HashiCorp(HCP) - 2024 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) This section presents HashiCorp's unaudited condensed consolidated financial statements for the quarterly period ended July 31, 2023, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, showing continued revenue growth alongside persistent net losses and significant cash usage in investing activities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 31, 2023 | January 31, 2023 | | :--- | :--- | :--- | | Total Assets | $1,590,603 | $1,628,340 | | Cash and cash equivalents | $830,018 | $1,286,134 | | Short-term investments | $414,094 | $0 | | Total Liabilities | $405,691 | $422,990 | | Deferred revenue (Current) | $264,639 | $272,909 | | Total Stockholders' Equity | $1,184,912 | $1,205,350 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $143,246 | $113,863 | $281,229 | $214,760 | | Gross Profit | $113,912 | $92,323 | $225,107 | $173,831 | | Loss from Operations | ($82,596) | ($78,619) | ($150,406) | ($157,061) | | Net Loss | ($66,315) | ($74,764) | ($119,573) | ($152,981) | | Net Loss Per Share | ($0.34) | ($0.40) | ($0.62) | ($0.83) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($29,794) | ($70,869) | | Net cash used in investing activities | ($437,748) | ($3,588) | | Net cash provided by financing activities | $11,426 | $10,465 | | Net decrease in cash | ($456,116) | ($63,992) | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial statement components, including the acquisition of BluBracket, disaggregation of revenue, details on remaining performance obligations (RPOs), stock-based compensation, and charges related to a recent workforce reduction - On June 2, 2023, the company acquired BluBracket, Inc., a code security solution startup, for an aggregate purchase price of $25.1 million in cash, resulting in $12.3 million of goodwill and $13.5 million in intangible assets (developed technology and customer relationships)[41][44][45] - As of July 31, 2023, the company had $682.5 million in Remaining Performance Obligations (RPOs), an increase from $647.1 million as of January 31, 2023, with approximately 58% of these RPOs expected to be recognized as revenue over the next 12 months[54] - On June 7, 2023, the company announced a workforce reduction impacting approximately 8% of its workforce, resulting in $7.2 million of charges during the quarter, primarily for employee severance[92][93] Stock-Based Compensation Expense (in thousands) | Period | Cost of Revenue | Sales and Marketing | Research and Development | General and Administrative | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | 3 Months Ended Jul 31, 2023 | $4,048 | $15,483 | $12,942 | $13,646 | $46,119 | | 6 Months Ended Jul 31, 2023 | $7,479 | $27,442 | $24,673 | $26,688 | $86,282 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's performance, highlighting a 26% year-over-year revenue increase for the quarter, driven by new customer acquisition and expansion within the existing customer base, covering key business metrics, operational results, liquidity, and cash flows, while continuing to invest in growth and managing costs - The company's business model is based on a combination of free, source-available community products and proprietary software with paid tiers, offered as both self-managed software and a fully-managed HashiCorp Cloud Platform (HCP)[112][113] - The go-to-market strategy follows an "adopt, land, expand, and extend" motion, focusing on initial adoption through free products, landing enterprise contracts, expanding usage within accounts, and cross-selling additional products[119] Key Business Metrics | Metric | As of July 31, 2023 | As of January 31, 2023 | | :--- | :--- | :--- | | Total customers | 4,217 | 3,870 | | Total customers with ≥ $100,000 ARR | 851 | 798 | | GAAP RPOs | $682.5 million | $647.1 million | | Non-GAAP RPOs | $708.0 million | $673.8 million | - The last four-quarter average net dollar retention rate was 124% as of July 31, 2023, compared to 134% as of July 31, 2022, indicating strong but moderating expansion within the existing customer base[126] Results of Operations This subsection provides a detailed comparative analysis of the company's operational results for the three and six months ended July 31, 2023, and 2022, showing total revenue growth of 26% for the quarter and 31% for the six-month period, primarily driven by subscription revenue increases, with operating expenses growing at a slower pace Revenue Comparison (in thousands) | Revenue Type | Three Months Ended Jul 31, 2023 | Three Months Ended Jul 31, 2022 | Change % | | :--- | :--- | :--- | :--- | | Subscription Revenue | $139,093 | $110,232 | 26% | | Professional Services & Other | $4,153 | $3,631 | 14% | | Total Revenue | $143,246 | $113,863 | 26% | - The increase in subscription revenue for the quarter was attributed to $11.9 million from new customers and $17.0 million from expanded product adoption among existing customers[170] Operating Expenses Comparison (in thousands) | Expense Category | Three Months Ended Jul 31, 2023 | Three Months Ended Jul 31, 2022 | Change % | | :--- | :--- | :--- | :--- | | Sales and Marketing | $101,134 | $87,674 | 15% | | Research and Development | $59,962 | $47,885 | 25% | | General and Administrative | $35,412 | $35,383 | 0% | | Total Operating Expenses | $196,508 | $170,942 | 15% | Liquidity and Capital Resources As of July 31, 2023, HashiCorp held $830.0 million in cash and cash equivalents, with net cash used in operating activities improving to $29.8 million for the first six months of fiscal 2024, while a substantial $437.7 million was used in investing activities, primarily for short-term investments and the BluBracket acquisition, with management believing existing cash will fund operations for at least the next 12 months - The company had cash and cash equivalents of $830.0 million as of July 31, 2023, down from $1.286 billion at the start of the fiscal year, primarily due to the purchase of $414.1 million in short-term investments[8][200] - Net cash used in operating activities improved to $29.8 million for the six months ended July 31, 2023, compared to $70.9 million in the prior-year period, reflecting better management of working capital despite a net loss[203][205][206] - Net cash used in investing activities was $437.7 million, mainly due to purchases of short-term investments ($469.7 million) and the BluBracket acquisition ($20.9 million), partially offset by proceeds from investment sales and maturities[18][207] Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, primarily interest rate and foreign currency risk, stating no material changes since the last annual report and detailing a hedging program for foreign currency implemented in the second quarter of fiscal 2024 - Interest rate risk is considered low; a hypothetical 10% change in interest rates is not expected to have a material impact on operating results[214] - Foreign currency risk exists as a portion of operating expenses are in foreign currencies, where a 10% weakening of the U.S. dollar could increase operating expenses by approximately 2%, leading the company to begin using foreign currency forward contracts in Q2 fiscal 2024 to hedge this exposure[216][217] - Inflation is not believed to have had a material effect on the business, financial condition, or results of operations[218] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of July 31, 2023, with no material changes to the company's internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of July 31, 2023[222] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[223] Part II. Other Information Legal Proceedings The company reports that while it may be involved in various legal proceedings in the ordinary course of business, it does not believe there was a reasonable possibility of incurring a material loss from such contingencies as of July 31, 2023 - As of July 31, 2023, the company believes there was not a reasonable possibility that it had incurred a material loss with respect to legal loss contingencies[79] Risk Factors This section provides a comprehensive overview of the risks facing the company, including a history of net losses, challenges in managing rapid growth, intense competition, reliance on customer subscription renewals, potential security breaches, and risks associated with international operations and intellectual property strategy - The company has a history of net losses ($66.3 million for the quarter) and may not achieve or sustain profitability as it continues to invest in growth[236] - A key risk is competition from public cloud operators and others who can use the company's source-available licenses to build competing products with limited barriers to entry[245] - The business is highly dependent on customer renewals and expanding sales to existing customers, where a failure to maintain high renewal rates or expand deployments could harm future revenue[249][250] - The company's dual-class stock structure concentrates voting power with pre-IPO stockholders, including founders and executives, limiting the influence of Class A stockholders[403] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities or use of proceeds to report for the quarter[422] Other Information This section discloses that several executive officers, including the CEO, CFO, CTO, CRO, and CMO, entered into Rule 10b5-1 trading plans during the quarter for the future sale of company stock - During the quarter, CEO David McJannet, CFO Navam Welihinda, CTO Armon Dadgar, CRO Brandon Sweeney, and CMO Marc Holmes each established a Rule 10b5-1 trading plan for selling shares of company stock[425][426][427] Exhibits This item lists the exhibits filed with the Form 10-Q, including the CEO and CFO certifications required by the Sarbanes-Oxley Act and interactive data files (XBRL) - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906[432]