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spk14: Ladies and gentlemen, please stand by. Your conference call will begin momentarily. Once again, ladies and gentlemen, thank you for calling. Please remain on your lines. Your conference call will begin momentarily. Thank you for your patience. Thank you. Thank you. Thank you. Thank you. Good day, ladies and gentlemen, and thank you for standing by. And welcome to HashiCorp's Fiscal 2022 Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentations, 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, Head of Investor Relations. Thank you. Please go ahead, sir.
spk16: Good afternoon, and welcome to HashiCorp's fiscal 2022 fourth quarter earnings call. This afternoon, we will be discussing our financial results for the fourth quarter announced in our press release issued after the market closed today. With me are HashiCorp's CEO, Dave McJanet, CFO, Navam Waliunda, and CTO and co-founder, Arman Daggar. At the close of the market today, and in conjunction with our earnings press release, we have published an earnings deck that contains additional financial information pertaining to our quarter. We plan to do this each quarter before our earnings call and encourage you to review the deck in advance of our calls. You can access the deck 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 of fiscal 2023 and the full fiscal year 2023. 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 metrics 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.hashicorp.com. With that, let me turn the call over to Dave. Dave?
spk02: Thank you, Alex, and good afternoon, everyone. Welcome to our first earnings call as a public company. We're excited to share with you that Q4 was a strong quarter for HashiCorp as we continue to execute on our vision of unlocking the value of the cloud for our customers through our automation offerings. We strongly believe that the move to a cloud operating model is the foundation for how enterprises everywhere will manage their infrastructure and application environments going forward. We reported revenue of $97 million representing year-over-year growth of 56%, along with the trailing four-quarter average net dollar retention rate of 131%. But before diving deeper into Q4 results, I'd like to quickly reflect on our initial public offering we completed in early December. The IPO was a tremendous milestone for the company and reflects the hard work our team members have put in to build an incredible product portfolio for what we believe is a once-in-a-generation software business. We're very proud to have some of the largest enterprises running their most critical applications on our products and view the IPO as the next step to support these customers with continued investments in our products and in our ongoing vision for enabling their move to cloud and multi-cloud, providing them cost savings, risk mitigation, and revenue generation opportunities. Organizations right now are undergoing a digital transformation across every business function driven by competition and ever increasing consumer expectations. Key to this digital transformation is a re-platforming from static on-premises infrastructure, dynamic and distributed cloud infrastructure. We realized early on that everything about the cloud requires new thinking. The existing procedures are too inefficient to scale with the distributed multi-cloud infrastructure reality that these organizations are adopting. What's needed are consistent workflows, a new cloud operating model for enterprise IT to provision, secure, connect and run infrastructure and applications. across multiple public and private cloud environments. Enterprises want a system of record for these workflows and for managing their significant investments in cloud programs. This system of record is what the HatchCorp product portfolio provides. To make the most of this opportunity, we take a long-term view on making our market function. We build our products using an open-core software development model with large communities of users, contributors, and partners collaborating on their development. Our commercial software builds on our open source products with additional enterprise capabilities. Our sales efforts build on our broad open source reach and are driven by an enterprise sales force that focuses on being a strategic partner to some of the most significant organizations in the world as they move to the cloud. In addition, our cloud offerings supplement our direct sales motion with a self-serve offering for small and medium-sized businesses. And to support all of these efforts, we have an ecosystem of partners, including cloud service providers, independent software vendors, and system integrators that standardize around our offerings and help to support our customers' needs. These elements are the foundation of our durable growth opportunity and are the critical components of our adopt, land, expand, extend business motion. One more thing before I discuss the results for the quarter. I'd like to talk about the steps that we see enterprises taking in adopting this cloud operating model for infrastructure that I discussed earlier. Organizations typically move through multiple predictable stages of cloud maturity. Their initial forays into cloud are usually driven by teams looking to build net new applications. Over time, the best practices and expertise learned from these siloed efforts can become a common, consistent foundation to achieve cloud infrastructure automation. This common operating model is often centralized through a cloud program office or a cloud platform team, which is often the second step in a company's journey to a multi-cloud estate. This centralized model ultimately becomes the basis for how enterprises interface to cloud infrastructure. As organizations mature, we see this model being applied to increasing amounts of their infrastructure, including private cloud and data centers, providing similar gains in consistency and automation. Our foundational technologies solve these challenges of cloud adoption by enabling this model and providing a system of record that unlocks the full potential of modern public and private clouds. We are excited by what we see our customers doing so far, and even more so about the road ahead. Now, taking a closer look at our results, a few highlights stood out in the fourth quarter. We added 10 new million-dollar or greater ARR customers and 60 new $100,000 or greater ARR customers in the quarter for the company, a strong signal of our adoption within the largest IT organization. And we're excited to share with you that we crossed a corporate milestone during the first quarter, with our first customer reaching more than $10 million in annual recurring revenue. A Fortune 10 company that, after starting their journey with us as an open source customer all the way back in 2015, has made repeated investments in both Terraform and Vault, along with the major renewal and expansion of Vault in the fourth quarter. Another key theme from the quarter was the momentum with customers purchasing multiple products. We continue to win the position of trust within the platform teams, and as an example from Q4, we saw a solid number of console deals as we remain highly focused on driving our cloud-based networking framework into the marketplace. And to frame the progress we've made with the penetration of our core products of Terraform, Vault, and Console, the absolute number of $100,000 or greater annual recurring revenue customers that have purchased multiple products increased 42% year over year. This represents 45% of our $100,000 or greater ARR customers who are now using multiple products in the fourth quarter. We believe that the three layers we are focused on, infrastructure, security, and networking, represent extremely large total addressable markets. each of which are moving through generational changes, and we are investing against all of these opportunities. Finally, we made steady progress in the adoption of our HCP cloud product offering in the quarter, growing nearly 350% in the fourth quarter from the prior period. As we previously discussed, FY23 will be a year of ongoing R&D investment into HCP capabilities, as we increase the number of cloud services and enterprise features, as well as additional cloud regions. Now turning your attention to notable fourth quarter transactions, I'd like to highlight a few examples of strategic deals that were completed and that demonstrate our execution in the marketplace and showing our adopt, land, expand, motion, and action. As an example of a land transaction, a European-based consumer goods company standardized on Vault Enterprise after starting out as an open source user. Vault will now provide a common workflow across clouds and enable a standardized approach to authentication. Vault also enabled this customer to save budget dollars through the consolidation of engineering resources and tools. I'll note that Amazon Marketplace was a central part of the sales process, demonstrating the go-to-market alignment we have built with the top cloud platforms. An example of an expand transaction was a deal with one of the top consumer brands in Asia. This customer expanded the secrets management that was already in place on Amazon into their Azure environment with Vault, expanded Terraform license to support that Azure cloud deployments, and further expanded console into additional business units in the quarter. At the core of this opportunity, our products accelerate this customer's time to market with new consumer services and simplify their compliance regime. Finally, an example of an extend transaction, we had a global energy services company that extended into Vault during the quarter after starting out as a Terraform customer. This customer is using Vault to help centralize and protect its Azure and Google secrets as the company expands its multi-cloud estate. This customer chose Vault as it will enable faster development cycles and at the same time reduce costs. I'd like to thank our entire team for their continued focus on delivering on our product roadmaps, as well as engaging and delivering for our customers in the field. In addition, we wouldn't be where we are without our open source community and the ecosystem of partners that work with us, and I'd like to also thank them. With that, let me turn the call over to Navam.
spk01: Thanks, Dave, and thanks to everyone for joining us today. Turning your attention to our financial results, we produced strong fourth quarter results with total revenue of $96.5 million, which was up 56% year-over-year, and we maintained a trailing four-quarter average net dollar retention rate of 131%. We came in ahead of our non-GAAP gross margin, non-GAAP operating income, as well as our GAAP and non-GAAP net income plans. We incurred a net loss of $1.70 per share on a GAAP basis, and 24 cents per share on a non-GAAP basis. We would note that due to the structure of our stock-based compensation, we recognized all of our historical RSU expenses in the fourth quarter, resulting in 196 million in total SBC recognized. SBC will revert to a more normalized amount starting in the first quarter of 23, which we expect to be in the $50 million range. We track several key business metrics which we believe help in understanding our business and financial performance in our journey to deliver durable growth. We focus on one, our revenue growth rate. Two, the growth in the number of total customers we serve. Three, the growth in the number of total customers that represent greater or equal to 100K in ARR, as well as their aggregate contribution to revenue. Four, the revenue we derive from customers on the HashiCorp Cloud platform. Five, our trailing 12-month free cash flow margins. And six, our non-GAAP RPOs. Our earnings deck contains detailed information on all these metrics. Focusing on one of these core metrics, the greater or equal to 100K customer cohort, we made solid progress during the fourth quarter. We continue to execute our adopt, land, expand, and extend model, as outlined by the customer activity in the quarter, which Dave spoke about. On a trailing 12-month basis, we added 155 of these customers and grew their revenue from $123,000 per customer to $147,000 per customer in the quarter, a 20% year-over-year increase. We are also encouraged by our HCP business during the quarter because we saw strong demand signals. Our cloud revenue number showed solid growth, and our cloud bookings more than doubled compared to a year ago period setting the stage for continued strong performance two final thoughts before providing forward guidance first we are very pleased with the pace of demand in the quarter driven by our 100k or greater ar customer activity and we remain on track executing on our long-term plan of delivering durable and high revenue kager second Similar to most other enterprise software businesses, we benefit from buying patterns where large enterprises tend to make sizable end-of-year purchasing decisions, leading to some seasonality in our business. We continue to see strong demand signals coming from the G2K and our 100K or greater ARR customers. These signals give us confidence in the long-term secular shift that is happening in the cloud and our place as a critical part of the technology stack underpinning cloud consumption. We intend to invest in our product and go-to-market teams to position the company to capture this large TAM transition. Further, we continue to expect leverage in our annual model beginning in the fourth quarter of fiscal 2023. Now, I want to provide our guidance for the first quarter and the full year FY 2023. For the first quarter of fiscal 2023, we expect total revenue in the range of $92 million to $96 million. we expect a Q1 non-GAAP operating loss in the range of 52 million to 55 million. We expect non-GAAP net loss per share to be between 30 cents and 28 cents based on 182 million weighted average basic and fully diluted shares outstanding. For the full fiscal year 23, we expect total revenue to be in the range of 413 million and 423 million. We expect FY23 non-GAAP operating loss in the range of 231 million and 239 million. We expect non-GAAP net loss per share to be between $1.30 and $1.26, based on 184 million weighted average basic and diluted shares used for computing non-GAAP net loss per share. In closing, We are very pleased with what we accomplished in our first quarter as a public company and in fiscal 2022. We're looking forward to the year ahead. And with that, Dave Armand and I are happy to take any of your questions. Alex?
spk16: Thanks, Navon. Operator, let's start with the first question.
spk14: Ladies and gentlemen, if you have a question or comment at this time, please press star then one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, if you have a question or comment at this time, please press star then 1 on your telephone keypad. Our first question or comment comes from the line of Bob Wong from Morgan Stanley. Your line is open.
spk18: Hi, all. Thanks for the question. Congratulations for a great quarter. I'm filling in for Sanjay Singh here at Morgan Stanley. Just the first question on your 100K customer ads. Obviously, the 100K customer ads for the quarter was very strong. Can you maybe help us think about potential 100K customer growth trend going forward? Are there factors that maybe we should consider when looking at this customer base that would lead us to believe that it would trend down a little bit or would it sustain at the current level?
spk02: Thanks, Bob. Let me answer that question. This is Dave. Just to underscore our model, obviously these are huge spend categories that are transitioning, and they're all going to cloud and multi-cloud inevitability. Our model actually starts with the open source part of our approach, which is the proliferation of open source to drive our products in the hands of practitioners. And then at some point down the road, that is when they become a commercial customer as the customer we indicated earlier in the prepared remarks. So really, you've got to think about the open source community as the starting point, which has been a huge investment of ours for a very, very long period of time. We then saw $60,000, $100,000 customers, $10 million customers, and one $10 million customer, and accompanied by another stat of the 131% net dollar expansion rate of that portfolio. Fundamentally, That is that model running, right? They adopt one open-source project. That becomes one product. As a multi-product company, they then add another product. And over the course of time, they walk up that relationship with us to the scale of the opportunity that they're inferring. Fundamentally, we are tied to the consumption of the cloud estate, right? As the cloud programs grow, generally speaking, our product portfolio grows with it. So I don't think there's anything unique to that 100K base. I think that's just an indication that once they are on that treadmill, they tend to grow as their cloud state grows.
spk01: Yeah, Bob, and I'll add to that. This is Navam. You got it exactly right. The way we think about the growth of our business is the 100K customer group growth. And the momentum in the fourth quarter was really strong. So we added, as you know, 16 net new 100K customers and 155 for the year. And as Dave mentioned during his comments, each of those customers continue to grow with us as evidenced by our strong net retention rate of 131%. So that 131% was also driven by the growth in 100K customers, and momentum remains very strong among that group.
spk18: Okay, thank you. That's very helpful. For my second question, can you maybe comment on just the adoption trends for some of your key products, Terraform, Vault, and Console at this point? I'm curious if you can provide some type of revenue split out in terms of what percentage of the revenue came from Consul and Vault specifically, or if not, maybe just compare the last quarter, how has that trended?
spk02: I'll let Navar answer that question.
spk01: Yeah, Bob, let me take that one. I don't think there were any significant shifts in the way our products were adopted by our customers. The lands are across our two core products, Terraform and Vault. And then we have also our emerging product console. So those three products were what the lands were in any given quarter. You know, the point to note is I think our base of multi-product users also continued to grow. And we saw some strong growth of customers over 100K adopting multiple products. So, you know, 42% growth year over year in that 100K group. adding their second and third product, which is obviously fantastic momentum. But in terms of product mix chips and strong multi-product usage.
spk16: All right. Thanks, Bob. Next question.
spk14: Thank you. Our next question or comment comes from the line of Alex Bunken from Wolf Research. Your line is open.
spk08: Hey, guys. Thanks for taking the question. I guess Maybe, Dave, first, you know, you're signing some truly unbelievable customers and customer sizes. As we think about just the level, you know, for these largest customers, how do you think about for every dollar they spend on their cloud infrastructure and architecture, what percentage of their dollars or budgets ultimately do you think, you know, go to a solution like HashiCorp? And where is this relationship going forward? And then I've got a quick follow-up.
spk02: Yeah, I think that's the appropriate question. I think it's so early, truthfully, that it's hard for us to know what percentage that normalizes. And I think we have to keep in mind how early we are in our evolution, right? You think, you know, we, the whole company began in sort of 2013. Our first commercial products in which reduced really were not until late 2016. So it was really 2017 was our second product. 2018 was our third product. So we're super early. And I would echo your view, which is, I think the scale of the million-dollar customers and $10 million customers just underscores the size of the markets. These are infrastructure markets that are large spend categories for customers. They spend billions of dollars inside the Global 2000 on these categories. So it's tough to put a number on the map other than to sort of highlight that we're very early, truthfully, in that evolution. People are making strategic relationship bets, in our view, on who their partner for this multi-cloud infrastructure estate is going to be, and that's really why we're investing where we are. I think we don't know the exact number of where that stabilizes, but it's very clear that it's correlated And I think that conviction comes from seeing really the size of the commitments from both, but also on the NDE that we're seeing as people both expand the existing use of their products and extend to adjacent products. Not the answer you're looking for exactly, but hopefully it gives you a sense for how we think about it.
spk00: And this is Arman. The additional color I would add here is, like we shared, we have our first customer who crossed the $10 million mark this quarter, which we were super excited about. But when we look at even that singular customer that is a single product driving most of that. This is not a wall-to-wall deploy, and this is within the context of a larger multibillion-dollar IT budget. So as we think about kind of what that spend ceiling looks like within any one of these accounts, we feel like there's a ton of headroom there, and I think that's representative of the broader local 2,000.
spk08: Perfect. And then, Navam, maybe one for you. If you look at the mix of booking split between one-year and multi-year deals, As you continue to become more strategic with your customers, but also sell more of the cloud platform product, how should we think about that split trending in the future?
spk01: Yeah, thanks, Alex. Good question. You know, as you know, most of our revenue is ratable, so more than 90% of our revenue is ratable. So regardless of the mix, I think we are holding good ratability and forward visibility into our revenue. Now, that being said, you know, strategic customers do want to have longer engagements with us, so We're seeing a good mix of duration of multi-year deals. I don't think we are expecting anything different in the next year compared to what just happened this year in terms of a mixed shift. As you saw, we saw a stabilization of duration this quarter and the prior few quarters, and that's pretty much how it's going to continue the next few quarters. Overall, strong and very proud to be supporting these large customers in their journey in the cloud.
spk16: Thanks, Alex.
spk01: Next question. Okay.
spk14: Thank you. Our next question or comment comes from the line of Cash Rangan from Goldman Sachs. Your line is open.
spk04: Hey, congratulations, Dave, Armand, and Namam. Good to be able to talk to you guys. So in the quarter, it looks like there are some breakaway trends. The number of 100K customers you added, the number of customers in total that you added, I mean, it's the highest we've seen across the board in several quarters, even relative to your strong Q4 seasonality. Can you just talk about what might have changed? So is there an acceleration of the broader trends that you've seen at all? And maybe do you foresee any positive implications from the political landscape that's going on? Obviously, that's got implications for security and your bulk product. Maybe it's a little bit too far-fetched of a conclusion, but I'm just curious, what are some of the broader trends that seem to have accelerated in your results, and I have a quick follow-up question.
spk02: Yeah, thanks, Cash. Yeah, this is Dave. I think, honestly, it's pretty consistent for the inexorable shift to cloud, and if we see the results from the hyperscalers, you can see multi-cloud is the reality. So I think, you know, to a large degree, it's that continued shift coupled with our growing scale. Again, obviously... I always have to remind myself how early we are. When I joined six years ago, we were only 20 people. So the scale of our organization has grown really, really rapidly. In fact, we just had our sales kickoff event that just reminds us how big our organization is becoming. And I think that's the second part of it is our ability to engage with the market certainly improving as we scale and put the progress there. In terms of infrastructure as a category, yes, we are – we are supporting many of the most strategic and important initiatives of our customers in the realm of not just infrastructure and network, but also in security, and that's not lost on us. But I also would just underscore the infrastructure is a deeply considered decision, right? These, you know, the velocity of conversations probably upticks as a result of what's happening in the world. But, you know, These are still deeply considered decisions. So I would expect us to be measured, you know, drive that cadence of open source proliferation coupled with, you know, land expand and extend. And we're pretty excited about that. But probably those are the three kind of catalysts, if that answers your question. Yeah, Cashin, let me add to it. Sure.
spk01: Yeah, let me add to it. You know, on the point about Q4, I think we started the quarter with very strong pipeline for Q4, and we ended the quarter with a good conversion of that. pipeline in Q4. So very, very positive about how that quarter turned out. Just a reminder, we are just like any other enterprise software company and buying patterns there. We experience seasonality towards the end of the year as buyers tend to purchase more of our products. So we were a recipient of that in Q4. That being said, strong demand signals for the rest of the year and Q1 as well. So we're comfortable with the guide that we had, but wanted to remind you of the seasonality.
spk04: Thanks. Got it. Final one was, so are you starting to see any breakaway trends in sales productivity? Of course, Terraform is the standard of the industry. Is it getting a little bit easier to sell Terraform and maybe a couple of the other products like Valkyrie console are not too far behind in terms of maturity curve, customer adoption, overcoming hesitation, making the sale easier, et cetera? Any thoughts there?
spk02: No, so there are a couple of dynamics to that. I think the short answer is I think it's still relatively similar, I would argue. I think... I think for the reasons that you outlined, there's broad standardization in the open source community on our tech. But I think what we're seeing is generally pretty consistent. A lot of this is about market security, and I think as we've highlighted, the infrastructure and security markets are sort of increasingly mature, and we're able to meet the market where they are in a way that is productive for both of us. I think the networking market, we're seeing great signs of it transitioning, but that one's still early. The cloud-native ecosystem is, Obviously, they're all bought into the notion of service-based networking. I would say in the global 2000s, it was a little bit earlier. So, yeah, I certainly prefer to talk about the same console. I think we're probably seeing signs of market moving a little bit faster than it was.
spk16: Thanks, Cash. Next question.
spk14: Thank you. Our next question or comment comes from the line of Mark Murphy from J.P. Morgan. Your line is open.
spk12: Thank you, and I'll add my congrats. So several software companies saw kind of a lull in consumption patterns in recent months. I'm curious, did you see any effect with HCP consumption to speak of, or has that been more resilient? And then can you just remind us, what is it that can cause some of the sequential fluctuations in that cloud revenue trend?
spk02: Yeah, so I'll answer the first one. The answer is we actually – The predominant model for our cloud is, in fact, entitlement-based today still, so we don't see the shifts in the consumption that other folks have. Devon, perhaps you can answer the question.
spk01: Yeah, I mean, I think the important part to note about HCP is that we continue to see broad-based strong demand signals, and also it's a new line of revenue for us, right? And it's opening up this new segment of customers below the G2K, the emerging enterprises that And to today's point, the consumption is strong within that group, which is reflecting our revenue, but it's more entitlement-based. Over time, as the conversion moves to consumption-based pricing, you'd see more of our SKUs trend that way. But overall, we're very pleased with the way HCP turned out and positive about the forward momentum of that line.
spk02: I apologize for jumping in, but also underscore that the first version of our cloud offering was really only five quarters old. We had one product on it. Last year, we added Vault for the first time and continue to roll out new products towards the end of the year, new regions. So it's really, really early for us in the cloud, but we actually had our best cloud bookings quarter ever, which is a milestone for us, but super, super early. And we're happy to talk a little bit about what's coming down the pipe if you're interested. Otherwise, I can answer a different question.
spk12: Yeah, you know, indirectly, Dave, yes, I do want to ask you and Armand about that. What was on my mind is one of your customers had said that Hashi's Sweeter Products is like the Apple ecosystem for IT. It was kind of just describing how everything just works harmoniously together, and I love that vision. Can you speak to how many customers today have reached this point of maturity where they're realizing a synergy across the products? What I mean is... Multi-product, but also kind of woven together.
spk02: I'll let Armand answer that question.
spk00: Yeah, no, that's a great question. I think there's a few different aspects to it. One is, as Navam shared, if we look at sort of the math of growth in terms of customers in the 100K segment going to multi-product, it's a 42% growth year over year from where we are. So certainly you can kind of see from a math perspective, the customers are seeing that value of leaning into that kind of integrated product platform experience. And I think going back to your previous question as well, I think one of the things we're seeing shift is customers are increasingly seeing Terraform as a standard in infrastructure. They're seeing Vault as a standard in zero trust security. I think even with console, they're appreciating, hey, if we're a part of this platform investment, we know HashiCorp is going to be a strategic partner to us for many, many years to come. Now that we're actually under sort of the public governance, I think that was actually a huge aspect for us in terms of giving customers that comfort, and we're seeing that acceleration, as Dave mentioned, around the networking market as well, where people are really acknowledging that, hey, if HashiCorp's going to be a strategic partner, these components are well-integrated, and it makes sense for us to sort of invest in the broader HashiCorp platform vision as opposed to necessarily just coming in through a single product.
spk02: I just wanted to add one comment. I apologize. These problems are fundamentally connected, and I think it's important for people to understand that. If you have a provisioning problem, there's also a security aspect. There's also a networking aspect. In a sense, we sort of come from the future a little bit from the cloud world, and we know that our customers eventually have all those problems. The product portfolio is designed that way, but we let people adopt it piecemeal. But if you talk to all of our scale customers, all of our more mature customers, and certainly those in the cloud-native ecosystem, like some of the folks that you see on the news, they are all using most of the products, not one.
spk16: Thanks, Mark. Let's go to the next question.
spk14: Thank you. Our next question or comment comes from the line of Jason Ader from William Blair. Your line is open.
spk11: Yeah, thanks. Hey, guys. Dave, I guess when you think about 2023, what are your top two or three priorities, and what is the biggest constraint on your growth right now?
spk02: Yeah, it's really more of the same, truthfully. I think point number one is let's continue to scale our engagement with the Global 2000. I think I think history has taught us that when markets go through transitions, you know, there's a time period where those decisions are made in terms of the new software stack, and we're deeply convicted about that, and we're committed to going after it aggressively. And you see that in the growth of our sales organization. And that is our priority number one. Priority number one, you saw us add 36 to the global 2,000 last quarter. We're going to keep doing that that we want to partner with. The second priority is our continued evolution of our products on HCP. That's an important new distribution channel for us, and perhaps Armand can just talk about some of the things that are happening there.
spk00: Yeah, as Dave mentioned, cloud is a major investment for us from an R&D perspective. You know, last year we went from just a single cloud product available at the start of the year, which is Terraform, to bringing Vault and Consul. that was initial SKUs on a few cloud regions. And so since then, through the year, we expanded the number of regions that we were in, the number of SKUs that were available, so adding kind of richer capability. And as we think about carrying that into this year, at today's point, it is more of the same, but it is bringing additional products online, bringing additional cloud regions online, bringing additional cloud providers online. So really a heavy R&D investment in terms of enabling all of the Haja Group tools to be consumed as a cloud service wherever the customer wants to consume it.
spk11: Gotcha. And so basically you're saying the biggest constraint right now sounds like it's adding as many salespeople and support people that you can to kind of capture that G2K opportunity as well as getting the HCP offering kind of fully ramped up across all major cloud regions. Is that fair? Yeah, I'd say that's accurate.
spk02: I think on the first one, again, I make this point often, you know, these are considered decisions for a reason because they are durable. And so, you know, we can address it with the sales organization, but there's also an aspect of the market, right? Like, you know, certain regions are more mature than other regions. For example, North America, you know, the global 2000 shift to cloud is actually pretty mature. In other regions, it's less mature. And I think that's an important aspect that we keep an eye on. So, you know, I infrastructure markets, as we like to say, move inextricably like the Mississippi, and that's a constraint.
spk16: Thanks, Jason. In just the interest of time, we're going to stick to one question to get through the remaining queue here. Operator?
spk14: Thank you. Our next question or comment comes from the line of Derek Wood from Cowan & Company. Your line is open.
spk03: Great, thanks, and great quarter out of the gate, guys. I wanted to go back to the console topic. I mean, it sounded like you had a strong quarter. I think console tends to generate bigger deals. I know it's still more of an emerging product. Just curious if there's anything you can do to proactively help kind of tilt the curve of adoption a little bit more in fiscal 23. And I know you guys announced an API gateway offering in tech preview recently. Just wondering how you're feeling about entering that market and what kind of opportunity lies there.
spk02: I'm going to answer the first one. I'll let Arman answer the second one. The first one is, again, if you look in the cloud-native ecosystem in terms of the digital-native community, the console is super broadly used. I just think The global 2000s transition to cloud is actually really early, and they tend to run into the provisioning and security problem first. That's the simple truth. So I think it's continued evangelism. It's continued demonstration within the Lighthouse accounts, of which we have many, obviously, that are adopting this at scale and continue to push that message forward because the technology is very well proven today. in the digital native ecosystem, right? Honestly, I think that's the constraint. It's a market constraint more than a product constraint. You'll see us leaning in really heavily with the cloud providers themselves. We run a managed service with Microsoft and Azure. We do a lot of work to better link the runtime platforms on Amazon to console. And I think that's the second lever that we can do. And you've seen us investing deeply there. Want to talk about the other question?
spk00: Yeah, I think there's a few fold there. So I think when we talk about accelerating kind of console overall, the first piece that Dave mentioned is really the cloud delivery component. So as I mentioned, really only became available sort of middle of last year as a cloud service in the initial version. So this year continuing to sort of expand the SKUs around console, the region availability, the cloud availability. So I think all of that will make it easier to kind of trial console as well as sort of go through the whole purchase experience with us. as we add that as an option beyond just self-managed. I think the second piece is continuing to be deeply invested in the capabilities that it will enable global 2,000 customers as they're going through that transition of understanding, hey, what is our future of our zero-trust networking approach, or how do we do cloud-to-ground networking or multi-cloud networking? There's a set of capabilities they continue to need to manage it at a very, very large scale. And then the API gateway is really about the completeness of vision, right? And I think what we're seeing is sort of an intersection of, you know, what was historically a separate north-south approach to networking versus an east-west. So I think historically customers thought about those as sort of two different markets, different approaches, different vendors. I think as we're seeing the architectural patterns shift to being very microservice-driven, services being deployed globally in kind of a multi-region way, that line is blurring increasingly. So I think east-west versus north-south is part of one logical networking story, and I think the API gateway rounds that out with counsel.
spk16: Thanks, Derek. Next question?
spk14: Our next question or comment comes from the line of Brad Seals from Bank of America Securities. Your line is open.
spk07: Oh, great. Hey, guys, congratulations on a nice quarter here. Thanks for the question. I just wanted to ask one on kind of that tipping point that you see in the customer base. You know, for customers to kind of get to the scale, you talked about that kind of $10 million contract. Obviously, at this point, those are kind of the exception. But is there a certain footprint or number of applications that you see after which you really start to see customers really hit their stride in that expansion in their usage of HashiCorp?
spk02: Thank you. That's a very appropriate question given how we spend our days. I think there's a transition that happens. I think there's a difference between a business group that's sort of building an application on cloud, and that often ends up being an early adopter of our products. Maybe there's a couple of business groups. Maybe there's three business groups. And then at some point, you know, it gets established more as a standard by a platform team. And I think that's, you know, some of these companies are really big, right? And these categories are so big that we can certainly have million-dollar customers inside a single business without issue. There are plenty of those. But I think it is when you sort of reach that monocular standardization in a platform team concept, which is probably the tipping point that we see being the moment where it goes. All right.
spk16: Thanks, Brad. Let's go to the next question operator.
spk14: Our next question or comment comes from the line of Michael turrets from key bank. Your line is open.
spk17: Hey, great. This is a Steve vendors on for, for Michael. Uh, appreciate taking the, uh, the question here. Uh, I just want to touch on the comment you had around, um, seeing really strong conversion of a pipeline in four queue. Uh, I guess was, was there kind of any, any deals that you felt like got kind of pulled forward that maybe we're expecting to hit it in one queue? And kind of how are you feeling about the general pipeline into fiscal 23 at this point?
spk01: Yeah, good question, Steve. This is Navam. So, you know, I think the fourth quarter pipeline was high, was very strong, and we saw a good conversion of that pipeline. It wasn't unusual compared to what we expect in a fourth quarter. And I think we are comfortable with the signals we're seeing in the first quarter, and we have strong pipeline in the first quarter that give us comfort in the guidance we have. So, you know, I think we're happy with where we landed, and we're optimistic about the full year.
spk16: All right. Thanks, Steve. Next question.
spk14: Thank you. Our next question comes from Itai Kidron from Oppenheimer. Your line is open.
spk19: Thanks, and congrats. Got a great quarter. Navam, a couple for you. Just want to make sure I understand the correlation between CRPO and your guidance for the year. If my math is right, you've got it at a midpoint at about 30% year-over-year growth, and CRPO growing much faster than. Maybe you can help us kind of reconcile the two. And also on the gross margin, the same way ATP is growing as a mix, your gross margin moving higher. How should we think about gross margins through the year?
spk01: Thanks, Itay, and two very good questions on our metrics. So the CRPO growth, you know, we're very optimistic about. We saw growth. Good momentum in the quarter, as I mentioned. Strong bookings growth, and the result of that was the very high CRPO growth that you saw. The point to note is that we are seeing normalizing durations, and that's part of what's driving the CRPO growth normalization to what you're seeing, and that's basically the movement in CRPO which is driven by duration. On your gross margins, we're very pleased with being a high gross margin company or a strong gross margin company. I think the main driver for that is we're ahead of our plan in terms of cloud gross margin. So we reach 50% and we're confident we're able to scale that up to the high 70s. Overall, we expect next year to be at about an 80% margin. And as the cloud growth grows over time, we'd expect to normalize at the high 70s margin. But us as a company, we believe we will remain a strong gross margin business.
spk14: Thank you.
spk16: Next question. Thanks, Atai.
spk14: Thank you. Our next question comes from the line of Pat Walravens from JMP. Your line is open.
spk05: Oh, great. Thank you. And let me add my congratulations on the great quarter. So, Dave, lots of great information on this call. Maybe to help boil it all down for us, what are the sort of two or three most important things for you to get done in this next year?
spk02: Yeah, I think it's – Number one, trying to engage more of the global 2,000 and win the right to be their partner. That position of trust is the one we covet. That is what we're doing. And we're continuing to invest aggressively against that opportunity. Number two is, as Armand highlighted, is continuing to invest deeply in this new distribution channel of HCP, which is going to be important to us, not just for adding the longer tail of our customer base onto the merchant side of our business, But also there's clearly appetite from some of the larger organizations in the world to consume as a service despite the infrastructure. Those are really the two things we're focused on. If I could just make one comment about the first point around our continued investment in our field organization, you know, what we have is a fundamentally strong unit economics in our business, high-growth margin business, a well-capitalized company with an opportunity to pursue this massive market opportunity in front of us. And that's driving our investment in the field. That's driving our investment in the company to aggressively pursue it. That's the first of our two priorities.
spk16: All right. Thanks, Pat. Thanks, Pat. Next question.
spk14: Thank you. Our next question comes from the line of Satina Bulani from Citi. Your line is open.
spk13: Good afternoon, and thank you for taking my questions. Nice to be able to talk to all of you again. Noval, my question is for you with respect to the non-GAAP operating loss guidance. I wanted to ask you to help us sort of unpack some of the primary assumptions that are baked into that expense profile next year, and if you can sort of walk us through how you're thinking about expenses, tracking back to pre-COVID levels, and specifically tying it back to some of your comments in your prepared remarks in the deck around a challenging recruiting environment. I'd be curious to get your opinion on where you might be, or if you're behind plan on certain areas of the business, and where you might be understaffed or under-indexed at this point.
spk02: Yeah, I'll just maybe, appreciate the question. It's good to talk in this forum for the first time. It's kind of fun. I'll just underscore my point about sort of strong unit economics expenses that are strong unit economics in our business and our desire to keep investing against the opportunity. I think that underscores our expense profile that Navam communicated. I'll hand things over to Navam to comment more deeply, but I'll just comment on the recruiting environment. I think we're very fortunate in that we're a net recipient of sort of a lot of the migration opportunities So I think we've actually been in a really good position. But we're also very aggressive in our hiring goals. You know, we hired almost 1,000 people last year. And so we are optimistic. We're geared to keep investing in those people. We're not seeing much of an issue there. I think we're in a fortunate position that we just have aggressive goals. Navant?
spk01: Yeah, I mean, I'll comment a little bit about our philosophy of spend as well. You know, the key thing to remember is that our net dollar retention rates, which were at 131%, was best in class in our opinion. And what that's telling us is that customers, once landed, will expand and extend, and that's been consistent in the past. So the right thing for us to do is to continue to invest in our product group and continue to invest into our go-to-market group, and that's what's right for the long term. So net is the high net retention rates, the good unit economics, The very strong balance sheet that we see and the high gross margin give us the flexibility to do so, and that's what we're doing over the next few quarters. You're going to see leverage, I'd say, towards the back half of the year in the fourth quarter where we're going to start looking at annual leverage after that point. But for now, I think we are consistent. We're convicted of the long term and are looking to win the market.
spk16: Thank you. Thanks, Fatima. Next question.
spk14: Thank you. Our next question comes from the line of Alex Henderson from Needham. Your line is open.
spk15: Thank you. I've got two questions for you. One, I wanted to understand a little bit more about how transactions typically start with enterprise customers. Do they generally start off with a deployment, say perhaps Terraform, in their on-premise data center to get experience with the product and then move to the cloud? Or are you increasingly seeing coder-centric adoption driving application workloads to the cloud and then finding their way back into the enterprise data center, which is the primary process flow? And the second question I have for you is, you know, it would seem to me that the coding community and DevOps community are the primary target customers here in terms of getting adoption applications. Can you talk at all about what portion or the number or the growth rate of that population that's currently utilizing your technology and writing to it?
spk02: Thanks. Yeah, I'm happy to answer that. Yeah, I think the first question is fundamentally one of what's the adoption pattern. I'll try to distill it. We see the pattern of the adoption is by practitioners who are tasked with building new things on cloud. That's where it starts in open source. For example, that $10 million customer we mentioned had started that in 2015. It starts very early. But that is happening in a cloud environment. They're using Terraform, Vault, Console, Accurate Center as the basis of how they're building new applications. But it's a bit tactical in that instance. And that is for the purpose of maybe one or two applications. So it's not in a private data center per se. It's literally how they're interfacing the cloud for a particular project. What happens, what we call the 2.0 moment, is when You know, they get 12 months into that project and realize they're overspent on their Amazon bill. They've got a bunch of apps that they shouldn't have from a security standpoint that are out there running because they're not secured. And that is when the corporation says, hold on a second. We're going to go cloud. It's going to be multi-cloud. I need to standardize in some way. and in that instance, they're already using our open source projects, and that instance, that becomes sort of, in some sense, a default. Okay, let's use the commercial version of those products because that's what they're designed for. So they're already being used by the practitioners, but the conversion to a customer is when the organization makes that decision to say, hold on a second, let's think about how we're going to do cloud in a way that is not irresponsible. That's really point number one, and that's a very, very consistent mechanism. Question number two, in terms of the target customer's Yeah, in a sense, our users are ops people as much as they are dev people. I think there's sort of a parallel, you know, get up, focus on the dev community. We're sort of the analog in the ops community. I think that's probably the best way to think about it. That community has certainly grown quickly. We disclosed 100 million downloads of our products last year, and that is the basis of development. of that community measurement. Obviously we also share some data around certifications growing. That's another key measure, number of people on our learn platform. But I think what we saw in Q4 was certainly continued uptick. We're in the early stages of this cloud transition. And if anything, there is a staffing shortage of people that know how to use, use, use cloud.
spk16: All right. Well, thanks Alex for the question and operator. Next question.
spk14: Thank you. Our next question comes from the line of Rob Galvin from Stiefel. Your line is open.
spk06: Hi, everyone. This is Rob in for Brad Rebeck. Thanks for taking the question. I'm just wondering how much of the 100K ARR customer cohort is from HCP, either in terms of the number of customers or the HCP portion of the 89% revenue contribution in that customer cohort? I'll let Navam answer that.
spk01: Yeah, thanks for the question, Rob. You know, HCP is a very new line of business for us. We essentially moved from a standing start to where we are right around last year to where we are right now. So we're pleased with the progress. It's also a new group of customers, like I mentioned before. So this is mostly for the emerging enterprises, the small and medium-sized businesses. So they are growing in size, and we're optimistic that we'll start adding customers of scale and size as expansions and extensions happen. Thank you.
spk06: Great. Thank you.
spk14: Thank you. I'd like to turn the conference back over to Mr. Dave McJanet for any closing remarks.
spk02: I'd just like to express my thanks for the participation from all of you, and I appreciate you dialing in for the questions, and I look forward to speaking to everybody soon. Thank you.
spk14: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
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