- Revenue Growth: 21% year over year in constant currency, 20% on an as-reported basis.
- Operating Margin: 17%, with a 270 basis points expansion year over year.
- Total Customers: 228,000, with over 11,200 net customer additions in Q2.
- Subscription Revenue: 20% year over year growth.
- Services and Other Revenue: 18% year over year growth.
- Domestic Revenue Growth: 20% year over year.
- International Revenue Growth: 22% in constant currency, 21% as reported.
- Average Subscription Revenue per Customer (ASRPC): $11,200, down 2% year over year.
- Net Revenue Retention: Stable at 102%.
- Gross Retention: High 80s.
- Calculated Billings: $648 million, 20% year over year growth.
- Net Income: $104 million, or $1.94 per fully diluted share.
- Free Cash Flow: $92 million, 14% of revenue.
- Cash and Marketable Securities: $1.9 billion at the end of June.
- Q3 Revenue Guidance: $646 million to $647 million, up 16% year over year at midpoint.
- Q3 Non-GAAP Operating Profit: $107 million to $108 million.
- Q3 Non-GAAP Diluted Net Income per Share: $1.89 to $1.91.
- Full Year 2024 Revenue Guidance: $2.567 billion to $2.573 billion, up 18% year over year at midpoint.
- Full Year 2024 Non-GAAP Operating Profit: $437 million to $441 million.
- Full Year 2024 Non-GAAP Diluted Net Income per Share: $7.64 to $7.70.
- Full Year 2024 CapEx: 4% to 5% of revenue.
- Full Year 2024 Free Cash Flow: About $380 million.
Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew 21% year over year in constant currency, demonstrating strong financial performance.
- Operating margin expanded by 270 basis points year over year, reaching 17%, indicating improved operational efficiency.
- Total customer count increased to 228,000, driven by over 11,200 net customer additions in the quarter.
- High attach rate for the newly launched Content Hub, with nearly 50% of new Marketing Hub wins including it.
- Strong adoption of AI features, particularly in the Content Hub, driving significant customer engagement and value.
Negative Points
- Average subscription revenue per customer (ASRPC) decreased by 2% year over year, indicating a decline in revenue per customer.
- Upgrade rates remain challenged, with customers hesitant to expand their usage, impacting net revenue retention.
- Macro environment continues to be challenging, with slower decision-making and more scrutiny on business cases.
- Continued strong volume of lower ASP starter customers, which could impact overall revenue growth.
- The new pricing model has led to lower initial ASPs, requiring higher customer volumes to offset the decline.
Q & A Highlights
Q: Where has growth changed the most in the portfolio over the last six months?
A: Yamini Rangan, CEO: The answer starts with our strategy of becoming a customer platform for scaling companies. The most significant change has been the multi-hub momentum. Customers are consolidating on HubSpot to integrate data across marketing, sales, and service, leading to larger deals and more value from the platform.
Q: Can you update on the traction with your payments products and how customer activity is evolving?
A: Yamini Rangan, CEO: We are seeing good payment volume and monthly transacting customers growing into the thousands. Customers are transacting a higher percentage of their revenue through HubSpot than expected. This is a strategic bet, and while we feel good about the progress, it is a long-term play.
Q: How much of the delays in upgrades are due to macroeconomic factors versus HubSpot becoming more of a platform company?
A: Yamini Rangan, CEO: The macro environment is causing slower decision-making and committee buying, which lengthens deal cycles. However, customers are also consolidating on fewer platforms, and HubSpot is becoming that platform, which can counterbalance the macro impact.
Q: Can you discuss the sequential margin improvement and where the leverage is coming from?
A: Kathryn Bueker, CFO: The primary drivers of year-over-year leverage were improvements in gross margin due to optimizing our core product infrastructure and continued progress in driving go-to-market efficiency, particularly in services and support.
Q: How has the new pricing model impacted the volume of new customers and net new customer adds?
A: Kathryn Bueker, CFO: We are encouraged by strong customer additions, driven by momentum at the low end. The new pricing model has led to a step-up in Pro customer additions. For the back half of the year, we expect net adds to be around 9,000 to 10,000 per quarter.
Q: How has the integration of AI into the platform impacted margins and what parts of the AI strategy are working well?
A: Yamini Rangan, CEO: Our strategy of embedding AI into our hubs and platform without charging extra is working well, particularly in Content Hub. We are seeing repeat usage and adoption of AI features. Dharmesh Shah, CTO, added that the cost of rolling out AI features is decreasing, so we do not anticipate any impact on margins.
Q: How significant is the milestone of achieving a compliance program for sensitive data?
A: Yamini Rangan, CEO: This is a big milestone that opens up our TAM, particularly in verticals like healthcare, financial services, and insurance. Early adoption has been promising, with existing enterprise customers seeing higher conversion rates and ASPs.
Q: How have sales reps adjusted to the new pricing model?
A: Yamini Rangan, CEO: There is a learning curve, but sales teams are settling into the higher velocity motion required by the new pricing model. We are seeing progress in offsetting lower ASPs with higher volumes of customer wins.
Q: Can you provide more color on the full-year revenue guidance and any incremental softness due to macro or the pricing model?
A: Kathryn Bueker, CFO: We are pleased with Q2 results but continue to see macro weakness. Our guidance assumes the difficult demand environment persists but does not get materially worse. We have confidence in achieving our guidance.
Q: How is the starter upgrade motion playing out under the new pricing model?
A: Kathryn Bueker, CFO: Starter cohorts continue to upgrade at healthy rates, consistent with what we've seen over the last few years, even with higher volumes of starter customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
