Good afternoon, thank you for attending today's HubSpot Q1 Fiscal Year 2023 Earnings Conference Call. My name is Danielle, I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. It is now my pleasure to hand the conference over to our host, Chuck MacGlashing, Head of Investor Relations. Mr. MacGlashing, you may proceed. Thanks, operator. Good afternoon, welcome to HubSpot's First Quarter 2023 Earnings Conference Call. Today, we'll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Yamini Rangan, our Chief Executive Officer, Dharmesh Shah, our Co-founder and CTO, and Kate Bueker, our Chief Financial Officer. Before we start, I'd like to draw your attention to the Safe Harbor statement included in today's press release. During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical fact are forward-looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures, the expected impact of the restructuring, expected growth, FX movement, and business outlook, including our financial guidance for the second fiscal quarter and full year 2023. Forward-looking statements reflect our views as only as of today 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 user discussed and a reconciliation of the differences between such measures can be found within our first quarter 2023 earnings press release in the investor relations section of our website. It's my pleasure to turn over the call to HubSpot's Chief Executive Officer, Yamini Rangan. Yamini? Thank you so much, Chuck, and welcome to everyone joining us on the call. Today, I want to focus on our start to 2023, share observations on the current macro environment, and provide some perspective on what generative AI means for HubSpot and our customers. Let's start with our Q1 results. We had a solid start to the year with revenue growing 30% in constant currency year-over-year. We delivered more than 4 points of margin expansion year-over-year, bringing operating margins to over 13%. Total customers grew by 23% to over 177,000 customers globally, fueled by net customer additions of over 9,900 in the quarter. I'm pleased with our momentum coming into the year and the focused execution by the HubSpot team. These results show that our product innovation is in high gear and that our bi-modal go-to-market strategy is working. Our focus with our bi-modal strategy remains clear. We want to drive volume at the lower end of the market while driving increased value up market. In Q1, we continued to gain momentum in both segments of the market. On the lower end, we saw a significant uptick in our net customer additions. This was driven by strength in free sign-ups and pricing optimization plays we ran in our starter edition. In addition to that, HubSpot is powerful, yet easy to use, and we are increasingly becoming the platform of choice for scaling companies. Looking up market, we continue to see our multi-hub value proposition resonating. More professional and enterprise customers are starting with multiple hubs. Over 45% of our ARR install base is now on three or more hubs. Up-market customers are increasingly looking for two things: a single source of truth that provides full visibility across their entire customer journey and clear cost savings in this environment. HubSpot's connected platform delivers both. Specifically, Sales Hub continued to gain momentum in Q1 as customers look to build tighter alignment between marketing and sales to drive more efficiency across the front office. Take Liquidity Services, a B2B e-commerce marketplace, as an example. After adopting Sales Hub and Marketing Hub, they were able to eliminate eight other tools, reducing their overall cost by 50%. They were able to connect their marketing and sales data to get better insights and drive an increase in their conversions and campaign effectiveness. This is a great example of our customers driving growth with multi-hub while saving time and budget. We also saw Operations Hub come up in more deals as customers focused on consolidation. They see the clear value of a solution that can connect systems, automate processes, and demonstrate value, especially in this economic environment. In fact, over 2/3 of our top 25 deals closed in Q1 adopted Ops Hub. Leveraging multiple hubs boosts efficiency, and I'm excited by the value our customers are seeing from our connected platform. As you can see, our bi-modal strategy is working, and we will continue to maintain our pace of product innovation. Next, I want to shift gears and share what we're seeing in the macro environment. Overall, we continue to operate in a tough environment, and we're not out of the woods yet. While we see our top-of-funnel activity improving, sales cycles remain long and budgets remain under scrutiny. Decisions by committee have become the norm with multiple executives involved in sales cycles. It is clear based on my conversations with customers that they're continuing to tighten their belts in terms of budgets, and we can see this in optimization across seats, contact tiers, and portals. Decision makers are focused on budget optimization and continue to spend cautiously. Despite these challenges, we have a solid playbook for executing and driving sustainable growth. We remain focused on product innovation and consistent execution. On the product side, we're cranking. One of our strategic objectives is to become the market share leader in marketing, sales, and service for scaling companies, and we remain focused on delivering depth of features in order to get there. In Q1, with Marketing Hub, we moved customer journey analytics to general availability. The strong adoption and usage we're seeing gives me confidence that we are driving meaningful innovation that serves marketeers needs today. With Sales Hub, we significantly enhanced the sequences tools for upmarket customers with selective threading and advanced permissioning. We moved generative AI email functionality to beta. We also launched a key Service Hub enterprise feature with multiple knowledge bases. This has been a top product request from upmarket customers who need to be able to support various audiences, products or brands. In payments and commerce, we introduced scheduled subscriptions and moved payable invoices to private beta. I'm thrilled with the progress we are making on our journey to become the number one CRM for scaling companies. On the go-to-market side, our strategy has been to focus on total cost of ownership for customers and communicating the value of HubSpot. Our quick time to value and connected platform message is clearly resonating as customers look to become more effective and efficient. We're driving enablement across both our direct and partner channels, and we are keenly focused on value-centric conversations. Looking ahead, we'll continue to navigate this macro environment by following our playbook to drive product innovation and consistent, strong execution. Now, I wanna double click on innovation and share how we're thinking about generative AI and why we are well-positioned to add even more value for our customers. We are in the early stages of a transformative shift. Generative AI is rapidly changing the landscape in three fundamental ways. It helps businesses generate content, generate insights, and generate code, all using natural language. This will be a massive opportunity for SMBs and scaling companies. Activities that once took them time, money, and deep expertise no longer do with gen AI. The shift will enable SMBs to reach more customers, serve them at record speed with unprecedented relevance. What does this really mean for marketing, sales and service professionals? In the simplest terms, we believe AI will guide go-to-market teams and make them more effective. This will fuel a new era of AI-guided growth for our customers. When we bring together the power of foundational models with the deep contextual data in HubSpot CRM, we can help go-to-market teams drive better results. Marketeers can use gen AI to guide them in creating more effective blog posts, email campaigns, and social content. Salespeople can use it to guide them to write better prospecting emails and deliver more relevant insights for customers. Service professionals can use gen AI to anticipate customer needs, suggest resolutions, and offer proactive support. We believe AI won't replace go-to-market teams. It will guide them to drive better outcomes. While there will be efficiency benefits, we're even more excited about effectiveness gains and the ability to drive guided growth for customers. While we are in the early stages of gen AI, HubSpot has unique differentiators. First, we have unique data and broad distribution. HubSpot CRM data is unified and cohesive, making it easier for AI to ingest and drive relevance. Second, we're at the center of our customers' workflows. HubSpot is where work gets done, so we can bring relevance to generate content and insights across that entire front office. We're not another AI point solution. We are an all-in-one CRM platform powered by AI. Third, we've always had a human-centric approach, and companies with a human feedback loop are at an advantage with AI. We made a ton of progress in Q1 with the launches of Content Assistant in public beta and ChatSpot in public alpha. Since our launch in March, we've had over 40,000 users sign up for ChatSpot, and the early feedback has been very positive. Content Assistant has thousands of users to date, and we are seeing customers leveraging it daily for creating marketing emails, blog posts, landing pages, and more. We're ambitiously integrating AI across our entire CRM platform, so our customers don't have to become AI experts to reap the transformational benefits. I'm incredibly excited that the opportunity AI is creating to deliver even more value for our customers. Reflecting on the quarter, I'm pleased with the progress we made on our path to becoming the CRM platform of choice for scaling companies. Our teams maintained the pace of product innovation and drove strong execution, which was just fantastic to see. With that, I'll turn the call over to Kate to take you through Q1 results in more detail. Thanks, Yamini. Let's turn to our Q1, 2023 financial results. Revenue grew 30% year-over-year in constant currency and 27% on an as-reported basis. Subscription revenue grew 27% year-over-year, while services and other revenue increased 12% on an as-reported basis. Domestic revenue grew 27% year-over-year, while international revenue growth was 33% in constant currency and 26% as reported. International revenue represented 46% of total revenue. We added over 9,900 net new customers in the quarter, bringing our total customer count to over 177,000, up 23% year-over-year. Starter customer acquisition continued to fuel our strong net adds again in Q1. Average subscription revenue per customer grew 6% year-over-year in constant currency and 3% on an as-reported basis to $11,400. Our ASRPC growth was driven by continued multi-hub adoption by our professional and enterprise customers, offset by the large volume of starter customers we added at the low end of our bimodal strategy. Gross retention remained healthy in the high 80s for the quarter. Net revenue retention was 104%, down 3 points sequentially, driven by further customer optimization of HubSpot spend, as well as slower expansion across seats, contact tiers, and portals. While we expect pressure on net revenue retention in the near term to persist, we continue to believe we can maintain net revenue retention above 100%. Calculated billings were $533 million in the quarter, growing 28% year-over-year in constant currency and 26% as reported. The remainder of my comments will refer to non-GAAP measures. Operating margin was 13%, up 4 points compared to the year ago period. Operating margins benefited from their structuring actions we implemented at the end of January, which impacted our headcount and facilities costs, including a temporary pause in overall hiring in Q1. Net income was $62 million or $1.20 per fully diluted share. Free cash flow was $85 million or 17% of revenue, our cash and marketable securities totaled $1.6 billion at the end of March. Let's review our guidance for the second quarter and full year of 2023. As Yamini highlighted, we continue to operate in a difficult macro environment with customer behavior that is similar to what we saw in the second half of 2022. Budgets are tight, decision by committee have become the norm, and customers are spending cautiously on new products while looking for ways to optimize existing spend. Our guidance assumes that these weak macroeconomic conditions persist throughout 2023. For the second quarter, total as-reported revenue is expected to be in the range of $503 million to $505 million, up 19% year-over-year at the midpoint. We expect foreign exchange to be about 1 point of headwind to as-reported revenue growth in the quarter. Non-GAAP operating profit is expected to be between $54 million and $56 million. Non-GAAP diluted net income per share is expected to be between $0.98 and $1.00. This assumes 52.4 million fully diluted shares outstanding. For the full year of 2023, total as reported revenue is now expected to be in the range of $2.08 billion to $2.088 billion, up 20% year-over-year at the midpoint. Non-GAAP operating profit is now expected to be between $275 million and $279 million. We now expect foreign exchange to have a neutral impact to as-reported revenue and operating profit margin for the full year of 2023. Non-GAAP diluted net income per share is now expected to be between $4.80 and $4.85. This assumes 52.3 million fully diluted shares outstanding. As you adjust your models, keep in mind the following. We expect CapEx as a percentage of revenue to be roughly 5% and free cash flow to be about $245 million for the full year of 2023, with seasonally stronger free cash flow in Q4. With that, I will hand things back over to Yamini for her closing remarks. Thank you so much, Kate. I want to close with our commitment to driving durable, profitable growth long term. Looking ahead, we remain focused on foundational investments that will help us scale. As I shared during our last earnings call, we are doubling down on better development and high performance. Better hybrid connection for our people, employees all over the world, and better systems and automation internally. These initiatives will enable us to drive more efficiency long term and deliver even more value for our customers. I believe we have the right strategy and the right team to navigate this environment and emerge stronger. I want to thank our customers, our employees, our partners, and our shareholders for the continued support on this journey. With that, operator, let's open up the call for questions. Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. We would ask that you limit yourself to one question. The first question comes from the line of Keith Bachman of BMO. Please proceed. Hi, many thanks and congrats on a solid quarter and guide. I wanted to focus my question on generative AI. You talked about some of the activities and certainly enjoyed Dharmesh's video some time ago. I wanted to hear how do you plan on monetizing it as you look out over the horizon? Is it a SKU? Is it a pricing activity? How do you think about monetization? As part of that is when do you think some of these activities will be moved from beta to production environments? In other words, when might investors begin to see the benefits of AI in your financial results? Many thanks. Hey, Keith. Thanks a lot for your question. This is Yamini. Very excited about generative AI. It is very transformative. If you kind of like step back, HubSpot got started when there was a fairly big shift that was happening in how people buy, and that led to us coming up and helping customers on how to market and sell. We think generative AI is as transformative, and this is going to really cause our customers to think about how they market and sell. We think there is a lot of exciting potential. In terms of the monetization question, we have a very clear first principle when it comes to monetization. We focus on delivering customer value first, and from there on, monetization will follow. We think that this is pretty early days in terms of monetizing. Having said that, we're iterating fast. We are getting tons of feedback, especially with ChatSpot as well as content assistant that we just talked about. We are improving these use cases so we can continue to innovate for our customers and really help them get much more value with this transformative technology. As we do this, some of the features are just going to become table stakes. They'll just be part of our core product and part of how we drive customer engagement and adoption within the core product. If there are more specialized use cases, then maybe it goes into higher value additions like Pro and Enterprise and will increase our ASP longer term. That's how we're thinking about monetization. First, we want to focus on delivering value for the product. You asked the last question, which was, when do we plan to get this into the hands of customers? Well, you know, we launched pretty quickly within the market in March. It's alpha and beta. We're getting a lot of the feedback, and the teams are pretty excited. We're having a lot of hackathons internally, and there's a long list of use cases that our teams are working on. I think you'll see us maintain and even accelerate our pace of innovation, where we'll be introducing features in weeks, not months or quarters. Lots of exciting developments here. Thank you. The next question comes from the line of Mark Murphy of JP Morgan. You may proceed. Thank you. Congrats on the great execution during the quarter. Yamini, I'm noticing that HubSpot just has such a huge list of free products at this point. There's free CRM, free CMS, free form builder, free, you know, business templates. So much is free, your margins are expanding despite that. I'm wondering if you could comment on just how large and energetic that on-ramp is from the, from free customers at the, at the top of the funnel. Then for Kate, is it boosting kind of your multi-year visibility? It feels like you have these millions of little seeds that are there that are kind of just starting to sprout, and you can probably project forward and look at how it would turn into revenue. Hey, Mark, I'll get started with the question, then Kate can answer. I love this question because it really gets to the heart of our strategy. You know, when HubSpot got started, we had this deep conviction that we want to add as much value for our customers as possible and continue to get the most adoption from small, medium, as well as scaling businesses. The free tools is really part of that strategy to get the widest possible top of the funnel. By the way, the free tools have a ton of value. I mean, you talked about free CMS. You know, that adds a lot of value in a company getting a digital presence and getting started. There are a number of other growth tools, and that's clearly the strategy. You know, tying this maybe to something that I just talked about, which is the bimodal strategy. When you have a really wide funnel, which is what free tools like this create, then, you know, we work to continue to deliver value. The number of starter customers and the conversion from free signups to paid customers increases. We've been looking at this over the past few quarters. We're very happy with how that conversion continues to happen. Then even from our starter customers, how they continue to get value in terms of Pro and Enterprise. It's really our strategy for delivering value that's at work. Kate, maybe you wanna address the second part of the question there. Yeah. Sure thing. Thanks, Mark. I think there's a lot of reasons to really love the strategy of our product-led growth. I would not say that increased visibility over the long term is one of them. That said, it's a really great low-cost way to get lots of customers using HubSpot really early in their business life cycle. You know, we think it creates a lot of interesting dynamics over and above just the economics, which I can talk about. You know, it creates a nice moat, a competitive moat for us against low-end disruption. It also enhances pretty dramatically the value of our overall platform just based on the scale of customers at the low end. Some portion of those starter customers will upgrade to Pro and Enterprise over time. I think you already know that. Oftentimes that happens with a bit of a faster sales cycle that we also like. This is really just one of many motions that will drive our growth over time. Thank you. The next question comes from Samad Samana of Jefferies. You may proceed. Hi. Great quarter, guys. Yamini, I feel like for the last couple, you've talked a lot more about up-market customers and how much the portfolio is attracting larger customers. I think Sales Hub has been an integral part of that, and the maturity of the product seems to be really unlocking this kinda next tier of customer size. I'm just curious if you think that that's an even bigger key than Marketing Hub's maturity to unlocking those larger customers that you've been talking more and more about? Thank you so much for that question. Yeah, we're really happy with Sales Hub, as well as what it unlocks up-market. I think, you know, Marketing Hub is a $1 billion plus, you know, kind of product line that's got the ability to go to multi-billion, and Sales Hub is a $500 million-plus business that can grow into multiple billions, and both of them are kind of going as planned. We're super happy with that. Now, specifically, looking at Sales Hub, we've been on this steady march over the past few years to build the functionality that a true up-market business needs to have as a system of record, and I think we've reached that point. We have hit that critical mass for an up-market customer. We are a viable alternative to other legacy enterprise options within the market, and Sales Hub is now a legitimate front door to HubSpot. This is a couple of reasons, right. On the product side, we're now serving larger customers and more sophisticated use cases. The steady drumbeat of product releases that, you've been hearing from us are just all aimed at expanding our up-market TAM, and these are custom objects and CRM customization, deeper permissioning, more features for admins. All of that is working. In addition to that, over the last couple of quarters, we're also adding our ability to serve more sophisticated use cases, right. I just talked about sequencing. That's something up-market customers have needed much more ability to do. In addition to that, sales intelligence forecasting, all of these are areas within the product. Huge kudos to the product team for keeping the pace of innovation that serves up-market customers really well. In addition to that, our go-to-market side, the investments that we have made in upskilling our reps as well as the partner ecosystem is working. Our sales teams live and breathe in our product every single day, so it's very easy for them to show a Sales Hub demo and how that actually works with Marketing Hub and drives their own productivity. Partners are very much enrolled in this journey of us going up market. You know, look, the momentum really comes down to meeting the needs of our customers in this moment, and we're very happy with what we're seeing and how we're able to deliver for our customers. Thank you. The next question comes from the line of Elizabeth Porter of Morgan Stanley. You may proceed. Great. Thank you so much. I wanted to hit on the really impressive kind of net customer adds and get a better sense for where the incremental demand is coming from, kind of beyond that initial expectation for around 7,000 a quarter. You know, are you seeing HubSpot actually displace other vendors, or is there still a lot of greenfield deployments, you know, at the low end that you're landing? You know, second, just how durable is this trend? Thank you. Yeah. Thanks, Elizabeth. I think in general, these are really small early-stage companies that are in large part trying our free tools and converting from free tools into Starter. I would think most of them are coming from a more greenfield place than HubSpot displacing someone else. You know, if I look at the quarter-over-quarter trend in net customer adds, like, we are obviously very excited about the 9,900 new adds. The vast majority of the increased quarter-over-quarter is coming at that Starter tier. There are a couple things that are driving it. You know, Yamini talked about the healthy volume we are seeing of free signups as a result of our strong top of funnel demand. We are also continuing to test pricing optimization levers as we do frankly, on a regular basis. That is also working. That said, like Q1 always has tended to be seasonally strong. I do not expect that we're gonna stay at 9,000 customer adds, but we do feel good about net adds continuing to remain strong. I would advise 7,000 to 8,000 range over the next couple of quarters, with the biggest variable there being, how the starter additions behave. Thank you. The next question comes from the line of Joshua Reilly of Needham & Company. Please proceed. Hey there. Thanks for taking my question. Nice job on the quarter here. Can you give us a sense of how the direct versus the partner business is performing over the last couple quarters here? I think last year you made the comment that the partner business was performing stronger into the downturn. What are just, you know, the dynamics or additional color there? Thank you. Hey, Josh. Thank you for the question. This is Yamini. The both direct and partner are executing as planned. We've, you know, shared in the past that our strategy with the partner ecosystem is we want to be able to scale both selling as well as servicing with partners. In the last couple of years, as we have gone up market and as we have really transitioned from being a marketing automation company to a CRM platform, we've really spent a lot of time as well as energy and efforts with our partners to bring them along that journey. That strategy is working. As you look at, like, Q1, the partner ecosystem performed well. When you talk to partners, I know many of you talk to partners, you'll hear them talk about multi-hub, you know, deployments and as well as, leading us a little bit up market. They are helping us in that journey, and there's just a lot more joint co-selling. If you step back and think about what do customers want as they, in this environment, make decisions, they want high returns and low risk. Therefore, jointly executing with partners and having clear migration implementation and change management plans are really working. The direct side is going along with that, and so there's still the healthy balance of about 40% of our install base coming from our partners, and the rest is from our direct, and both are executing really well. Thank you. The next question comes from Rishi Jaluria of RBC. Please proceed. Wonderful. Thank you so much for taking my question. Nice to see continued strong execution. I wanted to ask another generative AI question and kinda go back. Yamini, during your prepared remarks, you talked about the ability for people to, you know, businesses to use generative AI on the back end to generate code. I wanna think about from your perspective, how do you see your ability to use generative AI maybe to iterate features and functionality faster and potentially narrow the gap with some of the up-market players that, you know, you maybe customers wanna move onto HubSpot, but some of those features and functionality may be missing. Just how should we be thinking about that? Thanks. Yeah. Thanks for the question, Rishi. This is Dharmesh. Couple things on generative AI with HubSpot. One is we're making the investment to make generative AI part of the HubSpot framework. That gives us two things. It gives us kinda short term speed to market, because all of our product teams can now benefit from the generative AI features we're building in the core platform, but we think it has wider applicability across the entire suite of application hubs within HubSpot. That's what gets us to be really excited. One thing that kinda gives us an advantage in terms of versus other companies is that, you know, HubSpot grew up with a organically built for SMB platform where all the data is cohesively stored and normalized. This becomes very, very important because in order to kinda get the value from generative AI, you need to be able to kinda use the existing data that you have. It's not about having tens of millions of records. It's about having all the data points on individual customers, so you can provide context to generative AI models to say, "Oh, we know which webpage drew this customer in. We know how many times they interacted with us. We know if they have a support ticket in Service Hub or not. We know exactly all the sales interactions we have." We can take all of that context and use it for the generative AI model. One of the benefits to companies like HubSpot that has this kind of very rapid iteration, get something in the hands of users is I believe, and the team believes, that they who can actually get something in users' hands and get that feedback and have a very tight feedback loop are the ones that win. We think generative AI levels the playing field in terms of the incumbents that are there, and we think HubSpot is uniquely positioned to kind of benefit from generative AI given our organic approach to building the platform and the way we treat the HubSpot framework and the Primary Colors. Thank you. The next question comes from the line of Gabriela Borges of Goldman Sachs. You may proceed. Good afternoon. Thank you. I will stay on the generative AI topic either for Dharmesh or for Yamini. I want to follow up on your comments on leveling the playing field. Do you think over the longer term this leads to less crowdedness or less competition in the front office stack? I wanted to ask directly about the trade-off between efficiency and effectiveness. What are your thoughts on the potential bear case on if marketing people and salespeople become more productive and HubSpot has a seat-based model, how do you think about the risk that seats go down while you're monetizing incremental functionality on the way up, if that makes sense? Thank you. Great questions, Gabriela. Thanks for that. Maybe I'll start, and then Dharmesh, certainly feel free to join here. We do think of it as leveling the playing field, especially for SMBs. One of the things that we've been very consistent about is taking powerful technology, sophisticated technology, and democratizing that for SMBs. That's exactly what we are trying to do with generative AI. You know, SMBs typically don't have large teams of AI experts sitting, and we wanna be able to bring it in with the same power and ease of use, and that will allow our, you know, customers to really compete effectively within the market. I think the second question you asked was really around how we think about effectiveness versus efficiency. Look, I think it's very hard to predict in the long term or maybe even the next three to five years what happens with a lot of the jobs. From our perspective, you know, some jobs are gonna become less relevant and more automated. At the same time, AI is probably gonna create more jobs and new skills. It's a little too early to predict longer term. Having said that, our belief is that AI will not replace humans, but humans who use AI will replace humans who don't use AI, we're in the business of helping humans use AI much better. That's exactly what you're seeing in terms of our strategy. The first stage of our strategy is to help people to drive better outcomes. Lot more in terms of the effectiveness focus, and you can already see this happening with content assistant and ChatSpot, and that's empowering our customers to drive better outcomes, not just, like, save time. The next stage is really taking generative AI and really making it applicable across our platform. Dharmesh just talked about how we think about it from a framework perspective. It's like one of our Primary Colors, and repeatable tasks can be commoditized, and the real value is going to come from that last mile of human intelligence. We are of the mindset that this is going to drive to better outcomes for, you know, everybody within the front office. Dharmesh, anything else that you'd wanna add? Yeah. One thing I'd add just in terms of the kind of, the long-term view on generative AI overall. You know, right now, kinda 95% of the attention calories are in use cases where we take natural language and convert them to something that a human's gonna consume, be it a blog post or an image, and we'll eventually see video. I think 95% of the opportunity for companies like HubSpot is actually using natural language prompts and generative models to create code, things meant for computers. We can look at examples like creating a report definition in HubSpot, creating a custom workflow action in Ops Hub, all of these things where we can take things that were historically only accessible to, like, a small percent of the users within the company, and we can expand that now so that a larger portion of people can generate sophisticated reports, can write custom workflow actions, can do data cleansing and all these things. Just put power tools in the hands of many more customers. We're just very excited about that kind of ability to kind of democratize and make things easy, which is what HubSpot's always been known for. Thank you. On behalf of the management team, I would like to ask that you limit yourself to one question. The next question is from the line of Brent Bracelin of Piper Sandler. You may proceed. Thank you. Good afternoon. Obviously really impressed here with the number of net adds and despite a obviously pretty challenging backdrop. I wanted to ask maybe a longer-term question around vendor consolidation, which feels like there's a longer-term tailwind here. You talked about one customer consolidating eight tools down to, you know, the combo of Sales Hub and Marketing Hub. Where are we at in that cross-hub cross-sell opportunity relative to the installed base? We're not quite seeing it in ARPU yet given the volume increases we're seeing at the low end with Starter, but it feels like longer term there's an opportunity. Could you just address vendor consolidation, how meaningful can that be as a tailwind looking out to 2024, 2025, 2026? Thanks. It's a great question, and I do think this is a longer term trend that we are beginning to see. Maybe if you kind of like step back and think about the last couple of years that our customers have come from, our customers, you know, took couple of different paths. Either they had a lot of point solutions, which become really hard to be able to manage both from a cost as well as the complexity of the overall stack perspective, or they went with maybe legacy enterprise class solutions, and they've cornered themselves into a corner. When I talk to customers now, they want something that is powerful, that is simple, that provides, you know, the entire visibility across their customer's journey, and it's cost effective. You look at HubSpot, we do all of that. This is why, you know, the trends in terms of customer addition, even in the current macro kind of like backdrop is not surprising because, it is, you know, very clear that we are becoming a platform for SMBs as well as scaling companies. Now, you asked the question of, how does this play out? It's very early days. When we look at our install base as well as when we talk to prospects, it's pretty early days in this type of consolidation, and we want to build the best in class marketing, sales, service, you know, solutions that can drive value for customers. We're gonna keep the pace of product innovation, and I think that, we still have long way to go in terms of, seeing this consolidation play through. Thank you. The next question comes from the line of Brad Sills of Bank of America. You may proceed. Wonderful. Thanks for taking my question. Great start to the year here. I wanted to ask about Operations Hub. Yamini, you called it out as an area of strength. We're certainly hearing that from the channel. Would love to get your perspective. To me, this seems like the platform. You're running, you know, two or more Hubs. You need the glue to automate workflow across different Hubs using Operations Hubs. Is that why you're starting to see the success now with Operations Hub? In other words, you're getting to the point where customers are running, you know, more customers are running two or more Hubs, they need that glue. Just any color on, you know, what's driving that Operations Hub strength. I love this question, Brad. You actually gave the answer. You hit it on the head. It is that we are seeing a macro-driven front office unification. I also think that Operations Hub is like the perfect glue that brings together, you know, marketing, sales, other hubs, but gives the value, right? I mean, if you really think about what it does, it brings data from multiple sources, it's able to automate, like, workflows, and deliver better insights from just more sophisticated data sets. You hit the nail on the head in terms of why Operations Hub is seeing, you know, traction. Maybe a couple more points of color in terms of how our product efforts as well as go-to-market efforts have been in this area. We have expanded value for our customers, particularly around data quality. Late last year, we launched some major updates to Operations Hub capability, particularly around data quality and portability. You may remember us, you know, talking about Data Quality Command Center. That has been a pretty big hit with our Pro and Enterprise customers. In addition to that, we've also ramped up our own enablement efforts around adv anced capabilities. Selling technical products like data warehouse connectors and custom code actions is always difficult. By the way, custom code actions in workflows is, like, one of my absolute favorite new features in Ops Hub. So much value for customers. One of the things that we have done is, like, continue to enable our direct teams and partners to showcase the value of these sophisticated features. It's still super early innings in terms of Operations Hub, but it's on an exciting path, and I'm very happy with the momentum that we saw in Q1. Thank you. The next question is from the line of Alex Zukin of Wolfe Research. You may proceed. Hey, guys. This is Ryan on for Alex. Thanks for taking the question, congrats on a great quarter. My question is around retention. At 104% this quarter, it did decelerate faster than last quarter. With the environment still tough, what's your level of confidence that it can stay above 100%? If that is the expectation, how are you thinking about when it could normalize? Thanks. Yes. Thanks very much for the question. I think we've talked about this in the past. There's really two types of retention or two pieces of retention that we pay a lot of attention to internally. Gross retention that we refer to as customer dollar, and net revenue retention. Customer dollar retention, we continue to see general stability in customer dollar retention in the high 80s. We expect that gross retention is gonna hang in that zone for the rest of 2023. On the net revenue retention side, you are right, we did see a step-down of 3 points from Q4 into Q1. We're seeing that step down across all the same reasons that we've been talking about for the last few quarters. Okay? There is a pressure that we are seeing from our customers really optimizing their spend of HubSpot that is particularly notable in contacts and seats. We are also seeing some of our multi-portal customers now leveraging some of the up-market features to consolidate their portals in HubSpot. We are seeing customers upgrading seats and contacts at a slower rate than we have in the past. We think that we're gonna continue to see those pressures going into Q2. Where we think that we're gonna see some balance is a couple of other trends. We continue to see solid trends in upgrading. You see the volumes from starter into professional, you know, pretty consistent upgrade rates. We're seeing a bit of benefit from some of our recent pricing adjustments. That in combination with the solid gross retention really in that high eighties is what gives us confidence that we can retain net revenue retention above 100 for 2023. Now, we still believe that 110 is the right benchmark for us in terms of net revenue retention over the long term, but that's gonna require a more normal macro environment. Thank you. The next question comes from Ken Wong of Oppenheimer. You may proceed. Great. Thanks for taking my question. This one's geared towards you, Kate. I believe last quarter you characterized the macro environment as kinda not better but not worse. As you exit Q1, I guess, what's the right thinking in terms of what's baked into the outlook? Yeah, thanks for the question. You know, I tried to share in my prepared remarks a bit of color around just that. The external environment really does remain difficult, and we assume that it remains difficult throughout 2023. That said, you know, as you know, we approach guidance in a very consistent way. We did the same thing in Q1 and really tried to set guidance that contemplates, you know, a whole variety of scenarios. Our baseline assumption is that the remainder of 2023 feels like Q1. It feels like the back half of last year. You know, it's still early in the year, and the external environment has been really volatile. FX has been very volatile, and we wanna deliver against guidance with that baseline assumption or even if things get a little bit worse. Thank you. The next question comes from the line of Michael Turrin of Wells Fargo. You may proceed. Hey there. Thanks. Appreciate you taking the question. Look, there are so many good big picture questions I'd like to ask, but I'll go into a metrics question instead because it's something we're getting some questions on. There are some moving pieces in terms of currency with respect to the results and the change in assumptions on the guide. If we look at the Q1 number and the change in currency for the rest of the year, it looks like the second half constant currency assumptions for revenue might actually come down a touch on a constant currency basis. I just wanna understand if that interpretation is accurate, and maybe just help us split out the currency movements versus just any fundamental change in what you're thinking through and contemplating with the rest of your guidance. Obviously, great job across the board on the Q1 results. Just looking for some clarity there. Thanks. Yeah. Thank you. You know, we're happy with the execution in Q1 despite the challenging macro. You know, as you point out, we raised the full year by the full amount of the Q1 beat, which I think does speak to the confidence that we have in the business. As you heard from both Yamini and I, the macro remains challenging. It's very volatile, including FX. We're not out of the woods yet, on top of that, we're still early in the year. We took all of this into account when we set the guidance for the year. You know, our philosophy on guidance remains the same. You know, we're aiming to put out guidance that we have a high degree of confidence in being able to achieve across a variety of scenarios. Thank you. The next question comes from Brian Peterson of Raymond James. You may proceed. Thanks for taking the question, and congrats on the strong quarter. I wanted to unpack what's driving the average revenue per customer higher. I know we kinda hit on that a little bit, but it's just amazing to see the net adds, and that figure's still up 3% year-over-year. Is the cross-sell sales cycles in the enterprise, are those actually getting better? The vendor consolidation or ROI for customers? You know, I'd love to just maybe understand what's happening up market for that figure to be growing 3%. Yeah. Thank you, again, for that one. There's really two things happening in ASRPC. All right? We continue to see multi-hub adoption broadly across our professional and enterprise customers, and that is offset by sort of the volume that we are seeing at the low end. If we just look at professional and enterprise, ASRPC continued to be up double digits in constant currency in Q1. It's the headwind from the volume of starter customers that is moving the ASRPC from that sort of double digit level to 6% in constant currency. Thank you. The next question comes from Arjun Bhatia of William Blair. You may proceed. Perfect. Thanks for taking the questions. Kate, maybe another one from you for you. I'm just trying to reconcile a little bit the comment about upgrades still happening, right, customers wanting more capabilities, more features, versus there still being some headwinds around optimization, seats, contacts, et cetera. Is there any kind of characteristics amongst those customers that you can point out that maybe we could hang on to, where you're seeing a specific vertical or a specific customer size do one versus the other? Yeah. I mean, it's a good question. These are not new trends for us. We've been seeing the same type of pressure and dynamics within our customer base over the last quarters. What we are seeing is a focused initiative to get the most out of their spend with HubSpot, but I don't believe we're alone in that. That, for us, comes in the form of them cleaning up their contacts, you know, cleaning up unused seats. It comes in the fact in consolidating when they're on multiple portals, consolidating using all the features that they have signed up for. That doesn't mean that our customers aren't continuing to use more of our products, but what we're seeing more and more is that as an offset, they're doing the cleanup in conjunction with the expansion. Thank you. The next question comes from Parker Lane of Stifel. You may proceed. Yeah. Thanks for taking the question. Circling back to the partner ecosystem, Yamini, I know you made some changes there earlier this year around compensation levels with partners and what they need to do to continue, you know, their relationship financially with HubSpot. You want them selling and servicing partners. Do you expect there's gonna be some consolidation in that channel in 2023, 2024? You know, what exactly are you guys doing behind the scenes to upskill those partners to get them in a position to be more effectively servicing the customer base? Thanks. Hey, Parker. Yeah, thanks a lot for the question. I think, maybe two parts there. I'll first start with the changes that we made and then answer the second part of the question. I'm really pleased with the response from the partner channel. Since the announcement, and even before the announcement, I've spent a lot of time talking to our, you know, partners, Elite Diamond partners, in terms of the change. Just to step back, we really looked at our partner commissions, and we are incentivizing our partners to have more consistent engagement with our customers, to sell and cross-sell more with us, and to do more multi-hub. The partners understand the why behind the change, and we're also giving partners a lot of time to be able to adapt, which they appreciate. At the end of the day, the changes that we made are going to be a win for customers and therefore good for partners as well as HubSpot. At the margin, we're actually seeing some of the partners increase their engagement with our customers as a result of this. The second part of the question is, do we think it's going to lead to some level of consolidation? How do we enable the partners? I think it will. It's not necessarily because of the commissions changes, but it's because we are moving up market, and we are guiding our partners to be able to scale to better serve the needs of up-market customers. As we do that, we are definitely beginning to notice that partners are either already consolidating or figuring out ways to scale, and therefore, you know, the percentage from Elite partners, from top partners is probably going to increase as we continue the transition to, you know, driving multi-hub as well as serving the needs of up-market customers. Our focus on partner enablement is really high. We've been really on this journey to enroll them to drive more certifications. There's an upcoming certification week that's coming up for partners, and we're putting a lot behind that, and we'll continue to drive the level of technical capabilities within the partner ecosystem. Overall, really happy with the response and where our partner ecosystem is going. Thank you. The next question comes from Terry Tillman of Truist. You may proceed. Great. Thanks so much for taking the question, congrats on the quarter. This is Bobby Dee for Terry. Curious what you're seeing globally in terms of strength or weakness across geographies. Thanks. Hey, Bobby. Thanks a lot for that. Overall, fairly consistent in terms of what we're seeing in North America as well as our international markets. As Kate just mentioned, international is about 46% of our overall base and growing, you know, reasonably well. There is not that much of a divergence in terms of the trends. You know, what we see in terms of the longer deal cycles and more decision-makers is across North America and international. What we see in terms of the reasons why our customers want, you know, HubSpot is also consistent. We deliver, you know, quick time to value, which is what is important across all customers, and most of the time, value is in a matter of weeks, not months or, you know, quarters. Customers really care about their costs, and they're consolidating with fewer platforms. We see a lot more platform consolidation and multi-hub conversations both in regional as well as international markets. There's kind of a high bar to action across all customers, but we are executing, in both markets with consistency. Thank you. The next question comes from the line of Michael Turits of KeyCorp. You may proceed. Hey. Thanks for the question. Great quarter. I wanted to ask about the move-up market and how you approach from the direct channel, the direct sales force perspective. This is a year in which you've been increasing margins, and you've had a RIF. What are you doing in terms of investing in the direct sales channel to try and drive more engagement, and how are you managing the costs on that? Thanks a lot for the question. Maybe I'll start with up-market and what we're doing with the sales team, and Kate, feel free to add in terms of the costs there. If we step back and think about why up-market is working and what is up-market for HubSpot, we're still very, very focused on the two to 2,000 employee segment. For us, up-market is the 200 to 2,000 employee segment. If we think about customers there, they care deeply about cost savings within this environment, and they care deeply about navigating the macro while driving resilient growth. HubSpot helps with both of those. We are powerful, you know, solution that's still very, very easy to use and easy to implement, and that's what is resonating within up-market. As we've thought about our own sales teams and internally driving the efficiency, we've talked about this, we are driving more data into the hands of our direct sales reps. We are arming them with the right kinds of total cost of ownership as well as value messaging. This is the tightest level of alignment I have seen between product, marketing, and sales in terms of the key messages that we are delivering. Our teams are very focused. I think, from an internal standpoint, systems, automation, messaging, alignment are all in favor of driving consistent execution there. Thank you. The next question comes from the line of Taylor McGinnis of UBS. You may proceed. Hi. Thanks so much for squeezing me in, and congrats on a really great quarter. The 1Q margin performance was really strong, particularly sequentially. Are you able to break that down and quantify the drivers of the uplift, like how much was from the restructuring or hiring and efficiencies in the business? Just to help us think about the future margin trajectory and the durability of the progress that we're seeing. Taylor, it was a really good question. The margin upside in Q1 versus our expectation is primarily related to the restructuring. Revenue came in a little bit better than expectations on some favorable FX rates. We frankly underestimated the impact the restructuring would have on our overall hiring plans, and it resulted in really a delay in returning to our regularly planned hiring cadence. That said, we're feeling really good about where we are now. What this means is we expect to sort of return to that normal seasonal pattern in our operating margins from this point on through 2023. Q2 margins are gonna decline slightly. It's a typical sequential pattern for us with annual merit increases and a return to the investment in hiring, as well as some hybrid connection. That said, we will expect that operating margins are going to expand through the back half of the year, with low double digits in Q3 and high teens in Q4, consistent with what we provided last quarter. Thank you. With that, we will conclude our time of question and answer. I would now like to hand the conference back over to Yamini Rangan, CEO, for any closing remarks. Thank you so much for all the engaged questions as well as the support. Look forward to connecting back again in a few months. Bye. With that, we will conclude today's call. Thank you for participating. You may now disconnect your line.