Earnings Call Transcript - HUBS Q2 2021

Operator, Operator

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

Chuck MacGlashing, Head of Investor Relations

Thanks, operator. Good afternoon, and welcome to HubSpot's second quarter 2021 earnings conference call. Today, we’ll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Brian Halligan, our Co-Founder and newly named Executive Chairman; Dharmesh Shah, our Co-Founder and CTO; Yamini Rangan, our Chief Customer Officer and newly named CEO; and Kate Bueker, our Chief Financial Officer. Before we start, I’d like to draw your attention to the safe harbor statement included in today’s press release. During this call, we’ll make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements, including those regarding management’s expectations of future financial and operational performance and operational expenditures, expected growth, the leadership transitions and business outlook, including our financial guidance for the third fiscal quarter and full year 2021. Forward-looking statements reflect our views only as of today and, except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today’s press release and our Form 10-Q, which will be filed with the SEC this afternoon for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations. During the course of today’s call, we’ll refer to certain non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between such measures can be found within our second quarter 2021 earnings press release in the Investor Relations section of our website. Now it’s my pleasure to turn over the call to HubSpot’s Chief Customer Officer, soon to be Chief Executive Officer, Yamini Rangan. Yamini?

Yamini Rangan, Chief Customer Officer, CEO

Thanks, Chuck, and greetings, everyone. Thank you for joining us today as we review HubSpot’s second quarter 2021 earnings results. I know you’ve likely seen the exciting news that Brian will be taking on the role of Executive Chairman as of September 7th. We’re all looking forward to having Brian back in action and stronger than ever when he returns next month. Brian will be joining the call here in a few minutes to talk about the path forward in this new capacity, as well as to share some reflections on the 15 years that have led us to today’s news and this quarter's fantastic results. Before we do that, I want to focus on the business at hand, the great results from last quarter. We continue to operate from a broad position of strength with Q2 revenue growth accelerating to 47% year-over-year in constant currency and total customers growing 40% year-over-year to over 121,000. We’ve seen multi-product adoption growth to over half of our total customers, a great indicator that more companies are realizing the advantage of managing their entire front office on one platform, with one data model, one view of their customers, and one user interface that’s easy to use. A key driver of this continued growth is digital transformation we’re seeing as more companies have had to adapt to doing business online. This shift towards digitally powered customer experiences is one that HubSpot has been evangelizing for the past 15 years. So we’ve been about the vision to meet the moment. As consumers increasingly expect remarkable digital experiences at each step of their journey, scaling companies need a powerful CRM platform to tie it all together. This makes CRM not just a nice-to-have solution, but an indispensable driver of long-term growth for our customers. A key part of that digital experience is the company website. This is a digital front door. Traditional website content management systems are often siloed from other essential front office functions. They’re complex to manage, they lack speed, security, and scalability that companies need to grow their business. That’s why we launched CMS Hub Professional and Enterprise last year, and we are continuing to invest in the platform with CMS Hub Starter launched yesterday. CMS Hub Starter is built as part of our CRM platform to give companies seamless access to all of their customer data. Having a CRM powered website enables both marketers and developers to efficiently work together to build remarkable digital experiences and maximize the revenue-generating opportunity. As part of that launch, we also adjusted the pricing of our CMS Hub Professional and Enterprise tiers to reflect the increased value we are delivering to our customers through SEO enhancement, dynamic pages, site trees, and increased limits and capacity with even more advanced features in the roadmap. We’re still in the early stages of this launch, but we are confident that CMS Hub Starter fills a painful gap for marketers and developers who are looking to spend less time managing their system and more time driving growth. Another important function of digital-first transformation is revenue operations. Last quarter, I talked about the launch of Operations Hub, a new product designed to transform the role of operations professionals and empower them to become strategic drivers of revenue and growth. I’m excited to share that we are continuing to hear positive feedback from customers and partners and that Operations Hub has performed nicely ahead of our internal growth expectations over the past quarter and a half. Data Sync, our robust new integration engine has quickly become one of the most compelling and popular free tools, particularly amongst small customers, exemplifying how Operations Hub will drive adoption of our CRM platform. We’re also seeing strong adoption of programmable automation among the larger companies who are looking to take full advantage of their data and deliver personalized experiences to their customers. One of our top solutions partners had this to say about the feature: data Sync makes HubSpot significantly more flexible. We’ve used it to build even the most advanced business processes in HubSpot, from ERP integrations to data enrichment, commission calculations to renewal communications. With programmable automation in Operations Hub, if you can dream it, you can automate it. Thanks to the team at Aptitude 8 for sharing the feedback. We’re so glad that they’re seeing value in Operations Hub. Both Operations Hub and CMS Hub Starter are great examples of our commitment to crafting our CRM platform in-house rather than cobbling it together through acquisitions. Our focus on delivering a consumer-grade UI matched with a scalable enterprise backend sets us apart from traditional CRM platforms and positions HubSpot strongly to achieve our goal of becoming the number one CRM platform for scaling companies. With that, I’ll turn it over to Kate to give an overview of our fantastic financial results.

Kate Bueker, CFO

Thanks, Yamini. Let’s turn to our second quarter financial results and our guidance for the third quarter and full year of 2021. Second quarter revenue grew 47% year-over-year in constant currency and 53% as reported. Q2 subscription revenue grew 53% year-over-year, while services and other revenue increased 44%, both on an as-reported basis. We continued to see strong performance across all of our hubs, tiers, and geographies in Q2. Revenue retention continued to be very strong in the quarter, once again benefiting from healthy customer dollar retention levels. In addition, our net revenue retention continued to benefit from a diverse set of upgrade drivers with particular strengths from addition upgrades, cross-sell activity, and seat expansions. As of Q2, 58% of our customers are getting value out of two or more hubs as they adopt HubSpot as a platform. Domestic revenue grew 42% in Q2, while international revenue growth was 54% year-over-year in constant currency and 68% as reported. International revenue represented 46% of total revenue in Q2, up four points year-over-year. We added over 7,100 net customers in the quarter bringing our total customer count to 121,000, up 40% year-over-year. Average subscription revenue per customer grew 8% year-over-year to approximately $10,200, as we saw a positive mix shift toward our professional and enterprise tiers, coupled with strong install base selling in the quarter. We expect our strong install base selling and positive product mix shift to continue through the second half of 2021. As a result, we anticipate second half net customer additions to sustain around these levels, as we continue to compare against the robust Starter Growth Suite customer additions from 2020. And we expect high single digits year-over-year growth in ASRPC in Q3 and Q4. Deferred revenue, as of the end of June, was $362 million, a 50% increase year-over-year. Calculated billing was $334 million, growing 60% year-over-year in constant currency and 65% as reported. This acceleration in constant currency billings growth was driven by strong business performance in the quarter, in addition to an easier overall comparison as a result of the challenging business environment in the second quarter of 2020. The remainder of my comments will refer to non-GAAP measures. Second quarter gross margin was 81%, down a little over one point year-over-year. Subscription gross margin was 84%, while services' gross margin was negative 5%. Second quarter operating margin was 9%, relatively flat as compared to the same period a year ago. Operating margin in the quarter exceeded our expectations primarily as a result of our strong revenue performance. At the end of the second quarter, we had just under 5,000 employees, up 32% year-over-year. Net income in the second quarter was $22 million or $0.43 for fully diluted share. CapEx including capitalized software development costs was $16 million or 5% of revenue in Q2. Free cash flow in the quarter was $26 million or 8% of revenue. We continue to expect CapEx as a percentage of revenue to be about 5% in 2021 and now expect free cash flow to be between $170 million and $175 million with a seasonally strong free cash flow quarter in Q4. Finally, our cash and marketable securities totaled $1.3 billion at the end of June. And with that, let's dive into guidance for the third quarter and full year of 2021. For the third quarter, total revenue is expected to be in the range of $325 million to $327 million, up 43% year-over-year at the midpoint. Non-GAAP operating income is expected to be between $27 million and $29 million. Non-GAAP diluted net income per share is expected to be between $0.42 and $0.44. This assumes 50.6 million fully diluted shares outstanding. And for the full year of 2021, total revenue is now expected to be in the range of $1.268 billion to $1.272 billion, up 44% year-over-year at the midpoint. Non-GAAP operating income is now expected to be between $107 million and $109 million. Non-GAAP diluted net income per share is now expected to be between $1.67 and $1.69. This assumes 50.5 million fully diluted shares outstanding. As you adjust your models, keep in mind the following: At current spot rates, we're forecasting an FX tailwind to as-reported revenue of two points in Q3, a neutral impact to Q4, and a three-point tailwind for the full year. Lastly, I look forward to seeing many of you again for our virtual analyst day as part of our inbound 2021 event on October 12. And with that, I'll hand things over to Brian for some closing thoughts.

Brian Halligan, Executive Chairman

Thanks, Kate. It's a true pleasure to be able to speak with all of you again. I'm so proud of the entire HubSpot team. They've been absolutely fantastic during my time away. And I'm so thankful for the work that Yamini, Dharmesh, Kate, and the rest of the leadership team have done in my absence. My sincere thanks to all of you. I also want to say a huge thank you to all of you for the well-wishes over the past couple of months. The road to recovery has been a long one, but I'm feeling really, really good. My head is 100% back, my body well that needs a little more physical therapy, but I'm making great progress to get back to 100% quite soon. Now, back in June, we celebrated our 15 year anniversary of HubSpot's founding. When I look back at the last 15 years, I'm super proud of what we've been able to accomplish. We built a truly mission-driven organization designed to solve for the customer. It has helped millions of organizations grow better. This past year, we've hit some exciting milestones like passing $1 billion in ARR and 100,000 customers. These are just the start; HubSpot is still in the very early innings and has a lot more value to provide to our customers, partners, and employees. One of the keys to our modern success has been that we haven't been afraid to take inspiration from the Warren Buffett quote that goes something like, someone's sitting in the shade today because someone planted a seed several years ago. That's HubSpot in a nutshell. We've been willing to plant seeds like shifting from a marketing app to a front office suite, shifting from our front office suite to a front office platform, shifting to a premium model, and many, many others that are all paying off quite nicely now. Over the last six months, I've been thinking a lot about how I can have the most impact on HubSpot moving forward, and moving to the Executive Chairman role feels like a natural fit. As an Executive Member of the Board, I'll be able to lean into the things that excite me like planting and nurturing more of the seeds that will turn into big shady trees for years to come. My transition to Executive Chairman would not be possible if we weren't confident in Yamini’s ability to lead HubSpot. When we hired Yamini, we knew we were getting an incredible leader with an amazing track record of holding high-impact roles at SAP, Workday, and Dropbox. She's able to align marketing, sales, and service teams and create a more cohesive experience for our customers. But what we've actually gotten is so much more than that. Since the day Yamini arrived, she's made HubSpot better—from reducing friction for our customers to leading the company with clarity and empathy through the pandemic. Yamini has proven she's ready to take on the role of CEO to help both HubSpot and our customers and partners grow better. And she's just the perfect complement to Dharmesh and me to write the next chapter. I want to close out by once again thanking Yamini for her terrific leadership over the past six months and offering my congratulations to her on this exciting milestone. Dharmesh and I have no doubt that she's the right person to lead HubSpot moving forward. And I'm super excited about the journey ahead. I want to thank all of you for your time. Now, speaking of Yamini, over to you.

Yamini Rangan, Chief Customer Officer, CEO

Thank you so much, Brian, for your kind words and for your incredible support during my time here at HubSpot. I'm deeply humbled, grateful, and super excited to take on this new role in partnership with you, Dharmesh, and the entire HubSpot team. It was your visionary leadership as founders that got us here today. And that leadership will continue to be invaluable as HubSpot grows. I'm excited to continue working together to build innovative products for our customers, foster a remarkable culture for our employees, and ultimately make HubSpot the number one CRM platform for scaling companies. Operator, please open up the call for some questions.

Operator, Operator

Our first question is from Samad Samana from Jefferies. Your line is open.

Samad Samana, Analyst

Good evening. Welcome back, Brian. Q2 really representing the great company Dharmesh has built all these years. And Yamini’s strong leadership steering it recently, congrats on the move to Executive Chairman, really happy you're staying, and Yamini congrats on your move to CEO full time. I'd love to hear from both of you a little bit more about how you two will be dividing up the core responsibilities going forward, and where each of you will be focusing your individual attention. And then Yamini, maybe for you, it's obviously early, but you've been at the helm for six months. It would be great to hear maybe if you could give us some thoughts about HubSpot's vision and strategy going forward.

Brian Halligan, Executive Chairman

Samad, I will kick it off and hand it to Yamini. But it is great to hear your voice, my friend. Thank you very much for asking the first question here. I'll say I feel fantastic. My head is fully recovered from my accident and I’m thrilled to be back in HubSpot in this room with my friends and colleagues. It's a terrific time for me. Now, when I got hurt, I had a lot of time on my hands, spent a lot of time in a hospital bed, looking at the ceiling and thinking about, what can I do? How can I add value to HubSpot in a bigger way moving forward? I've been there for 15 years, what's next for me? And I thought, this is a good time. I'm going to become an Executive Chairman, and Yamini is going to become CEO. It's going to be a one plus one equals three combination. Yamini, we hired – I hired Yamini. She is the perfect fit for this job and for this space of growth to take us to the next level. She's just the perfect fit. She's had my job for the last six months; you guys see the numbers are fantastic. She’s done a masterful job. I'm very, very excited about her. In terms of dividing up what we're going to work on, we've talked a lot about that. Now, I will let Yamini weigh in on her side. What I'm sort of focused on as Executive Chair, is first and foremost, I plan to be an active and engaged Executive Chair. And you've probably heard me tell a joke that I used to say on these calls that if I ever leave, they're going to have to take me out on a stretcher or a straightjacket. You might have to ask those deals at adolescence, but my main role is to help Yamini do as best as she can and keep the thing rolling. I do feel like we're in the very early innings of HubSpot. The second thing is I've always enjoyed doing and helping drive is planting seeds to turn into big shady trees that we've all enjoyed over the years. The app suite we planted several years ago is still a small tree. There's a lot more growth to go on that suite. We're just now planting the suite to platform transition, that's going to go really well. It's top of the first inning on that tree as we put in the premium model of the culture, these are seeds we planted long, long ago that have all paid off. I like working on products and product vision. So that's kind of where I'm going to be focused and then just helping Yamini. How about you, Yamini?

Yamini Rangan, Chief Customer Officer, CEO

Well, thank you, Brian. And I have to say I'm so humbled, grateful, and excited to take this new role and write the next chapter of growth at HubSpot. I'm particularly excited because I get to work with two brilliant people, Brian and Dharmesh, who've done this for 15 years and have fantastic experience. The three of us share a lot in common—growth mindset, curiosity, focus on product innovation, and customer centricity. I think the combination of their experience plus my focus on scaling customers is going to be powerful. You asked the question about the vision and strategy. Our vision is clear. Our vision is to help millions of organizations grow better. We're just getting started in accomplishing that vision. In terms of strategy, over the last six months or the last couple of years that I've been working on, our strategy is clear and it’s not changing. If I had to articulate the strategy, it’s threefold. First off, we want to build a best-in-class CRM platform for scaling companies. We'll do this by expanding to new hubs like you saw us do with Operations Hub last quarter, and we'll do this by investing heavily into our existing hubs. You've heard about the CMS hub this quarter. We have just a long way to go and a lot more to do in terms of the product. The second part of our strategy is fueling all of our segments. Now, we focus on the one to 2000 segment and historically, we’re really good at the 20 to 200. We've been investing heavily in the lower end of the segment, one to 20, and we'll continue to invest in the 200 to 2000. We have a great enterprise class of products with consumer-grade ease of use. Finally, the third part of the strategy I’m very excited about is that we want to continue to build an organization that can scale. We care deeply about our employees. We care deeply about diversity, and we want HubSpot to be the best place for people to work and serve our customers. I'm super excited to get started on this journey and write the next chapter of growth at HubSpot.

Samad Samana, Analyst

That's great. Thank you for that detailed answer. And Kate, I know the big news was the transition, but it wouldn't be a HubSpot quarter if I didn't ask about the financials. Just to look at that billings number was very, very strong. I know there's an easy comp there, but even if I look against the very strong Q1, can you just help us unpack if there's anything that changed in terms of either duration, or were there more larger customers in the quarter that leaned toward enterprise and took more seats than normal? Just help us understand the really good amount of strength there?

Kate Bueker, CFO

Yes. Sure thing, Samad. For Q2, there’s not much out of the ordinary here. There’s not a lot of big changes in duration. The biggest driver of the billings performance was the strong bookings growth that we had in the quarter. The one thing that I would point out, and you kind of got it in the question, is that there is a relatively easier compare for billings relative to revenue in constant currency. You might remember last year in Q2, we ran a number of short-term customer relief plays that had a bit of a negative impact on our Q2 2020 billings. So billings, frankly, has a little bit of an easier comparison in revenue.

Samad Samana, Analyst

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

Operator, Operator

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

Mark Murphy, Analyst

Yes. Thank you very much, Brian, as much as I enjoy reading your tweets, it's so much better to hear your voice. So great to hear from you and congrats to both of you on all these tremendous milestones. Yamini, let me start with this. I think you talked in the past about bringing high-end features down to mid-market companies. I'm just wondering which features maybe have driven the greatest traction recently in some of the enterprise additions, whether it be custom objects, account-based marketing, or different channels that are emerging. Just anything else that you see, which might be resonating in the results here?

Yamini Rangan, Chief Customer Officer, CEO

Yes. Thanks a lot, Mark. Good to hear your voice and appreciate your wish for both Brian and myself. I say that enterprise, all of the product investments that we have made in enterprises are working. Our strategy is really to build products that fit every one of our segments and I would say that our up-market segments from 200 to 2000 has been a focus area for us. Now last year, we powered up marketing pop, and a lot of the features that we announced at the beginning of the year resonated deeply with our customers. As we inbound, we launched sales hub enterprise, as you know, and custom objects have been a huge hit. A lot of the CPQ advanced features that we added have been a huge hit. In Q1 of this year, we added conversation intelligence, and now it’s a category in and of itself, and the fact that we added it to power a hub has become a seamless part of our whole suite that is resonating deeply within the market. Our strategy for continuing to build powerhouse features while maintaining the ease of use that is consumer-grade is what's working broadly. If you look at the up-market, we're just getting a fair share of a fast-growing market, and we'll continue to invest both on product as well as go to market to continue fueling that.

Dharmesh Shah, CTO

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

Mark Murphy, Analyst

Okay. Thank you for that. Appreciate the additional color. And Yamini, just another quick follow-up, it sounds like you’re mostly focused on executing on the pre-existing roadmap and strategy. You’ve been a big part of it. It’s been performing amazingly well. I think, kind of following on Samad’s question, I’m just wondering, do you carry some unique philosophies or maybe just think the time is right to make any kinds of little tweaks, for instance, the focus up-market versus down-market or the optimal number of hubs? How do you put this on the operations side? Any sectors where you have a little different view?

Yamini Rangan, Chief Customer Officer, CEO

That’s a great question. I think it goes back to the earlier thoughts in terms of strategy. Our strategy is clear. We have a focus on having the best CRM suite in the market. That means we’ll continue to invest in our existing hubs and we’ll continue to make new investments in additional hubs. We have plenty of ideas. We just came from our annual strategy offsite in June, and we have in our collective minds product innovation for the next 15 years. The focus on horizon one, horizon two, and horizon three bets has worked really well for the company. My job is to work with Brian and Dharmesh to really empower that type of innovation going forward.

Mark Murphy, Analyst

Excellent. Thank you.

Operator, Operator

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

Brad Sills, Analyst

Great. Thanks guys, and congratulations Yamini and Brian on your new roles, well-deserved both, and Brian, great to hear from you as well. One of the things that stuck out for me in the quarter was the ASP acceleration, and a lot could be driving that. Obviously, you're executing up-market, you're seeing Operations Hub traction scale with some of the early results there. My question is: where is the incremental ASP growth coming from when you look across all the different levers that could be driving that? Just larger customers, more enterprise uptake and upsell, operations hub, multiple products—there's a lot in there. If you could just maybe stack rank what's been driving that acceleration in ASP? Thank you.

Yamini Rangan, Chief Customer Officer, CEO

Yes. Many upticks inside of it. I think that it’s sort of interesting to see where we had a really strong quarter and that will tell you where you're seeing the real drivers of that ASP growth. The first thing I would say is our new business, our new additions were particularly strong in the professional and enterprise tiers, which tend to have a larger ASP. We had a really strong quarter selling into the install base, including a record quarter for nominal upgrades from starter into professional and enterprise tiers. You also saw the fueling of the cross-sell with the addition of the operations hub. The final thing I would highlight is just an expansion in the number of seats that we're seeing our professional and enterprise customers adding on the sales side.

Operator, Operator

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

Stan Zlotsky, Analyst

Perfect. Thank you so much, guys, and congratulations on the very exciting moves within the company and Brian, obviously great to hear your voice back on these calls. Quick question from my end, you mentioned that the pricing changes that you guys made to some of the products. Could you walk through the spirit—the timing of the pricing changes, why and what? And as far as the pricing changes, is it fair to say that you're going to follow a similar strategy as in the past of grandfathering existing customers on the pricing changes, or will this mainly be for new customers? Then I have a quick follow-up.

Yamini Rangan, Chief Customer Officer, CEO

Yes. Thanks a lot, Stan for the question. In general, our pricing philosophy is twofold. You'll see us continue to bring high-value added features down to our premium and starter tiers. What ensures us is that we manage disruption within our install base versus allowing competitors to disrupt us. The second part of the strategy is that it also ensures that we keep innovating and adding new features to our higher tiers, pro and enterprise. That’s our broader pricing philosophy; it’s worked really well for us. That's exactly what you saw with CMS. As we have added more features to enterprise and pro, we feel pretty comfortable that we are delivering a lot more value to our customers and there’s confidence in increasing that price. In terms of your second question on grandfathering, very similar to before, we’ll first roll this out, and this will impact all of the new customers and then over a period of time move that problem.

Stan Zlotsky, Analyst

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

Yamini Rangan, Chief Customer Officer, CEO

Yes, thanks. We saw another really strong quarter of both customer dollar retention and net revenue retention. The story that we would tell you about retention in Q2 is basically the same story that I told you about retention in Q1. It starts with that foundation of customer dollar retention, where we've seen really healthy trends there since the back half of 2020. Again, similar to last quarter, there was a real diversity in terms of the upsell motions that are really driving the positive net revenue retention.

Operator, Operator

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

Ken Wong, Analyst

Great. Thanks for taking my question, and then kind of congrats across the board from me as well. Building on Stan's question, just on CMS Hub, so just thinking about that kind of the new basic SKU there, is this intended to get the laggards over to adopt or should we view this as potentially a way to open the funnel into the HubSpot franchise using CMS?

Dharmesh Shah, CTO

That's a great question. Ken, thank you. So taking a step back, we think about CMS and why we're in that business. CMS is one of the things that makes HubSpot unique. There are no other leading CRM platforms that have a legit content management system as part of their overall platform offering. If you ask that why is that, I think the reason is because it's really hard to build a CMS. It's different from everything else. By the way, I always thought you'd think of an official musical term in case you're wondering, but the reason—but if you have a marching band, you need a trombone. That completes the whole thing. You need it. If you want a full CRM platform, you need a CMS. The reason is not just about putting a website up there. It's about making the website a window into the backend data, into the CRM itself and bringing the customer in. So we’re really excited about it. In terms of why would we launch a starter here, it’s basically exactly what you were alluding to. We think getting this kind of web experience up is the first step often in the digital journey that we want customers to take—it’s about bringing as many people on the platform, even CMS, starting using it as we possibly can. This opportunity to open the door to the CRM platform from HubSpot helps us grow from there. So we’re super excited about the opportunity to open.

Operator, Operator

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

Alex Zukin, Analyst

Thanks guys. Well, Brian, first, great to have you back, sad to see you go. Yamini, really excited to work with you. Maybe just the first question for you, Yamini, if you think about the pipeline and what you see in customer behaviors, as we look out to the second half and into a new post-COVID world, can you kind of compare and contrast that with either what you saw in the first half and what you saw in the second half of last year for us?

Brian Halligan, Executive Chairman

Okay, I'll start that. I actually not going anywhere; I'm going to be Executive Chairman and super active and hopefully for a long time. I’m going to be very active in HubSpot and helping guide strategy and partnering with Yamini. You’re not getting rid of me that easily, my friend.

Yamini Rangan, Chief Customer Officer, CEO

I would echo that. Brian is super active, always sounding us, and always inspiring us. In terms of the demand environment comparing the first half and second half, our demand environment is solid, similar to what we saw in the last quarter. If you step back, our product is really unique relative to competition. I would say we have a very strong value proposition that is resonating in the market. Brian talked about sowing seeds. I think we’ve done enough product investments in the past few years, and we're just seeing all of that payoff. We not only have that product-market fit, but we also have a go-to-market fit. The combination of those two are really helping us drive strong financial results. In terms of pipeline, I’d say the digital first and digital is ready; both trends are here to stay. We’re not going back from here. We are clearly seeing our customers modernizing their CRM platform from websites to marketing, to sales, and service. They're all focused on delivering a connected customer experience, and that's the kind of customer interest that you're seeing from a pipeline. In July, at the very beginning of the quarter, we actually gave our entire global employee base a week of rest. We did that as a very important choice. We care about culture. We care about employees. We wanted them to rest, recharge, and come back with full focus in the second half. I’m really feeling good about the second half, and I look forward to what we're going to do in the second half.

Operator, Operator

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

Drew Foster, Analyst

Hey guys, thanks for taking the questions. Great to hear you're doing well, Brian, and congrats, everyone else on their new roles. Given everything that's been said about the importance of digital channels, not going away, can we get an update on where net logo retention stands today? As you reflect over a more protracted period, maybe two or three years, what are the one or two things playing the biggest role there? Is it a greater share of customers using more products and just general stickiness—the category more broadly rising in strategic importance? Just give an update and touch on drivers there. Thanks.

Yamini Rangan, Chief Customer Officer, CEO

Yes. We'll probably talk in a lot more detail around retention in general at the upcoming analyst day. But I would give you a couple of points to take away. Customer dollar retention, which is not the same as logo retention, but is sort of the baseline of how we think about it internally, is very strong and shows specific improvements through the back half of 2020. It has stayed at that new elevated level for the first and second quarter of this year. And I think it sounds kind of elementary, but the truth is that what we’re seeing is our customers are just using the products more. As it turns out, that leads to higher retention, and we are as a result enjoying really healthy core retention levels.

Operator, Operator

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

Terry Tillman, Analyst

Thank you. And Brian and congrats, and good luck on the next chapter, but I think one of the last questions, I think you said, you're going to stay on these calls going forward. So I'm going to—that’s my base case. So we'll see you on the next call. It's good to have you back, and congrats Yamini as well. I guess my question just relates to—it was echoed a couple of times in terms of installed base selling strength. I think it was mentioned by Yamini maybe and Kate, if I'm not mistaken. What I’m curious about is, has there been some things you’ve done internally on a programmatic basis to kind of turn that dial more and/or investments? Is this more—should we see more of this in the future where there’s more of a structural shift where you’re just getting a lot more from the installed base selling each quarter? Thank you.

Yamini Rangan, Chief Customer Officer, CEO

Terry, thank you for the wishes; I really appreciate it. In terms of the install base, our existing customers now have a lot more products that they can adopt, right? In the past couple of quarters, we have introduced Operations Hub, we have improved the additions on a number of hubs, and so there’s a lot more product for them to adopt. The product has gotten much better. So when our customers are using one hub, and then they see the value of a seamless single data model and single interface of other hubs, that naturally pulls them in. So the product investments are probably the first ones that I've talked about. I think the second part of it is that we certainly have invested more heavily in our customer success team, working more closely with our sales team, and that helps us connect the dots in terms of install base. And that’s certainly been part of it. Now going forward, I’d say, we want to have a balanced approach. We will continue to acquire a lot of new customers because of the strong value propositions that we deliver and we will continue to sell into the install base. You’ll see a balance of both of these across our future quarters.

Operator, Operator

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

DJ Hynes, Analyst

Hey guys, congrats everyone on the new roles and the continued success with the team. Just a go-to-market question on Operations Hub. Is the buyer they’re somebody that you’re already talking to when you’re selling marketing and sales, or is it somebody else in the organization that sits on top of those efforts? I’m just trying to think about the ease of cross-sell and whether in most cases it’s with somebody you already know and that’s familiar with HubSpot?

Yamini Rangan, Chief Customer Officer, CEO

That’s a great question, DJ. The buyer for Operations Hub is a revenue operations persona. Now I spent a better part of the couple of decades in CRM running these operations teams, and they’re really the nerve centers of go-to-market functions. They’re sometimes the unsung heroes, but they have a really critical role to play, which is providing the single source of truth about customers to the VP of sales and marketing, and the head of customer success. That’s the persona and they've always been involved in a CRM purchase, and now we’re providing them the flexibility and the power to provide insights into the front office. If you really step back on Operations Hub, it helps our customers connect their tech stack, clean up the data, and automate the processes, and these three challenges are traditionally the ones that revenue operations teams and all of our customers struggle with. Operations Hub provides flexibility, automates processes, and supercharges our CRM suite.

Operator, Operator

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

Brian Peterson, Analyst

Thanks for taking the question. And Brian, it’s great to hear your voice and glad to hear your role, congrats to you and Yamini in the new roles. So maybe just a higher-level question for me. I’m curious, if you were looking at the pace of net new customer ads, how much does the platform in the breadth of functionality between different areas come up? I guess, I would think that post-COVID people are looking to consolidate vendors and think about simplification of a digital go-to-market model. Is that something that’s coming up in a lot more conversations and how do we think about that impacting win rates? Thank you.

Yamini Rangan, Chief Customer Officer, CEO

Yes. Brian, I will address that and then have maybe Kate or Dharmesh jump in. You’re exactly right. If you think about our customers, they’re coming through this whole pandemic thing—they need to digitize their entire front office. The starting point could be very different. The starting point could be a bunch of point solutions, a spreadsheet, or a legacy system. They’re looking at providing an entire connected customer experience, and therefore, having an all-in-one solution resonates pretty deeply with them. That’s part of what they’re enabling through the CRM suite, and we definitely see that motion beginning to happen. I think we’ll continue to invest in the CRM suite. It’s a very powerful suite. One of the things that works for us is that when you get the CRM suite in the hands of new customers or existing customers, they now see the power of the entire platform. There is higher product usage; therefore, we get much better feedback on the product. As a result, we can improve the product. It’s a nice little flywheel in terms of how we can drive the quality of our product even higher.

Dharmesh Shah, CTO

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

Operator, Operator

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

Parker Lane, Analyst

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

Kate Bueker, CFO

Yes. Maybe I’ll start with some numbers and pass it on to Yamini for a little bit more color and context. We’ve talked about this for a number of quarters; the growth in our multi-product adoption—customers using two or more of our products—has been on this sort of steady trajectory up for a number of years now. And it has happened across all of the tiers, from enterprise to starter. We did see a bit of a step function inflection last spring when we introduced the Starter Growth Suite, that really simple $50 price point makes it easy to buy. So we see a lot of uptake at that starter level of just the full set of HubSpot products. As I shared in my prepared remarks, we’re at 58% of our customers who are using more than one HubSpot product, and when you look at that new segment, it’s probably about 50-50 now adopting multiple HubSpot products.

Yamini Rangan, Chief Customer Officer, CEO

Yes. To add to the commentary that Kate provided. If you step back, we thought something really important having all these products is that we take a very crafted approach to CRM. It is not cobbled together through acquisitions. If you step back and think about the single biggest challenge for customers, they’re putting together very complex tech stacks and they’re spending a lot of time on integrations. They’re spending a lot of time on developers, and it takes many resources from there. Ultimately, the customer experience isn’t great for that. Therefore, our focus on multi-hub is to provide one data model, a single view of the customer, and a simple interface that’s easy to use that is crafted and not cobbled together. I think that’s what our customers like, and that’s what resonates within the market.

Operator, Operator

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

Alex Narum, Analyst

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

Yamini Rangan, Chief Customer Officer, CEO

Yes. Ryan, thank you for that question. We saw very consistent growth, both in North America, as well as international. As we mentioned, international has been growing really well. I think year-over-year, a few points up from last year. If you step back on international, the market there and digital transformation is in an earlier stage. A lot of the customers in international markets are looking at being digital first, digital ready—and really some earlier stages, which means there’s an even bigger opportunity for us. The second part is that we’ve been investing steadily in a number of the international markets from product localization, in terms of content for lead management, in terms of customer-facing resources, and even brand. Those investments are paying off. Our LTV to CAC is really solid in these markets. So we’ll continue to invest in international markets. The exciting part is that North America is a really big market and that’s doing well too. We’re seeing very balanced consistent growth across all of the markets that we operate in, so very pleased about that.

Operator, Operator

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

Matt Diamond, Analyst

Hi, everybody. It’s Matt Diamond on for Siti. One quick question for me. Is there anything to be called out for the linearity of bookings this quarter? Your tone certainly suggests that there’s some incremental conviction in the second half. I’m curious if something happened in the quarter that might’ve catalyzed that that may not have been asked more directly?

Kate Bueker, CFO

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

Operator, Operator

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

Michael Turrin, Analyst

Hey there. Thanks. Good afternoon. Yamini, congrats on the promotion. I hope regardless you’re planning to keep the whole music for earnings calls the same. I mean, I go to sleep, but it’s much more pleasant with the jam music than the classical, so I certainly appreciate it. There’ve been some questions on it, but the average revenue per customer metrics certainly stands out, as do comments on just expectations that try and can hold for the rest of the year. So can we just go back to that? I’m wondering if some of that’s just tied to this being the other side of the strong customer ad strength we’ve seen over the past year? And then just how much the new hubs and what you’re doing with bundling is also helping out there. Thank you.

Yamini Rangan, Chief Customer Officer, CEO

Yes. I think you’ve got it in terms of the underlying theme. We’ve talked about this in the past. There is a lot of quarter-over-quarter variability in these KPI metrics, especially around customer additions and ASRPC. What we saw this quarter was strong Professional and Enterprise trends, strong install base selling trends. As a result, what you’re seeing is ASRPC is up nicely year-over-year. If you strip out the Starter and looked at ASRPC, it’s even up more. We don’t guide to our KPI metrics, and frankly, we don’t guide—because that’s not how we manage the business. I shared some commentary around back half in the prepared remarks around the expectations. We think that we should see net customer ads for the back half of the year in and around what we saw in Q2, and with that would come an ASRPC growth in those high single digits.

Operator, Operator

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

Michael Turits, Analyst

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

Kate Bueker, CFO

Yes. It’s not a new thing for Q2 and Q1. We talked about it last quarter as well. We had really strong new customer additions in the Pro and Enterprise in Q1 and Q2. For all of the reasons that Yamini has talked about throughout the call.

Operator, Operator

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

Brent Bracelin, Analyst

Thank you. And Yamini, congrats on the promo, Brian. Not always is it great to hear you’re healthy, but it's also great to hear your plan to remain active with the broader team here. Again, I wanted to go back to the durability of growth here. We’ve been trained in the last four years not to think of ASRPC as a driver to growth. In fact, it’s been a slight drag in the growth over the last four years. This quarter marked a five-year high at 8%. It’s emerged as an incremental growth lever to the business. My question is, are we entering a new period where we could see both strong new customer additions and this revenue expansion, ASRPC expansion as an incremental lever to growth? Or is it too early to really weigh in on that? I get that you have some easy comparisons here. But it does feel like we’re entering a new period where this could be a nice incremental level to growth as well.

Yamini Rangan, Chief Customer Officer, CEO

Yes. I guess, what I would tell you is that we’ve been talking about this over the last three quarters. We’ve seen really nice customer additions and quarter-over-quarter expansion of ASRPC. I think this quarter marks a little bit of a different milestone where we’re seeing a real increase on a year-over-year basis as well. I think what you’d be surprised if I declared something here. I’m going to tell you that we will continue to see variability quarter in and quarter out of ASRPC and new customer ads. That’s going to come as we innovate at the high end, innovate at the low end, and introduce some new products. I think I shared our expectations for the back half of this year, but I don’t think we are at a point where we would declare sort of a long-term trend at this point.

Operator, Operator

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

Kirk Materne, Analyst

Thanks very much. I’ll echo the congrats to both Brian and Yamini. Yamini maybe just on the Pro and Enterprise side of the business seeing such good traction. I was just wondering how do you think about the evolution of your partner platform as you start talking more of these customers that have maybe more bespoke needs? Are there things you’re thinking about in terms of trying to leave various features for your partners to develop? Or do you think about focusing on partners that might have more vertical expertise in certain areas where you’re seeing trends? I guess, just at a high level, how are you thinking about the evolution of the partner ecosystem?

Yamini Rangan, Chief Customer Officer, CEO

Sure. This is Dharmesh. When we think of the ecosystems, there’s actually multiple parts. There’s the app platform and the app ecosystem where there are software companies building integrations and extending HubSpot. There’s the solutions partner ecosystem, which basically helps us service HubSpot and brings it to the different markets. I’ll let Yamini speak to the solutions partner side. On the app platform, we’ve seen great traction; more and more companies are building and extending HubSpot and using their APIs. The thing we love about that is that it really spins the flywheel. The more of those applications we get, the more customer problems we solve. We’ve seen a strong correlation between the number of apps on users and their retention rates. I think those things feed and fuel the flywheel. The app platform itself is going really well. Now let Yamini speak to the solutions part of the program. Yes. I think that’s a really good commentary on the app side. I think on the solution partner side, we are diversifying our entire ecosystem, and our partners are continuing to grow there in terms of CRM implementations, integrations, and much more complex implementations. We are really focused on this. Earlier this year at our Partner Kickoff, we went to our partners and we said, look, we want to scale with you. The strategy has been to scale with our partners, which means we will sell more with partners and enable our partners to service our customers. That’s good for our customers and it’s good for partners and therefore it’s good for HubSpot. In terms of the investments with our solutions partner ecosystem, we’ll continue to work on improving incentives. We have been investing pretty heavily on enabling our partners so they can go to market with us when we do product launches. That’s beginning to work, and we’ll continue to invest in scaling services through the partners. We definitely see them as part of scaling HubSpot and they play a critical role.

Operator, Operator

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

Brian Halligan, Executive Chairman

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

Operator, Operator

Thank you, presenters. Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.