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HubSpot Inc (NYSE:HUBS)
Q2 2020 Earnings Call
Aug 5, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the HubSpot Q2 2020 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Chuck MacGlashing, Head of Investor Relations. Thank you. Please go ahead.

Charles MacGlashing -- Head of Investor Relations

Thanks, operator. Good afternoon, and welcome to HubSpot's Second Quarter 2020 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 those 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 and full year 2020. 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 our Form 10-Q, which will be filed with the SEC this afternoon 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 such measures can be found within our second quarter 2020 earnings press release in the Investor Relations section of our website.

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

Brian Halligan -- Chief Executive Officer, Co-Founder

Thanks, Chuck. Good afternoon, folks. Thank you for joining us today. The world has been through a lot in the last few months. Collectively, we're still weathering the storm, but I'm happy to share progress HubSpot's made over the last quarter. Constant currency revenue growth was 26% in Q2, and non-GAAP operating margin was 9%. Total customers grew 34% year-over-year, surpassing 86,000, while multiproduct adoption continue to grow nicely, representing over 38,000 customers. We were fortunate back in Q1 to have some wind in our backs at her strong start to the year. Nevertheless, the onslaught of the global pandemic was felt throughout our company and our customer base. And much of our spring was focused on helping our customers and partners respond to the economic downturn. Today, I'm thankful to say that the disruptive headwinds we faced early in Q2 have eased and might have even begun to shift a bit in our favor, helped along by some nice execution in some important plays we ran. We've had a strong product here so far that's raised the power of our enterprise tier while also adding new products to the mix. This beginning Q1 with the introduction of an entirely updated version of Marketing Hub enterprise. With this relaunch came in a ton of advanced features, including revenue attribution reporting, AI-powered A/B testing and account-based marketing. Marketers can now start with us in an early stage and grow with us into a large-scale up now that we've released this product. Marketing Hub enterprise is really resonating nicely for us in the market. In Q2, we introduced a new product line, CMS Hub. This was a completely reimagined version of our previous CMS add-on with advanced features making up a pro and enterprise tier. We have found strong product market fit in the mid-market between simple but limited website products in overly complex content management systems. CMS Hub gives companies the benefit of advanced features like dynamic content, adaptive testing in 24/7 security monitoring, with not all that heavy maintenance and design needs that comes with legacy time management system solutions. Companies and organizations like ClassPass, World Wildlife Fund and Randstad have now built sites on the new CMS. The formalization of our CMS Hub through the addition of these peers led to a really nice reacceleration in growth in that product line. You see the traditional enterprise SaaS playbook is to cobble together a product through acquisitions.

This approach has led to a pretty rough enterprise front end for a lot of products, married to a pretty solid enterprise back end. HubSpot has skewed that traditional approach. We chose an intent to handcraft our product in-house. We see underneath HubSpot, there's only one view of that customer and a consistent user experience across that front end. We've married a consumer-like front end with new enterprise power, and this is giving us a real advantage in the marketplace. I think our patient approach and our slight obsession with Apple is starting to really pay off. Now we haven't just been working on that enterprise tier to help more businesses make the transition from offline to online after the crisis hit, we reduced the first year price of our starter growth suite by more than 50% of and increased email send in call limit. Additionally, we released greater editing controls of our ad campaigns across Google, Facebook and LinkedIn and Marketing Hub starter. All of this resulted in a 400% plus increase in our starter installed base growth as free users upgraded and many new businesses moved fully online for the first time. We coupled this on-ramp to HubSpot with a surge in educational content, and we've seen record engagement in HubSpot Academy as a result. In fact, in Q2, we saw nearly 150% increase year-over-year.

The Academy signed up and similarly strong growth in the number of people getting certified on HubSpot, really great stuff. I'm incredibly proud of the way the entire HubSpot team continue to deliver on our product road map and pivoted to help our customers amid rapidly changing times. Companies in nearly every industry have had to move their teams, their go-to-market strategies and the entire customer experience online. What might have been a gradual digital transformation for some businesses has now been dramatically accelerated by the impact of the pandemic, and we become the platform to support that transformation in the mid-market. I'm encouraged by the traction we saw in the second quarter, and we see evidence of a continuation of that performance in the early part of Q3, but the short-term demand environment is still quite fluid. So we're watching things very closely.

Now I'll hand things over to Kate to take you through our Q2 financial and operating results in more detail.

Kate Bueker -- Chief Financial Officer

Thanks, Brian. Let's turn to our second quarter financial results and our guidance for the third quarter and full year 2020. Second quarter revenue grew 26% year-over-year in constant currency and 25% as reported. Q2 subscription revenue grew 26% year-over-year while services revenue declined 3% year-over-year on an as-reported basis. Domestic revenue grew 20% in Q2, while international revenue growth was 36% year-over-year in constant currency and 32% as reported. International revenue represented 42% of total revenue in Q2, up two points year-over-year. Deferred revenue as of the end of June was $241 million, a 22% increase year-over-year. Calculated billings was $202 million, up 21% year-over-year, both on an as-reported basis and in constant currency. HubSpot ended the second quarter with over 86,000 total customers, which was up 34% year-over-year. Net customer additions exceeded 7,800 and set a company record, driven by strong demand across our entire product portfolio, but particularly in our starter growth suite. Average subscription revenue per customer of nearly $9,500 and was down both sequentially and year-over-year as a result of the strength we've seen at the low end of the portfolio, combined with elevated levels of customer downgrades. As we highlighted last quarter, we took some proactive measures in late March to help alleviate the impact of COVID-19 for our customers and partners. These included offering flexible payment terms and customer-friendly downgrade alternatives to our most impacted customers and prepaying some partner commissions.

As a result, we expected retention rates to trend lower in Q2 due to the weaker economic environment as well as the impact from our customer-friendly programs. While we did, in fact, see pressure on our retention rates in Q2, we maintained a net revenue retention rate of 90% and with the majority of the decline continuing to come from customer downgrades. It's still quite early, but we have seen encouraging performance from the first cohorts of customers coming off the short-term discounts and moving back to more normal pricing. I want to stress that the near-term economic environment is still uncertain, but we're cautiously optimistic that the plays we put in place helped our customers and partners adapt in these difficult times. The remainder of my comments will refer to non-GAAP measures. Second quarter gross margin was 82%, flat year-over-year. Subscription gross margin was 86%, while services gross margin was negative 8%. Second quarter operating margin was 9%, up slightly compared to the same period last year. Operating margins in the quarter exceeded our expectations as a result of strong revenue performance as well as reduced travel and other discretionary expenses related to our shift to work from home. While we plan to maintain a disciplined approach to investment through the remainder of 2020, we expect our planned return to work initiatives and continued investment in R&D to largely offset these expense savings.

At the end of the second quarter, we had 3,769 employees, up 29% year-over-year. We expect total headcount growth to moderate in the second half of the year as we start to compare against our strong hiring quarters from 2019. Net income in the second quarter was $17 million or $0.34 per diluted share. capex, including capitalized software development costs, was $14 million or 7% of revenue in the quarter. We continue to expect capex as a percentage of revenue to be about 7% in 2020. Free cash flow in the second quarter was $800,000, driven by strong business performance and better-than-expected customer cash inflows. As a result, we are increasing our expectations for full year 2020 free cash flow to approximately $40 million. HubSpot ended the quarter with $1.2 billion of cash and marketable securities. At the beginning of June, we successfully executed a $460 million convertible bond issuance with the concurrent repurchase of roughly 70% of our existing convertible bonds due in 2022. As we look to the future, we remain confident that our strong balance sheet will provide us with the financial flexibility to invest for the long term. And with that, let's dive into guidance for the third quarter and full year of 2020. For the third quarter, total revenue is expected to be in the range of $210 million to $211 million, up 21% year-over-year at the midpoint. Non-GAAP operating income is expected to be between $7.5 million and $8.5 million. This range includes a one point headwind to operating margins from our inbound event in September. Non-GAAP diluted net income per share is expected to be between $0.11 and $0.13. This assumes 48.8 million fully diluted shares outstanding. And for the full year of 2020, total revenue is now expected to be in the range of $828 million to $832 million, up 23% year-over-year.

Non-GAAP operating income is now expected to be in the range of $52 million to $54 million. Non-GAAP diluted net income per share is now expected to be between $0.92 and $0.96. This assumes 48.5 million fully diluted shares outstanding. Our guidance reflects a view of the business that we are comfortable with today given the current economic environment and also factors in heightened future uncertainty caused by the pandemic. As you adjust your models, keep in mind the following. As a result of the recent weakening of the U.S. dollar, we have seen a meaningful reduction in the headwinds related to foreign currency for the remainder of the year. At current spot rates, we now expect a one point FX tailwind to Q3 reported revenue and a neutral FX impact to reported revenue for the full year 2020. In Q2, we elected to begin tax affecting our non-GAAP net income, which we believe better aligns with SEC guidance. Our updated non-GAAP EPS guidance for Q3 and the full year of 2020 includes the impact of this change. Importantly, this change does not impact our historical reported GAAP financials. Please refer to the table included in our press release for the historical impact to prior period non-GAAP earnings. In Q2, we excluded the accounting impact of our convertible debt repurchase from our non-GAAP net income and free cash flow. Please refer to the non-GAAP net income and free cash flow reconciliation tables included in our press release for more information.

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

Brian Halligan -- Chief Executive Officer, Co-Founder

The story of 2020 has thus far been one of adversity. At the society, we think the public health crisis and economic crisis and a crisis of content. When the dust settles, the world will be changed. We're trying to lean into the future ourselves and help pull our customers and partners with us. On the conscious side of that equation, at HubSpot, we've been working to advance diversity, inclusion and belonging in our culture representation. We have a long way to go, so it's become one of our top strategic priorities. It's also become important for me personally to learn, evolve and speak out against racial injustice in the ways that I can. My hope is that what started as a story of diversity this year will become one of resilience and resilience that lies on diversity. Thank you for your time. I look forward to seeing many of you again on our first-ever virtual Analyst Day as part of Inbound 2020 on September 22. We've reimaged Analyst Day this year in more ways than one. We'll see you all there.

Okay, operator. Let's open it up to some questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Stan Zlotsky from Morgan Stanley.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect, thank you so much, guys. Congratulations on a very strong quarter. Maybe the thing that really stood out to me was the strength of the starter package that you guys reported in the quarter and just had the contribution to the overall customer growth in the quarter. As you look across and maybe try to slice and dice that the strength there, any similarities within the customers that are adopting the starter package in the current environment? And then I have a quick follow-up.

Brian Halligan -- Chief Executive Officer, Co-Founder

Stan, thanks for the question, and I hope you're well. That's something we're actually watching relatively close. Kate and I was just talking about that. We've been I would just say pleasantly surprised with that Starter Suite adoption. We just to refresh everyone on the call's memory, we lowered the price of the starter suite to get the marketing sales and service products altogether by 66%. So it's $50 a month now for the first 12 months. And we did that rate when COVID started, and it worked. There's been really nice adoption of it. And you can see that with lots of new Starter Suite customers in that 7,800 net new customers number. So we're really happy with it, and we're watching those cohorts super carefully. We're looking at the quality of those cohorts, like what is the size and makeup of the company buying it? What is the retention rate calculation on those cohorts? And what's the upgrade rate?

And so far, so good. They look pretty good. They're similar-sized companies that were buying Starter Suite before. The retention rates look pretty good. So we're going to keep that first year at $50 for now and see if we can use that as a growth lever going forward. We're pretty happy with it.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. And then maybe just one more. The geographic growth, U.S. slowed to 20%; international, very strong at 36% constant currency. When you look across the various geographies, is it fair to say that U.S. seems to be the most impacted with all of the downgrades, and international seems to be hanging in better? Any kind of qualitative commentary as far as where you're seeing the pockets of opportunity as well as strength in the various geographies? That's it for me.

Brian Halligan -- Chief Executive Officer, Co-Founder

Okay. I guess at a high level, the international business is going really well. And I think that's because we've made some big investments over the last five years, and we're starting to get a return on those investments, like big investment in offices. In Europe, we have a large office in Dublin now. We have Paris. We have Berlin. We've got offices in Japan, in Singapore and Sydney, and even one in Latin America now. So those are big investments. We've invested heavily in translating not just our products in terms of in different length but the whole customer experience in different length is getting a nice return on that. I think another reason international is doing so well is the just unit economics are really good. Growing fast and cost to acquire customer relative to total lifetime values to installs are happening a little faster there. I guess, in terms of North America, I'm continuing to be bullish about it. I mean it's huge market. We've got great product market fit. We have tons and tons of happy customers, a good word of mouth. The sales organization in North America is mature. I think we're set up well for steady, strong growth in North America for several years to come here. I feel good about it.

Kate Bueker -- Chief Financial Officer

Stan, I would just add to Brian's comments. If you look like overall revenue growth decelerated from Q1 to Q2. And if you look at U.S. and international, what you saw in sort of the more mature, more developed market, there's a very similar level of deceleration across those markets. Where we saw a bit of an outsized impact was really on some of the more emerging markets.

Operator

Your next question comes from Christopher Merwin from Goldman Sachs.

Christopher Merwin -- Goldman Sachs -- Analyst

Hi, thanks very much for taking my questions. I wanted to ask about CMS Hub. I think you talked about it a bit in the prepared remarks, but in particular, where you're seeing success there, is that helping to onboard some brand-new customers? Are you seeing some early success there with cross-selling that to the existing base? Just curious, any other color you could share about that product.

Brian Halligan -- Chief Executive Officer, Co-Founder

Thank you for the question. I guess, it's a little of both. I'm very excited about that new Hub. It's a funny industry. The industry, down on the bottom of the industry, you've got like really strong SaaS players like Wix and there's a company called Squarespace that's private that's doing really well down there in their SaaS product. But most of the market is buying kind of open-source, client-server technology. And it's funny that way. And so we feel like there's a big opportunity to build a true SaaS product and all those benefits of the SaaS product. We think we have a great advantage in this market because we've built that CMS from scratch, and we built our CRM from scratch, and it's a one plus one equals 10 when you combine those two products together with the same user interface. And you're just able to create a great experience for your customers to use them together. So I feel really good about it. We're getting lots of new accounts through it, and we're getting some upsell through it. We launched and we couldn't have launched it at the worst time. We launched it in April. But despite having terrible timing in launching it, it's done really, really well. And I think that's going to be a big help for us kind of like sales of it.

Christopher Merwin -- Goldman Sachs -- Analyst

Okay, great. And maybe just one quick follow-up on billings. A very solid number there. I mean, a little bit slower than the revenue growth. And Kate, I think you called out some churn which you had spoke to last quarter. So could you just give us a sense of magnitude there just in terms of what you saw? And I imagine it was in line or even better than your expectations, given the performance in the quarter.

Kate Bueker -- Chief Financial Officer

Yes, sure thing. So Q2 billings came in probably a little bit better than what we had thought or hoped for. Most of that, frankly, was just driven by solid performance on the new business side. But one of the things that we talked about last quarter was that we also expected that we would see a decrease in billing term during the sort of period of economic turbulence. And we saw a little bit better performance on that regard in Q2. We continue to expect to see in our customer base some duration compression over time, and that will cause billings growth to be a little bit shy of revenue growth at constant currency.

Operator

Your next question comes from Arjun Bhatia from William Blair.

Arjun Bhatia -- William Blair -- Analyst

Hi guys, thanks for taking my question. Brian, you talked about the partner channel and the agencies that you've worked with to kind of prepay some of the commissions. Just curious if you've seen kind of any change in how the partner channel contribution has been holding up over the past 90 days and how much what the strength is of those partners after you had worked with them to keep them afloat and keep their business going.

Brian Halligan -- Chief Executive Officer, Co-Founder

Sure. Just to refresh everyone's memory on the call. When things first started hitting in kind of mid-March, one of several things we ran was to advance six months of commissions through our partners, and I think that went over really well. I think that worked for us and worked for them, they were able to kind of stabilize their business. I think it prevented layoffs in a lot of cases. So I'm feeling very good about that call. And I think our partners are generally weathering the storm quite well. If I look at the numbers through Q2 and even through July, they look pretty solid and stable. I don't see any big red flags that seem to be bothering. I think some are doing a lot better than others, some are feeling more headwinds and some more tailwinds, but generally feeling pretty good about that market channel right now.

Charles MacGlashing -- Head of Investor Relations

Arjun just from a percentage of revenue perspective, it ticked up a little bit in the quarter. I think it was 42%, 43% of revenue.

Arjun Bhatia -- William Blair -- Analyst

Perfect. Kate, a quick follow-up for you. You did raise your full year kind of revenue guidance pretty meaningfully, above and beyond the beat in the current quarter. Can you maybe just talk about what you're seeing in the back half of the year that gives you a little bit more confidence in how the next two quarters will play out?

Kate Bueker -- Chief Financial Officer

Yes. I guess I would just start by saying that we approached guidance with the same sort of foundational framework that we've always approached guidance. Our model is quite predictable, particularly as it relates to sort of short term. Much like we did last quarter, we sort of recognized that there is more forward-looking uncertainty, and we ran a bit of a broader set of scenarios to look at the second half of the year and to try to understand sort of upside and downside outcomes. And frankly, we feel really confident about the numbers we're putting forward.

Operator

Your next question comes from Ryan MacDonald from Needham & Company.

Ryan MacDonald -- Needham & Company -- Analyst

Hi, thanks for taking my questions. I'd ask, first off, Brian, as we've kind of gone through the impact of the pandemic here, have you found any sort of pockets or verticals where you were surprised that maybe demand came you saw increased demand that you didn't see sort of pre-COVID at all?

Brian Halligan -- Chief Executive Officer, Co-Founder

Not really the thing about that's kind of interesting is there's some industries that have just been a been as brutal on a couple of industries. We just didn't have a lot of concentration in some of those industries like the restaurants and hospitality and travel. Those are pretty small for us. We've got a heavy concentration in B2B. The other side of that is people call it SMB software. We're more M than S. Like more than 2/3 of our revenue comes from companies that are over 25 employees, so we're a little bit like NetSuite is for the back office and HubSpot is for the front office. So we were definitely impacted. We felt a strong, strong headwind as demand was soft like a marshmallow in Q2. But feeling a lot better about things in June and July.

Ryan MacDonald -- Needham & Company -- Analyst

Excellent. And then just a quick follow up, you mentioned last quarter that multiproduct customers, you're seeing a bit better retention there than with single product. Can you just talk about how that trended during second quarter and if you're seeing either improvements or maybe some deterioration there at all?

Kate Bueker -- Chief Financial Officer

Sure. Multiproduct customers do tend to retain better than single-product customers, and we continued to see that in the quarter. That has not changed.

Operator

And your next question come from Brian Peterson from Raymond James.

Brian Peterson -- Raymond James -- Analyst

Hi, everyone. Hope everyone's well, and congrats on the great quarter. So Brian, just as we think about the pace of product innovation, if you kind of look back at Mainsail, obviously, you had CMS Hub come out this year. I'm curious how we should think about the Hub just being added to the platform over time what that cadence should look like.

Brian Halligan -- Chief Executive Officer, Co-Founder

Well, we're certainly not done with Hub, I can tell you that. I guess, if I can just sort of take a step back and think about HubSpot and kind of what's going on inside of HubSpot is a year ago, when we were on this call, we talked a bunch about taking a step or two back, so we could go three or four steps fast here. We were super patient about that, and that's paying off for us now. And you could kind of see it with us in January and February. We got off to just a killer start to the year. We've announced that CMS that marketing of enterprise product did really well. And we're starting to get a real return on it. The other thing around patience for us, we've got a different approach to building our company and a product. Like if you look across enterprise software and the CRM industry, there's lots of companies in enterprise CRM. They are more like private equity companies with giant sales forces attached to them than they are like true software companies. They cobble their solutions together with. We kind of handcraft it from scratch in-house. And I think over the very long haul that will set us up quite well to compete in the mid-market.

And I think there'll be a lot of value to that. And I think it's a new way of building one of these CRM companies and that all-in-one approach is really going to pay off. The way we describe it internally these days, and we've changed the way we describe it, we call it our primary color. So underneath some spot, you've got data, you've got automation, you've got reporting, you've got messaging. You've got these different kind of shared services underneath it. And then the hubs themselves our product managers and our developers and our designers, they're sort of creating these beautiful applications that are really easy to use in the front end. And increasingly, this year, with Marketing Hub Enterprise, CMS Hub Enterprise, they deliver a real powerful punch on top of it. So feeling really good about that product board. There'll be more hubs to come down the road. We don't feel like we've reached the edges of our vision for products we can build to help companies build great experiences in the front office here.

Brian Peterson -- Raymond James -- Analyst

Understood. That's great color, Brian. And maybe as a follow-up, I just wanted to double-click on the period a bit. It sounds like things got better in June and July. Is that from a new customer logo perspective? Or is that also kind of from a retention perspective as well? Any color you can add on that?

Brian Halligan -- Chief Executive Officer, Co-Founder

Yes. It's sort of a tale of three cities, January and February, wow, incredible. March through May, marshmallow soft. And then June and July, it felt like we got back on track a little bit. And the question you might ask us is what's going on, how much of this is HubSpot and how much is COVID? And I kind of give credit to three things for the bounce back. One is like for a long time, we've been espousing the vision of you need to move from offline marketing to online marketing outside sales to inside sales to build a flywheel, to build great digitized front office use digital transformation to rethink your front office approach. And the stuff we thought was going to happen in the market for over like six years really happened over the last over six months now. It's really sped up. So our vision sort of matches the time. The plays we ran worked. We talked about the starter play, that worked really well. But there is a whole series of play cases that we ran to help our customers and partners to weather the storm.

And I think the team executed them really well. They were well conceived and well executed. And then the product I just talked about. We took two steps back last year, so we could take four steps forward this year, and I think we're getting a return on that. We had two new product offerings this year with Marketing Hub Enterprise and the CMS Hub launch. And our Net Promoter Scores are sky-high. We broke a bunch of records with our Net Promoter Scores from our customers. So yes, I think it's been we don't know what will happen in the future. I mean, this has been a terrible tragedy for so many people and so many companies. And we don't know what will happen to the economy or to our demand curve in the future. So a caveat is with that, but things did get better in June-July for us.

Operator

Your next question comes from Samad Samana from Jefferies.

Samad Samana -- Jefferies -- Analyst

Hi, good afternoon. Thanks for taking my questions And I'll echo the congrats on the strong performance. Brian, I wanted to ask just because I think historically, Hubs has done really well in B2B-focused SMBs. And I'm curious if maybe just kind of renewed pivot from offline to online, if there's been any differences in the type of SMB that you're getting, whether there's more B2C in there or just whether they're smaller or larger as you think about that offline to online cohort in particular? And then I have one follow-up.

Brian Halligan -- Chief Executive Officer, Co-Founder

Not really we've got some on there's a ginormous number of companies between five employees and 2,000, let's say. There's just a huge market out there. We have a very, very small percentage of that market on HubSpot. And so we're a little bit focused and sticking to our knitting to build out a killer solution for that target market before kind of getting distracted with totally new value props. So we've got our heads down. We think there's a huge market. We think our value prop is really strong. We're really differentiated relative to the competition. So we're kind of we got our heads down, frankly.

Samad Samana -- Jefferies -- Analyst

Got you. And then I know the kind of trends question has been asked. But maybe in a slightly different vein, if you think about countries that are maybe further along the reopening path, as you've seen those countries reopen, have you seen a change in whether there were downgrades there to go to upgrading again? Or in terms of new deal activity? We're just trying to see if that's a leading indicator for what we might see in some countries like the U.S. that are earlier in the reopening cycle.

Brian Halligan -- Chief Executive Officer, Co-Founder

It's a good question. Like Australia opened up a little earlier, and that started getting a little better, a little faster. But really, across the developed markets, they all kind of move in tandem, quite honestly. Where they've slowed a bit were in more of those emerging markets like India and Latin America, places like that. And those markets are ones that we don't have a huge presence in anyway. We're pretty focused on the bigger markets. And we haven't rushed into those emerging markets. So we haven't been super impacted. The thing we don't know is what will happen in the United States, what will happen in Europe and what the path of this thing is going to do. So it's hard to predict the future. But I would say feeling cautiously optimistic relative to the last call we have as you posed last quarter.

Samad Samana -- Jefferies -- Analyst

Well, that's great to hear and we're certainly happy to see that as well.

Operator

Your next question comes from Alex Zukin from RBC.

Dylan Reider -- RBC -- Analyst

Hey guys, This is Dylan Reider on for Alex. Congrats. Brian, I guess just to start, clearly, this is a very disruptive time for some of your customers and that's causing headwinds in some cases and tailwinds in other cases. And you've clearly been proactive in working with them to ensure they're getting value from HubSpot and been effective in reducing churn and offering promotions on the Starter Suite. I guess just throughout all these different conversations that you're having with customers and steps that you've taken to work with them, could you just speak with maybe some of the learnings and takeaways that you've had as you think about your strategy coming out of COVID anything new or different that you might take from an operational perspective from these conversations that you've had with customers?

Brian Halligan -- Chief Executive Officer, Co-Founder

I think it's really just moving the future forward at some of the stuff we've been espousing from stages and inbound, in books and blog articles for 14 years that it's just a better way to go to market. It mentions the people actually want to shop and buy and engage. And we've built a platform for that. And I think it sort of matches the time. But no, no huge thing. I think that we ran a number of plays that seemed to land when this all stuff started, and they've been executed pretty well, and I think we're pretty good. But no, we haven't done a big pivot. So we talked about it, about two or three weeks into this, like, "Well, this is going to be pretty bad. What do we need to change our product road map to match this?" And we're like, you know what, we actually built a product that's well suited for this stuff. So let's keep our head down and keep cranking on.

Operator

And your next question comes from Walter Pritchard from Citi.

Walter Pritchard -- Citi -- Analyst

Hi, thanks. Question on the customer adds and how you're thinking about those upselling as time goes on, especially relative to the customers you've added in the past, given the dynamics of the lower end product? And then I have another question on expanding the product line.

Brian Halligan -- Chief Executive Officer, Co-Founder

Yes. So we have a lot more of these Starter Suite customers coming in, Walter, a lot more. That's done really well. And we're watching the size of those cohorts. We're watching the upgrades, and we're watching the cancellations. And so we're watching all very carefully and watching by cohort. The size is about the same as previous cohorts on that product line, which feels good to us that we didn't attract a bunch of kind of mom-and-pop in. The cancellations look real good. The upgrades aren't quite as good as previous cohorts, but they're still pretty solid from that Starter to grow. So early signs are really good that we made a change there to our the demand curve looked a little bit different than the way thought and you get a change to it. And at least for now, we're going to stick with it.

Walter Pritchard -- Citi -- Analyst

And then any changes to how you're thinking about the additions to the product line via M&A? Any more confidence you have in your ability to do that to accelerate the road map? Or do you feel like you have enough on your plate at this point that, that doesn't make a lot of sense?

Brian Halligan -- Chief Executive Officer, Co-Founder

I think we do we look at deals, and we're just picky. And we're picky for a few reasons. One, part of the reason we went in the marketplace is we built this thing like with love in-house. It is a gorgeous front end, consumer-like front end, it's an easy interface, it's a single deal with the customer on the back end. Not a bunch of different funky systems kind of integrated together. Our Net Promoter Score, word of mouth is going way up. Our product organization really took a couple of steps back, and it's really cranking right now. So we feel like we have the best ability at scale to build great new products that customers love. And so our confidence is high there, higher now than it's ever been. We'll be sensitive on valuations to a certain extent. We'd be super sensitive on anything that messes with that core competitive advantage or front end. And so we're just going to be very careful about M&A. And when we do them, they're going to be good deals, and they're going to be thoughtfully done and we can thoughtfully integrate it. But we're unlikely to break our core value prop for some very short-term growth.

Operator

Your next question comes from Terry Tillman from Truist Securities.

Terry Tillman -- Truist Securities -- Analyst

Yeah, thanks for taking my question and Congrats from me as well. Brian, one thing I've always liked about HubSpot is just the testing and learning. You guys test a lot of things out, you learn and you iterate. And you talk a lot about like running plays. What I'm curious with CMS Hub is, what are some of the early feedback and learnings you're getting? Because where I'm going with this, it seems like the web is getting rebuilt. Websites clunky websites is not going to work anymore. And so do you see opportunities here with CMS Hub to actually be kind of the tip of the spear of the wedge to go after new business is a way for folks to engage with HubSpot? Or am I thinking about that the wrong way and it's really more about going into the sticky installed base? That's the first question.

Brian Halligan -- Chief Executive Officer, Co-Founder

I think our sales organization will gravitate toward the lowest hanging fruit, and that's likely within our installed base and same with the part organization. But I think over the fullness of time, that will be that will be a front door where we bring lots and lots of customers in. And by the way, I think you're right. I think the idea of a website. You don't want a website, you want to build a customer experience, and that customer experience should be light and it should modern and it should be delightful. And you need a new type of CMS to pull that off, and you need to treat it like a first-class citizen. And that CMS has to be married to your CRM in. So I feel really good about the CMS product. The product organization delivered, and I think it could be a big business for us.

Terry Tillman -- Truist Securities -- Analyst

Got it. And just a follow-up relates to looking at kind of the durability of your marketing hub business, what I'm curious about with the marketing Hub enterprise product, you've got the A/B testing, you've got the revenue attribution in ABM. Like is any of those features really resonating more than others in terms of either helping with new business or replacing legacy marketing automation platforms?

Brian Halligan -- Chief Executive Officer, Co-Founder

All of them. Attribution reporting's been huge for us. A/B testing has been very solid, and account-based marketing has been huge for us. And they were very thoughtfully done. They weren't bolting on to an acquisition. They were built with our primary colors. They're just beautifully executed inside the user interface. That product's just been really, really well. And we're getting lots of new customers, but we're getting I wouldn't say, a lot of rip and replace, but more legacy marketing automation vendors. The other thing I would say about HubSpot's Marketing Hub, is not just marketing automation. Like I think a marketing automation is as when people describe almost that old-school middle of the funnel, where you've got the lead, you score the lead, you segment the lead, you do automation off that lead.

HubSpot's Marketing Hub, of course, does all that stuff in a really elegant way, but it does search engine optimization, you can do your advertising through it, you can do your social media through it, you can marry it with your website, you've got complex-driven landing pages and your blog. It's much, much more than your garden-variety marketing automation platform. But it's doing well. I'm proud of the team, the marketing team. They really innovated and cranked on it. And the nice thing about that marketing industry is it's a big industry. There's a lot of money being in that industry. There's a lot of value being delivered. There's a lot more innovation coming ahead for us there.

Operator

Your next question comes from Ken Wong from Guggenheim Partners.

Ken Wong -- Guggenheim Partners -- Analyst

Great. Just first question for Brian. 7,800 roughly kind of net customers adds significant uptake in the pace from what you saw a year ago and in Q1. Can you help us kind of understand how much of that might have been just an initial surge to meet immediate demand? Or is there a new sustainable run rate that we should be thinking about from a customer adds perspective?

Brian Halligan -- Chief Executive Officer, Co-Founder

I'm going to let Kate go and take that one.

Kate Bueker -- Chief Financial Officer

Yes. Thank you. So we were obviously very happy with the 7,800 ads. I think we are also very happy that the ads, particularly in that starter growth suite, were pretty consistent month-over-month. We think it's sort of a new a bit of a new normal for us, which we're excited about. The other thing that was a positive from our perspective is that it was not just in that sort of Starter Growth Suite where we saw some strength. The new customer adds were pretty strong across the board. And we think that, as Brian highlighted, says a lot about the value that our product is delivering. One thing that I would point out, we obviously saw the ASRPC drop quarter-over-quarter, not surprisingly. We talked about the fact that, that was likely going to be the case on the last earnings call. And I think that you're seeing that for a couple of reasons. One is the really significant traction that we're seeing at the low end of the portfolio is going to have sort of a natural mix impact there. And the other thing is that we have seen elevated downgrades throughout Q2 as a result of some of the plays that we're running around the COVID situation.

Ken Wong -- Guggenheim Partners -- Analyst

Got it. And then maybe a quick follow-up. As far as the net retention, you mentioned, I think, 90%. Last quarter, you guys were talking about how things would potentially trend lower from the low 90s, but likely should be dropping in Q2. Should we view that 90% as that trough going forward?

Kate Bueker -- Chief Financial Officer

Yes. I would say what we sort of led you down sort of the path of trend here starting in January and February at that 100 plus, which is a strong performance for us. And then in March, the retention dropped to the low 90s. It did hang in there at 90% in Q2, which was a bit better than we had expected. Look, as Brian said, who knows what the future brings. But I am cautiously optimistic that we've seen the bottom here. We did see retention strengthen month in, month out throughout Q2.

Operator

Your next question comes from DJ Hynes from Canaccord.

Luke -- Canaccord -- Analyst

Hey guys, This is Luke on for DJ. So I wanted to dig a bit in more on your CMS Hub and specifically whether or not the current environment has actually enhanced interest in that offering, as traditionally brick-and-mortar businesses look to beef up their online presence. So any commentary there on the traction you're seeing specifically in that context of accelerating e-commerce adoption?

Brian Halligan -- Chief Executive Officer, Co-Founder

I don't think that's a huge factor, quite honestly. Most of our customers are B2B. A lot of B2B companies are doing e-commerce. They have a nice integration to Shopify, and we have a bunch of customers using that. But I think the CMS Hub product is just better and a lot more people are buying it. And I think whether we were in COVID times and not COVID times, I think we've got a similar pump on that.

Operator

Our next question comes from Peter Levine from Evercore.

Peter Levine -- Evercore -- Analyst

Just I guess to start, Brian, can you just talk a little bit about the adoption of the starter pack? Is there any delineation between the Europe and U.S.? I mean, just based on your customer growth in Europe, it seems that it's taken off perhaps faster in the U.S. But I was just kind of curious if there's any differential and how you're seeing that adoption from a geographic perspective?

Brian Halligan -- Chief Executive Officer, Co-Founder

No. It's been pretty steady across Europe and United States, and the ratios are pretty similar. It seems like it blended in a similar way across all geographies, maybe a little softer in developing markets, but really solid across the developed markets.

Peter Levine -- Evercore -- Analyst

Okay. And then just, Kate, on the customer downgrade comment, it sounds like you feel like you're kind of getting through maybe the bulk of those conversations at this point in time. I don't want to put words in your mouth on that front, but does it feel like the amount of customers that are coming to talk about that is slowing, and that obviously helps in terms of visibility, and obviously, NRR going forward. I just want to make sure I'm clear on that point because that's what it sounds like. But again, I won't put toward in your mouth.

Kate Bueker -- Chief Financial Officer

Yes. I think you're right as it relates to that. We put in place a number of plays at the end of March designed to really help our customers weather a short-term impact here. And I think, as Brian highlighted, they worked largely how we wanted them to. The volume of requests has continued to fall. And as I said in my prepared remarks, the first cohorts are starting to kind of come out the other side. And frankly, it's really early in that process. We have a long way to go, but the early signs are positive.

Operator

Our next question comes from Jennifer Lowe from UBS.

Jennifer Lowe -- UBS -- Analyst

Great, thank you. Actually, just maybe just to finish up on that thought, when you talk about customers coming out the other side, does that mean that they're starting to move back up to where they were previously? Or are they're getting current on payment terms? What exactly does that look like when they come out the other side?

Kate Bueker -- Chief Financial Officer

It's frankly all of the above, Jennifer. I think there's a variety of plays that we put in place. Short-term discount as one example. Many of the short-term discounts are 90 days in length, those customers would be starting to come up. And we have seen many of them progressing on a path toward more normal discount levels. Another play that we ran was around more flexible payment terms. And that would mean that our customers are coming up and have a payment due, and we are also pleased with the performance of those customers.

Jennifer Lowe -- UBS -- Analyst

Okay. Great. And one more for me. If I look at the customer base and particularly at the enterprise or the more enterprise side of your base. I'm just curious, as companies have to move faster, maybe they want a solution that's simpler, given that things are changing so fast. I'm just curious if that's created any differences in the conversations that you have or the win rates that you have when you're in a competitive situation where maybe buyer needs look a little different because the world looks a little different or what they're prioritizing is a little different. Any color that would be interesting.

Brian Halligan -- Chief Executive Officer, Co-Founder

It's a good question, Jennifer. What we're kind of like if I think of the legacy SaaS providers, they're hard to buy, they're hard to set up, they're hard to use, they're hard to own. We're trying to gain where the rest of the market can't. And we're trying to make it easy to buy, easy to set up, easy to use and easy to own. And I think it's just resonating well, and I think our Marketing Hub Enterprise release we did in January worked. And I think that CMS Hub Enterprise release we did in April is working. We've always been really easy to use, and we've invested massive amounts in user research and design is really paying off. And then we've added a bunch of power, and that's kind of a magic trick in itself. We just don't see that combination of the consumer front end, really easy to use, with that power on the back end. And this is here we've added a bunch, and there's likely more to come.

Operator

Your next question comes from Sid Panigrahi from Mizuho.

Sid Panigrahi -- Mizuho -- Analyst

Thanks for taking my question. I just want to double-click on that comment on ASL, PC down 5%. And you talked about big tent of new customers taking a stagger set promotion. What percentage of existing Starter suite customer also took advantage of that $50 promotion? And then I saw that your promotion was supposed to price go up $75 in August, but so now extended to September how should we think about the RPC for the rest of the year?

Kate Bueker -- Chief Financial Officer

Yes. Why don't I start, and then Brian, if you want to add anything. The first thing that I would say is that the vast majority of customers that are adopting the Starter Growth Suite are new to HubSpot. So that's what's really driving the growth of that product. And as Brian said, we were a bit frankly surprised that this pricing change resonated as much as it did with the market, and we've seen really strong adoption here. We talked a lot about what to do about the pricing, and we are obviously looking very closely at the performance of those cohorts. And for now, we're going to keep it. And we will continue to look closely, but the for at least for the near-term here, it's going to remain at $50.

Operator

Your next question comes from Michael Turrin from Wells Fargo.

Michael Turrin -- Wells Fargo -- Analyst

Hey, there. Thanks, good afternoon. Maybe stepping outside of the financials for a moment. HubSpot's known for its company culture. Your glass door scores are consistently off the chart. And just wondering how the pivot to remote work has been for the team given that close-knit community you've built? And maybe any observations you have around maintaining that culture with new hires, likely coming on remotely as well, might just be insightful here as well.

Brian Halligan -- Chief Executive Officer, Co-Founder

I can take that. That's a great question. So when COVID first hit, obviously, we had to get all our employees out of all of our offices and in their homes and set up. That was challenging, but I think it went pretty well. I give a lot of credit to our people ops team and to our facilities team. Our operations team did a great job with that. I think part of the reason it went pretty well was we were leaning toward remote. Remote was our third-biggest office when COVID hit, and we were trying to make that a more attractive option for new employees and to existing employees. And we were on top of that. I do think our culture is very strong. I think it's a real advantage for us. I think one of the things that we also saw I mean, it's been certainly an interesting and challenging six months between the health crisis that's going on and economic prices. It's sort of been a crisis of conscience as well with all the stuff going on with Black Lives Matter. What's leaning hard in there. We feel like our employees really care about diversity and inclusion, as I do, too. And we would like to make progress there. So we've been rolling out initiatives internally to, not just talk about that in the short term, but try to really move the needle on that stuff. So our culture is still very much at our forefront. We feel like we're building two products. We build a product that attracts great customers to retain them, and we build a product that attracts great employees and retain them. We just call that product culture.

Operator

Your next question comes from Brent Bracelin from Piper Sandler.

Brent Bracelin -- Piper Sandler -- Analyst

Great, thanks for taking the question. Maybe I'll start with Kate and end with Brian. Kate, as you think about the new cohort of customers coming online here, what's the mix of billing terms between kind of monthly versus annual? Are you seeing that shift a little bit more toward monthly just given the current environment? Any color there would be helpful relative to the new cohort versus the traditional cohorts you're seeing?

Kate Bueker -- Chief Financial Officer

Sure. So the significant additions that we're seeing at that starter tier will have monthly billing terms. And so that is probably the most notable shift. With respect to customers who are coming on to our professional and enterprise products, so as I noted in my billings comments, we had thought that we would be a pretty significant reduction in the billing terms. That has sort of hung in there a little bit better than what we had thought.

Brent Bracelin -- Piper Sandler -- Analyst

Okay. That's helpful color. And then, Brian, I don't know if you're able to answer this or not, but I'll ask it anyway. I think a lot of the questions that have been asked and answered are really focusing around this idea of how much of the momentum you're seeing in June and July is tied to the promotional activity versus this idea there's something more durable happening in the industry around the shift to kind of online, the shift to digital, even remote work, where perhaps you need to have a more modern kind of marketing sales approach in the mid-market. So as you think about those two drivers of what you're seeing in June, how much of how much should we weight just around company-specific promotions driving the momentum here versus a what could be a more durable trend?

Brian Halligan -- Chief Executive Officer, Co-Founder

I think it's more durable. I don't think the promotion I think the promotions worked and we I think they worked. They were well-designed to work, but we've been talking about digital transformation for 14 years. We're talking about movement from offline marketing to online, from outbound marketing to inbound marketing, from outside sales to inbound sales, from funnels to flywheels. I mean we've been screaming from the hills. And our vision of the future for our customers that we thought would take five or six more years. Like there's a lot of urgency around it. And I think digital transformation is a massive wave that's been going on for a long, long time. It just picked up a little steam here. And our products are well suited. Our vision is well suited. Our services organization is serving them well. We've got a big community around this. I think HubSpot is well positioned for a nice run here.

Operator

Your next question comes from Park Lane from Stifel.

Park Lane -- Stifel -- Analyst

It's actually it's Parker on for Tom Roderick, sorry. I was just wondering if you could talk a little bit more about the PieSync acquisition from late last year and how that business is tracking from an integration standpoint, go-to-market standpoint? And just any other details you have there?

Brian Halligan -- Chief Executive Officer, Co-Founder

PieSync has gone great. The team is doing terrific. They're working on some awesome stuff. And the business itself, it's a smaller business relative to HubSpot, but it's grown faster than we thought. And it's going really well. I think what's interesting about PieSync is their capability, and what they're like super focused on and they're really like fantastic at, if somebody's got one application, and they want to sync their data, keep it synched together with another application, they eat, sleep, drink, live that problem. It is a sticky, hard problem. It actually was not a problem we were particularly good at. It wasn't one of our primary colors. And so it's the perfect type of acquisition for us, where we kind of added that primary to us. So stay tuned for that. That capability is going to show up in other places and going to power some new capabilities down the road. And I'm really feeling good about that, Pete.

Operator

Your next question comes from Koji Ikeda from Oppenheimer.

Koji Ikeda -- Oppenheimer -- Analyst

Hey guys, thanks for taking my questions. Great quarter, congratulations. I just wanted to ask a question another question on net revenue retention trends. And just thinking about the future a little bit fast forward into the future, thinking about how the discounts today as those kind of normalize out and the renewals that sorry, the annual discount that you have as those come up to renewal, is the right way to think about net revenue retention? Will those anniversary-ing of those discounts and mobilization of the discount act as a tailwind for net revenue retention trends to maybe boost it back up to over 100% in the future?

Kate Bueker -- Chief Financial Officer

Yes. I mean, if I turn back the clock and talk about retention in a way that we were doing before the onset of COVID, I think that what you would remember is that we would say that we believe we can have net revenue retention at 100-plus over the long term. And I think we still fundamentally believe that is true. You are highlighting a trend that is real. As we obviously saw some sharp headwinds due to the downgrade activity in Q2. And as the customers come off of short-term discounts and move toward more normal discounts, that is a tailwind to retention. That will show up over the next few quarters. So from a near-term perspective, that should help.

Operator

And that was our last question at this time. I will turn the call back over to Brian Halligan, CEO, for closing remarks.

Brian Halligan -- Chief Executive Officer, Co-Founder

Thanks, everybody, for joining today. I hope you stay well, and we'll see you at Inbound.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Charles MacGlashing -- Head of Investor Relations

Brian Halligan -- Chief Executive Officer, Co-Founder

Kate Bueker -- Chief Financial Officer

Stan Zlotsky -- Morgan Stanley -- Analyst

Christopher Merwin -- Goldman Sachs -- Analyst

Arjun Bhatia -- William Blair -- Analyst

Ryan MacDonald -- Needham & Company -- Analyst

Brian Peterson -- Raymond James -- Analyst

Samad Samana -- Jefferies -- Analyst

Dylan Reider -- RBC -- Analyst

Walter Pritchard -- Citi -- Analyst

Terry Tillman -- Truist Securities -- Analyst

Ken Wong -- Guggenheim Partners -- Analyst

Luke -- Canaccord -- Analyst

Peter Levine -- Evercore -- Analyst

Jennifer Lowe -- UBS -- Analyst

Sid Panigrahi -- Mizuho -- Analyst

Michael Turrin -- Wells Fargo -- Analyst

Brent Bracelin -- Piper Sandler -- Analyst

Park Lane -- Stifel -- Analyst

Koji Ikeda -- Oppenheimer -- Analyst

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