HashiCorp(HCP) - 2024 Q3 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) This section presents HashiCorp's unaudited financial statements, detailing its financial position and performance for the periods ended October 31, 2023 Condensed Consolidated Balance Sheets The balance sheets show total assets of $1.586 billion as of October 31, 2023, reflecting changes in cash, investments, and liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 31, 2023 | Jan 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $729,826 | $1,286,134 | | Short-term investments | $525,825 | $— | | Total current assets | $1,438,590 | $1,508,998 | | Total assets | $1,586,269 | $1,628,340 | | Liabilities & Stockholders' Equity | | | | Deferred revenue (current) | $264,422 | $272,909 | | Total current liabilities | $357,890 | $380,849 | | Total liabilities | $394,546 | $422,990 | | Total stockholders' equity | $1,191,723 | $1,205,350 | | Total liabilities and stockholders' equity | $1,586,269 | $1,628,340 | Condensed Consolidated Statements of Operations The statements of operations show total revenue of $146.1 million for Q3 2023, with a narrowed net loss compared to the prior year Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $146,125 | $125,341 | $427,354 | $340,101 | | Gross profit | $120,520 | $102,793 | $345,627 | $276,624 | | Loss from operations | $(55,573) | $(77,338) | $(205,979) | $(234,399) | | Net loss | $(39,473) | $(71,958) | $(159,046) | $(224,939) | | Net loss per share | $(0.20) | $(0.38) | $(0.83) | $(1.22) | Condensed Consolidated Statements of Cash Flows Cash flow statements indicate $21.1 million in net cash used in operating activities for the nine months ended October 31, 2023, a notable improvement Cash Flow Highlights (in thousands) | Activity | Nine Months Ended Oct 31, 2023 | Nine Months Ended Oct 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(21,137) | $(86,040) | | Net cash used in investing activities | $(548,073) | $(6,314) | | Net cash provided by financing activities | $12,902 | $11,434 | | Net decrease in cash | $(556,308) | $(80,920) | Notes to Condensed Consolidated Financial Statements These notes detail significant accounting policies, the BluBracket acquisition, a workforce reduction, and Remaining Performance Obligations as of October 31, 2023 - On June 2, 2023, the company acquired BluBracket, Inc. for an aggregate purchase price of $25.1 million in cash. The acquisition is expected to enhance the company's Vault product offering with code security solutions[41] - As of October 31, 2023, the company had $678.2 million in Remaining Performance Obligations (RPOs), with approximately 59% expected to be recognized as revenue over the next 12 months[54] - On June 7, 2023, the company announced a workforce reduction plan affecting approximately 8% of its workforce to improve operational efficiency. This resulted in $7.3 million of charges during the nine months ended October 31, 2023[93][94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting revenue growth, customer expansion, and a strong liquidity position despite ongoing operating losses - The company's business model focuses on an "adopt, land, expand, and extend" motion, leveraging free community editions to drive adoption, followed by enterprise sales for proprietary features and support[119] - As of October 31, 2023, the last four-quarter average net dollar retention rate was 119%, compared to 134% as of October 31, 2022, indicating continued but slowing expansion within the existing customer base[119][126] - HashiCorp Cloud Platform (HCP) revenue grew to $19.9 million for the three months ended October 31, 2023, up from $12.9 million in the prior-year period, representing a key growth area for the company[127] Key Business Metrics | Metric | As of Oct 31, 2023 | As of Jan 31, 2023 | | :--- | :--- | :--- | | Total customers | 4,354 | 3,870 | | Total customers with ≥$100,000 ARR | 877 | 798 | | GAAP Remaining Performance Obligations (RPOs) | $678.2 million | $647.1 million | Results of Operations This section details the company's revenue growth and operating expense changes for Q3 and the nine months ended October 31, 2023, showing narrowed operating losses Revenue Comparison - Q3 2023 vs Q3 2022 (in thousands) | Revenue Type | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscription | $141,934 | $120,198 | $21,736 | 18% | | - Cloud-hosted services | $19,863 | $12,875 | $6,988 | 54% | | Professional services | $4,191 | $5,143 | $(952) | (19)% | | Total Revenue | $146,125 | $125,341 | $20,784 | 17% | Operating Expense Comparison - Q3 2023 vs Q3 2022 (in thousands) | Expense Category | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $87,320 | $92,872 | $(5,552) | (6)% | | Research and development | $54,349 | $53,887 | $462 | 1% | | General and administrative | $34,424 | $33,372 | $1,052 | 3% | | Total Operating Expenses | $176,093 | $180,131 | $(4,038) | (2)% | Liquidity and Capital Resources HashiCorp maintains a strong liquidity position with $1.256 billion in cash and investments, sufficient to fund operations despite expected ongoing losses - The company's cash, cash equivalents, and short-term investments totaled $1,255.7 million as of October 31, 2023[199] Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Oct 31, 2023 | Nine Months Ended Oct 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(21,137) | $(86,040) | | Net cash used in investing activities | $(548,073) | $(6,314) | | Net cash provided by financing activities | $12,902 | $11,434 | Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from interest rates and foreign currency fluctuations, implementing hedging strategies for foreign-denominated expenses - The company does not believe a hypothetical 10% change in interest rates would materially impact operating results[214] - A portion of operating expenses are denominated in foreign currencies. A hypothetical 10% weakening of the U.S. dollar could increase operating expenses by approximately 2%[216] - In Q2 of fiscal 2024, the company began using foreign currency forward contracts to hedge against fluctuations in foreign-denominated expenses[217] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of October 31, 2023, with no material changes in internal control over financial reporting - The CEO and CFO concluded that as of October 31, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[222] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[223] Part II. Other Information Legal Proceedings The company is involved in ordinary course legal proceedings but believes it has not incurred a material loss from such contingencies as of October 31, 2023 - The company believes that as of October 31, 2023, it had not incurred a material loss with respect to litigation and other loss contingencies[81] Risk Factors The company faces significant risks including net losses, intense competition, challenges with its source-available software model, and concentrated voting power - The company has a history of net losses, incurring $39.5 million in Q3 2023, and may not achieve or sustain profitability in the future[239] - Competition is a major risk, especially from public cloud operators (AWS, Microsoft Azure, Google Cloud) who may use HashiCorp's source-available software to build competing offerings and have greater resources[233][265] - The company's change to the Business Source License in August 2023 does not prevent competitors from building on versions released under the previous, more permissive open-source license[247][248] - The dual-class stock structure concentrates approximately 41% of voting power with executive officers and directors, and 31% with the co-founders, limiting the influence of Class A stockholders[406] Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities during the reporting period - None[422] Other Information Armon Dadgar, Co-Founder and CTO, entered into a Rule 10b5-1 trading plan on September 7, 2023, for the potential sale of common stock - Armon Dadgar, Co-Founder and CTO, entered into a Rule 10b5-1 trading plan on September 7, 2023, for the potential sale of up to 1,029,830 shares of common stock[428] Exhibits This section lists the documents filed as exhibits with the Form 10-Q, including required certifications and Inline XBRL documents