Q2 2022 Okta Inc Earnings Call
In addition, during today's meeting we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.
A reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents is available in our earnings release, you can also find more detailed information in our supplemental financial materials, which include trended financial statements and key metrics posted on our Investor Relations website in today's meeting we will quote.
A number of numeric or growth changes as we discuss our financial performance and unless otherwise noted each such reference represents a year on year comparison, and now I'd like to turn the meeting over to Todd Mckinnon Todd.
Thanks, Dave and thank you everyone for joining us. This afternoon, our strong second quarter results were driven by continued performance across at the Standalone business as well as from US Arrow as a quick reminder, the transaction closed on May 3rd. So it's still very early days as a combined company. Nevertheless, with each passing day, our enthusiasm grows for the combined company and for Hal.
We are aggressively pursuing the $80 billion of identity market opportunity as the world continues to work through the ongoing pandemic organizations have had to maintain fluid plans for returning to offices, regardless of the timeline. It's clear that most organizations are adopting plans that include more remote access organizations also realized that their interactions with customers.
<unk> will continue to shift more online and need to accelerate their digital transformation business plans. These factors combined with the ever evolving security threat landscape mean that the demand for okta as modern identity solutions has never been greater I'll start with a quick recap of our Q2 financial results and then get into some.
One of the other notable highlights from the quarter I know this audience is looking for more information regarding the <unk> contribution to our results. So this quarter will be sharing a number of okta standalone and off zero metrics on a onetime basis with these you'll be able to see that both businesses delivered great Q2 results and better understand that.
Combined company going forward.
To highlight just a few of our second quarter financial metrics revenue growth for both Standalone Okta and Alterra was strong which produced combined company revenue growth of 57% and subscription revenue growth of 59% our P. O surpassed the $2 billion milestone for reference it took off the 10 years to reach the 1 billion.
Dollar RPM milestone in less than two years to hit the $2 billion milestone.
That's tremendous progress current RPF also reached a milestone by surpassing the $1 billion Mark our total base of customers now stands at over 13000, Okta Standalone added 750 customers, which is a record for any quarter.
Also included in the base is the addition of 1600.50 off zero customers net of common customers. Our total base of $100000 plus average contract value of customers or a C. V. Now stands at over 2006 hundred off the stand alone added 160, new $100000 customers and once again.
<unk> half or brand new customers and after zero brings 375.100000 dollar customers to the base here.
Here are just a few notable examples of large enterprise wins and Upsells in Q2, which come from a wide range of industries, a great Federal agency win for both workforce and Cyan was with the Indian Health services, a U S Department of Health and Human Services Agency office, providing IHS with a modern identity solution to connect and secure act.
As to various cloud hosted health care applications based on user role, including IHS employees travel partners and public users.
With okta workforce and science solution, the organization will be able to streamline personalized digital access by user type provide self service password resets and create customized and secure access policies for external and internal IHS users Salesforce was an exciting workforce identity expansion in Q2 octaves.
Workforce identity solutions, including Okta workflows will help the company automate business processes and customize identity use cases at scale, while reducing friction for its end users.
A great new off zero win was with worthy Parker the company completely disrupted the eyewear industry by selling primarily through its website.
For it to improve customer experience they chose office zero to reduce customer signing friction further mitigate the risk of authentication based attacks and freed up their developer time Asa will be used for all eyewear purchases as well as to conduct virtual vision tests, combining with Asa a further strengthens our position.
As the world's leading independent identity card. In addition to the base of enterprise and SMB customers that I mentioned earlier after zero has an incredible base of over 13000 paying self service subscriptions.
What's more there are currently over 40000 active free subscription is being utilized by developers on the Asa a platform. All told this is a tremendous developer community that is building custom identity tools using the off the zero platform and further differentiates the odds zero platform from anything else in the market.
With developers in mind, just last week after zero as co founder you hitting a pace and Mathias will owe ski hosted Optus and <unk> developer day event. The themes were build the future of identity with us and after all.
Over the course of the day, there were engaging keynotes from right now in security and identity experts as well as hands on labs into trials.
It was a big success all around and highlights the continued focus on empowering our loyal developer audience now, let's take a look at the split between customer identity and workforce identity in terms of a C V for.
For this particular metric the growth rate is inclusive of ASO in both comparison periods.
Both the okta Standalone and ops zero cyan businesses continued to perform very well Sam now represents over one third of total ACB and grew at 54% within this okta Standalone Siam ACD grew 49% and op zero as a C V grew 63% workforce Asa.
<unk> now represents just under two thirds of total HCV and grew 37% those are great results that reflect the market demand and the success we've had at maintaining the momentum of both businesses. It's been less than four months. Since we closed the acquisition of box zero, but we've already made a lot of progress and learn quite a bit.
We've made the decision to accelerate the timeline for integrating the sales organizations under Susan St Ledgers leadership to the beginning of the new fiscal year in February. This move will allow the unified sales team to sell both platforms and benefits customers by providing more options to meet their unique use cases, it's this kind of progress.
It will help us realize our vision of identity as a primary card win in the siding market and deliver best in class experiences for our customers.
At our upcoming showcase event on October 13th we're going to spend more time outlining the expansive opportunity we see in the Siam market at the event, you'll also hear from both okta and author of customers that were really help illustrate the wide range of use cases last quarter, we talked more about broadening our platform specifically.
Adding to our capabilities around identity governance and privileged access for the workforce identity market. We're very excited about the opportunity to bring modern Iga and Pam to a broader audience and the progress, we're making to deliver new products and functionality.
Augmenting our internal development efforts is last month's acquisition of a small innovative company called at spoke.
Which built a modern workplace operations platform at spokes access request workflow capability helps augment our broader Iga strategy and vision with their incredibly talented 20 person team that we're thrilled to have onboard you've heard us talk about the megatrends that are driving <unk> business the deployment of cloud and hybrid.
T digital transformation projects and the adoption of Zero Trust security environments. We recently published the third annual installment of our state of Zero Trust Security report and the trends are crystal clear with the rise in remote work and the sheer volume of identity based cyber attacks. It's no surprise that the adoption of zero Trust is accelerating I D.
He has become the new perimeter and a critical component of Zero Trust. One chart in the report that struck me indicates that 83% of global 2000 businesses have increased their budget for zero Trust security initiatives in the past 12 months I encourage you to download the white paper from our website for more details of the findings and <unk>.
Lastly, I want to note that okta was recognized by Forrester research and a leader Forrester ranked at the highest in both the current offering and strategy categories and their 2021 identity as a service for enterprise wave after received the highest possible scores in 14 of the 18 evaluation criteria, including product vision.
Innovation roadmap market approach as well as user experience and navigation.
I'll close by saying that we remain incredibly enthusiastic about the demand trends, we're seeing in our business.
Okta is neutral and independent platform modern cloud approach and growing array of identity capabilities make us uniquely positioned to execute against the $80 billion total addressable market opportunity for identity.
I'll turn it over to Brett to walk you through more of the Q2 financial details and how we're raising our outlook for the fiscal year. Thanks, Todd and thank you to everyone for joining us as Todd noted, we'll be sharing a number of off the standalone and zero metrics on a onetime basis for the rest of this fiscal year will only be sharing off zeroes GAAP revenue and net loss break.
Yep.
Locked in a zero are integrating quickly.
Which will make it increasingly difficult to determine the standalone metrics in future quarters.
With that I'll now discuss in more detail the results for the second quarter as well as provide our business outlook.
Total revenue for the second quarter increased 57% driven by a 59% increase in subscription revenue.
Subscription revenue represented 96% of our total revenue.
After Standalone revenue was $278 million, an increase of 39%.
After zero revenue net of recognized purchased accounting adjustments was $38 million.
As an additional point of reference the total deferred revenue haircut drive zero was $13 million with the largest impact to revenue in Q2.
Our P O or backlog, which for US is contracted subscription revenue both billed and unbilled.
That has not yet been recognized grew 57% to $2 billion to $4 billion on not the stand alone basis, our P. O grew 42%.
The growth rate decreased from last quarter is primarily attributable to the stabilizing of contract duration, which now averages just under three years in length.
Current RPI <unk>, which represents subscription revenue, we expect to recognize over the next 12 months also experienced strong growth of 60%.
On and off the Standalone basis current RP O grew 43%.
Both total and current calculated billings grew 83% excluding the billings process changes that were implemented last quarter calculated billings would have grown 74%.
After standalone calculated billings, excluding the benefits from the billings process changes experienced strong growth of 47% calculated.
Calculated billings growth in the second quarter was driven by strength across both new and existing customers and demand for our products remains robust driven by the macro trends that Todd mentioned earlier turning to retention.
Our dollar based net retention rate for the trailing 12 months period was strong at 124%.
The Okta Standalone dollar based net retention rate increased two percentage points sequentially to 122%.
Zero is net retention rate was a robust 127%.
These net retention rates, reflecting the strong upsell motion, we are seeing at our existing customers as they expand and purchase products and users.
Consistent with prior quarters gross retention rates remain very healthy and reflect the value of our products to our customers.
The retention rate may fluctuate from quarter to quarter and in the current environment, it's possible that fluctuation in retention rates, maybe more pronounced.
Before turning to expense items and profitability I will point out that I'll be discussing non-GAAP results going forward.
Now looking at operating expenses total operating expenses grew 76% the growth in expenses is primarily attributable to zero.
With the addition of over 900 odd zero employees total head count now stands at over 4100 employees Opex was lower than expected primarily because we are operating more effectively together with austere than previously expected.
As you'll see in our Form 10-Q off zeroes GAAP net loss was $150 million. This figure includes a $102 million of stock based compensation.
Within the $102 million $34 million in one time expenses is related to the acquisition.
Adjusting for this and other non-GAAP items <unk> non-GAAP net loss is generally consistent with okta non-GAAP net loss when it was at a similar revenue level.
Moving to cash flow cash.
Cash flow from operations and free cash flow negative $3 million of negative $4 million, respectively, which yielded a negative 1% free cash flow margin.
We ended the second quarter with a strong balance sheet anchored by $2.47 billion in cash cash equivalents and short term investments.
Now, let's get into our financial outlook for Q3, and FY 'twenty two.
We had great Q2 results and maintain conviction and secular market challenge, we continue to be prudent thoughtful about the rate and pace of near term integration and synergies with <unk>.
This is reflected in our guidance for the third quarter of fiscal 'twenty. Two we expect total revenue of $325 million to $327 million.
Presenting a growth rate of 50% year over year.
Non-GAAP operating loss of $35 million to $34 million and non-GAAP net loss per share of 25 cents to <unk> 24 cents, assuming weighted average shares outstanding of approximately $153 million.
Given our strong Q2 results, we are raising our revenue outlook for the full year.
For the full year fiscal 'twenty two we now expect total revenue of 1.2 for $3 billion to $1.250 billion, representing growth of 49% to 50% year over year.
We also now expect non-GAAP operating loss of $119 million to $114 million and non-GAAP net loss per share of 77 cents to 74 since.
Assuming average weighted shares outstanding of approximately $147 million.
There are a lot of exciting things happening with the company as such I want to provide a few comments for modeling the rest of FY 'twenty two.
We continue to believe that current RP O is a better metric than calculated billings to measured quarterly performance current RPI removes the effect of billings duration and timing. It also provides a more predictable and consistent view of the business.
We expect current RP O growths remained strong with growth similar to subscription revenue growth for the full year for FY 'twenty, two we're expecting calculated billings growth to outpace subscription revenue dropped by low double digits and finally, given our strong cash flow generation in the first half of the year. We now expect free cash flow margin to be positive and in.
Mid single digits for the fiscal year inclusive of integration and transaction related costs, which is an improvement over our prior outlook to wrap things up we had a great quarter and are extremely excited about the $8 billion market opportunity in front of US Okta is very well positioned to build on its strong foundation and market leadership position.
Which gives us continued confidence in our long term outlook of $4 billion in revenue in FY 'twenty six growing at least 35% in each year and 20% free cash flow margin in FY 'twenty six.
With that I'll turn it over to Dave for Q&A, Dave.
Thanks Brent.
To indicate that you have a question. Please click on the raise hand icon I see that many of you have already in them.
Take them in the order that they were raised so we'll go to the first question from Alex Henderson at Needham.
Alright, Thank you very much so.
There's been a very significant increase in the number of attacks and hacks broadly speaking and theres been presidential edict that have specifically called out identity as critical drivers of our <unk>.
Properly designed security can you talk a little bit about to what extent.
Those events are and that backdrop has altered the the dynamics and the demand for the company's has it have you seen an acceleration.
And conditions as a result thanks.
I think it's a it's a real significant factor I was talking to a couple of months ago I was talking to the CIO of a large three letter federal agency and they've been an okta customer for a couple of years now and parts of the agency.
And but this was the CIO of the whole thing CIO and the W. D. C OS in the WC says and as in the meeting and it was a pretty a very compelling meeting from my perspective, because they were basically giving me the okta pitch and saying how identity was so critical with all of these supply chain based.
<unk> and ransomware attacks and everyone being remote and having to adapt to this hybrid work environment identity was really the center and it was the Keystone of having a robust security strategy and I was thinking myself, that's usually the pitch I given its meeting so and what they wanted for me was they wanted my support Hey, we're going to really go wall to wall with.
Ill make a huge investment it's going to be the cornerstone of our cornerstone of our strategy can can what do you support us in and basically give them confidence in it was I think that captures a shift in the market where.
Part of our success is predicated on identity being this this this primary component in this this pillar of company's technology strategies, not something that you get as a feature with other platforms or maybe with your application, but it's actually a primary cloud in your environment and this is a great Testament of how that.
It's starting to shift and it's a great.
The great thing for Okta, because when you talk about an independent and neutral identity cloud and now, especially with combined without zero, where we are in the catbird seat to own that and that's why it's so compelling for our future.
Great. Thanks for the great quarter.
Thank you.
Next question from Gray Powell P. P I G.
Yeah.
Okay. Great. Thanks, you hear me, Okay, alright, well I'm clear Greg.
Yeah.
You just.
They could just froze up there.
Yeah.
I wanted to come back to grade will go to Patrick <unk> from Deutsche Bank.
Alright. Thank you so much for taking my question and congrats on the processes like if the progress you've made so powerful zero.
I mean, the disclosure is really fantastic.
Kind of providing the standalone revenue and there was no revenue says really help us appreciate you by doing that.
You know as we think forward for guidance.
You you you kindly told us of 38 million.
Of inorganic revenue in fiscal second quarter, how do we expect that inorganic.
One zero revenue to trend throughout the rest of the fiscal year and I guess the reason I ask that is because if we assume you know even if its stable 38 million and suggest that the core business is going to see quite a material deceleration in the third and fourth quarter. So just help me understand.
Those two segments of the business.
First of all the we heard the feedback loud and clear on the on the disclosures so hopefully.
Those are helpful. As you think through the businesses going forward on the guidance, we had a lot of debate about breaking out the guidance between different companies.
And the Big reason not to is we don't we want to keep flexibility on how we package and sell and position the products in.
We you know we might do some creative things that would that would change the actual how you ascribe revenue to each side. So we want to keep our options open there we will as we mentioned be breaking out the Asa a topline for the next few quarters at least to give you as we go through the quarters to give you more insight into what's going on there. The I'll say I'll talk about at a high level and then.
Pass it off to Bret for some more comments, but that it's really really important for us to as we go through this and this is a long term and this is a long term strategic move for us a zero. It's about building. This primary cloud it's about offering all of these identity use cases to customers.
And it and making identity a key part of their technology landscape and you do that by supporting all of these multiple use cases customer identity workforce identity, eventually privileged access management identity governance, and on and on and but the real core of this is owning the Siam market and when you think about us plus off zero.
It is going very well and the first order of business is these two companies two products that had a lot of momentum. So the first order of business is keep that momentum going and hopefully you can see in the numbers that that's definitely true. So that's the first order of business and then it's also it's also very important as we as we keep executing through that through the rest of this year that we.
You get the integration going and you mentioned the sales integration I'm getting that synergy going in and making sure. We take this from you know initial success keep them long and I'm going to this long term future, where we are really this one stop shop for all of these are there any choices and compelling leader in the market for customers.
I think a few more thoughts there. The first thing that comes to mind really is just talking about the Q2 metrics really the visibility I just want to reiterate a few points to Todd said around the reason why we gave such a fulsome look on the on the visibility of the Okta Standalone resource zero across numerous metrics really for two reasons one Mike.
Todd said, we really want to give you the DNA of Hollywood organization is built up today is as of the end of Q2, and then secondarily give you insight into how our inks business.
Performing in a.
It goes without saying both of them are performing very well you can tell a really any number of metrics that can be CRP or growing 42% box standalone.
Double click down into that in terms of AC D, whether workforces, drawing, 37%, Morocco, Standalone, 49% for science Standalone.
Obviously answer Youre doing great, where first quarter together, 63% ACB growth, so really strong performance across the board and just think top of saying we're going to run this company as one entity one.
One entity to go get a huge 80 billion dollar Tam.
And really and that's how we're going to talk about in the future with the exception of the few comments Todd sandwiches will give us zero revenue and net loss GAAP net loss to be clear in Q3, and Q4 of this year to give a little bit more visibility, but we're gonna you know theres a one time look and hopefully gives everyone. A very good sense of how well those organizations have been running.
And an idea of the DNA between the two organizations of how it actually breaks down, but a little bit more on the guidance itself, maybe a couple of points to help you with your modeling.
As you can tell by the strong quarter that a net zero just posted.
In terms of 63% ETP growth like I said, a second ago, we have talked about in the past the $200 million are a goal by the end of FY 'twenty two and they are definitely on track for that so performing very well, we're very excited about the opportunity operating together and then if you were to think okay. If the $25 million raised a one.
$5.2 billion at the top end drawing 50% how much of that is how much of that is not zero I think if you look at the.
The great performance by both businesses in the in Q2, it really says hopefully to the world.
<unk> would be raising because both are performing very well. So hopefully that gives you a little bit more color on the on the guidance going forward.
Yeah. Thank you so much I mean, that's really helpful and I appreciate you guys, giving us added disclosure.
Great. Okay, we're gonna try grid power going from D. T O G great alright.
Alright, great. Thanks can you hear me this time.
I'll be quick.
Yeah. So can you talk about the success, you're having so far upselling awesome workforce into the ask your own installed base and then you know I I know, you're just kind of reiterated the the expectations were off year to contribute $200 million in ear on this year.
Periodically every answer you have customers signed up for workforce immediately how big that some you know how big could it be.
Thanks, Greg at night that nice to hear from you. So V. It's only four months and so we're very excited about it but we're just getting going right. We have now at least figured out.
What some of the enterprise basis look like so we talked about over 13000 total customers now I can stand alone added 750 customers, which is a record we're adding it at 16.50, and then we had about 300 common customers to give you an idea. So that's just 2% of the overall customer base and she gave everyone an idea of how big the <unk>.
Market is and how little overlap there really it was out there. So there is a lot of opportunity for not only off zero sales team to take advantage of some of the products that we have on the science side. Good examples are workflows okta access gateway advanced server access these are products that play very well and Siam attaches. There you know it didn't have.
But also as you mentioned a zero has largely been selling just I am and so we are just getting going with that motion a lot of great communication among ourselves games theres. Some very good examples already of both sides actually there was a worthy partner, which we talked about briefly in the prepared remarks, and existing okta workforce customer new off deal customer.
They've been working on that for a little while but a game a lot of confidence to accelerate that y'all think okay, great were comfortable with HOKA and using them for awhile now lets can be part of the same group that's great not worthy partner. He is gonna be a by the way you didn't go for all customer purchases going forward, which is a big deal on their website and then on the flip side, our sales force has been Oh.
Customer for some time workforce upsell for us, obviously, GTK I'm using a lot of our products, including workflows, helping automate a lot of business processes. There. So just a couple of examples a lot more of that to come obviously, a huge opportunity, but again, we're very happy with the 13000 total customer count as an entrepreneur if you'd give me those numbers when we started I wouldn't take it.
I'm in a heartbeat, but it could be 20050 thousand 100000 customers, we should be working throughout the world with all the world's organization. So a lot of ways to write a lot of room to run, but it's a good start.
Got it that's really helpful. Thank you and Greg one thing that this just happened this past week that I'm really talked about is that.
Fred you talked about the the kind of the the not call it low hanging fruit, but the somewhat obvious cross sell you know so workforce to Asa air customer saw after Osaka am to okta workforce customers and that's in the different product modules workflows and the access gateway advanced server access to vary.
Hmm.
Near term opportunities there well I saw this past week was the first mock ups and the first concepts of what deep integrated products could look like in the future. It was very cool. These are just the teams are just starting to work together. So in terms of like what could be possible in the in the years ahead I saw the coolest demo, where if you build an app use.
And after all and then how that could hook into the okta I G. A on the other side. So if your App is built with with a zero then so a customer deploys that up and now that has a much tighter integration to the okta identity governance that can control exactly what's done in that op, who has access to what had a very fine grained level.
That is the kind of compelling integration that makes them beyond just the go to market synergies and the ability for one vendor to come with the market, but really one plus one equals three from a technology and a product perspective, and there's a bunch more ideas, we have and as the teams come together, it's gonna be it's gonna be amazing to see the progress overtime.
That's really interesting okay, I look forward to hearing more about that yeah. We have our we have our showcase event coming up in October we're gonna be talking a little bit more about this so make sure you tune in to do that it'll be all virtual and we will talk about the integration and the opportunities ahead, and a little bit more detail.
Okay, Let's go to Jonathan Ho at William Blair.
Hi, good afternoon.
Just wanted to get a sense of how you are educating the channel on whence you either promote artists are high end products wore off Crs former house you know maybe you can sign off products to a customer and you know could you give us a sense of what those guidelines the channel should be using to make that decision on which product would be with or without like.
Thank you Yeah. This is a key a this is a key point of the work we've done and we had a thesis about this and it's really been validated over the first several months working together and the the idea is that this $30 billion market for for Cyan is a massive market and you can see that.
The combined companies now it's about a third of the T V.
So it's not only just a big material part of the company now, but it is a massive upside in the future, but you know that's just from a and that's from a kind of a quantitative perspective from a qualitative perspective, we talked about how the sign of market is so strategic for okta and that it gives the identity cloud another compelling anchor use.
Case to further propel that to be a really strategic platform in the mind of every CIO and see so in the world. So there's the qualitative there's a quantitative in terms of the in terms of the in terms of the strategic priority of of the combined entity.
And then when you think about when you think about how we could further accelerate.
Some of this some of this integration do you think about what is actually happening in the first four months and the first thing is we only have 300 overlapping customers. So if these two siam platforms that were you know if it was just a.
Like two competitors going after the same small pie you would have you would have had way more overlap in terms of customers or at least the competitive pipeline and we haven't seen that materialize. You only have 300 companies that are that are overlapping customers and in the pipeline reviews, its very clear, which Siam platform aka Siam or the off zero sign on platform should be taught.
Good for which customer. So this is not confusing to the field, they're they're figuring it out the channels figuring it out organically. So the way it breaks down is that this $30 billion Tam is really a couple of separate tenants there's a very.
Like very customized or developer focused fine grained control control every pixel every bitten by that's the market officer, who is very well suited to go after.
Then there's the more tightly integrated to you might have a company that's doing customer identity, but it's maybe more b to b. It's it's really one part of many personas once they want some employees logging into the application and some business customers logging into the application or maybe they might have separate distinct backend applications that they want to have a single pad.
Multi layer, it's less development and code per se, it's more policy and they want a low code environment, that's where the okta science platform really excels, but what you get is you get a vendor now that can go with these two platforms and products prosecute the entire market from these different perspectives and and you get a vendor.
At scale, we talked about 30 about 33% of our ACB roughly about $1 billion of H E. B. It's you know if it's $330 million roughly and that's that's the biggest Siam vendor by far it's not even close if you look at the other competitors, it's hard to tease apart some of the platform guys, but the point competitors, it's not even close.
So you have a vendor that's able to bring all of these options the customer our customers with our go to market advantage in how we're going to sell it knows the sales teams are being integrated plus going forward as we actually build that the platforms to be have this one plus one equals three technical integration over time.
It's a pretty exciting time for me you can tell I'm, a little pumped up about it so excuse the long answer, but it's exciting times for US 50 account. Thank you.
Yeah, that's gonna Hamzah firewall are at Morgan Stanley.
Hey, guys. Good afternoon, Thanks for taking my question.
Perhaps a question for Todd.
Friday.
On the workforce side I was wondering if you guys could give us any updates on progress.
With B I G eight and in the Pam products to the extent that you have.
Customers, who are using our product.
On beta and then also how what are you guys doing from a go to market perspective to really build pipeline for that ahead of general availability next year.
Yeah, I'm happy to talk about that thanks, Hi, How's that for the question. So are you referring to the privileged access management and identity governance and administration products that we've announced that are going to be coming out next fiscal year, they're making really good progress on both sides. Obviously these are not a brand new areas for us.
These are natural adjacencies to what we've done with access management for a long time, we have the basis for both of the product suites are already they've been generally available for some time, which also is one of the pieces that gave us confidence to talk about general availability coming next year on the privileged access management side, obviously, it's a advanced server access.
A product that's been in market for a couple of years and has done very very well, obviously Pam is going to be a bigger suite of products, they're gonna be upsells are going to be new skus, they're gonna be add ons for customers to buy just to be clear, but advanced server access is the basis for that product suite and then on the Iga side debates at the lifecycle management and advanced lifecycle management team.
Products have done very well some of the top sellers last year. So much so that we have the confidence to take them from workforce and bring them over to the science side of the businesses. This year and that's gone very very well, we announced that G. A earlier this year and that's been selling extremely well both on the okta standalone side as well as the off side as I mentioned earlier.
So that's gone very well again, IGN will be broader than that there'll be more products the products it'll be bigger so there'll be upsell.
Opportunities and net new skus to our customers, but that's all going very well. We also acquired a very good small organization called I spoke recently that its a great technology and team tuck in into what we're doing with Iga very opportunistic great technology, great team just about this hit that go to market inflection point so.
Great time for us to bring them into the fold and known them for quite some time, that's obviously doing very well, but it's really a from an organic perspective, a lot of customers that are excited about saying, hey, I want one vendor on one platform I want access management privileged access management you could argue a lot of cloud is already privileged access management. So they wanted to see that same modern infrastructure.
Architecture same is true for Iga, if you've got all your identity information already running in the public cloud you're going to want a product that's right next to that in an adjacent suite. So that's all going very very well, we're very excited about it in terms of our pipeline you know that is a natural pipeline actually this is again products that we're building, it's not as though we're sitting in an ivory tower.
We're coming up with great ideas, although we do do that from time to time, but this is actually one where the customers have been saying for some time. He will you give me a modern Pam solution will you give me a modern Iga solution I want something new I don't want to buy it from the legacy vendors of Yesteryear and I think that's a great opportunity for us. So a lot of pipeline already built up in fact, theres more customers asking to.
Early access to the product that we want to open it up for just because we want to make sure that we get it right as with all of our products, we want to make sure that when they get out there, they're really rolling but yeah, very optimistic and bullish about that I think it's great for for next year and the years beyond.
Thank you.
Alright, that's gonna you thought could run at Oppenheimer.
Yeah, Hey, guys, congrats great quarter, and thanks for the extra disclosure very helpful. Maybe I'm going to dig into that a little bit Brent.
I just want to make sure I understand the guidance on the next quarter on the topline you're showing about a seven to nine points deceleration from a revenue growth standpoint, maybe you can give us some details on how much of that is off the zero or a related it's just something funky in the comps year over year that would make for that and also regarding the gross margins. There was a dip there I'm guessing that's because of the inclusion of <unk>.
Zero, how quickly will you be able to bring that back to your historical levels.
Sure. Thanks, I can I'll take that.
For the top line you know when we when I talked about in a few minutes ago. There really were just being prudent about the back half in terms of growth because of the sales integration that Todd spoke about earlier, we're obviously, bringing that forward because we think it's a good thing for the company in the long run and obviously, we've been working very well together. So we're just being prudent about the rate and pace.
The integration between the sales teams.
And then what was your second question again, the gross margin gross margin that's right. So yes, it is being.
Depressed, a little bit or taking down a little bit due to Austria, but you can look at our history and I think one of the reasons, we talked about why off zero not just this quarter, but last quarter, where osteo looks a lot like us.
A few years ago, when we talked about our prepared remarks and has been a lot like us because our gross margins back then weren't as strong as we built them up over time and we're going to do the same thing that we've done for years, which is balanced growth and margin.
And it's really just.
Part of the way, we operate and so you'll see that in the future.
Thanks.
Yeah, Let's go to Brian Essex with Goldman.
Great. Thank you very much for taking the question and thank you for me as well for the additional disclosure very helpful.
Maybe if you could talk about customer mix, a little bit if we were to look at you know.
Oh sure.
Thanks Esther.
Mentally Inc.
Quarter over quarter, if you just maybe parse out a little bit you know, what what was incrementally Hey, Brian Hey, Brian Hey, Brian Yeah did you stop your video and ask again, you cut out there a little bit sorry about that no worries I want to make sure I get the whole well I can just answer what I want to answer [laughter] either way works there, but yeah. We we turned off the video so yes, I mean, essentially where I was going is.
It looks like your incremental.
Incremental adds in the customer mix for large customer accelerated quarter over quarter. So wanted to understand what the business mix. It off zero was and what it brought to the table versus what okta organically added for large enterprise and how do you anticipate managing that going forward.
The I think that at a high level when you think about the customer mix.
The contribution I'll just call out that they're the same and a lot of ways, but they're different in a pretty significant way, which is they have this groundswell of of free developer accounts and they have the outgrow has Ah. This group of self self service basically essentially month to month credit card customers.
Which is revenue, but it's also more importantly, it's a potential upsell avenues. So they have Asa.
Oster business gets a lot of momentum from developers trying the product using it maybe in a hobby.
Beside project and then bringing it to work and they start with a project at work where it's.
On a month to month credit card and then all of a sudden a few quarters later, it's used a real customer facing initiative or an internal system. That's really important and then all of a sudden it's a upgraded to a material year long contract in terms of the way the metrics work that the 650 companies that were added to the to the customer count are.
All customers were a contract on the self service as we as you saw on the slides is.
Number one is a free developer accounts is the 40000 number that was mentioned separately as well in terms of the large customers that we brought we broke out the $100000 additional customers, which is a it is a very good we had a very good quarter in terms of large customer additions both from artist.
Standalone end and on the audio side and I think over time, what you'll see is is that the the trades in terms of the Siam opportunities getting big for us zero or the Siam opportunities getting big on the okta platform or the work force platform are similar there's a lot of starting to starting small and growing there some starting.
Big but the characteristics are generally similar in those businesses.
Brian I'll just add a couple of metrics for you. So obviously continued success with enterprise customers now as a combined occupancy we have over 2600 customers paying us over $100000 a year at the Standalone added 160 customers of over $100000 a year half of those were net new customers net new law.
To us that's the second highest total for a quarter ever after Q4 of last year, and obviously Q4 is always big yourself or big quarters. So you're really starting to see that momentum pick up already in the middle of this year at zero added 375 of those 100000 plus customers that they had to our overall 2600 number.
But you know we've been talking a lot obviously and for a for a good reason on this call about osteo metrics about okta metrics about Standalone about combined then there is a lot of really good Q2 wins that are you know global 2000, even fortune 100, Fortune 50, Collins aerospace as a new Siam customer.
Raytheon, which as you know, obviously fortune 50, Saab or Theres, a fortune 500 global automotive Tech leader Wyndham had a big upsell and Siam workflows. So there's a lot of these large customers that are either net new logos or buying a lot more and I think that's going on across the base and you're going to see that continue to accelerate in the quarters ahead.
Very helpful. Thank you.
Let's go to Adam Tindle Raymond James.
Perfect I wanted to ask on customer identity, maybe starting with with Todd and then a follow up for Brett.
Both businesses are showing healthy growth, but off a little bit ahead of okta customer identity someone I'm wondering if you could double click on the logistics of the sales integration I know Susan called yourself.
Self professed growth junkie. So some ideas that she has in place to push growth higher for the combined company and customer and Brett you talked about how the euro economic model is that a similar level to okta at its level of scale, which I think was a little bit of a positive surprise to a lot of us how.
How do we think about contribution margin from here and economics from here for off Zero you show those customer cohorts for okta should be zero customer cohorts look similar thank you.
The sales integration is I'll talk about it at a high level and then beyond that the reality is that we haven't done all the detailed planning and we haven't carved the territories and we have assign the accounts. So theres some stuff to be figured out we're really starting the planning process for next year in general and then plus the integration is the sales integration detailed planning is starting now so we have.
A lot more work to do at the detailed level and then bunch of communication internally and externally on that at a high level, it's about growth and it's about taking the the entire sales capacity of both organizations combining them together and making sure that all of that sales capacity to some degree can sell both all the products octopus I am off to work for us.
Zero sign them there'll be obviously, some specialization in some overlays to get the to make sure. The transition to this unified sales force works and that you get the right technical specialization because especially on the both both Siam products are require technical specialization and particularly on the house Aero side, It's it's a more.
Developers are facing product, which means it has different kind of technical requirement. So there'll be specialization there, but the main high level idea is more sales capacity more ability to take this big lead we have in this market and this market like I mentioned before is a $30 billion market and we're by far the biggest vendor in here, but our ACD is only like 330 million.
So this is a market that's happening before our eyes and we're gonna go capture it both from the go to market from the branding and positioning of us being the preeminent identity vendor from the execution on how we build the products going forward to make sure. We're continuing to advance our respective leads in a separate category in this respective categories and subcategories.
And then at the end of the day, we're all one identity cloud and we're going to make sure that all the products you buy from Okta are more valuable because you have other products going forward.
On a financial question first and foremost we're really excited about it obviously you can tell by our commentary today.
But the I think maybe the fundamental point is really around how we're going to run them. If we were running them as a separate entity, which as you've heard today, we're running as a product unit things are becoming integrated from a G&A perspective from a sales perspective, but if say, let's pretend that wasn't happening.
We would run it just like we ran off and back then we balanced growth and profitability.
<unk> seen that in the results for years, but since we are bringing everything together, having a product team having sales team pulled together and then G&A being put together now there won't be a relevant compare but if there was a situation. It would be run just like we did run ourselves back.
345 years ago, where we focused on growing the business, while also doing it from a well from expanding margins over time.
Okay, Let's go to Matt Hedberg with RBC.
Great. Thanks for taking my question, guys, I guess for Todd or Freddie.
A little bit of a follow on on workforce, but can you talk about why workforce identity trends have accelerated post COVID-19 and I guess, specifically, where some of the incremental things that are working for you.
Within the your GTK success on the workforce side.
Absolutely not thanks for the question. So obviously the three mega trends that we based the thesis of the company on are still very much there they're growing every day and are in the early innings everyone's still trying to adopt more cloud and hybrid I E. I'm going to have to figure out this digital transformation and the underpinnings of Zero Trust security are now prevalent I think what you're seeing is.
As organizations are also having to adapt to the pandemic environment, you're not sure if you're going back to work if you're staying at home. How that's working number one number two they have to retool their digital strategy and they have to figure out how to get this to work in a modern environment and third all they have to shift to dynamic work because they have to have an environment, where some folks might go into the office they might be at home they might be there.
Certain days and that's going to continue for you know for the foreseeable future, especially in large organizations.
And so when we think about the workforce products are as you said they are continuing to do very well, we're very happy to break them out obviously, 64% of our ACD growing 37% year over year and that's a big business. So we're very excited about that I think the existing products are going to continue to do very well for the years ahead for a number of reasons first of all.
All if you think about traditional enterprise identity management as it's been known for for the last 30 years. It's four employees contractors consultants that budget line item. That's been there for C. I know, it's always been historically about internal I T and so the vendors there the IBM Z Oracle the C. A R. S E.
Basically running maintenance streams and over time, you know as our business is not about forklift upgrade we show up we show customer success in short order, we come back we build the relationship they get to know US if you see it in a dollar based net retention quarter after quarter after quarter that continues as we do that we will then earn the right to turn around to be fortunate.
500, global 2000, and CIO since he doesn't say great now, let US show you the roadmap to rip and replace your Oracle or IBM over the next 24.36 months, we have very good examples of doing that time and time again now that template is really starting to work at G. S. I love that business as you can imagine because that's a lot of people. They can put to work as well and then finally.
In terms of rats, right, just getting reps to understand how this motion work people have been non traditional enterprise identity management the workforce off for 30 years, there's a lot of our sales reps out there who understand that emotion Todd mentioned that for Siam. There is a little more technical specificity because every specific situation is unique.
Some of them might be to be someone like b b to C. Some of them might have supply chain with workforce. We can really develop those stem cells. We can hire the reps. We can train them quickly we can give them the samples and they can get out there and sell something that they already know and understand and that the buyer has known how to buy for many many years and I think that's why when I look at workforce.
I'm very very excited about it I think the next three 510 years I'm just going to continue in that business to grow and they're going to do very very well. So we're very excited about the workforce side of the business.
Right.
Next up we have Ben Vaughan from Cleveland Research.
Thanks, everyone I appreciate you taking the question.
A few specific items I wanted to address with customer identity.
First.
Could you talk about how much of that you're seeing.
The DIY market on the customer identity side, how much of that do you think is up for grabs right now and how do you think that develops over time.
Second piece is how would you guys characterize the sales cycle or the duration of the sales process for Siam versus workforce.
And then the last is.
With the combination of off zero.
How do you think that's influenced pipeline was there incremental urgency because now there's this best of breed school or was it always.
Is that a tipping point and you're getting there a little bit faster just any thoughts on that would be helpful. Thank you.
Good good questions that on the last question about the the pipeline influence I think that mostly on the off zero pipeline I think that just having a.
Just being public right now theyre public with the merger with Okta that positively impact their pipeline just like I think we saw when we went public our pipeline was positively impact. There's also just the the name recognition in the because we think what happens in a lot of these and this is your to your question about the sales cycle what happens in a lot of these oh zero.
Led deals is that there that it's a bottoms up things. So the developers start using the products I mentioned the free accounts and then the self service accounts they get built into the services. The company is building and then all of a sudden it gets enough usage and enough momentum in the company that.
Someone has to write a substantial check and that's executive CIO, Chief Digital Officer, a chief product officer, and I think that's it.
At that level as great as the API is arent as great as the capabilities and the documentation as it helps to have a.
Our scaled vendor behind it it helps to look at an organization and say Oh. Yeah. This is a $1 billion billion plus dollar of your company growing very quickly. This. These people are the are the leaders and I didn't even know just customer had anybody workforce identity that bring some waiting some gravity. So its helped positively the zeros.
Zeros outgrew.
Zero sales cycle, and I think that on the I forget what the first question was you asked what was the first part.
Alright.
So much of that customer identity market, it's still up for grabs yeah, sorry of crowd because of kind of how much of that is up for grabs yeah. I think I was just looking at this I was every quarter I do Ah Ah Ah.
Spent some time really drilling into our competitive dashboards and look at the win rates across the board against competitors and see what's going on and probably the one of the interesting things that stuck out to me is that as the organization. We're doing much better in terms of win rates against do it yourself. So we track.
Win rates, when we quote unquote lose because they decided to build it themselves and so that that win rate has increased a lot for us and I think it's what's happening is that the market is learning that you don't have to build it yourself I think part of that is just an efficiency story you'd rather spend your time building your customer facing solution.
Differentiated value versus the plumbing of identity, but part of it's a security story to everyone hears about the the hacks and the breaches and they don't want to build a customer facing app that gets that gets hacked.
Especially on the Okta Siam side, a big part of the driver on the sales cycles as we could build it ourselves but it's.
Once you have a complex password reset flow and you have you have SMS confirmation and you have some Jackie and I don't want to allow the password reset with a stall in cell phone. Then you start to think the security risk is is a big pressing need to bring it up a solution for the customer identity versus just the rois are not.
Spend the developer time on it.
Yeah.
A couple of minutes left let's go to Sterling Auty at Jpmorgan, Yeah. Thanks, Hi, guys I agree with you additional disclosure very helpful, but I want to make sure. We connect the dots from the original cause I think originally the target was $200 million of RR exiting the year and I just want to make sure we clarify because I've heard people.
Talk about that in different ways, including the way it was characterized by one of the questions earlier.
And if that's the case does that actually mean, you need to see acceleration in that at zero performance to get to that number by the end of the year.
I'll I'll take that Sterling, so it's $200 million and air are exiting fiscal year 'twenty. Two so you are correct.
And she answered your second question no, we do not need to see acceleration.
As we exit the year or the back half of the year, because not zero is well underway and that is what's giving us the confidence one of the reasons to giving us the confidence and a strong revenue base and we delivered today, the $1 million to $5 million up 50% at the top end of the guidance.
All right Great and one quick one for you you mentioned that sounds integration you're going through the detailed planning now. This is the point, where you would get that uncertainty if you're a salesperson for ards near our Aqua I'm wondering what's going to happen to your territory. Your job et cetera. What are you doing to make sure that you retain the people that really want.
To go forward with the combined organization between now and when you communicate the final details.
Well one of the things we're not doing is we're not announcing new territories on the earnings call.
Well that's good that's a good starting point.
The I think that the main thing is as we as we manage the company in general there's a ton of openness and transparency internally as we walked through this integration process. We've worked really hard to be open about it even when we didn't have all the answers and I think that helps a lot, but I think the high order thing is that people see the opportunity.
And particularly with salespeople they want to be able to.
Their hard work and their talent as a salesperson in transit in the results and what they see out there as they see the opportunity they see a scale vendor. They see all these people realize and they don't need to build the customer a day themselves.
That's compelling for them on the okta sides I see more products yourself. They see you know.
Not just one time platform, but Tucson and platforms that have distinct use cases, and a way to deliver more by the customer. So it's an important point you bring up and those are some of the things we're thinking about as we as we go forward.
Makes sense. Thank you.
Hey, Adam Borg with Stifel.
Hey, guys and thanks for just taking the question.
Just on the international front and I apologize if I missed this but international outlets you saw some really strong growth in parking at zero I guess two parts one could you share what the organic international growth watch process and two just given the larger footprint that azzaro has internationally any early learnings that you can continue to build out you are our overall go to market internationally. Thanks again.
I'll take the first part of your question around organic no. We did not break it out, but obviously very strong results in the quarter growing 21% of total revenue international but how do we broken it out you would have seen a gentle increase and up into the right throughout the stand alone as we continue to have success internationally.
And I'll turn it over to Ted again ready to talk about that the rest of the question, Yeah, and that's saying something because that's a tough compare right to grow international you ought to be growing at faster than the overall business, which is doing very well regarding the osteo contribution international they have a distinct advantage, which is certainly something we've been working on so many other organizations have.
But they grew up natively as a distributor organization. So when you talk about remote work, it's baked in the DNA of the company I mean, they had they have amazing employees in all sorts of countries some of which were in some way or not and and so I think that just having that as an additional driver inside the company really helps us think about international first.
It's one thing for us to talk about it it's another thing for us to get on airplanes that go support those territories internationally and when when we can obviously for health reasons. It's another way and you just added 800 people 900 people to the company and you added the big a momentum shift there where that's how they think about things. They are distributed by nature. They think about communication international.
Sleep after from the beginning and I think that's been really helpful. It's a good reminder to get accelerated a lot of things. We can do that that being said stand alone Oxy is doing really well I am very pleased with the growth that we've seen not only in terms of the numbers, obviously and that customer accounts and the importance of the large customers, we're really making some inroads into some really important industries.
With some large logos, which is going well, but also leadership, we just have better and better people joining the company every single day, not only the senior leadership level, but at management level I think that's going to obviously continue I think it will accelerate when we all have a chance to get back on an airplane and go out there and help them.
Person as well, but yeah. We are very bullish on international I think it's a huge opportunity again very happy with 21 per sandwiches, 103% year over year growth of the combined company, but I think a lot more that we can do there obviously the opportunity for our independent identity as a primary cloud. It's global it's every company every G. O every industry every size of the company.
Public sector private sector. So you know, it's obviously hard to get it to 50% given where we started and how fast that business is gone, but there's no reason that it shouldn't be a bigger contributor to the business and it will be going forward.
Great. Thanks again.
Right, we're going to over time, what's trying to do some rapid fire in the last three questions. We'll go to Josh jump on that well.
Josh we lost her.
Let's go to Keith Bachman of BMO.
Yeah. Thank you I'll just ask one question could you talk about what you see as the growth of the net retention rate and what I mean by that is you've talked a lot about upsell opportunities between asaro.
And corn Okta and then over time you also Friday you in particular talked about the building pipeline of the two new Iga and PMA. If you could just talk about how investors should think about the net retention rate and.
And I'm not referring to the next quarter, but over the next year does that correspondingly move up because of the addition of cross sell Asa Euro and then some of the new products coming out at the beginning of next year. Thank you I think potentially I think the I think in the near term it'll be kind of in the range you've seen it basically depending on how much upsell were doing that corner quarter.
<unk> I think going forward one of the interesting potential changes is that the on the developer focus I am the Asa us I am there is more of this bottoms up groundswell than the Big Upsell comes later, just because of the nature of how the product is adopted so you might see that would be a positive that just that element would be a positive driver.
For Upsells and then as you mentioned plus we also have the potential of just more cross sell up sell because of the different platforms and different products.
Okay.
Alright, and last but not least Michael tourists of Keybanc.
Hey, guys.
Right and and Todd problem.
Great to see the organic acceleration, thanks for breaking that out and I know, it's a game we have to play but if you if you back into what might've been expectations for for Ross here this quarter that stood out versus the upside that you got in Austria. It seems as if the you know the beat on our core business was maybe a little less than historical and anything that might have been a headwind.
Right.
I would actually Syria, and a very strong quarter. I think you can look at any number of the metrics from a standalone perspective, CRM pure growing 43% at over $1 billion in D. C V. That's pretty.
Pretty strong drugs when you think about the scale that it's operating at and you can look at the net retention results. We just talked about 122% up from 120.
Look at any of the number of the customer count number is greater than a hurricane accelerating in terms of the growth on the number of 100 G customers on the off the Standalone basis. So.
From my perspective, it really felt like it was a strong quarter.
Regardless of which metric you look at.
Thanks, Brett.
Yeah.
Alright, guys, we're going to have to call. It there are eight just as a reminder, we're gonna be attending two virtual conferences. This quarter. The Piper Sandler Conference on September 14th and the Citi Global Conference on September 15th and as you heard we're also gonna be having our third annual showcase event, that's going to be on October 13th and in addition to the content.
Also be hosting virtual Q&A session with the investor community as well so details on that to follow.
That's it for today, if you have any follow up questions you can email investor at Okta dotcom, thanks for joining us.
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