Q3 2025 Okta Inc Earnings Call

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Hi, everyone. Welcome to Okta's third quarter of fiscal year 2025 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.

Around the same time that the earnings press release hit the wire, we posted supplemental commentary to the IR website.

This posted commentary contains a large portion of what would historically be the opening commentary, including customer commentary, product-related news, and a review of our financial results. This format allows listeners to review that information before this call.

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.

Information on factors that could affect our 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-Q.

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 are non-GAAP. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

A reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents are available in our earnings release.

You can also find more detailed information in our supplemental financial materials, which include trended financial statements and key metrics posted on our Investor Relations website.

In today's meeting, we will quote a number of numeric or growth changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-over-year comparison.

And now I'd like to turn the meeting over to Todd McKinnon. Todd? Thanks, Dave. And thank you, everyone, for joining us this afternoon. Our solid Q3 results were once again highlighted by strength with large customers and strong profitability and cash flow driven by continued spend efficiencies.

While the macro environment remains consistent, we're encouraged by some positive data points in Q3.

I'll touch on some of those and then get into other highlights from the quarter before turning over to Brett.

I've mentioned previously that deepening our relationship with our partner ecosystem is one of our main priorities. We're already seeing good progress as all of our top ten deals in the third quarter involve partners.

These 10 deals were all over $1 million in annual contract value, and in aggregate represented approximately $20 million in ACV. This underscores the value of investing in our partner ecosystem.

The public sector also continues to be an area of strength. In fact, half of the top ten deals that I just mentioned were in the U.S. federal vertical. We've made great progress with our presence in the public sector and believe we have a tremendous amount of runway ahead of us.

Our largest customers remain an area of strength. The cohort of $1 million plus ACV customers continues to be our fastest growing cohort. In total, this cohort now represents approximately 1 billion in ACV.

We were also pleased with the upsell and cross-sell activity in Q3. Specifically, we experienced strong growth of workforce customers buying more workforce products.

as well as workforce customers buying Customer Identity.

Okta's expanded product portfolio is allowing us to equip our customers with more industry-leading identity solutions to support them in their goal to operate more efficiently and securely. The threat environment has never been more hostile.

Organizations are constantly under attack and identity has become a primary attack vector. ACTA's technology has become more important than ever in helping to prevent and mitigate these attacks.

We're advancing our vision to free everyone to safely use any technology with the expansion of our unmatched portfolio of identity solutions through great product innovation. We're also accelerating our investments in the Okta Secure Identity Commitment, which is resonating with prospects and customers.

We recently showcased that innovation at Octane, our biggest customer and partner event of the year. The energy at the event was terrific as in-person attendance was up over 25% versus last year and represented hundreds of millions of dollars of pipeline.

attendees heard about the future of identity security and how Okta is responding to the evolving threat landscape. We highlighted more than 30 products, features, and capabilities across our workforce and customer identity clouds.

that will deepen our customers' security and help them create exceptional customer experiences while enabling us to reignite our growth with a focused approach.

It's also great to receive validation on our strategy and vision from third parties.

Okta was recently recognized as a leader in the 2024 Gartner Magic Quadrant for Access Management for the 8th consecutive year. Okta achieves the highest and furthest overall position for its ability to execute and completeness of vision in this research.

We have a lot of optimism about the direction of the business. One of the things we're excited about is go-to-market specialization. In Q1 this year, we introduced a layer of specialization in the go-to-market team with a hunter-farmer model for the America's S&B market.

and developers. Doing so will allow us to meet evolving market demands, help reignite growth, and create a win-win scenario that benefits both our customers and Okta, ultimately driving better business outcomes.

To wrap things up, we remain hyper-focused on our top priorities of security, growth, and scale. Identity is security, and we're taking the right steps to advance our position as a leader in the identity market, while remaining focused on investing for growth and driving spend efficiencies and cash flow.

Now here's Brett to cover the financial commentary and talk about how we're positioned for long-term profitable growth.

Brett Tye: Thanks, Todd, and thank you, everyone, for joining us today. We continue to build on the efficiency initiatives that we've been implementing over the past two years.

Brett Tye: Our Q3 financial performance was highlighted by continued strong cash flow and operating profitability, including gap profitability.

Brett Tye: I'll note that similar to the prior three quarters, as we have analyzed our key metrics, we could not attribute a quantifiable impact from the October 2023 security incident on our Q3 results. And while not quantifiable, the event likely had some level of impact.

Brett Tye: Our view on the macro environment is that it remains consistent with what we've experienced for the past few quarters.

Organizations are scrutinizing budgets and rationalizing their software spend.

Brett Tye: resulting in lower assumptions for seats in our workforce identity business and MAUs in our customer identity business. These lower seat and MAU assumptions have put our net retention rate under pressure over the past few quarters while gross retention has remained strong.

Brett Tye: Helping to partially offset the seat in MAU-Headwind is the success we've been having in selling more products to both our new and existing customers.

Brett Tye: Our relentless focus on innovation has been resonating with our customers as approximately 15 percent of Q3 bookings were from new products. Okta Identity Governance continues to represent approximately one-third of the contract value when sold in a workforce deal.

Brett Tye: In addition to OIG, we're also selling new products like Okta Privileged Access, Device Access, Fine Grain Authorization, Identity Threat Protection, and Identity Security Posture Management.

Brett Tye: Our data tells us that customers that adopt more products have the highest retention rates, so we're excited about the trends here and the long-term contributions to the business.

Brett Tye: Now let's turn to our business outlook for Q4 and FY25.

As always, we take a prudent approach to forward guidance.

Brett Tye: We are factoring in a macro environment consistent with what we experienced in Q3. We are no longer incorporating additional conservatism into our outlook related to the potential impacts from last year's security incident.

Brett Tye: For the fourth quarter of FY25 we expect total revenue growth of 10% to 11%, current RPO growth of 9%, non-GAAP operating margin of 23%, and free cash flow margin of approximately 32%.

Brett Tye: We are raising our outlook across the board for the full year FY25. We now expect total revenue growth of 15%, non-GAAP operating margin of 22%, and a free cash flow margin of approximately 25%.

Brett Tye: While we are still in the early phases of financial planning, we would like to provide a preliminary view of FY26.

Brett Tye: We're providing this preliminary outlook ahead of closing our biggest quarter of the year.

Brett Tye: We will provide formal FY26 guidance on our next earnings call, which will factor in our actual Q4 performance. We remain focused on profitable growth and continue to prudently factor in a macro environment that is consistent with what we've experienced over the past few quarters.

Brett Tye: As such, we're expecting a non-GAAP operating margin of at least 22%. We're targeting a free cash flow margin of at least 24%.

Brett Tye: From a revenue perspective, we estimate total revenue to be $2.77 billion to $2.78 billion, representing growth of approximately 7 percent.

Brett Tye: We believe these numbers are achievable while maintaining an appropriate measure of conservatism. To wrap things up, we're pleased with the progress we've made to drive operational efficiencies.

Speaker Change: We've demonstrated exceptional leverage in our model over the past two years, and we remain focused on delivering profitable growth for years to come. With that, I'll turn it back to Dave for Q&A. Dave?

Thanks, Brett.

Dave Gennarelli: We have several hands raised up already. We'll take them in the order that they are in, and if you have follow-on questions, you can get back in the queue, so try to limit yourself to one question. That will kick it off with John DiFuci at Guggenheim. John?

John DiFuci: Thanks Dave. My question I think has to do with something Brett just said.

John DiFuci: You said you're no longer incorporating additional conservatism in the guidance due to the incident from last October. And that makes sense, by the way, now. But your guidance for next year, I just want to sort of understand, it's an initial guidance for next year. What is...

You know, should we think about it?

Speaker Change: Listen, yeah, I think you guys do a pretty good job when you guide, but at the same time, I'm just trying to think about it like last year, you had a lot going on the last two years before that. Should we think about, should we go back to those years and kind of think about your approach that would be similar to those years? Just trying to get my head around it.

Speaker Change: John, hey, before you jump in, Brett, I want to just set the context of a high level. The Q3 was a solid quarter. And as we go into Q4 and think about next year,

Speaker Change: Brett can talk about the specifics on guidance, but we are, I think, being pretty balanced between optimistic about the future and all this new product momentum and all this large customer momentum.

Speaker Change: but also want to make sure we have the right level of prudence in our guidance. So it's always a balancing act, but I don't want the guidance question to kind of overshadow the momentum we see in the business and the optimism we see there.

Speaker Change: Yeah, and Brett, I mean, Todd, I apologize. I very rarely say this at the beginning, but it was a really solid quarter, really was more than solid. It was really good.

Speaker Change: your whole team should feel really good about it. It's one step. It's one step. We have a lot of work to do, but thanks for saying that.

Speaker Change: You know, if you look back, let's go back a year ago, right? And a year ago, we had the security incident. We're right on the heels of it.

and we got a 10% at that point.

Speaker Change: from a revenue growth perspective for FY25. We now think FY25 is going to be 15%. You can figure out the delta, 15 minus 10.

Speaker Change: I would not expect that level of Delta in the future just because we're taking out the security incident, right? There was a pretty large unknown at that point and a pretty large unknown until really this quarter where we haven't seen any impact quantitatively from the security incident. So that's how I would think about it, John.

John DiFuci: Okay, but when I go back to the two years before that, you exceeded your original guidance by like over five percentage points.

John DiFuci: That's why I sort of I get it though less less than last year though Yeah, and I think I think the other thing is like if you go back a couple years

Speaker Change: We're a much smaller company growing at a faster clip. So I think just the natural maturation of the of the business, I wouldn't, I wouldn't go back that far. Yeah, no, the other thing about it, too, is that Q4 and with slower growth in these years versus five years ago, Q4 matters a lot more.

Speaker Change: So giving this guidance at the end of, you know, on the Q3 call, we have more, Q4 matters more in terms of seeing where we'll be. So that's why the Q1 look is so illustrative. Okay. Thanks a lot, guys. Nice job.

All right, let's go to Eric Heath at KeyBank.

Thanks, Dave, and congrats on the quarter, Brett and Todd.

Speaker Change: Todd, we've been hearing from some of your GSI partners more about RFPs for consolidated identity platform offering. So I'm curious if that's something you guys are seeing or measuring, maybe measuring in your pipeline, or Todd, even coming up more in customer conversations, because it does seem to be resonating in the field with some of your partners.

I'm really, really excited about this.

because these identity is.

and the folks on this call know Okta really well.

Speaker Change: It is sometimes quite complex to do a comprehensive change out of identity. In fact, it's

Speaker Change: It's always complex, way more complex than other types of technology, especially in the cyber ecosystem. So that has, you know, positives and negatives. The negatives are sometimes it takes longer to get a deal done, sometimes it takes longer to do upsells. That's the good news, or that's the bad news. The good news is that once you get a committed cohort of customers and a committed cohort of systems integrators to help a customer on that journey, it's very valuable to the customer and very valuable to the partner.

for a very long time.

Speaker Change: So, you know, the plus side is that we're going to be providing value in these relationships and everyone's going to be benefiting for years and years and years. We had a really solid win of one of the largest technology companies in North America in Q3 that was

Speaker Change: nearly a five million dollar ARR deal and for that company it's it's just the first phase of a multi multi-phase deal to replace

Speaker Change: specific initiative in Q3 was driven by Zero Trust transformation. So even some of the biggest technology companies are relatively early in their Zero Trust journey and we worked with one of the largest SIs to scope that deal and bring that deal over and then even more exciting about it is the deals that are queued up to follow that as we get this initial deal deployed and some level of success and then move on to the subsequent phases.

Speaker Change: That's an exciting scenario there and that's true on a number of deals in the quarter. I mentioned in my prepared comments that

of the Top Ten Deals.

Speaker Change: in a quarter that was really strong for big deals, all of them had partner participation. So we're doing a good job building that ecosystem, working with the partners, building trust in those partners. And especially this is true of the global SIs, they're seeing

Speaker Change: Not a lot of choices out there in terms of scaled identity players. And particularly when we talk about a scaled identity player that's independent-neutral and doesn't wrap that customer into one stack, we're unmatched.

Speaker Change: So they're seeing that, and they're seeing the landscape and our unique value there, and they're aligning themselves with us, which I think is going to benefit everyone.

I think also that the interesting part about

Speaker Change: the top ten deals that Todd was just talking about having all partners.

Speaker Change: The great part of it was it was multiple different types of partners. You've heard us talk about GSIs as being very important, but it was GSIs, it was ISVs, it was marketplaces, it was the traditional VARs. I mean, it was a mix of them all. So that's why we continue to want to invest in each one of these areas, because we're seeing success like this in Q3.

Thank you. Thank you.

Next up, let's go to Gray Powell at BTIG.

All right, great. Thank you very much.

Speaker Change: Before I ask my question, I just got to say I really appreciate the ten minutes of prepared remarks.

Brett Tye: And in fact, Brett, I think your section was probably shorter than DeFucci's question. So, again, congrats on keeping it tight. We do what we can, Greg. We do what we can. Thank you.

Brett Tye: So for my question, it's been a pretty choppy earnings season so far across our security coverage. And I guess it's just nice to see your numbers inflect higher. So is there any way you can kind of talk about what stood out most this quarter versus Q2? Just like what changed the most?

Brett Tye: And then, how do you feel about the sustainability of that performance and just the forward execution?

Speaker Change: It was pretty different than Q2 in terms of our, just our execution in the quarter, bringing deals across the line. We did, Q2 was okay, Q3 was very solid, and I think that is maybe

Speaker Change: I think what is lining up to look like the reality is that the year is looking more back-end loaded.

Speaker Change: than what we may have thought in the first quarter or the second quarter, which I think is not, you know, with...

Speaker Change: In the history of the company, it's not, it's not, it's fairly common for that to be the case, but I think this year it's turning out to be a little more than maybe we anticipated.

which means Q4 is a big quarter and

Speaker Change: you know the pipeline is there and it's up to us and the team to execute on that and we're

Speaker Change: really aligned and motivated and understand how important it is as a team that we need to do that and we're all set to

Speaker Change: to make that a reality. There is a lot of stuff to build on. We've mentioned a couple of the examples already. The large deals, the new products, so 15% of bookings in the quarter were from these new products, which

Speaker Change: Governance now is a third of the value of deals it's included in, which is 30% of the value, a little less than a third.

Speaker Change: Privilege access is starting to get momentum. We had a nice win there for a U.S. department of an Asian bank, which bought the whole suite, access management, governance, and privilege access.

Speaker Change: which we think is going to be a common buying pattern. And the driver there, I mentioned the large technology company before, the driver in that example was Zero Trust.

Speaker Change: they're trying to go to a zero-trust architecture and identity is important.

Speaker Change: Regulatory Compliance for the auditors around not only applications and financial applications, but

Speaker Change: servers, which Privilege Access gave them that access to. So we're seeing new products, big deals, we see good partner involvement, but you know we're still, we still think we can grow faster. We talked about the guide for next year and how we're thinking about that, but

Speaker Change: We continue, as we always have, think this is a massive opportunity and it's...

Speaker Change: Our second highest priority after security and our secure identity commitment is growth and re-accelerating growth. So we're pleased, but we're not satisfied. We have a lot of work to do, and this team is fired up to make it happen, and we're going to go out there and do it.

Speaker Change: I'd add a couple things, Gray, that actually may not have changed, but are positives for us in general. One is...

Thank you.

Speaker Change: Contract duration continues to be healthy for us. You can see that in the total RPO growth, right? That's now six points higher than current RPO growth. The other thing I would add is

Speaker Change: U.S. federal end of their fiscal year, we had a really solid close to that. So that was, you know, like you heard earlier, is a good portion of those top 10 deals. And I think that's just a continuation of our success in public sector. Think of public sector as actually one of our first forays into specialization.

Speaker Change: We've really focused on it. We've put a lot of effort on it. We've done a lot of stuff from an R&D perspective and so that continues to also be successful for us in Q3 and is helping the results we see here today.

Understood. Thank you.

and next we have Gabriella Borges at Goldman

Gabriella Borges: Hey, good afternoon. Thanks for taking the question and congrats on a solid quarter. Todd and Brett, I wanted to pick up where you just left off on the 15% of bookings that are coming from emerging products.

Gabriella Borges: Remind us how that number compares to history. And Brett, you mentioned with the net retention rates, there are two dynamics impacting that. You've got the pressure on MAUs and seat count, and then you've got the tailwind from profile.

Gabriella Borges: Talk to us a little bit about when you think emerging can offset the headwind in MAUs and seat count, and it's a long way of asking when you think net retention might trough.

Gabriella Borges: On the new product mix, I don't know the exact numbers, but without going back and looking at the data, my sense being pretty close to the sales process, especially on the new products, this is higher than it has been in the past.

Gabriella Borges: and it's, you know, kind of led by governance, identity governance, and it's for second place where it's like a, it's a pretty close competition between privilege access, identity threat protection,

Gabriella Borges: which is for the most security conscious customers. It's a really big addition to their suite. Identity threat protection, the way to think about it is it's kind of like the advanced version of advanced multi-factor. And the big thing it does is it monitors

Gabriella Borges: security risks throughout the session. So multi-factor and advanced multi-factor do phishing resistance right when you log in. Identity threat protections continuously monitors risk signals, change of IP addresses, crowd strike.

Gabriella Borges: Sentinel-1 detecting any kind of issue and shutting down the session. So it's proactive monitoring. So that's a big contributor And then we have on the customer identity side. We have fine-grained authorization That had a decent quarter and we also have highly regulated regulated identity. So you're seeing all these

Gabriella Borges: all these kind of seeds that are starting to grow which are frankly more exciting than the 15% because you see this 15% contributed by multiple seeds that are growing into potentially contributors it's pretty pretty exciting for the future.

Speaker Change: Yeah, Gabrielle, I would actually just add the percentages up your rear.

Speaker Change: because basically last year it was just governance. And Todd just listed out like six products that are doing really well right out of the gate. So it's pretty easy to see that the percentage is going up and to the right, which is really exciting for us for all the reasons that Todd has said just in his last answer and what he said earlier on that.

Speaker Change: prepared remarks. In terms of the NRR and what are the effects on it, it's the same effects we've talked about in the past, right? License counts and MEUs are being scrutinized like we've talked about in the past. It's macro-oriented just in general. And then there's also cohorts in the past.

Speaker Change: that are feeling pressure, you know, older customer cohorts that are feeling pressure from the COVID era. In terms of what we expected to do for the next.

Speaker Change: quarter. That's because that's the only forecast I have right now. I don't have it all the way through FY26. But

Speaker Change: For Q4, we think it ticks down a little bit in Q4 based on those factors. It's on top of healthy gross retention, but those factors remain the same in terms of what we've said in the past, and so that's what we're seeing for now. In terms of what we expect in FY26,

Speaker Change: Let us get through Q4 first and then see how that actualizes and we've got to finalize our fiscal year 26 plan and we'll go from there and be able to give you a little bit more insight on what NRR will do throughout FY26.

That all sounds good. Thanks for the call.

and next up we have Hamza Fadawalla at Morgan Stanley

Hamza Fadawalla: All right, good evening. Thank you for taking my question. Todd, I wanted to ask you about FTC recently

Hamza Fadawalla: Launched an investigation or is reportedly looking to launch an investigation on Microsoft and how they're bundling some of their security services I'm curious if you have any comment on that and maybe just

Hamza Fadawalla: What you tell customers about some of the risks around vendor lock-in?

Speaker Change: Thank you. Yeah, it's a really important question. I can't, I'm not close enough to know the legal arguments or the regulatory arguments, but they do bundle and the pitch is hey, buy it off from us and it'll be cheaper. And I think what I tell customers is

First of all

Speaker Change: You're foreclosing your option to choose different things. And what's not always obvious to customers is how important identity is in that gatekeeper role.

Speaker Change: They're going to be tempted to take that identity service and use that for general identity and general login because it has a very powerful lock-in effect.

Speaker Change: If you can get someone to use your identity, they're going to be more likely to use more things from you. So it's, in that sense, it can be a loss leader. And our argument is, first of all, to tell people that. We say, hey, you don't make the long-term...

Speaker Change: choice that's going to lock you in and remove choice and flexibility. And we all know that when you remove choice and flexibility, it's not just that you

And this is particularly important.

in the security world, because...

Speaker Change: As we also all know that security is adversarial and the attackers are coming from many different directions and eight out of ten times

These security breaches are caused by

Compromised Identity.

Speaker Change: So if you are locked into one stack from a security tools perspective and from an identity perspective, you're not going to have as good of security outcomes.

Speaker Change: So this is the pitch I make to customers and it's resonating.

Speaker Change: They understand, I mean for some customers it doesn't work, some prospects it doesn't work, they're just, they don't view technology that strategically or they don't, it's just cut costs, you know, no matter what and they go for the bundle.

Speaker Change: But more and more customers, you know, I mentioned one of the largest tech companies in North America.

Speaker Change: They realized that identity really matters, and having an independent, neutral identity platform really matters.

Speaker Change: this foundation to build from. And we're independent neutral. We're not trying to sell anything else. We think our identity suite works better together, but that's where it ends. We're not trying to sell other parts of the security stack. We're not trying to sell other applications. We leave that up to the customers to choose the best outcome for them.

Okay, let's go to Matt Hedberg at RBC.

Matt Hedberg: Great. Thanks, Dave. Todd, I wanted to circle back on the governance side of it. It was an interesting statistic you gave. And I guess when you look at the success you've had attaching governance to workforce deals,

Matt Hedberg: Can you talk about the competitive landscape, and are there key elements of success this year that you think could parlay to next year? Maybe it's increased partner influence, maybe it's some additional sales incentives to drive even further new product attached next year? Yeah, I think that the dynamic is

Matt Hedberg: In many of these governance scenarios, there is no solution. Particularly, I mean, I'm talking about the customer doesn't have a solution.

ERP

Legacy Technology

Matt Hedberg: So, a lot of times if there is a governance solution, it's implemented around that legacy on-prem, you know, just big SAP, for example, or big Oracle, for example.

Matt Hedberg: And we'll come in, and they'll use us for an app that's not that. It's maybe their SaaS applications, and they do governance for that. And they realize that these...

Matt Hedberg: these SaaS applications are becoming more important for compliance and more important for just general security and making sure the access is controlled from a security perspective, and we do a really good job of that. It's pretty rare for someone to

Matt Hedberg: take Okta governance and replace a deployed in-production legacy governance solution around an on-premise application. And I think that will be, I think that will continue to be rare.

just because it works.

Matt Hedberg: You know, it's like it's checking all the compliance boxes. It's probably not worth changing. And there's an opportunity to just do the use cases around that. One thing that is interesting is there's there's a lot of and I've learned in the governance market in the last few years is there's a lot of shuffler

Matt Hedberg: And so it's probably not a market where you have to have 25 years of features to win because there's a lot of shelfware in the market.

Matt Hedberg: I remember, this is going back a long time now, but when I was working at Salesforce, when I first got to Salesforce and I looked at the product capabilities, it was incredibly simple, especially compared to Siebel. It probably had 1 out of 10 of the features.

Matt Hedberg: But it just ran the table because no one used all those features in Siebel.

Matt Hedberg: And I think the governance market is like that. There's a lot of shelf-ware, a lot of the stuff is not implemented. And our product, which is very strongly integrated to access management, our access management, it's very quick to implement. People get tremendous value out of it fast. It's well-integrated to many SaaS applications. And more and more,

Matt Hedberg: It's integrated to even on-prem applications as we innovate there, and it's fast time to value. And I think that, in this case, is the winning formula, and we're seeing it play out in the market.

Thanks, Todd.

Okay, next up we'll go to Josh Tilton at Wolf.

Speaker Change: Thank you, Dave. Brett, maybe one for you. The ongoing seat and MAU pressures that you guys are seeing this year, how does that, if at all, change your visibility into next year? And how are you kind of accounting for that in the guide that you gave today?

Speaker Change: Yeah, that's all that's all accounted for in the guide today. It's a good question Josh In terms of the you know, there's two different factors that we're talking about right? There's the macro just overall

Speaker Change: companies are just not buying as many licenses, they're scrutinizing licenses when I say licenses I mean licenses or MAUs

Speaker Change: It just depends on which side of the business. And then there's the older customer cohorts. That older customer cohort we think materially is done by the end of the first half of fiscal year 26. But so that's all, by the way, that's all captured in the guide. So hopefully that helps there, Josh.

Next up, we have Jonathan Ho at William Blur.

Speaker Change: Good afternoon and congrats on the strong quarter. Just wondering if you could give us some additional detail on the go-to-market specialization opportunity that you referenced and maybe help us understand why you see you know the need to do this now or what's maybe the impetus driving that.

Yeah.

Talked to a lot of people and and working

Speaker Change: with Okta and go-to-market models the last five or six years.

There's basically two spectrums of go-to-market.

One end of the spectrum is

Speaker Change: Everything is general and every rep sells everything. There's no overlays. There's no specialists There's this general rep model now the other end of the spectrum is everything specialized every product has its own rep and every you know There's there's just total specialization and the trade-offs are roughly, you know, you get more you

Speaker Change: So the exercise is how do you, as the organization grows and the product portfolio grows and the market evolves and the competitive dynamic evolves, how do you put your organization in the right spot on that spectrum to maximize growth and profitability?

Speaker Change: Dave Gennarelli, Todd McKinnon, Dave Gennarelli, Todd McKinnon, Dave Gennarelli, Todd McKinnon,

Speaker Change: We have enough room in the business and based on all our efficiency work and some of the effectiveness.

Speaker Change: investments we've made where we can make the specialization investment and still run at the profitability levels we've outlined and are comfortable with.

Speaker Change: and still accelerating growth. So that's high level. More specifically, I think it's important to understand kind of more specifically what we're saying here.

Speaker Change: So, what this means is that we're going to have, instead of sales reps at Okta selling every product, they're going to be more specialized to products. Specifically, there's going to be dedicated Auth0 reps.

Speaker Change: We need them because the product is getting quite broad. It's very, very challenging to sell governance, and privilege access, and access management, and customer identity, and, and, and, and. They're going to be specialized to sell the suite of access management, privilege access, governance, ITP, that suite.

Speaker Change: and then the off-zero reps are going to be focused on off-zero so it's

it's developers, it's making sure that every...

self-service customer that starts to upgrade gets

Speaker Change: upgraded into full enterprise deployment because a lot of these small companies turn out to be some of our biggest customers. You all know about our presence in the AI world and how we have very significant customers there that started off as self-service trials. So products are getting more more capable.

Speaker Change: It's very tough for one salesperson to cover them all. We see a growth opportunity and we're going to make sure we take it.

Yeah, I would just add to that.

Speaker Change: which goes back to Todd's point is we've built all these efficiencies into the organization so you can balance with trying to go for more growth while also being healthfully profitable as we are and expect to be in FY25 and FY26.

Great, thank you.

Next up, we have Joe Gallo at Jeffries.

Joe Gallo: Hey guys, thanks for the question. Can you just talk through customer identity, its performance this quarter, and how you're thinking about that market growth rate? And then just given all the conversations around specialization, how should we think about the maturity of the channel and its ability to sell that product?

Speaker Change: Yeah, Customer Identity had a solid quarter. I think that we're very excited. It's over a billion dollar business now so we have the workforce business, which is

Speaker Change: well over a billion, obviously, and then the customer identity business, which is over a billion as well. I think that the driver, the drivers in that market are somewhat security, but they're a little bit different on the workforce side. It's less driven by security and many times just driven by customer experience.

Speaker Change: Something driving the purchase, but it was just convenience that their web experience and mobile app had multiple logins and multiple IDs And they're trying to consolidate that

Speaker Change: So it's an important part of our business. It's growing strong, and as I just mentioned, we think we can grow it even faster with more focus on this.

Speaker Change: this developer persona, which, you know, we've seen in the past that it's, it's very, it's very, the opportunities are huge when the developer, when the use cases start, bottoms up, something new is built, starts to grow, comes into the self-service funnel.

Speaker Change: upgrades to enterprise can be quite significant we want to make sure that we take advantage of that opportunity.

Thank you.

Let's go to Mike Sikos and meet him.

Speaker Change: Can you either point to the public sector where you guys are?

Speaker Change: arguably driven some of the specialization or America's SMB. I'm sure you guys have your own internal data points you're watching but what would you point us to to help us get greater confidence that this specialization is the right approach because obviously that's informing your decision but it'd be helpful to get it for for us outsiders here. Thank you.

Yeah, it's...

Speaker Change: There's a bunch of data points. You mentioned a couple of them. The hunter-farmer in America's S&B is... there's positive data points out of that. I would say that that's a relatively small part of the business.

Speaker Change: I think the public sector and the focus there and the really speaking the same language as that buyer is a is a bigger data set and sample size longer-term sample size that we're confident on and then part of it too is just

Speaker Change: just watching the sales cycles and sitting through the conversations and seeing the potential on this developer-facing market and seeing how much additional growth we just instinctually think we can see by focus and by dedicated resources on that.

Speaker Change: And then thinking about, you know, what's the, like I said before, there's always a tradeoff, right? The tradeoff is transition costs. Like, what is the cost to make the changes required to get to that model? And then what is the, you know, how is the ramp and growth going to, you know, measure against the,

Speaker Change: the increase of cost of sales coverage. And we think that, in this case, based on all our modeling and all our past experience, that the growth benefits are going to outweigh the costs.

Next up, we have Madeline Brooks at B of A.

Speaker Change: Good. Perfect. So, you know, I think overall we can all agree that this is a really strong quarter for you guys.

Speaker Change: So I think then when I take a step back and look at the market, I really want to kind of hone in on this 7% guide for next year. And if I just kind of extrapolate what new bookings was for this quarter, we can kind of get to an assumption that maybe the core workforce and scion markets are growing roughly 5%.

Speaker Change: So I first want to clarify that seven percent, does that include any upside from new bookings or new bookings from new products or are new products already baked into that guide? And then just one follow-up question after that.

Speaker Change: Yeah, all the products we have today are already baked in there, if that's what you're asking. I think the one that's the most material by far is governance. Like we've talked about before, we are hopeful that some of those products that we've been describing here today

Hopefully that helps there Madeline.

Speaker Change: reinvigorate the growth in those core markets where the market is growing faster and that five percent growth rate would suggest just some share loss there and that's it. Thank you. It's an important question we think about a lot because as I said our number two priority is growth.

Speaker Change: and I'll refer to the number one priority, which is security.

and I think having...

Speaker Change: not having any security issues is going to be a big deal. And we've invested aggressively, both in terms of money and in terms of just execution on

Speaker Change: making sure we have really performed well on our secure identity commitment which has four pillars and we can talk about all four but a big part of it is hardening our own corporate infrastructure.

Speaker Change: and we're, like I said, we've invested a ton, we've made a ton of progress there. And as I talk to the tech companies and CISOs and other CEOs, our posture, our internal security posture, has made a ton of progress. And I think when we talk about the accomplishments of this quarter, I think...

Speaker Change: One of the most things I'm proud of this year at Okta is our improvement there.

Speaker Change: We still have more work to do. It's an ever-ending investment level to make sure we are one of the most secure companies in the world, but that's something we're very committed to and making sure we continue to execute on. And I think one of the, you know, I'll get back to your question about the growth rates and the market growth, but I think what we're seeing now is that, you know, there's a lot of, you know, there's a lot of potential for growth. And I think that's one of the things that we have to be

that work, that internal work.

Speaker Change: is really starting to translate out into prospect and customer momentum.

Speaker Change: because they're seeing a company that's kind of been through the fire and used and learned a lot and is sharing that with the market now and helping the whole industry defend against identity-based attacks and our own products are very relevant from I mentioned ITP earlier not to mention privilege access and governance and we use those as we lock down our own infrastructure and customers can learn from that.

Speaker Change: And so that's, I think, you know, having a strong security performance in terms of breaches and issues, that's one part of it that can help us.

That's one thing. Second thing is, I think if we...

Speaker Change: do all that and continue to execute well, and we have, you know, we talked about specialization and talked about some things we're doing to accelerate growth in the go-to-market side. And if we don't grow faster than the market, I would say that the market forecast turned out to be wrong.

Speaker Change: Because if we do all those things, we're not going to lose share, we're not going to grow slower than the market, and we're going to be just fine.

Speaker Change: If you just talk to customers and you think about, if you ask them about their problems and how relevant identity is and if they have solved all their identity challenges, there's still a lot of work to do out there and there's still a lot of problems to solve and still a lot of value to be delivered to customers and we're going to make sure we're there to deliver that for them.

Next up, we have Shrena Kothari at Baird.

Shrena Kothari: Yeah, great. Thanks for taking my question and congrats on the solid execution. So, the spectral vertical you guys mentioned remains, of course, a key core driver. Half of your top ten

Shrena Kothari: deals were in the sector which aligns with your end, first, your certifications and partnerships in the DC-based teams that's translating to the company advantage. My question is,

Shrena Kothari: that you foresee post elections, starting next year. How do you plan to navigate these, again, it's still hypothetical, but just any potential disruptions that you might be foreseeing and tied to adversarial changes and, yeah.

Yeah, I think one of the...

One of the wins, we mentioned the...

Shrena Kothari: and five of them were in the U.S. federal vertical. One of them was a very exciting win at the DOD, and we mentioned a few quarters ago we had our first big DOD win. We followed that up with another significant one this quarter, which is really a good, positive sign of things to come, in addition to results for the quarter. We also closed a deal, a significant deal, in the top 10 at the largest healthcare provider for the federal government.

Shrena Kothari: So there is a lot of momentum there. I think it's identity and security and modernizing some of the identity and the focus that the federal government has had on cyber is kind of apolitical.

Shrena Kothari: as much as anything can be apolitical, but it is really, you know, everyone wants to be more secure and everyone knows that nation states have an interest in attacking the federal government and identity can help defend against that and they have to modernize this stuff. A lot of the stuff they're running is quite old, quite legacy and

Shrena Kothari: I think one of the reasons we're seeing a lot of momentum is that it's like the

Shrena Kothari: two-part formula of focus on cyber and, in many cases, a long overdue initiative to modernize some of the tech. And we're benefiting from both of those in the federal vertical.

Next up we have Rudy Kessinger at D.A. Davidson

Rudy Kessinger: Hey great, thanks for taking my question. I want to go back to John's first question on the call, Brett, just about removing this additional conservatism in the guidance for the breach. I guess we look at some of the, you know, the magnitude of beats and some figures last couple quarters.

CRPOs in particular, you've been beating three to four points

Rudy Kessinger: How should we think about that Q4C RPO guide? In particular going forward, the level of conservatism in adverse past quarters? I would say the level of conservatism is both current RPO and the revenue just so we're on the same page, as well as odd margin. It's how it all flows together.

Rudy Kessinger: and I'm going to be talking about revenue growth and FY25. When I say out of margin, I mean both out of margin and free cash flow. I don't have an exact quantification for you, Rudy, but like I said earlier, it's not going to be 10 to 15 like we did that example I gave earlier, which was 10 at this time of the year. Now it's 15 for revenue growth and FY25. I don't imagine us going to end up with revenue growth.

Rudy Kessinger: seeing that given what we can see today. And keep in mind, this is also just the natural maturation of the company. We're just getting bigger. Growth is slowing down a little bit. So, it's also a security incident, but also just the sheer size of our company at this point.

Let's go to Saqqakhalia at Barclays.

Speaker Change: Hey, great. Hey, guys. Thanks for taking my question here. Good to be on the call. Brett, maybe for you, can we just talk a little bit about new logo business in the quarter? I mean, I think we were all prepared for what was going to happen to net revenue retention, but it seems like the new logo part of the business stabilized this quarter. Can you just talk about what drove that and whether that trend is something that can continue going into next year?

Speaker Change: Yeah, I mean, frankly, we'd like the new logo numbers to be higher. I mean, it was 150 quarter over quarter.

Speaker Change: you know one of the things we've been obviously working on is

Speaker Change: Dave Gennarelli, Todd McKinnon, Dave Gennarelli, Todd McKinnon, Dave Gennarelli, Dave Gennarelli,

Speaker Change: There's a lot of opportunity inside the customer base at this point. I mean, Todd talked about earlier with 15% of the bookings coming from these newer products, but ultimately that's just scratching the surface. We have a ton of opportunity inside the customer base. But to be clear, we want to be able to grow the logo count faster than this.

Speaker Change: Like I said, the good news is we've done a lot with the larger customers and also created 100K, the million-dollar cohort. So we definitely have helped ourselves, but we look forward to producing frankly better than this.

Very helpful. Thanks.

Next up we have Patrick Colville at Scotiabank.

Patrick Colville: All right, thank you so much for taking my question. I guess, Brett and Todd, I mean, if I look back at this year, 2024, to me the standout success has been Opta's rapidly improving profitability. This time last year, you set the initial guide FOP margins in fiscal 25 at 17%. In the press release, it's now up to 22%, so I guess a five-point beat.

Patrick Colville: How should we think about Optus' ability to outperform your initial guide of 22% next year? And then also just, I guess, give us some colour on how you're thinking about hiring because it looks like hiring has kind of picked up the last couple of quarters.

Alright, thank you.

Speaker Change: We want to lean more into the growth side of the equation and so I wouldn't necessarily expect

Thank you.

Speaker Change: you know, a bunch of upside. I mean, we've definitely set the guidance where we think it's achievable, but we do want to invest into the opportunity because we do see it out there. You've heard Todd's comments throughout this entire call of optimism of how we can go and get more of the market. And so we don't want to...

Speaker Change: sit here and say, hey, the profitability is way higher than what we've already guided you because we want to go after that huge market opportunity. And we're making, obviously, all these changes and these investments. Think about security Todd talked about earlier, the product innovation.

Speaker Change: coming off the line has been really good and we think we can expect more of that. The specialization topics we've talked about today, investing more in partners, these are all growth drivers. We really want to get after growth and we're comfortable with the guidance we've given you here today, both top and bottom line.

For more information visit www.FEMA.gov

Thank you so much.

Next up is Rob Owens at Piper.

Rob Owens: Great, thanks Dave and good afternoon. Todd, I want to build on some of the comments that you made earlier and appreciate kind of the overview of where we are in terms of identity and I think Brett said we should be doing better from a new customer perspective.

Todd Mckinnon: And frankly, I would agree. So, where is the market just in terms of being dynamic around customers wanting to switch?

Todd Mckinnon: at this point. You know, we continue to hear identities broken.

Todd Mckinnon: It's the reason that most of these breaches occur in the first place.

Speaker Change: Why isn't that more dynamic? And you put this hunter-farmer model in

Speaker Change: and I realize these things take time, but I would expect that 150 kind of quarter-over-quarter number to start to improve here. So where's the governing factor in that, especially relative to, I think, your broader comments of where identity is right now? Thanks. Yeah. Yeah, I think the customer account number is a little bit... It shows more about the SMB market, because that obviously is... The logos are...

Speaker Change: more logos down there versus if you look at the customer.

Speaker Change: saw their customer count growing in 100k plus it's you know it's up eight percent versus

a smaller number below.

Speaker Change: Hunter K. So that's one quantitative thing, but I think I think one interesting thing about your question is just

Speaker Change: I was at a dinner last week. I was in Australia traveling.

Speaker Change: visiting a bunch of customers and prospects down there and I was at a dinner of a bunch of partners, a bunch of systems integrators of ours and talking to them about how things are going and I was asking them about identity compared to other parts of cyber and what's the dynamic and they said also the same thing which is these are people in the trenches doing these deals with customers, rolling out products. When they look around and they see what's the easiest to change?

Speaker Change: Other things are easier to change sometimes. It's easier to put something on the end point. It's easier to change out your firewall. Identity is harder to change.

But the upside of changing it is quite

Speaker Change: important, especially when you consider eight out of ten breaches are caused by identity.

Speaker Change: So I think in some cases it's going to be slower, but we just have to be patient because We have by far the best products We have we're in this very unique position where in terms of scale and modern technology and product suite and independence and neutrality There's no one else out there

Speaker Change: And so we've got to just keep executing, keep working hard, keep innovating, keep meeting customers where they are, and we'll be just fine with the plans and the strategies and the efficiencies we're demonstrating.

And next we'll go to Peter Levine at Evercore.

Peter Levine: Thanks for having me in. We haven't really talked about AI, but we are starting to see somewhat of an explosion of non-identities, non-employee identities, machine identities, bots.

Speaker Change: to talk to us about what you're seeing across your customers in terms of A, like the usage around AI and those identities that are coming out to their network, and then B, from your perspective, like how do you monetize that, right? If there's more identities to protect non-employee identities, like what are your plans?

Speaker Change: over the next, call it, 12-18 months in terms of monetizing some of the, you know, the adoption or the initial adoption of AI.

Yeah, I would say there's...

Speaker Change: Dave Gennarelli, Todd McKinnon, Dave Gennarelli, Todd McKinnon, Dave Gennarelli, Todd McKinnon,

Speaker Change: We're the identity layer from a customer identity perspective and some of the biggest in the world and a lot a lot a lot of smaller ones that You know you haven't heard of yet But you will hear of and this which is why by the way the developer focus is so important because that whole new Generation of tech is being built

Speaker Change: Second thing is that we have Okta AI which you know we talked a lot about a couple years ago and we continue to work on that and it's really starting to

Speaker Change: and sort fridge, you know, to all these different reticulators and all these different tools

Speaker Change: AI is a big part of the product functionality. So those two you probably heard me talk about before. Some really interesting new areas are, we have something we talked about at Octane called Auth4Gen AI, which is basically...

Authentication Platform for Agents.

Speaker Change: Everyone's very excited about agents, as they should be. I mean, we used to call them bots, right? You know, four or five years ago, they were called bots. Now they're called agents. Like, what's the big deal? How different is it?

Speaker Change: You can interact with them in natural languages, and they can do a lot more with these models, so now it's like bots are real in real time. But the problem is, all of these bots and all of these platforms that build bots,

Speaker Change: They have the equivalent of the Monitor sticky notes with passwords on them. They have the equivalent of that inside the box

So there's no protocol for single sign-on for bots.

Speaker Change: They have like stored passwords in the bot. And if that bot gets hacked, guess what? You signed up for that bot and it has access to your calendar, it has access to your travel booking, it has access to your company email and your company data. That's gone because the hacker is going to get all those passwords out of there. So, off for Gen AI.

Speaker Change: automates that and makes sure you can have a secure protocol to build a bot around.

Speaker Change: And so that's a really interesting area. It's very new. We just announced it. And all these agent frameworks and so forth are new, but I think it goes back to this idea where ...

There's

Speaker Change: Whether it's more apps we need to secure, better customer experiences, more integrated we need to build, not having passwords on our monitors, having single sign-on, in the case of people and in the case of bots, we're relevant in all those things. And it's, you know, it's pretty exciting to watch it happen and see.

Speaker Change: Frankly, it's a lot of potential right now in terms of our business, but the potential is large.

Dave Gennarelli, Todd McKinnon

Speaker Change: Yeah, monetization. There's obviously, like, identity threat protection is a product, so we sell that. It's an upsell.

Speaker Change: Off for Gen-AI it's basically like a think of about it as per machine authentication so every every time we have this feature called machine to machine which does a similar thing today and you pay basically by the monthly active machine

Speaker Change: Thank you. Yeah, we're at the top of the hour but we're going to try to take a few more here. Let's go to Trevor at J&P.

Trevor: Great. Thanks, Dave. Thanks for taking the question. Todd, maybe for you, just a clarification and then a question. You made some comments earlier around the context of OIG, and it sounded like maybe for the privilege access product too, around the competitive landscape.

Speaker Change: and that you weren't necessarily running into maybe what I would have expected as sort of the standard set of competitors or suspects there. So

Speaker Change: Curious if that's because you're just not necessarily going after those

Speaker Change: displacements as aggressively kind of in the field because yeah we know your kind of products have been kind of you say yourself kind of 1.0 not looking to necessarily do that and if that's the case kind of as you move into next year and beyond and that's going to be a you know stimulant for growth what do you have to start will you just start kind of flipping the switch and going after them more aggressively vis-a-vis competitors or does there need to be I don't think we don't have to we don't have to replace SailPoint on-prem for SAP to have a large business

Speaker Change: So maybe it's just a little bit of the details there, but I don't think that for us to win, we have to, you know, take out SailPoint on-premise. It's just not practical. People, when they get a system installed and integrated and they spend three years, these things are hard to get installed and integrated. And when they spend three years doing it, they're not going to take it out.

Speaker Change: It's just, it's like, you know, I would, if you just want to invest in SailPoint as a, as a long term, it's not going to be a big growth story, but it's going to be a good business for a long time, just because they have a good installed base.

Speaker Change: We're not going to take that out. But it's also not a very big company. And we think that the market for governance, as more and more of it moves to cloud, and there's better products like ours that are easier to use and more integrated, I think the market's eventually five or 10 times bigger than what it is now, and we're going to have a big share of that.

Speaker Change: So that's kind of what I'm trying to say. I think it's it's a little bit nuanced. It'd be easier to think about it if it was like

Speaker Change: You know Okta takes takes out all sell points business, but it's just not realistic and by the way We don't have to we can we can

Speaker Change: cover these new use cases which are going to be but which by the way is kind of the story of Okta.

and governance, and I think...

Speaker Change: If you think about the competitive landscape and the strategy of it, what's the right position to be in? Would you rather be?

Speaker Change: starting from governance and starting from privilege on premise and going out to try to build a full suite? Or would you start from our almost 20,000 customers and building some of these new capabilities around that? I would argue we're in a better position, but I'm sure those other vendors probably have their own opinions, and we'll see who wins.

and next we have Brian Essex at JPMorgan

Speaker Change: larger lands with new products and the new logos, where's the bigger opportunity? And, you know, how do we think about the momentum there?

Speaker Change: Yeah, I think I don't know the exact numbers, but I would based on my work with the field and working in deals

Speaker Change: I would estimate that a majority of it was upsells, but there were some significant new logos. I mentioned the large technology company that had a nearly $5 million error deal. That was all a new customer.

Speaker Change: that was multiple products in the suite so there are some especially in the larger deals there's there's bigger bigger companies and I think what and it's kind of like

Speaker Change: Microcosm, a good example of a lot of things we've been talking about, which is

larger companies.

Speaker Change: are, have their budget set, they have their initiatives, they have their projects, even if they're maybe longer term, they're executing on them, they're more likely to do a strategic thing like identity, that might have a longer term payback, than a quicker, maybe another initiative, that might be quicker payback or not take as much work to get it going.

Speaker Change: And they're also the suite we're offering where you can get access and governance and privilege from a single vendor is appealing because they realize that they can, they probably have, you know, a bunch of different little vendors doing niche things and they can have more cost savings of consolidating. And then the other thing too is that

Speaker Change: They understand the value of neutrality, and they understand the value of technology, and how not being locked in can be a big advantage. So I think that's why you're seeing the business naturally gravitate toward bigger companies. The million-dollar-plus cohort now for Okta is a billion dollars of revenue.

Speaker Change: which is you know which is great but I also think we have a ton of opportunity there because a lot of these deals are you know I mentioned the big technology company it's like it's a five million dollar deal and it's really like a third of their estate we have a lot of opportunity just in that account so it's exciting

Speaker Change: So it sounds still like more of a, you know, farmer versus hunter opportunity, but hunter getting some traction. Yeah, I think that's probably right. Yeah. Yeah, I would agree with that. Brian, I would say that, yeah, the math does suggest it's more upsell than new business. But I think what's interesting is as the products mature, then you're going to be able to land more new customers with them. So it's basically what we've done in every other product category.

that we've entered. So we'll start it out.

Speaker Change: with something that's, you know, I want to say basic, but like, you know, not as... Someone called it 1.0 earlier. There you go. Okay, that's good. It got better over time and then you started landing. We've done it with multiple products now. We're going to continue to do that with these newer products and we're excited about it going forward. Great. That makes sense. Thank you.

Yeah, let's go to Janae Tadecki at Truist.

Janae Tadecki: Great, thank you for taking my question. You mentioned the governance solution representing around a third of the contract value when sold in a workforce deal. How should we think about pricing uplift with some of your newer solutions like privilege access and threat protection and others?

I think the

Speaker Change: On privilege access, it's earlier. We don't have as many customers. Governance has close to 1,000 customers.

Janae Tadecki: So we have much more data on that, but privileged access looks like it's going to be in the same zone.

Janae Tadecki: In terms of it could be a you know if there's no Governance or privilege in a deal and you add privilege it could be a third of you know 30% of the value

Thank you very much.

Janae Tadecki: And then identity threat protection is probably the furthest along after that, and it's a similar type of uplift to advanced multi-factor. So it's a significant type of uplift on the deal.

Next we'll go to Adam Borg at Stiefel.

Awesome, thanks for fitting me in.

Speaker Change: Maybe for Todd, just on the emerging products front, you know, it's great to see that the green shoots and the upcoming specialization that we talked about on the call. As we think about fiscal 26, how do we think about the packaging and pricing side? Any changes there given these newer solutions to coincide with the new specializations that you're talking about? Thanks so much.

We have a bunch of

Speaker Change: things we're modeling out and experiments we're doing. I think the the main idea is

Thank you.

Speaker Change: Our pricing right now is pretty a la carte and we're looking at more kind of additions or simplified pricing. We're seeing good patterns of how people buy, good, better, best, and we're looking at some ideas on how to make that easier for customers to consume. Not so much pick every option and every specific product one by one.

Great, thanks so much.

Okay, we'll go to Fatima Bulani at Citi.

Fatima Bulani: Thank you so much for taking the questions. Todd, I wanted to ask you about the international business.

Fatima Bulani: Look, the North American business has gotten a lot of TLC with respect to some of the changes we've made from a go-to-market perspective, i.e., the hunter-farmer bifurcation that you talked about earlier in the year, but if you can kind of give us a sense, an injunctive position of why the international business slowed down, I think I have some ideas, but if you can sort of comment on what you're seeing in terms of business and demand dynamics, and then, Brent, anything you can share on, you know, some of the metrics that we see across the business, are they better or worse?

Fatima Bulani: from an operational perspective when just looking at the international lens. Thank you.

Speaker Change: It's an important part of our business that I'm spending personally time international. I mentioned I was in Australia and Asia just last week. I think I'm very happy with the teams there.

Speaker Change: a new leader in Europe now for coming up on, this will be the third quarter, I believe. And Europe, I think, is

Speaker Change: has a little bit of a tougher economic situation than North America. So some of that, you know, the macro is, as you mentioned before, the macro has been consistent, but I would say over the last three or four quarters, Europe has been consistently tougher.

Speaker Change: Dave Gennarelli, Todd McKinnon, Dave Gennarelli, Todd McKinnon, Dave Gennarelli, Dave Gennarelli,

Speaker Change: it's pretty universal. So I think maybe the in terms of like team performance and product portfolio and capabilities and focus, I think we have a significant growth opportunity international and we're set up to execute on it over the next few quarters.

Speaker Change: Yeah, I would just add that's an area that we're really also focused on from a partner perspective. Right, you've heard about the MSPs, you've heard about GSIs, all these different and even the traditional VARs. I mean, there's a lot of opportunity in international that we need to tap into through those partnership channels.

Speaker Change: In terms of the metrics, if they look any different, they're not wildly different enough to talk about other than what Todd just said, which is from a macro perspective, it does seem to be a little bit more challenging. But that's as much as I've got.

Thank you.

Speaker Change: Okay, we'll round this out with the last question from Peter Reid at Bernstein.

Peter Reid: Hey, thank you so much. I appreciate you going over time and actually all the questions you've taken. I think one of the exciting things that you've highlighted is you kind of see the light at the end of the tunnel for kind of the peak of the backlog in people downgrading and these types of things kind of in mid-year 26.

Speaker Change: Obviously, that's not like a cliff where it like just like turns off all at once, but rather kind of will be a gradual thing over time.

Speaker Change: As we're kind of thinking about our own models, I mean, is this something where we should think about it kind of occurs over 12 to 18 months where that kind of slowly degrades?

Speaker Change: Dave Gennarelli, Todd McKinnon, Todd McKinnon, Dave Gennarelli, Todd McKinnon, Dave Gennarelli,

Speaker Change: 300, 500 basis points of headwind over that kind of 12 to 18 months, like help us dimensionalize some of that so that we kind of think about the timing and where that should have impact.

Speaker Change: Yeah, I would say that's a good point about it's not a cliff. It just gets lessened. So, thank you for saying that, Peter. So, hopefully, everybody heard that. But in terms of the NRR expectations,

Speaker Change: throughout FY26. Let us get through Q4, biggest quarter of the year for us, and then let us finish our financial plan, and then I'll be able to tell you more about NRR for FY26.

We're excited for it. Thank you.

Speaker Change: Great. Well, thanks everybody for sticking with us for the call. Before you go, I just want to let you know that in addition to hosting several on-site and virtual bus tours through December and January, we'll be attending the Scotia Bank

Speaker Change: Global Tech Conference in San Francisco on December 10th. So we hope to see you at one of those events.

Thank you. Bye everyone. Thanks everyone.

Thanks for watching!