Q4 2023 Okta Inc Earnings Call
Speaker 1: He comes the sun, he comes the sun, that's it, it's alright. It's not in, it's in the dark.
Speaker 2: Our purpose as a company has never been more clear. Our core value is loving our customers and we live and breathe that every day. We've got folks here from over 30 countries. We've got 15,000 organizations across the globe.
Speaker 3: work hard, earn your business, and make you successful every day. Because it doesn't matter if it doesn't work for you. So thank you, thank you, thank you from the bottom of my heart. I'm deeply humbled to lead this company in service of you. And we are committed to building this world where identity belongs to you..
Speaker 3: Hi, everybody. Welcome to Okta's fourth quarter fiscal year 2023 earnings webcast. I'm Dave Gennarelli, Senior Vice President of Investor Relations at Okta. With me in today's meeting, we have Todd McKinnon, our Chief Executive Officer and Co-Founder, and Brett Tye, our Chief Financial Officer. Today's meeting will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding our financial outlook and market positioning. These statements involve known and unknown risks and uncertainties that may cause our actual results.
Speaker 3: performance or achievements to be materially different from those expressed or implied by the forward looking statements. Forward looking statements represent our management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's financial results is included in our filings with the SEC from time to time, including the section titled risk factors in our previously filed form 10 cube. In addition, during today's meeting, we will discuss non- GAAP financial measures, though we may not state it explicitly during the meeting all references to profitability or non-gap.
Speaker 3: 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 GAP. The reconciliation between GAP and non- GAAP financial measures and a discussion of the limitations of using non- GAAP measures versus their closest GAP equivalents is available in our earnings release. You can also find more detailed information in our supplemental financial materials.
Speaker 3: 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 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. We're pleased with our Q4 results and the significant improvement in our profitability and record cash flow. It was a strong close to FY23 with continued improvement in our go-to-market business performance.
Speaker 3: role of identity has only grown in importance in helping organizations do more with less. Organizations that can address at least one, if not all three of these trends, will fare better over the long term. All organizations need to enable a more efficient workforce and invest in security and innovation around revenue-generated initiatives.
Speaker 3: whether during a recession or emerging from one. And all of these initiatives are powered by identity. Remember that Okta was founded during a downturn. Over the past several months, how many companies have you heard talk about increasing efficiency? Okta has always enabled organizations to do more with less. And in this new environment where business leaders are striving for increased efficiency.
Speaker 3: Okta is well positioned to advance our leadership position in a market that continues to move toward us.
Speaker 3: I'll dive into a deeper review of the quarter and finish with some comments to wrap up FY23.
Speaker 3: The two cloud, one platform approach that we introduced to the market mid last year, the workforce at any cloud and the customer at any cloud, has really hit the mark and continues to be well received by our customers and partners.
Speaker 3: Our go-to-market team has enthusiastically embraced the structure and we continue to see an upward trend line in the number of sales reps that have closed customer identity cloud deals over the past four quarters. Just last week we had our annual sales kickoff summit. The energy at the event was fantastic and the team is highly motivated to keep the momentum going. Turning to our Q4 results, we added 550 new customers in the quarter, bringing our total customer base to 17,600 representing growth of 17%.
Speaker 3: New customer growth is an area where we believe the macroeconomic environment is affecting our business. Conversely, Brett will cover the continued strength we're experiencing with our upsell, cross-sell business with existing customers. We continue to see growth with large customers for both workforce and customer identity, and we are proud to work with some of the most important brands in the world, such as Sonos, Hewlett-Packer Enterprise, and Mass Mutual. In Q4, we added 190 customers with $100,000 plus ACV. Our total base of $100,000 plus ACV customers now stands at 3930 and grew 27%. Here are just a few notable examples of customer wins and upsells in Q4, which come from a wide range of industries. Open AI, the company powering chat GPT, was a great customer identity cloud win this quarter.
Speaker 3: With the increasing popularity of its cutting edge AI technology, the company looked to Octa's customer identity cloud to support authentication for the rapid influx of people interested in using the tool. Having utilized customer identity cloud for authentication as a self-service customer, open-a-ads developers were able to bolster its customer identity needs thanks to Octa's ease of use, reliability, and security. A global 2000 agriculture and home improvement supply chain company was a great workforce at an E-Cloud win this quarter. The company selected Octa for its breadth of integrations, partnerships, and technology roadmap alignment. Octa will provide secure access for its 40,000 employees while providing the company with increased automation to reduce administrative overhead. A Fortune 100 insurance company was an exciting workforce at an E-Cloud upsell this quarter.
Speaker 3: very early days with OIG as it just became globally available in early December . We are seeing a lot of interest across various business segments and verticals from organizations like Notion, the Upstart Productivity to a company, to NOV, a Fortune 1000 Energy Manufacturing company. NOV was a great OIG upsell this quarter. They had been leveraging Octa Workforce at any cloud product since 2020 and were looking for a product that would satisfy their regulatory reporting obligations.
Speaker 3: Since they had already implemented Okta workflows, OIG was a natural step for them. Reflecting back on FY23, we accomplished a tremendous amount. For example, revenue increased by 43%. RPO hit $3 billion. We added 2,600 customers. We added over 800 customers with an ACV of $100,000 or more. We expanded our portfolio of products, including Okta Identity Governance.
Speaker 3: And we made tremendous progress on the ESG front, including setting validated science-based targets for scope 1, 2, and 3 emissions reductions. FY23 was a year of challenges, learning, action, and change. Our vision, purpose, opportunity, and everything we do is grounded in what we make possible for customers. Identity isn't just part of an organization's infrastructure, it's a strategic component. An Octa isn't just a technology vendor, we're a strategic partner.
Speaker 3: We're a stronger company going into FY24 with deeper relationships with our customers and expanding product portfolio. As we go forward into FY24, organizational leaders around the world are looking for ways to become more efficient in today's environment. And we've never been so confident in our ability to help our customers create more efficiencies for both their workforce and their customer identity solutions. Octa2 has taken several actions to create more efficiencies within our own organization. As we position the company for our next phase of profitable growth, I also thought it would be helpful to share a few of Octa's top strategic priorities for FY24. These are shared across the entire organization to line our execution with our broader company strategy. Keep in mind, these are multi-year horizons. The first priority is winning the customer identity market. We've made tremendous progress in SIAM, but in many respects, we are still just getting started on what we believe is a $30 billion market opportunity. Second,
Speaker 3: take workforce identity to the next level. We've done well to establish our clear market leadership over the past 14 years with the broadest, independent, and neutral identity platform. Consistent with our core value of continuous innovation, we're pushing to advance our leadership position in the $50 billion workforce market. And third, scale octet to support durable growth. This includes increasing automation throughout the organization and expanding our international presence in lower cost geographies, both of which have margin benefits. Scaling for durable growth also includes hardening our own security infrastructure. Of course, underpinning our strategy continues to be our vision to free everyone to safely use a technology. To wrap things up, we're pleased with our finish to FY23 and believe we're positioned for profitable growth going into FY24 and beyond. I want to thank the entire octet team for their tireless work and a special thank you to our customers and partners.
Speaker 3: who place their trust in us every day. Before I turn it over to Brett, I want to give a special thank you to our outgoing General Counsel, John Runyon. John has been a key advisor since Freddie and I founded the company, an executive team member over the past eight plus years, and will continue to serve as an advisor through mid-September. I'm very excited that Larissa Schwartz, our Deputy General Counsel, who has been a member of the Okta Legal Team for the past seven plus years, is being promoted to Chief Legal Officer. Now here's Brett to walk you through more of the Q4 financial details and our outlook for meaningfully improved profitability this year. Thanks, Todd, and thank you everyone for joining us today. We're pleased with the progress we've made over the past two quarters. We've taken action to significantly reduce our cost structure.
Speaker 3: while maintaining key investments to fuel our future growth. And we're confident that we have set the past for many years of profitable growth. I'll review our fourth quarter results and our outlook for FY 24. But first, I'll start with some commentary on the macro environment and the restructuring we announced last month. With regards to the macro environment, similar to last quarter, we have not experienced a meaningful change in sales cycles or closures. However, customers are requesting shorter-term contract links as they become more conservative with their long-term commitments. Additionally, our overall business was more weighted towards upsells versus new business across both SMB and enterprise.
Speaker 3: New pipeline generation was also more weighted towards upsells. And finally, we continue to experience minor FX headwinds on our top line metrics, which are incorporated into our reported numbers and outlook. With regards to the restructuring that we announced in early February , we've taken a gap charge of approximately $15 million in Q4. There were many functions in the organization that were affected with the biggest reductions within the go-to-market in G&A teams. The vast majority were located in the United States. Turning to our Q4 results, total revenue growth for the fourth quarter was 33%. Driven by...
Speaker 3: A 34% increase in subscription revenue. Subscription revenue represented 97% of our total revenue. International revenue grew 32% and represented 21% of our total revenue. Looking at the ACV split between workforce identity and customer identity. Workforce ACV grew 30% and represented 61% of total ACV. Customer identity ACV grew 35% and represented 39% of total ACV. Over the long term, we expect the mix to trend towards 50-50 with healthy growth in both businesses.
Speaker 3: RPO or backlog through 12% and hit the $3 billion mark. Impacting total RPO growth is the general shortening of term links of recently signed contracts. Our average term length is just over 2.5 years. Kern RPO, which represents subscription revenue we expect to recognize over the next 12 months grew 25% to $1.68 billion. We view Kern RPO as the better metric to assess our quarterly performance relative to calculated billings, which as we've noted can be noisy due to fluctuations in invoice timing and duration. Calculated billings grew to 18% and current calculated billings grew 19%. As we've noted previously, this is the final time we'll be referencing billings performance in our form.
Speaker 3: stability is primarily due to the combination of revenue over performance and better than expected outcomes from spend efficiency measures. Total headcount at the end of Q4 was just over 6,000, which is flat quarter of a quarter. That number does not reflect the restructuring action, which will be incorporated in next quarter's headcount total.
Speaker 3: We will continue to hire in critical areas and backfill open positions moving to cash flow to for free cash flow with seasonally strong producing a record 72 million dollars We ended the year with a strong balance sheet anchored by nearly 2.58 billion dollars in cash cash equivalents and short term investments overall we're pleased with our q4 results now let's turn to our business Saluk for q1 and FY 24 while we've been pleased with the with improved execution over the past two quarters our projections continue to factor in the uncertainties of the macro economic environment. We're also factoring in the go to market leadership transition and the challenges we faced in the first half of last year.
Speaker 3: We're taking several actions to reduce our cost structure and increase our efficiency as an organization, including reducing headcount by 5%, rationalizing our facilities footprint, narrowing our R&D scope to focus on core product development, eliminating redundant software tools, increasing systems and process automation, and we're focusing on building operations in lower cost regions in Europe and Asia-Pacific that have a fantastic talent basis. With that as a backdrop for the first quarter of FY24, we expect total revenue of $509 million to $511 million, representing growth of 23%. Current RPO of $1.67 billion to $1.68 billion, representing growth of 19%. Non-GAP operating income of $18 million to $20 million, and non-GAP diluted net income per share of 11 cents to 12 cents, assuming diluted weighted average shares outstanding of approximately $178 million.
Speaker 3: and organizational restructuring which will be paid out in Q1. Lastly, I want to provide a few comments to help with modeling out there. Keep in mind that when viewing our Q1 projections versus our Q4 results, Q1 has three fewer days, which impacts revenue and gross margins. We expect non-GAAP operating margin to build as we progress through the fiscal year.
Speaker 3: Similar to years past, Q2 is expected to be the seasonal low for cash flow. We are applying a static 26% non-gap effective tax rate now that we expect to be non-gap profitable for the foreseeable future. Partially offsetting the hired effective tax rate is a significant increase in interest income related to higher interest rates we expect on our cash and investments. We are also continuing to reduce our stock-based compensation. SBC as a percentage of revenue decreased by 7 percentage points in FY23 but remains elevated largely due to the off-zero acquisition. We expect SBC to be in the low 30% range of revenue in FY24. He improvement is being driven by slower hiring decreased grant sizes.
Speaker 3: And as the SBC impacts from the Auth0 acquisition begins to roll off, we remain committed to further reducing SBC and dilution over the long term.
Speaker 3: To wrap things up, I'll reiterate that we're pleased that the progress we've made over the past two quarters. Our business performance has improved, but we recognize there's still more work to do. We've significantly reduced our cost structure while maintaining key investments to fuel our future growth. And we're confident that we've positioned the company for many years of profitable growth. With that, I'll turn it back to Dave for Q&A. Dave.
Speaker 3: That things up, I'll reiterate that we're pleased that the progress we've made over the past two quarters. Our business performance has improved, but we recognize there's still more work to do. We've significantly reduced our cost structure while maintaining key investments to fuel our future growth. And we're confident that we've positioned the company for many years of profitable growth. With that, I'll turn it back to Dave for Q&A. Dave. Great, thanks, Brad. Thanks.
Speaker 3: Quite a few hands raised already, so I'll take them in order. And in the interest of time, please limit yourself to one question so that we can get to everyone. And then you're welcome to queue back up with additional questions. So with that, let's take the first question from Rob Owens at Piper. Rob? Thanks, Dave, and good afternoon guys. Here is how you're thinking about DBNRR as we move throughout the year. You've seen some pressure there, obviously, and I think you addressed it in the script. But especially as we contemplate, OIG ramping from the cross-illactivity that you're seeing on the sign in front, can you put some guardrails around where this could be as we move throughout the year? Thanks. Hey Rob, thanks for the question. It's nice to see everyone. We'll please look at the results. And I think one of the themes to the results are the foundation of the business that are very solid and the core of that solidity is the customer success. And in that net retention rate, the foundation is the gross retention rate, which remains healthy and consistent in the mid 90% range. I think the change you've seen in the rate sequentially and, you know, projecting forward, the change will largely be because of just the amount of upsells. And as there are headwins on the business and the amount of upsells change, that's going to be the changing factor. We have the macroeconomic impact and the business overall that we're trying to account for going forward. But we also have a lot of positives, like you mentioned, we have...
Speaker 3: really record performance in terms of cross cells in the quarter we just finished and we expect with our improved execution on a customer on a side that'll continue and then we have this product, oh, I G, which is early and it's only been generally available since December , but it's got all the markings of a hit. It's exceeded our expectations and we're going to get one full year and market with that in F824, so we're super excited about that. Yeah, I just added that. Rob thinks that question. I think to put a finer point on what Todd was saying, I totally agree with everything saying around gross retention. We think it's going to travel in that 90% mid 90% range that we've we've seen. Be very stable for a while now. I think we are going to see a little bit of that upsell right here describing I think we will see a little bit ahead when for the reason to say around macro and then I think the other one is around.
Speaker 3: around, you know, we didn't close as many new customers in FY23 as we would have liked, which means there's less customers to upsell into in FY24. So I do think we see a little bit of a headwind on that now retention rate as we travel through FY24. Thanks. Okay, let's go to Gray, Paul, at PTIG. Okay, great. Thank you for taking the questions and really good results here. I was happy to see the guidance. One thing I want to make sure that I understood correctly, just looking at the Q1 revenue guidance, it implies that revenue is flat from Q4. You know, understand the commentary around the three last selling days, or just just three last calendar days, services around the macro, but it just seems really conservative. Anything else that we should be thinking of that's going on in Q1 and then just, you know, your confidence level in the ramp needed to hit the full year guide in terms of sequential growth. Yeah, great. That's a good question. Yeah, it really has more to do with that 89 days versus 92 days. This is a reminder for everybody.
Speaker 3: doesn't have business we talked about.
Speaker 3: That's perfect. Nice work. Thank you very much. Thanks. Nice to speak with you. Thanks, Gray. Next we'll go to Hamza Fawala at Morgan Stanley . Hey, good afternoon. Thank you for taking my question. And then Josh congrats on the open AI win. So I wanted to ask, I mean, you've been running effectively with Salesforce now for about a quarter. I was wondering if you give us any.
Speaker 3: opportunity ahead of you and customer identity. So I'm serious, you know, what when that sort of starts to stabilize? I'm in general, I'm a type of person that's not satisfied with a lot of things. So yeah, I think we can across the business. I think we can always improve in terms of the go to market organization. It's
Speaker 3: obviously very important part of Octa and there have been a bunch of changes there. So let me just level set the group. So first of all, Susan, our outgoing president go to market was here through the end of February . So her and Steve Rollin, who's also leaving cranked it out and obviously you can see the numbers, they did a good job and their teams did a good job delivering Q4. Now with them leaving, we have interim leaders on the Chief Revenue Officer side stepping up John Addison was has been an Octa couple years now has been running Europe and he's he is in interim CRO role. Now we were looking and I spent a ton of time looking for the next great go to market president over all of it. So until we find that person all obviously be more involved working with John , but we've also collapsed and focused the organization so that marketing customer success services and everything is under one leader, Octa veteran and our color. So we have.
Speaker 3: We have two go-to-market leaders running go-to-market with me, the leader over them. And then as part of that change, we're also moving marketing under Eric. That's led to another change, which is our chief marketing officer who's going to be leaving Okta. So that's a change as well. But we have this consolidated team under John , under Eric. That's really, it has a deep bench. There's a lot of people that are psyched up. They've delivered Q4, Q3, the trends are getting better in terms of number of reps. We have two reps doing CIC deals, which is very positive. The Trishin, which is a key metric we've talked about for the last couple quarters, is we've had really two positive quarters in terms of low repetition, which is great. We just got back from Las Vegas where we had an amazing sales kickoff and got the reiterated the product positioning and the messaging and got everyone psyched up and trained for the year. So there's a lot of very positive things happening there. And I'm very confident in this team to go out and have a great FY-21. Q4.
Speaker 3: leaders running go to market with me the leader over them. And then as part of that change, we're also moving marketing under Eric, that's led to another change, which is our chief marketing officer is going to be leaving Aqda. So that's a change as well. But we have this consolidated team under John under Eric that's really, it has a deep bench. There's a lot of people that are psyched up. They delivered Q4, Q3, the trends are getting better in terms of number of reps doing CIC deals, which is very positive. The attrition, which is a key metric we've talked about for the last couple quarters, is we've had really two positive quarters in terms of low repetition, which is great. We just got back from Las Vegas where we had an amazing sales kickoff and got the reiterated the product positioning and the messaging and got everyone psyched up and trained for the year. So there's a lot of very positive things happening there. And I'm very confident in this team to go out and have a great FY24. Thank you.
Speaker 3: Next up, we have Jonathan Ho at William Blair. Hi. Congratulations on the strong quarter and the operating margin guide. I just want to drive a little bit deeper into the operating margin and guidance and sort of take a look at the $15 million cost restructuring action. How is that going to translate into cost savings for 2024, and how do we think about sort of that balance going forward between showing reacceleration and growth as well as the operating leverage? Thank you. Yeah, I would say if you look at the non-GAAP operating margin for FY24 or the free cash flow margin for FY24, you look at both, they're about a seven-point increase relative to what we just produced in FY23. And it's not really a single action that's producing that. You brought up the restructuring action, right? It's really a tale of multiple actions that we've been taking over the last few quarters. If you remember, the last couple of quarters I've talked about slowing down hiring, I've talked about real estate rationalization, cost efficiency measures like software rationalization. And you see the results Q3 and Q4, you see pretty large beats on our expectations for both non-GAAP operating margin in both of those quarters, right? And so it's really been a plan that we've been working for a while now to set ourselves up to have that cost envelope as we enter into FY24. But we don't think we're going to be done in FY24. We're not going to be like, hey, six to seven percent.
Speaker 3: We're all a sudden done and we're going to go on our merry way. It's all about continuing to scale this business to be able to profitably grow this business. That's why you heard about one of our three strategic initiatives that Todd talked about a few minutes ago was around scaling and automating the business. We want to be able to profitably grow this business, not just in 24, but also 25 and beyond. That's one thing to keep in mind, Jonathan, but also just that balancing of growth and profitability. One of the things that we did in this year's budget is really focus our investments or those three strategic initiatives we talked about around solidifying our leadership and work for our identity, capturing more of the market and customer identity. Then obviously, the scale and automation I just talked about. Those are about how can we focus our investments, make us grow as fast as possible, but doing it in a responsible way from a profitability perspective. We're going to continue to balance growth and margin just like we've done for years now, and we're going to continue to do it as we move forward. Thank you. Thank you. Very helpful. Okay. Next up, we have Ita Kidron from Oppenheimer.
Speaker 3: Thanks Dave and congrats guys, great quarter. I guess a couple of small ones for me, one on comp starting the new year. Are there any changes to the comp plan if you can go into that and then Todd, a little bit more to you. I wanted to dig into OIG and maybe you can give us a little bit more color on that. Clearly you're off to a solid star there, but maybe it can give us a little bit of a flavor. If I'm a $100,000 customer, what is the percent uptake in the illicit that can come if I adopt OIG on a broad basis? Number one, number two, our deployment is mostly greenfield. You find that you're just entering into open wide space or there are displacement driven. Any color you can give on attraction, that would be great. The on the comp, the comp plans and the comp changes. The one thing that is very positive for the go-to-market team and for Octas plan for this year going into F-24 is that relative to last year, there are far, far fewer changes in terms of product mix that the sales rep have to be able to sell territory changes or structures. It's nothing like last year. Last year was a lot of change, which I think was in retrospect.
Speaker 3: pretty hard to navigate through. We've kept things much more consistent this year, whether it's structure of the comp plans, whether it's territory changes, whether it's organizational changes. There obviously are some, but we've kept things largely the same and focused, and so that's really good for continuity there. We've also tried to keep it simple. I think a lot of companies try to overly make comp plans complex and sometimes it's best to keep it simple, customer identity, workforce identity, make customer successful and so forth. So I think that's part of that when I talk about being confident in the year, that's a big contributor in terms of change there. Hopefully that gives you some color there. On the, on OIG specifically, the, I think that the way to think about it is.
Speaker 3: It's a natural adjacency for us. If you think about access management and what it does, is it creates profiles and roles and gives you access to resources, and it does that in real time and checks it as you log in and gives you single sign on, et cetera. So it's a natural extension to have the system that reports on who can go where, and it does exception reporting and compliance reporting on who can go where and make sure the right people are going to our place, is tightly coupled to that system. So it's a natural adjacency, it's a natural upsell. I think in the history of identity, the reason that governance grew up independently than access management is basically because there was no octa. There was no independent and neutral leader of access management. So companies had to create these governance solutions in an unnatural way, which is off to the side. I think it's a natural thing to bring them together. The success of the products, the success of the product has actually been pretty interesting. You know, we the IGA system solutions out there tend to be sold to larger enterprises and be more complex implementations.
Speaker 3: And so we thought that our product would start more at the smaller companies and be bottoms up and we've seen a much more balanced enterprise success and mid market success than we expected. And to your question about 100,000, the simple way to think about it is is if it's a hundred thousand dollar customer, it might be a 30,000 to 50,000 dollar upsell for the governance solution. And I think that will increase as the product gets more mature and our selling motion gets more mature. And just the examples I gave on the call, the notion is a relatively small company, great innovative company relatively small. You think of them as cloud first, but NOV is actually a fortune, it's a large fortune 1000 energy company and it's this combination of octa.
Speaker 3: Access Management, the academic governance is magical for them. It's very impactful. And the last thing about is at Greenfield versus NetNew. It is the majority of it as Greenfield. But again, I think the replacements have exceeded our expectations. And what also has exceeded our expectations is our ability to win in RFPs. We thought Greenfield would be good. We think replacements we thought would be pretty infrequent. We've seen some of those, not many, but some. And then the RFP wins have exceeded our expectations. We have a lot of work to do, but it's off to a really good start.
Speaker 4: That's great. Good luck. Next, let's go to Adam Tindle, let Raymond James. Okay, thanks. Good afternoon. Todd, I wanted to acknowledge you've seen obviously significant improvement in profitability of the business, proving a lot of what the business can do. At the same time in the slides, I talk about how you're so early in this opportunity based on this $80 billion market. So I guess more of a philosophical question at the end of the fiscal year to ask, why is focusing on profit right now, the right strategy given we are seeing moderation or deceleration in the growth metrics concurrent with this.
Speaker 4: And if you're trading off a little bit of growth for profit, what do you do with the two and a half billion of cash on the balance sheet and more coming in? Thank you. I think about it broadly in two buckets. One is the growth rate and the spend in sales and marketing. Those things are very related.
Speaker 3: the more we spend in sales and marketing, the more we grow. That's one bucket. When you think about how we're balancing growth rate with sales and marketing expense, there's the two factors. There's the macroeconomic expense. We don't.
Speaker 3: There's a limit in terms of the growth rate with the macroeconomy. At least go forward we're being prudent about that limit. So that gates our investment in sales and market and thus our growth rate. The second factor is just some of the execution challenges we had last year. We had a bunch of nutrition which brings down the cost, brings down the growth, and it takes time to ramp that back up again, whether it's hiring people and now having them ramp, which translates into the growth. So there's some factors there that are that are we're not being limited by the market opportunity. Currently it's ins..
Speaker 3: the execution macro, and which is leading to some of this profitability improvement, although you could argue that we maybe we don't want that profitability improvement because we could be going faster without the macro issue or without some of our execution challenges. Now the second bucket is just call it efficiency and better discipline and running the business more rigorously. And I think like a lot of companies, we were, we lived through many, many years of zero interest rates and growth growth growth.
Speaker 3: We need a, and it's healthy. We need a dose of being more efficient in making sure we're investing in the highest ROI things and we're not spreading ourselves too thinly both from the. Go to market side, but also the R and D side and other areas of G and A were being efficient. So that's why, you know, that drove the workforce reduction we did about a month ago, but it also is this third pillar of our company strategy, which is scale, octafredurable growth and make sure we. We have that as a core value because when we're right now we're, you know, our run rate is around $2 billion and as it goes to four and eight and 10 over the next several years.
Speaker 3: the investments in the efficiency we build in now can be hugely impactful down the road and we're very cognizant of that. And the final point about the cash on the balance sheet, we think about that as a little bit of it was when we raised that money and as we build up cash on the balance sheet, a little bit of is margin of safety to run the business and now that we're really turning toward profitability and generating cash and you've seen our outlook on that. The second use of those funds is for the M&A at the right point. How can we expand the portfolio in a way that makes sense and is strategic for our customers and we'll be synergistic to what we're doing from a go-to-market perspective. And we're still open to that. The things we're looking at tend to be
Speaker 3: smaller so it's a good option to have and you know we're always looking at managing the balance sheet overall but those are some some ways we think about that balance. Yeah I would just add yeah to obviously what I was just saying you know we're obviously looking at options but to your point out of the additional cash flow that we're going to generate this year does give us even more optionality as we think about those 25 and 26 converts about what to do with them so it's. I think it's a win-win for us to obviously as Todd was saying become a more efficient company that's something we want to become. We've already made a lot of progress but we need to continue to make more progress while also balancing that growth aspect that you were just talking about but it just it just helps us in a variety of ways that you like to just are saying around capital allocation let's give ourselves a little more optionally. In a lot of this I go back to over and over you know as we execute and we.
Speaker 3: have our challenges and we improve our challenges and we work to fulfill our vision. It's all built on this foundation of this really strategic thing we're providing. I was having a meeting with the CIO of a global, one of our large customers, a global media company that's been through a lot of change themselves. And they were telling me that, you know, you know, identity is that one of our top three priorities at our whole company this year. And there's macroeconomic stuff, there's structural stuff in their industry, but they're still prioritizing identity and that's golden when you're trying to build a company. If you're building a company, you have that customer success and that kind of focus and that kind of mindset, it can really give you a foundation to work through a lot of what maybe short-term issues for a long-term success.
Speaker 2: Okay, let's go to Gabriella Borges at Goldman. Good afternoon. Thank you. I wanted to follow up on the comments from the growth and profitability. And I can appreciate it a little bit too early for the online blow on Trump targets. I'd love to get a little bit of preliminary, but get your preliminary growth on how you're thinking about what is the normalized profile of this business look like minus the macro of the top right now. Thank you. I mean, obviously we're going to balance growth and profitability as we go forward. I mean, something we've been doing.
Speaker 3: over time. We want to continue to expand margins. I can't tell you that beyond 24, but we're going to try to grow as fast as we can, but do it in a responsible way. Yeah, of course. The question is nice to see you. One thing I think about a lot is the strategy is we want to, basically, we want to be the one-stop shop for identity.
We think identity is so strategic and so impactful and there's such a value to having an independent for customers to having an independent neutral partner there that will give them choice of technology and not lock them in. So to do that we have to have really a lot of balance in terms of the use cases which are customer identity and workforce identity. So the business has to get to more of a 50-50 next both growing very at a healthy pace. So if you look at the numbers now there by 6040 we think there's a big 10 over there so when you add that all up.
If we do this right, it's a healthy grower and profitably for a long time. Excellent. Next up is Rudy Kessinger at DA Davidson. Great. Thank you for taking my questions. I guess I'm very sorry. Maybe you got your else question. You know, the restructuring that cuts you made in SNM, I'm curious how that impacts your capacity to grow. And I guess maybe the question is...
If your execution improves, maybe the macro impact is on a severe and maybe you get better traction with IGA, you know, what kind of growth do you have the capacity to deliver if things go right? Is 20 to 25% completely out of the question or something like that doable? I can't give you the exact number already, but what I will say is when we thought about the plan, we were going to sacrifice, you know, capacity build for FY25, right? Because really, when you think about it, right? The capacity we have for 24 is the capacity we're going to have. I mean, you could, we could hire some folks in the first half and have a small amount of capacity build for the second half, but in reality, when we, when we think about this year's plan, it's about making sure we have the capacity for 24, but also having it for 25. So we're, we're not getting over our skis in one period or the other and not sacrificing growth in one period or the other. So we've been very thoughtful about that in terms of how we're thinking about the capacity build for both fiscal years.
Yeah, and more specifically on that, the way we run the business is the headcount growth in the second half of the year really is, this is kind of restatement, what Brett just said. That tells you the bullishness and the capacity builds going into next year because like you said by that end of Q4 this year, the people that are on the capacity on board is going to drive the growth number for next year.
Okay, let's go to Matt, head, Berget, RBC. Great guys, thanks for taking my question. I'll offer my congrats as well. Todd, maybe a higher level question. During COVID, we heard a lot of customers that wanted to stay put on a legacy identity provider. Now there were a few years removed. A lot of the partners we talked to think there could be a more material replacement opportunity from the legacy side. Can you talk about that as like a long-term catalyst within maybe I, you know, I didn't ask management, IGA and Pam.
If they, you know, that's still not mainstream. That's more of a progressive thing. It's getting more mainstream, but it's still relatively progressive. And the companies that choose not to do that are maybe building their own workforce identity or maybe customizing a legacy or a goal or IBM or computer associates or they're just going with one of those solutions. So this is a big opportunity. And so how do we...
Part of it's natural. The cloud is the future. The benefits of being more integrated and more flexibility that an Okta provides is gonna help us. But another thing which is, just these are smart economical buyers and if they can get more functionality from one vendor, whether it's not just access, but it's governance and it's privilege, that's gonna help. And another big thing, which might sound maybe counterintuitive coming from me, but what is,
Microsoft, they're significant in terms of competitors, they're a competitor of ours, but what are they telling the whole world? They're telling the whole world is that, use the cloud for identity and security. And this is a huge boon for us, because I do think that the biggest opportunity we have is the mainstream company wanting to go to this model for workforce identity. And we're both, we're all making it mainstream. And I'm very confident that the value we provide, which is more integration, more security, best of breed choice on security tools, on the technology you wanna do to make your business successful, our differentiation there against any platform provider, whether it's.
Microsoft today or another major platform tomorrow that wants to be broader in identity, our independent neutral choice is going to win out. So you can see this in the IDC numbers where it's still pretty fragmented market. You see Microsoft, you see Okta, you see a bunch of other little slices in that graph that are eventually going to go to the cloud and we're set up to continue to be the leader to benefit from it.
form tomorrow that wants to be broader in identity, our independent neutral choice is going to win out. You can see this in the IDC numbers where it's still pretty fragmented market. You see Microsoft, you see Octa, you see a bunch of other little slices in that graph that are eventually going to go to the cloud and we're set up to continue to be the leader to benefit from it. Thank God.
Next up is Brian Cowley at Stevens. Thanks Dave and thanks for taking my question here. So last quarter you talked about the macro impacting the SMB market in the US most acutely. I mean have you seen any of that macro impact start to bleed, impact larger companies or customers or customers in other geographies as well or is it still mostly limited to US SMB? Yeah Brian , it's mainly US at this point from our perspective, at least what we can see in the quant. In terms of it leaking into enterprise, we have seen that new business versus upsell mix in both SMB and enterprise now. More so in SMB but.
But it's so it is to your point Brian , it's starting to leak a little bit into the enterprise from that perspective in terms of international. I haven't seen it quite as much there, but I will from a quantitative perspective, but from a qualitative perspective, if we just talk to sales leadership in in most of the regions they have heard they have budgets are tighter or budgets are being delayed or projects are going to be delayed so we've got the coincide of it and then we've got that qualitative side of as well to kind of prove out that it does feel like the macro has. Black trust level. ????ure level. Don't worry aboutwave
started to hit us in the last couple of quarters. Yeah, one thing that's interesting for my perspective there is that in the enterprise, big deals are doing well. So I have this theory that if there is some macro headwinds in the enterprise, there's a dynamic there that's, it's being counterbalanced by big deals going through. I mentioned on the prepared remarks, one of our biggest wins was a big deal in a well-known insurance company that was an upsell. So some of these things are even though the economy is, there's some questions about the economy, these big deals are going through, which I think when we look at in the aggregate at our enterprise business, it might be balancing out any.
headwinds from a quantitative perspective. Got it. Thanks for the time. All right. Next up is Sho. Yel from TD Cowan. Thank you for that day. Good afternoon, everybody. Congrats on the ongoing notable improvement. Tont or Brett. So the business remains unsolicst fundamental, as a study indicated. We're seeing the macro impacting new logos predominantly as you think about the fiscal 24 guidance, how could we be thinking about the new logos in that context? Yeah, I would say it's really that's probably where the headwind will exist. I mean, we'd want to grow. Frankly, we want to grow both as fast as we possibly can both new business and upsells, but we do believe.
that if we do see a headwind, it is probably more likely to happen there in FY24. We'd love to have that not happen and not have the macro situation, but I mean, just think about it. If you're a customer today or a company today, you're likely going to go to the vendors you trust them up, right? And you can see it in some of the numbers that we produce. Our customers love us. Look at that solid or strong growth retention rate. That's been in the mid-90s for a very long time now. You can see them in the net retention rate for you. You can see the growth in the customer count and the greater than 100K growth, which comes from a lot of our current customers. It's upselling into those into those cohorts. So I can see how customers will be a little bit more hesitant into.
engage in new partnerships at this time just because you know there is an unknown macro situation out there or the fear of the unknown if you will so we do believe it will hit us a little bit more on the new business side but we're obviously actively working to try to to sell both new business and up cells we're just being prudent with our expectations at this point. Next up is Joe Gallo at Jeffries.
Hey guys, really appreciate the question and love that you laid out your top priorities for fiscal 24. Todd, can you just double click on what's needed to win the sign-in market? Is there a technical note you need to widen or is it more go-to-market focused? I'd say the primary is go-to-market focus. Not that it's a, I guess I should be more precise. It's the whole company and the engineering product, product marketing, demand generation. It's the whole end-to-end at Okta maturing in that motion because as we talked about, it's a big opportunity. It's related, but it's distinct in a lot of ways that require the company to work hard to get that second act going. So that's things like clarity of the product portfolio. Got it.
And you can get like fraud detection, identity verification, more kind of market integration functionality. So it's almost like a platform in itself. And the advantage is it gives customers, as the category is being created in many ways, it gives customers a ton of value with these integrations, but also it puts us in a position to help define what the final market in terms of the boundaries around the market, how it will play out. And it's important that we not only execute on that, but...
keep innovating and define that market as it eventually comes into mature status in several years from now. You know, we're the leader by far. It's not even close. And so it's an exciting place to be in. Okay, we'll go to Adam Borg at Stiefel. Awesome, and thanks so much for taking the question. Maybe just for Todd on the macro. Obviously, we talked a little bit about some of the headcount reductions you guys made and we've been hearing more broadly about headcount reductions across the industries. Maybe just remind us how correlated office pipeline growth is to headcount changes in your install base overall. Thanks so much. The first thing to understand is that our products, whether it's customer identity or workforce identity, are not going to be able to be used in the industry.
are licensed on their recurring subscription. So there's on the customer identity self-service business, the credit card business, business accepting that, but everything else, it's one year subscriptions minimum, the average is over two and a half years. So these aren't month to month subscriptions or pure usage-based subscriptions that can get downsized if there's less users or less employees. So that's one level of, that's just a level set about the business. They're licensed on number of users in the employee case or number of monthly active users in the customer identity case. So all things being equal when the contracts come up for renewal, more employees or more users is going to be more money and less is going to be less.
So there is some correlation. What we see in the business is that there's some insulation just because of the contracturation. And then when companies do come up for renewal and they have much more employees or users or much less, a lot of times the difference can be made up with the other dimension, which is selling a more products. So let's say you go into a renewal on a workforce side and there's fewer employees because of a reduction. Well, you can maybe keep the contract flat or even increase it by upselling workflows or a lifecycle management or advanced multi factor authentication. So I think those two dimensions usage contracts and the product portfolio.
insulate, what we've seen it insulates are our foundations of our gross retention and our NRR to some degree. Of course we talked about it earlier about how that will trend over time, but those are some important dynamics there. One other thing to factor in there, Adam, is
The diversity of our customer base, I think sometimes everyone thinks we just sell the tech companies, but we don't if you look at the slide it investor day, the diversity of industry that we have is quite good. In fact, there's no industry on that slide if you go back and look at it that is greater than 10% of our total portfolio of annualized contract value. So yes, there's been a lot of a fair amount of layoffs and tech, but if you look at the rest of the economy, it hasn't quite hit it as much. And so I think that's one of the benefits of our product. That's why identity is this universal problem that everybody has. It's not a tech problem. It's not a financial problem. It's not a US versus
Also, sales cycles, sales duration, we haven't seen a change there either. So when we're talking about the macro, we're talking about those major factors of new business versus upsell mix, contract duration, and then the qualitative talking with our sales leadership. Those other two factors that I just mentioned around sales cycles and.
And the other one is just, it just, it hasn't changed. Like the close rates haven't changed. It's been more the same. Perfect. Thank you. And next up is Wolf Research. Hey, this is Patrick on the Josh. This similar vein to the last question, just kind of now that you're two months into the year and selling into 2023 budgets. What changes have you noticed if any in customer budget dynamics, both kind of in general, and then also specifically.
they're confident about their plans and the ability to be successful in their plan. So when I look at what makes me comfortable or confident, that's a big factor. So I think we've got to maybe get a few more months before we get a real good luck on customer buying behavior because I think a lot of times the customers are figuring out things in the macroeconomic situation like we are.
Great, let's go to Eric Keith at Keyback. Great, thanks David and Grids to the strong results here at Brighton and Todd. So, but I guess two questions for you just on the margins. If you look at subscription gross margins, it's kind of been improving quarter of a quarter for a handful of quarters now. Just curious what's driving that improvement and how to think about that going forward that's one and then two. If I look back to Octa and the kind of pre-code with pre-Auth zero, I saw that your free cash margins were simply about 10 points higher than your even margins were. I think your guidance for this year calls for about six points of delta there. So just talk about maybe any dynamics that might be happening on that point as well too.
Yeah, sure. In terms of the gross margin, you know, the reason why you're seeing the improvement is kind of what I've been talking about in terms of just becoming more efficient across the board, you know, slowing down hiring, you know, cost efficiency measures. Those are the two things that we really kind of focused on as you, as you could see through the second half of the year in terms of just margins in general. We do expect subs, gross margins to probably roughly travel about the same percentage in FY 24 as we do in FY 23. And then on the question around a zero and the delta between. Or the delta between cash flow and margins.
That's just a function of the business slowing down a little bit, right? You build a little bit less and you have, you know, obviously if you're growing a little bit faster, the billions are growing a little bit faster, you're going to collect cash a little bit faster, and so that's you're going to get that little bit of compression between the two numbers of three cash, one non-gap operating margin. Okay, we're running up on the hour, but I think we can go a little bit over time here and try to get as many as we can. We'll go to Peter Weed at Bernstein. Thank you, and congratulations on the continued momentum in the business. I just want to make sure everyone knows that we would go over even if the results weren't strong. Even more fun though the top. We celebrate something right now. Maybe we carry on on that theme. You know, I think you answered a couple questions. You recently that that clarified saying, hey, you know,
At the beginning of this year, whether it was January or February , you're not seeing any new deterioration relative to what was seen kind of in the second half of last year. And we kind of know how that played out. And in those quarters, we ended up seeing kind of on a quarter over quarter basis, like 6% growth rates, right? So things were continuing to hum forward. Yeah, if I look at the guidance for this upcoming year, if I take, you know, the quarter four results and annualize that, you're talking about for an entire year having a 6% growth rate relative to just annualizing the four quarter. Like, when you set that type of guide, what are you seeing out there that you think could be this credible reason why?
at this point, right? I mean, we've talked about the MACA, we've talked about go-to-market leadership changes, talked about the not getting too aggressive in our expectations around attrition in the field and customer identity cloud, but we're very early in the year, right? We still got 11 months left in the year and we wanna make sure that we're just being thoughtful about all those factors given that- Are you seeing any specific things that worry you like, hey, there's reasons to believe that new customers are gonna further deteriorate relative to what we're seeing, which I think I heard-
small number, you know, because you didn't fall off the cliff, you know, that big with new customers. I'm just trying to figure out like what keeps you up at night the most when you look for what should we watch for that that would like tell us, you know, hey, you know, something might be going on. What keeps me up in that that's a that's a dangerous question. Yeah, I'm sure Todd's got some answers on that one as well, but no, I think it's just the some of the items I've already talked about around.
being thoughtful about the productivity in the field, making sure we're doing the right actions, we're doing the right things. And like I said earlier in the year, we just want to be thoughtful about things. Do you think the macro is going to get worse, right? So we're not expecting things to get better from here on a variety of fronts. And so that's really what our expectations are at this point. Thank you.
about the productivity in the field, making sure we're doing the right actions, right, doing the right things. And, you know, like I said earlier in the year, we just want to be thoughtful about things. We do think the macro is going to get worse, right? So we're not, we're not expecting things to get better from here on a variety of fronts. And so that's really what our expectations are at this point. Thank you. All right, let's go to Keith Pakman at BMO.
Thanks very much. I'm going to ask a question. I think Todd, this is for you. A, if could you talk about your wind rates over the last kind of 90, you know, one to two quarters and how those might have changed in particular with regard to any, any of the categories that you may want to find whether it's an S&B or a large enterprise or si-am versus employee. And then I just wanted to make sure I understand on the go to market. I know there's a lot of transition at the top. Compliance sounds like they're not changing much. But in terms of I just wanted to broaden that out about territories or strategies or anything along those lines, I think the go to market is relatively stable. But you would previously highlight a different question, just comp plans, but I wanted to broaden that out to just talk about go to market more broadly than comp plans, including geo.
any geo-redistributions or any other org kind of changes that might be involved in go-to-market changes. Thank you. Yeah, I think it's a really insightful question because it is more than just compliance. It's the sum of all changes that a go-to-market team has to adjust to and pivot around and there just aren't many of them. Whether it's countries entering or not entering or territories or organizational shifts or down at that. We talked about leadership changes at the top, but the go-to-market strategy is not changed. When you talk about the school last week, John Addison gets up there as the interim chief revenue officer and kicks off the year. And Eric Keller, who gets up there about professional services and customer success.
What they're saying is sounds very consistent to the teams. We have to win Siam, we have to keep executing on workforce. The question about win rates are, win rates remain very healthy and it's a very good situation to be in. I think whether it's on the customer identity side where it's really a, are you going to build it or are you going to buy it from Aqda? We have things like chat GPT is a super in the news right now and everyone's talking about it. So we had some success there. So we use that to illustrate that market which is developers found the product, put it in that product when it was as the login and the identity when the product was very nascent. Then all of a sudden it takes off and it's a huge deal for us. But that's happening in a lot of places in customer identity. There's engineering teams that are thinking about.
Thanks for taking my question. Just a really quick one here. I wanted to just get a sense of what an ideal split is for Okta between upsell and crosssell in new business. Additionally, on the new business side, would you just be able to give us some color if over the last quarter you needed to implement any discounting or further bundling? Thank you. Thank you.
In terms of the discounting, the discounting has actually been very consistent as well. It's one of those things that we just haven't changed very much. In terms of the mix between new business and upsell, right now we want it to be higher new business than it is. We're too weighted toward upsells, and that's something we're focused on. But it's definitely like a factor of the macro, but we got to get better at doing a new business in the future. Yeah, we were right now, we're talking about this earlier this week. I think another factor on new business versus upsell is ramping reps. Brett talked about a customer that wants to double down on their vendor relationships in place. If you're a new sales rep that's ramping, what's the easiest thing to sell to?
layer deeper on Keith's question with regard to sales force organization, how to structure so I better understand it. Sounds like maybe it's still relatively silo between workforce and SIAM, but are you do you envision you know shifting towards more of a platform approach and are you seeing a lot of you know multi-product workforce plus SIAM deals or are you gonna stick with maybe a more what seems to be a land anywhere approach or keep those kind of sales forces relatively silo.
Yeah, the sale, there's one sales team. So every customer has one rep from Okta and the rep from Okta sells them all our products. OIG, of course, customer. So there's no, there's some technical specialists, but it's in, you know, I think people call it the IBM model. There's one, I think that's every, the first time I've ever compared myself to IBM. It's a great company. It's a great company.
Anyway, there's one cell that they, the idea is that we want to be the strategic partner for identity so that it's incumbent on the sales reps to use their capability to appeal to different buy and centers in their company. This advantage of that is it's sometimes as hard of the training and able to advantage of that is you can get higher if you do it right. And that's in line with our strategy of being the strategic partner. So it's one sales team, they're selling all the products with specialist help and pre-sales help when they need it when it's very time. Yeah.
Are they incentivized to sell the platform or do they go into like a customer has a specific use case and they go and solve that problem? Well, they're incentive to there's the compliance we kept them simple, but they're incentivized to sell more and they're incentivized to sell more to year and they are there's a little bit of a kicker for our priority, which is customer dating. Yeah, and I think the other really important thing is we had a really, really good quarter for cross sounds. And I think you're starting to see this work, whether it's, you know, companies starting with customer identity cloud and selling workforce or the vice versa or, you know, coig, which is modules inside a workforce. So let's.
customer goes up to a wrap we're going to do a bigger deal. That's the one sales team. So the sales team loves this because in addition to their leads, they get from normal demand, and they get a bunch of leads off this customer identity self-service. They have to, like we've talked about, they have to be, we have to ramp them and make sure they're ready to sell it. But the once that starts to happen, it's a good time to be a salesperson in Arctum.
Very helpful. Thank you. I'm sure happy to lay it out there for you. Okay. I'm gonna call five minute warning here. It's if we can get as many as we can here. Let's go to Taz Kujali at Redbush. I got something to take about question. How does your guiding place 5% growth in all effects from the quarter and for the year. Is that also reflective of this health capacity? Please would your sales capacity to the same 5% rate? Our sales capacity is designed to be able to hit like I said earlier designed to hit the FY 24 bookings member and also set a stopper success in FY 25. So we're not.
You know, saying one way or the other exactly what the quota increased or the quota capacity out there on the street is, but ultimately we're making sure that we've got the right people in the right places, right segments, right geos to be able to go after this this opportunity. So this year and in fiscal year 25. Thanks one quick follow please your CFU guide implies CFU stepping down from Q4 to Q1. That's never happened before. Are you just being very conservative or there's something happening with personality. Back while getting built into the. At the top end, it would imply that slap but I mean keep in mind remember Q4 is our seasonally biggest quarter of bookings Q1 is our seasonally lowest quarter of bookings and so.
we're just being thoughtful about that and making sure we're incorporating it in the guidance for you guys today. But nothing changing in terms of the booking mixed by quarter like I use shipping a smaller mix than Q1 or so the usual mix in Q1 because you've always had that Q1 being smaller than Q4 but you're see how things went up. Yeah keep in mind though if you look at the quarters before from Q4 to Q1 the growth rates we're higher and so you'll see a slightly different result when you have that so it's like the lower growth that you're going to have as a seasonality that looks a little bit more like what we're talking about this this time around so nothing really different from a overall seasonality of bookings it's just the the the results of having slower growth than we have in the years past.
Thank you. Patrick Colville at Scrocia Bank. Hey guys, thank you so much having me on and congrats on a very solid set of results. I guess my question is around the ACV disclosure you guys gave, which is extremely helpful. When I look at the numbers, my take is that workforce has held up very robustly in 4Q and over the training 24 months, whereas I guess the deltas have been really in the customer segment. So I guess
Can I sneak in a two-parter? One is that the street thinks that workforce is the maturing segment at Octor. What is the street missing? And what would it take you in that customer bit, customer segment, or that growth to start plateauing, or maybe increasing? We're very excited about both. I think the street is underestimating workforce. I think that there's been this narrative that Octor's so much focused on customer identity because workforce is there's a problem with it. I couldn't disagree more. I think it's a great opportunity long-term. We want these businesses to be, we want to build this.
partner and independent neutral one-stop shop for identity and you get up both. So I think that workforce can grow, customer day can grow. You look at those numbers, besides just thinking that the death of workforce is greatly overrated, I think you see some of our, in the customer identity number, you see there's an opportunity for better execution. I think that even with all the things we talked about, whether it's macro, whatever, we can execute better in customer identity and we're set up to do that. We're the leader by far and we've got a bunch of stuff we've done to improve that and I'm confident about that one getting that growing faster as well because it's still smaller. You saw the growth rates are 30% and 35%.
not customer growth rate should be higher given it's coming off a lower base. All right, cheers guys. Thank you. Okay, we're going to take the last question from the team of Mulani at City. Apologies to Carson Fred and Brad. We'll get you next time. The first time Carson. You first. Ladies last in 2023. Hi, good, thanks for taking my question. Brad, I'll make it quick for you. So between you and Todd, you quantified for us the contract duration and some of the dynamics there, but I'm wondering what you're assuming in your guidance as it relates to some of the contractual duration.
especially with your renewals business and as a related matter if there's any particularly large cohorts of renewals that are coming up that you're being maybe more cautious about by way of you know shortening contract duration. Thank you. Yeah that's a good question. There's no real cohort that's wildly different than the other. I mean that's one of the benefits of having these longer duration contracts.
spreads everything out. So, you know, there's nothing really to speak of in terms of like major assumptions in terms of what we're thinking about from a renewals perspective. You know, we talked about the gross retention earlier as being a subset of the net retention. We do expect that to remain stable because from our forecasts, from what the teams are telling us and what we can see in the business, you know, we do believe that the continue going to be stable and really one of the strengths of our business, right? We've talked about this for a long time, the gross retention really reflects the value that we deliver on a day to day basis. And so, yeah, it's probably how it categorized, you know, kind of put it to it. Okay, that's the time we have today. Before we go, I want to let you know that we'll be attending a couple of investor conferences this quarter. We'll be at the Morgan Stanley Conference in San Francisco next week on the sixth.
and the Keybank Conference in San Francisco on the 7th. And we hope to see one of those events. And if you have any other follow-up questions, you can reach us at iratoctad.com. Thanks.
You Don, and just what Don.
Down to.
Yes, let it go