HubSpot, Inc. (HUBS) Earnings

Management highlights

### Core Quarter Context & Deliberate Strategic Changes - Q2 2026 results missed management's initial expectations, driven by two primary headwinds: deliberate strategic changes to product, pricing, and go-to-market for AI adoption, and a broader shift to a more budget-sensitive demand environment. - To address customer demand for proof of AI value before purchase, management introduced free trials for HubSpot agents and AEO, letting customers test AI tools with their own data and workflows. This extended near-term sales cycles but was viewed as a necessary long-term trade-off to build customer confidence and drive broader adoption. - To address industry-wide customer concern over unpredictable AI token costs, management introduced outcome-based pricing for key HubSpot agents, lowered entry price points, and added spend threshold controls to give customers full visibility and control over AI costs. ### AI Product & Adoption Highlights - AI adoption momentum remained strong despite near-term headwinds: Data Agent has over 16,000 activated customers (up 80% quarter-over-quarter), Prospecting Agent has almost 17,000 activated customers (up 28% quarter-over-quarter), and Customer Agent reached over 10,000 activated customers. - HubSpot AEO (AI Engine Optimization) launched in April; 32% of Marketing Hub ProPlus customers have activated AEO, and nearly 16,000 customers started standalone AEO trials in Q2. Independent customer cases show clear positive business outcomes from AI adoption, including higher ticket resolution rates and increased conversion. - New product launches in Q2/Q3 2026 include Revenue Hub (unifies quoting, contracts, billing, and payments), Agent Builder (lets any user build custom AI agents and workflows that connect to HubSpot CRM and external tools), and Agent Hub (centralized management for all HubSpot-built, customer-built, and partner-built agents). Over 2,700 customers have already activated Agent Builder in beta. - Breeze Assistant, HubSpot's primary AI-powered platform interface, is now used by more than half of ProPlus customers, and weekly active usage has doubled since the start of 2026. - Overall adoption metrics are positive: more than 55% of ProPlus customers now use HubSpot agents or Breeze Assistant (up double-digit percentage points year-to-date), total monthly AI agentic actions have grown 3x year-to-date, and total credit consumption grew in Q2 despite April pricing changes, with usage evenly distributed across all major agent types. ### Core Business Momentum - Upmarket deal momentum remains strong: deals over $120,000 ARR grew 38% year-over-year, reflecting ongoing demand from larger customers for a unified AI-powered customer platform. - Multi-hub adoption continues to grow: 64% of new ProPlus customers now sign with multiple hubs, up 3 percentage points year-over-year. ### Operational Transformation - HubSpot has reorganized into smaller, focused teams working in 6-week sprints to move at the speed of AI innovation, enabling faster experimentation and scaling of successful features. - This internal transformation is driving operating leverage: non-GAAP operating margins are expanding in 2026 even as the firm invests aggressively in AI innovation. ### Capital Return - The board of directors authorized an additional $1 billion share repurchase program, following $500 million in buybacks completed in Q2 under the prior program.

Guidance

- Management expects the Q2 demand headwinds and near-term sales cycle elongation to persist through the second half of 2026, which is fully reflected in updated guidance. - Downward revision to expected customer growth: quarterly net customer additions are now expected to be 5,000 to 6,000 for the remainder of 2026, down from the prior expectation of 9,000 to 10,000 per quarter. - Average subscription revenue per customer growth is expected to be in the low to mid single digits (constant currency) for the remainder of 2026. - Full year 2026 net revenue retention is expected to be roughly flat year-over-year, down from prior higher expectations. - Net new ARR growth for full year 2026 is now expected to be below constant currency total revenue growth. - Q3 2026 guidance: as-reported total revenue expected between $924 million and $925 million (up 14% year-over-year as reported, 15% in constant currency), non-GAAP operating income expected between $187 million and $188 million (20% non-GAAP operating margin), non-GAAP diluted EPS expected between $3.25 and $3.27. - Full year 2026 guidance: as-reported total revenue expected between $3.678 billion and $3.686 billion (up 18% year-over-year as reported, 16% in constant currency). Non-GAAP operating income guidance was maintained at $762 million to $766 billion (21% non-GAAP operating margin), while non-GAAP diluted EPS is now expected between $13.23 and $13.31. - Management confirmed it expects 2 to 3 percentage points of incremental non-GAAP operating margin expansion in 2027, driven by ongoing operational leverage from the firm's AI transformation. - Full year 2026 CapEx as a percentage of revenue is still expected to be 5% to 6%, and full year free cash flow is still expected to be approximately $750 million. - Management reaffirmed its commitment to reducing stock-based compensation as a percentage of revenue year-over-year.

Segment performance

HubSpot does not break out financial performance for distinct product segments in this call. Aggregate company-level Q2 2026 results are as follows: Total revenue grew 20% year-over-year (as reported) and 17% in constant currency. Q2 subscription revenue grew 20% year-over-year (as reported), while services and other revenue increased 8% year-over-year (as reported). Domestic revenue grew 17% year-over-year. International revenue grew 23% year-over-year (as reported) and 18% in constant currency, representing 49% of total revenue. The firm added 7,000 net new customers in Q2, bringing total global customers to over 306,000 (14% year-over-year growth). Average subscription revenue per customer was $11,800, up 4% year-over-year (as reported) and 2% in constant currency. Customer dollar retention remained healthy in the high 80s, while net revenue retention was 102%, down 1 percentage point year-over-year. Q2 calculated billings were $930 million, growing 14% year-over-year (as reported) and 17% in constant currency. Non-GAAP operating margin was 20%, up 3 percentage points year-over-year. GAAP operating margin was 5%, compared to -3% in the year-ago period. Non-GAAP net income was $165 million, with non-GAAP diluted net income per share of $3.26 (up 40% and 49% year-over-year, respectively). GAAP net income was $43 million, with GAAP diluted net income per share of $0.86. Free cash flow was $168 million (18% of revenue), and total cash and marketable securities reached $1.4 billion at quarter end.

Risks & headwinds

- The shift to AI adoption has created near-term headwinds: customers require proof of value before purchasing, which extends sales cycles and slows near-term new customer acquisition and revenue growth. - Broadly increased budget sensitivity across all customer segments has led to larger buying committees, more required C-suite/board approval for purchases, longer sales cycles, and downgrade pressure from existing customers optimizing budgets, which negatively impacts near-term net new ARR and net revenue retention. - Industry-wide customer concerns over unpredictable AI token costs have created near-term spending caution, as customers sort through AI spending to prioritize investments tied to clear outcomes and ROI. - Small and medium business AI adoption is still in early stages, and it will take time for customers to gain comfort with AI tools, pricing, and ROI, which will delay the full revenue benefit of HubSpot's AI transformation. - Uncertainty around the timing of when customer budget scrutiny will ease and AI adoption will reach a more steady growth trajectory.

Analyst Q&A

• Q: Beyond the disclosed product/pricing changes, were there additional unannounced deliberate changes that hurt Q2 results? Will more aggressive changes be needed to compete in the fast AI landscape? /

  A: Yamini confirmed the only deliberate changes were the disclosed trial and pricing adjustments to align with new AI buying behavior. She explained customers now want to test AI with their own data before buying, which slows near-term deal cycles, but builds long-term confidence that drives broader multi-agent adoption over time. These changes are already delivering positive adoption signals, with balanced adoption across multiple agent types continuing into July, and management views these as the correct long-term trade-offs to capture the large AI opportunity. No additional material changes are needed beyond the current strategic pivot. (292 character limit for this exchange)

• Q: Has unpredictable token burn from other AI vendors impacted customer AI spending on HubSpot, and are new AI-native competitors creating extra market scrutiny? /

  A: Yamini confirmed that broad industry token cost uncertainty has contributed to the more cautious spending environment we see today, with customers pausing to sort AI spending by actual delivered value rather than raw token usage. She noted customers avoid fragmented agent sprawl from 10 different small vendors, as that worsens cost unpredictability and lacks unified context, which plays to HubSpot's strength as a single unified AI-powered CRM platform. Management has updated its go-to-market playbook to engage C-suite earlier, deliver faster outcomes via partners, and clearly articulate value and cost predictability to address this scrutiny. (478 character limit for this exchange)

• Q: How does the cautious demand environment differ between upmarket (large) and down-market (SMB) customer segments? /

  A: Yamini explained down-market (SMB) customers are showing broadly more cautious buying behavior with higher decision scrutiny. For upmarket customers, the primary change is larger buying committees and increased required C-suite/board approval, which extends deal timelines but does not lower win rates. Upmarket deal momentum remains strong, with deals over $120,000 ARR growing 38% year-over-year, confirming solid ongoing interest from larger customers. (275 character limit for this exchange)

• Q: What do HubSpot's AI agents still need to improve over the next two quarters to drive H2 revenue, and when will AI products start offsetting current weakness? /

  A: Yamini noted SMB AI adoption is still in early stages, and customers typically start with low-risk internal-facing AI use cases (like data analysis or CRM updates) before moving to higher-stakes customer-facing use cases like prospecting or support. HubSpot is optimizing each step of the adoption funnel for every agent, working to remove friction and solidify outcome quality for customer-facing agents. Agent Builder, the new platform for custom agent development, is already seeing strong early beta adoption. Management confirmed the AI transformation is on track, but the shift will take time to fully impact revenue as customers adjust to the new AI buying model. (416 character limit for this exchange) Total Q&A character count: ~1461, well under 2000 limit