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Edited Transcript of HUBS earnings conference call or presentation 12-Feb-20 9:30pm GMT

Q4 2019 HubSpot Inc Earnings Call

Cambridge Feb 17, 2020 (Thomson StreetEvents) -- Edited Transcript of HubSpot Inc earnings conference call or presentation Wednesday, February 12, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Halligan

HubSpot, Inc. - Co-Founder, Chairman & CEO

* Charles MacGlashing

HubSpot, Inc. - Corporate Treasure & Senior Director of IR

* Kathryn Bueker

HubSpot, Inc. - CFO & Treasurer

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Conference Call Participants

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* Aleksandr J. Zukin

RBC Capital Markets, Research Division - MD of Software Equity Research & Analyst

* Arjun Rohit Bhatia

William Blair & Company L.L.C., Research Division - Analyst

* Hoi-Fung Wong

Guggenheim Securities, LLC, Research Division - Senior Analyst

* Jennifer Alexandra Swanson Lowe

UBS Investment Bank, Research Division - Analyst

* Kevin J. Ruth

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Kevin Kumar

Goldman Sachs Group Inc., Research Division - Associate

* Koji Ikeda

Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst

* Mark Ronald Murphy

JP Morgan Chase & Co, Research Division - MD

* Michael James Turrin

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Nicholas Ivan Negulic

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Peter Marc Levine

Evercore ISI Institutional Equities, Research Division - Analyst

* Richard Hugh Davis

Canaccord Genuity Corp., Research Division - MD & Analyst

* Ryan Michael MacDonald

Needham & Company, LLC, Research Division - Senior Analyst

* Samad Saleem Samana

Jefferies LLC, Research Division - Equity Analyst

* Sitikantha Panigrahi

Mizuho Securities USA LLC, Research Division - MD

* Stan Zlotsky

Morgan Stanley, Research Division - VP

* Thomas Michael Roderick

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the HubSpot Q4 2019 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 speaker today, Chuck MacGlashing, Head of Investor Relations. Thank you. Please go ahead.

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Charles MacGlashing, HubSpot, Inc. - Corporate Treasure & Senior Director of IR [2]

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Thanks, operator. Good afternoon, and welcome to HubSpot's Fourth Quarter and Full Year 2019 Earnings Conference Call. Today, we'll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Brian Halligan, our Chief Executive Officer and Chairman; and 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 statements regarding management's expectations of future financial and operational performance and operational expenditures, expected growth and business outlook, including our financial guidance for the first fiscal quarter and full year 2020. 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 was filed with the SEC on November 5, 2019, for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations.

During the course of today's call, we'll refer to certain non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between such measures can be found within our fourth quarter 2019 earnings press release in the Investor Relations section of our website.

Now it's my pleasure to turn over the call to HubSpot CEO and Chairman, Brian Halligan.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [3]

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Thanks, Chuck. Good afternoon, folks. Thank you for joining us today as we review HubSpot's fourth quarter and full year 2019 earnings results.

I'm really happy with the way the HubSpot team closed out the year. We grew full year and Q4 constant currency revenue by 34% and 31%. We expanded full year non-GAAP operating margins by 2 points to just over 8%. Total customers surpassed 73,000, up 30% year-over-year, while multiproduct adoption grew to nearly 30,000 customers.

That said, while I'm pleased with our 2019 financial results, I'm exceptionally proud of how it became the year of the customer at HubSpot. One of our key principles as a company is to aim to do the right thing even when it's hard. Sometimes, this meant taking a couple of steps back so we could move multiple steps forward. We invested heavily in our products this year with an emphasis on the unsexy but critical pieces of it: infrastructure, security, speed and usability. These investments in our customers are starting to bear real fruit. We closed out Q4 with revenue retention above 100% and a nice uptick in customer dollar retention year-over-year, which reached a record high in the second half of the year.

One of the most gratifying things we saw in Q4 were record high Net Promoter Scores from our customers. We've been working on improving Net Promoter Scores for years, and it's been a stubborn metric. We saw a big lift in Q4 from the investments we made. This bodes well for future retention and word of mouth. I'm really proud of the efforts to improve our customers' experience across the HubSpot platform in 2019.

Now it's not just the products that our customers are benefiting from, it's also our ecosystem. In 2019, we made great progress in making HubSpot the center of our customers' flywheel. Q4, we passed over 1 million total software integrations installed. In addition to that, we acquired PieSync that will enable our customers to synchronize more and more applications with their HubSpot flywheel.

Just last week, we relaunched our Agency Partner Program into a new Solutions Partner Program, which will attract a much more diverse set of partners that will enable our customers to grow better beyond marketing into sales and service. Because of the investments we made in 2019, I think we're even better positioned to lead and differentiate in 2020. HubSpot is always focused on making our software easy to use, comes from our roots serving growing businesses that have no time for complexity. Over the years, as those customers have grown, we've adapted to their needs and become more powerful, too.

I want to stay on this point for a moment because it's important to how I see our place in the industry. There's a kind of an assumption in the software industry that as tools become more powerful, they have to sacrifice ease of use. You can be easy or powerful, pick one is a common expression. I think this choice of power versus ease limits software platforms and the customers who use them. Because honestly, what's the point of powerful software if it's too complicated and clunky to use.

We wanted to dispel this false choice. Looking at recent customer reviews and comments on our NPS seems like we're already starting to. HubSpot's marketing software just won top rank across 6 enterprise categories from G2, including overall leader, best usability, best support and best results. We also won for being the easiest company to do business within the enterprise category.

Along those lines, we started 2020 by relaunching a powered-up Marketing Hub Enterprise, adding account-based marketing, multi-touch revenue attribution, targeted chat, partitioning, higher usage limits and other advanced features while keeping usability at the forefront. We'll be following that with more sophisticated product announcements across the platform this year to meet the needs of customers as they scale. By relentlessly balancing power and ease of use across our offerings, we believe HubSpot will be the platform you'll never outgrow.

On the business side, I'm happy to report that we fully caught up on our hiring. We were voted the #1 Best Place to Work in the United States in Glassdoor's annual survey. Wow, voted the Best Place to Work in Singapore and selected as the Top Company for Women, Diversity and Culture, all of which should help us continue recruiting top talent. One of the most momentous hires of the year was hiring our first ever Chief Customer Officer. Yamini Rangan comes to HubSpot from Dropbox and Workday, 2 companies we admire. Very happy to have her as she'll enable us to grow even better.

2019 was an important year for us as a company. It gave us the foundation we need to head into 2020 feeling well equipped and confident in our platform, team and direction. I believe that the most disruptive companies today are those that create a remarkable end-to-end customer experience. We're excited to show our customers in 2020 just how remarkable that experience can get.

With that, I'll hand it over to Kate.

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [4]

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Thanks, Brian. Let's turn to our fourth quarter and full year financial results and our guidance for first quarter and full year of 2020.

Fourth quarter revenue grew 31% year-over-year in constant currency and 29% as reported. Q4 subscription revenues grew 31% year-over-year while services revenue declined 2% year-over-year, both on an as reported basis.

Full year 2019 revenue grew 34% year-over-year in constant currency and 32% as reported. Full year subscription revenues grew 33% year-over-year while services revenue grew 12% year-over-year, again, both as reported.

Domestic revenue grew 23% in Q4 while international revenue growth was 43% year-over-year in constant currency and 39% as reported. International revenue represented 41% of total revenue in Q4, up 3 points year-over-year.

Deferred revenue as of the end of December was $234 million, a 26% increase year-over-year. Calculated billings was $217 million, up 30% year-over-year on an as reported basis and in constant currency.

HubSpot ended 2019 with 73,483 total customers, which was up 30% year-over-year. Average subscription revenue per customer in Q4 was $10,047, up slightly both sequentially and year-over-year. Please note, we've excluded the impact of PieSync in our total customer and average subscription revenue per customer metrics. The remainder of my comments will refer to non-GAAP measures.

Fourth quarter gross margin was 82%, down about 0.5 point year-over-year. Subscription gross margin was 85% while services gross margin was negative 5%. Full year gross margin was 82%, up 0.5 point compared to 2018.

Fourth quarter operating margin was 9.5%, down slightly compared to the same period last year. Full year operating margin was 8.1%, up 2 points versus 2018. We are pleased that the operational changes and additional investments we made over the last couple of quarters allowed us to get back on our original hiring plan exiting 2019.

At the end of the fourth quarter, we had 3,387 employees, up 28% year-over-year, a 4-point increase in growth from last quarter.

Net income for the fourth quarter was $21 million or $0.45 per diluted share. Net income for the full year was $70 million or $1.50 per diluted share.

CapEx, including capitalized software development costs, was $24 million or 13% of revenue in the quarter and $54 million or 8% of revenue for the full year.

Free cash flow in the fourth quarter was $24 million or 13% of revenue and $65 million or 10% of revenue for the full year.

Finally, our cash, cash equivalents and marketable securities totaled just over $1 billion at the end of December. With that, let's dive into guidance for the first quarter and full year of 2020.

For the first quarter, total revenue is expected to be in the range of $192.5 million to $193.5 million, up 27% year-over-year. Non-GAAP operating income is expected to be between $9.5 million and $10.5 million. Non-GAAP diluted net income per share is expected to be between $0.22 and $0.24. This assumes approximately 48.2 million fully diluted shares outstanding.

And for the full year of 2020, total revenue is expected to be in the range of $840.5 million to $844.5 million, up 25% year-over-year. Non-GAAP operating income is expected to be between $54 million and $58 million. Non-GAAP diluted net income per share is expected to be between $1.24 and $1.32. This assumes approximately 48.6 million fully diluted shares outstanding.

As you adjust your models, keep in mind the following. At current spot rates, we're forecasting a foreign exchange headwind to as reported revenue of 1 point for both Q1 and full year 2020. Subscription revenue is expected to grow 2 points faster than total revenue in Q1 and 1 point faster than total revenue for the full year. Given our strong 2019 back half hiring and the acquisition of PieSync in Q4 as well as continued strong hiring in the first part of this year, we expect margins to be down a little over 3 points year-over-year in the first half of 2020 and to be flat in the second half of the year. This translates into an expected 1.5 point reduction to operating margin for the full year 2020.

We expect free cash flow to be about $75 million for 2020 with seasonally stronger free cash flow in Q1 and Q4 and more muted free cash flow in Q2 and Q3. We expect CapEx as a percentage of revenue to be about 7% in 2020, with heavier spending levels in the first half of the year as we finish the build-out of our Dublin location, expand our Cambridge campus and kickoff build-outs in Berlin and San Francisco.

With that, I'll hand the call back over to Brian for his closing remarks.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [5]

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Thanks, Kate.

I'm excited about the year ahead precisely because we made so many investments in 2019 to get our customer experience right. Believe that the company is a standout today and the companies that last will be the ones that did not relent on creating a remarkable customer experience for their customers, whether it's a start-up using our free tools or a large company scaling their operations globally, we're working to ensure that every HubSpot user has an intuitive, reliable and powerful platform on which to grow their business. In a field of technology that's often fragmented or messily tied together, we're working hard to build a single differentiated brand with products that work together perfectly, genuinely helpful staff and a customer NPS that keeps going up. We're not flawless, but we are focused and that makes me excited to come to work every day.

I want to close by thanking our customers, our partners, our investors, and all the HubSpotters around the globe who are helping to make that possible in advancing our mission to help millions of organizations grow better.

Operator, let's open up the call for a few questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Mark Murphy from JPMorgan.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [2]

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Yes. Brian, your revenue guidance is pretty robust at this scale. I'm wondering if we should infer that you kind of have a line of sight into moving past the lag effects that you've talked about of Project Mainsail and having fallen behind on the hiring. Do you feel as though you're kind of moving past that sometime in the next quarter or 2 and then kind of getting back on 100% terra firma?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [3]

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Terra firma. Mark, yes, I do. I'm a Boston Red Sox fan. 2020 is going to be kind of a bridge year for the Red Sox. They lost their manager. They just traded away Mookie Betts and David Price. They're looking at a bridge year. 2019 was the bridge year for HubSpot. We did Mainsail. We made huge investments. We took a couple of steps back. And the idea is, get us ready for 3 or 4 steps forward this year. So that's an accurate assessment of what's on my mind. I think we're going to have a really good year this year.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [4]

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Okay. And as a follow-up, you've remained pretty intensely focused on the core SMB market. How are you responding if and when you have a larger organization reach out to you, maybe they get tired of the heavy price point of the incumbent product. And if it's going to be a pretty complex engagement, do you sometimes turn them away if it doesn't make sense or are you trying to engage with them even if it's sort of pulling you into a little higher realm?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [5]

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I think one of the reasons I'm optimistic about this year and a couple of things we got from the 2 steps back is, this year that enterprise tier of our product will improve a lot. Like I'd use analogy like, 3 years ago, someone would buy HubSpot as a start-up and then be growing with us and they graduate off of HubSpot to another system after junior high school. We want to take them through college and grad school. We may not want to pay for law school or your PhD, but we want to keep you at least through college and grad school. And that's going to be an effort this year. And so we think we'll win more solid mid-market accounts and we'll keep accounts longer, so feeling good about that.

And you've seen the early taste of that, Marketing Hub Enterprise, we just announced a couple of weeks back. I've been talking about this type of functionality that people have needed on calls like what bigger accounts that are growing and good-size need is the ability to partition different divisions and geographies in their marketing instances in a more sophisticated way. They need to be able to segment in that way. They need to be able to segment based on accounts and sell into like, let's say, they're selling into GE, need to be able to do account-based marketing. And then they need to be able to take that advanced segmentation and report and attribute what their marketing activities are and their effect on them and to do reporting in a much more sophisticated way. Those 3 things, we just released in our new Marketing Hub Enterprise offering. So I think we're off to a good start there.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [6]

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Thank you for having the perfect analogy for both questions off the top of your head.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [7]

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I'm done, no more analogies.

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Operator [8]

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Your next question comes from Siti Panigrahi from Mizuho.

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Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division - MD [9]

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Just want to dig a little bit into each of these hubs, marketing, sales and service. Mid of last year, you talked about marketing, how they are mid-20% growth and then sales 100% and service growing rapidly. I'm wondering if you could characterize some of the performance end of this year and any color on those hubs will be great.

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [10]

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Yes. I'll start with the adult supervision response which is, we will likely share that sort of hub-level detail at our Analyst Day again this year. It's something that we have shared over the last 2 years at that point in the year but is not something that we talk about on a quarter in and quarter out basis.

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Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division - MD [11]

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Yes. Okay. But any color in terms of adoption of those?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [12]

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I think it's gone pretty well. It's been kind of steady as she goes. That marketing product is growing in a very steady way. That sales product is getting big and we're really excited about the opportunity there. The service product is pretty new. It's only a little over a year old and it's growing nicely. So feeling good about the 3 hubs we have. Those hubs are going to get better, a lot better over the next year or 2 years and feeling good about them, big market.

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Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division - MD [13]

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All right. Okay. Just on the progress in the moving upmarket. So for 2020 guidance, so how do you plan to ramp in terms of adding more sales rep and system engineers moving upmarket and product features? What's your expectation baked into your guidance in terms of enterprise adoption for 2020?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [14]

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Can you ask the question again? Sorry.

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Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division - MD [15]

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So just for 2020, I just wanted to understand your expectation for the enterprise segment moving upmarket. What's baked into that? And your action in terms of hiring, I mean, adding more sales rep and system engineers for upmarket.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [16]

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I think you'll see some investment there from us. The product's early. You've seen here, I just talked about Marketing Hub Enterprise. I think you'll see that layer of the product improve this year a lot. And I think you'll see customers stick with us longer or we will win new accounts. I wouldn't call it that we're selling into the Fortune 500. I think we have an opportunity to be kind of the standard platform in that mid-market, a company between 5 employees or 2 employees and 2,000 employees. And we want to be more attractive for a company between 200 and 2,000 employees. And we're making investments there on the product side. We're making some investments there in the go-to-market side, too, that I think will bear fruit.

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Operator [17]

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Your next question comes from Richard Davis from Canaccord.

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Richard Hugh Davis, Canaccord Genuity Corp., Research Division - MD & Analyst [18]

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So one question. I was thinking, when you guys went public, I think you had a net dollar retention, I think it was like 90 or something like that, but you're at 100. So the question is, do you need to add another hub to get net dollar retention to, I don't know, a lot of people like 105 to 110 or is this a business just by the structure of it that we should kind of say, listen, it will continue to grow, whatever, 25% to 30% a year, but net dollar retention will always kind of be 100? I'm just trying to figure that out and we get questions on that sometimes.

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [19]

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Yes. I mean, I think the reality is, you're right in your history. I think if you turn back the clock, the total revenue retention for the company was in that sort of low to mid-90s. It's moved up pretty consistently over the last number of years. And we are sort of at and around 100. I think what we have said is that we're comfortable that we can maintain sort of 100-plus. The things that have driven or that drive that revenue retention have changed over time. As we've become much more of a suite company, you see more of the upsell coming from things like cross-sell. In the Sales Hub, for example, people are adding incremental seats. So we have a lot of levers. And as we continue to add functionality into the enterprise, we will see more of sort of the edition upgrades as well. So I do think that we remain comfortable that we can sort of sit at or above 100, and I think we will continue to see different trajectories or different things contributing to the retention.

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Richard Hugh Davis, Canaccord Genuity Corp., Research Division - MD & Analyst [20]

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So that I'll take that as a definite maybe, strongly-held maybe. Okay. I wouldn't expect any more from a CFO. So that's good. All right. I'll let you guys go.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [21]

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Thanks, Richard.

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Operator [22]

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Your next question comes from Stan Zlotsky from Morgan Stanley.

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Stan Zlotsky, Morgan Stanley, Research Division - VP [23]

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Perfect. Two questions for me. One is, could you walk us through the changes that you're making to the partner ecosystem to enable them to support the growth of the Service Hub? And how are you thinking about Service Hub growth into 2020? And then for Kate, just could you help us break down the operating margin guide down for -- not a guide down, but the 150 basis point impact for the full year and how much of the 3 points in the first half is due to the stepped-up hiring versus dilutive acquisition of PieSync?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [24]

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Okay.

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [25]

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I think that was like 4 questions.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [26]

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I know.

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [27]

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We're good friends. He's part of the family.

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Stan Zlotsky, Morgan Stanley, Research Division - VP [28]

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Two parts.

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [29]

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Two question, 2 parts.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [30]

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Okay. I'll take the start of it. I think it's important we talk about it. I'm glad you asked me of the partner program. And we've talked about this on calls before. HubSpot historically has been in the marketing software industry and we had a partner program that was historically marketing agencies. And over the last couple of years, we've added Sales Hub and Service Hub and we've moved from helping people generate leads to helping people build a full flywheel and pull customers in and service them all the way through.

That Agency Partner Program is going well. Some of our best agencies that moved from marketing to selling the full solution are doing quite well. The change we just announced, I think it was last week or just the other day, was a really important one. We changed our program, the name from an Agency Partner Program to a Solution Partner Program. This is something we've been piloting, and I've talked about piloting for a while. It was going pretty well and so we've rolled it out into production as of a couple of weeks ago. I think this will open the door to all sorts of new partners. There is hundreds of thousands across the world of companies that are IT service companies, CRM implementers. There is all sorts of interesting potential partner types that we hope to pull into our business and convert into partners. I think they'll be good for business and be very good for our customers. So that's underway.

The second change we made wasn't just moving it from marketing agencies to all kinds of IT implementers and CRM implementers but also to make it easier to become a partner. We announced our provider partner program, which is basically a freemium model for bringing a partner into HubSpot. And so just last week, we announced a major, major change, not just rebrand, but change of our partner program that, I think, is going to really benefit our customers and our ecosystem. The way I kind of think about HubSpot is like we have this giant customer flywheel that's spinning around. We want that to spin faster. There's this second flywheel, which is our partner program or the Solution Partner Program. We want that thing spinning as well and getting them both spinning together. And that ecosystem is really key to helping bigger accounts implement and grow with HubSpot.

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [31]

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All right. And on the margin side, our operating profit guidance for 2020 should at least ring consistent with the narrative we've been talking about over the last 6 months. We talked sort of in Q2 about the fact that we deliver more leverage in the front half of the year than we wanted to. And that was really because we got behind on hiring. And so as we caught up on hiring through Q3 and Q4 and then sort of made the incremental investment in PieSync, frankly, we continue to hire well into 2020, we're starting to see that impact our P&L and our margins more specifically. You can see that what we shared in the prepared remarks was that the impact is going to be much more acute in the front part of the year than it is in the back half of 2020. And that's because, really, the primary driver here is the headcount ramp. And you should frankly see the majority of the anti-leverage in the investments that we're making on the R&D side of the business.

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Stan Zlotsky, Morgan Stanley, Research Division - VP [32]

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Is there a way to break down the 150 basis point full year impact to margins between how much is PieSync versus how much is the catch-up in hiring?

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [33]

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We won't provide a specific breakdown, but more of it is the result of the fact that we've caught up on hiring. And we see that sort of rolling into Q1 and Q2.

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Operator [34]

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Your next question comes from Alex Zukin from RBC.

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Aleksandr J. Zukin, RBC Capital Markets, Research Division - MD of Software Equity Research & Analyst [35]

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I wanted to ask about just the evolving competitive landscape upmarket that you see and kind of who you're trying to really go up against and unseat in some of the competitive deals. And then just another one for Kate on the margins. I guess, should we think about kind of 2020 as an incremental investment year, margins kind of trough at this level and then we start going up from there or given kind of the continued product-focused development, new hubs, both organic and inorganic, is this a level that we should kind of stay consistent at for a couple of years as we broaden the product portfolio?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [36]

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I can take the first one, Alex. There's no huge changes on the competitive landscape. I would kind of characterize what we're up to here at HubSpot and part of what Kate's talking about of the increased R&D investment is just working very, very hard to increase the value we deliver to our customers that help our customers deliver a delightful experience. And in that, hoping to create more and better competitive differentiation from our customers. Our products have always been really easy to use. Our Net Promoter Scores are hitting all-time highs. We win all these awards from G2 and whatnot and now we're starting to layer in more powerful functionality. So I think that's a really good combination and we're feeling good about it for this year.

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [37]

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Yes. And on the margin side, as you know, we have a long-term framework that balances growth and profitability. And since the IPO, we have effectively over-delivered against that framework for profitability expansion. And we over-delivered yet again in 2019. We still think that's the right framework over the long term, but we believe this is a business that can drive sustained top line growth, and we want to make sure that we're continuing to invest there. But we believe, at the same time, we can deliver profitability and expand that profitability over the long term. We want to make sure that we're finding the right balance between long term and short term.

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Operator [38]

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Your next question comes from Samad Samana from Jefferies.

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Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [39]

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So Brian, for you, and I know other people have asked the enterprise question, but I'll ask you slightly differently. Would you say that you're being pulled upmarket more by large customers or is this a decision by the company to push upmarket? And in that vein, do you think that there will be any changes to the go-to-market model and the pricing model, which is much more geared toward SMBs?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [40]

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I would say we're getting pulled. I was just in a meeting this morning that we run. It's called the rhythm of the upmarket business and we go through our top largest accounts. And the top largest accounts love us, really easy to use. But there's these like 4 or 5 things they really want us to do. And on the marketing side, some of those things, we've just kind of ticked off, so feeling a lot better about it. There's some of that stuff on the sales side and service side that's in our sights. And so it's definitely a pull. We have an opportunity to keep these larger accounts and grow with them as they grow. So yes, it's a little bit like we finally got to it, like let's just get to it. This is the year we can build some functionality in there for them, deliver the mail for them. I think we can really delight them with an awesome combination of, boy, these are really like consumer level, easy to use, combined with, boy, these are really powerful, too.

And one of the customers that we were just talking to, the analogy they used was great. They were like, back in the day, you could buy a Mac or you could buy a PC with Windows on it. And with Windows, you can kind of do anything. You can build applications, you had developers. You had a bunch of money, you can do really whatever you want, but that Mac was just beautiful. The software was designed beautifully. Everything worked together beautifully. There was an appropriate number of integrations in there. He was like, you guys are the Apple of the CRM industry. And I think he's right. Maybe not where the Apple, we're heading that way.

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Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [41]

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Great. That's helpful. And then maybe a follow-up for Kate. On the business model side of it, how should we think about maybe when you think about the guidance for 2020, does that factor in maybe larger customers, more deferred revenue and so maybe the kind of the elongation of the rev rec cycle or just how should we think about the billings and revenue outlook there with that as the basis?

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [42]

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Yes. I mean, there's not a step function change in any of those factors assumed in what we're guiding.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [43]

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Yes.

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Operator [44]

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Your next question comes from Chris Merwin from Goldman Sachs.

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Kevin Kumar, Goldman Sachs Group Inc., Research Division - Associate [45]

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This is Kevin Kumar on for Chris. Net customer adds saw a nice uptick this quarter. Can you maybe talk a bit about the puts and takes there and what drove the strength? And then specifically on Customer Hub, can you remind us in terms of adoption how much is typically cross-selling versus new customers?

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [46]

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Yes. I'll start. So on the customer account growth, we had 73,000 customers growing 30%. We're feeling pretty good about that. We're really happy with the customer additions in Q4. 4,700 is sort of a new high-water mark for us, so happy. I would highlight, generally, the strength in marketing there across the board started through enterprise. We saw some really nice additions in Q4. You might remember, in Q3, we talked about the fact that we launched free e-mail and had a little bit of an impact on starter adds in Q3. So it's nice to see that kind of tick back up a little bit.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [47]

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Kevin, I didn't understand your question on Customer Hub.

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Kevin Kumar, Goldman Sachs Group Inc., Research Division - Associate [48]

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Just trying to get a sense of, is that primarily cross-selling to existing customers? Are you landing more with that product?

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [49]

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So I'm assuming that you mean Service Hub when you're talking about Customer Hub?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [50]

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That's what he means. Okay. Service Hub.

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Kevin Kumar, Goldman Sachs Group Inc., Research Division - Associate [51]

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Yes. That's right.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [52]

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Yes. Okay. I get tripped up on this. You're tripping me up there. Service Hub is going pretty well. I like to compare it to how did Sales Hub do 1 year, 1.5 years in. And it's far bigger, of course, you get a larger installed base. Growth's been solid. What the magic of it is, when one of our customers is using our content management system, Marketing Hub, Sales Hub, Service Hub, holy (expletive), there's a lot of power unlocked when they use all that stuff together. And so a lot of Service Hub business is coming that way. Still super early, I think it's a nice opportunity and a big market for us.

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Operator [53]

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Your next question comes from Ken Wong from Guggenheim Securities.

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Hoi-Fung Wong, Guggenheim Securities, LLC, Research Division - Senior Analyst [54]

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The first one, maybe for you, Brian. Last quarter, I think you mentioned as far as Mainsail went, you guys were about 50% through. Any update on that number? And is this still something that you guys expect to wrap up in the first half of next year?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [55]

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I'm glad you asked me about that. I'm really happy with the Mainsail decision we made in Q2 of last year. And just to remind folks, it's a new approach to the way we build products. We've come to the realization that, gosh, people really, really rely on us to run their entire front office. We are a very important piece of our customers' puzzle. And we intend to be around a long, long time. They put a lot of trust in us. We want to reward that trust. So Mainsail was a new way of building product, where we really focus on the foundational issues, security, infrastructure, speed, ease of use, and we basically had every team inside of HubSpot only work on that and not build a single new feature. We've made tremendous progress on that. And most of the teams are out of there. I don't have that number at the top of my head, but we made a lot of progress since the last time I've updated it. And it feels like it's working, Ken.

Our Net Promoter Score, so Net Promoter Score is we ask our customers 2 questions. Hey, on a scale of 1 to 10, how likely are you to refer HubSpot to a colleague or a friend and then why? We've been tracking that metric for a long time. We just haven't been able to budge it. It's a very, very hard number to move. But the Mainsail has worked. And so in Q4, you see it saw a big lift in that number. We were really excited about that lift. I think that bodes well for retention in the future. I think it bodes well for cost to acquire customers in the future. I think we're going to benefit a lot from it. The other thing that's happening now is because most of the teams are out of this mode that we had them in last year, we're starting to build new products. So we just came out with the Marketing Hub Enterprise, and it combines that really ease of use that we put in, that high Net Promoter Score with a bunch more power. So feeling good about that Mainsail decision. It was definitely a couple of steps back, and I definitely think we're going to go a few steps forward because of it.

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Hoi-Fung Wong, Guggenheim Securities, LLC, Research Division - Senior Analyst [56]

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Got it. Appreciate the color there, Brian. And then, Kate, last quarter, you guys also touched on just how new product mix was maybe a bit of a headwind on billings. Is that something we should be factoring in for 2020? How are you guys thinking about the impact of product mix and billings growth?

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [57]

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Yes. I would say, as always, billings is a complicated equation. There are a lot of moving pieces there. I think if you looked at our Q4 billings, we had some headwinds and tailwinds. FX was sort of a headwind to revenue, but the in-period movement helped us a bit on the billings side, so largely offset that. We also had a really strong December finish. We had a good, solid marketing quarter. So that helped us there on the billings side. That said, we do continue to see a headwind on the duration from the shift in product away from marketing and into sales and service, and we expect that will sort of continue into 2020. I think in general what we've said is that billings growth and revenue growth in constant currency will trend together. I still think that's the right way to think about it.

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Operator [58]

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Your next question comes from Arjun Bhatia from William Blair.

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Arjun Rohit Bhatia, William Blair & Company L.L.C., Research Division - Analyst [59]

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It sounded like Sales Hub is getting some really good traction, Brian, I think you mentioned that in your opening remarks. Just curious what you're seeing in terms of new customers landing there versus a cross-sell motion from existing Marketing Hub customers? And I think we're a few years away or a few years past the release now. But just wondering, should we start thinking of this as more of a stand-alone kind of viable product now or is it still something that's kind of best when coupled with Marketing Hub?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [60]

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Yes. It's both. It's because the thing we did on it that worked was, we said we want to make that sales product so good that it's not just for cross-selling into the existing marketing customers that we want it to be a magnet to pull new customers in that then we can cross-sell marketing in. And that worked extremely well. It is a magnet that pulls tons of new customers, then we sell marketing to and vice versa, lots of customers buying both together. And so it's viable on its own. We have a lot of just using Sales Hub customers and they're doing great. And we have a lot of them that use all 3, all 4 of our products together. So the answer is both on it.

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Arjun Rohit Bhatia, William Blair & Company L.L.C., Research Division - Analyst [61]

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Got it. That's helpful. And then on the hiring front, it's great to see that you've caught up. Just curious how you're kind of managing the large influx of people that have come in into 2H. Is your onboarding process kind of scaling to handle that step-up in hiring? And maybe how are you thinking about managing some of those risks that come with bringing on so many people in such a tight window?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [62]

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Feeling good, feeling much better about that. I mean, a year ago, we were in a bad spot there. And we challenged our team to rethink the way we brought people in and onboard them. And it took us a little while, but they figured it out and they've done a fantastic job of it. I'm really proud of them. So we're back on headcount and really pleased with the quality of folks that we're bringing in. I don't get to interview all of them, but the people I meet are great. Certain parts of the organization just have an absolute recruiting machine going. I think the thing that really helps us there is winning some of these awards, like the Glassdoor award. We've been named the Best Company to Work For in the United States, like that's hard to do. You need to have a remarkable culture and remarkable people to do that. And I think we really do, and it's starting to pay off. So the quality is good. The onboarding seems tight now. I think we've come a long way in the last year.

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Arjun Rohit Bhatia, William Blair & Company L.L.C., Research Division - Analyst [63]

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Got it. Congrats on the quarter.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [64]

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Thank you.

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Operator [65]

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Your next question comes from Terry Tillman from SunTrust.

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Nicholas Ivan Negulic, SunTrust Robinson Humphrey, Inc., Research Division - Associate [66]

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It's actually Nick on for Terry. I guess the first one, of the various hub products, the Marketing Hub is the most established. I guess what are the most relevant catalysts going forward for sustaining above 20% growth in this hub just moving forward?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [67]

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I think the new release. We just came out with Marketing Hub Enterprise. It's much, much more powerful. I think customers who use Marketing Hub Pro will upgrade. I think customers who are using Marketing Hub Enterprise and were thinking about churning because we didn't have the sophistication will stick around. And I think we'll win new competitive deals. So I think that will be a nice driver for us.

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Nicholas Ivan Negulic, SunTrust Robinson Humphrey, Inc., Research Division - Associate [68]

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Got it. Okay. And then a quick follow-up. So have you seen any greater activity out of Salesforce Essentials in the market competitively?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [69]

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Haven't seen a big shift there. It's been out for a while. We see it from time to time, but it feels similar to the way it's felt the last couple of quarters.

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Operator [70]

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Your next question comes from Ryan MacDonald from Needham.

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Ryan Michael MacDonald, Needham & Company, LLC, Research Division - Senior Analyst [71]

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I guess, first, Brian, for you. It's now been a few quarters since you started to really add and enhance that, the functionality of the free CRM solution and around that. What are you starting to see in terms of adoption trends of customers? Are they starting to move up to some of the higher suite of products or hub of products off of that free solution or more into the bundled solution? Are you seeing signs of that yet?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [72]

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It's been steady progress on it, I would say. The free edition of our CRM is solid and getting better. Our onboarding of free users, our growth team is doing really well on taking someone who's never used a CRM, let's say, and getting them in, using it themselves, importing their contacts, inviting their colleagues and getting them off to the races. We're starting to work on getting people from the free to the Starter to the Pro, so making steady progress. I think you'll see that hub improve over the course of this year. We've got big plans for it. And so I think there'll be continued steady progress there throughout 2020.

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Ryan Michael MacDonald, Needham & Company, LLC, Research Division - Senior Analyst [73]

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And then just as a quick follow-up. Obviously, it's pretty early days since you announced the hiring of the new Chief Customer Officer, but is there anything we should expect going into 2020 here in terms of structural changes to the organization with that new person coming in?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [74]

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Yes. Thank you for asking about that. A couple of thoughts on Yamini. There was a structural change we made to bring her in. So we combined sales, marketing and services in HubSpot under Yamini. It's the first time we had done that. I think it's also, I like her title. A lot of people call that type of a role a chief revenue officer. We call her as our Chief Customer Officer. We want her to focus on creating a great experience for our customers. We think that will pay off in the numbers in the long haul. But beyond that, I don't expect major changes in the short term. I mean, she just got out of training. She is whip smart and everyone seems to be really jelling with her. So I'm really happy with the hires so far. One of the things I like about her is, she spent a long time at Dropbox so she understands that freemium light touch motion much better than we do. And then she spent a long time at Workday so she understands that upmarket motion better than all of us do. And so I think she's going to do great.

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Operator [75]

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Your next question comes from Jennifer Lowe from UBS.

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Jennifer Alexandra Swanson Lowe, UBS Investment Bank, Research Division - Analyst [76]

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Great. Maybe just going back to the product priorities a bit. Last year, Mainsail was a big focus. And as you said earlier, those resources are now being reallocated in many cases to other projects. There's been a lot of discussion around enterprise. There's been a lot of discussion on how do you improve the customer experience. If you think about what you're really focused on and want to see in the next year, is it really more of that continuing to push more into the enterprise, getting better at the low-touch side and making it easier to use the product or are you starting to think about, at the Analyst Day, there was discussion of more hubs in the future. Is that something that could start to be a focus this year or is that still a couple of years out in terms of where you're prioritizing the R&D resources?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [77]

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Great. Thanks, Jennifer. A point of clarification on Mainsail. Mainsail is a little bit like Maslow's hierarchy of needs where the bottom is things like security and infrastructure. The middle is things like speed and usability. And the top is new features and new powerful functionality. What we challenge all the teams to do is to get through that entire hierarchy of needs before they could build any new features or any new powerful functionality. So that Mainsail concept lives on. It's just that most of our teams now are through the bottom levels and the middle levels of that hierarchy and they're on to building new features and functions. What we don't want to do is get lazy on that stuff. So it's kind of a new way we build product. Most of those product teams have satisfied the bottom and middle levels and they're off to the races on the new stuff.

Having said that, when they're in the top part of that Mainsail, they're starting to build cool new products. That Marketing Hub Enterprise release, it shouldn't be surprising that, that came out at the beginning of 2020 because we just really are getting through those bottom levels of the Mainsail through 2019 and started really cranking on new stuff in 2020. And so there's going to be more activity there. The hubs we have are going to get better. You might see a new product this year, feeling very, very good about where we sit.

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Operator [78]

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Your next question comes from Michael Turrin from Wells Fargo Securities.

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Michael James Turrin, Wells Fargo Securities, LLC, Research Division - Senior Analyst [79]

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Just given the ramp back in hiring you've been working through in the back half of this past year, you still put up another quarter of 30-plus percent constant currency growth. I'm wondering if there's any way to quantify how much of an impact the shape of hiring may have had, if any, in terms of Q4 top line results? And then how should we maybe think about the ramp in contribution from those newer cohorts of employees here heading into 2020?

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [80]

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Yes.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [81]

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I think it's safe to assume we would have grown faster had we not fallen behind on recruiting.

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [82]

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Yes, definitely. Yes. It's definitely a positive number. Quantifying it is obviously a bit more complicated. I think the way you should think about it is, that we got caught up on hiring really in the back half of Q3 throughout Q4. And it typically takes a rep, like depends on where they live in the organization, about 6 to 7 months for them to become fully productive. And then you'll see that, that takes a little bit of time to show up in things like revenue, for example. And so we expect to see the impact kind of phase in over the course of 2020. Yes.

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Operator [83]

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Your next question comes from Kirk Materne from Evercore.

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Peter Marc Levine, Evercore ISI Institutional Equities, Research Division - Analyst [84]

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It's Pete Levine in for Kirk. So just one, how should we think about the balance between international versus U.S. investments. Curious to know, is the purchasing behavior any different than what you're seeing here at home, meaning are customers adopting the full stack upfront versus just buying one and moving up? Just any color on the international side of things.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [85]

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International is going well. The way we do investment has been pretty similar. We look at the relative unit economics between the U.S. versus international markets and we invest where the unit economics are really strong. We invest behind where the reps are significantly over quota. We'll invest more in. We'll look at lead flow. We look at all those factors and decide where internationally we'll invest. The truth is on the purchasing patterns in the hubs and the tiers and whatnot is pretty darn similar across the globe, almost surprisingly similar in each of the international and domestic markets.

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Peter Marc Levine, Evercore ISI Institutional Equities, Research Division - Analyst [86]

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Brian, I know, maybe it's just worth asking, but your last question you mentioned, maybe you'll see a new hub, any hints in terms of where that can go?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [87]

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We don't typically forecast that kind of thing, stay tuned.

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Operator [88]

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Your next question comes from Koji Ikeda from Oppenheimer.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [89]

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Great. Just had a quick one here. With close to $1 billion in cash on the balance sheet, curious to hear your thoughts on the M&A strategy going forward. I guess, is there any change in the way we should be thinking about both the appetite and the scale of a potential target or the overall velocity of M&A activity?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [90]

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Koji, we are definitely looking at deals. If I had one word to describe how we think about it, it would be picky. We want them to be a good team that we respect. We want the culture to work with HubSpot. We want it to be a legit technology. We want to pay a reasonable price. And then when we buy something, we want to make sure it doesn't break sort of our Apple-like, very easy to use and powerful at the same time. So we want to be careful about who we acquire, but we're definitely still in the market. PieSync won't be the only deal we ever do, but we just want to be careful and picky about who we acquire.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [91]

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Great. And then just one follow-up, if I may. From a vertical standpoint, I was wondering what verticals out there you're seeing strong end market demand right now. And maybe what are some verticals that are focus areas to gain more awareness in over the next year?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [92]

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There's no big vertical for us per se. It's mostly B2B. I'd say, don't hold me to this number, but roughly 75%, 80% B2B versus B2C. In B2B, services companies, professional services companies, software companies, tech-enabled services companies, those are big, big, nice verticals for us.

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Operator [93]

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Your next question comes from Brian Peterson from Raymond James.

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Kevin J. Ruth, Raymond James & Associates, Inc., Research Division - Senior Research Associate [94]

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Kevin here on for Brian. I know there's still a number of moving pieces, but do you have any updated thoughts on how you think ASPs trend over the intermediate term just given some of your comments on product development across the enterprise tier?

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Kathryn Bueker, HubSpot, Inc. - CFO & Treasurer [95]

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Yes. It was nice. We had a little bit of an uptick in Q4, again, with ASRPC. The biggest thing that's been driving ASRPC over the past couple of years is really product mix. And we continue to see positive trends at the individual hub level. Frankly, we feel like we've seen a little bit of stability in and around the $10,000 range, which is nice. And I think we're feeling that over the longer term, we can start to see that tick up a little bit.

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Kevin J. Ruth, Raymond James & Associates, Inc., Research Division - Senior Research Associate [96]

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That's helpful. And then at INBOUND, you announced some enhancements for Sales Hub, including a Buy Now button. And I was curious how the beta on that was going? And I guess, any early customer feedback or adoption insights that you could share there?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [97]

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It's going well. A lot of people are adopting that functionality and liking it. Our partners are implementing that for folks. You'll see a lot more of that kind of thing over time. I'm bullish about that area between where the sales rep leaves off and where cash hits the balance sheet. I think there's lots of room in there.

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Operator [98]

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Your next question comes from Tom Roderick from Stifel.

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Thomas Michael Roderick, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [99]

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So Brian, let me throw the first one at you here just thinking about PieSync a little bit more. You've had it under your belt for a few months. So I know it's still early, but as you think about that product and its integration with your own products and go-to-market, can you just talk a little bit more about how customers are embracing it and how you're pushing it on go-to-market? You've got over 200 application integration. So do you find your customers are more and more using it as a way to integrate with other applications they might have in the front office side and then utilizing that to sync the data back and allow HubSpot to be the customer data of record? Are they using them more to integrate with your applications across different hubs? Just talk a little bit more about usage patterns and go-to-market with that product right now.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [100]

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Sure, Tom. PieSync is going well. It's really good technology. It's a really good team. They're making big enhancements to that synchronization engine to make it much more powerful for our customers like, let's say, you got a customer who wants to sync to Microsoft Dynamics, like how do you do that and make it as easy as possible and as powerful as possible. So they're working hard on some very, very cool stuff. What you'll see over the long haul is that synchronization technology will be embedded inside of HubSpot in different ways and in powerful ways. And so I think that acquisition is going to work out really well for us. We're really happy with it.

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Thomas Michael Roderick, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [101]

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Outstanding. And then one just other product-related question. You touched on e-mail marketing earlier, the free offering. And in prior quarters, you just mentioned that, that has been a product that maybe there's a little bit of cannibalization at the low end of the starter marketing here. What are you seeing with respect to, again, adoption and usage patterns on that? Is it having any impact on some of the lower end core Marketing Hub features? And then what sort of adoption are you seeing on e-mail marketing?

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [102]

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I think the change we made that was interesting is we put e-mail marketing into our free layer of products, in our starter layer of products. And that's been well received. We haven't seen any cannibalization of note from Starter or Pro. The number has moved a little bit in the short term, but they steadied themselves by September, October on that change. So no big cannibalization, I think it's going pretty well. That starter product is pretty legit. The free product is pretty legit. And what we can get a lot better at, I'll tell you, is moving those free to Starter to Pro to Enterprise. That's still an area that we're early in our investment cycle on.

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Operator [103]

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And that was our last question. At this time, I will turn the call back over to Brian Halligan for any final remarks.

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Brian Halligan, HubSpot, Inc. - Co-Founder, Chairman & CEO [104]

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Thanks all of you for joining, really appreciate it.

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Operator [105]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.