HUBS - NYSE

Good afternoon and welcome to the HubSpot's Q4 2024 Earnings Call. My name is Andrew and I'll be your operator today. At this time, all participant lines are in listen-only mode and there will be an opportunity for questions and answers after management's prepared remarks. [Operator Instructions] I would now like to hand the conference over to Senior Director of Investor Relations, Ryan Burkart. Please go ahead.

Thanks, operator. Good afternoon and welcome to HubSpot's fourth quarter and fiscal year 2024 earnings conference call. Today we'll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Yamini Rangan, our Chief Executive Officer, Dharmesh Shah, our Co-Founder and CTO, and Kate Bueker, our Chief Financial Officer. Before we start, I'd like to draw your attention to the safe harbor statement included in today's press release. During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical fact are forward-looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures, expected growth, FX movement, and business outlook, including our financial guidance for the fourth fiscal quarter and full year 2024. 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-K, 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, such as defined by Regulation G, the GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between such measures can be found within our fourth quarter and fiscal year 2024 earnings press release in the Investor Relations section of our website. Now it's my pleasure to turn the call over to HubSpot's Chief Executive Officer, Yamini Rangan. Yamini?

Thank you, Ryan, and welcome everyone to the call. I'll begin with our Q4 and 2024 results and the consistent themes driving those results. Then I want to switch gears and highlight our strong momentum in AI, how we are positioned to lead and win with AI, and the multiple growth levers we are activating to drive long-term success. Let's dive in. We have a solid finish to 2024, highlighting our leadership as a platform company. Q4 revenue grew 20% year-over-year [technical difficulty] 50% in 2025. This has enabled us to grow our customer base without adding more support staff, freeing our team to focus on solving more complex issues. Similarly, our AI sales bot is resolving over 80% of website chat inquiries, making our chat team more efficient while delivering great customer experiences. And we're transforming sales prospecting. AI-powered and automated communications generated over 10,000 meetings for our sales teams in Q4 alone. AI is helping us work smarter, serve customers better, and lead by example. And this is just the beginning of an exciting journey of transformation with AI. Okay, our AI efforts are gaining momentum. But the bigger question is, how will HubSpot lead and win in an AI-first future? The answer is clear. We will win for three key reasons. First, we unify structured and unstructured data. Second, we provide complete context across the entire customer journey. And three, we have the industry's most active AI agent ecosystem, connecting AI builders and users. First, agents rely on great data to succeed, and HubSpot is uniquely positioned here. The need for structured data, customer, company contact records, and the need for access and reporting on that data does not go away. This is where HubSpot already excels. But agents also need unstructured data, the 80% of data in calls, emails, and transcripts, which reveals deeper insights into customer needs. So for example, imagine an agent creating a list of sales calls that made reference to a specific competitor. That is using unstructured data. Now, you can filter that list and only include the deals that were won. That's using structured data. Now, you can use the transcripts and summarize the key points that seem to be most effective in winning against that competitor. The combination of structured and unstructured data is a game changer, and our acquisition of Frame.AI takes this to a whole new level by doing this in real time. A second, AI agents need more than just data. They need context. Siloed agents that solve task-specific problems will fall short, just like siloed point applications did. Now, HubSpot's all-in-one approach, unifying a system of record with data, a system of engagement with hubs, and a system of action with AI-powered execution ensures that agents have the context they need across the entire customer journey. Finally, we've been investing in creating a vibrant agent ecosystem. We think the future is about hybrid teams consisting of both people and AI agents working together. To realize this vision, we've been incubating Agent.AI, a project to create a network of AI agents. We've grown the user base of Agent.AI over 10x in six months from 50,000 users at inbound to over 500,000 users, and empowered over 5,000 builders to create agents with our low-code tools. By combining the best structured and unstructured data, providing complete context about the customer, and following an ecosystem-centric approach, we are helping our customers seamlessly shift to the age of AI. Okay, let me wrap up by highlighting our strategy and the levers for growth that will drive long-term success. We are entering this year with more clarity on strategy, more alignment on outcomes, and more urgency in execution than ever before. We will double down on our customer focus and make our products easy, fast, unified, and AI-first. On the product side, you can expect to see us make meaningful progress with Breeze Copilot, Agents, and the AI platform layer that will power all AI offerings. We will continue to build deeper up-market functionality while making onboarding and everboarding easier within our product. We are excited to unveil a host of new capabilities at our spring spotlight in April and later at Inbound in September. Now, in terms of growth, we will focus on four key levers. Rep-driven growth, the targeted headcount investments that match the opportunity. Improved retention and downgrade, driven by more product usage, building on the progress we made in 2024…

Thank you, Ryan. [Operator Instructions] --

Hold on operator. We had some technical difficulties at the start and I guess the webcast didn't start on time. So some folks missed some of the beginning comments. So we're going turn it over to Yamini to give us her comments again. So she's going to start from the top right now. So I'll turn it over to Yamini now. Yamini?

Okay, thank you, Ryan. And sorry about the technical difficulties. We'll start the call now. Thanks and welcome everyone to the call. I'll begin with our Q4 and 2024 results and the consistent themes driving those results. Then I want to switch gears and highlight our strong momentum in AI, how we're positioned to lead and win with AI and the multiple growth levers we are activating to drive long-term success. Let's dive in. We had a solid finish to 2024. Highlighting our leadership as a platform company. Q4 revenue grew 20% year-over-year in constant currency and full year 2024 revenue grew 21% in constant currency. We delivered another quarter of standout operating profit growth with operating margin of 19% in Q4 and 17.5% for the full year. Up 200 basis points year-over-year. We're consistently balancing growth and profitability as we scale. Our customer base expanded to 248,000 customers globally with over 9,800 net customer additions in the quarter. These results underscore the trust our customers have in our platform as they consolidate on HubSpot and rely on our innovation to scale in any environment. Now beyond the results, what truly excites me are the consistent themes driving our performance. Our momentum in 2024 was driven by growing multi-hub adoption, strong up-market and down-market success, improvements in retention and product innovation. 2024 was a defining year. One that cemented our position as a leading customer platform for scaling companies and marked a transformative leap in our evolution as an AI first platform. We made significant strides as a unified customer platform with multi-hub adoption reaching new heights. Over 35% of our pro plus customers by ARR now use four or more hubs up 7% year over year, clear proof of the value of our unified customer platform. In the up-market segment, momentum was driven by product innovation, growing awareness of HubSpot as a platform and strong execution with partners in our ecosystem. Large deals grew 21% year over year driven by key product advancements like sensitive data support, UI extensions and CRM development tools for deeper customization and enterprise grade service hub capabilities that resonate with larger teams. Awareness of HubSpot as a customer platform improved by seven points globally and our partner ecosystem is driving success with co-selling increasing by 68% year-over-year. In the down-market segment, the pricing model change we introduced combined with AI innovation laid a strong foundation for growth. By lowering initial prices and removing seat minimum, we made it easier for teams to start and grow with HubSpot, accelerating customer acquisition and driving seat upgrades. We also improved the overall experience for starter customers with better onboarding and everboarding. And finally, retention was a consistent theme in 2024. Our focused efforts across product and customer success teams led to increased usage, fewer downgrades and reduced churn. It's really exciting to see customers finding lasting value with HubSpot and the consistent themes driving our results demonstrates our momentum as a platform. Okay, let's switch gears and talk about AI. 2024 was a transformative year for HubSpot as we re-imagined our product, our platform and our entire company with AI. We are committed to becoming the AI first customer platform by embedding AI into every hub and across the entire platform. To deliver on this vision, we launched a Co-Pilot that gives every customer facing employee a digital assistant to work with, AI agents that handle context sensitive tasks out of the box and 80 plus AI features embedded within our hubs. Content Hub, an AI first hub launched in early 2024 was the fastest growing hub of the year. It's attached rate to marketing hub increased from 13% at the start of the year to 54% in December, driven by the success of content remix, our most popular AI feature. We've continued to innovate with new capabilities like multi-input remix, podcast and case study remix, enabling customers to create impactful content faster than ever. Service Hub is seeing strong up-market growth driven by AI powered enterprise features. New Service Hub enterprise portals grew 100% quarter-over-quarter in Q4, and customers with 100 plus seats increased 54% year-over-year. New help desk and customer success workspaces with AI features like call summaries, ticket summaries and reply recommendations are seeing strong adoption and delivering value to larger teams. Breeze Copilot is beginning to crank. We now have over 75,000 weekly active users on Copilot. Our customers are adopting Copilot because it's easy to use and in the flow of their work. Unique advantages with HubSpot. Breeze agents are beginning to deliver value for customers, especially customer agent and content agent. Customer agent is now available to all Service Hub Pro plus customers with over 1,340 customers using it to achieve an average resolution rate of 42%. We're still in early days, but customers are beginning to see value and as one of our customers, transcribe has shared, implementing the customer agent has been transformative. What used to be manual, time intensive process is now streamlined and efficient. Content agent is also gaining traction with some of our most active users leveraging it to publish over 80% of their blogs. This is helping businesses optimize workflows and produce more effective content with less effort. While it's still early days for Breeze Copilot agents and our embedded AI features, the momentum we built in 2024 with AI is exciting. What is equally exciting is how we are using AI to transform the way we work internally at HubSpot. By experimenting boldly with AI, we're showing our customers what's possible with AI. Our AI support bot now handles over 35% of support tickets while maintaining high customer satisfaction and we're working to get this to over 50% in 2025. This has enabled us to grow our customer base without adding more support staff, freeing our team to focus on solving more complex issues. Similarly, our AI sales bot is resolving over 80% of website chat inquiries, making our chat teams more efficient while delivering great customer experiences. And we're transforming sales prospecting. AI powered and automated communications generated over 10,000 meetings for our sales teams in Q4 alone. AI is helping us work smarter, serve customers better and lead by example. And this is just the beginning of an exciting journey of transformation with AI. Okay, our AI efforts are gaining momentum but the bigger question is, how will HubSpot lead and win in an AI-first future? The answer is clear. We will win for three key reasons. First, we unify structure and unstructured data. Second, we provide complete context across the entire customer journey. And third, we have the industry's most active AI agent ecosystem connecting AI builders and users. First, agents rely on great data to succeed and HubSpot is uniquely positioned here. The need for structured data like customer, company, contact records and the need for access and reporting on the data does not go away. This is where HubSpot already excels. But agents also need unstructured data. The 80% of data in calls, emails and transcripts which reveal deeper insights into customer needs. For example, imagine an agent creating a list of calls that made a reference to a specific competitor. Well, that's using unstructured data. Now you can filter that list and only include the deals that were won. That is using structured data. Now you can use the transcripts and summarize the key points that seem to be the most effective in winning against that competitor. The combination of structured and unstructured data is a game changer and our acquisition of Frame.AI takes this to a whole new level by doing it in real time. Second, AI agents need more than just data. They need context. Siloed agents that solve task specific problems will fall short just like siloed point applications did. HubSpot's all on one approach, unifying a system of record with data, a system of engagement with hubs, and a system of action with AI-powered execution ensures that agents have the context they need across the entire customer journey. Finally, we have been investing in creating a vibrant agent ecosystem. We think the future is about hybrid teams consisting of both people and AI agents working together. To realize this vision, we've been incubating Agent.AI, a project to create a network of AI agents. We've grown the user base of Agent.AI over 10X in six months, from 50,000 users at inbound to over 500,000 users, and empowered over 5,000 builders to create agents with our low-code tool. By combining the best structured and unstructured data, providing complete context about the customer, and following an ecosystem-centric approach, we are helping our customers seamlessly shift to the age of AI. Okay, let me wrap by highlighting our strategy and the levers for growth that will drive long-term success. We are entering this year with more clarity on strategy, more alignment on outcomes, and more urgency in execution than ever before. We will double down on our customer focus and make our products easy, fast, unified, and AI-first. On the product side, you can expect to see us make meaningful progress with Breeze Copilots, Breeze Agents, and the AI platform layer that will power all AI offerings. We will continue to build deeper up-market functionality while making onboarding and everboarding easier within our product. We are excited to unveil a host of new capabilities at our spring spotlight in April and later at inbound in September. Now in terms of growth, we will focus on four key levers. Rep-driven growth with targeted headcount investments that match the opportunity. Improved retention and downgrades driven by more product usage, building on the progress we made in 2024. Migration to new pricing, creating tailwinds from seat upgrades and renewal price lifts post-migration. And ongoing product innovation with AI, which will be another tailwind for customer acquisition and expansion. Together, these levers provide a clear and sustainable path for long-term growth. With that, I'll hand it over to our CFO, Kate Bueker, to walk you through our financial and operating results. Kate?

Thanks, Yamini. Let's turn to our fourth quarter and full year 2024 financial results. Full year 2024 revenue grew 21% year-over-year in both constant currency and as reported. Full year subscription revenue grew 21% year-over-year, while services and other revenue increase 24% both on an as-reported basis. Q4 revenue grew 20% year-over-year in constant currency and 21% on an as-reported basis. Subscription revenue grew 21% year-over-year. While services and other revenue increase 36% on an as-reported basis. Q4 domestic revenue grew 19% year-over-year. International revenue growth was 20% in constant currency and 23% as reported, representing 47% of total revenue. We added over 9,800 net new customers in Q4, ending the year with a total of nearly 248,000 customers, growing 21% year-over-year. Average subscription revenue per customer was $11,300 in Q4, down 1% year-over-year in constant currency and roughly flat on an as-reported basis. Q4 customer dollar retention remained healthy in the high 80s, and net revenue retention increased 2 points sequentially to 104%, reflecting the continued momentum in seat expansion from customers on the new seat-based pricing model. While we're encouraged by the improvements we saw in Q4, we expect to see a seasonal downtick in net revenue retention in Q1. For the full year of 2025, we expect net revenue retention to be up a couple of points year-over-year, largely from the pricing model change we made in early 2024. Calculated billings were $768 million in Q4, growing 21% year-over-year in constant currency and 16% on an as-reported basis. The significant strengthening of the U.S. dollar at the end of the quarter and its impact on deferred revenue resulted in an overall 5 point FX headwind to as-reported billings growth. The remainder of my comments will refer to non-GAAP measures. Q4 operating margin was 19% and full-year operating margin was 17.5%, both up 2 points compared to the year-ago period. This reflects our continued progress in optimizing our product infrastructure, focused hiring, and the impact from the changes to our partner commission structure. Net income was $125 million in Q4 or $2.32 per fully diluted share. Free cash flow was $163 million or 23% of revenue in Q4 and $488 million or 19% of revenue for the full year. Finally, our cash and marketable securities totaled $2.2 billion at the end of December. Before I dive into guidance, I wanted to highlight several key inputs to our 2025 growth profile. First, we expect a continued strong foundation of product usage and customer retention. Our seats-based pricing model will benefit 2025 revenue as customers come up for their first renewal post-migration, and we will continue to invest in go-to-market capacity. Second, while we have seen small business sentiment improve, we continue to see value-driven purchase behavior, and we assume that this will be the case throughout the year. Finally, the U.S. dollar has strengthened meaningfully since we reported Q3 results in November. As a result, at current spot rates, we expect foreign exchange to be in approximately 200 basis point headwind to 2025 revenue growth and a 50 basis point headwind to operating profit margin. With that, let's dive into guidance for the full year and the first quarter of 2025. For the full year of 2025, total as reported revenue is expected to be in the range of $2.985 billion to $2.995 billion, up 16% year-over-year in constant currency and 14% on an as reported basis. Non-GAAP operating profit is expected to be between $543 million and $547 million, representing an 18% operating profit margin. Non-GAAP diluted net income per share is expected to be between $9.11 and $9.19. This assumes 53.9 million fully diluted shares outstanding. And for the first quarter, total as reported revenue is expected to be in the range of $697 million to $699 million, up 15% year-over-year in constant currency and 13% on an as reported basis. Non-GAAP operating profit is expected to be between $98 million and $99 million, representing a 14% operating profit margin. We expect a little over a point headwind to operating profit margin in Q1 due to an increase in the company match rate of our 401(k) contributions. Non-GAAP diluted net income per share is expected to be between $1.74 and $1.76. This assumes 54.1 million fully diluted shares outstanding. As you adjust your models, please keep in mind the following. We are excited with the recent launch and multi-year growth opportunity of our Breeze Intelligence product. We expect a little less than a point of headwind to 2025 revenue growth. [Technical Difficulty]

Ladies and gentlemen, please remain on your lines. Please remain on your lines. Once again, ladies and gentlemen, please remain on your lines. Your conference will resume momentarily.

Operator?

Yes, we can hear you.

Okay. We seem to be having more telephone or technical difficulties here. Kate's going to pick up where she left off on the guidance section. Apologies to everybody for the technical difficulties here. We'll get through it.

Okay. I'm going to just dive in to the key modeling points. Again, as you adjust your models, please keep in mind the following. While we're excited with the recent launch and multi-year growth opportunity of our Breeze Intelligence product, we expect a bit less than a point of headwind to 2025 revenue growth from the wind down of the legacy Clearbit business. We expect CapEx as a percentage of revenue to be roughly 5% for the full year of 2025, driven primarily by capitalization of software development. And lastly, we expect free cash flow to be about $560 million for the full year of 2025, with seasonally stronger free cash flow in Q1 and Q4. As we close out 2024, I want to take a moment to recognize all HubSpotters for their contributions to our mission of helping our customers grow better, and a big thank you to our customers, partners, and investors for the ongoing support. With that, operator, let's open up the call for questions.

Certainly. Due to the technical difficulties, we will be extending the Q&A session. [Operator Instructions] Our first question comes from the line of Samad Samana with Jefferies.

Hi. Good evening. I know there are technical difficulties, but what I heard loud and clear, the Yamini and team you guys had another very strong quarter. Congrats on that. Maybe let's talk about AI a little bit further, given all the specifics there. I want to dig in on what some other software companies have said, especially in the context of what you're doing around AI. Some other leading software companies have discussed a change in the monetization plans for AI in the last couple of months as their products have spent more time in the market. I'm curious how your customers' conversations have evolved on pricing and measuring ROI, now that customers have had a Breeze in their hands, and if you see the path to monetization shifting. Maybe related to that, Kate, I know your comment on the clear bit wind down in the one-point headwind. And how are you thinking about the impact of AI monetization in the 2025 revenue forecast, if any at all? Thank you for taking my question.

Thanks a lot, Samad, and thanks for hanging in with us. I'm so glad that you heard it loud and clear that we are gaining momentum from an AI perspective. Let me take that question on monetization. Look, the way we think about AI is that there should be one product, an AI-first product. We don't believe that there should be a separate hub or a separate add-on for AI. That has been our strategy from the beginning. That's why our vision has been to embed AI across every hub and across the entire platform. Therefore, our monetization strategy is really about how we drive customer acquisition and expansion across the entire platform with AI, and how we lead and win with AI across the platform. And as I mentioned in my prepared remarks, the success of content hub in the last year was AI driven. We improved the attached rate to marketing hub by 3x. The traction in service hub, especially up market is AI driven. And we're going continue to drive that type of innovation. That strategy is working for us. And we have even more conviction as we talk to customers who are in our pipeline and who are in our install base. And we're going keep doing that. Now, having said that, I do think that the future of pricing for AI will be hybrid. That is, we'll have both seat based and usage based pricing. Right now, we're focused on delivering value with our agents and as more customers get consistent value with AI, we will introduce usage based pricing. So pricing model will be a combination of usage and seats based pricing. But what is really important is that we will consistently focus on delivering value first before adding on to our seat-based models and then monetizing based on usage. That approach has worked for us and will continue to work for us in that approach. So the focus for us remains very clear. Embedding AI across the entire platform, delivering repeat value and consistently driving innovation. That is having really good impact in terms of our pipeline conversations and customer conversations.

And Samad, just to answer the specific question on what is assumed for AI and guidance. We aren't going to provide specific assumptions there, but I will share a few things. The first is that we have not assumed any direct agent monetization in our 2025 guidance. That said, we're glad you heard that we are focused on AI. You heard from Yamini that customers are seeing value from AI, that adoption is growing quickly. You see the strong momentum and hear about the strong momentum in content hub in Sales Hub and Service Hub that is directly related to the AI features and functionality that we are adding. We are seeing customers increasingly consider AI in their decision-making. And the assumption is that, that is all going to continue through 2025 and that is what is safe to guidance.

Thank you. And our next question comes from the line of Mark Murphy with JP Morgan.

Thank you so much. I would appreciate hearing your perspective on DeepSeek and the ability for LLMs to drive a breakthrough on the cost side or the efficiency side. I'm curious, whether it's Dharmesh or Yamini or Kate, what crossed your minds? Can you run the Breeze agents with a lower inference cost profile if you use one of these very efficient models? Do you think you can unleash more power for customers and is there something -- does it alter what you think on the volume of AI you can provide? Maybe volume goes up and cost goes down. Any perspective would be great.

Sure, this is Dharmesh. Hi, Mark. Thanks for the question. So a couple of things. One on the kind of COGS side, there was already a dramatic reduction in COGS even before DeepSeek showed up on the scene. And that has now been like a spectacular reduction simply because of increased competition. The fact that DeepSeek is an open source and open weights model has kind of driven cost down even further. So yes, absolutely, there will be a really positive impact on lowering inference costs across the board because everyone, as we've already started seeing, are going to reduce their cost for inference. What's actually even more exciting to me, not that we shouldn't be excited about reduction in COGS, is that these reasoning models, both DeepSeek and OpenAI's O3 model, really expand the use cases in terms of what agents can take on, what types of goals and what kinds of customer problems can we solve? Because the reasoning models, although they sound similar because they're a large language model, they're very different in terms of the kinds of things they can do. They have chain of thought and they can actually take on much more nuanced and sophisticated goals than we were able to do before. So that's super exciting. Thank you.

Thank you. Our next question comes from the line of Brad Sills with Bank of America.

Oh, great. Thank you so much. It's really exciting to see all the progress here with Copilots and Agents. I wanted to ask a question around the upselling motion and activity during the quarter. I think that's been the one area where in the current environment, you haven't really seen that unlock yet. You've been pretty clear that downgrades and churn has stabilized here. But curious what your observation was through the quarter? Are you seeing any improvement there in this kind of tone you described is still in kind of value-oriented mode amongst SMBs? Thank you.

Yes, Brad, thank you so much for the question. Net revenue retention, as you know, was up 2 points sequentially to 104. But as I shared in the prepared remarks, the biggest driver of that improvement in net revenue retention was from the impact of seat upgrades, largely associated with the new seat-based pricing model that we launched in -- earlier in the year. Other than the seats based pricing model, you're right, what flows into net revenue retention is net upgrades and downgrades. What you heard from us over the last couple of quarters is that we had seen a stabilization and easing of the downgrade motion, and that was very consistent with what we saw in the fourth quarter. The remaining headwind is upgrades -- other upgrades. And that we saw again in Q4, we have seen some improvements in the sentiment externally, but people are still value driven. And I think it's really going to take a big change in the external environment for that other upgrade motion to really move.

Understood. Thanks, Kate.

Our next question comes from the line of Arjun Bhatia with William Blair.

Yes. Perfect. Thank you. And congrats on a strong Q4 here. Kate, one thing on the margin side, you mentioned the partner behavior change might impact margins here. Can you just elaborate a little bit on how partner behavior is adjusted after you change the compensation model? I think that was a couple of years back now. But what are you seeing there? Is it acceleration of revenue have better cost structure on your sales and marketing side? That would be very helpful. Thank you.

Arjun, this is Yamini. I'm going to take the partner question and walk you through where we are in the process. So look, as you mentioned, we made some changes to the partner commissions in 2023. And we're very confident that those changes we made will increase the value of our customers get from working with partners. And specifically, in 2023, we announced that new deals will have a three-year commissions, and existing deals will retire multiyear commissions, lifetime commissions starting in 2025. And so the gist of the changes, if you are in an existing deal and you're actively engaged with customers, you continue to preserve the commission. But if you're not engaged with the customers, you lose the commissions. And that comes into effect in April for existing deals. Now we prepared the ecosystem. We've been communicating with the ecosystem. We've really held hands with the ecosystem and all of the changes, and that changes will come to effect in April, and that shows up in terms of our numbers. Now in parallel, the thing that I would mention is a couple fold. We've been investing pretty heavily in partners who are driving growth. And we have been providing growth funds, marketing development funds, increasing the level of enablement efforts and all of that has resulted in much better engagement between partners and our sales teams. And you can see that in our co-selling with partners. As I just mentioned, co-selling grew 68% year-over-year. So that is really beginning to work.

And our next question comes from the line of Kirk Materne with Evercore ISI.

Yes, thanks very much, and I'll echo my congrats on the quarter. Kate, could you just provide maybe a little color on how we should be thinking about the guide as it relates to sort of new customer acquisitions over the year relative to ARPC growth? Just given some of the commentary around Service Hub and some of the upmarket momentum, I'm just wondering if there's potentially any change in the way we should be thinking about those metrics. Thanks.

Yes, Kirk, thanks for the question. Overall, we were really happy with the net adds coming in at 9,800. It's really at the upper end of the 9,000 to 10,000 range that we discussed. There are some -- we have seen variability quarter-over-quarter in net additions, but I think this is the right zone at least for the next couple of quarters for your expectations. The one thing that I would say is that over the last couple of quarters, what we have seen is more of a balanced mix of the new customer profile across the starter tier and the professional and enterprise tier. And this is something that we expected post the seats model introduction because we eliminated the minimum seats on professional and enterprise. And so the balance that we're seeing is primarily a result of that. So net adds, as we look at 2025, net adds in that 9,000 to 10,000 range is probably right, a higher mix of professional enterprise. I would assume that, that keeps happening. And then what will result is that ASRPC should stabilize in the near term and then we would expect something that looks more like a low single-digit growth in ASRPC as we move into the back half of the year.

Our next question comes from the line of DJ Hynes with Canaccord Genuity.

Hey, good evening, guys. Maybe one for Dharmesh. So Dharmesh, one of the questions we've been getting more in an agentic world is who becomes the control tower for all these agents if every app in the stack is bringing their own version, right? And maybe that's more of an enterprise issue, but I assume the need still exists in SMB, even if HubSpot owns a majority of that app estate. So how do you think about that need? And how is HubSpot positioned to be that control tower?

Yes. Thanks for that question. So what we see happening as the Agent platforms kind of evolve, is composability becomes a super important factor that these agents need to collaborate, discover each other and work with each other in order to accomplish higher order goals. And so that's what we've been doing with agent.ai is we want to kind of capture that mind share and have builders build on the HubSpot agent.ai network. And we -- just by the way, Yamini shared the kind of opening comments and said we had gotten from 50,000 to 500,000 users. I'm excited to share as of last night, that number crossed 900,000. So we're seeing some really great uptake. We have enabled 7,000 people to build their own agents on the platform. So the way we see this evolving is similar to how we saw with the original cloud computing that there will be some dominant platforms where all the builders want to kind of aggregate and they're going to want to aggregate where the users are, where the customers are. So we can take our existing kind of customer base, all the contextual data, unified data that we have and make that available to these agent builders along with a local tool and the distribution mechanism for reach hundreds of thousands of people. So we think that's a winning strategy. We're super excited. Thanks for the question.

Our next question comes from the line of Jackson Ader with KeyBanc Capital Markets.

Good evening, everybody. Thanks for taking our questions. It sounds like you guys are internally adopting a lot of AI. Yamini you went through a bunch of different use cases, I think, marketing and sales. And so would we expect or do you expect that to meaningfully impact HubSpot expense growth, obviously, for the better? And then if it does allow you to save some money, where might you redeploy those savings? Thanks.

Yes, thanks for the question. I think that Yamini can talk a bit about how we're envisioning the transformation of our go-to-market. We are broadly adopting AI internally. What you'll see in terms of areas for reinvestment is very consistent with the areas where we have driven outsized investment over the last three years. The first is really into R&D to continue to drive that innovation engine and fuel growth for the long term. And the second is in the capacity and go to market. We obviously want to invest against the opportunity we see, and we feel like this is a year where adding capacity to our sales force will pay off well.

Yes. And I'll talk about how we are reimagining our own go-to-market internally. As soon as we saw this big gen of AI moment and we pivoted our product, we did the same thing internally. And we've been reimagining our go-to-market for the better part of the last couple of years. And you heard me talk about support, that use case is very, very clear. And we've not only improved the resolution rate with AI, we've also been able to take support agents and really leverage them in more complex issues. And so I think we'll continue on that path. Marketing, huge benefits, we are reimagining our entire marketing strategy with AI. I talked about leveraging it for setting up meetings. We're at the early stages, even with 10,000 new meetings set up by AI, we are at the very early stages of that. I think we can continue to scale that, but not just in the prospecting use case, but really leveraging AI for personalization and through the entire content marketing process. If you look at Kipp, our CMO, he is at the forefront of AI and he's doing this not just to reimagine our own marketing, but he's also doing this to educate our customer base on the right ways to apply AI and to get value from AI. And the same thing with sales. I mean we're in the early stages of what we can do. We are already leveraging it for discovery, better research, follow-throughs, follow-ups or chat and the list goes on. So as much as we are innovating with our product, we are reimagining it for our go-to-market, and that is going to have midterm to long-term impacts on our own level of innovation, but also efficiency.

Our next question comes from the line of Gabriela Borges with Goldman Sachs.

Good afternoon. And thanks for taking my questions. Yamini, this idea of driving value for customers and productivity increases for customers, and then realizing pricing at a later date, that's not a new concept for HubSpot. So maybe just remind us of your framework, what are some of the things you could be looking for to turn on that consumption piece of the pricing model for agents and AI? And how do you think about mapping some of these statistics on productivity to pricing increases further down the line? Thank you.

Gabriela, that's a great question, one that we think about all the time. And you're right, like our pricing approach should be no surprise to anybody. Consistently, our pricing philosophy has been in innovate extensively, introduce innovation to customers, make sure that they're getting consistent value and then drive monetization. Over the years when we have increased prices for Marketing Hub, Sales Hub, Service Hub, we've never gotten pushback because by the time we do that, we have delivered significant value. So in terms of AI, our approach has been twofold. First off, we won our entire platform to have AI features. So embedding AI, not actually creating friction at the point of purchase and making it super easy, visible within the product to adopt AI has been the first kind of like step. So last year, I talked a lot about awareness. And I have to say that towards the end of the year, the awareness of AI within HubSpot was significantly higher compared to the beginning of the year. So that's number one. We feel like we've made a lot of progress. The second is adoption. One of the things that we did with Breeze and the reason we launched Breeze is, one, we want it to be easy. But two, we wanted to be recognizable within product. So now if you're going within HubSpot, you can just see these sparkle buttons, which are AI features and customers click on it, use it and begin to kind of like get value from it. And those are all the examples that I shared. I think specifically with Agents, we launched a set of Agents at inbound. It's early stages, we're seeing very good momentum. But when we see repeat value, repeat usage of Agents in the field very much at ease to add a component for monetization. We're already monetizing AI with our current model. We'll be able to add when we begin to see repeat usage and value from Agents, and that's our focus for 2025.

And our next question comes from the line of Alex

Thanks for taking the question. I've got kind of two different ones. Maybe, Yamini, first for you, just comments on the demand environment exiting the quarter whether there was a kind of a change post-election, just signs of -- or lack thereof of SMB optimism kind of driving either new tailwinds or creating headwinds as you look at the year? And then I've got a quick follow-up for Dharmesh.

Yes. Sure, Alex. Look, I think we've seen some improvements in the demand environment and customers are much more open now to talking about growth initiatives. And I probably think it started around September with some of the interest rate changes. Now having said that, and like Kate emphasized, a lot of the buying trends remain similar to what we saw last year. The decisions are value-driven. It's committee-based decisions in most of these decisions are made by C-suite and the Board level. And we're just going to assume that part of customer buying patterns continue to exist. Now when I look at the demand environment and when I look at our pipeline, a few trends are very encouraging. First off, when customers are looking at marketing or sales or service, in the mid-market company, we are in consideration. We have a seat at the table. We've emerged as a platform of choice. And our AI first, easy-to-use, fast time to value, value proposition really resonates within the segment. The second, when customers start with HubSpot, they are now starting multi-hub. And they continue to consolidate on HubSpot, both to optimize their costs and to increase the visibility and to drive innovation. And we're having more conversations now about AI innovation within our road map. And customers love the fact that it's embedded within AI. There is no friction for them to buy a separate SKU and they begin to use it, they get value out of it. And we're seeing all of those as encouraging trends. So our focus is to drive this pace of AI innovation, to communicate the value of our AI First platform and to help customers grow in any environment.

Perfect. And then maybe just one, Dharmesh, a longer-form question for you. Basically, if you look at what the foundation model companies continue to do at the edge of what's possible with Agents and software development, how do you view that there's this consistent, I'd say, anxiety level in the investor community around the evolution of like DIY, AI and software agents and agentics versus kind of packaged software? And I'm referring to specifically, I guess, the sales agent demo from OpenAI recently. Like how do you think about a world where the center of gravity kind of stems from having this holistic record plus intelligence plus agentic workflow system that HubSpot embodies versus what a future where maybe that's more in the presence of what the foundation model companies are doing?

Sure. Thanks for the question. Just a quick high-level thought is that just like we saw with cloud computing, there will always be kind of mega corporations that take a DIY approach. I said we want to build our own software. We want to build our own agents. We want to build our own everything. We see the exact opposite happening in SMB. SMBs do not have the appetite to go off and try and build and assemble all these pieces together regardless of how easy it becomes. So my personal belief is that in the SMB world, what's going to be super important is what's always been important is ease of adoption, fast time to value and they want something that's unified and all put together. What we see playing out is that at a platform level, we envision an entire new generation of what used to be sort of agencies and kind of development company, software companies building on top of a common core platform like HubSpot is going to provide, and we think that's the actual answer. SMBs will say, I want one core platform. I want everything done for me. And I'd love to see an ecosystem of thousands of possible agents that are tailored for my industry and for my business that when we can piece it all together, all on one platform. That's how we see it shaping up.

And our next question comes from the line of Brian Peterson with Raymond James.

Thanks. And congrats on the strong quarter. I wanted to double click on that 68% growth in co-selling that you guys mentioned. That's a pretty impressive stat. Did the mix of channel touch business change over the course of 2024? Is there any commonality that you can share what drove the strength of channel partners? Thank you.

Thank you, Brian. I appreciate the question. Yes, we are very thrilled to see the cold selling kind of takeoff, and we're very happy with the results there. I will say that this has been multiple years in the making. We went to our partner ecosystem, and we said, we want you to source, cold sell and service our partners as experts within the field. And we've really helped them go from way back marketing agencies to CRM implementers. And as we did that, we've really focused those partners on upmarket. So a lot of the benefit that we are now seeing is like a multiyear arc that we have been working with our partner ecosystem. And if we look at specifically 2024, we got much better at working upmarket, joint customer pursuits with our partner ecosystem. Our product got better, and we are enabling both our sales teams as well as the partner ecosystem to understand the full benefit of multi-hub adoption. And so they're selling more multi-hub deals and implementing multi-hub deals upmarket with those customers. And we are now talking to them about being an AI-first ecosystem, and they are leaning into it front and center with us and they see the opportunity of not just being in a customer platform, but being an AI-first ecosystem in an ecosystem like us and they see the huge benefit associated with it. So it's been multiyear in the making, and there is an even bigger opportunity as an AI-first ecosystem ahead.

Your next question comes from the line of Ryan MacWilliams with Barclays.

Thanks for taking the question. Can you just remind us how you expect your installed base to receive the pricing increase and how that can layer in through 2025? Thanks.

Sure. I appreciate the question. I think as we covered at the Analyst Day, we have started to migrate our existing customers from the legacy pricing model on to the new seat-based pricing model. That has happened for the simplest customers through the back half of 2024 and we will continue to drive the migration of the customer base through 2025. All of our customer base, we intend to have migrated to the new pricing model by the end of this year. Now that said, the price increase for existing customers happens when they come up for renewal after they are migrated. So they are migrated over at a neutral ARR. And then they can receive up to a 5% increase in pricing upon their first renewal. We are -- as you can imagine then, earlier on in the sort of renewal motion for customers post migration, we're pretty early there still. And the expectation is that between 50% and 60% of our ARR will have gone through that first renewal by the end of this year.

And our next question comes from the line of Rishi Jaluria with RBC Capital Markets.

Wonderful. Thanks so much for taking my questions. I wanted to ask maybe something a little bit more longer-term focus. So great to see this momentum with AI. A lot of times when we're talking AI, a focus on greater efficiency, greater productivity. But if we really think about prior technological ways what really gets these waves exciting is the technological unlock, whether it's the internet, mobile or cloud. So if we think about some of your -- the early work you're doing in this, where are you seeing the ability to unlock those net new use cases for HubSpot that you can do things with generative AI that you couldn't do before? And as we think about what does this mean architecturally down the line, how should we be thinking about kind of your ability to pivot to these new architectures as a result? Thanks.

Rishi, I like that question a lot, and that is exactly how we're thinking about it. Look, I talked about Frame. It's a recent acquisition, and this is emblematic of the kinds of things that we can now unlock Frame will allow our customers to get much better insights from unstructured data. But if you really step back and think about it, generative AI made it possible to ask questions of structured data. Things like company, contact deal status and you get back answers in natural language. That was the first breakthrough. But there is another bigger breakthrough with unstructured data. 80% of all customer conversations are unstructured. They're in calls. They are in e-mails they are in transcripts. And that flows through the company every single day, and it is now possible to ask evergreen questions of that data and to get better insights in real time and in natural language to convert those insights into action. So I think that's a huge unlock by, one, bringing structured and unstructured data together, which is exactly what we are doing. The second part of the shift is it's not just important to have these two pieces. You need a context layer on top of it. And think of it as a knowledge layer on top of that data. And the easiest way to think about this is the new -- become an employee within a company. You know the tone of the company, the voice of the company, the ideal customer profile, the value proposition. All of that is context on top of that data. We're building that. And we're building that knowledge layer right on top of that data fabric of structured and unstructured data. And the fact that we have 1.8 million weekly active users that are bringing this vast data and collaborating, that gives us a huge benefit from an architecture perspective. And then the third layer on top of that is just orchestration. How do you get feedback daily? And how do you learn from the feedback in terms of what customers are using. We're building that. And I do think one of the things that we haven't talked about is the UI is going to change. We're going to see a lot more composable UI that sits on top of all of that data in an agentic future, and we're already reimagining all of that. And so I think the combination of structured and unstructured data, the ability to go broad across the customer journey while going deep in a function, which we have and the ability to kind of like run at the pace that start-ups are going. We're innovating like a startup. And so the architecture is changing. We're right there with it, and I'm so excited about what this unlocks for our customers.

We have time for one last question. That comes from the line of Michael Turrin with Wells Fargo.

Thanks for filling me in and extending the call. Appreciate the context or attention. Commentary was especially encouraging. I wanted to see if we could hear you maybe compare and contrast both what HubSpot saw Q4 this year versus last year in terms of just end of year decision-making. And then in guidance for Q1, is there any extra conservatism you're embedding given, I think Q4 to Q1, there was a change last year that many saw that took us all a bit by surprise. So just wondering how you're applying some of the lessons learned there last year and incorporating those into the upcoming guide for the year? Thank you.

Yes. Why don't I take a shot at this? I think what we saw in Q4 last year was a really significant change in the trajectory of buying behavior. That is not what we saw this year. There is typically a flush of business at the end of the year. We did see that in 2024. But what we saw was more of a continuation of Q3 than something new and different in Q4. That said, I think when you look at the guidance for 2025, the most important thing to remember is that in a SaaS business like HubSpot, when the revenue growth is a lagging metric, right. And so what we are seeing as a trajectory change in buying behavior throughout the back half of the year, but it's going to take a while for it to flow through to revenue. And so yes, we are expecting a step down in our constant currency growth rate in the first quarter. We also expect that our Q1 constant currency revenue growth will be the low point for the year and that our revenue growth rate will accelerate a bit throughout 2025.