Now, the only difference is that the rep source leads take more time to progress in the sales pipeline. It’s not an immediate interest and a ready to purchase customer that’s coming into the pipeline. It takes more calls and more demand. So, the characteristics is that it takes longer, especially to progress, like, larger deals. And so, we saw that dynamic. But in terms of, retention characteristics, it’s pretty much the same, right? Once customers are part of HubSpot, they get on-boarded, and they get activated, and we focus on kind of the usage. So, hopefully, that explains that mix shift comment I made. Thank you, Parker, for the question.
Operator: Our next question today is from the line of Brad Sills of Bank of America Merrill Lynch. Please go ahead. Your line is open.
Brad Sills: Oh, wonderful. Thank you so much. I wanted to ask a question around, the AI road map here. Obviously, a lot of innovation that you’ve highlighted here that’s going into the base product. I think in the past, you’ve said that you’re kind of looking at some of the features that could go into, premium only versions. I’d just be curious if you’re finding, some use cases that you think are interesting that could do that and what are your thoughts on just that being a catalyst? I know it’s further out, but could that be a catalyst for premium mix and ASP growth? Just any of those dynamics, I think, would be great? Thank you.
Yamini Rangan: Brad, thanks a lot, for that question, in terms of, like, AI and how we’re thinking about it. Maybe just to step back, our vision is to embed AI in all hubs and to our entire platform, and that’s exactly what we’re doing. We are moving very quickly to build a robust road map of AI features and Spring Spotlight that we just launched and announced was full of those kinds of features. And, if you think about our monetization strategy, it is threefold. When we embed AI across all hubs and across our entire CRM, it drives adoption. We’re seeing more people actually start with the full platform. They get exposed to AI, and we’re beginning to see that, lift in terms of overall adoption. The second thing, and you’re absolutely right, we’ve talked about more features being at the pro and enterprise tiers.
And in fact, we said that nearly 65% of the features that are becoming generally available in the first half of 2024 will be in the pro and enterprise tiers. And, that’s also where we are beginning to see more adoption. In the prepared remarks, I talked about 50% of enterprise customers, experimenting and leveraging AI features, and 25% of pro customers are using AI features. And, when you look at that, it falls into the buckets of content use cases, service use cases, as well as guided selling use cases. So all of that, shows that we are on the right path. And when we do that, we’re going to see, kind of the upgrade rates in terms of pro as well as enterprise. It’s still early days. And so, our focus is usage, it’s repeat usage and making it super easy for our customers to adopt and innovate with AI.
Dharmesh Shah: Just one quick note. This is, Dharmesh. So, if you think through last year, 2023 was the year of, ChatGPT and chatbot and we were early to gain with our ChatSpot product. This year is going to be the year of Agent AI where we have, AI software that can move to a higher level of extraction, take on higher order goals. And, that’s what we’re kind of marching towards and we think that’s even higher value, functionality that we can add to platform.
Operator: Thank you. Our next question today is from the line of Michael Turrin of Wells Fargo. Please go ahead. Your line is open.
Michael Berg: Hi, you got Michael Berg on for Michael Turrin here. I just wanted to ask on AI in the realm of competitive landscape and moving up market. It seems like you guys are moving at a very fast clip and kind of differentiated approach to AI. Has this helped in any meaningful capacity in the competitive landscape, particularly upmarket? Thanks.
Yamini Rangan: So, let me let me take that. Thank you. Thank you for the question. Look, we have a very different approach for AI. And, our approach, if you go back to 2014, we said everybody needs to have a great CRM. And if you look at, like, 2023 last year inbound, we said everybody has to have a great AI powered CRM. And so, our approach has been embed all of the features into hubs, embed all of the features into the platform, and make it super easy for our customers to start with, AI features and continue to grow with AI features. I think it’s a very differentiated strategy. One that leans into our strength of easy-to-use fast time-to-value, and that’s very different from, a lot of the competitors that are on the path of charging for AI features or getting started with a services engagement.
And, one of the things that we have recognized about AI is this, go-to-market teams are, they’ve had the same age old problems, over multiple decades. They’ve spent too much time looking at information. They spend too much time collecting and gathering instead of being in front of customers. They spend too much time capturing information that can then be part of handoff. AI creates a new approach to solving age old go-to-market problems. And we want to do it in a way where it is fundamentally easy for our customers to adopt. And so, I do think that our approach is differentiated, and our approach is going to help our customers adopt it faster. I don’t know if, Dharmesh, you have more to add there.
Dharmesh Shah: Yes. Just one quick note. So HubSpot, one of our core differentiators for a long time has been our unified customer platform. We have all the data in one place. And, this makes it very differentiated from, other players in the space where the kind of, Step 1, in order to get value out of AI, you got to first figure out how to get all your data together and make sure everything sort of makes sense. From the get go, HubSpot is already together. It’s already unified. And so, that’s what makes it possible for us to kind of embed AI across the entire platform, make it available to 100 of thousands of companies and learn from that feedback because we get adoption usage very, very quickly. So, I think we have a very kind of HubSpot specific take on democratizing AI, making it accessible and then learning really fast based on the usage, and leveraging our customer data platform.
Operator: Our next question today is from the line of Ken Wong of Oppenheimer. Please go ahead. Your line is open.
Ken Wong: Great. Thank you for taking my question. I wanted to dive in on NRR. With strong retention, downgrade stable, I guess is it fair to assume that the potential pressure that’s embedded is just purely a byproduct of upgrade? And then, kind of secondarily, any reason to think that there was any hesitation from customers ahead of seat licensing rolling out to the base in the second half that might have maybe kind of caused some pause on upgrade behavior?
Kate Bueker: Yes. Why don’t I take that one? Net revenue retention in the quarter was 102% for the organic business. And, when you add in the impact of Clearbit, it was 101%. A couple of positive trends there. We’ve consistently seen that customer dollar retention has held for us really strongly in the high-80s. And, we saw that again in Q1. The other thing that we’ve been seeing over the last couple of quarters is a stabilization in downgrade, particularly in seats and contacts. That said, and I think that we are not the only ones that you’ve been hearing this from. Upgrade rates were particularly challenging in the quarter. Even with some of the early positive signs that we saw in seat expansion with the new pricing model, we did still see significant pressure in upgrade rate.
Operator: Thank you. Our next question is from the line of Terry Tillman of Truist. Please go ahead. Your line is open.
Bobby Dion: Great. Thanks so much for taking the question. This is, Bobby Dion for Terry. Curious to learn more about the evolution of the customer success org following several promotions announced in early April. What was the thought process on leaving the, Chief Customer Officer role unfilled? And, could there be opportunities to drive more alignment between customer success, sales, and marketing as a result? Thank you.
Yamini Rangan: Hey, Bobby. Thank you so much for the question. Yes, we announced that, our Chief Customer Officer, Rob, left early April, and you’re absolutely right. We decided that we were going to flatten the organization and have marketing sales and customer success report directly into me. Maybe to step back, a few years ago, we needed the Chief Customer Officer role, and we needed that role to bring together marketing sales, customer, success and set a very unified strategy. And, you probably remember that four and a half years ago, I joined, that was the first time that, I took that role. And, I’d say that that strategy setting for the organization and more importantly, bringing marketing sales customer success together has been working really well at HubSpot.
Now, it’s the time for speed and execution, and I’m really thrilled that we have a very deep bench of leaders with significant go-to-market as well as HubSpot experience for stepping up to lead there. And, as we mentioned in our press release, earlier in April, we have Kipp Bodnar, who has been our CMO for a very long time, nine-plus years. And, he is a leading voice within AI. He is stepping up directly into the executive suite. And, the same thing goes for Christian Kinnear, who’s been with us for a very long time, has global perspective, used to lead our international sales, and couple of years ago took on the Chief Sales Officer. He’s stepping up in to lead sales. And then Jon Dick, who has been an amazing leader at HubSpot for about eight-plus years in the marketing organization is stepping up to lead our customer success team, and he is deeply passionate about the full customer journey.
So, we’re really fortunate to have a deep bench of leaders, and we decided that this is the right time for each of those leaders to step up directly. And, we have that full clarity in terms of where we are going in terms of the strategy. So, pretty excited and looking forward to each of their contributions.
Operator: Our next question is from the line of Tyler Radke of Citigroup. Please go ahead. Your line is open.
Tyler Radke: Yes. Thanks for taking the question. Maybe I’ll direct this at, Kate. So obviously, you should get color on the FX assumptions impacting the full-year guide. But despite holding the full-year guide constant, you were able to raise operating income guidance. So, could you just talk about, some of the incremental savings that you saw there and whether there’s any incremental FX impact on that too?
Kate Bueker: Yes. Tyler, thanks for the question. I think you’ve heard this from me before, but we always try to really strike a balance between growth and profitability. And, we continue to show progress against our profitability target. We remain comfortable that we’re going to be in a good position to hit the 18% to 20% target by 2026 and then our longer term target of 20% to 25% profitability. But coming back to 2024, this is a year where we’re going to return to a more normal hiring cadence throughout the year. We expect to end the year, at about 10% growth from a headcount perspective. And, we are investing disproportionately in R&D. We want to do that to drive innovation and to really continue to plant the seed for long term growth.
You saw some of the fruits there in the recent Spring Spotlight. And, we’re funding this through driving continued leverage in our go-to-market organization, particularly across CS marketing and our partner commission. In addition to just continued optimization of our real estate footprint. And so, we expect that we’ll be able to deliver more than a point of leverage, concentrated this year in the back half.
Operator: Thank you. Our next question today is from the line of Arjun Bhatia of William Blair. Please go ahead. Your line is open.
Unidentified Analyst: Hi. Great. Thanks for taking the question. This is Chris on for Arjun. I wanted to return to some of the commentary you made about demand. It sounds like it’s pretty consistent with what we’ve heard from some of peers in the space. It seems like there was some softening in front office demand during the first quarter that was at least somewhat unexpected. Are there any areas of conservatism or sources of confidence and guidance, that you’d like to highlight if these conditions were to continue to worsen? Thanks.
