Ladies and gentlemen, thank you for standing by, and welcome to HashiCorp's Fiscal 2024 first quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Alex Kurtz, VP of Investor Relations and Corporate Development. Thank you. Please go ahead. Good afternoon, and welcome to HashiCorp's fiscal 2024 first quarter earnings call. This afternoon, we'll be discussing our first quarter fiscal 2024 financial results 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. 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 second quarter and full 2024 fiscal year. These statements may be identified by words such as expect, anticipate, intend, plan, believe, seek, or will, or similar statements. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements, by their nature, address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. The financial measures presented on this call are prepared in accordance with GAAP, unless otherwise noted. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these and other metrics, is included in our earnings press release, which has been furnished to the SEC and is also available on our website at ir.hashicorp.com. With that, let me turn the call over to Dave. Dave? Thank you, Alex, welcome everyone to our first quarter earnings call for fiscal 2024. We're pleased to report first quarter results that exceeded our top and bottom line guidance, with revenue of $138 million, representing year-over-year growth of 37% and solid improvements in our profitability with our first quarter of positive free cash flow as a public company. Current non-GAAP remaining performance obligations reached $394.6 million, representing 29% year-over-year growth. Compared to last quarter, we added 32 customers with greater than or equal to $100,000 in annual recurring revenue to reach a total of 830. Our HashiCorp Cloud Platform offerings reached $16.5 million in revenue, representing 12% of subscription revenue in the quarter. We remain excited about adoption trends as we continue to roll out new features and new capabilities during FY 2024. Against a challenging environment, I'm pleased with the solid Q1 results that the team delivered. Macro challenges continue to impact our business, and I'd like to provide more color on what we're seeing in the market. During Q1, Armon and I spent much of our time speaking with customers. The key theme from these discussions, regardless of customer size, is the uncertainty that they are feeling about the economy and what it means for their own businesses. As we have mentioned in the last few earnings calls, we saw this budget uncertainty start in October of last year, as higher interest rates began to impact our customers thinking about their FY 2023 budget cycles. This economic uncertainty is driving organizations to optimize their software spend. Procurement teams are scrutinizing many larger software purchases and stretching deal cycles. The deepening inspection of budgets is happening across all of our customer segments, but most noticeably in our largest customer deals. Despite these near-term challenges, we believe the long-term trend to cloud computing remains unabated. We continue to see demand for our products as customers continue to plan their cloud initiatives for the next several years. I would highlight the customer stories we have outlined in our earnings presentation on the IR site that give us confidence in our market opportunity and product fit. These customers include a large U.S.-based financial services company, a back-office software platform, and a European stock exchange, all very diverse verticals and all very early in their cloud adoption journey. We are laser-focused on building trust with these customers so that we can be a central partner as they continue to invest in their cloud initiatives. Our focus on adding larger new customers produced solid traction during Q1 as we added 26 net new Global 2000 logos, the largest number we've added in 5 quarters, and we continue to add a healthy number of greater than $100,000 ARR customers as well. These large customers are an important part of our future, and our model is built to grow our footprint with them as we become an increasingly critical piece of their infrastructure over time. While we're seeing heavy budget scrutiny on our large expansion deals, these entry-level deals with large companies give us confidence about the long-term shift to cloud and our role as the enabler of that transition. We also continue to see strong and growing interest in Boundary, which we introduced late last year. As a reminder, Boundary solves a key security challenge for organizations by using identity secure remote user access. As I noted earlier, Armon and I spent much of Q1 on the road with customers. In nearly every meeting, customers proactively inquire about Boundary, which is a great signal as to the longer-term opportunity we see for the product. Next week, we will host HashiDays, our European user conferences, where we will make a series of announcements that highlight ongoing product innovation, particularly around cloud security automation. I look forward to sharing more details during next quarter's call. Before handing it over to Navam, I want to provide more detail on the announcements we made after the market closed today. First, we announced a reduction of our workforce by approximately 8%. I want to acknowledge that a lot of talented people who made meaningful contributions to HashiCorp are leaving the company. This was not a decision we made lightly and is part of a necessary effort Navam will describe to reduce our operating costs to reflect the current customer spending environment. Second, we are excited that Susan St. Ledger will be joining the company in July as President of our Worldwide Field Organization. Susan is a master of scale and a deeply technical sales leader who understands how to make the most of complex product portfolios. Susan has been on our board since 2019, so she's already well acquainted with HashiCorp, our products, and our team. With Susan, we get the rare opportunity to work with an experienced leader who has done this multiple times, having most recently led the field organizations for Okta and Splunk, where she helped them each surpass $1 billion in revenue. We have trust and confidence that her experience and leadership will serve our field and overall organization well through the current economic conditions, as well as through our next phase of growth. I believe strongly in our opportunity, given the long-term trend of cloud adoption, believe we are now better positioned to take advantage of that opportunity. In line with the guidance we provided last quarter, we continue to operate against an aggressive goal to achieve profitability next fiscal year and remain on track to meet this goal. Now, I'd like to turn it over to Navam, I look forward to answering any questions. Thank you, Dave. Thanks again to everyone for joining us today. Our first quarter results showed solid progress in our fundamental customer adoption engine. Our process remains very consistent. Customers adopt our open source products throughout the organization, we land the organization as a commercial customer with a particular product, the customer expands its product usage and then extends into adjacent products. The success of this adoption engine drove our customer count to increase by 261 in Q1. Our 100K-plus ARR customer count increased by 32. Our total customer count and 100K-plus ARR customer count is currently 4,392 and 830, respectively. While the pattern of customer adoption remains consistent, as Dave mentioned, the economic headwinds we've noted in the past few quarters also continued into Q1. Combined with our typical first quarter seasonality, we saw ongoing pressure on customer budgets, which caused slowdowns in customer behavior and elongation of sales cycles. The impacts were most acute among our larger contracts within our global customer segment, along with the large enterprise customer segment. In addition, one of our largest customers in the retail sector adjusted for some excess capacity and reduced a portion of their spend with us. The impact to our quarterly growth and net retention rates due to this customer spending adjustment was roughly 2 percentage points. Despite the adjustment, the customer continues to be very engaged with our team and remains one of our largest customers. We expect the current buying environment will create ongoing uncertainty in the pace of large customer expansions and extensions for the rest of the fiscal year. Accordingly, we have reflected these expectations in our full year guidance. We've also widened the range of our potential revenue outcomes, given the overall purchasing environment. While we have shown ongoing diligence in managing our expenses, we are operating in a very cautious customer spending environment. As a result, we took additional steps today to reduce our cost structure through a reduction in force of approximately 8% of our workforce. Before making any employee reductions, we took a number of other carefully considered actions, including reducing our program spend and eliminating open but unfilled jobs. It is difficult to transition out valued employees who have helped build HashiCorp, and this was a very hard decision for the company. However, we also believe it is necessary to have the right spending and investment profile to navigate the current economic environment while also maintaining enough resources to deliver on our long-term plan. Following the reduction in force, which we expect to be materially complete by the end of Q2, we will begin to see the impact of these reductions in our free cash flow in Q3 of this year and beyond. We expect free cash flow margins of approximately negative 5% in FY 2024, followed by sustainably positive free cash flows on an annual basis the following year and beyond. Other than seasonally low second quarter cash flows, we're expecting all other quarters to have positive free cash flows. We are maintaining our target to reach non-GAAP operating profitability in the second half of FY 2025. With that, let's move on to our guidance. Our full guidance numbers can be found in our earnings presentations, available in our ir.hashicorp.com website under Financials, Quarterly Results. I encourage you to read through the doc for full metric disclosures, share count disclosures, and GAAP to non-GAAP reconciliations. To summarize our guidance, for the second quarter of FY 2024, we expect total revenue in the range of $137 million-$139 million, and a non-GAAP operating loss in the range of $46 million-$43 million. For the full year 2024, we expect total revenue in the range of $564 million and $570 million, and expect FY 2024 non-GAAP operating loss in the range of $113 million and $108 million. Thanks for your attention. Dave, Armon, and I are available to take any of your questions. Alex? Thanks, Navam. Operator, let's go to our first question. Thank you. As a reminder, to ask a question at this time, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question. Please stand by while we compile our Q&A roster. Our first question comes from the line of Sterling Auty with MoffettNathanson. Your line is open. Please go ahead. Yeah, thanks. Hi, guys. I'm curious, with Susan St. Ledger coming in to head up sales, is there an early sense of the extent or magnitude of the changes that you wanna make to the go-to-market structure in terms of either approach or, you know, either staffing, et cetera? 'Cause you also mentioned some changing in program spend as well. Thank you. Hey, Sterling, thanks for the question. Yeah, I think it's really about as we step back and think about this next phase of growth in front of us, we have the unique opportunity to bring in a go-to-market leader who has done that now multiple times in multiple different companies. We're super excited about that opportunity. I think candidly, that's the aspiration. It's about setting ourselves up for the next generation of scale that we certainly envision ourselves progressing through as a strong, independent company, and that's really what it's about. There's really nothing beyond that. Navam had alluded to some program spend changes. I think we're just reflecting some program changes that we had made over the last quarter or so to try and just keep the cost line relative to the revenue line, but not related to Susan. Understood. Thank you. Thanks, Sterling. Next question? One moment. Our next question comes in the line of Derrick Wood with TD Cowen. Your line is open. Please go ahead. Oh, great, thanks. One question I'm getting from investors is if you're kind of, you're seeing customers move from commercial to open source, given the budget pressures out there, obviously there's, you know, there's those dynamics in your end markets. Just was hoping to get a sense of if you're seeing any of that or kind of what's your view on the risk of those kind of term dynamics as you look going forward? Hey, Derrick. I'll answer that one again. The short answer is no. The, you know, the open source products solve a problem for an individual. The corporate commercial product solves a problem for an organization. In a sense, they're fundamentally different products. So, no. I think what we are seeing is very consistent, with what we've been communicating over the last couple of earnings calls, which is, as Armon and I both have been traveling a ton, what we're seeing at the front end is very consistent, in terms of interest in what we do, design, when decisions being granted to us, no change to the competitive environment. What we're really just seeing is increased scrutiny in the procurement process, but it's just difficult to predict, as we've indicated over the last, couple of calls. You know, much like other vendors in the market, you know, that is putting pressure on us, but that is no different than really anybody else. What I don't hear anybody doing is changing their plans. You know, the clip to cloud remains unabated, and I think as you sort of start to look at some of the numbers in our earnings report, you'll see we added 26 new Global 2000 customers, 32 customers over $100,000 in ARR, and another quarter of strong NDE, which I think really just speaks to that consistent long-term trend and really no material change otherwise. Okay, thank you. Thanks, Derrick. Next question? One moment. Our next question comes from the line of Michael Turits with KeyBanc. Your line is open. Please go ahead. Hey, guys. I just wanna try to get as much of a sense for what's changed as possible. You've held up extremely well during a period in which people have seen this type of scrutiny, deal cycles extending, et cetera. In fact, just to some extent, deal, you know, cloud optimization seems to have benefited you in prior quarters. Is there anything that you feel like was an inflection point here that might have determined your outlook worsening for the year? Hey, Michael. Hey, it's Navam here. Thanks for the question. In terms of what's changed, I think the main points to talk about is what's not changed is the front-end environment, which is the pipeline activity, the pipeline creation activity still remains very strong. As Dave mentioned in the call, you know, very healthy quarter in terms of the G2K adds, net 100K adds, and total customer adds. The activity of cloud transformation efforts, cloud efforts, all those things remain similar. What's happened in the first quarter, and this is a little bit of first quarter seasonality as well, the first quarter in a very long year, in this new budget cycle, you saw a lot of headwinds, a lot of procurement pressures in the global segment and the enterprise segment related to very, very large deals, or large deals. That's reflected in the guidance range that we've given. That's the material change we saw in the first quarter. The main thing to remember with these large deals, and I'll give you an example of a first quarter deal that we were working on, and it was held up in procurement due to some procurement process issue, ended up closing in the second quarter as a multi-year deal, using several of our products. These deals don't get lost for competitive pressures. They don't get lost because the cloud transformation effort is canceled. It just elongates, and they happen when they happen in a different quarter. Yeah, maybe to add, Dave, let me just add a kind of a subjective commentary. You know, I think as you see on the hyperscalers, there's just a lot of, there's a lot of scrutiny around anything related to the cloud narrative at the moment. You see that in the, in the hyperscaler results, and certainly, that seemed to be more acute in the, in the quarter, based on what I saw externally than in previous quarters. You know, we are fundamentally tied to cloud transition, and that does cause things to get elongated as there's increased scrutiny on certainly the larger transactions associated with anything cloud related. Thanks, Dave, and then Navam. Thanks. Thanks, Michael. Next question? One moment, please. Our next question comes from the line of Ittai Kidron with Oppenheimer. Your line is open. Please go ahead. Thanks, guys. I'd like to dig in into the retail customer that reduced portion of the spend. Just a few things around this. First of all, how big of a customer is it as% of revenue to have a 2-point impact? It must be a quite significant customer. Can you give some color on why they reduced spend, or just not using it, or didn't see value there? Navam, would it be fair to say that without this customer, you're actually, if I'm doing the math right, actually guiding in line to consensus for next quarter? Is that the right way to think about the magnitude? Ittai, Dave, thanks for the question. I'll let Navam answer the math side of it. I'll answer the sort of the more subjective side of it. I think as we showed in the prepared remarks, there's a retail customer that had procured entitlements really for peak season. It's actually a really good example of what's happening in across the board around procurement and finance scrutiny. We, you know, they ended up right sizing that particular entitlement for that particular product, for that particular application for their state, which is consistent with, you know, what other vendors have commented on. In the sort of partnership, you know, that's something that we want to do with them. You know, I would just underscore that they remain one of our largest customers. They are a multi-product customer. We are super engaged with them, and also, it's very clear that they're very early in their cloud estate. You know, these are big companies, spend a lot of money on this, on this category, but they're very early. Net, it was an optimization that we certainly are partners in. I'll let Navam comment on the math. Yeah, Ittai, you know, it's a large customer relationship of ours, I think I mentioned during the prepared remarks, this was about a 2% impact to our growth and net retention rates, about a 1% revenue impact. In terms of the guidance, I think the guidance is reflective of the general, you know, large deal movement that we're seeing in any given quarter, rather than specific to this customer. This customer's impact was obviously reflected in the guidance as well, but it's more a relation to what's happening in the expand, extend, large contract side and the impacts of procurement and the CFO being part of that purchasing decision more and more this quarter and this new budget cycle. Appreciate it. Thanks. Thanks, Ittai. Next question, please. One moment. Our next question comes from the line of Jim Fish with Piper Sandler. Your line is open. Please go ahead. Hey, guys. Thanks for the question. Just building off of Ittai's question there, how much risk is there to other sort of large customers like this retail customer, of reducing a portion of spend? You know, what kind of guarantees do you have that that doesn't happen, you know, next quarter or the quarter after? Navam, does this mean we should kind of expect this kind of, let's call it mid-teens kind of net retention rate in the period, to continue forward, or should we get back to that greater than 120% kind of trailing twelve-month long-term target? Thanks. Hey, sure. Thanks for the question. Yeah, just really quickly, on, you know, I think we have a pretty good view of the overall customer state, and I think our view is reflected in the guidance we have, more generally of the guidance framework that Navam's shared. You know, retail is a very specific, vertical for, as you can imagine, so I don't think we forget about the remainder of the state. Yeah, in terms of the net retention rates, you know, I'd point to there's a lot to be optimistic about after we get through this year's budget cycle, not whole, right? You've still got very healthy activity on the G2K. You've got very healthy activity on the 100K. These are all expansions and extensions that happen, also multi-product extensions that happen with our product portfolio and also the upcoming Boundary product, which will impact our revenue going forward. No, I don't think that this is a new reality of what net retention rates would be. I think it's more a reflection of the purchasing environments along what's stopping sort of large contracts from proceeding to the finish line. Once these, once this budget cycle resets into the next one, I think we see the usual impacts of expansion, extension, and multi-product purchasing, recovery. Our long-term targets of being above 120%, which is the target we've set remain in intact, and we're very optimistic about that long term. Thanks. Next question? One moment. Our next question comes from the line of Alex Zukin with Wolfe Research. Your line is open. Please go ahead. Hey, guys. Thanks for taking the question. I've got a multipart, first one and then just a clarification. I guess if we think about some of these larger contracts, these larger deals, these longer sales cycles, are you seeing? Like, is this, is the incremental scrutinization that's being put on these deals, is it anything to do? You mentioned, Dave, about kind of similar dynamics within the hyperscalers. Is this customers pausing on cloud migrations? Is this a greater focus on cloud optimization before the next, you know, phase of the journey? Like, where, what are you seeing in that dynamic that's causing that incremental friction? Can you comment on what you've seen, you know, kind of in the month of May and June, relative to how April and maybe March trended? You know, thanks, Alex. It's, it's super interesting because, it's also consistent. Like, if you think about the conversations that we've been having for the last seven months, they're the same conversations we're having now, which is, "Hey, we're going cloud." Those plans are unabated by the Global 2000. They are not slowing down. You know, they are engaging with us to say, "Yeah, we've created a platform engineering function. You guys are the basis of how we do that." It's just taking us time and some friction to align the organization towards the consumption of that design win, which is already in place. I had two conversations this week, one with a massive utility, one with an insurance company, where that was exactly the conversation. You know, what's happening is that those design wins are being done, given the front-end consistency of the pipeline that we're seeing. What's not happening to the same degree is those things flowing through procure, through procurement. In some sense, in some instances, it's a question of, you know, the typical plan of buying slightly ahead of demand, which is what most companies do on the entitlement side. That's what's being stopped by finance departments specifically. You'd want it stands to reason because we won those design wins, that that will flow through over the course of time. There's really no material change other than just literally, like, it's almost like if you're towing a boat behind you, the boat's a little further behind because that part needs to get through procurement, but it's going in this direction without question. Maybe Arman has a point of view. He traveled, I think, nine weeks last quarter? Yeah. I think, maybe anecdotally, just to echo what Dave said, I think what we're seeing pretty consistently is, you know, going into this fiscal year, most of these organizations are, sort of have locked their budgets, and, you know, top focus for them is really in optimization and, you know, consolidation of vendors, focusing on right-sizing, you know, their estates. I think we continue to see that translate to the procurement pressure that you're seeing, especially around the bigger deals. But that said, I think all these groups are still engaging with us on, you know, next product along, really thinking about, great, how do we architect tools like Terraform and Vault into foundational layers of our platform? You know, how do we start thinking about the other aspects of, you know, where we can help them on their automation journey? I think in many ways, it's also accelerating the trend towards platform teams, right? Because I think these organizations are realizing if they're really gonna get their hands around, you know, how do I do cloud efficiently at scale, you really need to have a central aperture for that. I think it's accelerating a lot of those org transformations, and it's also accelerating, you know, the need to have standardization around the tooling. You know, I think, you know, all that speaks well to the pipeline, and I think the activity is happening there. I'd also just add, just to add to Armon's point, it is also occurring to a general shift towards consolidation of vendors during this cycle, which is certainly a net positive for us. As you're going through the design win process, they are trying to rationalize in general their portfolio. As a multi-product vendor, it actually, it accrues very, very well to us on the design win side, and as long as we make those companies successful, you know, the right things will happen over the longer term. Perfect. And then what about just on the monthly cadence, question? Yeah, I mean, I would suggest, Armon, you can comment. I feel it's very similar to me. Yeah. Yeah, I don't think there's been a marked change. I think this really speaks to the fact that these budgets are generally set on an annual basis for organizations, and I think, you know, that's reflected in our guide. I think it would be, you know, for most organizations, unusual to reset their budget midyear. Perfect. Then just maybe a clarification question on the appointment of Susan to that role. Is she replacing someone? Is this a new role? Is there, you know, kind of contemplated meaningful, you know, changes to the go-to-market organization through the year, given she starts in July? Just any help there would be helpful. Yeah, hey, no, obviously, we're super excited about the opportunity to bring in Susan. Suffice to say, it was never about her availability. It was always about her availability and not our lack of interest in having her play that role as someone who's very uniquely positioned to do that. As I mentioned, as we think about the next phase of scale, you know, the billion-dollar number is the one ahead of us, and that's certainly where our energy is pointed, and we just think she's super well positioned to do that. We're bringing her in as President of Worldwide Field Operations. We think this is the right time to introduce that role, as we think about the next phase of growth, and that is more of a decision around a role requirement for us. Beyond that, no material changes. Obviously, her scope will be completely determined once she arrives full-time in the next month. Conceptually, it's just the addition of a new role, and the existing team will report into her and obviously, help she'll help us grow into the next phase and beyond. All right. Thanks, Alex. Next question. Great help for them. Got it. Ready for the next question? Our next question comes from the line of Gray Powell with BTIG. Your line is open. Please go ahead. Okay, great. Thank you very much for taking the question. Just, if you can help me sort of dig into the revenue guidance more, I'd appreciate it. I think the full year guidance implies that you grow revenue around 11% or 12% in the second half of the year. Just how should we reconcile that against CRPO, which just grew 29%? How should we think about the potential for growth to reaccelerate at some point, or maybe the timing of a reacceleration? I know that last one's gonna be hard to call, but any color would be really appreciated. Yeah. Thanks, Gray. Again, good question on the CRPO side. The CRPO is obviously reflective of, you know, the front half seasonality compared to the back half seasonality, right? When you think about it, you know, we sell to large enterprise contracts, they're tail end weighted, the back half is a much bigger impact to our revenue than the front half from a bookings perspective. The CRPO, you know, growth rates will defer from the front half to the back half. There is going to be a difference between the first quarter absolute number CRPO growth rate and what the full year revenue growth rate is, just from a timing perspective, because it implies what the bookings are for the back 3 quarters of the, or the back half of the year, right? We've factored in basically continued headwinds in the global segment and the enterprise segment in how we think about the revenue guidance. I've also caveated, this is really early in the year, so we'll execute every quarter, and we'll give you updates as we move along. We're very optimistic about the front end, especially given what we're seeing in terms of customer activity, and especially given what we're seeing from the field when Armon and Dave go and visit our customers. At some point, we're gonna be out of this budget cycle, and at that point, I think we move to normal purchasing cycles with our, with our customer base, and that's where we feel, you know, we'll be back to our normal growth rates. As Armon mentioned, you know, budgets are set once a year, and we're reflecting sort of the current budget environment we're seeing until that changes, and every quarter will be an update. Got it. Okay. Thank you very much. All right. Thank you. Next question? One moment. Our next question comes from the line of Mark Murphy with J.P. Morgan. Your line is open. Please go ahead. Thank you very much. Seeing the heaviest scrutiny coming from your, actually your largest customers, and then in the expansions, is not what we would typically see. I think we'd, you know, we would assume those are the customers that they know you, they trust you, they'd wanna consume a larger footprint. Can you just double-click on that and maybe explain why we're seeing that, you know, the behavior kind of shake out that way? As a follow-up, what is the current number of $10 million ARR customers as of June? Would that number be sitting at 2 now? Hey, Mark, it's Dave. Let me start the first one. Just so I understand, or just so I clarify. Yeah, I think the procurement friction we're seeing is a general commentary inside existing customers as well as new. I think we again saw a very strong NDE in the quarter, which I think is reflective of those large companies continuing to purchase incremental pieces from us. You know, certainly the cycles for them are slower than maybe they were a year ago, just given the constraints in their own business. That's more of a general commentary than anything. You know, overall, exactly what I would expect and consistent. Yeah, Mark, on the large customer side, yes, it is one of our largest customers, the one of our 3 $10 million customers, slipped below the $10 million line. They still remain engaged and large, as I mentioned. Yes, the count is now 2. Thank you. Thanks, Mark. Next question? One moment. Our next question comes from the line of Nick Altmann with Scotiabank. Your line is open. Please go ahead. Great. Thanks, guys. There was some good upside to margins in the quarter and with the 8% headcount reduction, I guess I'm a bit surprised why the margin guidance wasn't revised upward a bit more. Is there anything else there we should be thinking about or considering? Just to clarify, was the RIF factored into the prior margin guidance? Hey, Nick. Yeah, just to clarify, the severance related to the RIF is factored into our current Q2, which impacts some of our margins. Overall, I think our EPS is guiding better than what we had previously factored in. Also note that it takes until the back half of the year after the first quarter actuals and the second quarter severance to work its way through and really see the impacts, the long-term impacts to your margins in the back half of the year. That's what you're seeing in terms of the margins, margin guidance. That being said, you know, our EPS guidance has ticked up, and we expect to be a part from the second quarter seasonality, you're always gonna expect a second quarter dip in free cash flow due to the first quarter ACV seasonality. You should expect positive free cash flow for the rest of the year. Great. Thanks, Nick. Next question? One moment. Our next question comes from the line of Miller Jump with Truist Securities. Your line is open. Please go ahead. Hey, guys. Thanks for taking the question. Maybe just one more to follow up on the headcount reduction. I was wondering, could you give any more color on which segments of the business you plan on reducing or that you have reduced headcount in? Maybe just are there any segments where you plan to continue hiring for the rest of the year? Thanks. Let me answer the first part of the question. I'll let Armon answer the second. I just want to underscore, this is a hugely difficult decision for us to make, and one we felt that needed to be done. I just want to reflect back that we had gone through an investment cycle over the past four quarters very deliberately, with an expectation of certain demand environment to be in place, and clearly, that different demand environment did not materialize, obviously, with sales cycles extending just like for everybody else. I want to make clear that because of that investment cycle, we feel that we're in a good position to deliver on the capacity required to deliver this year and next. While certainly there were modifications across all sectors, we, you know, we forget about the cap capacity that remains across all segments required to do what we need to do, both in R&D and in sales. Yeah, Miller, right. You know, echoing Dave, this was a very difficult decision for us and not something we took lightly. We took many steps to impact spend before going down this path. Ultimately, you know, we still are a growth company, so we want to make sure we're invested in the long term. We were very careful, you know, in the large impacts, when you think about the large organizations, which are sales and R&D, we maintained our investments in where we felt we needed the capacity. In several geos or in certain product areas where we thought the payback was a little longer term, we took the action of understanding what the criticality of that business is and trimming it down. Overall, we are still, you know, very well staffed from a sales and R&D perspective to both deliver the quarters and also deliver the product roadmap. You know, we feel that the headcount that we have or the employee base that we have this quarter is sufficient for the year. We don't feel like we are going to add unless, you know, the environment materially changes. Understood. Thanks for the color. Thank you. Next question. One moment for our next question. Our next question comes from the line of Kash Rangan with Goldman Sachs. Your line is open. Please go ahead. Hey, guys. I asked ChatGPT what questions have not been asked by Mark Murphy and Alex Zukin, and it timed out, so I have to do some thinking on my own here. In seriousness, when you look at the net expansion rate, is the pressure coming from existing customers expanding more, or is it because of existing customers cutting down the scope of the deployment? If you can just give some color. Is there a way to triangulate, is that coming from Terraform or non-Terraform side of the house? That'll be great. Susan obviously has got a great track record. She was at Salesforce around Marketing Cloud. She was at Splunk, president of worldwide operations, I believe, something pretty close to that, Okta. Very different businesses, very different products. What do you want Susan to accomplish for Hashi with respect to the business? What do you think she brings in that is so critical for Hashi at this stage of the game? Thank you so much. Sure. Hey, Kash. This is Dave. I'll answer the first one. I think I got it, and I'll try to get to the second. I think my observation is it's largely around the net new expansion pace. It's the rebuy cycles, just because of that procurement pressure that we're seeing. You know, once deployed, our products are on the runtime path of applications, and that makes them generally long relationships with our customers, notwithstanding small optimizations here and there. Generally speaking, the NDE is, you know, notwithstanding the one thing that the one customer that Navam referred to, is just sort of a slight slowdown in the rebuy of next use case along, next product along. In terms of Susan, you know, I think we're cognizant of phase shifts of a company, and we think about the next phase ahead, and it is an operationally different phase at $1 billion in revenue, and that's really where we think Susan St. Ledger's going to help us, as opposed to anything specific about our product portfolio or type of go-to-market. You know, it's, there are very few people in the world available to do that, and she's at the very, very top of that list. So it's more generally a scaling question, you know, for us as a company. As you can see, you know, our customers are among the largest companies on the planet. We play a critical role for them. They're going cloud, and that is not shifting, and our relationships will be extremely long as a result, and we want to build the best possible companies to support them. Wonderful. Thank you so much, and all the best. Thank you, Kash. The next question? One moment. Our next question comes from the line of Patrick Walr avens with JMP Securities. Your line is open. Please go ahead. Oh, great. Thank you. Hey, Armon, like, at the beginning of the year, you were talking about how budget is aggregated across 3 layers: apps and data, and you thought there was a lot more variability in apps and data. How are you thinking about that division today? Is it still a helpful way to think about the business? Hey, Pat. Yeah, thanks for the question. I think that still is a useful way. I think what we see in all these accounts is, you know, at the infrastructure layer, all of these teams are still committed to cloud. They're still moving ahead. I think they're taking sort of a moment to, you know, pause a beat and look at, hey, you know, over the last three, four years, you know, spending on cloud has been gangbusters. Where is there opportunity to optimize and consolidate and, you know, drive a little bit of efficiency in these estates? I think what we broadly see is a fairly large amount of waste in the cloud environments. I think no one is really divesting from cloud as a strategy, right? Our view is it's like everyone's pausing, taking a beat to do that optimization, but really forging ahead on sort of a multi-cloud strategy. I think in that sense, we expect infrastructure, you know, will sort of take that pause and then continue, you know, the growth as people move there. If anything, I think where we feel some optimism is, you know, I think with a lot of customers who are now interested in, you know, leveraging some of the generative AI techniques, we actually think those will be drivers of net new cloud workload. We're already seeing that. You know, there's a very large financial group we've been working with who's, you know, dramatically pulled forward and accelerated their efforts to get onto Azure for exactly that purpose. That's bringing net new workload, expanding them to multi-cloud, and, you know, they're using Terraform and Vault and Consul to underpin, you know, that multi-cloud journey. I think, you know, in that sense, we feel like there's gonna be this optimization that, you know, we're seeing broadly across the market. That'll take a pause, then we'll continue to see workloads on cloud continue to grow, you know, at that infrastructure layer. All right, great. Thank you. Navam, can I just, as a follow-up, how confident are you in your new revenue guidance? Hey, Pat. Yeah, I think we're very confident about our new revenue guidance. It factors in this elongated large contract cycle into, you know, the rest of the year. You know, as Armon said, we're optimistic about not losing out due to competitive pressure or losing out due to cancellation of the cloud program. You know, we expect this large contract activity to occur as they will for the next 3 quarters, but as soon as the headwinds change, we should see return to normal. The full year is reflecting our confidence in what we can achieve next year or this year. Thanks, Pat. Yeah. Next question? One moment. Our next question comes from the line of Sanjit Singh with Morgan Stanley. Your line is open. Please go ahead. Thank you for squeezing me in. I had a question for Dave or Armon, I guess, a jump ball. It goes to the right sizing of the environment, Armon, that you mentioned in a previous question. In your conversations with your customers, when you talk, when they talk about optimizing their environment, right-sizing their environment, could you give us a sense of what that entails? From the feedback that you've gotten, how long does a right-sizing initiative or project take from what you're hearing from your customer base? Hey, Sanjit, thanks for the question. You know, it's a really good question. I think the shape of it takes a few different forms, right? I think, you know, part of it, what we see is you have development testing environments that have been relatively unconstrained, and some customers might be as much as 50% of their cloud spend. I think there's one side of this, which is really looking through those dev test environments, and a whole lot of it is orphaned resources, things that, you know, developers spun up an environment, left it running for three months, you know, you're paying the meter on that. I think there's a lot of that happening in dev test, where, you know, that takes a. You have to go through an inventory process, identify those workloads, and shut them down. I think on the other side, you have production environments where you have, you know, kind of multiple forms of waste take place. One is, you know, hey, maybe this needs to run on 5 servers, but it's really running on 10. Okay, can we identify that and sort of shrink the footprint down to 5? You have other cases where it's like, I'm running on a, you know, double extra large, when really I should be on a kind of a medium-sized capacity. I think that also is a complex challenge of you have to inventory all the assets, really look through data and telemetry to understand where am I overutilized, where am I over deployed, and then go through the change management to kind of right-size some of that. In terms of how long that takes, I think there's a fair amount of variability, and frankly, it actually goes back to the maturity of their cloud program. The programs that were least mature, they don't have a good handle on it. You know, the data is not readily available to them. They don't have a central team, you know, that was responsible for, you know, driving that in a standardized way. I think, in fact, this has been an accelerant of conversations for us around the value of standardizing on tools like Terraform and having a platform team, because that central aperture gives me visibility of what workloads are dev test, what workloads are production. It allows me to kind of do that instrumentation on usage. For us, it's actually been a useful conversation driver on the importance of creating those sort of standardized layers. You know, I think for the teams and organizations that don't have that, it's a longer journey, right? They have to sort of get their hands around the problem, and there's multiple phases of identification, right-sizing, and change management. If I can add myself to comment, Sanjit. I think the, to me, it's kind of two countervailing forces. One is, as Armon describes, we see it, you know, obviously, we're doing it ourselves. There's a lot of cleanup of those orphaned environments that we're all paying for and overspend, and so that is driving consumption down. At the same time, the velocity of new things going to cloud is not slowing. At the same time, as that is coming down, you're seeing an increase in the slope of the line of new things going cloud. In a sense, it's getting offset a little bit. You know, ultimately, Terraform is a critical element of how people actually solve that problem by putting constraints in front of the provisioning process. The irony being, you have to get through the procurement function to put that in place, but that is certainly what people are doing. That's a really helpful context. It seems to align broadly with how the hyperscalers are talking about how that's manifesting in the environment as well. Ultimately, we get to a place where new workload growth hopefully, outpaces or surpasses the impact from optimization. That's encouraging. I have one follow-up for Navam. It goes back to the previous question around, like, your confidence in the guide. I hear you guys loud and clear in terms of the, you know, longer sales cycles and the procurement process. We do have a new, you know, sales leader in place. I wanted to understand, like, in terms of the magnitude of change, in terms of the blocking and tackling of sales, territory alignment, comp, how much change is being instituted in the sales organization, you know, at a time where we've had a RIF and then also, the environment's a little bit weaker. I just wanted to understand, like, the magnitude of those changes and whether that creates incremental execution risk this year. Thanks, Sanjit. The short answer is no. we don't see incremental execution risk with the addition of Susan, and, in fact, we're optimistic about her impacts to the company and how she could help us grow into this new stage. Just as a reminder, you know, when we took this very carefully considered, you know, workforce reduction, we didn't overly, you know, impair the capacity in our core regions where our digital transformation is the most advanced or the most furthest along. Rather, we looked at where the geos were that, you know, potentially were longer term investments, and we right-sized those a fair a little bit. And those were the large impacts that we saw on the workforce reduction plan. The existing sales leadership still is intact, and they will, as a unit, report up to Susan. The org still is very stable, and, you know, we feel like there's no incremental risks with the change. Okay. Additional risks with the change. Understood. I appreciate that context. Thank you. Thanks, Sanjit. Thank you. I would like to turn the conference back over to Dave McJannet for any further remarks. 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. Look forward to speaking to everybody soon. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.