Good afternoon. My name is Ruth, and I will be your conference operator today. At this time, I would like to welcome everyone to the HubSpot Q3 Earnings Conference 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] Charles MacGlashing, Director of Investor Relations. You may begin your conference.

Thanks, operator. Good afternoon, and welcome to HubSpot's Third Quarter Earnings Conference Call. Today, we'll be discussing the results announced in the press release that was issued after the market closed. With me on the call this afternoon is Brian Halligan, our Chief Executive Officer and Chairman; and John Kinzer, our Chief Financial Officer. Before we start, I'd like to draw your attention to 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, including statements concerning our financial guidance for the fourth fiscal quarter of 2017, and our position to execute on our growth strategy, including development and adoption of our sales platform, and our ability to maintain existing and acquired 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 2, 2017, 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 will refer to certain non-GAAP financial measures. There's a reconciliation schedule showing GAAP versus non-GAAP results currently available on our press release announcing financial results for the third quarter ended September 30, 2017, which is located on the Investor Relations website at hubspot.com. Now, it's my pleasure to turn over the call over to HubSpot's CEO and Chairman, Brian Halligan.

Thanks, Chuck, and good afternoon, folks. Thanks for joining us as we review HubSpot's third quarter results. Let's jump right in. Third quarter revenue increased 38%, and we achieved non-GAAP operating profitability again in the quarter, very happy with the top-line growth we've seen throughout the year, and achieving positive non-GAAP operating profitability even with the added expense of our INBOUND event in the quarter. From a growth perspective, the third quarter was a strong one for HubSpot with the total sales and marketing customers passing 37,000, growing a whopping 47% year over year. As you'll recall, our big One HubSpot goal in 2017 has been to make it as simple as possible for companies to start using a part of the HubSpot platform and over time use the entire Growth Stack. We made nice progress here, where a lot of businesses originated through our free CRM offering, and 30% of our installed base is now a Growth Stack customer. The goal is to keep our cost to acquire a customer low and our LTV, lifetime value, high while delivering a delightful customer experience. In September, we hosted another incredibly successful INBOUND event, where we welcomed over 21,000 registered attendees. They came from over 100 countries to see more than 250 speakers, including Michelle Obama. And the conversation extended well outside the speaker halls, where more than 250,000 online mentions related to INBOUND around the event this year. I said this before. It's still true. It's absolutely my favorite week of the year. Many of you who are on the call today were also at INBOUND, so I know you know what I mean. What I love about INBOUND is it's not just a user event; it's a global movement that gathers in Boston every year. The overarching theme of…

Thanks, Brian. I'm really pleased with the third quarter results. We delivered strong revenue growth, $1.8 million of free cash flow and we achieved positive non-GAAP operating profitability even with the added investment from our INBOUND event. Third quarter revenue grew 38% driven by 40% subscription revenue growth, and 12% services revenue growth. Subscription revenue continues to grow faster than services, and now represents 95% of revenue, which is great for margins. HubSpot ended the quarter with 37,450 total customers, which was up 47% year-over-year. Average subscription revenue per customer came in at $10,332, down 4% year-over-year. The big driver behind the decline and average subscription revenue per customer that we continue to see significant growth from both our $50 per month sales starter product that we used to call Sales Pro, and from our $50 per month marketing starter product. Deferred revenue came in at $120.2 million growing 43% year-over-year, while calculated billings defined as revenue plus the change in deferred revenue came in at $106.6 million, up 37% versus the third quarter of 2016. Billings growth exceeded our expectations driven in part by a 2 point benefit from an FX tailwind in the quarter. Please remember that billings growth can diverge from revenue growth in any quarter due to changes in billing terms, product mix or the timing of revenue recognition versus billing. However, we continue to expect billings growth and revenue growth to generally track each other over the long run. For the remainder of my commentary, I will discuss non-GAAP measures. Let's take a look at our margins. Third quarter gross margin came in at 81%, up 3 points year-over-year. Subscription gross margin came in at 86%, up 2 points year-over-year, while services gross margin came in at a negative 20%, down 5 points year-over-year. Third…

Thanks, John. I recently came across a stat, when Dharmesh and I started HubSpot in 2006. It took us about three years to generate $1 million in revenue. Just in this last quarter, the first time in HubSpot's history, we averaged $1 million of subscription revenue per day. Investments we made over time are starting to have a real nice financial impact. The investments we've made over time are starting to also have a much broader impact on real people's lives and companies growth that's what gets us up out of bed in the morning. We have more than 37,000 paying customers, a large growing base of free users more than 110,000 professionals trained and certified on HubSpot, thousands of agency partners and over 100 connect partners. That's a whole lot of teams, people and companies growing all over the world. What I'm looking forward to most is growing a number of people impacted and having a much deeper impact on them at the same time that's would drive each of us here at HubSpot. I want to thank our HubSpot team, our wonderful customers and our amazing partners for all that you do. Thank you all very much. With that, operator, let's open the call for questions.

[Operator Instructions] Your first question comes from Bhavan Suri with William Blair. Please go ahead.

Hey, guys. Can you hear me okay.

Yeah.

Yeah.

Sounds great.

Yeah, just wanted to congrats, nice job there, especially given with your sort of positive preannounced at the conference, but congrats again. I just want to touch on two quick questions. One, obviously adding a ton of new customers, but the pricing is varied and mixed between the freemium model and the lower-priced marketing model and the sales product and everything else. Just some sense of when you think that sort of starts to bottom especially given sort of traction you're seeing and customers in the sales side, wanting to pay for features in your introduction of the enterprise pricing.

Yeah, Bhavan, it's John. So, yeah, our total subscription revenue per customer has bounced around a little. I think it was up a little bit quarter over quarter this year, still down year over year. It's really a function of how quickly we're adding those lower-level customers that ultimately we can grow and upsell over time. So I'd expect it to bump around these areas, especially when we're growing so fast. Over time, obviously, we expect that to go up. We showed you guys some analysis at INBOUND, that people that stay with us grow significantly year over year. So it's really a mix thing, but so it can bounce around a bit.

Got it, got it, and then, one more sort of fundamental question. You didn't disclose the marketing customer count, but I would love to just get some color and just on sort of growth rates here. At INBOUND, it was pretty clear that sales and CRM was the focus. The Customer Hub and things like that may be the focus next year or the year after. But sort of penetration and so just the organic growth within the marketing business, or just some sense of how that's trended, say, over the last 12 months versus now and sort of how you think about penetration those markets? Thank you and congrats again.

Yeah, so when we combined the sales and marketing products back at the beginning of this year, we talked about that. The focus of the company was really total customers. We're adding a bunch of sales. We're adding a bunch of marketing. We're more focused on what's right for the customer, which way they want to start. And so from that standpoint, we're not overly focused on our product mix and going forward, we're now going to have the Customer Hub as well. So it's really figuring out what customers' need and then bringing them in and ultimately, cross-sell and up-selling them. And so it's not as maniacally focused on any individual product.

Great. Thanks, John.

Your next question comes from Stan Zlotsky with Morgan Stanley. Please go ahead.

Hi, this is Hamza Fodderwala in for Stan Zlotsky. I just had a couple of questions. So you had a very good user conference about a month ago. Just wanted to see what's the early feedback been like on your product announcements and what's the pipeline looking like into Q4?

This is Brian. Feedback has been great. I think it was our best conference, quite frankly we've had. We've been doing them a lot. I thought it was really great. I thought speakers were great, announcements were great. Feedback from the customers has been really, really positive and if I would just kind of summarize the big stuff that customers are excited about on the marketing side, marketing product got better. We added Campaign Reporting that customers seem to love. We added a bunch of stuff around social and ads, and integrating with Facebook. On the sales side, we added our new Sales Hub Professional product for kind of mid-market companies to use our sales products. People are really excited about that. We announced our upcoming Customer Hub product for services. And then we announced our Conversations product, which will be used really throughout all three lines of business for us, which will enable people to do all kinds of new things. So the reception has been really positive from our customers and partners, really pleased with it.

Got it. And then a related note, maybe specific on the sales product, what kind of momentum did you see there? We did see the ARPU tick up on a sequential basis, which I guess, if you had with the sales product lower ASP, you would expect that to continue trend down, so just wanted to understand the puts and takes there.

Yeah, sales product is going great. We got lots and lots of customer momentum on there with the existing products. And I think the new product and the new features in that new products are going to be very well received, so feeling great about that line of business.

Okay, any reason for the ARPU tick-up though sequentially?

Yeah, I mean, I think it's in a range right now, that it can be up or down like I said 100, 200. And it's really cut in this range as long as we're adding as many customers as we are.

Got it. Thank you.

Your next question comes from Richard Davis with Canaccord. Please go ahead.

Hey, thanks. So, Brian, you kind of talked about this even at INBOUND a little bit. But good management teams have to explain big visions, but some of the - but the other thing you have to do is kind of say no to some things to reach those goals. So kind of - it's always hard, but what are some of the things you're deferring this year that you had to say no to?

We're saying not to all kinds of stuff. The big thing we consistently say no to that served us well and maybe doesn't make us and we get push back on from some investors, but I think it served us very well that we say no to building enterprise software for Fortune 500 companies. It would have been very easy for us to stay in the marketing space, to move up into the enterprise. It would have been relatively low risk. We went the other way and - while the real opportunity is to build a mid-market platform from that entire customer journey and help customers grow from end-to-end across our whole funnel. And I think that's been one of the best calls we've made over time. So that's the big one that jumps to mind, Richard.

Yeah, that makes the most sense, because we know another company that look like Sonny Corleone at the tollbooth when they try to do that, so I think that's the best strategy.

Thanks.

Thank you.

Your next question comes from Jesse Hulsing with Goldman Sachs. Please go ahead.

Yeah, thank you. And the first one is probably for John. But, Brian, you may have some thoughts too. You're showing nice coverage, particularly when you were back out at the customer event. But if I kind of look forward, you got the new sales professional product and a customer product on the horizon. So there seems to be some vectors, where you can continue to invest pretty heavily if you want to. So as we look forward, how are you thinking about leverage in 2018? And how should we think about margin expansion?

Yeah, good question, Jesse. We try to put a framework together that balances growth and leverage. I mean, right now, we - like you said, we have a ton to invest in and we've talked a bit about that. If anything, we'd love to see that R&D percentage go up a little bit just based on the number of engineers we want to add. So I think that depending on the growth rate, we've said above [31% to 2 points] [ph] And then, a little bit more if we're growing slower, and so that's a general framework. That's kind of over time. This year, we were able to deliver more, but it was a bit of we're crossing profitability. We felt like that was important and we had gotten a bit of a benefit from FX as well this year. But you should think about that framework as long as we have lots to invest in, which we really do right now. We're going to keep investing heavily in the business.

Yeah, I'll pile on that and say - right now, we're putting together a plan for next year. We're looking at projects to invest in and there are just a ton of high ROI projects, lots and lots of potential interesting projects for us, so we're going to lean in, continue to invest, build out the marketing product further, build out the sales product further, build the successful products, lots and lots of opportunities. We also, when we're making investment decisions within HubSpot, we're big fans of using unit economics. What's it cost us to acquire a customer, and then how much is that customer pay us over time and unit economics data is super, super compelling so we're bullish and we're investing in growth.

Well, and I'm curious how the feedback has been from partners, customers and your salespeople, I guess, for the new Sales Professional products, it being a higher-end SKU. It seems like there is lots of interest that can maybe move the needle on ARPU. And then also, I think you mentioned you're building a sales specific channel. How is that going?

Okay. Great question. I'll take them both. Sales Professional product, it's early. The official release of the product is actually today, Jesse, but we've been showing it and demoing it and talking about it a lot. The customers and partners are excited about it. When I think of our sales product, the first couple years of it, it was built for pretty small company with two, three, four sales reps, maybe 20, 25 person company. The new sale hub professional product's built for a mid-market company between let's say 25, 250 employees, so the real sales force, maybe multiple product lines and so the customers are really psyched about. We're going to be able to grow with them in a very nice way. In particular, they're psyched about the workflows. We're putting workflows in there, the ability to segment teams in there, some additional reporting function. It's the real meat on the bone that they're really psyched about. The sales guys are really psyched, because at the end of the day, salespeople are on commission even at HubSpot, they're on commission. And they've got a meatier product there at a $400 price point that they're going to be excited to sell and makes them money on, so far, so good. Still early but we're really excited about it.

Thanks, guys.

Our next question comes from Tom Roderick with Stifel. Please go ahead.

Hey, gentlemen, good afternoon. So Brian, I was hoping you could just dive in a little bit more here on the Customer Hub. There's obviously a lot of directions you can go here on the customer support side. Some areas of that market are a bit crowded, other areas are very adjacent to what you do. So maybe you could share with us what your near-term vision is and then longer term where you think you can take this, the sub product, with respect to what your customers are asking you to do in that market. And then maybe the adjunct question to that is how much do you think you need to invest in that business in 2018 to make it a meaningful component of the story?

Sure. Great question, Tom. The way I kind of think about HubSpot in my head is, is when we started it, the idea was quite simple. It was how do you create remarkable content and use that content to pull visitors into your site from social media and from search, and we got real good at that. And there were - it looks like an arbitrage opportunity for small business to take advantage of that back then. That still exists. It's a little less compelling than it was and it's still there. I think the new arbitrage opportunity for small businesses is to create a delightful inbound the end-to-end customer experience for their customers. And that's kind of where we're coming from. It's just quite hard to do that if you've got one marketing system, one sales system, one service system. It's hard to blend all that together and create that delightful experience. So that's sort of motivating us to get into this business. It's a relatively good sized team inside of HubSpot, relatively good sized investment. We're excited about the opportunity. We think it's quite large. And it's going to be a little bit like the sales product, like sales products we started a couple of years ago and there was a gap in the market there and it's grown really nicely over time. And you've seen it developed over time. I suspect it's going to be a very, very similar story for the Customer Hub over time. I suspect a lot of our customers, who are in the small, mid-size of the market, who are using our marketing product and our sales product, they're going to want that service product. It's one bill to pay; one number to call if they get stuck; one user interface to learn; one customer timeline to get your head around, one bot to manage, like it's all going to be together in one user interface. So we're feeling great about it.

Great. Thank you. John, follow-up question for you, just with respect to the margins themselves. You pointed out that the gross margin profile here is up 300 bps year-on-year from last year. And it looks like the majority of that seems to be coming from the subscription side of the business. Aside from scale, what else are you guys doing to drive that margin enhancement on the subscription gross margin side? And then, do we tap out here pretty soon? I mean 86% is a pretty robust number. Or do you think you can get that up to 90%? Where do you think that tops out?

Great question, Tom. Yeah, I mean, clearly, we're really happy with where our gross margins are. We really have focused on that subscription gross margin, like you said, it's about 85%, 86% level. And with services being such a small portion now, 5% of our revenue, it's becoming less and less important. And that overall mix is driving the overall gross margin into the low 80s. I think, there's still a little bit of room on mix. As for the product gross margin, I think you are right. We're probably pretty close to being tapped out. Though to the extent, we're relying on the same data on the central database and we can maximize that and get more revenue per customer. Potentially, there could be a little bit more room, but we've gotten the vast majority of that and you're not going to see those kind of jumps, but there's probably a little bit more room there.

Got it. Really helpful. Thank you, guys. Nice job.

Our next question comes from Brad Sills Bank of America Merrill Lynch. Please go ahead.

Hi, guys. Thanks for taking my question. At the Analyst Day, I remember you talking about making some changes potentially next year, to kind of get the selling motion of selling marketing into the sales-only installed base. Moving more, I think you've done a great job so far on selling sales with new marketing customers and sales into existing marketers - marketing customer base, but could you provide a little color on what are some of the things you might be able to do in your go-to-market or tactically to get that end of the businesses are moving?

Yes, I'm excited about that motion, Brad. I think it's a big opportunity for us. We are cranking on selling sales into marketing and we're definitely doing better on selling marketing into sales. It's been some nice momentum on there over the last few months that looks quite promising. I think there's a lot we can do to enable our sales organization and service organization go faster there, things like change of commission plan. So the commission plan, you could imagine paying at a different rate when you're selling a marketing product into the sales installed base. That might be something we would think about. More training of the reps on how to get in there with the sales customers, talk to the sales customers and get that introduction to the head of marketing, and there's in product things we can do, for example, inside the Sales Professional hub product, you can create workflows and those workflows can trigger all kinds of things. But if you want to send e-mails off of those workflows, while, you need to use a marketing hub version of that. And so things within the product we can do to tee that up. So a lot more work to do there, some nice progress on it, but it's a lot more low-hanging fruit.

Great. Thanks, Brian. And then, just on international, obviously strength has been holding there, or - some of the partners we've spoken to in that region are talking about accelerating momentum here and adoption of inbound and HubSpot. What are you seeing in the region? Are they on a late-adoption cycle here? Do you think we're kind of in maybe a year or two behind the U.S.? And potential acceleration and some of the countries over in Europe?

In terms of the way they sell and market and their use of social media and the Internet and whatnot. I don't see a big gap like you see in a lot of other industries per se. In terms of where we are in our investment cycle, we started in international far later than we started in the United States, and we started in Ireland and we've been in the U.S. now for 11 years. We've really only been in the international for four years, John? Like four years?

Yes.

And the way, I kind of looked at it is we're starting to get a real nice return on some of the investments we've made over the last four years. The investments are things like offices in Dublin, offices in Australia, Singapore, we just opened Berlin and people in those offices, but also big investments in languages. So we translated HubSpot, the product and the help in the home, selling and servicing motion into five languages and we've done that over the last couple of years. We're just now starting to see a real nice return on some of those investments. The other way we kind of looked at it is we look at unit economics. I just brought this up before. And gosh, because, we're in the early in the adoption cycle internationally, those unit economics really look good, so it's a very, very attractive investment for us as we're looking to add headcount and investments over time. So still early, nice, nice opportunity left there.

Great. Thanks, Brian.

Your next question comes from Mark Murphy with JPMorgan. Please go ahead.

Hi, good afternoon. This is Matt Coss on behalf of Mark Murphy. First of all, congrats on a fantastic quarter. I wanted to ask you about how you're preparing the agency channel for customer service. For example, how will you equip them? And will you be pursuing additional channels like you did for the sales product like with sales consultancy and coaches?

Yeah, great question. So if I kind of take a step back and think about our agency program and how it started and where it's evolving and kind of where it's going, it started really as a marketing agency program. First, eight years of HubSpot, we really just were in the marketing software business and we signed up a lot of web design consultancies, search engine optimization consultancies and PR agencies, and we turn them into software companies with recurring revenue models and that worked out great. We came out with the sales product and two things are happening. Within those marketing agencies, a decent number of them have decided we're not just going to be marketing agencies. We're going to be sales and marketing agencies and they do both and they're doing really, really well with it. There's another decent percentage on this, I'm sort of a web development person and a design person. I don't really want to get into the sales business and they stick into sales. - they stick in the marketing business. So it's split and it's going pretty well, pretty happy with the way that's going. We're not going to push or force any of our marketing agencies to start selling or engaging on the sales product if they're not into it. Then, we say, well, there's this whole other opportunity out there of sales coaches, of CRM implementation agencies and there's tens of thousands of them in the U.S. alone so why don't we see if we can create a program for them. So there's kind of a tiger team inside of HubSpot that is signing these CRM and sales coaching agencies out there. There's quite a few of them now. They're starting to get some tractions, early, but it looks quite good. Same type of thing actually is happening where some of these sales consultancies and CRM agencies are only interested in staying in sales. A bunch of them though, now are picking up the marketing program. I suspect that if I were a betting man, that the same type of developments will happen on the service side. That we'll let some of our sales and marketing agencies sell the full stack and engage with customers across our whole life cycle. We'll push it hard, many of them will come over and do the servicing and the selling of the customer hub product, but then, we'll also offer the option of trying to sign up a new type of agency that just does that stuff. So moving along the line here, I think there's a pattern here that you can connect the dots on.

Your next question comes from Ross Macmillan with RBC. Please go ahead.

Thanks a lot. My congratulations as well. Maybe just a tactical one, I know that you were promoting as we're coming into the November 1, let's call, the prior pricing for the sales product. And I just wondered if you could just reflect on sort of why you were sort of promoting that. Was it just the way to seed more seats into the market? Or was there anything else you were trying to do with that kind of promotion prior to launch of the $400 SKU?

Yeah, great question, Ross. We had a few options of how to do that and we took what we think is the most customer prospect friendly approach here. And we were aggressive grandparents and historically, we've been aggressive grandparents at HubSpot. And so we basically said it, prior to November 1, you were a customer of the old sales product that you would be grandfathered into the new sales product, and we just thought that was fair. We had people who were early adopters, who've been on our sales product. We didn't want to penalize them. And we had a bunch of people who were looking at our CRM and sales products during the month of September. We certainly didn't want to drop a brand new price point on them and raise the price on them immediately, so we gave them a little buffer and we grandfather them in. The truth is, it's a little tiny bit of pull forward revenue in October from that, nothing huge, but I feel really good about the long-term and something for our customers and prospects, and creating a brand that people can trust.

That's helpful. Thank you. I maybe just a follow-up. Just, I know you haven't been specific, but as we think towards the Customer Hub and Conversation. Can you give us any sense of kind of how we should think about timing in the year for when these products might arrive? Is it first half, second half? Are they going to be separate timing? Just any color on that would be helpful. Thanks, Brian.

Yeah, our Head Of Product at INBOUND said it would be first half. I think, that's probably a good estimation.

Thanks so much. Congrats again.

Yeah.

Your next question comes from Terry Tillman with SunTrust Robinson Humphrey. Please go ahead.

Hey, good afternoon, gentlemen and congrats. Hey, Brian, John and Chuck. Brian just first question, you provide a lot of transparency at the user conference, INBOUND conference, and talk about all-zone journey in terms of scaling up your business and you're in the scale up mode now yourselves. You've had a lot of learnings, as you've continued your broaden the product stack? So that's the first part of this preamble to the question. The second part is Customer Hub actually does have a $70 per month price point. Sales Hub is $50 per month per user. Could you see because of a lot of your learnings and as you've gotten smarter with new products and new market, a faster ramp on Customer Hub versus Sales Hub?

Maybe. I think, there's a lot of learning - the thing that's been tricky for HubSpot, and it's gone pretty well, but it's been tricky. As we're really an apps company moving to a suite company. We came up with a sales product. We had a separate division selling it and building it, and we pulled it in and merged it with the marketing product and that really we didn't Q1. That's gone pretty well. And so we've learned a lot about, how to do that, how to create a nice experience for our customers. I think, we're going to leverage that experience, as we build this product and as we roll it out to our customers. I think, we've learned a ton from building that sales product and selling it, marketing it. And so will it go faster slower than sales product? I can't say. I hope may be great if it went faster. But it's - it rhymes with the way we did the sales product.

Hey, Terry, it's John. One thing to clarify, we haven't announced any pricing yet on the Customer Hub just don't want to - people they get ahead of themselves on that.

I actually thought I saw something on your website, okay. But maybe that was my mistake, so fair enough. Hey, John, one question as it relates to the billings comparison. Can you just remind us, it looks like, it's going to be one of the easiest, if not easiest comparisons for the fourth quarter, 4Q 2017 versus 4Q 2016. Do we have a tailwind on FX and/or was there any other things you did in terms of promos or things that we need to keep in mind when we think about your compare? Thank you.

Yeah, good question. So first of all, in the third quarter, we were obviously really happy with the billing. We did get a couple of point benefit on the FX side, as well as month up front were a little bit. So that was nice to see that in the 37% range. As we think about the fourth quarter, obviously, it's the year-end, we're bullish on that, but we always finish up strong. We did last year as well. So you know I think that in general the way I would think about billings is think about it relative to revenue growth over time. Those two numbers should track each other assuming relatively consistent billing month up front.

Okay, thanks, nice job.

Your next question come from Samad Samana with Stephens Inc. Please go ahead.

Hi, guys, thanks for taking my questions. John, maybe just a couple of housekeeping questions for you. The international business seems to be doing really well and you just mentioned FX on the question before. But I'm curious, how does that growth look there, the acceleration. Would it still have accelerated without FX? And I guess, maybe some additional color on what's driving that underlying strength on the international side of business would be helpful.

Yeah, I mean, first of all I would say, I want to clarify a couple things on the growth side. We've talked about in the last couple quarters that when we started the Sales Pro product, we had that - we were building that product out of a separate billing system. And we weren't really tracking well international versus domestic, because we weren't capturing that. So for this year, all the growth is going to - I'm sorry, prior to this year all of that revenue was going to domestic. And so when you - now that we're actually capturing that correctly, when you layer in that international Sales Pro, the prior year compare actually is deflated. So I think I've talked about this the last couple quarters. So if you normalize for that and the FX, we would have been in the low 60s. Now, that's still great. We've been really happy with that international growth. We've done great in the nautical cities like Dublin, Sydney, Singapore, as well as some of the newer cities in Berlin and Tokyo. And we just keep investing heavily in those cities, because we see the demand there. And as Brian said, the unit economics are just so compelling. So we still think there's a ton of opportunity internationally and we expect that to continue.

And just to be clear, Samad, from an international growth perspective it accelerate a bit quarter-over-quarter.

That's very helpful. And then Brian, maybe a bigger picture question for you. As the company thinks about adding sales capacity and in the context of having a multi-product strategy, now do you think that as you go forward will there be any type of change in the type of salesperson HubSpot hiring or the way that they're compensated, now that more and more additional products are being layered into the platform? And thanks again for taking my questions.

That's a great question. I think there will be tweaks to the way we sell the products and the profile rep. I don't think there will be a wholesale change. For example, the sales motion for freemium account is a little bit more of a help motion than a sell motion, and using the CRM products, I've got some of these, the call to action click within the product. I'm starting to use them; can you help me figure them out? And so they're already a user and you're helping them. So if anything, it's moving a bit towards help and a little away from the sell. But nothing major coming on that front.

Your next question comes from Koji Ikeda with Oppenheimer. Please go ahead.

Hello, hi, thanks for taking my question. I wanted to build upon Samad's question on the selling motion. Once the Customer Hub goes GA next year with all the different pricing options, HubSpot is going to have a really nice platform of customer engagement applications with the Marketing Hub, Sales Hub and the Customer Hub. And I was just wondering, once that all comes online is there going to be a greater emphasis placed on full platform sales or are the sales teams really just going to be targeting the individual businesses units as I understand that you guys are doing right now?

That's a great question. The way it will work next year and the way we're kind of headed Koji, is somebody starts with our free CRM product, they're enjoying it, and then they - maybe they move up the stack and they purchase our Sales Professional product. And then they'll move over and buy the Marketing Pro product and then they'll move over and buy the whole thing. My suspicion of the way it will work over the long haul and the way I want it to work, how do we get them using our free products, buying in one product line, and then going in and selling them the full stack. So how do I keep that cost to acquire low, how do I match the way we sell, the way people really want to buy, get in the door, and then how do we maximize the total lifetime value by delighting them on their first purchase. I don't think that's going to be every time. But I think you're going to see a lot of deals next year that are full Growth Stack after that first purchase is my guess.

Got it. Congrats on the quarter and thanks for taking my question.

Thank you, sir.

Your next question comes from Kirk Materne with Evercore ISI. Please go ahead.

Hi, this is Tom Mao on for Kirk. As you start planning for 2018, how are you thinking about investments in go-to-market domestically versus internationally? And internationally, are you thinking about kind of broadening the footprint at all or do you want to expand some of the offices that you already have in place?

Tom, good question. It's Brian. I think we're going to invest heavily in both next year. The unit economics in growth rates in international are great. We'd probably invest a little faster in internationally than the United States. In terms of international, we'll continue to invest in the locations we have and we may have an eye open to one more location. We haven't made that decision yet. But we're unlikely to be done opening new offices. We've got a couple more in our head either for 2018 or 2019.

Got it and on a related note, can you talk about some of your sales hiring trends, as we enter the fourth quarter into 2019 - or 2018? And should we think about sales productivity?

Sales hiring has been pretty good. It's going pretty well. Sales productivity has been pretty solid. They're starting to figure out, how to sell the whole Growth Stack, trying to figure - they're starting to really figure out how to sell Sales Pro, so feeling solid about both.

Great. Thanks.

Your next question comes from Derrick Wood with Cowen & Company. Please go ahead.

Hey, guys, this is Jim Fitzgerald signing in for Derrick. I just had a quick one on the Kemvi acquisition. It's been a few months since you guys acquired them. Do you have any updates there, any current thoughts on how that will be utilized?

Yeah, that's going great. That's a great crew we picked up there. Their ensconced in the dev organization now, working on data plays, working on AI plays. And we're making a big investment in artificial intelligence, machine learning through the acquisitions we've made and some just for hiring of our own and training people. So really bullish on that team, and how they can make a whole platform better, but specifically how they can leverage data to make that sales-reps' experience better and their prioritization of their time better, so, so far so good.

Great, thanks.

Your next question comes from Brian Peterson with Raymond James. Please go ahead.

Hi guys, Kevin here in for Brian. Thanks for taking my call. You announced the Shopify integration out at INBOUND. And I wanted to understand how sophisticated your customers are from an e-commerce perspective, and maybe to what extent does this integration really help you increase the ROI for your customer base?

Yeah, I think it's going to be great for HubSpot and for Shopify. Not all of Shopify's customers are a fit. They have lots of little customers. They have some bigger customers. We're kind of a mid-market play. In the Shopify customer, who's a terrific fit for HubSpot is a B2C considered purchase type of a buy. It looks a little bit like B2B. And the integration is super slick. You basically can - we create a new product object inside of HubSpot and you can basically take your catalog from within Shopify, import it into HubSpot, have all your contacts synced over as well. You can segment all those contacts in very detailed ways, not just by geography or whether they purchase or not, but segmented by which product they purchase or which product they looked at, which is very powerful. Then you can nurture them and you can do shopping-cart abandonment campaign, super powerful stuff for e-commerce companies. They can also do all their content marketing, search engine optimization, blogging, all that kind of stuff with HubSpot. So I am super, super excited about the Shopify integration. I think there is that a decent chunk of their customers, probably slightly larger customers on their side that are a terrific fit for our marketing product.

That's helpful. And then, if we think about the customer service functionality, and the potential ramp of that business, I'm curious how we should think about the ramp relative to what you've seen so far in your sales-oriented businesses. Would you expect something similar, maybe faster, how should we think about?

We'll see, there is a team working on it. And we have a general manager for that crew. And you certainly, going to get a push for me to grow it fast. But it's hard to say. We haven't even launched the product yet. I think there's a big market there. I think particularly our customers who are already using the marketing products and the sales products are going to be all over, having the same user interface and the same bill, the same number to call, altogether in one system. So I think it's a nice, nice market. We'll see how it goes. It's too early to really forecast it but kind of similar to the sales product is what I have in my head.

Understood, thanks.

There are no further questions at this point. I turn the call over to Brian Halligan.

Okay. I want to thank everyone for joining the call. Hope you're all well and happy day after Halloween.

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