Armon Dadgar: Yes. No, it’s a good question. So I think we’re continuing to be excited by the momentum of cloud. Certainly, we’re seeing a lot of customer interest and the new announcements continue to drive a new inflow of users to it. So we’re excited about the cloud opportunity. To your point, I think there is a – the way we sort of often talk about is we’re not the tail that can wag the dog. And I think what we see is given the Tier 1 nature of the fact that this is core infrastructure software, it sits at the foundation of both public cloud and private cloud infrastructures. Many of our largest customers have a preference and continue to have a preference to self-manage it, right? And I think that’s – I think it’s less of a question of sales compensation or the incentive for our field team, it’s ultimately a question of the preference of the customer and how they view the sensitivity of this being Tier 1 software for them.
So that said, we continue to see green shoots of very large enterprises making the choice to switch over to the cloud portfolio, right? We talked about a global bank last quarter that is adopting HCP Vault. We see – continue to see large enterprises moving on to Terraform Cloud. So there’s certainly a cohort of these customers that are comfortable with it, and we’re starting to see them move to cloud. But that said, I think the much larger majority of them are still building comfort with it, but we think there’s a lot of opportunity ahead.
Operator: Thank you. One moment for questions. Our next question comes from Alex Zukin with Wolfe Research. You may proceed.
Unidentified Analyst: This is Ryan on for Alex. Thanks for taking the question. So I just had another one on the cohort of customers that are signing multiyear deals here in advance. On the flip side of that, you also have kind of the headwinds from the macro to the land side. I was wondering if those two cohorts, like if there’s any nuance based on a vertical perspective that you’re seeing or if there’s any trends that are unique to specific verticals that those customers are in?
Dave McJannet: Yes. Thanks, Ryan. Let me just make sure it’s super clear. I think what we communicated is we saw numerous multiyear commitments from our customers. These are deals that are up for renewal. They could have done a one year renewal, but instead they’ve done multiyear renewals, which is a really strong endorsement of the relationships. So they were not early per se. And they were not related to a price increase per se, it was more about our customers desire to lock-in a longer-term relationship for us. I don’t think there’s a particular vertical, honestly. I would say, certainly, internationally, you could imply from Navam’s comments that against the foreign exchange variability some customers might want to lock-in multiyear commitments because they have clarity on what that price would be.
They may not know what it would be like in the year because we bill in US dollars. So certainly, that’s part of it. But I think more generally, it’s an endorsement of our growing level of criticality for these larger customers and how they run their infrastructure estates.
Unidentified Analyst: Okay. And just a second one here. As we left the Analyst Day, I think the thinking was we would see 10% op margin expansion in fiscal year ’24. I think that was kind of the initial thought, not necessarily guidance. But is that – how we should continue to kind of think of expansion for next year? Or has that kind of thought changed?
Navam Welihinda: No. I think you’re exactly right. We laid out our plan during Financial Analyst Day, and we’re on track on that plan, and we’ll be delivering continued leverage year-after-year.
Operator: Thank you. One moment for questions. Our next question comes from Michael Turits with KeyBanc. You may proceed.
Michael Turits: Very high level question. We saw deceleration by the hyperscale cloud vendors this quarter, and that’s a continuation of what we saw last quarter. Just trying to parse what’s happening there in terms of customers watching their expense there and their utilization, their consumption versus possibly investing still in cloud – new cloud app development and deployment of infrastructure that may be benefiting you. So how is that falling out? In other words, why is it that it’s that cloud development still which is so tied to what you do, it still seems to be a positive tailwind even if customers are watching their OpEx spend in the cloud? How do we separate that out?
Dave McJannet: Maybe I’ll start that one. This is Dave, and I’ll let Armon comment. It’s interesting, I think cloud application deployment continues unabated. Sure, that maybe its the hypervisors might be seeing a slight slowdown, but the application deployment process is remaining largely unabated. I think there’s probably a growing level of maturity in running those cloud estates is I would reflect upon. We certainly see companies using Terraform to control the over provisioning process and better control their cloud costs and their cloud spend by putting some constraints around what gets provisioned. So in a sense, our products get used as a basis of controlling access to that cloud estate. And so as applications are going, more of your applications might be going to cloud but your overall cloud budget may not be growing as much because you’re getting a little bit better operationally.
And clearly, that’s one of the real value propositions of Terraform and its use cases amongst our larger customers.
Armon Dadgar: Yes. I think the other – and this is Armon. Maybe a little additional color I would add is, as we continue to travel and speak with customers, one of the trends that we see over and over is that there is a lag effect between when customers start on their cloud journey and how long it takes them to truly build maturity and start operating at scale, right? I think there’s a lot of inertia as we think about it to these infrastructure transitions. And so I think that once underway, those are pretty robust, as Dave said, I think even though the clouds are sort of slowing down near-term. I think these programs still take a lot of time to build up to maturity. And I think there’s a lot of other spend, whether it’s in dev test environments or data consumption or things like that, that are a bit more bursty versus core infrastructure and core applications that tend to be a few years behind when customers start their cloud journey.
