Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

File Number: 001-41121

HashiCorp, Inc.

(Exact name of Registrant as specified in its charter)


Delaware						32-0410665
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)
101 Second Street, Suite 700 San Francisco, CA 94105 (Address of principal executives offices, including zip code) (415) 301-3250 (Registrant's telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:


(Title of each class)	Trading Symbol(s)	(Name of each exchange on which registered)

Class A Common Stock, par value $0.000015 per share	HCP	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 23, 2024, the number of registrant’s issued and outstanding shares of Class A common stock and Class B common stock was 156,935,125 and 45,959,248, respectively.

HashiCorp, Inc.

Form 10-Q

For the Quarterly Period Ended July 31, 2024

TABLE OF CONTENTS


		Page
Part I.	Financial Information	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of July 31, 2024 and January 31, 2024	1
	Condensed Consolidated Statements of Operation s for the Three and Six Months Ended July 31, 2024 and 2023	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended July 31, 2024 and 2023	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended July 31, 2024 and 2023	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2024 and 2023	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Special Note Regarding Forward-Looking Statements	17
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39
Part II.	Other Information	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 3.	Defaults Upon Senior Securities	80
Item 4.	Mine Safety Disclosures	80
Item 5.	Other Information	80
Item 6.	Exhibits	82
	Signatures	84

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HASHICORP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)


	As of
	July 31, 2024		January 31, 2024
Assets
Current assets:
Cash and cash equivalents	$	797,224	$	763,414
Short-term investments	512,066		515,163
Accounts receivable, net of allowance	147,750		182,614
Deferred contract acquisition costs	50,194		50,285
Prepaid expenses and other current assets	28,433		30,075
Total current assets	1,535,667		1,541,551
Deferred contract acquisition costs, non-current	73,230		80,055
Acquisition-related intangible assets, net	10,194		11,611
Goodwill	12,197		12,197
Other assets, non-current	47,512		46,533
Total assets	$	1,678,800	$	1,691,947
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,882	$	9,081
Accrued expenses and other current liabilities	19,417		15,143
Accrued compensation and benefits	48,537		56,007
Deferred revenue	311,462		334,894
Customer deposits	21,753		25,627
Total current liabilities	414,051		440,752
Deferred revenue, non-current	21,425		26,659
Other liabilities, non-current	9,392		11,543
Total liabilities	444,868		478,954
Commitments and contingencies (Note 6)
Stockholders’ equity:
Class A common stock, par value of $0.000015 per share; 1,000,000 and 1,000,000 shares authorized as of July 31, 2024 and January 31, 2024, respectively; 156,819 and 125,333 shares issued and outstanding as of July 31, 2024 and January 31, 2024, respectively	2		1
Class B common stock, par value of $0.000015 per share; 200,000 and 200,000 shares authorized as of July 31, 2024 and January 31, 2024, respectively; 46,033 and 73,921 shares issued and outstanding as of July 31, 2024 and January 31, 2024, respectively	1		2
Additional paid-in capital	2,282,604		2,184,451
Accumulated other comprehensive loss	(17)		(393)
Accumulated deficit	(1,048,658)		(971,068)
Total stockholders’ equity	1,233,932		1,212,993
Total liabilities and stockholders’ equity	$	1,678,800	$	1,691,947

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HASHICORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended July 31,				Six Months Ended July 31,
	2024		2023		2024		2023
Revenue:
License	$	16,488	$	16,724	$	32,837	$	31,882
Support	116,166		103,997		229,798		205,910
Cloud-hosted services	26,534		18,372		51,124		34,916
Total subscription revenue	159,188		139,093		313,759		272,708
Professional services and other	5,950		4,153		11,958		8,521
Total revenue	165,138		143,246		325,717		281,229
Cost of revenue:
Cost of license	470		498		1,007		1,083
Cost of support	14,817		16,304		30,016		31,147
Cost of cloud-hosted services	8,930		7,619		17,828		14,647
Total cost of subscription revenue	24,217		24,421		48,851		46,877
Cost of professional services and other	5,992		4,913		11,671		9,245
Total cost of revenue	30,209		29,334		60,522		56,122
Gross profit	134,929		113,912		265,195		225,107
Operating expenses:
Sales and marketing	87,623		101,134		180,765		191,698
Research and development	54,981		59,962		113,816		114,155
General and administrative	35,623		35,412		81,625		69,660
Total operating expenses	178,227		196,508		376,206		375,513
Loss from operations	(43,298)		(82,596)		(111,011)		(150,406)
Interest income	17,745		16,300		34,952		31,280
Other expense, net	(258)		(105)		(219)		(225)
Loss before income taxes	(25,811)		(66,401)		(76,278)		(119,351)
Provision for income taxes	651		(86)		1,312		222
Net loss	$	(26,462)	$	(66,315)	$	(77,590)	$	(119,573)
Net loss per share attributable to Class A and Class B common stockholders, basic and diluted	$	(0.13)	$	(0.34)	$	(0.39)	$	(0.62)
Weighted-average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted	201,872		192,610		200,982		191,723

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HASHICORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three Months Ended July 31,				Six Months Ended July 31,
	2024		2023		2024		2023
Net loss	$	(26,462)	$	(66,315)	$	(77,590)	$	(119,573)
Other comprehensive loss, net of tax:
Available-for-sale investments:
Net unrealized gains (losses) on available-for-sale investments	1,544		(867)		241		(933)
Foreign currency forward contracts:
Unrealized gains (losses) on foreign currency forward contracts	475		(95)		135		(95)
Other comprehensive income (loss), net of tax	2,019		(962)		376		(1,028)
Total comprehensive loss	$	(24,443)	$	(67,277)	$	(77,214)	$	(120,601)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HASHICORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance as of January 31, 2024	199,254	$	3	$	2,184,451	$	(393)	$	(971,068)	$	1,212,993
Issuance of common stock upon exercise of stock options	464	—		1,681		—		—		1,681

Issuance of common stock upon settlement of restricted stock units	1,253	—		—		—		—		—
Tax withholdings on settlement of restricted stock units	(1)	—		(31)		—		—		(31)
Stock-based compensation	—	—		49,707		—		—		49,707
Other comprehensive loss	—	—		—		(1,643)		—		(1,643)
Net loss	—	—		—		—		(51,128)		(51,128)
Balance as of April 30, 2024	200,970	$	3	$	2,235,808	$	(2,036)	$	(1,022,196)	$	1,211,579
Issuance of common stock upon exercise of stock options	372	—		985		—		—		985
Issuance of common stock upon settlement of restricted stock units	1,169	—		—		—		—		—
Tax withholdings on settlement of restricted stock units	(1)	—		(21)		—		—		(21)
Issuance of common stock under employee stock purchase plan	342	—		6,661		—		—		6,661
Stock-based compensation	—	—		39,171		—		—		39,171
Other comprehensive income	—	—		—		2,019		—		2,019
Net loss	—	—		—		—		(26,462)		(26,462)
Balance as of July 31, 2024	202,852	$	3	$	2,282,604	$	(17)	$	(1,048,658)	$	1,233,932

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	Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance as of January 31, 2023	189,968	$	3	$	1,985,747	$	—	$	(780,400)	$	1,205,350
Issuance of common stock upon exercise of stock options	513	—		1,013		—		—		1,013

Issuance of common stock for restricted stock awards	1,071	—		—		—		—		—
Tax withholdings on settlement of restricted stock units	—	—		(9)		—		—		(9)
Stock-based compensation	—	—		41,266		—		—		41,266
Other comprehensive loss	—	—		—		(66)		—		(66)
Net loss	—	—		—		—		(53,258)		(53,258)
Balance as of April 30, 2023	191,552	$	3	$	2,028,017	$	(66)	$	(833,658)	$	1,194,296
Issuance of common stock upon exercise of stock options	366	—		442		—		—		442
Issuance of common stock upon settlement of restricted stock units	1,307	—		—		—		—		—
Tax withholdings on settlement of restricted stock units	(5)	—		(215)		—		—		(215)
Issuance of common stock under employee stock purchase plan	426	—		10,195		—		—		10,195
Stock-based compensation	—	—		47,471		—		—		47,471
Other comprehensive loss	—	—		—		(962)		—		(962)
Net loss	—	—		—		—		(66,315)		(66,315)
Balance as of July 31, 2023	193,646	$	3	$	2,085,910	$	(1,028)	$	(899,973)	$	1,184,912

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HASHICORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended July 31,
	2024		2023
Cash flows from operating activities
Net loss	$	(77,590)	$	(119,573)
Adjustments to reconcile net loss to cash from operating activities:
Stock-based compensation expense, net of amounts capitalized	87,116		86,282
Depreciation and amortization expense	6,436		3,876
Non-cash operating lease cost	1,857		1,474
Accretion of discounts on marketable securities	(7,103)		(4,196)

Deferred income taxes	—		(482)
Other	113		68
Changes in operating assets and liabilities:
Accounts receivable	34,791		39,914
Deferred contract acquisition costs	6,916		(4,152)
Prepaid expenses and other assets	1,783		(11,161)
Accounts payable	3,767		(5,007)
Accrued expenses and other liabilities	1,500		(1,776)
Accrued compensation and benefits	(7,470)		(5,123)
Deferred revenue	(28,666)		(8,803)
Customer deposits	(3,874)		(1,135)
Net cash provided by (used in) operating activities	19,576		(29,794)
Cash flows from investing activities
Business combination, net of cash acquired	—		(20,859)
Purchases of property and equipment	(422)		(417)
Capitalized internal-use software	(4,964)		(5,669)
Purchases of short-term investments	(565,075)		(469,704)
Proceeds from sales of short-term investments	71,515		26,372
Proceeds from maturities of short-term investments	503,959		32,529
Net cash provided by (used in) investing activities	5,013		(437,748)
Cash flows from financing activities
Taxes paid related to net share settlement of equity awards	(52)		(224)
Payments related to acquisition holdback	(54)		—
Proceeds from issuance of common stock upon exercise of stock options	2,666		1,455
Proceeds from issuance of common stock under employee stock purchase plan	6,661		10,195
Net cash provided by financing activities	9,221		11,426
Net increase (decrease) in cash and cash equivalents	33,810		(456,116)
Cash and cash equivalents at beginning of period	763,414		1,286,134
Cash and cash equivalents at end of period	$	797,224	$	830,018
Supplemental disclosure of cash flow information
Cash paid for income taxes, net of refunds received	$	1,074	$	784
Cash paid for operating lease liabilities	$	2,482	$	1,930
Supplemental disclosure of noncash investing and financing activities
Capitalized stock-based compensation expense	$	1,762	$	2,455
Unpaid acquisition holdback	$	4,046	$	4,200
Operating lease right-of-use assets obtained in exchange for new lease obligations	$	608	$	—
Purchase of property and equipment included in accounts payable	$	34	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HASHICORP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Description of Business

Description of Business

HashiCorp, Inc., (“HashiCorp” or the “Company”) was incorporated in Delaware in May 2013. The Company is headquartered in San Francisco, California and has wholly owned subsidiaries around the world. The Company’s foundational technologies solve the core infrastructure challenges of cloud adoption by enabling an operating model that unlocks the full potential of modern public and private clouds. The Company’s cloud operating model provides consistent workflows and a standardized approach to automating the critical processes involved in delivering applications in the cloud: infrastructure provisioning, security, networking, and application deployment. The Company’s primary commercial products are HashiCorp Terraform, Vault, Consul, and Nomad. The Company’s software is predominantly self-managed by users and customers who deploy it across public, private, and hybrid cloud environments. The Company also offers a fully-managed cloud platform for multiple products that further accelerates enterprise cloud migration by addressing resource and skills gaps, improving operational efficiency, and speeding up deployment time for customers. Additionally, the Company provides premium support and services.

Proposed Transaction with IBM

On April 24, 2024, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with International Business Machines Corporation ("IBM") and McCloud Merger Sub, Inc., a wholly owned subsidiary of IBM (“Merger Sub”). The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into HashiCorp (the “Merger”), with HashiCorp continuing as the surviving corporation of the Merger and as a wholly owned subsidiary of IBM. The Merger is expected to be completed by the end of 2024, subject to the satisfaction or waiver of the closing conditions in the Merger Agreement.

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of the Company's Class A common stock and Class B common stock issued and outstanding immediately prior to the Effective Time (subject to certain customary exceptions specified in the Merger Agreement) will automatically be cancelled and converted into the right to receive $35.00 in cash, without interest and subject to applicable withholding taxes.

The Company’s stockholders approved and adopted the Merger Agreement on July 15, 2024. Completion of the Merger is subject to customary conditions, including the satisfaction of certain domestic and foreign regulatory approvals; the absence of an order or law preventing or materially restraining the consummation of the Merger; and performance by the parties in all material respects of all their obligations under the Merger Agreement.

The Merger Agreement includes certain customary termination rights for the Company and IBM. Upon termination of the Merger Agreement in certain circumstances, we will be required to pay IBM a termination fee of $264.2 million.

The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which is filed as Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on April 25, 2024 and incorporated herein by reference.

Other than transaction expenses associated with the proposed Merger of $17.1 million recorded in general and administrative expense in the accompanying condensed consolidated statements of operations for the six months ended July 31, 2024, the terms of the Merger Agreement did not impact the Company’s condensed consolidated financial statements for the quarter ended July 31, 2024.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America ("U.S. GAAP" or "GAAP"). Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been

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condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (the "SEC"). The unaudited condensed balance sheet data as of January 31, 2024 was derived from the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended January 31, 2024 (the fiscal “2024 Form 10-K”), but does not include all disclosures required by U.S. GAAP. Therefore, these interim unaudited condensed consolidated financial statements and accompanying footnotes should be read in conjunction with the Company’s annual consolidated financial statements and related footnotes included in the fiscal 2024 Form 10-K.

The accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, that are, in the opinion of management, necessary for the fair presentation of the Company’s results for the interim periods presented. The results of operations for the three and six months ended July 31, 2024 shown in this report are not necessarily indicative of the results to be expected for the full year ending January 31, 2025 or any other period.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting period. Such management estimates include, but are not limited to, the determination of standalone selling prices of the Company’s performance obligations, the estimated period of benefit of deferred contract acquisition costs, the fair value of share-based awards, software development costs, discount rates used for operating leases, goodwill and acquisition-related intangible assets, and the valuation allowance on deferred tax assets and uncertain tax positions. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from those estimates.

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies as described in the Annual Report for fiscal 2024 in Form 10-K.

3. Revenue and Performance Obligations

Disaggregation of Revenue

The following table presents revenue by category (in thousands, except percentages):


	Three Months Ended July 31,								Six Months Ended July 31,
	2024				2023				2024				2023
	Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue
License	$	16,488	10	%	$	16,724	12	%	$	32,837	10	%	$	31,882	11	%
Support	116,166		70		103,997		72		229,798		71		205,910		74
Cloud-hosted services	26,534		16		18,372		13		51,124		16		34,916		12
Total subscription revenue	159,188		96		139,093		97		313,759		96		272,708		97
Professional services and other	5,950		4		4,153		3		11,958		4		8,521		3
Total revenue	$	165,138	100	%	$	143,246	100	%	$	325,717	100	%	$	281,229	100	%

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The following table summarizes the revenue by region based on the billing address of customers who have contracted to use the Company's products and services (in thousands, except percentages):


	Three Months Ended July 31,								Six Months Ended July 31,
	2024				2023				2024				2023
	Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue
United States	$	110,258	67	%	$	100,057	70	%	$	220,798	68	%	$	198,614	71	%
Rest of the world	54,880		33	%	43,189		30	%	104,919		32		82,615		29
Total	$	165,138	100	%	$	143,246	100	%	$	325,717	100	%	$	281,229	100	%

No other country, outside of the United States, exceeded 10% of total revenue during the periods presented.

Contract Balances

Changes in deferred revenue and unbilled accounts receivable were as follows (in thousands):


	Three Months Ended July 31,				Six Months Ended July 31,
	2024		2023		2024		2023
Balance, beginning of period	$	321,685	$	276,414	$	361,553	$	302,244
Deferred revenue billings including reclassification to deferred revenue from customer deposits	177,899		160,210		296,144		273,256
Recognition of revenue, net of change in unbilled accounts receivable*	(166,697)		(143,183)		(324,810)		(282,059)
Balance, end of period	$	332,887	$	293,441	$	332,887	$	293,441
* Reconciliation to revenue reported per consolidated statements of operations:
Revenue billed as of the end of the period	$	166,697	$	143,183	$	324,810	$	282,059
Increase (decrease) in total unbilled accounts receivable	(1,559)		63		907		(830)
Revenue reported per consolidated statements of operations	$	165,138	$	143,246	$	325,717	$	281,229

Unbilled accounts receivable represents revenue recognized on contracts for which billings have not yet been presented to customers because the amounts were earned but not contractually billable as of the balance sheet date. The unbilled accounts receivable balance is due within one year. As of July 31, 2024 and January 31, 2024, unbilled accounts receivable of approximately $4.7 million and $3.8 million, respectively, were included in accounts receivable on the Company’s condensed consolidated balance sheets.

Remaining Performance Obligations (RPOs)

The typical stated customer contract term is one year but can range up to three years. RPOs include both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. As of July 31, 2024 and January 31, 2024, the Company had $771.5 million and $775.8 million, respectively, of remaining performance obligations, which is comprised of product and services revenue not yet delivered. As of July 31, 2024 and January 31, 2024, the Company expected to recognize approximately 61% and 59%, respectively, of its remaining performance obligations as revenue over the next 12 months and the remainder thereafter.

RPOs exclude customer deposits, which are refundable pre-paid amounts that are expected to be recognized as revenue in future periods. These balances are included in customer deposits in the condensed consolidated balance sheets and are classified as current because contractually customers can cancel these obligations with 30 days written notice. The customer deposit balance is amortized to revenue over the term of the underlying contract as the customer’s right to cancel expires. If no contracts with customers are cancelled, the existing customer deposit balance will be

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recognized to revenue over the remaining stated term of the underlying contract which may be over the next 12 months or longer as follows (in thousands):


	As of
	July 31, 2024		January 31, 2024
Within the next 12 months	$	19,052	$	22,882
After the next 12 months	2,701		2,745
Total	$	21,753	$	25,627

4. Investments and Fair Value Measurements

The following table sets forth the financial assets, measured at fair value, by level within the fair value hierarchy on a recurring basis and indicates the fair value hierarchy of the valuation inputs used to determine such fair value (in thousands):


	Fair Value Measurement as of July 31, 2024
	Fair Value Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Assets:
Cash and cash equivalents:
Money market funds	Level 1	$	43,385	$	—	$	—	$	43,385
U.S. treasury securities	Level 2	11,912		—		(1)		11,911

Commercial paper	Level 2	$	3,000	$	—	$	—	$	3,000
Total assets measured at fair value included in cash and cash equivalents		$	58,297	$	—	$	(1)	$	58,296
Short-term Investments:
U.S. treasury securities	Level 2	246,676		159		(148)		246,687
U.S. agency obligations	Level 2	34,483		1		(15)		34,469
Corporate notes and bonds	Level 2	175,060		406		(54)		175,412
Commercial paper	Level 2	48,121		—		—		48,121
Certificates of deposit	Level 2	7,377		—		—		7,377
Total short-term investments		$	511,717	$	566	$	(217)	$	512,066
Derivative instruments:
Foreign currency forward contracts	Level 2	—		222		—		222
Total assets measured at fair value		$	570,014	$	788	$	(218)	$	570,584
Liabilities:
Derivative instruments:
Foreign currency forward contracts	Level 2	$	—	$	—	$	587	$	587
Total derivative instruments		—		—		587		587
Total liabilities measured at fair value		$	—	$	—	$	587	$	587

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The following table summarizes the respective fair value and the classification by level within the fair value hierarchy (in thousands):


	Fair Value Measurement as of January 31, 2024
	Fair Value Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Assets:
Cash and cash equivalents:
Money market funds	Level 1	$	63,137	$	—	$	—	$	63,137
U.S. treasury securities	Level 2	9,495		—		—		9,495
Commercial paper	Level 2	10,981		—		—		10,981
Total assets measured at fair value included in cash and cash equivalents		$	83,613	$	—	$	—	$	83,613
Short-term Investments:
U.S. treasury securities	Level 2	$	244,778	$	150	$	(141)	$	244,787
U.S. agency obligations	Level 2	79,693		50		(23)		79,720
Corporate notes and bonds	Level 2	103,552		141		(70)		103,623
Commercial paper	Level 2	46,523		—		—		46,523
Certificates of deposit	Level 2	40,510		—		—		40,510
Total short-term investments		$	515,056	$	341	$	(234)	$	515,163
Derivative instruments:
Foreign currency forward contracts	Level 2	—		—		18		18
Total assets measured at fair value		$	598,669	$	341	$	(216)	$	598,794
Liabilities:
Derivative instruments:
Foreign currency forward contracts	Level 2	$	—	$	—	$	518	$	518
Total derivative instruments		—		—		518		518
Total liabilities measured at fair value		$	—	$	—	$	518	$	518

The Company classifies its highly liquid money market funds within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its corporate notes and bonds, U.S. treasury securities, U.S. agency obligations, commercial paper, certificate of deposits and foreign currency forward contracts within Level 2 of the fair value hierarchy because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security that may not be actively traded.

There were no transfers between fair value measurement levels during the six months ended July 31, 2024 and 2023.

The Company does not hold any marketable securities that have been in a continuous unrealized loss position for over 12 months. As of July 31, 2024, the declines in the market value of the Company's short-term investment portfolio were not driven by credit related factors. As of July 31, 2024, the Company determined that it does not intend to sell any securities with a decline in market value, and it is more likely than not that the Company will be able to hold these securities until maturity or a recovery of the cost basis. Therefore no allowance for expected credit losses was recorded as of July 31, 2024. Realized gains (losses) were not material for the six months ended July 31, 2024.

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The following table summarizes the contractual maturities of the Company’s short-term investments (in thousands):


	As of July 31, 2024
	Amortized Cost		Fair Value
Due within one year	$	405,909	$	405,835
Due after one year through five years	105,808		106,231
Total	$	511,717	$	512,066


	As of January 31, 2024
	Amortized Cost		Fair Value
Due within one year	$	447,001	446,902
Due after one year through five years	68,055		68,261
Total	$	515,056	$	515,163

5. Derivative Instruments and Hedging

As of July 31, 2024 and January 31, 2024, the Company’s foreign currency forward contracts had an aggregate notional amount of $62.6 million and $49.3 million, respectively.

The Company enters into collateral arrangements with its counterparty that require the parties to post cash collateral when certain contractual thresholds are met to reduce credit risk. As of July 31, 2024, the Company posted $0.5 million cash collateral and included it in cash and cash equivalents in the condensed consolidated balance sheets. The following table summarizes the fair value of the Company’s derivative instruments in the condensed consolidated balance sheets (in thousands):


	Balance Sheet Location	Fair Value as of July 31, 2024		Fair Value as of January 31, 2024
Derivative Assets:
Foreign currency forward contracts designated as hedging instruments	Prepaid expenses and other current assets	$	222	$	18

Total derivative assets		$	222	$	18
Derivative Liabilities:
Foreign currency forward contracts designated as hedging instruments	Accrued expenses and other liabilities	$	587	$	518

Total derivative liabilities		$	587	$	518

The following table presents the activity of foreign currency forward contracts designated as hedging instruments and the impact of these derivatives on AOCI (in thousands):


	Six Months Ended July 31, 2024
Beginning balance	$	(501)
Net gains (losses) recognized in other comprehensive income	(616)
Net (gains) losses reclassified from AOCI to earnings	752
Ending balance	$	(365)

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As of July 31, 2024, net unrealized loss included in the balance of accumulated other comprehensive loss related to foreign currency forward contracts designated as hedging instruments was $0.4 million, all of which the Company expects to reclassify from accumulated other comprehensive loss into earnings over the next 12 months. The effect of foreign currency forward contracts was $0.8 million to the condensed consolidated financials for the six months ended July 31, 2024.

6. Commitments and Contingencies

Letter of credit

The Company has a total of $1.8 million in letters of credit outstanding as security deposits for the Company’s leased office spaces as of July 31, 2024.

Purchase Commitments

In the normal course of business, the Company enters into non-cancelable purchase commitments with various parties to purchase products and services such as software subscriptions and corporate events. In February 2024, the Company signed an agreement with a cloud service provider. Under that agreement the Company has minimum spend commitments of $18.5 million in the 12 months ending February 2025, and $20.0 million in the 12 months ending February 2026, $22.5 million in the 12 months ending February 2027, $24.0 million in the 12 months ending February 2028, and $25.0 million in the 12 months ending February 2029.

IBM Merger Contingencies

In connection with the proposed Merger with IBM, the Company expects to incur an additional liability of approximately $90 million, which primarily represents transaction fees that are contingent upon the consummation of the Merger.

Litigation

From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business and may be subject to third-party infringement claims.

In the normal course of business, the Company may agree to indemnify third parties with whom it enters into contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Company’s products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim.

Although the results of litigation and claims are inherently unpredictable, the Company believes that there was not a reasonable possibility that the Company had incurred a material loss with respect to such loss contingencies as of July 31, 2024.

7. Common Stock and Stockholders' Equity

Stock Repurchase Program

In March 2024, the Company authorized the repurchase of Class A shares of common stock, in an aggregate amount of up to $250.0 million. Due to the pending Merger with IBM, the Company suspended the stock repurchase program and has not executed any repurchases to date.

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Restricted Stock Units

The Company’s summary of restricted stock units ("RSUs") activity under the 2021 Plan is as follows (in thousands):


	Number of Awards	Weighted-Average Grant Date Fair Value
Outstanding and unvested at January 31, 2024	12,067	$	35.48
RSUs granted	5,613	$	29.69
RSUs released	(2,422)	$	37.16
RSUs cancelled	(1,757)	$	34.19
Outstanding and unvested at July 31, 2024	13,501	$	32.93

Employee Stock Purchase Plan ("ESPP")

Pursuant to the terms of the Merger Agreement with IBM, the Company stopped providing any new offering periods under the ESPP subsequent to June 15, 2024 and has cancelled all future purchase periods of any existing offering periods. As a result of the cancellation of the future purchase periods, the Company accelerated $13.8 million of expense in addition to the $3.5 million of expense related to the ESPP recorded during the six months ended July 31, 2024. During the six months ended July 31, 2024, employees purchased 342,179 shares of common stock under the ESPP at a purchase price of $19.47 per share, resulting in total cash proceeds of $6.7 million.

Performance Stock Units ("PSUs")

In February 2024, the Company granted 335,159 shares of Class A common stock as PSUs, with a grant date fair value of approximately $8.7 million, or $26.03 per share to the executive team. The number of shares of the Company’s common stock that will vest based on the performance conditions can range from 0% to 200% of the target amount. The amount of PSUs that will ultimately vest is based on the level of achievement of certain financial performance metrics related to the Company's fiscal 2025 operating plan, and vest over a three-year period, with the first vest at the anniversary of the grant, after results have been finalized, and the remainder quarterly thereafter, subject to continuous service. Compensation expense for PSUs with performance conditions is measured using the fair value at the date of grant, and may be adjusted over the vesting period based on interim estimates of performance against the performance condition. Expense is recorded over the vesting period under the graded-vesting attribution method.

As of July 31, 2024, total unrecognized stock-based compensation cost related to PSUs was $3.2 million. This unrecognized stock-based compensation cost is expected to be recognized using the accelerated attribution method over a weighted-average period of approximately 1.5 years.

Stock-Based Compensation Expense

Total stock-based compensation expense recognized in the Company’s condensed consolidated statements of operations is as follows (in thousands):

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	Three Months Ended July 31,				Six Months Ended July 31,
	2024		2023		2024		2023
Cost of support	$	2,268	$	2,844	$	5,609	$	5,100
Cost of cloud-hosted services	585		557		1,304		1,166
Cost of professional services and other	734		647		1,744		1,213
Sales and marketing	12,067		15,483		29,314		27,442
Research and development	12,294		12,942		27,107		24,673
General and administrative	10,351		13,646		22,038		26,688
Stock-based compensation expense, net of amounts capitalized	$	38,299	$	46,119	$	87,116	$	86,282
Capitalized stock-based compensation	872		1,352		1,762		2,455
Total stock-based compensation expense	$	39,171	$	47,471	$	88,878	$	88,737

8. Net Loss Per Share Attributable to Common Stockholders

For periods in which there were Class A and Class B shares outstanding, the rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock were identical, except with respect to voting, converting, and transfer rights. Class B common stock has ten votes per share, and Class A common stock has one vote per share. As the liquidation and dividend rights were identical for Class A and Class B common stock, the undistributed earnings would be allocated on a proportionate basis and the resulting net loss per share would, therefore, be the same for both Class A and Class B common stock on an individual or combined basis.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):


	Three Months Ended July 31,				Six Months Ended July 31,
	2024		2023		2024		2023
Numerator:
Net loss	$	(26,462)	$	(66,315)	$	(77,590)	$	(119,573)
Denominator:
Weighted-average shares used to compute net loss per share attributable to Class A and Class B common stockholders, basic and diluted	201,872		192,610		200,982		191,723
Net loss per share attributable to Class A and Class B common stockholders, basic and diluted	$	(0.13)	$	(0.34)	$	(0.39)	$	(0.62)

The following outstanding potentially dilutive shares of common stock were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because the impact of including them would have been antidilutive (in thousands):


	Three Months Ended July 31,		Six Months Ended July 31,
	2024	2023	2024	2023
Outstanding stock options and restricted stock units	19,202	23,126	19,202	23,126
Share purchase rights under the ESPP	—	1,188	—	1,182

Total	19,202	24,314	19,202	24,309

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9. Income Taxes

The Company determines its income tax provision for interim periods using an estimate of its annual effective tax rate adjusted for discrete items occurring during the periods presented. The primary difference between the effective tax rate and the federal statutory rate is related to nonrecognition of tax benefits due to valuation allowance established for U.S. federal and state deferred tax assets. The Company recorded income tax expenses of $1.3 million and $0.2 million for the six months ended July 31, 2024 and 2023, respectively.

The Company continues to maintain a valuation allowance for its U.S. Federal and state net deferred tax assets. The tax expense for the six months ended July 31, 2024 was primarily due to foreign and US state income tax expense. The Company is subject to income tax in the United States, certain states, and various foreign countries. Due to the history of net operating losses, the Company is subject to United States federal, state, and local examinations by tax authorities for all years since incorporation.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties, some of which cannot be predicted or quantified. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding the Merger (as defined below), our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “hope,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. In particular, information appearing under the sections titled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other portions of this Quarterly Report on Form 10-Q include forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:

•the proposed Merger and the Merger Agreement, including but not limited to the timing and completion of the Merger, costs and fees relating to both the Merger and the potential termination of the Merger, regulatory approvals relating to the Merger, the impact of litigation or other stockholder action related to the Merger, the receipt of necessary approvals to complete the Merger, the impact of the Merger on management and employees and the effects on us and our stockholders if the Merger is not complete;

•our future operating and financial performance, ability to generate positive cash flow and ability to achieve and sustain profitability;

•our ability to attract and retain customers to use our products;

•our ability to successfully anticipate and satisfy customer demands, including through the introduction of new features, products or services and the provision of professional services;

•our ability to increase usage of our platform and sell additional products to existing customers;

•future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;

•the costs and success of our sales and marketing efforts, and our ability to promote our brand;

•the estimated addressable market opportunity for our products and growth rate of those markets;

•our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;

•our ability to continue to build and maintain credibility with the developer community;

•our ability to form new and expand existing strategic partnerships;

•our ability to maintain the security of our software and adequately address privacy concerns;

•our ability to accurately forecast our sales cycle and make changes to our pricing model;

•our ability to effectively manage our growth, including any international expansion;

•our ability to protect our intellectual property rights and any costs associated therewith;

•the future trading prices of shares of our Class A common stock;

•the effects of health epidemics;

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•the effects of disruptions due to heightened risk of cybersecurity attacks, malware, ransomware, hacking, or similar breaches;

•our ability to compete effectively with existing competitors and new market entrants;

•market risks relevant to our operations in the United States and internationally;

•the future of our industry;

•the rate at which significant changes occur in our industry;

•the effects of any existing or future claims or litigation;

•the effects of inflation, including the volatility in the rate of inflation; and

•our ability to comply with modified or new laws and regulations applying to our business.

Actual events or results may differ from those expressed in forward-looking statements. Consequently, you should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a highly competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q, or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such difference include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included in Part I, Item IA of our Annual Report on Form 10-K filed with the SEC on March 21, 2024 and elsewhere in this Quarterly Report on Form 10-Q. You should carefully review the risks described in our Annual Report filed with the SEC on March 21, 2024, in this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the SEC. You should review the risk factors for a more complete understanding of the risks associated with an investment in our securities. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Our fiscal year end is January 31, and our fiscal quarters end on April 30, July 31, October 31, and January 31. Our fiscal year ended January 31, 2024 is referred to as fiscal 2024, and our fiscal year ending January 31, 2025 is referred to as fiscal 2025.

Overview

Our foundational technologies solve the core infrastructure challenges of cloud adoption by enabling an operating model that unlocks the full potential of modern public and private clouds. Our cloud operating model provides consistent workflows and a standardized approach to automating the critical processes involved in delivering applications in the cloud: infrastructure provisioning, security, networking, and application deployment. With our solutions, companies of all sizes and in all industries can accelerate their time to market, reduce their cost of operations, and improve their security and governance of complex infrastructure deployments.

Organizations today are undergoing a digital transformation across every business function, driven by competition and ever-increasing consumer expectations. Underlying this digital transformation is a re-platforming of static on-premises infrastructure to dynamic and distributed cloud infrastructure. In this dynamic world, existing procedures are too inefficient to scale with distributed, multi-cloud infrastructure. Inconsistent, fragmented technologies and processes are time consuming and resource intensive to manage, exacerbated by inefficient, linear ticket-driven workflows that cannot facilitate scaled, real-time operations. This digital transformation demands a new cloud operating model for enterprise IT requiring automation to provision, secure, connect, and run infrastructure at scale and in real time. At HashiCorp, we build industry-leading products that enable this cloud operating model and accelerate cloud adoption. Our primary commercial products are Terraform, Vault, Consul, and Nomad.

Our products can be adopted individually and are also designed to work together as a stack in order to solve larger, more complex challenges. For instance, deploying Vault and Consul is the basis for a complete Zero Trust security architecture with identity-driven controls, offering a full range of authentication, authorization, and access management for human users or machines, like servers or applications. We continue to innovate and deliver additional emerging products to supplement these core capabilities and provide adjacent solutions.

On April 24, 2024, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with International Business Machines Corporation ("IBM") and McCloud Merger Sub, Inc., a wholly owned subsidiary of IBM (“Merger Sub”). The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into HashiCorp (the “Merger”), with HashiCorp continuing as the surviving corporation of the Merger and as a wholly owned subsidiary of IBM. The Merger is expected to be completed by the end of 2024, subject to the satisfaction or waiver of the closing conditions in the Merger Agreement.

Our stockholders approved and adopted the Merger Agreement on July 15, 2024. Completion of the Merger is subject to customary conditions, including the satisfaction of certain domestic and foreign regulatory approvals; the

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absence of an order or law preventing or materially restraining the consummation of the Merger; and performance by the parties in all material respects of all their obligations under the Merger Agreement.

The Merger Agreement includes customary termination rights for the Company and IBM. Upon termination of the Merger Agreement in certain circumstances, we will be required to pay IBM a termination fee of $264.2 million.

Additionally, we have incurred transaction-related costs of approximately $17.1 million as of July 31, 2024.

Our Business Model

Our primary products are based on a combination of our free, source available community products and our proprietary software. We are committed to a model in which we maintain free community offerings while developing proprietary features for paid tiers of our software. These proprietary features include collaboration modules, governance and policy modules, enterprise use cases, and premium support and services. We provide our software under a licensing model that protects our intellectual property, grows our adoption, and supports our business.

We generate revenue primarily from sales of subscriptions to our software. We offer an enterprise-ready, self-managed software offering that can be deployed in our customers’ public cloud, private cloud, and on-premises environments. HashiCorp Cloud Platform, or HCP, is our fully managed cloud platform. These two core offerings can be leveraged independently or together, spanning the various public cloud, private cloud, and on-premises environments in which our customers operate.

For our self-managed offerings, we offer various tiers that provide different levels of access to our proprietary products, modules, and support. Our licenses for self-managed deployments typically have terms of one to three years. We bill for one-year licenses upfront, and we primarily bill for multi-year term licenses annually in advance, with a multi-year payment schedule. The substantial majority of our revenue is recognized ratably over the subscription term. Each product is sold as a base module, with additional optional modules available that address needs like governance and policy, and a tiered pricing system that scales pricing with increased product usage. The unit of value for product usage varies by product, and generally scales with customer cloud adoption as workloads managed by our products move to cloud-based infrastructure.

HCP customers use our offering on a consumption-based model or purchase annual subscription contracts. Customers who are on consumption-based contracts are predominantly billed in advance for committed consumption and revenue from them is recognized based on actual consumption of resources. Customers with annual subscriptions are typically billed annually in advance for their subscriptions and we typically recognize revenue from such subscriptions ratably over the subscription term. Our pricing schedule lists the hourly rate when deploying HCP for our various products, and actual usage is metered and calculated on a per-hour basis for increased accuracy.

We sell to organizations of all sizes across a broad range of industries, with a particular focus on enterprises that are managing and moving an increasing number of business-critical processes, applications, and large volumes of data to the cloud. Ultimately, we believe all enterprises will need to transition to the cloud to reduce operational burden, improve scalability and elasticity, and increase agility. We plan to continue to invest in our direct sales force to grow our large enterprise base domestically and internationally.

Our sales and marketing strategy combines the best of customer self-service with our direct sales approach. Our source available model allows developers and individuals focused on operations, IT, and security, or practitioners, to engage with and evaluate our software in a frictionless manner, which we believe has contributed to our software’s popularity. This leadership and the wider ecosystem around us, compels practitioners to adopt and implement our software in the enterprise. As organizations recognize the value of our products, our inside and field sales teams can nurture leads and develop direct relationships with key stakeholders across all segments. HCP has accelerated our self-service approach, as practitioners can now quickly deploy and experiment with our paid offering with a fully managed cloud solution and no minimum commitments.

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As adoption grows, our marketing organization is focused on building our brand reputation and awareness, and engages with prospective customers through our user conferences, email marketing, digital advertising, and other public relations activities. This sales and marketing strategy allows us to not only acquire new customers, but also drive increased usage within existing customers.

We operate an adopt, land, expand, and extend motion. Our source available engagement and self-serve cloud motion help us identify and accelerate initial product adoption and use cases in an account. Our enterprise sales teams land these customers with subscription contracts for our software. Our expansion motion focuses on up-selling additional modules and increasing the footprint of usage of a given product, including across multiple buying centers within our customers’ organizations. The multiple capabilities of our deep product portfolio allow us to extend by cross-selling additional integrated products to our customers. For example, a company may initially adopt a free community version use case of Terraform. After initial use of the source available product, we frequently land their first paid use of Terraform to add enterprise functionality and support mission-critical cloud workloads. As customers grow their cloud presence to support additional cloud-based workloads, they frequently expand the amount of Terraform they consume. In addition to this increased Terraform usage, customers also frequently extend into additional products such as Vault or Consul. This combination of adopt, land, expand, and extend affords us considerable growth opportunities within our customer base, and we focus our go-to-market strategy on developing and cultivating long-term customer relationships. The increased use of our platform by our customers is evidenced by our high net dollar retention rate. As of July 31, 2024 and 2023, our last four-quarter average net dollar retention rate was 110% and 124%, respectively.

Factors Affecting Our Performance

We believe that the growth and future success of our business depends on a number of key factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations.

Adoption of Our Products and Landing New Customers

We believe there is substantial opportunity to continue to grow our product adoption and our customer base. We intend to drive product adoption through our source distribution model and by continuing to cultivate our source community.

We intend to drive paid customer growth by continuing to invest significantly in sales and marketing and to increase brand awareness. HCP has also improved our self-service model, and we expect HCP to continue to support our sales model and drive paid adoption. As of July 31, 2024, we served over 4,700 customers spanning organizations of a broad range of sizes and industries, compared to over 4,200 as of July 31, 2023. We also intend to continue to grow our base of large enterprises around the world.

Our ability to attract new customers will depend on a number of factors, including the effectiveness and pricing of our products, development of new products and features, offerings of our competitors, engagement with the developer community, and effectiveness of our marketing and community-building efforts. As of July 31, 2024, 498 of the Forbes Global 2000 were our customers. We believe this demonstrates our products have been adopted by many of the largest enterprises, and that there is a substantial opportunity to further cultivate these large customers.

Expanding and Extending Within Existing Customer Base

Our large base of customers represents a significant opportunity for further sales growth. Our customers often expand the deployment of our products across larger teams and more broadly within the enterprise as they do more with existing use cases and realize new use cases. At the same time, we often see customers extend to multiple products across our wider product portfolio as they realize the potential of integrating more of our products to better solve use cases. We intend to continue to invest in enhancing awareness of our brand and developing more products, features, and functionality, which we believe are important factors in achieving widespread adoption of our offerings. Our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our products, the technical capabilities and security of our products, our customers’ progress on their cloud journey, competition, pricing, and overall changes in our customers’ spending levels.

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Historically, we have experienced significant expansion after initial deployment of our products by our customers, with customers expanding usage as well as extending to additional products. We define ARR as the annualized value of all recurring subscription contracts with active entitlements as of the end of the applicable period, and in the case of our consumption-based customers the annualized value of their last three months spend. For our monthly customers, we calculate ARR according to the annualized value of their last months spend. In the fourth quarter of fiscal 2024 we changed the definition of ARR for consumption-based customers from the annualized value of their last month's spend to the annualized value of their last three months spend to better reflect longer term usage patterns. A further indication of the propensity of customer relationships to expand over time is our dollar-based net retention rate, which compares ARR from the same set of customers in one period relative to the prior year period. We define dollar-based net retention rate as the ARR at the end of a period for a base set of customers from which we generated ARR in the year prior to the date of calculation, divided by the ARR one year prior to the date of the calculation for that same set of customers. As of July 31, 2024 and 2023, our last four-quarter average net dollar retention rate was 110% and 124% respectively.

Increasing Adoption of HashiCorp Cloud Platform

We believe HCP represents a significant growth opportunity for our business. Since launching HCP in fiscal 2021, usage and sales of HCP have grown rapidly and have allowed us to better address the needs of potential customers looking for a fully managed offering. We believe that as organizations increasingly look for a fully managed cloud infrastructure platform, they will continue to adopt HCP. We expect HCP to continue to grow and represent an increasing percentage of our total revenue over time. For the three months ended July 31, 2024 and 2023, HCP subscription revenue was $26.5 million and $18.4 million, respectively. For the six months ended July 31, 2024 and 2023, HCP subscription revenue was $51.1 million and $34.9 million, respectively.

Accelerating Technology Leadership and Product Expansion

Our success depends on our ability to sustain innovation and technology leadership and maintain our competitive advantage. We have built highly differentiated products that we believe can adapt and evolve with the support of our engineering expertise, our approach to innovation, our developer community, and our ecosystem of partners. HashiCorp is a critical part of the daily operations of practitioners and our free products make HashiCorp frictionless to adopt. We have proven initial success of our modular approach with multiple innovations and product launches, including the launch of HCP in fiscal 2021, launch of Boundary and Waypoint in September 2020, launch of HCP Boundary in June 2022, launch of HCP Consul in October, 2022, and launch of HCP Vault in June 2023. We see continued adoption from our customers in our new products and innovations and, as of July 31, 2024, 46% of our customers with $100,000 or greater ARR were licensing more than one product.

We intend to continue to invest in building additional products, features, and functionality to expand our products to new use cases. Our future success is dependent on our ability to successfully develop, market, and sell existing and new products to new and existing customers.

Expanding Internationally

We believe there is a significant opportunity to expand usage of our products outside of the United States as enterprises globally look to take advantage of cloud computing and look to adopt a cloud operating model across multiple clouds. For the three months ended July 31, 2024 and 2023, 33% and 30% of our revenue, respectively, was generated by customers outside of the United States. For the six months ended July 31, 2024 and 2023, 32% and 29% of our revenue, respectively, was generated by customers outside of the United States. In addition, we have made and plan to continue to make investments in geographic expansion in Europe, the Middle East, Africa, and the Asia-Pacific region.

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Key Business Metrics

We review a number of operating and financial metrics, including the following key metrics, to measure our performance, identify trends, formulate business plans, and make strategic decisions. The calculation of the key metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.


	As of
	July 31, 2024			January 31, 2024
	(dollars in millions)
Total customers	4,709			4,423
Total customers with $100,000 or greater ARR	934			897
Subscription revenue from HCP	$	51.1	(1)	$	76.1	(1)
GAAP Remaining Performance Obligations (RPOs)	$	771.5		$	775.8
Non-GAAP RPOs(2)	$	793.3	(2)	$	801.4

(1)Represents subscription revenue for the six months ended July 31, 2024 and for the twelve months ended January 31, 2024

(2)Non-GAAP RPOs is a non-GAAP financial measure. For more information regarding our use of this measure and a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP, see the subsection titled “Non-GAAP Remaining Performance Obligations” elsewhere in this section.

Total Customers

We define total customers as the number of customers we have at the end of each fiscal quarter. We define the number of customers we have at the end of each fiscal quarter as the number of accounts with a unique account identifier for which we have an active contract at the end of the period indicated. Users of our free products are not included in the total customers. A single organization with multiple divisions, segments, or subsidiaries is generally counted as a single customer, however, in some cases we may count separate divisions, segments, or subsidiaries as multiple customers in cases where they have separate billing terms. Our customer count may also fluctuate due to acquisitions, consolidations, spin-offs, and other market activity.

Total Customers with $100,000 or Greater ARR

We define ARR as the annualized value of all recurring subscription contracts with active entitlements as of the end of the applicable period, and in the case of our consumption-based customers, the annualized value of their last three months spend. For our monthly customers, we calculate ARR according to the annualized value of their last months spend. Relationships with large enterprise customers lead to scale and operating leverage in our business model, as large enterprise customers present a greater opportunity for us to sell additional usage and modules because they have larger budgets, a wider range of potential use cases, and greater potential for expanding to other products in our offering. As such, we count the number of customers contributing $100,000 or greater ARR as a measure of our ability to scale with our customers and attract large enterprise customers to our product offerings. For each applicable financial reporting period, we calculate revenue from customers with $100,000 or greater ARR by aggregating the quarterly revenue attributable to such customers within such period. For the three and six months ended 2024 and 2023, customers with $100,000 or greater ARR represented 89% of revenue for the three months ended July 31, 2024 and 2023, respectively.

Quarterly Revenue from HCP

We believe that HCP represents an important growth opportunity for our business. As organizations continue their transition to the cloud, many will begin seeking fully managed platforms and will begin to adopt HCP. We will continue to track the revenue generated by HCP as a way of measuring the adoption of our platform.

Non-GAAP Remaining Performance Obligations

Remaining performance obligations ("RPOs"), represent the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and

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recognized as revenue in future periods. RPOs exclude customer deposits, which are refundable amounts that are expected to be recognized as revenue in future periods. As of July 31, 2024 and January 31, 2024, our RPOs were $771.5 million, and $775.8 million, respectively. As of July 31, 2024, we expect to recognize approximately 61% of RPOs as revenue over the next 12 months, and the remainder thereafter. The portion of RPOs that is expected to be recognized as revenue over the next 12 months represents an estimated minimum level of revenue for the applicable period and is not necessarily indicative of future product revenue growth because it does not account for revenue from customer renewals or new customer contracts. Moreover, RPOs are influenced by a number of factors, including the timing of renewals, average contract terms, seasonality, and dollar amounts of customer contracts. Due to these factors, it is important to review RPOs in conjunction with revenue and other financial metrics disclosed elsewhere herein. For a further discussion of RPOs, see Note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We calculate non-GAAP RPOs as RPOs plus customer deposits, which are refundable pre-paid amounts, based on the timing of when these customer deposits are expected to be recognized as revenue in future periods. As of July 31, 2024 and January 31, 2024, non-GAAP RPOs were $793.3 million and $801.4 million, respectively. As of July 31, 2024, we expect to recognize 62% of our non-GAAP RPOs as revenue over the next 12 months, and the remainder thereafter.

We use non-GAAP RPOs in conjunction with RPOs as part of our overall assessment of our performance, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our business and financial performance. Our management believes that presenting non-GAAP RPOs is useful to investors because the portion of non-GAAP RPOs that is expected to be recognized as revenue over the next 12 months represents an estimated minimum level of revenue for the applicable period, including customer deposits that are expected to be recognized as revenue in future periods but are not included in GAAP RPOs. Our definitions of non-GAAP RPOs may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Non-GAAP RPOs should be considered in addition to, not as substitutes for, or in isolation from, RPOs prepared in accordance with GAAP. We compensate for the limitations in the use of non-GAAP RPOs by providing a reconciliation of non-GAAP RPOs to RPOs. We encourage investors and others to review our results of operations and financial information in its entirety, not to rely on any single financial measure, and to view non-GAAP RPOs with RPOs and revenue.

The following table presents a reconciliation of our GAAP RPOs to our Non-GAAP RPOs for the periods presented (in thousands):


	As of
	July 31, 2024		January 31, 2024
GAAP RPOs
GAAP short-term RPOs	$	473,354	$	460,170
GAAP long-term RPOs	298,144		315,580
Total GAAP RPOs	$	771,498	$	775,750
Add:
Customer deposits
Customer deposits expected to be recognized within the next 12 months	$	19,052	$	22,882
Customer deposits expected to be recognized after the next 12 months	2,701		2,745
Total customer deposits	$	21,753	$	25,627
Non-GAAP RPOs
Non-GAAP short-term RPOs	$	492,406	$	483,052
Non-GAAP long-term RPOs	300,845		318,325
Total Non-GAAP RPOs	$	793,251	$	801,377

Free Cash Flow and Free Cash Flow Margin

Free cash flow is a non-GAAP financial measure that we define as net cash provided by (used in) operating activities less purchases of property and equipment and capitalized internal-use software costs. Free cash flow margin is calculated

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as free cash flow divided by total revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of net cash provided by (used in) operating activities that is available (or not available) to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.

The following table presents our cash flow for the periods presented and a reconciliation of free cash flow and free cash flow margin to net cash provided by (used in) operating activities, the most directly comparable financial measure calculated in accordance with GAAP (in thousands):


	Six Months Ended July 31,
	2024		2023
GAAP net cash provided by (used in) operating activities	$	19,576	$	(29,794)
Add: purchases of property and equipment	(422)		(417)
Add: capitalized internal-use software	(4,964)		(5,669)
Free cash flow inflow (outflow)	$	14,190	$	(35,880)
GAAP net cash provided by operating activities as a percentage of revenue	6%		(11)%
Free cash flow as a % of revenue	4%		(13)%

Key Components of Results of Operations

Revenue

We generate revenue primarily from software subscriptions and, to a lesser extent, professional services and other revenue. Our software subscriptions are currently predominantly self-managed by users and customers who deploy it across public, private, and hybrid cloud environments. We also offer the HCP, our fully managed cloud platform for multiple products.

Subscription revenue. We generate revenue primarily from subscriptions which include licenses of proprietary features, support and maintenance revenue, and cloud-hosted services.

Our contracts for self-managed software consist of term licenses that provide the customer with a right to use the software for a fixed term commencing upon delivery to the customer, bundled with support and maintenance for the term of the license period. Support and maintenance (collectively referred to as Support Revenue in the consolidated statements of operations) are not sold on a stand-alone basis. Our self-managed Subscription Revenue is disaggregated into License Revenue and Support Revenue in the consolidated statement of operations. The Company does not have observable standalone sales to determine the Standalone Selling Price, or SSP, for its licenses or its support as they are not sold separately. HashiCorp developed a model to estimate relative SSP for each performance obligation using an “expected cost-plus margin” approach. This model uses observable data points to develop the main assumptions including the estimated useful life of the intellectual property and appropriate margins.

Cloud-hosted services are provided on a subscription basis and give customers access to our cloud solutions, which include related customer support.

Subscription revenue on self-managed software includes both upfront revenue recognized when the license is delivered as well as revenue recognized ratably over the contract period for support and maintenance. The substantial majority of our revenue is recognized ratably over the subscription term. Revenue on committed cloud-hosted services is

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recognized ratably when we satisfy the performance obligation over the contract period, whereas revenue from non-committed, pay-as-you-go cloud-hosted services are recognized when usage occurs.

We generate subscription revenue from contracts with typical durations ranging from one to three years. We typically invoice our customers annually in advance and, to a lesser extent, multi-year in advance. Amounts that have been invoiced and are nonrefundable are recorded in deferred revenue, or they are recorded in revenue if the revenue recognition criteria have been met. Our current and non-current deferred revenue represents contracts that are invoiced annually in advance or multi-year in advance. Customer payments that are contractually refundable are recorded as customer deposits.

Professional services and other revenue. Professional services and other revenue consist of revenue from professional services, training services, which are predominantly sold on a fixed-fee basis and any other services provided to our customers. Revenue for professional services, training services, and other is recognized as these services are delivered. Professional services are services utilized by some of our self-managed customers to accelerate the deployment of our products.

Support and maintenance revenue and cloud-hosted services make up the majority of our revenue and are typically recognized ratably over the terms of our subscription contracts. Therefore, a substantial portion of the revenue that we report in each period is attributable to the recognition of deferred revenue relating to agreements that we entered into during previous periods. Consequently, increases or decreases in new sales or renewals in any one period may not be immediately reflected as revenue for that period. Any downturn in sales, however, may negatively affect our revenue in future periods. Accordingly, the effect of downturns in sales and market acceptance of our products, and potential changes in our rate of renewals, may not be fully reflected in our results of operations until future periods.

Cost of Revenue

Cost of Subscription Revenue. Cost of subscription revenue primarily includes personnel-related costs, such as salaries, bonuses and benefits, and stock-based compensation for employees associated with customer support and maintenance, third-party cloud infrastructure costs, amortization of internal-use software, amortization of acquired developed technology, and allocated overhead. We expect our cost of subscription revenue to increase as our subscription revenue increases.

Cost of Professional Services and other. Cost of professional services and other revenue primarily includes personnel-related costs, such as salaries, bonuses and benefits, and stock-based compensation for employees associated with our professional services, costs of third-party contractors, and allocated overhead. We expect our cost of professional services and other revenue to increase as our professional services and other revenue increases.

Gross Profit and Margin

Gross profit is revenue less cost of revenue.

Gross margin is gross profit expressed as a percentage of revenue. Our gross margin has been, and will continue to be affected by, a number of factors, including the average sales price of our subscriptions and professional services and other, changes in our revenue mix, the timing and extent of our investments in our global customer support personnel, hosting-related costs, and the amortization of internal-use software. We expect our gross margin to fluctuate over time depending on the factors described above. We expect our revenue from cloud-hosted services to increase as a percentage of total revenue, which we expect to lead to an increase in associated hosting and managing costs, which, in turn, would be expected to adversely impact our gross margin.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs, which consist of salaries, bonuses, benefits, stock-based compensation and, with regard to sales and marketing expenses, sales commissions, are the most significant component of our operating expenses. We also incur other non-personnel costs such as software and subscription services and an allocation of our general overhead costs for facilities, IT, and depreciation expenses.

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Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related costs, such as salaries, sales commissions that are recognized as expenses over the period of benefit, bonuses, benefits, stock-based compensation, costs related to marketing programs, travel-related costs, software and subscription services, and allocated overhead. Marketing programs consist of advertising, events, corporate communications, brand-building, and developer-community activities. We expect our sales and marketing expenses will increase over time and continue to be our largest operating expense for the foreseeable future as we expand our sales force, increase our marketing efforts, and expand into new markets. While we expect our sales and marketing expenses to decrease as a percentage of revenue over the long term due to business growth, our sales and marketing expenses may fluctuate as a percentage of revenue from period to period due to the timing and extent of these expenses.

Research and Development

Research and development expenses consist primarily of personnel-related costs, such as salaries, bonuses, benefits, and stock-based compensation, net of capitalized amounts, contractor and professional services fees, software and subscription services dedicated for use by our research and development organization and allocated overhead. We continue to focus our research and development efforts on the addition of new features and products and enhancing the functionality and ease of use of our existing products. We expect our research and development expenses will continue to increase as our business grows and we continue to invest in our offering. While we expect our research and development expenses to decrease as a percentage of revenue over the long term due to this business growth, our research and development expenses may fluctuate as a percentage of revenue from period to period due to the timing and extent of these expenses.

General and Administrative

General and administrative expenses for administrative functions including finance, legal, and human resources, consist primarily of personnel-related costs, such as salaries, bonuses, benefits, and stock-based compensation, as well as software and subscription services, and legal and other professional fees. We incur additional general and administrative expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for investor relations and professional services. We expect that our general and administrative expenses will increase as our business grows. However, we expect our general and administrative expenses to decrease as a percentage of revenue over the long term due to this business growth, our general and administrative expenses may fluctuate as a percentage of revenue from period to period due to the timing and extent of these expenses.

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and short-term investments, and amortization of premiums and accretion of discounts on short-term investments.

Other Income (Expense), Net

Other expense, net, consists primarily of gains and losses from foreign currency transactions, and realized gains and losses on short-term investments.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business, as well as state income taxes in the United States. We have recorded deferred tax assets and we provide a full valuation allowance on our U.S., Canada, and United Kingdom deferred tax assets. We expect to maintain this full valuation allowance on our U.S. deferred tax assets for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses.

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Results of Operations

The following tables summarize our consolidated statements of operations data for the periods presented and as a percentage of revenue. The period-to-period comparison of results is not necessarily indicative of results for future periods (in thousands, except for percentages).


	Three Months Ended July 31,								Six Months Ended July 31,
	2024				2023				2024				2023
Revenue:
License	$	16,488	10	%	$	16,724	12	%	$	32,837	10	%	$	31,882	11	%
Support	116,166		70		103,997		72		229,798		71		205,910		74
Cloud-hosted services	26,534		16		18,372		13		51,124		16		34,916		12
Total subscription revenue	159,188		96

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