Q3 2024 HashiCorp Inc Earnings Call
Participants
Alexander Kurtz; Head of IR; HashiCorp, Inc.
Armon Dadgar; Co-Founder, CTO & Director; HashiCorp, Inc.
David McJannet; CEO & Chairman of the Board; HashiCorp, Inc.
Navam Welihinda; CFO; HashiCorp, Inc.
Aleksandr J. Zukin; MD & Head of the Software Group; Wolfe Research, LLC
Alexander Henderson; Senior Analyst; Needham & Company, LLC, Research Division
Ari Nareg Terjanian; Research Analyst; Cleveland Research Company LLC
Brad Robert Reback; MD & Senior Equity Research Analyst; Stifel, Nicolaus & Company, Incorporated, Research Division
Fatima Aslam Boolani; Director & Co-Head of Software Research; Citigroup Inc., Research Division
Gray Wilson Powell; MD & Security and Infrastructure Software Analyst; BTIG, LLC, Research Division
Ittai Kidron; MD; Oppenheimer & Co. Inc., Research Division
James Derrick Wood; MD of TMT - Software & Senior Software Analyst; TD Cowen, Research Division
Jason Noah Ader; Partner & Co-Group Head of Technology, Media and Communications; William Blair & Company L.L.C., Research Division
Mark Ronald Murphy; MD; JPMorgan Chase & Co, Research Division
Michael Turits; MD & Senior Analyst; KeyBanc Capital Markets Inc., Research Division
Nicholas William Altmann; Analyst; Scotiabank Global Banking and Markets, Research Division
Patrick D. Walravens; MD, Director of Technology Research & Equity Research Analyst; JMP Securities LLC, Research Division
Sanjit Kumar Singh; VP; Morgan Stanley, Research Division
Unidentified Analyst
William Miller Jump; Research Analyst; Truist Securities, Inc., Research Division
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to HashiCorp's Fiscal 2024 Third Quarter Earnings Call. (Operator Instructions) 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.
Alexander 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 announced in 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 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?
David 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 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 HashiCorp 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 HashiCorp underscore that we have a large long-term opportunity that touches multiple facets of cloud infrastructure. At HashiCorp, we unveiled multiple new product advancements aimed at enabling both developers and platform teams with workflow automation capabilities and life cycle 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 life cycle 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 life cycle 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 her 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 HashiCorp.
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 a success.
During HashiConf, we also hosted a Financial Analyst Day, where we talked about 2 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 or 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 we 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 Financials, 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?
Alexander Kurtz
Thanks, Navam. With that, operator, let's go to our first question.
Question and Answer Session
Operator
(Operator Instructions) Our first question will come from the line of Sanjit Singh from Morgan Stanley.
Sanjit Kumar Singh
Congrats on the positive free cash flow and the positive non-GAAP EPS. When I look at the results, though, I don't think you guys have been pretty clear about this that I haven't really seen any improvement yet in sort of buying behavior and the broader macro backdrop. And as you guys sort of look to simplify the sales motion, which you guys are very clear about at the investor session, I was wanting to get a sense of how you feel or how long do you think it'll take to see returns on these go-to-market investments and some of the changes you're making to go-to-market. Is this something that's going to have to play out through the balance of next year? Or is next year a period where we could see growth start to bottom and potentially accelerate?
David McJannet
Sanjit, this is Dave, I'll answer that one. I think the way that we think about it is we're clearly coming out of a period of aggressive investment in software in the Global 2000 for the last couple of years. And what's clear is that cohort of companies is digesting the entitlement that they have purchased. And you see that in the net dollar retention numbers of us and others in our peer group. And I think that's the significant aspect of the demand environment that we're speaking about.
On the positive side, the consumption vendors and the cloud vendors, who obviously have consumption-based models are indicating stabilization. And that's positive for the entire ecosystem, and you would expect that to flow through to the entitlement vendors over the course of the next several quarters. I think what we do see, certainly, we're excited about the simplification we're bringing to bear. And we already see, as Navam highlighted, demand for our products remains consistent. Deal volumes, as Navam indicated, are as high as ever.
Our win rates are as consistent as ever, and we're not seeing any changes to the discounting behavior in our field. We're just seeing smaller land and expand activity from our customers. So super optimistic about the longer arc and do think that simplification we're bringing to bear will help.
Sanjit Kumar Singh
I appreciate the thoughts, Dave. And then, Armon, just love to get an update on boundary and how you see the demand funnel building for that offering.
Armon Dadgar
Yes. Thanks, Sanjit. So over summer, I think there's 2 fairly significant announcements. One was our introduction of session recording and the second was the introduction of the Boundary self-managed enterprise product. And I think what we've seen since then is a pretty healthy construction of pipeline, we have major enterprises that we're engaged with, a few of which talked at HashiConf, folks like ManTech, major FSI partner, as well as EQ Bank talking about how they've adopted Boundary in their environments, and continue to be excited about the pipeline that we're seeing building and the opportunity around Boundary.
Operator
Our next question will come from the line of Jason Ader from William Blair.
Jason Noah Ader
I just wanted to ask, sort of high level, what in the last 90 days has occurred that gives you the most optimism for 2024?
David McJannet
You want to answer that Armon?
Armon Dadgar
Sure. Yes, Jason, happy to. This is Armon. I think a few things. I think one was we were pleasantly surprised that as of this last quarter, we officially have more cloud contracts than we have self-managed. And I think for us, that's a really exciting sign in terms of just where we're seeing the demand shift towards the cloud platform versus self-managed. And obviously, that's sort of weighted towards the commercial customers today. But I think equally, we're starting to see that shift now happen where in the larger enterprise customers are signaling their willingness to move.
And particularly for the -- for management products like Terraform, I think we're seeing increased demand to move those to cloud. And so for us, that's optimistic as we think about next year and going into really pushing more heavily on cloud where we feel like we can start to shift towards Terraform cloud as a default motion for our land rather than self-managed Terraform, which historically has been driven by just customer appetite and interest.
Jason Noah Ader
Anything else? You said there was a few things.
Armon Dadgar
I think it's those few, right? It's the tip of the cloud to being -- we have more contracts on cloud than we have on self-managed. I think it's the enterprise willingness to move to cloud as well.
Operator
Our next question comes from the line of Ittai Kidron from Oppenheimer.
Ittai Kidron
A couple of questions for me. First for you, Navam. RPO, if my math is right, has now grown faster than revenue for about 4 quarters in a row that, needless to say, is now the relationship that can stay. So help me understand, why did the disconnect has existed for such a long time? And when would you expect this to converge or reverse? That's number one. And for you, Dave, you've talked about in the past how your progress for the year is really a reflection of budgets set late in the previous year, hence, that was the reason why you didn't see a slowdown in your business activity at the beginning of the slowdown a couple of years ago.
As you have conversations with customers here and now about '24, and maybe this is asking Jason's question in a different kind of a way, what are they telling you about budgets for '24? What is it that you're hearing about how '24 can shape up directionally from a spend standpoint relative to '23?
David McJannet
Maybe I'll answer your second question first. It's Dave. I think the short version is we just have to be focused on Q4 for now. That's really where our attention is. But I would say -- to add to what Armon indicated previously, I put back to our contract volumes being very, very healthy, very, very positive, notwithstanding the ASP changes as you can understand, based on the digestion buses that's going on inside of our existing customers, particularly.
And then number two, I will just add that our product downloads are at a record high, and that certainly gives us confidence that the trends continue unabated. What we're just working through is the budgeting cycle. And so we'll see how Q4 works out, but certainly ample optimism about the -- what comes over the longer arc.
Navam Welihinda
Yes, Ittai, I'll cover your RPO question. We're very pleased with the RPO growth. It signifies basically that our customers are through this vendor consolidation period. Our customers are entering into longer-term contracts with us, meaning spanning multiple years and placing their faith in us in our products. So that's obviously a big positive for us, and we're seeing continued momentum in RPO.
CRPO is the more relevant one as it connects to revenue over the next 12 months. So that's a closer proxy for revenue. And obviously, we keep a close eye on that, and we're seeing reasonably good growth rates on the CRPO side as well. In terms of convergence, we -- our view of revenue, as I mentioned during the prepared remarks is we want to take a very measured view until the time that we see the buying behavior and the macro change. And we haven't taken a different view as to how we forecast the next quarter and how we think about the future. So it's been consistent with the prior period's forecast.
Operator
Our next question comes from the line of Alex Henderson from Needham.
Alexander Henderson
I was hoping you could talk through the AI issue with us a little bit to understand the mechanics around how enterprises are adopting it versus their alternative uses of investment. It seems to me that there's 2 possible solutions here. One would be that you would -- it would drive app development and internet as -- excuse me, infrastructure's code content and demand as a result. Or it could slow app development as they spend time ascertaining the value of AI how to use it and how to integrate it into their programs. So can you talk a little bit about those 2 alternative world views?
Armon Dadgar
Sure. Yes. I mean I can share certainly what we're seeing in the customer conversations that we're having. Our general sense is that there's a lot of excitement certainly among people about -- if nothing else, at least being able to dip their toes in and being able to access these models, start leveraging them, being able to sort of see how they could apply to people's businesses.
And so because of the specialization of these models, in the different cloud providers. We've seen this as actually a tailwind for many customers to actually go towards a multi-cloud strategy, right? They might have been single CSP or might had a large percentage of the workload on-prem. And this has been a driver for them to accelerate either going multi-cloud or going to cloud to begin with, so that they can leverage that because I think most customers realize they won't have access to certain best-of-breed capabilities and certainly, if they're stuck on-prem.
So I think in that sense, it has been an accelerator in terms of customers pulling forward some of that strategy. On the flip side, I think we're also seeing a general interesting opportunities across the portfolio. We did talk at our Financial Analyst Day about a very large financial company we work with, invested in Nomad to build a large-scale compute grid based on thousands of GPUs and really looking at how do they leverage these techniques at scale in a cost-effective way. And we've seen that playing out driving interest across the portfolio, certainly Terraform for provisioning Nomad for doing large-scale workload orchestration and console for enabling networking across a multi-cloud estate. So I think it's certainly been a useful tailwind for us.
Alexander Henderson
So you don't see any slowdown in the app development cycle. So that brings me to the second part of the question, which is we've gone through the year of efficiency over the last 18 months, more than a year now. And that obviously cleaned up a lot of wasteful cloud infrastructure. It seems likely that those teams are now shifting away from that thought process of how do I fix the waste that I've got to how do I keep it from happening again in the future. And to that extent, I would think that Terraform would prove to be one of the key tools that would be used to produce a standardized model to manage resources in the cloud.
Where are we on that changeover and how do we think that will play out over the next 18 months? Is it a very shallow slope to recovery? Is it a longer process? Or is it something that could actually reaccelerate the growth outlook?
Armon Dadgar
Yes. It's a really great question. And the observation I would share is -- and you've heard us probably talk about this at a few different events, is we almost characterize an organization's adoption of cloud is going through multiple phases, right? Phase 1, we tend to think of as call it almost an ad hoc approach, right? Multiple application teams are all sort of lit up to go build their applications in cloud, but with no sort of standardized process, workflow, center tooling, et cetera, it's everything sort of free for rolling.
And I think what ends up happening is there's different catalysts. For some organizations, it might be a security issue for others, it's a compliance issue, for others, it's a cost issue. But at some point, there's a catalyst for an organization to say, "You know what, this is unsustainable." We actually need to get to a Phase II where we look at a more mature organizational approach, where we have a centralized platform team that creates a standard set of process, standard set of tooling, put some guardrails around it, both from a cost perspective, security compliance perspective.
And that Phase 2 tends to then be where organizations really unlock cloud adoption at scale, right? Because now they have the controls in place to really scale. And so I think to your point, I think your observation is exactly right. What this year of optimization has done is basically pull forward that Phase 2 in the construction of the platform team across a broad swath of customers that we certainly interact with, right? So I'd say we've -- I think that for us is a great tailwind because ultimately those platform teams are our customer.
Alexander Henderson
If that's the case, is it then causing a pull-in, in the time to reaccelerate, I mean that's the conclusion?
Armon Dadgar
I think what it's doing is it's creating a central -- ultimately, these are the groups we sell to, right? So yes, it makes it easier for us over the long term to build a relationship with these platform teams and then, ultimately, drive our expand and extend motion, to grow usage of the land product and ultimately sell them the rest of the portfolio.
Operator
Our next question will come from the line of Mark Murphy from JPMorgan.
Mark Ronald Murphy
Congrats on the nice free cash flow generation. I'm wondering, Dave, if you detect any difference in the demand environment or willingness to invest in November or December being that we're on the heels of softer inflation, strong GDP growth. There's been very favorable interest rate movements. As you noted, there's optimization moderation being seen by consumption software companies and stock market kind of breaking out and moving higher. I'm just wondering if any of that is kind of translating into your dashboard at this point.
David McJannet
Mark, yes, I think you're exactly right on the correlation of the consumption models and the lag for the entitlement models, I think, as you pointed out in the past. And so generally speaking you saw, from some of the consumption models, commentary about improvement. I think for us we sort of have to wait until the quarter progressed a little bit more to be able to make much of a commentary.
I think as ever, there's tremendous interest for what we do, getting through the procurement departments becomes the question. And I think that is always the wildcard. I would say too early to tell based on the last month or two. As we indicated, our deal volumes in Q3 were -- gets higher than ever. Our win rates were consistent. Our discounted practices are no different. So we're certainly optimistic that, that continues.
Mark Ronald Murphy
Just as a quick follow-up on the model considerations. When I look at the RPO, I mean, I see it -- I see softness there. I see it falling off trend. I just mean sequentially, it's still quite good year-over-year. Is there anything notable there in terms of were there any downsells? I mean cancellations, you said they were not pricing concessions, but there were some moving pieces with all the [open-toe stuff.] Was there anything unusual that might have impacted that? Or is it just kind of lingering of some of the tougher buying behavior?
Navam Welihinda
Yes. I think it's mostly the buying behavior. You talked about markets. It's deal volume being up, but at smaller deal sizes, which causes NDR to go down. And that's what's impacting your RPO rate. So still strong from a growth perspective year-to-year, still long commitments from our customers. And we're feeling good about RPO, but it's mostly the smaller deal volume combined with larger amounts of deals happening.
Operator
Our next question will come from the line of Alex Zukin from Wolfe Research.
Aleksandr J. Zukin
I'm going to push a little bit more on this because it's hard to reconcile 3 numbers for us. On the one hand, we have the guide for next quarter at 10%. We have CRPO bookings at 3% this quarter. And we have a consensus estimate for growth for next year at 18%. I completely understand the commentary about smaller deal sizes and a larger volume of deals, but can you dimensionalize both of those attributes, like how much more volume are you seeing?
How much smaller are the deal sizes? When does an NRR bottom? Because this would be a good time to maybe just help us understand. Is that 10% the right jumping off point as we think about next year, is there an acceleration curve baked into next year based on your conviction level around upselling on some of this larger volume of lands? Give us a little bit of color so we can kind of model this out.
Navam Welihinda
Yes, I think a lot of your questions came out around sort of our -- the view of '25. And I think the only thing I can say at this point is we're seeing good contract activity at the smaller sizes, which means that people still believe in our software and are designing us in, right? What we haven't seen, to Dave's point earlier, is buying behavior changes, and we're operating under that assumption until we see it, which means that we aren't forecasting anything beyond what we see. So we've got to execute Q4 first, and we'll give you our '25 view in Q1 when we normally do.
Aleksandr J. Zukin
Okay. Understood. And I guess, maybe, Dave, how much of the -- how should we think about execution here and some of the new sales strategies, either making this -- pushing this faster or making it actually go slower? Like is that a tailwind or a headwind to realizing to getting back to some of those larger deal conversations or dynamics over the next few quarters?
David McJannet
Got it. I think you're sort of asking just sort of what's the implication of some of the modification for go-to-market approach on that model. And I would just -- I'd come back to now the fact that we brought in a new President of Field Operations, as you know, as Susan St. Ledger has brought a bunch of simplification and rigor and efficiency to what we're doing.
At the same time, these are infrastructure sales cycles. And so I would expect the impact of that to be felt in the coming quarters, not immediately. Super excited about the modifications there. She just brought on some strong folks and she's been a great partner. But I would really expect her impact to be felt over the future quarters as opposed to this quarter and the next.
Operator
(Operator Instructions) Our next question will come from the line of Nick Altmann from Scotiabank.
Nicholas William Altmann
Can you just give a little bit of an update on the revenue or the bookings mix between Terraform and Vault? And maybe just provide us some directional color around the growth rates there through 2023. And then just maybe on the other side of that, can you just talk about how some of those mix shift dynamics between Terraform and Vault are sort of playing into the near-term go-to-market strategy, the product's road map, and how you guys are thinking about NAV getting to 2024?
David McJannet
Maybe I'll start with that one. This is Dave. So I think I would just decompose our portfolio into 2 basic life cycle solutions. One is around infrastructure life cycle and the other one is around the security life cycle. And obviously, Terraform's aligned in the infrastructure cycle, Vault and Boundary aligned with the security life cycle. I would say there's equivalent interest really in both. And I'd say, over time, those business have been very, very consistently similar.
When organizations get more mature in their operations, those 2 concerns get combined into a common platform engineering function, just to put the pieces together. But our fundamental consumers is OS person and a security person. So that dynamic is unchanged. And I think security life cycle, OS life cycle is the way you think about it and maybe Navam will comment to the financial aspect.
Navam Welihinda
Yes. I think from a net new ACV perspective, I think they are roughly equal give or take a couple 100,000 one way or the other on the 2. The security life cycle products are slightly larger so that the infrastructure products grow slightly faster at a smaller base, but they combine -- make up the majority of our revenue.
Operator
Our next question will come from the line of Oliver Crookenden from JMP Securities.
Patrick D. Walravens
Actually, it's Pat Walravens. Armon, this one, I think it's for you, which is I was just looking back in my old MongoDB model. And when they were at roughly $150 million in total revenue, the cloud was 47% of total revenue and growing 61%. You guys have $150 million in quarterly revenue, the cloud is $14 million. So just walk us through what are the sort of 2 or 3 key points we need to understand about the difference between a database that's moving to the cloud and Hashi's infrastructure solutions.
Armon Dadgar
Pat, yes, I think what I'd point to is the major difference is, if I think about something like a database like Mongo versus the solutions we have, it's where they sit in the stack and sort of their level of criticality. And what I mean by that is obviously, database is critical, but typically, it's bound to the scope of a single application, right? And building that new app, that app needs to store some data, great, I can spend on a Mongo database for that. When you think about our solution by virtue of being infrastructure, they span horizontally across usually hundreds, thousands, if not the entire estate, right? And so if you think about something like Vault, you might have hundreds of applications connected into it.
So the criticality is different. And then the -- as a result of that, the customer's willingness to have that outside of their control when something goes potentially wrong is very different. And I think that's the feedback we consistently get from our customers is, guys, this is Tier 0 software, if I lose console, my data center goes down, right? And so I think that willingness to let a third-party run it where they don't necessarily have the direct operational control, it's just a much higher bar.
And when you think about what are the vendors these folks really trust, it's effectively Amazon, Azure or Google, right? And even that was a position of trust that took many years for the cloud to get to within these enterprise vendors. So I think that's the difference I would point to.
The good news is we're seeing that shift, right? And so I think we're increasingly seeing our enterprise customers realize they don't have the operational expertise to operate this the way we do. And so we are starting to see even our largest enterprise customers go down the path of HCP. And so we're excited about that. Particularly, we see a difference in behavior between our sort of run time products and non-run time.
So for non-runtime tools, like Terraform, for example, there's more willingness. And so I think that's why next year, we're looking at really defaulting a land motion to Terraform Cloud because we feel like we're at that point where customer willingness is their platform capability is there.
Operator
And our next question will come from the line of Fatima Boolani from Citi.
Fatima Aslam Boolani
Armon, just on that line of discussion around landing more and leading more with cloud, especially in the enterprise, I'm wondering as you put your heads together with Navam and Dave, what sort of inflation does that have for how you might have to re-architect your pricing strategy for the enterprise in the same breath driving adoption, but also managing the complexity that might come with partially self-managed and partially consumption-oriented offering? So I guess the question, you kind of have to blow up your pricing model to drive that behavior in the enterprise. And how would that impact kind of your reported financial metrics?
Armon Dadgar
Fatima, yes, no, great question. Obviously, it's something we spent a lot time thinking about for the reasons you outlined. We obviously don't want to be in a position of having to blow up a pricing model. And so the reality is what we looked at really doing for customers is there should effectively be no change to their licensing costs, plus or minus as they're going from self-managed to cloud. What we don't want to do is create a tax on them for doing the things we want them to do. We want customers to adopt cloud. We want them to be on the HCP platform because it gives us a bunch more visibility into their usage. We don't have as much support issues we have to navigate for customers who don't have the operational skills so we want them fundamentally to be in the cloud. So we don't want to tax them for doing that.
So as a result, we spend a lot of time making sure the pricing and packaging is consistent to help them navigate through that. So it's more about making sure that customers have a willingness to adopt cloud and the capabilities are there to meet their enterprise requirements. And we feel good that we're at that point where customers are certainly signaling that willingness now for Terraform.
David McJannet
Fatima, the only point I think I'm just trying to dig at your question, to be clear, our cloud pricing is an entitlement-based model, just like our self-management model. So for us, it's really not a huge transition contractually, if that makes sense.
Operator
And our next question will come from the line of Derrick Wood from Cowen.
James Derrick Wood
This is for Navam, and I wanted to ask about the net revenue retention number. Curious if that's been all pressure on just the expansion side, or if you've seen any churn. And what I'm wondering is if you're seeing any customers move from paid to 3 open source at all. And then what is your average contract like? Because I presume that once you get through the cycle of renewals, the pressure on that expansion cadence would probably get lifted.
David McJannet
James, it's Dave. I'll answer the first one. As a general rule, people don't move from our commercial offerings to the open source. There are certainly instances where if someone is under extreme budget pressure, they might do that temporarily. But that is sort of a bit of an anti-pattern, although you certainly hear about it anecdotally. But given the scale of number of customers we have and the scale of users, it's not the most common one. But I'll let Navam mention the financial side.
Navam Welihinda
Yes, on the net retention side, Derrick, most of the net retention impact quarter-over-quarter comes from the expansion and extension side, meaning smaller expansions and extensions. Now there's some gross retention impact. For example, this quarter, there was an acquisition which caused the churn. But for the most part, the net retention is impacted by the smaller deal sizes on expand/extend.
Operator
And our next question is come from the line of Gray Powell from BTIG.
Gray Wilson Powell
I just want to follow up on I think it was Alex's earlier question. So if I look at the guidance, the high end of the Q4 guide implies that you exit the year with revenue growth of 11%. And I'm not asking for fiscal '25 guidance. But maybe could you just talk directionally about like the top factors, whether it be product initiatives, go-to-market, things that could drive improved growth.
Navam Welihinda
Yes, this is Navam. So in '25, like I said, we really want to go execute Q4 and then get into the new year to see what the demand environment looks like. We're holding a very measured view into the forecast and the view is that we're going to grow revenue faster than we are going to go cost and maintain our profitability -- our free cash flow profitability and move towards opting profitability on the -- by the end of next year or by the back half of next year. So the opening trends and the FCM trends are going to be good, while we wait for or see for signs of macro improvement, which will drive productivity up.
Operator
Our next question comes from Brad Reback from Stifel.
Brad Robert Reback
Great. Maybe going back to Pat's question a little bit on the cloud. It's been 3 quarters in a row that the absolute dollar adds. I understand they're small, have come down sequentially. What needs to happen to get that absolute spend accelerating?
Armon Dadgar
Brad, yes, I think ultimately, it's really about flipping the behavior of the enterprise sales team, right? I think we've talked about this before. We sort of think about a commercial sales motion versus an enterprise sales motion. Historically, we've mostly sold the cloud product into commercial. And I think that's where you see more macro pressure with the smaller customers, which impacts on the sequential cloud growth.
I think for us to really see a dramatic shift in the sort of the dynamics, it's really about changing the behavior of the core sales team that's looking at the enterprise. I think that's where we're signaling that we feel that demand signals we're now seeing from the enterprise customers tell us that the appetite is there. And certainly, we feel like the product capabilities are there, that we feel that at least we're going to flip Terraform cloud where the customer appetite is there, to a default cloud motion, and we expect that, that would have a significant impact on that quarter-over-quarter behavior.
Operator
Our next question will come from line of Ari Terjanian from Cleveland Research.
Ari Nareg Terjanian
Wanted to double quick on how you're thinking about the role of the partner ecosystem as you change and reevaluate the go-to-market, specifically CSPs, AWS and the marketplace as well as the global system integrator partner community.
David McJannet
Yes, I'll take that one. So our partner focuses are really around the cloud providers, Amazon, Azure, GCP, et cetera, and then secondarily, it's the system-integrated community. And I think we actually had a huge presence that we re:Invent last week, which I think is indicative of our very tight go-to-market relationship with all 3 of the big clouds. We won a collaboration partner of the year from Amazon this past year, which is probably the best indicator of how our teams are working together.
So it's very much a co-sell behavior with them. And certainly, we work closely with the material percentage of our opportunities go through their cloud marketplaces, and that's good for them and good for us. So very, very close with the CSPs. And that's been a very strong relationship for us for a very long time. On the system integrator side, our focus is around the skills gap that exists for the deployment and adoption of cloud technologies.
And I'd say, like many vendors are scale, the majority of our efforts have been to date with the smaller SIs around the world of which we have hundreds that we work with. But we certainly are working ever closer with the global system integrators. But those are the primary partners we're working with, and we have a large investment in it and we feel really, really good about how they're both going to be candid.
Operator
And our next question will come from the line of Brad Sills from Bank of America.
Unidentified Analyst
This is [Carlie] on for Brad. I guess first question I want to ask on the enterprise customers ACV. I guess the customer net add is kind of healthy compared to last quarter, but then just on per customer spend basis, the number -- the quarter-over-quarter growth, 0.2% is kind of flattish. You guys definitely mentioned smaller contract size, but just any additional like nuances that you can share on those bigger larger customer spending.
Navam Welihinda
[Carlie,] it's Navam. No, I think it boils down to the deal volume being higher and the contract sizes being smaller. You're still consuming our software and still designing us in, but doing that in smaller quantities, this year as they go through that digestion period that Dave talked about following the aggressive investment cycle.
Operator
And our next question will come from the line of Michael Turits from KeyBanc.
Michael Turits
So on the expansion, where they've been expansion from a DR perspective, is the challenge been more on the expand side or on the expense side? So in other words, just number of seats and units in the entitlement? Or is it adding new products and people buying more into the platform?
David McJannet
It's David. I don't think there's a real difference to be totally honest. I think every company we engage with has both sides of the problem, the infrastructure side and the security problem. And I think it's pretty consistent. It goes back more towards the digestion process of entitlements that they've consumed. And so no real difference between the 2 is the short answer. They're very connected to that, the meta position of our customer base as they're just getting through what they got.
Operator
Our next question will come from the line of Miller Jump from Truist Securities.
William Miller Jump
Maybe on the packaging side, you all introduced your first bundle approach this year. Can you just talk about maybe what you've learned there and how that could impact the upsell opportunity heading into the renewal-heavy Q4? Like is this something that could potentially drive increased deal sizes in your mind?
Armon Dadgar
I think the bundle has been relatively successful for us. I think the way we think about it is, ultimately, it's an opportunity to help accelerate that extension motion, right? So customers who typically we don't position the bundle as a land, it's usually something we leverage as a renewal time to the point you made as a way of introducing the additional products into the account, helping seed them and then ultimately growing those within the estate as well. So I think the lesson learned is that it has been successful.
We introduced it on the security life cycle today with the Zero Trust bundle. I think we're going to look at continuing to probably leverage that as we think about simplifying go-to-market next year and having a similar type approach across our security and infrastructure life cycle.
Operator
I'm not showing any further questions at this time. I would now like to turn the call back over to Dave McJannet, CEO, for closing remarks.
David McJannet
Yes, I'd just like to express my thanks for the participation from everyone here, and we certainly appreciate you dialing in and for all the questions. We look forward to speaking to everybody soon. Thank you.
Operator
And thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
