Q1 2024 Okta Inc Earnings Call

Speaker 1: We're also seeing continued strength in customers with over $1 million of ACV. We now have over 300 customers with $1 million plus ACV, which continues to be the fastest growing customer cohort with growth of over 40%.

Here are just a few notable examples of customer wins and upsells in Q1, which come from a wide range of industries. The business line of a Fortune 500 semiconductor company was an exciting new business win in Q1. The company's legacy technology was complex, not adequately secure, and couldn't meet the needs of the business line.

It selected Okta Workforce Identity Cloud to modernize its technology stack to meet industry compliance standards, and for Okta's ability to address multiple identity use cases. The business line also selected Okta Identity Governance to manage partner access to critical collaboration applications.

We continue to see great cross-selling between Workforce Identity Cloud and Customer Identity Cloud. Two great examples in Q1 were with Indeed and NerdWallet.

Indeed, the world's most visited job site started as a self-service customer and has since leveraged Okta Customer Identity Cloud to power authentication for its corporate customers. This quarter, the company expanded with Okta Workforce Identity Cloud, including Okta Identity Governance to bolster its security posture.

and improve the user experience for its approximately 13,000 employees.

NerdWallet, a platform that provides financial guidance to consumers and small and mid-sized businesses, was another great example of cross-selling between our two clouds, and a great illustration of how our customers layer on more and more Okta capabilities over time. NerdWallet has been leveraging Okta Workforce Identity Cloud since 2017.

with our customer identity cloud.

Okta Identity Governance, or OIG, continues to show strong traction. The initial customer demand is validating the desire for a modern approach to governance, one that is cloud-based and integrates seamlessly with access management. In just the past six months, hundreds of organizations have purchased OIG.

including Q1 wins with Indeed, Amplitude, and Australian Football League. We're really excited about the future of OIG, especially since of the customers that have purchased OIG so far, their OIG spend is typically around one-third or more of their total workforce identity cloud spend.

It's great to see OIG off to a fantastic start. Never Stop Innovating is a core Okta value, and we continue to make important advancements on that front.

We made a number of significant product advancements for our workforce at AnyCloud and Q1.

Advanced fishing resistance is now generally available with Okta Fastpass.

FastPass gives end users a seamless user experience without passwords. It now protects users against phishing with advanced phishing resistance for the enterprise, covering every user on any device and major operating system. Okta Identity Engine began shipping with every new Workforce customer in early 2022.

will help accelerate the pace of upgrades, paving the way for even more customers to reap the benefits and power of OIE. More customers on OIE means greater opportunity to upsell our higher value services and also higher retention rates based on customers converting to date. We're now in beta testing with Okta privileged access. We just admireager's value is higher. We are means for successful recall and promotion.ully.com

We're extending the same great secure access management as well as identity governance capabilities to privilege resources. Businesses will be able to easily integrate modern cloud infrastructure such as AWS EC2 or Kubernetes into Okta for centralized policies and controls across the resources their workers need.

Organizations are recognizing the value in the convergence of IGA, PAM, and access management, and Okta is in a unique position to address our customers' identity needs with a unified identity solution. We continue to expect general availability of Okta privileged access by the end of this year.

We're also innovating on Okta's Customer Identity Cloud, which processes billions of logins per month from around the world and provides a unique vantage point to both network traffic and application-level security event data. All of this data enables us to identify patterns and detect anomalies as potential security attacks.

We're harnessing that data for Security Center, which is now generally available for Okta Customer Identity Cloud. Security Center is a dashboard delivering real-time insights into potential attacks, allowing for security teams to respond quickly. In a heterogeneous technology world and an ever expanding number of devices and applications, best of breed technology is the future.

ships with Google for over a decade and have a deep base of shared customers. In the first phase of a new go-to-market alliance announced last month, Google's WorkSpaces global and public sector sellers will now co-sell Okta's workforce identity caught alongside Google WorkSpace.

This expanded partnership will enable both Okta and Google to reach new customers through a best-of-breed approach to security and productivity. In partnership with Zoom, last month we announced Okta authentication for end-to-end encrypted meetings for all paid joint customers.

This new feature leverages Okta to authenticate a meeting attendees identity to determine if a meeting guest is who they say they are. Critical to Okta's success over the years has been our indirect channel partners.

Historically, Okta turned to partners primarily for reach, and as Okta has grown, we've recognized the need to engage with partners more strategically. Last month, we unveiled our new partner program called Elevate. The program will recognize and reward partners for the full spectrum of value they can deliver to our customers at Okta.

from finding, developing, and influencing, to delivering, managing, and transacting. The more of these motions a partner offers, the more value they provide to Okta and our mutual customers.

Streamlining operations and accelerating business technology are critical to establishing Okta as a primary cloud.

To help drive these initiatives, I've asked Eugenio Pace, co-founder of Auth0, to take on the newly created role of President of Business Operations. Eugenio will turn his attention to the overall growth and operational excellence of Okta, including further accelerating our go-to-market effectiveness and increasing automation across the company.

Eugenio has a uniquely deep knowledge of the identity market and is an incredible partner. I've always been proud of our bench talent, so with Eugenio's new focus, Shivin Ramji, who has been a senior leader at Optizero and Okta for nearly four years, will lead Customer Identity Cloud.

To wrap things up, we delivered significantly improved profitability and record cash flow in the face of increasing macro-related pressure. At the same time, we continue to deliver value to our customers and underscore our leadership position through product innovation. Identity is a key building block for zero-trust security, digital transformation, and cloud adoption projects.

trends that will continue in any macroeconomic environment, as organizations look for ways to become more efficient while strengthening their security posture. Over the next decade, identity will become increasingly important, and we firmly believe that the winner will be independent and neutral, and will deliver a unified platform covering both customer identity and security.

workforce identity acts across access management, governance, and privilege access.

Okta is the best positioned company to deliver this to the market and expand on our leadership position all while delivering profitable growth over the long term. Now here's Brett to walk you through more of the Q1 financial results and our outlook.

Thanks, Todd, and thank you everyone for joining us today. We continue to make meaningful progress on the actions we've taken to drive efficiency in our cost structure. Thank you. Thank you, Todd. Thank you, everyone, for joining us today. We continue to make meaningful progress on the actions we've taken to drive efficiency

As Todd noted, we're achieving these results while investing in our platform and business to fuel our future growth. As we navigate the increasing pressures of the macro environment, we remain confident that we have set the path of profitable growth for years to come. I'll review our first quarter results and our outlook for Q2 and FY24.

Most notably with new business across SMB and Enterprise.

These impacts were felt in varying degrees on a global basis. Similar to Q4, customers are requesting shorter contract term links and our overall business was weighted more towards upsells versus new business.

We're also seeing smaller average deal sizes as a result. And finally, we continue to experience minor FX headwinds on our top line metrics, which are incorporated into our reported numbers and outlook.

Turning to our Q1 results. Total revenue growth for the first quarter was 25%.

Driven by a 26% increase in subscription revenue.

Subscription revenue represented 97% of our total revenue. International revenue grew 23% and represented 21% of our total revenue. RPO or subscription backlog grew 9%.

Impacting total RPO growth is the general shortening of term links of recently signed contracts.

Our overall average term length is just over two and a half years.

Current RPO, which represents subscription backlog we expect to recognize as revenue over the next 12 months grew 20% to $1.70 billion.

Turning to retention. Consistent with prior quarters, gross retention rates remain very healthy in the mid 90% range.

Our dollar-based net retention rate for the trailing 12-month period remains strong at 117%. The sequential downtick in the net retention rate stemmed from a decrease in the upsell rate with both enterprise and SMB customers.

Given the current macro environment, customers are not expanding seats at the rate they have in recent years, and we believe this trend will persist in this environment.

On a positive note, we are seeing strong growth in cross-selling of products.

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'll point out that I'll be discussing non-GAAP results going forward.

Looking at operating expenses. Total operating expenses for the quarter were lower than expected. The better than expected profitability is primarily due to the combination of revenue overperformance and better than expected outcomes from spend efficiency measures. Total headcount at the end of Q1 was approximately 5700.

The sequential decrease primarily reflects the restructuring action taken at the beginning of Q1. Q1 free cash flow was a record $124 million, yielding a free cash flow margin of 24%. This includes the cash outlay of approximately $14 million related to the organizational restructuring.

During the first quarter, we opportunistically repurchased $366 million of our 2025 convertible debt notes, resulting in a $31 million gap-only gain. We will continue to regularly evaluate our capital structure and capital allocation priorities. Our balance sheet remains strong, anchored by $2.37 billion in cash, cash equivalents, and short-term investments. We will continue to evaluate our capital allocation priorities and capital allocation priorities.

Before getting into our outlook, I wanted to provide an update on equity dilution. At our investor day last November , I indicated that our historic norms for net dilution was in the 2 to 3 percent range and that we expected that range to be elevated in the near term primarily related to the change in our stock price.

I'm pleased to report that due to changes that we implemented, including changes in our granting practices and slowed hiring, net dilution for FY23 finished better than expected at less than 3.5%.

And we now believe that dilution for FY24 will be back within our historical range. Manage and dilution will continue to be a focus area and we remain committed to further reduction over the long term.

Now let's turn to our business outlook for Q2 and FY24. Our projections continue to factor in the increased pressure from the macroeconomic environment.

As a reminder, we've taken several actions to reduce our cost structure and increase our efficiency as an organization, which will benefit margins this year and beyond. With that as a backdrop for the second quarter of FY24, we expect total revenue of $533 million to $535 million.

representing growth of 18%. Current RPO of $1.71 billion to $1.72 billion, representing growth of 14% to 15%.

non-GAAP operating income of $36 million to $38 million, and non-GAAP diluted net income per share of 21 cents to 22 cents, assuming diluted weighted average shares outstanding of approximately $180 million.

For FY24, we are raising our revenue outlook by $15 million at the high end of the range. We now expect revenue of $2.175 billion to $2.185 billion, representing growth of 17% to 18%. For more information, visit www.fema.gov

We are raising our outlook for non-GAAP operating income by $25 million to $161 million to $170 million, which yields a non-GAAP operating margin of approximately 7% to 8%.

non-GAAP net income per share is raised to 88 cents to 93 cents, assuming diluted weighted average shares outstanding of approximately 180 million. And we are raising our free cash flow margin outlook for FY24 to approximately 12% from approximately 10% previously.

Lastly, I want to provide a couple of comments to help with modeling Okta. Similar to years past, Q2 is expected to be the seasonal low for cash flow and we are applying a static 26% non-GAAP effective tax rate for the fiscal year.

To wrap things up, we've taken action to drive efficiencies in our cost structure while investing to fuel our future growth. And we're confident that we are positioning the company for many years of profitable growth. With that, I'll turn it back over to Dave for Q&A. Dave?

Thanks, Brett. I see that there are quite a few hands raised already, and I'll take them in the order. In the interest of time, please limit yourself to one question, and then you're welcome to queue back up with additional questions.

So the first question goes to Rob Owens at Piper. Thanks Dave and good afternoon everybody. Was hoping you could help me out a little bit with.

there's somewhat the disconnect, I guess, between CRPO and how it's trending and annual revenue. And annual revenue is inching up a point here, you know, 17%, 18%, but CRPO going the other way. So realizing that a lot of that is subscription revenue, it's already quote in the bank, but trends definitely are pointing the other way. So is that 14, 15% guide is that

somewhat of a low watermark as we kind of contemplate the back half of the year. Thanks.

Hey, Rob. Nice to see you. I'll take a shot at it from a big picture perspective and then Brad can probably add some details on the guidance. The quarter and the year is off to a solid start. I feel like the customer base is super solid. We're seeing...

really healthy gross renewals in the same range we've seen for several quarters indicating that base of customer strength. We're also seeing the momentum in terms of conversations and importance of identity be really quite strong. The macro is a little bit of a different story. We talked a little bit about the macro headwinds we're seeing to an increasing degree.

It's interesting that the way it's manifested itself in the numbers is a little bit of average deal size is a little bit lower. The new customer count is a little lower than we would have expected, but interestingly enough in terms of the a lot of the execution or a lot of the execution metrics for looking at whether it's sales force attrition or.

the amount of sales reps doing a CIC deal, which is two things we've been watching a lot on the go-to-market side over the last few quarters, are getting better and better. So that's very positive. Another interesting thing is that the more of the large deals, over a million dollars in customers crossing that one million dollar ACV threshold is up over 40 percent. So that's super positive.

So I think it's a lot of things to be positive about, solid execution, improving execution. But the macro backdrop is just, there's a lot of uncertainty around it. So that is kind of a high level, how we're looking at the business and color some of our outlook.

I think from a current RPO guide perspective, obviously, we've been thoughtful about the macro. I mean, we talked about it over the last few minutes and how it's really been affecting us a little bit more every quarter. So we're being prudent about that side. And I think the other thing I want to make sure everybody remembers is current RPO.

Does have some residual effects from those FY23 execution challenges. It's not the major part of it, but that does also weigh on the growth as we, as we go through this year.

Thanks for the color, Romm. All right. Let's go to Roger Boyd at UBS..

Great, thanks for the question. Maybe just to push a little bit further on macro, I think it sounds like the biggest impact is really just around deal sizes, but I wonder if you could talk about what you're seeing through the first month of May or the first month of 2Q that's really changed if you think about sales cycles, pipeline, et cetera. How does that kind of factor into the guidance you've laid out? Thanks.

Yeah, the pipeline is solid. It's interesting that if you look at the analytics, we look at the whole of the business, that's where you get that average deal size ticking down. We just have conversations with customers and auto-mod Dominican and the entire business.

the qualitative aspects of how important identity is and being interested in this approach we have, which is, hey, you can get customer identity and workforce identity and privilege and governance from one customer. Very positive conversations. Also more on the qualitative side.

We saw a lot of deals, or maybe more than normal, we always have some deals that slip out of an end of a quarter, but we had more than normal slip out this quarter. And I guess that's not great, but on the positive news, we've had many of those close in the first quarter of, or in the first few weeks of Q2 here. And I think what that tells me is that it's more confidence that

It's not a question about the value of identity or the long-term strategic nature of what we're selling. It's more of what every company is doing. Okta, we're doing this ourselves internally. We're really asking for scrutiny on every purchase. We're trying to be more efficient. We're making sure, customers are making sure they're getting ROI. There's maybe another level of budgetary approval that we didn't see before.

It does slow some things down, but projects are still moving. And when I talk to CIOs of some of the biggest customers in the world, they say, hey, identity is going to help me be more secure. It's going to help me have a more efficient workforce. It's going to help me transform digitally. And it's something people are doubling down on and invested in. So.

I think you're seeing solid execution, a lot of macro uncertainty, but long-term identity is going to be an important thing and we're going to be there to serve the market.

Great. Next question goes to Josh Tilton at Wolf Research.

Can you guys hear me? Hey Josh.

Hey guys, how are you? Good. Just a quick one for me and I don't, you know, sorry to come back to the macro here, but I just wanted to clarify. Brett, in the same sentence, you kind of said increased macro headwinds, but then you also reverted to similar to Q4. So I'm just trying to understand, did the macro actually get worse from last quarter? Or did it stay the same? Yeah, definitely.

Yeah, yeah, I definitely got worse. So what I meant by that is there's some similar trends to Q4 in terms of new business versus upsell mix being much more weighted toward upsells. That's been pretty consistent in terms of us seeing that, right? The contract duration continues to be a little bit lower than what we've historically seen, but some new trends that are coming around are what you heard me talk about around less seed expansion.

area where you're like, wow, it's really affecting it more there. It seems from what we can see in the data, everything that we're looking at, it really does feel much more broad based at this point than it was. Um, maybe, maybe in the past or, um, so now we're where we said, you know, in the previous couple of quarters ago, we said, you know, it's a little bit more small and medium sized business. We're seeing both enterprise and small and medium sized business.

the same and just maybe how should we think about the CRPO numbers for next quarter or maybe the year-over-year comps with all zero in the mix.

Yeah, absolutely. It does in fact assume that the macro does get worse, both on the current RPO side and on the revenue side. So obviously, when we think about the guidance, both of our

In terms of the compares, I mean, you heard me say a second ago, there is some residual impact from the execution challenges we had in FY 23 in the current RPO guidance. But obviously, we're being thoughtful with our thinking about the balance of the year given what we've seen in the macro and how it's developed over the last few quarters.

Yeah, one quick thing there is, off zero was in the comps last year, so that should be a like for like there. Yeah. Super helpful. Thanks, guys. Yeah, sure. Thanks, Josh. Next up, Adam Tyndall at Ray J.

Can't hear you, Adam. Can't hear you, Adam.

There we go. Hey Todd, I wonder if you could maybe opine on a story that's going on with investors. We're seeing the quantitative metrics here. The NRR is in decline. The average deal size that you talked about is ticking down, but you've got more products to sell in each deal and it leads to this qualitative story of perhaps we're in more of a commoditization cycle.

And if you could maybe comment on the pricing environment broadly and how to compete now versus years ago, that would be helpful. Thanks. Yeah. We hear that narrative as well. And it's interesting. We just don't see it in the data. The wind rates remain strong. I mentioned the average deal size ticking down a little bit, but the unit price we get is stayed consistent.

So when we look at the data holistically and be rigorous at it, and really something we do culturally, which is check our assumptions and make sure we're seeing the world as it is, we just don't see it. We think that the right strategy is to continue to build the best products for identity use cases broadly.

package them and sell them as we sell them and make sure that we keep delivering that leadership position to the market. But listen, we're not, I mean, we want to win and we're rigorous in our analysis and we do make sure we look at things with an open mind that we're executing the best strategy, but we think our strategy and approach based on all the data and based on what we're seeing, not just quantitatively too.

Fast pass, we think we have a winning strategy and we'll keep executing it.

Is there still an intent to replace Susan or is the management changes you talked about with Yohannes today that is the new strategy? Just to clarify, thanks. It's great. Thanks for asking. Yeah, I am still searching for a go-to-market president. That's a really important search. In a lot of ways, we have the luxury of making sure we look everywhere and find a truly amazing000 150 people that drive.

And when you look at the people we're talking to, there's not a lot of people in the world that have experience taking a company from $2 billion in ARR to $10 billion plus, which is where we want to go over the next several years. So we have, thankfully, the team that's in place is doing a great job, whether that's the interim chief revenue officer, John Addison, or...

our marketing and customer success executive, Eric Kelleher is doing an amazing job, or Eugenio is taking on this role, which is really, really important. It's about how do we make Okta operationally excellent across all dimensions, including very importantly, the strategy operations of teams within a complex Hit waitress tea shop?

of the growth of go-to-market, which is an important component of that, including the automation projects and the technology, IT projects that have to come together to make that happen. It's adjacent to the president, very important role, but we're going to find a great person for that president role and I think we're on track to do that. Let's go to Sterling Audie at Moffett Nathanson.

Hey guys, this is Billy Fitzsimmons on for Sterling Audi. Hey Billy. I'll steer away from macro for a sec. How do you both think about Optus opportunity in the generative AI space and the identity opportunity with the emergence of AI applications?

I have a big news flash for everyone. I think AI is a big deal. I think it's one of these things that is getting a lot of hype and is probably still under hyped. I don't think it's like a, it feels like it's come out all at once, but it's really been.

culmination of a really a lot of important trends in the world both

just like the algorithmic advancements and what they're doing with originally what was TensorFlow and now the large language models in various domains and or it's the compute power which everyone knows about or the key thing too is just the data. If you think about the breakout application, it's chat GPT. And chat GPT really is relevant because of the compute and because of the algorithms, but really because it was trained on the internet for 20 plus years of the internet to.

be that training set for that model. So you have to have the data. So when we look at our own business, one of our huge, we have AI in our products and we have for a few years, whether it's Threat Insights on the workforce side or Security Center on the customer identity side, which look at our billions of authentications and use AI to make sure we defend other customers from like,

similar types of threats that have been prosecuted against various customers on the platform. Those products are great and they'll get better with better algorithms and more data because we have this strategic advantage of having so much data. We can see the patterns and we'll continue to add more products that take advantage of data and algorithms and compute. So I'm really excited about the potential. One of the ideas that we're...

we're working on that might be a atypical use case of how someone like us could use AI, is configuring Okta, setting the policy up for Okta across hundreds of applications on the workforce side or tens or 20 applications on the customer identity side with various access policies and rules about who can access them and how they access them. It would be pretty complicated to set up.

and the products how it could be maybe a non-obvious use case. The other one we're excited about is if you zoom out and you think this is a huge platform shift, it's the next generation of technology, so that means that there's going to be tons of new applications built with AI. It means that there's going to be tons of new industries created, and industries changed, and there's going to be a login for all these things. You're going to need to log on to these experiences.

Sometimes it's going to be machine, sometimes it's going to be users. That's an identity problem. We can help with that. So in a sense we're really going to be selling picks and shovels to the gold miners. In fact you all know that OpenAI as a customer and our customer identity cloud is the login for chatgpt. So that's you know I would say a very exceptional example of a successful application in the extreme.

Thank you for taking my questions. I guess, you know, come back to the guide, the CRPO guide, and certainly the implied second half revenue guide, Brett, implies growth exiting the year in the mid-teens, if not maybe even the low-teens. And I guess what can you guys, on the one hand, you're talking about improvement in metrics with the Salesforce productivity and selling CSC, et cetera. I guess what more do you have to do to maybe put a stop to the deceleration?

I think I made the comment that we've made a lot of progress on some of the execution issues we had last year. We talked about sales attrition being healthy and tenure ramping and productivity of reps in terms of selling CIC being positive. So we're still doing a lot of things to improve, and that's across the whole company by the way. Whether it's operationally improving our efficiency, our effectiveness, building better products, building products.

whether it's deal sizes we mentioned, things like that, that's when we're really going to be comfortable that the macro is past us and the business can achieve greater than the guidance we've outlined.

Yeah, I would just also add to that, that I would say that we remain committed to this profitable growth concept, right? I mean, we've been talking about this for a while now and you can see it in this quarter with, you know, the margins that we had, 24% margins on the free cash flow side, 21 point improvement, non-GAAP operating margin was strong as well. That was a huge improvement year over year.

It's not just, obviously we want to grow as fast as we can, but we want to grow responsibly and profitably as we move forward.

That's helpful, thank you.

That's helpful. Thank you. All right, let's go to Jonathan Ho at William Blair.

Can you help us understand where we are with the sales transition productivity levels and what is left to be done at this point? You referenced the sales conditions earlier. Thank you. Hi Jonathan.

Q2 of last year kind of announced it, revealed to the world in November so into Q4. This is really the end of Q2 here is really the third quarter since it was publicly launched, kind of the fourth quarter since we started working on it internally.

So that was a big milestone behind us. And we look at evidence of that as resident. We look for evidence of that as resonating. One thing is just the qualitative conversations with customers, conversations with analysts in the market, industry analysts, et cetera, et cetera. And those are all going very well. Quantitatively, what we look at is we look at, you know, the numbers I mentioned over and over. It's how many sales reps have done customer.

tuning of go-to-market and the running of the go-to-market machine on a global basis is something we're always improving. Whether it's, you know, better top-level, more effective campaigns in terms of driving demand generation, whether it's just operationally how we're prosecuting leads to opportunities, how the sales team is...

taking those opportunities and all the kind of the blocking and tackling of sales, the sales the sales funnel and the sales machine. We're continuously improving that. I think, but the big changes we made last year with that clarifying of the workforce identity cloud and the customer identity cloud positioning and you know some of the changes we talked through at that time.

So I guess it's a tale of two things. It's getting those big rocks behind us, while also continuing to make sure the go-to-market machine is humming as effectively as it can. But remember, you have a team that's, every quarter, the retention is strong or the attrition is low, you have more ramp, and they've done more deals, and they have more bass to do more deals, and they're getting more and more productive, which is a positive signal.

Yeah, I would add one comment to that, Jonathan, which is the CIC trend that Todd talked about in terms of participation in the field is getting better. But the other thing that we saw in the quarter, which was a real strength, was cross-selling across all products, whether it was more WIC products to a WIC customer or a WIC customer buying CIC.

It was actually one of the fastest growing areas we had in the company and was definitely accretive to growth in the quarter. So we're very excited about that trend because that really shows you're getting a go-to-market organization that has a breadth of understanding of how to pitch the value and how to deliver value to our customer base.

areas we had in the company and was definitely accretive to growth in the quarter. So we're very excited about that trend because that really shows you're getting a go-to-market organization that has a breadth of understanding of how to pitch the value and how to deliver value to our customer base.

Next, we'll go to Ray McDonough at Guggenheim. Great, thanks. This is Ray McDonough on for John Zappucci. Maybe for you, Todd, how important is bringing IGA and PAMF together to help maybe accelerate or ramp adoption of IGA? I know it's early with the product, but do you see any delay or hesitancy?

in customers purchasing attention around IGA, just waiting for the full release of PAM to put those two solutions together? Yeah, it's a really insightful question.

We don't. We actually, the IGA has, or OIG, Octa Identity Governance, which is our IGA product, has surpassed every goal we've had for it. Hundreds of customers using it. It's surpassed the expectations in terms of, you know, we originally thought it'd be more of a mid-enterprise. It's provided value to some of the largest companies as well. Another surprising thing is we thought it would be more...

hey, Greenfield, you don't have any EIGA solution, this would be your first one. We're actually seeing it be deployed alongside of some of the other solutions in the market, which is a little bit unexpected, a positive thing. Then also even a few times it's replacing solutions, which surprised me. I thought people once they had something installed, they wouldn't replace particularly the on-premise.

I think that the fact that privilege has integration to IGA will accelerate privilege. Cause that's something that hasn't happened before. Privileged resources were really around, or privileged access management was really around the admin accounts and dealing with those things in somewhat of a silo.

And what we're doing is you can have the same kind of access certification, the same kind of reporting and visibility across all your resources that, you know, servers, Kubernetes, and you get the governance capabilities with that. So I think there'll be a tailwind there where we're not seeing the hesitancy the other way. Although I think.

there could be an upside, but we're just not seeing a lot of people waiting to go with IGA because of the privilege not being there quite yet.

Thanks. Next we'll go to Adam Borg. It's Tifel. Awesome. Thanks so much for taking the question. Maybe just on the federal vertical, you know, you guys recently talked about the opt-in for the US military. That seems like an interesting announcement. You talked about a growing partnership with Arisov. So…

maybe how to think about the federal opportunity more broadly and where you invest in the most of that. Thanks. Yeah, federal. Oh, go ahead, Todd. Oh, yeah, I was going to say it's a really important vertical for us. And we've had a, you mentioned the DOT military, the instance for the DOD, which is the DOT military instance.

And then also we achieved federal high recently, and these are all huge tailwinds to that important business for us. The government is, and it's not just federal by the way, it's a state and local as well. Some of our sizable opportunities over the last couple quarters and over the next few quarters are actually with states. States doing big transformation projects.

We have a big goal and target on federal this year. It's something we invested a lot in and we're very excited about the potential for that to achieve and even overachieve its targets. Yeah, I would just add to that in the sense that if you remember last time we spoke for FY 23, federal specifically was the fastest growing segment we had across the company, and that's direct result of the focus we put on in FY 23, and I think that's created a lot of momentum for us as we're going to move through this year. I mean, you saw the US Air Force recruiting service sign on for us.

as a customer. We're definitely excited about the opportunity in the long run. Awesome. Thanks a lot. Let's go to Stefan Schwartz at Wells Fargo. Hey, I'm on for Andy Dyminski. Thanks for taking my question. Just a quick one. You mentioned that Pam is in beta. Any early customer feedback from that?

Yeah, it's pretty early. It was released, I think, in the beta six weeks ago. But yeah, they're digging in and a lot of these customers, they were familiar with the roadmap. And so they really hone their evaluation to be

really in the sweet side of the product, which is dynamic environments that use a lot of containers, use a lot of cloud instances, want to control those types of environments with the same types of access management primitives like passwordless, like...

anti-phishing access management capabilities that the core Okta platform provides. So they're really kind of perfect fits for this. So it's off to a very good start, it's early, we expect that the next wave of

the next wave customers will be much broader. It'll also be customers that maybe weren't as hand selected. So we'll get a lot of good signal out of this next wave as well.

Just real quick, any timing on when you might see the next wave of customers? So I would, instead of the exact time on that, I would focus on the fact that we're on track for the end of the year GA. Got it, thank you.

Just real quick, any timing on when you might see the next wave of customers? Instead of the exact time on that, I would focus on the fact that we're on track for the end of the year GA. Thank you. Next up is Joe Gallo from Jeffries.

Hey guys thanks for the question. Todd you've mentioned SIAM being a key focus area this year. Just any quantitative or qualitative update on the performance of SIAM versus Workforce and then maybe just a quick update on the Salesforce's comfortability selling SIAM. Thanks. The one, it is something importantly we watch and I mentioned a couple times that

you know, just kind of qualitatively as I have conversations with customers and I do my, you know, I talk to a lot of customers and I'm in a lot of both being the executive sponsor for big accounts for Okta but also working with deals and new customers. It's still a relatively small number given the number of, you know, 18,000 plus.

you know, important workforce customers that want us to, you know, are going through strategic transformations and want to make sure that we're going to be there to support them for massive rollouts and huge investment in Okta. And then when you look at the, but when you look at the aggregate number, the one, the one that's really important is just the, the, the number of sales reps doing these CIC deals.

And that's just more about more repetition. That's going to lead to, I think, really, really balanced business going forward and a go to market organization that can sell both products at scale. The one thing I will say in terms of qualitative as well, or quantitative as well is that the the macro impacts we're talking about, whether we say, you know, smaller than average or decrease in the average deal size or.

It's the tilt toward upsells versus new business. These are across both use cases. These are consistent across workforce and customer. We don't, you might want to, one of the ideas we had is it would be impacting one more than the other and we don't see that. It's spending millions of dollars and billions of dollars Isn't totally over zoned at this point, but we're seeing somelander of the word that we're seeing here and it's getting built into the KILLER network one of the best places in the world.

It's consistent across that, which is also a reason why, you know, when you think about market dynamics or pricing or competitive, the two businesses have very different competitive sets. And it's interesting that all these trends we track are impacting both the same, which also gives us confidence that it's macro-related.

You know, I just it would add to that in the sense that if you heard my comment a 2nd, go around how cross selling. Across the business, whether it's inter cloud or inter cloud was really good. 1 of the bright spots in that was the cross selling of CIC. Into into other types of customers, so it's another good positive sign inside.

what we're seeing in the execution of the organization. Thanks. Next we'll go to Fred Hevmeyer at Macquarie.

Thank you very much for taking the question. I'm sorry to return the conversation back to macro. No worries. No worries at all. Thank you. I'm hoping to get a better picture or more intuitive understanding about where the macro headwinds are originating. I wanted to ask if you could elaborate about, is this something that could be coupled perhaps to layoffs and hiring freezes that are ongoing, you basically cross a whole range of markets?...

Or is this something perhaps more related to just general cost controls within organizations? Or is it something completely different? I would say it's a mix of both of what you just said. Because when you look at the workforce identity cloud, you heard me talk about seed expansions. Well, the seed expansions are really our customers' employees, right? They don't have as many as they expected, so they're not going to buy more. Or maybe they have less than they had when they originally contractually agreed with us.

That's happening also, by the way, on the CIC side, the Customer Identity Cloud side as well. You're seeing the commitments to an expectations around their own websites or their own customer facing applications being a little less so. We're seeing that component, but then we're also seeing if you look at contract durations, seeing how they're a little bit shorter than normal. I think people are just being more thoughtful about the uncertainty out there in the.

Thank you for the context.

Let's go to Shrinak Thari at Bayer. Thanks for taking my question. On the positive side, I know Brad mentioned that you guys have seen strong growth in cross-sell across products. I'm assuming it's both customer identity as well as IGA.

beginning to move the needle in terms of ACV, but I mean since you guys mentioned about the future of Identity governance you guys are seeing almost one-third or more of the total workforce identity cloud spend going to ID so just just wondering and I think You touched upon it in terms of

essentially the majority of business still being Greenfield but and the replacements are also in terms of your ability to win in our our pieces exceeding your expectations of can you provide some more more color there has there been more replacements compared to last quarter in terms of the mix how how that's trending

Thanks. Yeah, I think it's a really good... It's some really good questions there. I'll separate the kind of aggregate statistics of the healthy cross-cell and up-cell numbers. So this is inclusive of, you have a workforce, you add multi-factor, you have single sign-on, you add multiple three-factor.....

advanced multi-factor or governance. So there's multi- it's upsell products within Workforce. It's also upsells, I'm sorry, cross sells within Workforce. It's also cross sells where you have Workforce and you buy a customer, you buy a customer, you have customer and you buy Workforce. So that's just in the data holistically. So IGA, it's off to a strong start, but it's still, it's only in the hundreds of customers.

So it's very optimistic, but it's not really moving that needle yet. We think it will over time, but it is off to a very fast start. And I think one thing that, just to clarify what I said, I think that our assumption was that it would be more greenfield. We think it will be more greenfield. So I think that our assumption was that it would be more greenfield. And I think that our assumption was that it would be more greenfield.

It's a very, it's a modern IGA. It's super integrated with access management. It covers all the basic use cases and all the integrations that a customer that is more cloud-centric and modern in their technical architecture would want or need. And so I thought it'd be more greenfield. The surprising thing is that.

it's being installed next to legacy deployments. So even though they chose a legacy vendor, for whatever reason they couldn't expand it fast enough, they didn't get the value or they didn't get as broad as they wanted to. They're putting Okta identity governance next to it for surrounding it. I don't, we have seen a couple replacements, but I think full ripouts of an IGA solution are going to be relatively rare.

I think once people get these things installed, they work and they don't touch them. But we also think there's a big opportunity to – I mean, the IGA market right now is not that big. We think with a great product like Okta identity governance, we can make it much, much larger. And that's why these early trends are super exciting. Got it. Thanks a lot.

once people get these things installed, they work and they don't touch them. But we also think there's a big opportunity to, I mean the IGA market right now is not that big. We think with a great product like Okta identity governance, we can make it much, much larger. And that's why these early trends are super exciting. Got it. Thanks a lot. Next up, let's go to Scotiabank.

Hey, this is Joe Vandrick on for Patrick Coville. Can you hear me okay? Hey Joe, loud and clear.

All right, so going back to the governance product, adding an incremental 33% or so to customer spend for those who adopt it, should we expect a similar uplift for customers who adopt PAM once that's filled out? Thanks. Yeah, I think that's realistic. We want to see it in the market and see it contribute that because...

That one-third increase is based on looking at customers in the market, hundreds of customers. When we look at PAM right now, we see the pricing of it and we model it out. We think it could contribute that much, but we want to see it actually before we're as confident as what we're seeing in identity governance. We think it could contribute that much, but we want to see it as a result of that.

I guess I'm a CRPO guide. If I'm thinking about the impact from off-air integration last year, can you give us some parameters on how large that is? I think the 1% impact is very different from 5% impact.

What do you mean, like the impact associated from the customer identity cloud selling last year? Some of the selling issues and how that's reflected in CRPO growth.

Got it. Look, I couldn't give you the exact percentage. I mean, obviously it creates a headwind for us both on revenue and CRPO because we didn't execute as well as we want. But obviously, as you've heard today, we feel like we've turned the corner on a lot of those execution issues and we've actually had quite a nice quarter about top line in.

and bottom line. So yeah, I can't give you an exact number. Okay, got it. No worries. And then on the customer side too, I mean, I know you said that there's no in you guys aren't seeing an impact, a difference from macro impact on that. But given that customer is a little bit more of a transformational project, if we think forward as to how the year is going to go, are you

you know, forecasting any slow down on the customer side because of that. And, you know, if you look forward to it, Brett, you mentioned that you are having a little bit more conservative going forward. So where is that conservatism coming from? Is it still assuming you're going to see similar impacts on both product lines? Yeah, the guidance right now assumes it's, uh, it gets worse in both product lines because we are seeing the impact in both product lines.

And so, you know, presumably this quarter was a pretty big step down on a quarter over quarter basis, but how should investors be thinking about the net retention rate as we look out over the next couple quarters? And related to that, you've talked about IGA and PAM and presumably some other products being interesting to customers. And so if the macro just stays the same or maybe gets a little bit worse...

If we think over the next two to four quarters, how might these products really be able to help the mix or the upsell, if you will? Because what I think investors are really struggling with is the CRPO guide is candidly deemed to be disappointing. But the larger question is, is that 14 to 15%? Is that the bottom, or does it get worse from here?

In terms of net retention rate, the decline quarter over quarter from 120 to 117, like we spoke about previously, we did expect the number to decline. And there were two reasons. If you remember last time I talked about macro worsening and we basically spent most of this talk about macro worsening.

So it definitely kind of played out like we thought it was. You can see it through the seed expansion stats that we talked about today. The other thing we talked about is why we thought it was going to drop throughout FY24 was around FY23 customer ads. We didn't add as much new business and new customers in FY23. Thus makes it less customers upsell into an FY24. We're going to talk about why we thought it was going to drop through FY24. That's one of the things that we talked about today. We talked about why we thought it was going to drop through FY24. We talked about why we thought it was going to drop through FY24.

Both of those obviously came to fruition. 117 is where we landed. But the thing that I want to make sure everybody is very clear on is that the gross retention rate remains stable in that mid 90% range. And we do expect that to continue throughout the balance of FY24.

In terms of those two other factors, which basically influence your upsell rate, the upsell rate is basically the difference between net retention rate and gross retention rate. We do believe that there's a continued headwind through the year, and we do believe we tick down from here in terms of net retention rate through the balance of FY24.

Now to your question on OIG and PAM, yes, obviously we're actively working that to have those offset, those seed expansions, but I mean, OIG off to a great start as you've heard Todd talk about. But the numbers are still small. We all need hundreds of customers versus 18,000 plus customers. Then PAM,

is only going GA at the very end of the year. So we'll see the effect from PAM more likely in 25 and 26. So that's how I would think about net retention going forward.

The other thing too is that when you think about the products to potentially upsell, the customer identity or workforce identity, selling workforce identity to someone that has customer or customer that has someone in the workforce is way bigger impact than PAN and IGA at this point. That could change next year or 26, but for this year, the big upsell opportunities are R AH- <expletive> embarked into smartplay. Claire tie business to alueta

selling the other cloud. Okay, and just to finish off though, is there anything you want to say about the CRP of growth? I mean, can you say this is the bottom or is it just too hard to call at this point? We'll update you as we go. Obviously, it's a fluid macro environment so we don't want to get too far out in front of ourselves at this point.

Okay, and just to finish off though, is there anything you want to say about the CRP of growth? I mean, can you say this is the bottom or is it just too hard to call at this point? We'll update you as we go. Obviously, it's a fluid macro environment, so we don't want to get too far out in front of ourselves at this point. Okay, thank you.

And now we're a little bit past the top of the hour, but we'll go into overtime a little bit more here Try to get to a few more questions. So next let's go to Gabriella Borges at Goldman. I Thank you. I want to stay on the topic of merit tension, right? Could you remind us what percentage or how do you think about net retention split between? upsell

If you look back over the past couple of years, how much has seed count growth or classic upsell contributed to net retention versus how much has cross-saled today? So that was what I was saying earlier, which is seed expansion definitely was a headwind to growth and also a headwind to net retention in Q1.

And we do expect that to continue to be a headwind as we move forward, given our lens on macro and what we're seeing. So Crossout had a nice quarter, like you've heard us say, but it's really that seed expansion is really what we're seeing. And when I say seeds, to be very clear, it's both seeds on the workforce side and MAUs on the customer side. So we're seeing it in both sides of the business, and we do believe that continues to be a headwind throughout the balance of FY24.

Is there a way to think about what the typical magnitude of contribution would be in a normal year from plastic upsell? It varies from year to year, but it's been a mix between the two. It hasn't been like 90-10 one or the other, right? It's been a mix between the two.

typical magnitude of contribution would be in a normal year from plastic upsell. It varies from year to year, but it's been a mix between the two. It hasn't been like 90-10 one or the other, right? It's been a mix between the two. Thank you.

Let's go to Eric Keith at KeyBank. Thanks, Dave. Just a question for you. I mean, Microsoft last week at their Build Conference announced a new program or new product around science. So just curious to get your initial thoughts there on that product and maybe how that may alter the competitive landscape, if you will. I didn't pay attention to it. I'm not familiar with that announcement, so I can't comment on that specifically. But I do know that it's...

It's just they've tried customer identity stuff in the past. I think it's just pretty different than their workforce identity pitch, which is like get identity as part of your email. The whole focus of their identity.

program really is to be identity for email and then by extension be identity for security and it's just a pretty different motion than customer identity and having a great developer experience and having the integrations that you have to have on the customer identity side. So I think I don't know the specifics, but it's just a pretty different world.

I think that's why we're pretty unique to have such scaled businesses in both. By far the biggest customer identity vendor. It's important to bring both to customers, but one of the reasons why it's so valuable from a company perspective to be that vendor is because you have to really build two muscles to do it successfully, which is what we've done. Thanks, Todd.

we're pretty unique to have such scaled businesses in both. By far the biggest customer identity vendor. It's important to bring both to customers, but one of the reasons why it's so valuable from a company perspective to be that vendor is because you have to really build two muscles to do it successfully, which is what we've done. Thanks, Todd. Let's go to Brian Wilcox at Cleveland.

Great, thanks for taking the question. Could you talk about the contribution you're seeing from Cloud Marketplace transactions and how you think about that channel longer term given we're hearing many customers are using it as a way to work down access cloud commits? Yeah, we're definitely seeing that as well. The AWS Marketplace has been pretty successful.

For us, it's still relatively small in terms of our overall partner channels, but it's growing quite rapidly. And the same thing, it sounds like you've heard, we hear as well, customers like they can spend their enterprise credits that they've purchased. They can spend it on Okta through the marketplace. That's pretty compelling to them. But I think there's a bigger reason why Amazon is a really good partner for us and customers use the marketplace.

the Zoom announcements, one of our big value props is our independence and our neutrality. And some of that's just the way we build features and how they're not beholden to kind of shuttling certain technology to customers, but it's also the ecosystems and the partners' ability to work with us, whether it's Google Workspace or Google W Or Google Workspace, just for the sake of that. In our remarks, some people have added a Twilio, which would be black. Its wh Here's Chase. How you Let's watch our One-ulk

Amazon or Zoom we talked about are the hundreds and hundreds of other big scale technology vendors that have an interest in their choice in an ecosystem. We are a ready, willing and capable partner for them.

Amazon or Zoom we talked about, or the hundreds and hundreds of other big scale technology vendors that have an interest in, they're having the choice in an ecosystem, we're a ready and willing and capable partner for them. This lecture is Connor on supply side and tantalizing Steve over time to Hello in Ctrl Interactive. Thanks. Welcome, infarEEP. I'm Connor and I'm watt

Let's go to Matt Hedberg at RBC. Hey, thanks guys. So there's been a lot of talk about better cross-sell and upsell within your base versus new logos. I'm curious, when you look at the new logo side, how do you think we could start to unlock the broader legacy identity access management replacement side? There's hundreds if not billions of dollars out there on the legacy side, seemingly waiting to be unlocked.

Yeah, I've said this before for folks that have listened to the calls and I've had the pleasure to meet and talk to, I think the biggest opportunity for Okta is really the mass, which is coming, the mass movement of people to do security and identity from the cloud, whether that's on the workforce side where the default in especially large organizations, the default is just a...

kind of do it in their own data center and do it on premise, do it in their own office and their own, you know, they think about the old world of local area networks and VPNs and on the customer identity side it's just to kind of build it yourself. So the, I guess the good news and the bad news is that the good news is that it's changing. I guess the bad news is that I think in cases

maybe people being more conservative with technology investments and some questions about the macro economy can slow down some of that big change that would lead them up to a place where they want to they've chosen so much modern SaaS applications or so much cloud infrastructure or so much security stack outside of their own firewall that now they're going to choose a cloud-based identity pad.

Provider they might be some cases more reticent to do that in a macro environment. That's that's maybe softer. So What that means is that our strategy is really we we look for companies and we look for opportunities that are going through change Whether it's they are adopting apps or they're adopting cloud infrastructure or they're maybe doing M&A merging things together divesting things

Something that's a catalyst for change and that's when we do very well. So I think How do you unlock that? Well, one thing you do is you you keep having success with customers and you keep building great products and you keep building a company That can help customers when they're ready. And then the other part of it is just it's kind of inevitable I mean, it's going to change technology is going to move forward Companies are going to make these investments and we're going to be there to provide the identity solution when they do

Okay, maybe we can get these last two quickly. We'll go to Peter. We need to Bernstein.

Okay, maybe we can get these last two quickly. We'll go to Peter Reed at Bernstein. Thank you.

You know, one of the things that I'm kind of taking out of some of your guidance and numbers here is And look I got that, you know, some deals slipped into the next quarter that you had anticipated to get in this quarter But it looks like you have yourself kind of Reaccelerating a bit into the next quarter and actually even more in the second half of this year.

And it's modest, obviously, but hopefully those are conservative and might imply that you've got some optimism for reacceleration. What's giving you that sense of optimism and continuing to kind of raise your full year guide and perhaps quarter over quarter acceleration in the second half?

Yeah, I mean, I think for us when we're thinking about the guidance, I mean, I don't think we're getting overly aggressive here. I think we're obviously being prudent with the environment and we've seen some good execution in the quarter and so we're obviously balancing that off with the effects from the macro. So that's really how we're thinking about the guidance. Let's take our last question from Param Singh.

Hi, thank you. This is Param Singh on twice. Hi, Kidron. Thank you so much for squeezing me in. First, we wanted to get a sense of between the customer identity cloud and the workforce cloud, how much of a cross-sell opportunity still exists. I mean, just trying to get a sense of out of the 18,000 customers, how many use bulk. Then I had a quick follow-up. You should follow it.

I think the opportunity is huge. I think just the customer identity and workforce identity, if our existing 18,000 customers had both fully, all the products in both clouds, would power success for many, many quarters.

I would say I would actually say years. Yeah, many, many quarters like plus the new way to quantify that, you know, like 15, 20, 50 percent. So it's interesting. So we've done some work on this. The–

I would say I would actually say years. Yeah, many, many quarters like all plus. Is there any way to quantify that? You know, like 15, 20, 50 percent? So it's interesting. So we've done some work on this. The tricky part about it is

is trying to uniformly across 18,000 customers quantify the customer identity side of it. Because you have to, you know, it's not like workforce where you can say how many employees make assumptions about partners and contractors and then look at the spent. With customer identity you have to kind of make a leap about, you know, when's the next chat GPT or how much digital transformation are these industries going to go through broadly.

So it's a little bit harder to calculate, but we know enough to know that if we execute, we have a big opportunity. And then the real follow-up was, do you think you're right-sized with the restructuring you had in the first quarter, or do you think there's some more opportunity here to trim fat here and there? Put some fingers out.

We think the plan is in terms of the guidance and the profitability and the profitable growth. We think it's a good plan. You know, we're always... At this time? We think it's a good plan, yeah. Thank you so much. Yeah, sure.

Great. We appreciate everybody attending it today. Before you go, I wanted to let you know that we'll be attending the Mizzouho Cyber Summit virtual event on June 12th. We'll also be participating in several bus tours this June , and we hope to see you at one of those events. So that's it for today's meeting. If you have any follow-up questions, you can email us at investor at Okta dot com. Thanks, everyone. We'll see you next time.

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