Q1 2023 Okta Inc Earnings Call
Proved to be the best solution finally trip actions and all in one travel corporate card and expense management Company was another Great example of a new officer a win with an existing okta customer trip actions has leveraged okta workforce products since 2019 to secure access to its employees and enhance its provisioning capabilities.
Now zero scalability reliability and ease of deployment will support trip actions as it prepares for continue growth, while freeing up developers to focus on application modernization last month, we celebrated the one year anniversary of joining forces with US zero, we've made a lot of progress as a combined company with many part.
Of the back office functions integrated over the course of FY 'twenty. Two we started the first quarter of this year with a combination of the go to market organizations. Together, we are addressing the massive customer identity market in a way that no other vendor or in house I T team can.
On the product front, we're excited for the North American launch of Okta identity governance later this quarter. After a successful early access program customers are seeking a cloud first approach to their identity governance needs, an okta identity governance brings modern iga to the market.
Part of how we build demand and pipeline is through in person customer engagement. Our annual octane user conference is always a fantastic touch point for existing customers and prospects. This year, we're augmenting octane with a series of smaller regional events. Just a few weeks ago. We hosted the first off the city tour event in New York City I can't Overstate how.
How energizing it has to be physically in front of customers again, and the team could really feel the excitement in the room, there were hundreds of current and potential customers and tenants and not surprisingly the common theme was that every company needs an identity first strategy that solves for today and build for tomorrow, we'll be hosting more customer events across the U S Europe and <unk>.
APAC as we lead up to octane in early November speaking of customer conversations Okta was the only vendor recognized as an overall access management customers choice and our customers choice across all categories evaluated and a recent gartner peer insights voice of the customer report. This distinction is based on.
Customer reviews of both Okta and <unk> zero product offerings. This is the fourth time in a row that okta has been recognized as our customers choice in this report.
To wrap things up it's going to be an exciting year, we're best positioned to execute against a massive $80 billion addressable market driven by the three mega trends of the deployment of cloud and hybrid it digital.
Automation projects and the adoption of Zero Trust security our win rates remain very strong okta has become even more strategic to organizations and where the recognized leader in the market now here's Brett to walk you through more of the Q1 financial details and outlook for FY 'twenty three.
Thanks, Scott and thank you everyone for joining us today I'll start with some of the results for the first quarter as well as provide our business outlook.
Total revenue for the first quarter accelerated to 65% driven by a 66% increase in subscription revenue.
Subscription revenue represented 96% of our total revenue.
On and off the Standalone basis total revenue grew 39% off zero revenue net of $1 million in recognized purchase accounting adjustments was $66 million. We have reached the one year anniversary of the acquisition and as a reminder, we will not be breaking out our zero contributions going forward.
<unk> or backlog, which for US is contracted subscription revenue both billed and Unbilled that has not yet been recognized grew 43% to $2 $71 billion current RP O, which represents subscription revenue we expect to recognize over the next 12 months experienced growth of 57% to one.
For $1 billion.
The growth in current IPO was driven by strength across new and existing customers for both orca and often zero.
We view current RP O is the better metric to assess our quarterly performance relative to calculated billings, which as we've known it can be noisy due to fluctuations in invoice timing and duration.
Calculated billings grew 52% when adjusted for the billings process improvements and current calculated billings grew 54%.
<unk> as reported grew 7% and current calculated billings grew 8%.
It's been one year since we adopted the billings process improvements that were implemented in Q1 of last year. We are looking forward to consistent year over year comparisons going forward.
Turning to retention our dollar based net retention rate for the trailing 12 month period remains strong at 123%. This was driven by a strong upsell motion, we are seeing with our existing customers across both our debt and often zero and they expand on both products and users.
Consistent with prior quarters gross retention rates remain very healthy and reflect the value of our products to our customers.
As always the net retention rate may fluctuate from quarter to quarter as the mix of new business renewals and Upsells fluctuate.
Before turning to expense items and profitability I pointed out that I will be discussing non-GAAP results going forward.
Now looking at operating expenses total operating expenses grew 68% the growth in expenses is primarily attributable to the inclusion of office zero total head count now stands at over 5300 employees up 75% year over year.
Moving to cash flow free cash flow was $11 million, which yielded a two 7% free cash flow margin.
We ended the fourth quarter with a strong balance sheet anchored by $2 $5 billion in cash cash equivalents and short term investments now.
Now, let's get into our financial outlook for the second quarter of FY 'twenty three we expect total revenue of $428 million to $430 million representing growth of 36%.
We expect current RVO, a 1.4 dollars 8 billion.
To $149 billion.
Representing growth of 35% to 36% non-GAAP operating loss of $44 million to $43 million and non-GAAP net loss per share of 32 to 31, assuming weighted average shares outstanding of approximately $156 million.
For the full year FY 'twenty three we are raising our revenue outlook and now expect total revenue of 180 $5 billion to $1 815 billion.
Representing growth of 39% to 40% <unk>.
Additionally, we expect non-GAAP operating loss of $167 million to $162 million and non-GAAP net loss per share of $1 14 to $1 <unk> 11, assuming weighted average shares outstanding of approximately $157 million.
Lastly, I want to provide a few comments to help with modeling okta to help with your transition to modeling on current Rps will continue providing a full year billings outlook for FY 'twenty three before discontinuing any reference to billings in FY 'twenty four.
We continue to expect billings for FY 'twenty three to be approximately $2. One 8 billion to $2, one 9 billion representing growth of 35% to 36% when viewed on a like for like basis or 27% on an as reported basis.
From a seasonality perspective, we anticipate billings in the second half of the year to represent roughly 60% of the full year total, which is consistent with normal seasonality and our comments last quarter.
And finally, we continue to expect free cash flow margin for the year to be a few points lower than last year.
Quarterly free cash flow margin to follow pre COVID-19 seasonal patterns with Q4 being the strongest.
Our long term financial goals anchor on at least $4 billion of revenue in FY 'twenty six with organic growth of at least 35% each year and 20% free cash flow margin in FY 'twenty six to achieve these targets. We will continue to scale the company from a people and processes standpoint, including investing in <unk>.
Across all areas of the company as well as in systems to prepare us for the next phase of growth.
For many years, we have looked at growth and profitability through the rule of 40 labs, we continue to do so and expect to stay over 40 for the fiscal year.
Have demonstrated the powerful leverage we have in our model and we are committed to improving profitability and free cash flow margin of each year on our way to the FY 'twenty six goal.
To wrap things up we had a solid quarter and look forward to building on our progress with our strong foundation and market leadership position. We plan to further capitalize on the $80 billion market opportunity in front of US we have a powerful financial model and expect to benefit from substantial operating leverage over time.
With that I'll turn it back over to Dave for Q&A, Dave.
Thanks, Brent I see that there are already quite a few hands raised and I'll take them in order.
In the interest of time, please limit yourself to one question. So that we can get to everybody and Youre certainly welcome to queue back up with additional questions. So firsthand raise I saw was fedorov from Morgan Stanley .
Alright, Thank you for taking my question.
Todd to the best of your knowledge.
Do you know of any.
Sales cycles that were perhaps elongated or perhaps any prospects that were in the pipeline that may have withdrawn their consideration of okta. After the incident back in March.
We've looked and we can't see any quantifiable impact.
<unk> spent a good amount of time myself looking through.
Opportunity by opportunity and Salesforce, because as you know I I talked over 400 customers after the security issue.
And the management team talked to over 1000 customers. So we really heard the concerns firsthand and responding to them with our detailed action plan and so I was curious as we did our analysis like I wanted to see for myself on the ground. When it was happening so I looked through hundreds and hundreds of opportunities myself looked at the comments looked at things that were pushed looked at the reasons why they are.
I pushed you on the normal course of business of course things gets things get pushed things get pulled in but I wanted to see for myself and I was really surprised that the lack of anything anything about lapses impacting the business.
But I do think it was a significant issue for us as you know.
In terms of impacting our panel focused on as a management team level, there was significant and.
I'd never say something positive.
Like this is positive for the company, but if you do want to take a positive view on it the conversations are really good and I think that our customers got to see firsthand our focus on them and are focused on how we're 100% committed to making them successful and when we have a mistake when we do something we could when there's something we can do better we listen to them and we.
Take action and we build that long term partnership that they crave and one thing. This is made really clear is that okta as critical infrastructure and identity as critical infrastructure and I think customers want to see a company that will come through under pressure and have their back under pressure and act in their interest under pressure I think that's what they saw so.
As we start to put it in the rearview mirror I feel I feel really really I feel pride in how it responded in the fact that we're building a stronger company because of it.
Thank you Gregg next question comes from Adam Tindle Raymond James.
Okay. Thanks, Dave, but I just wanted to ask you and when you were talking about the fiscal 'twenty six targets you talked about continuing to invest to get there. Obviously in this market. There's been a lot more focus on profitability lately and I'm just wondering about the balance between those two and maybe more specifically do you think Q1 was sort of a peak loss.
And we're going to see continuous improvement from here I know, there's been fits and starts with profitability, but trying to get a sense of whether the worst is kind of behind us why or why not thank you.
Rob and Adam I'll jump in and I'll jump in first Adam and then Bracken Bracken give his feelings as well our answer to answer your question for Mr Circuit.
Obviously, I've talked to a lot of investors and I hear the questions that are about growth and profitability and I think about this pretty simply from a high level.
We have a massive market opportunity I know you hear us say that a lot, but it truly is a it's.
A transformative market opportunity the world needs identity with more cloud and more remote work and more focus on security more digital transformation. They need an identity platform and we're very focused on building out a data platform and invest in making the right investments to bring our vision to fruition. We also know that to run a good company you have to run.
It efficiently.
When I look at the trade offs between growth and profitability I feel like we've always had a reasonable trade off between investing for the future, but doing so in a way that was the investments where.
We made sure the investments paid back.
Not running around making investments that are prudent and we continue to operate that way and I feel like it would be shortsighted to change course dramatically on that.
When we saw this massive opportunity in front of us.
I'll just add to that.
Thank you Adam for the question look I mean, we remain confident in the model and just what Todd was saying.
We've been balancing rule of 40 since the beginning of this company and we will continue to do so in the future so balancing that growth and profitability over time as we go into this massive market opportunity in front of us.
As far as Mark specifically to your question around the seasonality of the free cash flow in FY 'twenty. Three if you look at pre COVID-19 into free cash flow we did.
Traditionally have a dip in free cash flow margin in Q2, So we do expect that to drop kind of in that mid to.
High mid to high negative free cash flow margin percent in.
In Q2, but then we will exit the year with the highest.
Free cash flow margin in Q4, which will then get us to that a few points lower than FY 'twenty three of FY 'twenty two free cash flow margin software that gives you a little more information about how we're seeing that traditional kind of seasonality return in our business and the primary reason for that is if you think about.
The way, we bill our customers the collections number in Q2 is traditionally the lowest because we collect a lot of money in Q Q1 from the Q4 strength in bookings in Q1 has always been seasonally our lowest sales quarter and we're continuing to see that this year, whereas the lowest seasonal amounts of the year and so we build back up as we go through the year.
And so ultimately that's why you've seen a little bit of a dip in free cash flow margin in FY two more in Q2, just like we've seen in prior years prior to Covid.
And Brett can you clarify what you said around mid to mid to single high single digits mid to high single digit sorry, if I Miss a single digits in terms of free cash flow margin right.
Alright next up we have Jonathan Ho from William Blair.
Hi, good afternoon.
I just wanted to I guess, maybe to start out with trying to understand you know I guess yourself integration process has that gone and what can you give us a sense of maybe some of the incremental opportunities that have come out of that thank you.
Yeah, Hi, Jonathan how are you it's nice to see.
We just celebrated the one year anniversary of joining forces with our zero, which is great and as we said in the past. The key here is keeping the momentum going in both okta and off zero, both businesses were doing very well in and that's the continued focus.
We've made a lot of progress as a combined company in many parts of the back office functions, where integrated over the course of FY 'twenty, two which is great and we started Q1 with the combination of go to combining the go to market organizations I think.
There's no real finish line when it comes to integrations, but I think we're really focused on addressing this massive customer data and access management market in a way that frankly, no. Other vendor can in terms of independence and neutrality, we have the only true modern public cloud solutions and certainly no in house. It can so I think we've made great progress.
There's still a little bit to do but we're in good shape.
Next question from Eric Heath.
At Keybanc.
Great. Thank you just first one curious if there's any update around how you're considering the contribution of Iga and our Pam and your guidance I believe last quarter, you said it wasn't been factored in.
Yes.
Go ahead.
Sorry right.
Go ahead Jay.
Iga and Pam are areas, we've talked about before.
There arent in our guidance, we're not we're not counting on material contribution.
And the guidance, we provided there really longer term players and they are very important in the longer term because we're building. This primary card for identity and what the market wants what the buyers want what the customers want is they want one integrated access management platform that will do access management across all of the resources apps on premise apps cloud apps servers privileged.
Accounts and also do the governance reporting an attestation.
That access on those access Oh, not access management. So that's a platform we're building.
And the as I mentioned in the prepared comments the Iga product is going to be launched in North America. This quarter. We're very excited about that it's had great success in the early access program, which proves out not that it's just work not only that it's working but also their customers want to buy it and find it valuable. So that's very very very validating on the Pam side, we've made the decision to add a few.
More features to our advanced server access management product and then that then that pushes out the release of the Pam the initial Pam products, a couple of quarters and we'll have more updates for you on that through later on in the year, but we're excited about both areas in the whole converged platform story is really really coming together and we're excited about that.
Next let's go to great Paula <unk>.
Okay, great. Thanks for.
Thanks for taking the question and congratulations on the numbers is good the same come through.
So so yeah, Todd it sounds like you pulled into a lot more customer conversations this quarter than normal.
So maybe two related questions.
If it was an existing customer.
How long does the conversation get elevated to a C level executive versus sort of the typical security team that you'd be talking with and then if it was a new customer did you see them, taking any extra steps through the deal process was there like an extra conversation or just something extra that happened to get them over the finish line.
Yeah, Thanks, Greg it's nice to see the the.
My customer conversations I talked to a lot of customers in general there were a bunch of very specific security issue conversations.
What we did as a management team is.
This is a big deal for customers. So we got on zoom with them and had hundreds and hundreds of meetings to talk to them about what happened reassure them that we're listening to their concerns we are addressing their concerns.
The published action report that we're executing on it that takes into account all of those concerns. So we wanted to be very proactive about it and do a lot of outreach a lot of conversations and.
Reassure them that we had things under control.
During those conversations I was.
I said before that it's never want to say Theres, a positive out of something like this but the level of conversations and the people. We were engaged with in these customers and prospective customers was incredibly senior and the conversations after some initial communication and feedback became very strategic along the lines of.
We're we're counting on you to be the to be the backbone of our entire technological infrastructure.
Things like this if it was a very senior people both on the traditionally where he has been really strong having conversations on the it.
It side and on the security side.
We got into new areas like Executive management board level conversations.
Our risk and compliance areas that traditionally we haven't talked to as much.
So the conversations were.
We're more productive in that sense and I think we did a good job of instilling confidence because.
Customers do want a partner and they want a long term partner and they know that this is a critical area and I think we were able to show them that we were that partner.
Yeah, I would just add look identity and security.
If they were not before have certainly become even more so top priorities for C level executives and board members. The future of the enterprise is going to be more software enabled not less so and identity of the core of that and as Todd said a lot of these large organizations are literally saying I'm looking for a foundational partner around identity.
To build out my infrastructure just yesterday, we had the global CIO of one of the major branches of the <unk> in our office with his entire executive team talking to us for the entire day about the future of identity and then what it was going to look like and I mean these are just the kinds of conversations frankly that regardless of what happened in Q1 with that security event or not we were.
Not having this conversation six months to 12 months ago, and I think it pretends very well for the future.
Understood. Okay. Thank you very much.
Hey, let's go to Gregg Moskowitz Mizuho.
Alright, thanks very much for taking the question. So you added 800, net new customers this quarter, which given the security and today and was better than most investors were expecting two questions. Here first can you provide some color on what the linearity of new paid customers looked like this quarter and then second so Brad I know you said that gross renewal.
Rates were very healthy, but just to be clear on this point was there any degradation in Q1 as a result of the incident. Thank you.
No degradation.
From from the incident in fact, we are near where near all time highs at this point on gross retention, which frankly just.
Sure, it's ready and Todd has been talking about for the first part of this call which is how important we are to our customers right. We're critical to their success.
As far as linearity in the quarter it looked like any other quarter.
Our Q1.
Linearity was.
Like a normal Q1 linearity so we've.
Like we said, we don't see any real quantitative effects from the security incident believe us we've looked.
And obviously, we're going to continue to look because we're being thoughtful about this and.
Making sure that we're keeping eye on this because this has been an important issue for us.
Great. Thank you.
And next we'll go to Josh telling them that Wolf research.
Hey, guys. Thanks for taking my question.
C. R. P. O I believe came in kind of ahead of the guidance you gave last quarter, but billings is sort of in that range.
So how should we think about your ability to outperformance on both of these metrics for <unk> and kind of for the rest of the year.
Yes, I can take that question.
I mean, we had a good quarter billions, 52% calculated billings growth current was current calculated billings growth is 54% in both of those are adjusted for the billions process changed.
But look we've talked to you for several quarters in a row and kind of why we're alluding to shifting off of billing.
Billings to current IPO.
In FY 'twenty four as we just frankly believe billings has got some noise in it in sometimes.
It helps the growth rate, sometimes it makes the growth rate have a headwind to it and I look at it in kind of like two different buckets I look as.
Kind of like operational run the business type issues that can influence the growth rate up or down.
I think we've talked about in the past majority invoice timing dynamics that we've obviously chatted about over the last several quarters.
Invoice duration and then the billings process changes or operational things that are going on that we're making decisions at the time that we believe are in the best interest of the long term health of the business, but they can influence the metric up or down and in kind of an incorrect way and so that's why we kind.
Kind of shifted us more towards cornacchia, that's one bucket of kind of like one umbrella of areas that we think may calculate billings is really just not the best metric and then the second one which I would argue it's actually meeting.
More important is if you think about the correlation between billings and future subscription revenue growth. It is much weaker than the correlation between current and future subscription revenue and so that's why we've been talking more about current RPI. These days like the current IPO guidance.
35% to 36% $1 48 to $1 $49 billion billion.
Strong growth in the business.
But one thing I do want to point out between the growth rates from Q1 to Q2 in a lot of our metrics. We've got the annualized nation of odds zero. So obviously, 57% current IPO in Q1.
Sure.
For the full company and then 35% to 36% in Q2 nothing's going on other than the fact that Australia is not in the Q1 compare period and is in the Q2 compare periods, we're going to see that also in billings were going to see it in the customer count numbers. So I just wanted to make sure everybody is aware that that's really the reasons for the for the change and like.
I said, we're going to continue to push more toward current RPI like I said earlier in the call, we're definitely going to get off of billings in FY 'twenty, four and really just focus on training our field because ultimately we feel it is a better metric for all of us to discuss because of the higher correlation and just a better metric to understand the health of our business is going.
Thanks for the color.
Next we'll go to Keith Bachman of BMO.
Great. Thank you very much I wanted to ask a question about also the investment horizons and break it into two parts is a as you think about some of the investments youre, making this year and longer term profile, how much is the competitive landscape.
Is influencing that and what I mean by that is.
Microsoft is a formidable player you have another pure plays and yet.
You're leaving yourself a lot of opportunities to shape investments through FY 'twenty six before generating meaningful cash flow. So just trying to understand how much the competitive nature of the segment is influencing and then be breadth in particular I wanted to try. This question again, you are guiding to call. It a 160.
5 million op loss. This year can you at least comment on your journey to 'twenty six.
Does the operating loss improved as you March towards 26.
Yes, I'll take the first part I think it's really important question. The strategy is very very clear. We are have been successful and going forward, we won't be successful because identity has become a critical critical platform in the modern 19 environment. If you want to adopt cloud if you want to migrate to the pod. If you want to support remote work if you want to support multiple.
Devices, if you want to do it in a secure way if you want to build a great customer facing solutions, you need identity and you need to do any platform and so the strategy is to build that platform, whether it's across both markets and both markets are key you can't have D. D. Facto primary cloud identity platform only being in workforce are only being in customer identity you have to be in.
You have to dominate both so our strategy is to do to stop on the workforce side, we're extending our lead with capabilities throughout the platform, we've talked a little bit about Pam and Iga, which are important in the longer term and the customer identity side. It's we have to have the best identity platform for developers and we have to have the best I didn't he platform Barr nunn across all the competitors.
So that's what we're focused on if you look at our top three and the investment required to do that is an investment that's going to help us win the customer identity market, which is our top company priority for this year, it's going to help establish this concept and this idea that identity is one of these primary causes.
Enterprises and.
We're going to talk to every CIO every CEO and every board of directors and a few years. Once we are successful then theyre going to agree that identity is a critical investment area and okta has the number one meeting identity platform across all these dimensions. So that's what we're shooting for and that's what when we say we're going to we're going to grow and we're going to invest.
Both products, it's both go to market to two to extend our lead and establish this concept of this primary identity cloud for many years in the future.
Okay, Great and then Brett any comments from yeah sure happy to handle that question. So when we think about the future obviously.
And to do what we've done in the past, which is rule of 40 right. We've been balancing and forever, we're going to continue to balance that in the future. So obviously free cash flow as a part of that formula, but when you think about non-GAAP operating loss, obviously non-GAAP operating loss will travel with that free cash flow improvement. When you. It will be non-GAAP operating profit I can't exactly comment on that.
But in other words, you should see the two travel together as we improved free cash flow margin youre going to see an improvement in operating loss and eventually.
Into operating profit at some point in the future.
Okay, Thanks, Brad and Todd.
Yeah.
And next we'll go to Trevor Walton JMP.
Great. Thanks for taking my questions Todd I wanted to dig in on some of your comments around the longer term platform view in the context of Iga and Pam.
So it seems like customers, especially on the larger side or what's kind of maintaining their iga to roll their pan tool in their access tool and Thats, just theyre kind of comfort level and understand your building, obviously, your Iga and Pam to kind of help expand their view of that but but outside of you just relation those products and that I'm coming to you what do you feel like.
Is there consolidation kind of drivers on there at a cost thing is it ease of use what is it that's going to make them kind of finally, regardless of when gea is here of make them kind of make that play.
Yeah, I think it's a really good question and we think about this a lot from the customer lens into the market and then of course all of us as a vendor from our lens into the customers' world and Theres a couple of realities about the market for privileged access and governance, specifically and access management used to be more like this but we've changed it in that market there aren't a lot of good solutions.
And if you talk to these customers even customers that have adopted Iga they haven't adopted it completely or it's in pockets or it's not covering all the resources and workloads that they wanted to cover and no one loves it and similarly with privilege access it's worked well in our legacy environment and so I would say that.
The majority of the market doesn't have a solution.
And what it's going to take to get that get those customers to be buyers is to build a great product and that's what we're focused on so I wouldn't think about this is we're gonna go replace a bunch of installed Iga are Pam tools I would think about this as like the next generation of technology is going to need. These solutions that we're going to have a product for that market.
In terms of Ah and in terms of what.
What specifically would drive them to consolidate their existing solutions.
I would put out there that in 10 years, they probably will keep those solutions.
And people don't change very often people don't people are pretty reticent to change and it's fine. If some of these legacy solutions are out there for years and years and years and years, but we're focused on is the next generation the new projects the new initiatives that.
Okay.
Need a better product for the market.
Yeah.
Great. Thanks.
Next we'll go to Adam Borg at Stifel.
Hey, guys. Thanks, much for taking the question maybe just a Freddie so can you talk a little bit about the D O D.
Conversations we had yesterday, maybe just a broader update on the federal vertical public sector more broadly and kind of how you think about that ramp this year. Thanks again.
Yeah. Thanks, Adam for the question and happy to talk about it you know the I'm glad that you brought it up the federal government opportunity is it is a massive one for us.
And I'll give you some specific thoughts and then I'll give you also some <unk>.
Details that I think are pretty relevant most recently first of all we've talked about for a while that you know part of our big strategic plan. There is a few of them that we're focused on right now for this year and going into next year on customer data management around international we're already in a lot of the places we need to be so we just need to continue to invest in the right places and then in federal.
One for US first of all federal was the biggest deal of our quarter. This year this quarter in terms of a R. R.
And that Federal Division was specifically focused on customer my day and access management and you really see that the government is thinking about how they can adopt more of these modern solutions.
For a lot of their forward thinking initiatives.
You know we've been working for a long time on bolstering up our federal capabilities and you know we've got a.
We've been fed ramp medium moderate for some time, we've got fed ramp high and I. All four that are scheduled for this summer.
Got a fantastic federal team that's been building up with very very good results.
Got a government summit that's happening later on this month in a in Washington D C and a tailwind in the federal space are the same ones that we've been talking about overall in the business first of all the federal government is adopting more of cloud technology and they want an integrated into their existing ITM for infrastructure number two they are going through <unk>.
Old transformation, just like everyone else and so they're really focused on how they can provide modern solutions get them up and running quickly and obviously interacting with their third parties and then third of all you want to talk about zero Trust. It's everything from the binding administration to a lot of the other initiatives that you see coming out of the different departments around mandating multifactor authentication.
And just mandating better hygiene when it comes to the federal government, which for US is great. So it is a huge opportunity. It's one we've been investing and intelligently over the last number of years I think the results. This year are going to be good and they're gonna be a theyre going to lead us really well into the coming years as well so it's a big opportunity for us and something we're really focused on.
Yes.
Awesome. Thanks again.
Next up Rudy accustomed here at D. A davidson.
Great. Thanks.
So I mean look Todd you've been clear.
As far with your comments that you didn't see any material impact.
From the breach in Q1, but I guess, if we look at the guidance revision you took the full year revenue guide up by $25 million that you added 26 million beat in Q1, it's really taken down $1 million ex that so whereas you know typically we would expect it to be raised so what is the increased level of conservatism in there and is it around that.
Possibly having potential impacts or is it more of a increased conservatism from the macro environment, what what's the increased level of seemingly conservatism in the revised guidance. Yes. So we did raise our guide by $25 million I think we did beat our guidance by 25 million. So.
$11 million here or there doesn't really matter, but the bottom line is we've got a strong guide little over $1 $8 billion growing 40% at the top end.
Pretty solid growth given how big we are.
But I think the thing when we think about the guidance for the full fiscal year is actually reflecting on Q1 and one of the milestones. We had in Q1, which is the sales integration right and any integration or acquisition and integration of two companies. The sales integration is one of the biggest milestones there are and for this.
Integration between Australia, and after two great sales teams bring being brought together and it's no different ideas.
A great milestone for US was a big one for us and we're pleased with the progress thus far.
But obviously, we're being thoughtful and prudent around the rate and pace of the continued integration because.
Integration, there's new and data integration right, we're always continuing to make progress and so when we think about the revenue guidance, we're just being thoughtful from that perspective.
We will update you obviously as we progress through FY 'twenty three on on how things are going in and give you guys updates on revenue and CRP O.
And obviously billings for the balance of this year.
Okay next up we have Andy Nowinski at Wells Fargo.
Hi, This is Justin Donati on for Andy So thanks for taking our questions.
Just one quick one kind of.
Hi, <unk>.
An earlier question about competition micros.
Microsoft launched their new entrant product suite. This week. So can you just provide any more color on how okta is competing against Microsoft.
Yeah happy to do that.
Competitive environment, we're seeing is really hasnt changed in a number of years I know we seem to get this question every time, we chat and we kind of get the same answer that's the reality of what we're seeing and I think the world has oh.
More and more of the world is understanding how important identity is and how critical it is to all the things we talked about from technology adoption security customer.
Customer management and customer success, and it's really accelerated our it's benefiting from all of these accelerated trends and I think when we see competition. We see point players that don't have the breadth and scale or we see the big platforms and Microsoft as you mentioned is probably has the most focus of the big platforms.
They traditionally in the legacy World had the the <unk>.
Best identity franchise with active directory on premise and so they've tried to use that to force their way into cloud identity.
And when someone chooses between Microsoft and something like Okta, they're really making a choice between do they want independence and neutrality and do they want a technical choice with okta or do they want to be more roped into the and constrained into the Microsoft ecosystem and I think if you see.
All the product announcements not just the recent ones Microsoft makes theyre very very very.
Very centered on Microsoft technology, and it makes sense because you wouldn't you couldn't you wouldn't get promoted if you were the product manager working on their identity technology and you came up with a great new feature that connected customers to some non Microsoft technology. So there is a feedback loop into that platform that keeps that system more closed and more constrained than in it.
The feedback loop.
Our ecosystem that makes it connected to more things and more vendors want to play with us and will integrate to us more developers want to use us and so that's how we see the market really bifurcated in there and we think our strategy is right. We think our strategy to be the neutral player into connect everything and to have the best solutions across all of the other use cases, whether it's workforce.
<unk> privileged access Custer.
Customer identity access management, whether your developer centric, whether you're centric we have the best platform and that's what we're focused on building.
Great next time, we'll go to Brian Essex Goldman.
Great. Thank you. Thank you for taking the question maybe just one for me and I apologize I've been jumping around a couple of calls so that's a few of them nowhere is yeah, sorry, if I missed it but maybe just an update on Siam versus workforce. So maybe if we can split that between U S and international just to give us a sense.
Four.
How traction in particular assignment is dying.
In the current environment, particularly in Europe might have on the adoption of either one of those segments.
Yeah happy to talk about that Brian .
David This group last quarter on the specific break out between workforce and Siam, which if memory serves and Brett can correct me with 63% were at 437% Siam faster you go memory from 90 days ago. So.
So we'll be updating that as we go.
It is it is it is a large it is largely unchanged.
Revenue splits this quarter was 78% U S, 22% international but international grew 118% year over year, and I think that plays really well into exactly what I was talking about earlier with some of our key strategic pillars. One of those days International I'm you know, it's been a little bit more challenging obviously over the last 24 months given that we haven't really been able to travel internationally.
He said, we still had very successful office openings, both in Europe , expanding there with our Munich office opening, but also in Japan, and Singapore and elsewhere and those businesses are going very very well. So we're feeling like we're in all the right places now we just need to accentuate the investments that we've made in those geographies and I think that's going to start to play out very well we've hired some amazing leadership.
Take over those areas as well international for both Europe and Asia Pacific.
So I'm very optimistic there I think that the trends are again of what we're doing these are very very big market. So it's early days I mean, we're again very happy with revenue growth of 65% year over year to $415 million, a quarter and the incremental fiscal year guidance to $1 8 billion plus for the year, but these are massive markets.
To have durable growth for the next three 510 years and people adopting cloud technology people, putting in place more digital technology for their customers their partners their vendors their suppliers. I mean these are things that people are just getting going on so I expect that they'll continue to go for some time and we'll update those specific breakouts from time to time as we go but.
We've seen no material change in both sides of the business are doing very well finally, what I would say is we try and be specific in our details around the new customer wins that we highlight in some of the prepared remarks, just to give you an idea. So we have a great fortune 500 insurance company that adopted both the customer identity access management and workforce.
At the same time, but we also had fortune 50 customer access management wins for both okta and off zero separately this quarter, which I think again just highlights how powerful having both of those platforms are and specifically to your original question how much opportunity there is in customer identity access management.
Yeah that was great answer one detail at the 28%, 72% split was just all revenue it wasn't that wasn't Siam, our workforce just to be clear.
Okay.
It would be very helpful. Thank you to be greater than 70, 822, though 78% U S 22% internationally.
Alright excellent next we'll go to Matt Hedberg of RBC.
Great. Thanks for taking my question guys. Congrats on the results.
You guys are having a lot of success outside the traditional far network and I know you know some of those far checks can be noisy at times.
Now when I hear that large fortune 500 went through AWS, that's super exciting to me I guess I'm wondering can you talk about how your business mix might change from you know over time, whether it's bars partners GSI, It's just kind of how that competition might look in the future.
Yeah happy to talk about that as you mentioned, we had a really big win for the quarter with a fortune 500 insurance company that was sourced through AWS just to talk first about AWS I mean, avion AWS is obviously the biggest cloud infrastructure provider out there, we're very proud to partner with them as a global technology partner, we're their preferred.
Partner for identity.
Matters and it matters because we've been working on this relationship now for I think 12, or 18 months and Youre really starting to see it bear fruit I mean, they have you know, we're very happy again with the growth in our business and direct sales reps, but they have over 9000 rats that are co selling with okta today and this partnership is in the very early stages and it has the <unk>.
Opportunity to really be very meaningful for us. So we're pleased with the early momentum we've already source multiple deals from this avenue and we'll share more as it relationship matures, but I think overall you know the the.
The channel is maturing we are not the same company that we were two years ago, and we're going to be a very different company. Two years from now look we're going from one to one 8% to $4 billion around the corner and that means that there is a lot of things that we're going to keep the same when it comes to our channel in terms of system process distribution, but theres also a lot of things that have to change as we grow.
And as we expand I think playing right into that international comment that I made earlier, we're not gonna have reps in all those places and so having the right partners that have the right distribution and the capabilities to make it to do these kinds of implementations both the sourcing side like AWS, but also implementation look IBM global services renamed Kindred.
They were a great win from last quarter, and I think that just shows the even the biggest system integrators in the world are realizing the future is different than it was with on premise technology and they want to build their practices around it. So we're very excited I think it's early days for AWS. Its a good telltale sign but theres going be a lot more to talk about in the quarters and years ahead.
Great color. Thanks Brady.
Okay next up we have a team of <unk> at Citi.
Yes.
All my questions.
Todd I'll start with you I think there is a lot of sort of concern in the investor community with respect to enterprise software consumption patterns from the likes of high Tech Fintech companies with all sort of seen what's happened in the VC community. So I just wanted to get your perspective on what potential impacts you're seeing.
Our bracing for a particularly within the cyan part of your portfolio in Austin here, specifically, because that's a very developer friendly and developer oriented installation and <unk>. Please.
We're very excited about it we see a ton of potential.
We hear a lot of the the anecdotes about.
Concerns and macro and slowdown, but the reality is we're not seen it in the pipeline or in the business and so we're executing as we have been which is we think it's a big opportunity developers I am building this primary cloud and where.
We're watching things of course, but where we think there's a lot of potential and we're working hard to capture it.
I'd also add to that seem to.
Currently we're not set up as a consumption based contractual arrangement is pretty standard.
So your number of emails or mouse over a certain timeframe. So it's not like some of the other businesses that are out that are more consumption base.
Yeah. The only other thing I would add to that is you know the demand remains strong across both sides of the business because of the three macro trends, we've talked about I mean, the customer base grew 48% to 15800 and the base of large customers grew at nearly 60%.
Our pipeline grows each year, obviously as the business grows our pipeline. It's currently at record levels. So.
And I appreciate that color.
For you to just.
On the software backlog entering the orientation towards having a think about RPM like CRP, Alex kind of more of a guiding light for the business and how to think about Puerto Rican am I mean.
Can you give us a little bit more flavor at the composition of the backlog pipe.
Yeah at a higher level between new business screening wall business and expansion business and the reason I ask is because I wanted to get a better flavor of how I should think about dollar based net retention moving forward and he's lapped three zero and that's it for me. Thank you got you, yes, there is no different.
Understood.
P O or current RPI, which I would say out I'd, probably look at current arguably probably looking at our IPO.
Because it can be.
Influenced by duration and whatnot on contracts.
But the current Rps, it's pretty similar to what it had been in the past from a net retention perspective, you can see it's been strong 123% above our stated range, which has been what we thought was $1 15 to 120, we were above it again.
For this quarter. So we're very pleased with the outcome for the quarter and I think it really just speaks to that.
The strength in our business, especially on the gross retention you heard that earlier today in the call I fundamentally believe that you don't get the right to get an up sell until you do a good job on the gross retention side of the house, we deliver success on an everyday basis.
That gets us the right to get that ourselves so we.
We've had great gross retention.
It's been ticking up.
Up a little bit as we've gone through the pandemic and exiting the pandemic.
So we're really pleased with where things are at currently.
Yeah.
Okay, I think we got to everybody's questions. That's great. That's it for today's meeting if you have any follow up questions. After this you can email IR at investor at Okta Dotcom.
And otherwise, we'll see you next quarter. Thank you and thanks, everyone and it's nice to see you all thank you everyone.
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