Q4 2020 Earnings Call

Good day, and welcome to our child fourth quarter, two to 2020 earnings call.

Today's conference is being recorded.

At this time I would like to turn the conference over to David Gennarelli. Please go ahead Sir.

Good afternoon, and thank you for joining us on today's conference call to discuss the financial results.

Fourth quarter in fiscal year 20, Twond with me on todays call are talking about Kevin's occupancy co founder and Chief Executive Officer, a wash the company's Chief Financial Officer, that's better Karen the company's co founder and Chief operating Officer.

Today's call will include forward looking statements pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act 1995.

But not limited to stream is regarding our financial outlook and marketing position.

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 that the forward looking statements.

Certain statements represent our managements beliefs and assumptions only as of today.

Information on factors that could affect the Companys financial results is included in its filings with the FCC from time to time, including section titled Risk factors and its 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 go.

Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus your closest GAAP equivalents is available in our earnings release, you can also find more detailed information in our supplemental funding from materials, which include trended financial statements and key metrics posted on our Investor Relations website.

Today's call will quote a number of numerical grill changes as we discuss our financial performance and unless otherwise noted each such reference represents a year on year comparison.

Now I'd like to turn call over to Tom It Kinda talk.

Thanks, Dave and thanks, everyone for joining us today, our strong fourth quarter financial results capped another fantastic year for October total fourth quarter revenue grew 45% subscription revenue grew 46% remaining performance obligations or RPL grew 66% and.

And we generated a record operating and free cash flow what drove these results is our continued execution.

And growing presence as Judy standard for identity and access management. We're now achieving these results at scale, while simultaneously investing in the business to capture a tremendous opportunity that remains in front of us.

One of the areas that we've been investing in is growing our base of large enterprise customers. We're seeing those investments pay off and it's reflected in addition of a record 142 customers with annual contract value greater than $100000 into fourth quarter.

Once again over half of these additions were from new customers.

The total number of 100000 dollar plus customers is not 1467, an increase of 41%.

These large enterprise wins are from a wide range of industries to provide some insight into the diversity of our customers and the types of challenges our products help install I'll share. Some details of a few notable wins then upsells from the fourth quarter.

The global 2000 power management company with over 100000 employees.

Doing business in more than 175 countries is establishing octa as the identity standard.

Its workforce, including contractors and partners will be able to securely access both cloud an on premise applications, regardless of their location. The company selected often in order to strengthen and modernize its security posture, they recognize tremendous value and arcturus independence and your trolley just solved.

Workforce and partner identity needs.

Autodesk is the global leader in design and Engineering software. The company recently selected Dr. I didn't he called to centralize identity and access management for its customers.

The high scalability and availability provided by our customer identity solutions, including Oxford dynamic skill wasn't an important factor and the company's Lucky Doctor.

With octa as the identity layer Autodesk is investing and secure and flexible ways for its customers to securely access their products.

Hey, leading European film and television studio and distributor with over 8 million subscribers worldwide, there's a new customer identity ones.

Rooted in the agreement was our new dynamic scale product, which will be able to support peak website traffic of up to 90000 connections per minute during large events.

It's just the biggest soccer games of the season, the company expects to attract even more customers through recent partnerships with Netflix Disney plus and we're relying on October to deliver a secure customer experience.

NTT data a top 10 global business and actually services provider was a notable upsell in the quarter with over 120000 professionals in more than 50 countries. They launched a companywide initiative the combined expertise and resources from its NTT data group companies to create a modern identity solutions and unit.

By multiple global companies.

After its initial success deploying octaves works for us, but any products to provide secure single sign on NTT data expanded its deployment with Universal Directory lifecycle management and workflows.

The company will have centralized tools that power identity decisions across its complex ecosystem.

I will automate processes as employees join lead or move across the company, reducing time in cost associated with manual processes.

Security and privacy is of utmost importance to our customers, but especially for those in the financing banking industry Trust is the foundation of their relationships with their customers. So absolutely critical that their customers feel secure well accessing sensitive financial information our expertise and reputation within the finance vertical is.

Turning to us more and more customers, especially with Arctic customer identity solutions. These customers ranged from regional banks that some of the largest financial institutions in the world.

There are three primary factors driving our success with customers number one is the rapid growth cloud and hybrid I T. I did he has become increasingly complex as organizations moved to the cloud.

And over the past 11 years, we've built the broadest cloud based I didn't need platform, but a scalable caters to hybrid deployments is easily deployed and its highly customizable to digital transformation customers recognize that the cloud has changed everything and is forcing every company that become a technology company.

Organizations are now looking to talk to help them navigate this new environment and implement than I did any solution that will meet their complex hybrid environment needs and improve their digital customer interactions.

And three a security more than 70% Hocking related breaches are caused by store credentials, what's the adoption of zero trust environments. The traditional security perimeter has dissolved and identity is now at the heart of the new security stock.

I didn't he plays a critical role in each of these mega trends and organizations are turning to October because we are uniquely able to address the broader set of use cases, we are independent and neutral and have built the most extensive catalog of integrations. This is essential for organizations deploying best of breed applications, which is common into days.

Mid to large sized organizations.

Sure I industry leadership and innovation, we've earned our customers Trust and in many cases, we've become a trusted advisor. The added benefit is that as our customer base grows we're able to generate more and more data insights that can be harnessed to enhance our existing products such as octa security insights, which we released last October and offer even.

Better products and turn these products enable our customers to be more successful and generate and network effect flywheel, which helps position us for continued market leadership.

Turning to our customer conference because nothing is more important to us than the health and safety of the Aucs community, we will be hosting octane 20, as a virtual conference this year octane live.

Offering ballpark keynotes and dozens of breakout sessions on line.

We follow the Corona virus news it became clear that's the best way to safely engage with our whole community is through digital conference experience Investor day, which were hosting in conjunction with octane will be virtual as well.

Replacing the in person events with dynamic video content will enable us to bring our customers partners investors in place together and a healthy and productive way, we look forward to sharing our vision product innovations and latest customer journeys with you over the stream the week of March Thirtyth.

As you May remember last year. It octane, we launch new products like I talked to access gateway and advanced server access axis Gateway delivers a single point of management for administrators and one place to go for end users to access both their crowd and legacy on premise ops events or access provides continuous authentication and central.

<unk> access controls for servers.

We've been happy with the early adoption of both products.

And my keynote address this year I will touch on how office products are designed to meet a growing number of use cases, and how identity has become a don't platform I'll cover how our workforce at any products enable employees contractors and partners to securely access the right technology, they need to do their jobs.

And our customer identity products enable our customers to build secure digital experiences for their customers.

I'll be talking more about additions to the oxide indeed cloud that will enable us to deliver even more innovation and provide our customers with more freedom to build customized access experiences.

Our modern architectures built on a single stack of technology that provides our customers with easy deployment and its highly configurable octane live will be an amazing event that you won't want to Miss.

In closing that I'm very proud of what we accomplished in fiscal 2000.

Highlights revenue increased 47%.

Non-GAAP operating margin improved by 210 basis points, and we were free cash flow positive for the year.

We expanded our portfolio several new products and services that provide even greater value to our customers and increased the number of use cases.

We were recognized by market research firms as having the clear leadership position and identity and access management.

We were certified as a great place to work and strengthened our team by adding nearly 700 incredibly talented people around the world.

We further expanded our presence with new domestic and international offices, and new infrastructure and attack.

We established octave ventures to helped fuel the next generation of modern identity solution.

And our active for good program continued to expand its reach with the launch of its first product innovation program focused on social impact with apps for good.

We couldn't have done this without the dedication of our customers the great ecosystem of global partnerships and the tireless work of our employees.

With that I am exceptionally grateful, but now it's onto even greater things in fiscal 21 and beyond.

As we are just beginning to tap into the massive market opportunity as we enable any organization to use any technology.

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

Thanks, Todd and thanks, again to everyone for joining us.

As a reminder, we have posted an earnings presentation that is available on our website contains our detailed financial results I think you'll 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 today.

As Todd mentioned, we maintained a strong momentum that we built throughout the year.

Or better than expected topline growth has resulted in strong operating leverage as demonstrated by better than expected operating loss operating margin loss per share and cash flow.

Turning to our Q4 results total revenue increased 45% driven by a 46% increase and subscription revenue.

Decryption revenue represented 95% of our total revenue.

Our PEO or backlog, which for US is contracted subscription revenue both billed and unbilled that has not yet been recognized through 66% to just over $1.2 billion a robust growth until our PEO reflects the continued success, we've been saying with large enterprise customers. The Todd mentioned.

These contracts tend to be larger and value and longer and like.

For example, the number of transactions for the total contract value the million dollars are more grew over 80% compared to Q4 last year and the weighted average term length of those transactions is nearly four years, which is 50% longer than our overall average term links.

As we continue to see success with putting the world's largest organizations and broader adoption across our growing product portfolio. We expect the average contract size and term like continued to trend upwards over time.

Current RPL, which represents subscription revenue, we expect a recognized over the next 12 months also experienced strong growth at 54% an acceleration from the 52% growth in Q3.

Year over year growth in current Archeo, it's a more meaningful metric when viewed along with subscription revenue and billings growth.

Well the calculated billings grew 42% and current calculated billings growth accelerated to 46% to strengthen billings continues to be driven by new and existing customers, both workforce and customer identity across all our geographies.

Turning to retention or dollar based net retention rate for the trailing 12 month period was 119% a two point increase from Q3.

The increase was driven by strong customer up sell particularly with our enterprise customers as we grow our business with and within the world's largest organizations.

As we've mentioned in previous quarters, the net retention rate may fluctuate from quarter to quarter.

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

Now looking at operating expenses.

Total operating expenses grew 45% consistent with prior quarters increases primarily driven by investments, we're making to capture more of our large addressable market.

The biggest component to the spend increase is related to scaling headcount to support our strategic initiatives, you're adding headcount across the board primarily in our customer facing an innovation teams.

We've been successful in attracting retaining great talent and total head count grew 44% to over 2200.

We generated record cash flow from operations and free cash flow, which yielded an 11% free cash flow margin.

We ended the fourth quarter with $1.4 billion in cash cash equivalents and short term investments.

I know many of you look at the sum of revenue growth and free cash flow margin as a key metric when evaluating companies.

We have significantly outperformed the war 40 for the past two years.

This exemplifies the leverage does inherent in our financial model as we maintain industry, leading revenue growth was showing steady free cash flow margin expansion.

Moving onto our business outlook.

We remain optimistic about the demand for our products, but we continue to closely monitor the business environment. Today, we have not experienced any impact to our demand related to the Corona virus and this is reflected in our guidance.

The first quarter fiscal 2021, we expect total revenue of $171 million to $173 million, representing a growth rate of 37, 38% year over year.

Non-GAAP operating loss of 33.2 $32.2 million and non-GAAP net loss per share of 24 to 23 cents, assuming weighted shares outstanding of approximately 123 million.

We're increasing our full year 2021 revenue outlook from the preliminary view that we provided last quarter.

For the full fiscal year 2021, we now expect total revenue of 772 $780 million, representing a growth rate of 31% to 33% year over year.

Also we expect non-GAAP operating loss of $65 million to $57 million.

Non-GAAP net loss per share a 42 to 37 cents, assuming weighted shares outstanding of approximately 125 million.

Consistent with our approach throughout last year or biases to reinvest revenue upside and investments. The continued innovation of our platform feel growth and further enhance our competitive positioning.

Being said, we're taking a disciplined approach.

Only investing opportunities that we believe will yield a meaningful return.

We've demonstrated that we were able to grow responsibly by balancing continued topline momentum with margin expansion and expect to be free cash flow positive again for fiscal 21, with some quarterly fluctuations due to working capital and seasonal factors.

We're also planning on capital expenditures of approximately $35 million in fiscal 21 related to new and expanded facilities is it to accommodate our growing workforce.

I'd also like to remind everyone for your models. The Q1 operating margin and some seasonality related to expenses for octane, our annual sales kick off the reset apparel taxes.

In summary, this has been a tremendous your growth across our entire business our industry, leading cloud based platform is addressing more and more of our customers complex use cases, as we continue to introduce new products and functionality and we achieved particular success with large enterprise customers. Both a testament to the investments we've been making.

Okay.

Well the progress we made so far has been great. We believe this is just the beginning and plan to further capitalize on the tremendous market opportunity in front of us.

And finally as Todd mentioned, we're going forward with our Investor day in a virtual format will provide more details in the coming weeks. The note that we've moved Investor day to April 1st.

Great event, where you'll hear more on auctions vision and strategy and you'll have opportunities to ask questions.

That Todd first or not we'll take your questions now operator.

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

I'm seeing today using a speakerphone, please pick up your handset pricing the corresponding digits.

Again, Please press star one that this time to ask a question well pause for just a moment.

My first question from wants to push hard from Citi. Please go ahead.

Hi, Thanks question for.

And then one for Todd so on the field side I mean, so I think some of that you feel kick off you I'm really looking to hire lot enterprise like reps can you help us understand if you move into 2021 here sort of how the complexity of the sales capacity additions you're looking to do in 2021 differs from where.

Things were in 20 in before.

Yeah, I think it.

A lot of that it's consistent I would say there is a little bit more of a weight on enterprise, but a lot of its consistent one getting done we'll all last year on continuing this year is all.

During the holiday sales hiring which.

It's been.

It's a good Testament plus the plus there's been the results.

Okay and Opus itself, we're also see Halloween sales folks get.

Getting getting high quality sales folks on the team all important when we're being very successful about halted deplore portend problem within feature.

<unk>.

And then just on the other kids product question, so on the absolute gateway and just generally.

The maturity at some of these products that go after the pools of money that that had previously been available mostly the on Prem type products with another quarter of the tervita products in and out the field selling what can you tell us about.

How you're thinking about that opportunity and when we may see more of an inflection.

With attached to those products.

Yeah, you mentioned a couple couple thoughts.

We had a really.

Strong year last year again.

Innovation.

With other than from dynamics scale to a couple of you mentioned like.

Axles gateway or that sort of rock plus and all the products Oh, I'll give a little wall I would say specifically.

That's sort of our access is its interesting product for us because it's really all told you.

Use case block that's awful for local developers lobbying the servers and as you know that every organization is building was up.

What's that mobile apps and that means they have developer a lot of lot of cases, those environments or you know they represent a big security Ross can we can help them about full well talk is is doing really well that's a whole new flight for us which is more exciting actually is getting a little differently, it's really thinking about as extending off mall.

On the they're all almost where all the more sheep simple to use will talk a little below a lot halt all the customer, but also helps particularly large enterprise left well, although they want to be called the ball for five more legacy them, well and other sub mental maps of gateways will.

Hey, good job unlocking a lot of upturn is water. So we're very excited about all the product divisions, particularly well that's a rational San Joaquin scale.

Great. Thank you.

Well take our next question Fred Melissa Frenchie with Morgan Stanley. Please go ahead.

Great. Thank you so much for taking my question I wanted to just put a finer point on the commentary Bell that you said on the macro environment on the topic here that you're not seeing any impact.

I'm in customer buying behavior, but it's worth thinking about your guidance for this year are you just anticipating it's going to be relatively stable.

I'm spending environment similar to what you saw in 19 or even betting any additional conservatism.

Yes, so as we said or as I said, we're right now we're not seeing any impact in our product demand from what's happening with frankly, the tragedies that does the corona virus.

And that's really what now reflected in our guidance, we're obviously going to monitor that very closely.

We've been very pleased with the product demand has been really pleased with the momentum of the business, which is why we raised the guidance for the full year by 20 million at the high end.

3% growth and I think that's how we're looking at it right now obviously, we're going to you know as I said continue to monitor it very closely right now we're seeing very very strong demand for our products.

Okay. That's helpful and I had one follow up question products related question for Todd talked you mentioned dynamic skill and I think I would say a number at deals that he referenced in prepared remarks that.

On where I had dynamic scaling involved.

So can you just talked about what you're seeing in terms of that early customer interest and then how it expands your relationship with customers and be on external customer opportunity. Thank you.

Yeah, we're excited about that had a scale and.

Customer add any deals.

So.

Both a you know they go kind of hand in glove because.

Customer identity is about is about reaching you know lots of concurrent customers using the service and many many customers over the life Paul on the service.

And I had its best totaling about because you think about companies that are doing customer they thought it's for water. It's usually.

Online version of their existing products, where it's a new product and there's a lot of all time to market passion for them and there's a whole lot of.

Likely its difficult to forecast the usage for them and it's difficult for them to deal with regulatory issues in terms of is the environment sort of off of regulation, so while using something like off the identity layer and those customer facing initiatives. It really remove those burdens from public companies one of the regulatory based upon the market lots and lots of foster and then.

Sometimes unpredictability of the demand something like the NFL takes off the table. So they can buy that I missed what product and the rest assured that well up to 500000 log into the minute, it's going to work and England club in the <unk> customers are very very I'm excited about you know I mentioned the auto.

That's going to put <unk> prepared remarks on another example is athenahealth. Neither company what are we making a business that was all on services and having a partner like often capability like our customer base solution Gamble on the schools will help them.

Right interesting. Thank you.

Thank you.

Our next question from.

With Goldman Sachs. Please go ahead.

Great. Thank you so much I'm not a question for Bell and then a question for Todd Todd.

We Bob you know people have been talking at Microsoft lately they've been.

Trying to talk about how azure active directory has been increasing its number of <unk> connection and that the products getting more competitive but then you know paying the was talking about the competitive landscape last night on the call on their call. I was just wondering if you could share without anything you're seeing that Mike.

The different and they get specifically also related to Microsoft there.

Given some of the comments they've made recently and then the question for Bill would be but we continue to see obviously really strong and accelerating calling RPL growth, which obviously is a good deal or higher than billings growth.

I got the metrics bounce around from time to time periods, where that's been reimbursed, but is that what you would expect to see like kind of that type of delta, but what's the right now that should continue between those two.

Comments, you could you could share with us to help us on that that would be great. Thank you so much.

Yeah. Its interesting. So we you know who said couple one was the demand environment and the market environment bar products is very robust yeah. There's more deals those bigger deals there's well our product seems to be you know really well position to Michael's like <unk>.

And we have we haven't seen the can but competitive environment change, it's really been consistent over the last several years on I would say the last change was and it was more of a maybe a perceived change an actual changes you know its five or six years ago and Microsoft first released their product yeah that was like it actually.

Forward. It does it was really put a finer point on the importance of identity and a little intervening years Dave.

I think that Dave.

No talking about it a lot but.

We haven't seen in the market, we haven't seen traction in the market father numbers I can't comment specifically about what they're saying.

And you know what we've seen is that companies have a really really complex and heterogeneous environment, and where we really roll so old connecting customers to everything in their stack.

Talking to a customer this weekend they they're moving 8000 applications on the October.

And yeah, a lot of these are internally developed its every part of functional footprint. It's every vendor under the settlement of the company and it's that kind of complexity that you have bought a focus on doing that for a decade plus like we have to build the platform indicated we'll do that you have to starting in the cloud because you have to be able to have Uh huh.

Sure, we managed and maintain identity.

Sorry integration might look like we do WAFS would be really committed to multiple calls multiple across multiple devices and you know you have to kind of you can't be bought bound to a certain vendor or certain stock and do that almost think but that's really pool in the multiples added this is Patrick.

I would just add that you know the world from our perspective, it's really separated now into legacy and cloud and we've always felt that the cloud as the teachers to many of our competitors like paying fall into that legacy bucket and then I think when it comes to Microsoft with our win rates remain very very strong you see that demonstrate the numbers daughter based net retention new customer accounts, but also the independents in new trials.

That I mentioned is a big factor first of all folks do not want to be locked into any specific vendor and you see that in our businesses at work data that we publish in January if you look at the best of breed I mean of our customers. Many many large deployments of office me 65, right organizations like Hitachi that wall out hundreds at that.

Because of employees of office me five in three months using op that are over 75% of our office. We can keep that customers are using another collaboration best of breed applications, so, even though slack or something like that and what that really needs in the future it'd be a hybrid multi cloud a lot of application.

And heterogeneous environment and you need to have the ability to connect deeply and broadly into all the technology that people will not be wedded to one specific application are ones that finally, I would say that back to the question around off the access gaming, we eat earlier Opexas gateway doing very very well and I think having that isn't embedded.

Part of the OCC.

Hi identity, Sweet having that baby pre integrated solution that we provide to allow our legacy large enterprise customers about legacy infrastructure to connect that in a modern way to the cloud, it's very differentiated and if you look at a other organizations like adopted an example, they have to do nothing partnership and customers are really looking for.

And then solutions these critical workforce and tough My day initiative, and we think that we're very well positioned to do that now and going forward.

And other did address your question about the correlation between billings and RPL I think that the reason we introduced her started to really focus on current RPL last year is really because of the fact that correlation.

Difficult from the standpoint that current RPL really does smoothed out what you can have as fairly significant variability and billings, which is really driven by invoice timing and invoice duration, and especially when you're doing business with larger and larger enterprise customers, which we are.

That variability on billings on a quarter to quarter basis can be even more so that's why we thought current RPL was actually a very good additional metric to take a look at so it's hard to say that correlation you know what that correlation will be over time because of the variability on the billings.

Thanks, Phil.

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

Hi, guys. This is not on pursuing thanks for taking my question you know on the geographies, but no international International portion had a nice from an acceleration.

This quarter, just was wondering where there any specific regions that you guys saw increased demand and then going forwards where you guys focus in terms of what's next.

Hi, Thanks, a lot for the question the growth that you're talking about we're very excited about the rather than the overall business as well and then obviously internationally because that's a tough compare <unk> North America. So that growth was driven by strength across all the region.

It's still early but we're starting to he really good traction with notable international customers I refer to the global 2000 power Management Company, a European film and television studios that I talked about in his prepared remarks, I mean, if you look at the last few years. We've opened an expanded five international offices now stock on unique Amsterdam, Paris, Toronto I won't go.

We continue to expand that footprint, we think there's a very large opportunity internationally. It's something we're focused on both directly and indirectly with our partner channel. How we're very excited about that and I think you're going to continue to see that goes in the month and of course in years ahead.

Great. Thanks, guys.

Well take our next question from Rob Owens with Piper San Francisco.

Great. Thanks for taking my question a couple things number one of the net retention rate and then well I know Bill said, it's going to bounce around a little but it did reaccelerate in the fourth quarter were actually your customer acquisition was really strong too so.

It was this just kind of a function of a Q4, where you saw flush or was there more focus on both existing customers and saw some strong momentum on the customer acquisition Sykes I believe that accelerated after a couple of quarters of being somewhat flattish year over year. Thanks.

Yeah, Rob you would what really is driving that is you're right. We are now seeing both on the dynamics of acquiring into more customers more of those large enterprise customers, which do have larger initial deal sizes, but what we've also saw in Q4 results than me.

Before is that expansion within those customers is also strong so whats exciting for us about that is not only do we think as we move more and more into the large enterprise we have the opportunity for large initial deal sizes, but we also have a lot more opportunity for expansion into those customers over time.

That's really what drove the increase in the net retention rate by over the quarter.

Great. Thank you.

Your next question from Andrew Nowinski with <unk> Davidson. Please go ahead.

Great. Thanks, Congrats on the great quarter again.

Maybe just one question I think that lever.

For Todd and then one for one for Bill hubs. So customers that spent more than 100000. This this quarter again increased 41%, which is a tremendous and I think he said half for new.

Are those new customers starting with more of your products on the initial deployment are you.

Just getting into larger enterprises with more employees.

It's ball yeah, we have more new products and the innovation, we have more ways, where a customer you get started with us whether its customer at any workforce that entity or was that Ben server access.

And I think also you disease as you mentioned the bigger companies have bigger employee bases and even a single product by I can be bigger like for like with a smaller company. So I think you see bolt on an extraordinary <unk> like really wasn't I think another.

Thing, that's really important to us throughout the whole company is we're really really focused on making them successful. So it's one thing to get a company, but you know even companies that have fairly large initial deals with us or product portfolio is getting to a point, where they can substantially expand so that's why our long term orientation around really beautiful.

<unk> about making the customer successful and turn it into the fans is starting to pay off and we've been doing that for since we started and I think you're starting to that.

Really help us whether its net retention whether it's the number of the deals over 100000. That's you know things are really rolling and I would just add to that Andy that if you look we put out akcea approximately a one we do earnings also around successful deployment because as Todd said, it's one thing to acquiring new customers, but it's much more Paul when you get them live and successful.

And today, we pull it out on their ex North America, obviously very life insurance company one of the biggest in a world and standardize on <unk> 9000 employees, but they also migrate authentication for 40 over 45 customer and partner apps from on premise solutions like see tite liner to the outside any cost less than Q1, and the fact that you can.

Get these very large organizations with very complex environments up and running and successful in short time. They see this accessing these projects and that also obviously drives opportunities for both cross selling up sell down the road as we build a significant partnerships that these laws organizations.

That's great. Thanks, guys and then just a clarification need for bill it looks like your your revenue guidance for Q1 is almost two points higher than normal seasonality I think normally it's right around 22% of the total for the year on this or anything changing into buying patterns or is that just a reflection of perhaps some conservatism in your annual.

All but for Q3 and Q4.

No I think what you're seeing any as a couple of things. One is obviously, we had a lot of momentum coming out of Q4.

Which we've talked about as far as.

The significant increase in our current RPL that accelerated from 52% in Q3 hundred 54%.

The fact that we had an acceleration in billings, so you're seeing a lot of that come you know as revenue. Obviously in Q1 I think the other thing which is more of a modeling point, but it's it's valid is the fact that now that we're in a leap year, we actually get one more data revenue recognition in Q1, so that that also has an impact.

Got it thanks keep up with that workers.

Thank you okay.

I think our next question Gregg Moskowitz with Mizuho. Please go ahead.

Thanks, very much at congrats on a really nice quarter guys. I just want a question for email sorry, I'm sure. So Bill you know you accelerated here your rate of hiring this year as you had intended right or how you're thinking about fiscal 21 headcount at this time, just vis-a-vis or a you know current expectation to grow revenue about 30. So.

Sure.

Yeah.

So like you said, we had a acceleration of head count as we went into the second half the year I'm, 44% in the second half a year on growth compared to 40% in the first year or first half for the year. So very strong head count growth, which is really I think a very phenomenal Testament to the success, we've had both attracting and retaining talent.

We're going to continue to focus on hiring our expectations as to hire more in fiscal year 21. This year than we did last year the rate of growth will come down a bit on him because the base is higher but we're still focused on on hiring and growing that headcount because that is the key part of our investing.

And specifically go to market also innovation to capitalize on this huge market opportunity, we see in front of those.

Terrific. Thank you.

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

<unk>.

Let me Echo my congratulations as well on that topic, just wondering if it sounds like out Ah.

But just one question I know you're talking about October Ah customers now, making the company their identity standard <unk> you've referenced this in some of your other calls as well what does that mean to you and in terms of maybe the multi product adoption as small as you know the use of office for their when suppliers I just wanted to get a sense for.

You know how you think about aka as an identity center. Thanks.

[noise] really means so the what's really different business generation technology is that you. We've moved from a world where every platform had identity and it whether it was.

Work lapse, or Microsoft network or ideas and they all had identity in there and we moved the world now because of the complexity and because of the heterogeneous environments because of the best of breed.

The pressure to do more of the pressure to have security where identity is its own platform and so I'd say the company is moved doctors understand it's really it's really David talked about mindset that they need a single identity platform that they have to have everything connected to that it's all the way that they're going to scale and transition things from on Prem.

The cloud children, where they're going to build customer websites and mobile apps quickly that's the only where they're going to really be able to keep it secured a world where people are want to work for more places they want more flexibility for the same time they want to do you need that's that's what I mean by a it also has you know what do you start to see happening as more companies standardize on us.

It has very positive fall on effects like what you're talking about where you know the fact that accompanies us the partners logging in but you know the they connect together there's people are more ecosystem there isn't a bad about having talked a it helps us work with the industry to standardize the waste.

All of these integrations work and have them built on our platform in a way that's really beneficial to all of our customers. So yeah. It's important I think it's it's it's an important part of us execute our long term strategy and works out of other partners.

And I was just that Jonathan to that that what do you see in that it. There's a lot of things first of all the dollar base net retention number is clearly points you customer is becoming successful adopting more and more. It's also why we're so focused on getting customers up and running a successful quickly because that allows them to show internally is anyway. This is very important gets its something that we can.

Standardize our company on you end up seeing organizations like LNG, the giant a energy company that ends up using US now we started with one specific division and what specific country. Now we are the global I get any standard Angie across both the workforce and their customer and I know you access management.

Property, which began that huge opportunity obviously for us, but also for them because it one company one platform one set of products they become comfortable with and allows it to the very powerful partnerships for the years ahead.

Thank you.

Well take our next question from Richard Davis with Canaccord. Please go ahead.

Thanks, just a quick question last summer I think you guys announced it was an HR provisioning in it and as I recall your first partnership this with workday.

Yeah I was like gone you know and have you added additional HR funds to your Boston because this product. Thanks.

As I said that obviously, the the opportunity to use a lot of these modern HR systems on the start driving eat end to end advanced workflows for our customers, there's something at the huge opportunity for us and it's very early days as he said I certainly it's gone very well with workday as it has with the other providers out there.

Ultimate software and the others and you see very good examples of exactly how this plays out with our customers you heard in the prepared remarks today that have made around a NTT data on how they were a workforce customer that kind of upsold themselves. This quarter well that was exactly what they did they started with single sign on and you and authentication and authorization became.

Hey successful this quarter, they added Universal Directory lifecycle management and workflows to solve that HR end to end join our mover lever a problem were telling where a company talk to manage the onboarding. The transitioning of employee and then ultimately when they leave because not many I see more and more Oh, we talked in past quarters was.

Fortune 500, Fortune 100 organizations like Warner Media exact same thing started with single sign on Multifactor authentication and then decide to implement on H. I ask based provisioning are using locked up and getting to that join or mover lever problem, I think you're going to be more and more of that especially as a companies realize that they can move too.

A lot of these modern cloud applications using heterogeneous environment and take advantage of all these gas workflows, we already have in the system and we keep or anything to help customers be successful with these new opportunities ahead.

Great. Thank you very much.

Your next question from Tesco jogging with Guggenheim Partners. Please go ahead.

Hey, guys. Thanks for taking my question to questions wanted to look at the new customer revenues. This year. It looks like you had a big uptick in new customer deal sizes. It happy because you're landing media customers initially, but the new customer go up little bit lighter than last last year. So as it looks all over the next fiscal year, how do you expect gusky.

Good I wish to play I do think eating it show 'cause it would be inside this keeps going up or does that flatline and then we'll see a big uptick off of customer ads.

Yeah, so, but the way we look at it is that the trends that you saw this year, which is that yeah. We were still doing significant customer adds we set a record this year for this quarter of customer adds.

And and 550 total customers and then also 142 customers paying us more than $100000.

So still very healthy ads.

But we're also seeing more than that is bigger and bigger initial deal sizes, which is reflected in the RPL and I think what you're going to see is that continue as we move on continued to move to ours, what we've been doing successfully which is lending larger and larger enterprise customers.

The larger initial deal size is and as we said this quarter or as I said to Rob's question earlier. This quarter, we saw not only that but that we had really big expansion into those large customers and that's really where our focus is gonna be going forward.

And then second Bill all your margin guide.

For fiscal 2001 implies this be flat operating margins are they going to meet the sense, but just saying as what you had.

This year and then you have out a lot of don't fiscal 44 and watching guy that's it seemed like into sandwich.

Which looks even steeper now given your guidance for fiscal 21.

Any kinda give color on its a.

So don't track she need those just simply for much of targets.

Yeah, I you know, what we said the that no longer term model back in October 2018, the model always assumed that or moved to profitability would be more backend loaded and the reason for that is you know, we do focus on growth and profitability, but we're off to.

Rising for growth and we've seen huge opportunity for us both because these you know secular tailwinds that we talk about of companies moving to cloud moving to digitally transform themselves wanting to be secure and do it in a scalable way are really continuing to push us forward and give us a lot of momentum.

And identity as Todd has talked about is becoming more and more of the standard for that and that's why we're more foundational. So we're focused on that I think when we looked at you know the business, we really focus on striking that right balance between optimizing revenue growth and expanding our free cash flow margin, which is as weve.

Said, we you know has consistently over the last couple of years exceeded that rule of 40 target and that's a big focus for us. So we're going to continue to make decisions.

Based on assessing that making investment decisions that really will we believe ramp our go to market and innovation, because we see those big opportunities, but we're always disciplined about those investments and making sure we have a meaningful return on those and that's the way we're going to continue to operate.

Let's say I felt that actual.

Well take our next question from shall with Oppenheimer. Please go ahead.

Thank you good afternoon cans, congrats on the quarter and the outlook I.

I had one question so clearly a very nice traction wasn't spectra their journey into the enterprise.

Can you talk to was maybe doing Kirkland cross as we think it bad typical at typical phase cycle, he could enterprise versus let's say that they'd be SMB so to speak.

I want to make sure I understood. Your questions you said sales cycle right.

Yes, that's correct.

As it relates to go kind of course.

Yeah, absolutely happy to talk about that you know I think one thing that's all thank you for the question one thing that I think we will benefit from it wouldn't be water for organizations. We don't go in there with hate forklift upgrade approach. So when we go in there we help considerably larger organizations.

Small organization of understand very quickly what their opportunities are and help them find specific ways in which they can get up and running and successful in short order on the outside any cloud and with our products. It gives them an opportunity to get to know after the company our products our platform and then they start digging in and you see it into numbers, obviously the Dol.

Debate that retention, but it's also very it's it's a much better message to deliver when we go meet with a fortune 500, CIO Chief Security Officer CTL, we sell what we understand it didn't new for you were going to help solve one specific problem that you have we're going to show you value and come back and 90 or 190 day and talk to you about.

The other opportunity it allows them to engage with us and the company very quickly easily and our high profile project and when they get that early access they always come back and say that was a great experience what else can I do tell me all about your product platform your roadmap and so we don't go in and say Hey, we're going to forklift upgrade your legacy walk or a site mine.

Her or paying installation and we're going to show you value an 18 month, we say hey, we're going to help people specific problems you have right now and then over time, we'll show you the roadmap to retire those legacy products. So from that perspective, certainly, it's a little bit longer sales cycle for a fortune 500, just in terms of their process and procurement financial leap.

Well, but in terms of the actual sales cycle itself on the front end, it's pretty similar whether you're a small organization or large organization looking to start with a smaller deployment big opportunity for us easy way to show customer success, and then obviously bill does partnerships and strong customer relationships over time.

Got it thank you feel like for that.

Your next friends, Keith Bachman with bank of Montreal. Please go ahead.

Hi, Thank you very much for taking the question I wanted to dig in a little bit more on the customer side of the business.

And a few questions underneath that any metrics you can give us a including growth rates is number one and as we think about growth opportunities one of the things its penetration rates and for instance.

Can you at least comment on what percent of your your core business. What's the employee base have you penetrated with the customer side of the business and is that what are the ways.

That you're keeping it actually growing that net retention rate and then the final. One is competition are you seeing any different dynamics and the competitive landscape associated with the customer side of the business. That's composed of the place out of business. Thank you very much.

Yes, so as far as the penetration on on the workforce side. The the business as we've talked about we have to really big markets that we're addressing that's the workforce and customer identity. The workforce is still the significant majority of the business.

The coverage that we have within a customer really can be dependent on.

The size of the customer the complexity of the customer. So you know as far as the number of users. We have in most cases, we have multiple products when we sell into an initial customer and then have those opportunities to sell you know <unk>.

<unk> advanced versions of products were more products to them. So you know the workforce like I said is still the larger part of the business I'm customer identity has been growing and actually growing faster than the overall workforce. So it's it's become a bigger piece, but workforce and still the significant part of the business.

And then keep I would just at a this is Patrick I would just sat on on the back at that you know there's still a lot of run around inside these organizations that we currently have as customers with the existing set of products. In addition to all the new things that we're releasing that's the first thing settle thing. If you just look at the number of organizations that we could potentially penetrate I mean it.

Hundreds of thousands of them right. So we're very happy and fortunate with our almost 8000 enterprise customers, adding 550, a quarter does a great results, but we've got a huge opportunity in terms of that new accounts that we can work with and how far we can get penetrate inside those accounts second only to your question around a competition, it's really different when it comes.

The cuts Myday and access management, it's really a build versus buy conversation historically I enterprise has set up you know basic databases. These alibaba in their networks and we set you named can password and that's pretty straight forward, but what your foreign if he really is well first of all the people need to get up and running quickly and successfully.

Right and setting up all these terrorists and making sure that well worth it takes a lot of time it heavy duty lifting number two.

He is going to happen around security here one of the one other things that happened over the quarters. We added a number of a large regional financial bank, who are both workforce and cuts myday in access management, when and when you dig into that you realize that it's complicated and when they want to provide secure and reliable interfaces on the web and on mobile.

Two customers to look at their financial data you want to make sure you get it right do you want to make sure you have multi factor authentication embedded if you need to you you can make it as seamless as complex as the customer demand depending on the type of visit and does the thing that they have to do because it's in the revenue stream. So you've got to get it out the door or your competitors going to do it and nothing.

It's driver for the business that being said as bill highlighted workforce identity management, it's still the majority of our business cuts. My name asthma is going very very fast the there's a huge opportunity in the times ahead.

Oh.

Well take our next question from Alex Henderson with Needham. Please go ahead.

Speaking in under the wire.

Hi.

To ask a question about.

<unk>.

The cancellation of the flight attendants and octane what that might do to your.

[noise] pipeline of leads coming out of octane.

How you think about.

Difference between your normal.

Plus people showing up and doing it online and then second if you could go into.

Thoughts around.

What are you doing relative to.

Potentially grounding salespeople or whether any of your customers are resisting sales visits and how that might impact your business.

And your thoughts going forward obviously.

Those are top of mind dishes.

Yeah for sure. We're up you know you talked about you mentioned the change in for a minute for octane. So it's that should make it clear that were really on top of the you know unfortunate Corona bar situation and we're really making sure that we're doing everything we need to do to ensure the safety in house.

The.

Customers employees and it's a dynamic situation. So, we'll we'll stay vigilant and making sure we keep watching it and make the right decisions I think we're fortunate in that we how to octane scheduled at a time or we have several weeks to switch it to an online format.

And you know we were it is something we've done for several years in person and.

So we thought about you know what potential impacts could we have from switching it but it was pretty easy decision given the you know decreased risk of health and safety by doing that but now that we're ramping up on the online online version of it. We're really excited about it we think that the breakout sessions are gonna be amazing the keynote you're going to be great and we're actually seeing.

Tons of additional registrations for the online experience. So it's gonna be amazing or any of the message out there we got tons of exciting stuff to announce and it's gonna be great.

On the overall other things we're doing you know we haven't seen any effects and you know the robust yeah. The demand for our products is robust and whether or not it's you know in terms of like what visits and customer meeting those are going on as normal so.

And that's the answer that question, but overall, we're you know we're going to optimize the health and safety of inject prudent steps, where it makes sense and keeping eye on things and keep bleeding into this big long term opportunity.

How much of the.

I think you've talked about as much as $6 million of expenditures.

Yeah.

For octane.

Marketing side of it.

How much of that can you recoup or how do we think about the impact of not doing it on the cost side of equation. Thanks.

Oh, Yeah really high definition stream.

Yeah the.

The we've taken a look that obviously and there are kind of puts and takes as far as what the costs are and we have baked that into the guidance that we gave you for Q1. So that that is in those numbers I. Just say, we you know again, we benefited from the you know five weeks, we had to make changes so.

I think yeah as Bill mentioned isn't the puts and takes but.

It's good that we had five weeks to adjust.

Great. Thank you.

Well take our last question and Pat Walravens JMP Securities. Please go ahead.

Oh, great. Thank you.

[music].

Hi, My I pod the decision to put your the health and thank you get coming first thank you for that the totally switching gears and include you anything else.

Have you guys thinking about octane ventures, and what it's supposed to achieve and are you modeling it or something.

You know Salesforce ventures, a good example of a model that you might be used.

Yeah, Thanks, Pat so around aka ventures.

I mean, I mean, Salesforce ventures is obviously a little bit more mature at this point out what we're thinking early about is how we can keep it did I on the upcoming technologies that are focused on identity security privacy. Obviously, we're doing a lot of things internally you know, where we have had an excellent organic product and engineering organization and they're getting a lot of.

Things, but we are looking at other companies that are out there who might be doing interesting things around identity artificial intelligence machine learning block chain and it isn't emphasis on early stage investment we've made a four or five investments today, you've seen it a trusted Keith block fan base, it's like any company and I O T identity company called OCC and a number of.

Others and it allows us to have a good pulse on what's happening in innovation a while at the same time building strong relationships with companies that we think have very good futures in areas that are going to be very interesting to identify security privacy the things that our customers really kept up.

Awesome, and then Friday, when you're talking about all the customers that you're getting up and running it just occurred me when it takes longer than you would've thought to get a new customer up and running what what's usually the hand, what's the biggest issue.

It never happens Pat I'm, just kidding from time to time, we will it will take all that line he had a customer up and running it'll be in large enterprise and what will happen as you'll have a change agent. We brought and I can think of a number of these cases in the second half or even in Q4 changing comes.

Dan says, hey, we really need to accelerate our move to the cloud, but they have legacy infrastructure they need to figure out exactly how they're going to you know I enterprise I can't you know doesn't driving away when they do they find anything make room on the fine. So they can use opted to do a lot of that bucket figuring out kind of how that's all laid out internally a is one piece of it and then secondly.

Yes, and change management that goes along with it if your large company that has 100000 employees and folks are you doing things a certain way we've talked on this phone call about Officethree hundred 65000, email or HR collaboration and all of sudden you're going to shifted to a cloud based enterprise service, that's going to take a little bit of change in the workforce. So you see that happen from time to time and then finally on the customer.

Gain access management side, you want they want to make sure they get it right. So we tend to do a lot of testing with them and just ensuring that it's all perfect before it goes up in front of their customers and a lot of times. We're just working very closely with those customers to make an uncomfortable with what they're about the deal and then ultimately they can make a outside the identity center for the enterprises as Todd highlighted so.

Yeah, we were very excited about it it is a very good experience. We do have a lot or repeat enterprise customers are they go from enterprise enterprise and they call it right away and say, there's a lot of opportunity. So it's something that that is worthwhile in the business.

Awesome. Thank you.

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

Thanks, operator, as we mentioned, we're hosting our Investor day on April 1st and I'll be sending out more details with more specifics in the coming days. Thanks again for your time this afternoon.

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

ER.

Oh.

And.

[noise] Oh.

[music].