Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the HubSpot's Q1 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. [Operator Instructions] I will now turn the call over to Chuck MacGlashing, Head of Investor Relations. You may begin your conference.

Thanks, operator. Good afternoon and welcome to HubSpot's first 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 Kate Bueker, our Chief Financial Officer. Before we start, I'd like to draw your attention to the Safe Harbor statement included in today's press release. During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. All statements, other than the statements of historical fact, are forward-looking statements, including statements regarding management's expectations of future financial and operational performance and operational expenditures, expected growth and business outlook, including our financial guidance for the second fiscal quarter of 2019. Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and to our Form 10-K, which was filed with the SEC on February 12, 2019 for a discussion of the risks and uncertainties that could cause actual results to differ materially from expectations. During the course of today's call, we'll refer to certain non-GAAP financial measures as defined by Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found within our first quarter 2019 earnings press release in the Investor Relations section of our website at hubspot.com. Now, it's my pleasure to turn the call over to HubSpot's CEO and Chairman, Brian Halligan.

Thanks, Chuck, good afternoon folks. Thank you for joining us today as we review HubSpot's first quarter 2019 earnings results. We're off to a strong start to the year overall 35% revenue growth in constant currency, 9% non-GAAP operating margins and 35% customer growth bringing our total customers at over 60,000. Great quarter. Now I'd like to step back for a moment and give you a view into how we're seeing the world these days. We feel like the real arbitrage opportunity in business these days is the ability for company to create remarkable customer experiences. Business schools used to teach that to win you needed to create a 10x better product. But in the future, I believe they'll teach that to win you need to create a 10x better experience. You may have heard this before, but I'll remind you of my morning routine as an example of what I'm talking about. So you see, I wake up every morning on a purple mattress. And then I reach over on to my dresser, and I put on my worthy parker glasses. And then I pick up my iPhone and I put on Spotify and I listen to the Grateful Dead and dance my way into the bathroom. And I shave with my Dollar Shave Club razor and then I put on my stitch fix outfit and I take a lift to work. Now why do I tell you about my morning routine? Well those companies that I'm doing business with they're fascinating, they all start-ups. All of those companies those start-ups they're growing like weeds. All of those companies won my business, not by selling me a better product, but by creating a better and lighter customer experience fueled by word-of-mouth. It's that new arbitrage opportunity that motivated us…

Thanks Brian. Let's turn to our first quarter financial results and our guidance for the second quarter. 2019 is off to a strong start. I'm pleased with the growth in revenue, free cash flow and non-GAAP operating profit we delivered in Q1. First quarter revenue grew 35% year-over-year in constant currency and 33% as reported. Q1 subscription revenues grew 33% year-over-year, while services revenue grew 27% year-over-year both on as-reported basis. HubSpot ended Q1 with 60,814 total customers, which was up 35% year-over-year. Average subscription revenue per customer in Q1 was $9,811 down 2% year-over-year as reported and flat in constant currency. We continue to expect this metric to bounce around depending on product mix and the amount of new versus installed base selling in any quarter. Domestic revenue grew 27%, while international revenue growth was 50% year-over-year in constant currency and 42% on an as-reported basis. International revenue represented 39% of total revenue in Q1, up three points year-over-year. We continue to see significant opportunity for growth domestically as well as around the world. Deferred revenue as of the end of March was $193 million, a 28% increase year-over-year. Calculated billings was $160 million, up over 31% year-over-year in constant currency and 27% as-reported given an almost five-point FX headwind to calculated billings in the quarter. The remainder of my comments will refer to non-GAAP measures. First quarter gross margin was 82%, up slightly less than a point year-over-year. Subscription gross margin was flat at 86%, while services gross margin was 4%, up 12 points year-over-year. First quarter operating margin was 8.6%, up almost four points from Q1 of last year. The adoption of ASC 606 had a minimal impact to operating leverage in Q1, but as a reminder, we still anticipate that ASC 606 will be a one…

Thanks, Kate. We're off to a really strong start in 2019. Our suite product play is playing dividends as our customers are investing in HubSpot as their marketing sales and service full front office and our flywheel play is reducing friction, so it's even easier for our customers to try buy get up and running with HubSpot. Their platform play is gaining serious momentum as our customers and partners are finding it easier and more valuable than ever to extend, build on and get more leverage than ever from their HubSpot investment. Okay. I want to close by thanking our customers, our partners, our investors and all the HubSpotters around the globe for helping us with their mission to help millions of organizations grow better. Operator, can we please open up the call for a few questions?

[Operator Instructions] Your first question comes from Tom Roderick with Stifel. Tom Roderick, your line is open.

Hi, guys. Good afternoon. Thanks for taking my questions. So I wanted to just kind of hit on the FX headwind here that I think you said five points on bookings and was curious if you do speak to that a little bit more in terms of how much the deferred revenue versus the revenue on a year-on-year basis that hit versus the deferred in the quarter-on-quarter basis. And also if there are any particular geographies that are doing particularly well internationally that you'd highlight that you saw the strongest FX hit from that would be great. And then sort of modeling forward, any thoughts on how we should attempt to sort of think about the headwinds that's deferred in our models going forward? Thanks.

Yes. Thanks. As we talked about in the past, there are a bunch of different things that impact billings which is why we don't point to billings as one of the primary metrics that we focus on internally. The story in Q1 was clearly an FX story and there is really two components of FX headwinds as it relates to calculated billings. The first one is around revenue, so you'll recall that we defined calculated billings as revenue plus the change in deferred. There was about a two and half point headwind to revenue growth year-over-year in the quarter, about the same frankly with the revaluation of the deferred revenue. So we - as you know, recalculated the value in U.S. dollars of the deferred revenue balance on the balance sheet at the end of March and the difference between the starting and ending point FX rates impact that and that is another two and half points of headwind for us.

Excellent. Excellent. That's great. And then turning to the product side, looking at the customer growth here fantastic growth again the 36% and I know Brian you both talked about the ARPU bouncing around a little bit. But would love to hear some of the new SKU that you introduced fast forward INBOUND, how is it starting to have impact relative to ARPU. Perhaps you could talk about Sales Hub Pro and sort of SKU that might be starting to move that needle on ARPU a little bit. Thanks.

Sure Tom. Thanks for the question. Just to get everyone on the same page, if you roll the clock back to INBOUND last year, last September, we announced a whole bunch of new products there and a bunch of new products on the Enterprise side and for us, Enterprise is really mid-market, but we call it Enterprise and then a bunch of new products on the starter SKU which is really for start-ups and small businesses. Overall, I'd say it has done pretty well. I'm pretty happy with the performance of all the new products. All our products are - we're never done. It's not like a sculpture where we crafted. It's done, but man they're doing well in those products are all going to get better and feeling good about it. The tricky thing for investors is that ARPU number because it's - we got some customers are definitely moving it up and we've got some customers that are definitely moving it down. And that starter product line, particularly the marketing starter product line is doing really well and that's pulling it a bit. But overall, I feel really good about all those new products. Anything you want to add to there, Kate?

No. I think the trend in Q1 is very similar to what we've been seeing over the last few quarters which is this product mix really being the thing that impacts both the customer account and the ASRPC and we see it again in Q1. That said, if you look at the individual hubs, we are seeing growth or expansion in ASRPC, so on a standalone basis the Sales Hub and the Marketing X Starter are both showing positive trend.

That's a good point Marketing X Starter is growing nicely.

Outstanding. And that's great. Thank you guys. I'll jump back in queue.

Your next question comes from Brian Peterson from Raymond James.

Hi. Thanks for taking the question. So maybe just a follow-up to Tom's question. But just on the international strength, could you expand a bit where you're seeing some success? And if I think about what products are resonating internationally any difference from what you're seeing domestically?

How you doing Brian? This is Brian. International is great. We've made lots of investment in international over the last five years a big office in Dublin then we did - we've got Australia. We've done Japan. We've done in Singapore, Bogotá. We're just announcing and opening our Paris office system, big investments and I think we're seeing a really nice return on those investments. We also made some IT language in the localization investments and those investments are going well, and I think we're seeing nice, nice growth out of there. What's interesting about the growth internationally, it looked a lot like the domestic market. The mix between products is nearly identical. You think there will be some slight difference in there, but it's pretty close to the same across all the different product lines. That was really good question. Thanks.

And maybe just one quick follow-up for Kate just on the retention number. I'm sorry, if I missed that during the call, but anything you can share on the net revenue retention? Thanks guys.

Yeah. So we don't actually disclose a specific number on retention. Q1 revenue retention was in the high 90s, which was expected. We said that this number is going to move around up and down. We tend to see a bit of strength in Q3 and Q4 in the call it heavier bookings quarters, and we tend to see it moderate a little bit in Q1. We still think that we can do a 100-plus retention over the long-term.

Great. Thank you.

Your next question comes from Brad Sills from Bank of America Merrill Lynch.

Hey, thanks guys. Wanted to ask about sales and how that's been ramping in the ad agency channel and within your direct sales force. Any color on how these two channels are getting up to speed and moving up the learning curve on sell-in sales?

Brad, it's Brian. I'll take that. If I just kind of step back and describe what's going on at HubSpot with the channel, when we really early on when we first started HubSpot, HubSpot was only marketing software company. We help people generate leads. And we started pretty early in an agency channel so it was a lot of search engine optimization agencies and website building agencies and PR agencies and it went great. And basically what happened was folks had a choice if they're going to buy HubSpot. If they want to do it themselves, they would buy directly from us. If they wanted to do it through an agency, they would buy through an agency, it's scaled really well. Over the last couple of years, we've been shipping our value prop from a lead-generation business to sort of full flywheel business helping people not just generate leads by creating this whole process. What's been happening underneath behind the scenes is a lot of our best marketing agencies have transformed themselves into customer experience agencies, flywheel agencies, agencies that really help people with that entire experience. And then we started a new effort to pull in different types of agencies, and we've got a lot of these agencies signing up a lot of boutique sales agencies, sales coaching, sales implementations, CRM implementations, and we're starting to sign up some more IT implementation, types of agencies. And that was an initiative we started probably a year ago and it's tracking, it's going pretty well. Now in the next couple of weeks, we're having all of our top tier agency partners into HubSpot. And I get to meet with them all I'm having them all over my house for dinner. I really look forward to meeting them. That group and overall the agency program is performing really well at HubSpot. Really happy with the progress that the whole group's making and I'm bullish on the new sales and IT partners over the mid- and long term.

That's great. Thanks, Brian. And then one more if I may. You made some comments earlier on the outage disrupting your own sales operation. Could you elaborate a little bit? Did you see deals push in the partner channel and in your direct channel as a result into Q2? Or are you more speaking to the impact being more just on your own sales operations given that you're running HubSpot yourself? Thank you.

Sure. I mean, I'd like to comment a little bit more broadly on the outage. Folks are super interested in and we published a bundle of stuff out there. It points to our blog JD our COO published an article while the outage was going on. And then our chief architect did a post on our blog would like a post-mortem of what happened in there. If you really want to dig in those you've got places take a look. Around the outage that happened right at the end of March I have talked to a lot of our customers were hit by it and if any of those customers are listening on the call I just like to apologize for it. It was disruptive for you, it's disruptive for us and that's the long day at HubSpot. So we're kind of disappointed there ourselves frankly about that outage. Since then we've been very, very active. We've built a new reliability team, built around - we took our top engineer and built the reliability team. We've changed them in the process by which we built product and we're only a few weeks and we're already making some really nice progress. So I'm pleased with the effort. And as the Dalai Lama like to say when you make a mistake, don't lose the lesson. I don't think we'll lose the lesson. I think we're going to learn our lesson and make sure we change our processes, change our org, so we can be even better in the future. In terms of us, yes, we use HubSpot. There wasn't a major impact, it was one day out of the quarter. It wasn't a huge, huge impact may be very, very slight impact there on the last day of the quarter, but nothing that I lost sleep over. A lot more sleep over the disruption that we get to our customers.

Thanks, Brian.

Your next question comes from Mark Murphy from JPMorgan.

Yes, thank you, Brian. If you continue to succeed in the very long run, what percent of your customers do you think are going to end up using all three parts of the Growth Stack? In other words, marketing, sales and service or essentially viewing HubSpot as the core front office system. And I'm also just curious what you think that can do for retention and stickiness if they do end up integrating many apps into HubSpot I think you said they're also integrating five apps.

Yes. How are you doing Mark? Thanks for your question.

Good.

I don't know what the number is, but it's going to be high. And I go in tons of sales calls and talk to tons of customers. And what I'm seeing happening in the market is people - it's a little bit like I myself - for better words I'm an Apple person. I have an iPhone, I have a couple of Macs, I have the earbuds I even use Apple TV. I don't mix them I don't want to have a Windows machine that mixed in with my iPhone. I think companies are kind of doing the same thing where they're picking a core platform provider for the front office, buying some applications from that platform provider and then plugging a lots of other applications in. That's kind of what I see in the market and the two primary ones I see - obviously I see HubSpot every day and we see Salesforce every day, it's a very good competitor for us. And I think we compete quite well. Our offering is really good and I think our offering is getting stronger and stronger every day. So I think over the long haul, a very high percentage of our customers will pick as of the platform. They may not use us for all three, they may plug in something different in a different part of our product, but I think they will consider us sort of their system of record and they'll plug-in a couple of our apps and they'll plug in tens of other applications into that. Now over the long haul, what will that do to retention? I think our retention can be a lot higher than it is today. I don't know what that can be. I think Kate is staring me a hole in the side of my head right now. I wouldn't dare to - I don't know what that is. But I think it gives me a lot. But there's a mixed problem like while we're getting a lot of our existing customers to buy all three of our products and really commits to our platform, there lots of people just buying the marketing starter. So that's why we say over the long haul because in the short haul as JD likes to say, we've got kind of - what do you call it?

A humidifier and de-humidifier.

Do we get a humidifier or a de-humidifier going on ASRPC and going on retention inside HubSpot. And that there are few great things going on with lots of new customers on this point solution and there's lots of people upgrading. But over the long haul I think we'll have much better retention rate than after that.

Yes I think Mark you're instinct is right. We do see for multiproduct customer a meaningfully higher retention rate then we see for single-product customers. But Brian is right in that journey has a long way to go.

Okay. Okay, great. And Kate, just a very quick follow-up, I think you said billings grew 31% in constant currency, nice to see. You had adjusted that for currency. Did you also adjust that for duration as I believe you had done that in the prior quarter's or is it just for currency?

That's the actual results in constant currency. But as you point out, there are a bunch of different things that play into billings. Again that's why we don't obsess about it internally. There's some seasonality to billings in Q1. There is a bit of push and pull on billing terms and we pride a little bit impact here from the critical so a lot of stuff happening in billings this quarter.

Overall although I look at that - we look at million numbers. Leading indicators of the business are very good. I feel good about - really I feel fine about where the business is at a little bit of currency headwind, but I feel like really good just like a year ago.

Okay. And is that the reference to the forward pipeline and just the tone and tenor of the sales feedback and whatever else comes across your dashboard, is that what you're talking about Brian?

Yes. There's - we look at million numbers a lot of them are backward-looking, some are kind of forward-looking. Everything looks good generally compared to yours. Nothing is ever perfect, but like if I look today versus a year ago I was bullish a year ago I'm still bullish today like sales reps are making their numbers, our win rates are good, our competitive position is good, I'm still feeling good. There's a little currency headwind there that's hard for me to get by control app, but business is good.

Which of course has captured our guidance, Mark.

Thank you Chuck for clarifying. All right, have a good night.

Your next question comes from Samad Samana from Jefferies.

Hi, thank you for taking my questions. I just wanted to make sure; I think you said the headcount was up 20% year-over-year. I was looking back I think that's pretty decent slowdown in terms of the employee headcount growth rate. I'm just curious how you guys view maybe hiring. Is that a just a seasonal effect? Should we expect higher growth? As I think about some of the other companies that we look at that are even larger and they're still growing heads faster, so I'm just curious what the company's headcount investment are. And then I have a follow-up question as well.

Yes. So Q1 headcount was frankly a very hard compare for us. 2018 Q1 was a really notable strong hiring quarter. That said, I think, January we got off to a little bit of a slower start coming out of the holidays. We're really encouraged by the hiring trends that we're seeing in March and April, and we also continue to see relatively low levels of attrition which is great.

Got you. And then Kate maybe just one follow-up on the outage happens to other companies as well. Is there any type of just maybe change or maybe churn rates or any impact or is there any financial remediation for customers? Just want to make sure if there is one-time items that we kind of adjust accordingly.

Yeah. I mean, it's obviously hard to quantify the specific impact of the outage, but I think they're probably a small impact on a bunch of different things including churn, including billings, including revenue.

So I might just add to that.

Yeah.

One of the million metrics we look at is customer Net Promoter Score, customer happiness referral rates. As you might imagine they really dipped. And I look at it really dipped down that week to a low since I've been looking at it and it steadily climbed back up and it's all the way back up to where it was three outage. So I think it's very unfortunate and we apologize for it. But I don't think it's going to change the game for us.

We definitely appreciate the amount of information that's in the blog. I think it was very helpful. I just want to ask and Brian just one maybe big-picture question. I think we're about a year into the customer service offering being out. I'm curious just maybe how you feel the ramp of that is going and how that's impacting the overall suite adoption. And that's it for me. Thanks again for indulging that extra question.

That's okay Samad. Nice to hear from you. Sure operation is doing great. We came up with that. I think we started that in May of last year. Historically, the way we release products is we released kind of a small footprint of our product and then it continually get better and better and we've seen that with that service product. It's getting a lot better a year from now; it's going to even better. We're seeing people adopt it and enjoy it so feeling good. It's growing. One of the things I think we said last quarter or the quarter before is when compared to growth rate of the service offering from the day we released the service offering, relative to what we did on the sales offering it continues to grow a lot faster than that sales business did. And we're seeing lots of customer by the whole suite upfront, which is really heartening.

Your next question comes from Stan Zlotsky from Morgan Stanley.

Perfect. Thank you so much for taking my question. Brian maybe if I could just chime in on what you mentioned as far as the multi-product adoption. Any metrics that you guys can share with us on how adoption of that is going versus like the 20,000 that you mentioned on the Q4 call?

One that I can take that. I think what we said is we will give you some milestone numbers and we have past that 20,000 milestone of multi-product customers, we're sort of comfortably above that now. We're tracking in the mid-30% of our customer base to have more than one HubSpot product.

Got it. And maybe if I could just go back to the average subscription revenue per customer metric. In Q1, it dipped 2% quarter-on-quarter and I understand that there are some FX headwind, but we saw similar dynamic in - over the last two years wherein Q1 it dips fairly significantly compared to all the other quarters. Is there some kind of a phenomenon that happens in Q1 from a mix shift or some kind of customer dynamic that takes place in Q1 that really hits that average revenue per subscriber? Thank you.

Yes. I think we announced a lot of products in Q4, we announced new enterprise suite, we announced a price increase there's a lot of attention on that side of the - I guess I'm going to call that the humidifier side of the equation. Then Q1 was a particularly strong quarter for the sales and service hubs side of the equation. And so depending on sort of the composition of selling in any quarter you're going to continue to see that bounce around.

Got it. All right. Thank you so much.

Your next question comes from Bhavan Suri from William Blair.

y. This is actually Arjun on for Bhavan. I just want to touch on the multi-product customers a little bit more. I know you're seeing more customers land at HubSpot with more than one product. But just curious if you're seeing any impact on the sales cycle and how long customers are staying in the funnel before they make a purchasing decision. And also is there a greater proportion of this customer - multi-product customers that are landing the HubSpot through a channel? Or is it fairly consistent in terms of single-product customers?

I guess, I'll continue that humidifier/de-humidifier theme. If you look overall at the sales cycle, it really hasn't changed much at all. Some of the deals are faster, particularly if they're buying the growth suite or a point starter solution. If they're buying the Enterprise Growth Suite, it might be a little longer, but net, net it really hasn't moved much. In terms of - and I haven't looked at this carefully, but I believe it's pretty similar - I don't know if you have this pretty similar processes direct and indirect channel in terms of the...

I actually don't know the answer, but I'm happy to follow-up.

Yes.

Okay, it's fair. And then I know the international growth has been pretty phenomenal 50%. Just curious if there's - if you see any difference in the competitive environment abroad versus what you're seeing at home from a competitor presence perspective or everything else?

Pretty similar, similar dynamic going on internationally in the U.S. It's companies like HubSpot and Salesforce and others it's a lot easier to go international. So we do business in over 100 countries now. And so you don't need an office in Tanzania to have a bunch of companies down and the same goes to our competitors. So unlike maybe 10 or 15 years ago the competitive landscape looks pretty similar.

Okay. Thanks for taking my questions.

Your next question comes from Terry Tillman from SunTrust Bank.

Hey guys. This is Eric.Lemus on for Terry. Thanks for taking the question. I just had one for you. We talked about in the past by reducing friction in the buying process. Have you guys seen any sort of outcomes with the strategies you've been doing to reduce the friction on the buying process? And more so on that anything around in that purchasing?

Eric one of our big initiatives is around this idea of freemium and lowering the touch. And if I just think about HubSpot written large, we have two channels that generate leads and opportunities for us inside of HubSpot. The traditional channel we used is we create a lot of content and that holds people in to search through links, through the blogs, through things like that. And I would say we're pretty good at that. We have room to improve. There's opportunities there, but we're pretty good at that. That freemium is pretty new. We're kind of the first inning of that initiative and I would say, very pleased with the way it's gone. Lots of opportunity left in the freemium model. And then what I draw, I draw this thing on the whiteboard around here all the time where I draw one side of the whiteboard is Atlassian which is my favorite company. And then on the other side of the whiteboard I'll draw Oracle Salesforce, a company with a longer sales cycle enterprise salesforce and we're kind of in the middle of that in we're moving towards the left closer to Atlassian's model. We're not all the way there, lots of opportunities between here and there. I don't know to get all the way there, but that's kind of where we're heading, so far, so good on it, lots and lots of opportunity with that.

Great. Thanks Brian.

Your next question comes from Jennifer Lowe from UBS.

Great, thank you. I wanted to touch a bit on the Enterprise success that you're seeing. And I guess sort of the first question there is how much of that is customers who are at another price tiers growing into that versus you starting to win the customer that through the upper echelon of the segments that you traditionally targeted?

It's relatively similar. I think it's like 60-40, but we can get you an exact number.

Generally, what's going on in the market is people will buy a HubSpot and they'll grow with us, and that is a really good model for us. And we've learned that model from a lot of other companies like Slack, like AWS who get in when you're in the start-up phase with five people. The next thing I got 50, next thing you've got 500 people and we're the platform of choice. That's kind of the game we're playing. We're certainly going into a 500-person company and if they haven't settled on the platform yet, we do quite well in there. But they're already are on a competing platform and completely set up and customized, everyone's trained that's a bit of a tougher compete for us.

Okay. And that was a little bit where going the question as people start to embrace having a more I think in the past a lot of the opportunity was greenfield customers don't have anything will have very fragmented tools and HubSpot can go in and kind of replace that or push it out. Now as you start to have the suite and you start to have maybe a bit larger of the customer that you're able to target, are you starting to see more replacement of technology versus greenfield? What's sort of the landscape like from that perspective?

It's a good question like if I think - let's just take a five-person company or a 50-person company and a 500-person company. A five-person company hasn't picked a platform yet. A 50-person company 50-50 chance that they pick the platform, so half of them let's say have picked the platform, half of those are unhappy with their choice and having completely set it up and trained everyone, so they're kind of losing the socket. And then the other half of those, haven't got a platform. It's a bunch of points. Let's say 75% of those are really good fit. 500-person Company and this is the total swag, more of them have picked a platform you could imagine and more have got it set up. And so certainly there's plenty left there. We're winning those deals and people will replace the existing platform, but we compete extremely well in that 50. Where I think the business will go and where all disruptors go over time, is they get in early and they grow with their customers. And that play - a play has been in place for a while now, it's working really well.

Okay. Great. Thank you.

And our next question comes from Kirk Materne of Evercore.

Great. Thank you. This is Peter Levine in for Kirk. So most of my questions have been answered. But, I guess, one that kind of sticks out is, it's roughly $950 million $960 million cash, cash equivalents. So just any comments, how you plan on deploying that capital? I don't believe - I believe in prior calls you kind of discussed the potential fourth hub. So maybe discuss how - what you feel about M&A evaluations today versus kind of organic development? Thank you.

Sure. Let's talk about the - talk about M&A. We do have some cash on the balance sheet. I would say that cash doesn't increase our urgency to do a deal, but it increases our flexibility to get a deal done. I just spent a month in San Francisco. I rented an apartment Airbnb in San Francisco for the month of March. And while I was out there, I did sort of a learning tour and met with the heads of corporate and like the CEOs of companies that have successfully done M&A. And so, I learned a lot and that we've got a little team of people who looks at deals. But, overall, I think, you'd see our approaches, we're prudent about it. If we're not going to buy something, you want to enable it - have it enable our customers to grow better, so really fits in with the story and helps with our grow better story. We want to buy a team that's a good culture fit, and something we learned a lot about it. If you buy a company without a team that really fits in nicely, that can be dangerous. Tech stacks going to a matter. If it's fully different tech stacks, that makes it much more difficult to integrate. And then evaluation, everything - you look at multiples are relatively high today. And so, we're going to be careful, we're going to be prudent and we're going to be good stewards of that cash, is how I would think about it.

Great. Thank you.

Your next question comes from Michael Turrin from Deutsche Bank.

Great. Thanks. Just quickly, I wanted to follow up on the channel. Apologies if I missed it, but can you add how much of a contributor that was during the quarter? And then longer term, is there an ample mix for us to think about? Is the 40% we've seen more recently also a good mile marker to use going forward? Or as you move more towards to this Atlassian type of motion, does that, in any way, change or influence that mix? Thanks.

So the - I can start with the performance in the quarter. So 40% of our revenue came from the channel.

And then just long term, what percent from the channel, it's been 40 for a while. And if you look at the way we make our investments inside of HubSpot, we've invested a lot of indirect and channel. The unit economics are quite similar, so it gets similar level of investment and we're continuing to invest. We're going to have our partners in, in a couple of weeks and we're not going to talk about some investments we're making. So make it easier to become a partner - make it easier to be happy and profitable partner that grow. So, pretty similar investment. I don't know exactly what it will be long term, but it - I would just say, we're paying close attention to both, or investing in both. Both of them work. And so, steady as she goes, as far as I'm concerned.

Got it. That's helpful. Thanks.

Your next question comes from James Rutherford from Stephens.

Hey. Good afternoon. Just one for me. And thanks for taking the question. You mentioned, Kate, the net revenue retention was in the high 90s and that seems similar to what you all were saying in the first quarter of last year. I'm just curious if you can comment on what you're seeing with retention to Enterprise tier now that you've rebuilt that marketing product in Enterprise. Are you seeing any benefits from those product investment start to hit the retention line at that tier yet?

Yeah. I mean, we don't tend to share information beyond that top level number, but we do - I think you've got instincts around the relative retention, the enterprise versus the starter product is right.

Great. Thanks. That's it for me.

Your next question comes from Ken Wong from Guggenheim Securities.

Great. Thanks for taking my question, guys. Brian, I believe last quarter you mentioned a lot of high-return projects in 2019 specifically around enterprise that could be valuable to customers. Just wondering any update on that and how you think that might impact some of the upward migration of your customers towards enterprise and potentially multiproduct attach? Brian Halligan\: Yeah. I think we made lots and lots of investments last year and over - I think we've done a pretty good job of making investments in the product and we've seen nice returns on them over time. The way I kind of think about product - I'm not sure I got your questions exactly, but the way I think about the product and the way to think about a modern software company is you want to make the front end, so its consumer grade. You want it to be fast, you want it to be highly usable, you want the uptime to be really good. And at the same time you want the back end to the enterprise grade. Again you want the uptime to be high; you want to be scale as people grow, you want to have open APIs that people use. That's a sort of the way we think about it. And to that extent and to the extent we can continue to deliver value for our customers and get that word of mouth off, we're going to continue to invest. We're good at hiring developers, we think we can build more product and we think we can make our existing products a lot better.

Got it. I appreciate the answer. Thanks.

Your next question comes from Ross MacMillan from RBC Capital Markets.

Thanks so much. I had two, maybe one for Brian, one for Kate. So Brian the net customer adds was really strong again this quarter. Was there anything specific you did on like the freemium funnel or the top of the funnel for that lower tier that may be drove I don't know outsized performance in net customer adds? And then for Kate. Just on the calculated billings you obviously mentioned the FX. I was just curious were there any impacts from average duration on that number to all this quarter? Thanks so much.

Yeah. Maybe I'll start and then Brian you can add in. As it relates to the billings I think the main player in the billings story in Q1 was definitely FX. But yes you're right. There are bunch of other things that impact billings. We talked about seasonality, we talked about billing terms, we talked a little bit about impacts, so all of those things also impact but really FX was the main driver.

Ross it's Brian. Nothing - we didn't really do anything special I would say in Q1. Our freemium motion, our free CRM all that stuff is a case of continued to innovate. Our product focus are continuing to deliver functionality, trying to make the product faster and more usable and more performance all those kinds of things. There is no running special campaign or something. It was steady as she goes.

Yeah. And the customer count growth in Q1 continues to show the same trends that we've been seeing over the last couple of quarters ago. The marketing hub starter, customer adds continue to be really strong. But as Brian talked about we have a balance there with also strong trends and multiproduct adoption.

Yes, that's great. Thank you so much. Congrats.

Thank you.

And that was our last question. At this time, I will now turn the call back over to Brian Halligan, Chief Executive Officer of HubSpot.

Thanks everyone for joining the call. Look forward to talking to you again soon.

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