HubSpot Inc

NYSE:HUBS

Earnings Call Transcript 2021-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the HubSpot Q2 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Chuck MacGlashing, Head of Investor Relations for HubSpot. Thank you. Please go ahead, sir.

[Chuck MacGlashing, Head-Investor Relations]

Thanks, operator. Good afternoon, and welcome to HubSpot second quarter 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 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 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 third 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 and our Form 10-Q, which will be filed with the SEC this afternoon for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations.

During 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 measures can be found within our second quarter 2021 earnings press release in the Investor Relations section of our website.

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?

[Yamini Rangan]

Thanks, Chuck and greetings, everyone. Thank you for joining us today as we review HubSpot’s second quarter 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 7th. 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 us to today’s news and this quarter 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 multi-product adoption growth 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 about the vision to meet the moment.

As consumers increasingly expect remarkable digital experiences at each step 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 a 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 marketers 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 enhancement, dynamic pages, site trees and increased limits and capacity with even more advanced features in the roadmap. We’re still in early stages of this launch, but we are confident that CMS Hub Starter was still a painful gap for marketers 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 transform 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’s Operations Hub has performed nicely ahead of our internal growth expectations over the past quarter and a half.

Data Sync, our robust new integration engine has quickly become one of the most compelling and popular free tools, particularly amongst small customers, exemplifying how Operations Hub will drive adoption of our CRM platform. We’re also seeing strong adoption of programmable automation among the larger companies who are looking to take full advantage of their data and deliver personalized experiences to their customers.

One 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, commission, calculations to renewal communications. With programmable automation in Operations Hub, if you can dream it, you can automate it. Thanks to the team at Aptitude 8 for sharing the feedback. We’re so glad that they’re 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 coddling it together through clunky acquisitions, that’s focused on delivering a consumer grade UI matched with a scalable enterprise backend 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.

[Kate Bueker, Chief Financial Officer]

Thanks, Yamini. Let’s turn to our second quarter financial results and our guidance for the third quarter and full year of 2021. Second 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 continued to benefit from a diverse set of upgrade drivers with particular strengths from addition upgrades, cross sell activity and seat expansions. As of Q2, 58% of our customers are getting value out of two or more hubs as 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, 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 tiers, 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 2021. 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 million, a 50% increase year-over-year. Calculated billing was $334 million growing 60% year-over-year in constant currency and 65% as reported. 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 second quarter of 2020.

The remainder of my comments will refer to non-GAAP measures. Second 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%. Second 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 second quarter, we had just under 5,000 employees, up 32% year-over-year.

Net income in the second quarter was $22 million or $0.43 for fully diluted share. CapEx including capitalized software development costs was $16 million or 5% of revenue in Q2. Free cash flow in the quarter was $26 million 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 million and $175 million with a seasonally strong free cash flow quarter in Q4. Finally, our cash and marketable securities totaled $1.3 billion at the end of June.

And with that, let's dive into guidance for the third quarter and full year of 2021. For the third quarter, total revenue is expected to be in the range of $325 million to $327 million, up 43% year-over-year at the midpoint. Non-GAAP operating income is expected to be between $27 million and $29 million. Non-GAAP diluted net income per share is expected to be between $0.42 and $0.44. This assumes 50.6 million fully diluted shares outstanding. And for the full year of 2021, total revenue is now expected to be in the range of $1.268 billion to $1.272 billion, up 44% year-over-year at the midpoint.

Non-GAAP operating income is now expected to be between $107 million and $109 million. Non-GAAP diluted net income per share is now expected to be between $1.67 and $1.69. This assumes 50.5 million 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 two points in Q3, a neutral impact to Q4 and a three 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 2021 event on October 12. And with that, I'll hand things over to Brian for some closing thoughts.

[Brian Halligan, Co-Founder and Executive Chairman]

Thanks, Kate. It's a true pleasure to be able to speak with all of you, again. I'm so proud of the entire HubSpot team. They've been absolutely cranking during my time away. And I'm so thankful for the work that Yamani, 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 a 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 to get back to 100% quite soon.

Now, back in June, we celebrate 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 to solve for the customer. It actually helped millions of organizations grow better. This past year, we've hit some exciting milestones like passing a $1 billion in ARR and 100,000 customers. These are just the start, HubSpot still in the very early innings and have the lot more value to provide to our customers, partners and employees. One of the keys to the modern 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's sitting in the shade today because someone planted a seed several years ago. That's HubSpot in a nutshell. We've been willing to plan seeds like shifting from a marketing app to a front office suite, shifting from our front office suite to a front office platform, shifting to a premium model and many, many others that are all paying up quite nice before. Today, lots of shade going on.

Now over the last six 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 the seeds that will turn into being shady trees for years to come. My transition to Executive Chairman would not be possible, if we weren't super confident in Yamani’s ability to lead HubSpot. When we hired Yamani we knew we’re getting an incredible leader with an amazing track record of holding high-impact roles at SAP, Workday and Dropbox will 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 Yamani arrived, she's made HubSpot better from reducing friction for our customers to leading the company with clarity and empathy through the pandemic.

Yamani 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 the perfect complement to Dharmesh and me to write the next chapter. I want to close out by once again, thanking Yamani for her terrific leadership over the past six months and offering my 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 Yamani, over to you.

[Yamini Rangan]

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 who use a remarkable culture for our employees and ultimately make HubSpot the number one CRM platform for scaling company.

Operator, please open up the call for some questions.

[Operator]

[Operator Instructions] Our first question is from Samad Samana from Jefferies. Your line is open.

[Samad Samana, Jefferies]

Good evening. Welcome back, Brian. 2Q really representing spades, the great company Dharmesh have built all these years. And Yamini’s strong leadership steering at recently, congrats on the move to Executive Chairman really happy, you're staying and Yamani congrats on your move to CEO full time. I'd love to hear from both of you a little bit more about how you two will be dividing up the core responsibility as 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 hell map for six months. It would be great to hear. Maybe if you could give us some thoughts about HubSpot's vision and strategy going forward.

[Brian Halligan, Co-Founder and Executive Chairman]

Samad, I will kick it off and 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 and thrilled to be back in HubSpot in this room with my friends and colleagues is just a terrific time for me. Now, when I get hurt, I had a lot of time on my hands, spend 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 beneath 15 years, 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 one plus one equals three combination. Yamini, we hired – I hired Yamani. She is the perfect fit for this job and for this space of growth to take us to the next level. She's just the perfect fit. She's at my job for the last six months. You guys see the numbers are fantastic. She done a masterful job. I'm very, very, very bullish on her.

In terms of dividing up what we're going to work on, we've talked a lot about that. Now, I will let Yamini weigh in on her side. What I'm sort of focused on as Executive Chair is first and foremost, I plan to the Executive Chair active and engaged Executive Chair. And you've probably heard me tells a bad joke that I used to say on these calls that if I ever leave pumps out, they're going have to take me out on a stretcher or a straight jacket. You might have to ask those deals at adolescence, but my main role is to help Yamini, do as best as she can and keep the thing rolling. I do feel like at the very early innings of HubSpot. The second thing is I've always enjoyed doing and help drive is place seed to turn into big shady trees that we've all enjoyed over the years. The app to sweet tree, we planted several years ago, it's still the small tree. There's a lot more growth to go on the suite. We're just now planning the suite to platform fee. That's going to kind of go really well. It's top of the first ending on that tree, this put the premium model, like the culture, these are seeds we planted long, long – a long, long time ago that have all paid off. And I like that type of work and I like products and product vision. So that's kind of where I'm going to be focused and then just helping Yamini. How about you, Yamini?

[Yamini Rangan]

Well, thank you, Brian. And I have I'm so humbled, 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 two brilliant people Brian and Dharmesh, who've done this for 15 years who have fantastic experience. The three 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 the 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 for strategy, over the last six months or the last couple of years it's been working, it's clear and it's not changing. And if I had to articulate the strategy, it's threefold.

First off, we want to build a best-in-class CRM platform for scaling companies. And we'll do this by expanding to new hubs like you saw us do with operations sub last quarter, and we'll do this by investing heavily into our existing of hubs you've 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 one to 2000 segment and historically they've been really good at the 20 to 200 and we have unparalleled product market fit there. We've been investing heavily in the lower end of the segment, one 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 third 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 maybe 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.

[Samad Samana, Jefferies]

That's great. Thank you for that – 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, that billings number was very, very strong. I know there's an easy comp there, but even if I look against the very strong 1Q. Maybe can you just help us unpack if there's anything that changed in terms of either duration or was just – were there more larger customers in the quarter that lean toward enterprise and took more seats than normal? Just help us understand the really good amount of strength there?

[Kate Bueker, Chief Financial Officer]

Yes. Sure things, Samad. [Technical Difficulty] Q2 – there's not much out of the ordinary here. 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 a relatively easier compare for billings relative to revenue in constant currency. You might remember last 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 time is frankly, a little bit of an easier comp in revenue.

[Samad Samana, Jefferies]

Great, thank you. Brian, we'll miss you on the call. But congrats again, and look forward to seeing yet future inbounds.

[Brian Halligan, Co-Founder and Executive Chairman]

Yes, I’ll see you actually pretty soon. I'll be in the investor day at the in inbound. So we will see you soon.

[Operator]

And our next question is Mark Murphy from JPMorgan. Your line is open.

[Mark Murphy, JPMorgan]

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. Yamani, 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?

[Yamini Rangan]

Yes. Thanks a lot, Mark. Good to hear your voice and appreciate your wish for both Brian and myself. I say that enterprise, all of the product investments that we have making an enterprises working. Our strategy is really to build products that fit every one of our segments and our up market segments from 200 to 2000, that's been a focus area for us now last year we powered up marketing pop and the lot of the features that we announced at the beginning of the year deeply resonated with our customers. And as inbound, we launched sales hub enterprise, as you know, and custom objects, huge hit a lot of the CPQ advanced features that we added huge hit. In Q1 of this year, we added conversation intelligence. Now it’s a category in and of itself, and the fact that we added it to power a hub 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 things. 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 continue to invest both on product as well as go to market to continue feeling that.

[Dharmesh Shah, Co-Founder and Chief Technology Officer]

One thing that we've seen – we talked about custom objects, which has been really well received, we're continuing to pull on that thread. So we have custom objects, but for the data associations, things that customers have been asking for, and the idea there is for a company to be able to model this entire business within HubSpot. So the more flexible database gets, the more data we can hold there as a higher percentage of 200 to 2000 segments we can serve well.

[Mark Murphy, JPMorgan]

Okay. Thank you for that. Appreciate the additional color. And Yamini, just another quick follow-up, it sounds like you're mostly focused on executing on the preexisting roadmap and strategy. You've been a big part of it. It's been performing amazing and well, I think, kind of falling 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. [Technical Difficulty] conversation intelligence that are – how do you put this on the operations side any of those sectors where you have a little different view?

[Yamini Rangan]

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. Then there's plenty of ideas. Mark, we just came from our annual strategy offsite in June and we have in our collective heads product innovation for the next 15 years. And the focus on horizon one, horizon two, horizon three bets have worked really well for the company. And my job is to work with Brian, Dharmesh to really empower that type of innovation going forward as we’ve gotten. I also think that our focus in terms of all of the segments, we've fired off every portion of our segments. And the way I look at it is how do we continue to optimize where we are strong, which is the 20 to 200 segment, but how do we continue to optimize the product led motion at the bottom end, as well as the up market 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 product. We have the right leadership team and execution focused team in the go-to-market and I'm really excited to work with all of them.

[Mark Murphy, JPMorgan]

Excellent. Thank you.

[Operator]

And our next question is from Brad Sills from Bank of America Securities. Your line is open.

[Brad Sills, Bank of America Securities]

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 that stuck out for me in the quarter was the ASP acceleration and a lot could be driving that obviously you're executing up market. You're seeing operations hub traction, it's scale 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 be 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 in ASP? Thank you.

[Yamini Rangan]

Yes. Many uptick inside of 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 that ASP growth. The first thing I would say is our 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 install base, including a 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 our professional and enterprise customers on the sales side.

[Operator]

Thank you. Our next question is from Stan Zlotsky from Morgan Stanley. Your line is open.

[Stan Zlotsky, Morgan Stanley]

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 that the pricing changes that you guys manage some of the products. Could you walk through the spirit – timing of the pricing changes, why and what, and as far as the pricing changes, is it fair to say that the you're going to follow similar strategy as in the best of grandfathering existing customers on the pricing changes are mainly for new customers and then have a quick follow-up?

[Yamini Rangan]

Yes. Thanks a lot, Stan for the question. In general, our pricing philosophy is twofold, what you will see us do is continue to bring high value added features down to our premium and started here. And what does insure us is that we managed disruption within our install 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 do with CMS. As we have added more features to enterprise and parole, 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 floor we'll first roll this out, this will impact all of the new customers and then over a period of time moves that problem.

[Stan Zlotsky, Morgan Stanley]

Got it. Got it. That's very helpful. And then the follow-up on net revenue retention, I know you guys don't really – doesn't really give it every quarter, but just maybe qualitatively directionally. How did it do relative to the really outstanding results you guys put up in Q1?

[Yamini Rangan]

Yes, thanks. We saw another really strong quarter of both customer dollar 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 that 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 of 2020. And then again, similar to last quarter, there were a real diversity in terms of the upsell motions that are really driving the positive net revenue retention.

[Operator]

Thank you. Our next question is from Ken Wong from Guggenheim Securities. Your line is open.

[Ken Wong, Guggenheim Securities]

Great. Thanks for taking my question and that then 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 skew 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 HubSpot franchise using CMS?

[Dharmesh Shah, Co-Founder and Chief Technology Officer]

That's a great question. Ken, thank you. So taking a step back, we think about CMS at and why we're in that business. So CMS has one of the things that make HubSpot unique. There are no other leading CRM platforms that have a legit content management system as part of their overall platform offering, if you ask that 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 use that sliding thing to kind of find them there's no keys or anything like that. It's difficult. By the way, I always thought you think of an official musical term in case you're wondering, but the reason, but if you have a marching band, you need a trombone. That's what kind of complete the thing. And so you need it. If you want a full CRM platform, you need a CMS. And the reason is not just about putting a website up there. It's about making the website a window into the backend data, into the CRM itself and bringing the customer in it's about forging that connection. So we're really excited about it. In terms of why would we launch a starter here, it's 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 that we want customers to take that first step correctly. So we want to bring as many people on the platform, even CMS starts using as we possibly can. And it kind of gets them onto the CRM platform from HubSpot and helps us kind of grow from there. So we're super excited about the opportunity to open.

[Operator]

Thank you. Our next question is from Alex Zukin from Wolfe Research. Your line is open.

[Alex Zukin, Wolfe Research]

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 the – what you see in the pipeline and 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?

[Brian Halligan, Co-Founder and Executive Chairman]

Okay, I'll start that. I 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 guide strategy and partnering with Yamini and so. You're not getting rid of me that easily my friend.

[Yamini Rangan]

I would echo that Brian's like super active, always sounding us and always inspiring us. So that's pretty good. We're glad to have him back in full force. So Alex, 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 stepped back, our product is really unique relative to competition. I 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 just seeing all of that payoff, we not only have that product market fit, but we also have a go to market fit. And the combination of those two are really helping us drive really strong financial results.

In terms of pipeline, I'd say that the digital first and digital is 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 websites 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 you'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 the second half and looking forward to – now what we're going to do in the second half.

[Operator]

Thank you. Our next question is from Drew Foster from Citigroup. Your line is open.

[Drew Foster, Citigroup]

Hey guys, thanks for taking the questions. Great to hear you're doing well, Brian and congrats, 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 net logo retention stands today? And as you reflect over sort of a more protracted period, maybe two or three years, what are kind of the one or two 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 in strategic importance? Maybe just give an update and touch on drivers there. Thanks.

[Yamini Rangan]

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 show specific improvements through the back half of 2020 and sort of stayed at that new elevated level for the first and second quarter of this year, and I think it sounds kind of elementary, but the truth is that what we're seeing is that our customers 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.

[Operator]

Thank you. Our next question is from Terry Tillman from Truist Securities. Your line is open.

[Terry Tillman, Truist Securities]

Thank you. And Brian and congrats and good luck on the next chapter, 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 fall. 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 mistaking. 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 where you’re just getting a lot more from the installed base selling each quarter? Thank you.

[Yamini Rangan]

Terry, thank you for the wishes, I really appreciate it. I think in terms of the install 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 product 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’ve 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 success team, working more closely with our sales team, and that helps us connect the dots in terms of install base. And that’s certainly been part of it. Now going forward, I’d say, we want to have a balanced approach. We would – we continue to acquire a lot of new customers because of the strong value propositions that we deliver and we continue to sell into the install base. So you’ll see a balance of both of these across our future quarters.

[Operator]

Thank you. Our next question is from DJ Hynes from Canaccord. Your line is open.

[DJ Hynes, Canaccord]

Hey guys, congrats everyone on the new roles and the continued success with the team. Just a go-to-market question on Operations Hub. Is the buyer they’re 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?

[Yamini Rangan]

That’s a great question, DJ. That’s fantastic question. I will – let’s say the buyer for Operations Hub is a revenue of 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 to the VP of sales and marketing, and the head of customer success. That’s the persona and they’ve always been involved in a CRM purchase and now we’re providing them the flexibility and the power for them to deliver insights into the front office.

And if you really step back on Operations Hubs, it’s 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 see 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 advance lead routing, you are able to take all of the data from CRM, but also figure out 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.

[Operator]

Thank you. Our next question is from Brian Peterson from Raymond James. Your line is open.

[Brian Peterson, Raymond James]

Thanks for taking the question. And Brian it’s great to hear your voice and glad to hear your role, congrats you and Yamini in the new roles. So maybe just – maybe it’s a higher level question for me, I’m curious, if you were looking at the pace of net new customer ads, 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.

[Yamini Rangan]

Yes. Brian, I will address that and then have maybe Kate or Dharmesh jump in. You’re exactly right. Like if you think about our customers, they’re coming through this whole pandemic thing, one, I need to digitize my entire front office and the starting point could be very different. The starting point could be a bunch of point solutions. It could be greenfield, they’re 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 they’re enabling through the CRM suite. And we definitely see that motions 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 is that 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 product 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.

[Dharmesh Shah, Co-Founder and Chief Technology Officer]

Yes. One thing I’ll add is that as you would expect to see 1000 companies, I want to make that digital transformation be digital first, but that kind of path to digital transformation is often paved with good intentions, but really terrible IT implementation, it’s so complicated because they have all the database and multiple systems. So this kind of value proposition the HubSpot bring, which is we can simplify that, we can bring it all together into one operating system, one platform, one database, one experience, one company to call is a very compelling value proposition because most of these mid-market companies are dealing with that complexity as they scale and we help with that. It’s resonating really well.

[Operator]

Thank you. Our next question is from Parker Lane from Stifel. Your line is open.

[Parker Lane, Stifel]

Yes. Hi. Thanks for taking my question. You did a tremendous job in the last few years of really making the platform applicable to customers of all sizes at the starter and enterprise additions of all your tools. I was just wondering if you could talk about the multi-product adoption across those different tiers. Is it mostly weighted towards 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, so as getting them into the door and attaching two new solutions around the initial lab? Thanks.

[Kate Bueker, Chief Financial Officer]

Yes. 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 multiproduct adoption, so customers who use two or more of our products has been on this sort of steady trajectory up for a number of years now. And not have happened across all of the tiers from the enterprise to the starter. We did see a bit of a step function in flection last spring when we introduced the Starter Growth Suite 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 HubSpot product. And when you look at that new customers are probably 50-50 now adopting multiple HubSpot products.

[Yamini Rangan]

Yes. I think to add to the commentary that Kate provided. I think if you step back, we thought 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 integrations. They spend a lot of time on developers, spend a lot of resources there. And yes, the customer experience, their end customer experience is not great for that. And therefore, for us, the focus on multi hub 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. And I think that’s what our customers liked and that’s what is resonating within the market.

[Operator]

Thank you. Our next question is from Ryan MacDonald from Needham and Company. Your line is open.

[Alex Narum, Needham and Company]

So this is Alex Narum on for Ryan. Congratulations on the strong quarter. I was hoping just to get a little bit of additional information on this strength in the international.

[Yamini Rangan]

Yes. Ryan, 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 in earlier stage. A lot of the customers are in international markets are looking at being digital first, digital ready and really some earlier stages, which means there’s 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 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 consistent growth across all of the markets that we operate in, so very pleased about that.

[Operator]

Thank you. Our next question is from Siti Panigrahi from Mizuho. Your line is open.

[Matt Diamond, Mizuho]

Hi, everybody. It’s Matt Diamond on for Siti. One quick question for 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’ve catalyzed that that may not have been asked more directly?

[Kate Bueker, Chief Financial Officer]

No, there is nothing that I would – there’s nothing I would share around linearity booking.

[Operator]

Thank you. Our next question is from Michael Turrin from Wells Fargo. Your line is open.

[Michael Turrin, Wells Fargo]

Hey there. Thanks. Good afternoon. Yamini, congrats on the promotion. I hope regardless you’re planning to keep the whole 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. So I certainly appreciate it. I mean, there’ve been some questions on it, but the average revenue per customer metrics certainly stands out as do comments on just expectations that try and 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 this being the other side of the strong customer ad 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.

[Yamini Rangan]

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 in the ASRPC. And what we saw this quarter was strong Professional and Enterprise trends, strong install base selling trends. And as a result, what you’re seeing is that ASRPC is up nicely year-over-year. And frankly, if you strip 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 so, I shared some commentary around back half in the prepared remarks around the expectations. We think that we should see net customer ads 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.

[Operator]

Thank you. Our next question is from Michael Turits from KeyBanc Capital Markets. Your line is open.

[Michael Turits, KeyBanc Capital Markets]

Hey guys. Congrats to Brian and Yamini. Kate, just briefly, you mentioned a bit on the strength in the Pro and then a position for new customers, anything in particular – obviously it’s one thing to add a starter a while ago to our pricing driven new customers to see that that strengthen in the Pro and Enterprise and for new customers is impressive. So how’d you get that?

[Kate Bueker, Chief Financial Officer]

Yes. Thanks. This is – it’s not a new thing for Q3 and for Q2, we talked about it last quarter as well. We had really strong new customer additions in Pro and Enterprise in Q1 and Q2. And I think for all of the reasons that Yamini has talked about throughout the call.

[Operator]

Thank you. Our next question is from Brent Bracelin from Piper Sandler. Your line is open.

[Brent Bracelin, Piper Sandler]

Thank you. And Yamini, congrats on the promo. Brian, not always great to hear you’re healthy, but also great to hear your plan to remain active with the broader team here. Again wanted to go back to the durability of growth here. We’ve been trained here in the last four years, not to think of ASRPC as a driver to growth. In fact, it’s been a slight drag in the growth over the last four years. This quarter five-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 as a incremental lever to growth? Or is it too early to, 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 level to growth as well.

[Yamini Rangan]

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 that we will continue to see variability quarter in and quarter out of ASRPC and new customer ads. And that’s going to come as we innovate at the high end, innovate at the low end, introduce some new products. And so 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 sort of a long-term trend at this point.

[Operator]

Thank you. Our next question is from Kirk Materne from Evercore. Your line is open.

[Kirk Materne, Evercore]

Thanks very much. And I’ll echo the congrats to both Brian and Yamini. Yamini 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 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 leave various features for your partners to develop? Or you think 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.

[Yamini Rangan]

Sure. So this is Dharmesh. When we think of the ecosystems, there’s actually multiple parts where there’s the kind of app platform and the app ecosystem where there’s software companies building integrations and extending HubSpot. And there is the solutions partner ecosystem, which basically help us service HubSpot and then bring it to the different markets. So I’ll let Yamini speak to the solutions partner side. On the app platform, we’ve seen great traction, more and more companies building and extending HubSpot and using their APIs. 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 on users and their retention rates. 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 flywheel. So the app platform itself is going really well. Now let Yamini speak to the solutions part of the program.

[Yamini Rangan]

Yes. I think that’s a really good commentary on the app side. I think on the solution partner side, we are diversifying our entire ecosystem and our partners are continuing to go there in terms of CRM implementations, integrations, much more complex implementations. And we are really focused on this. Earlier this year at Partner Kickoff, we went to our partners and we said, look, we want to scale with you. So the strategy has been scale 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 solutions 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.

[Operator]

There are no further questions. I will now turn the call back over to Brian Halligan, Executive Chairman for closing remarks.

[Brian Halligan, Co-Founder and Executive Chairman]

Thanks everyone for joining and look forward to see you at the virtual Analyst Day.

[Operator]

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.