9% non GAAP operating margins and 35% customer total customers to over 60,000.
Great quarter. Now, I'd like to step back for a moment and give you a view into how we're seeing the world these days. We feel like the real arbitrage opportunity in business these days is the ability for companies to create remarkable customer experiences. Business schools used to teach that to win, you needed to create a 10 x better product, but in the future, I believe they'll teach that to win you need to create a 10 x better experience. You may have heard this before, but I'll remind you of my morning routine as an example of what I'm talking about.
You see, I wake up every morning on a purple mattress. And then I reach over onto my dresser, and I put on my Warby Parker glasses. And then I pick my iPhone, and I put on Spotify, and I listened to the Grateful Dead and danced my way into the bathroom, and I shave with my Dollar Shave Club razor. And then I put on my stitch, stitch fix outfit, and I take a lift to work. Now why do I tell you about my morning routine?
Well, those companies that I'm doing business with, They're fascinating. They're all startups. All of those companies, those startups, they're growing like a weed. All of those companies won my business not by selling me a better product by be by by creating a better and lighter customer experience fueled by word-of-mouth. It's that new arbitrage opportunity that motivated us to build a slate of new products over the last couple of years.
Those new products enabled us to move from a company that helped its customers generate leads to a company that helps this customer's create these remarkable buying experiences. Those new products enable us to move from a company that sold a single application to a company that sells a full suite of software. This shift is going very well. We're getting major multi product adoption across our customer base large numbers of new customers that are buying our whole growth suite upfront. This is great news as it signals to me that our value proposition or products are working and our flywheel is spinning.
Really proud of the progress we made in that shift. One thing I'm not proud of is a recent product outage that we had that inconvenienced our customers and given we run HubSpot on HubSpot and convenience us. Here's what I'd say about that outage. It only served to strengthen our resolve to delight our customers. Since the outage we've already doubled down on HubSpot's ability, security, and reliability across the board.
We've already built a new reliability team with some of our best engineers, and they've made great progress already. Now the next phase of HubSpot is shifting from a suite to more of a platform. You might ask, why would we do that? Well, The reality is that there's been an explosion of valuable SaaS applications created over the last decade, and most of our customers use scores of them. Rather than fight gravity, you want to enable our customers to plug all those applications into HubSpot and help them orchestrate all of them to create an even more remarkable experience their customers.
The shift is in its early days for us, but there's been nice progress. Your HubSpot customer, you have nearly 300 integrations to choose from that were built by our integration partners. That's on top of 10 integrations that are natively built for our top use cases by ourselves in an almost endless array of integrations you can create through our partnerships with iPass Companies. This shift is really starting to work. The average HubSpot customer or already integrates 5 different applications into HubSpot.
This year, we're adding fuel to our platform by opening up even more API endpoints in cranking up our investments in the developer experience. In fact, last week, we had 150 of these developer partners into HubSpot for a meeting and I was delighted to chat with many of them who are growing better together with us. The health of any platform basically depends on 2 things. You have to invest in the supply of top notch integrations and you need a steady growing stream of new users to use them. Our freemium motion is a major source of new users and our commitment to developers is a major source of new applications.
More users we get, the more developers there are who want to build on the platform. The more apps those developers build, the more valuable our platform gets for 100 of 1000 of HubSpot users, all of which spins our flywheel even faster. Now, we don't only want to enable our customers to create remarkable experiences for their customers We want to leverage our own platform to create a delightful low friction experience for our own customers. You see, our customers expect a consumer great experience when they come to specifically they expect to be able to try products before buying them. To that end, we introduced a freemium set of products a couple of years back, That decision alone removed a great deal of friction in getting started with HubSpot.
It's been going really well. Nowadays, we're working on making the buying process a better one for these users by lying heavily on HubSpot software to increase the amount of the process we can automate, leaning hard into chat and bots, arming our sales org with the information they need to have that help customers grow better and making our software more intuitive for our users. We're just starting on this initiative and I suspect we'll be able to make some nice progress here. Alrighty. We're laser focused on our customers at HubSpot.
We evolved our value proposition for them from an application to a suite to help them grow better over the last few years. We're evolving again from a suite to a platform to help them grow even better. We're also focused on applying HubSpot technology on our own opportunity to
Thanks, Brian. Let's turn to our first quarter financial results and our guidance for the second quarter. 2019 is off to a strong start. I'm pleased with the growth in revenue, free cash flow and non GAAP operating profit we delivered in Q1. First quarter revenue grew 35% year over year in constant currency and 33% as reported.
Q1 subscription revenues grew 33% year over year, while services revenue grew 27% year over year, both on an as reported basis, HubSpot ended Q1 with 60,814 total customers, which was up 35% year over year. Average subscription revenue per customer in Q1 was $9811, down 2% year over year as reported and based selling in any quarter. Domestic revenue grew 27%, while international revenue growth was 50% year over year in constant currency, and 42% on an as reported basis. International revenue represented 39% of total revenue in Q1, up three points year over year. We continue to Deferred revenue as of the end of March was $193,000,000, a 28% increase year over year.
Calculated billings was $160,000,000, up over 31% year over year in constant currency and 27% as reported given an almost 5 point FX headwind to calculated billings in the quarter. The remainder of my comments will refer to non GAAP measures. First quarter gross margin was 82%, up slightly less than a point year over year. Subscription gross margin was flat at 86%, while services gross margin was 4%, up 12 points year over year. 1st quarter operating margin was 8.6%, up almost four points from Q1 of last year.
The adoption of ASC 606 had a minimal impact to operating leverage in Q1 But as a reminder, we still anticipate that ASC 606 will be a 1 point headwind to operating leverage for the full year. Net income in the first quarter quarter, we had 2745 employees, up 20% year over year. CapEx, including capitalized software development costs, was $7,000,000 or 4.7 percent of revenue in the quarter. CapEx was lower in Q1 due to the timing of our facilities build out plans throughout the year, as well as some planned spending that pushed into the second quarter. We still expect CapEx as a percentage of revenue to be about 8% in 2019, primarily as a result of and marketable securities totaled 984,000,000 quarter increase was largely due to the $343,000,000 in proceeds we received from the 2,150,000 share common stock offering we completed in February.
With that let's dive into guidance for the second quarter of 2019. Total revenue is expected to be in the range of $156,500,000 Non GAAP operating income is expected to be Non GAAP diluted fully diluted shares outstanding. And for the full year of 2019, total revenue is expected to be in the range of 655.5 to $658,500,000. Non GAAP operating profit is expected to be between $50,000,000 $52,000,000, Non GAAP diluted net income per share is expected to This assumes approximately 47.5000000 fully diluted shares outstanding. We now expect full year free cash flow to be about $62,000,000 The recent strength of the U.
S. Dollar creates an incremental headwind to as reported revenue growth in the second quarter the full year. We're now anticipating a an exchange headwind of approximately $10,000,000 to as reported 2019 revenue, which is up from our prior forecast of an $8,000,000 impact. This revised forecast equates to a full up from our prior forecast As we indicated on our last call, we expect the majority of our 2019 operating leverage in the First And Fourth quarters. Given the strong leverage we Similarly we saw strong free cash flow in Q1.
Q2 and Q3 will be lower free cash flow quarters as a 19 free cash flow to come in the 4th quarter. To close, the first quarter represented a strong start to the year, and we believe we are well positioned to build on this momentum throughout 2019. With that, I'll hand the call back over to Brian for his closing remarks.
Thanks, Kate. We're off to a really strong start in 2019. Our suite product play is paying dividends as our customers are investing in HubSpot as their marketing sales in service full front office. And our flywheel play is reducing friction, so it's even easier for our customers to try, buy and get up and running with HubSpot. And our platform plays gaining serious momentum as our customers and partners are finding it easier and more valuable than ever to stand, build on, and get more leverage than ever from their HubSpot investment.
Okay. I want to close by thanking our customers our partners, our investors in all the HubSpotters around the globe for helping us with our mission to help millions of organizations grow better. Operator, can we please open up the call for
Your first question comes from Tom Roderick. Your line is open.
Hi guys, good afternoon. Thanks for taking my question. So I wanted to just kind of hit on the, on the FX headwind here that I think you said five points on bookings. I was curious if you could just speak to that a little bit more in terms of how much the deferred revenue versus the revenue on a year on year basis got hit versus say deferred on a quarter on quarter basis? And also, if there are any particular geographies that are doing particularly well internationally that you'd highlight that you saw the strongest FX hit from that would be great.
And then sort of modeling forward, any thoughts on how we should attempt to, sort of think about the headwinds here to deferred in our models going forward? Thanks.
Yes, thanks. There, as we've talked about in the past, there are a bunch of different things that impacts impact billings, which is why we don't point to billings as one of the primary metrics that we focus on internally. The story in Q1 was clearly an FX story, and there's really 2 components of FX headwinds as it relates to calculated billings. The first one is around revenue. So you will recall that we define calculated billings as revenue plus the change in deferred.
There was about a 2.5 point headwind to revenue, growth year over year in the quarter. About the same, frankly, with the reevaluation of the deferred revenue. So, we, as you know, recalculate the value in U. S. Dollars of the deferred revenue balance on the balance sheet at the end of March and the difference between the starting and ending point FX rates impacts that.
And that is another 2.5 points of headwind for us.
Excellent. Excellent. That's great. And then, so turning to the product side, you know, looking at the, looking at the customer growth here, fantastic growth against the 30 percent. And, you know, I know Brian and Katie both talked about the ARPU bouncing around a little bit, but we'd love to hear about some of the new that you introduced last fall at inbound, how they're starting to have an impact relative to ARPU, perhaps you could talk about, sales Silhub Pro and some of the other SKU that might be starting to move that needle on ARPU a little bit?
Thanks.
Sure, Tom. Thanks for the question. Just to get everyone on the same page, if you roll the clock back to inbound last year, last September, We we announced a whole bunch of new products there and a bunch of new products on the enterprise side. And for us, enterprise is really mid market, but we call it enterprise. And then a bunch of new products on the starter SKU, which is really for startups and small businesses.
Overall, I'd say it's gone pretty well. I'm pretty happy with the performance of all the new products. All our products are we're never done. You know, it's not like a sculpture where we we crapped it and it's done, but man, they're doing well and those products are all gonna get better and, feeling good about it. The tricky thing for, for investors is is that ARPU number because it's we got some some customers that are definitely moving it up, and we got some customers that are definitely moving it down.
And that starter product line, particularly the marketing starter product line is doing really well, and that that's pulling it a bit. But, overall, I feel really good about all those new products. Dave, do you want to add to that, Kate?
No, I think the trend in Q1 is very similar to what we've been seeing over the last few quarters, which is the product mix really being the thing that impacts both the customer account growth and the ASRPC. And we see it again in Q1. That said, If you look at the individual hubs, we are seeing growth or expansion in ASRPC. So a standalone basis, the sales hub and the Marketing X Starter are both showing a positive trend?
That's a good point. Marketing X Starter is growing nicely.
Outstanding. That's great. Thank you guys. I'll jump back in queue.
Your next question comes from Brian Peterson from Raymond James.
Hi, thanks for taking the question. So maybe just a follow-up to Tom's question, but just on the international strength, could you expand a bit on where you're seeing some success And if I think about what products are resonating Internationally, any difference from what you're seeing domestically?
How you doing, Brian? It's Brian. International is going great. We've made lots of investment international over the last 5 years, a big office in Dublin, than we did. You know, we've got Australia, We've done Japan.
We've done Singapore, Bogota. We're just announcing and opening our Paris offices. Some big investments, and I think we're seeing a really nice return on those We also made some IT, language and the localization, investments. And, those investments are going well. And I think we're seeing nice, nice growth out of there.
What's interesting about the growth internationally is it looks a lot like the domestic market, the between products is nearly identical. You think there'd be some slight difference in there, but it's pretty close to the same across all the different product lines. That was a really good question. Thanks.
And maybe just one quick follow-up for Kate just on the retention number. I'm sorry if I missed that during the call, but anything you could share on the net revenue retention? Thanks guys.
Yes. So we don't, we don't actually disclose a specific number on retention. Q1 revenue retention was in the high 90s, which was expected. We said that number is going to move around up and down. We tend to see a bit of strength in Q3 and Q4 in the, call it, heavier bookings quarters and we tend to see it moderate a little bit in Q1.
We still think that we can do 100 plus retention over the long term.
Great. Thank you.
Your next question comes from Brad Sills from Bank of America Merrill Lynch.
Hey, thanks guys. I wanted to ask about sales and how that's been ramping in the, the ad agency channel and within your direct sales force. Any color on how these two channels are getting up to speed and moving up the learning curve on selling sales?
Brad, it's Brian. I'll take that. If I just kind of step back and describe what's going on at HubSpot with the channel, when we really early on when we first started HubSpot, HubSpot was a market only a marketing software company. We help people, generate leads. And we started pretty early in agency channel.
So it was a lot of search engine optimization agencies and website building agencies and PRR agencies. And it went great. And basically what happened was folks had a choice that they're going to buy HubSpot. If they wanted to do it themselves, they would buy directly from us, if they wanted to do it through an agency, they would buy through an agency, it scales really well. Over the last couple of years, we've been shipping our value prop from a lead generation business to certainly full flywheel business, helping people not just generate leads, but by creating this whole process.
What's been happening underneath, behind the scenes is A lot of our best marketing agencies have transformed themselves into customer experience agencies, flywheel agencies, agencies that really help people with that entire experience. And then we started a new, effort to pull in different types of agencies and we've got a lot of these agencies signing up a lot of boutique sales agencies, sales coaching, sales implementation, CRM implementations. And we're starting to sign up some more IT implementation types of agencies. And that was an initiative we started probably a year ago and, it's tracking. It's going pretty well.
Now, in the next couple of weeks, we're having all of our top tier agency partners into HubSpot. And I get to meet with them all having them all over my house from dinner. I really look forward to meeting them. That group and overall, the agency program is performing really well in HubSpot. Really happy with the progress out of whole that whole group's making.
And I'm bullish on, I'm bullish on the new sales and IT partners, over the mid and long term.
That's great. Thanks, Brian. And then one more if I may. You made some comments earlier on the outage disrupting your own sales operation. Could you elaborate a little bit?
Did you see deals push in the partner channel and in your direct channel as a result into to or are you more speaking to the impact being more just on your own sales operations given that you're running HubSpot yourself? Thank you.
Sure. If you allow me, I'd like to comment a little bit more broadly on the outage. If folks are super interested in it, we published a bunch of stuff out there. They'd point you to our blog, JD, our COO, publish an article while the outreach was going on. And then our chief architect did a post on our blog with like a postmortem of what happened in there.
If you really want to dig in, those are good places to look. Around the outage, it happened right at the end of March. I have I have talked to a lot of our customers who are hit by it. And if any of those customers are listening on the call, I just would apologize for it. It was disruptive for you.
It was disruptive for us and that was a long day at HubSpot. So we're We're kind of disappointed in ourselves, frankly, about that outage. Since then, we've been very, very active. We built a new reliability team built around. We took our top engineer and built a reliability team.
We've changed some of the process by which we built product. And we're only a few weeks in. We're already making some really nice progress. So I'm I'm pleased with the effort. And as the Dalai Lama likes to say, when you make a mistake, don't lose the lesson.
I don't think we'll lose the lesson. I think we're gonna learn our lesson and make sure we change our processes, change our org so we can be, be even better in the future. In terms of us, yeah, we use HubSpot. There wasn't a major impact. It was one day out of a quarter.
It wasn't a huge, huge impact, maybe a very, very slight impact there on the last day of the quarter, but nothing that I lot of sleep over, lots of lot more sleep over the disruption we gave to our customers.
Your next question comes from Mark Murphy from JPMorgan.
Yes, thank you, Brian.
If you continue to exceed in the very long run, what percent of your customers do you think are going to end up using all three parts of the growth stack? In other words, marketing sales and service, or essentially viewing HubSpot as the the core front office system. And I'm also just curious, what you think that can do for retention and stickiness,
if they do end up integrating
many apps into hub spot. I think you said they're also integrating, 5 apps.
I don't know what the number is, but it's going to be high. And I'll just I go on tons of sales calls talk to tons of customers. And what I'm seeing happening in the market is people, it's a little bit like I myself, I'm For better or worse, I'm an Apple person. I have an iPhone. I have a couple of Macs.
I have the earbuds. I even use Apple TV. I don't mix them, you know, and I would I don't have a Windows machine, that mixed in with my iPhone. I think companies are kinda doing the same thing where they're picking it core platform provider for the front office, buying some applications from that platform provider and then plugging lots of other locations in. That's kind of what I see in the market.
And the 2 primary ones I see every day, obviously, I see HubSpot every day and we see Salesforce every day. It's a very good competitor for us. And I think we compete quite well. Our offering is really good, and I think our offering is getting stronger and stronger every day. So I think over the long haul, a very high percentage of our customers will pick up as a platform.
They may not use us use us for all three. They may plug in something different in a different part of our product. But I think they will consider us sort of their system of record and they'll plug in a couple of our apps and they'll plug in tens of other applications into that. Now over the long haul, what will that do to retention? I think our retention can be a lot higher than it is today.
I don't know what that can be. I think Kate is tearing me a hole in the side of my head right now, so I wouldn't dare to, see what that is. But I think it gives me a lot higher. But there's a mix problem, like, while we're we're getting a lot of our existing customers to buy all three of our products and really commit to our platform, there's lots of people just buying the marketing starter. So know, that's why I say over the long haul, because in the short haul, there's a as JD likes to say, we've got a kind of a, what do you call that?
A humidifier we get
a humidifier and a dehumidifier going on on ASRPC and growing on retention inside of HubSpot and that there great thing going on with lots of new customers on this point solution and there's lots of lots of people upgrading. But over the long haul, I think we'll have, much better retention rates than we have today.
Yes, I think Mark, you're instinct, right? We do see for multi product customers a, a, you know, meaningfully higher retention rate than we see for single product customers, but Brian is, is right in that journey has a long way to go.
Okay. Okay, great. And then Kate, just a very quick follow-up. I think you said billings grew 31. Percent in constant currency.
Nice to see. You had adjusted that for currency. Did you also adjust that for duration as I believe you had you had done that in the prior quarters, or was that just for currency?
So that that's the actual results in constant currency. As you point out, there are a bunch of different things that play into billings. Again, that's why we don't obsess about it internally. There's some seasonality to billings in Q1. There is a bit of push and pull on billing terms, and we probably had a little bit of impact here from the credit as well.
So a lot of stuff happening in billings this quarter.
Overall though, like I look at all the leading, we look at a 1,000,000 numbers Leading indicators of the business are very good. I feel good about, really, I feel fine about, where the business is at. A little bit of currency headwind, but where I feel like really good just like I felt a year ago.
Okay. And then you got the reference to the forward pipeline and just the tone and tenor of sales feedback and whatever else comes across your dashboard. Is that what you're talking about, Brian?
Yes, there's we look at a million numbers. A lot of them are backward looking, some are kind of forward looking. Everything looks good generally compared to yours. Nothing's ever been perfect, but like if I look at today versus a year ago, I was bullish a year ago. I'm still bullish today.
Like, sales reps are making their numbers. Our win rates are good. Our competitive position is good. Like, I'm still feeling good. A little currency headwind there that's hard, you know, I can't quite control that, but the business is good.
Which of course is captured in our guidance, Mark.
Thank you Chuck for clarifying. All right. Have a good night.
Your next question comes from samadsamana from Jefferies.
Hi, good evening. Thanks for taking my questions. I just wanted to make sure, I think you said that the headcount was up 20% year over year. I was just looking back. I think that's pretty, pretty decent slowdown in terms of the employee headcount growth rate.
I'm just curious how you guys view and maybe hiring? Is that just a a seasonal effect? Should we expect higher growth? I just as I think about some of the other companies that we looked at, that are even larger, they're still growing heads faster. So I'm just curious what the company's headcount investments are?
And then I have a follow-up question as well.
Yes. So Q1 headcount was frankly a very hard compare for us. 2018 Q1 was a really strong hiring quarter. That said, I think January, we got off to a little bit of a slower start coming out of the holidays. We're really encouraged by the hiring trends that we're seeing in March April.
And we also continue to see relatively low levels of attrition, which is great.
Got you. And then Katy, maybe just one follow-up on the outage. I know it happens to other companies as well. Was there any type of, did you see any change in maybe churn rates or any impact or is there any financial remediation for customers? Just want to make sure if there's any one time items that we kind of adjust accordingly.
Yes, I mean, it's obviously hard to quantify the specific impact of the outage, but I think there's probably a small impact on a bunch of different things, including churn, including billings, including revenue.
No, I'd just add to that. One of the million metrics we look at is customer, net promoters for customer happiness referral rates. As you might imagine, they really dip down. We look at it, I look at it weekly. It really dipped down that week, to a low since I've been looking at it.
And it steadily climbed back up and it's all the way back up to where it was pre, outage. So I think it's it's very unfortunate and we apologize for it, but I don't think it's going to change the game for us.
We definitely appreciate the amount of information just on the blog. I think that was very helpful. I just wouldn't ask. And then Brian, just one maybe big picture question. I think we're about a year into the customer service offering being out.
I'm curious just maybe how you feel the ramp of that's going and how that's, that's impacting the overall suite adoption. And that's it for me. Thanks again for indulging the extra question.
That's okay, Samad. Nice to hear from you. Sure it's offering's going great. We came up with that. I think we started that in May of last year.
Historically, the way we release products is we release kind of a small footprint of a product and then it continually gets better and better. And we've seen that with that service product getting a lot better. I think a year from now, it's gonna be even better. We're seeing people adopt it and enjoy it. So feeling good.
It's growing. Of the things I think we said last quarter the quarter before is we compared the growth rate of the service offering from the day we released the service offering relative to what we did on the sales offering, it continues to grow a lot faster than that sales business did. And we're seeing lots of customers buy the whole suite up front, which is really heartening.
Your next question comes from Stan Zlotsky from Morgan Stanley.
Perfect. Thank you so much for taking my question. Brian, maybe if I could just chime in on that. On what you mentioned as far as multi product adoption. Any metrics that you guys can share with us on how adoption of that is going versus like the 20,000 that you mentioned on the Q4 call?
I can take that. I think what we've said is we would give you some milestone, numbers and we have passed that 20,000 milestone of multi product customers. We're sort of comfortably above that now. We're tracking in the mid-thirty percent of our customer base who has more than 1 HubSpot
Got it. And maybe if I could just go back to the average subscription revenue per customer metric, The in Q1 it dipped, I think, 2% quarter on quarter. And I understand that there's some FX headwind, but we saw similar dynamic in the over the last 2 years where in Q1 it dips fairly significantly compared to all the other quarters.
Is there some kind
of a a a phenomenon that happens in Q1 from a a mix shift or some kind of a customer dynamic that takes place in Q1 that really hits that average revenue per subscriber? Thank you.
Yes, I think we announced a lot of products in Q4. We announced a new enterprise suite. We announced price increase, there's a lot of attention on that side of the, I guess, I'm going to call that the humidifier side of the equation. Then Q1 was a particularly strong core for the sales and service hubs side of the equation. And so depending on sort of the composition of selling in any quarter, you're going to continue to see that else around.
Got it. All right. Thank you so much.
Your next question comes from Bhavan Suri from William Blair.
Hey, this is actually Arjun on for Bhavan. I just wanted to touch on the multi product customers a little bit more. I know you're seeing more customers land at HubSpot with more than one product, but just curious if you're seeing any impact on the sales cycle and, how long customers staying in the funnel before they make a purchasing decision. And also, is there a greater proportion of these custom multi product customers that are landing at HubSpot through the channel or is it fairly consistent in terms of single product customers?
I guess I'll continue that humidifier, dehumidifier theme. If you look overall at the sales cycle, it really hasn't change much at all. Some of the deals are faster, particularly if they're buying the growth suite or a point starter solution. If they're buying the enterprise growth suite, it might be a little longer, but net net, it really hasn't moved much. In terms of, and I haven't looked at this carefully, but I believe it's pretty similar.
I don't know if you have this day a pretty similar process to the direct and indirect in terms of the
I actually don't know the answer, but I'm happy to follow-up.
Okay. That's fair.
And
then I know the international, the international growth has been, has been pretty phenomenal, 50%. Just curious if there's if you see any difference in the, in the competitive environment abroad versus, versus what you're seeing at home from a a competitor presence perspective or anything else?
Pretty similar, similar dynamic going on internationally in the U. S. These SaaS companies like HubSpot and Salesforce and others, it's a lot easier to go international. So we do business in over a 100 countries now. And so you don't need an office in Tanzania to have a bunch of down there and the same goes for our competitors.
So unlike maybe 10 or 15 years ago, the competitive landscape looks pretty similar.
Sounds good. Thanks for taking my questions.
Your next question comes from Terry Tillman from SunTrust Bank.
Hey guys, this is Eric Lemus on for Terry. Thanks for taking the question. I just had one for you. We talked about in the past about reducing friction in the buying process. Have you guys seen any sort of outcomes with the strategies you guys have been doing to reduce friction in the buying process?
And more so on that, anything around in that purchasing?
I'll take that. Eric, one of our big initiatives is around this idea of freemium and lowering the touch. And if I just think about HubSpot writ large, we have 2 channels that generate leads and opportunities for us inside of HubSpot. The traditional channel we use is we create lots of content and that pulls people into search through links to the blog through things like that. And I would say we're pretty good at that.
We have room to improve those opportunities there, but we're pretty good at that. The freemium is pretty new. We're kind of in the first inning of that initiative. And I would say I'm very pleased with the way it's gone. Lots of opportunity left in the freemium model.
And then what I draw, I draw this thing on the whiteboard around here all the time where I draw one side of the whiteboard, Atlassian, which is my favorite company, And then on the other side of the whiteboard, I'll draw Oracle Salesforce, the, you know, a company with a, you know, a longer sales cycle, enterprise Salesforce. And we're kind of in the middle of that, and we're moving towards the left, closer to Atlassian's model. We're not all the way there. Lots of opportunity between here and there. I don't know if I'll ever get all the way there, but that's kind of where we're heading.
So far so good on it. Lots and lots of opportunity left.
Great. Thanks, Brian.
Your next question comes from Jennifer Lowe from UBS.
Great. Thank you. I wanted to touch a bit on the enterprise success that you're seeing. And I guess sort of the first question there is, how much of that customers who are at other price tiers growing into that versus you starting to land a customer that sort of at the upper echelon of the segments that you've traditionally targeted?
You know, it's relatively similar. I think it's like sixty-forty. But we can get you an exact number.
Generally what's going on in the market is people will buy HubSpot and they'll grow with us. And that is a really good model for us. And we've learned that model from a lot of other companies like Slack, like, ADWOS who get in when you're in the startup phase with five people. And the next thing I get 50, the next thing you know, you got 500 people. And we're the platform of choice.
That's kind of the game we're playing. We certainly go into a five hundred person company, and if they haven't settled on a platform yet, we do quite well in there. But if they're already on a competing platform, they've got a completely set up and customized and everyone's trained. That's a bit of a tougher compete for us.
Okay. And that was a little bit where I was going to the question, as people start to embrace having a more, I think in the past, a lot of the opportunity was greenfield customers don't have anything and you can go or have very fragmented tools and HubSpot can go in and kind of replace that or, you know, push it out, you know, now as you start to have this suite and you start to have maybe a bit larger of a customer that you're able to target, are you starting to see more replacement of technology versus greenfield? What sort of the landscape like from that perspective?
It's a good question. Like, if I think of let's just take a five person company, a fifty person company, and a five hundred person company. A five person company hasn't picked the platform yet. A fifty person company fiftyfifty chance that they've they've picked the platform. So half of them, let's say, have picked the platform.
Half of those are unhappy with their choice and having completely set it up and trained everyone so they're kind of loose in the socket. And then the other half of those having done a platform, it's a bunch of point solution. Let's say 75% of those are really good fit. 500 person company, and this is a total swag, more of them have picked the platform you could imagine and more of them have got it set up. And so certainly there's plenty left there.
We're winning those deals and people will replace the existing platform, but we compete extremely well in that 50, where I think the business will go and where all disruptors go over time as they get in early and they grow with their customers. And that plays play has been in place for a while now is working really well.
Great. Thank you.
Your next question comes from Kirk Materne from Evercore.
Great. Thank you. This is Peter Levine for Kirk.
So a couple of my questions have been answered, but I guess one that kind of sticks out I mean, it's roughly $950,000,000, $60,000,000 cash, cash equivalents. So just any comments, how you plan on deploying that capital? I don't believe I believe in prior calls, you kind of discussed the potential 4th hub. So maybe discuss how you, what you feel about M and A evaluations today versus kind of organic development Thank you.
Sure. Let's talk about M and A. We do have some cash on the balance sheet. I would say that cash doesn't increase our urgency to do a deal, but it increases our flexibility to get a deal done. I just I just spent a month in San Francisco.
I rented an apartment, Airbnb in San Francisco for the month of March, while I was out there, I did sort of a learning tour and met with the heads of corp dev and with lots of CEOs of companies that have successfully done M and A. And so I learned a lot and we've got a little team of people who looks at deals. But, overall, I think you'd see our approaches. We're prudent we're prudent it. If we're going to buy something, you want to enable it, you know, have it enable our customers to grow better.
So it really fits in with the story and helps helps with our grow better story. We wanna buy a team that's a good culture fit. That's something we learned a lot about if you buy a company without a a team that really fits in nicely. You know, that can be dangerous. Tech stack is going to matter.
But it's a fully different tech stack that makes it much more difficult to integrate. And then evaluation, you know, everything, you look at multiples are relatively high today. And so we're gonna be careful. We're gonna be prudent. And we're going to be good stewards of that cash is how I would think about it.
Your next question comes from Michael Turrin from Deutsche Bank.
Great, thanks. Just quickly, I wanted to follow-up on the channel. Apologies if I missed it, but can you add how much of a contributor that was during the quarter? And then longer term, is there an optimal mix for us to think about is the 40% we've seen more recently also a good mile marker to use going forward or as you move more towards this Atlassian type of motion does that in any way change or influence that mix? Thanks.
So the I can start with performance in the quarter. So 40% of our revenue came from the channel.
And then just long term, what percent from the panel. It's been 40 for a while. And if you look at the way we make our investments inside of HubSpot, We've invested a lot in direct and channel. The unit economics are quite similar, so they've got similar levels of investment. And we're continuing to invest.
We're going to have our partners in in a couple of weeks we're gonna talk about some investments we're making to make it easier to become a partner and make it easier to be a happy, profitable partner that grows. So pretty similar investment. I don't know exactly what it will be long term, but I would just say we're paying close attentionable or investing in both, both of them work. And so, steady as she goes as far as I'm concerned.
Got it. That's helpful. Thanks.
Your next question comes from James Rutherford from Stephens.
Hey, good afternoon. Just one for me and thanks for taking the question. You mentioned, Kate, the net revenue retention was in the high 90s and that seems similar to what you all were saying in the first quarter of last year. I'm just curious if you can comment on what you're seeing with retention at the enterprise tier now that you've rebuilt that market product in the enterprise. Are you seeing any benefit from those product investments start to hit the retention line at that tier yet?
Yes. I mean, we don't tend to share information beyond sort of that top level number. But we do I think your gut instinct around the relative retention of the enterprise versus the starter product is right.
Okay. Thanks. That's it for me.
Your next question comes from Ken Wong from Guggenheim Securities.
Great. Thanks for taking my question guys. Brian, I believe last quarter you mentioned a lot of high return projects in 2019 specifically around enterprise that that could be valuable to customers. I'm just wondering any update on that and how you think that might impact the upward migration of your customers towards enterprise a multiproduct attach?
Yes, I think we made a lots and lots of investments last year and over I think we've done a pretty good job of making investments in the product and they've seen and we've seen nice returns on them over time. The way I kind of think about our product sure you got your questions, Zappy, but the way I think about the product and the way I think about them, a modern software company is You kinda wanna make the front end. So it's consumer grade. You want it to be fast. You want it to be highly usable.
You want the uptime to be really good. At the same time, you want the back end to be enterprise grade. Again, you want the uptime to be high. You want it to be scale as people grow. You wanna have open APIs that people use.
That's sort of the way we think about it. And to that extent, and to the extent we can continue to deliver value for our customers and get that word-of-mouth up, we're going to continue to invest. We're good at hiring developers. We think we can build more products and we think we can make our existing products a lot better.
Got it. I appreciate the answer. Thanks.
Your next question comes from Ross MacMillan from RBC Capital Markets.
Thanks so much. I had 2, maybe one for Brian, one for Kate. So Brian, the net customer adds was really strong again this quarter. Was there anything specific you did on like the freemium funnel or the top of the funnel for that low tier that maybe drove I don't know, outsized performance in net customer adds. And then, for Kate, just on calculated billings you obviously mentioned FX.
I was just curious, were there any impacts from average duration on that number at all this quarter?
Yes. Maybe I'll start and then Brian, you can add in. As it relates to the billings, I think the main player in the billing story in Q1 was definitely FX. But yes, you're right. There are a bunch of other things that impact billings.
We talked about seasonality. We talked about billings term billing terms. We talked a little bit about the credit impact. So all of those things also impact but really FX was the main driver.
Ross, it's Brian. Nothing. We didn't really do anything special, I would say in Q1, our freemium motion, our free CRM, all that stuff is a case of continuing to innovate. The product folks are continuing to deliver functionality, trying to make the product faster and more usable and more performant all kinds of things. There was no we didn't run a special campaign or something.
It was steady as she goes.
Yes. And customer count growth in Q1 continues to show the same trends that we've been seeing over the last couple of quarters. The marketing, Hub starter, customer ads continue to be really strong. But, you know, as Brian talked about, we have a balance there with also strong trends in multi product adoption.
Yeah. That's great. Thank you so much. Congrats.
Thank you.
And that was our last question at this time. I will now turn call back over to Brian Halligan, Chief Executive Officer of HubSpot.
Thanks everyone for joining the call. Look forward to talking to you again soon.
This concludes today's conference call. You may now disconnect.