Lisa Mullan - Director of IR Brian Halligan - CEO, Chairman John Kinzer - CFO Aaron Mazze - VP Marketing, Merge eClinical.

Stan Olszewski - Morgan Stanley Brendan Barnicle - Pacific Crest Securities Brent Thill - UBS Terry Tillman - Raymond James Alex Zukin - Stephens Richard Davis - Canaccord Mark Murphy - JPMorgan Brad Sills - Bank of America/Merrill Lynch Spencer Bogart - Needham & Company.

Good afternoon. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the HubSpot Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Lisa Mullan, Director of Investor Relations, you may now begin your conference..

Thanks, operator. Good afternoon and welcome to HubSpot's third quarter 2015 earnings call. Today, we'll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Brian Halligan, our Chief Executive Officer and Chairman; and John Kinzer, our Chief Financial Officer.

Before we start, I'd like to draw your attention to the Safe Harbor Statement included in the today's press release.

During this call, we will make statements related to our business that maybe considered forward-looking, including statements concerning our financial guidance for the fourth fiscal quarter of 2015 and the full-year of 2015, our position to execute on our growth strategy, and our ability to maintain existing and acquire new customers and partners.

These statements reflect our views only as of today and should not be considered our views as of any later date.

Please refer to the cautionary language in today's press release and to our Form 10-Q, which was filed with the SEC on August 6, 2015 for a discussion on the risks and uncertainties that could cause actual result to differ materially from expectations. Finally, during the course of today's call, we will refer to certain non-GAAP financial measures.

There is a reconciliation scheduled showing GAAP versus non-GAAP results, currently available on our press release announcing financial results for the third quarter ended September 30, 2015, which is located on our Investor Relations Web site at www.hubspot.com.

Now, it's my pleasure to turn the call over to HubSpot's CEO and Chairman, Brian Halligan..

Thanks Lisa. Hi, everyone and welcome to our third quarter 2015 call. Let's get right to it. HubSpot's business is going great. We had a strong third quarter with total revenue increasing 57% and subscription revenues accelerating to 59% growth year-over-year.

We also add tremendous customer growth adding 1,015 net new customers for a platform and increasing our average subscription revenue by 16% year-over-year to $10,607, good stuff. In September, we hosted our hugely successful INBOUND conference and as usual it was my favorite week of the year.

Many of you who were on the call today were also in INBOUND, so I know you know what I mean, what I love most about INBOUND, it is just not a user conference, it's a global movement, let's look at some of the numbers. We had over 14,000 registered attendees in INBOUND more than half of those attendees weren't even HubSpot customers or partners.

We had over 250 speakers. We had over 250 sales meetings. We even had one wedding proposal on stage and we have the video to prove it. There were over 120,000 mentions of the INBOUND 2015 aspects that we did alone.

And of course, we announced a ton of exciting new products at INBOUND that have extended our marketing product platform in some pretty exciting ways. We announced a new Web site app, a new reporting app and a new apps management app. Now, let's dig into that Web site. Over a quarter of HubSpot of customers host their Web site on HubSpot today.

Customers hosting with us get much, much more out of their HubSpot experience. We want to see that number of customers hosting on the HubSpot's Web site platform go way up. Though we spent the last year building a beefed up expanded a new version of our Web site app.

There are two of our Web site app that you can chose from depending on your needs, one for $100 a month and one for $300 a month.

Now, there are lots of benefits at hosting your Web site with HubSpot, but when you add our new updated Web site product to your existing marketing and sales platform that combined effect is way more than some of its parts.

Let's say you're a customer using our Web site in marketing and sales offer, you don't just have a Web site a marketing data base and a sales data base you've got a Web site with one integrated consistent record of all your contacts from the first time they ever crossed your path to the most recent time they've visited your pricing page.

Let's say you've got 10,000 contacts and you know what you're doing, so you've got those contact segmented by countries, so you've segmented them whether they are a customer prospect, you can sell it, if they've asked for core from your before or any information about these people all that segmented information its captured in your data base.

With HubSpot's Web site add-on, you'll be able to use all that information to personalize your Web site. So if I visit your Web site, I get one experience, if a loyal customer visits your Web site, she gets a completely different experience, it's a fresh new prospect business to your Web site, he gets a completely different Web site experience.

So your Web site becomes very personalized to match the specific needs and interest of the different people who visited and that's some seriously powerful stuff.

Including that Web site experience also got a whole lot easier, with the new Web site app, you can create and edit contact directly on the page, no more fumbling with formatting or talking to ITs or editing your Web site, top of it all, both versions of our Web site app come with SSL included which creates a more secured Web site for our customers.

SSL normally provides you security but Google has described it as a real stature in achieving stronger search ranking results, that's the serious advantage we build it in for every HubSpot customer. Now secondly, let's talk about our apps product, its still in beta, its priced at a $100 per month.

Over 50% of our customers already buy ads online and a lot of that ad buying is on Google and LinkedIn, some of it is on other social networks.

So we have one thing to say, now you can manage your ads through HubSpot that alone would be cool, but there is another thing to save that you can track the revenue from each ads and service what happens after a lead clicks on your ads and since his apps can be seamlessly integrated with your Web site, your contacts, your email, your [brief] [ph] campaigns, your social media that's pretty cool.

But how does HubSpot's ads products work? Before you had HubSpot apps, you first have to buy your ads outside of HubSpot so go into Google AdWords and create an ad and then bid on your ad and noodle around with your ad to do all this work inside of Google AdWords. This involve the whole lot of complicated steps.

And then you go back into HubSpot and build your landing page and build your form and build your workflow all those to supporting systems for your ad, it's a lot of work and a lot of toggling back and forth between two pretty different systems.

Now with HubSpot Ads you just create your whole campaign right inside of HubSpot, you create your ad inside of HubSpot, you buy your ad inventory inside of HubSpot, you create your supporting assets inside of HubSpot, you track all your activity and results right inside of HubSpot.

The whole process is perfectly interwoven and seamlessly connected in one close loop. The other big hairy problem with paid ads is that before you knew you were getting a 50% return on your paid advertising expense but you couldn't tell which 50% of your paid ads are regenerating the return.

With HubSpot's paid advertising on top of the HubSpot platform you know exactly which ads get you clicked, which ones turns into leads, which ones turns into customers and which ones are up sold, you can point to the ROI from a specific paid ad in a very granular and meaningful way. That's the Holy Grail for ads.

That's our ads products; it's still in beta very exciting new functionality. Okay, that's our ads part, the third product we announced at INBOUND is our new Reporting Add-on.

The HubSpot Reporting Add-on is priced at $200 a month and we're selling it to-date to both our marketing customers and coming very soon for our sales customers, it's a product we're super excited about. People today seem to have a veracious appetite for reporting, it's in our nature.

Human beings love to report on everything, every which way they can, we love it. With the new reporting add-on, you can create pretty much any kind of marketing repot that crosses your mind.

For example, you create a report that says how many qualified leads have I generated in Latin America per month over the last three years and how much revenue has resulted from those leads per month in the last three years, no matter how granular the report you make up, the HubSpot reporting add-on is there for you.

So how is the reporting add-on work. Once again, it's a huge improvement over the old playbook. The way most people do reporting is that they will export a bunch of stuff to excel and run some pivot tables and try to analyze the data that way. They will use whatever reporting lives inside of their CRM system.

But they will add together some stuff inside of Google analytics. It's a lot of work and it's a lot of toggling between some very different types of systems.

But the new HubSpot reporting add-on, our customers get reporting module that a mere modal can use to get a real close loop report and to get reporting by segments to get whatever marketing report helps them to measure their success because we are human begins, we want to see our data every which way to Sunday and that's what the new reporting app let's you do.

Our customers have been clamoring for this for a long time and they are excited to get started with it. The reporting add-on comes with more than 20 pre-cooked and customizable report templates based on the most common marketing and sales reports our customers need.

It also let's you easily build a report from scratch should you need anything quite unique. And as your company grows reporting add-ons scales with you. When you add more teams and offices, each member of your company can get their own customer reporting dashboard and so they can see what matters to them. And only what matters to them.

So now you got your Web site add-on, you've got your ads add-on, you got your reporting add-on. Each one of these new products is very powerful in its own right. But put them off together and now you're really cranking.

You know which of your contacts had clicked on your ads, you know which of your contact have visited your Web site, you know which of your contact have hung out in your webinars or downloaded an ebook, you know which of your contacts bought something you sell and you know how much you spend to acquire each customer at the end of the day.

That some pretty powerful stuff. HubSpot gives you that one powerful platform you need to do everything you do to grow your business right inside of HubSpot. It's greater than some of the HubSpot's, its one plus one equals three, it is awesome.

So what is this all mean for HubSpot's revenue? When I think of HubSpot's pricing model, I think of three axes.

The first axis is customers moving from basic to product enterprise and we have our second pricing axis or customers add more contacts to their database, the third new pricing axis, it's our add-on axis which is really exciting because for the first time ever, we have all these great new products that we can not only sell to our new customers but also sell back into our installed customer base.

When people buy additional products from our add-on axis, we get a double-win. We not only get additional revenue from those other products, we also get increased customer stickiness when customers have used more and more of our products. Average subscription revenue per customer goes up, subscription dollar, retention goes up, and everybody wins.

So let's move on to another exciting product we announced at INBOUND HubSpot Connect. Our new Connect product opens up HubSpot in some ways beyond the sales and marketing products.

HubSpot Connect that's great companies like ZenDesk, Zopim, FreshBooks, Eventbrite, UberConference, Teamwork, Unbounce, Smartling, BlogMutt, PandaDoc and WorkflowMax integrated with our platforms. So customers can get a much more complete view of their customers, all in one place. The sales side of HubSpot platform is also expanding in exciting ways.

At INBOUND we announced a number of exciting product enhancements and helped to solve many of the challenges at our core customers sales team space. For example, one of those features is called Sequences. Sequences is really interesting because it allows the sales rep to schedule really personalized targeted follow ups to the prospects.

It eliminates the need for a sales rep to do that manually and lets them schedule their follow-ups and the details of a conversation a very fresh on their mind. The better experience of the sales rep, a better experience for the buyer and it's been really well received by our earlier customers.

On the international front, we announced that HubSpot's products and services are now available in French, German, Japanese, Portuguese and Spanish. We now selling to more countries expanding our total adjustable market beyond the $30 billion mark we talked about before.

Speaking of HubSpot's international expansions, one of the ways we've been expanding internationally is through our 2,700 plus strong partner channel. So what we do is, instead of opening an office and then adding customers, we first enter a new market locally by using our preexisting on the ground partner channel.

That way we get a head start and building our business before you spend the dime on opening any new offices. When we do open those offices, we already have the plumbing built into to support them. It's our incredible partner network that makes all of this possible and we are doing more and more to support our partners in all kinds of go-ways.

One thing we do with our partners this year is to launch the first ever HubSpot impact awards Inbound, where we recognized the agency partners who are generating strong ROI for their customers using the HubSpot platform.

This was one of the real highlights of INBOUND forming and I read some incredible partner stories including some of the following here. FullFunnel, a HubSpot partner will help their customers virtually to grow new revenue by more than 500% after implementing HubSpot.

To SmartBug Media who helped our customer converse and buy realized a 3558% ROI with INBOUND marketing. In Stargazer Digital, a HubSpot partner who helps our client super warm sales rocket a 187% with INBOUND marketing, I love these stories, this really makes my heart pound.

INBOUND is truly the best part of the year because we get to hear all these great success stories from agencies and marketers and customers that use HubSpot's product. I heard a ton of great HubSpot changed my life types of stories in that one week that's what really gets me excited.

One of the HubSpot customers I caught up with this year was Aaron Mazze, who is Vice President Marketing at Merge eClinical. Merge eClinical sells a cloud-based software platform for managing clinical study data, their business is headquartered in Research Triangle Park down in North Carolina.

Aaron attended INBOUND this year and told it was all about how I use HubSpot to transfer Merge eClinical's marketing and to drive ROI for his team. In fact Aaron won our best marketing ROI performance award in INBOUND this year.

So instead of me telling about Aaron's experience with HubSpot, I finally invite Aaron to join to your call today so you could hear his HubSpot success story firsthand.

Hey Aaron are you there?.

I'm here. Hello, Brian..

Hey.

Thanks for joining me investor call to talk about Merge eClinical's experience of HubSpot, I love for you to just tell everybody about Merge eClinical, what business are you guys in, how big is your company and basically what's your role there?.

Absolutely, I'm excited to be here, so thanks for inviting me. First off, yes I'm working for the eClinical division of Merge Healthcare. We were started around 2009 in our division and eClinical division there is about 120 and 130 folks internationally and on the marketing team we have about eight folks.

We cover everything from the traditional marketing communications all the way through inside sales and even user experience design.

And the eClinical division is pretty used to platform called eClinicalOS, it's a data management platform for clinical research and you could think of it like essential hub that manages many of the daily activities involved in running a clinical trial..

Awesome. And you run marketing for that division it sounds like..

Yes, I'm head of marketing for this division, correct..

Awesome.

Tell me, tell us a little bit how did you initially find HubSpot or how did HubSpot find you?.

I was introduced to the term, I would say in 2010/2011, I've been a part of numerous agencies run by own agencies for a couple of years as well, been in PR and worked with a lot of folks in the area and media.

So I've a colleague and a friend of mine here who is an absolute pro and an excellent writer and he started to share with me all the e-guides and articles that you guys were publishing back in that 2010/2011 period. In around 2012 I began following the HubSpot like myself and became a fan immediately..

Got it.

Tell us about your experience with the HubSpot marketing software or when did you start with it, what parts of it do you use, what's the value of getting out of it, I guess?.

Oh, gosh, that's a really loaded question. There is a ton of things that I could talk about. I would say right out of the gate we use everything, we use everything at HubSpot -- with the HubSpot platform that's the Web site the blog, email systems, digital campaigns you run through HubSpot social media.

We even -- you have sidekick for all of our prospecting. My favorite tool amongst all of the different things that we use in HubSpot right now of course are the dashboards and reports because they make me look good because we hit our numbers.

So we are certainly a huge fan, we use it in everything that we do every single day and its really become part of our binnacle that's not just as in the marketing team, sales folks, engineers everybody talks about the different efforts that we're working on inside the marketing team and we certainly talk about INBOUND quite a bit.

Always looking for ways to know even watch I should say we're looking for ways to now thread INBOUND into our platform outside of just marketing efforts but inside of our actual eClinical system as well..

Nice. And INBOUND is not a new term to the two of us. But can you just try to describe in layman's terms to our investors.

What's INBOUND and what did you do before and how would you contrast the difference?.

Excellent question.

So for us, well, first off, I'll say INBOUND to me is really about building trust and we are always looking for ways to connect with our community, so instinctually we're always looking for that element of our business where we can really find ways to connect with our audience and specifically with this platform its given us a process around doing that very pragmatically.

So we transformed our organization from what was typically considered a sales organization we are doing a lot of one-to-one phone calls into now today what we call a marketing organization where we're doing a one to many.

So we have that traditional team when I first got here in 2013 that they were sitting in rooms and they were making a lot of phone calls and the results were not keeping up with what they wanted to see with the business.

Organically the system was growing but the leadership at Merge eClinical really wanted to see things take off and they felt like the word needed to get out and the sales organization wasn't doing it fast enough.

So in comes INBOUND and really a start off instinctually thinking more about how I can build up a leadership platform around some of the very smart folks that are here at Merge. We have folks that are clinicians or historically that came from being a clinical research associate.

So they had a lot of experience working in clinical trials and they had a voice that they wanted to share and a lot of the opinions about how to run a clinical trial more efficiently and effectively and potentially save a lot of money. But that wasn't really going to get out through this one-to-one kind of sales approach though.

We talked about building a thought leadership platform and putting our president on a tour. But again, that's really hard to scale, so we looked again at kind of the strategies that were in place.

And I said what if we revisited this idea of building more of thought leadership platform through our Web site through our social channel and through Webinars things of that nature. And it really did start to take off for us very quickly yes..

And Aaron when you say take-off do you have -- are there metrics that you measure, is there an ROI that you calculated on INBOUND/the HubSpot product?.

Yes. So here is my caveat when I share this information. A year ago I could never have said any of this stuff, the insight, the statistics didn't have any of these things last year because we didn't have a system like this in place at the level we have.

But year-over-year first off, the revenue has grown 43% and that's insane for our business its absolutely insane and I think a lot of it is attributed to our INBOUND marketing. We have, we are currently -- we have over 330,000 people following our organization online that's really a large number in our industry. Last year it was 65,000.

We are tracking everyday 58,000 leads again a huge number for a group like ours when we were such a niche industry within life sciences.

My team brings in around 50 or I think the actual average is around 54 MQLs a week so marketing qualified leads every week and those have transferred into over 80 opportunities this year that have really added to the bottom line and boosted the business. So these are incredible numbers for us, I mean the growth is ridiculous.

Actually today when I looked at some of the numbers in our last campaign, we are still growing so some of the numbers the really skewed, but our last email campaign at 6800% engagement that's a very large engagement number but we run Webinars every week and people are surprised at that they're free.

We just love to share what we're doing and we're very passionate about it and I think it comes through our marketing and then a lot of -- of course the things that we do in our system and people have become a big fan of what we do. So we're really excited about it, yes..

Awesome, Aaron that was great. I really appreciate you hopping on the call today. Thanks a lot..

Absolutely, one last note I'd like to share, if you don't mind..

No problem..

Okay. The one think I feel like special about HubSpot is that you guys have just like special sauce, the special mojo and it really, it bleeds through everybody that I speak to from the support desk, the trainers, the spokesman engineering that I ran into add on INBOUND the executives of course as well.

Everybody is really passionate about what they do there and they're smart and they're fun and like me they're extremely passionate about what they do. I'm very excited to be a part of it.

It's something you've built that I feel it takes the business well beyond just a platform and totally becomes something we can all attach to ourselves to it, it's a methodology that I know oozes through the business there.

We use it as a part of how we build our business, we look at the methodologies the techniques you guys use and we're really excited to be a member of that community. So thank you..

Awesome, thanks Aaron and love, love, love your story, thank you for sharing it with our investors today. Thank you very much..

Absolutely, no problem. Anytime..

It's time for me to wrap up. There is a movement going on here and customer stories like Aaron's at Merge eClinical are fueling that movement. Partner success stories like FullFunnel, SmartBug Media and Stargazer Digital are fueling that movement and HubSpot's third quarter results are fueling that movement.

It's all a reflection of the growing global adoption of INBOUND marketing methods and the growing global adoption of the HubSpot product. What you have just heard from Aaron is exactly what we are doing at HubSpot day in and day out. We practice what we preach.

We pull our customers in through an inbound approach not the old traditional way of doing outbound marketing. We have an inside sales force not an old fashioned traditional outside sales force.

We indirectly attract customers through a lot of partner agencies helping our business model to scale not through one big expensive outdated direct sales force. For doing it all on one closed new platform it's built to fuel the movement that's taking over the world. And HubSpot's results this quarter show that our model works. It works like a charm.

Now, I'm going to turn the call over to John, who is going to walk us through the financial highlights and guidance.

John?.

Thanks Brian. Our third quarter continued to show of a strong operational and financial performance. Let's take a closer look at our third quarter performance. Third quarter revenue came in at $47.7 million, which was above the high-end of our guidance.

Revenue grew 57% year-over-year a six percentage point improvement compared to the third quarter of 2014. Subscription revenue was $44.1 million, accelerating to 59% year-over-year growth from the 58% year-over-year growth we reported in the second quarter of 2015.

Subscription revenue represented 92% of total revenue and was driven by healthy customer additions, strong revenue retention and continued growth in our average subscription revenue per customer. Average subscription revenue per customer for the third quarter was $10,607, up 16% year-over-year.

This growth was driven by customers adding contacts to new database customers buying second URLs, customers upgrading from basic to professional and professional to enterprise editions of our product and from customers purchasing our sales products.

As we have said previously, revenue from our sales products to customers who aren't marketing customers represent a small percentage of our total revenue and does not include in the calculation of our average subscription revenue per customer. Revenue retention again was strong as it came in the high 90s.

Given the success, our customers are having within marketing; we currently expect to be able to maintain strong revenue retention in the coming quarters. Services revenue was $3.6 million in the quarter. Our services non-GAAP margin was slightly negative at 2%.

In the near future, we expect our services margins to vary from breakeven to slightly negative. The focus of our services team continues to be the successful onboarding of our customers and encouraging further adoption of our various INBOUND applications and which had been shown to be highly correlated with long-term retention and growth.

Non-GAAP gross margins came in at 75% for the third quarter, which was flat sequentially and 5 point improvement year-over-year. Headcount grew to 1091 employees up 42% from the prior year. We continue to hire rapidly to meet the growth in our business while gaining leverage as the business scales.

Non-GAAP operating margin was negative 18.3% in the third quarter, a 13 percentage point improvement year-over-year. Our annual INBOUND conference impacted non-GAAP operating margin by 8 percentage points in the third quarter of 2015. Next year our INBOUND conference will take place in the fourth quarter of 2016.

We will see a corresponding impact to margins in that quarter. In 2017 and beyond, our INBOUND conference will return to be held in the third quarter. Cash flow from operations came in at a loss of $3.8 million. Cash flow can be impacted by items such as international launches, our INBOUND conference or other large vendor payments.

Apps and a one-time large payment from here on, we should achieve positive cash flow from operations. Foreign exchange rates negatively impacted our revenue growth by 5 points this quarter. Like the first half of 2015, this top line headwind was substantially offset by foreign exchange benefits to our expense line items.

International revenue was another bright spot in the third quarter growing 78% year-over-year and represented 25% of our total revenue. We are working hard to expand our international presence and we announce that our INBOUND conference that we can now sell our products in five additional languages.

HubSpot ended the third quarter with 16,854 customers up 35% year-over-year. The growth in our customer count was driven by continued strength selling through both our direct and partner channels. Moving on to our balance sheet and cash flow, we ended the third quarter with $148 million of cash and marketable securities and we had no outstanding debt.

CapEx including capitalized software was $2.3 million in the third quarter, which was low as most of the facilities built out will occur in the coming quarters. In the fourth quarter of 2015 and early in 2016, we will see CapEx increase as we move forward with expansion plans in our Cambridge, Dublin and Sydney offices.

All in, we anticipate full year capital spending to come in around 7% of our full year revenue for 2015. Calculated billings to find us revenue plus the change in deferred revenue for the third quarter of 2015 came in at $52.5 million up 60% versus the third quarter of 2014.

The INBOUND conference is a great opportunity to sell to prospects and to our installed base. You can see some of the momentum from our INBOUND conference reflected in our third quarter of 2015 billings. Billings growth will vary from revenue growth due to factors such as change in billing terms and the timing of revenue recognition versus billing.

Third quarter billing terms were generally in line with prior quarters. Overall, our business is strong and this is reflected in our fourth quarter guidance and in our increase full year 2015 guidance.

For the fourth quarter of 2015, total revenue is expected to be in the range of $49.7 million to $50.7 million representing year-over-year growth of 47% when using the mid-point of the forecasted range. Fourth quarter non-GAAP operating loss is expected to be in the range of loss of $6.4 million to $5.4 million.

Fourth quarter non-GAAP net loss per share is expected to be in the range a loss of $0.19 to a loss of $0.17. This assumes approximately $34.2 million basic shares outstanding.

Given the strong fundamental and operational performance of our business in the third quarter, we are raising our full year 2015 guidance to revenue, non-GAAP operating loss and non-GAAP operating loss per share. For the full year 2015, total revenue is expected to be in the range of $178.5 million to $179.5 million.

This new guidance represents year-over-year growth up $54 million when using the mid-point of the forecasted range. Full year 2015, non-GAAP operating loss is expected to be in the range of a loss of $27 million to $26 million and full year non-GAAP net loss per share is expected to be in the range of $0.80 to $0.78.

This assumes approximately 33.3 million basic shares outstanding. A couple of items to keep in mind as you are modeling 2016. You should generally expect flat to slightly worse margins in the first quarter of each year, as we get a jump on hiring for the year and experience payroll tax resets.

In 2016, we also experienced impact of the additional space we are taking on to provide for our increasing headcount. As we move past the first quarter, the business should resume delivery margin expansion. Also CapEx should range from 6% to 7% next year and then should trend down slightly in the future years.

Finally, if you recall, we had a very strong fourth quarter 2014 billings now post our IPO, which will result in a slightly tougher comparison for the fourth quarter of 2015. Overall, I'm pleased with the strong growth in the quarter and the continued margin expansion normalizing for our INBOUND conference.

Now, I will turn it back to Brian for closing remarks.

Brian?.

Thanks John. Before we take your questions, I would like to highlight two really cool awards we just won. We won the 2015 best places for women to work by Fortune which we're really excited about. Fortune also named us the 10th best small and medium client to work in the entire United States. We are really proud of that.

HubSpot is dedicating to creating and supportive diverse awesome workplace environment and living up to it with our culture code to create a company that we love to work at.

We firmly believe the culture is to recruiting as products or the marketing; we got a great product that looks like a magnet to pulling customers to get a great culture like a magnet to pull in great employees. We invest a lot in their culture and it gets paid back to us in space.

And grateful to our employees, we are grateful to our partners and we're grateful to our investors, who have helped us to create what we have achieved so far. We are also grateful to our customers who remain committed to helping our customers grow at a human friendly inbound ways with our inbound marketing and sales products.

With that, I will turn it over to the operator and take your questions.

Operator?.

[Operator Instructions] And our first question comes from Stan Olszewski with Morgan Stanley. Your line is open..

Hey, guys. Thank you so much for taking my question. I wanted to start off, first of all, by looking at the revenue retention dynamics, once again in the high 90s, if you were to compare it versus what you put up in Q1 and Q2, is it just about the same from magnitude standpoint.

And a follow-up question to that would be what would it take for us to see that metric move up to greater than 100%, is it a 2016 kind of initiative or is it could be delivered further in horizon? Thank you so much..

Hi, Stan. It's John. So yes, the mix is they are relative numbers pretty close between the three quarters in the high 90s. As we think about going forward, we have done a lot of things to get the retention where it is. It's clearly not serendipity. I mean, we spend a lot of money on the product.

We have done a lot of things to improve the support in the onboarding. But at the same time, we have really improved that up-sell rate. We have gotten customers increasing their contact here, buying second URLs and as well as have a little bit of benefit like I said from the sales products but not a whole lot.

So now the new vector is; what it would take to get us higher than this? It would be a combination of improvement in the underlying renewal rate or really see a huge demand for those add-ons products. The exciting part is we still think we can grow really fast at these high 90s rates. But obviously, we are striving for something bigger longer term..

Okay, great. And then just one more quick question on FX, 5% headwind to revenue, help us characterize the impact on billings, was it, I know you guys billed a lot in USD. Was it more than 5%, less than 5%? And that's it from me. Thank you..

It was about, Stan, probably about 6 point Stan. So a little bit more on the billing side but pretty close..

Okay, perfect. Thanks guys..

And our next question comes from the line of Brendan Barnicle with Pacific Crest Securities. Your line is now open..

Thanks so much. Brian, you mentioned discussion you're having with Sidekick and with the CRM products.

Anymore color you can give us on that in terms of where we might see that sort of generating a more material amount of revenue or maybe to get more of a break out from that product that's been around a little bit longer?.

Sure. It's going well. We're signing up lots of users of our CRM product and our Sidekick products and we will start to hit the gaps a bit on monetizing that next year. We will likely to talk about that next year. Particularly excited about the CRM product, I feel like we can monetize that in multiple ways.

We have a Sidekick for business product we can sell those CRM users. We have our new reporting add-on that we are about to be able to sell to our CRM users. And ultimately, I think the CRM users will buy our marketing product and that will become a whole new channel for our marketing leads for us. So, I'm very bullish on it.

I think it will -- we will start talking about how that moves your spreadsheet next year..

Great. And John, ASPs took another nice up tick again this quarter, you mentioned that.

Is there any -- as you move further along with that, can we start to break out what part of that is related to sort of up-sell versus additional product sell and get anymore kind of granularity on the movements there?.

Yes. So, right now, we just launched the adds product, I mean the add and reporting and the relaunch of the Web site product. So there is almost no impact on that. Definitely going forward we will give some color on that. We have been able to grow revenue per customer in the 15% to 16% range over the last few quarters.

And as we think about that number going forward, we have had the adds -- the add-on products to sell into that base. But on the other side, you have a bit of large numbers and you have -- we have been getting a benefit from the fact that more and more of our customers are on contact here pricing which is diminishing.

So we have an uplift, we have some a little bit of challenge, so we think we can continue to grow that revenue per customer in the future..

Great. Thanks, John..

And our next question comes from the line of Brent Thill with UBS. Your line is open..

Thanks.

Just as it relates to the subscription revenue per customer, I mean it's been seven quarters of roughly mid-teen growth and it sounds -- to your comment about Web sites and ads and reporting of these products coming and incremental add-on that -- this -- I don't want to pin you to a number, but it seems like this sustainability of double-digit growth that we've been seeing over the last year and a half is probably out of confidence at least from a lot of us that -- that growth continues.

Is there any additional color you could add that would suggest anything different in terms of how we're thinking about building our models?.

Yes. Brent, its John. So clearly we don't guide to this number. We guide to revenue and earnings and thing like that.

As you think about that like I said, I think in the near term given the different factors going on we continue to grow that number rapidly longer term I can't speculate on that, but I think that number can continue to grow at a high rate in the near future.

There is just a lot of factors going into it and we just started adding new products to sell back into those customers. So hopefully that helps out..

Okay.

And Brian, when you look at 78% international growth would it make you believe that you'd want to go a little more aggressive in expanding given the success you're having, can you just give us a sense of how you're staying focused and where you're seeing particularly the most uptake internationally and how you think about laying the foundation so that you don't may be get too distracted given how big that opportunity is?.

Sure, Brent. We are really excited about what's going international and we have sort of a phased approach. Phase One is we go in with partners and they kind of get the machine rolling for us and so we did that for example in the U.K. and Europe, and we did part of the Asia.

And then we come in kind of with Phase Two, when we build our direct machine and our own support engine and we sell direct and we support directly and we do that now in English speaking countries like we do that in the U.K., we do that in Australia.

Why you'll see us move to that second phase in more places? We just announced that the product is now available in Japanese and French and Spanish and German and Portuguese, so we're likely to continue to invest and take advantage of that hard work we did to translate the products and we're feeling real good about it.

So we're the early, early, early innings of international expansion, I think it's a big opportunity for us..

Great, thank you..

Our next question comes from the line of Terry Tillman with Raymond James. Your line is now open..

Hey, guys, hey can you hear me?.

Hey, yes..

Wow, wow just like that customer testimony, I'm feeling your mojo.

So the first question is, Brian you articulated while in terms of a lot of the new innovation that you now monetize and is that the third axis or third vector for growth going forward? One thing I'm curious about though mid market customers can only handle so much capability your functionality and also there is a limit to how much they'll pay.

As you all look to monetize these add-on products, is the sweet spot that you're currently going after, is that applicable for these products or could you see a drifting up market or larger mid market businesses that would be more adapted leveraging these add-on tools?.

We're pretty committed to the mid-market. I think the reason we're going to be successful here is everything sort of lined up nicely for this market. In particular, our go-to-market strategy is custom -- to our custom fit for this market. We use inbound selling, not outbound selling, so we pull them in, cost required doesn't blow up.

We have an inside sales force that easy to hire and train versus an outside sales force really hard to recruit and train. We use an indirect reseller model instead of sort of the outdated sort of heavy direct model. So we've got a good go-to-market model that really matches them and I think we'll scale really nicely.

And so I don't think we have to drift up market to continue to add customers. I think we can sell more products to our customers so we just started with two new additional add-ons and we're in the early innings but that looks pretty good and we're just starting with our sales business and that's looking pretty good too.

So, I feel like there is lots of room to do lots of business with customers that we deliver lots of value to over the long haul..

Okay. Thanks for that.

And I guess John, you gave us a reminder in terms of a tougher comp for your billings compared to 4Q 2014, off of the -- there is one difference though, you have a much larger user conference that you just -- well, your customer conference/prospect conference that you just concluded much bigger attendance with a lot of prospects, couldn't that offset the tough compare in terms of just a lot of prospects of that and hence we could still see a strong surge in new customers at the end of year here in 4Q?.

Yes. No obviously, we're encouraged by the INBOUND conference and with the 60% billings you saw in the third quarter we got some of that benefit deals closing right away.

I mean that's the one great thing about being focused on the mid-market and having an inside sales motto as we have a 30-ish day sales cycle and some of these deals close even faster than that.

So we saw some of that in the third quarter, obviously, we're still bullish about the business, so I just want to make sure people understand if they just look at that fourth quarter of last year that just to keep that in mind as they think about billings for the fourth quarter..

We had a pretty successful INBOUND last year too..

Yes. That's true too..

Yes..

Okay. Thank you..

And our next question comes from the line of Alex Zukin with Stephens. Your line is open..

Hey, guys congratulations on a great quarter. I wanted to take Terry's question a bit differently because our checks did pick up that this year you saw maybe more large enterprise companies attending INBOUND.

So while you're clearly not looking maybe to go after the higher end of the market to use your words, it almost starts to feel like you're getting pulled up as the inbound methodology gets more attention.

So I wanted to ask you about that may be first?.

There may be a little tiny bit of it, it's not a focused effort of ours. Yes, certainly, some bigger customers are being signed up and bigger customers are showing up in INBOUND but there is lots and lots of mid-market.

I feel like our competitive advantage is in the mid-market where our methodology around inbound really is well suited to the mid-market. Our product, the all in one features that really works with the mid-market, our sort of hand holding support model works very well for the mid-market.

And then I just talk to Brent about the go-to-market model really fits with the mid-market, pretty competitive up in the enterprise, its sort of a red ocean in our mind and we really like where we are. We feel like we're competitively well advantaged in there. And we're very early stages of market penetration for the marketing software there.

So we think we have lots of them to run and we want to build an iconic company in this market. We think we can pull it off..

Got it. Thanks. And then, last quarter you mentioned the stat on the CRM product having 60,000 premium users. I was wondering if you could maybe update that statistics and comment on any conversion rates may be from those premium users.

I realize that's the next year issue but anything that you're seeing today?.

I don't have those numbers here with me John. I don't have those numbers in hand. I can just tell you it's going pretty well.

When you come out with a new product we've got a few new products I would say that CRM product we nailed it like if you look online what people are saying about our CRM product and you're looking at the usage and the feedback we're getting kind of like we hit the nail right on the head with it.

And we're going to continue to invest in it and use that as the tool for marketing effectively.

So on the marketing side we create a lots of content, that content pulls people in, on the sales side, we're building this free sort of like a content, but its free CRM software, you want to pull in lots of new customers, we want to sell it to our marketing customers, we want to use it as [lead-gen] [ph] sources to sell our sales products.

Going real well so far..

Got. And then, may be I could sneak in one more about your partner channel.

How do you expect the percentage of revenue coming from partners to increase over the next few years and do you foresee a scenario where partner revenue clips as direct as a percentage?.

Yes. So its John, so we're getting about 40% of our new business from the partner channel and so that revenue mix is tweaking up its in the low 30s now and so its getting closer to that 40%. Longer term obviously, it's a little bit more up to the customers.

I mean certain customers want to do it direct, they want to do it themselves and other customers they want to do it through a partner. And so both models work really well for us.

And we -- it really has to do with the demand like international for example, we get more like 60% of our business coming from a partner channel and that's a great way for us to go to new markets eventually we'll have a little bit more direct on the international side once we establish that on the partner's side so.

I don't think we're going to force the percentage by any stretch of imagination, but we love both channels and love the leverage we get out of the partner channel..

All right. Thank you, guys..

And our next question comes from the line of Richard Davis with Canaccord. Your line is open..

Thanks for getting me on the call. So if you do inbound marketing right, prospects will have done a lot of -- more research on your good service before they engage.

So it seems to me that at a minimum this implies that the prospect comes into the sales cycle readier to buyers and but then theory shorten your sales cycle and also frankly puts a premium on quick responsiveness by the sales person. I think you're kind of working on some tools in that area.

So really, the question that I have is, obviously, it's changing the definition of a sales person but have you seen in your firm, evidence of this dynamic in terms of time to close and those kinds of things and/or have you seen it in any of your customers that you think have executed particularly well with inbound marketing? Thanks..

Yes. We have certainly seen it.

I feel like, when I was the sales guy back in the 90s, the sales rep had all the power in the relationship, if that prospect wanted anything, they have to ask the sales rep introduction to your founder, pricing information, packaging information, product specs that sales rep had control of the process and really times have changed.

All of that information is available on either your Web site or on social media sites or what not. So it's really shifted, and the power frankly have shifted from the rep to the buyer.

And one of the points of inbound and one of the practices we really embody is, how do we lean into that? How do we sell it away that really matches the people want to buy. And some more and more I see it Richard, when people show up in our funnel, they had pretty good idea of what HubSpot is. They know how our pricing model works.

They know what the value prep is. They have done a ton of research on it. And the sales rep job today versus what the sales rep job and HubSpot was five years ago, or my job as a sales guy, years and years ago is pretty different. It's more guiding them towards the finish line. It's less about pushing them towards the finish line.

And we have seen our sales cycles -- be pretty consistent with the middle and shorter, not a lot shorter but a little bit shorter over time.

And I think that's a reflection of a lot of things including the fact that people -- the way people buy things, also including the fact that I think inbound marketing and HubSpot in general, the marketplace and the idea. I think it's crossing the chasm and people sort of have their head around this idea without to change the way their market.

Our product is quite good. We have got a lot of successful customers word of mouth is quite good too. So for a lot of reasons, it's cutting the hair shorter, and yes, things are going well from that perspective..

Thank you..

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

Thank you for squeezing me in here. Brian, I'm interested if you had any thoughts or observations on the acquisition of Constant Contact. Just as a company with a pretty well-known brand in online marketing, did that revenue multiple feel low to you at about 2x revenues. And I'm just wondering, we know that's different business.

But does that affect or augment your opportunities that in anyway at all?.

Interesting question. I don't think it will impact us a bit both Endurance and Constant Contact sell to much smaller companies, one, two, person, three person companies, our customers are much bigger than they are. So they are not big enterprises but they are sort of in between. So I wouldn't consider either a competitor.

In terms of the multiple, I don't really know, but I can say -- I know the CEO of both of those companies quite well. And the deal to me makes perfect sense, it deals like there is real synergy there. And there is a one plus one equals three there. So I like the deal a lot. And I think it will benefit both companies and both their customer bases.

I liked it a lot..

John, as a follow-up on the topic of the Q4 billings, you do have this tough comparison approaching, you do comment on it in the prepared remarks.

I guess, I'm just wondering, is there anything further that, you want to try to guide us to, do we think that the billings growth would decelerate a little bit relative to where it was this quarter, just any other pliable thoughts on how to navigate that in our models?.

Yes. So we don't guide specifically to billings. But I think if you look over the last four quarters, you had some quarters that were in the 50s, low 50s to mid-50s and then you had a couple of quarters that were 60 plus. Obviously, we pointed out the 60 plus quarters as being really great quarters something really magical happened.

The other quarters, obviously, when you are growing 50%, it's still pretty strong. So, it's more obviously just pointing out to 60% versus what we have been doing in the other quarters that we are more in the 50s. And then, obviously we give the guidance on the revenue side and that's really where our focus is..

Thank you..

[Operator Instructions] And our next question comes from Brad Sills with Bank of America/Merrill Lynch. Your line is open..

Hey, guys. Thanks for taking my question. Just another on ASP please, if you could, Contact here has been a nice driver for sometime.

Can you comment a little bit about what's driving customers to load more contacts into HubSpot and where are you if you look at the average customer, would you say you've got 25% of their contacts, you can get to 50, 75 or just maybe a little bit color on kind of what any more in with that driver?.

I kind of think contacts is to get to keeps on giving. What I love about that pricing, better our customers do, the better we do, the better our shareholders do. And we expose inbound marketing and we are really incented to teach them how to do it. We build this software product called HubSpot. We are really incented to make it as good as possible.

And if they embrace in down and they use the product well, I like Aaron on the call they did, just words, we see it in thousands of companies do really well. And it does all of a sudden stop, you just keep the contacts and keep rolling in. So that shouldn't keep going. That's my favorite access of all of them..

Great. Thanks. I know it's early on the new product.

But can you comment a little bit on just early reception on reports and Web sites and adds is still in beta, but have you been surprised in any segment of business where you are seeing uptake in pipeline built et cetera?.

Still super early, we are only about a month and a half in. But been really good reception to it, a lot of new accounts are buying, lots of existing accounts are buying. So feeling good about our foray into this new territory. I think it's going to go really well..

Okay. Thanks guys..

And our last question comes from the line of Spencer Bogart with Needham & Company. Your line is open..

Hey, guys. Thanks for squeezing me in here right at the end and congratulations on a great quarter.

Hey, like some other people on the call, I've got some questions around the new products and announcements that you made this quarter and just kind of wondering what has you guys most excited about internally and we kind of got our own sense of inbound, but what customers really talking about out there? And then probably too early to start giving color around how many customers are using multiple products or anything like that but if you have any additional color there that would be great?.

I think there is a lot of excitement around the adds-on. We've had a lot people buy the new improved Web site product. A lot of people buy that reporting product that's been, I think its okay for me to say it's probably the best of the three. The adds product still in beta, I expect that to be a nice driver next year.

But really, really nice reception to this -- two, three new product, I think people are excited about it. I personally very excited about our foray into the sales business. I like where we are going with the CRM product.

I feel like we nailed that product and as we start to monetize that business, I think it will be a really healthy, a really healthy sort of next act for HubSpot. So I'm feeling good about that personally, I like the sales business a lot..

Thanks guys..

All right, great. Well, thanks everyone for joining our call. We will be at a couple of events this quarter in particular the UBS conference in a couple of weeks with our Founder and Chief Technology Officer, Dharmesh Shah. So hope to see many of you there and please reach out if you have any questions. Thanks..

Thanks everybody..

This concludes today's conference call. You may now disconnect..