Earnings Call Transcript
HUBSPOT INC (HUBS)
Earnings Call Transcript - HUBS Q2 2025
Charles MacGlashing, Head of Investor Relations
Good afternoon, and welcome to HubSpot's Second Quarter 2025 Earnings Conference Call. Today, we'll be discussing 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, FX movement, and business outlook, including our financial guidance for the third fiscal quarter and full year 2025. Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and our Form 10-Q, which will be filed with the SEC this afternoon for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations. During the course of today's call, we'll refer to certain non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between such measures can be found within our second quarter 2025 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.
Yamini Rangan, CEO
Thank you, Chuck, and welcome, everyone. Today, I'll share our Q2 2025 results and the key trends driving our momentum. Then I'll talk about the shifts in marketing and how that's opening up a big opportunity for HubSpot and our customers. I'll close with our progress in AI and the momentum we're building. Q2 was a solid quarter for HubSpot with revenue growing 18% year-over-year in constant currency, accelerating nearly 1 point from Q1. We delivered strong operating leverage with a 17% operating margin. Total customers grew to 268,000 customers globally with over 9,700 net customer additions in the quarter. I'm pleased with our consistent execution and the momentum we're building as the customer platform of choice for scaling companies. Three themes stand out in our Q2 results: platform strength, upmarket momentum and downmarket velocity. First, our platform continues to be a major driver of our success. It's simple. New and existing customers are consolidating their go-to-market stacks on HubSpot to lower cost, get a unified view of their customers and drive AI innovation. 61% of new Pro+ customers now land with multiple hubs, up 4 points from last year. More notably, 42% of our installed base by ARR now use all 3 core hubs, marketing, sales and service, also up 4 points. This is a clear sign that our platform-first approach is working. Sales Hub and Service Hub are performing exceptionally. We've innovated rapidly with AI and made it easy for customers to buy seats and grow when they see value. Sales Hub seat upgrades are up 71% year-over-year with strong adoption of AI features like deal intelligence for prioritizing deals, guided actions to recommend next steps and AI meeting assistant to streamline prep and follow up. Service Hub seat upgrades are up 110% year-over-year, fueled by the growing use of AI. Another important part of our platform story is the growing impact of the core seat. We launched core seats in March 2024 for customers who need edit access to Smart CRM, the brains of our customer platform. Since then, we have layered in more value with advanced reporting, workflows and admin capabilities. That's driving upgrades. 25% of Pro+ customers on the seats model have added more core seats. Smart CRM is where the full power of our platform comes together, and it's great to see customer adoption. Second, our upmarket momentum continues to accelerate. Our focus has been clear, build powerful features upmarket customers need while keeping the ease of use that drives adoption, work closely with our partner ecosystem to help customers see value fast and show tangible success to increase awareness. That focus is delivering results. Large deals are up and product innovation is resonating. Our partner motion is fueling growth with co-selling with our sales team up 29% year-over-year. Brand awareness is at an all-time high, supporting growth. HubSpot is becoming the platform that more upmarket companies choose to grow with. Third, we continue to see velocity in the downmarket segment. Our focus here has been to make the starter tier more valuable and easier to buy. Free to starter conversions are up, driven by faster time to value and smarter AI-powered onboarding. The pricing changes we rolled out in 2024, lowering the entry price and removing seat minimums are delivering results. Last year, we took half a step back to take several steps forward, and now we're seeing the payoff. More customers coming in, upgrading when they see value and forming a stronger, healthier customer base. Okay. Let's shift gears and talk about what's happening in search. Marketing is going through its biggest shift in decades, and that opens up big opportunities for HubSpot and our customers. Two massive trends are unfolding. First, organic search traffic is declining globally. AI overviews are giving answers, and fewer people are clicking through to websites. Second, AI search is rising. More people are turning to LLM for answers instead of searching for information. And that means the way companies get found is changing rapidly. We saw these shifts coming and moved early to adapt and lead. First, we diversified channels to reach customers where they are. Just 10% of our leads come from blog traffic. The rest comes from a broader growing mix across channels. We've built 10 YouTube channels with 1.8 million subscribers, and Q2 was our best quarter ever for YouTube leads, up 96% year-over-year. On social, we have grown to over 2 million followers on LinkedIn and 600,000 on Instagram. In newsletters, leads grew 50% year-over-year, powered by the Hustle we acquired in 2021 and Mindstream we acquired in 2024. And our podcast reached 5.2 million listeners in Q2 alone. The investments we made in diversifying channels are delivering results. Second, we're figuring out how to show up in AI answers. When people ask questions in LLMs, they want specifics, data, quotes, real insights. That's what gets cited. Our marketing team is testing, innovating and leading here. We're now cited in LLMs more than any other CRM, and we are driving conversions from this emerging channel. This is a major shift in how companies get discovered, and we're not just adapting, we're helping our customers lead through it. INBOUND was all about bringing together our playbook, products and ecosystem to deliver real value to customers. Now we're applying that same approach to help our customers grow in the AI era. We'll share more on our playbook, our vision for the future of marketing and the opportunity ahead at INBOUND. Okay. Let's talk about AI innovation and the momentum we are seeing there. Our strategy is to be the best at applying AI to help small and medium businesses grow. To deliver that, we've evolved HubSpot into an AI-powered customer platform. AI is embedded across the entire platform, so customers get value from day 1 using the tools they already know. We deliver hubs that help customers do work, agents that do work for them and a Smart CRM that powers it all with unified context and data. That combination is what sets HubSpot apart. And we're now turning AI into business results for our customers. Customer Agent is gaining traction with over 4,000 customers having adopted it. Resolution rates are now averaging 55%, up more than 5 points in just one quarter. A great example is Youth on Course, which cuts response times by 17% and improved CSAT even as ticket volume rose. Just as every company once needed a website, today, every company needs a Customer Agent that can handle questions across marketing, sales and support with full context, and that is exactly what we are enabling for our customers. Prospecting agent is seeing strong early demand with over 3,700 customers using it and 17,000 on the waitlist. This agent watches for intent signals, researches prospects and sends personalized outreach, saving time for reps. One of our customers, Scrums.com, shared what used to take 10 BDRs now takes 3. And more importantly, we're reaching people who knew of us but never engaged with us before. And finally, content agent has helped over 12,000 customers create content over the last year, with some generating the majority of their content through AI. All of this points to real momentum in AI adoption. Our strategy to embed AI across all our hubs is delivering real results as well. Content Hub, our AI-first hub continues to show strong momentum, especially as part of the broader marketing hub motion. In Q2, the attach rate to Marketing Hub was 48%, up 5 points year-over-year. That reflects a clear need. Marketers want to create content across more channels and formats, faster, and our AI features help them do that. AI adoption in Service Hub is also strong with more than 40% using AI features. In Q2, we launched AI feedback summaries and AI ticket sentiment to help service teams move faster and respond more intelligently, and we are continuing to innovate at speed. Also in Q2, we became the first CRM to launch connectors with both ChatGPT and Claude. Over 20,000 customers have already used it to access insights across 23 million CRM records. Customers are already in LLMs asking questions, and these connectors give them fast, direct answers from HubSpot. And HubSpot remains the platform where the data lies, where teams collaborate and where actions to drive growth get taken. Together, it's a powerful combination. Adoption has been strong among Pro+ customers, especially for sales pipeline insights and executive decision-making. Overall, we're pleased with the traction and value AI is delivering across the platform, and we're just getting started. Now we're not just building AI into our platform. We're becoming an AI-first company. AI is transforming how we work, how we serve customers and how we grow. Across the business, we're using AI to drive real innovation from booking meetings to handling support, and it's working. In Q2 alone, AI handled nearly half of our support chat and booked thousands of meetings for our sales team. We're also seeing a big impact on engineering productivity. Over 90% of our engineers use AI every week to move faster and focus on higher-impact innovation. As we make this turn, we're making sure every HubSpotter is ready for the AI era. From company-wide innovation days to hands-on pilots and hackathons, teams are learning, testing and pushing what's possible. To close, we have a differentiated platform approach, and we are executing with clarity and momentum. I'm confident in our strategy, proud of our pace of innovation and excited for what's ahead. I look forward to seeing many of you at our Analyst Day in September. With that, I'll hand it over to our CFO, Kate Bueker, to walk through our financial and operating results.
Kathryn A. Bueker, CFO & Treasurer
Thanks, Yamini. Let's turn to our second quarter 2025 financial results. Q2 revenue grew 18% year-over-year in constant currency and 19% on an as-reported basis. The quarter-over-quarter increase in our revenue growth was driven by improving core business performance over the last 12 months and also benefited from the leap year headwind that impacted Q1. Subscription revenue grew 19% year-over-year, while services and other revenue increased 21% on an as-reported basis. Q2 domestic revenue grew 18% year-over-year. International revenue growth was 19% in constant currency and 21% as reported, representing 48% of total revenue. We added over 9,700 net new customers in Q2, ending the quarter with 268,000 customers growing 18% year-over-year. Average subscription revenue per customer was $11,300 in Q2, flat year-over-year in constant currency and up 1 point on an as-reported basis. We expect net additions for Q3 and Q4 to be at the high end of our 9,000 to 10,000 range and ASRPC growth in constant currency to be up about 1 point. Customer dollar retention remained in the high 80s in Q2. Net revenue retention was 103%, up roughly 1 point sequentially, primarily driven by faster seat upgrades. For the full year of 2025, we expect net revenue retention to be up a couple of points year-over-year, again due to the impact of the seats change. Calculated billings were $814 million in Q2, growing 20% year-over-year in constant currency and 26% on an as-reported basis. The strengthening of the U.S. dollar at the end of the quarter and its impact on deferred revenue resulted in an overall 6-point FX tailwind to as reported billings growth. The remainder of my comments will refer to non-GAAP measures. Q2 operating margin was 17%, flat compared to the year ago period and up 3 points sequentially. Net income was $117 million in Q2 or $2.19 per fully diluted share. Free cash flow was $116 million or 15% of revenue in Q2. Our cash and marketable securities totaled $1.9 billion at the end of June, including the impact of our convertible debt settlement and Q2 share repurchases. We bought back approximately 446,000 shares in Q2 and Q3 as part of our new share repurchase program and have $250 million of authorized purchases remaining under the program. With that, let's dive into our guidance for the third quarter and full year of 2025. The macro environment remains uncertain, and our expectation is that these volatile conditions will continue for the remainder of the year, but we have a proven playbook that works in an environment like this. For the third quarter, total as-reported revenue is expected to be in the range of $785 million to $787 million, up 16% year-over-year in constant currency and 17% on an as-reported basis. Non-GAAP operating profit is expected to be between $156 million and $157 million, representing a 20% operating profit margin. Non-GAAP diluted net income per share is expected to be between $2.56 and $2.58. This assumes 53 million fully diluted shares outstanding. And for the full year of 2025, total as-reported revenue is now expected to be in the range of $3.08 billion to $3.088 billion, up 17% year-over-year in both constant currency and on an as-reported basis. We expect roughly a 0.5 point currency tailwind to as-reported revenue growth in 2025. Non-GAAP operating profit is now expected to be between $568 million and $572 million, representing an 18% operating profit margin. Non-GAAP diluted net income per share is now expected to be between $9.47 and $9.53. This assumes 53.4 million fully diluted shares outstanding. As you adjust your models, please keep in mind the following: we now expect CapEx as a percentage of revenue to be 5% to 6% for the full year of 2025, driven by higher capitalized software expenses. We now expect free cash flow to be about $580 million for the full year of 2025 with seasonally stronger free cash flow in Q4. Before we open the call for questions, I want to invite you to join us for Annual Analyst Day at INBOUND, taking place on September 3 in San Francisco. We look forward to seeing you there. With that, I will turn the call back over to the operator for questions.
Operator, Operator
Our first question comes from the line of Samad Samana from Jefferies.
Samad Saleem Samana, Analyst
Congrats on a nice 2Q. Yamini, I wanted to pull on the thread where you were talking about maybe the changing nature of INBOUND. So it's good to hear about the traction of agents like customer and prospecting and the value they're adding for clients. But if I zoom out now that you see how customers are deploying agents, is it changing how INBOUND itself is being done? I ask because there's a big investor debate on INBOUND in an Agentic AI world. And as even humans change their workflows or starting points for search, I'd love to know how hubs, which essentially created INBOUND is pushing the agenda for this next phase shift as well.
Yamini Rangan, CEO
Samad, thank you so much for that question. Yes, there are major shifts happening at the top of the funnel, partly because of AI, but partly because of how buyer behavior is changing. Organic search is getting disrupted. People are clicking fewer blue links because AI overviews are providing the answers. The second big shift is that people are now asking questions of LLMs rather than even searching for information. So those are two significant changes. When you put that together, SEO, which is kind of what we said with INBOUND, is no longer working as it once was. We moved very early to adapt to the strategy, and I explained this in the earnings call, and we have a big opportunity to help our customers navigate a lot of these changes. Let me start with what we did internally and start with a few facts. A lot has been said about HubSpot's blog traffic. I want to share that 10% of HubSpot's leads come from blog traffic. The other 90% comes from a diversified source of channels that are all growing. We recognized back in 2022 that overdependence on organic search was not sustainable, and we started diversifying our demand engines across multiple channels. As I mentioned in the prepared remarks, we diversified to social channels, YouTube, LinkedIn, and Instagram, and that has paid off significantly. We grew our business podcast network, and that network today reaches millions of audiences via podcast every month. Our investments in newsletters and e-mail newsletters are paying off, and we're seeing the leads from those sources grow 50% year-over-year. So all of this has helped us continue to grow demand even when blog-driven traffic has declined. The net here is that blog traffic is coming down, but diversified traffic is growing. That is the playbook that we are helping our customers execute as they navigate all these changes. At the same time, another change is happening because of AI, which is people are asking questions. Therefore, we are leaning into what's next, which is AI engine optimization or the industry calls it AEO or GEO. It's pretty simple. As people start to ask questions of LLMs, there is a new place where companies need to show up - which is answers on these LLMs. That's what we are experimenting with; we're leaning into it, and it's beginning to work. We are seeing that clicks from LLMs convert much better than organic search because buyers are deep in the research. They are asking specific questions, and when you give an answer, they're ready to act. Even though it’s early stages, we are seeing conversion rates go up, and this is a new emergent channel. Both of these shifts present a huge opportunity for HubSpot and for us to help our customers navigate all of these changes. You mentioned INBOUND. HubSpot wrote the playbook on INBOUND, helping businesses grow through content. The importance of that content has not changed. What has changed is where people connect with that content. As AI reshapes the market, we’re writing the next chapter; we’re showing our customers how to thrive in that world beyond search, and I'm so excited about this opportunity.
Operator, Operator
Thank you. Our next question comes from Elizabeth Porter from Morgan Stanley.
Elizabeth Mary Elliott Porter, Analyst
Great. I wanted to follow up on the comment about 25% of Pro+ customers adding more core seats. I was curious who are some of the types of personas that are getting access. It may be a bit of a longer-term view, but as you expand kind of personas across the platform, how do you think about building the opportunity to build any solutions or specific workflows for those personas that may interact with HubSpot today but may not be core customers.
Yamini Rangan, CEO
Elizabeth, I love this question. You're keying into one of our biggest growth levers for the future, which is the core seat. To explain, the core seat is what customers buy to get the full value of our Smart CRM. Think of the Smart CRM as the brains of our platform. This is where the unified customer record sits. It provides customers the most value. We've been investing heavily in this layer of our platform and adding powerful capabilities. Last year, in March 2024, we launched the core seat. That value of the core seat is resonating within our customers. I shared the stat indicating that 25% of our Pro+ customers are upgrading and buying more core seats for a couple of reasons. They get powerful edit capabilities and the ability to provide more automation, which does expand our core personas. You're right to point that out in the question. The core personas we have for sales is Sales Hub seat, for service is Service Hub seat, but then core seat expands beyond those to admins, finance folks, and other roles that expand our opportunity. As we think about the future, we will add value to that core platform layer. This will include AI capabilities and smart properties, which I believe will drive sustained growth going forward - a pretty exciting opportunity for HubSpot.
Operator, Operator
Our next question comes from Brad Sills from Bank of America.
Bradley Hartwell Sills, Analyst
Wonderful. It's great to see some of the early traction with agents. I did want to ask a question about that. Is there any data that you're looking at that can illustrate for us your engagement with those customers running agents? In other words, how often are they hitting the agent button coming back into HubSpot interactions? I know it's early, but for some of those customers that might have been on for a couple of quarters here, what are you seeing with regard to that level of engagement for those customers running agents?
Yamini Rangan, CEO
I'll start with the agents, and then Dharmesh feel free to add to it. So far, we have multiple featured agents that HubSpot has built: Customer Agent and Prospecting Agent, Content Agent; those are the ones that are featured agents. I'm really pleased with the momentum that we are seeing with all of these agents. Customer Agent has 4,000 customers. We see really good weekly usage and resolution rates above 50%. Many Customer Agent customers are seeing 70% to 80% resolution rates. We've noted a more than 6x increase in resolution since January and surpassed over 1 million ticket deflections. If I step back and think about agent usage, our customers know that with agents, they can actually get help in doing work, and that's a big shift. It's not just about delivering software to help people get productivity; it’s about delivering meaningful work. The use cases that we are seeing traction are deflecting support tickets, setting up meetings in terms of prospecting, writing content that shows up across various channels; those are all the early use cases we're observing with significant traction. I'm excited about the momentum overall.
Operator, Operator
Our next question comes from Jackson Ader from KeyBanc Capital Markets.
Jackson Edmund Ader, Analyst
Yamini, I'd like to follow up on the core seats. Those 25% of customers that have come back and purchased more core seats; I'm just curious on two things: Number one, are the core seats so feature-rich that you might be cannibalizing a little bit of people coming back and buying full seats for Sales or Service Hub? Number two, in the future or if there is a future state, where do you think you'll delineate between what goes into core seats versus what we are going to leave to those full seats for Sales Hub, Service Hub and the like?
Yamini Rangan, CEO
Those are great questions. Let me address the first part regarding the persona seats and core seats. The use cases are distinct. For sales, it focuses on driving deals, forecasting and managing that entire process, which is what goes into the Sales Hub persona seat. Similarly, the Service Hub covers everything related to customer success or help desk management. It’s very distinct what goes into persona seats. In reply to your direct question about cannibalizing core seats, we don’t think so. We’ve maintained our pricing approach by adding value before we monetize. The core seat value resonates well with our customers, and we plan to keep adding value there. You also asked about the distinction between what should go into core seat and what may get exclusive features in AI, and here’s our early thinking on it: Everything that goes into the daily flow, like a personal AI use case, belongs in the core seat. Anything that’s in the daily flow of work that helps someone in the go-to-market organization will either be in the persona seat or be offered through the core seat. This means if AI does work for you, like the Customer Agent resolving a support ticket, that will belong in agents and be monetized through credits. Overall, this means that core seats represent a platform opportunity, persona seats are more functional opportunities, and AI credits will help monetize the work done, providing durable growth opportunities.
Operator, Operator
Our next question comes from Mark Murphy from JPMorgan.
Mark Ronald Murphy, Analyst
Kate, when we look at the billings growth of 20% constant currency and if that is outpacing revenue growth by a couple of points, do you think it's fair to conclude that the worm has turned here? In other words, the leading indicators or your net new bookings are outperforming the lagging indicator of revenue? I'm just wondering if you think it's fair to consider that that equation maybe has inverted a little from where it was 4 to 6 quarters ago.
Kathryn A. Bueker, CFO & Treasurer
Yes. Mark, thanks for the question. I'm not sure that I know this analogy of the worm, but maybe I'll talk a little bit about our constant currency billings growth of 20%. We’re pleased with the strength in the billings growth. You're right in that billings tends to lead when the business is showing positive momentum. However, I would remind you that we highlighted strength in the upmarket in Q2 specifically with larger deals and more multi-hub deals. These deals tend to have higher billing terms, meaning longer months upfront and thus, it creates a positive gap for constant currency billings growth compared to constant currency revenue growth. If you look forward to the next couple of quarters, our expectation is that revenue and billings growth will track each other closely, but we will still see a small benefit from duration over the next couple of quarters.
Operator, Operator
Our next question comes from Arjun Bhatia from William Blair.
Arjun Rohit Bhatia, Analyst
Perfect. Yamini, I had one for you going back to Agentic AI. I think Brad maybe touched on this a little bit, but I want to follow up. It seems like you're getting great adoption, right, in terms of the pure number of customers that are adopting HubSpot agents. I'm curious where you are in terms of the consumption model for your Agentic capabilities? Are customers kind of still burning through their initial credits? Are you seeing them kind of come back to the well and buy more credits? Where are we in that journey? Or should we expect that to be more of a 2026 plus dynamic?
Yamini Rangan, CEO
Thank you, Arjun, for the question. We have a clear and consistent philosophy regarding monetization, which focuses on value delivery before monetizing. The signal we look for in terms of monetizing is predictable value for customers, and that is what we see with Customer Agent. We're noticing predictable value, good resolutions and strong adoption by customers; that’s exactly why we added it to our credit-based pricing model. You can assume that we will take a similar approach as the rest of the agents come into GA while we continue to deliver value. Currently, we just launched credit at INBOUND last year and added Customer Agent to credit in June. It's rolling into our installed base of Customer Agent customers this week. Thus, it's super early, and we don’t have clear monetization patterns yet, but we feel confident that the usage and value we are delivering will translate into monetization. Overall, we’re quite happy with the progress, and while it will have an impact in 2026, all leading indicators are looking positive.
Operator, Operator
Our next question comes from Michael Turrin from Wells Fargo Securities.
Michael James Turrin, Analyst
Great. Hitting the search topic head-on in the prepared remarks, it stands out that you are one of the few in software calling out growth contribution from seats in a few different flavors with the new model. I was just wondering if you could expand on whether you’re finding the more patient monetization strategy you’ve taken there as a competitive advantage in this environment. Moving forward, you touched on it with a few answers, but how are you thinking about AI and the puts and takes of monetizing some of the value you're delivering there early versus waiting to generate some of that durable growth you’ve realized with the seat model here.
Yamini Rangan, CEO
Yes. Definitely a lot of puts and takes there. We are very disciplined when it comes to pricing and monetization, and it does pay off. Our focus is always on delivering value before monetizing. You mentioned the seats growth. We consistently see it in core seats, Sales Hub seat upgrades, and Service Hub seat upgrades. It bases on our philosophy of always focusing on value. Last year, you know that we lowered the entry price and removed the friction of customers upgrading to Pro on Service Hub and Sales Hub seats. This strategy was designed to make it easier to buy and upgrade with HubSpot, and that is precisely what is coming to fruition in our upgrade motions. Regarding the puts and takes on pricing strategy, we adopt a hybrid model; we have seats that monetize core value across all personas we support and credits that help us monetize value not tied to seats. The combination of these two approaches, we believe, will be useful as AI adoption continues. People often mention the equation involving price times quantity, noting that quantity decreases. But the crucial aspect is that quantity declines only when value increases, and we have a clear mechanism to monetize that value. Overall, I feel very good about our approach; patience pays off, and it’s proving beneficial for us.
Operator, Operator
Our next question comes from the line of Brent Bracelin from Piper Sandler.
Brent Alan Bracelin, Analyst
Yami, I think we could spend the next 45 minutes talking about core seats. It seems super important. I'm sure we’ll touch about it more at the event here next month. But Kate, I wanted to go back to the quarter. The Americas growth accelerated by 1 point. Even if I back out FX, it looks like Q2 was the highest dollar sequential increase in revenue that we've ever seen. It's the highest percent sequential increase in over a year. So as we think about the fundamental drivers of the upside in the quarter, was there any sort of one-time anomaly that we should consider outside of FX? Or is that broad-based strength you are seeing in the business driving that acceleration in the Americas and, again, a strong sequential increase in overall revenue?
Kathryn A. Bueker, CFO & Treasurer
Yes. Thank you so much for the question. We were happy with performance in Q2. It came in largely as we expected. The sequential growth was nice. We beat by $21 million, with some help from FX, roughly $5 million of the $21 million. We had a solid beat based on core business performance. What you should gather from Q2 performance and how we set our guidance is this: the business is performing well. Yamini mentioned strength in the upmarket; our continued velocity downmarket; overall traction and platform consolidation - this is driving nice business momentum. Revenue growth in constant currency improved from Q1 to Q2. The team executed well through the first half of the year, despite the external environment remaining somewhat tumultuous. You are right; we saw some FX favorability. Between Q1 and Q2, the dollar weakened, giving us a tailwind, and we included an additional $20 million of FX tailwind in the guidance we provided for the back half of the year.
Operator, Operator
Our next question comes from Tyler Radke from Citi.
Tyler Maverick Radke, Analyst
Kate, on the improved outlook for new customer ads and then I believe also ASRPC for the back half. Could you just unpack the key drivers of that? It sounds like a lot of great momentum, as Yamini was alluding to in terms of the non-blog traffic sources. Is this simply a macro situation that's slightly improving, or are you seeing incremental organic improvements in lead generation just given the diversified channel approach you're taking?
Kathryn A. Bueker, CFO & Treasurer
I wouldn’t overreact to quarter-over-quarter changes in net additions, as we see those move from one quarter to the next. We're happy to see net adds come in above our 9,000 expectation for Q2, with nice performance across both the starter tier and also the professional and enterprise tiers. In the starter tier, we observed a nice uplift in the free to starter conversion rate. We also saw positive impacts from an annual pricing promotion that we introduced at the beginning of June. On the professional and enterprise side, we’re consistently seeing momentum quarter-over-quarter. Our expectation moving forward is to remain within that 9,000 to 10,000 range at the high end. Additionally, ASRPC growth expectations are projected to rise roughly 1 point in constant currency in Q3 and Q4.
Operator, Operator
Our next question comes from the line of Keith Bachman from BMO.
Keith Frances Bachman, Analyst
I'd like to invite Dharmesh on if he's available. The question is, you've seen a number of trends in your technology career, and there are a lot of cross currents associated, particularly with the Marketing Hub. As you think about what the Marketing Hub is today, HubSpot is adding Agentic capabilities, whether as part of that solution or as an additional add-on. What will the solution look like in 2 to 3 years that customers are buying? Is it still through the Marketing Hub, or are you buying agents that are supported by it? I'm trying to understand how you think the actual advent of Agentic technology is going to change the construct of what Marketing Hub is? How do you think the evolution of what customers are paying for may evolve? I know there's been much talk about seats today, which is great to hear. How does that evolve? Do you think consumption grows over time as a percent of your revenue?
Dharmesh Shah, Co-Founder and CTO
Thanks for the question. We are excited about this emerging new operating system, which is the AI operating system that’s happening now. Earlier this year, we released connectors for both ChatGPT and Claude. The idea behind these connectors is that as we are in this new age, users will spend time in these frontier AI applications. We believe we can leverage the platform we have to deliver more user and customer value. As more time is spent there, we can add APIs and ways for customers to benefit from the HubSpot platform. With this new Agentic world, we expect to see more use cases emerge on frontier apps, and we can build these connectors to create more value for our customers. For example, if someone queries information in ChatGPT, which has 700 million weekly active users, they could send a request for the best-performing geographical area in Europe last quarter. That information will be fetched from HubSpot via our native connector, and follow-ups and actions occur within the HubSpot platform. This brings together the wider knowledge from AI with the insights from HubSpot and produces actionable results, and I’m very excited about this new operating system.
Yamini Rangan, CEO
There's also tremendous potential in what we can do within Marketing Hub to assist our customers in adapting to and navigating all changes. Importantly, search is getting disrupted, meaning SEO is not as effective as it once was. However, one thing is clear: content matters even more in the new world, but it must appear across diverse platforms. It must reach social media, podcasts, and newsletters, as well as be available in LLM answers. That’s exactly what we’re working towards with Marketing Hub and Content Hub. We are excited about the broad opportunity to help our customers with marketing. Our pricing strategy will balance seats and credits while facilitating productivity and the delivery of AI-driven work to customers. This allows us to harness growth potential.
Operator, Operator
Our next question comes from Alex Zukin from Wolfe Research.
Aleksandr J. Zukin, Analyst
You both gave great thoughtful answers to these higher altitude questions. Yamini, given the disruptions in and around marketing, are you seeing customers pause and evaluate, leading to longer sales cycles or budgetary decisions being a little more scattered? Or is this more about a call to action where, to your point, content is more important than ever? Are you seeing more engagement and time in app around putting - broadening the surface area of where people are marketing? Dharmesh, if the UX layer is now the LLM in some sense, as that reality develops over the years, how do you see the monetization path changing relative to your competitors?
Yamini Rangan, CEO
There’s a lot shifting within marketing, and marketers aren’t pausing to evaluate; they’re focused on driving growth, leads, and diversifying their sources, and that is what we see. I talk to CMOs regularly about what’s working and what isn’t. They're turning to HubSpot because they trust us. We're marrying playbooks with product offerings to help them execute effectively, and we have an activated partner ecosystem that can aid their strategies. So they’re seeking our support, and this is leading to a renewed focus within marketing teams on reevaluating their playbooks for success in this post-search world. I believe this presents a tremendous opportunity, and I’m eager to share more at INBOUND next month.
Dharmesh Shah, Co-Founder and CTO
As we continue to observe marketing trends, our recent findings also reveal an unexpected use case for agents as lead magnets. Where previously companies created research PDFs or spreadsheets to exchange for contact information, we now see customers developing agents embodying their domain expertise and leveraging them as lead magnets. Agent.ai serves as a platform for this purpose. The exciting aspect for HubSpot customers is that any leads generated on Agent.ai are integrated directly into their HubSpot accounts. This initiates a beneficial flywheel effect, and I’m really thrilled about this.
Operator, Operator
Our next question comes from Gabriela Borges at Goldman Sachs.
Gabriela Borges, Analyst
This one is for Dharmesh as well. Dharmesh, from a frontier model standpoint, as we see frontier models introduce more agents and Agentic applications to their platform layer, how do you think about that being a source of competition longer term? How critical is the domain experience and workflow experience that you have at HubSpot in that context?
Dharmesh Shah, Co-Founder and CTO
A lot of the trends we’re observing right now will unfold over time, with agent developments within the frontier model representing two types: very broad, consumer-facing Agentic capabilities or more B2B-focused vertical solutions. There’s a significant value in domain expertise, particularly in areas like CRM and ERP. Our 19 years of experience in this space is encapsulated in the millions of lines of code that document daily activities for salespeople and service reps. I think it will be challenging for frontier models to effectively replicate that level of domain-specific detail; their primary focus is likely on larger, trillion-dollar opportunities. That’s my perspective.
Operator, Operator
Our next question comes from Brett Huff from Stephens Inc.
Brett Richard Huff, Analyst
Congrats on a nice quarter. Given all the changes with AI moving upmarket and new products, could you just remind us if there's been a reshuffle in terms of the stack rank of where you see growth coming from? Which areas are being prioritized for growth?
Yamini Rangan, CEO
That’s a thoughtful question. We have a current playbook that is effective, demonstrated by our consistent results. This includes platform consolidation, moving upmarket and delivering compelling customer value across all seats. These growth levers will continue to be pursued. In addition, there are durable growth drivers. We can thoughtfully and intentionally expand our workforce in specific segments and geographies, which we will continue to do. Another lever involved the pricing changes made last year that lowered minimums and helped facilitate growth. That's bearing fruit and will continue to roll through our installed base into next year. Finally, we also see AI as a multi-year growth tailwind. Our approach to AI is strategic and patient. We embed it into our platform while ensuring value delivery, creating monetization opportunities. To summarize, our existing playbook is effective, and we’ll continue to focus on delivering value through it.
Operator, Operator
Our next question comes from Taylor McGinnis from UBS.
Taylor Anne McGinnis, Analyst
So NRR improved 1 point in the quarter. I know you’ve discussed this improvement with strong seat expansion activity. Is that largely due to pricing model change, or are you seeing improvements in other expansion motion areas? What's the outlook for NRR going forward?
Kathryn A. Bueker, CFO & Treasurer
Yes, thank you for the question. It was encouraging to see the sequential improvement in net revenue retention. As mentioned in the prepared remarks, it was about a 1 point increase quarter-over-quarter. The primary reason for the expansion of net revenue retention ties back to robust seat upgrade performance, a combination of core seat adoption and increased seat upgrades in sales and service. Most of this is due to the seats model pricing changes from last year. While we continue to face challenges in other upgrade motions, we expect overall net revenue retention to increase a couple of points year-over-year. We forecast flat retention in Q3 with a noticeable upgrade in Q4 as migrated customers renew.
Operator, Operator
Our next question comes from Brian Peterson from Raymond James.
Brian Christopher Peterson, Analyst
Congrats on a strong quarter. Yamini, I wanted to follow up on your efforts to diversify sources at the top of the funnel. Have you seen material changes in how you're bringing in leads specifically for enterprise? How has your channel influence business trended this year compared to your expectations? What role do you foresee for them as AI gains prominence?
Yamini Rangan, CEO
Great question here! The diversification of our lead sources has been a strategy in the making for several years, and it’s paying off across our segments: small business, mid-market, and enterprise. We're going to maintain this diversification strategy while also educating customers to adopt it. Specifically focusing on our partner channel, partners now influence about 40% of our ARR, and that's trending positively. They are actively co-selling as well as sourcing, contributing effectively to our upmarket strategy. More importantly, when partners deliver value, customers tend to stay longer with us and buy more in the future. The partner channel remains a strong asset for HubSpot and it has expanded into activities that involve co-selling and sourcing.
Operator, Operator
Thank you. This concludes the HubSpot Q2 2025 Earnings Call. Thank you to everyone who was able to join us today. You may now disconnect your lines.