Q4 2021 Okta Inc Earnings Call
<unk> agreement to acquire after zero I know you wanted to hear more about at zero and the transaction and we will do so right. After we walk through the Q4 results to.
To highlight just a few of our fourth quarter financials total remaining performance obligations or <unk> grew 49% total revenue grew 40% subscription revenue grew 42 per cent and we generated $32 million of free cash flow. It's worth repeating that the three mega trends that have been driving our business for the past several years the adoption of <unk>.
In hybrid it.
Digital transformation and zero Trust security are being accelerated by both the pandemic and periodic security events organizations are being spurred to evolve their digital strategy and their shift to dynamic work environment will remain a key part of their business going forward.
We're reaching more customers than ever before we added a record number of new customers in the quarter.
Milestone of 10000 customers, that's nearly triple the size of our customer base. When we went public less than four years ago.
A highlight of our expanding customer base is the success, we're having with large enterprise customers. In Q4, we added 170 customers with an annual contract value greater than $100000, which is another quarterly record and nearly half of these additions were from new customers. Notable wins. This quarter include Alaska Air.
And state of Kansas Department of Labor for customer identity, and a customer identity upsell with Dell booming our base of these large enterprise customers is now approaching 2000 and continues to contribute approximately 80% of our total annual contract value.
Could not be more proud of what we accomplished in fiscal 2020, one, especially in the face of the pandemic just a few of the highlights include another year of record financial results with revenue growing by 43 per cent and record free cash flow of $111 million.
With the health and safety of our employees is the first priority, we were able to quickly and effectively transition 100 per cent of our employees to work from home and not Miss a beat on execution.
We added over 2000 new customers.
Our investments in innovation paid off with the launch of several new products and services, including workflows for customer identity, and advanced server access upgrades, which provide even greater value to our customers and increase the number of use cases that we can address we maintained our ability to attract and retain incredible talent growing our employee base by two.
5%.
And we're very proud of the progress we've made on the ESG front with the formal launch of our ESG program. The undertaking of our first carbon emission study and the publication of our first state of inclusion reported.
In summary, Q4 was a strong finish to another exceptional year I'm very proud of the role that okta plays in helping companies navigate through this pandemic crisis and I want to thank our employees, our customers and our partners who place their trust in US every day as we begin our fiscal 2022, we have momentum on our side as we are just scratching the surface of.
A massive market opportunity.
Lastly, I want to take a minute to thank two people who have been critical to okta success, Charles race headed up okta as worldwide sales for the past four plus years and has retired after an incredible career.
We're super excited that Susan St Ledger as joint Okta to lead the go to market team into our next phase of growth her experience in scaling platform companies and expertise in enterprise sales will be a central.
Also want to thank Bill Losch again for his invaluable contributions to okta over the past seven plus years next week, we'll make the official CFO transition to Mike Cory Who's been a board member and audit Committee chair for the past five years, we're really fortunate to transition to somewhat of Mike's caliber.
But also someone who is intimately familiar with our business and strategy to Charles on Bill We wish you nothing but the best in retirement now I'll pass it over to Bill for one last time Bill Thanks, Todd and thanks to everyone for joining us.
As a reminder, we have posted an earnings presentation that contains our detailed financial results on our Investor Relations website.
Such.
Cover some of the notable highlights in my commentary this afternoon.
As Todd noted, we had a strong finish across the board.
I'll now touch on some of the Q4 highlights and then go into our outlook for Q1 and the full year fiscal 2022, turning to our Q4 results total revenue increased 40% driven by a 42% increase on subscription revenue subscription revenue represented 96% of our total revenue.
<unk> or backlog, which for US is contracted subscription from revenue both billed and Unbilled that has not yet been recognized grew 49% to $1 8 billion.
Current RPI <unk>, which represents subscription revenue, we expect to recognize over the next 12 months also experienced strong growth of 42% year over year growth in current RPI is the more meaningful metric when viewed along with subscription revenue and billings growth.
Total and current calculated billings grew 40% from 38% respectively. The strength in billings was driven by our success, both in attracting new customers and in maintaining and expanding relationships with existing customers.
As a reminder, Q4 billings included a modest headwind of $6 million relate.
It related to invoice timing that we discussed last quarter.
As I've mentioned before billings can be subject to variability caused by invoice dynamics, including timing, which is why current RPI is an important metric as it eliminates these types of variances, which have no impact on revenues.
While we do not provide specific guidance for current IPO. We believes on on an organic basis, excluding asaro current RPI growth will outpace subscription growth throughout the fiscal year.
Turning to retention our dollar based net retention rate for the trailing 12 month period remains strong at 121% down two points from last quarter.
<unk> retention rates, both in Q4 and throughout the pandemic have remained strong.
Revenue retention continues to be driven by strength with customer itself, particularly within our enterprise customers. The retention rate may fluctuate from quarter to quarter and into the current environment. It's possible that fluctuations on 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 at operating expenses total operating expenses grew 30% slightly higher than forecasted as we increased investment to support our growth plans. The growth in expenses was partially offset by reduced travel and office related expenses headcount growth accelerated to 25% to just over 2800, but the big.
It's increase in our go to market team as we continue to scale globally.
We generated cash flow from operations and free cash flow of $35 on $32 million, respectively, which yielded a 13, 8% free cash flow margin.
Free cash flow was driven by strong billings and collections during the quarter.
We ended the fourth quarter with a strong balance sheet anchored by $256 billion in cash cash equivalents and short term investments moving on to our business outlook. While there remains some continued uncertainty given the pandemic environment, we remain optimistic about the demand for our products.
Before I give our outlook I do want to note that this guidance is for okta on a standalone basis and does not include any impact from the <unk> transaction.
For the first quarter of fiscal 2022, we expect total revenue of 237% to $239 million Rep.
Representing a growth rate of 30% to 31% year over year.
Non-GAAP operating loss of 28% to $27 million.
And non-GAAP net loss per share of 21 to 20.
Assuming weighted average shares outstanding of approximately $133 million.
For modeling purposes, I want to remind everyone that Q1 is some seasonality for expenses related to octane, our annual sales kickoff and the reset of payroll taxes.
This year, we have moved our annual merit cycle forward from Q2.
Given our strong Q4 results for the full year fiscal 2022, we are increasing our revenue outlook from the preliminary view, we gave you last quarter.
We now expect total revenue of 1.08 to 1.09 billion reps.
Representing a growth rate of 29% to 30% year over year.
We also expect non-GAAP operating loss of 61% to $55 million.
Non-GAAP net loss per share of <unk>, 49% to 44.
Assuming weighted average shares outstanding of approximately $135 million.
The expected increase in operating expenses is related to scaling our business and is driven primarily by increased headcount in sales and marketing, especially internationally to fuel growth and increased head count across R&D to drive innovation.
In summary, we are pleased with our strong fourth quarter performance to end the year, the accelerated <unk> of cloud digital transformation and security position us well to achieve our long term financial targets.
Plan to further capitalize on our market leadership position and the tremendous market opportunity ahead of us and finally as Todd said. This is my last earnings call I, just want to take a moment to say how thankful I am to have been part of okta for the past seven plus years, it's truly been an honor to work with such an incredible team.
The future for Okta has never been brighter and I look forward to seeing the company achieve great things from the many years ahead, I know okta will be in great hands with Mike.
Back over to you Todd.
Okay now, let's talk about why we're so excited about <unk> and why we believe this is a real game changer for the identity market and for all current and prospective customers.
Now I started off with 12 years ago, because we saw the need for a modern identity solution for our company's workforce that would scale and grow with the burgeoning adoption of cloud applications.
<unk> it has to be independent and neutral from the big platform companies, who want to sell you other applications as well the opposite of best of breed in the ensuing years, we built out our portfolio of workforce identity products that helped our customers meet the growing challenges of security and identity and complex environments.
Several years ago, we broadened our product and market scope to include customer identity, our science to help organizations meet similar identity and security challenges for their customer experiences Siam is now a quarter of our business and grew approximately 50% in Q4 octaves vision is a world where everyone can safely use any.
<unk>.
As part of that vision, we view, a world where cloud adoption continues to proliferate and net five plus years from now there will be just a few primary clouds that really matter inside an organization.
These cloud might be for collaboration CRM infrastructure and ERP for example.
We firmly believe that identity will be one of these primary clouds.
<unk> is the connective tissue to all of the other primary clouds as it facilitates choice and flexibility, while enhancing security and reducing risk and all other technologies. This vision, which is shared by ops zero underpins one of the many reasons why the combination of our two companies makes so much sense by.
By supporting more use cases, such as developer security operations.
And digital transformation the more we become the standard across organizations.
Supporting more customer identity use cases makes the identity cloud, even more strategic and an essential primary cloud. The Tam we're addressing is massive and nearly evenly split between workforce and customer identity. Today. The majority of our business is workforce identity, we've seen tremendous growth in both sides of the business with customers.
<unk> did a growing faster off a smaller base and like I said earlier, we're only just beginning to scratch the surface of these markets. After zero is also a leader in the customer identity market and brings a complementary go to market motion in a more developer centric approach to the market combining the companies really accelerates our penetration into that.
$25 billion market.
They've grown the company on a on a trajectory to generate over $200 million in <unk> here in FY 'twenty, two representing growth of over 50% like Okta. After zero has a highly recurring revenue stream that is very loyal it's growth accretive from day, one and we've identified many areas that we believe.
We will yield synergies.
Combining with op zero accelerates our vision to establish okta as a standard for digital identity at a time when customers are accelerating their digital transformations and looking for scalable and secure ways to digitally interact with their customers without zero, we will be adding thousands of customers a significant number of then developers and hunter.
Words of millions of users will also be adding more strategic partners, increasing use cases and expanding our international footprint. These network effects will allow the combined company to better serve our customers with a more comprehensive offering I'd like to bring on any O pace co founder and CEO of on zero.
Who can tell you more about the incredible company they've built.
Thanks, Scott we are just as excited about joining the okta team when this transaction closes.
It is true that we share the same market conditions and opportunities.
But he is on those key on CPU and I started on to you eight years ago with a mission to secure the world's identities.
<unk> can happen faster.
We serve innovators it grows on a wide range of companies big and small startups and well established across all geographies.
Verticals.
We believe every company is a software company on every company is building applications to deliver better experiences to their customers.
This is especially true in this COVID-19 era with a rapid acceleration of digital transformation influence.
We embarked on this software developers who are treating these obligations to innovate faster than volume.
Removing the complexity from identity and making it simple extensible and customizable.
In short we saw complex and large scale identity use cases for global companies of all sizes with our extensible and easy to integrate platform securing billions of logging transactions.
Months.
We believe combining with okta accelerates and revision on many neighborhoods.
As Todd mentioned the market opportunity is huge but still you as the largest incumbent is internally build solutions.
The <unk> SKU on security risks growth company.
Companies can turn to us to better secure digital footprint on <unk>.
Free up one of their most valuable and scars resources developers.
Organizations implement on sales that CRM, both from consumers and for businesses just like how they turned to strike for payments.
Twilio for messaging they are doing this because what we do is much more flexible much more extensible and more secure.
Tom's solutions, we take a developer centric approach to the market.
He is very complementary to okta.
Large thriving developer community, which provides powerful grassroots support or.
Zero within SMB and enterprise that we leverage in our sales motion.
Our developer led adoption force rapid customer growth and the vast majority of on customers are up and running.
30 days.
Taking a closer look at dollar solutions, we provide are universal authentication and authorization centerpiece for application business.
Developers can connect any application written in any language or stack.
We don't see it grow and then define how users will indicate.
We gave developers exceptional flexibility with our advanced rules engine, which allows them to integrate anything with an API.
On our systems are designed with cloud scaled in mind. So we can serve applications with millions of users on large spikes in user volume.
In summary.
We give developers the building blocks they need to secure their applications today.
Don't having to become security experts themselves.
While we prepare them for the challenges and opportunities on the future.
Developers can focus on what truly matters to their business, which is innovation better customer engagement and loyalty on us.
Superior user experience.
All of which translates into larger revenue generating opportunities on growth.
With our shared vision and complementary approach to the identity market.
A binding with okta will be fantastic for customers.
Now, let me hand, the call over to you Don.
It's clear that you on the ops team have built an extraordinary company first and foremost we are committed to do everything we can not only to maintain but to accelerate our combined innovation and momentum in the market. That's why off zero will run as an independent unit within okta, both platforms will be maintained and invested in.
<unk> will be integrated over time with the okta identity cloud, making both platforms even more compelling.
In addition to the added scale and further acceleration into the $25 billion customer identity market. Our businesses are complementary in so many ways for instance, customer choice with okta as enterprise expertise and off zero significant developer community every customer will have more choice and finding a solution that best addresses their identity use case.
No matter the audience or user.
We see synergies for international expansion as office zero generates approximately 40% of their business outside the U S. We believe the combination will also speed innovations for our customers.
On a shared market vision, we share many of the same core values were both maniacally focused on customer success and product innovation, we care deeply about our employees transparency as shared in our DNA and we strive to be involved in and give back to the communities in which we operate.
<unk> has established itself as category leader in identity and access management and the combination with <unk> expands our value proposition to the ethos of developers extends our go to market model through self service and allows okta to efficiently address more market segments.
Zero accelerates the development of Okta identity cloud and product roadmap to more quickly and effectively serve our customers' ever evolving identity needs. We expect the psi on market to continue to grow rapidly and without zero, we will be able to address customer needs much more quickly and completely now I'll turn it over to Mike <unk>, our income and CFO.
To wrap things up Mike. Thanks, Todd first I couldn't agree more with Todd that both bill and Charles have been instrumental to okta success, and we owe you a debt of gratitude and my role as <unk> Board member and the Audit Committee Chair It was a pleasure working with you both.
For those who don't know me I built a career in finance that have been on executive leader and board member with several public and private technology companies, including holding the CFO position at Polycom medallion and most recently at velocity, which was acquired by Salesforce last year My decision to move from the Board and Audit Committee Chair was pretty easy.
For the past five years I've had an up close view and okta business strategy and opportunities from that unique perspective, I'm more excited than ever about okta future and ability to build the company into an iconic cloud company.
I'm really looking forward to working with you all and being part of the next chapter of Okta, turning back to the acquisition of Op zero I'll walk through some of the nuts and bolts under.
Under the terms of the definitive agreement Okta will acquire <unk> for $6 $5 billion in stock based on an okta price of $276 price in 'twenty one.
The purchase price represents a revenue multiple that is slightly lower than okta as FY 'twenty three revenue multiple based on current consensus estimates, we expect the acquisition to close on our second quarter subject to customary closing conditions.
We expect <unk> to be accretive to the FY 'twenty two revenue guidance that bill outlined earlier.
We expect the combined company to remain cash flow positive on an annual basis, excluding the impact of integration and transaction related costs.
While we expect there to be some cost synergies, we plan to reinvest any potential savings to support growth for the combined entity.
We will provide more specific company combined guidance after the transaction closes likely during our next quarterly earnings call.
Opt is enough zeros immediate go to market priorities will remain the same and as Todd mentioned, we're committed to propelling the success that <unk> has achieved through this transaction and beyond as we consider this an ideal combination.
We will provide more details on insights regarding the transaction and <unk> vision and strategy at our next Investor Day event on April seven which is being held in conjunction with octane 'twenty one.
Now I'll turn it over to Dave who will open it up for questions Dave.
Great. Thanks, Mike.
So you have a question. Please click on the raise hand icon at the bottom of your screen and I'll announce you went on and it's your turn to speak and you'll have to on mute yourself at that time and in the interest of time. Please limit yourself to one question and one follow up question.
And first up we have Rob Owens from Piper Sandler Rob.
Great. Thank you guys for taking my question.
Todd I guess on a high level as we transition throughout this year, you talked about certain demand trends.
We're potentially increasing as you look forward either in terms of usage, we're in terms of customer engagement now from.
We look at the initial take around guidance. It does look like a bit of a T cell and understanding that the net.
Science side of the business is growing fast or just curious if anything's changed relative to the enterprise side of the business I know that you tend to kick off every year with the level of conservatism relative to expectations. So maybe just help us with where the demand picture is right now on your execution from an enterprise sales perspective.
Yeah, I think demand is strong and you saw on the numbers.
K plus adds nearly 2000 now but the record number for the quarter. So business is strong I think.
Bill can talk about more details about the go forward guidance, but I mean, the pandemic non over and so theres still some economic certainty around that so I think we're being prudent in that guide.
But the things we've been talking about for a long time the more cloud.
The pandemic on more remote work security being.
Heightened requirement from people, it's all driving identity and we're in a very good position to help customers in this.
Danny can be a daunting challenge we can help the customers and then you layer on top of that XI on which is.
Our independents on businesses doing well, but combining with zero, which is just an amazing amazing company and along with them, we bring the marquee Siam flexibility in solution, and it's really going to galvanize and accelerate that market.
So we're in a good spot.
It's.
There's a lot of work still to do we were talking about a $55 billion tam across workforce and customer identity, but.
We're making we're making steps forward every day.
Yes to that Rob.
We're cautiously optimistic about the macro environment, but as Todd said, we're really confident in our business and the demand for our products, which is why we didn't raise the full year guidance by $20 million versus what we told you or gave you last December.
Also as I mentioned on my prepared remarks, my prepared remarks.
We believe that our <unk> growth our current RPI growth will actually outpace our revenue sub revenue growth the share. So that's an indication that we feel strong about our pipeline and the demand for our products.
And the final thing I would say, which you actually mentioned is that it's early in the year. So we think that.
Yes.
The guidance that we've given for the year is prudent at this point.
Alright, thanks, guys.
Thanks, Rob Okay next question from Andy Nowinski from D. A Davidson.
Great. Thank you. So bill it was great working with you and I really hope you enjoy the next chapter of your life.
And Mike very excited to work with you again.
<unk>.
I guess I just have a few questions on the odds zero.
I think just from from talking to our own developers I know they really like it and I think the reason they chose odds zero was for that reason that they are able to integrate.
With more sort of call it uncommon applications homegrown applications et cetera, do you think.
You know the developer framework that odds zero has will really allow you to expand sort of that API library that you already have and gets you into more of the uncommon applications.
Yeah. This is thanks for the question. This is all through is an amazing company.
And.
We're really really like it.
To join up with them.
And the thing I'll just call out and then.
Get into more details on your question is that they built the company from the ground up to be focus on developers and that manifests itself in a lot of different ways, but the biggest way is almost a cultural way, it's an ethos of.
The flexibility and the <unk>.
Expressiveness, the developers need and it manifests itself in terms of application integrations and just flexibility of the approach and brand the company build that it's very very powerful.
Okay. Thanks Todd.
And then I know just as a follow up question on that.
While I believe they were more heavily skewed to the customer identity.
Use case versus the work force. So it certainly does seem solid complementary but I'm wondering if.
I think around these two companies separate initially but do you think was there something in there cost write any solution that might have been better than what you already had.
It's very very very complementary I think if you look at the customer identity market $25 billion Tam.
And we've talked about this in the past the biggest competitor quote unquote on that market is build your own so customers are going to build their own or they're going to buy services from us zero.
Or any other vendor right and if you look at developers you have to have a very very flexible solution. That's built from the ground up to address the needs of a developer in a way that they want to use exactly or theyre going to choose to build their own. So that's the magic that zero is captured.
And that's why we're so excited.
Thank you.
Maybe to complement a little bit of what you said on a non.
Thank you for the kind words kind words from your team by the way, it's going to meet your own. Thank you for having me.
This afternoon so.
Building on our developer oriented.
That's the norm.
A lot to do weighted dealing with the unexpected because you cannot predict everything that will happen and we strive to per simplicity, but also free from disability award that don't have used many times, mostly because we want to solve the 20% on the use cases that are happening.
80% of the time with new <unk>.
<unk> no friction right away, but we also wanted to give you the power to deal with the other long tenure of situations Gordner Casey's legacy integration all the things that I think you mentioned your different uppers were in country.
That doesn't require you to do like <unk> with Frankenstein solutions, which is unfortunately on a V.
On a per.
Volume in this domain, we want to give you that that flexibility to go and zynga around on finish out the last mile integration. So it works for you and it doesn't depend on us delivering anything for you.
Developers are free to take the platform antibodies and then extended on making their own would ease from the quiet.
That's great. Thank you you bet.
Thanks, Andy Okay next question from Alex Henderson of Needham.
Great. Thank you very much.
Just a housekeeping.
Could you tell us what the share count would be for the full year guide. If you were profitable so that we have a baseline for valuation purposes.
And then the second question I wanted to ask is when you look at the overlap between the customer facing portion of the.
On zero on the customer facing portion.
<unk> can you talk about how long it takes to integrate those two.
And to what extent, there's overlap and feature functionality that might.
It requires some rewrites just how much how much complexity is there on integrating the two pieces that are customer facing.
Yeah. So the customer identity market is a big Tam as I mentioned $25 billion and the dynamics in that market are.
I mentioned before a lot of it is due to the developers to build their own solution or they buy something right. There's another dynamic which is from the other side you have cio's Chief Technical Officer, Chief Security officers thinking of buying solutions from vendors they know in addressing those problems. So.
What this combination does is it's better for the customers because the developers are going out there and seeking solutions that would be better than billings themselves. The executives are.
That's <unk> fourth day, the executives are familiar with a solution like okta.
It's maybe it's doing their work force or maybe it's doing part of their science you put those together that catalyzes this market that really turns on intramuscular or build it myself should I use a legacy vendor too there is a clear cloud leader here a vendor of the future that can serve all of these needs for me the customer and it's a win win for everyone. One thing we have.
And even talked about which is which.
Shouldn't take for granted is that at zero as a native cloud. They were built from the ground up on the cloud, which isn't the case in a lot of identity stacks. There a lot of them are legacy technology Theyre trying to port software.
Taken old World concept of how things should work and put them into the new world. So we don't have that here. So so it's very exciting in terms of the.
The integration.
We're both growing very quickly okta north of 40%.
Zero North of 50% as we mentioned and and so first of all areas like support customers innovate with our customers and in both growth secondarily. We will the platforms are already integrated you can today you can specify.
Can use okta to log into off zero and vice versa. So it's integrated somewhat the day, but there's tons of more potential to integrate these things in powerful ways for customers.
And I know I know you have any of that has some thoughts on that too you can maybe comment on that.
I was going to mention that we already have on lot of customers you can come on.
Not unusual that we would go to the Big financial services company on the East coast that use okta for their workforce and other things and they use us for all the customer facing portals and as Todd mentioned, it's already integrated because you can logging.
Gross margin this obviously on the points across the workflows.
For both products that are already in touch.
Even though there might be on I'm sure there will be on the opportunities.
More even more value to be unleashed by working together.
And when we focus really is on the on the customer what the customer is trying to achieve one customer is trying to do and that we can make it simpler.
And if I could just one last.
Items can you tell us whether.
The integrated.
Buying company roughly doubled the consumer oriented portion of the business.
I know you said, it's 25% of Okta currently, but when I put the two together does it double the size of the net.
The customer facing portion of the business.
Yeah, right right about there, yes, we mentioned the number of 200 million of air by the end of this year for US zero. So yes that puts it right about there.
Alright, well congratulations to both of you guys.
And on a great Joe and Bill can comment on.
<unk> growth.
Alex fully diluted shares.
$144 million, but obviously excludes yasuhiro transaction.
Alright, thank you.
Okay next question from Jonathan Ho at William Blair Jonathan.
Hi, there so I just wanted to echo my congratulations as well on the retirement and it's been a fantastic project and work with you.
Maybe starting out with.
Yes. The acquisition rationale can you talk about why they need to make the acquisition now and maybe some of the process that you went through around the acquisition.
Yes, I can Jonathan I can comment from from the Okta perspective, if you look out 10 years for okta the strategic priority for US is continue to establish identity is what I call. A primary cloud I think that there'll be hundreds of thousands of vendors that.
We'll sell technology that accompanies them.
On a handful, but only a handful five or six or so that it will rise up to that really strategic level is one of those primary clouds on our company's environment and theres going to be collaborations is going to be one on infrastructure is going to be one we can talk about the other few candidates, but we're very very focused on making sure identity is one as well.
To establish that the use cases, you have to be brought in we have to.
Execute both on workforce identity and on customer identity, So if you're drilling into the customer identity.
Market I've mentioned, a couple of times that.
A big part of it is there's always developers involved and do they want to build their own solution, where do they want to use a vendor right and so if you look at from from the joint Company perspective, we can really catalyze that market because we have the.
But things that okta is great out we're really good at going to market fruit at the executive level, where we've built the service with.
Some unique capabilities, even on the science side to be integrated or certain data stores certain applications certain capabilities you put that together with this amazing developer focused on this amazing platform is flexible extensible platform that on cereal has and it becomes the really the compelling choice for customers not only in the customer identity realm, which.
The value of Okta as overall Danny portfolio. So.
It's really important that we both worked together on it if we started talking to each other over the last year or so it became clear that it was time to work together instead of independently and together we can kind of lies this market faster than either of us could do it independently.
Absolutely absolutely and then just as a follow up can you talk a little bit about how often is the developers are making a decision around.
Ians platforms.
And maybe the trend around how often that decision process is maybe shifting more of that thank you, yes, it's interest.
As you think about the if you think about the dynamic in the market.
There are cases in the past, where we would compete with US zero. It was relatively small compared to the whole market and compared to the whole business, but in that case, one of US was kind of in the wrong place because most deals with developers decided and went without zero for the CIO or CTO or CSO decided anyway with doctor but.
On the margin.
You could see customers wanting bulk right. They wanted the flexibility of ASO and then everything that okta brought to the table and that over time, just became more and more clear that that together, we could go faster and be better than either of us could be independent. So that's why that's really what brought it together.
Thank you.
Alright. Thanks.
Next question from Eric <unk> at Keybanc.
Yeah.
Thanks, Dave and good.
Good afternoon, Todd could you talk about the decision to double down on access management without zero versus maybe I'm, making more of an aggressive push on to Iga or Pam.
I think they're all I think they are all really interesting opportunities.
We you know we're gonna be broad across all of these identity use cases.
Because back to the strategic priority of this primary cloud it's gotta be all of these use cases, it's not just.
Not as customer on a part of work force its anything that touches identity and how we can add strategic value to customers, whether that's through integrations, whether that's through partnerships or whether that's through building ourselves I think.
The unique thing about about customer identity is the size and the scale on the strategic importance to the customer and this dynamic this developer focus in this.
Mindset of building something for developers.
They started from scratch this way and Thats, what <unk> zero. The first line of code. It was this focus I mean.
Oh, you should jump in here and talk a little bit about this but Florida, what they have.
Absolutely so.
You know if you want to talk about developers.
Our beliefs, there we have very strong opinions I think many years ago. There was that there was these paper written.
It was titled.
Software is eating the world on how it developers on the new Kingmakers I think you're all aware of that developers are oscarsson resource, we cannot hire enough developers anywhere near industry and software. There is no company in the planet that can survive without software the key.
Deciding which so far are you going to investing and youre going to put your own expertise in your own resources, Inc.
And so everything our hypotheses when we created the company and to the point of building from the ground up.
On to our DNA is that anything that will remove friction from a designer per daily work and that will take the box on.
Things that are important will be absolutely.
Successful truly a pen for example, my my first tagline for the company was we Actelion for authentication.
Stripe is another perfect example, I think developers have a lot of influence it might not own a budget themselves, but they do have a scene in the technology stack into the things that will make their life easier.
Developers are movable.
<unk> gone from one project to another they go from one company to a non until they have these essentially buying on effect around the world.
That spread the boys and.
On loyal.
Contingency day.
<unk> on the day.
<unk> depend on the recommendations as long as you know why don't you use important indications using answer on what do you use it from anything else you would be crazy to build these on your own those kind of dialogues.
I'm oversimplifying, it a little bit, but that's what makes it so powerful.
Great. That's helpful. On the follow up if I may could you talk about maybe any changes youre staying competitive with Microsoft and could you elaborate maybe on why customers are better off season.
And then dependent platform like Okta and zero.
Yes, absolutely happy to talk about that a little bit.
Everyone. So.
I think that we are where <unk> seen in the results. Our business continues to go very well on we're very fortunate things across the board, but whether it's in workforce or customer identity access management, we continue to execute and make a lot of these customers successful.
And I just would like to point out really quickly that we always like to put out go live press releases, it's not just about acquiring new customers, but these customers getting live and successful we put out one in particular today around crate and barrel going live in the retail industry with a centralized customer day in asset management solution for both in person and on the web.
I think that's just a sign of a crisis.
Hang on just sat across every industry, even in the most challenged ones in retail they have to move forward with technology and they have to find new and better way digital transformation. Most overused term in the industry, but what it really means is they just need to find new and better ways to interact with their customers partners vendors suppliers. We continue to see that go very well on I think the results speak for them.
When it comes to the competitive dynamics nothing has really changed I think that.
510, 15 years ago, you had companies, where a very homogeneous when it came to their environments.
You were on Microsoft Shopper, an Oracle shop on IBM shopper and F&B shop.
If you look theres over 7000 pieces of technology that are now pre integrating the okta identity cloud and I speak with customers and prospects every day I think every day, there are fewer and fewer folks who are saying to themselves I really want to focus all my eggs in one basket and go with one vendor that's why I think the independence and neutrality that we provide has done so.
And I think the same.
Daryl you gave on how they built up their service how they thought about really being open integrated to everything is highly extensible highly customizable I think that's the way, Florida, the future and everyone thinks about best of breed, but people are really implementing it and I think that that's going on a per ton very well for us in the future. Finally, I would just say that office $365.
He used to do very well and we continue to be the number one identity provider for office 365 per the largest companies in the world. So when you look at some of the biggest deployments around the world. When you think about the global 100 Global 500 as they deploy office 365, you've got to remember office visits on beef and they don't really care the opportunistic side.
What underlying identity provider. There is we do very very well, we get these customers up and running much more quickly effectively and efficiently than anyone else and I think again that just portends well for <unk>.
Future prospects.
Great. Thanks Brady.
Alright, let's go to Matt Hedberg with RBC.
Hey, guys. Thanks for taking my questions.
I know on the past Bill you talked about I think 11% of your.
Customers are impacted verticals, just wondering how they performed in the quarter and sort of what's embedded into the guide and I guess from Mike as well.
On how those impacted verticals price recover with the vaccines.
Yeah. Thanks, Matt So we've talked about the impacted industries.
We continue to be about 11% of our annual contract value so that stayed pretty consistent.
As we said.
Throughout the year as we got deeper into the year.
The headwinds that we thought were going to impact some of those companies.
Yes to certain extent, but not nearly as much as we had anticipated as it relates to our business. Obviously, we believe and it's demonstrated by that that identity is still very very much on our central strategic need for those companies.
Do think that in particular, an example of that is.
As Todd talked about earlier, new customer Alaskan Airlines, obviously that impacted industry, but I.
A good example of a company that saw identity is very strategic and therefore.
Yes.
Wanted to do a project with us as far as how we've thought about the guidance for the year.
I said earlier, we're cautiously optimistic about on the macro we still think there is.
Still some uncertainty out there, especially with those impacted industries.
That has been considered in the guidance that we gave today.
Great and then maybe just a quick follow up obviously Susan St. Leisure is she now owns the number this year can you talk about sort of.
I guess with also zero coming in sort of the impact that she might have.
As you sort of shape the trajectory of this year on any sort of changes that she might bring to the combined company now yeah.
Yeah, we're very excited about that I'm glad you brought that up Matt we've known him for a long time, obviously, our history you can go back to Salesforce Dot com days over a decade ago and she's phenomenal we tried to get on to join the company a number of times and I'm glad that we're finally successful in doing so I think our success speaks for itself right. What she was able to do at Splunk over the <unk>.
Last four years.
We would take that in a heartbeat I think you saw great expansion and development of the go to market organization not only named accounts global accounts actually had a huge impact there, but also you got to remember where we are on the development of our company I mean, it is early days and we're just on a go from different products to having a platform motion going from work for.
<unk> over to customer identity management, obviously now with a zero joining our team is going to be a lot more opportunity there and so when when I talk to Susan which I have I've been fortunate to work with her a lot over the years, but in particular since he's joined us over the last month, you just see that strategic thought process about yeah.
It's about product space about platform, it's about longer term relationship with the customer I brought her on a number of existing large customer and prospect visits.
And you can just see the different dynamics that she is bringing on in terms of leadership in terms of approach and in terms of relationships right. She has been there such as scale I think it's going to be great I've already learned a ton.
And with her on just a short month and I think it's going to be great for our go to market organization and then overall right I think that partnership people forget, but the partnership between go to market and product and engineering and how that works together back in for Isaac.
Synergy in that is so important to how companies can really growth and she brings out of state. So we're.
We're very excited about it it's going to be great.
Thanks, a lot guys.
Thanks, Matt Alright, we're gonna go to Patrick Cobo Deutsche Bank.
Hey, Thank you so much taking my question and it's got to be on the call.
And also I should say congrats on the Altera deal I mean is it really really great company. So.
Can I also just strength flogging that horse about the guidance fiscal 'twenty two guidance seen it.
Billings growth in fiscal 'twenty, one was 44%.
Fiscal 'twenty two guidance is just on the study right that's.
Just help me kind of bridge those two why that kind of forward looking numbers and translating them to you.
You're expecting per the guidance or is it just a bit of conservatism because it's early days.
Yes, Thanks, Patrick I think that there is a few things.
Certainly as I said earlier, we do tend to be conservative at the beginning of the year, that's pretty historically, what we've done we think that's prudent given that it's early on the year.
Do think that there is a lot of demand from the product we feel very good about the business there is still a little bit of.
Macro uncertainty because of the pandemic, but we're cautiously optimistic there so when we think about.
What the guidance should be we forecast based on that as I mentioned.
We do also believes that our current RPI low.
Is going to outpace the growth of revenue. So obviously, we feel like there is a bit of bookings acceleration that we're going to see this year.
And Thats reflected in the guidance also I think that the other thing to take into consideration is that we.
Early in the pandemic like a lot of companies.
We scaled back our investments.
Recalibrated.
I think that as a result of that we probably on.
<unk> side, because the pandemic was not as impactful as we thought was going to be.
Potentially.
Although we outperformed and are very pleased with our performance. It's possible, we could have done even better and because we're a subscription model as you know.
That's going to weigh on this year's revenue is a bit.
Because revenue is really a lagging indicator. So I think it's all of that but I think predominantly.
I would focus on is the fact that we do believe current RPI was going to grow faster than revenue, which is a sign of how.
Strong demand is for our product and how strongly feel that business is.
So it's early early in the year and we think.
<unk> prudent with our guidance is the right course.
Okay understood.
And also about the competitive environment and customer identity.
Who is it new guys.
See when you come up against most in bake offs and two a.
<unk> B to C featuring on mist.
Yeah, absolutely Patrick.
I think.
We're very happy with the results we've seen I think.
We've also built a phenomenal business, but as you know even if you combine the two I mean, we are just scratching the surface in a market, but I don't know 20, or 30 or whatever billions of dollars at tens of billions of dollars are being spent and the biggest competitor frankly is build your own. So I think what you see is there is there is it.
Noted shortage of developers today around the world I've seen the numbers of up to a quarter million shortage in North America alone. We're only printing 30000, a year on our universities here.
Im sure that the same analogy is true around the world. So if there was no growth in software we take eight years to catch up I think we all agree that software is going to continue to grow and so these numbers are going to continue to grow on as <unk> said, so eloquently earlier, most companies are not going to get the total number of developers they need so the easier we can make it as an organization.
<unk>.
We provide these customers with a very simple solution, where they can take identity off the shelf and put it inside their applications. The same way they do for twilio with messaging or stripe for payment the better off everyone's going to be because obviously these are it gets tricky on trickier with identity no one wants to be on the front pages on Wall Street Journal for all the wrong reasons.
And it's also on the top line it has to do with revenue so you're talking about top line of business people can't take a break on this a half day move for and so when you think about what our job is our job frankly is just to make it easier and more available for more company to take advantage of modern identity solutions for customer facing opportunities and so.
The competition really is like we have to do a better job of letting everyone know how easy it is to do that of getting out there of making more customers successful because that obviously feeds on itself and then finally convincing people as they and their starting you can see the numbers I mean, they are starting to do that the businesses are growing fast people or start building it themselves and maintaining it.
And upgrading it managing it if not the best way to go so frankly, that's the biggest competitor when it comes to the customer and access management and that's why we think it is very early innings for this business in such a big opportunity ahead.
Great well. Thank you so much for taking time to it on with my questions.
Keep up the good work.
Thank you.
Next we'll go to Hamzah firewall on Morgan Stanley.
Hey, guys. Thank you so much for taking my question Best of luck Bill on your retirement and congratulations.
Eugenia on on the acquisition.
Definitely.
George speaking with you.
A little while ago and definitely a great.
Catheter story, so I wanted to ask huge on just on your.
On your thought process.
You know cutting a deal from.
Todd.
And the acquisition, obviously you were building a really strong ecosystem on your own what do you think that okta add to a zero.
Zero day will allow it to become a multibillion dollar company.
And Johan and thank you for the kind words and great to see you again, so looking at the.
I saw these.
Moving to different levels, the first level, which is the more maybe the foundation on now.
Which to me it was very important it's the the what we have income on and when we have income on eats exhibition.
Opinion of the future how we see these on.
Equally arent of our industry.
Evolve on the requirement so.
Todd talks about the cloud.
Identity cloud, we don't use those times, we use a different word on that we use the term identity operating system, but when you kind of view the on the.
Sam piece on you go deeper we are actually talking about the same thing.
So common vision come on mission come on values do we have three core values.
I'm from Tomorrow, but again when you remove the levels and go into the concepts. We're talking about the same things we care about the customer on Cabo.
On them, we can have on the team ecosystems Arnaud.
<unk> we.
We continuously innovate and invest in better bidding technology from our customers. So that's those are the kind of the fundamentals for me those are required.
<unk> net necessary conditions.
But then your prior on what makes us complementary.
And really great together, so we mentioned a few things right on 40% of our revenue is international.
New York ties more concentrated in the U S. We bring that.
We've been a remote company from our inception, which you know.
Makes takes its own.
Time to develop on poster on.
Creating a high performing team that it's all distributed all over the world.
The sales to the appeal to the CIO CTO, we work with developers.
They working primarily work force we are primarily on CIM.
It's almost like we are like the perfect component of each other and so what.
What makes these really compelling to me is that the vision on the ambition that we have for the future, it's a pretty big way.
It's a pretty big mission and I can I could see realized in five or 10 years on our own.
Or I can feed realized.
A couple of years.
Together.
So having the opportunity.
On the.
What we could do in the industry together.
We could do for our customers.
Net faster.
It's really compelling and as you've all heard this is an all stock deal, which means that we are completely you know based on data and committed to seeing this happening in the long run because you know.
This is on infinite game, it's not a there's no end to this game, it's a game, where we're going to be around for a long long time.
Thank you.
Okay.
We're gonna go to Joshua Tilton that burn Burke.
Hey, guys. Thanks for taking my questions.
I just wanted to start on the cross sell opportunity. So I know you mentioned that a lot of customers already use okta for workforce identity and all zero per customer identity. So when you look at just the existing customer base alone you know how much opportunity is there to cross sell current workforce customers on all zeros offerings and then given that you view at zero as I guess complement.
To your current customer identity solutions should we assume that you're going to cross sell your current customer identity customers on on zero as well.
Yeah. Thanks Okta for the question Yeah, absolutely I mean, there's a lot of opportunity obviously, we just announced the deal so it hasnt closed.
So we haven't dug into joint customers and customer overlap beyond what's publicly available, but yes, certainly I think there's a big opportunity we built a significant business when it comes to <unk>.
Workforce identity and access management many of those customers that we work with our customer identity access management customers of ours today, but many of them on some of them are a zero customers. Some are still in that how do I do this should I build my own should I buy something a position and I think that's going to be a big opportunity for us as well, but search.
When you think about where we are as a business where now we just crossed 10000 customers, which is three times, what we had at IPO just four years ago, which is great and I'm very excited about that but it's still a drop in the bucket compared to all the potential accounts that are out there. So there is still a lot of penetration opportunities with our existing products today standalone.
Inside our existing customer base, adding on to the team a day.
Definitely going to provide not only more customers that we can sell the rest of our products, but also more customers that we can continue to develop and build our relationship on.
And then finally, one but again, that's just the existing universe of known Okta and all customers the existing on the possibilities of all the prospects out there.
Order of magnitude bigger on a joint customer basis. So it's important to think about cross sales certainly theres going to be plenty of opportunity there.
But I think that it's also about the opportunity to enhance the message broaden the appeal and offer more on better solutions to customers and to the industry on how easily they can take identity put it inside their applications initiatives project and really move forward with some of their most critical projects on so I think it's across the board and yes, we're very excited.
On that.
If I may I'd love to jump in here I think the bulk of anyhow and Freddie did a terrific job delineating the clear synergies here, but if you look at the growth. This is a growth story. If you look at the growth synergies just put a fine point on it there is a cross sell of customers and prospects that we just talked about there is the international penetration the percent of international.
Ill add on zero it is more than <unk> as a percent of revenue that ours is so that's a significant driver one of our core initiatives. The products are complementary as we've touched on our channel synergies, we actually have a very robust channel at this point and that's going to be a tremendous opportunity. Once this closes to bring on zero through our channel as well so there's a big opportunity there.
And then again, even if you take I'd say roughly <unk> now with us zero and okta on Siam our customer identity.
That's a very small percentage of a $25 billion a year Tam for cyan business that is growing so those are kind of the big five at least from the way I look at it coming in the door and.
We are excited.
And that was very helpful. On I guess, when you think about the developer angle that you guys kind of just acquired through off zero.
How would you think that would benefit sales on some of your other offerings such as advanced server access.
Yeah, I think that's a really insightful question, we talked about science and Workforces.
There's a lot of reasons why they can be better together and you just highlighted one so if you're using okta or zero per your customer.
Customer log on for your customer website or mobile App and then you use advanced server access for the engineers that are logging into the infrastructure to then build that and then deploy that science solution. It's better to have that from one player that is better integrated you better a better visibility of the threat data that is consistent across all of those can keep you more per.
<unk> there was a.
Really good compelling synergy there.
Thanks that was helpful.
Great. Okay, we're running into overtime here, but we're going to take one more question from Matthew parent at Jpmorgan.
Hi, guys, it's Matt on for Sterling Auty, Thanks for taking the question.
I was wondering if you could talk about how do you plan on investing in both okta and not zero going forward. The customer identity segment was growing faster. So I would think that you guys were investing heavily in that how does this change the way that you guys invest in the core okta business going forward. Thanks.
Yeah, Mike Mike mentioned that this is a growth story of growth accretive and this is a growth company and so we're investing we're investing aggressively in.
Both on both businesses. They are both growing quickly in both platforms are going to be supported and maintained and invested in and then over time, we will where we can get synergies on the R&D side in terms of sharing services are combining platforms in ways that makes sense for customers and support the growth and support the value property.
<unk>, we will do that but the good news is these markets are so big and the growth is so strong.
We have a lot of opportunity to serve customer value and over time.
Bill one unified platform.
Great. Thanks, guys.
Yeah.
Okay, well, thanks, everybody and before you go I just want to let you know that we're going to be attending two virtual conferences next week with the Truest Technology Conference on March 9th and then the bear and per security develops conference on March 11th and as Mike mentioned, we will be hosting our virtual Investor day on April seven that's in conjunction with Okta in 'twenty one and.
Please be sure to register for that event ahead of time and that's it for today. Thanks for joining and if you have any follow up questions. You can reach us at Investor at Okta Dotcom talk to you next quarter. Thank you everybody. Thank you everybody.
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