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HubSpot Inc (NYSE:HUBS)
Q2 2019 Earnings Call
Aug 6, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 Q2 2019 Earnings Conference Call. [Operator Instructions]. 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 at HubSpot. You may begin your conference.

Charles MacGlashing -- Director of Investor Relations

Thanks operator, good afternoon and welcome to HubSpot's Second 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 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 third 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-Q, which was filed with the SEC on May 7th, 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 second quarter 2019 earnings press release in the Investor Relations section of our website at hubspot.com.

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

Brian Halligan -- Chief Executive Officer and Chairman

Thanks, Chuck. Good afternoon, folks. Thank you for joining us today as we review HubSpot's second quarter 2019 earnings results. Q2 was another strong quarter for HubSpot with 36% revenue growth in constant currency, 8% non-GAAP operating margins and 35% customer growth, bringing our total customers to nearly 65,000, really happy with our results in the quarter.

Let's talk about how we're thinking about the world these days, a significant opportunities ahead of us, and some of the investments we've made, to position us to make the most of them. Over the last year we've rolled out the biggest expansion to our product footprint in history with the introduction of a slew of new products and tiers that have filled in the gaps across our entire HubSpot suite. As we've done so, we've seen terrific cross-platform adoption. We reach nearly 25,000 multi-product customers this quarter, and our youngest product, the service hub has surpassed 5,000 paying customers. Great stuff.

Expanding functionality within our own products, isn't enough. We've been building a platform that enables our customers to connect all of their front-office applications into HubSpot. This will enable us to truly manage and orchestrate our customers entire end-to-end customer experience for them.

Today, if you're a HubSpot customer, you have 10 integrations that we built, more than 300 integrations built by our app partners in many, many more lightweight integrations, you can access through our partnerships with iPass companies. This is starting to really work. Today our customers on average integrate more than five different third party applications with HubSpot. This year we're adding fuel to the platform fire by opening up even more API coverage and significantly increasing our investments in the overall developer experience. Through our partners we'll be able to do more and our customers themselves will be able to do more. We're just getting started here; there is a lot of promise to increase the value we provide to our customers over time. This platform initiative, it's a flywheel play, the more users we have, the more attractive it is for developers to integrate. More attractive our product is, the more users we have, and so forth and so on. That's why we recently launched email and adds in the free CRM offering. This free CRM offering is truly unique in the market and we expect that it will attract lots of new users to the platform.

We want HubSpot to be attainable for the growth companies of the future, we want to get started on the right foot. As I mentioned, today nearly 65,000 companies build their go-to market model on HubSpot. We take that responsibility very seriously, so earlier this year, we made the decision to significantly increase the number of product and engineering resources, invested in reliability, performance, security, infrastructure and usability. We set new standards for every product team to meet and funded a fully dedicated team solely focused on overseeing and testing the strength of our key infrastructure systems.

I think these investments are going to be a double win over the long-haul and that they will improve our overall customer experience and enable us to deliver better higher quality products in the future. Before I finish, I want to follow-up on the 8% operating margin, I started with in my opening remarks.

As Kate will talk about in a second, we delivered a little more operating leverage than I would have expected or frankly hoped, because we've fallen a hair behind on our hiring. I see it was due to our own execution, and the good news as we made some corrections in how we approach this. We're making good progress already and we're rapidly catching up. We're aiming to accelerate our hiring in the back half of this year. That said, I'm really pleased with the progress we've been making on the suite, the platform and the go-to market -- the gears are in motion and the opportunity in front of us is quite large.

With that, I'll hand it over to Kate.

Kate Bueker -- Chief Financial Officer

Thanks, Brian. Let's turn to our strong second quarter financial results and our guidance for the third quarter. Second quarter revenue grew 36% year-over-year in constant currency and 33% as reported. Q2 subscription revenue grew 34% year-over-year, while services revenue grew 23% year-over-year, both on an as reported basis. HubSpot ended Q2 with 64,836 total customers, which was up 35% year-over-year. Average subscription revenue per customer in Q2 was $9,913, down 1% year-over-year and up slightly from Q1.

Domestic revenue grew 28%, while international revenue growth was 50% year-over-year in constant currency and 41% on an as reported basis. International revenue represented 40% of total revenue in Q2, up 3 points year-over-year. Deferred revenue as of the end of June was $198.1 million, a 29% increase year-over-year. Calculated billings was $167.9 million, up 34% year-over-year both as reported and in constant currency. The remainder of my comments will refer to non-GAAP measures.

Second quarter gross margin was 82%, up nearly two points year-over-year. Subscription gross margin was flat year-over-year at 86% while services gross margin was positive again in Q2 at 7%. Second quarter operating margin was 8.4%, up three points from Q2 of last year. While we're pleased with the operating leverage that we delivered, our margin expansion benefited from lower than expected hiring in the first half of the year. At the end of the second quarter we had 2,924 employees, up 20% year-over-year. We have made operational changes and additional investments that we believe will help reaccelerate hiring in Q3 and Q4. But it will also result in less operating margin expansion, than we delivered in the first half of 2019.

Net income in the second quarter was $17.6 million or $0.37 per diluted share. Capex, including capitalized software development costs was $10.3 million or 6.3% of revenue in the quarter. As we noted on our last call, we expect capex to be heavily weighted to Q3 and Q4 as a result of the build out of our new Dublin facility in the second half of the year. We still expect capex as a percentage of revenue to be 7% to 8% in 2019. Finally, our cash, cash investments and marketable securities totaled $994 million at the end of June.

With that, let's dive into guidance for the third quarter of 2019. Total revenue is expected to be in the range of $168 million to $169 million. Non-GAAP operating income is expected to be between $8 million and $9 million. Non-GAAP diluted net income per share is expected to be between $0.22 and $0.24. This assumes approximately 48 million fully diluted shares outstanding. And for the full year of 2019, total revenue is expected to be in the range of $663 million to $665 million. Non-GAAP operating profit is expected to be between $54 million and $55 million. Non-GAAP diluted net income per share is expected to be between $1.39 and $1.41, this assumes approximately 47.1 million fully diluted shares outstanding.

We now expect free cash flow to be between $62 million and $63 million for the full year. As you adjust your models, keep in mind the following. At current spot rates, currency would have a 1 to 2 point negative impact to as reported revenue growth in Q3 and a one point negative impact to revenue growth in Q4. This equates to a $1 million to $2 million increased headwind to as reported revenue growth, relative to our prior forecast. As a reminder, we will be holding our 2019 inbound event in September and anticipate it will have three points of negative impact to third quarter operating margins.

In addition, we would expect free cash flow to be slightly positive in the third quarter, given the timing of inbound related payments. We expect the fourth quarter to be a strong quarter for free cash flow. To close, the second quarter was another strong quarter for HubSpot. We look forward to seeing you at our Analyst Day at Inbound on September 4.

With that, I'll hand the call back over to Brian for his closing remarks.

Brian Halligan -- Chief Executive Officer and Chairman

Thanks. Kate. Our suite product play is delivering a ton of value for customers. Our platform flywheel play is gaining serious momentum among integration partners and are expanding user base. And our investment in the core product is setting us up for the solid scalable infrastructure to deliver an even better customer experience now and in the years ahead.

Okay. I want to close by thanking our customers, our partners, our investors and all of the HubSpot is around the globe for helping us with their mission, to help millions of organizations grow better. I hope to see you all at the Analyst Day in just a few weeks.

Operator, could we please open up the call for a few questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Bhavan Suri from William Blair.

Arjun Bhatia -- William Blair -- Analyst

Hey guys, it's actually Arjun Bhatia on for Bhavan. Thanks for taking our questions. So it's been a couple of quarters since you've built out the full suite including the new enterprise tier subscriptions. I was just hoping, you'd be able to touch on the customer upgrade activity, you've been seeing since that enterprise tier was fully built out. Should we be thinking of this more as a new landing point for customers or is it still very much an upsell to happen -- that happens over time?

Brian Halligan -- Chief Executive Officer and Chairman

Good question. I'll take -- this one is Brian. You're right. Last year, we really did make some nice improvements to the enterprise, tier products and HubSpot enterprise marketing, sales and service. We had kind of a step function, lots more of good work being done on the enterprise layer this year and next year, really, really quite excited about the potential there. I would say the enterprise product so far is a little bit of both. We're seeing a decent amount of upgrade activity out of Pro customers in a decent amount of new -- nothing surprised me either way. I don't know if you having to add on that.

Kate Bueker -- Chief Financial Officer

No it's both things continue to be sort of good feeders into the enterprise skew, it's probably 60-40 new customer on balance.

Arjun Bhatia -- William Blair -- Analyst

Okay, very helpful. Thanks. And then just kind of on that following up on that point a little bit, it seems like there is two kind of counterbalancing forces here on sales cycles. So on one side, it's the freemium offering that presumably increases -- sales cycles here. And then the enterprise tier on the other end, just if we zoom out a little bit, how are -- what kind of impact are you seeing overall on sales cycles with these -- with both of these offerings in the market now?

Brian Halligan -- Chief Executive Officer and Chairman

Yeah, I think you hit the nail on the head. We've got lots of customers coming in on shorter cycles on our new starter tier improved starter tier and some customers coming in slightly longer cycles with the enterprise product, particularly if they're going to buy the enterprise suite. So I think you actually hit the nail on the head with your question and it's balancing out that it hasn't changed much over the long haul, but the standard deviations are bit higher.

Arjun Bhatia -- William Blair -- Analyst

Got it. All right. Thanks for taking my questions.

Operator

Your next question comes from the line of Chris Merwin from Goldman Sachs.

Christopher Merwin -- Goldman Sachs -- Analyst

All right. Thanks very much. I wanted to ask about international, that's like that was I think 50% on an organic basis in the quarter, which is a very strong acceleration from last quarter. So maybe you could just talk a bit about what is inflicted in those markets, some other vendors actually have called out challenges there. So I'm just curious what you all were seeing in the quarter on the demand front? Thank you.

Kate Bueker -- Chief Financial Officer

Yeah. So one I might just start with a clarification on the growth rate, so international was up 50% year-over-year in constant currency, that's basically flat from last quarter. Last quarter it was up 42% and as reported in this quarter, it's up 41% as reported.

Brian Halligan -- Chief Executive Officer and Chairman

Yeah, I think international is going really well and I think it's a result of a lot of investment we've made over the last several years, big investment into Dublin. There is been cranks [Phonetic] along. We've opened a bunch of other offices, we translated the -- not only the product, but the whole experience into five different languages and I just think we're getting a nice return on it. I've heard a bit about some softness from other vendors in the demand environment, we haven't seen that so far.

Christopher Merwin -- Goldman Sachs -- Analyst

Okay, great. If I could sneak-in one more, just as it relates to CRM, could you talk a bit about which type of customers are taking the product so far? Is it more kind of SMB or is it more on your enterprise segment? And is it proving to be helpful in terms of driving higher retention as customers build more integrations there?

Brian Halligan -- Chief Executive Officer and Chairman

Yeah, definitely. I would characterize it is when we first came out with our spreading out of marketing into a full CRM offering, there is little tiny companies were buying it. But as time goes on, those products are getting a lot stronger and lots of small start-ups you're buying it, but decent mid-sized companies are starting to buy as well. Feeling really good about our offering these days.

Christopher Merwin -- Goldman Sachs -- Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Stan Zlotsky from Morgan Stanley.

Stan Zlotsky -- Morgan Stanley -- Analyst

Hey guys, good afternoon and thank you for taking my questions. Really, really impressive quarter. Maybe just a couple of details from me. How did net revenue retention trends in the quarter?

Kate Bueker -- Chief Financial Officer

Yeah. So I'll take that, revenue retention in Q2 was just under 100%. We typically see a bit of a step-up from Q1 to Q2, as part of normal seasonality. We saw that again this year. As you know, and we've said probably every quarter retention number is bouncing around a little bit from one quarter to the next, they continue to do that. But we think over the long-term, we are comfortable in retention levels around 100%.

Brian Halligan -- Chief Executive Officer and Chairman

Yeah, I will give you the same kind of answer as on the sales question earlier. It's hovering bounce around, right around that 100% like it has for a while. Standard deviations a little higher. You've got the starter products, which are still little lower. And then you've got enterprise growth suite customers a little higher, but we're pretty comfortable where it is.

Stan Zlotsky -- Morgan Stanley -- Analyst

Okay, perfect. And then maybe just a high-level question, we saw blog post intra-quarter about Hunter moving on, as our Head of Sales. Maybe just kind of fills us in -- on the opportunity that he's going after and how you guys are thinking about the transition of that role going forward? Thank you.

Brian Halligan -- Chief Executive Officer and Chairman

Sure. Really, actually quite happy for Hunter. He did a great job for us over -- five years, six years there -- and he has taken a new gig, Hunter lived in Toronto, so he was commuting to Boston, and that was quite a grind for him. So what's cool about his new gig is, this one is a CEO gig and I'm happy for him and proud that he is the CEO, and I think it's going to be great. And two, he is able to live in Toronto and be around his family, so super, super happy for him.

I'm the Interim Chief Customer Officer for HubSpot, so I've got Hunter's old job in marketing and sales and service reporting [Indecipherable] really enjoying it. And don't plan to have this job forever. I'm hiring an executive search firm to do it -- to do a search for Chief Customer Officer for HubSpot, that's gone pretty well. During the interview, people I think we'll get a really good person to backfill him. We have a great brand, we've great place to work. As said I'm very confident we can find somebody, great. But I will say, I'm going to be patient on it and try to find the right person. We've got a great team in place today. So I think I've got the got the ability to be patient, but so far so good on being the Interim CCO, in replacement of Hunter and whatnot.

Stan Zlotsky -- Morgan Stanley -- Analyst

Okay, perfect. Thank you so much, guys.

Operator

Your next question comes from the line of Ken Wong from Guggenheim Securities.

Kenneth Wong -- Guggenheim Securities -- Analyst

Hey. Thanks a lot for taking my question, guys. Mike, I wanted to ask about ASRPC, that obviously ticked up Q-over-Q, just wonder if you can help us flush out how much of this was maybe attach related, some of this was SKU mix, any color there would be great?

Kate Bueker -- Chief Financial Officer

Yeah. So it was nice to see that we had a quarter of ASRPC where we're sort of up flat to up Q1 to Q2. I think the primary driver of ASRPC for us continues to be product mix. So as sales and marketing and marketing starter customers become a bigger and bigger component, they're sort of a headwind to ASRPC, on the same -- on the opposite side of the coin we have a growing number of multi-product customers, a growing number of enterprise customers. There are sort of the tailwind of that and so on balance, this is where we came out for the quarter. So again, it will continue to move around, but we were pleased with the result in Q2.

Brian Halligan -- Chief Executive Officer and Chairman

Kind of Same thing, it bounce around the same level -- standard deviation has gone up, kind of the same story on all three things.

Kenneth Wong -- Guggenheim Securities -- Analyst

Got it. And then you mentioned with email now part of CRM, expect to attract a lot of new customers. Can you talk about what you've seen so far? And should we be expecting a similar monetization path and timeline from this particular cohort of customers?

Brian Halligan -- Chief Executive Officer and Chairman

I think it's going to go really well. If you roll the clock back a year, we added email to the starter SKU, and that's one of the good things for the business, really happy with that. And this year we're rolling it into our free CRM, along with ads into the free CRM, so that free offering is powerful.

There is two things I like about that, Ken. The first is, it really helps our kind of platform flywheel. The more users of our product and more companies using it and actively using it, the more developers that we're going to want to integrate their offering into HubSpot and so forth and so on, is really positive reinforcing loop there. So I think that will tick up. The second thing I really like about that is, what I have in my head about HubSpot, we want to catch him early. Dharmesh and I -- and an intern starting HubSpot basically out of a conference room in Business School and eventually now we've got 3,000 employees. We actually want to get companies like Dharmesh and I and an intern working out of the -- out of a conference room. So this is a really easy way to get them early and grow with them. So it's early but positive signs so far.

Kenneth Wong -- Guggenheim Securities -- Analyst

Great. Thanks for the color, guys.

Operator

Your next question comes from the line of Kirk Materne from Evercore.

Kirk Materne -- Evercore -- Analyst

Thanks very much and I'll utter the congrats on the quarter. Brian, in your prepared remarks, you mentioned sort of serious momentum around some of your integration partners. And I was wondering if you could just add a little color there. How that may be impacted customer acquisition this quarter, just general feedback as you continue to sort of brought in and expand this platform play. I'm just kind of curious, maybe give us a sense of the relationships with integration partners today versus maybe a year ago. Just to put some context around it. Thanks.

Brian Halligan -- Chief Executive Officer and Chairman

Sure. That's a great question, Kirk, thanks. I think of HubSpot as we're kind of in the middle of this ecosystem, that's around us. And you guys all know about our marketing agency program is really well over time, it's 40% of our business. We're starting to sign lots and lots of non-marketing agency, more sales CRM, IT type implementers there. And so that's a very healthy, nice part of our ecosystem. The application partner ecosystem is much, much newer but is super promising. We've got over 300 third-party application software companies that have built integrations into HubSpot, as well as lot of these kind of neutral iPass companies who have built rich integrations to HubSpot. And what that does is a couple of things. It enables our customers to use our product to craft their go-to-market. But also use all the other applications they use and any other application they can possibly think of, and pull all of those things together to craft a really compelling go-to market model. And that they run really that whole go-to market model on HubSpot. So I think that's very important, as we look into the future.

HubSpot is going to shift really from an applications company to much more of a platform company. So really, really happy with the progress on that stuff. And I think it will increase, there is a lot of investment going into this. For example, inside of our product organization, more and more of the footprint of our product will be opened up into an open API, that third-party companies can integrate into. It's a little bit limited now but that's been increasing quite a bit, there is just more opportunities for innovation, that are going to happen over time. Our marketplace will get better over time, this thing is going to be a really interesting next vector in HubSpot's growth, that I'm really excited about.

Kirk Materne -- Evercore -- Analyst

Super. Thanks, Brian.

Operator

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

Bradley Sills -- Bank of America Merrill Lynch -- Analyst

Oh. Hey, guys. Great. Thanks for taking my question. Wanted to ask, if you could comment on activity you've seen in that kind of next tier upmarket within your target range with enterprise investments you made in the enterprise features in last year's inbound that 500 to 2000-employee size company. I think you're going after more aggressively. So, any commentary on activity in that segment of the market would be helpful, please?

Brian Halligan -- Chief Executive Officer and Chairman

Hey, Brad. I'll take, it's Brian. It's going well, the way we segment our business is 2 to 25 employees, small business, 25 to 200 is kind of mid-market then 200 to 2000, we call that corporate, we actually don't call it enterprise internally. And the new products are doing a better job of matching the requirements of that market. And I feel like we're just getting started in there. Last year, we announced a bunch of new functionality in that enterprise product suite. There is a lot more stuff we're working on, that I think it's going to be really solid in there over the next 12 months. So feeling good about it overall.

Bradley Sills -- Bank of America Merrill Lynch -- Analyst

That's great, thanks. And then with the investments you've been making in the platform, do you see an opportunity to kind of go bigger here with potentially more emphasis on a marketplace or an app store, kind of a full scale program there?

Brian Halligan -- Chief Executive Officer and Chairman

I think over the long-haul, I think that's, that's in our sites. Right now we're not, right now we're just trying to decrease the friction for third-party company, who wants to build an integration or be part of our ecosystem. We want to make it really easy for them to do that, so we don't want to put up barriers to that. But over time, I think our thinking will shift there and it will become in and out itself a line of business over time. But we don't want to hamper the innovation that's going on now.

Bradley Sills -- Bank of America Merrill Lynch -- Analyst

Great. Thanks, Brian.

Operator

Your next question comes from the line of James Rutherford from Stephens, Inc.

James Rutherford -- Stephens, Inc -- Analyst

Hey, thanks for taking the questions. A couple from me, the first one on the growth stack, I think you mentioned that you're now at nearly 25,000 gross debt customers. And if I recall, that number was south of 20,000 just two quarters [Phonetic] ago. So just curious, what are the main drivers of that growth in the stack, and is this an inflection in the bundling of service? Thank you.

Kate Bueker -- Chief Financial Officer

Yeah. So I think, maybe it's [Indecipherable] because we basically have decided that we would give you milestone updates, but not reported out at one quarter to the next. It's been a continued evolution, where we see more and more customers adopting the full platform. I would say, we have been pleased to see that actually lots of those customers are actually buying HubSpot front and that's the majority of the new multi-product customers.

James Rutherford -- Stephens, Inc -- Analyst

Okay, that's helpful. And then a second one on the product itself, I know you were coming off a big period of product innovation inbound, last year all the new products tiers, hubs that you announced, it seems like you kind of have your bases covered in terms of the current product. And there is also incremental improvements you'll continue to make. But I'm just curious what's the next phase of the product? You've commented about being able to launch more hubs -- perhaps what's your interest level in commerce or payments or something along kind of those lines over the long term?

Brian Halligan -- Chief Executive Officer and Chairman

I'll take that one. I would just say, well, first of all, you're right. Last year, was a big product year, we really filled out our product grid really proud of it. I think we executed quite well. None of those products will ever be done, that's kind of how we think of our product, they can always be better and they are continually being improved, they're being improved right now, all around the while we're on the call. In terms of new opportunities, I think of it is kind of two ways. There is the suite that we're building, and we have three hubs today, you can imagine in -- over the long haul, next, call it, two, three years, there will be more hubs. There is, you mentioned a couple of potential opportunities, but there is several potential opportunities in our head for us to create new hubs, that will deliver more value to our customers and enable them to grow better, so more opportunity there.

And then the second thread, we can pull on, it's more on this platform side, not monetizing that today, but you can think over the next two, three years, a nice opportunity as we continue to grow HubSpot for us to monetize that. And so the way I think about HubSpot it's still very much the early innings, like this product and our business is going well. But we feel like we've got a much bigger, more interesting business and it's over the long-haul.

James Rutherford -- Stephens, Inc -- Analyst

Thanks and congrats on the color.

Brian Halligan -- Chief Executive Officer and Chairman

Thank you.

Operator

Your next question comes from the line of Jennifer Lowe from UBS.

Jennifer Lowe -- UBS -- Analyst

Great. Thank you. Maybe just to extend on that product vision. If you look at what some of -- I think a lot of companies to sort of come away around to the HubSpot way of thinking. Trying to have more of a unified view of the customer you had that from day one. But one of the big talking point from a lot of providers is this concept of a customer data platform and being able to pull in multiple data sources create that one unified view to go to market with, you've got that with the suite, and the third party integrations with platform. But is that sort of enough to be equivalent to what and maybe as Zendesk is thinking about with their Sunshine platform or do you think there is more that you can do on that unified customer data profile side?

Brian Halligan -- Chief Executive Officer and Chairman

Yeah, I think Zendesk and HubSpot and a lot of people are coming to the same conclusion, at the same time. It's what you really want as the customer is to create absolutely delightful end-to-end experience for your customer. Just having a good product these days, isn't enough, you have to create a great, great experience for your customers. And to do that, it's actually quite tricky today, particularly if you have a whole bunch of different databases, a whole bunch of different applications and that stuff doesn't talk to each other. So, more and more we've been predicting this for a while. We think people pick like a core hub, and salesforce is the hub obviously, HubSpot is the potential hub. And inside of that hub, there will be a CDP, while you will store all that data from all those different applications, and they'll be able to report out on that data in really interesting way. So that's the value prop, and we see emerging over time for HubSpot, that is a good way to think about our platform initiative is really heading in that direction.

Jennifer Lowe -- UBS -- Analyst

Okay. Great. Thank you.

Operator

Your next question comes from the line of Michael Turrin from Deutsche Bank.

Michael Turrin -- Deutsche Bank -- Analyst

Hey, great. Thanks, good afternoon. You have a sizable customer base these days, which extends across Geo's, products yet the profile of the financials remains remarkably consistent. Just wondering if you can talk more around what it is that help sustain that profile? I know the product vision we've talked about a bit here, but is there anything else you can add in terms of your observations there as the business continues to scale?

Kate Bueker -- Chief Financial Officer

Yeah, I think, Brian has said the word sort of -- sort of we have balanced at the high end and balance at the low end, probably three or four times during this call. I think the overarching customer profile stays the same for us, because we're innovating -- on both ends of the spectrum and there is a balance that's sort of continuing to manifest itself within the overall customer base. Brain, if you have a different...

Brian Halligan -- Chief Executive Officer and Chairman

I didn't understand the question.

Kate Bueker -- Chief Financial Officer

Okay.

Brian Halligan -- Chief Executive Officer and Chairman

I didn't understand the question.

Kate Bueker -- Chief Financial Officer

Maybe we missed your question, do you want rephrase?

Michael Turrin -- Deutsche Bank -- Analyst

No, no -- that's great. I mean, I think, look, we see businesses with longer tails of customers that have challenges delivering this consistent of results from a financial perspective. And so obviously, the way we're looking at the business is different than what Brian might be looking at, but that's just kind of the observation that I was curious to kind of tease out more commentary around.

Brian Halligan -- Chief Executive Officer and Chairman

Okay. As JD Sherman, our Chief Executive Officer would say, it's very simple, executive leadership. See, I'm only kidding. I think one of the things sustained us well over time, is we're just, we just don't sit still. I mean, we don't still for half a second here. We feel we have in our heads a vision for what we could deliver in terms of value for our customer, that is far beyond what we're doing today, and we do feel like we're very much in the early innings. And we're chipping away at it, we're making progress in it, but we're super super-focused on delighting our customers. And I think at the end of the day when we're focused on delighting the customers, the customers are rewarding us, and I think the investor see it in the results. I also think we've got very good financial management, our Head of Investor Relations has our act together, our CFO has our act together. I think we are halfway decent at planning, I think we have good financial controls in here as well.

Michael Turrin -- Deutsche Bank -- Analyst

That's great. Just a quick, quick one, if I can. In terms of the commentary around hiring, is there anything else you can add in terms of key focus areas there? Does that present any obstacles we should be aware of it, in terms of near-term initiatives or just anything else you can add there?

Brian Halligan -- Chief Executive Officer and Chairman

I'm glad you asked about that. The core issue we had was really a recruiting capacity issue, we just didn't have the number of recruiters, we needed to hit our goals. It's a pure execution issue on our side and kind of took our eye-off the ball on it. So anyway we didn't execute well on that, I would say our eye is very much on the ball for that, for the last several weeks, actually a couple of months recruiting capacities way up. The good news is attrition has been pretty solid, we're still a very good place to work. And I think we will be for a long, long period of time, and so the employees come in, they stay and they seem to enjoy it and tell their friends. So overall, I feel like we're -- I kind of like, it's we didn't execute well, but I feel like we made great progress over the last few weeks, I think it will be a blip on the recruiting radar over the long-haul. And I think we're on a good path.

Michael Turrin -- Deutsche Bank -- Analyst

Okay. Great. Thank you.

Operator

Your next question comes from the line of Terry Tillman from SunTrust.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Hey, good afternoon. Can you hear me, OK?

Charles MacGlashing -- Director of Investor Relations

Yes. Sure, can Terry.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Yes, thanks. So I guess the first question as it relates to just the platform integrations. Brian, have you all seen any kind of statistics in terms of retention patterns or greater propensity to buy more products from customers that have those five integrations on average? That's the first question.

Brian Halligan -- Chief Executive Officer and Chairman

Yes. Yes, like a lot of platform vendors, the more integrations you have, the more value you get out of the product is stickier are the more committed you are. And so as we make more integrations available and better quality ones, I think that will be a tailwind, that will offset some of the headwind that we get on the starter product, in terms of retention. So yes, very much, so you're exactly right about that.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Okay. And then on the service hub, maybe an update in terms of just another quarter into at the size of the average customer you're seeing, and just maybe how that's comparing to the same timeframe when you had brought our sales up? Thank you and congrats.

Brian Halligan -- Chief Executive Officer and Chairman

We've done great about Service Hub. Yeah, I was, I'm delighted, we are up to 5,000 customers on it. One of the things, I look at and you pointed this out -- and your question is we -- I look at sort of a year into the Sales Hub initiative, what were the revenues versus the growth rates versus a year into the Service Hub an issue what's that look like. And Service Hub is clapping Sales Hub. It's really doing quite well. I mean, you said that the way we build products as we get something good in the market and we try to make it better and better and better. So it's a long way to go on that thing and it improves every day and I think it's, I think potentially a nice big business for us.

Operator

Your next question comes from the line of Samad Samana from Jefferies.

Samad Samana -- Jefferies -- Analyst

Hi, good afternoon and thanks for taking my questions. Kate, maybe one for you. As you thought about the updated guidance, how did you factor in the hiring plans shifting from 1H to 2H? And how should we think about that in terms of productivity ramping or the overall kind of productivity of the Company as we start to think even beyond 2019? I know it's a little bit early, and then just a follow-up question from there.

Kate Bueker -- Chief Financial Officer

Yeah, sure. So I think as you know, like there is a lot that goes into our thinking on guidance. Overall, we haven't changed the framework at all, but as we work through guidance for this quarter and update for the full year, I think the biggest piece actually with FX, in my comments, I noted that we had an incremental headwind from FX in the back half of the year. It's obviously a lot more volatile than we've seen. So that was a big factor, but we certainly would have also incorporated sort of any impact from the slow hiring in the first half and what we've told you for the full year.

Samad Samana -- Jefferies -- Analyst

Great. And then, Brian, if I could on Service Hub, the 5,000 paying customers, I'm curious how many of those are stand-alone that are either just using Service Hub on its own, versus how many are part of growth stack deployments? And then maybe in that vain [Phonetic], not to get three questions into one, but I'm curious if you're seeing customers that are starting with sales and service as a package, and then moving into marketing or if marketing is usually attached either one of those -- when there are multiproduct customer? Thanks.

Brian Halligan -- Chief Executive Officer and Chairman

Hey, it's a good question Samad. Most of the business is cross-sell, Service Hub being purchased upfront, with sales upfront, with marketing or all three or Service Hub being tacked onto a customer who has got one or two of those subs. We are starting to see some net new customers coming in on Service Hub, and as that product improves over time, I think you'll see more and more of that, that happens a lot on the Sales Hub product, really proud of the progress on that, in a way that we cross sell it, as well as it's a magnet to pull in new customers, so I think that will develop over time.

Samad Samana -- Jefferies -- Analyst

Great. Thank you for taking my questions and congrats on the quarter.

Brian Halligan -- Chief Executive Officer and Chairman

Thanks Samad.

Operator

Your next question comes from the line of Ryan MacDonald from Needham & Company.

Alex Henderson -- Needham & Company -- Analyst

Hi, this is Alex on for Ryan. I just would like to know, given the constant changing dynamic in the U.K. regarding Brexit, has this impacted purchasing decisions or spending trends? As we are closer to the 31st deadline, also what sort of major impact have you built in for FX for the percentile Brexit? And then can you remind me of the exposure you have there?

Brian Halligan -- Chief Executive Officer and Chairman

I take the first half. We haven't seen anything yet, Alex. I check in once in a while with that team, but the demand environment hasn't changed a whole lot.

Kate Bueker -- Chief Financial Officer

Yeah, we've obviously seen a lot of movement in the currency over the last period of time and we tried to take that into account as we put forward our guidance. GDP-denominated [Phonetic] revenue is, call it, mid-to-high single digit percentage of overall revenue.

Alex Henderson -- Needham & Company -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Tom Roderick from Stifel.

Tom Roderick -- Stifel -- Analyst

Hey guys, thanks for taking my questions. So I guess what I'd like to do is go all the way back to the headlines here which is getting at the point that you're billings and subscription revenue both reaccelerated on reported levels at -- on constant currency level, so fantastic job on both of those. I guess what I was hoping to get out in a little bit more detail as -- if there is, if there is anything you'd call out to highlight, what was clearly some better than expected execution, and coming-off the last quarter where you kind of you're very, very open and candid about some of the challenges with the outage. It would just be helpful to understand, were there any sort of one-time depressors last quarter or one-time positive beneficiaries this quarter, that would sort of alter the level of how you think about the natural run rate of the business?

Kate Bueker -- Chief Financial Officer

I would say not really, I think Q2, we were pleased with the performance on the top line. I think, frankly, we continue the way the SaaS economics work to benefit from really strong performance in sort of Q4, Q1, so nothing really to call out there.

Tom Roderick -- Stifel -- Analyst

Okay. And then maybe I'll just sort of follow on with that, with the comment that you had on the hiring. Anything behind the hiring and the timing of some of the new hires that might impact the way we think about billings growth or new sales efforts in the second half of the year. Do you feel like that maybe perhaps puts you behind where you want it to be on sales capacity or is that just much more comment on -- hey, just be aware, we're going to ramp up the hiring, that will impact the way you think about margins and really not to comment on sales capacity or productivity?

Brian Halligan -- Chief Executive Officer and Chairman

I think that's a good question, the hiring we're behind kind of across the Board, not just in sales but we are a hair behind on sales hiring. I don't know what impact we'll have -- probably have a slight headwind on the second half of this year, but I wouldn't think it would be huge.

Tom Roderick -- Stifel -- Analyst

Okay, great. Brian, real last quick one for you. One of the things we've heard from some of your partners and customers is that, the content management system seems to be coming a very popular add on. Can you just sort of talk about that in particular, as one of the add-ons, it seems to be catching some traction and the impact it's having on the overall stack approach?

Brian Halligan -- Chief Executive Officer and Chairman

Sure. We did something with that last year, where we decoupled it from the Marketing Hub. For a long, long time you have to buy the Marketing Hub with the content management system. Now you can use the content management system stand-alone and connected to your free CRM or the sales product, so that has done well, that product has gotten a lot better over the last year. I'm proud of that development team, that's one of those cases where they have been grinding on it, it's not like one Hail Mary pass, but just making that product -- every day their product gets a little better, so nice progress on that, and I was surprised you asked about that, you can do in your homework, but it is going well.

Tom Roderick -- Stifel -- Analyst

Wonderful. Thank you, guys. Great job.

Operator

Your next question comes from the line of Brian Peterson from Raymond James.

Kevin J. Ruth -- Raymond James -- Analyst

Hi guys. Kevin here on for Brian. Thanks for taking my call. Just a quick one for me. You've previously talked about looking to drive more of a self-serve touchless motion, particularly across the starter products. Can you remind me how you're seeing that trend as a mix of your new customer adds and maybe where you see the potential for that going forward?

Brian Halligan -- Chief Executive Officer and Chairman

Yeah, I think it's gone pretty well, like over time what we want to do is kind of tilt our go-to-market where on the enterprise or corporate side, a little bit of a heavier touch. And on the starter side, we want to make that lighter and lighter touch over time. So we're starting to see, the number we track is the percentage of our customers and revenue that comes in, where they started with the premium offering. And that's gone quite well, and really pleased with the progress on that and that the freemium model is definitely working for us. I'm glad we switched and I think we're going to get nice returns over the long-haul on that.

Charles MacGlashing -- Director of Investor Relations

Yeah, Kevin. And just to put a number on that, one of the numbers that we shared historically is that about two-thirds or over 60% of our net new business is coming through with a customer that starts in a free product, and then ultimately purchase is a pain product and that's held up quite well, and that's up 60% plus range.

Kevin J. Ruth -- Raymond James -- Analyst

Understood, thanks.

Operator

Your next question comes from the line of Mark Murphy from J.P. Morgan.

Pinjalim Bora -- J.P. Morgan -- Analyst

Hi, thanks for taking our question. This is a Pinjalim on behalf of Mark, congrats on the quarter. I wanted to ask you about the partner ecosystem. You obviously have a pretty robust ecosystem in the marketing, the thousands of agencies and some of your partners have added sales. And then we -- but with the recent addition of services, I guess how important is it for HubSpot that these partners support all the three product hubs? So that they can evangelize the flywheel, etc, and versus selling separately.

Brian Halligan -- Chief Executive Officer and Chairman

Sure, you're right, this partnership is going well for us. It's still about 40% of revenue and very pleased with the performance in there, it's going great. That partner channel is going to get some love over the next 12 months, some nice enhancements we're going to make to that channel that will, then I think our existing partners will really like. And I think we'll make it very attractive -- more attractive to new types of agencies. And what we're seeing sort of underneath if you unpack it, is our existing agency partners. We've got thousands of the most of them started with -- as their marketing agencies really are sort of search engine optimization or social media website development and many of them have embraced the flywheel and embrace sales and services. And particularly the ones that are growing with us and are tiered, they're doing a really nice job of spreading out and selling the whole product line. Many of the smaller ones are kind of sticking in with marketing and we're OK with that.

At the same time, we started a new channel program to attract, sales consultant, IT consultant, implementers, not Accenture ones that are in the kind of Fortune 500 land, but sort of smaller mid-market wasn't that -- I would just look at the numbers on that, right before I walked in the room and that's picked up nicely. So, I'm pleased with the partner program, I'm pleased that we have this nice ecosystem. I think of HubSpot as a much more resilient, adding a lot more value to the community into the customers, because we have this giant ecosystem around and I'm really pleased with the progress on it.

Pinjalim Bora -- J.P. Morgan -- Analyst

Okay, thanks for that. Kate just to put a final point on the sales hiring. Can you talk about your head count plans for the year. I mean it directionally maybe if you don't want to give numbers, would -- should we see a growth higher than 2018, where you ended 2018?

Kate Bueker -- Chief Financial Officer

I'm not sure that I heard the last part of the question, but we obviously not going to comment specifically on sales hiring. But we -- I think we share every quarter, our ending headcount and we do expect that we would see a reacceleration in headcount growth in the back half of the year.

Operator

And that was our last question. At this time, I will now turn the call over to Brian Halligan, CEO and Chairman of HubSpot for closing remarks.

Brian Halligan -- Chief Executive Officer and Chairman

Yeah, I will see you all in a couple of weeks in Inbound looking forward to it.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Charles MacGlashing -- Director of Investor Relations

Brian Halligan -- Chief Executive Officer and Chairman

Kate Bueker -- Chief Financial Officer

Arjun Bhatia -- William Blair -- Analyst

Christopher Merwin -- Goldman Sachs -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

Kenneth Wong -- Guggenheim Securities -- Analyst

Kirk Materne -- Evercore -- Analyst

Bradley Sills -- Bank of America Merrill Lynch -- Analyst

James Rutherford -- Stephens, Inc -- Analyst

Jennifer Lowe -- UBS -- Analyst

Michael Turrin -- Deutsche Bank -- Analyst

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Samad Samana -- Jefferies -- Analyst

Alex Henderson -- Needham & Company -- Analyst

Tom Roderick -- Stifel -- Analyst

Kevin J. Ruth -- Raymond James -- Analyst

Pinjalim Bora -- J.P. Morgan -- Analyst

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