Ladies and gentlemen, thank you for standing by, and welcome to HashiCorp's Fiscal 2023 Third 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, VP of Investor Relations and Corporate Development. Thank you. Please go ahead. Good afternoon, welcome to HashiCorp's Fiscal 2023 third quarter earnings call. This afternoon, we will be discussing our financial results for the third quarter announced in our press release issued after the market closed today. With me are HashiCorp CEO, Dave McJannet, CFO, Navam Welihinda, and CTO and Co-founder, Armon Dadgar. At the close of the market today, and in conjunction with our earnings press release, we have published an earnings presentation that contains additional financial information pertaining to the quarter. We encourage you to review the 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 year for fiscal 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 the generally accepted accounting principles. The financial measures presented on the 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? Thank you, Alex. Welcome everyone to our third quarter earnings call. We're excited to share with you that Q3 was a solid quarter for HashiCorp as we exceeded our guidance with revenue of $125.3 million, representing year-over-year growth of 52%, along with the trailing four quarter average net dollar retention rate of 134%. Current non-GAAP remaining performance obligations reached $553 million, representing 50% 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 760. Our HashiCorp Cloud Platform offerings reached $12.9 million in revenue, representing 10.7% of subscription revenue in the quarter. We're excited about adoption trends as we continue to roll out new features and new capabilities. We're also pleased to announce that during Q3, we had our third customer reach $10 million in annual recurring revenue. This global financial institution has made significant investments across our three core products. I'll discuss this customer's journey in a few minutes. Armon and I have spent the last few weeks meeting in person with customers and prospects across North America, Asia-Pacific, Europe, also last week at Amazon re:Invent. I wanted to share some of our insights. Regardless of location, all buyers are under increasing scrutiny and pressure to do more with less, a theme I think will continue through next year. However, despite these pressures, for large organizations worldwide, the transition to a cloud infrastructure remains a key strategic investment over the long- term. Because of the ongoing prioritization of cloud, even with economic pressures, HashiCorp products continue to be a strategic investment for our customers. Our products are fundamental to running a modern infrastructure estate and conducive to cost control. As I've said before, organizations worldwide are still very early in cloud adoption. As they continue their transitions to the cloud and multi-cloud becomes the standard, our products become increasingly valuable because they offer operations, networking, and security teams with a consistent operating model that provides a system of record across each layer of their infrastructure stack. During my travels this quarter, I continued to hear the most successful companies describe their use of centralized platform teams. Platform teams help these organizations move from tactical cloud adoption to strategic cloud programs, enabling a common infrastructure foundation for operations, security, and networking. I heard many examples of how these teams prioritize the adoption of products that offer unique capabilities to help them extract more value from their cloud investments, and they continue to invest their tightening budgets with us. Before turning it over to Navam, I'd like to briefly highlight some of the announcements we made at HashiConf in October, which focused on product enhancements and new offerings across security and infrastructure automation. Each of our new releases helps teams utilize automation to do more with less, which is important as skills and talent shortages threaten to bottleneck cloud programs. Many of these enhancements also help our customers with their most significant challenge, security, which is a critical component of the cloud operating model. Platform teams are under immense pressure to secure massive attack surfaces of different clouds, private data centers, and remote workforces. Just as HashiCorp pioneered the concept of secrets management, we're building on another concept to help improve the security posture of the world's digital infrastructure, a differentiated approach to zero trust security. We are delivering this zero trust security approach for the cloud. In fact, we're proud to note that AWS just named us North America's Security Partner of the Year at re:Invent last week, their annual user conference. To deliver our vision for zero trust security, we announced the general availability of Boundary on the HashiCorp Cloud Platform at HashiConf Global. HCP Boundary joins HCP Vault and HCP Consul to provide platform teams with the first zero trust security solution purpose-built for the cloud to secure applications, networks, and people. To help organizations better manage cloud provisioning and infrastructure challenges, we also announced several new capabilities for Terraform. With these enhancements, we are continuing to build high-value enterprise features into Terraform, which provide greater security, compliance, and operational consistency as customers standardize their infrastructure automation for multi-cloud. Now, I'd like to turn your attention to notable third quarter transactions that highlight our adopt, land, expand, extend, renew motion in action. First, a land deal. An APJ-based oil and gas corporation standardized on Vault Enterprise in order to secure its configuration files. Additionally, Vault will expedite the customer's initiative to move to passwordless backend systems and improve reliability across its monolithic applications. Next, an expand deal. An international manufacturing company expanded its Consul and Vault deployments to support a rollout of a multi-cloud strategy for its next-generation smart building control services. With plans to deploy across all the major cloud service providers, HashiCorp has enabled a consistent approach for its development teams and provides a single control plane for both service networking and secrets management. Third, an extend deal. A top domestic banking company extended to use HCP Boundary to simplify, streamline, and automate common developer tasks and workflows for accessing remote systems and applications provisioned by Terraform, secured by Vault, and connected by Consul. This is one of our first enterprise deals for Boundary since announcing general availability at HashiConf in September. We are proud to count companies like these as our customers and are deeply committed to continuing to earn their trust. Finally, I'd like to spend a minute on HashiCorp's third $10 million ARR customer that I mentioned earlier. This organization is another example of a customer who started working with us around a single product and expanded and extended over time. They became a Terraform customer in calendar 2018, then Consul in 2019, and then Vault in 2020 and 2021, starting with our open source products in each case. This global financial institution began its journey with us with an initial investment around its public cloud engineering teams and how they were going to scale operations using AWS. The early days with this customer began with a philosophical conversation around the future of infrastructure as code and the value of Terraform for its independence, given the reality of their hybrid estate. This led them to adopt Terraform Enterprise for their early cloud platform team. Starting in 2019, they made an investment in Consul to add application resiliency that was part of their data center migration projects. At the same time, Terraform saw massive growth across multiple units as it became the standard behind this company's cloud projects, working through platform teams as a main conduit into its global organization. Vault was deployed in 2020 as part of this company's blockchain initiatives that are now deployed across public clouds and that allow it to provide global namespaces, performance replication, and disaster recovery. We are extremely proud of this partnership as this customer has been side by side with us on the journey to enhance our 3 core products, and we look forward to our continuing collaboration. With that, let me turn the call over to Navam. Thank you, Dave. Thanks again to everyone for joining us today. Turning your attention to the top-line financial results, we produced solid results in our third quarter of FY 2023. We grew our total revenue by 52% year-over-year. We continued to see strong expansions and extensions in our customer base, as shown in our trailing four-quarter average net dollar retention rate, which remained at 134%. On the expense side, we continued to focus on resource allocation efficiency in the business during Q3. Doing so allowed us to come in ahead of our non-GAAP gross margin, non-GAAP operating income, as well as our GAAP and non-GAAP net income plans. We achieved -24% in non-GAAP operating margins this quarter and incurred a net loss of $0.38 per share on a GAAP basis and $0.13 per share on a non-GAAP basis. Before discussing guidance, I wanted to provide some background around the macro conditions we are seeing. We clearly saw solid revenue performance during Q3, which exceeded the high end of our guidance as well as our own internal expectations for what is historically a seasonally low quarter. In Q3, we also saw stronger than expected multi-year contract activity from our customer base when our existing customers recommitted to us as a critical vendor for the long- term. After reviewing some of our top Q3 multi-year deals with our sales teams, we believe some of this outperformance may have been related to larger customers looking to lock in pricing with us against a volatile inflationary environment. This is a good outcome for the customer, and it clearly helps us gain better long-term visibility to our business as well. Similar to last quarter, in Q3, we continued to see high scrutiny of spend by customer procurement and finance teams, causing elongation in our sales cycles. The spend scrutiny was particularly high with new contracts from first-time customers. We're incorporating the macro uncertainty we are seeing into our fourth quarter guidance. As always, we are taking a measured approach to our revenue guidance for the next quarter. Given the macro uncertainty, we are also continuing to optimize our cost structure and being extremely considered in our headcount investment plans over the next 12 months. Now on to our guidance. Despite the macro uncertainty I've discussed, we are very pleased to raise our full year guidance. For the fourth quarter of fiscal 2023, we expect total revenue in the range of $123 million- $125 million. We expect Q4 non-GAAP operating loss in the range of -$54 million to -$51 million. We expect non-GAAP net loss per share between $0.23 and $0.21 based on 189.1 million weighted average basic and fully diluted shares outstanding. For the full year 2023, we expect total revenue in the range of $463 million and $465 million. We expect our FY 2023 non-GAAP operating loss in the range of -$152 million and -$149 million. We expect non-GAAP net loss per share to be between $0.71 and $0.69 based on 186.2 million weighted average basic and diluted shares used in computing non-GAAP net loss per share. We are pleased with our Q3 results. With that, Armon Dadgar and I are happy to take any of your questions. Alex? Thanks, Navam. With that, operator, let's go to our first question. Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please limit yourself to one question and one follow-up. Please stand by while we compile a Q&A roster. Our first question comes from Ittai Kidron with Oppenheimer. You may proceed. Thank you. Hey, guys, great quarter, great results. Nice execution. I guess, Navam, I'd like to kind of perhaps try to look ahead in time. You're heading into the fourth quarter. Are there any preliminary fiscal 2024 thoughts and modeling points you think we need to take into account as we think about 2024 right now? Hey, Ittai. Thanks. Yeah, we're very pleased with how the third quarter turned out. As we mentioned, we're very pleased with, you know, being able to raise the year as well. All things considered, I think we're on a solid execution path for the rest of the year. You know, we're Our normal practice, which we followed last year, was to give you the year guide in Q1. We're looking forward to execute for Q4. You know, we'll give you the update in Q1 next year. Okay. strong performance in Q3, which we're very happy with. Okay, very good. Maybe I'll try to kind of dig into the go-to-market and approach. Clearly, your portfolio is much bigger now and adoption is broad-based on multiple products. First of all, is there any multi-product color you can give us adoption-wise on your customer base? Second, as you move into next year, how much tweaking do you think you need to do to comp plans? Do you think the way you incentivize people is gonna have to change, either given environment, either given customers' preference, it seems like, to sign more multi-year deals or for any other reason, do you feel like you need to make any material tweaks to your comp plan, sales force? Hey, Ittai, this is Dave. Thanks for that. I'll maybe answer the two of them. The first one on, you know, what% of our customers continue to be multi-product. I would just underscore the $10 million customer that we talked about, is probably very indicative of how the motion works. I think, as you know, we have a common buying center to a large degree, the cloud program owners, and they essentially adopt next use case along, next product along, and I think you see that being played out pretty consistently in the cohorts of customers. We haven't seen a material change in that. By and large, Terraform and Vault are where people start. I will say there's tremendous interest in Boundary, which is a relatively newer product. I expect this multi-product motion to continue, but we haven't disclosed specifics of that. I would say subjectively, it feels very consistent. to what we're thinking for next year, I think we feel good about this, the overall model, truthfully, which is we have a multi-product portfolio that address multiple challenges of cloud programs, and our sales organization goes and sort of engages with those, with those buyers in a very consistent way. I think we're pleased with the multi-year portion that we do. We're pleased with the multi-product aspect, that the motion really continues to be very, very similar, and I expect that to continue into next year. These are long-term arc trends. These are long-term relationships we have with our customers, and we'll follow their lead in terms of what they wanna buy from us, but it certainly feels consistent with what we're already doing. Good stuff. Good luck. Thanks. Thank you. Next question. Thank you. One moment for questions. Our next question comes from Jason Ader with William Blair. You may proceed. Yeah. Hi, guys. Thank you. I got one for Navam, one for Armon. On the message you were giving on the price lock-in, Navam, are you saying that there was pull-in of demand into Q3? Maybe just clarify what you meant by that. Yeah, certainly. and thanks for the question. You know, the price lock-in is more there's a lot of spend scrutiny happening in the market right now, and, you know, customers want certainty on pricing. What they are doing is reaffirming us as a critical vendor of choice for the long- term. They're coming in and asking for commitments over the next three years on pricing, and that is factoring in long-term deals being structured by mostly a lot of our existing customers and larger customers. That's essentially what's happening from the long-term side. On the pull-in side, no, it's a normal third quarter. There was no pull-in from Q4 to Q3. All said, very pleased with the revenue growth we saw in Q3, despite being a seasonal quarter. Okay, great. Armon, can you talk about the technical differentiation for Boundary, especially relative to your main competitor there? What's the sales playbook? Sure, yeah, happy to. I think at, you know, in some sense, the privileged access management market has, you know, it's a very well-established market. It's been around a long time. I think the shift is really happening at, you know, what are the types of applications being built and the cloud infrastructure environments that they're running in. I think the backdrop is that the applications have moved to a microservice architecture. There's a lot more of them. You're in a cloud environment, it's much more dynamic. The workloads are much more ephemeral. I think that's the biggest opportunity, is there's, you know, Boundary was really built ground up for that cloud environment where you have these highly dynamic applications being built and managed by, you know, many application teams. Versus I think the more traditional tools that assumed a relatively static workload, relatively monolithic, slow-moving infrastructure. I think that gap has created an opportunity to architecturally solve it in a very different way that's kind of cloud native. That's the core differentiator between the Boundary approach and maybe the more legacy solutions that are in the market. As we're going into the commercial side of it, there will be a differentiation as well between our open source and enterprise, really focused on what are the compliance and security needs of organizations using, you know, Boundary commercially at scale versus kind of more open source practitioners. When do you think you will start to you know, monetize some of the Boundary product? One of the announcements that we made at our HashiConf event in October was the general availability of HCP Boundary. HCP Boundary now is generally available, and we've done, you know, our first set of commercial transactions around it. You know, that said, you know, this is kinda late in our year, so, you know, early next year we'll go into our sales kickoff. We'll be able to sort of really enable the field on the product. You know, as you'd expect, these are kinda enterprise sales cycles around Boundary. You know, I think it, you know, will take a little while to get the engine spinning, but it is now commercially available and on market. Thank you. Thanks, Jason. Next question. Thank you. One moment for questions. Our next question comes from Alex Henderson with Needham. You may proceed. Great. Thank you very much. Outstanding results. I was hoping you could talk a little bit about what assumptions you're making in your pipeline and what you're seeing in terms of the mix in your pipeline going into the fourth quarter. There's been seemingly a divergence in some of the other companies that have reported in the security space around, you know, the mix of customers in their pipeline relative to new customers versus upsell mix. I was hoping you could give us some sense of what your assumptions are relative to closure rates and budget flush in the fourth quarter here. Thanks. Yeah. Thanks, Alex. This is Navam. Why don't I take that one? You know, we mentioned this a little bit during the prepared remarks. We are seeing the macro impact play out in the market. When you think about where it impacts the most, it's the land side of the business, which is new customers doing new contracts with us. Even with those, what's happening is more of an elongation rather than a loss of that customer. In any given quarter's pipeline, there is a higher win rate on expand, extend, and a lower win rate on land. We're seeing that sort of occur in Q3, and we expect that to occur in Q4. Our guidance in Q4 incorporates that elongation on the land side as well. That's what we've factored into our fourth quarter guidance. Yeah. Alex, this is Dave. Maybe just pile on, maybe just add a bit of nuance. I think as I indicated, Armon and I in particular have spent a lot of time in customer-facing environments over the last 45 days. I think what it tells us is demand signals for both existing customers and new customers are relatively consistent. What is less clear is how that progress progresses its way through procurement departments, as Navam pointed out. That's really what's reflected in our guidance. I think what we see, whether for new customers or for existing customers, you know, our foundational role in their cloud estates is very, very clear. You know, the procurement department's the wild card. I think that's why our guidance is what it is, but our conviction is pretty profound for the longer arc. Great. One last question along that same lines. With the availability of HCP cloud, is that something that will see acceleration as a result of the tighter budgets, or is that, you know, macro, you know, orthogonal, kind of, consideration where it's not directly impacted by the macro conditions? Yeah, it's a good question. I think, you know, if we look at the HCP audience today, it's by and large our commercial segment, so the SMB kind of long tail of customers. I think they're, you know, probably a little bit more macro sensitive than the larger enterprise customers. I think there's always gonna be a little bit of, you know, you know, variability quarter-to-quarter for us on, you know, the HCP line. I think by and large, I think the smaller customers are seeing more of that macro impact, so that translates into more of a cloud impact, I think, near term. Super. Thank you so much. All right. Thanks, Alex. Next question. Thank you. One moment for question. Our next question comes from James Fish with Piper Sandler. You may proceed. Hey, guys. Thanks for the question. More of a question for Navam here, touching back on Jason's question. On those stronger multi-year activity with existing customers, can you quantify how many customers actually signed up for more multi-year, especially compared to when they were actually anticipated to sort of refresh as that term license come up for refresh? Are you actually considering a pricing raise on your end that may have caused some of this volatility? Or, you know, why are they kind of sensitive around pricing for your solution, understanding they're sensitive around their own cloud costs, but just try and gauge that? Thank you. Yeah, sure thing. On the multi-years, you know, there's a range of contracts, new and renew, typically that we work on in any given quarter. We aren't going out and converting things that aren't up for renewal. That's the base that we're working with. And a good group of that converted into long-term contracts for us, which is, as I mentioned, very good for the customer and very good for us because of visibility into the renewal base. We're pleased with that, and that does have the impact of revenue that we saw and the strength that we saw on the net retention rate, where, you know, most of our renewals, most of our expansions came in as multi-year expansions as well. In terms of the why, you know, there's a number of factors. It wasn't driven by a price increase per se, but there's variability on the dollar on the FX side, and many international customers who are seeing uncertainty there, and there's uncertainty on budgets and how to utilize the existing budget and locking in a total. I think those were the factors at play. Overall, very strong quarter in terms of being selected as one of the few customers of choice for long- term. Makes sense. Appreciate that. License was kind of the main upside for what we were all expecting here, and it's, you know, nice to see that. You know, you know, HCP, the cloud piece continues to grow nicely. Are you surprised at all by the continued preference for self-management? As we think about next year, are you guys thinking about trying to incentivize the sales force a bit differently to drive more of that cloud adoption instead? Thanks, guys. Yeah, no, it's a good question. You know, I think we're continuing to be excited by the momentum of cloud. Certainly, we're seeing a lot of, you know, customer interest and, you know, and, you know, the new announcements continuing to drive a new inflow of users to it. You know, we're excited by the cloud opportunity. To your point, you know, I think there is a, you know, the way we sort of often talk about is we're not the tail that can wag the dog. I think what we see is, given the tier 1 nature of, you know, the fact that this is core infrastructure software, it, you know, it sits at the foundation of both public cloud and private cloud infrastructures. Many of our largest customers have a preference and continue to have a preference to self-manage it, right? I think that's, you know, I think it's less of a question of sales compensation or the incentive for our field team. It's ultimately a question of the preference of the customer, and how they view the sensitivity of, you know, this being tier 1 software for them. You know, that said, you know, we continue to see green shoots of very large enterprises making the choice to switch over to the cloud portfolio, right? We talked about a global bank last quarter that, you know, is adopting HCP Vault. We continue to see large enterprises moving on to Terraform Cloud. There's certainly a cohort of these customers that are comfortable with it, and we're starting to see them move to cloud. That said, I think the much larger majority of them are still, you know, building comfort with it. You know, we think there's a lot of opportunity ahead. All right. Thanks. Operator, next question. Thank you. One moment for questions. Our next question comes from Alex Zukin with Wolfe Research. You may proceed. Hey, guys. This is Ryan on for Alex. Thanks for taking the question. I just had another one on the cohort of customers that are, you know, signing multi-year deals here in advance. On the flip side of that, you also have kind of the headwinds from the macro to the land side. I was wondering if those two cohorts, like if there's any nuance based on a vertical perspective that you're seeing or if there's any trends that are unique to specific verticals that those customers are in. Yeah. Thanks. Ryan, let me just make sure it's super clear. I think what we communicated is we saw. Numerous multiyear commitments from our customers. You know, these are deals that are up for renewal. Instead they've done multiyear renewals, which is a really strong endorsement of the relationship. They were not early per se, and they were not related to a price increase per se. It was more about our customers' desire to lock in a longer-term relationship for us. I don't think there's a particular vertical, honestly. I would say certainly internationally, you could imply from Navam's comments that against the foreign exchange variability, some customers might wanna lock in multiyear commitments because they have clarity on what that price would be. They may not know what it would be like in a year because we bill in U.S. dollars. Certainly, that's part of it. I think more generally, it's an endorsement of our growing a level of criticality for these larger customers and how they run their infrastructure estates. Okay. Just a second one here. As we left the analyst day, I think, I think the thinking was we would see 10% op margin expansion in fiscal year 2024. I think that was kind of the initial thought, not necessarily guidance. Is that how we should continue to kinda think of expansion for next year, or has that kind of thought changed? No, You're exactly right. We laid out our plan during financial analyst day, and we're on track on that plan, and we'll be delivering continued leverage year- after- year. Okay. Perfect. Thank you very much. Thanks for the question. Thank you. One moment. One moment for questions. Our next question comes from Michael Turits with KeyBanc. You may proceed. Hey, guys. Very high level question. You know, we saw a deceleration by the hyperscale cloud vendors this quarter, and that's a continuation of what we saw last quarter. Just trying to parse what's happening there in terms of customers watching their expense there and their utilization, their consumption, versus possibly, you know, investing still in cloud, new cloud app development and deployment of infrastructures that may be benefiting you. You know, how is that falling out? In other words, why is it that cloud development still, which is so tied to what you do, it still seems to be a positive tailwind, even if customers are watching their OpEx spend in the cloud. How do we separate that out? Hey, maybe I'll start that one. This is Dave, and I'll let Armon comment. You know, it's interesting. You know, I think cloud application deployment continues unabated. Sure, maybe it's, you know, the hypervisor might be seeing slight slowdown, but the application deployment process is remaining largely unabated. I think there's a, there's probably a growing level of maturity in running those cloud estates, is maybe what I would, I would reflect upon. You know, we certainly see companies using Terraform to control the overprovisioning process and better control their cloud costs and their cloud spend by putting some constraints around what gets provisioned. In a sense, you know, our products get used as a basis of controlling access to that cloud estate. As applications are going, you know, more of your applications might be going to cloud, but, you know, your overall cloud budget may not be growing as much because you're getting a little bit better operationally. Clearly, that's one of the real value propositions of Terraform, and its use cases amongst our larger customers. Yeah. I think the other, and this is Armon, maybe a little additional color I would add is, you know, as we continue to travel and speak with customers, one of the trends that, you know, we see over and over is that there is a lag effect between when customers start on their cloud journey and how long it takes them to truly build maturity and start operating at scale, right? I think there's a, there's a lot of inertia as we think about it to these infrastructure transitions. I think that once underway, you know, those are pretty robust, as Dave said. You know, I think even though the clouds are sort of slowing down, you know, near term, I think these programs still take a lot of time to build up to maturity. I think there's a lot of other spend, whether it's in, you know, dev test environments or, you know, data consumption or things like that are a bit more bursty versus core infrastructure and core applications that tend to be a few years behind when customers, you know, start their cloud journey. Thanks very much, Armon and Dave. Navam, question for you. You talked about these longer term deals, multiyear deals, but that's on a contract basis. What about the invoicing structure? Because, you know, as we know, you have this arrangement, you know, whatever standard, where, you know, if it's annual pace payments, you know, invoicing, then it's license up, it's the license rev rec is up front. You know, if it's an upfront multi-year payment, then it's ratable. Which way did that sway? In other words, what was the impact on rev rec of the invoicing structures this quarter? Yeah, sure thing. On the invoicing side, just so you know, we have one standard contract, which is, you know, you pay annually regardless if it's multi-year or one year. So one year paid annually or multi-year paid annually, and the vast majority of our contracts were like that. You know, so the ratability of our revenue remains at 90% plus this quarter. Okay. Just to be clear, there was nothing in those multi-year contracts that would force or drive a larger amount of upfront rev rec. There's nothing unusual about the way multi-year was recognized. There were more multi-year contracts, obviously, which drove strong revenue performance. All that being said, the ratability of our revenue still is 90% plus. Great. Thanks. Thanks, Navam. Thanks, everybody. Yeah, thanks. Thanks, Michael. Operator, next question. Thank you. One moment for questions. Our next question comes from Derrick Wood with Cowen. You may proceed. Hey, guys. Thanks, and nice quarter. First question on kind of a go-to-market. It seems like you guys are really starting to build up more of a solution selling motion around kind of a complete zero trust platform, and that involves, you know, Vault, Consul and Boundary together. I guess, as you look at your playbook going into the next year, how big of a go-to-market focus will this have kinda selling a full multi-product suite out of the gate versus continuing to kinda tackle the market product by product? This is Dave, Derrick. Thanks for the question. I would say in general, we do tend to land with a single product. I think what the broader zero trust conversation is really part of our expand and extend motion. You know, for absolute clarity, we generally land out with a single product rather than trying to land with multiple products. We know that the next problem along and the next problem along is something that our portfolio addresses, which is why we have that expand-extend conversation, and zero trust is a really good example. I think that motion will continue because it is certainly working. You know, if I step back and just describe the requirements of having a platform approach or a cloud program approach allows you to have this consistent way to do zero trust. allows you to have a consistent way to do infrastructure provisioning. There are actually multiple expand-extend conversations we can have all predicated on that single cloud program office, but certainly zero trust is a key part of it. Having one partner of the year from Amazon this year is a really good example. Understood. Thanks. Navam, one for you. Just on the number of net new G2K, or sorry, net new 100K customers, it has been trending down this year. I'm sure it could bounce around a bit, but does this metric show that it's a little bit longer sales cycle and getting customers to expand from kind of five-figure to six-figure? Are you pushing more go-to-market investment kinda upmarket to the six and seven-figure deals because that's where there's a little bit more visibility? Just hoping to get your thoughts on this KPI. Yeah, certainly. It's an important KPI for us. But, you know, in general, there's variability on that number, right? Quarter-over-quarter, there's just gonna be some movement. As you know, this is a seasonal quarter, and it's also a quarter where macro plays an impact as well. In terms of the guidance framework, we expect 80-100 on a TTM basis, and we're well within that. you know, the sales team focuses on the Global 4000, which is the prime set of those 100K customers. There was headwinds on land obviously due to macro this quarter, but all things being said, you know, the expansion, extension cycle of those customers continue to be very strong. The growth in revenue per customer, exceeded 18% this quarter. We're very pleased with how that cohort of customers is growing their usage of our products. Got it. Okay. Thank you. Thanks, Derrick. Next question. Thank you. One moment for questions. Our next question comes from Mark Murphy with JP Morgan. You may proceed. Thank you very much, and I'll add my congrats on the solid top-line performance. Interested into what extent you might be accelerating any of the monetization efforts that would help the margin profile. For instance, I think what you, what you've been doing with Terraform drift detection. Where do you see markets that you feel as though you've saturated it enough with open source usage and that, you know, kinda the time is right to work on accelerating the monetization? Yeah. Thanks, Mark. Yeah, I think in general, the way we think about it with every one of our products, we have a kind of call it a dial between how much we're invested in, you know, the open source versus how focused we are on commercialization of the product. You know, with our core products, both Terraform and Vault, we feel like, you know, both of them are established market standards. They're sort of leaders in their category. We've turned that dial, you know, much further over to the commercialization side, and our focus is really, at this point, you know, building commercial differentiation and, you know, enabling our field teams and adding value to the commercial customer base. At Terraform, you know, you gave an example of a couple of those key capabilities. Vault, similarly, we're focused in on that side. I think our earlier products, that are sort of in the emerging category for us, so Consul, Boundary, you know, it's probably a bit more of a balanced development between commercial and open source. Then we have our community-focused projects. Okay. Thank you for that. As a quick follow-up, Navam, can you remind us what is it that's driving the spread where the this quarter, the upfront license revenue grows 80%, while that recurring support revenue grows 38%? Do you see a catalyst, perhaps for that support revenue, which is the bulk of the revenue to re-accelerate either into Q4 or into next year? Yeah. Thanks for the question, Mark Murphy. You know, the, the distinction between license and software is a very ASC 606 accounting-centric view of what's happening, just as a reminder to everyone. You know, our contracts are basically a single contract where you buy the product with embedded support. Internally, there's a disaggregation per ASC 606 and per assigning individual values to license and support. The license line has a lot of variability to it, depending on which product, depending on the, the term of the contract and all those things impacted. It's really hard to see no signal from that license line. We do expect to see sort of the license and support line continue to grow as we continue to see expansions and extensions and land customers in our self-managed products. Thank you. Thanks, Mark. Next question. Thank you. One moment for questions. Our next question comes from Sanjit Singh with Morgan Stanley. You may proceed. Yeah. Mike, congrats on the very solid Q3 results as well. Dave, I wanted to get your view on to what extent the sales message is being tailored to this tougher budget environment with respect to sort of, you know, vendor consolidation, tool consolidation, you know, getting customers to run their cloud operations more efficiently. Is the team going out with the message about displacing incumbent solutions so that the total cost to a customer may come down by consolidating more spend across the HashiCorp platform, or is there simply an ROI argument you're making? Just wanted to get a sense of, you know, going into a tougher budget environment, to what extent the sales message is changing to speak to those broader customer budget concerns. Sure. Thanks for that. I'll maybe think about that in three ways. I think first and foremost, we should just be clear that our customer is the cloud program office by and large inside these companies, and that is actually a net new spend category, right? Where they are really just trying to determine what vendors are gonna be their partners for this next, you know, several decades. It's very rare that we're displacing something because this is a net new construct. Yes, I had a security model in the private data center, but now I have cloud. That's a different vendor set. I would say much like Datadog, you know, it is, you know, relatively unpopulated. Number two, That is a unique opportunity for us, and that is why you see the efficacy that you do of our model. Number two, you know, the value proposition of our products is always around reducing cost, reducing risk, and accelerating time to market for new things. You know, take Terraform, for example. Hey, are you overspending on your cloud estate? Well, you know, constrain Terraform's usage so that you apply policy and governance guardrails before you provision things, and that'll bring your costs down. It's a very conducive message to the economic environment we're in, which it certainly helps kill our sales cycles. That has always been a message. It'll continue to be a message. Point number three, I think, is probably an equally important one, which is I think our $10 million customer demonstrates the growing consolidation of spend across the multiple categories that we participate in, with a single vendor. I think in some sense, we have the benefit of incumbency for one, two or three of the problems in those companies' cloud programs that actually accrue benefit to us as they look to consolidate next year. It's less of an overt message, but it's rather just the reality that gets played back to us. I think it certainly puts us in a, in a, in a good position going forward. I appreciate the color. That makes a ton of sense. Armon, you know, the margin upside was really nice to see this quarter. You know, heard loud and clear on sort of the progress that you guys are targeting for next year. In terms of how that you're going to in terms of how the team is gonna materialize that margin improvement, can you sort of remind us some of the levers that you're looking to pull to derive that I think 500-1,000 basis points of expansion next year? Yeah, sure. Thanks, Sanjit. Yeah, we're very pleased with the overall gross margin and operating income margin performance we had in the quarter. You know, a lot of revenue beat flows directly down to the bottom line. As we see the productivity emerge from our employees that we've hired over the past several quarters, and if that exceeds our expectations, we expect to see that drop to the bottom line in number one. Also from a gross margin line, you know, we remain a high gross margin company, and we expect to remain a high gross margin company despite the mix shift happening in cloud. Both those things considered as we get scale, you know, economies of scale from, or scale from our existing team and leverage from that team, we expect to see most of that fall down into the bottom line. Makes sense. Thank you, Armon. All right. Thanks, Sanjit. Next question. Thank you. One moment for questions. Our next question comes from Brad Sills with Bank of America. He may proceed. Great. Thanks for taking my question, guys. I wanted to ask a question about the net revenue retention, the 134% holding nicely here. Are you seeing a shift towards the extend versus expand that's driving that would you say? You know, with the progress you're making and with customers kind of, you know, establishing centralized platform teams. You know, with that in place, does that kinda grease the skids, if you will, for, you know, more of that kinda cross-sell into other categories? Any color on just, you know, extend versus expand. Yeah. Hey, Brad. Thanks. This is Dave. I think it comes down to cohorts is probably the best way to think about it. I think we generally find in year one, people adopt one product. In year two, they renew that product and look to add the second product. There is a natural cycle to it. I think what you're seeing is sort of a growing crop of maturing customers that are now expanding and extending fairly consistently. I think there's, you know, again, these are enterprise products, enterprise cycles, deeply considered decisions that, you know, probably have a, you know, one-year delay between them. I think that cohort view is probably the way we think about it, and I think it is playing out sort of as you would expect. Understood. Great. Thanks. Then a question for you, Armon. You alluded to, you know, that dial kinda turned up more so for Terraform and Vault more mature offerings on the commercialization with, you know, some focus on added value there. Could you elaborate on what are some of those, you know, value adds that customers are kinda going for there? What are some learnings there that you could apply to, other products where we might see that in the roadmap? Sure. Yeah. I think, you know, maybe if I zoom out and share the philosophical view, and then we can talk about kind of the spec-specific capabilities, just 'cause those won't generalize cross-product as much. In general, the way we think about is all of our products, there's almost two sides to it. One is I'll call it the, t he kind of practitioner-oriented workflow set of capabilities. For the end user, the developer who's, you know, adopting and pulling in the open source, what are the workflow features they need to really use the tool and solve their problem in an elegant way? On the other side, you have a set of what we consider kind of system of record capabilities, which is really more about a large organization thinking about how do I manage a larger state where I care about visibility, security, compliance, governance, et cetera. That's kind of more system of record type capability. For any one of our products, there's a set of features that kind of fall into either of those camps. By and large, the open source tends to be more focused on those kind of workflow-oriented things 'cause it's about enabling the user to kind of download it, use it, see the value of it quickly, where the commercial side is more focused on kind of the system of record type capabilities. If we talk about specific features, you know, when we talk about Terraform, you know, drift detection was one that was already mentioned on the call. That's a good example of when I'm managing a large day two infrastructure, you know, how do I, you know, across thousands of different, you know, applications and workspaces, I need to understand where is there drift in my environment? Where do I have things that are running out of date? Where do I need to apply patches? Those are all kind of day two concerns at scale that you really care about if you're in the CIO office. You don't necessarily care about that if you're the application developer, right? That's a perfect example of a type of capability that sits in that system of record type function. We also announced improvements to our policy as code engine, that's a perfect example if you're applying, you know, that kind of policy as code is either for security or compliance or governance reasons, very much sits in that second category. Maybe a third example might be our low code framework to simplify applications for less skilled teams, right? That's kind of an at scale use case. Those are maybe some specific examples of the general philosophy. As we turn the dial, more of the development moves to the system of record and less so on the kind of open source workflow. Very helpful. Sure. Thanks, Armon. Thanks, Brad. Next question. Thank you. One moment for questions. Our next question comes from Fatima Boolani with Citi. You may proceed. Hi. Good afternoon. Thanks for taking my question. Dave, I was hoping to go a layer deeper into some of Navam's commentary on the slowdown in elongation with new logos and building upon some of the questions you were just asked with respect to the commercialization engine for some of your more mature products. So maybe to ask you more bluntly, with the new customers, what is the a factor that is posing the biggest hurdle? Is it these are extremely happy Terraform open source users who just haven't gotten to that specific tipping point where you can convert them over? I just wanna better understand that just because it is your most widely used and most pervasive and most mature solution in the portfolio. And then a follow-up for Navam, please. Yeah. Thanks, Fatima. I sure am happy to answer that one. I think it goes back to what Armon described. When people start adopting cloud, it's very tactical. When they start adopting it with a more centralized cloud program, they require a different set of capabilities. You know, I might use Terraform for all 400 of my developers in my company, but they can all provision whatever they like versus no, I'm gonna control access to the environment, so we don't overspend through a central share, shared Terraform Cloud account. I think that's the, that's the difference between basically phase one of cloud and phase two of cloud. The, the adoption of the commercial version of our, of our product is largely predicated on whether that company has matured to that moment in time, where they have established a formal approach to doing this, either within their company or within their business group. Largely, that is why infrastructure markets move at the pace they do, because there's an organizational reality to this. I think, you know, what we've seen is actually real consistent acknowledgment that, you know, using Terraform is different from the needs of, you know, a team using Terraform. You're basically either buying our commercial product or you're having to build some kind of scaffolding around it to, you know, have people work with it. I think we're really, really bullish on how that market is progressing. As we've gotten larger, as our customer base has gotten larger, we're actually seeing that time to conversion, accelerate as commercial product. There is a reality of, you know, organizational constraints in our customer base that just, are the way infrastructure markets move. Understood. Navam, for you called out the multi-year renewals within 3Q. I'm wondering if there was a larger body of transactions there that are perhaps from a seasonal standpoint, up for renewal in 4Q, and your expectations around what type of behavior is embedded in guide, but certainly what you're seeing in customer engagements now. Basically, should we expect some of the 3Q multi-year renewals and sort of duration impact persist into 4Q in terms of the performance and transaction activity? That's it for me. Thank you. Got it. Thanks, thanks, Fatima. You know, very pleased with the third quarter and the activity there in terms of what our customers are doing. Our fourth quarter guidance philosophy has always been the same, which is there's a range of outcomes, and we take a solid execution path, and we exclude from it any large transactions where timing is inherently unpredictable and sometimes those may be multi-year deals. Our guidance in Q4 basically incorporates the macro headwinds that we're seeing here and the high levels of deal scrutiny, which may lead to Q4 sort of seasonality mooting. We're pleased with how Q4 is gonna turn out or pleased with being able to raise the, raise the Q4 guidance. I don't think we're expecting any change on multi-year behavior from normal, ranges, in our guidance. Correct. Thanks, Fatima. Next question, please. Thank you. One moment for questions. Our next question comes from Kash Rangan with Goldman Sachs. You may proceed. Hi. Thank you very much. Congrats. Dave and Armon, I saw 65,998 people at AWS re:Invent, but somehow missed the two of you. Good to see the flow you're getting there. Your booth was extremely active. Given that at AWS, we saw a bunch of announcements that were either foundational at the network layer, the chip layer, or more so at the application layer, the database, data integration, AI, et cetera. There wasn't a whole lot said about the infrastructure layer, you have CloudWatch, which helps at a potentially recessionary time, AWS helping its customers to control costs. You have your play here. I'm wondering how much more influential can AWS be as a true partner that actually not only works with you guys from a business development standpoint, but can actually bring you leads even more actively given everything that's going on in the world going forward? Nav, one for you. I know that you said that you'd let the revenue upside drop through to the bottom line. Are there any other measures fundamentally at a unit level, how you're watching costs and expenses? Maybe this thing blows over, maybe it's here to stay forever. How are you managing expenses, not just managing the revenue upside to trickle through into the operating income? Thank you so much. Kash, I'll take the first one. This is Dave. Yeah. I think I agree with you. There were not massive announcements at re:Invent, I think that might be indicative of having reached a state of maturity in cloud, where we've reached that comfortable stage of infrastructure where, yeah, this is just the reality that everyone's working with. Everybody's estate includes Amazon and Azure and a few other things, there's some level of maturity there. I would not conflate that with the fact that many companies are still haven't done that yet, I think the notion is not very sensational any longer, the should we adopt cloud? I think that's a good thing for the market. It's a good thing for us, we certainly see that reflected in our customers. We certainly see really good co-engagement with all the cloud providers. You know, that you see that, you know, partner of the year type awards are just indicative of it across all of them. I actually expect this to be the steady state. Multi-cloud is just the reality they've all accepted. They all appreciate that everybody's estate needs to connect to other things, and in many instances, we're the how they do that. Actually, I'm actually very encouraged by that sort of acknowledgement of market maturity, and I think we continue to see, you know, better each month engagement from the cloud providers with us. Yeah, Kash, this is Navam on your second question. You know, on the spend side, we're absolutely pleased with what happened in the third quarter. Then we mentioned this during financial analyst day, our spend envelopes or our spend plans are intently scrutinized based on the unit economics of it. On a unit level, we're very focused on CAC payback periods, and that is the driver of acceleration or reduction of revenue, of expenses. Got it. Thank you very much. Congrats on the quarter again. All right. Thanks, Kash. We have a couple of questions left, but we're kind of running up on time, so if we could just limit it to 1 question for the remaining folks, that would be appreciated. Thank you. Thank you. Our next question comes from Patrick Walravens with JMP Securities. You may proceed. Hi, team, it's Jeremy on for Pat. Thank you for the question. Navam, can you just remind us of the main drivers of gross margin? You know, how should we be thinking about the trajectory of that metric, just given the mix shift to cloud? Thanks so much. Yeah, absolutely. You know, there are three components to our revenue, our self-managed revenue, our cloud revenue, and then the services and other. Services revenues broadly held at, you know, near zero to negative margins slightly, subscription revenue is a high margin business. What's really pleased us is the amount of gross margin leverage we're getting on our cloud products. You know, we're seeing continued upticks in gross margins in cloud, we believe that over time, as this line scales, we'd get to, you know, the 70s, high 70s margin. As that walks up, I believe we're at good spot from a gross margin perspective, but in Q3 it was a great outcome from a margin perspective there. All right. Thank you. Next question, operator. Thank you. One moment for questions. Our next question comes from Miller Jump with Truist. You may proceed. All right. Thank you for squeezing me in here. I guess you can just close it out with one on the macro. I was just hoping to get more color on maybe the change in the macro that you saw over the course of the quarter, if there was any impact between September and October in those deal cycles. You had mentioned last quarter a $4 million-$6 million headwind. Is that still what you're baking in in your current guidance for the year? Thanks. Miller, I'll maybe give the view. It's certainly, the news headlines sort of bounced around a bunch in October, and I think that was probably reflected in, you know, sentiment in October in particular. Felt a little different than September, overall, I think it's pretty consistent, certainly overall. Yeah. I'd add to that, the same, which is originally we had four-six as the impact for the back half of the year. It's playing out as expected and it's the same range. Great. Thank you. All right. Thanks, Miller. Next question. Thank you. One moment for questions. Our last question comes from Brad Reback with Stifel. You may proceed. Great. Thanks very much. Quick question as it relates to M&A. What are your thoughts here, broadly? Yeah. I mean, I think we're, we are, we have a rich product portfolio that we're really focused on pursuing is the simple answer. I think that's the direction that we have seven or eight products that we are in the process of commercializing, and we have plenty of portfolio to work with. Perfect. Thanks very much. I'd just like to close by expressing my thanks for the participation from everyone here. We certainly appreciate you dialing in for all the questions and look forward to speaking with everybody soon. Thank you. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.