HashiCorp Inc

NASDAQ:HCP

Earnings Call Transcript 2022-Q4

[Operator]

Good day, ladies and gentlemen and thank you for standing by. Welcome to HashiCorp, Fiscal 2022, Fourth Quarter earnings call. At this time, all participants are in a listen-only mode. After the speakers 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 head of Investor Relations. Thank you. Please go ahead, sir.

[Alex Kurtz, Vice President of Investor Relations]

Good afternoon and welcome to HashiCorp's Fiscal 2022 Fourth Quarter Earnings Call. This afternoon. We will be discussing our financial results for the fourth quarter, announced in our press release issued after the market closed today. With me are HashiCorp's CEO David McJannet, CFO, Navam Welihinda, and CTO & Co-Founder, Armon Dadgar. At the close of the market today and in conjunction with our earnings press release, we have published an earnings deck that contains additional financial information pertaining to our quarter. We plan to do this each quarter before our earnings call, encourage you to review the deck in advance of our calls. You can access the deck 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 are expected, future business and financial performance and financial condition. And our guidance for the first quarter of fiscal 2023 and the full fiscal year 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 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 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?

[David McJannet, Chief Executive Officer]

Thank you, Alex and good afternoon, everyone. Welcome to our first earnings call as a public company. We're excited to share with you that Q4 was a strong quarter for HashiCorp as we continue to execute on our vision of unlocking the value of the cloud for our customers through our automation offerings. We strongly believe that the move to a cloud operating model is the foundation for how enterprises everywhere will manage their infrastructure and application environments going forward. We reported revenue of $97 million representing year-over-year growth of 56%, along with the trailing four-quarter average net dollar retention rate of 131%. But before diving deeper into Q4 results, I'd like to quickly reflect on our initial public offering we completed in early December. The IPO was a tremendous milestone for the company and reflects the hard work our team members have put in to build an incredible product portfolio for what we believe is a once-in-a-generation software business. We're very proud to have some of the largest enterprises running their most critical applications on our products and view the IPO as the next step to support these customers with continued investments in our products and in our ongoing vision for enabling their move to cloud or multi-cloud, providing them cost-savings, risk mitigation, and revenue generation opportunities. Organizations right now are undergoing a digital transformation across every business function, driven by competition and ever increasing consumer expectations. Key to this digital transformation is a re-platforming from static on-premises infrastructure to dynamic and distributed cloud infrastructure. We realized early on that everything about the cloud requires new thinking. The existing procedures are too inefficient to scale with the distributed multi-cloud infrastructure reality that these organizations are adopting. What's needed are consistent workflows and new Cloud operating model for Enterprise IT to provision secure, connected, running infrastructure and applications across multiple public and private Cloud environments. Enterprise is one of the system of record for these workflows and for managing their significant investments in Cloud programs. This system of record is what the HashiCorp product portfolio provides. To make the most of this opportunity, we take a long-term view on making our market function. We build our products using an open core software development model with large communities of users, contributors, and partners collaborating under development. Our commercial software builds on our open source products with additional enterprise capabilities. Our sales efforts build on our broad open source reach and are driven by an enterprise sales force to focus on being a strategic partner, some of the most significant organizations in the world as they move to the Cloud. In addition, our cloud offerings supplement our direct sales motion with a self-serve offering for small and medium-sized businesses. To support all of these efforts, we have an ecosystem of partners, including cloud service providers, independent software vendors, and system integrators that standardized around our offerings and helped to support our customers’ needs. These elements are the foundation of our durable growth opportunity and know the critical components of our Adopt/Land/Expand/Extend business motion. One more thing we'll probably discuss the results for the quarter, I'd like to talk about the steps that we see enterprises taking and adopting this cloud operating model for infrastructure that I discussed earlier. Organizations typically move through multiple predictable stages of cloud maturity. Their initial forays into cloud are usually driven by teams looking to build net new applications. Over time, the best practices and expertise learned from these siloed efforts, but tend to come a common consistent foundation to achieve cloud infrastructure automation. This common operating model is often centralized server cloud program Officer, cloud platform team, which is often the second step in a company's journey to a Multi-Cloud of state. This centralized model ultimately becomes the basis for how enterprises interface to cloud infrastructure. As organizations mature, we see this model being applied to increasing amounts of their infrastructure, including private cloud and data centers, providing similar gains and consistency in automation. Our foundational technology solve these challenges of cloud adoption by enabling this model and providing a system of record that unlocks the full potential of modern public and private clouds. We're excited by what we see our customers doing so far and even more so about the road ahead. Now, taking a closer look at our results, a few highlights stood out in the fourth quarter. We added 10 new $1 million or greater ARR customers and 60 new a $100,000 or greater ARR customers in the quarter for the company, a strong signal of our adoption within the largest IT organization. We're excited share with you that we crossed a corporate milestone during the fourth quarter with our first customer reaching more than $10 million in annual recurring revenue. A Fortune ten company that after starting their journey with us as an open source customer all the way back in 2015, has made repeated investments in both Terraform and Vault along with the major renewal and expansion of Vault in the fourth quarter. Another key theme from the quarter was a momentum with customers purchasing multiple products. We continue to win the position of trust within the platform teams. As an example from Q4, we saw a solid number of Consul deals as we remain highly focused on driving our cloud-based networking framework into the marketplace. To frame the progress we've made with the penetration of our core products with Terraform, Vault and Consul, the absolute number of a $100,000 or greater annual recurring revenue customers that have purchased multiple products, increased 42% year-over-year. This represents 45% of our $100,000 or greater ARR customers who are now using multiple products in the fourth quarter. We believe that the three layers we are focused on, infrastructure, security, and networking, represent extremely large total addressable markets. Each of which are moving through generational changes and we're investing against all of these opportunities. Finally, we made steady progress in the adoption of our HCP cloud product offering in the quarter, growing nearly 350% in the fourth quarter from the prior period. As we previously discussed, FY '23 will be a year of ongoing R&D investment into HCP capabilities, as we increased the number of cloud services and enterprise features, as well as additional cloud regions. Now turning your attention to notable fourth quarter transactions, I'd like to highlight a few examples of strategic deals that were completed and demonstrate our execution in the marketplace and showing our adopt land expand motion and action. As an example of a land transaction, a European-based consumer goods companies standardized on Vault Enterprise after starting out as an open source user. Vault will now provide a common workflow across clouds and enable a standardized approach authentication. Vault also enabled this customer to save budget dollars through the consolidation of engineering resources and tools. I will note that Amazon marketplace with a central part of the sales process demonstrating the go-to-market alignment we have built with the top cloud platforms. An example of an expand transaction was the deal with one of the top consumer brands in Asia. This customer expanded the secrets management that was already in place on Amazon into their Azure environment with Vault, expanded Terraform license to support that Azure cloud deployments, and further expanded console in traditional business units in the quarter. At the core of this opportunity, our products accelerate this customer's time-to-market with new consumer services and simplifies their compliance regime. Finally, an example of an extend transaction, we had a global energy services company that extended into Vault during the quarter after starting out as a Terraform customer. This customer is using Vault to help centralize and protect its Azure and Google secrets as the company expands its multi-cloud to state. This customer chose Vault as it will enable faster development cycles. And at the same time reduce costs. I would like to thank our entire team for their continued focus on delivering on our product roadmap, as well as engaging in delivering for our customers in the field. In addition, we wouldn't be where we are without our open source community and be ecosystem of partners that work with us. And I'd like to also thank them. With that let me turn the call over to Navam.

[Navam Welihinda, Chief Financial Officer]

Thanks, Dave and thanks to everyone for joining us today. Turning your attention to our financial results, we produced strong fourth quarter results with total revenue of $96.5 million, which was up 56% year-over-year, and we maintained a trailing 4-quarter average net dollar retention rate of a 121%. We came in ahead of our non-GAAP gross margin, non-GAAP operating income, as well as our GAAP and non-GAAP net income plans. We incurred a net loss of $1.70 per share on a GAAP basis and $0.24 per share on a non-GAAP basis. We would note that due to the structure of our stock-based compensation, we recognized all of our historical RSU expenses in the fourth quarter, resulting in $196 million in total SBC recognized. SBC will revert to a more normalized amount starting in the first quarter of '23, which we expect to be in the $50 million range. We track several key business metrics which we believe help in understanding our business and financial performance in our journey to deliver durable growth. We focus on: one, our revenue growth rate; two, the growth in the number of total customers we serve; three, the growth in the number of total customers that represent greater or equal to 100,000 in ARR, as well as their aggregate contribution to revenue; four, the revenue we derived from customers on the HashiCorp cloud platform; five, Our trailing 12-month free cash flow margins, and 6. Our non-GAAP RPOs. Our earnings deck contains detailed information on all these metrics. Focusing on one of these core metrics, the greater or equal to 100K customer cohort, we made solid progress during the fourth quarter. We continued to execute our adopt, land, expand, and extend model as outlined by the customer activity in the quarter which Dave spoke about. On a trailing 12-month basis, we added 155 of these customers and grew their revenue from $123,000 per customer to $147,000 per customer in the quarter, a 20% year-over-year increase. We are also encouraged by our HCP business during the quarter because we saw strong demand signals. Our cloud revenue numbers showed solid growth, and our cloud bookings more than doubled compared to a year-ago period, setting the stage for continued strong performance. Two final thoughts before providing forward guidance. First, we are very pleased with the pace of demand in the quarter driven by our 100K or greater ARR customer activity. And we remain on track executing on our long-term plan of delivering durable and high revenue CAGR. Second, similar to most other enterprise software businesses, we benefit from buying patterns where large enterprises tend to make sizable end-of-year purchasing decisions, leading to some seasonality in our business. We continue to see strong demand signals coming from the G2K and our $ 100K or greater ARR customers. These signals give us confidence in the long-term secular shift that is happening in the Cloud, and our place as a critical part of the technology stack underpinning cloud consumption. We intend to invest in our product and go-to-market teams to position the company to capture this large TAM transition. Further we continue to expect leverage in our annual model beginning in the fourth quarter of Fiscal 2023. Now, I want to provide our guidance for the first quarter and the full-year FY 2023. For the first quarter of fiscal '23, we expect total revenue in the range of $92 million to $96 million. We expect that Q1 non-GAAP operating loss in the range of $52 million to $55 million. We expect non-GAAP net loss per share to be between $0.30 and $0.28 based on a $182 million weighted average, basic and fully diluted shares outstanding. For the full fiscal year '23, we expect total revenue to be in the range of $413 million and $423 million. We expect FY '23 non-GAAP operating loss in the range of $231 million and $239 million. We expect non-GAAP net loss per share to be between $1.30 and $1.26 based on a $184 million weighted average, basic and diluted shares used for computing non-GAAP net loss per share. In closing, we are very pleased with what we accomplished in our first quarter as a public company and in fiscal 2022. We are looking forward to the year ahead. With that, Dave, and I are happy to take any of your questions. Alex?

[Alex Kurtz, Vice President of Investor Relations]

Thanks, Navam. Operator, let's start with the first question.

[Operator]

Ladies and gentlemen, [Operator Instructions]. Our first question or comment comes from the line of Bob Wong from Morgan Stanley. Your line is open.

[Bob Wong, Morgan Stanley]

Hi, thanks for the question. Congratulations for a great quarter. I'm filling in for Sanjit Singh here at Morgan Stanley. Just the first question on your 100k customer ad. Obviously the 100K customer ad for the quarter was very strong. Can you maybe help us think about potential 100 K customer growth trend going forward. Are there factors that maybe we should consider when looking at this customer base that would lead us to believe that you would trend down a little bit or would it sustain at the current level?

[David McJannet, Chief Executive Officer]

Thanks, Bob Wong. To answer your question, this is Dave. Just to underscore our model, we -- obviously these are huge spend categories that are transitioning and they're all going to cloud and multi-cloud inevitability. Our model is -- actually starts with the open source part of our approach for the speed proliferation of open source to drive our products in the hand of practitioners. Then at some point down the road, that is when they become a commercial customer, as the customer we indicated earlier in the prepared remarks. When we got to think about the open source community as the starting point, which is going to huge investments allows for a very long period of time. We then saw $600,000 to $100,000 customers, $10 million customers, and $110 million customer and accompanied by another stat of a 131% net dollar expansion rate of that portfolio. Fundamentally, that is that model running. Adopt one open source project, that becomes one product. As a multi-product company, they then added another product. And over the course of time, they walk up that relationship with us to scale of the opportunity that they were inferring. Fundamentally, we are tied to the consumption of the cloud estate. But as for cloud programs grow, generally speaking, our product portfolio grows with it. So there's a, there's anything unique to that, a 100K base, I think that's just an indication that once they are on that treadmill, they tend to grow as cloud state grows.

[Navam Welihinda, Chief Financial Officer]

Yeah, Bob and I'll add to that. This is Navam. You got it exactly right. The way we think about the growth of our business is the 100K customer group growth. And the momentum in the fourth quarter was really strong. So we added as you know, 16 net new 100K customers and 155 for the year. And as Dave mentioned during his comments, each of those customers continue to grow with us as evidenced by our strong net retention rate of a 131%. So that 131% was also driven by the growth in a 100K customers and momentum remains very strong among that group.

[Bob Wong, Morgan Stanley]

Okay, thank you. That's very helpful. For my second question, can you maybe comment on just the adoption trends for some of your key products, Terraform, Vault and Consul at this point? Just curious if you can provide some type of revenue split out in terms of what percentage of the revenue came from Consul and Vault specifically or if not, it just like maybe to compare to last quarter, how has that trended?

[David McJannet, Chief Executive Officer]

We have Navam into that question?

[Navam Welihinda, Chief Financial Officer]

Yeah, Bob, let me take that one so I don't think there were any significant shifts in the way our products were adopted by our customers. The lands or across our two core products, Terraform and Vault. Then we have also our Emerging Product Consul. So those three products were what the lands were in any given quarter. The point to note is I think our base of multi product users also continued to grow and we saw some strong growth of customers over a 100k adopting multiple products. So 42% growth year-over-year is that a 100K group, adding their second third product, which is obviously fantastic momentum. But in terms of product mix shifts and strong multi products usage. Thanks.

[Alex Kurtz, Vice President of Investor Relations]

Great, thanks Bob. Next question.

[Operator]

Thank you. Our next question or comment comes from the line of Alex Zukin from Wolfe Research. Your line is open.

[Alex Zukin, Wolfe Research]

Hey guys, thanks for taking the question. I guess, maybe Dave, first you're signing some truly unbelievable customers and customer sizes. As we think about just the level -- for these largest customers, how do you think about for every dollar they spend on their cloud infrastructure and architecture, what percentage of their dollars or budgets ultimately, do you think, go to a solution like HashiCorp? And where is this relationship going forward? And then I've got a quick follow-up.

[David McJannet, Chief Executive Officer]

That's it. That's the appropriate question. I think it's still early to explain, but that it's hard for us to know what percentage that normalizes. And I think we have to keep in mind how early we are in our evolution, right? Do you think we all have company began and sort of 2013. Our first commercial products in which appears to really were not until late 2016 service, really 2017 was our second product. 2018 was our third product. Which is super early. I would -- after your view, which is I think the scale of the million-dollar customers and [Indiscernible] customers just underscores the size of the market. But these are infrastructure markets that are large-spend categories for customers. They spend billions of dollars inside the Global 2000 on these categories. So it's tough to put a number on the math. Other than that highlight that we're very early truthfully in that evolution. I think people are making strategic relationship. That's in our view on who their partner for this multi-cloud infrastructures state is going to be. That's really why we're investing, where we are. I think we don't know the exact number that stabilizes, but it's very clear that it's correlated. I think that conviction comes from seeing, really the size of the commitments. But also on the NDE we're seeing, people both expand the existing use of the products and extend to adjacent products. I can't answer you and for exactly, but hopefully gives you a sense for how we think about it.

[Armon Dadgar, Co-Founder & Chief Technology Officer]

This is Armon. The additional color I would add here, like we shared, we have our first customer who crossed the $10 million mark this quarter, which we're super excited about, but when we look at even the singular customer, that is a single product driving most of that, this is not a wall-to-wall deploy and this is within the context of a larger multi-billion-dollar IT budget. So as we think about what that spend ceiling looks like within any one of these accounts, we feel like there's a ton of headwinds there. And I think that's representative of the broader hopeful [Indiscernible].

[Alex Zukin, Wolfe Research]

Perfect. And then Navam, maybe one for you. If you look at the mix of booking split between one year and multiyear deals, as you continue to become more strategic with your customers, but also sell more of the cloud platform product, how should we think about that split trending in the future?

[Navam Welihinda, Chief Financial Officer]

Thanks, Alex. Good question. As you know, most of our revenue is ratable since more than 90% of our revenue is ratable. So regardless of the mix, I think we're holding good ratability and forward visibility into our revenue. Now that being said, strategic customers do want to have a longer engagement with us so we're seeing a good mix of duration of multiyear deals. I don't think we are expecting anything different in the next year compared to what just happened this year in terms of a mix shift. As you saw, we saw stabilization of duration this quarter and the prior few quarters. And that's pretty much how it's going to continue next few quarters. Overall, strong and very proud to be supporting these large customers in their journey in the cloud.

[Alex Zukin, Wolfe Research]

Thank you so much.

[Alex Kurtz, Vice President of Investor Relations]

Next Question.

[Operator]

Thank you. Our next question or comment comes from the line of Kash Rangan from Goldman Sachs. Your line is open.

[Kash Rangan, Goldman Sachs]

Congratulations Dave, Arman, and Navam. Good to be able to talk to you guys. So in the quarter it looks like there were some breakaway trends. The number of $ 100K customers you added, the number of customers in total that you added. It's the highest we've seen, not across-the-board and several quarters, even relative to your strong Q4 seasonality. Can you just talk about what might have changed? IS there an acceleration of the broader trends that you've seen at all. Maybe -- do you foresee any positive implications from the vertical landscape that's going obviously the stat implications for security and your core products. Maybe it's a little too far fetch of a little conclusion, but I'm just curious. What are some of the broader trends that seem to have accelerated in your growth? And I have a quick follow-up question too.

[David McJannet, Chief Executive Officer]

Dave. I think honestly it's pretty consistent through the next favorable shift to Cloud. And if we see the results from the hyperscalers, you can see multi-cloud is the reality. So I think, to a large degree, it's that continued shift coupled with our growing scale. Again, obviously, I always have to remind myself how early we are when I joined six years ago, we were only 20 people but the scale of our organization has grown really, really rapidly. In fact we've had our sales kickoff event, which just remind us how big our organization is becoming. I think that's the second part of it is our ability to engage with the market certainly improving as we scale. And pleased with the progress there. In terms of infrastructure as a category, yes. We are we are supporting many of the most strategic and Important initiatives of our customers in the realm of, not just infrastructure and network, but also in security and that's not lost on us. But I also would just underscore the infrastructure that deeply consider decision right? These -- the velocity of conversations probably upticks as a result of what's happening in the world but these are deeply consider decisions. So I would expect us to continue to be measured, drive that cadence of open-source proliferation, coupled with land to expand and extend and we're pretty excited about that. But probably those are the three kind of habits, if that answers your question.

[Navam Welihinda, Chief Financial Officer]

Yes Kash. And let me add to it.

[Kash Rangan, Goldman Sachs]

Sure.

[Navam Welihinda, Chief Financial Officer]

Yes let me add to it. On the point about Q4, I think we started the quarter with very strong pipeline for Q4 and we ended the quarter with a good conversion of that pipeline in Q4. So very, very positive about how that quarter turned out. Just a reminder, we are just like any other enterprise software company and the buying patterns there, we experienced seasonality towards the end of the year as buyers tend to purchase more of our products. We were a recipient of that in Q4, that being said, strong demand signals for the rest of the year and Q1 as well. We're comfortable with the guidance that we had, but I wanted to remind you of the seasonality. Thanks.

[Kash Rangan, Goldman Sachs]

Got it. Final one was, so you started to see any breakaway trends in sales productivity? Of course, Terraform and the standard of industry, is it getting a little bit easier to sell Terraform and maybe a couple of the other products like Vault and Consul are not too far behind in terms of maturity curve, customer adoption, overcoming hesitation, making the sales easier, etc. Any thoughts there?

[David McJannet, Chief Executive Officer]

There's a couple of answers to that. I think the short answer is, I think it's still relatively similar, I would argue. I think for the reasons that you outlined the broad generalization in the open source community on our tech. But I think what we're seeing is generally pretty consistent. A lot of this is about market maturity, and I think we've highlighted, infrastructure and security markets are sort of increasing in maturity and we're able to meet the market where they are in a way that it's productive for both of us. I think as a networking market, we're seeing, great signs of it -- of the transitioning. But that would still early. The cloud-native ecosystem, there --they're all bought into the notion of service-based networking. I would say on the Global 2000 is a little bit earlier. That's the future for Vault, about the same as Consul, I think probably seeing signs of market moving a little bit faster on our watch.

[Alex Kurtz, Vice President of Investor Relations]

Thanks Kash. Next question.

[Operator]

Thank you. Our next question or comment comes from the line of Mark Murphy from JP Morgan. Your line is open.

[Mark Murphy, JPMorgan Chase & Co]

Thank you, and all of my congrats. Several software companies saw a low in consumption patterns in recent months. I'm curious, did you see any effect with HCP consumption to speak of or has that been more resilient? Can you just remind us, what is it that can cause some of the sequential fluctuations in that cloud revenue trend?

[David McJannet, Chief Executive Officer]

I'll answer the first one. The answer is, we actually -- the prominent model for our cloud is in fact entitlement base today still. We don't see the shifts in the consumption of the other folks have. Your -- Navam perhaps can answer the question.

[Navam Welihinda, Chief Financial Officer]

Yes. I think the important part to note about HCP is that we continue to see broad-based strong demand signals and also it's a new line of revenue for us and it's opening up this new segment of customers below the G2K, the emerging enterprises. Today's point, the consumption is strong within that group, which is reflecting our revenue, but it's more entitlement based. Over time as the conversion moves to consumption-based pricing, you'd see more of our skews trend that way. But overall, we're very pleased with the way HCP turned out and positive about the forward momentum of that line.

[David McJannet, Chief Executive Officer]

That is -- and I apologize for jumping in, but also underscore that the first version of our cloud offering is really only five quarters old with one product on it. Last year we added Vault for the first time and continue to roll out new products towards end of the year in new regions. So it's really, really early for us in the cloud that we actually had our best cloud bookings quarter ever, which is a milestone for us but it's super early. And we're happy to talk a little bit about what's coming down the pipe, if you're interested. Otherwise, we can answer a different question.

[Mark Murphy, JPMorgan Chase & Co]

You know --Indirectly, Dave. Yes, I do want to ask you and Armon about that. What was on my mind is one of your customers had said that Hashi's suite of products is like the Apple ecosystem for IT. It was just describing how everything just works harmoniously together and I love that vision. Can you speak to how many customers today have reached this point of maturity where they're realizing a synergy across the products? What I mean is, multi-product but also woven together.

[David McJannet, Chief Executive Officer]

I'll let Armon answer that question.

[Armon Dadgar, Co-Founder & Chief Technology Officer]

I know it's a great question. I think there's a few different aspects to it. One is as Navam shared, if we look at sort of the math of growth in terms of customers and the 100K segment going to multi-product, of 42% growth year-over-year from where we are. So certainly you can kind of see from a math perspective, the customers are seeing that value of leaning into that kind of integrated platform experience. And I think going back to sort of your previous question as well, I think one of the things we're seeing shift as customers are increasingly seeing Terraform as a standard in infrastructure. They're seeing Vault as a standard in zero-trust security. Adding even with console, they're appreciating, hey, if we're part of this platform investment. We know HashiCorp is going to be a strategic partner to us for many, many years to come. Now that we're actually under sort of the public governance, I think that was actually a huge aspect for us in terms of giving customers that comfort. And we're seeing that acceleration as Dave mentioned around the networking market as well where people are really acknowledging, that HashiCorp is going to be a strategic partner, with components are well integrated. It makes sense for us to sort of invest in the broader HashiCorp platform vision as opposed to necessarily just coming in through a single product.

[David McJannet, Chief Executive Officer]

I had one comment. I apologize. Is these problems are fundamentally connected. I think it's important for people to understand that. If you have a provisioning problem, there is also a security aspect. There is also a networking aspect. In a sense, we sort of come from the future a little bit from the cloud world, and we know that our thousand customers eventually have all those problems. The product portfolio is designed that way, but we let people adopt the piecemeal. But if you talk to all of our scale customers, all of our more mature customers, and certainly those in the Cloud native ecosystem, like some of the books that you see on the news, they are all using most of the products, not one.

[Alex Kurtz, Vice President of Investor Relations]

Thanks, Mark. Let's go to the next question.

[Operator]

Thank you. Our next question or comment comes from the line of Jason Ader from William Blair. Your line is open.

[Jason Ader, William Blair and Company]

Thanks. Hey guys. Dave, what -- I guess when you think about 2023, what are your top two or three priorities? And what is the biggest constraint on your growth right now?

[David McJannet, Chief Executive Officer]

It's really more of the same truthfully. I think it's, point number one is, let's continue to scale our engagement with the Global 2000. I think history has taught us that when markets grow through transitions, there is a time period where those decisions were made in terms of the new software stack and we're deeply convicted about that, and we're committed to going after it aggressively. You see that in the growth of our sales organization. That is our priority number one. Priority number one, you saw us to add 36 to the Global 2000 last quarter. We're going to keep doing that, in terms of we want to partner with. The second priority is our continued evolution of our products on HCP. That's an important new distribution channel for us. Perhaps, Armon can just talk about some of the things that are happening there.

[Armon Dadgar, Co-Founder & Chief Technology Officer]

As Dave mentioned, Cloud is the major investment for us from an R&D perspective. Last year we went from just a single Cloud product available at the start of the year, which is Terraform, to bringing Vault and Consul. That was an initial skews on a few Cloud regions. So since then, through the year, we expanded the number of regions that we were in, the number of skews that were available, so adding richer capability. As we think about carrying that into this year, today's point, it is more of the same, but it is bringing additional products online, bringing additional Cloud regions online, bringing additional Cloud providers online. So really a heavy R&D investment in terms of enabling all of the HashiCorp tools to be consumed as a Cloud service, wherever the customer wants to consume it.

[Jason Ader, William Blair and Company]

Gotcha. And so -- basically you're saying that the biggest constraint right now, sounds like it's, adding as many salespeople and support people that you can to kind of capture that G2K opportunity, as well as getting the HCP offering fully ramped up across all major cloud regions. Is that fair?

[David McJannet, Chief Executive Officer]

I can have the first one. Again, I make this point off and these are considered decisions for a reason because they are doable. And so we can address it with the sales organization, but there's also an aspects of the market, right? Like certain regions are more mature than other regions. For example, in North America, the global 2,000 shift to Cloud is actually pretty mature. In other regions, it's less mature. And I think that's an important aspect that we keep an eye on. So infrastructure markets, if you'd like to say, move inexorably like the Mississippi. And that's mature.

[Alex Kurtz, Vice President of Investor Relations]

Thanks, Jason. And just in the interest of time, we are going to stick to one question on to get throughout the remaining queue here. So, Operator.

[Operator]

Thank you. Our next question or comment comes from the line of Derrick Wood from Cowen and Company. Your line is open.

[Derrick Wood, Cowen and Company]

Great. Thanks and great quarter out of the gate guys. I want to go back to the console topic. It sounded like you had a strong quarter, I think console pension generate bigger deals. I know it's more of an emerging product. Just curious if there's anything you can do to proactively help tilt the curve of adoption a little bit more in FY23. I know you guys announced an API gateway operating and tech preview recently, just wondering how you're feeling about entering that market and what kind of opportunity lies there.

[David McJannet, Chief Executive Officer]

Let me answer the first one. I'll let Armon answer the second. The first one is again, if you look into cloud-native ecosystem in terms of either digital native community, Consul is super broadly used. I just think the Global 2000 transition to cloud is actually really early and they tend to run into the provisioning and security problem first, that's the simple truth. I think it's continued evangelism. It's continued demonstration within the light outs accounts above which we have many obviously, that are adopting this, that scale and continued to push that message forward because the technology is very well proven in the digital native ecosystem. Honestly, I think that's the constraints, it's a market constraint more than a product constraint. You will see us leaning in really heavily with the cloud providers themselves, we run a managed service with Microsoft and Azure. We do a lot of work to better in the link, the runtime platforms on Amazon to Consul. I think that's the second lever that we can do. You've seen us investing deep there. Navam will talk about the other question.

[Navam Welihinda, Chief Financial Officer]

I think there is a few fold there, so I think when we talked about accelerating Consul overall, first need -- as Dave mentioned is really the Cloud delivery component. As I mentioned, really only became available to middle of last year as a Cloud service and the initial versions. This year continuing to expand the skew is around Consul, the region availability, the Cloud availability. I think all of that will make it easier to trial Consul, as well as go through the whole purchase experience. But as we add that as an option of beyond just self-managed. The second piece is continued to be deeply invested in the capabilities that will enable what will 2000 customers as they're going through that transition of understanding, hey, what is our future of our zero-trust networking approach, or how do we do Cloud to ground networking or multi-cloud networking? There's a set of capabilities they continue to need to manage that very large scale. Then the API gateway is really about the completeness of vision, right? I think what we're seeing is an intersection of what was historically a separate north-south approach to networking versus an east-west. Historically, customers thought about those as two different markets, different approaches, different vendors. I think as we're seeing the architectural patterns shift to being very micro-service driven, services being deployed globally and a multi-region way that line is blurring increasingly. So I think east-west versus north-south as part of one logical networking story and I think, the API gateway round that out with Consul.

[Alex Kurtz, Vice President of Investor Relations]

Thanks, Derrick. Next question.

[Operator]

Our next question or comment comes from the line of Brad Sills from Bank of America Securities. Your line is open.

[Brad Sills, Bank of America Securities]

Great. Hey guys, congratulations on a nice quarter here. Thanks for the question. I just wanted to ask one on that tipping point that you see in the customer base for customers to get to the scale you talked about -- that $10 million contract. Obviously at this point, those are kind of the exception, but is there a certain footprint or number of applications that you see after which you really start to see customers really hit their stride in that expansion, in their usage of HashiCorp?

[David McJannet, Chief Executive Officer]

Thanks Brad. That's a very appropriate question given how we spend our days. I think there's a transition that happens. I think there's a difference between a business group that is building an application on the Cloud and that often ends up being an early adopter of our products. Maybe it’s a couple of business groups, maybe there is three business groups, and then at some point it gets established more as a standard by a platform team. And I think that's -- some of these companies are really big and these categories are so big that we can certainly have $1 million customers inside a single business without issue. There are plenty of those, but I think it is when you reach that mark for standardization in a platform team concept, which is probably the tipping point that we see being that for the moment where it goes.

[Brad Sills, Bank of America Securities]

Great.

[David McJannet, Chief Executive Officer]

Thanks, Brad. Let's go to the next question, Operator.

[Operator]

Our next question or comment comes from the line of Michael Turits from KeyBanc. Your line is open.

[Steve Enders, KeyBanc Capital Markets]

Hi, guys. This is Steve Enders on for Michael. Appreciate taking the question here. I just wanted to ask on the comment you had around seeing really Sean conversion of a pipeline in 4Q. Is there kind of any deals they felt I got kind of pulled forward that maybe are expecting ahead and 1Q. And how are you dealing about the general pipeline into fiscal '23 at this point?

[Navam Welihinda, Chief Financial Officer]

Yeah. Good question, Steve. This is Navam. So I think the fourth-quarter pipeline was high, was very strong. And we saw good conversion of that pipeline. It wasn't unusual compared to what we expect in our fourth-quarter. And I think we are comfortable with the signals we're seeing in the first quarter and we have strong pipeline in the first quarter that give us comfort in the guidance we have. So I think we're happy with where we landed and we're optimistic about the full year.

[Alex Kurtz, Vice President of Investor Relations]

Thanks, Steve. Next question.

[Operator]

Thank you. Our next question comes from Ittai Kidron from Oppenheimer. Your line is open.

[Ittai Kidron, Oppenheimer]

Thanks and congrats, guys. Great quarter. Navam, a couple for you. I just want to make sure I understand the correlation between the CRPO and your guidance for the year. If my math is right, you've got it at the mid-point at about 30% year-over-year growth. The CRPO growing much faster than. Maybe you can help us reconcile the two. And also on the gross margin, the same way. HCP is growing as a mix. Your gross margin moving higher. How should we think about gross margins through the year?

[Navam Welihinda, Chief Financial Officer]

Thanks, Ittai. And two very good questions on our metrics. So the CRPO growth, we're very optimistic about it. We saw good momentum in the quarter, as I mentioned, strong bookings growth, and the result of that was the very high CRPO growth that you saw. The point to note is that we are seeing normalizing durations and that's part of what's driving the CRPO growth normalization to what you're seeing. And that's basically the movement in CRPO. That -- sorry, the movement in CRPO, which is driven by duration. On our gross margin, we're very pleased that being a high gross margin company, a strong gross margin company. I think the main driver for that is well ahead of our plan in terms of in terms of Cloud Gross margin. So we reached 50% and we're confident we'll be able to scale that up to the high seventies. Overall we expect next year to be at about an 80% margin. And as the cloud bookings grow over time, we'd expect to normalize at the high 70s margin. But us, as a company, we believe we will remain a hig -- a strong gross margin business.

[Ittai Kidron, Oppenheimer]

Thank you.

[Alex Kurtz, Vice President of Investor Relations]

Next question. Thanks, Ittai.

[Operator]

Thank you. Our next question comes from the line of Pat Walravens from JMP. Your line is open.

[Pat Walravens, JMP Securities]

Great. Thank you and let me add my congratulations on a great quarter. So Dave, lots of great information on this call. Maybe to help boil it all down for us, what are the two or three most important things for you to get done in this next year?

[David McJannet, Chief Executive Officer]

I think it's, number one, trying to engage more with Global 2000 on -- and win the right to be their partner. That is the position of trust is the one we covered previously. That is what we're doing. And we're continuing to invest aggressively against that opportunity. Number two, is as Armon highlighted it is continuing to invest deeply in this new distribution channel of HCP, which is going to be important to us not just for adding the longer tail of our customer base onto merchant side of our business, but also there's clearly appetite from some of the larger organizations in the world to consumers and services by being infrastructure. Those are really the two things we're focused on. Like I said one comment about the first and around our continuing investment in our field organization, now, we have a fundamentally strong unit economics in our business. High-gross margin business, well-capitalized company with an opportunity to pursue this massive market opportunity in front of us. And that's driving our investment field. That's driving our investment and the company to aggressively pursue it. That's the first virtual priorities.

[Alex Kurtz, Vice President of Investor Relations]

Thanks for that. Next question.

[Operator]

Thank you. Our next question comes from the line of Fatima Boolani from Citi. Your line is open.

[Fatima Boolani, Citi]

Good afternoon and thank you for taking my questions and nice to be able to talk to you -- all of you again. Navam, my questions for you with respect to the non-GAAP operating loss guidance. I wanted to ask you to help us unpack some of the primary assumptions that are baked into that expense profile next year. If you can walk us through how you're thinking about expenses tracking back to pre -COVID levels, and specifically trying to back to some of your comments in your prepared remarks in the deck around a challenging recruiting environment. I'd be curious to get your opinion on where you might be or if you're behind plan on certain areas of the business and where you might be understaffed or under indexed at this point.

[David McJannet, Chief Executive Officer]

Yeah. I appreciate the question. It's good to talk in this in this form for the first time. It's fun. I'll just underscore my point about strong unit economics expenses that comes in our business and our desire to keep investing against the opportunity. I think that underscores our expense profile that Navam communicated. I'll hand it over to Navam to comment more deeply, but I'll just comment on the recruiting environment. I think we're very fortunate and that we're net recipient of a lot of the migration. I think we've actually been in a good position, but we're also very aggressive in our hiring goals. We hired almost a thousand people last year. We are optimistic your year to keep investing in those people. We're not seeing much of an issue there. I think we're in a fortunate position that we just have aggressive goals. Navam?

[Navam Welihinda, Chief Financial Officer]

I'll comment a little bit about our philosophy of spend as well. The key thing to remember is that our net dollar retention rates, which were at a 131%, was best-in-class in our opinion. What that's telling us is that customers once landed will expand and extend, and that's been consistent across -- in the past. So the right thing for us to do is to continue to invest in our product group and to invest into our go-to-market group. That's what's right for the long term. Net is the high net retention rates, the good unit economics, the very strong balance sheet that we see, and the high gross margin, give us the flexibility to do so and that's what we're doing over the next few quarters. You're going to see leverage, I'd say, towards the back half of the year in the fourth quarter where we're going to start looking at annual leverage after that point. But for now, I think we are consistent -- we're convicted of the long term and are [Indiscernible] the market.

[Alex Kurtz, Vice President of Investor Relations]

Thank you. Thanks for taking my next question.

[Operator]

Thank you. Our next question comes from the line of Alex Henderson from Needham. Your line is open.

[Alex Henderson, Needham]

Thank you. I've got two questions for you. One is I wanted to understand a little bit more about how transactions typically start with enterprise customers. Do they generally start off with a deployment, say perhaps Terraform in their on-premise data center to get experience with the product and then move to the Cloud or are you increasingly seeing coder centric adoption driving application, the workloads to the Cloud and then finding their way back into the enterprise data center, which is the primary process flow? And the second question I have for you is it would seem to me that codding community and DevOps community are the primary target customers here in terms of getting adoption. Can you talk at all about what portion or the number or the growth rate of that population that’s currently utilizing your technology and writing to it?

[David McJannet, Chief Executive Officer]

Thanks, just realized. I'm happy to answer that. I think the first question is fundamentally what's the adoption pattern? I will try to [Indiscernible] it. We see the pattern of -- the adoption is by practitioners who are tasked with building new things on Cloud. That's where it starts an open source. For example, that $10 million customer we mentioned that charted out in 2015. It starts very early. But that is happening in a Cloud environment. They're using Terraform, Vault console centers. The basis of how they're building that your applications. But it's a bit tactical in that instance. And that is for the purposes of maybe one or two application. So it's not in a private data center per se. It's literally how they are interfacing to Cloud for particular project. What happens, what we call the [Indiscernible] moment, is when they get 12 months into that contract, into that project and realize they overspend on their Amazon bill and do a bunch of apps that they shouldn't have. From a security standpoint that are out there running because they're not secured. And that is when the corporations hold on a second. We're going to go Cloud. It's going to be multi-cloud and we need to standardize in some way. And in that instance, they're already using our open source projects. And that instance that becomes sensitive Vault. Let's use the commercial version of those products because that's what they are designed for. So they're already being used by the practitioners, but the conversion to a customer is when the organization makes that decision to say a lot of second, let's think about how we're going to do Cloud in a way that is not a responsible, that's really point number one. That's very, very consistent mechanism. Question number two, in terms of the target customers. In a sense, our users are off people as much as they are dev people. I think there's riveted parallel. You get up, focus on the deaf community where it's the analog and the offs' community. I think that's the best way to think about it. That community has certainly grown quickly. We disclosed a 100 million downloads of our products last year. That is the basis of that community measurement. Obviously, we also see some data around certifications growing. That's another key measure of number of people in our Learn platform. But I think what we saw in Q4 where we certainly continued uptick. We're in the early stages of this Cloud transition and if anything, there is staffing shortage of people that know how to use Cloud.

[Alex Kurtz, Vice President of Investor Relations]

Alright, well, thanks Alex for the question. Operator, next question.

[Operator]

Thank you. Our next question comes from the line of Rob Galvin from Stifel. Your line is open.

[Rob Galvin, Stifel]

Hi everyone, this is Rob in for Brad Reback. Thanks for taking the question. I'm just wondering how much of the 100k ARR customer cohort is from HCP, either in terms of the number of customers or the HCP portion of the 89% revenue contribution in that customer cohort?

[David McJannet, Chief Executive Officer]

I'll let Navam answer that.

[Navam Welihinda, Chief Financial Officer]

Yes, thanks for the question, Rob, HCP is a very new line of business for us. We essentially move from a standing start to where we are right around last year to where we are right now. We're pleased with the progress. It's also a new group of customers, like I mentioned before, so this is mostly for the emerging enterprises, the small and medium-sized businesses. They are growing in size. We're optimistic that we'll start adding customers of scaling sizes, as expansions and extensions happen.

[Rob Galvin, Stifel]

Great, thank you.

[Operator]

Thank you. I'd like to turn the conference back over to Mr. Dave McJannet for any closing remarks.

[David McJannet, Chief Executive Officer]

I just like to express my thanks for the participation from all of you and I appreciate you dialing in and for the questions and look forward to speaking to everybody soon. Thank you.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference this concludes the program. You may now disconnect. Everyone, have a wonderful day.