Good day and thank you for standing by. Welcome to the HubSpot Q2 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first Speaker today, Chuck McClashing, Head of Investor Relations for HubSpot.
Thank you. Please go ahead, sir.
Thanks, operator. Good afternoon, and welcome to HubSpot's Q2 2021 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 Co Founder and newly named Executive Chairman Dharmesh Shah, our Co Founder and CTO Yamini Rangan, our Chief Customer Officer and newly named CEO and Kate Bucher, our Chief Financial Officer. Before we start, I'd like to draw your During this call, we'll make statements related to our business that may be considered forward looking within The meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.
All statements other than statements of historical fact are forward looking statements, including those regarding management's expectations of future financial And operational performance and operational expenditures, expected growth, the leadership transitions and business outlook, including our financial guidance for the 3rd fiscal quarter and full year 2021. 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 During the course of today's call, we'll refer to certain non GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non GAAP financial measure used or discussed and a reconciliation of the differences between such Now it's my pleasure to turn over the call to HubSpot's Chief Customer Officer, soon to be Chief Executive Officer, Yamini Rangan. Yamini?
Thanks, Chuck, and greetings, everyone. Thank you for joining us today as we review HubSpot's Q2 2021 earnings results. I know you've likely seen the exciting news that Brian will be taking on the role of Executive Chairman as of September 7. We're all looking forward to having Brian back in action and stronger than ever when he returns next month. Brian will be joining the call here in a few minutes to talk about the path forward in this new capacity as well as to share some reflections on the 15 years that have led Today's news and this quarter's fantastic results.
Before we do that, I want to focus on the business at hand, The great results from last quarter. We continue to operate from a broad position of strength With Q2 revenue growth accelerating to 47% year over year in constant currency and total customers growing 40% year over year to over 121,000. We've seen multiproduct adoption grow to over half of our total customers, a great indicator that more companies are realizing the advantage of managing their entire front office on one platform With one data model, one view of their customers and one user interface that's easy to use. A key driver of this continued growth is digital transformation we're seeing as more companies have had to adapt to doing business online. This shift towards digitally powered customer experiences is one that HubSpot has been evangelizing for the past 15 years.
So we've been well positioned to meet the moment. As consumers increasingly expect remarkable digital experiences at each of their journey, scaling companies need a powerful CRM platform to tie it all together. This makes CRM not just a nice to have solution, But an indispensable driver of long term growth for our customers. A key part of that digital experience is the company website. This is the digital front door.
Traditional website content management systems are often siloed from other essential front office functions. They're complex to manage. They lack speed, security and scalability that companies need to grow their business. That's why we launched CMS Hub Professional and Enterprise last year, and we are continuing to invest in the platform With CMS Hub Starter launched yesterday. CMS Hub Starter is built as part of our CRM platform to give companies seamless access to all of their customer data.
Having a CRM powered website enables both marketeers And developers to efficiently work together to build remarkable digital experiences and maximize the revenue generating opportunity. As part of that launch, we also adjusted the pricing of our CMS Hub Professional and Enterprise tiers To reflect the increased value we are delivering to our customers through SEO enhancements, dynamic pages, site And increased limits on capacity with even more advanced features in the road map. We're still in the early stages of this launch, But we are confident that CMS Hub Starter will fill a painful gap for marketeers and developers that are looking to spend less time managing their system And more time driving growth. Another important function of digital first transformation is revenue operations. Last quarter, I talked about the launch of Operations Hub, a new product designed to Form the role of operations professionals and empower them to become strategic drivers of revenue and growth.
I'm excited to share that we are continuing to hear Positive feedback from customers and partners and that Operations Hub has performed nicely ahead of our internal growth expectations Over the past quarter and a half, DataSync, our robust new integration engine, has quickly become one of the most compelling and popular Free tools, particularly among small customers, exemplifying how Operations Hub will drive adoption of our CRM platform. We're also seeing strong adoption of programmable automation among larger companies who are looking to take full advantage of their data And deliver personalized experiences to their customers. 1 of our top solutions partners had this To say about the feature, programmable automation makes HubSpot significantly more flexible. We've used it to build even the most Advanced Business Processes in HubSpot from ERP integrations to data enrichment, commissions Thanks to the team at Aptitude Aid for sharing the feedback. We're so glad that they are seeing value in Operations Hub.
Both Operations Hub and CMS Hub Starter are great examples of our commitment to crafting our CRM platform in house rather than in house rather than cobbling it together through clunky acquisition. That focus on delivering a consumer grade UI matched with a Scalable enterprise back end sets us apart from traditional CRM platforms and puts HubSpot in a strong position To achieve our goal of becoming the number one CRM platform for scaling companies. With that, I'll turn it over to Kate to give an overview of our fantastic financial results.
Thanks, Shamini. Let's turn to our Q2 financial results and our guidance for the Q3 and full year of 2021. 2nd quarter revenue grew 47 Year over year in constant currency and 53% as reported. Q2 subscription revenue grew 53% year over year, While services and other revenue increased 44%, both on an as reported basis, we continued to see strong performance Across all of our hubs, tiers and geographies in Q2. Revenue retention continued to be very strong in the quarter, once again benefiting from healthy customer dollar retention levels.
In addition, our net revenue retention Continue to benefit from a diverse set of upgrade drivers with particular strength from addition upgrades, cross sell activity and seat expansions. As of Q2, 58% of our customers are getting value out of 2 or more hubs They adopt HubSpot as a platform. Domestic revenue grew 42% in Q2, while international revenue growth was 54% year over year in constant currency and 68% as reported. International revenue represented 46% of total revenue in Q2, to up four points year over year. We added over 7,100 net customers in the quarter, bringing our total customer count to 121,000 up 40% year over year.
Average subscription revenue per customer grew 8% year over year to approximately $10,200 as we saw a positive mix shift toward our professional and enterprise Coupled with strong install base selling in the quarter. We expect our strong install base selling and positive product mix shift to continue through the second half of twenty twenty one. As a result, we anticipate second half net customer additions to sustain around these levels as we continue to compare against the robust starter growth suite customer additions from 2020. And we expect high single digits year over year growth in ASRPC in Q3 and Q4. Deferred revenue as of the end of June was $362,000,000 a 50% increase year over year.
Calculated billings was $334,000,000 growing 60% year over year in constant currency and 65% as This acceleration in constant currency billings growth was driven by strong business performance in the quarter In addition to an easier overall comparison as a result of the challenging business environment in the Q2 of 2020. The remainder of my comments will refer to non GAAP measures. 2nd quarter gross margin was 81%, down a little over one point year over year. Subscription gross margin was 84%, while services gross margin was negative 5%. 2nd quarter operating margin was 9%, relatively flat as compared to the same period a year ago.
Operating margin in the quarter exceeded our expectations, primarily as a result of our strong revenue performance. At the end of the Q2, we had just under 5,000 employees, up 32% year over year. Net income in the 2nd quarter was $22,000,000 or $0.43 per fully diluted share. CapEx, including capitalized software development costs, was $16,000,000 or 5 percent of revenue in Q2. Free cash flow in the quarter was $26,000,000 or 8% of revenue.
We continue to expect CapEx As a percentage of revenue to be about 5% in 2021 and now expect free cash flow to be between $170,000,000 $175,000,000 with a seasonally strong free cash flow quarter in Q4. Finally, our cash and marketable securities totaled $1,300,000,000 at the end of June. And with that, let's dive into guidance for the Q3 and full year of 2021. For the Q3, total revenue is expected to be in the range of $325,000,000 to $327,000,000 up 43% year over year at the midpoint. Non GAAP operating income is expected to be between $27,000,000 $29,000,000 Non GAAP diluted net income per share is expected to be between $0.42 And for the full year of 2021, total revenue is now expected to be in the range of $1,268,000,000 to $1,272,000,000 up 44% year over year at the midpoint.
Non GAAP operating income is now expected to be between $107,000,000 $109,000,000 Non GAAP diluted net income per share is now expected to be between $1.67 1.69 This assumes 50,500,000 fully diluted shares outstanding. As you adjust your models, keep in mind the following. At current spot rates, we're forecasting an FX tailwind to as reported revenue of 2 points in Q3, a neutral impact to Q4 and a 3 point tailwind for the full year. Lastly, I look forward to seeing many of you again for our Virtual Analyst Day as part of our inbound 'twenty one event on October 12. And with that, I'll hand things over to Brian for some closing thoughts.
Thanks, Steve. It's a true pleasure to be able to speak with all of you again. I'm so proud of the entire HubSpot team that have been absolutely cranking during my time away. And I'm so thankful for the work that Yamini, Dharmesh, Kate and the rest of the leadership team have done in my absence, my sincere thanks to all of you. I also want to say Huge thank you to all of you for the well wishes over the past couple of months.
The road to recovery has been a long one, but I'm feeling really, really good. My head is 100% back. My body, well, that needs a little more physical therapy, but I'm making great progress and should get back to 100% quite Now back in June, we celebrated our 15 year anniversary of HubSpot's founding. When I look back at the last 15 years, I'm super proud of what we've been able to accomplish. We built a truly mission driven organization, designed this all to the customer.
It actually helped millions of organizations This past year, we've hit some exciting milestones like passing $1,000,000,000 in ARR and 100,000 customers. These are just the start. HubSpot is still in the very early innings and has a lot more value to provide to our customers, partners and employees. One of the keys to the modest success we've had so far is we haven't been afraid to take inspiration from the Warren Buffett quote that goes something like, Someone is sitting in the shade today because someone planted a seed several years ago. That's HubSpot in a nutshell.
We've been willing to plant seeds like shifting from our operating app to our front office suite, shifting from our front office suite to our front office platform, shifting to a premium model And many, many others that are all paying off quite nicely for us today, lots of shade going on. Now over the last 6 months, I've been thinking a lot about how I can have the most impact on HubSpot moving forward. And moving to the Executive Chairman role feels like a natural fit. As an executive member of the Board, I'll be able to lean into the things that excite me Like planting and nurturing more of these seeds that will turn into big shady trees for years to come. My transition to Executive Chairman would not be possible We were super confident in Yamini's ability to lead HubSpot.
When we hired Yamini, we knew we were getting an incredible leader with an amazing track record of holding high impact roles at SAP, Workday and Dropbox, we'll be able to align marketing sales and service teams and create a more cohesive experience for our customers. But what we've actually gotten is so much more than that. Since the day Yamini arrived, she's made HubSpot better. From reducing friction for our customers to leading the company with clarity and empathy through the pandemic, Yamini has proven she's ready to take on the role of CEO to help both HubSpot and our customers and partners grow better. And she's just a perfect compliment to Dharmesh and me to write the next I want to close out by once again thanking Yamini for a terrific leadership over the past 6 months and offering my heartfelt congratulations to her on this exciting milestone.
Dharmesh and I have no doubt that she's the right person to lead HubSpot moving forward, and I'm super excited about the journey ahead. I want to thank all of you for your time. Now speaking of Yamini, over to you.
Thank you so much, Brian, for your Kind words and for your incredible support during my time here at HubSpot. I'm deeply humbled, grateful And super excited to take on this new role in partnership with you, Dharmesh and the entire HubSpot team. It was your visionary leadership as founders that got us here today and that leadership will continue to be invaluable as HubSpot grows. I'm excited to continue working together to build innovative products for our customers, create a remarkable culture Operator, please open up the call for some questions.
Our first question is from Samad Samana from Jefferies. Your line is open.
Hi, good evening. Welcome back, Brian. 2Q really represents in spades, the great company you and Darmesh have built all these years and Yamini's And congrats on the move to Executive Chairman, really happy you're staying. And Yamini, congrats on your move to the CFC full time. I'd love to hear from both of you a little bit more about how you 2 will be dividing up the core responsibilities going forward And where each of you will be focusing your individual attention?
And then, Yamini, maybe for you, it's obviously early, but you've been at the helm now for 6 months. It would be great to hear maybe if you could give us some thoughts about HubSpot's vision and strategy going forward.
Samant, I will I'll hand it to Yamini. But it is great to hear your voice, my friend. Thank you very much for asking the first question here. I'll say I feel fantastic. My head is fully recovered from my accident.
I'm thrilled to be back in HubSpot in this room with my friends and colleagues. It's just A terrific time for me. Now when I get hurt, I had a lot of time in my hands. I spent a lot of time in a hospital bed looking at the ceiling. And I was thinking about what can I do?
How can I add value to HubSpot in a bigger way going forward? I've been 15 years and what's next for me? And I thought this is a good time. I'm going to become an Executive Chairman and Yamini is Going to become CEO and it's going to be a 1 +1equals3 combination. Yamini, we hired I hired Yamini.
She is the perfect fit for this job and for this phase of growth to take us to the next level. She's just a perfect fit. She's had my job for the last You guys see the numbers are fantastic. You've done a masterful job. I'm very, very, very bullish on In terms of dividing up what we're going to work on, we've talked a lot about that and I'll let Yamini weigh in on her side.
What I'm sort of focused on as Executive Chair, 1st and foremost, I plan to be Executive Chair, active and engaged Executive Chair. And you probably heard me tell the bad jokes I used to say on these calls that if I ever leave HubSpot, they have to take me out on a stretcher or a straitjacket. My main role is to help Yamini do as best as she can to keep this thing rolling. I do feel like it's a very early innings of HubSpot. The second thing that I've always enjoyed doing and help drive is place those seats that turn into Shady trees that we've all enjoyed over the years.
The aptitude tree we planted several years ago is still Small tree, there's a lot more growth to go in the suite. We're just now planning the suite to platform seed that's going it's going to go really well. It's Top of the first inning on that seed, the split to premium model, the bet on culture, these are seeds we played a long, long a long, long time together to all play paid off. And I like that type of work and I like product and product vision. So that's kind of where I'm going to be focused and then just helping How about you, Amber?
Yes. Well, thank you, Brian. And I have been so humble, grateful and super excited to Take this new role and write the next chapter of growth at HubSpot. It's not I would say I'm Particularly excited because I get to work with 2 brilliant people, Brian and Dharmesh, who've done this for 15 years, who have Fantastic experience. The 3 of us share a lot in common of growth mindset, just curiosity, focus on product innovation, focus on Customer centricity and I think the combination of their experience plus my focus on scaling customers is going to be powerful.
You asked a question about the vision and strategy. Our vision is clear. Our vision is to help millions of organizations Grow better and we're just getting started in accomplishing that vision. And our strategy Over the last 6 months and over the last couple of years, it's been working, it's clear and it's not changing. And if I How to articulate the strategy is threefold.
First off, we want to build a best in class CRM platform for scaling companies. And we'll do this by expanding into new hubs like you saw us do with operations of last quarter and we'll do this by investing heavily Into our existing hubs, like you heard about the CMS hub this quarter, we have just a long way to go, a lot more to do in terms of the product. The second part of our strategy is fueling all of our segments. Now we focus on the 1,000 to 2,000 segment and historically we've been really good at the 20 to 200 We have unparalleled product markets that there. We've been investing heavily in the lower end of the segment, 1 to 20, and we'll continue to invest In the 200 to 2000, so we have just a great enterprise class of products with consumer grade Ease of use and this is working.
And finally, the 3rd part of the strategy I'm very excited about is that we want to continue to build an organization that can scale. We care deeply about our employees. We care deeply about diversity and we want HubSpot to be the place that's Really the best place for people to work and serve our customers. So I am super excited to get started on this journey and write the next chapter of growth at HubSpot.
Great. Thank you both for that detailed answer. And Kate, I know the big news was the transition, but it wouldn't be a HubSpot quarter if I didn't ask on the financials, just that billings number was very, very strong. I know there's an easy comp there, but even if I look against a very strong 1Q, Maybe could you just help us unpack if there is anything that changed in terms of either duration or was just were there more larger in the quarter that leaned toward enterprise and took more seats than normal. Just help us understand the really good amount of strength there.
Yes, sure. Thanks, Sumant. Billing growth was notable and notably strong in Q2. Frankly, there's not much out of the ordinary There's not a lot of big changes in duration. The biggest driver of the billings performance was the strong bookings growth That we had in the quarter, the one thing that I would point out and you kind of got it in the question is that there is Easier compare for billings relative to revenue in constant currency.
You might remember last This year in Q2 we ran a number of short term customer release plays that had a bit of a negative impact On our Q2 2020 billings, and so billings had just frankly a little bit of an easier comp than
revenue. Great.
Thank you. Brian, we'll miss you on the call, but congrats again and look forward to seeing you at future inbounds.
Yes. I'll see you actually pretty soon. I'll be at the Investor Day at INPOUND. So we'll see you soon.
And our next question is from Mark Murphy from JPMorgan. Your line is open.
Yes. Thank you very much, Brian. As much as I enjoy reading your tweets, it's so much better to hear your voice So great to hear from you and congrats to both of you on all these tremendous milestones. Yamini, let me start with this. I think you talked in the past about bringing high end features down to mid market companies.
I'm just wondering which features maybe have driven the greatest traction recently in some of the enterprise additions, whether it be Custom objects or account based marketing or different channels that are emerging, just anything else that you see which might be resonating in the results here?
Yes. Thanks a lot, Mark. Good to hear your voice and appreciate your wishes for both Brian and myself. I'd say that enterprise all of the product investments that we have been making in enterprise is working. Our strategy is really to build products that fit every one of our segments and our upmarket segments from 200 to 2 That's been a focus area for us.
Now last year, we powered up Marketing Hub and the A lot of the features that we announced at the beginning of the year deeply resonated with our customers. And at inbound, we launched Sales Hub Enterprise as you know and CosmoLogix, huge hit. A lot of the CPQ advanced features that we added huge hit. In Q1 of this year, we added Conversation Intelligence. Now this is a category in and of itself.
The fact that we Added it to PowerHub and is now a seamless part of our whole suite. That is resonating deeply within the market. So Our strategy for continuing to build powerhouse features while maintaining the ease of use that is consumer grade, I think that is what is working. And broadly, if you look at the up market, we're just getting a fair share of a fast and growing market and we'll We continue to invest both on products as well as go to market to continue fueling that.
One thing that we've seen from our go ahead, just kind of adding on there We talked about custom objects, which has been really well received. We're continuing to pull on that thread. So we have custom objects, flexible data associations, things that customers have been asking for, And the idea there is for a company to be able to model its entire business within HubSpot. So the more flexible database gets, the more data we can hold there And the higher percentage of that 2,000 segment would serve well.
Okay. Thank you for that. I appreciate the additional color. And Yammidy, just one quick follow-up. It sounds like you're mostly focused on executing on the pre existing roadmap Strath, you've been a big part of it.
It's been performing amazingly well. I think kind of following on Samad's question, I'm just wondering, do you carry some unique philosophies or maybe just think The time is right to make any kinds of little tweaks, for instance, the focus up market versus down market or The optimal number of hubs, right, as you're talking about conversation intelligence, it's been a bit of that or How deep to push on the operations side, any of those factors where you have any little different view?
That's a great question. I think it goes back to the earlier thoughts in terms of strategy. Our strategy is clear. We have a focus on having the best CRM suite in the market. That means we'll Continue to invest in our existing hubs and we'll continue to make new investments in additional hubs and there's plenty of ideas.
Mark, we just came from our annual strategy off-site in June, and we have in our collective heads Product innovation for the next 15 years. And the focus on Horizon 1, Horizon 2 and Horizon 3 bets Have worked really well for the company and my job is to work with Brian Darmesh To really empower that type of innovation going forward as we have done. I also think that our focus in terms of all of the segments, We've fired up every portion of our segment. And the way I look at it is, how do we continue to optimize Where we are strong, which is the $200,000,000 to $200,000,000 segment, but how do we continue to optimize The product led motion at the bottom end as well as the upmarket motion through the investments that we have. And so That will continue to be the focus and I'm super excited.
I think we have the right leadership team in products. We have the right leadership team An execution focused team in the go to market and I'm really excited to work with all of that.
Excellent. Thank you.
And our next question is from Brad Sills from Bank of America Securities. Your line is open.
Great. Thanks guys and congratulations, Yamini and Brian on your new roles. Well deserved both. And Brian, great to hear from you as well. Great to hear your voice again.
One of the things This took out for me in the quarter was the ASP acceleration and a lot could be driving that. Obviously, you're executing upmarket. You're seeing operations hub traction. It's Eyal with some of the early results there. My question is, where is the incremental ASP growth coming from when you look across all the different levers that could Driving that, just larger customers, more enterprise uptake and upsell operations hub, multiple products, there's a lot in there.
If you could just maybe even just stack rank What's been driving that acceleration at ASP? Thank you.
Yes. Maybe I'll take a shot at it.
I think that It's sort of interesting to see where we had a really strong quarter and that will tell you where you're seeing the real drivers of the ASRPC The first thing I would say is around new business, our new additions were particularly strong in the professional and enterprise Tiers which tend to have a larger ASP. We had a really strong quarter selling into the installed base, including Record quarter for nominal upgrade from Starter into Professional and Enterprise tiers. And then you also saw the fueling of the cross sell with the addition of the operations hub. And then I
guess the final thing that
I would highlight is just an expansion in the number of seats that we're seeing of our Professional and Enterprise customers on the
Thank you. Our next question is from Stan Zlotsky from Morgan Stanley, your line is open.
Perfect. Thank you so much guys And congratulations on the very exciting moves within the company. And Brian, obviously great to hear your voice back on these calls. Quick question from my end. You mentioned the pricing changes that you guys made to some of the products.
Could you walk through the kind of the spirit behind the pricing changes, why and what? And as far as like the pricing changes, is Fair to say that you're going to follow a similar strategy as in the past of grandfathering existing customers when the pricing changes are mainly for For new customers and then I have a quick follow-up.
Yes. Thanks a lot, Stan, for the question. In general, our pricing philosophy is 2 fold. What you will see us do is It's twofold. What you will see us do is continue to bring high value added features Down to our premium and starter tiers and what this ensures is that we manage disruption within our installed base versus allowing Competitors to disrupt us.
The second part of the strategy is that it also ensures that we keep innovating and Adding new features to our higher tiers, Pro and Enterprise. And so that's our broader pricing philosophy. It's worked really well for us. That's exactly what you saw us do with CMS. As we have added more features to Enterprise and Pro, we We feel pretty comfortable that we are delivering a lot more value to our customers and therefore there's confidence in kind of increasing that price.
And in terms of your second question on grandfathering, very similar to before, we'll 1st, roll this out. This will impact all of the new customers and then over a period of time, we'll ramp up.
Got it. That's very helpful. And then the follow-up on net revenue retention, I know you
guys don't really
give it But just maybe qualitatively directionally, how did it do relative to the really outstanding results you guys put up in Q1?
Yes, thanks. We saw another really strong quarter of both customer call retention and net revenue retention. The story that we would tell you about retention in Q2 is basically the same story that I told you about retention in Q1. It starts With that foundation of customer dollar retention where we've seen like really healthy trends there since the back half 2020. And then again similar to last quarter, there were a real diversity in terms of the upsell motions that are really driving
Our next question is from Ken Wong from Guggenheim Securities.
Great. Thanks for taking my question and kind of congrats across the board from me as well. Building on Stan's question just on CMS Hub. So just thinking about that kind of the new basic SKU there, Is this intended to get the laggards over to adopt? Or should we view this as potentially a way to open the funnel into the Hub Spot franchise using CMS.
That's a great question, Tim. Thank you. So taking a step back, if we think about CMS and why we're in that business. So CMS is one of the things that makes HubSpot unique. There are no other leading CRM platforms that have A legit content management system is part of their overall platform offering.
And if you ask the puzzle why is that, I think the reason is because it's really hard To build a CMS, it's different from everything else. It's like picking up trombone, which is like, okay, well, it's kind of hard. You have to kind of use that slidey
thing to There's no keys or anything
like that. It's just difficult. By the way, sizing is an official musical term in case you're wondering. But the reason, but if have a margin gain, you need a Trumbull and that's what kind of completes the thing. And so if you need a if you want a full CRM platform, you need a CMS.
And the reason is it's not just about putting a website up there, it's about making the website a window into the back end data, into the CRM itself Bringing the customer in, it's about forging that connection. So we're really excited about it. In terms of why we launched a starter here, Basically exactly what you were alluding to. We think getting this kind of web experience up is the first step often in the digital journey and we want customers to take that first step Correctly. So we want to bring as many people on the platform, even CMS starter suite as we possibly can and it kind of gets them on the CRM platform from HubSpot
and helps us kind of grow from there. So
Our next question is from Alex Zukin from Wolfe Research. Your line
Hey, thanks guys. Well, Brian, first, great to have you back. Sad to see you go. Yamini, Really excited to work with you. Maybe just the first question for you, Yamini.
If you think about What you see in the pipeline, what you see in customer behaviors as we look out to the second half and into a new post COVID world, Can you kind of compare and contrast that with either what you saw in the first half and what you saw in the second half of last year for us?
Hey, Alex, I'll start that. I'm actually not going anywhere. I'm going to be Executive Chairman and super active And hopefully for a long, long time, I'm going to be very active in HubSpot and helping drive strategy and partnering with Yamini. So You're not getting rid of me that easily, my friend.
I would echo that. Brian He's like super active, always challenging us, always inspiring us. So that's pretty good. We are glad to have him back in full force. So Alex, a question in terms of demand environment comparing first half and second half, our demand environment is solid, similar to what we saw in the last quarter.
Now if you step back, our product is Really unique relative to competition. And I'd say we have a very, very strong value proposition that is resonating in the market. And Brian talked about sowing seeds. I think we've done enough product investments in the past few years, and you're seeing all of that pay off. We not only have that product market fit, but we also have a go to market fit, and the combination Those 2 are really helping us drive really strong financial results.
In terms of pipeline, I'd say that the Digital First and Digital Ready, both of those trends are here to stay. We're not going back from here. We are clearly seeing our customers modernizing their CRM platform from website to marketing to sales and service. They're all focused on delivering a connected customer experience and that's the kind of customer interest that we're seeing from a pipeline. And in July, at the very beginning of the quarter, we actually gave our entire global employee base A week of rest.
And we did that. It was a very important choice. We care about culture. We care about employees. We wanted them to Rest recharge and come back with a full focus in second half and that was the right thing to do.
And I think I'm really feeling good about second half and looking forward to what we're going to do in the second half.
Thank you. Our next question is from Drew Foster from Citigroup. Your line is open.
Hey guys, thanks
for taking the questions. Great to hear you're
doing well, Brian, and congrats to everyone else on their new roles. Given everything that's been said about kind of the importance of digital channels not going away, can we get an update on where netlogorentention And as you reflect over sort of a more protracted period, maybe 2 or 3 years, what are kind of the 1 or 2 things playing The biggest role there, is it a greater share of customers using more products and just general stickiness, the category more broadly rising and strategic importance? Maybe
Yes. We'll probably talk in a lot more detail around retention In general, at the upcoming Analyst Day, but I would give you maybe a couple of points to take away. Customer dollar retention, which is Not the same as logo retention, but is sort of the baseline of how we think about it internally, is very strong And showed specific improvements through the back half of twenty twenty and sort of stayed at that new elevated level for the first And Q2 of this year. And I think it sounds kind of elementary, but the truth is that what we're seeing is that our customers We are just using the products more. And as it turns out that leads to higher retention, and we are as a result enjoying Really healthy core retention levels.
Thank you. Our next question is from Terry Tillman from Churrif Securities. Your line is open.
Yes. Thank you and Brian and congrats and good luck on the next But I think one of the last questions, I think you said you're going to stay on these calls going forward. So I'm going to that's my base case. So we'll see you on the next call. It's good to have you back and congrats, Yamini, as well.
I guess my question just relates to it was echoed a couple of times in terms of installed base selling strength. I think it was mentioned by Yamini maybe and Kate, if I'm not mistaken. What I'm curious about is, has there been some things you've done internally on a programmatic basis to kind of Turn that dial more and or investments and is this more should we see more of this in the future where there's more of a structural shift you're just getting a lot more from
the installed base selling each quarter. Thank you.
Terry, thank you for the wishes. I really appreciate it. I think in terms of the installed base, like our existing customers now have a lot more products That they can adopt, right? And in the past couple of quarters, we have introduced Operations Hub. We have improved the additions on a number of hubs and so there's a lot More products for them to adopt and I think that product has gotten much better.
So when our customers are on one hub And then they see the value of a seamless single data model, single interface of other hubs that naturally pulls them in. So the product investments are probably the first ones that I talked about. I think the second part of it is that we certainly from a go to market perspective have Invested more heavily in our customer service success team, working more closely with our sales team and That helps us connect the dots in terms of installed base and that's certainly been part of it. Now going forward, I'd say we want to have a balanced We continue to acquire a lot of new customers because of the strong value proposition that We deliver and we continue to sell into the installed base. So you'll see a balance of both of these across our future quarters.
Thank you. Our next question is from Vijay Hynes from Canaccord. Your line is open.
Hey, guys. Congrats everyone on new roles and the continued success. It's awesome to see. Just a go to market question on Operations Hub. Is the buyer there somebody that you're already talking to when you're selling marketing and sales?
Or is it somebody else in the organization that sits on top of those efforts? I'm just trying to think about The ease of cross sell and whether in most cases it's with somebody you already know and that's familiar with HubSpot.
That's a great question, D. J. That's Fantastic question. I will say the buyer for Operations Hub is revenue ops persona. Now I spent a better part of the couple of decades in CRM running these operations teams and they're really the nerve Centers of go to market functions, they're sometimes the unsung heroes, but they have a really critical role to Play, which is providing the single source of truth about customers through the video of sales, the Head of Marketing, The Head of Customer Success, that's the persona.
And it's they've always been involved in CRM purchase So now we are providing them the flexibility and the power for them to deliver insights into the front office. And if you really step back on Operations Hub is a couple of things. It really helps our customers connect their tech stack. It helps our customers Clean up the data, it helps our customers automate the processes and these three challenges Are traditionally the ones that revenue operations teams and all of our customers struggle with. And so it's really helping that critical persona be very, very successful.
And we've seen a lot of traction. As I mentioned in my Prepared remarks, we are seeing very positive feedback from our customers as well as partners and programmable automation Has been on fire, really good traction, clean use case of that is lead routing. You want to do advanced lead routing. You are able to take all of the data from CRM, but also figure out who's the rep capacity, rep seniority, rep is on vacation, rep is on sabbatical and Use all of that information to now be able to automate your processes. And so operations hub Provides flexibility, automates processes and supercharges our CRM suite.
Thank you. Our next question is from Brian Peterson from Raymond James. Your line is open.
Thanks for taking the question. And Brian, great to hear your voice and glad to hear you well and congrats on you and Yamini have a new role. So maybe just a higher level question for me. I'm curious If you're looking at the pace of net new customer adds, I'm curious how much does the platform in the breadth of functionality between different areas Come up. I guess I would think that post COVID, people are looking to maybe consolidate vendors and think about simplification of A digital go to market model.
Is that something that's coming up in a lot more conversations? And how do we think about that impacting win rates? Thank you.
Yes, Brian, I'll address that and then have maybe Kate or Darmet jump in.
You're exactly right. Like if
you think about our customers, they're coming through this whole pandemic saying, 1, I need to Digitized my entire front office. And the starting point could be very different. The starting point could be a bunch of point solutions. It could The greenfield is using something like a spreadsheet or they have a legacy system and they're looking at providing an entire Connected customer experience and therefore having an all in one solution resonates pretty deeply with them. And that's part of what we are enabling through the CRM Suite and we definitely see that motion beginning to happen.
And I think we'll continue
to invest in CRM Suite. Now the CRM Suite is like very powerful. One of
the things that for us works When you get CRM Suite in the hands of new customers or existing customers, they now see the power of the entire platform. There is higher product usage. Therefore, we get much better feedback on the product. Therefore, we can improve the product. And it's a nice little flywheel In terms of how we can drive the quality of our products even higher.
And so there's a lot of goodness and certainly that's what we're seeing in terms of trends from our customers.
Yes. One thing I'll add is that, as you would expect, we see 1,000 companies that want to make that digital transformation be digital first. But that kind of path to digital transformation is often paid with good intentions, but really terrible IT implementation. It's so Because they have all these databases, multiple systems, so this kind of value proposition that HubSpot brings, which is we can simplify that. We can bring it all together into one Offering system 1 platform, 1 database, 1 experience, 1 company to call is a very compelling value proposition because most of these mid market companies Our deal with that complexity as they scale, we help with that.
It's resonating really well.
Thank you. Our next question is from Parker Lane from Stifel. Your line is open.
Yes. Hi. Thanks for taking my question. You've done a tremendous job in the last few years of really making the platform applicable to customers of all sizes with the starter and enterprise editions of all your tools. I Just wondering if you could talk about the multi product adoption across those different tiers.
Is it mostly weighted toward The enterprise customers that are using multiple HubSpot products, are you seeing a lot of traction as well to the point you're just making, at the starter level as well as getting them in the door and attach solutions around the initial land. Thanks.
Maybe I'll start with some numbers and Pass it on to Yamini for a little bit more color and context. We've talked about this for a number of quarters. The growth in our multi product adoption, so customers who use 2 or more of our Has been on this sort of steady trajectory up for a number of years now. And that has happened across all of the tiers from the enterprise to the starter. We did see a bit of a step function inflection last Spring when we introduced the Starter Growth Suite at that really simple $50 price point easy to buy.
And so we see a lot of uptake at that starter level of just the full set of HubSpot products. As I shared in my prepared remarks, we're at 58% of our customers who are using more than one And when you look at that, new customers are probably fifty-fifty now adopting multiple HubSpot products.
Yes. I think to add to the commentary that Kate provided, I think if you step back, We saw something really important having all of these products, which is we take a very crafted approach to CRM. It is not cobbled together through acquisitions. And if you step back and think about the single biggest challenge for customers, They're putting together very complex tech stacks and they're spending a lot of time on integration. They spend a lot of time on Developers spend a lot of resources there and yet the customer experience, their end Customer experience is not great for that.
And therefore, for us our the focus on multiclouds is to provide One data model, a single view of the customer, a simple interface that's easy to use that is crafted and not cobbled together. I think that's what our customers like and that's what is resonating with the market.
Thank you. Our next question is from Ryan MacDonald from Needham and Company. Your line is open.
Hello, this is Alex Naram on for Ryan. Congratulations on the strong quarter. I was hoping just to get
a little bit of additional information
on the strength In the international?
Yes. Brian, thank you for that question. We saw Very consistent growth both in North America as well as international. As we mentioned, international has been growing really well. I think year over year a few points up from last year.
If you step back on international, the market there and digital transformation is an earlier stage. A lot of the customers are in international markets are looking at Being digital first, digital ready and really it's in earlier stages, which means there is an even bigger opportunity for us. I think the second part is that We've been investing steadily in a lot of the international markets from product localization, in terms of content for lead Management in terms of customer facing resources and even brand and those investments are paying off. Our LTV to CAC is really solid in these markets and so we'll continue to invest in international markets. I I think the exciting part of it is that North America is a really big market and that's doing well too.
I think we're seeing very balanced
Thank you. Our next question is from Siti Panigrami from Mizuho. Your line is open.
Hi, everybody. It's Matt Simon on for Citi. One quick question from me. Is there anything to be called out for the linearity of bookings this quarter? Your Tone certainly suggests that there's some incremental conviction in the second half.
I'm curious if something happened in the quarter that might have catalyzed that that may not have been asked more directly.
No. There is nothing that I would share around linearity of booking.
Thank you. Our next question is from Michael Turrin from Wells Fargo. Your line is open.
Hey, there. Thanks. Good afternoon. Yamini, congrats on the promotion. I hope regardless you're planning to keep the hold music for earnings calls The same.
I mean, I go to sleep, but it's much more pleasant with the jam music than the classical. Cool. So certainly appreciate it. I mean there have been some questions on it, but the average revenue per customer metric certainly stands out, as do comments Just expectations that trend can hold for the rest of the year. So can we just go back to that?
I'm wondering if some of that's just tied to this being the other side of the strong Brad strength we've seen over the past year and then just how much the new hubs and what you're doing with bundling also just helping out there? Thank you.
Yes. I mean I think you've got it in terms of the underlying theme. We've talked about this in the past. There is a lot of quarter over quarter variability In those KPI metrics in particular the customer additions and the ASRPC and what we saw This quarter was strong professional and enterprise trends, strong install based selling And as a result what you're seeing is that ASRPC is up nicely year over year. And Frankly, if you stripped out the starter and looked at ASRPC, it's like up even more.
And so we don't guide, as you know, to Our KPI metrics and frankly we don't guide because that's not how we manage the business. And I shared some commentary around back half in the prepared remarks around the expectations. We think that, we should see net customer adds for the back half of the year in and around what we saw in Q2. And with that would come an ASRPC growth in those high single digits.
Thank you. Our next question is from Michael Turits from KeyBanc Capital Markets. Your line is open.
Hey, guys. Of course, congrats Brian and Yamini. Kate, just briefly, you mentioned it, but on the strength in the Pro And then a proposition for new customers. Anything in particular drive that because obviously it's one thing to Added a starter a while ago at a lower price and have driven new customers, but to see that strength in the pro and enterprise for new customers is impressive. How did you get that?
Yes. Thanks. I mean this is it's not a new thing for Q3 for Q2. We talked about it last quarter as well. We had Really strong new customer additions in Pro and Enterprise in Q1 and in Q2.
And I think for all of the reasons that Yamini
Thank you. Our next question is from Glenn Rinklin from Piper Sandler, your line is open.
Thank you. And Yamini, congrats on the promo. Brian, not only is it great to hear you're healthy, but Also great to hear you're planning to remain active with the broader team here. Again, wanted to go back to the durability of growth here. We've been trained here over the last 4 years not to think of ASRPC as a driver to growth.
In fact, it's been a slight drag to growth over the last 4 years. This quarter, 5 year high at 8%. It's emerged as an incremental growth lever to the business. My question is, are we entering a new period Where we could see both strong new customer additions and this revenue expansion, ASRPC expansion And as an incremental lever to growth or is it too early to really weigh in on that? I get That you have some easy comparisons here, but it does feel like we are entering a new period here where this could be a nice incremental lever to growth as well.
Yes. I guess what I would tell you is and we've been talking about this over the last three quarters is that we have seen really nice customer additions and quarter over quarter expansion of ASRPC. I think this quarter marks a little bit of a different milestone where we're seeing a real increase on a year over year basis as well. I think what you would be surprised if I declared something here. What I'm going to tell you is that we expect We will continue to see variability quarter in and quarter out of ASRPC and new customer adds and that's going to come As we innovate at the high end, innovate at the low end, introduce new products and I think I shared our expectations for the back half of this year, but I don't think we are at a point where we would declare
Our next question is from Kirk Materne from Evercore. Your line is open.
Thanks very much and I'll echo the congrats to both Brian and Dominique, maybe just on the pro and enterprise side of the business seeing such good traction. I was just wondering how do you think about The evolution of serving your partner platform as you start talking more of these customers that have maybe more bespoke needs. Are there things you're thinking about in terms of trying to lead Various features for your partners to develop or are you thinking about sort of focusing on partners that might have more vertical expertise in certain areas where You're seeing trends. I guess just at a high level, how are you thinking about sort of the evolution of the partner ecosystem? Thanks.
Sure. So this is Dharmesh. When we think of the ecosystem, there's actually multiple parts to it. There's the app platform or the app ecosystem there's software companies building integrations and extending HubSpot and there's the solutions partner ecosystem which basically help us service HubSpot and then bring it to different markets. Now let's Yamini speak to the solutions partner side.
On the app platform, we've seen great traction, more and more companies building and extending HubSpot using our And the thing we love about that is that it really kind of spins the flywheel. The more of those applications we get, the more of our customer problem we solve. We've seen a strong correlation between the number of apps someone uses and their retention rates, and that's awesome. And the more apps we have, the more customers we get. So those things kind of feed each other and kind of fuel The App cycle itself is going really well and I'll let Yami speak to the Solutions Partner program.
I think that's a really good commentary on the App Jerry, on the app side, I think on the solution partner side, we are diversifying our entire ecosystem. I mean, And our partners are continuing to go there in terms of CRM implementations, integrations, much more complex implementations and we We are really focused on this. Earlier this year at partner kickoff, we went to our partners and we said, look, we want Scale with you. So the strategy has been scaled with partners, which means we will sell more with partners and enable our partners To service our customers and that's good for our customers and that's good for partners and therefore it's good for HubSpot. And in terms of the investments with our solution partner ecosystem, we'll continue to work on improved Incentives, we have been investing pretty heavily on enabling our partners so they can go to market with us When we do product launches and that's beginning to work and we'll continue to invest in scaling services through the partners.
And so We definitely see them as part of scaling HubSpot and they play a critical role.
There are no further questions. I will now turn the call back over to Brian Halligan, Executive Chairman, for closing remarks.
Thanks everyone for joining and look forward to seeing you at the virtual Analyst Day in MAM.
Thank you, presenters. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.