Q1 2022 Okta Inc Earnings Call
It's been a combined company for only a few weeks and we couldnt be happier with the feedback we've received from customers of partners of both author of an okta.
They are incredibly excited about the breadth of use cases and coverage we offer ever.
Everything we heard has reinforced our belief that yohane of UN team have built a very special company. The energy and enthusiasm is also resonating inside of our organizations and as we expected the cultures are very much aligned.
Since the closing of the transaction that we've been able to do more detailed analysis on our existing base of customers and 2 things became very evident first there's even more opportunity to cross sell and up sell than expected and second there is a clear need for both the okta low code approach and the op zero developer led approach to the side of Mark.
Kit Okta is well positioned to become the standard for digital identity. The okta and author of platforms are made up of core technologies that are flexible extensible and incredibly customizable to make that spectrum possible by building a platform that connects with everything and meets every identity use case over time, we will push the.
Allergy ecosystem to be safer and create more value for everyone together okta in Algeria of create a powerful combination we've strengthened our position as the world's leading independent identity cloud will create even more powerful network effects that will drive platform innovation, allowing us to better serve our customers with the broad.
The range of of use cases, and audiences and as a result, we'll capture more of the massive and growing 80 billion dollar identity market opportunity even faster.
The World is still in the early stages of modernizing its identity infrastructure. The secular trends I mentioned earlier that had been driving our business will continue to drive our business for years to come with that as the backdrop, we're establishing a new long term financial target, which is a significant step up from our prior FY 'twenty 4 framework.
Given our market, leading position unmatched technology portfolio and the massive market opportunity. We're confident that we can grow our revenue base to achieve $4 billion in FY 'twenty 6.
With growth of at least 35% each year, along the way we will continue to invest in driving product innovation and our go to market initiatives, while targeting of free cash flow margin of 20% in FY 'twenty 6 of course, if we were to grow faster than these levels, we may elect to invest more while balancing free cash flow margin.
Before turning it over to Mike I want to acknowledge his significant contributions to okta over the 5 plus years. He was the chair of our audit Committee and for his leadership as CFO over the past several months, Mike has made a significant impact, especially with the acquisition of a zero and operational improvements that is already implemented.
While he'll be stepping down of CFO next week, we are grateful that he is staying on in an advisory capacity to assist with the transition Michael all of your friend and considered a member of the Okta family and we wish him all of the best in his future endeavors. We are initiating a search process to fill the position in the meantime, I'm very happy to have Brett Todd.
Hi, as interim CFO, Brett as our senior Vice President of Finance and Treasurer. He's made countless contributions to okta over the past 6 years. He also spent almost 11 years with growing responsibilities in the finance Org sales force, having worked closely with Brian I know that he is a terrific finance leader and has the experience to be of great CFO and <unk>.
To be considered in the search process now I'll pass it over to Mike to share a few words and then discuss our Q1 financials in more detail.
Thanks, Todd for those kind words it has been my privilege to be a member of the okta team since 2015, and I am tremendously proud of the company's success today and the significant growth opportunities in the future for the company over the past several months I've enjoyed the opportunity to work more closely with the okta organization and much of the zero oriented.
Jason I could not be more impressed with the strategic and operational expertise of both teams, notably I've worked very closely with Brett since I joined the board of directors of where 5 years ago and have worked with the the shoulder to shoulder since I've been the CFO.
But as a strategic thinker and has a deep understanding of okta and the identity industry I have immense respect for Brett and I am confident he will be excellent in the job.
Lastly, before I discuss our results note that I will be signing our Q1 quarterly report on form 10-Q, which will be filed later today and as Todd mentioned after next week I will stay on as an adviser to the team to help ensure a smooth transition now.
Now, let's turn to our results.
As a reminder, Q1 results do not contain any impact from us zero as the transaction closed on the third.
Following my review of the quarter, Brad will provide the business outlook, which will be inclusive of at zero.
Regarding Q1 total revenue increased 37% driven by a 38% increase in subscription revenue subscription revenue represented 96% of our total revenue.
R P O or backlog, which for US is contracted subscription revenue both billed and Unbilled that has not yet been recognized grew 52% to $1.89 billion.
Current <unk>, which represents subscription revenue, we expect to recognize over the next 12 months also experienced strong growth of 45% driven by continued strong demand and an uptick in early renewals, we believe year over year growth in current RP O is an important metric, especially when viewed along with the subscription revenue and billings.
Growth, while we do not provide specific guidance for current RP O. We continue to believe that on an organic basis, excluding off zero current RPI of growth will outpace subscription revenue growth throughout this fiscal year.
Total and current calculated billings grew 74% and 73% respectively.
Calculated billings growth in the first quarter was driven by 2 factors first Arctic experienced strength across both new and existing customers as demand for our products remains robust driven by the macro trends that Todd mentioned earlier.
Second we implemented operational improvements to our billings processed in Q1, which conforms with the practices of other large SaaS peers.
These 2 improvements are 1 we are now billing net contract signature rather than subscription start date and 2 subsequent annual payments are now do rather than build on the anniversary date.
This has a favorable effect on both billings and cash collections timing.
Note that even without these process improvements calculated billings would have been $293 million representing growth of 40%.
Going forward, we expect the effect of these changes to be much more modest.
Turning to retention our dollar based net retention rate for the trailing 12 month period remains strong at 120% at the high end of our historical 115% to 120% range. It was down slightly from 121% last quarter as new customers represented a larger portion of total business this quarter.
<unk>.
Gross retention rates remained consistent with Q4, reflecting the value of our product to our customers. Additionally, upsells, particularly with our enterprise customers were very strong as.
As a reminder of the retention rate may fluctuate from quarter to quarter and in the current environment, it's possible that fluctuations of retention rate maybe more pronounced.
Before turning to expense items, the profitability I'd like to point out that I will be discussing non-GAAP results of here going forward.
Now looking at operating expenses total operating expenses grew 38% the growth of expenses was partially offset by reduced travel and office related spend.
Head count growth accelerated to 28% to over 3000 employees with the biggest increase in our go to market team as we continue the scaled globally.
We generated record cash flow from operations of free cash flow of $56 million and $53 million, respectively, which yielded a record 21% free cash flow margin.
This is a terrific illustration of the leverage in our model.
Free cash flow was driven by strong billings and collections during the quarter.
Note that free cash flow was not impacted by the recent invoicing change as the change was implemented at the end of the first quarter.
We ended the first quarter with the strong balance sheet anchored by $2.$6.9 billion in cash cash equivalents and short term investments now.
Now, let me turn the call over to Brett to discuss our outlook.
Thanks, Mike I really appreciate the comments from both new and Todd It has been a true pleasure to partner with you over the years.
You don't want to say thank you for all you've done for this company.
I'm incredibly excited about the opportunity to step into this role.
Now, let's get into our financial outlook for Q2, and FY 'twenty 2.
We closed the acquisition of <unk> on May 3rd.
And we will include financial results from Us zero for the periods from the close day going forward.
Current and perspective customers are even more excited now that Australia is part of our okta and demand remains strong for both of our products.
This guidance is inclusive of last year net of the purchase accounting adjustments keep in mind that also zero as of margin profile consistent with early stage high growth companies as it has been aggressively investing to capture the massive opportunity inside of them.
As the business scales, there will be opportunities for efficiencies.
For the second quarter of fiscal 'twenty 2 we.
We expect total revenue of 295 million to $297 million.
Representing growth of 47% to 48% year over year, non-GAAP operating loss of $55 million to $53 million non-GAAP net loss per share of <unk> 36.35.
Assuming weighted average shares outstanding of approximately $164 million gift.
Given our strong Q1 results, we've raised our organic revenue outlook for the full year beyond the Q1 beat and then added the expected contribution of about zero for the full year fiscal 'twenty..2 we now expect total revenue of 1 point to 1.5 billion to 1 point to $2.5 billion.
Representing growth of 45% of 47% year over year.
We also now expect non-GAAP operating loss of 172 million to of $167 million.
Non-GAAP net loss per share of $1.16 to $1.13, assuming weighted average shares outstanding of approximately of $150 million.
And while we don't provide explicit guidance for cash flow given our strong cash flow generation in Q1, we now expect free cash flow to be slightly positive from the fiscal year.
This is inclusive of integration and transaction related costs, which is an improvement from the view we provided last quarter.
We had a great quarter and of great start to the fiscal year. We are extremely excited about closing the off zero transaction and accelerating our growth together Okta has developed a strong foundation and market leadership position and.
And we are confident we will be able to achieve $4 billion in revenue in FY 'twenty 6 with growth of at least 35% each year, while targeting a 20% free cash flow margin in FY 'twenty 6.
And as Todd mentioned, if we were to grow faster than these levels, we may elect to invest more while balancing free cash flow margins as we continue to capitalize on the massive market opportunity in front of US now I'll turn it back the day for Q&A Steve.
Alright, Thanks, Brett to indicate that you have of questions. Please click on the raise hand icon. It looks like most of you have already announced you. When it's your turn to ask a question you have to I mean, you yourself at that time and in the interest of time. Please limit yourself to 1 question and 1 follow up question. So with that we're going to go.
Adam Tindle Raymond James M.
Thanks, Dave first time caller long time listener. So I appreciate you are putting the first.
I do have a question probably for Todd in your opinion.
You know I'm thinking about this off the euro margin profile of how it is consistent with early stage high growth companies trying to think about the way to ask the question.
Similar size and scale to okta circa 4 of 5 years ago, when I'm comparing the implied operating loss for okta at that scale versus off zero. It looks like it's maybe 1 point buybacks or more than that on an operating loss profile basis. So I guess the question would be what are the key similarities and differences.
You've observed in the economic models of your own versus theirs, and how do you see the op euro of profitability ramp versus okta is from here.
I think the first part of this answer will be just to know philosophically. This is a growth business. So both of okta organic and also we're really really investing for growth. This is the $30 billion customer identity Tam. It's a very dynamic market. The stakes are very high to witness markets that were being.
Just 1 of our philosophy, we're being very aggressive and I think that we're seeing tremendous success on the okta side and I'll, let uranium comment about what they're seeing on the aero side in terms of success.
Yeah, I would agree we did see you know high growth profiles.
Really described there as well.
What I would add perhaps season that went with different from us. It's what makes the combination of even stronger right. So we have a heavy international profile in previous calls we mentioned that a large percentage of our revenue of <unk>.
As units outside the U S almost 50% of that.
We are also.
The developer oriented company, which has a slightly different go to market, but it's also complementary to what.
Has been doing for years and that's you know.
Maybe a different audience and the bigger audience that.
We can now reach out jointly continues to grow we have great Q1 hour of Q1 on Q1 and slightly.
1 month M shifted from Okta, but our Q1 was what was and we beat the plan and we are hitting 2 awards are really really strong Q2 as well so couldn't be more excited.
And 1 thing I'll add there to give you more color, we actually went back and looked at the comparison of the past comparison of the kind of like what you did I don't remember the exact numbers, but 1 of the 1 of the qualitative differences between the 2 models was the developer model of that Australia has been very successful for required spending.
A little bit ahead of when the actual revenue of ramp because the developer got the word out there and started feeding a lot of deals, but it took of enterprise sales team to come in and really get that revenue engine running and that's why 1 of many reasons. We're so excited about the combination because we are of great enterprise sales team of zero does as well, it's just not as big.
As of ours, we're seeing a lot of in the first few weeks, we're seeing a lot of great synergy between how over time, we'll really be able to leverage the sales teams together and make something much much more than the sum of the parts.
That's very helpful color and maybe just as a quick follow up Todd on the CFO search Big picture here you have over 2.5 billion of cash from the balance sheet. When I look at your financial targets that were updated fiscal 'twenty 6 youre going to have nearly $1 billion of annuity stream of cash the highly recurring and resilient. So just wondering how youre thinking about key characteristics.
For the next CFO with that as the backdrop.
I think I think the points you mentioned are definitely part of the equation I would add that the.
The significant M&A integration is the.
The M&A the integration with Azure was very early in its very very critical for the success of the company. So experienced with that it will be helpful. And I also think just the high growth.
Dynamic.
Adaptable to change because 1 thing about our industry. We are defining the future of identity, we're working hard to make sure that identity has its rightful place as the primary cloud in the ecosystem of every organization of the World M.
And that's something that hasn't been done before in past generations of technology identity was really a part of other platforms. It was a part of windows or it was a part of Oracle, We're making this first class primary cloud and that's a different and unique and so I think not just the CFO, but the entire team has to be up for that challenge and it's 1 of Invigorates me.
And that's what Invigorates the whole team. So that's an important barbara as well.
I appreciate the details and congrats on the strong start thank you.
Next we're going to go to Keith Bachman of BMO.
Hi, Thank you I wanted to ask the question that was just asked a little more directly can you tell us what the revenue contribution is for FY 'twenty 2 and also what the cost structure that youre layering into most companies when they do a deal will provide this information I'm a little.
Views on just why you are not laying out more explicitly.
It's good feedback.
I'll pass it onto Bret to talk about the the model try to give you some more color there, but just in general we felt this was the best high level way to communicate the business and then.
We get feedback and as we go forward, we will break out of the things out as the as we need to but but.
That's kind of the high level thinking on it.
Yeah. Thanks, Todd So I think of few things to keep in mind.
When we're talking about the revenue components.
First and foremost like we like we say no to.
1 for off the Standalone was really solid and we believe that strength is going to continue for the balance of the year and so that's embedded in the revenue guide we would've had been have you been a standalone company raised the year not just for Q1, but also for Q2 to Q4, and then just like any of US, saying from an Osteo perspective.
They are tracking really well towards the goal that we've spoken about previously of being greater than $200 million of <unk> by the end of the year and so that's embedded into the revenue guide as well and then 1 thing. We did talk about is also the deferred revenue haircut.
As we as you guys know, we just closed the deal 3 weeks ago and so we've got an estimate of embedded in the revenue GAAP, but and we're going to work through that with our auditors over the next few weeks and we'll give you a little more color when we when we.
Do Q2 earnings, but then on the margin side of the house.
Once again Q1 at the stand alone had a great quarter and we believe that's going to continue for the balance of the year and it's just.
We're really pleased with the performance from Okta.
By itself and then like we just were talking about Austria, obviously, youre going to investing to a massive opportunity on the science side of the house and then also what's great about Austria, not only to helping us with the $30 billion sigh of market, but there's also the cross sell opportunity into the $50 billion workforce market as well.
And then obviously the the purchase accounting of.
Deferred revenue in all of the regulatory kind of standard acquisition accounting.
Is putting a headwind on that operating margin.
But I think the 1 I think another thing that would be of real positive for this group is previously we had talked about free cash flow being.
Slightly positive without the acquisition and integration expenses and now we're saying it's with it will be slightly positive with acquisition and integration expenses. As this group knows those can be fairly sizable. So some really nice progress from a margin perspective on that side. Okay. Thank you Brad I mean, my 2 cents would be the next time you come on us.
As I think investors would certainly appreciate some cadence on what the organic growth was whether it's billings or revenue or what have you Todd maybe a question for you if I could sneak my second 1.
Could you just talk a little bit about.
The competitive landscape.
And it could be with us here at without but I'm. Just wondering are you seeing anything more from Microsoft to of particularly in the mid market category are you seeing in your win rates changed any more at bats from Microsoft versus Euro at fast I'm. Just wondering if you could speak more broadly to the the competitive landscape also recognized in the <unk>.
The part of your Arsenal. So hopefully you can include that in the response. Thank you.
The competitive landscape has largely been Google would be the major platform players like Google and Amazon and Microsoft has largely been consistent the last 5 or 6 years ever since Microsoft launched the product I think that's going on now 7 years, now 7 or 8 years ago and not for okta, when they launched a competing product there.
Was.
It was scary at the time, but it was really the best thing that ever happened to us. It really validated this concept of identity being the primary system that people had to investing so we haven't seen the change there. It's interesting I think in general Microsoft is weaker relatively weak in the mid market for their identity business. So it's mentioned as mentioned.
It's interest that you had mentioned that you had a question about the them being stronger I would say I would call that out of the weakness of Microsoft in the <unk>.
The smaller companies have been market, maybe it's because of their channel maybe its I don't know why but the they've tended to the not show up well very well in that segment.
The question about all cero the competitive.
The dynamic on customer identity is really it's a build versus buy.
The conversation and 1 of the if you think about the market's $30 billion.
We're going to get to some of it with some of that with our low code approach with okta organic Sam but a lot of that 30 billion was would have gone to people building their own solutions.
That's the power of this from the ground up developer centric approach.
The increase the the capability to take off to take on some of those projects that would have been build your own and then that leads to a virtuous cycle of virtuous cycle of we get that customer maybe we can sell them or events of our access product, maybe we can sell them of our okta access gateway, maybe they work force so.
Not only the Brent was saying the the developer approach with US there of helped us in that $30 billion customer identity Tam.
It also gives us a foothold to provide more customer value and sell more product set over time, okay. Many thanks.
And Keith if you think about any of the only companies.
Of course to start from scratch and not think about this problem as an existing problem.
Small startup companies that just start today anybody else already has the solution.
Right and so in our deals with customers everybody has its own thing already and some of the the pushback you know that we saw in the past because it's gone away because you know the the realization that they can do better than us. We know there is something that we do the 1 something the permanent.
The way the preliminary screening complex.
I'm getting more sophisticated more things are being moved to the digital world and so just.
The notion that adding a little bit more in food and fixing your existing system homebuilders system to deliver on today's requirements.
Going away very quickly so.
What we are seeing on our side of the world from a more of a developer perspective is very consistent to that the top number 1 competitor still leads the.
I already build these can I, just I don't have any more important and make it work.
Of course no.
Okay. Thank you.
Next up we're going to go to the task of Guggenheim.
Hey, guys. Thanks for taking my question I have a question about the impact of Ogden on the billings number I know you gave us the <unk>.
In fact on revenue, but given the deferred revenue write down I would assume that the impact on billings would be higher than the revenue impact is that a fair statement that your growth impact on billings would be more.
Then on revenue from Algeria, Yes. It has the let's talk about kind of how to think about billings for Q2 and FY 'twenty..2 so a couple of things going on there just like I said on revenue and margin Okta continues standalone to do very well there so.
Obviously as shown by the 40% Q Q1, billings growth, which we're very pleased with obviously, that's excluding the operational billings change.
And so a couple of things for Q2 to Q4 that operational billings changed that's going to continue now it's not going to be that large Q1 was the biggest.
The biggest impact of of any quarter really going forward, but Q2 into perpetuity. We will continue to modestly helped us along because we're bringing billings, Florida, and obviously free cash flow of bringing that forward as well.
And then the other side, obviously, the Asa will be layering that on top and when we talk.
<unk> with you in the future of we're going to talk net of any acquired deferred revenue. So when you think about the billings number obviously austere and will add a bunch of Dr and of the number for Q2, we're going to we're going to back out any acquired Dr. So we can get a true more operational billings number and when you think about billings in terms of growth going forward, we typically.
Talk about it in relation to subscription revenue growth and because of all of those impacts that I. Just described in Q2, I would probably say mid single digits that billings growth will be higher than subscription revenue growth and then for FY 'twenty 2 primarily due to the Q1 operational change that number will probably be high single digits.
Of Delta between billings growth and subscription revenue growth for FY 'twenty 2.
And then just wanted to follow up can you just comment on the deferred revenue write down you're assuming for Q2, but like what is the what.
What would have been the normal run rate of revenue from our general and then how much of that you're assuming in your in your guidance for Q2, yeah. So the the.
The deferred revenue haircut, we've just obviously done the transaction from a little over 3 weeks ago, we think its probably in the range of plus or -20%, but we're going to work that out over the next.
A couple of months before we talked to you guys, Inc. After Q2.
And does that go away completely in Q2 or do we have some lingering write down in Q3 Q4 as well no. It will linger long, primarily because of zero of being in a lot of ways very similar to after the annual had done a lot of their customers and so as you know the.
The bill Dr. It's more annual in nature. So it will last likely into Q1 of FY 'twenty 3.
Thanks, Brent obviously of the impact will be less in 2023, but you guys don't have the mechanics mode.
Understood very helpful. Thank you.
Sure.
The next we're going to tie it up in hammer.
Thanks, guys great quarter.
I wanted to go back to the prepared remarks of little Burgundy.
Thank you mentioned that you see more opportunity now to cross sell with lots of zero versus what you expected.
Our last update maybe you can give us a little bit more detail of what else did you finding thereafter, you started digging in.
There is a few things first the first we had an assumption about this $30 billion Tam the theyre going after it with the developer led approach we're going after with the low code approach, we had an assumption that there wasn't much overlap between those 2 customer bases and prospects and that's been validated 1 thing we can.
And the first 3 weeks because we get the finally get to see all of the customer less and the pipelines and so forth. So there's very little overlap there, which means it's really validates our thesis of these are 2 distinct parts of this $30 billion market. So that's really exciting. So the second thing. We're doing is we're we're.
Of collaborating very well at the go to market level to make sure where there is overlap and of prospect or quickly leading with the right solution.
So we're not trying to sell low code to someone that wants developer and developer that some of the lifeblood of codes. So there's a synergy there than the other 2 things I'd call out is opt out of a couple of products..1 of the advanced server access which is the foundation for for our Pam product Thats going to be released in a few quarters that is really perfect for Deb shop.
For people that are have a lot of Linux servers that are.
Dynamically starting server stopping servers, which really is overlapping with the author of our customer base. So we think theres, a big exciting upsell opportunity for RSA and Pam products into the Australia of customer base and also on the Okta access gateway.
This is the product that has been really helpful. In.
Helping us, especially the large enterprise sell the company the hybrid it.
<unk> customer base has the same challenge.
And we think that's got a big opportunity the cross sell of that as well so.
Those are some of the specifics and I know you of any has been working on this close as well he can probably add some more things anecdotes you can share.
Yeah look we only had like 3 weeks it feels like 3 years really only.
Only the 3 weeks that we were able to kind of look into details and.
Our teams are uncovering tons of opportunities.
Todd mentioned integration with the same axis with the okta and he's from gateway these opportunities between DTC and sort of BTB M D to E. So workforce.
This new say the entity.
The tons of connecting points that are.
We are uncovering together.
What's even more interesting and exciting frankly is not is not just our team's finding those connecting points in many cases the type of customers that say, hey can we use of USA here I'm already using zero.
The my apps kind of use he's saying on my my Dev ops team and so what is really exciting ease of the excitement is not just on our side, which is also of course, great to see but it's also great to see with our customer base. They are coming up we already opportunities of synergies right that's great to hear.
Maybe the follow up.
And also on your prepared remarks.
You.
The workforce identity performed to expectation.
But it certainly feels like any of the way you described it was not a source of upside. So maybe you can comment on what is the growth rate at this point in your workforce business what is it down to them and how do we think about progress that business growth of that business going forward from here.
And both of our organic businesses are very strong.
The growth number of the subscription revenue was 38% billings was a little bit north of that so they are both doing really well I think that the work force product continues you saw the you saw the numbers of the large transactions over $100000.
Particularly 1 strong point was our advanced lifecycle management product, which is exciting because it's.
It gives our customers more power and it helps automate more of their processes, but also it is the foundation for our upcoming identity governance product lifecycle management as the foundation for identity governance is areas of the foundation for Pam. So these products doing well as a good harbinger of success in those broader product categories.
Which is important for this concept of we're really trying to build the the the primary cloud for identity. So every use case customer has whether it's customer identity, whether it's building up whether it's.
B the BDC, whether its privilege access whether its iga, whether its workforce, we want to be that vendor that primary cloud for them and when you talk to customers. It's really resonated with them. This is a very complex landscape they want.
All of the use cases covered they want answers on how it should work they won't be stirred through this complex landscape in a way that'll be predictable and high value.
And then in another really good.
Trend for the I mentioned in the prepared remarks as well for the work force businesses, what's happening in public sector.
Have a public sector environment that is very strong we've talked about when the press release recently, we talked about the state of Iowa.
And if you look at what's happened in the federal government. The by the administration basically told every federal agency the half to have multifactor authentication it.
It's like the perfect storm for Okta, there in terms of having the right product of the right time and as of the same time of federal agencies have to go to cloud and how can you of trust.
I was I was meeting with the Chief Security Officer at the very well known 3 letter agency M.
And the media was kind of there the customer of Okta and a couple of parts of their agency in the sub parts. So I've met with them before but I got an urgent meeting requests from the CIO of the entire agency.
And the C. So is there as well and basically what they were saying is it sounded like literally of marketing script of the Doctor would say they said, we we were a victim of solar items. We're worried about these other attacks the exchange League exchange tax due the exchange of tax et.
We have to go to zero trust and identity of that the core of it all.
And it was just a really good sign of of how big the work force opportunities. When you put that together with the other product areas. We are doing is the futures very very bright.
Great. Thank you very much and I'll, let go of his comments.
Only need details on up.
So hopefully we get some thank you that was another vote for that the OTA here. So.
Yes, Okay do we have of voting the future of them.
Alright next time, we're going to Rob Owens with Piper.
Great. Thanks for taking my question.
Todd you still of a little bit of my Thunder M. So I was hoping you could elaborate on what you guys are seeing from a public sector standpoint, maybe you can break out the loss zero have much of a public sector presence and for Friday since he seems lonely been its been smiling I'll call on my Brady bunch of of a wind down here.
Just talk about channels to market for public sector, and what you guys have in place.
Yeah, absolutely. Thank you for the opportunity I was just sitting here and really enjoying the conversation taken some notes on my own so happy to participate actively I appreciate the opportunity of Rob.
Yeah. So certainly when it comes to just to just to expand a little bit on Todd's commentary there certainly things have gone very well and we think the opportunity in the public sector, both federal state and local.
Very very good we talked a little of about the federal business, it's important to remember that.
Federal authorizations are not something you can flip the switch on overnight we've been working on them for years. So we have existing fed ramp moderate authorization today, we just got impact level of floor, provisional authorization, which we announced today as well and fed ramp highs on the near term roadmap. So you've got the by the administration issuing the presidential executive.
Border, saying, Hey, we have to improve the nation cyber security posture.
He orders at the state the the <unk>.
Federal government has of the gas towards Zero Trust architecture and explicitly state that the by M effect. So conveniently they have to do that from an approved vendor. So obviously that puts us in a pretty good spot number 1 number 2 when you think about what not just the private sector, but the public sector is trying to do they're trying to consolidate and you heard a little bit the story there.
Lot of Italian, but thats, we played over and over there trying to consolidate they're not trying to get more vendors theyre trying to find the right vendors. They can build the right relationships with and if you look at whether it's dollar based net retention or the new logo acquisition or the customer momentum press releases or otherwise you can clearly see that we're on our way to becoming a primary cloud.
We're expanding our use cases, which is an important component of becoming a primary cloud, we're broadening our capabilities and workforce with Pam and Iga, we're expanding with Siam anti M workflows, and obviously, the IPO transaction and a day is becoming the epicentre of the organizations of every organization connections.
Gartner has even come around the recently noted in their state of access management conference. The last week of the week before they see clear convergence of identity as a foregone conclusion. So theyre, saying every organization is going to be buying access management of Iga, Pam and possibly even fraud detection down the line from 1 vendor. That's our goal so look as an entrepreneur of 12 years in.
It's $1 billion revenue business growing what's kind of RP of 45% year over year I'm very excited about that then I'm looking at $80 billion Tam and it feels like a quaint small business compared to what it can be so we're very excited about the results. It's another strong quarter, but we're focused on what's going to happen in the quarters and frankly the years ahead and I think that's the exciting opportunity that we're really really lean.
And then finally on the last piece about channel Yeah, I mean in particular from public sector.
Susan St Ledger of Who's recently joined as our President of worldwide go to market is doing an amazing job in bringing a lot of kind of next level of thinking to our business and that's certainly a place that we've talked about of bond since she's always trying to make the moves so when it comes to the federal in particular of public sector in general.
Certainly we're continuing to have success you saw the press release today about the success of state of Iowa, having but if you roll back a couple of quarters. The same is true for state of Montana State of Illinois, and then when you look at a state and county, whether its Maricopa County, whether it's Clarke County, you go down the list. They are all finding better ways to use the okta identity cloud.
4 of their citizens and their employees and I mean, you know who's got a bigger budget than the public sector. So I think it's a huge opportunity for us and when Youre going out. She has continued to invest in it in the times ahead for sure great. Thanks, Freddie and quick 1 for Brett what are you profitable come Q2 of what would be the fully diluted share count we would be looking at.
We have about $170 million.
170, thank you.
The next we're going to Jonathan Ho at William Blair.
Hi, good afternoon.
I wanted to ask I guess, Mike I think some investors would like a little bit more clarity on why youre stepping down after a relatively brief period and the C. So could you maybe help us understand the timing of the rationale for the decision.
Thank you Jonathan Yeah, as I mentioned I've been on the board and as audit Chair I was starting in the fall of 2015, all the way through December of 'twenty. So more than 5 years shot just have a terrific opportunity with okta.
As they went from private the public and scaled dramatically obviously over that period of time and that kind of I think we guided for the first time over $1 billion of revenues of course guides up quite a bit now.
So that's been a fantastic experience and okta 1.
1 of the finest companies on the planet and the management team I would say the same.
Since I've been in the CFO I've had the opportunity of working very closely with the team.
Continuing on to slide that even deeper with Brett certainly shoulder to shoulder I'm excited about having this role going forward and I'm I'm staying on as an advisor to the company.
Todd has asked me to do that and I'll be I'll be involved as an adviser in the future as well.
Thank you and then can you talk of women about some of the traction that you've gotten with you of privilege and Trc solutions I mean, I know it's early in terms of revenue contribution, but can you just give us a sense of maybe how often you're seeing that as part of the bundle or.
Out of an initial purchase thank you.
So the the way to think about this is the advanced server access product that we've added market for a little bit like a year and a half is the foundation for Pan and we're expanding that out over the next couple of quarters and then we're going to release the full Pam product in the first quarter of next year same as for the advanced lifecycle management module, we've had that for of.
But it was about a year now before that we had regular lifecycle management.
And we're going to be expanding that out over the next few quarters and that'll be the first Iga product that will have at the in the first quarter of next year as well. So the the there's 2 things that that are really good signs for these these products going forward..1 is the result of both of these the advanced server access and the advance of lifecycle management and I called out advance of lifecycle management, particularly.
The as a strength in Q1 M D.
The product is did really well as people.
Invest in automated more of the provisioning and the day provisioning and want to get a better automated process around what's happening with the identities across the enterprise and then the second thing is just the reception from customers. The the reception from customers. When we talked about these products. It was it was thank you. This is of no brand and we want this unified control plane.
Of that integrated with the directory to the MSA to the.
Everything the Okta does today for US and also we don't want the we call them, Pam and we call them Iga, but we believe fundamentally that these markets of shifting.
And just like 10 years ago Okta came with this new approach to identity. This was cloud centric approach with this pre integrated catalog very easy to use very easy to adopt change the whole industry. None of the solutions were like that where you see the same thing happening for this iga and the Pam market there's vendors there.
Companies like cyber Ark or sell point, but theyre not what were building their legacy software companies and they have good business is doing that but we think when you look out 5 or 10 years the mass of winter in the what will become the Pam and Iga of categories wont be legacy software companies just like if you look around the rest of the technology.
The winners in the next 5 of 10 years aren't going to be legacy software companies. So that's the the lens, we're bringing to it it's the converged integrated approach across the core of them, the Iga and Pam for a cloud for a cloud centric world.
And that's that's why we're so bullish.
Bullish and excited about this opportunity of the customers based on feedback.
And the enthusiasm will have to see once we get the products out.
We'll report back about how how they're doing but that's all of US here right now yeah. I was just kind of add to that as Todd said at the end there it's not as though we are seeing in our IV towers coming up with these ideas. I mean, we are of very customer driven company, we listen very closely of customers of course, we have our own thesis on where things are going and you see what that with the mega trends are about cloud.
The hybrid Ikea I mean, I think everyone on this call understands where the future of enterprise software is going it's not going back to on premises legacy software, but we also listening closely to our customers and they've been asking for this kind of solution for a long time. It makes a lot of that look if you bring all of your identity information and you put it in the cloud in the public cloud in a service like Okta youre not been going to want to be.
What what is Iga and what our Pam Pam you could argue that privilege access basically in the cloud world every assets its privileged access, especially based on the security threats that we're seeing that are increasingly the recent security events. So everyone's going to think about every access its privileged access first of all and then second of all when you think about identity governance, what is it it's basically derivative information off of core identity.
It's not its own information, it's like reporting the news of what happened with your identity. If you brought all of your identity into the public cloud. It makes sense that over time youre going to start bringing all of that identity information back on premises to run a bunch of reports to give to your auditors and as customers are getting into that mode for both workforce of employees contractors consultants, but also customers right.
In the highly regulated industries financial services, whether it's HIPAA constraints, they want to make sure that all of that customer information that's running in the cloud they need to run reports on that as well and the governance happened there too it's going to run in the public cloud service and it is going to be very tightly tied to your core access management service.
Thank you I appreciate the additional color.
You can't ask 2 questions, but we can give you 2 answers of euro.
Next we're going to go to Matt Hedberg of RBC, Matt.
Hey, guys. Thanks for thanks for the time.
Another.
Another vote for additional office of Euro disclosures for those keeping track of at home.
I guess, you know Friday of another 1 for you maybe and I guess certainly for Todd.
I am gets all the attention. These days I think rightly, so, but but I wanted to ask you about the workforce identity opportunity I mean, I think the I guess some of them.
1 of their field of maybe some of that replacement opportunity from the legacy perspective slowed last year due to COVID-19.
Do you think 8 out of the true and B do you think there could be an acceleration in workforce identity replacement deals I'm talking like of legacy.
Of the legacy sort of aversion of Gen..1 day at all workforce identity players yeah.
Thanks for bringing that up I know, we've given a lot of run to personalize the and I should mention on this call. Obviously makes sense given the New York transaction that just closed a couple of weeks ago, but that's a very important 1.
When it comes to work force side any first of all of US where we started so if you go back to the Tam that we have when we started the when we went public the Tam in the S..1 registration document was 18 billion and that was entirely workforce.
And it's very easy to understand why if you go back and you look at enterprise identity. Historically, if you call large organization they've got a budget line items because it's been like you said the legacy piece of software and Oracle and IBM, Sweden, RSA suite of C suite, what's going to happen and it's still a huge tam the biggest part of our Tam So take out Pam and Iga take out science itself.
<unk> $35 billion and that number is growing and it's going to continue to grow because people are thinking about more and more ways to adopt technology and adopt software to improve their processes. So first of all of the answer's, absolutely very important second of all of what Youre.
Question about did it fall over the last year I don't think so I think people are just trying to react and so the first thing that we're trying to do if you remember out of few quarters ago. Our MFA usage went through the roof and people started buying a lot of MFA because the instantly everyone got shipped home, but what the what's happening is as people are starting to go back into these hybrid environments are backing of the office intelligence <unk> for thinking Tio.
The forward thinking TPS been around the industry, a long time <unk> have a lot of political capital inside of their own companies realize this is 1 of those technology leapfrogged moment, and I think what you're going to see it over the coming quarters and the coming years. This workforce identity management is going to continue to be a great business over the next 3.510 years, we are going to slowly.
Replace all of the legacy software that's out there and we're going to eat into that Tam. Our business is not about the show up in a rip and replace forklift upgrade of your Oracle stuff, we don't show up to a channel and say Oh, yeah, well, here's the kind of happening in the past $50 million and then you know maybe 18 to 24 months and how you're going to keep the value that's not how our business works our business works, we shop, we say look.
Yes, that's running today, it's running mainframe don't touch it what are some of the exciting new opportunities that you have the existing infrastructure is not working for perfect. Let US help you with that we show them value in a quarter or 2 we start to build that relationship and then 12 or 24 months. Later, we've earned the right to go back to them and say, Okay. Now you know a little bit of us our platform of company, how we work now.
Now, let's talk about the roadmap the turn the lights off on Oracle I day, and access manager or IBM him in Tampa or whatever you have over the next 24 to 36 months and we're going to go slow and steady and you see the examples of time and time again, whether it's a federal express, which we've talked about which continues to expand their deployment wall-to-wall, whether it's T mobile, especially as they do acquisitions like sprint and that's true.
That consolidation expand our deployment and so all of it gets rid of all of that infrastructure and that is going to continue through all of the it's going to continue to roll through the final thing is the stencil is really understandable. What's your sales revenue show up like 1 of my selling of perfect Universal Directory I've got Ah authentication I've got lifecycle management, that's going to become Pam or Iga.
I got all of these tools I understand how it works I can call these customers and they get it Siam, it's a little more it's a little more nuanced because a lot of it is build your own and so you have to get people to understand why they should take it off the shelf and how it kind of goes obviously the business is going well, it's growing fast, but the stencil to ramp new reps and get them to take out workforce.
<unk> deployments over the next 510 years that is the stanfill that we're very excited about it and I think youre going to continue to see a lot of great progress there.
I'll keep it there for the takes time of thank you.
Great I know, we're running short on time, but we are going to go into overtime, we're going to take a few more questions of the good stuff. So hamzah, we're going to go to you at the Morgan Stanley.
Hey, guys. Thanks for taking my question just a quick 1 from me from a go to market standpoint, either part of your Todd.
How are you guys are preparing the go to market organization. So into some of these adjacent categories like broader Pam in Iga.
Ahead of the product rollout next year, because I mean generally I think the.
The solutions tend to be a little bit higher in complexity. So what kind of approach are you taking of the more direct approach with your own solution consultants.
Leveraging more of the partner ecosystem of any any color you can give us there yeah for sure.
Well the first thing is the good news is it's not like it's coming out of left the all of its not like were going to start selling flying cars all of a sudden and rest of the to figure that out when you think about what's happening with identity of the convergence of this infrastructure, you're starting to get a convergence of identity as a foregone conclusion, you Garner statement right access management IGN, Pam and what that means is if you think of.
Adjacencies. These are very natural adjacency first of all of its all about the same stuff identity second of all of a lot of times. It's the same buyer third of all of a lot of times, they're trying to consolidate they're trying to find the right vendors in the if you go and talk to some of these she says of TTS of Jr. Now like I too many vendors I need to find the right partners and obviously the our results speak for themselves.
We are becoming the right partner from more and more of these large organization and so yeah. We have to train our reps, they're going to have to learn a little bit of of the new motion absolutely, but it's a similar buyer. It's something that's right in the line of fire of what they're doing a day and then finally, it's not like it's brand brand new I mean, obviously, Pam and Iga, they're gonna be brand new skus are going to be up sales can be net new revenue.
The company for sure, but also today, we're selling advanced server access and people have been asking for a couple of years now hey, if I look kind of a scant at a S. A is that kind of of modern Pam solution. It is but we're not thinking about what are the magic quadrants. We're gonna go take down we're thinking about what are the customer solutions, whereas the world's the world's going and how can we help them. So we're selling assets today, it's doing well.
Lifecycle management, we introduced the advance lifecycle management SKU last year. It did phenomenally well I mean, it is sold like hotcakes. It beat all of our internal plan and I think that's continuing now we're gonna obviously transition that over the Siam and provide that from zero, which is going to be great, but that advance the lifecycle management what is the Iga, It's advanced lifecycle management, it's the reporting some.
<unk> talent management on top which we're going to fine tune and we're going to get it out the door again, similar buyer of similar motion and something that we're already kind of stepping in queue. So yeah. We're going after new training of course, we're going to do training, but we have some price of art rather than I think they'll pick it up very quickly.
Thank you.
And the next let's go to Alex Henderson of Needham.
Thank you very much.
I was hoping we could talk a little bit of more about machine to machine.
Environments.
Cross domain, the environments and to what extent of.
You're looking to extend into that realm, which is much more about the cougar daddies in modern micro services based application architectures.
To what extent you feel like you need to build out functionality and capabilities.
To delve into that arena, Yeah, I think it's really important Alex on the on the Pam side I think that's the big difference between legacy Pam and modern from legacy Pan doesn't really have.
A lot of futures for the.
Containers functions of the serve as some of these modern Dev ops concepts, where our solution is going to be very centered on that starting with the vets are access which was very focused on.
Virtualized servers, and real servers, but really focused on connecting them at their native protocol and then when you go to when you go to the containers and in some of the other new workloads, that's really right where that product inside of <unk>.
So if you could extend of that conversation to if youre talking about.
Cloud vaulting and the like obviously Hashi Corp, as a major player in that space.
With the exceptional traction.
And <unk>.
Probably the the dominant multi cloud.
The participants how do you integrate with them do you compete with them or do you know.
And of the grocery store.
How she corp, as a way of a great partnership we have we've implemented some of provider and their terraform system and in terms of that debt offs motion, how you're moving workloads copying things around it.
They've done a great job there and we're really good of integrating people integrating with people. If you look at our 1 of our hallmarks of our integration networks.
So we're gonna be the most integrated most easy to work with somebody out there it's part of what we do.
Planning on doing any vault.
I think the Pam solution, we'll have about that yeah, we're looking at different options on them is.
Is that a partnership is the is that something we buy them, we'll make that decision 1 of the time is right.
Thank you very much the talk I'm sure.
Okay, Let's go to Andy Nowinski at the da Davidson.
Great. Thank you just a quick 1 from me I was wondering if you could just give us an update on the development progress you've made with regard to the the new eye of the upcoming IGN Pam products that Youre soon to be released in next year, and maybe like which 1 is more complicated.
<unk> developed.
They're going well teams are cranking away working with early customers vetting. The plans again, it's all building on our strength of these 2 products. So we have a really good.
The quality of signal from the market on what we need to do there.
In terms of the complexity I think there I think they are both kind of about the same complexity I wouldnt call out 1 of them was more of more complex than the other they both have there I think the biggest I think the biggest opportunity of both of them is.
To resist the temptation to just go out in the implement things of that a bit of implement before.
Because there are existing tools out there.
And we really have the challenge ourselves to make sure we build the solution for the future not for the past while still meeting of the real requirements as the requirements of changing that's probably the.
It's an engineering challenge, but it's also of product challenge too.
And that's what the teams are spending a lot of times on time on the make sure they get that right.
And then Todd do you think customers will be willing to deploy you know a good enough solution for both of those 2 after the benefit of managing just 1 platform and identity or do you actually have to be a market leader in bulk to real.
Convince customers to move to your platform.
Well I think it's a little bit of a little bit semantics, I think we're going to be the market leader for the customers that want of modern solution.
We're not we're not going to go replace the bunch of Ciber, Inc.
Implementations, we're not going to go replace the bunch of cell phone implementations. This is about all of the 10 times of the customers that don't have those things right now.
And the companies that are going to need the modern version of the of Pam in Nigeria in the future. So it's oh.
Yeah, I think it's going to be tough to go and say you know you've been you have an oracle legacy database of Sun server and you have cyber are doing the access to that youre going to take that out for a new okta product is unlikely.
But I think there's 10 times of the companies that are.
Trending towards more modern technology, but don't want the old technology to do privilege access around them.
Got it thank you.
And next let's go to Josh Tilton Bahrenburg.
Hey, guys. Thanks for squeezing me in.
I wanted to I want to talk about when we kind of think about the the future of where this identity market does converge and the customers who are looking to buy 1 product or unified bundle for active management Pam or governance.
Which of these 3 product features do you think are going to drive the purchasing decisions for a customer to choose 1 vendor of the other.
I think it's the it's the core access management.
So I think the and when I say core of it starts to get a little fuzzy between privilege access and core access management, just because of the spread had mentioned the.
The.
The with remote work in cloud and so many things being sensitive of the number of accounts that are privileged R. R. R.
Creasing.
What is the most compelling what's the most compelling the customers when I was talking to that see so in the CIO from that 3 letter of Federal agency.
They wanted to access control.
So when you're in the bottom of administration says do MFA is access control.
So that's that's the driver so the degree to which we can be the leader in.
We secure environment would give you access control of while making it easier for your end users.
That's the core and maybe on the work force them.
And if I could just follow up on the public sector comments.
The simple way to think about it is that government was 2 million people in MSA of 76 bucks per user per year, which kind of implies a pretty sizeable opportunity there. So.
Anything directly that you guys are doing the kind of capitalize on that opportunity the doctor.
At the time I mean, we have a dedicated sales team we're ramping that up we have the authorization the.
Federer of moderate in the IL 4.
Provisional authorization fed ramp high it is in the short term plan. So yes, and it's not it's not something that you can just do it we've been working on it for a number of years in the.
It's good for and we've seen a lot of success. There. So it's not like the just about Xerox and now theyre going to buy all of that we.
We've seen a lot of progress there. So we have a very solid base to work from and I would just add to the question that was posed a little while ago. It's also not just direct there's obviously a big channel component. There we've been working on that channel strategy for a number of years and I think youre going to see it really start coming to fruition. So the more you can get obviously they buy from the exact same folks day.
Bye from every time more you can build those relationships, but again you can't build those overnight we've been working on them for a while and I think youre going to start to really see the results.
Alright, thanks, guys.
Okay, we're running long, we're going to take 1 more question from Gray Powell with <unk>.
Okay, great. Thank you very much for working me in here at the last minute I really appreciate it but I gotta go to 1 gram negative of them.
I think I got 1 I'm, sorry, I'm going to follow up on the on the guidance question and bear with me of seconds. So so if I look at your Q1 results in a vacuum the the upside from revenue was actually a little better than what you've seen the last few quarters.
Typically you beat on revenue by $13 million in Q1 versus more of like 10 million in the prior few quarters sort of Q1 was a fairly standard off the revenue beat is it safe to assume that the organic upsides of the full year guidance would have been a fairly standard off the raise maybe in the I don't know 30 to 40 million range.
Sure Yeah.
Go ahead Todd.
Good day, I think that's fair.
I I was easy.
Yeah.
Is it okay good of Apache.
So those that we didn't get to on the call we will.
Take your questions afterward, if you'd like before you go we want to let you know we'll be at 2 virtual conferences. This quarter, we have to William Blair growth stock Conference on June 3rd in the Bofa Global Tech Conference on June 8.
We're also participating in a number of bus tours. So we hope to see you at 1 of those events. So that's it for today's meeting in a few of the follow up questions. You can email us at Investor at Okta Dotcom. Thanks again, everyone. Thank you you have iron ore.
Yeah.
I can see.
Uh huh.
[music] Hopkins.
Hum.
Got it.
Net.
The.
No.
Right.
Right.
Got it.
Yes.
None of the Brown.
Non.
Okay.
<unk>.
Yeah.
Yeah.
I think that.
No.
No.
Todd.
Yeah.
The team.
Great.
Uh huh.
None of the graph.
Right.
Okay.
[music].
Yes.
Yes.
Yes.
Okay.
[music].
Great.
Yeah.
Okay.
Hum.
Yes.
[music].
Okay.
Yeah.
Yeah.
Yes.
Okay.
Okay.
Okay.
Yeah.
None of them.
[music].
Yes.
Yes.
[noise].