HashiCorp, Inc. (NASDAQ:HCP) Q3 2024 Earnings Call Transcript
HashiCorp, Inc. (NASDAQ:HCP) Q3 2024 Earnings Call Transcript December 7, 2023
HashiCorp, Inc. beats earnings expectations. Reported EPS is $0.03, expectations were $0.01119.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to HashiCorp's Fiscal 2024 Third Quarter 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.
Alex Kurtz: Good afternoon, and welcome to HashiCorp's fiscal 2024 third quarter earnings call. This afternoon, we will be discussing our third quarter fiscal 2024 financial results announcing our press release issued after the market closed today. With me are HashiCorp's CEO, Dave McJannet; CFO Navam Welihinda; and CTO and Co-Founder, Armon Dadgar. 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 fourth quarter and full 2024 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.hashicorp.com. With that, let me turn the call over to Dave. Dave?
Dave McJannet: Thank you, Alex, and welcome, everyone, to our third quarter earnings call for fiscal 2024. We reported solid third quarter results that exceeded our top and bottom line guidance with revenue of $146 million, representing year-over-year growth of 17%. Current non-GAAP remaining performance obligations reached $421 million, representing 23% year-over-year growth, and we added 26 customers with greater than or equal to $100,000 in annual recurring revenue to reach a total of $877 million. Our HashiCorp Cloud Platform offerings reached $19.9 million in revenue, representing 14% of subscription revenue in the quarter. The team performed well under difficult circumstances with continued new large customer wins despite sustained deal scrutiny that's a result of the broader macroeconomic environment.
Coming out of our annual user conference in October of this quarter, we remain convinced about the long-term opportunity ahead of us as the world's largest enterprises move to the cloud. With that as a backdrop, I want to talk today about what we're doing both short term and long term to fully realize this opportunity. HashiCorp is positioned as an enabler for the cloud makes us unique. At HashiConf in October, we had more than 1,200 in-person and 12,000 virtual attendees and hosted keynotes with customers such as Home Depot and Unity Games. The size of our community and the variety of customer use cases on display at HashiConf underscore that we have a large long-term opportunity that touches multiple facets of cloud infrastructure. At HashiConf, we unveiled multiple new product advancements aimed at enabling both developers and platform teams with workflow automation capabilities and lifecycle management.
We announced HCP Vault Secrets. A good example of how our continued investment in cloud capabilities is expanding our portfolio and also have a preview of HCP Vault Radar, which is based on the secret scanning startup we acquired earlier this year. We also made several announcements related to Terraform, the industry standard for infrastructure as code. I think attendees and users were most excited about Terraform Stacks, a major investment and enhancement to the Terraform execution engine. We also announced our first generative AI feature within Terraform, which uses LLM to generate module test for users. Additionally, we announced the private beta of HashiCorp Developer AI, an AI-powered companion for finding reference materials, architectural guidance and product examples from the HashiCorp Developer Portal.
You'll also continue to see us being targeted about incorporating AI capabilities into our products over time. We're being thoughtful about what AI use cases are valuable to our customers and are proceeding deliberately. However, you will continue to see investments across our portfolio with a focus on lifecycle management capabilities across infrastructure and security. As I mentioned earlier, it's no secret that market conditions remain difficult. While there are many things we cannot control, there are many others we can. So we've taken steps to help us with both near-term performance and meeting the long-term opportunity ahead of us. First, we are focused on simplifying our go-to-market messaging and strategy. At our Financial Analyst Day, we introduced new messaging centered on lifecycle management, which we apply to both our infrastructure and security offerings.
This helps our sales teams more easily position key parts of the HashiCorp product portfolio as comprehensive solutions to common problems and package them together. Susan St. Ledger, our President of Worldwide Field Operations, is key to this go-to-market approach, and she is already having an impact with new leadership hires and enablement efforts to our field teams. With our help, our field teams will be better positioned to execute on this new strategy while also putting additional focus on our cloud offerings. This investment in our go-to-market is aligned with the investments in our products I mentioned earlier, and together, they will help us to continue to win and expand within the Global 4000. Second, it's worth noting that these go-to-market efforts are also crucial to our ongoing focus on building a wholly integrated offering around the HashiCorp Cloud Platform.
These cloud-managed products are a fast-growing part of our business, as you can see in our results. Through HCP, these products can be sold and consumed more easily with simplified opportunities for product expansions and extensions, and we can better respond to changing customer needs. We are already seeing positive responses to the new cloud pricing frameworks we introduced earlier this year. Finally, we remain focused on increasing efficiency and are committed to creating further operating leverage in our business. Those efforts are already underway, and we are making good progress on our path to profitability. Navam will discuss those in more detail. These efforts do not alter our ability to build new products, as you can see from the broad set of announcements we made at HashiConf.
Now I'll turn it over to Navam to walk through the details of our Q3 performance and then I'm happy to take any questions.
Navam Welihinda: Thank you, Dave, and thanks, everyone, for joining us today. Echoing Dave, I also wanted to reflect on how great it was to host everyone at our user conference, HashiConf last quarter. It was amazing to see the energy our community, customers and employees created at this event. I also wanted to extend a big thank you to those who joined us in person or virtually and to all employees who worked hard to make this event of success. During HashiConf, we also hosted a Financial Analyst Day, where we talked about two key fundamental focus areas for us financially. First was the focus on customer count momentum; and second was the focus on cost efficiency. On the customer count focus, our team continues to simplify our go-to-market approach, resulting in continued momentum on our net new customers at our over 100,000 in ARR.
We added 79 net new customers at or above 100,000 in ARR year-to-date. Given this progress, we remain well on track against our goal of adding 80 to 100 customers over 100,000 in ARR per year. As you may know, our 100,000 ARR customers are foundational to our model, and they have a high growth potential as a group and provide a significant portion of our current revenue as well as our future revenue potential. Customer bookings in the third quarter played out largely as we expected. It was a seasonal quarter with unchanged macro buying behavior from most customers, very similar to what we experienced during the first half of FY '24. The buying behavior led to smaller land contracts and smaller expansion and extension contracts. Despite the contracts being smaller, we saw growth in the number of contracts we engaged in with our customers.
On the efficiency focus, I want to announce a significant corporate milestone for the company. We reached both a positive non-GAAP earnings per share this quarter and a positive free cash flow this quarter. The milestone is an important step towards our goal of non-GAAP operating profit by the back half of next year. We expect free cash flow to be positive from this point forward other than in Q2, which is a seasonal low free cash flow period for us due to booking seasonality. Before moving on to guidance, I wanted to briefly revisit our approach to the financial outlook. We are confident in the company's long-term positioning especially after the positive customer conversations we had with many of our larger customers during and after HashiConf about the new innovation we are bringing to the market.
In the shorter term, we remain judicious in our guidance approach given the demand environment and how that impacts our sales cycles and contract size with our larger customers. We will continue our assessment of the demand environment and provide guidance for next year as customarily do in the next earnings call. Our full guidance numbers can be found in our earnings presentation available on our ir.hashicorp.com website under financial's quarterly results. I encourage you to read through the dock for full financial metric disclosures, share count disclosures and GAAP to non-GAAP reconciliations. To summarize our guidance, for the fourth quarter of fiscal '24, we expect total revenue in the range of $148 million to $150 million and a non-GAAP operating loss in the range of $16 million to $13 million.
For the full fiscal year '24, we expect total revenue in the range of $576 million and $578 million and expect FY '24 non-GAAP operating loss in the range of $89 million and $86 million. Thanks for your attention. Dave, Armon and I are available to take any of your questions. Alex?
Alex Kurtz: Thanks, Navam. With that, operator, let's go to our first question.
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