Q3 2021 Okta Inc Earnings Call
It should be his vision is to create a edge to cloud platform as a service our customers are and fighting to get in a public cloud and our goal is to bring that experience and simplicity and ease of use on prem and to drive that and identity becomes a backbone for lot of these and we are trying to be that global the after service.
Platform in terms on driving all the services so on for us to be able to map out and make sure their identities and accessories are pretty controlled and probably this is very very important react and make sure that we have the right in identity structure to be able to scale, so suddenly and application mail hundred users and public cloud tomorrow. They may have 10000, we basically.
I wanted to bootstrap everything we have and bring in existing dealer customers into the environment within a quarter and they're able to do that and actually 60 days think age is the largest your space.
Education, and technology company, focusing on materials and.
Learning experiences for higher and and also K 12, and continuing education to 110 year old company that has been building textbooks great business that had over time really just struggled to make it through the digital transformation by moving to after what it's really allowed us to do is take some of our best and brightest engineers who are solving.
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Good afternoon, and welcome to October 3rd quarter fiscal 21 earnings webcast I'm, Dave generally vice President of Investor Relations at Och.
Let me and today's meeting we have top Mckinnon, our Chief Executive Officer, and co founder Bill Wash, our Chief Financial Officer, and Frederic Caretrust, Our executive Vice Chairman and Chief operating Officer and co founder.
Today, we will include forward looking statements pursuant to the Safe Harbor provisions.
The private Securities Litigation Reform Act of 995, including but not limited to statements regarding our financial outlook and market position.
Forward 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 our management's beliefs and assumptions only as of the day made and.
Information on the factors that could affect the Companys financial results is included in its filings with the SEC from time to time, including the section titled Risk factors and its previously filed on form 10-Q.
In addition, during today's meeting we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.
A reconciliation between GAAP and non-GAAP financial measures and a discussion of and limitations of using non-GAAP measures versus their causes GAAP equivalents and is available and 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 and.
Today's meeting will co and number of numerical growth changes as we discuss our financial performance and unless otherwise noted each such reference represents a year on year comparison, and now I'd like to turn the meeting over to Todd Mckinnon Todd.
Thanks, Dave and thanks, everyone for joining us today I hope that you and your families have remained safe and healthy since the last time, we spoke I am pleased to report that we delivered another strong quarter of financial results and the third quarter. We demonstrated continued strength with total remaining performance obligations are a PEO growing 53%.
Total revenue grew 42% subscription revenue grew 43% and we generated record quarterly cash flows Aqua has remained 100% remote since mid March and we continue to execute at a high level.
We're fortunate that the nature of octaves business allows us to operate successfully and this dynamic work environment.
We're also proud of the fact that our solutions help our over 9000 customers securely connect their distributed Workforces and strength in the security and identity posture of their websites and applications.
The three mega trends that have been driving our business for the past several years the adoption of cloud and hybrid at GE digital transformation and Zero Trust security are being accelerated organizations are being forced to evolve their digital strategy to navigate through the pandemic well their remote work environments.
We remain a critical part of their business.
We continue to have success with growing our base of large enterprise customers. In Q3, we added nearly 100 customers with an annual contract value greater than $100000 and once again over half of these additions were from new customers.
Large enterprise customers now contribute 80% of our total annual contract value.
The total number of $100000 plus customers now stands at 1780 and increase of 34%.
And we're seeing our base of customers with bigger HCV expand even faster for example, our customers with and HCV greater than $500000 grew over 50% to 320 customers.
Here are just a few notable examples of large enterprise wins, and Upsells, which come from a wide range of industries.
DXP technology, a fortune 500, ITC services company, serving 6000, private and public sector clients became a new octa workforce customer and Q3 day.
DXP has a complex hybrid infrastructure and look to October helped the organization and reduce costs and improve operational efficiency for its entire workforce by standardizing on a single identity provider, while replacing multiple existing legacy systems.
DXP plans to migrate its applications to octa to provide a better user experience with secure single sign on while opt to access gateway will help securely integrate on premise applications, whether it's cloud environment.
The state of Iowa was an exciting Q3 workforce and customer that any win.
We're active was selected to help accelerate the state's digital transformation initiatives and Cove and 19 response.
The state replaces legacy systems with best of breed tools, it's on a secure cloud based identity solution for its nearly 20000 employees octopus prebuilt integrations help the state move quickly, Iowa has successfully deployed octa for its cloud based applications and will connect its legacy on premise clicks.
And using octa axis gateway.
By having simplified secure access state employees are better able to focus their time and resources on supporting their citizens. The state also plans to deploy and Arctic customer identity to serve and 3 million citizen and providing seamless access to allstate agencies with a single I'd and password.
We also had a fantastic upsell transaction with a global 1000 International auto manufacturer that is accelerate and it's moved to the cloud by expanding its deployment on October with both workforce and customer identity solutions. The customer has a complex legacy system and is aiming to enhance its.
Cloud security operations to better protect its business applications and infrastructure October.
And as always on capability within SLF, 99.99% was key to help deliver a solution capable and scale.
Further evidence of our progress with large enterprise companies is demonstrated by looking at the top 25 contracts. We booked in Q3 by total contract value. This includes both new and upsell contracts. All 25 were over $1 million and six were over $5 million, what's more the average contract size.
Sales of our top 10, new customers increased more than 60% when compared to Q3 last year well that's great progress. We believe that we are just getting started and we still have a significant opportunity to further expand our business with these large organizations.
These wins are a key component of the network effects that help drive our platform forward customers are turning to October because of our neutrality and.
Extensive catalog of integration and and breadth of products. This in turn generates more and more data and insights that can be harnessed to build better products that make our customers more successful. We believe this network effect flywheel and is now at scale and provides a sustainable competitive advantage for continued market leadership.
Speaking and building new products, we made several announcements around product and feature innovations and our second annual octave showcase event on October do you have in itself was a huge success with viewership increasing nearly four times over last year. The innovations we announced help further advance the leadership position on the on.
Got any cloud as a modern identity platform. There was a particular emphasis on enhancements, we're making to our Siam solutions and how were more tightly integrating and every customers system and every layer of the technology stack.
Ill highlight a few of them now the first is customer and any workflows, which automates complex identity processes by connecting to every part of the customer experience such as user registration and progressive profile development and enables enterprises to make identity actions completely programmable without having to write code development.
And we'll use workflows to unlock greater agility and provide greater customization.
We also announced an SDK and API for our devices platform service. This embeddable developer tooling simplifies and secures password list log and and omni channel customer experiences and short it's now super easy for developers to customers, many things, including creating a single integration to embed and essay.
Directly into their App. This will simplify the user experience while increasing their overall security posture. Lastly, we highlighted several upgrades to advanced server access or essay, including enhancement that speed up the deployment of cloud infrastructure, and automate manual provisioning and especially the provisioning of developer accounts and production environments.
No one customer and that benefited from the enhancement xoom.
With compliance and security as a priority zoom significantly expanded its deployment of and say this.
This expansion is a testament to the success of their initial deployment of assay earlier this year, which helped to provide added security seamless user access and simplified a privilege management and skill to its production and stage and servers.
Expanding our footprint internationally is a long term priority early in Q3, we announced another key component of our global expansion with the opening of our new office and Tokyo and the higher end of our first country manager and Japan, Takashi Watanabe with.
With a strong base of customers like Hitachi and NTT data and and growing local team Optima is making me and long term strategic investment and the dynamic Japanese enterprise technology market.
Speaking of new hires despite the cobot environment, we continue to attract world class talent to Octa. In addition to growing our overall head count by over 20%, we announced two new senior leaders and the third quarter Susan St Ledger will be joining aka as president of worldwide field operations on February Onest, Susan brings new.
The three decades of experience of building and transform and high growth software and cloud businesses.
We also announced our new CIO Elvina, and Tar, who brings more than 20 years of experience at high performing I T organizations, and both fortune 50 companies and high growth startups, we couldn't be more excited to have these experienced business leaders join OCC that to help lead us to continued growth and success.
Before wrapping things up I want to point out to this audience that we'll be releasing our seventh edition of our businesses at work report on January 28 using.
Using data from the OCC to integration network. This report takes an in depth look into how organizations and people work today I know investors and analysts love. This report because its been great revealing trends and the fastest growing and apps and several industries well before they become more commonplace in summary, it was another very.
A strong quarter for us driven by continued execution and market momentum, we are broadening and expanding our competitive moat and have maintained very high competitive win rates, whether it's against legacy incumbents big platform players or other point products. We win because we have the most modern and extensive cloud based platform our customers.
And value, our independence and neutrality and our Octa integration network is unmatched in the industry. We're also in the enviable position of being in a market that is coming toward us and the cloud. We're proud of the success, we've achieved and we're confident and our ability to maintain this high level of execution, because we are just scratching the surface.
And the massive market opportunity.
Thanks again for your time and I'd now like to turn the call over to Bill to walk through our financial results Bill. Thanks, Todd and thank you to everyone for joining us and.
As a reminder, we have posted and earnings presentation that contains our detailed financial results on our Investor Relations website, I think you'll find it to be a useful summary, and as such I will only cover some of the highlights and my commentary this afternoon.
We had a strong third quarter across the board and I will now touch on some of the highlights and then go into our outlook for Q4 and the full year turning to our Q3 results total revenue increased 42% driven by a 43% increase and subscription revenue subscription revenue represented 95% of our total revenue.
Our PEO or backlog, which for us this contract and subscription revenue, both billed and Unbilled, but has not yet been recognized grew 53% to $1.58 billion.
Current RPL, which represent subscription revenue, we expect to recognize over the next 12 months also experienced strong growth of 46%.
Year over year growth and current RPL is the more meaningful metric when viewed along with subscription revenue and billings growth.
Total and current calculated billings grew 44% and 42% respectively.
The strength and billings was driven by both new and existing customers and beneficial invoice timing weeks.
We expect Q3 is beneficial and bus timing to be a modest headwind to fourth quarter billings growth.
As I mentioned before billings can be subject to variability caused by and voice dynamics, including timing, which is why current archeo as an important metric as it eliminates these types of variances, which have no impact on revenues.
Turning to retention our dollar based net retention rate for the trailing 12 month period was 123% a two point increase from last quarter.
We have not experienced any degradation and gross retention rates during the pandemic and continued to experience strength with customer upsells, particularly with our enterprise customers.
The retention rate may fluctuate from quarter to quarter and ending the current environment, it's possible that fluctuations and retention rates may be more pronounced 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 and operating expenses total operating expenses grew 30%, which is higher than forecasted as we increased investment to support our growth plans.
The growth and expenses was partially offset by reduced travel and office related expenses and what we've been successful in hiring and retaining talent Ari was more back end loaded in the quarter.
Headcount increased 23% to just over 2600 with the increase primarily in our go to market and engineering teams as we continue to invest and strategic initiatives.
We achieved profitability again, and the third quarter, driven by our stronger than expected revenue performance.
It's important to keep in mind that expenses will return to a more normalized run rate and the business environment begins to normalize. We also look to increase our investments and fueling our business globally, which includes increasing head count within sales and marketing as well as R&D.
We generated record cash flow from operations and free cash flow of $43 million and $42 million, respectively, which yielded a 19.1% free cash flow margin.
Free cash flow was driven by strong billings and collections during the quarter collections have continued to be stronger than expected during the pandemic.
In the third quarter with a strong balance sheet anchored by $2.5 billion and cash cash equivalents and short term investments.
Moving onto our business outlook, while there is some continued uncertainty given the pandemic environment, we remain optimistic about the demand for our products and are raising our full year fiscal year 21 outlook based on our strong third quarter results.
Consistent with our approach throughout this year, our bias is to reinvest the upside and 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 have a meaningful return.
We also expect to see continued variability and cash flow margins due to ongoing fluctuations and working capital growth and our enterprise business and seasonal factors.
For the fourth quarter of fiscal 2021 day, we expect total revenue of $221 million to $222 million, representing a growth rate of 32% to 33% year over year.
Non-GAAP operating loss of 2 million to $1 million.
And non-GAAP net loss per share of two cents to one cents, assuming weighted shares outstanding of approximately 131 million.
For the full year fiscal 2021, we now expect.
Total revenue of $822 million to $823 million, representing a growth rate of 40% year over year.
Non-GAAP operating loss of $2.3 million to $1.3 million.
Non-GAAP diluted net income per share of four cents to five cents, assuming weighted shares outstanding of approximately 143 million.
The higher share count reflects the shift to profitability for the full year.
The strength of our business gives us confidence and our ability to execute while we are in the early phases of financial planning, we would like to provide a preliminary view of our revenue outlook for next year.
We currently estimate total revenue to exceed the milestone of $1 billion for fiscal year 2022, and be in the range of $1.06 billion to $1.07 billion.
Although there is a continued macro uncertainty we remain confident that the factors that are driving our business today, we'll continue to drive our business well into the future.
All things considered we remain confident and our ability to execute against our long term model.
In summary, we are pleased with our third quarter performance.
Celebrated tailwinds of cloud digital transformation and security position us well to achieve our long term financial targets. We plan to further capitalize on our market leadership position and the tremendous market opportunity ahead of us and look forward to closing out the fiscal year on a strong note.
With that I'll turn it back over to Todd.
Before we go to Q1 and I want to discuss the announcement of Bill's retirement next year and the appointment of our board member and Audit Committee Chair, Mike Cory to succeed and.
Bill has had an incredibly successful career and I couldn't be happier for him to be able to spend more time and his family and friends and his favorite charitable organizations sufficiently I'm really bummed, because bill has been such an integral part of growing octa over the past seven plus years back when we were and young startup and had less than $20 million and.
Q.
We're incredibly fortunate to land someone with Bill's talent and expertise we are grateful that he is going to stay on through the announcement of our fourth quarter results and 10-K filing and early March and then as an advisor through the first quarter of next year. We greatly appreciate everything he's done for octa and wish him all the best and his retirement next year.
We're also excited to have a person might coreys caliber take the CFO reins Mike has been an invaluable octa board member and head of our audit committee over the past five years and is intimately familiar with our business and strategy. So we know he'll be able to hit the ground running over the past 25 plus years, Mike has built.
Story and career and technology, both as an executive and board member and public and private companies I'll speak for the rest of the executive team and the board that we have tremendous confidence and Mike and we look forward to working with him even more closely and the coming months and years as we continue to scale. The business I know Bill also wants to see.
On a few words before we get to questions Bill I just wanted to take a moment to say how thankful I am to have been part of October for these past seven years.
This was a difficult decision because I truly believe the future for octa has never been brighter and more than anything I'm going to Miss working with such a talented team.
Well I am excited to move on to this next chapter of my life, and I know OCC and we'll be in great hands with Mike who has really been and mentor to me from before our IPO to all our team building scaling financings and Investor relations through the current day.
Im looking forward to working with them through the transition.
Now I'll turn it back to day for Q and a day.
Great. Thanks Bill.
To indicate that you have a question. Please click on the rate and I count at the bottom of your screen and I'll announce your name on its your customers to ask the question and you will have that on yourself at that time and in the interest of time. Please limit yourself to one question and one follow up question.
We'll take our first question from Sterling Auty of JP Morgan Sterling.
All right. Thanks, guys Bill, let's start with you and congratulations on one heck of a run you really know how to go out and it up.
And you put up the billion dollar guidance and just did the might drop so we really appreciate that.
On on two and Im just going to ask one question. So last quarter was a very strong and upsell and cross sell into your existing base.
Can you just characterize when you look at the strength and the revenue and the bookings this quarter how much of it came from new logos and what you're seeing in terms the momentum and new logo additions to the business.
Certainly and nephew I think it was.
Very pleased with the quarter across the board I think it's.
Little bit more weighted to up sell transactions.
I think Thats a testament on a couple of things one is that a lot of our customers are relatively speaking just getting started with our products.
We tend to do especially the last few years, we've done a lot of they were not small deals but in terms of the potential that these customers could use from us there and a lot of room to growth I think we are benefiting from that to some degree as well.
We're also just not a natural part of the motion as we move into more enterprise.
Theres just more there's more problems to solve more brought value to add so as inc. Some of the mix will be.
More upsells as we move and enterprise and and also I think and little bit of his coded to it's a little bit on on the merger and easier to.
Work on an existing relationship versus build a new and but that's really a marginal difference are there.
Sounds good thanks.
Your next question is from Jonathan Ho with William Blair.
And let me Echo my congratulations as well on the retirement and we certainly will Miss you just with the the growth and the size of the deals that Youve seen is there any additional color that you can provide on maybe what's driving that up sell on is this more expansion and use cases or penetration and just on.
And again, a little bit of additional color on that.
Hey, John and then Nathan.
Happy to talk little bit about that so I think what you're seeing is as Todd.
That we're just getting started with a lot of these large organizations you go back and some of the numbers on that.
And.
When you look at that pathway by contract, but you book.
We're all over at $9 and six of them were over $5 million as it gave me and I know that people are just starting to figure out how they can really take advantage of that service I think we're all so right.
Right and the middle and forming really from a product company to a platform company and you look at on the announcements on showcase where we're really start be able to do and and workflows cuts by day, and access management, and giving customers a lot more opportunity and more and more of that service.
Finally, I would just day if you look at on the day examples of that go live a press release that we put out today, which we always do with earnings I think always important and POC about net new customer wins, and we are adding to the low that but yes.
And if not more so, especially today and great day and needed a lot of customers going live dealer and Sir.
And if you look at that there is a lot of upselling people are getting comfortable with workforce and going to cost My day and access management growth starting with basic work flow workforce.
Work force products, and then adding the advanced version does and that day or single sign on and I think thats, giving us a lot of room to grow and look we're very happy with the results and it's been a great quarter and a great year, but I think the next five years, and we open up and platform and provide more solutions for our customers and again.
And you Barry Thanks.
Excellent and just as a quick follow up and I know billings is less relevant and our PEO, but just given your commentary around some of the headwinds that are there.
This how should we be thinking about that fourth quarter headwind. It is the growth and billing is going to be more similar to the prior quarter or are there any sort of and that you can give us and.
And to that magnitude, thank you and and congrats again.
Thanks, Jonathan appreciate that yes, as it relates to billings like you said, we did see some headwinds this quarter.
Talked about before out youre going to see some timing as it relates to invoice timing.
And that's why we do think current RPL is a really good metric because it does eliminate that timing, which really has no impact on revenues.
However, I know a lot of you look at billings for modeling purposes, and so as you think about it.
You know that that headwind that we're talking about as far as the beneficial invoice timing that we saw come into Q3 for next quarter is approximately $6 million. So thats, how I would think about that.
And if you think about the.
The success, we had and billings this quarter, we did have that beneficial and voice timing, but we also as we talked about had very strong business on very strong bookings and very strong performance. So previously and when we talk to you about how to think about the.
The delta between subscription revenue and billings growth.
We had Todd you know preview.
Previously about that Delta and now we think that Delta will probably be narrower and probably in the range of like three or 4% for the second half of the year.
Okay, and just a reminder for those that are on the panel and if youd like to ask a question. Please click on the rates and I call and our next question is going to come from shall yell at Oppenheimer.
Thank you hey, everybody congrats.
Congrats on on results and and out Bill on the second one.
On the past few years and.
Going forward.
Yes, Tom Brady I wanted to ask about the initial.
Progress and probably at work flow product and gateways and morass that.
And maybe any initiative.
You may have about the alliance and.
Now back and the summer way that we're on.
Moving that skill and and crafts right.
Shaul were the work flow platform service and advanced lifecycle management product and then their customer on duty workflows product.
And we're really excited about it and it and frankly I think we still have work to do in terms of helping people understand the import.
And this strategy.
So the workflows.
Platform service the core piece of technology that we've been working on the past couple of years. It stems from an acquisition did on the fuel.
He is back and and you turn that into a native OCTG product and it's a capability that's generally.
Powerful generally, but then we've taken it and we've applied it two very powerful specific use cases and I think these two specific products that are no did use cases that are products really is the story for the future we're going to be taking all of the platform services and using and.
Using them to build up products in various areas and so that you products, our advance lifecycle management, which is essentially it's our basic like our basic last nickel and your product, but you can essentially kroger and visual way of business analyst and program and do an upper they need to happen when a user joins or leave the company or changes.
Jobs, which is very powerful.
And that's one and Thats not product is doing great. It's exceeding our expectations. We're really happy about that customer identity workflows is essentially taking that core workflows platform service and applying it to the customer identity and use case, so when a person registers on your site you can program it easily and do whatever you need to happen and that registration.
Well you can.
Copied over sales force, we agreed to the marketing system you can put.
Putting your proprietary database and you can do a bunch of business logic. So.
We're really excited about about this case and a couple of concrete examples of how this approach of making customers accessible and it's on sometimes especially large enterprise is relatively small use case on off the bat, but and that can grow in mature over time.
And then so I'll just touch on your second question there about.
On the partnership announcement that we had over the course and that summer look the mega trends and we're fortunate to be helping our customers and as you. All know is around the transformation to a hybrid cloud environment and everyone thinking about digital transformation and then obviously people thinking long and hard about how they are going and successfully implement it.
And then security measure and Thats, new cloud based world and sometimes you get the question could you, possibly could docket, possibly become the biggest security company and software security company of all time, it's possible, but I think one of the things that our customers really really appreciate it and independent and you're right and.
You look at the.
Best of breed and that trend and often run around but what what.
Chief Security officer want and organizations, and particularly large enterprise it and we.
Right.
The security challenges they face are our big ones and they know there's not any one specific vendor to provide all that solution. So you referenced specifically and great partnership that we have and well wait partnership with net.
How'd strike point, I'd gone very very well on and not only is it a lot on the.
Marketing partnership that right now this is a product integration were actually using the products together they talk to each other.
And inflation and you can actually and yes the.
The performance and each of the products with the partnership is going very well customers are now generally available customers and while the board we're getting a lot of good result, and also it's obviously an update Brett and our funnel because.
And if I could point, thousands and thousands of customers and big opportunity for us actually does and Ari.
So our partnership gone very well and we're very excited about that.
And.
Thank you so much bill good luck.
Thank you.
Right on our next question comes on to Foster at Citi.
Hey, guys. Thanks for taking the questions and congrats and the team on a nice quarter and to enter bill on the future retirement and.
I've got a two part question.
Your large deal metrics have been really strong and this year and with Q4 on its now how are you feeling about visibility and sort of large deal conversion.
As you close out the quarter and to the extent that there will be a swing factor for you and this year relative to prior years and related to that any color you can provide on the complex and of this years.
Q4, large deal cohort from either a customer deal demographic perspective on.
Relative to what you've seen in prior quarters and I'm, specifically wondering if you're seeing any of your newer products are used cases being considered as part of larger initiatives and to what extent. Thank you.
Yeah, absolutely. Thanks for the question there on the answer Baltimore, and yes, I mean, we're seeing very strong opportunity not only with our existing customers that you see in the dollar based net retention that has continued and pick up over the 120% and we think it and very good mark as the net existing customers large enterprise and you saw that that that Todd.
I spoke about earlier on today's call continues to do very well in Q4 are absolutely. There's a lot of big opportunity oppressed and work with not only existing customers, but net Neil we're obviously already a month into the quarter and things have gone very well. So we're optimistic on not only this quarter, but as you know a large enterprises that relationship.
But we started months and quarters, if not years ago, because you need to build up the time you need to build up the experience that comfort level that they have working with price.
Yeah, and newer a company like us and we say, we're just getting started and the times ahead are going to be very exciting. So not only is this quarter looking very good but all the work we've been doing in the past quarters and in particular again I'll point back to customers, except when you have organizations like Fedex, knocking about going live with 80000, plus and point on hundreds of applications over a week.
And that's stronger Mackie and anything that we could deliver at the management team because other customers will look at that and say wow that that kind of result, I want so not only if people are looking very good but I'm very optimistic about the first half of next year I well I think the pipeline looking very very good and not only and North America began internationally.
The big opportunity, we talked about opening the Tokyo office weighted continue to accelerate our growth, they're very happy and artist nation team in Zurich insurance and heat either large brand names that have standardized internationally on on that but there's a lot more that we can do and and I think that the the future quarters are going to be very very good.
Oh yeah.
Yeah, I'm really excited about our customer identity.
Business and the fourth quarter I was just reviewing the pipeline last night, and we have a lot of big opportunities and customer that and it's very important part of our strategy. We're our.
Our future is about this dominant first class cloud all are on identity and for us to do that successfully customer data and big part of that it's a broad it's a much different use case and distinct use case from work force identity. It broadens the strategic value of the whole identity cloud it serves customers in a pressing business.
Do they have the connect more closely with their customers over in the digital channel and we're investing and on an that opportunity in that market and it's great to see it.
Really pay off mental and the results, but in the future future quarters ahead.
Thanks, so much appreciate it.
Your next question is coming from Taz, that's going on.
And something on question on can you guys hear me Okay. Yeah. It does not include our.
So last quarter, you guys give us some color on how much the on the CIA and sat on an as reported I think it and some of the numbers on that last one on anymore color on how that business performed this quarter.
Its strong yet and the same and the same ballpark, we don't break it break it out specifically every quarter and we're.
We are considering doing that and future, but for now and it's a once in a every few quarters type of metric for us.
But we're seeing both.
Health and in the raw amount of business, but also in the number of companies. They are getting started with that platform or that use case on our platform. So.
It isn't just the raw dollars of bookings. We also look at the starts and the and the projects that are going on and that's important and very well for the future and it's important I mean every day, we talk about coded and you know what it's done for the business and headwinds and Tailwinds and all that stuff, but the big Big truth is that it's.
It's really really made every company serious about their online strategy I mean, it's something they've all known they've had to do and they've been thinking about you know hey, we've got to get online and we got to change your got adopted digital world, but Cove and has made it very clear that they need to act now and we're sorry, we're seeing that and.
And what's going on and our business as well.
Yeah, that's very helpful. And then one final for Bell and now you have you have strong growth and building strong growth and current RPL and.
And my math right on your fall on bookings it looks like that was and bid like your muscles and since last quarter and.
Any comment on duration was low duration and a headwind of.
For our total bookings and will not be able to score.
Yeah, we did do decelerate moderately as you talked about pads.
But we're very comfortable and very pleased with the growth and our business.
You know as we look at average deal size.
The average deal size, especially in the enterprise and increased significantly and we've talked about the growth and are greater than 100000 customers.
We added nearly 100 and those on and that grew 34% year over year on the base from our large customers on.
Which we talked about which is those customers with a net annual contract value, Greg and and $500000 grew over 50% and and as we've talked about we also saw a two point increase and our net retention rate. So we saw all our top line metrics really really strengthen on it.
And in addition to that you know since the pandemic has started we've actually seen a bit of an uptick and our average contract length. So I think when you're looking at implied bookings, which I think is the calculation you're looking at you're going to see some fluctuations quarter to quarter like we did in Q1 and Q2 and.
But we're very pleased with the topline growth and especially in the enterprise with both deal size and as I said.
We're even seeing a bit of an uptick and and term lengths on.
During the pandemic during this period.
Got it right on top of principal.
Your next question is coming from Hamza Fodderwala at Morgan Stanley.
And yet you are taking my question.
So I wanted to touch base on the.
Diane business, you talked about a pretty strong pipeline going into.
Q4, I'm wondering we're also seeing in addition to that market opportunity and number of private.
Private vendors and the state with the similar developer centric approach is to you guys.
How do you think about differentiating yourself as a market leader and.
Going forward.
Yeah, absolutely. Thanks for the question Hamzah nice and see at all I think that the first thing is you have to think about when people are talking about customers.
This is not yet.
Employed and is important and it's all about security and it's about reducing costs and getting out there when you're talking about customers.
This is at the revenue line and they said topline growth and the company and this is not something that you want to add that a lot of Todd you get from our customers and prospects. It and you know the life blood a bit and what's going to drive revenue you can't be down for you know and call it much less and minutes. So they are really looking to hear what we hear a lot right.
Very good they're really looking on Q vendors and provide security reliability and performance and not just in terms of like that.
And you're going to ship around it. So that you can put on the website again the metric that customers are willing to stand behind OCC about the result, they're getting so and.
We're very happy with what I and reliability that we offer on the entire platform with no exception, we are the only ones and the industry to do that but that's my day and access management.
We are the only one to have a better and moderate and service HIPPA compliant falling all the regulations that need around the world and then if you just look at the size and scale deployments of organizations like Major League baseball North of 59.
Boy Albertsons major Fortune 500.
Retailer, obviously with 27 different brands the weighted they standardize on the experience for customers and they do that at scale and reliably and securely and on.
I think that not negotiable relate Randy and the company because obviously, if your website or your outlook down you're not that CEO and board level conversation and that's nothing that people are looking and mess around with so let's say you get big markets are we you know we estimated earlier this year at and low.
Good day that that customer and exit and that market and $25 billion, probably spent every year already on that so are there going to be upstart that are going to go after certain pieces of it absolutely are there things that we need to continue to do it you accelerate and Investor day platform, you back and we're making big investments there, but we're also looking for great partnership.
Around fraud around fraud prevention or on a bot net and then obviously, we have locked the venture and what we've been making very interesting investments.
And promising past, writing and access management solutions that are going to help bolster our solution. So.
You're absolutely right huge opportunity and why we're really focused on and when I think it's going to be very exciting.
Yes, it's a great question and I'll just follow on to reiterate one point is that this category is earlier and its potential which means that it's there's a lot of definition and filling out of the category to be done and and my conversations with customers. What I've noticed is that they want someone.
On that can help them do that help help formulate the category and.
Yes, and the category to the level, we can buy companies and round out the solutions like we can.
So it's an area, we're very serious about I'm, hoping to find that category and it's going to be it's going to be fun to do and it's going to be I think pretty beneficial to customers and to our company.
That's helpful and my congrats to build and well.
Okay excellent.
And next question is from Eric here at Keybanc.
Hey, guys congrats on the quarter. Thanks for taking the question and Bill Congrats on a great on well.
Question for Todd or Freddie So where are we with customers kind of react and the cove it and the initial work from home remote access to man versus a net phase of customers tack on digital transformation and looking to re architect their security posture from more of a zero Trust framework.
Thank you.
No I think the initial rush to figure out work from home is probably a quarter behind us I think we're into this new normal now or people are optimizing their their reactionary things they did and they're back to more of a like a I'm thinking about the future and I think.
Sometimes that means just deployments and identity for work force right not every workforce identity deployment is to react to work from home a lot of that is just you know the normal pretty new apps wanting to be more flexible independent of code and and were certainly certainly see and not but on the customer then he said I think you're seeing that.
Impetus and capitalization from Cove is really starting to materialize and because of what I said before the you know everyone now knows that they need to do something and those projects take time and even when they do happen, sometimes they happen small and and build up over over a period of quarters. So I think that's well underway and I'm excited about.
For that specific dynamic I'm really excited about the next few quarters and that plays out.
And I would just add that and the large enterprise cxo leaders and either been and industry for a long time and or have been inside their organization for a long time and built up a lot of political capital realized that that is one of those technology leap frog moments, where they are having challenges getting into their data centers on prem infrastructure. They now realize as does.
The rest of their organization, it's very hard to manage and maintain when you can't go touch it feel and every day and so they're really looking to ways that they can move to the cloud solutions that offer that service the platform the reliability security they need from day Euro from that first time, it's very and on and I think that's going to be very excited you get big transformation.
And projects and the times ahead again from the large companies and these strength leader and who knows this is a moment they can take advantage of.
Great and maybe just to expand a little bit on the prior question can you provide an update on the competitive landscape and maybe if you can segment that out between workforce and consumer and any changes relative to Microsoft.
Yeah, It's a it's something we look on a lot and we think about it a lot and you.
No change.
It's been interesting the last really since I'd say the overall competitively for rock that we've gone through very early in our history, we were competing to define a category and workforce with smaller vendors and at the time were start ups or they're going to start ups and then we were able to through hard work and.
You know to be true to our vision, we were able to differentiate ourselves from those competitors and then you know the environment was materially different back I think and 2014, when Microsoft decided to compete with us with their as you were active directory product and we were all nervous about that when that happened, but it turns out that what they were doing moving on.
Moving to the cloud with officers 65 was the best thing and ever happened Arca and it was kind of you know it was I guess, a little bit of noise and have a direct competitor, but the macro catalyst for the market was was.
On a powerful growth and I think that dynamic with Microsoft is largely unchanged I mean, I know they've talked a lot about what they're doing and.
Try to improve their product and so we're investing obviously heavily and our product to stay headed and so that competitive dynamic is.
Pretty consistent over the last five six years I think the reason why is because and this is not just Microsoft but with every big platform that now that they've seen our success. They want to have success and identity as well I think we have a very different world and we think they should be its own independent platform. We think that you can't book.
And on identity to another platform because I didn't he has got to be a neutral router, it's got to be able to US you know low.
Argue securely and connect you and provision you equally to any platform any application and device and it can be beholden to one platform.
Opt and Joe can you imagine being the product manager and Microsoft working on the some of their competing products and you come up and it's great idea that to really connect people to NWS right you get fired they'd be like where you do it and connect people day, WMS and deserve and as their only or you know so I think it's just a philosophical thing and then you mentioned you.
Pair that with the fact that our product is just superior and better and has more functionality I think you see the competitive environment. There. The last thing on on that to a lot of our success now is you know.
Replacing legacy so it's been pretty interesting and legacy and any markets you've seen.
You see see a basically exit the business you've seen some of the other players that were traditionally big whether it's idea or others. They are essentially not investing at all and customers are on these products they've been on these products for 15 years and the maintenance it's come due and then and they have to do something and that's that's kind of lies and moving.
On the cloud as much as anything else.
Great. Thanks.
Thanks next question is coming from Keith Bachman of BMO.
Hi, guys. This is Dan on for Keith Thanks for Thanks for taking my question I.
I wanted to ask the on the insights and the usage trends you're seeing there can you maybe talk about any growth the data volumes and also how customers are using insights and.
Thanks.
Yeah, absolutely. Thanks for the question, Dan or those who are not Ah, that's and later with the insights and.
Product and actually that suite of products that we have there on that we've been building for quite some time and the customers are really trying to take advantage of and I think that's a great example of how being a premier independent and neutral and vendor and the primary then your upper right and.
And he has a cloud service really played into products like insights and we have 9400 plus enterprise revenue.
Boy it at scale the amount of data that we now see inside the network across users and you can imagine let me see into various actor behaving poorly against one of our customers. He can instantly protect north and 9000 customers.
And and we do that every day every single day. So the insight products are very and so we started doing it and started getting a lot of insight we were able to help customers and then we said to ourselves well there must be ways that we can actually provide this data back the customers. The first way that you saw with the public and this and the work reported that Weve had out for a number of years now on that.
And on the inside your customer you can understand what your peers might using a and a new category and you're trying to use.
And now we also have insight as a customer usable product so that they can figure out whether you're and end user how you might be able to optimize their experience whether it's on your dashboard products used most often will automatically shift to the natural position you would use them, whether it's a and I hear security you can get insight across your entire.
Either and employee base or customer base on how they're doing things what might be happening and obviously getting that signal from all noise when something is going or not according to plan. When you might have a security incident or you might have a breach or you might have some behavior from and IP range or a geography that you would.
And expect you can do something about that and real time and more alert you to that so on those products are doing very well, but again more customers come to that service is a great example of the network flywheel that product and those products get better and better as we get more users and customers on a GAAP.
Thanks.
And next question comes from Ben Bollin, and Cleveland Research.
And then thank you I appreciate you taking the question.
Right and this one is.
Could you give us an update on what you're seeing from an EPS origination perspective, the business from channel opportunities vs direct and maybe talk a little day about what role and you see the channel playing for.
For net new vs Upsells to create this thing and then on an additional question would be totally.
Totally separate subject, but any thoughts on the incrementality and spend for identity from customers declined technologies, such as SP win or sassy, how you see that translating to spend and maybe what that tail up opportunity looks like and test future quarters. Thanks.
Yeah, absolutely. Thanks for the question Ben and the question is rather or I'll take the first on first on the channel side of the house, where we're very bullish on what the channel and possibly provide on you know, we when you're a small company and you're getting up and running and getting going your private company. Even when you set to go public and think about the public.
Markets a lot of times and the direct sales just because there's such a quick integration between you and the customer base understanding what customers need and obviously, if you're a big looks like ours, where it's all about innovation its about transforming legacy and it spreads that are on for 30 years with no innovation and bringing that completely new models market on a global scale you need to hire.
And that primary information on translation with their customers hardwood splaine on channel how to even do that and you are learning yourself Oh. The channel has started to do very very well over the last few years. The couple of quarters ago, We talked about half a day you booking quarter income from the channel nothing we update on every day.
And we'll corridor, but it continues to do very very well and now it's not only to your traditional system integrators resellers distributors, Greg and partnership whether it's at the global level with Accenture and pick him he and Pricewaterhousecoopers and Deloitte, whether it's regional security vendors that are out there and have very spot price like GAAP.
And or whether it's the large scale distributors like I say type a and.
And insight we have very good partnership there, but actually if you see the press release and put out today, we're starting to get really good channel distribution opportunities through technology vendors and obviously starting to date of U.S. and the fantastic one on our introduction and have you asked marketplace. It's something that I think is really revolutionary for us as a company and for Mws.
And there's a brand new set of products, they're putting out around control tower, which allows people with more and more complicated mws environments and manage those environments more intelligent people and security perspective on the only identity vendor that and now that are that are also now and you know how many customers have these large contracts with eight of the last well.
They might be persisting, a certain set of meetings that services, but over time, they can buy anything marketplace and not below some of the requirements. They have and those contracts. So now any income.
Customers can go on and marketplace and purchased box out workforce or customers getting access management and by the way and have yet sales and get comps that added Randy partnership just out of the box back I know, they're having their reinvent keynote tomorrow and GAAP.
And you talk and I've been on the main stage easily and the opportunity where you want to talk about the quarters ahead and years ahead. I mean, you all know the result kw outside but you also know how early we are on the migration from public cloud. These are the kind of distribution opportunity that I really think and have a significant effect on.
And probably be impactful to the business and the short term and obviously on the long term. So we're very bullish on all those your second question was around sassy and kind of convergence of.
The security landscape and what that might mean for us, but we have very strong partnership and talk about a few earlier and will have very strong partnership with some of the leading vendors out there like cloud flare, a very complimentary solutions and E. Tailer lot of joint customers better leveraging again product and product integration not just a bunch of architecture, but actually I think that.
Ending signal to each other and making each product smarter that is certainly think it's only getting selling right as people get rid of on price firewalls, whether it's actually and or virtual appliance doesnt really matter, they're going to move the public cloud and not and they are going to be more of a primary and any color and I think that the heat up to your breath to help our customers.
Hey, we're going to take one last question, we've got Josh we're told from Berenberg.
Hi, This is Nick Hey, Josh and I think the only I think it's only fitting that whatever you ask him and I have bill and threat as the final earnings call is going to do.
[laughter].
Actually Andrew Smith on for Josh, but HM.
Just one from me so as organizations continue to move to the cloud have you seen the number of deals where the C. So is the primary decision maker purchaser of work first products increased this year or maybe put another way if you could ballpark what percentage of your work force deals our security driven deals. Thank you.
Yes faced and I would say that over really over the last few years, we've seen good day.
Deals where the season was very involved because obviously there is a high degree of security needs and you know for us and identity, which is really when you think about it that central perimeter for security and it's.
It's more and more important and I think that's.
Certainly what we're seeing we're also seeing net.
There there are a number of reasons why folks want to use us both for workforce and Siam and certainly among those is in addition to being able to do it at scale and to do it efficiently and security and the fact that we are and identity separate platform, where we've got all these different partnerships and.
You know as Freddie said on deep.
Deep integrations with other security products.
It really is a reason why companies are looking to us for that.
Thank you.
Okay, well that does it for today I thought before you go I just want to let you know that will be attending threed virtual conferences over the next few months will be at that you'd be EPS Global TMT Conference on December 9th Goldman Sachs Technology, and Internet Conference on January 12, and the Needham growth Conference on January 14, So we hope to see you.
One of those events.
So that's it for today and if you have any follow up questions you can email us at Investor and octet dotcom. Thanks for joining.
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