HubSpot, Inc. (HUBS) Earnings Call Transcript & Summary

Hi. Good afternoon, everybody. Thank you for joining us. With us for this session, I'm excited to say that we have Executive Chairman of HubSpot Brian Halligan; and new CEO, Yamini Rangan. Brian and Yamini, thank you both for joining us today. We're really excited to dig into the HubSpot story with you.

Thanks for having us.

Thank you for having us, Samad.

So Brian, I want to kick off with the big news, which is not new news anymore, but it's still the big news about the transition, and I know you discussed the reasoning on the decision on the 2Q call. So I'd like to ask the question in a slightly different way. Why did you feel this was the right moment in HubSpot's evolution to transition into the Executive Chair role and backfill the CEO role?

There were a lot of personal and professional reasons. The personal reasons, I've been working 80 hours a week for 15 years. And maybe it was time to crank that down to 45 or something more manageable as I'm getting older. On the professional side, the company got to $1 billion in revenue, 4,000 employees. It still feels like it's in the very early innings of growth. And I felt like maybe it was time for a CEO that actually seen that movie and is really good at that phase of a company's growth. And I kind of have always thought of myself as a starter. I'm a founder, I was a VC for a little while. I've always worked in start-ups and so I'm not super familiar with the playbook of $1 billion to $10 billion. And then combine that with the fact that while I was out, Yamini just did a fantastic job. She ran the company really well. She has respect to the team. She's a terrific leader. We literally didn't miss a beat. In fact, we probably beat faster while I was gone. So it became kind of an obvious decision we had a perfect candidate in there to do it. The timing was good sort of karmically for me personally and what was going on in my life. So we made the decision. So far so good. I think it's going really well. I still think and I wouldn't think of HubSpot as like, wow, this is -- the innovation phase is done. Lots more innovation coming. [ I'm really involved with ] that. Yamini is the CRM domain expert. She's implemented CRM many times, many different companies before, strongly opinionated about that stuff. The hubs we have are -- some are mature, some need a lot more maturing. There's more hubs coming. This is a company still in its very, very early innings, and I look forward to continue to work on this stuff for decades to come.

And maybe as a follow-up, what were you looking for in terms of the skill set and the attributes for the new CEO that would be additive to your own strengths?

I think someone who had operated at scale before and thinks about scale in a different way than I did. Someone with terrific leadership skills. Trying to marshal 5,000 employees and tens of thousands of partners and hundreds of thousands of customers and millions of users is not easy. You need someone very credible and compelling and thoughtful. That was a key piece. I wanted someone, obviously, who had domain expertise in this area and someone who's a cultural fit. HubSpot's got a super unique culture, as you know. From day 1, it's been a unique culture, and it's one of our core competitive advantages. And Yamini is additive to that culture. And so those were some of the things we were looking for. It wasn't a controversial decision, quite honestly. Like even before my accident, we had talked about -- the Board had talked about what happens if Brian gets hit by a bus? We had a meeting -- the -- hit-by-the-bus meeting. And we decided, if I get hit by a bus, Yamini would take over. I didn't get hit by a bus, but I almost died in a snowmobile. It's pretty close. And so we had already sort of pre-decided that she was going to take over if something weird happened to me, and something very weird did happen to me.

Come on, Brian, you know what they say about manifesting things. Don't use that example next time. Next time, just say what if Brian...

True. That's the last time I did that.

If Brian wants to live a long, healthy life as Executive Chairman, who will take over. Now Yamini, maybe switching gears, as you think about your own prior experience with high-velocity consumer and mission-critical enterprise companies. You've been at SAP, Workday and Dropbox, 3 very different types of companies. Can you talk about your experience and how that fits into your vision for HubSpot?

Yes. Very, very different companies. Samad, like my career arc has really gone from being an engineer to salesperson to a customer-centric executive. And I think each of those pieces have added to what makes it very, very exciting for me to be at HubSpot and drive the vision for the next chapter. I think starting as an engineer, I'll tell you like it was very, very different, but the one thing that I took away from all of that experience is first principles thinking. It's a systemt thinking, it's first principles thinking, and that's what I focus on right now. At the stage of growth that HubSpot is in, there, we could be making a lot of decisions, but we really bring it down to what are the first principles that we make those decisions on. I spent a decade of my career across Siebel and SAP in value sales. And that was the original CRM experience. And that decade was all about being in front of customers, talking to them about CRM, understanding buyer needs, buyer decision-making and patterns that it forms when you're in front of customers for a very long time. And that is my passion, deeply understanding buyer trends, buyer behavior, why people buy and how they buy. That continues to be just exceptionally important, and that's obviously part of why I'm very excited about HubSpot. Now I think I would also say that I spent a decade across working in Dropbox. You mentioned very different kinds of organizations, one enterprise, one SMB, one very much of a sales-driven motion, another one a product-driven motion. And both of those were about hyper-scaling through a period of growth. And what that taught me is how do you look around corners? How do you really understand patterns and pattern matching is like a very important skill and that's something that I think about. Now across all of those, it comes down to the basics, Samad. Who is our customer? Who do they care about? How do they buy? How do they leverage? How can they become successful? And that's why I was really excited to talk to Brian a couple of years ago when we first started talking, and that's what is so exciting about our future going forward.

Great. That's a great overview. And then how should we think maybe your top 2 priorities for the short term? And just how do you measure success over the long term?

Look, I've been here at the company for now almost 2 years and worked very closely with Brian and the leadership team. We have a multiyear strategy, and that strategy is working. And part of -- the first part of the strategy and the priority is to build a best-in-class CRM suite. That's the journey that we've been. And that means we will continue to expand into new hubs like we have done with the operations hub that we launched this year as well as add depth in existing hubs like marketing, sales, CMS, which we have done. And there is just so much more to do. I think Brian talked about how this is very, very early innings. And I think our strategic priority is to make a dent in those early innings and continue to expand in terms of product portfolio as well as drive product innovation. So that's priority #1. I'd say the second part of the strategy is really fueling all of our segments. Samad, you've been following the company for a while. You know that our sweet spot is that 20 to 200. That is the piece of our segmentation where the product-market fit is exceptional. The go-to-market is fit is exceptional. We have a very, very solid installed base. And last year, when we looked at it, we said, you know what, we have the opportunity now to not just take where we are in the sweet spot, but really invest in product-led growth in the lower end of the segment, which is the 1 to 20 segment, and drive product-led growth there, as well as go upmarket because our product is great. Our product is now a fantastic fit for that corporate segment, which is the 200 to 2,000 customer segment. And so our focus has been to really invest, drive growth in all of the segments so that we can continue to fuel growth. So those are the 2 top priorities. It's actually been working and we'll continue to execute on those over the next few years.

Great. Maybe let's switch gears and let's talk about the business itself. Hubs just posted the best growth in years despite being much, much larger than, as you mentioned, when we first started covering and even for itself. But Brian, if I think back to March 2020, you had talked about it even then, right? If I think about the earnings call before COVID, the business was firing in all cylinders, the things are better than ever. But are you surprised at the strength of the tailwinds you've seen over the last, call it, 18 or so months? And maybe talk a little bit about what you learned about HubSpot as you navigated an unprecedented period of time.

That's a great question. So 2019 was a big year for us, like we reengineered the way we built products that year and made some core investments. And so we were -- coming out of late 2019 and coming into early 2020, very, very bullish on the product pipeline, our NPS was going up for our customers. We're just feeling really good. So we thought we're going to have a great 2020. And then wham, the COVID happened. And it turned out to -- and I remember at that time, it's like, well, what's the shape? Is it going to be a W, a V, a swoosh? It turned out to be a V. And coming out of it, I think -- we're not out of it yet, but I think 2 things are going. I think we are getting a little bit of a tailwind. We certainly got a tailwind initially like last summer, somewhere in 2020 on that just because people had to digitize everything. But I think at this point, it's more just the execution. I think the team has executed well, the product has gotten broader and better, the quality is better. Our customers are much, much happier. Our Net Promoter Scores are really high. Our community is really rich, our partner programs cranking like the whole suite has kind of come together really, really nicely. So if you asked me I think last July, we had a good last July, what was going on. I would say, in July 2020, I would say, well, we got this huge COVID tailwind, it's great. And yes, we're executing well. If you ask me today, why are you growing so fast? I think it's mostly -- I think the company has just executed really, really well. Give Yamini a ton of credit for it. But I think there's a little bit of COVID tailwind still there, but I think this is a really good company that's got real legs, that's going to grow fast for a long period of time. It's got a very unique approach to the market. The reason people buy from us, we compete with Salesforce.com all day long, all day long. They're our main competitor, and we're very unique. We crafted this thing by hand, in-house, and it's beautiful. It's an Apple-like experience, and it's very different and unique to the way Oracle built their product and Adobe and Salesforce. So I think our strategy, it's a patient strategy. I think that strategy is paying off.

It's definitely working. And Yamini, maybe let's talk about that long-term growth. You played a key role in guiding the go-to-market motion during the last several years and then also as interim CEO. I know the company doesn't want to talk about kind of point estimate growth rates or revenue bogeys. But can you talk more broadly about the primary levers for achieving the outsized growth that you have relative to your peer group in this space?

Yes. And Samad, yes, we don't talk about revenue bogeys because we are -- as a company, we are very mission-oriented and the mission for the organization is really to help millions of organizations grow better. And we are keenly focused on that mission. In terms of the growth drivers, it comes down to product innovation. If you look at where the market is and the acceleration that's happening within the market, this got started before COVID, right? The transition to -- the customer age started way before COVID and there's a whole need for buyers to have all of the information as they interface with the company, all the way from a website to marketing to sales and so on. And so that whole acceleration is -- we understand it, we understand that we are, at this moment, a very unique value proposition to provide for all of our customers. And if you think about the growth levers, it goes back to product innovation. That's a primary lever for us, continuing to go deep as well as go broad in terms of serving the needs of our customers. And that does multiple things. One is that it unlocks a huge multi-hub and sweet opportunity for us over the next few years. As you know, the percentage of 1, 2 hubs system is there, but it means that we have a lot more opportunity for us to go and execute on the multi-hub journey as well as the sweet journey within our customer base, and that's driven by product innovation. So we focus a lot on that primary lever. And the second lever from a go-to-market perspective is really unlocking and really optimizing, fine-tuning every one of our segments, from the VSMB, SMB segment to mid-market to the corporate segment. And we make a ton of investments in each of those segments so that the productivity in each of those segments go up. And so those are growth levers. Geographical expansion, right? We focus on 7 markets. Those 7 markets are really good, great growth opportunities for us, and we think that we'll continue to expand in terms of the markets over a period of time. And so all of those are primary levers. We really are right solution given the market needs and the customer needs at this moment.

Right. Let's talk about that innovation. One of your newest hubs is Operations Hub. We're several months into the launch. Can you describe how it's performed into the product cycle? And any product use cases you can give would be helpful just to see how customers are using it and getting value from it.

Yes. Look, Operations Hub is like super fun, lots of good positive feedback from the partner community as well as the customers. And if you step back, Samad, we've focused our primary hubs on marketing persona, sales persona and the service persona. That makes a lot of sense. But in most organizations, there is an even more critical persona that fuels the growth, that fuels the flywheel, and that's the revenue operations. Some companies call it sales ops, some call it marketing ops, some call it business operations. But these revenue operations teams are critical to the success of growth within an organization. That's why we really focused on solving the problems for that persona. And if you step back and think about it, Operations Hub does 3 things really well. First, it helps customers connect to the tech stacks. Tech stacks are expanding, needs to be connected. Second, Operations Hub really helps clean data. While it sounds not so great, it's the most critical thing that is needed because you have multiple data sources and you need to depend on your clean source of data. And third, it really drives automation. And that's exactly what Operations Hub does. And one of the features that since our launch has become exceptionally critical for driving adoption is programmable automation. And the simplest way of explaining it is, it's super power CRM, it just really helps automate workflows and any workflows, right? So an example is a moving company that can pull information from a Zillow API on houses that got sold in a particular neighborhood, bringing it into the CRM, completely customizing marketing outreach based on that information and sending it out. That entire thing can be automated and that's exactly what one of our customers is doing. Another example is attribution and doing advanced attribution and automation. One of our customers, tech company in Boston, replaced their entire stack with HubSpot. So they're using HubSpot for CRM. And they adopted Operations Hub so that they can bring custom object like a live event. They have a number of live events into the deal object, which is the core. And now they're able to say who attended which event that led to the next level of the deal movement. And so they're able to get to that level of specificity in terms of revenue attribution. So really powerful. We're pretty excited about the opportunity ahead, but we're also seeing customers drive a lot more power because of Operations Hub.

Very helpful. And then maybe on the go-to-market front, Hubs has always done well with its own INBOUND model. At last year's Analyst Day, you mentioned investing more heavily in the upmarket, so that 200 to 2,000 enterprise segment. What's the progress been on the enterprise product front? And what investments have been made across go-to-market to help move the needle on win rates across this segment?

Yes. I mean, great question. I think we're a great solution for scaling organizations, and we've invested pretty heavily. On the product side, a ton of innovation and power has gone into the product. As you know, Marketing Hub, that we launched last year, has been a pretty big driver of growth for us. And that relaunch went really well. We added account-based marketing, revenue attributions reporting, advanced A/B testing, a lot of the powerful features that our customers have been asking us for a while. Similarly, Sales Hub, that we relaunched at INBOUND last year, powerful features. Custom objects has been something that our customers have been asking for a while. More advanced CPQ. This year, in Q1, we added Conversation Intelligence. Now that in and of itself is a powerful category of -- within the tech stack of companies. And so each of those investments that we have made from our product has made it much more powerful. On the go-to-market side, one of the things we really focus on, Samad, is are we aligned as a company. If product is innovating, is go-to-market aligned to be able to execute? And I think that's where we focused on last year. Last year, we made a number of investments in go-to-market. We brought a new leader. We changed the profile of the reps that we were bringing on board for that particular segment. We did a ton of sales process and enablement there. And this year, we have continued to make investments, kind of everything aimed at driving productivity within the segment, which is bringing in solution engineers for much more technical products and technical resources, investing in a deal [ depth ]. All of those things that are critical to go upmarket, we've been making those investments. And you will see us continue to do that as we grow in the future.

Very helpful. So Brian, for as long as I can remember, you've talked about establishing HubSpot as an ecosystem. And to that end, the company recently hosted its World Certification Week. What has Hubs been doing to build out the ecosystem and attract more third-party app developers that are integrating into the HubSpot platform?

Yes, a lot. There's 2 types of partners we have. One are kind of solution partners, and that grew up through sort of our agency partner program. And that is a very large group now, like we have many thousands of partners that go in and sell HubSpot, implement HubSpot. And that's going great. And then there's this second group that are either connecting their application into our HubSpot or building kind of a bespoke application on HubSpot using our APIs. And both of those partner programs are cranking, going well. I would say that Solution Partner Program is well ahead of the software developer partner program just because we've been at it for 14 years. But that second program is going well. What's interesting that's going on in the industry is there were sort of 2 types of developers historically. There was a website developer that knew HTML and CSS. And then there was a developer that knew Java or Python or it's like sort of a hardcore developer that use our APIs. JavaScript sort of changed the game and so these kind of personas are changing. And it's kind of beneficial for HubSpot because we're really the only CRM that includes a content management system where you're building unique web presence with HubSpot that someone can interact with and get information from and have real connected customer experience through. So I think we're sort of uniquely positioned over the next couple of years to really crank on the platform and become a magnet for developers to create awesome unique experiences on top of HubSpot.

They're flashing the time card at me, but I'm going to ask you both a couple of questions anyways. This is a rare opportunity to get both of you together. So maybe, Yamini, for you, with INBOUND around the corner, any sneak peeks that investors can expect on INBOUND?

It's going to be great. Yes, we're heads down final stretch the next 3 weeks, and it's 3 days of content. It's going to be virtual. We'll hear from Brian and myself as well as Dharmesh in terms of where the CRM market and the industry is going, what we're seeing in terms of buyer trends. We have some great product spotlight and obviously a lot of thought leadership. So as exciting as always. And I look forward to meeting a lot of the analysts and investors at our Analyst Day as well.

Great. Brian, and my last question for you is the company hasn't been very acquisitive, but you're much bigger now than ever and I think bigger and faster than anybody could have imagined in the short term. So how should we think about the M&A strategy from your perspective going forward?

Ironically, I think the reason we've grown bigger and faster is because we haven't acquired. If you look at the history of CRM, all the way back from Siebel and Oracle to what Adobe is up to, to what Salesforce is up to, there's a tried-and-true playbook of you build an SFA or you build a piece of the puzzle and then you tack on other pieces of the puzzle through big acquisitions. And you can build something robust. But man, it's hard. It's just hard to implement. It's hard to use, it's painful, and I think the modern company, the modern 1,000-person company doesn't want to go through that pain. They all use consumer products in their own life and [ they're ] come to work, and they expect their work products to be really easy to use. So we've taken the very opposite approach that everyone has told us to do, every investment banker, every outside adviser to start cobbling together as CRM. We said, "No, we're going to bet on ourselves and we're going to craft the world's best CRM and you're likely to see us double down on that. Now having said that, we have done a couple of acquisitions. We bought a little company called PieSync, and Yamini referred to PieSync's capability earlier. We bought PieSync, they're very good at this integration game, wasn't a game we were good at. And that PieSync team basically rebuilt their capability and is the engine behind Ops Hub. So hopefully, we'll be able to do some more of that stuff. We also bought The Hustle. Underrated acquisition, there wasn't a lot of written about it, but that's working out really well for us. There's an amazing community there. And so we'll likely do those types of deals and stick with our crafted versus cobbled core CRM strategy.

Brian and Yamini, I promise this is a quick one, but it's a curveball for you. You may not ever do a conference with me again. So for years, I've been subtly slipping in a Grateful Dead songs as note titles because Brian is a big Grateful Dead fan. So I'm going to put you on the spot. I'm going to...

He's still happy.

I've been putting these Easter eggs in the note titles, so I'm going to put you on the spot and ask you which -- what's your favorite band? So I know for my sneaky note titles going forward.

Queen. Freddie Mercury, all-time hero, Queen. I'm a wannabe drummer, so I try my best to try and hit some of those notes. And yes, please do that.

Okay. I feel like Chuck may have prepared you for that, and I'm going to get mad at him later off-line. So -- but no, thank you both so much for joining us. Congratulations, Yamini, on your new role, Brian on the transition. We're really excited to have you both here and wish you tons of success going forward and really appreciate your thoughts and time today.

Thank you, sir.

Thank you so much.

All right. Take care.