Q3 2020 Earnings Call

[laughter] deemed welcome to the I guess third quarter fiscal 2020 earnings call Today's conference is being recorded.

Hi, My we'd like to turn the conference over to Steve generally if Investor Relations. Please go ahead Sir.

Good afternoon, and thank you for joining us on today's conference call to discuss the financial results. The boxes third quarter fiscal 2020 with me on today's call or Tom Mackinnon Arcturus co founder and Chief Executive Officer, So wash the company's Chief Financial Officer, and further Karen the company's co founder and Chief operating Officer.

Today's call will include forward looking statements pursuant to the safe Harbor provisions.

But securities Litigation Reform Act of 1995.

Routine, but not limited to.

Regarding our financial outlook and market positioning.

We're looking statements involve known and unknown risks and uncertainties that may cause our actual results performance or achievements to be materially different from those expressed or implied by the forward looking statements.

Forward looking statements represent management's beliefs and assumptions only as of the date night.

Permission on factors that could affect our financial results is included in our filings with the FCC from time to time, including the section titled Risk factors in our previously filed Form 10-Q .

In addition, during today's call will discuss non-GAAP financial measures.

These non-GAAP financial measures are in addition to another substitute for or superior to.

Measures of financial performance prepared in accordance with GAAP reconciliation between GAAP and non-GAAP financial measures and discussion of limitations of using non-GAAP measures versus their closest GAAP equivalents is available on our earnings release, you can also find more detailed information in our supplemental financial materials, which include trended financial statements.

And key metrics posted on our Investor Relations website.

On today's call will quote a number of numerical growth changes as we discussed our financial performance and unless otherwise noted each such reference represents a year on year comparison, and now I'd like to turn call over to Tom again today.

Thanks, Dave and thanks, everyone for joining us today, our third quarter results reflect another strong quarter of execution and financial performance.

Total revenue grew 45% subscription revenue grew 48% in remaining performance obligations or RPL grew 68% to over $1 billion. We added 400, new customers in the quarter, bringing our total customer count you over 7400, we also continue to broaden our base of enterprise customers.

As as demonstrated by the addition of 100 in three customers with annual contract value greater than $100000 and once again over half of these additions were from new customers.

The total number of 100000 plus customers is now over searching hundred and increased over 40% year over year and over 90% since the beginning of last fiscal year. That's great progress as we continue to focus on broadening our enterprise business with the investments, we're making and our customer facing chains and deepening our.

Relationships with global systems integrators.

For a while now we've talked about the three massive secular market tailwinds that helped drive our business first organizations are moving to the cloud second they're going through a digital transformation and the third market tailwind is that businesses are embracing zero Trust security environment.

We're still in the very early stages of each of these trends. So they are going to be around for many years to come importantly, octa isn't a unique position to capitalize on these trends because of our ability to address the broadest set of use cases.

Cross complex I T environments.

One of my favorite parts of these earnings calls is being able to share customer stories, because they helped drive home how our cloud based solutions for identity and access management are being adopted by some of the biggest and most innovative organizations in the world.

The cloud is forced every company to become a technology company and the security Perimeters forever changed as companies adult applications and websites to more effectively engage with their customers and partners.

First is a new workforce identity, when with very global Fortune 500 manufacturing and packaging company with tens of thousands of employees. This is a great example of a large traditional company founded over 50 years ago that has turned to October as its identity provider the company needed to protect itself from modern securities.

Threats and looked for an identity solutions to secure its workforce.

Dr will improve the sign on experience for employees reduce help desk requests by enabling self service password reset and enhanced security was multifactor authentication.

Next a fortune 50, telecommunications company was a new customer identity when the company needed to improve the experience for its business customers when they securely access E business services, it's selected octa customer identity over Microsoft in order to decrease maintenance and infrastructure costs and provide.

Faster time to value.

Dentsu group, a global 2000 advertising and marketing services group headquartered in Japan was a noteworthy up sell in the quarter I'm excited about this upsell because it illustrates a pattern we've seen many times before which is how octa first lands in a portion of a multinational company and eventually gets rolled out.

On a global basis, after demonstrating our value and ROI.

After the initial success in an international division of into the company decided to broaden its deployment of October two its global workforce of over 60000 employees.

Dr will be a critical part of its technology strategy to unify the entire company increased collaboration and enhance security Lastly, a fortune 500 financial services company. Originally purchased talk that have helped modernize and easily onboard and secure cloud applications.

Most recently they purchased AUC to access gateway unified access to both cloud an on premise applications and enhanced security for its over 10000 employees.

This expanded deployment demonstrates how we continue to build customer momentum with October access gateway.

Those are great wins with very large organizations, increasing our business with the world's largest organizations is an important part of our overall growth strategy and helps increase the network effects of the oxide any club. These large enterprise customers are turning to opt out because of our neutrality extensive catalog of integrations and breadth of products.

This in turn generates more and more data insights that can be harness to build better products that make our customers more successful.

This network effect flywheel is now at scale and positions us for continued market leadership.

Earlier this year, we opened up the platform into customizable blocks that enable unlimited use cases with dr. identity engine and increased functionality and extensibility with talk to hooks.

We are transitioning our offerings from products to a componentized customize little platform to create the preeminent solution to help customers connect any technology. We've made further progress on this with the recent announcement of product and feature innovations from our inaugural October showcase event in October , which I'll now spend a few minutes.

Today.

We were happy to announce the OCC to access gateway became generally available on November 1st.

Our digital Enterprise report shows that 85% of large companies still have at least one third of their applications running on premise.

This presents significant access management challenges as organizations look to modernize their technology stocks. Many organizations rely on cobbled together legacy access management solution to provide access to their on premise apps.

This makes it difficult for administrators to manage and for users to access the applications needed to do their jobs.

Talk to access Gateway delivers a single point of management for administrators and one place to go for end users to access their applications across both cloud and legacy asked all without the drawbacks of middleware databases server as required by legacy identity management systems.

We're pleased with the initial traction to block the access gateway, which is already opening many more sales opportunities.

We also launched octa security insights and showcase organizations have employees contractors and partners.

Accessing information for everywhere that complexity is it's historically been a problem, but security insights gives organizations a chance to leverage their size to create greater security with the family of product innovations that help our customers with personalized security detection and remediation capabilities at the end user admin and.

Customer network levels. This includes health insight for customized dynamic security best practice recommendations for administrators and user insight for suspicious activity reporting for end users.

Brought together with threat insight, which detects and automatically response to attacks such as brute force and password spraying ought to customers are now better prepared to combat todays threat landscape and finally, we launched talk that dynamic scale. It showcase a high capacity customer identity offerings that enables transferred.

But of scale for the largest businesses and the most highly trafficked apps insights.

Dynamics skills can support traffic burst and extended use of up to 500000 Authentications per minute. This meets virtually any peak or burst authentication need within the entire spectrum of identity use cases, whether it's a new product release, a viral marketing campaign, where a major shopping weekend.

For example on Amazon Prime day, they sold 175 million items and 36 hours.

That's an average of just over 81000 items per minute using dynamic scale whatever customers could authenticate each and every one of these buyers and only 10 minutes.

That is the power of dynamics Gill.

And this is already being used in the market in a separate press release today, we announced the Espina health will expand its use of Oct as customer identity products to include dynamic scale, which will enable it to rapidly scale to support its tens of millions of users, including patients caregivers providers and stuff.

Our customers have been very excited about the innovation a doctor.

Industry analysts are noticing as well and we've received tremendous accolades this year for our vision strategy and ability to execute.

On the heels of our incredible leadership position in the Gartner Magic quadrant.

Last month, the Forrester wave for Zero Trust recognized octa as a leader in the Zero Trust security market opt is the only identity company included in the report, which recognized octa as having the highest possible score across half of the evaluation criteria.

The last thing I'd like to say before I hand, it over to Bill is that we'll be releasing our six edition of our businesses at work report on January 28.

Using data from the OCC to integration network. This report takes an in depth look into how organizations and people work today, exploring workforces and customers and applications and services. They used to be productive I know investors and analysts loved this report because it's been a great revealing trends and the fastest growing apps and several industries well before.

Where they'd become more common place.

So I'll summarize by saying it was a very strong quarter for us driven by continued execution and market momentum.

We're seeing great traction on all fronts and remain focused on capturing the massive opportunity in front of us.

Thanks again for your time and now I'd like to turn the call over to Bill to walk through our financial results, though.

Thanks, Todd Thanks, again to everyone for joining us before I get started on the results I want to call out that we developed a new earnings presentation that is available on our website contains our detailed financial results.

You can find it to be useful summary, and as such I will only cover a few of the notable highlights and my commentary. This afternoon, leaving more time for Q1 <unk>.

As Todd mentioned, we maintained a strong momentum we built in the first half of the year experienced strength across the board, including key metrics, such as revenue RPL billings and free cash flow.

Total revenues increased 45% driven by a 48% increase in subscription revenue subscription revenue represents 94% of our total revenue.

Total RPL, where backlog, which for US is contracted subscription revenue both billed and Unbilled that has not yet been recognized grew 68% to just over $1 billion. This marks a milestone as total RPL Cross the 1 billion dollar Mark for the first time.

The exceptional growth in total RPL reflects the success, we've been experiencing with large enterprise customers for the contracts tend to be much larger and value and longer legs. As we continue to see success with winning the world's largest organizations. We expect the average contract size and term like to continue to trend upwards over time.

[noise] heard RPL, which represent subscription revenue, we expect to recognize over the next 12 months also experienced strong growth of 52%.

As you know RPL should be viewed as an additional metrics to gauge our performance in the quarter year over year growth and current torpedo there's a more meaningful metric when viewed along with a subscription revenue and billings growth.

Total calculated billings grew 42% and current calculated billings increased 41% the strength and billings continues to be driven by both new and existing customers across all our markets.

Turning to retention our dollar based net retention rate for the trailing 12 month period was 117% a one point decrease from Q2.

A slight decrease is as expected driven by the larger initial deal sizes were achieving with large enterprise customers.

As we mentioned the net retention rate may fluctuate a bit from quarter to quarter, we expected to remain very healthy as we continue to experience growth an initial deal sizes and as we grow our business with the world's largest organizations.

Before turning to expense items and profitability I would like to point out that I will be discussing non-GAAP results going forward [noise].

Now looking at operating expenses.

Operating expenses for Q3 grew 47% consistent with prior quarters. The increase is primarily driven by sales and marketing investments as we look to capture more of our large addressable market.

Our strategic investment priorities continue to be driving business, where the world's largest organizations strengthening the network effects of our platform expanding our presence with customer identity investing in security and expanding geographically.

As usual the biggest component to the spend increase is related to scaling headcount to support these strategic initiatives, we've been successful in attracting and retaining great talent and total headcount grew 44% an acceleration over the first half the year led by growth in our sales marketing and customer success teams.

We continue to invest in our business as we scale for durable growth are better than expected topline growth contributed to the better than expected operating loss operating margin loss per share and cash flow.

We ended the third quarter with $1.37 billion in cash cash equivalents in short term investments a net increase of $809 million sequentially.

Increase was driven primarily by the issuance of approximately $1 billion of convertible senior notes, partially offset by the $224 million repurchase a portion of our existing convertible senior notes.

Moving onto our business outlook, we remain optimistic about the current demand environment for our products based on our strong third quarter results, we're raising our full year outlook.

System with our approach throughout this year, our bias is to reinvest upside in investments to continue innovation of our platform fuel growth and further enhance our competitive positioning.

But we will only do so with opportunities that we believe we'll have a meaningful return.

We expect to be free cash flow positive again in Q4 and for the full year going forward. We expect to see continued variability in cash flow margins due to ongoing fluctuations and working capital the growth in or enterprise business and seasonal factors.

For the fourth quarter fiscal 2020, we expect.

Total revenue of $155 million to $156 million, representing a growth rate of 34% to 35% year over year.

non-GAAP operating loss of $10.1 million to $9.1 million.

non-GAAP net loss per share of five to four cents, assuming weighted shares outstanding of approximately 122 million.

For the full year fiscal 2020, we now expect total revenue of $574 million to $575 million, representing a growth rate of 44% year over year.

non-GAAP operating loss of $53.1 million to $52.1 million.

non-GAAP net loss per share of 35 to 34 cents, assuming weighted shares outstanding or approximately 117 million.

Although we were in the early phases of financial planning, we'd like to provide a preliminary view of our revenue outlook for next year.

Fiscal year 2021, we currently estimate revenue in the range of 750 $760 million, which assumes no change the healthy global demand environment, we're experiencing.

In summary, we had another strong quarter and we look forward to building on our progress as we close out the year.

Then uniquely positioned to capitalize on the market Tailwinds and extend our leadership in the market, we have a powerful financial model and expect to benefit from substantial operating leverage over time.

We are encouraged by the progress we've achieved and look forward to capitalizing on the tremendous market opportunity in front of us.

With that Todd Forgotten I will take your questions operator.

Thank you if you'd like to ask a question on today's call. Please press star one on your telephone keypad.

Really seems phasing speakerphone, please pick up your handset the floor pressing the corresponding gets.

Once again, please press star one at this time to ask a question.

Well take our first question for Melissa Frenchie with Morgan Stanley . Please go ahead.

Hi, guys. This is a hamza fodderwala and for a Frankie thanks for taking my question.

Really nice results.

I just wanted to dig in on the international revenue growth might be a question Phil.

It was 37% in Q3.

That was lower from 45% in Q2, and 60% Q1, So I'm just wondering.

Is there anything that you're seeing from a macro standpoint or longer sales cycles that.

Be driving the slowdown in growth.

One more follow up.

Hey, Honda Thanks for the question and thanks for the comments the demand environment is very very healthy.

In every segment every geography, and it's really the you talked about in a bunch, but it's the secular massive trends of digital transformation cloud and every company needing to be secure so I think that's that's very clear and the results, particularly strong was or is it from the prepared comments is pretty clear it was.

Enterprise segment.

And you know, we're continuing to invest to take advantage of these trends across the board I think.

They'll probably has some follow ups on the international piece, specifically, though.

Yeah, I would say that towards point that the trends that we're seeing here, we're certainly seeing outside of the U.S. internationally.

We think that there is big got long term opportunities there were continuing to invest there and we feel like the the demand for our products is very strong outside the U.S. So we're feeling very good about.

And then just on the.

Current rps versus billings growth so current ARPU.

52%, if we look at it from a from a sort of a bookings perspective, just taking the revenue plus change in sequential change and current art.

I'm getting to about 18% growth.

One is that a metric that you guys look.

And two is there any.

For the big variance between the billings growth that you're seeing versus the current RPL bookings growth because.

It seems to be the variance seems to be widening and just wondering if there's any sort of duration impact there.

Changes in linear.

Should be mindful of going into Q4 in 2021.

Yeah, I mean, I think if you look at both buildings and Rpos occurred RPL growth as you know as we talked about on the call is very strong 52% year over year. The billings growth also very strong 41% year over year I think what you're seeing is current RPL we believe.

He is a strong metric you should look in conjunction with billings and subscription revenue, but the reason current RPL, we think gives a.

Probably a clearer picture, let's say of the strengths of the business is the fact that with billings you can have situations like invoice duration invoice timing dynamics. The current IPO really does eliminate and so that's why we've introduced that is a pretty strong metric in both of them are growing very.

Very well you know RPL for US, we've now reported seven quarters of it.

So it's fairly early you also you know with RPL, you're gonna have some dynamics as far as renewals and timing of renewals, but we think looking at billings and RPL, especially current RPL together is the best way to evaluate the strength of the business, which as we said based on our reserve.

Faults in Q3 and prior quarters has been very strong.

Okay. Thank you very much.

Our next question from Heather Bellini with Goldman Sachs. Please go ahead.

Great. Thank you Hey, Todd I had a question for you just following up on your comments about access gateway and I was just.

Usually it remains this huge priority to replace the legacy systems, but I'm wondering if you have a sense as to what the typical lifecycle of the in access management deployment might be like where are we in the aging of the installed base that you're going to replace and just wondering if there's a tipping point.

Coming in terms of end of life for some of the legacy products or anything like that that could help drive did migration to more of a modern offering even faster than what you're seeing thanks.

I I think that there's a couple of things to consider there. One is just the speed and flexibility that's required by people wanting to do new digital transformation initiatives and people wanting to adopt cloud tools in general and that's really putting pressure on these legacy tool that are static a lot of times companies have these big deployments that.

People that know how to work on the know how to upgrade of doing work there anymore and they go to a big I'm, a big ISI and even change it a little bit is a huge bill and a lot of times just on that you know something like octa is justified on ROI basis, that's one big trend. The other big trend is specific things that are going on in India.

I mean, I'm with you know like with computer associates in the transaction with Broadcom there they've shifted away from that in terms of the go forward perspective, even oracle is investing less in their identity management solution and you know even Microsoft has a legacy identity management this set of products.

That they've kind of abandoned because they realize like everyone else that cloud is the way to do I did any management going forward. So vendor specific is helping us as well where we are overall in the lifecycle. It's hard for me to say I know is that in our business were seen every organization, especially large enterprise.

They have of course, you know myriad technologies and a big part of it is on premise and we're making sure. Our products are built to make those is easy to using that with as much agility as as cloud products and AUC to access get was a big part of that.

Great. Thank you very much unbilled, yes, I really like the slide deck for that you put out so thanks for that thanks, Dave.

Well take your other.

Our next question from Rob Owens from Piper Jaffray. Please go ahead.

Yeah. Good afternoon, guys I wanted to touch on just the competitive landscape and a lot of the competitive rhetoric, we're hearing from.

Some of the large players they're talking about identity being a a focus for them, even though they've been in the category for some time. So as you move up market, which is evidenced by the numbers. Today are you seeing Microsoft more are you seeing them more aggressive at this point and.

Anything you can do that color would be helpful. Thanks.

It's been very consistent I mean, I think you see.

Companies that are you know smaller than us that are either a newer companies or companies that have been around longer just never got to scale and we have a very very clear differentiation against them as we do all the competitors.

You know, it's either scaled breadth a you know amount of resources, we can put on the problem and then you have companies like Microsoft, which obviously has oh.

A big platform in a big a wide array of technologies and the differentiation. There you know it's you know some of the legacy platform companies like an oracle or don't have a good cloud story.

But some of that are all of the platform companies. The differentiation for US is that we're very focused on allowing customers choice and giving them the flexibility deployed tool than do access management everything from their customer websites things. They built themselves then products and technologies from from any vendor.

And it really matters it really resonates with the Mark with the market you can see for example, everyone wants to move to this security model. The Zero Trust security model, which basically means zero Trust basically means don't trust anything because it's on a particular network make sure you know the user is I mean do that you a couple of things.

Very important first of all you have to have an identity company that is at the center of it if you want to verify and log every user and you have to know the users are and what they can access and so identities at the core that and secondly, its implicitly multi platform because even the biggest platform companies can't give you every device every network every firewall every piece of it.

Well for tooling every piece of infrastructure.

On a non so its implicitly a a best of breed hybrid world and those two things means that you know, we're clearly differentiated from the big platform companies, which I think your especially large enterprise right. Because every large enterprise has probably at least a few things from every large platform company and we're able to have this success. Despite this.

But those companies you know in our perspective finally, realizing this is important and making noise about at Walt will not be no deliver the results we can deliver.

Great appreciate the color and then second for Bill is there anything that informs your your fourth quarter guidance at the maybe not as is apparent to us and if I look at the the sequential change kind of goes back to a level. When you are one six the size that you were where you saw two to 3 million sequentially. So is there a renewal that's not happening was there any pull forward I guess in the third.

Quarter or is this conservatism on your part thanks.

Yeah, Rob you know I think that.

We're obviously pleased with the performance in third quarter and.

Based on that we felt very good about raising our guidance as we went into the fourth quarter and for the full fiscal year 20, we're raising our guidance.

You know $12 million versus what we forecasted back in August and.

For years at 44% year over year growth, which is very strong I.

I do think the one thing to note is because it is the fourth quarter fourth quarter tends to be a little bit back end loaded as far as bookings. So the amount of revenue we would derive in quarter are derived from in quarter bookings is not going to be as much as you might normally see so that's really what you're saying.

Her but.

Demand is strong we're feeling very good about our product demand and so there's no other things I would point out.

Thank you.

Well take our next question from Walter Pritchard from Citi. Please go ahead.

Thanks, I used question for Todd to start out just on next year as you think about the driver specifically with enterprise, becoming a bigger part of the business. How do you think about.

Things like access Gateway and I'll, just the sales cycles and enterprise being swing factors on the the guide next year and if you compare to sort of how you guided last year that going into the year and this year, how how much how much sort of a novel up is around those numbers given some of the new drivers this year.

I think enterprises is its very important to us and it's a big driver of our business overall and I think that.

We're very very optimistic about it but I think the reality is that.

The success there is still fairly early consider considering the size of that market, even when you look at our.

Ads to customers over $100000 in recurring revenue.

What four or five years ago would've been significant deals for us sizes for us a doctor now these are big deals relative to what we did in the past, but they are actually very small considering the overall problems. We can solve for these customers. So you know we're very excited about the enterprise, but we think that the upside there is massive and that's why.

We're really focused on from everything from how we build out the go to market. How we continue to double down on customer success, how we build the products to address those use cases, how we make sure. We do what we've always been incredibly strong out which is building. This extensible platform and this this platform.

We expect to anything in their environment, whether it's on premise or cloud and that's why we're oriented the way we are and Walt this is a fairly I would just add a couple of things. The first one is when we going to these large organizations I think one thing that the executive at our prospects really appreciate it we're not walking in with a forklift upgrade story, telling them that they're not.

Going to see any value for a long time, we're walking in with a land and expand story, where we're going to earn their business in their trust and deliver results and then grow that opportunity overtime for ourselves. So that's one thing that I think plays out in our favorite when you talk about swing and and kind of our resiliency to having a lot of those big swing challenges that large enterprise.

Company have traditionally have on premises that second thing is I would just add to heather's question earlier into your commentary on AUC to access gateway from my perspective, and talking with a large organizations and CIO that Fortune 500 company. It's a it's a great opportunity for us to unlock more value and more potential.

So for Octa inside these organization, we've always been very good at the cloud migration, we've always been very good at the digital transformation when they're trying to create new websites or new applications, but now they're really seeing the potential for us to be the end to end identity platform for them to standardize on across the workforce both in the cloud and.

On premises and I think that hybrid ickes story that only GE unlocks you're going to see a lot of value in power out of that in the quarters ahead.

Great. Thank you.

Well take our next question from Andrew Nowinski with D.A. Davidson. Please go ahead.

That's great. Thank you very much and congrats on a nice nice quarter first question, maybe for Todd I'm kind of piggybacking off the last question no. If you look at wherever you are now versus a year ago in terms of the key drivers of demand you have more integrations you have a much larger installed base and you have many new.

Use cases that you support so its and it seems that your your current RPL growth is reflective of those trends. So I'm. Just wondering if you could give us your views on how you think the company's position now versus where we were a year ago.

I think I would say the biggest changes there's a lot you spent a lot of changes a lot of positive evolution I think I would say that the headline would be.

The recognition in the in the market that identity is central to all these things.

If you look at how people are traditionally thought about technology. It was you know it was firewall centric or it was maybe you know platform centric, but it's different now people are seeing that would these trends where they have to be more <unk> faster more flexible build these digital transformation projects and initiatives that to keep it also.

Cure in a way that also allows seamless access for anywhere from anywhere what is different now is that they see identities being central to those trends, which is the most positive change or positive evolution for October last year.

That's kind of interest that's kind of in the in the <unk> on the market side on the on the product side I think we've made a ton of progress, making the platform more scalable we talked about dynamic scale in our and our success there in terms of that capability and wrapping that into a product offering we we've released a kit.

Ability called Octa hooks, which is really an extensibility play we've talked about identity engine, which is really a serving up octa as a set of componentized building blocks that helps customers use it in a much more flexible way we of course out the integration catalog. The can continues to be far and away the most.

The Premier a integration catalog in terms of breadth and depth and industry, It's really unrivaled and we've made progress along those dimensions. So.

That's that's important to addressing this this market that's coming to the realization that not all of these macro these massive a secular trends, but also identity being central to those.

Great. Thank you and then maybe just a follow up her bill on I certainly appreciate the.

Outlook for fiscal 21.

But when we look at your current our appeal.

And growing in the 50% range all year your billings have been into 40% to 50% range all year given the growth of those metrics I guess why would you only expect 31 of the half percent growth in revenue for fiscal 2001.

Well.

Andy as I said in my prepared remarks, we're still early in our financial planning and the other comment I'd make is we're still yet to close Q4, which is our seasonally strongest quarter. So this really is a preliminary view for next year.

We are very confident our positioning and <unk>, but we remain measured in our approach to guidance because.

You're right as evidenced by the strong Rpls strong business, we are seeing strong momentum with our enterprise customers, but those engagements typically have longer sales cycles. I'm. So that does result, and you know less near term visibility. So I think we're just being prudent this early in our financial planning process.

That's great given its good work as.

Thank you.

Well take our next question from Jonathan Ho with William Blair. Please go ahead.

Hi, Good afternoon, I just wanted to maybe start with some of the newer use cases around maybe contextual access their trust and maybe you can you give us a sense of how this is maybe impacted deal sizes number products and you're maybe are you seeing any customers coalesce around certain product family [noise].

I think the contextual access and zero Trust. It's I think that's doing a couple of things for US one is it.

Helping drive new business, because it increases the urgency to adopt a modern access management framework, especially if you have a legacy axis management framework, whether its firewall based or whether it's active you know on premise active directory <unk> active directory based when you realize that you're.

You know that's not going to get you where do you need to be in terms of a flexible access model you have to get a modern solution. So.

Or something you know octa, which as a dynamic capabilities around.

Adaptive multifactor authentication contextual access management and not to mention the all of the security inside capabilities, we talked about at our showcase the that it really.

Raises the urgency and customers to buy a modern solution, but also helps us on the up sell side, where you know we can upsell our adaptive multi factor authentication product, we can upsell adaptive SSL, which includes the security insight capabilities.

Help it helps us on on both dimensions.

In other big part of that too is is it still zero Trust is very much integration story, you can't you're not going to get you don't want to zero Trust just for one application or one scenario you want to for everything and if you want to support every device and every network in every you know partners and different scenario different.

Business applications the need to be access in various ways you have to have integration to everything and that's you know we come back to that foundation for us which is abroad.

In depth to the integration catalog.

Got it and then just as a quick follow up you talked a little bit about the the scale bursting capabilities and specifically does this put your ahead of the competition or open up new use cases, just want to extend the opportunity around that as you go forth. Thank you.

Yes, dynamic scale, which is its capability, which if you basically you by dynamic scale and you get up to 500000 authentication per minute.

Which puts US ahead of of all the competition in terms of the capability that that supports even the bid you know the biggest burst, yes, let's say in the world.

We don't know their exact numbers they don't disclose their exact numbers, but we gave the example of Amazon Prime in the prepared comments, but this is what our customers need and you know given our cloud native approach, we built octa as a cloud service from the day. We started writing code you know it was possible for us to add this capability and.

Package up in something customers could take advantage very rapidly right. It doesn't require like you know if you're running Oracle identity. It would require you know you would ask a big aside to come in and spend you know bunch of millions of dollars than a year to get those going we were able to out at an offer to our customers relatively rapidly and Jonathan I would just add that.

If you look we put out a press release is an example today in the Sina health and existing customer of ours are they being using our customer gain access management capability for some time and they purchase dynamic scale as a leading provider and health care Ickes services.

They had to think about how they support tens and millions of users and that's both all their doctors all their providers and millions of patients that access these portals and obviously they want to make sure that when you're trying to access that kind of information. It's something you can always do you can do it reliably you can do is a scalably.

Secure manner and I think Thats a very good example, a brand new product innovation being introduced and immediately adopted by customers that scale.

Well take our next question from Jonathan Ruykhaver with Baird. Please go ahead.

Hi, good afternoon.

I'm curious if you could just talk a little bit about traction, but as I've just got B pack that channels have you noted there is what gives you confidence that the investments you've made there can support and enduring opportunity.

Yes. Thanks, a question you know we're seeing the investments that we've been making over the years in the partner channel pay off.

Certainly in terms of global reach and scale, we think thats going to be a big opportunity and then specifically when it comes to the global system integrators all of the big ones out there that work on these transformative I key projects Accenture, Deloitte Pwc, they're all getting more and more of their consultants certified and train, we're seeing and do more and more critical deployments for us.

So we think Thats a big opportunity I. It's also very early days as you can imagine as we're just getting into the world's largest organization just starting to get them up and running and successful on their first deployments of part of the OCC identity cloud Theres a lot more opportunity ahead, and I think thats something that the global system integrators seat and certainly are coming in more and more interested in what.

We are doing I would also add that new products I got to access gateway are huge because they allow us to really unlocked out potential of the hybrid ecosystem, which in a larger organization they might be looking to do more cloud internally they might be looking at digital transformation, but the reality of it it they've made investments in legacy on premise is infrastructure for.

Decade, and they need to take advantage of those investments so with knocked back that gateway. It really allows us to tie in the end to end story from the cloud all the way back to the deepest on premises.

I get the infrastructure and those kinds of deployments and integration is obviously something that is very happy that are very appealing to the global system integrators.

Well take our next question from past Oh Gee with Guggenheim. Please go ahead [noise].

Hey, guys. Thanks for taking my question not a question about the new customer adds the new customer adds I think were flat.

Year over year last quarter, and I think so this quarter they've gone down year over year, which is I think the first time ever it doesn't seem that.

Anything to call out there and what do you guys expecting.

Jumps of new customer adds going forward [noise].

Yes. Thanks to the question, we're very excited about the results that we've shown I think for the past number of course that net customer I have always been between 300 5500, and we're right in the middle again at 400, I would point out a few things, though first of all if you look at the 100000 dollar and above customers if you.

You look at the Eightd growth year over year, it's that about 50 per cent compared to last year, which is great. We added 103 of those larger customers, which is a second best a number that we've had in a quarter all time and over 50% of those up plus 103, net new customers, our new logos to us which is really excited.

And I'd also point to the Q3, a top 25 contracts that we had the TV for those was all over a million dollars, which is the first time ever and obviously you see the results and the total RPL, 68% year over year growth. So what you're really seeing as we're getting into large organizations, we're doing larger engagements a large.

Your purchases.

And it's really the quality of the customers is really going up and we're very excited about that and very bullish on that that the investments were making in the world's largest organizations are really starting to bear fruit and we're very bullish on that in the in the quarters ahead.

Well take our next question from Keith Bachman with BMO. Please go ahead.

Hi, Thank you very much I wanted to ask a two questions if I could.

A follow up from a previous question as we think about next year I wanted to see if you could specifically comment on net retention rate. The net retention rate has been ticking down.

Over the last a number of quarters, but if you think about access gateway and somebody the other products that you mentioned do you think that stabilizes.

Yeah, I mean, I think you know the <unk> as we talked about the net retention rate. The the point drop that we saw this quarter is really because we're doing more and more larger initial deals with our large enterprise customers, which is evidenced by the RPL growth of 68%.

And landing bigger and longer term deals like that are really healthy indicators for the business and it really is a testament to the strategic value that ARCT up plays for these large enterprises. So we do think there's significant opportunity for expansion in those accounts overtime I think as you look at it you know we.

I've said before we think there will be you know, you're maybe fluctuations a bid up or down maybe a receipt a bit further we've talked about a range of 115% to 120%. We still think that's a reasonable range to be thinking about for net retention rate.

[noise] pick our next question from Nick Yulico with Cowen and company. Please go ahead.

Great. Thanks for taking my questions.

Wanted to ask about about you're standing in the developer community and if you've seen any noticeable change in terms of developers willingness to work with the company since launching the identity engine and hooks earlier. This year and then and then maybe how important is buying from that community to the go forward strategy.

It's a it's important something where you know investing a lot in and it's if you think about a typical customer identity management project. There is of course, there's a lot of stake. These are such strategic projects for these companies there's lots of stakeholders around the company that are interested from the technology team.

The you know the marketing team the customer service team and of course, the developers right and Weve been very very strong traditionally with the technology team or the die team or the you know the security team.

But you're not equation, especially on the customer I didn't beside the developers are very important important so part of it is a part of it is just making sure you have the you know clearly communicate what are your product does from a documentation perspective.

And not only just documented the basic functionality, but as you know documenting design patterns and and ideas and how to use it and what are the best practices and so forth and you know we're seeing our investments there over the last few years pay off in terms of engagement on our developer Dr. Dot com.

And just the overall traffic a in the energy around that community.

And then I would say that the other big part of it is that the product whether it's how the npis work and how the core platform is composable and how you can use parts of it and chick choose exactly what you need and what's relevant in order it and set it up and exactly you need it and that's about that's identity engine right and I think identity engine is KRW.

Vertical but it's also its also relatively early you know it's in beta right now, it's being used and we're getting great feedback from the beta customers.

And you know, it's we're learning as we suspected that it's incredibly incredibly valuable. These companies. Its it makes things that were not possible before possible at the active platform, which is exactly why we invested in it and you'll see us continue to invest in that and roll that capability out to broader and broader audiences and.

In the quarters.

Well take our next question Pat Walravens with JMP Securities. Please go ahead.

Hi, This is Jerry on for Pat Congrats on the quarter and thank you for taking my question.

Just wondering if you could provide an update on your target model for 24. Thank you.

So.

As we talked about we're we're early in our fiscal year 21 planning for next year. We gave some preliminary guidance on revenues, which we thought would be helpful. For you as you as you start to update your models I.

I think on profitability again, we're going to that planning process.

And so it's still early that being said I mean, I think that you should think about the fact that as we've said before.

We demonstrated strong strong leverage in the model. We're in the early stages of growing and what we think are very large opportunities and to really big markets, both workforce and customer identity and so we're going to invest and continue to invest in go to market and innovation to optimize growth.

But these these investments are consistent with our model and yeah. We're still feeling that we're on track for the model that we shared back in analyst Day last October October last year.

Well take our next question from Sterling Auty with JP Morgan. Please go ahead.

Hey, guys. This Asahi long plus doing thank you for taking my questions. So how is the traction in advance so it access into the existing customer base.

And how should we see the new infrastructure I didn't BD opportunities I'm. Thank you.

[noise] events or access is it's early it just became alright was generally available back at octane back in April and we're seeing a solid uptake on customers that are want to take their you know what traditionally octa is done and apply it to their servers in their infrastructure. So.

Single sign on to apps now can also be single sign on to serve as an access control for servers, which is very powerful, especially if you think about companies that are trying to become technology companies and trying to build more websites to launch new products or enhance existing products and largely they're doing that with cloud and cloud environments you know there.

A dynamic environment, so that thousands of servers, the burst up and down and they're not the traditional idea environments that are more static and you put up six servers in Iraq and kind of that's that's the access management challenge. These are you might have 10 service today and a thousand tomorrow and the access management challenges on that become even more.

More a more of a pressing issue in terms of security. So you know the success. There is still relatively early like I said it just launched GA back in April , but we're excited about that being a big big driver for us going forward.

As a reminder, she would like to ask a question on today's call. Please press star one on your telephone keypad well hear next from Roger Boyd with Needham and company. Please go ahead.

Great. Thank you I'm on for Alex Henderson I Wonder if you can get your thoughts on the hiring environment, a nice to see headcount growth accelerated to 44% business, where you expected to be here would you have like the done little bit more.

Yeah, the 44% as we talked about was an acceleration of our head count growth over the first after the year, which is also very strong at 40% growth and so we're on target for our hiring we feel really good about our ability to higher develop and retain talent. So we're feeling like.

We're on target and all the areas, we're hiring across the board and.

Are pretty pleased with our success as far as bringing folks and retaining folks and the company.

This concludes today's question and answer session I'd like to turn the call back over to Mr. generally for any additional or closing remarks.

Thanks, operator, we'll be hosting a number of busters over the next several weeks as well as attending the Needham growth Conference in New York on January 15th So we hope to see you're at one of those events and thank you for your time this afternoon.

Once again that concludes today's conference. Thank you for your participation you may now disconnect your phone lines.