HubSpot Inc (HUBS) Q1 2024 Earnings Call Transcript Highlights: Strong Growth Amidst Economic ...

• Revenue Growth: 23% year-over-year increase in constant currency.

• Operating Margin: Expanded by 120 basis points year-over-year to 15%.

• Total Customers: Grew 22% year-over-year to over 215,000.

• Net Customer Additions: Over 11,700 in the quarter.

• Subscription Revenue: Increased by 23% year-over-year.

• Domestic Revenue Growth: 21% year-over-year.

• International Revenue Growth: 24% in constant currency, 25% as reported.

• Average Subscription Revenue per Customer: $11,400, flat in constant currency, up 1% year-over-year.

• Net Revenue Retention: 101%, 102% excluding Clearbit impact.

• Q1 Operating Margin: 15%, up 1 point year-over-year.

• Net Income: $89 million in Q1.

• Free Cash Flow: $104 million in Q1, representing 17% of revenue.

• Cash and Marketable Securities: Totalled $1.8 billion at the end of March.

• Warning! GuruFocus has detected 4 Warning Sign with HUBS.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• HubSpot Inc (NYSE:HUBS) reported a solid revenue growth of 23% year-over-year in constant currency for Q1 2024.

• Operating margin grew by 120 basis points year-over-year, reaching 15%.

• Total customer count increased by 22% year-over-year to over 215,000, driven by significant net customer additions.

• Strong product innovation with over 100 new product releases, including 70 AI features, launched in the Spring Spotlight event.

• High customer dollar retention in the high 80s, indicating strong value delivery to existing customers.

Negative Points

• Experienced weaker demand conditions in Q1 2024, similar to the challenges faced in 2023, with increased scrutiny on budgets and more decision-makers involved in the purchasing process.

• The shift from higher quality inbound and partner-sourced leads to lower quality rep-sourced leads, which slowed down deal progression.

• The introduction of a new pricing model based on seats in March negatively impacted business, with a faster adoption leading to lower ASPs and a slower pickup in new customer volume.

• Despite maintaining full-year revenue guidance, the company noted ongoing macroeconomic challenges and a cautious buying environment expected to persist through 2024.

• Upgrade rates were challenged in Q1, although gross retention remained strong.

Q & A Highlights

Q: Can you help us understand how much of HubSpot's growth is due to traction with larger customers offsetting SMB weakness? A: Yamini Rangan, CEO, explained that despite a cautious buying environment, HubSpot remains the platform of choice for many customers due to its lower total cost of ownership and faster time to value. Both the lower and upper market segments are showing cautious strength, with significant customer retention and a focus on product innovation and AI integration.

Q: What is driving the oscillation in buyer urgency observed between December and Q1? A: CEO Yamini Rangan noted a return to cautious buying in Q1, characterized by tighter budgets and increased scrutiny in the decision-making process, contrasting with the higher urgency in December. This cautious environment is more aligned with the trends seen throughout 2023.

Q: How has the pricing change to a seats model impacted sales cycles and customer behavior? A: Yamini Rangan mentioned that the adoption of the seats model led to a faster decline in average selling prices (ASPs) but expects customer volume to eventually offset this. The environment requires more customer engagements, impacting the sales cycle. CFO Kate Bueker added that Clearbit contributed about 1.5 points to revenue and billings growth in Q1.

Q: How are you managing the full year guidance given the macro challenges observed? A: CFO Kate Bueker confirmed that full-year guidance remains unchanged despite macro pressures, attributing this to strong gross retention and some improvements in downgrade activities. The guidance reflects a balance of risks and upsides perceived by the management.

Q: Can you discuss the traction and integration of Clearbit and its role in HubSpot's AI strategy? A: CEO Yamini Rangan highlighted that Clearbit integration is progressing well, enhancing HubSpot's data enrichment capabilities which are key to their AI strategy. This integration is expected to drive insights across HubSpots customer platform, enhancing campaign effectiveness and overall customer intelligence.

Q: What impact has the new seats pricing model had on new customer acquisition and existing customer upgrades? A: Yamini Rangan explained that the new model has been well-received, with a significant adoption that initially led to a sharper decline in ASPs. The model is expected to stabilize, promoting healthier customer cohorts and benefiting HubSpot in the long run. CFO Kate Bueker noted that while ASPs fell, the upgrade rate for customers on the new model is healthier, showing early signs of positive impact.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.