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spk04: Ladies and gentlemen, thank you for standing by, and welcome to the HashiCorp's fiscal 2024 fourth quarter and full year earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Alex Kurtz, Vice President of Investor Relations and Corporate Development. Thank you. Please go ahead.
spk27: Good afternoon, and welcome to HashiCorp's fiscal 2024 fourth quarter earnings call. This afternoon, we will be discussing our fourth quarter financial results announced in our press release issued after the market closed today. With me are HashiCorp's CEO, Dave McJanet, CFO, Navam Wilienda, and CTO and co-founder Armand Daguerre. In conjunction with our earnings press release, we have published an earnings presentation that provides additional financial information about our quarter. We encourage you to review that presentation in advance of our call. You can access it on our investor website at ir.hashicorp.com. Today's call will contain forward-looking statements which are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends, our expected future business and financial performance and financial condition, and our guidance for the first quarter and the full 2025 fiscal year. These statements may be identified by words such as expect, anticipate, intend, plan, believe, seek, or will, or similar statements. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. The financial measures presented on this call are prepared in accordance with GAAP unless otherwise noted. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these and other metrics, is included in our earnings press release, which has been furnished to the SEC and is also available on our website at ir.hashleycorp.com. With that, let me turn the call over to Dave. Dave?
spk10: Thank you, Alex, and welcome everyone to our fourth quarter earnings call for fiscal 2024. We reported solid fourth quarter results that exceeded our top and bottom line guidance, with revenues of $156 million, representing year-over-year growth of 15%, and are pleased with our current non-GAAP remaining performance obligations performance, which reached $483 million, representing 21% year-over-year growth. I want to start today's call by thanking everyone on the HashiCorp team for the solid fourth quarter close to our fiscal year. Through their hard work, we exceeded expectations in the quarter with important new enterprise logo wins and CRPO growth that demonstrated continued demand for our products as customers trust us with their most important cloud projects. More broadly, based on conversations we had last quarter, we believe that the optimizations that enterprises undertook over the past 18 months are showing signs of abating. and we are seeing early signs of re-engagement on new cloud initiatives. Our confidence here comes from tangible proof points during the quarter, specifically improving renewal rates and overall better pipeline conversion. This is in line with what we've expected since the start of this cycle. And while there is some ongoing consumption of historical self-managed entitlements among portions of our customer base, The move to cloud is a secular trend with a clear business need, and there's still a long runway ahead for the largest global enterprises as they mature their cloud efforts. Today, I want to focus on our path to accelerated growth as we enter the new fiscal year. And to be direct, we are behind where we wanted the company to be at this point in our growth cycle, and we have work to do. We are on a path back to 20% quarterly revenue growth during FY2026, and I want to outline the top three initiatives taking place at the company to drive this acceleration. At a very high level, we're moving quickly to improve sales execution, turning the dial even more on commercial differentiation, and in Q1, rolling out a plan to reallocate more R&D resources to our cloud products. The first initiative is simplifying our go-to-market strategy. which consists of a more prescriptive go-to-market approach and increased process rigor driven by our president, Susan St. Leger. We began implementing these initiatives back in the back half of FY24 and are completing the rollout with the field teams this week at our sales kickoff. On the first front, we are shifting from best-in-class standalone products to infrastructure lifecycle management and security lifecycle management. That messaging is finding early traction with our sales teams and potential customers. On the second front, Susan will continue to drive sales process discipline, emphasizing speed, efficiency, and simplification in the field, while also concentrating our sales investments on additional technical field resources. We saw some early evidence of positive results in our fourth quarter with improved field execution and improved renewals. To give you an example of these efforts, I'd like to discuss a customer that extended from a single product to include a second one of our security offerings, Vault to Boundary in Q4. This software company initially used Vault in conjunction with a homegrown solution to manage and issue one-time credentials for developer access to cloud infrastructure. After facing challenges enabling their R&D team to access their cloud infrastructure in a self-service manner, this customer quickly realized they needed to replace their homegrown privilege access management solution. Given the customer's existing deployment of Vault, our field teams were able to show that adding Boundary would provide comprehensive security lifecycle management, reducing time to value. This customer started with just 500 engineers running on Boundary and now expects to grow to over 6,000. We strongly believe the simplified multi-product messaging will help us win more deals like these in FY25. The second initiative is about commercial differentiation, greater separation between our commercial and free community offerings. While the ecosystem has clearly standardized on our community edition products, we need to drive more value for our commercial customers. Our product development efforts over the past two years have increasingly been oriented towards enterprise capabilities in our commercial offerings. We are further turning the dial toward commercial differentiation, which we believe will have a positive impact on wind rate and on renewals. One major example of commercial differentiation is Terraform stacks. We gave a preview of stacks in HashiConf last year, which will bring major new functionality to Terraform and the ability to manage infrastructure estates that span multiple environments. This feature is now in private beta with our commercial customers and will be made available through Terraform Cloud exclusively to our commercial customers later this year. This will drive significant differentiation, especially for our large customers with complex estates. During the fourth quarter, one of our larger land deals on Terraform Cloud demonstrates the power of our differentiated commercial products for customers. Our global pharmaceutical company opted to replace their homegrown infrastructure provisioning process built on our Community Edition with Terraform Cloud. They became a paying customer for the first time because of Terraform Cloud's specific features, including no-code provisioning and the upcoming Stacks rollout, as well as our RUM pricing model update in Q2, which aligned pricing more closely with their cloud budgeting process. But in addition to focusing on differentiation through new capabilities, we know enterprise customers have elevated expectations for the lifecycle of software that they deploy, with a strong preference to minimize production changes. Earlier today, we introduced long-term support, or LTS, releases for our commercial customers. The LTS releases enable customers to stay on a supported version for up to two years at a time, with the promise to backport critical fixes, security patches, and hardened upgrade paths. Prior to the LTS announcement, customers needed to do regular major version upgrades to remain supported. This provides significant value for customers who want to manage their risk and operational efficiency, and we believe will be another significant driver to land new opportunities and strengthen renewals. The LTS releases will be available with the upcoming versions of Vault, Console, and Nomad. In contrast, users of the Community editions will have access to critical updates in the latest version and will have to perform frequent updates to stay current. While we continue to offer innovative technology to the community, our outside focus is on providing value to paying customers. Our prior approach provided the same lifecycle for commercial and community versions, and we are now driving a clear differentiation. On that note, our third major initiative is to deliver the enterprise-ready Hashgraph cloud platform across infrastructure lifecycle management and security lifecycle management. We are seeing strong customer interest for this and are taking steps to expedite our delivery. Our new Chief Product Officer, Michael Weingartner, is focused on enterprise cloud delivery and is moving quickly to organize our product development team to drive cloud innovation at a faster pace. We have already reallocated resources to this initiative, as it is central to an overall company-wide shift to lead with our cloud offerings. As we mentioned last quarter, we are defaulting enterprise land to cloud, beginning with Terraform Cloud in Q1. As part of this shift, incentives for our field teams are weighted towards cloud rather than self-managed software. We will prioritize enterprise land across infrastructure lifecycle and security lifecycle management with HCP. Landing our customers on cloud first with HCP enables them to realize value faster. As we deliver more cross-product experiences, it enhances our ability to drive and extend motion from our core land products as well. As our R&D teams continue to deliver new product innovations, having customers on the cloud platform enables customers to use those new capabilities immediately, in contrast to self-managed software, which requires planned upgrades. Combined, these facets will drive improved net retention rates over the long term. To show how this works in practice, here's an example of a customer that expanded both Vault and Terraform Cloud in Q4, doubling the size of their initial land deal. This travel agency had experienced significant resource constraints that made it difficult to deploy applications on bare metal as fast as they needed. They were also dealing with subsidiaries operating at different levels of cloud maturity. As a result, this customer realized that only Terraform Cloud could keep pace with their infrastructure complexity. They standardized on Terraform Cloud not just for its portability and lower operating costs, but also because Terraform Cloud enabled them to deploy new applications much faster, improving their competitive positioning. To summarize, our goals for this year are to simplify our go-to-market, expand the differentiation of our commercial products, and shift our business to focus heavily on our HashiCorp managed cloud products. Now, I'll turn it over to Navam to walk through the details of our Q4 and full year performance, forward-looking guidance, and then we will be happy to take any questions. Navam?
spk05: Thank you, Dave, and thanks to everyone for joining us today. Echoing Dave's comments, I also want to thank our team for all the effort and continued focus that they have put in, which helped us close fiscal 24 on a positive note. We grew our fourth quarter revenue by 15% year over year, our full year revenue by 23% year over year, and ended with another free cash flow positive quarter. More importantly, our team put in a lot of work last year to set up HashiCorp for future success and momentum. As Dave mentioned in his remarks, there continues to be pockets of optimization among customers, but the environment in Q4 as well as the outlook for fiscal 2025 from a macro perspective appears to be better than fiscal 24. As Dave also mentioned, while we are not completely out of the woods on how customers are working through historical entitlements, Our renewal rates improved in Q4 compared to Q3, and our pipeline conversion, as well as our sales-driven customer activity, also improved in Q4 compared to Q3. We believe the combination of abating market headwinds due to consumption optimization, as well as the three operational initiatives of GTM simplification, increased commercial product differentiation, and more enterprise-ready HCP cloud offerings puts us on a solid position to achieve improved bookings in fiscal 25. Given our entitlement model, and as we have discussed before, there is a lag between bookings momentum and accelerating revenue growth rates. Our expectation is to see a U-shaped recovery in our revenue growth rates this year, with Q2 being the trough in our revenue growth rate. followed by progressively better revenue growth rates in Q3 and Q4 of this year. We expect CRPO growth rates to follow the trough and recovery pattern, with the lowest point of CRPO growth being in Q2, followed by improved CRPO growth rates ending in approximately 20% CRPO year-over-year growth by the end of fiscal 25. As Dave mentioned, we also expect the momentum in CRPO to put us on a path to reach 20% quarterly revenue growth during fiscal 2026. Let's move on to our fiscal 25 guidance and notes. For the first quarter of fiscal 25, we currently expect total revenue in the range of 152 million and 154 million. And a non-GAAP operating loss in the range of 19 million to 16 million. As a reminder, our business shows seasonal bookings patterns between Q4 and Q1. Q4 is a strong budget flush quarter where we see the highest number of large multi-year contracts. These multi-year contracts create a larger upfront revenue component in Q4 compared to Q1. Our Q1 guidance takes into account this regular seasonality pattern. For the full fiscal year 25, we currently expect total revenue in the range of 643 and 647 million, and expect fiscal 25 non-GAAP operating loss in the range of 46 million and 43 million. As mentioned in my prior remarks, the quarterly growth rates in the back half of the year are expected to be higher than the full year revenue growth rate. We also currently expect our growth margins to remain strong throughout the year, in the low to mid 80% range. We will continue with the measured investment posture we've demonstrated in fiscal 2024, growing expenses slower than revenue growth. We currently expect to achieve non-GAAP operating income break even by Q4 of this year. On a final note, as you know, we posted two strong cash flow generating quarters in Q3 and Q4 in fiscal 24. We expect positive free cash flow results during the fiscal year other than in Q2, which has collection seasonality related to seasonal Q1 bookings. We expect to generate cash in all other quarters. Positive free cash flow generation combined with a strong cash balance puts us in a position of having excess cash relative to our operating needs and any potential midterm M&A expected cash needs. We believe HashiCorp has a lot of growth ahead of us and that there is still a lot of runway ahead for the largest global enterprises as they mature their cloud efforts. In addition, we're always responsible in our capital allocation and believe the best use of excess capital is to return it to our shareholders via our share repurchase program. So as outlined in our earnings release today, the board has authorized the $250 million repurchase program to be executed commencing in fiscal 2025. This authorized program is expected to be the first of a continuing program of share repurchases. Our full guidance numbers can be found in our earnings presentation available on our ir.hashicorp.com website under financials, quarterly results. I encourage you to read through the doc for full metric disclosures, share count disclosures, and gap to non-gap reconciliations. Thanks for your attention. Dave, Armand, and I are available to take any of your questions.
spk27: Alex?
spk22: Thanks, Devon. With that, operator, let's go to our first question.
spk04: Thank you. If you would like to ask a question, please press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. If you would like to remove yourself from the queue, please press star 11 again. Also, we ask that you please wait for your name to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question today will be coming from Derek Wood of TD Cowen. Your line is open.
spk32: Oh, great, thanks. I wanted to just touch on the push to drive enterprises to the cloud. Can you just give us an update as to what the reception has been? Just trying to get a sense whether it's kind of too early to expect you know, a big embracement of cloud at the G2K level, or if you think that could really start to take greater hold and maybe start to drive some higher mix in cloud as we move through the year?
spk16: Hey, Derek. Thanks so much for the question. Yeah, so I think, you know, historically, I think we've talked about it before on the calls that, you know, predominantly we sold cloud through our corporate segment before, and I think that was driven by both sort of customer appetite as well as platform and product readiness. I think the big shift for us and we're in fact at sales kickoff right now, is that we feel like both of those have changed pretty significantly. We're seeing large customers want to adopt Terraform Cloud. The platform has matured pretty significantly over the course of the last year, just given the investments we've made there. And so we're shifting to a default posture for our enterprise segment that's cloud-first for Terraform. And with that, we've actually changed sales compensation to incentivize a cloud land over self-managed. So, yeah, we're feeling very good that, you know, both of those things have sort of matured, both from a customer willingness as well as a product readiness.
spk32: That's great. If I could, Armand, just to follow up, just got a question on the competitive landscape on the security side. Definitely, you got between Vault and Boundary, you've got different competitive dynamics, and Microsoft has entered the market with Entra. Just curious how you see Microsoft competitively and generally how you guys are feeling about win rates.
spk16: Yeah, I mean, what I'd say is we're actually a close partner with Microsoft. We joined the Microsoft Security Alliance as well pretty recently. So we don't see Entra as a competitive offering. We partner with them pretty closely around deep integration between Entra and our products and the HCP platform as well. So certainly much more of a partner play. than it is a competitive one. You know, we feel good about our positioning. I think we haven't seen any changes really in the competitive dynamics around those. And in fact, you know, as we're sort of building a more complete offering around Vault with both our radar product through acquisition as well as Boundary, which is an organic build, we feel like we can tell a much more complete story around security lifecycle management.
spk28: All right.
spk16: Thanks, Derek. Next question.
spk04: Thank you. One moment for our next question. Our next question will be coming from Sanjay Singh of Morgan Stanley. Your line is open.
spk15: Hi. Thank you for taking the question. And congrats on the accelerated bookings growth in Q4. And to stay on that point on the improved bookings performance, Dave, was that a function of just stronger execution, or did you see a better kind of spend environment come through in Q4 versus what you saw earlier in the year?
spk10: Hey, Sanjit. Thanks. You know, I think it's, I think some are especially tied to the optimization cycle that we've all been talking about for quite some time. I think we certainly felt better in Q4 than it had previously, and that translated into better pipeline conversion rates. Part of that is also execution on the part of the work that Susan St. Leger has been doing to drive process rigor into what we're doing. So I think it's actually the combination of both of those, to be honest. I would say we're particularly pleased with the work that Susan's been doing. And I think I speak for the team. We really enjoyed working with her. And that is certainly helping our go-to-market motion.
spk15: Awesome. And you laid out a very specific plan and outline on how to reassert 20% revenue growth in fiscal year 26. On the go-to-market side of the equation, and you guys have been talking about this for a couple of quarters now, can you give us a sense of the magnitude of changes that are being implemented as you go into sort of sales kickoff and the sales process this year? And what does that sort of look like?
spk10: Yeah, I'll put it in maybe a couple of categories. One is around our coverage approach, and the second one is around our overall prescription of motions. On the first topic, You know, we serve the, call it the 4,000 largest organizations in the world, and that's who we have prioritized, and that's where our focus is, and so we've reallocated our resources more specifically to cover those top 4,000, and I think I would, it's fair to say, they were perhaps more dispersed previously, and we certainly believe that concentration of investment will improve yield of those teams as to where we expect the revenue to come from. Point number two is the simplification of the go-to-market narrative that we tell in a very, very consistent and simple way. You know, we have a large product portfolio. As we've scaled, you know, there's a challenge in enabling an onboarding rep to be able to tell all the aspects of the stories that we service. And so you've seen us really anchor on two core constructs around infrastructure lifecycle and security lifecycle. And so prosecuting that consistently through a large field organization is really the exercise in front of us. So it's really those two things. One is coverage, and the second one is really just the discipline and process. And candidly, that's normal for a company through this phase of the life cycle.
spk04: Appreciate that.
spk22: Thank you. Next question, please.
spk04: Thank you. One moment for the next question. And the next question will be coming from Nick Altman. of Scotiabank. Your line is open.
spk31: Awesome. Thanks, guys. I wanted to actually circle back on the last question here just around the go-to-market. But can you maybe just talk about when sort of the go-to-market tweaks and overall simplification will be complete? And then just as a follow-up, how meaningful do you think the go-to-market changes will be versus sort of the overall macro and market improvements?
spk10: Hey, David, thanks for that. Yeah, so as it turns out, we're at our sales kickoff right now, and there's tons of excitement about what we're doing here with the team. Obviously, it's always both of those things. In terms of the completeness of our go-to-market tweaks, I think we're materially through that. I think a lot of that work was done in Q3 and Q4 of last year in terms of setting ourselves up for this, and our sales kickoff is ultimately the final moment in that. Obviously, from here, it's about execution, but the the groundwork has been set. And then overall, in terms of where the improvement comes from, it comes from both, obviously. I think we certainly saw signs of optimization abating in the fourth quarter of last year. And while there's still a big OpEx focus from all of the largest customers in the world around their overall software spend, we're optimistic that as the pipeline we're generating now yields into the second half of the year, that we'll be in a good position for the second half.
spk31: Great. And then, Navam, any changes to the guidance philosophy? I know, historically speaking, you guys have talked about maybe being a little bit more conservative around large deal activity and maybe excluding those from the guidance. So, just any updates to the 2025 guidance philosophy?
spk06: Thanks. Relatively similar in terms of the guidance philosophy as it relates to out-quarter large deal exclusion. That's what we've factored into the Q1 guide. And as Dave mentioned, We've also factored in what we saw in Q4 from an optimization perspective and the effects of that that will have on pipeline generation and the sales cycle associated with it, which leads to the second half acceleration and the shape of the recovery curve that we talked about in prepared remarks, which gets us back to the 20% growth rate, which we're aiming for.
spk21: Great. Thanks, guys. Thank you. Next question, please.
spk04: Thank you. One moment for the next question. Our next question will be coming from . of Oppenheimer. Your line is open.
spk17: Thanks. Hey, guys. I'm trying to more clearly put the finger on the driver for the next 12 months versus the following year. Navam, when I listened to your commentary around optimization abating and pipeline improving and conversion rates, improving how much of your fiscal 25 guide is really a reflection of a better environment rather than the three core pillars of improvement that you're talking about. I'm just wondering if all these changes that you're making to go to market and commercial differentiation and cloud, are these really more of a fiscal 26 contributors rather than fiscal 25?
spk16: Hey, Atai, this is Armand. Yeah, I mean, I think this is a good question. The way I would think about it is, you know, the three initiatives that we talked about, you know, as Dave was just mentioning, you know, these are in some sense things that have been started and in progress for, you know, some of them for quarters, some of them for years, right? So when we think about go-to-market simplification, you know, a lot of that work started upon Susan joining us. And a lot of that foundational work was on Q3, Q4, obviously rolling out with, you know, SCO and sort of getting finalized. When we talk about the commercial differentiation, that's a dial, as we've talked about, that we've been turning for a little while. I think we're continuing to feel the ability to turn that dial further with the BSL license changes and other things we put in place late last year. And so we're continuing to sort of shift that dial with net new investment things like Terraform stacks that Dave mentioned as well, obviously major new capability. And then with the policy change today around the introduction of LTS and changes to our backport policy. So again, some of these things building momentum on top of changes that were already made. And then with enterprise-ready cloud, again, that was a big focus for us last year. That's why we're feeling good about changing the default motion around Terraform Cloud and then continuing to invest heavily in enterprise this year. So again, these are not necessarily starting from a cold start on these initiatives. A lot of these we've been building momentum. We're continuing to put sort of wood behind the arrow. So I think that's clearly a big part of what's going to drive this year and then going into fiscal 26.
spk17: Okay. And then with regards to your U-shaped pattern of recovery through the year. When I look at some of the important KPIs that you provide, net customer additions, 100K customer additions, net dollar expansion rate, and even the HCP revenue growth, all of those have not been impressive. And the fourth quarter continued to show deceleration. Would the U-shaped comment also apply to those metrics, meaning should we expect all customer additions to accelerate in the second half, 100K additions to accelerate, the dollar expansion to accelerate, cloud HCP revenue to accelerate?
spk06: Yeah, thanks, Yitai. I think we've commented on what the bookings recovery is expected to look like given what we saw in Q4, which was strong performance from a sales perspective and in the results that we saw from a bookings and renewals perspective. That's what's baked in. And what will follow is obviously a recovery in all the metrics associated with bookings, revenue growth rates and 100K customers. I want to make a point on the total customer count. A lot of the total customer count or a fair amount of the total customer count delta that you see Q3 to Q4 are self-managed pay-as-you-go customers, which are very small and don't have a material impact to revenue. So the variations quarter over quarter on those customer counts aren't really material to our revenue. The 100K customer count, there's variability quarter over quarter. But overall, we're at the top end of where we thought we'd be on 100K customer count for the year. And again, on the sales-driven customer count, we ended up pretty strong. in Q4. So, yes to your questions on how the shape of the recovery and the path to 20% plays out into the underlying KPIs as well.
spk04: All right. Thank you.
spk06: Thanks, Ty.
spk22: Next question, please.
spk04: Thank you. One moment for the next question. Our next question is coming from Alex Zukin of Wolf Research. Your line is open.
spk18: Hey, guys, can you hear me okay?
spk24: Yep, yep, we can hear you, Alex.
spk18: Perfect. So maybe just the first one for me, you know, if I look kind of on a Ty's question about the 100,000 customer ads in the quarter, it felt like you had accelerating bookings, but, you know, call it a weaker net new 100,000 customer ad quarter. So was the outperformance on bookings there driven by some very large deals that, you know, seven-figure deals or some of the largest deals that you've seen, or what drove that, and then kind of how to think about that.
spk10: Yeah, Alex, this is Dave. Yeah, no, sure, I happen to answer that one. To be clear, on the 100K customer account, I'll reiterate what Navam pointed out is, you know, that 100K customer amount is going to move around quarter to quarter. We actually ended at the very, very high end of our guidance for the year in terms of 100K customer ads. Quarter over quarter, we actually saw a good number of customers landing slightly smaller than 100K, but just below the threshold, and we fully expect those to graduate up over the next quarter and year as it progresses. So actually, I think we feel pretty good about the 100K customer number. To your question on the large deal construct, no, there was no significant large deals of note that were unusual for the fourth quarter. I think it was more of a general, you know, good Q4 as we had anticipated. Also, just underscore Navam's comment on the overall customer count to be super, super clear. We made a pricing change in Q2 of last year, which caused some of our pay-as-you-go customers, those customers paying maybe a couple thousand dollars a year, to be able to use our free tier once the end of the year approached. And so the vast, vast majority of that customer count changed. comes from just the matriculation of those older pay-as-you-go customers, credit card customers into a free version of the product. And we fully expect over time they will graduate back to become paying customers as well. So I don't want to misread the customer count in terms of your overall commentary because we actually feel pretty good about it.
spk18: Okay, understood. And maybe just a second question. What level of visibility do you have from kind of the Q4 bookings pipeline because you're guiding, this U-shape that you're guiding to, you're effectively guiding for growth to double in fiscal 26 based on the trajectory you laid out of reaching 20% by Q2 of fiscal 26. So is there something that, like how much of that is you still have to really go get versus leveraging the opportunity that you already have? And what are kind of some of the puts and takes Is it macro-stabilizing, improving? Because that's quite a revenue growth ramp over the course of the next two years.
spk06: Yeah, let me clarify. This is Devav, and thanks for the question. Let me make sure that I clarify a couple of things. So first of all, the Q4 activity is what informs our full-year view, combined with the three initiatives that Dave mentioned, which are tailwinds to the operations, right? And the U shape is meant to imply that there is a shallow dip in recovery, which you should take into consideration as we look into the full year. And also, the back end growth rates are higher than the total year's growth rate, just because of the shape of the recovery, right? And then what follows is basically progressive improvement on the growth rate until it reaches 20%. in the fiscal 2026 period, not that fiscal 2026 will be 20%, just to be clear. So what we're signaling is that the fourth quarter was a great quarter, and we feel like the optimization cycle's abating. There is signs of positive activity. We're not out of the woods, and we are doing a lot of work with the three initiatives that we outlined that's going to have positive impacts to our operations, and that's going to result in positive momentum in terms of growth rates starting in the back half of the year.
spk28: All right. Understood. Thanks, Alex. Next question, please.
spk04: Thank you. One moment for the next question. And our next question will be coming from Mark Murphy of JP Morgan. Your line is open.
spk14: Oh, thank you very much. Navam, just to clarify, you commented that Q2 should be the trough for CRPO growth. Did you say that's also the case for revenue growth, or are those slightly out of phase? And then just wondering at roughly what levels you see that CRPO growth bottoming out, you know, for instance, should we project that forward at mid to high teens? And then I have a quick follow-up.
spk06: Yeah, thanks, Mark. So, yeah, the CRPO growth rate recovery and the revenue growth rate recovery from a growth rate perspective have similar shapes. There's seasonality related to the CRPO because the booking seasonality front half versus back half, so that has a little bit to play on what the growth rate from a CRPO perspective is. We mentioned how you should think about the exit velocity of CRPO, which is 20% plus, approximately 20%, sorry, in Q4, which is basically the leading indicator of what we think the revenue growth rates on a quarterly basis into 2026 will be. So that's how we're thinking about the CRPO shape going into this year.
spk14: Okay. And so you would kind of leave us to our own, I guess, our own guesswork on where the bottom of that you will trough out for Q2. Is that fair?
spk06: Yeah, I think the second quarter is the trough, and we expect to see, as I mentioned, a relatively shallow U-shaped trough and recovery.
spk14: Okay. And as a follow-up, maybe for Arman or Dave, where do your customers stand on the topic of multi-cloud adoption at this point? I'm wondering if the insertion of a number of LLMs into the landscape might be causing any more dedication to Azure and OpenAI or more experimentation with Google? Anything that would signify more multi-cloud in customer roadmaps and then by extension that might be amplifying the HashiCorp value proposition?
spk16: Hey, Mark. Yeah, thanks for the question. I think what you sort of outlined in the question is exactly the type of behavior we're starting to see which is a lot of customers predominantly maybe had a, I'll call it a single primary cloud type of strategy, and sort of looked at other clouds as potentially secondary or even tertiary when sort of it made sense for them. I think what's changed, to your point, is they're looking at leveraging best-of-breed Gen AI technology, and I think that's pulling forward a bunch of roadmap around how do we go from treating this as a secondary tertiary cloud into really a much more of a primary cloud environment so we have access to those sort of best of breed capabilities. So, you know, in particular, customers who are maybe primarily AWS looking at leveraging Google and Azure, maybe customers who are, you know, primarily, you know, Azure looking at leveraging Google as well. So, you know, I think it's creating a bunch of that sort of pull forward in terms of customers looking at, you know, true multi-cloud environment. And obviously for us, this is helpful as it's driving more interest in the tools in terms of how do we have a sort of cloud agnostic operating model.
spk36: Thank you.
spk04: Thank you.
spk36: Thanks for your next question.
spk04: One moment for the next question. Our next question will be coming from Jim Fish of Piper Sandler. Your line is open.
spk07: Hey, guys. Thanks for the questions. Maybe first, Dave, or Ron, for you, any pipeline benefit on the security side given we're seeing boards essentially give you approval for security budgets and then seeing strength in security budgets overall and focus on identity protection? Is that a large reason why the pipeline is as strong as it is that you're relaying to us? And when do you expect the Windows and remote functionalities to be available in order to go toe-to-toe with sort of the 600-pound gorilla in that space?
spk16: Jim, yeah, thanks for the question. You know, I think we are seeing relative robustness on pipeline in the security space. And I think even last year, I think that was probably the case that it held up better than maybe other budgets, just given how top of mind cyber is for most organizations. And the other thing that's been helpful is as we're sort of filling in the portfolio and going from really sort of standalone to more of a true security lifecycle, as Dave mentioned with sort of boundary and radar, it's allowing us to position a more compelling portfolio offering around sort of a full security lifecycle. As to the second question around Windows and RDP, that's a big focus for us this year within Boundary. We think realistically that's going to be more back half-weighted to flesh out the capability to make sure it's fully mature.
spk23: Makes sense.
spk07: And Navam, for you on the guide, can you just help us frame how you're thinking about the balance of new business here versus the recovery in your expansion rates? And, you know, are you seeing on the difference between CRPO and long-term RPO growth this quarter, is it just you're seeing shorter duration deals with the existing base or just continued lower usage? Thanks.
spk06: Yeah, I don't think there's been much meaningful change in terms of the weighted average duration of our contracts at this point in the fourth quarter. We are seeing smaller land sizes, and as we mentioned, Over the last year, we saw an elongation in the land cycle leading to year-over-year declines in the absolute value of land combined with more land deals. So more contracts landing with more customers, but at a smaller size. So those expand and extend over time. So the 2025 guide is basically predicated on expand-extend. versus a big land change from a revenue perspective. But we are expecting improvements in both. All right. Next question, please.
spk35: Thank you. One moment.
spk04: And our next question will be coming from Jason Adder of William Blair. Your line is open.
spk34: Yes, hi. Good afternoon, guys. I just wanted to ask on the renewals. I know you made some comments on that. Are you seeing customers still being pretty cautious on renewals because they under-consumed entitlements over the last 18 months or so? And then can you just remind us what's the incentive for someone to renew expand on a renewal if they can just under-commit and then true things up as time goes on? Is there a penalty there? Anything, any kind of additional details on how that would work if somebody actually over-consumes relative to their entitlements?
spk10: Hey, Jason, it's Dave. Thanks for the question. On the first one, yeah, it's a good point. I mean, you've got to keep in mind that this optimization cycle is now several quarters in and you're starting to anniversary some of the some of the entitlements that people had already, you know, right-sized on their renewals. So, yes, to a degree, I think that's one of the aspects of our point of view, which is that this optimization cycle is so exciting and certainly that plays out in NDE over time and, you know, pure down renewal to the extent that people haven't consumed their entitlements. But there's probably a little bit of ways to go still. I think that's implicit in our guidance. But it's certainly much better, and we're now lapping previous period where it starts to look more favorable. In terms of your second question, there is not an immediate incentive for people to true up at the moment they expand. That generally is done on the renewal of the contract. You've got to keep in mind the scale of the organizations we work with is that it's just the typical enterprise buying behavior. do not necessarily see that expansion until the renewal of that contract, given the entitlement nature of things. Again, unlike the consumption models, we sell entitlement, and so there is just this natural lag as the market starts to recover.
spk16: Maybe the one thing, Jason, I would add there is sort of your question, what's their incentive for under-committing in that sense? It's that the VDP discounts they would get committing to a lower threshold would be lower, right? So customers will realize better pricing by committing to a higher dollar amount. So that's the incentive.
spk34: So is there a possibility that as we kind of come out of all of this, there's going to be, you know, on the renewals, let's say in FY26, there's going to be sort of a bump because there's going to be a true-up element because customers were more cautious on their prior renewal? Do you see what I'm saying?
spk10: Yeah, I don't think we have a real point of view that far out. I do think this is implicit in the NDE rates that we've seen previously as people sort of on the renewals expanding
spk04: uh substantially and obviously we've been in a period where that hasn't been happening and at some point it will revert thank you all right thanks jason next question please thank you and our next question will be coming from cash ringing of goldman sachs your line is open hey thank you very much team i'm curious to spend a little bit of time if they don't mind dave thank you
spk40: read out a bunch of things that Susan is going to be doing to the go-to-market organization. It came across as being very substantive at the same time. It also went through very quickly. Can you expand upon what exactly is going to be the new bent to go-to-market and the measures that Susan is adopting? What are they meant to remedy versus the approaches in the past? And how important is this? Because the product, we've always appreciated the product strength of HashiCorp. It's been the key asset for the company. Just trying to understand incrementally the tweaks to go to market. What are they really addressed and what are they really motivated by so we can all understand the shape of this recovery? Thank you so much.
spk10: Hey, Cash. Sure, yeah, I'm happy to double click on that a little bit. I'll say, just to reiterate, really the first substantive change that we introduced over the last six months was a refocusing of our go-to-market resources on a slightly smaller number of our accounts. I think that's point number one. Obviously, we had been in a very aggressive investment phase coming out of our IPO, and as the market environment changed, we obviously had to remedy the fact that we had a lot of resources now allocated in places where perhaps we've gone to relatively quickly. So now we've pulled those resources back to focus on the most important accounts, and that is That is certainly paying dividends and it's the appropriate thing to do. Point number two, I think it's worth actually just contextualizing where sort of as you evolve from the early adopters of the world to the early majority, how you have to engage with them in a much more prescriptive manner. Again, that's the consistent pattern of this particular part of the growth arc of any company. As you get to this kind of customer base, which is the early majority, our go-to-market motions are now much more prescriptive in their nature, both for our customers in terms of how we engage with them, which is we go talk to you about more of a solution-oriented conversation around lifecycle. And then number two, it's much more process rigor, which is, again, just the nature of scaling the side of the organization. So I wouldn't say that changes are massively substantive, It's much more process-oriented to help get more consistency in growth as we hit this particular scale inflection point. And the first one is just really about reallocation of resources, which had gotten slightly extended as we grew.
spk40: Got it. And one follow-up for Navam. When I look at the sequential total subscription revenue growth rate, I mean, it was the highest we've seen in several quarters. I'm wondering if you could double-click on that, because if I just annualize that sequential growth rate, you get to a better growth rate than what you got into. Maybe there's some one-time effects in Q4, sequential subscription revenue. I also look at the sequential change in current RPO, 62 million or so. Again, the highest we've seen in several quarters. Can you help us understand what might be driving that Q4? It looks like some of the leading indicators look good, and some don't. Customer count is a little bit on the sluggish side, but Certainly, these caught my attention. I just wanted to see if you could offer more perspective. That's it for me. Thank you.
spk06: Yeah, thanks, Kesh. Absolutely. I mean, we saw pockets of optimization, which relates to some of the 100K numbers and customer numbers that you saw. But from a broad perspective, Q4 was a great quarter as it related to the performance we saw from a revenue perspective and a CRPO perspective. Now, it's important to keep in mind that There is seasonality in the business in the fourth quarter, particularly in the back half of the year, and specifically in the fourth quarter, where these are larger quarters compared to Q1, for example. So there is a seasonal aspect to Q4 versus Q1. But for the most part, we saw positive signs, which we reflected in our prepared remarks and which also was the basis for how we were thinking about the growth recovery and our path back to sort of a 20% quarterly revenue growth rates sometime in the 2026 period. So, yeah, we're optimistic about the early signs we're seeing.
spk25: Great. Thanks. Cash, let's go on to the next question, please.
spk35: Thank you. One moment.
spk04: And our next question will be coming from Brad Phil of Bank of America. Your line is open.
spk19: Oh, great. Thank you so much. I wanted to ask a question around the emphasis on security. You've called it out a couple of times here, both as a separate focus on go-to-market and also on the commercial differentiation. How should we read that? Are you identifying that as kind of a core use case beyond provisioning with Terraform? In other words, do you see line of sight for customers potentially landing with security or Terraform, and then the expansion opportunity kind of unfolds from there?
spk16: Hey, Brad. Yeah, thanks for the question. You know, as we've talked about a lot, we really have two core land products. Obviously, Terraform, which we think about as sort of the key landing point when we talk about infrastructure lifecycle management, starts with provisioning, and there's a sort of a broader portfolio around that. When we think about Volt as our sort of second land product, it's very much the beachhead within the security lifecycle story that we tell, right? So those have always been historically the land business. They make up the majority of the revenue. I think what you're seeing is an evolution from telling sort of a point product story around those into really simplifying that solution story that Dave talked about so that, you know, our field is enabled to go talk about, you know, we're not just solving a secret management problem with Vault. We're solving a security life cycle where Vault is the beachhead, but really that brings in things like, you know, our radar product for secret scanning detection inventory and then brings in boundary as well for the privilege access management for the human access. So it's really about moving from sort of telling that point product story into a broader solution. But, you know, it's not a dramatic shift. It's always been a land product for us and a significant revenue contributor.
spk19: Understood. Thanks, Navam. And then if I could also ask for a bit more detail on some of the process efficiencies that you've identified for areas of improvement. Dave, you mentioned, you know, speed in the pipeline, velocity in the pipeline is a focus. Some technical resources to kind of back that up that you're putting into play here. We'd just love to get more details on how you're thinking about some of the tactical things to improve on process discipline. Thank you.
spk10: Hey, Brad. Yeah, I think this is, again, I'll just bring it back to just the operational opportunities for us to improve as we scale. We're here at our sales kickoff again, reiterating this to our growing sales organization. And so the process is just really about process consistency and things that yield faster and higher win rates. There's a whole litany of things that are operational in their nature. I think it's just, again, the nature of where we are. It's how do we do this consistently across the world in every geo in the same way. This is just normal operational day-to-day elements. I certainly feel super good about it. The fact that Student Center Ledger has been out in place for a couple of quarters, I have to remind us that she has been part of a couple of different companies going from the $600 million scale to the billion dollar plus, and that's certainly what it takes to do so, and we're super, super bullish about the work she's doing. Great. Thank you, Dave.
spk04: Thank you. One moment for the next question. And our next question will be coming from Trevor Rambo of BTIG. Your line is open.
spk39: Hi, great. This is Trevor on for Gray Pal. Thanks for taking my question. So I just want to circle back on Terraform Stacks. Can you provide any insights or statistics on that product? And then when it goes officially GA, how should we think about that accelerating the free to paid conversions for customers like this year and going into next? Thanks.
spk16: Great. Thanks, Trevor. Yeah, so the way I would think about Terraform stacks is, you know, effectively, it can almost call it a Terraform 2.0. It's the biggest enhancement we've added to Terraform since it was introduced. And effectively, what it does is enhances Terraform's ability to manage multiple environments and multiple layers of the infrastructure stack at the same time, right? So prior to the stacks, customers had to sort of manually build process around how to handle multiple environments, for example, development, testing, staging, production. So there was manual process and manual orchestration around that versus with stacks. We now have a native understanding and a native ability to orchestrate across those multiple environments. For our particular customer base, this is most impactful to those kind of 4,000 biggest customers Dave talked about. They all have very large, very complex infrastructure. And so we think this is going to be a compelling feature set for them. And in fact, already we're seeing great resonance with the folks in private beta using this capability already. So the decision we've made is really to bring that only to the commercial customers through Terraform Cloud to begin with. And so to the second part of your question on free-to-paid conversion, effectively it won't be available in the PurePlay Community Edition. You will have to start on the commercial products to leverage Stacks. So obviously at the very bottom end, we have a free tier that allows some limited scale usage, but any substantial scale usage would have to be on one of our commercial tiers of Terraform Cloud.
spk29: Okay, next question, please.
spk04: Thank you. One moment for this question. And our next question will be coming from Fatima Balooning of Citi. Your line is open.
spk11: Good afternoon. Thank you for taking my questions. I wanted to zone in on the sales motion that will emphasize more of a cloud-first selling approach into your enterprise and very large customer base. I wanted to get a better understanding of how much of this will involve the conversion of an existing Terraform environment into CloudForm factors and how much of this is really going to be emphasized and focused around the expansion and extension of a self-managed enterprise's overall Hashi footprint into the broader portfolio of CloudFirst solutions. And then have a follow-up, please. Thank you.
spk16: Yeah, thanks Fatima. Yeah, it's a great question. So effectively the sales comp change that took place is really to emphasize land deals on Terraform Cloud. Now that said, obviously we're engaged with customers on a renewal basis as well. It's obviously in our interest to move them to Terraform Cloud. It's also in the customer's interest. I think they realize features much more quickly. They don't have to do upgrades. They're not on the hook operationally. So there's a lot of benefit to the customer from moving from self-managed to cloud, but similarly for us, we get better visibility into the usage, lower cost of support, and ability to deliver innovation to them more quickly. So the sort of process changes are really around incentivizing land, but obviously there's strong incentives on the expansion side as well. And then our view is once people are a part of the cloud platform, that simplifies our ability to drive the next product along because they're already on an integrated chassis.
spk11: I appreciate that. And just as it relates to some of the bundles and the more storytelling approach on the go-to-market front, so you did introduce the zero trust bundle last year. I'd love to get an update on how much traction that's gotten vis-a-vis maybe penetration in the base. And to the extent there are other logical bundles that you can create to build that transaction velocity and enhance that expansion, and extension momentum, especially since you're incentivizing the land deals on cloud. So, you know, shortening that expansion sales cycle into other solution areas like, you know, Boundary or Packer and Waypoint. That's it for me. Thank you.
spk10: Yeah. Hey, it's Dave. Thanks for the question. Yeah. So I think the simple way to describe it is we effectively have two conversations we have. One is around infrastructure lifecycle. One is around security lifecycle. We previously had this zero trust SKU bundle, which has essentially been replaced by the security lifecycle form factor, which gives you access to multiple products within the security portfolio. So yes, we have actually recognized the success of that to some degree and institutionalized that as a default selling motion for security lifecycle management. And then also introducing that notion for infrastructure lifecycle management. So we're really trying to simplify the structure of what our field teams have to bring to bear And we're sort of optimistic that that simplicity will drive better yield.
spk26: All right. Next question, please. And I think we have to limit to one question, just a matter of time that we've left here. Thank you.
spk04: Thank you. One moment. And as a reminder, here going forth, please limit yourself to one question. And our next question will be coming from Matt Desort of Nehemiah. Your line is open.
spk30: Hi, this is Matt on for Alex. Thanks for taking the question. I wanted to double click on the HCP cloud chassis. Is Terraform still generating the lion's share of that revenue stream so far as customers move to fully manage or is Vault making a move? And how is that composition expected to change over the next 12 months and into fiscal 26?
spk16: Yeah, thanks, Matt. So today, actually, both Terraform and HCP Vault are significant contributors to the cloud revenue line. I think what we expect this year, given the shift we're making towards providing a sales incentive around landing with Terraform Cloud, we expect that there'll probably be some differential increased land on Terraform, and then looking at basically evaluating whether a similar thing would make sense back half of the year. for Vault, but again, I think this is where we'd look at customer appetite and there's slight differences given the runtime nature of Vault. There's a little bit more customer apprehension versus, you know, something slightly less runtime critical like Terraform. So, you know, we're going to take a little bit of a wait and see on customers, but yeah, I think near term we'll see more Terraform. Thanks. Thanks, Matt. Next question, please.
spk04: Thank you. One moment to the next question. And our next question will be coming from Brad. We back up steeple.
spk33: Your line is open. This is Mark on for, for Brad. Um, fun to see if you could provide a little detail on the linearity and the quarter and the macro improvement, the, I guess, optimization abatement that you guys talked about and how that's sustained through February. and how that contributed to kind of your confidence for the guide for both FY25 and 26. Thanks.
spk06: Yeah, just a reminder, we're subject to regular enterprise patterns, which means that there is linearities more towards the back half compared to the front half of both the year and the quarter. Q4 was stronger than expected from a linearity perspective, and as I mentioned earlier, all positive signs from a macro perspective and how the optimization cycle's playing out.
spk20: Thanks. Thank you. Next question, please.
spk38: Thank you.
spk04: And our next question will be coming from Ari Tarjanian of Cleveland Research. Your line is open.
spk13: Hi, all. Thanks for taking the question. Just real quick on you know, RPO, you know, what percent of lands in the quarter were, you know, the cloud, HCP cloud, and then, you know, do you think, you know, is there any potential pull forward ahead of, you know, comp plan changes for this year? Thanks.
spk06: Yeah, there was nothing unusual that happened in the fourth quarter compared to the other quarters, so nothing in terms of, you know, unusual activity there.
spk02: All right. Thanks. Thanks, Art.
spk04: Thank you. And at this time, I would like to go ahead and turn the call back over to management for closing remarks. Please go ahead.
spk10: I'd just like to thank everyone and express my thanks for the participation for everyone that was able to attend. And we certainly appreciate all the questions. We look forward to speaking to everybody soon. Thank you.
spk04: This concludes today's conference call. Thank you for participating. You may all disconnect. Thank you. you Thank you. Thank you. Ladies and gentlemen, thank you for standing by, and welcome to the HashiCorp's fiscal 2024 fourth quarter and full year earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Alex Kurtz, Vice President of Investor Relations and Corporate Development. Thank you. Please go ahead.
spk01: Good afternoon, and welcome to HashiCorp's fiscal 2024 fourth quarter earnings call.
spk27: This afternoon, we will be discussing our fourth quarter financial results announced in our press release issued after the market closed today. With me are HashiCorp's CEO, Dave McJanet, CFO, Navam Wilienda, and CTO and co-founder Armand Daguerre. In conjunction with our earnings press release, we have published an earnings presentation that provides additional financial information about our quarter. We encourage you to review that presentation in advance of our call. You can access it on our investor website at ir.hashicorp.com. Today's call will contain forward-looking statements which are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends, our expected future business and financial performance and financial condition, and our guidance for the first quarter and the full 2025 fiscal year. These statements may be identified by words such as expect, anticipate, intend, plan, believe, seek, or will, or similar statements. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. The financial measures presented on this call are prepared in accordance with GAAP unless otherwise noted. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these and other metrics, is included in our earnings press release, which has been furnished to the SEC and is also available on our website at ir.hashleycorp.com. With that, let me turn the call over to Dave. Dave?
spk10: Thank you, Alex, and welcome everyone to our fourth quarter earnings call for fiscal 2024. We reported solid fourth quarter results that exceeded our top and bottom line guidance, with revenues of $156 million, representing year-over-year growth of 15%, and are pleased with our current non-GAAP remaining performance obligations performance, which reached $483 million, representing 21% year-over-year growth. I want to start today's call by thanking everyone on the HashiCorp team for the solid fourth quarter close to our fiscal year. Through their hard work, we exceeded expectations in the quarter with important new enterprise logo wins and CRPO growth that demonstrated continued demand for our products as customers trust us with their most important cloud projects. More broadly, based on conversations we had last quarter, we believe that the optimizations that enterprises undertook over the past 18 months are showing signs of abating. and we are seeing early signs of re-engagement on new cloud initiatives. Our confidence here comes from tangible proof points during the quarter, specifically improving renewal rates and overall better pipeline conversion. This is in line with what we've expected since the start of this cycle. And while there is some ongoing consumption of historical self-managed entitlements among portions of our customer base, The move to cloud is a secular trend with a clear business need, and there's still a long runway ahead for the largest global enterprises as they mature their cloud efforts. Today, I want to focus on our path to accelerated growth as we enter the new fiscal year. And to be direct, we are behind where we wanted the company to be at this point in our growth cycle, and we have work to do. We are on a path back to 20% quarterly revenue growth during FY2026, and I want to outline the top three initiatives taking place at the company to drive this acceleration. At a very high level, we're moving quickly to improve sales execution, turning the dial even more on commercial differentiation, and in Q1, rolling out a plan to reallocate more R&D resources to our cloud products. The first initiative is simplifying our go-to-market strategy. which consists of a more prescriptive go-to-market approach and increased process rigor driven by our president, Susan St. Leger. We began implementing these initiatives back in the back half of FY24 and are completing the rollout with the field teams this week at our sales kickoff. On the first front, we are shifting from best-in-class standalone products to infrastructure lifecycle management and security lifecycle management. That messaging is finding early traction with our sales teams and potential customers. On the second front, Susan will continue to drive sales process discipline, emphasizing speed, efficiency, and simplification in the field, while also concentrating our sales investments on additional technical field resources. We saw some early evidence of positive results in our fourth quarter with improved field execution and improved renewals. To give you an example of these efforts, I'd like to discuss a customer that extended from a single product to include a second one of our security offerings, Vault to Boundary, in Q4. This software company initially used Vault in conjunction with a homegrown solution to manage and issue one-time credentials for developer access to cloud infrastructure. After facing challenges enabling their R&D team to access their cloud infrastructure in a self-service manner, this customer quickly realized they needed to replace their homegrown privilege access management solution. Given the customer's existing deployment of Vault, our field teams were able to show that adding Boundary would provide comprehensive security lifecycle management, reducing time to value. This customer started with just 500 engineers running on Boundary and now expects to grow to over 6,000. We strongly believe the simplified multi-product messaging will help us win more deals like these in FY25. The second initiative is about commercial differentiation, greater separation between our commercial and free community offerings. While the ecosystem has clearly standardized on our community edition products, we need to drive more value for our commercial customers. Our product development efforts over the past two years have increasingly been oriented towards enterprise capabilities in our commercial offerings. We are further turning the dial toward commercial differentiation, which we believe will have a positive impact on win rates and on renewals. One major example of commercial differentiation is Terraform stacks. We gave a preview of stacks at HashiCorp last year, which will bring major new functionality to Terraform and the ability to manage infrastructure estates that span multiple environments. This feature is now in private beta with our commercial customers and will be made available through Terraform Cloud exclusively to our commercial customers later this year. This will drive significant differentiation, especially for our large customers with complex estates. During the fourth quarter, one of our larger land deals on Terraform Cloud demonstrates the power of our differentiated commercial products for customers. Our global pharmaceutical company opted to replace their homegrown infrastructure provisioning process built on our Community Edition with Terraform Cloud. They became a paying customer for the first time because of Terraform Cloud's specific features, including no-code provisioning and the upcoming Stacks rollout, as well as our RUM pricing model update in Q2, which aligned pricing more closely with their cloud budgeting process. But in addition to focusing on differentiation through new capabilities, we know enterprise customers have elevated expectations for the lifecycle of software that they deploy, with a strong preference to minimize production changes. Earlier today, we introduced long-term support, or LTS, releases for our commercial customers. The LTS releases enable customers to stay on a supported version for up to two years at a time, with the promise to backport critical fixes, security patches, and hardened upgrade paths. Prior to the LTS announcement, customers needed to do regular major version upgrades to remain supported. This provides significant value for customers who want to manage their risk and operational efficiency, and we believe will be another significant driver to land new opportunities and strengthen renewals. The LTS releases will be available with the upcoming versions of Vault, Console, and Nomad. In contrast, users of the Community editions will have access to critical updates in the latest version and will have to perform frequent updates to stay current. While we continue to offer innovative technology to the community, our outside focus is on providing value to paying customers. Our prior approach provided the same lifecycle for commercial and community versions, and we are now driving a clear differentiation. On that note, our third major initiative is to deliver the enterprise-ready Hashgraph cloud platform across infrastructure lifecycle management and security lifecycle management. We are seeing strong customer interest for this and are taking steps to expedite our delivery. Our new Chief Product Officer, Michael Weingartner, is focused on enterprise cloud delivery and is moving quickly to organize our product development team to drive cloud innovation at a faster pace. We have already reallocated resources to this initiative, as it is central to an overall company-wide shift to lead with our cloud offerings. As we mentioned last quarter, we are defaulting enterprise land to cloud, beginning with Terraform Cloud in Q1. As part of this shift, incentives for our field teams are weighted towards cloud rather than self-managed software. We will prioritize enterprise land across infrastructure lifecycle and security lifecycle management with HCP. Landing our customers on cloud first with HCP enables them to realize value faster. As we deliver more cross-product experiences, it enhances our ability to drive and extend motion from our core land products as well. As our R&D teams continue to deliver new product innovations, having customers on the cloud platform enables customers to use those new capabilities immediately, in contrast to self-managed software, which requires planned upgrades. Combined, these facets will drive improved net retention rates over the long term. To show how this works in practice, here's an example of a customer that expanded both Vault and Terraform Cloud in Q4, doubling the size of their initial land deal. This travel agency had experienced significant resource constraints that made it difficult to deploy applications on bare metal as fast as they needed. They were also dealing with subsidiaries operating at different levels of cloud maturity. As a result, this customer realized that only Terraform Cloud could keep pace with their infrastructure complexity. They standardized on Terraform Cloud not just for its portability and lower operating costs, but also because Terraform Cloud enabled them to deploy new applications much faster, improving their competitive positioning. To summarize, our goals for this year are to simplify our go-to-market, expand the differentiation of our commercial products, and shift our business to focus heavily on our HashiCorp managed cloud products. Now, I'll turn it over to Navam to walk through the details of our Q4 and full year performance, forward-looking guidance, and then we will be happy to take any questions. Navam?
spk05: Thank you, Dave, and thanks to everyone for joining us today. Echoing Dave's comments, I also want to thank our team for all the effort and continued focus that they have put in, which helped us close fiscal 24 on a positive note. We grew our fourth quarter revenue by 15% year over year, our full year revenue by 23% year over year, and ended with another free cash flow positive quarter. More importantly, our team put in a lot of work last year to set up HashiCorp for future success and momentum. As Dave mentioned in his remarks, there continues to be pockets of optimization among customers. But the environment in Q4, as well as the outlook for fiscal 2025 from a macro perspective, appears to be better than fiscal 24. As Dave also mentioned, while we are not completely out of the woods on how customers are working through historical entitlements, Our renewal rates improved in Q4 compared to Q3, and our pipeline conversion, as well as our sales-driven customer activity, also improved in Q4 compared to Q3. We believe the combination of abating market headwinds due to consumption optimization, as well as the three operational initiatives of GTM simplification, increased commercial product differentiation, and more enterprise-ready HCP cloud offerings puts us on a solid position to achieve improved bookings in fiscal 25. Given our entitlement model, and as we have discussed before, there is a lag between bookings momentum and accelerating revenue growth rates. Our expectation is to see a U-shaped recovery in our revenue growth rates this year, with Q2 being the trough in our revenue growth rate. followed by progressively better revenue growth rates in Q3 and Q4 of this year. We expect CRPO growth rates to follow the trough and recovery pattern, with the lowest point of CRPO growth being in Q2, followed by improved CRPO growth rates ending in approximately 20% CRPO year-over-year growth by the end of fiscal 25. As Dave mentioned, we also expect the momentum in CRPO to put us on a path to reach 20% quarterly revenue growth during fiscal 2026. Let's move on to our fiscal 25 guidance and notes. For the first quarter of fiscal 25, we currently expect total revenue in the range of 152 million and 154 million. And a non-GAAP operating loss in the range of 19 million to 16 million. As a reminder, our business shows seasonal bookings patterns between Q4 and Q1. Q4 is a strong budget flush quarter where we see the highest number of large multi-year contracts. These multi-year contracts create a larger upfront revenue component in Q4 compared to Q1. Our Q1 guidance takes into account this regular seasonality pattern. For the full fiscal year 25, we currently expect total revenue in the range of 643 and 647 million, and expect fiscal 25 non-GAAP operating loss in the range of 46 million and 43 million. As mentioned in my prior remarks, the quarterly growth rates in the back half of the year are expected to be higher than the full year revenue growth rate. We also currently expect our growth margins to remain strong throughout the year, in the low to mid 80% range. We will continue with the measured investment posture we've demonstrated in fiscal 2024, growing expenses slower than revenue growth. We currently expect to achieve non-GAAP operating income break even by Q4 of this year. On a final note, as you know, we posted two strong cash flow generating quarters in Q3 and Q4 in fiscal 24. We expect positive free cash flow results during the fiscal year other than in Q2, which has collection seasonality related to seasonal Q1 bookings. We expect to generate cash in all other quarters. Positive free cash flow generation combined with a strong cash balance puts us in a position of having excess cash relative to our operating needs and any potential midterm M&A expected cash needs. We believe HashiCorp has a lot of growth ahead of us and that there is still a lot of runway ahead for the largest local enterprises as they mature their cloud efforts. In addition, we're always responsible in our capital allocation and believe the best use of excess capital is to return it to our shareholders via our share repurchase program. So as outlined in our earnings release today, the board has authorized the $250 million repurchase program to be executed commencing in fiscal 2025. This authorized program is expected to be the first of a continuing program of share repurchases. Our full guidance numbers can be found in our earnings presentation available on our ir.hashicorp.com website under financials, quarterly results. I encourage you to read through the doc for full metric disclosures, share count disclosures, and gap to non-gap reconciliations. Thanks for your attention. Dave, Armand, and I are available to take any of your questions.
spk27: Alex? Thanks, Devon.
spk22: With that, operator, let's go to our first question.
spk04: Thank you. If you would like to ask a question, please press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. If you would like to remove yourself from the queue, please press star 11 again. Also, we ask that you please wait for your name to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question today will be coming from Derek Wood of TD Cowen. Your line is open.
spk32: Oh, great, thanks. I wanted to just touch on the push to drive enterprises to the cloud. Can you just give us an update as to what the reception has been? Just trying to get a sense whether it's kind of too early to expect you know, a big embracement of cloud at the G2K level, or if you think that could really start to take greater hold and maybe start to drive some higher mix in cloud as we move through the year?
spk16: Hey, Derek, thanks so much for the question. Yeah, so I think, you know, historically, I think we've talked about it before on the calls that, you know, predominantly we sold cloud through our corporate segment before, and I think that was driven by both sort of customer appetite as well as platform and product readiness. I think the big shift for us this year, and we're in fact at sales kickoff right now, is that we feel like both of those have changed pretty significantly. We're seeing large customers want to adopt Terraform Cloud. The platform has matured pretty significantly over the course of the last year, just given the investments we've made there. And so we're shifting to a default posture for our enterprise segment that's cloud-first for Terraform. And with that, we've actually changed sales compensation to incentivize a cloud land over self-managed. So, yeah, we're feeling very good that, you know, both of those things have sort of matured, both from a customer willingness as well as a product readiness.
spk32: That's great. If I could, Armand, just to follow up, just got a question on the competitive landscape on the security side. Definitely, between Vault and Boundary, you've got different competitive dynamics, and Microsoft has entered the market with Entra. Just curious how you see Microsoft competitively and generally how you guys are feeling about win rates.
spk16: Yeah, I mean what I'd say is we're actually a close partner with Microsoft. We joined the Microsoft Security Alliance as well pretty recently. So we don't see Entra as a competitive offering. We partner with them pretty closely around deep integration between Entra and our products and the HCP platform as well. So certainly much more of a partner play. than it is a competitive one. You know, we feel good about our positioning. I think we haven't seen any changes really in the competitive dynamics around those. And in fact, you know, as we're sort of building a more complete offering around Vault with both our radar product through acquisition as well as a boundary, which is an organic build, we feel like we can tell a much more complete story around security lifecycle management.
spk25: All right.
spk16: Thanks, Derek. Next question.
spk04: Thank you. One moment for our next question. Our next question will be coming from Sanjay Singh of Morgan Stanley. Your line is open.
spk15: Hi, thank you for taking the question. And congrats on the accelerated bookings growth in Q4. And to stay on that point on the improved bookings performance, Dave, was that a function of just stronger execution, or did you see a better kind of spend environment come through in Q4 versus what you saw earlier in the year?
spk10: Hey Sanjeev, thanks. I think it's, I think some are especially tied to the optimization cycle that I think we've all been talking about for quite some time. I think we certainly felt better in Q4 than it had previously and that translated into better pipeline conversion rates. Part of that is also execution on the part of the work that Susan St. Leger has been doing to drive process rigor into what we're doing. So I think it's actually the combination of both of those, to be honest. I would say we're particularly pleased with the work that Susan's been doing. And I think I speak for the team. We really enjoyed working with her. And that is certainly helping our go-to-market motion.
spk15: Awesome. And you laid out a very specific plan and outline on how to reassert 20% revenue growth in fiscal year 26. On the go-to-market side of the equation, and you guys have been talking about this for a couple of quarters now, can you give us a sense of the magnitude of changes that are being implemented as you go into sort of sales kickoff and the sales process this year? And what does that sort of look like?
spk10: Yeah, I'll put it in maybe a couple of categories. One is around our coverage approach, and the second one is around our overall prescription of motions. On the first topic, You know, we serve the, call it the 4,000 largest organizations in the world, and that's who we have prioritized, and that's where our focus is, and so we've reallocated our resources more specifically to cover those top 4,000, and I think I would, it's fair to say, they were perhaps more dispersed previously, and we certainly believe that concentration of investment will improve yield of those teams as to where we expect the revenue to come from. Point number two is the simplification of the go-to-market narrative that we tell in a very, very consistent and simple way. You know, we have a large product portfolio. As we've scaled, you know, there's a challenge in enabling an onboarding rep to be able to tell all the aspects of the stories that we service. And so you've seen us really anchor on two core constructs around infrastructure lifecycle and security lifecycle. And so prosecuting that consistently through a large field organization is really the exercise in front of us. So it's really those two things. One is coverage and the second one is really just the discipline and process. And candidly, that's normal for a company through this phase of their life cycle.
spk04: Appreciate it. Thank you.
spk22: Next question, please.
spk04: Thank you. One moment for the next question. And the next question will be coming from Nick Altman. of Scotiabank. Your line is open.
spk31: Awesome. Thanks, guys. I wanted to actually circle back on the last question here, just around the go-to-market. But can you maybe just talk about when sort of the go-to-market tweaks and overall simplification will be complete? And then just as a follow-up, how meaningful do you think the go-to-market changes will be versus sort of the overall macro or end market improvements?
spk10: Hey, David, thanks for that. Yeah, so as it turns out, we're at our sales kickoff right now, and there's tons of excitement about what we're doing here with the team. Obviously, it's always both of those things. In terms of the completeness of our go-to-market tweaks, I think we're materially through that. I think a lot of that work was done in Q3 and Q4 of last year in terms of setting ourselves up for this, and our sales kickoff is ultimately the final moment in that. Obviously, from here, it's about execution, but the the groundwork has been set. And then overall, in terms of where the improvement comes from, it comes from both, obviously. I think we certainly saw signs of optimization abating in the fourth quarter of last year. And while there's still a big OpEx focus from all of the largest customers in the world around their overall software spend, we're optimistic that as the pipeline we're generating now yields into the second half of the year, that we'll be in a good position for the second half.
spk31: Great. And then, Navam, any changes to the guidance philosophy? I know, historically speaking, you guys have talked about maybe being a little bit more conservative around large deal activity and maybe excluding those from the guidance. So, just any updates to the 2025 guidance philosophy?
spk06: Thanks. Relatively similar in terms of the guidance philosophy as it relates to out-quarter large deal exclusion. That's what we've factored into the Q1 guide. And as Dave mentioned, We've also factored in what we saw in Q4 and from an optimization perspective and the effects of that that will have on pipeline generation and the sales cycle associated with it, which leads to the second half acceleration and the shape of the recovery curve that we talked about in prepared remarks, which gets us back to the 20% growth rate, which we're aiming for.
spk21: Great. Thanks, guys. Thank you. Next question, please.
spk04: Thank you. One moment for the next question. Our next question will be coming from . of Oppenheimer. Your line is open.
spk17: Thanks. Hey, guys. I'm trying to more clearly put the finger on the driver for the next 12 months versus the following year. Navam, when I listened to your commentary around optimization abating and pipeline improving and conversion rates, improving how much of your fiscal 25 guide is really a reflection of a better environment rather than the three core pillars of improvement that you're talking about. I'm just wondering if all these changes that you're making to go to market and commercial differentiation and cloud, are these really more of a fiscal 26 contributors rather than fiscal 25?
spk16: Hey, Atai, this is Armand. Yeah, I mean, I think this is a good question. The way I would think about it is, you know, the three initiatives that we talked about, you know, as Dave was just mentioning, you know, these are in some sense things that have been started and in progress for, you know, some of them for quarters, some of them for years, right? So when we think about go-to-market simplification, you know, a lot of that work started upon Susan joining us. And a lot of that foundational work was on Q3, Q4, obviously rolling out with, you know, SCO and sort of getting finalized. When we talk about the commercial differentiation, that's a dial, as we've talked about, that we've been turning for a little while. You know, I think we're continuing to feel, you know, the ability to turn that dial further with, you know, the BSL license changes and other things we put in place late last year. And so we're continuing to sort of shift that dial with net new investment things like Terraform stacks that Dave mentioned as well, obviously major new capability. And then with the policy change today around the introduction of LTS and changes to our backport policy. So again, some of these things building momentum on top of changes that were already made. And then with enterprise-ready cloud, again, that was a big focus for us last year. That's why we're feeling good about changing the default motion around Terraform Cloud and then continuing to invest heavily in enterprise this year. So again, these are not necessarily starting from a cold start on these initiatives. A lot of these we've been building momentum. We're continuing to put sort of wood behind the arrow. So I think that's clearly a big part of what's going to drive this year and then going into fiscal 26.
spk17: Okay. And then with regards to your U-shaped pattern of recovery through the year. When I look at some of the important KPIs that you provide, net customer additions, 100K customer additions, net dollar expansion rate, and even the HCP revenue growth, all of those have not been impressive. And the fourth quarter continued to show deceleration. Would the U-shaped comment also apply to those metrics, meaning should we expect all customer additions to accelerate in the second half, 100K additions to accelerate, the dollar expansion to accelerate, cloud HCP revenue to accelerate?
spk06: Yeah, thanks, Yitai. I think we've commented on what the bookings recovery is expected to look like given what we saw in Q4, which was strong performance from a sales perspective and in the results that we saw from a bookings and renewals perspective. That's what's baked in. And what will follow is obviously a recovery in all the metrics associated with bookings, revenue growth rates, and 100K customers. I want to make a point on the total customer count. A lot of the total customer count, or a fair amount of the total customer count delta that you see, Q3 to Q4, are self-managed pay-as-you-go customers, which are very small and don't have a material impact to revenue. So the variations quarter over quarter on those customer counts aren't really material to our revenue. The 100K customer count, there's variability quarter over quarter. But overall, we're at the top end of where we thought we'd be on 100K customer count for the year. And again, on the sales-driven customer count, we ended up pretty strong. in Q4. So, yes to your questions on how the shape of the recovery and the path to 20% plays out into the underlying KPIs as well.
spk04: All right. Thank you.
spk22: Thanks, Ty. Next question, please.
spk04: Thank you. One moment for the next question. Our next question is coming from Alex Zukin of Wolf Research. Your line is open.
spk18: Hey guys, can you hear me okay?
spk24: Yep, we can hear you Alex.
spk18: Perfect. So maybe just the first one for me, if I look kind of on a Ty's question about the 100,000 customer ads in the quarter, it felt like you had accelerating bookings, but call it a weaker net new 100,000 customer ad quarter. So was the outperformance on bookings there driven by some very large deals that, you know, seven-figure deals or some of the largest deals that you've seen? Or what drove that and then kind of how to think about that?
spk10: Hey, Alex. This is Dave. Yeah, no, sure. I happen to answer that one. To be clear, on the 100K customer account, I'll reiterate what Navam pointed out is, you know, that 100K customer amount is going to move around quarter to quarter. We actually ended at the very, very high end of our guidance for the year in terms of 100K customer ads. Quarter over quarter, we actually saw a good number of customers landing slightly smaller than 100K, but just below the threshold, and we fully expect those to graduate up over the next quarter and year as it progresses. So actually, I think we feel pretty good about the 100K customer number. To your question on the large deal construct, no, there was no significant large deals of note that were unusual for the fourth quarter. I think it was more of a general, you know, good Q4 as we had anticipated. Also, just underscore Navam's comment on the overall customer count to be super, super clear. We made a pricing change in Q2 of last year, which caused some of our pay-as-you-go customers, those customers paying maybe a couple thousand dollars a year, to be able to use our free tier once the end of the year approached. And so the vast, vast majority of that customer count changed. comes from just the matriculation of those older pay-as-you-go customers, credit card customers into a free version of the product. And we fully expect over time they will graduate back to become paying customers as well. So I don't want to misread the customer count in terms of your overall commentary because we actually feel pretty good about it.
spk18: Okay, understood. And maybe just a second question. What level of visibility do you have from kind of the Q4 bookings pipeline because you're guiding, this U-shape that you're guiding to, you're effectively guiding for growth to double in fiscal 26 based on the trajectory you laid out of reaching 20% by Q2 of fiscal 26. So is there something that, like how much of that is you still have to really go get versus leveraging the opportunity that you already have? And what are kind of some of the puts and takes Is it macro-stabilizing, improving? Because that's quite a revenue growth ramp over the course of the next two years.
spk06: Yeah, let me clarify. This is Devon, and thanks for the question. Let me make sure that I clarify a couple of things. So first of all, the Q4 activity is what informs our full-year view, combined with the three initiatives that Dave mentioned, which are tailwinds to the operations, right? And the U shape is meant to imply that there is a shallow dip in recovery, which you should take into consideration as we look into the full year. And also, the back-end growth rates are higher than the total year's growth rate, just because of the shape of the recovery, right? And then what follows is basically progressive improvement on the growth rate until it reaches 20%. in the fiscal 2026 period, not that fiscal 2026 will be 20%, just to be clear. So what we're signaling is that the fourth quarter was a great quarter, and we feel like the optimization cycle's abating. There is signs of positive activity. We're not out of the woods, and we are doing a lot of work with the three initiatives that we outlined that's going to have positive impacts to our operations, and that's going to result in positive momentum in terms of growth rates starting in the back half of the year.
spk28: All right. Understood. Thanks, Alex. Next question, please.
spk04: Thank you. One moment for the next question. And our next question will be coming from Mark Murphy of JP Morgan. Your line is open.
spk14: Oh, thank you very much. Navam, just to clarify, you commented that Q2 should be the trough for CRPO growth. Did you say that's also the case for revenue growth, or are those slightly out of phase? And then just wondering at roughly what levels you see that CRPO growth bottoming out, you know, for instance, should we project that forward at mid to high teens? And then I have a quick follow-up.
spk06: Yeah, thanks, Mark. So, yeah, the CRPO growth rate recovery and the revenue growth rate recovery from a growth rate perspective have similar shapes. There's seasonality related to the CRPO because the booking seasonality front half versus back half, so that has a little bit to play on what the growth rate from a CRPO perspective is. We mentioned how you should think about the exit velocity of CRPO, which is 20% plus, approximately 20%, sorry, in Q4, which is basically the leading indicator of what we think the revenue growth rates on a quarterly basis into 2026 will be. So that's how we're thinking about the CRPO shape going into this year.
spk14: Okay. And so you would kind of leave us to our own, I guess, our own guesswork on where the bottom of that you will trough out for Q2. Is that fair?
spk06: Yeah, I think the second quarter is the trough, and we expect to see, as I mentioned, a relatively shallow U-shaped trough and recovery.
spk14: Okay. And as a follow-up, maybe for Arman or Dave, where do your customers stand on the topic of multi-cloud adoption at this point? I'm wondering if the insertion of a number of LLMs into the landscape might be causing... Any more dedication to Azure and OpenAI or more experimentation with Google? Anything that would signify more multi-cloud in customer roadmaps and then by extension that might be amplifying the HashiCorp value proposition?
spk16: Hey, Mark. Yeah, thanks for the question. I think what you sort of outlined in the question is exactly the type of behavior we're starting to see which is a lot of customers predominantly maybe had a, I'll call it a single primary cloud type of strategy, and sort of looked at other clouds as potentially secondary or even tertiary when sort of it made sense for them. I think what's changed, to your point, is they're looking at leveraging best-of-breed Gen AI technology, and I think that's pulling forward a bunch of roadmap around how do we go from treating this as a secondary tertiary cloud into really a much more of a primary cloud environment so we have access to those sort of best of breed capabilities. So, you know, in particular, customers who are maybe primarily AWS looking at leveraging Google and Azure, maybe customers who are, you know, primarily, you know, Azure looking at leveraging Google as well. So, you know, I think it's creating a bunch of that sort of pull forward in terms of customers looking at, you know, true multi-cloud environment. And obviously for us, this is helpful as it's driving more interest in the tools in terms of how do we have a sort of cloud agnostic operating model.
spk36: Thank you.
spk04: Thank you.
spk36: Thanks for your next question.
spk04: One moment for the next question. Our next question will be coming from Jim Fish of Piper Sandler. Your line is open.
spk07: Hey, guys. Thanks for the questions. Maybe first, Dave or Arvon, for you, any pipeline benefit on the security side given we're seeing boards essentially give you approval for security budgets and seeing strength in security budgets overall and focus on identity protection? Is that a large reason why the pipeline is as strong as it is that you're relaying to us? And when do you expect the Windows and remote functionalities to be available in order to go toe-to-toe with sort of the 600-pound gorilla in that space?
spk16: Jim, yeah, thanks for the question. You know, I think we are seeing relative robustness on pipeline in the security space. And I think even last year, I think that was probably the case that it held up better than maybe other budgets, just given how top of mind cyber is for most organizations. And the other thing that's been helpful is as we're sort of filling in the portfolio and going from really sort of standalone to more of a true security lifecycle, as Dave mentioned with sort of boundary and radar, it's allowing us to position a more compelling portfolio offering around sort of a full security lifecycle. As to the second question around Windows and RDP, that's a big focus for us this year within Boundary. We think realistically that's going to be more back half-weighted to flesh out the capability to make sure it's fully mature.
spk23: Makes sense.
spk07: And Navam, for you on the guide, can you just help us frame how you're thinking about the balance of new business here versus the recovery in your expansion rates? And, you know, are you seeing on the difference between CRPO and long-term RPO growth this quarter, is it just you're seeing shorter duration deals with the existing base or just continued lower usage? Thanks.
spk06: Yeah, I don't think there's been much meaningful change in terms of the weighted average duration of our contracts at this point in the fourth quarter. We are seeing smaller land sizes, and as we mentioned, Over the last year, we saw an elongation in the land cycle leading to year-over-year declines in the absolute value of land combined with more land deals. So more contracts landing with more customers, but at a smaller size. So those expand and extend over time. So the 2025 guide is basically predicated on expand-extend. versus a big land change from a revenue perspective. But we are expecting improvements in both. All right. Next question, please.
spk35: Thank you. One moment.
spk04: And our next question will be coming from Jason Adder of William Blair. Your line is open.
spk34: Yes, hi. Good afternoon, guys. I just wanted to ask on the renewals. I know you made some comments on that. Are you seeing customers still being pretty cautious on renewals because they under-consumed entitlements over the last 18 months or so? And then can you just remind us what's the incentive for someone to renew expand on a renewal if they can just under commit and then true things up as time goes on? Is there a penalty there? Anything, any kind of additional details on how that would work if somebody actually over consumes relative to their entitlements?
spk10: Hey, Jason, it's Dave. Yeah, thanks for the question. On the first one, yeah, it's a good point. I mean, you've got to keep in mind that this optimization cycle is now, you know, several quarters in and you're starting to anniversary some of the some of the entitlements that people had already, you know, right-sized on their renewals. So, yes, to a degree, I think that's one of the aspects of our point of view, which is that this optimization cycle is so exciting and evading, and certainly that plays out in NDE over time and, you know, pure down renewal to the extent that people haven't consumed their entitlements. But there's probably a little bit of ways to go still. I think that's implicit in our guidance. But it's certainly much better, and we're now lapping previous period where it starts to look more favorable. In terms of your second question, there is not an immediate incentive for people to true up at the moment they expand. That generally is done on the renewal of the contract. You've got to keep in mind the scale of the organizations we work with is that it's just the typical enterprise buying behavior. do not necessarily see that expansion until the renewal of that contract, given the entitlement nature of things. And again, unlike the consumption models, we sell entitlement, and so there is just this natural lag as the market starts to recover.
spk16: Maybe the one thing, Jason, I would add there is sort of your question, what's their incentive for under-committing in that sense? It's that the VDP discounts they would get committing to a lower threshold would be lower, right? So customers will realize better pricing by committing to a higher dollar amount. So that's the incentive.
spk34: So is there a possibility that as we kind of come out of all of this, there's going to be, you know, on the renewals, let's say in FY26, there's going to be sort of a bump because there's going to be a true-up element because customers were more cautious on their prior renewal? Do you see what I'm saying?
spk10: Yeah, I don't think we have a real point of view that far out. I do think this is implicit in the NDE rates that we've seen previously as people sort of on the renewals expanding
spk04: uh substantially and obviously we've been in a period where that hasn't been happening and at some point it will revert thank you all right thanks jason next question please thank you and our next question will be coming from cash ringing of goldman sachs your line is open hey thank you very much team i'm curious to spend a little bit of time if they don't mind dave thank you
spk40: read out a bunch of things that Susan is going to be doing to the go-to-market organization. It came across as being very substantive at the same time. It also went through very quickly. Can you expand upon what exactly is going to be the new bent to go-to-market and the measures that Susan is adopting? What are they meant to remedy versus the approaches in the past? And how important is this? Because the product, we've always appreciated the product strength of HashiCorp. It's been the key asset for the company. Just trying to understand incrementally the tweaks to go to market. What are they really addressed and what are they really motivated by so we can all understand the shape of this recovery? Thank you so much.
spk10: Hey, Gash. Sure. Yeah, I'm happy to double click on that a little bit. I'll say, just to reiterate, really the first substantive change that we introduced over the last six months was a refocusing of our go-to-market resources on a slightly smaller number of accounts. I think that's point number one. Obviously, we had been in a very aggressive investment phase coming out of our IPO, and as the market environment changed, we obviously had to remedy the fact that we had a lot of resources now allocated in places where perhaps we've gone to relatively quickly. So now we've pulled those resources back to focus on the most important accounts, and that is That is certainly paying dividends and it's the appropriate thing to do. Point number two, I think it's worth actually just contextualizing where sort of as you evolve from the early adopters of the world to the early majority, how you have to engage with them in a much more prescriptive manner. Again, that's the consistent pattern of this particular part of the growth arc of any company. As you get to this kind of customer base, which is the early majority, our go-to-market motions are now much more prescriptive in their nature, both for our customers in terms of how we engage with them, which is we go talk to you about more of a solution-oriented conversation around lifecycle. And then number two, it's much more process rigor, which is, again, just the nature of scaling the size of the organization. So I wouldn't say that changes are massively substantive, It's much more process-oriented to help get more consistency in growth as we hit this particular scale inflection point. And the first one is just really about reallocation of resources, which have gotten slightly extended as we grew.
spk40: Got it. And one follow-up for Namam. When I look at the sequential total subscription revenue growth rate, I mean, it was the highest we've seen in several quarters. I'm wondering if you could double-click on that, because if I just annualize that sequential growth rate, you get to a better growth rate than what you got into. Maybe there's some one-time effects in Q4, sequential subscription revenue. I also look at the sequential change in current RPO, 62 million or so. Again, the highest we've seen in several quarters. Can you help us understand what might be driving that Q4? It looks like some of the leading indicators look good, and some don't. The customer count is a little bit on the sluggish side, but Certainly, these caught my attention. I just wanted to see if you could offer more perspective. That's it for me. Thank you.
spk06: Yeah, thanks, Kesh. Absolutely. I mean, we saw pockets of optimization, which relates to some of the 100K numbers and customer numbers that you saw. But from a broad perspective, Q4 was a great quarter as it related to the performance we saw from a revenue perspective and a CRPO perspective. Now, it's important to keep in mind that There is seasonality in the business in the fourth quarter, particularly in the back half of the year, and specifically in the fourth quarter, where these are larger quarters compared to Q1, for example. So there is a seasonal aspect to Q4 versus Q1. But for the most part, we saw positive signs, which we reflected in our prepared remarks and which also was the basis for how we were thinking about the growth recovery and our path back to sort of a 20% quarterly revenue growth rate sometime in the 2026 period. So, yeah, we're optimistic about the early signs we're seeing.
spk25: Great. Thanks. Cash, let's go on to the next question, please.
spk35: Thank you. One moment.
spk04: And our next question will be coming from Brad Phil of Bank of America. Your line is open.
spk19: Oh, great. Thank you so much. I wanted to ask a question around the emphasis on security. You've called it out a couple of times here, both as a separate focus on go-to-market and also on the commercial differentiation. How should we read that? Are you identifying that as kind of a core use case beyond provisioning with Terraform? In other words, do you see line of sight for customers potentially landing with security or Terraform, and then the expansion opportunity kind of unfolds from there?
spk16: Hey, Brad. Yeah, thanks for the question. You know, as we've talked about a lot, we really have two core land products. Obviously, Terraform, which we think about as sort of the key landing point when we talk about infrastructure lifecycle management, starts with provisioning, and there's sort of a broader portfolio around that. When we think about Volt as our sort of second land product, it's very much the beachhead within the security lifecycle story that we tell, right? So those have always been historically the land business. They make up the majority of the revenue. I think what you're seeing is an evolution from telling sort of a point product story around those into really simplifying that solution story that Dave talked about so that, you know, our field is enabled to go talk about, you know, we're not just solving a secret management problem with Vault. We're solving a security life cycle where Vault is the beachhead, but really that brings in things like, you know, our radar product for secret scanning detection inventory and then brings in boundary as well for the privilege access management for the human access. So it's really about moving from sort of telling that point product story into a broader solution. But, you know, it's not a dramatic shift. Fall has always been a land product for us and is a significant revenue contributor.
spk19: Understood. Thanks, Navam. And then if I could also ask for a bit more detail on some of the process efficiencies that you've identified for areas of improvement. Dave, you mentioned, you know, speed in the pipeline, velocity in the pipeline is a focus. Some technical resources to kind of back that up that you're putting into play here. We'd just love to get more details on how you're thinking about some of the tactical things to improve on process discipline. Thank you.
spk10: Hey, Brad. Yeah, I think this is, again, I'll just bring it back to just the operational opportunities for us to improve as we scale. You know, we're here at our sales kickoff again, reiterating this to our growing sales organization. And so the process is just really about process consistency uh and uh you know things that yield faster and higher win rates you know there's a whole litany of things that are operational in their nature i think it's just again the nature of where we are it's it's it's how do we do this consistently across the world uh in every geo in the same way and you know this is just normal operational day-to-day elements and i certainly feel super good about i think that the The fact that, you know, since their ledger has has been out in place for a couple of quarters to remind us that she has been part of a couple of different companies going from the $600 million scale to the billion dollar plus and that's certainly what it takes to do so we're super, super bullish about the work she's doing. Great. Thank you, Dave.
spk04: Thank you. One moment for the next question. And our next question will be coming from Trevor Rambo of BTIG. Your line is open.
spk39: Hi, great. This is Trevor on for Gray Pal. Thanks for taking my question. So I just want to circle back on Terraform Stacks. Can you provide any insights or statistics on that product? And then when it goes officially GA, how should we think about that accelerating the free-to-pay conversions for customers like this year and going into next? Thanks.
spk16: Great. Thanks, Trevor. Yeah, so the way I would think about Terraform stacks is, you know, effectively, it can almost call it a Terraform 2.0. It's the biggest enhancement we've added to Terraform since it was introduced. And effectively, what it does is enhances Terraform's ability to manage multiple environments and multiple layers of the infrastructure stack at the same time, right? So prior to the stacks, customers had to sort of manually build process around how to handle multiple environments, for example, development, testing, staging, production. So there was manual process and manual orchestration around that versus with stacks. We now have a native understanding and a native ability to orchestrate across those multiple environments. You know, for our particular customer base, you know, this is most impactful to those kind of 4,000 biggest customers Dave talked about. They all have very large, very complex infrastructure. And so we think this is going to be a compelling feature set for them. And in fact, already we're seeing great resonance with the folks in private beta using this capability already. So, you know, the decision we've made is really to bring that only to the commercial customers through Terraform Cloud to begin with. And so to your sort of second part of your question on free to paid conversion, effectively it won't be available in the PurePlay Community Edition. You will have to start on the commercial products to leverage Stacks, right? So obviously at the very bottom end, we have a free tier that allows some limited scale usage, but any substantial scale usage would have to be on one of our commercial tiers of Terraform Cloud.
spk29: Okay, next question, please.
spk04: Thank you. One moment for the next question. And our next question will be coming from Fatima of City. Your line is open.
spk11: Good afternoon. Thank you for taking my questions. I wanted to zone in on the sales motion that will emphasize more of a cloud-first selling approach into your enterprise and very large customer base. I wanted to get a better understanding of how much of this will involve the conversion of an existing Terraform environment into CloudForm factors and how much of this is really going to be emphasized and focused around the expansion and extension of a self-managed enterprise's overall Hashi footprint into the broader portfolio of CloudFirst solutions. And then have a follow-up, please. Thank you.
spk16: Yeah, thanks Fatima. Yeah, it's a great question. So effectively the sales comp change that took place is really to emphasize land deals on Terraform Cloud. Now that said, obviously we're engaged with customers on a renewal basis as well. It's obviously in our interest to move them to Terraform Cloud. It's also in the customer's interest. I think they realize features much more quickly. They don't have to do upgrades. They're not on the hook operationally. So there's a lot of benefit to the customer from moving from self-managed to cloud, but similarly for us, we get better visibility into the usage, lower cost of support, and ability to deliver innovation to them more quickly. So the sort of process changes are really around incentivizing land, but obviously there's strong incentives on the expansion side as well. And then our view is once people are a part of the cloud platform, that simplifies our ability to drive the next product along, because they're already on an integrated chassis.
spk11: I appreciate that. And just as it relates to some of the bundles and the more storytelling approach on the go-to-market front, so you did introduce the zero trust bundle last year. I'd love to get an update on how much traction that's gotten vis-a-vis maybe penetration in the base. And to the extent there are other logical bundles that you can create to build that transaction velocity and enhance that expansion, and extension momentum, especially since you're incentivizing the land deals on cloud. So, you know, shortening that expansion sales cycle into other solution areas like, you know, Boundary or Packer and Waypoint. That's it for me. Thank you.
spk10: Yeah. Hey, it's Dave. Thanks for the question. Yeah. So I think the simple way to describe it is we effectively have two conversations we have. One is around infrastructure lifecycle. One is around security lifecycle. We previously had this zero trust skew bundle, which has essentially been replaced by the security lifecycle form factor, which gives you access to multiple products within the security portfolio. So yes, we have actually recognized the success of that to some degree and institutionalized that as a default selling motion for security lifecycle management. And then also introducing that notion for infrastructure lifecycle management. So we're really trying to simplify the structure of what our field teams have to bring to bear And we're sort of optimistic that that simplicity will drive better yield.
spk26: All right. Next question, please. And I think we have to limit to one question, just a matter of time that we've left here. Thank you.
spk04: Thank you. One moment. And as a reminder, here going forth, please limit yourself to one question. And our next question will be coming from Matt Desort of EAM. Your line is open.
spk30: Hi, this is Matt on for Alex. Thanks for taking the question. I wanted to double click on the HCP cloud chassis. Is Terraform still generating the lion's share of that revenue stream so far as customers move to fully manage or is Vault making a move? And how is that composition expected to change over the next 12 months and into fiscal 26? Thanks.
spk16: Yeah, thanks, Matt. So today, actually, both Terraform and HCP Vault are significant contributors to the cloud revenue line. I think what we expect this year, given the shift we're making towards providing a sales incentive around landing with Terraform Cloud, we expect that there'll probably be some differential increased land on Terraform, and then looking at basically evaluating whether a similar thing would make sense back half of the year. for Vault, but again, I think this is where we'd look at customer appetite and there's slight differences given the runtime nature of Vault. There's a little bit more customer apprehension versus, you know, something slightly less runtime critical like Terraform. So, you know, we're going to take a little bit of a wait and see on customers, but yeah, I think near term we'll see more Terraform. Thanks. Thanks, Matt. Next question, please.
spk04: Thank you. One moment for the next question. And our next question will be coming from Brad. We back up steeple.
spk33: Your line is open. This is Mark on for, for Brad. Um, fun to see if you could provide a little detail on the linearity and the quarter and the macro improvement, the, I guess, optimization abatement that you guys talked about and how that's sustained through February. and how that contributed to kind of your confidence for the guide for both FY25 and 26. Thanks.
spk06: Yeah, just a reminder, we're subject to regular enterprise patterns, which means that there is linearities more towards the back half compared to the front half of both the year and the quarter. Q4 was stronger than expected from a linearity perspective, and as I mentioned earlier, all positive signs from a macro perspective and how the optimization cycle's playing out.
spk20: Thanks. Thank you. Next question, please.
spk38: Thank you.
spk04: And our next question will be coming from Ari Tarjanian of Cleveland Research. Your line is open.
spk13: Hi, all. Thanks for taking the question. Just real quick on you know, RPO, you know, what percent of lands in the quarter were, you know, the cloud, HCP cloud, and then, you know, do you think, you know, is there any potential pull forward ahead of, you know, comp plan changes for this year? Thanks.
spk06: Yeah, there was nothing unusual that happened in the fourth quarter compared to the other quarters, so nothing in terms of, you know, unusual activity there.
spk02: All right. Thanks. Thanks, Art.
spk04: Thank you. And at this time, I would like to go ahead and turn the call back over to management for closing remarks. Please go ahead.
spk10: I'd just like to thank everyone and express my thanks for the participation for everyone that was able to attend. And we certainly appreciate all the questions. We look forward to speaking to everybody soon. Thank you.
spk04: This concludes today's conference call. Thank you for participating. You may all disconnect.
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