Good afternoon, everyone, and welcome to the HubSpot Q4 2021 Earnings Conference Call. Just a quick reminder, today's call is being recorded. At the end of today's prepared remarks, we will have a formal question-and-answer session.

Thanks, operator. Good afternoon and welcome to HubSpot's fourth quarter and full year 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 Yamini Rangan, our Chief Executive Officer; Dharmesh Shah, our Co-Founder and CTO; 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, leadership transitions and business outlook, including our financial guidance for the first fiscal quarter and full year 2022. 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 3, 2021, 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 and fiscal year 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 Executive Officer, Yamini Rangan.

Thank you so much, Chuck, and welcome, everyone. Thank you for joining us as we review HubSpot's fourth quarter and full year 2021 results. Last year was one of immense change, and I'm incredibly proud of how the HubSpot team was able to adapt and execute to meet the needs of our customers. Going into 2021, our goal was to be the number 1 CRM platform for scaling companies. We made significant progress towards that goal, and you can see that in our results. We have continued to see broad-based strength across the business with revenue growing 47% year-over-year in constant currency in the fourth quarter. We closed out 2021 with more than 135,000 customers globally, nearly $1.5 billion in ARR, and we generated more than $200 million of free cash flow. We also recently hit the exciting milestone of having more than 1,000 apps available in our marketplace. We know the customers who use integrations are more successful, and so having a robust ecosystem is essential to delivering on our platform vision. Now I want to take a step back and look at the macro trends that drove our sustained growth in 2021. Since HubSpot's inception, we have evangelized the shift towards digital transformation. That shift accelerated as small and medium businesses around the world have had to quickly pivot to doing business online. In this world of rapid digital transformation, providing a remarkable customer experience has gone from being a competitive advantage to being a necessity. Now more than ever, businesses need a modern and powerful CRM that helps them create those experiences. HubSpot is becoming a CRM provider of choice for these SMBs as they navigate this journey. We did two things exceptionally well in 2021: we drove product innovation and we aligned our product and go-to-market functions for tight execution. First, let's talk about product innovation. We both innovated on our anchor hubs and expanded our CRM platform with new product offerings. Operations Hub, which we launched in April, is one of those new products. This hub meets the needs of operations teams struggling to get clean data, automate that data, report on that data, and drive insights to help their businesses grow. Through Operations Hub, revenue operations teams have access to more than 100 native integrations that bring even more data into HubSpot to make it very powerful. Operations Hub supercharges the HubSpot CRM and drives more value, and we are seeing that in the numbers. We surpassed more than 15,000 customers using Operations Hub in Q4 and are seeing strong demand among both existing customers and new customers adopting it as part of our CRM suite. We also introduced a new lever for growth with payments and commerce and believe that commerce-enabled CRM can drive growth for our customers. I'm really thrilled to share that HubSpot Payments is now available to all U.S. customers, with our target segment being companies with fewer than 100 employees. Customer feedback is validating our hypothesis that a commerce solution is much more powerful when it's natively built inside of a CRM. We know that native payments are widely important for SMBs to grow their businesses online, particularly when it comes to having commerce context embedded in CRM. This actually ensures that all front-office teams have visibility into their interactions with the customer. While it's very early days, we're encouraged by the momentum we're seeing with our payments offering. In addition to launching new products, we have continued to invest in our anchor hubs of Marketing, Sales, and Service. We extended our lead in CRM and drove sustained growth with new enterprise-level features platform-wide. Getting insights across the entire front office is still a huge challenge for many scaling companies. They're forced to use siloed, disparate systems that don't give them the visibility they need to grow their business. The improvements we made in 2021 are helping to solve those challenges, particularly when customers adopt multiple hubs. Multi-hub adoption now accounts for 60% of our customer base compared to 34% in 2017, which is a powerful indicator that our customers are seeing value in adopting HubSpot across multiple parts of their business. Take a look at ResellerRatings, a user-generated content platform for retail brands. Like many scaling companies, they were bogged down with a disparate stack of multiple front-office tools that did not provide visibility across the business. So their marketing and sales teams consolidated all of their work on HubSpot and saw a 25% increase in traffic, a 30% increase in contract value, and a 75% decrease in customer churn rate. This is exactly what we expect to see when customers adopt our CRM suite. ResellerRatings is creating a better experience for their customers and scaling with HubSpot. Now let's shift gears to talk about the alignment between product and go-to-market and how that drove great execution in 2021. Our sweet spot historically has been the 20- to 200-employee segment. Last year, we set out to optimize the customer experience across all three key segments in which we operate. At the lower end, we're providing a full suite that is easy to use and easy to buy, and we are driving a better experience through touchless and chat-assisted sales. We're making it seamless for customers to adopt our product, and we see that within our suite momentum. At the higher end of the market, we've continued to invest significantly in internal enablement initiatives that are driving higher sales productivity. We're also working to strengthen the alignment between inside sales and our solutions partners, and we're seeing momentum there. The process rigor that we have is enabling our sales team to better communicate the value of HubSpot and win higher-value, higher-ASP, upmarket deals that contributed to the strong results we saw across the year. As I look back on our accomplishments in 2021, we made remarkable progress on our path to becoming the CRM platform of choice for scaling companies. Small and medium businesses need great front-office solutions that can provide insights to drive growth. That increase mean, coupled with our product innovation and go-to-market execution, gives us a solid foundation for strong growth in 2022. Looking to this year, we're going to stay focused on the four strategic priorities that I outlined at the Analyst Day. Our first priority is to deliver a world-class, front-office platform by continuing to invest in new and existing hubs as well as driving extensibility of that platform. Our second strategic priority is to strengthen our segmentation approach across product and go-to-market. We will continue to deliver consumer-grade experiences with powerful enterprise-grade features. That will translate into a focus on driving broad suite adoption at the starter tier while enabling customers to gain more value from professional and enterprise tiers. Our third strategic priority is to invest in payments and commerce. We will be laser-focused on driving full adoption through the entire customer journey from payment discovery to transaction. We will also look to increase the volume that merchants transact in the product. Finally, our priority is to build a sustainable company. We'll do that by hiring and developing diverse talent, adopting and reporting on environmentally sustainable practices, and investing in data privacy solutions that build customer trust. I am really excited about the opportunity ahead and the investments we're making in 2022 to execute towards that opportunity. With that, I'll hand it over to Kate to discuss our financial results.

Thanks, Yamini. Let's turn to our fourth quarter and full year 2021 financial results. Fourth quarter revenue grew 47% year-over-year both in constant currency and on an as-reported basis. Q4 subscription revenue grew 47% year-over-year, while services and other revenue increased 38%, both on an as-reported basis. Full year 2021 revenue grew 45% year-over-year in constant currency and 47% as reported. Full year subscription revenue grew 48% year-over-year, while services and other revenue increased 41%, again, both on an as-reported basis. The combination of our strong product innovation and internal alignment enabled us to deliver strong 2021 financial results. We were particularly pleased with the healthy CRM suite and installed base selling in Q4 that fueled a nice closeout to the year. We saw net revenue retention rates that trended nicely above 110% for both Q4 and the full year. Customer dollar retention continued to be an important foundation for our overall strong retention performance this quarter. Net revenue retention continued to benefit from multiple upgrade drivers, with particular strength in cross-sell activity in Q4. Domestic revenue grew 42% year-over-year in Q4, while international revenue growth was 54% in constant currency and 53% as reported. International revenue as a percentage of total revenue increased 2 points year-over-year to 46% in Q4. We added 7,300 net new customers in the quarter, bringing our total customer count to 135,000, up 30% year-over-year. Average subscription revenue per customer grew 11% year-over-year to $10,875 as we saw a continued positive mix shift towards our professional and enterprise tiers, along with strong installed base selling. Deferred revenue as of the end of December was $435 million, a 37% increase year-over-year. Calculated billings was $428 million in Q4, growing 43% year-on-year in constant currency and 38% as reported. Constant currency revenue growth in Q4 exceeded constant currency billings growth, primarily as a result of the strong installed base selling mix in the quarter and modestly lower overall billing duration. The remainder of my comments will refer to non-GAAP measures. Fourth quarter gross margin was 81%, down slightly year-over-year. Subscription gross margin was 84% in Q4, while services and other gross margin was negative 15%. Full year gross margin was 81%, down 1 point year-over-year. Subscription gross margin was 84%, while services and other gross margin was negative 5%. Fourth quarter operating margin was 10%, and full year operating margin was 9%, both up slightly compared to 2020. At the end of the fourth quarter, we had nearly 5,900 employees, up 40% year-over-year. Throughout 2021, we invested in the strategic priorities that Yamini outlined and are well positioned to continue to meet the strong customer demand for our products and drive innovation to fuel growth in 2022 and beyond. Net income in the fourth quarter was $30 million or $0.58 per fully diluted share. Net income for the full year was $92 million or $1.82 per fully diluted share. CapEx, including capitalized software development costs, was $19 million or 5% of revenue in Q4 and $62 million or 5% of revenue for the full year. Free cash flow in the quarter was $78 million or 21% of revenue and $203 million or 16% of revenue for the full year. Finally, our cash and marketable securities totaled $1.4 billion at the end of December. And with that, let's dive into guidance for the first quarter and full year of 2022. For the first quarter, total as-reported revenue is expected to be in the range of $381 million to $383 million, up 36% year-over-year at the midpoint. We expect FX to be approximately a 4-point headwind to as-reported revenue growth in the first quarter. Non-GAAP operating income is expected to be between $30 million and $31 million. Non-GAAP diluted net income per share is expected to be between $0.46 and $0.48. This assumes 51.3 million fully diluted shares outstanding. And for the full year of 2022, total as-reported revenue is expected to be in the range of $1.72 billion to $1.73 billion, up 33% year-over-year at the midpoint. We expect FX to be approximately a 3-point headwind to as-reported revenue growth for the full year 2022. Non-GAAP operating income is expected to be between $153 million and $157 million. Non-GAAP diluted net income per share is expected to be between $2.34 and $2.42. This assumes 51.5 million fully diluted shares outstanding. As you adjust your models, keep in mind the following. Given we will have some unusual revenue growth comparisons again in 2022, I thought it would be helpful to provide some color on the cadence of growth throughout the year. We anticipate as-reported revenue growth of 34% year-over-year in the first half of 2022, followed by 32% in the second half of the year. At the beginning of 2022, we adopted the new convertible debt accounting standard. Under this new standard, our fully diluted share count assumes a full share settlement of our notes, which adds approximately 1 million shares to our Q1 fully diluted share count and 850,000 shares to our full year fully diluted share count. This change is embedded in our guidance. We expect CapEx as a percentage of revenue to be roughly 6% and free cash flow to be about $240 million for the full year of 2022, with seasonally stronger free cash flow in Q1 and Q4. And with that, I'll hand things back over to Yamini for her closing remarks.

Thank you so much, Kate. I want to close out today by circling back on our commitments to building a diverse and inclusive workplace. Just last month, HubSpot was named the number 2 Best Place to Work on Glassdoor, and we have similarly been recognized for our inclusive culture in multiple categories on Comparably. Having a strong team is essential to growing the company and becoming the number 1 CRM platform for scaling companies. I'm so thankful to the entire HubSpot team for making this such an amazing place to work, and I'm excited about the investments we are continuing to make to ensure that all of our employees feel included and inspired. With that, operator, please open up the call for some questions.

And with that, we'll take our first question this afternoon from Stan Zlotsky at Morgan Stanley.

Congratulations on a very strong quarter and a very strong end to the year. Kate, maybe just one question for you. Could you just unpack the delta again between the Q4 reported billings and the Q4 constant currency billings for us, please?

Yes. Sure thing. Thanks for the question and thanks for the comments. So we reported constant currency billings of 43%. Our constant currency revenue growth was 47%, as you know. There are two things that contribute to the difference. The first is that we, again, this quarter had a very strong focus on installed base selling. And what tends to happen when we sell into our installed base is we co-term those deals with their existing contracts. So the months upfront associated with those deals are relatively shorter. The second thing is that there was a modest decrease overall in duration, and those two things together actually more than accounted for the difference between constant currency revenue and constant currency billing.

We'll take our next question now from Samad Samana with Jefferies.

Just a great year to all the company's employees even with transitions and everything, you didn't miss a beat, Yamini, and congrats on that. So maybe if I think about the quarter and, Kate, I appreciate the growth cadence. I think one of the things I'd like to ask about is that the cross-sell upsell motion as the cohorts have settled into this kind of 7,000-plus net adds, how should we think about how much of it is cross-selling additional modules into the base versus upselling these cohorts into higher-tier SKUs? And what's driving that? Because even as those cohorts have stabilized, you've still seen really robust billings growth and revenue growth?

It's an interesting question. Over the past few quarters, we've discussed retention, and I'm pleased to share that the increase in retention is coming from various sources. We always begin with the improvement in customer dollar retention. However, when comparing customer dollar retention to net revenue retention, I’ve consistently mentioned that the upgrade motion is influenced by multiple factors. The upgrade itself has significantly contributed to this change, as has the increase in seats. Additionally, one of the highlights for me in Q4 was the strong cross-sell activity, particularly concerning Operations Hub.

We'll go next now to Mark Murphy with JPMorgan.

I want to extend my congratulations. Yamini, some of your partners have indicated that they are seeing a very strong pipeline, possibly the largest in the company's history. I also noticed your preliminary guidance for 2022, which appears to be six points ahead of what you provided last year. However, there seems to be an investor narrative concerning the pull-forward of IT spending over the past couple of years. Can you help us understand what customers are prioritizing for 2022, such as shifting resources from marketing to sales, moving up enterprise SKUs, or custom objects, or any other factors contributing to this?

Thank you for your question, Mark, and I appreciate your feedback. We are entering this year with a strong pipeline. If I think about the reasons for this solid pipeline as we start the year, I can identify three key factors. Firstly, at the onset of the pandemic, customers sought digital solutions to connect with their customers, which included inbound marketing, inside sales, and omnichannel support, making HubSpot an ideal solution. Now that we are beginning to move past the pandemic, small and medium-sized businesses are eager to grow and enhance their front-office productivity. In discussions with customers, they continue to invest in technology, aiming to integrate marketing, sales, and service on a single platform for better visibility into customer trends that drive growth. Lastly, we possess a unique value proposition that resonates well with the markets we serve. Our platform is well-designed, easy to purchase, and user-friendly, effectively addressing our customers' needs. The combination of these factors contributes to a strong demand environment, which is reflected in our pipeline.

And next, we'll go to Brad Sills with Bank of America.

Congratulations from me as well on a real nice end of the year. Maybe one for you, Yamini. We see a pretty challenging hiring environment across software. You guys are guiding to 36% constant currency growth for the year. So obviously, a lot of growth there. How are you finding the hiring environment? Any commentary on that effort as you look to the year in hiring?

Thanks a lot, Brad, and thank you for that question. Look, I think that talent overall in general and SaaS talent in particular have been in demand for a little while. It's really hard to remember a time where that has not been the case. But having said that, I look at the foundational factors that HubSpot has for us to be able to hire and retain great talent. And it starts with our culture. We've talked a lot about how products and culture are equally important and how we continue to evolve both product and culture. That has continued to be the case for a very long time at HubSpot, and we've invested in that. Just like product, we use Net Promoter Score as a way to look at product quality. Same thing comes with culture. And the way we measure that is both ENPS, Employee Net Promoter Score, internally. And it is our rating on things like Glassdoor. We just got awarded number 2 Best Place to Work on Glassdoor, and that shows the strength in terms of the culture. The second part of the foundation is really providing for flexibility. We made a choice very early on during the pandemic on hybrid work, and that means we've provided a lot of flexibility, and we have made hybrid work for our team, and that flexibility rules. And so the combination of culture as well as the foundation or flexibility has really helped us hire and retain top talent even in this market. So I feel very good going into this year.

Next we'll hear from Arjun Bhatia with William Blair.

Congratulations on a strong quarter. Yamini, you mentioned that Operations Hub was a significant factor in this quarter's growth, particularly regarding cross-sell opportunities. I'm interested to know if there has been any pent-up demand for the Enterprise edition you released late last year. Additionally, I would like to hear your insights on the current market and competitive landscape, especially with some dedicated players in the revenue operations market. Is this primarily a new market for you, or are you encountering competition from other vendors in the successful deals involving your Ops Hub product?

Great question, Arjun. Thank you so much for that. Well, we're very pleased with the momentum within Operations Hub. As you've heard me talk about, we now have 50,000 customers on Operations Hub, and that's growing from about 10,000 customers in October. I was also very pleased to see that 40% of Operations Hub new bookings in Q4 came from that enterprise tier that we recently launched. So that's clearly resonating, and there is momentum and adoption of that enterprise tier. Now just a step back on Operations Hub. That's how it's slightly different from all other hubs. We think of like Marketing and Sales at the front store. Operations Hub is like the supercharger. You go to a nice restaurant, and you have a great meal. There's the main course, but then there's a song that makes the whole meal just tastier. Operations Hub is like that for us. It just makes the whole CRM platform sing in terms of the value. And so it's really solid and it's resonating. We saw a lot of momentum in Q4. Now you asked about the Enterprise edition. We've launched it. And the Enterprise edition is all about reporting and driving insights so that our customers who are adopting the entire CRM suite can see a lot of those insights will continue to grow. Data sets are a very key feature there. We're definitely seeing data sets as well as the advanced reporting within the enterprise edition drive momentum. So overall, look, we're very pleased with how the launch overall went and the momentum that we're seeing within Operations Hub.

We go next now to Michael Turits with KeyBanc.

Congratulations on the quarter, Kate. The net additions were 7,000, which aligns with your expectations. Do you believe this is stable, or are there emerging trends? You mentioned gross dollar churn, but regarding customer churn, have we moved past the churn from the 2020 starter customers? Is customer churn beginning to stabilize?

Thank you for the question. We have one more challenging quarter for comparison in the first quarter regarding the Starter Growth Suite. However, we have observed some consistency with adding over 7,000 new customers each quarter. We are optimistic about this trend continuing into 2022. Additionally, concerning ASRPC, we noticed an upward trend throughout 2021, with an 11% increase in Q4. As we move into 2022, we are now more confident in our expectation that ASRPC can grow in the low double digits.

And next, we'll go now to Ken Wong with Guggenheim Securities.

I think this one probably for Dharmesh. Obviously, data restrictions have been impacting marketing ROI. We even heard Facebook management express a need to rebuild their ad infrastructure to improve targeting. Are you guys hearing that from your customer base? Anything that maybe is resonating across kind of that marketing world that we should be thinking about as far as data restrictions and potential tailwinds for your business?

Yes. A couple of things. Thanks for the question. So first on the kind of the privacy front, we've seen this movement towards increased focus on privacy for all of our 15 years now. HubSpot's kind of grew up with this kind of inbound marketing philosophy, which is very consumer-friendly and privacy-focused. So on that front, we've seen kind of neutral to positive as regulations have shifted as there's increased scrutiny around privacy. The other thing I'd kind of note is that the companies that are most impacted by these kind of shifts in regulation are the ones that have a large network with a large advertising base where you're a massive consumer mobile application with tens of millions of users. HubSpot doesn't fall into that camp, so we haven't really seen much impact on our business. And our customers are similar. They're in the B2B-considered purchase side of things. So the regulation shifts haven't really impacted them measurably either. The other thing that's happening, as you noted, is this kind of focus on the EU to U.S. kind of data transfer regulations. We've been watching that closely. We haven't seen any impact on our business yet. Operationally, we did make a change last year where we launched a feature called Hubli, which allows us to take all of HubSpot and host it in different geographies. And we use that new feature to be able to offer our customers the option to host in the EU if they choose to do so. But overall, we're watching the headlines like everyone else, but no real meaningful impact from the business.

And next, we'll be now to Gabriela Borges with Goldman Sachs.

I want to follow up on the commentary on customer adds being stable. And as a little bit of a depth of TAM question, which is, Yamini, could you describe for us a little bit the customers that are joining the HubSpot platform today as new customers that were not compelled to upgrade or digitally transform in 2019, 2020, 2021? How would you describe those customers? And how do you get comfortable with the depth of the TAM that you're targeting as potential customer adds and the runway ahead of you?

Thank you for the question, Gabriela. What we see is that customers are at various stages in their journey. In 2020 and 2021, many customers were focusing on being digital-first and ready, needing to connect with their customers during that period. Currently, we are witnessing an ongoing digitization of the front office. Customers still have very fragmented systems; their front-office tools and technology stacks are disparate. They are attempting to integrate these elements to gain the visibility they require. Many customers prioritize growth but lack visibility across marketing, sales, and service functions. When they analyze their tech stack and how to enhance front-office productivity, they realize they need a seamless customer experience to drive that growth. This reflects a slight evolution in their needs. However, in both scenarios, we have invested in product innovation over the last 12 to 18 months. Our value proposition, which emphasizes quick time to value, ease of adoption, and effective tech stack consolidation, is effective and resonates with what we are observing overall.

Next, we go now to Ryan MacDonald with Needham & Company.

This is Josh on behalf of Ryan. Congratulations on a strong quarter and year. I wanted to know which payment use cases are resonating the most with customers. Is it the touchless B2B sales approach or the optimization of the quote-to-cash process? It would be great to get some more details on this.

Josh, yes, thanks a lot for the question. First off, we were very excited about payments going GA, but it's very, very early days. If we step back, we want to help our B2B customers deliver great consumer-grade buying experiences, whether they want to sell online or they want to sell via rep. That's what we are focused on. And a bit early stage of a new product introduction and looking for a couple of things. I'm looking for product market fit and the validation of our early hypothesis. That's exactly what we are hearing from early customer feedback. So we went in with a couple of big hypotheses. One is that embedding payments into CRM will spur B2B e-commerce, and it will drive growth. And we're seeing that. We have a management consulting customer that's connecting family offices to businesses. They had the entire outsourced finance team that was creating invoices, sending invoices, tracking those, tracking checks. All of these are like manual. With HubSpot Payments, they are just selling online. They are just seamlessly getting their customers without any touch into their service. That's the example of the use case. So that selling online use case is definitely resonating. The second big hypothesis we have is that commerce context in CRM is going to add a ton of value for our customers. That's also resonating, and that's a set of use cases that we're seeing. Early feedback has been really good. We'll continue to be very focused on the target market pitch as well as making sure that the customer experience, all the way from discovery of payment to starting an application, completing an application, finishing the transaction, that entire process is just beautiful and consumer-like. So that's what we're going to be focused on. We're happy with the feedback that we're getting early on.

We go next now to Rishi Jaluria with RBC Capital Markets.

Nice to see continued strength in the business. I just wanted to double-click on the operating margin guidance. You're guiding to effectively flat operating margins in 2022, which is great to see. But maybe just wanted to kind of get a sense for how you're thinking about where your investment priorities are. And maybe alongside that, as we in the back half of the year, hopefully, start to reopen up offices, start to get back to in-person conferences, maybe even get salespeople back on the road and in person doing meetings, how do you think about the return of some of those costs as you put out that guidance?

Yes. Sure. Why don't I take that one? I think you've heard from Yamini throughout this call that we feel really good about the long-term opportunity that's sitting in front of us. We're focused on making sure that we are investing to drive that long-term durable growth. Right? And there are a few areas in 2022 that we're focused on making those investments. They're going to line up pretty closely with the strategic priorities that Yamini talked about in her prepared remarks. So the first one would be product and engineering. We're going to continue to invest in our R&D organization to drive innovation. We think it's important to both plant the seeds and continued innovation across our portfolio. We feel really good about the return we're getting there. We saw a lot of new products and features in 2021. On the go-to-market side, we are definitely leaning into our segmentation, and that is investing in automation at the low end. It's investing in that sort of value and all of this around some components were upmarket. Finally, we're investing really across the business in systems and processes to make sure we're laying the foundation to scale over time. I guess to answer your specific question around what happens as we sort of open back up, we are assuming that along with local regulation we will start to become a more sort of mobile, in-office or at least highly flexible workforce. We are less T&E-dependent than many other enterprise-oriented companies. And so there is a bit of a headwind to our margin in 2022 as a result of that. But it's not the same that you would see at many other places.

Next, we go to Parker Lane with Stifel.

In the last few years, we've released a lot of new tools, whether it be content management, operations-focused, service-focused use cases. How has the type of partner that you're attracting to the ecosystem change with the release of these tools? And what's the company's strategy around acquiring new partners, getting them ramped up, and making sure they're going to be successful given that these are a little bit different use cases than the marketing- and sales-focused partners you worked with in the past?

Thank you for the question. I appreciate discussing our partner ecosystem. About 18 months ago, we shared our clear strategy with our partners: we aim to enhance selling and servicing alongside them. This approach ensures that when partners engage, our customers are onboarded effectively, leading to greater value and longer retention. This is beneficial for our customers and, in turn, for HubSpot. We have seen many marketing agencies shift from working on a retainer basis. Over the past few years, we have invested in training, support, and joint sales initiatives, enabling them to handle our entire product portfolio and various service needs. Our partners are now equipped to manage more complex CRM implementations, various integrations, and intricate use cases as we expand into new markets. We are witnessing positive growth and momentum among partners offering a complete range of services. In 2022, we continue to invest in co-selling, utilizing a shared interface to track our joint customer conversations. We are committed to enhancing partner support and encouraging more collaboration between our direct sales teams and partners. I'm very pleased with the progress of our partner ecosystem based on the significant investments we've made.

Next, we go to Siti Panigrahi with Mizuho.

This is Matt filling in for Siti. Yamini, I'm interested in your payments business and the assumptions that are factored into the 2022 guidance. You have discussed digital transformation very clearly this year. It seems there is significant emphasis on customers upgrading. I would love to hear your thoughts on how Payments could potentially be a driver for your guidance in 2022.

Thanks for the question. It's Kate. I think I'll jump in on that one. We are very excited about the long-term future for payments. But I do want to make sure that you heard Yamini that we are early. The payments offering was in beta for Q4. It's gone GA, which is an incredible milestone in Q1. That said, we did not embed any material revenue or COGS associated with Payments in our '22 guidance. So we didn't see meaningful results, and we don't expect it to be a meaningful revenue driver in 2022.

And next, we go to Brent Bracelin with Piper Sandler.

I wanted to go back to average subscription revenue per customer. We haven't seen double-digit growth here for 5, 6 years and now you're suggesting that, that could be sustainable into next year. So a question here, why now? Is this just the multi-product strategy maturing and it's now resonating? Just trying to understand the change there because it does sound like it's material. You're increasingly confident that in the cross-sell. Just would love a little more color on kind of the why now and what gives you confidence it's sustainable.

Thank you. I’ll start, and if I miss anything, Yamini can provide additional insights. We have been focusing on innovation at both the high end and the low end of the market. These efforts contribute to HubSpot's overall growth. The performance of these segments may vary from quarter to quarter, but there will be a balance. We noticed strong performance in the Starter tier throughout 2020. In 2021, and as we look ahead to 2022, we expect to see continued benefits from the innovations aimed at the higher market segment. This is due to the mix of customers we’ve seen in recent quarters, particularly at the pro and enterprise levels, alongside our successful strategies in cross-selling and expanding customer accounts.

And next, we go to Michael Turrin with Wells Fargo.

Obviously, great job with the 2021 results. One to start there, but was hoping to spend some time on just segmentation of the move upmarket. We've heard some encouraging signs from your partners echoing what Yamini is saying just around better alignment, but also larger customers than that historical sweet spot showing up asking for hubs and more formal processes. I just want to explore what's happening behind the scenes there? How much of this, from your perspective, is tied to internal efforts, some of the partner efforts that you've embarked on? Obviously, having a more comprehensive product helps, too. But just would love to just explore that in more context given there's just a lot of good things happening with the growth drivers here currently.

Thank you for the question, Michael. You are absolutely correct. We are observing significant progress in our product offerings, market approach, and partner collaborations. Looking back over the past year, we have maintained a strong focus on all our segments, particularly the upmarket segment that includes businesses with 200 to 2,000 employees. We are concentrating our efforts from both a product and market strategy perspective. Last year, we made substantial investments in our products, and the results are proving effective. On the Sales Hub front, we have introduced numerous innovations, ranging from Conversation Intelligence to enhanced forecasting and CPQ, which provide impressive capabilities at the enterprise level. The same applies to the Marketing Hub; we have invested heavily across all hubs, and the acceleration of innovation is evident. Internally at HubSpot, we emphasize that while having a strong strategy is important, achieving alignment across products and market efforts is even more crucial. For the last 18 months, we have prioritized this alignment. When we discuss aligning with the market, it means that as we introduce innovations targeting the enterprise segment, our sales representatives and partners are well-prepared to communicate the value to customers, which creates a powerful impact. This coordinated approach across our products, go-to-market strategies, and partnerships is driving upward momentum in the upmarket segment, and we will continue to invest in this strategy.

And next, we go to Brian Peterson at Raymond James.

Congrats on a really strong quarter. Just one for me on the international strength. That's been above 50% growth in constant currency for three quarters in a row now. So just curious, anything that's driving that, that may be different than the domestic results? And how should we think about the level of investment internationally?

Thanks, Brian, for the question. Look, it's consistent both in terms of North America as well as international. In fact, in Q4, they both accelerated in terms of constant currency growth. I'd say, if you step back, what is common across North America and international is just the need for just a beautiful front-office platform. That is the demand that we see, both in terms of North America as well as international segments. We just meet the needs right now, and we talked a lot about the product innovation. We've talked a lot about the improvements that we have had both on the product side and the go-to-market side. I think we're firing kind of on all cylinders across the pillars. In terms of international, I'd say a couple of things. First off, it is a little bit of an earlier stage in some of the countries that we operate in. Customers are a bit earlier in digital transformation. Therefore, our market penetration is low. And therefore, there's momentum there. The second thing I'd say is that we have continued to invest in terms of product localization, customer-facing resources. There’s really good LTV-to-CAC and return on that LTV-to-CAC that we see in international markets. We continue to invest in both of the markets, and we like the balance in terms of the performance both internationally as well as in North America.

And next, we'll hear from Ryan Krieger with Wolfe Research.

This is Alan on for Alex. Kate, can you please unpack the subscription dollar retention rate in the quarter? How does that directly compare to previous Q3? And is that a number that settles here? Is there a pathway for it to grow? How should we think about that going forward?

Yes. We've talked about net revenue. We spent a bunch of time at the Analyst Day talking about what is going on with our retention. We look at retention internally in two different ways. We look at our gross retention. We call it customer dollar retention. That has, over the last 12 to 18 months, moved up pretty meaningfully. When you look at it relative to Q3, it's generally in the same ballpark. We saw a step-up, and that has stayed very healthy. What is driving that is a couple of things. One is that our customers are just using our product more. Yamini talked about the sort of front-office answer that HubSpot provides. We are just seeing our customers use more and different parts of the product. The other thing that is benefiting our customers' retention is that we're signing longer contracts with our customers. That helps with the overall retention. In terms of the upgrade between our gross retention and our net retention, that also has improved over the last 12 to 18 months. What we've said as a target in mind is 110-plus for net revenue retention. The upgrade drivers are pretty diverse. I've talked a little bit about them already on this call. It's edition upgrades, expansions of seats, cross-selling, and adopting multiple hubs. We think that 110-plus is the right target for you to be thinking about for the foreseeable future.

And next, we go to Adam Holt with BMO.

If you can hear me, I'm just going to launch my question. The question is this.

Keith?

Yes, I apologize for the mix-up. Kate, you mentioned that customer additions have been consistent, but I'd like to know if this reflects a different customer mix. Are the new customers you're adding each quarter more diverse, or is it the same type of customers as before? It appears that as you attract larger enterprises, the customer mix may be improving, so I would appreciate your clarification on this as we evaluate customer additions for 2022. Additionally, please share your thoughts on how we should assess Operations Hub attachment and growth rates for 2022, considering that it seems you are capturing a larger share of the bigger customers. I’d like to understand better how Operations Hub might perform in light of your 2022 guidance.

Yes. Why don't I start with the customer add question? And Yamini, I might hand it to you for the Operations Hub context. It's an interesting question. I think I would answer it by kind of turning back the clock to the beginning of the pandemic. In 2020, we launched our Starter Growth Suite at $50, and that was a big change for us. We saw a step function increase in the adds at that starter tier. Having now lapped that for a couple of quarters, what we're seeing is a bit more of a balance in terms of the composition of the new customer adds across the starter tier and with the professional and enterprise. That mix is actually one of the drivers of the increase in ASRPC that we're seeing. I do expect that composition in 2022 will look more like 2021 than it will at the start of the pandemic, and that really concentrated starter adds that we saw in 2020.

I believe that Operations Hub is really enhancing the value of our other hubs. The key point we’re noticing is a shift towards more multi-hub usage. As mentioned earlier, 60% of our customer base is now using multiple hubs. With the introduction of products like Operations Hub and CMS, and by adding more value to our main hubs like Marketing and Sales, we are seeing an increase in the use of two or three hub combinations. This illustrates the overall benefit our customers are receiving from HubSpot. I see this trend continuing from last year into 2022.

And next, we go to Terry Tillman at Truist Securities.

This is Connor on for Terry. You touched a little bit on this before, but just on a bigger-picture view, as your product portfolio ramps up and more products start to come online, how your conversations to customer shifting in terms of seeing the value of adopting multiple hubs? And what are some ways you've really seen customers leaning into the connectedness of the platform and the vision that you set forward?

Yes, that's a great question. We've been discussing the overall pace of innovation and the value for our customers. From my discussions with many customers in Q4 and January, it's clear that small and medium businesses are facing significant challenges. They struggle to integrate various systems that don't function well together, and unlike larger companies, they lack the time, budget, and technical teams to address this issue. Another challenge is their desire for pay visibility throughout the customer journey, but their marketing and sales teams operate in silos, which prevents them from obtaining the necessary visibility to foster growth. HubSpot addresses both of these challenges, making it a straightforward platform choice. Our customers are increasingly adopting more hubs and gaining greater value from each one. When I speak with them, they often mention that the transition between our hubs is seamless, contributing to an excellent customer experience. Additionally, we've significantly enhanced our ecosystem with the 1,000 integrations we've discussed, which simplifies our platform choice for small and medium businesses. We aim to be the leading CRM platform for scaling businesses, and I believe we are effectively meeting the needs of all customers in this segment. We feel very positive about this.

And ladies and gentlemen, that will conclude our question-and-answer session for today. Ms. Rangan, I'd like to turn the conference back to you for any closing or additional comments.

Thank you, everyone. Great talking to you, and I look forward to connecting back in the quarter. Thanks a lot.

Thank you. And ladies and gentlemen, that will conclude today's HubSpot Q4 2021 earnings conference call. I'd like to thank you all for joining us and wish you all a great evening. Goodbye.