Hi, everybody, and welcome to Okta's first Zoom video earnings call. I'm Dave Jonrelli, vice president of investor relations at Okta. And we're here today to discuss our second quarter of fiscal 2021 financial results. With me in today's meeting, we have Todd McKinnon, our Chief Executive Officer and co founder, Bill Lache, our Chief Financial Officer, and Frederick Karast, our Executive Vice Chairman, COO, and co founder. 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. Forward looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward looking statements. Forward looking statements represents our management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's results is included in its filings with the SEC from time to time, including the section titled Risk Factors in its previously filed Form 10 Q. In addition, during today's meeting, we will discuss non GAAP financial measures.
These non GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non GAAP financial measures and a discussion of the limitations of using non GAAP measures versus their closest GAAP equivalents is available in our earnings release. You can also find more detailed information in our supplemental financial materials. 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 discuss our financial performance, and unless otherwise noted, each such reference represents a year on year comparison.
And now I'd like to turn the meeting over to Todd McGinnen. Todd?
Thanks, Dave, and thanks, everyone, for joining us. I hope you liked this new video format, which I think personalizes these earnings calls a little more. I also hope that you and your families have remained safe and healthy since the last time we spoke. With the ongoing pandemic, Okta, like so many organizations around the world, remains fully remote. Last quarter, I discussed how Okta had already been moving dead on the path creating a workplace of the future or what we call dynamic work.
The pandemic has accelerated our move to dynamic work. Which is our initiative to build a more agile, flexible work style into our culture, to ensure that all our employees have great work environments, experiences, benefits and flexibility regardless of their location. We're fortunate that the nature of our business allows us to operate successfully in this dynamic work environment. And I couldn't be more proud of the team at Okta and what we've accomplished. It's this agility and the recognition by more and more companies of identity's importance that has enabled Okta to continue to execute at a very high level, and I'm pleased to report that we delivered another quarter of strong financial results.
Second quarter, total revenue grew 43% and the subscription revenue grew 44%. We also saw continued strength with Okta is helping organizations around the world accelerate their adoption and deployment of cloud applications. In remote access, and reimagine their digital customer experiences. While emergency implementations during the 1st phase of the pandemic, like the one we did for FedEx, last quarter are largely behind us. Companies are reevaluating their roadmap to modernize their identity systems An Okta's platform is the linchpin of the new cloud technology stack.
We believe that the world will not return to the pre COVID work environment. In fact, the 3 megatrends that have been driving our business for past several years, the adoption of cloud and hybrid IT, digital transformation, and 0 trust security are being accelerated by the COVID environment. As organizations are rapidly evolving their digital strategy to survive the pandemic, while their remote work environments continue to grow. During this crisis, our customers over a 145,000,000 logins, and the number of unique app logins increased almost 70% to nearly 16,000,000,000. Total MFA usage increased nearly three times over the same period last year.
These numbers reflect the massive number of new remote workers around the world and our strong growth in total customers, especially large enterprise companies. Our ongoing focus to grow our base of large enterprise customers continues to yield results and is reflected in the addition of 105 customers with an annual contract value greater than $100,000 in the 2nd quarter. The total number of $100,000 plus customers is now nearing 1700. We also crossed significant milestone in Q2 and now have over 100 customers with an annual contract value greater than $1,000,000. Here are just a few notable examples of large enterprise wins and upsells, which come from a wide range of industries.
The LVMH group the world leader in luxury was a new workforce identity win. They chose Okta as the standard for their internal identity and access management requirements for both the group and its brands. Standardizing a Okta will allow LVMH to consolidate a complex multi organization and multi vendor identity environment into 1. It will also lead to improved security, greater agility, and faster integration of the LVMH brands within a consistent framework. Equifax, a Global 2000 Information Solutions company, was a great customer identity upsell quarter.
The company originally selected Okta in Q1 this year as its identity standard to secure more than 11,000 employees globally. As Equifax continues to strengthen its position as a security and technology leader, the organization looked for a customer identity platform to both enhance and unify capabilities to support over 100,000,000 external users with speed and ease. EQuifax will use Okta customer identity products to protect and power seamless user experiences. For Equifax's customers, business partners, and workforce. A Fortune 100 Technology company was a notable upsell in the quarter.
The company had initial success with talk to across multiple business units over the past couple of years. The ease of deployment, superior user experience, and breadth of identity use cases led to the company's decision to standardize on Okta for its entire workforce of 100,000 employees and contractors. Additionally, to support the company's transformation to a subscription software business, it will deploy Okta's customer identity, for millions of customers across all of its sites and products. Okta will help the organization quickly and securely integrate acquisitions and launch new products to serve its commercial customers, including those requiring FedRAMP compliance. In order to win and expand within these large or organizations, we are focused on expanding our platform to better serve them.
More use cases, attract more customers, and generate more data insights that can be harnessed to build better products that make our customers more successful. All of these create powerful network effects. Network effects have been a powerful driver for Okta, as is our commitment to providing our customers with the best technology. One of our foundational values at Okta is love our customers. As part of that, we've invested heavily in our systems and infrastructure to help ensure our customer success.
For example, we recently announced a major milestone in cloud reliability and uptime, offering 99.99 percent uptime to all customers in every region of the world. This lays the foundation for a new pursuing digital transformation. Loving our customers is also reflected in the technology partnerships we establish. In Q2, we announced that Okta, Crowdstrike, Net Scope, and Proofpoint, joined forces in a coordinated effort to help organizations implement integrated 0 Trust security strategy required to protect today's dynamic and remote working environments. Coordinated efforts like this allow us to better serve our customers together.
Last quarter, I talked about a number of new advanced our transition from offering a portfolio of products to a componentized platform. We look forward to sharing more of this new product momentum. As well as some additional enhancements we're making to the Okta platform at our 2nd annual Okta showcase event on October 7th. Today, every organization is rethinking how they engage with their customers as consumer spending and sentiment turns digital. Forward thinking execs are viewing this as an opportunity to accelerate their digital transformation initiatives, while also seriously quite in any further on premises investments and core identity infrastructure.
But digitally reimagining the business is a massive undertaking because nearly every part of an organization is affected by a digital transformation. For Okta, this accelerates the trends we've been experiencing in the $25,000,000,000 customer identity or signer market. At this year's showcase, We will share enhancements we're making to our SIEM solutions and how we're more tightly integrated into every customer system at every layer of the technology stack. Our SIEM business now represents 24% of our total annual contract value and grew 72% in Q2. That's tremendous progress in just a few short years.
The Saion market is predominantly composed of homegrown systems And we've built a platform and a set of products that make it an easy decision for an organization to implement Okta as the identity solution for their customers. We've had particular success with government agencies and financial institutions, including 2nd quarter sciam wins with the state of Montana, and Union Bank And Trust. Please stay tuned for more details on this virtual showcase event. It's clear that identity is central to a robust security posture for both workforce and customer identity. The continued adoption of cloud software will inevitably lead to more apps, more devices, more digital transformation, and heightened requirements for usability and security.
And again, these trends are only being accelerated by the COVID environment. We've established Okta as the market and technology leader and we're confident in our strategy to attain our goals. While we're hyper focused on executing today's environment, I thought it would be helpful to share some of my thoughts around the long term vision for Okta. So if you look out a little further on the time horizon, this cloud adoption continues to proliferate? 5 plus years from now, we see a world where there are just a few 1st class clouds that really matter inside a company.
These clouds might be for collaboration, CRM, is for identity to be one of these 1st class clouds. We believe identity is key because it facilitates choice and flexibility while enhancing security and reducing risk in all other technologies. In our long term vision, we see Okta establishing a off as a standard for digital identity. In order to achieve this, we will continue to grow aggressively by adding more users, more customers, particularly large enterprise customers, expanding internationally, adding more strategic partners, and increasing the use cases that come from building out our platform and accelerating the network effects that I mentioned earlier. Iconic cloud company.
We couldn't be more enthusiastic about our near term and long term opportunities. Having said that, we continue to be my that many organizations are and to the local communities in which we operate. This includes our contributions through our social impact initiative, Octa For Good, to help local organizations serving the most vulnerable and to support positive social change. Thanks again for your time. And now I'd like to turn the, the call over to Bill to walk through more details about our second quarter financial results, as well as our financial outlook.
Bill?
Thanks, Tom. And thank you to everyone for joining us. As a reminder, we have posted an earnings presentation that contains our detailed financial results on our Investor Relations website. I think you'll find it to be a useful summary. And as such, I will only cover a few of the notable highlights in my commentary this afternoon.
We had a strong second quarter with particular strength in revenue, RPO, profitability, cash flow, and net retention rate. I'll now touch on some of the second quarter highlights and then go into our outlook for Q3 and the full year. Turning to our Q2 results. Total revenue increased 43%, driven by a 44.8% increase in subscription revenue Subscription revenue represented 95 percent of our total revenue. RPO or backlog, which for us is contracted subscription revenue, both billed and unbilled that has not yet been recognized, grew 56 percent to $1,430,000,000.
Current RPO, which represents subscription revenue, we expect to recognize over the next 12 months, also experienced strong growth of 48%. Year over year growth in current RPO is the more meaningful metric when viewed along with subscription revenue and billings growth. Total and current calculated billings grew 27%. There were a few things that impacted Q2 billings, so walk through the notable items. As expected, we experienced some mild pandemic related business headwinds.
And as I mentioned on last quarter's call, we experienced some beneficial invoice timing in Q1 that created a modest headwind for Q2 billings growth. Q2 billings was also negatively impacted by our strong upsell activity. That may sound counterintuitive, so let me explain. When large enterprise customers expand their purchases with us, they often want to align new contract start dates with existing contracts, unless we only bill them for the stub period before the new large contract starts. This delay of the new contract billing creates a headwind on that quarter's billings duration, but the new contract ultimately becomes a tailwind to future quarters because of the increased contract size.
As we've said before, our current RPO is an important metric as it eliminates these type of variances, which have no impact on revenues. Turning to retention, our dollar based net retention rate for the trailing 12 month period was 121% consistent with last quarter. We have not experienced any degradation in gross renewal rates during the pandemic and continue to experience strength with customer upsells particularly with our enterprise customers. As I've mentioned in the past, the retention rate may fluctuate from quarter to quarter In the current environment, it's possible that fluctuations from retention rates may be more pronounced. Before turning to expense items and profitability, I would like to point out that I will be discussing non GAAP results going forward.
Now looking at operating expenses. Total operating expenses grew 28% which was lower than expected, primarily due to continued reductions in travel and office related expenses. We also saw lower employee related costs as the pace of hiring has moderated due to the current environment. Headcount increased 28% to almost 2500 with the increased early in our customer facing teams as we continued to spend to support our strategic initiatives. We are pleased to achieve profitability in the 2nd quarter, which was driven by our strong revenue performance and the lower than expected expenses I just mentioned.
We do not expect to maintain consistent profitability in the near term, particularly when the business environment begins to normalize and the employees resume traveling again. We also look to increase our investments in fueling our business globally, which includes increasing headcount within sales and marketing as well as RID. We generated cash flow from operations and free cash flow of $11,000,07,000,000, respectively, which yielded a 3.4% free cash flow margin. Free cash flow saw typical seasonality, offset by lower cash outlays due to a reduction in expenses related to the pandemic. We ended the 2nd quarter with a strong balance sheet anchored by $2,500,000,000 in cash, cash equivalents, and short term investments.
The sequential increase was driven primarily by the issuance of $1,150,000,000 of convertible senior notes. Moving on to our business outlook. We remain optimistic about the demand for our products and are raising our full year 2021 outlook. Our revenue guidance is predicated on our strong second quarter results, but also on our expectation that pandemic related headwinds that we saw in the second quarter will persist through the second half of the year. For the third quarter of fiscal 2021, we expect Total revenue of $202,000,000 to $203,000,000, representing a growth rate of 32 to 33% year over year.
Non GAAP operating loss of $3,000,000 to $2,000,000 and non GAAP net loss per share of $0.02 to $0.01 assuming weighted shares outstanding of approximately 129,000,000. For the full year of fiscal 2021, we now expect total revenue of $800,000,000 to $803,000,000, representing a growth rate of 37% year over year. Non GAAP operating loss of $13,000,000 to $11,000,000, and non GAAP net loss per share of $0.03 to 1¢ assuming weighted shares outstanding of approximately 127,000,000. In summary, we had a strong second quarter and performed well given the current environment. We believe it's prudent to continue to expect some near term economic uncertainty as the business impacts stemming from the pandemic further unfold.
That being said, our continued execution and the accelerated tailwinds of cloud, digital transformation, and security position us well to achieve our long term financial targets. Okta has developed a solid foundation and market leadership position, and we plan to further capitalize on the tremendous market opportunity in front of us. With that, Todd Frederick and I will take your questions. Dave?
Great. Thanks, Bill. To indicate that you have a question, please click on the raise hand icon at the bottom of your screen, and I will announce your name when it's your turn to ask a question. At that time, I will promote you from an attendee to a panelist and there will be a short pause as you're moved over. And once you become a panelist, make sure you unmute yourself.
And in the interest of time, please limit yourself to one question. And once you're done, we will change your status back to an attendee. So with that, your first question is gonna come from Sterling Auty at JP Morgan.
Alright. Great. Can you, can you hear me okay?
Sounds great, Sterling. Nice to see you.
Well, it's good to see you as well. Thanks for doing it this way. I think that this is definitely a step up. So I wanted to ask about the partnership with CrowdStrike Proofpoint in in Netscope. And in particular, what does this tell us about what is happening in the competitive landscape visavis Microsoft?
The, so yeah, we're really excited about. We're I mean, as you know, those, especially like Houston and other folks that have followed us for a while, we're really, our culture is really about being integrated with ecosystem. We have our claim to fame was the most integrations in the Deeps integration, something we've maintained and extended, over the course of our history And so particularly around, security these days in this concept of 0 trust security, it's, everyone's excited about it, but customers aren't quite sure in many cases the specifics of what it means. So I think the most exciting thing about this partnership is that you have these vendors coming together with an integrated solution, both on the product side, but also on the go to market side with a consistent message about what it means to be 0 trust secure and and how you get there. And so that's I think it's gonna simplify things for customers.
And I think that to your question about Microsoft, The 0 trust security is about security and access to all of your applications. And I I I just think it's unrealistic if you can get that from one company, one platform. And that's why it's important that the the vendors like Proofpoint And, let's go from Carbon Black are are coming together or crowdstrike. We're coming together to to define this architecture and clarify for and I think, you know, ultimately customers are gonna benefit, which is gonna benefit all of our, all of our businesses.
Great. Your next question is gonna come from Hamzah Fodderwala at Morgan Stanley. I'm sorry. Go ahead. You have to unmute your line.
Okay. Why don't we go to the next question from Rob Owens at Piper Sandler?
Great. Thank you. Thank you for taking my question here. Hi. How's everybody doing?
Good. Good.
Nice to see you.
Hi. So thanks for the color around the the customer identity piece. I was hoping you could go into, a little bit more detail just in terms of of what you're seeing here is this typically going into the installed base versus somewhat the the tip of the spear where there's competitive differentiation in this market And lastly, for Bill, could you remind us of any TAM analysis you guys have done of the customer side versus the enterprise side. And I'll take those 3 as my one question. Thanks.
Very efficient, Rob. Nice job. Nicely done. Customer identity is a a really important market for us. And I think that the it's a little bit different than the workforce market and that the the dynamic is is it's a build versus buy.
And the marketing and the positioning of customer identity is all about making sure the understands that there's a better way. They don't have to build log in and and, customer, synchronization and registration and 2 factor. They don't have to build that themselves. They can get back to focusing on their, the features that are gonna differentiate their company in their app. And and what we can take care of this stuff we're good at, the identity and security.
So, there's always multiple systems involved, and there's some legacy, but largely it's you know, build versus buy. And I think that when you are catalyzing a market like this, and we clearly are, if you look at the numbers, the 72% growth, the 24% of revenue. When you're catalyzing a market, it helps to to be a a vendor that has proven that we can make customers successful and, you know, with our broad work force customer success. So I think we're in pole position here, and we're working hard to extend that lead.
You know, Rob, to your question about the TAM, as we we talked about this, at investor day back in April and that the time, we've we've evaluated that our TAM for workforce is $30,000,000,000, and the TAM for customer identity is $25,000,000,000. So very large stands on both sides, and, you know, for the reasons that we've talked about before, we think there's huge opportunities for us to grab a lot of that TAM in the future.
And also, just one more thought on that. It is an important question. If you the cons the concept I was speaking about, Okta being one of the 1st class clouds or the primary clouds in the enterprise in the future, the degree to which we can broaden and support multiple use case, both workforce and customer, it gives us a much better chance to establish that position as one of these 1st class clouds. Enterprises are gonna trust, clouds that can do more things for them and the more use cases we can support, in in, handle in those critical critical paths that lead to the customer success the better, our success at establishing that 1st class cloud is gonna be.
Okay. We're gonna try Hamzah again from Morgan Stanley.
Ready, what do you think Hamza would ask if he was gonna ask you a question?
Here he comes. Hamza, I'm here. Your line.
Sorry. Can you guys hear me?
Yeah. There we go.
So sorry about that. Hey, Todd. This question is for you, and thank you for taking my question. I wanted to ask a little bit about the momentum you're seeing in the customer identity space, particularly the deal with Equifax, which I found to be quite notable, just given the size of the user base and obviously the sensitivity around that data. So can you speak a little bit more about what you're seeing in customer identity, you know, particularly in this more sort of heightened environment?
Yeah. The the, the dynamic and customer identity, as I mentioned, it's your companies. So what's really been clarified for companies over the last you know, 3 months with COVID is is, you know, it's very it's clarified the the priority of digital transformation and getting these direct result, these direct relationships with consumers with the website and their mobile app. And it's clarified, you know, what they have to do. Everyone needs a website.
Everyone needs a mobile So there's not a lot of confusion about that anymore. So and what happens with when you have that realization, it it becomes very clear that identity is primary part of that because everyone knows when you have a great web experience or a great mobile experience, it leads with that application knowing about what you're trying to do, your preference your history with that company. So identity feeds right into that. So, that's becoming clear, which is, which is great for our business and great for, you know, this, this really this broad second flank of our business, which is customer identity.
Excellent. Your next question is gonna come from Matt Hedberg at RBC. Matt, please unmute and go ahead. Go ahead, Matt. Hey, Matt.
We can't hear you. Alright. We're gonna try Walter Pritchard at Citi.
Alright. Can you hear me?
Yeah. It's great. That's great.
Alright. Good deal. Thanks. So, question for you, just, Bill, I think for you on, seasonality of billings, how should we be thinking about things? I think we've seen other companies go through this this process where more of the business gets pushed into the renewal and and with co term deals.
Could you just help us understand how we should think about that and maybe any sort of magnitude commentary around what that means for, for for the seasonality.
Yeah. Sure, Walter. So, you know, as we said before, the, the timing dynamics in billings, really does exemplify where we think current RPO is an important metric as it eliminates those kind of variances and those variances really have no impact on revenues. Specific to the timing question, it was, I talked about in my, common very, you know, we did have certain timing elements with billings this quarter as far as some of the invoicing, that was in Q1, got pulling out of Q2, which had an impact on Q2, the coterminous billings that you talked about, which is the stub billings when we sell into larger enterprise. And the way we think about that is that that billings really does is going to balance out.
The timing is really gonna balance out during the course of the year. So one of the ways to think about it, to give you some, some, some measure of it, so to speak, is that in the second half, You know, we expect that our subscription revenue growth and billings growth to narrow to about a 5 to 6% delta from the 11% delta that was in the first half of the year.
Okay. Your next question is gonna come from Jonathan Ho at William Blair. I
I'm assuming this is Johnson Ho.
Hey, Jonathan.
Hey, great. So just wanted to get a sense from you, just regarding what you're hearing from customers and maybe they're willing to to spend, you know, are you seeing any, you know, situations where they're perhaps downsizing, deals or delaying deals? And, you know, when you're renewing customers and impacted industries, that have lower head counts. Are you seeing any impact from that? Thank you.
Hey, Jonathan. It's, Frederick. Thanks a lot for the question. We are not seeing, any impacts, as you mentioned. Our ongoing focus on enterprise customers continues to yield.
I think very good results. Know, over a 100 customers with ACD greater than a $1,000,000. We've got, 105 net new adds in Q2 of customers paying us 100 k or more. And, I think about half of those were net new logos to Okta. So we're not seeing any, slowdown in terms of, customers either coming in with a smaller purchases or interest than we thought they might and or renewing.
In particular, we've seen no renewals on the workforce side in the enterprise that are, lower than what they were, originally doing. And if you think about it, right, as everyone's moving remote and as everyone's trying to integrate more in this world with not only their employees, but also their customers and partners and vendors. They need to actually increase the way they're doing this digital enablement and communication, and we're starting to see a lot of that in the business.
Great. Next question is gonna come from Andy Nowinski at D. A. Davidson. Go ahead, Andy.
So a lot of people seem to be worried about potential deceleration revenue growth, at Okta, yet there was no change in your CRPO, your RPO, or your net retention rate. And I know you talked a lot about you know, facing some mild headwinds from the pandemic this quarter, but it doesn't look like it's showing up in your results. So if you if you are seeing some headwinds from COVID, I guess has your product fully improved or your competitive position improved that enables you to main, sort of offset those headwinds, from COVID and maintain these growth rates.
Yeah, Andy. What I would say is you're right that, you know, our current RPO, our total RPO, both saw strong growth And our net retention rate, was a 121%. So very strong. So we're obviously pleased with the results of the quarter. And the strength in the quarter.
We did see those mild, you know, pandemic headwinds. Frankly, they were not as strong as we thought they would be. And so, you know, I think what the, you know, the movement of companies to decentralizing how they're working with the fact that, you know, companies are seeing with their, with their customers, they're transitioning to, you know, more of an online relationship with those customers. They're both just big impacts for us big head, big tailwinds for us, that are just accelerating some of the overall, you know, mega tailwinds we've talked about before, and that's really what's happening.
Yeah. And, Andy, just to add to that, if you think about the market tailwinds and what's really driving our business and has been for, many quarters and will for many years comments about these big changes, right, around the adoption of cloud and hybrid IT, this digital transformation, and everyone now needs to prioritize security more and more and these are not short lived, these are not recent, and these are not going away. So as the world, can see used to figure out how to work in COVID. And then as the world starts to come out of that in a post COVID world, this work environment of everyone working more remotely, doing more digital and the importance of customer interactions on mobile apps online. This is only gonna continue to, to, to grow.
And so if you think about the TAMs that we're in, you know, I'm very pleased with the results. And as an entrepreneur, if you look at what we've done over the last 11, 12 years, we're very proud of the progress we've made, but these markets are tens of 1,000,000,000 of dollars, and they're continuing to grow very fast. So I think there's a huge opportunity ahead, and and I think that we're fortunate that we can help a lot of customers be successful in these in these challenging times.
Alright. Great. Alright. We're gonna try Matt Hedberg at RBC again.
Hey, guys. Thanks for taking my questions. Sorry about that before. I guess for Todd or Frederick, you know, I wanted to ask about advanced server access, which is an exciting TAM expansion opportunity. Obviously started with server access, but logically could could grow into databases and container access a little bit more there.
And then, Bill, could you talk about linearity and and perhaps how is trending thus far?
Advanced Server access is, it's a newer product, but the potential is massive. I mean, we think about identity for infrastructure, the broad category that, Advanced Server Access plays in is, you know, one day down the line, it could be as important to our business as customer identity or workforce identity. It's smaller and and much more nascent, but it's it's that exciting. And the and the, the, exciting thing about it is there's a big fundamental change going on and how, not only does every organization have to build new apps and new websites, but there's a fundamental shift in how they're built. They're built much more dynamically.
They're the they use cloud servers and cloud infrastructure to burst and rapidly iterate. And we think advance server access and more broadly speaking infrastructure identity is the modern way to help manage and secure that environment, which if you look about if you look at what's most important to companies, it's building these customer facing digital transformation solutions and being able to do that at scale and build them securely in an agile way, you need good tooling and good infrastructure and good security to do that. So we think it's, it's a very exciting future future product area
for
us and the advanced server access specifically is is doing well. It's we're seeing, it's it's doing well in terms of its bookings plan, but also as a as important, it's it's doing well in terms of adoption. We're seeing that companies that are, really, doubling down on digital transformation during COVID, they're using it to help make them more more effective and secure and customer success. Anytime you're, building a new product area, you have to have that customer success. Those are that adoption that that, that, robust usage, and that's what we're seeing, which is as exciting as anything else there.
Hey, Matt. And I would say with linear linearity, we're, we're really not seeing any difference. It's been, it's still very consistent with what we see, what what we did see, prior to the pandemic. So that stayed pretty constant. As far as August, you know, what we're seeing in August is what we incorporated into the guidance we gave for Q3.
Alright. Next question up. We have Greg Moskowitz from Mizuho.
Hey, thanks very much. Good to see everybody. Congrats on a good quarter. So, Todd, I recall you mentioning a couple months back, that hosting Octane as a virtual event resulted in more than 5000 sales leads versus, I think a few 100 last year. So presumably your pipeline is far larger than it had been, but can you talk about your expectations for net new logo growth going forward.
Also, do you expect to see any average, any change in, in average sales cycles?
Pipeline is, pipeline is strong. It's started with, we're we're investing a lot in pipeline just because the business is growing and we gotta keep that pipeline growing. And octane, octane 20 live was a great step there as you mentioned. I think that it's, you know, there's one thing about generating pipeline, and there's actually been a lot of, you know, questions about if people were sheltering in place, you know, would it in impact positively pipeline because they had more time to take meetings and so forth, but would have actually translated into deals closed. And we're we're getting a little bit in Q2, but into Q3, we're really starting to see it'll it'll really be good proof points about how those deals are closing, and we're optimistic about that as well.
So it's, it's it's pretty, it's pretty positive in terms of the the outlook for the business. That being said, it is, we are being measured in terms of there are unknowns, like, we've talked about in terms of, like, macroeconomic headwinds and other uncertainties in the world. So as as optimistic as we are, we're also being prudent about planning the future as well. Was there was there a second part of the question? I forgot.
You know, we
moved him back to the attendee list here we can, we can come back to that. Next up, we have Dan Church from Goldman.
Hi. This is Dan Church on for Heather Bellini.
Thanks for taking my question. I just have a couple quick ones for you. You obviously, you touched on the billings headwinds in the quarter. Any additional comments that you can provide regarding duration in the quarter and what we should expect for for the back half of the year. And then, are you seeing any change or noticeable change in the environment in terms of pricing or discounting, requests from customers, particularly in impacted verticals
Yeah. Dan, I would say on the on the billings, you know, as as as we discussed, you know, the we did see those timing differences that really did impact billings duration, specifically in certain circumstances where we purposely did short duration invoicing to help some customers that are in impacted industries. And then as we discussed, you know, with with the large amount of upsell that we have in the large enterprise customers, we did see, you know, an impactful, on billings, you know, doing stub billings, which is, you know, beneficial in the long term because obviously we're adding to the contract over time. And as I said, you know, we believe that most of these timing,
you know,
variances or this timing, impacts that were, you know, negative headwinds in Q2 will balance out during the course of the year. You know, and as I said, I think that the way to think about that is, you know, when you think about subscription revenue and the delta of that growth to, to billings. We think it'll be about 5 to 6% in the second half of the year. And that's you know, a smaller delta than the first half of the year, which is 11%. So as you can see, it kind of timely, you know, the, the, those impacts will balance out during the course of the year.
Alright. Next up, Greg Powell from BTIG.
Okay. Great. Can you guys hear me okay?
Yep.
Alright. Thanks. Okay. So, I mean, I know there's still a lot of, uncertainty in the macro environment, and and you guys have, you know, called that out. But it does seem like things are tuning pretty well.
You had a good current RPO number. So I'm just curious, like, how do you feel about the visibility that you have on demand today versus the, the March April timeframe?
Yeah. I mean, I think that, you know, as we said in the second quarter, we didn't see the impact from the pandemic, the headwind impact that we had anticipated. But we did see an impact. And so we're you know, as we think about the guidance we gave for the the full year, we did incorporate that we think those impacts will continue through the balance of the year. And we're we're being prudent about that from the standpoint that we're still in the midst of this, you know, economic uncertainty And I think that, you know, even though we're, we're feeling very good about the business from the performance of the quarter, from, you know, the strong pipeline from the fact that, you know, the engagement we're seeing with customers, but we did want to, you know, be prudent about the fact that there still is not complete visibility as we go through the rest of the year.
So, you know, we did factor that into the guidance that we gave, that we gave today.
That being said, Gray, I would just add on that, when we talk to, when you talk to the field and you think in particular about enterprise and the name groups they're seeing a lot of very good activity. Not only with existing customers, you see that in the, dollar based net retention that continues to remain very, very strong. And then obviously, you know, focus on customer success will drive that because they're comfortable with us. They know how we work They understand the products and platform. It's easy to buy more from an existing vendor that you're comfortable with, but also net new logos.
And, these conversations are more and more, at very senior levels inside these companies. We're now talking to the largest companies in the world. And I think the opportunity is gonna be very exciting in the times ahead. Some of that certainly will come in the second half of the year. But we're also preparing for what's going to happen into next year and beyond.
And and I think the the future tends very well from that side.
Hey, hey, Dave. Greg, Moscow had chatted the second part of his question. He was saying that he was wondering about average sales cycle. Do we see do we expect any changes in average sales cycles going forward? And I I just wanted to say, we don't really model that in in terms of our expectation.
We see those being pretty consistent in history, and we see that being consistent going forward as well. So hopefully that answers your question there, Greg.
Alright. Next question is gonna come from Alex Henderson and Needham.
Thank you very much. I was hoping you could talk a little bit about, the machine to machine identity market. And to what extent, you know, the server access is able to do domain domain, communication between applications. And to what extent you're tying into identity as which is obviously the key to security in Kubernetes and, deployments. Thanks.
Yeah. It's, I would say that it, you know, most of our, most of our product suite in our orientation is definitely around person, person identity. But but there's 2 parts of our product that are starting to do more with machine identity. And one of them is our product, our product called API access. And what that does is it basically, it serves up, an identity protocol called AWAF as a service and helps people bind their identities and okta to anything they wanna program to.
So that's you see some use cases in that product around machine to machine. And then, you know, as you mentioned, advanced server access is, it's all about, it's all it's kind of depends on what you mean by machine to machine. But usually with advanced server access, there's a person involved as well. The one, the biggest investment we're making in machine identity is our platform service, which we unveiled at Oktane called Okta devices. And what this what Okta devices does is it it basically embeds Okta inside of the client operating system.
And it serves up key data points about that machine to the Okta policy engine. So the so that customers can make, easier simpler policies for users or, and make them more secure. The the the killer use case there is the a capability called Okta Fastpass, where you can log in just with the by identifying your biometric to the machine where there's touch ID or face ID and you're in all your apps. And that combines that machine identity because the Okta Identity Cloud can verify that that machine on the client is who, you know, it it's your machine proven to be your machine, and it can just get you in without any other that you, as a user, have to do manually. Of course, it's checking under the under the scenes that machine identity, but it's a powerful capability.
So, you know, we're pushing forward on all those fronts, and I think it's really, paying off to the benefit of customers.
Alright. Next up, we have Taz and Guggenite.
Hey, Taz. You're faint, but we could make it out, I think.
You guys had a strong redemption
rate and strong ups
on the momentum. Anyone our dynamics this quarter in terms of deal sizes type of customers, type of products customers are buying any change from what is a pre COVID in the new customer, Momentum?
Yeah. Absolutely. Happy to talk about that. We added a 550 customers this quarter, which is on par with what we've been doing, in the past quarters. So, a lot of similarity there, a lot of continuation of the the good work that we're doing, a lot of interest in the Okta Identity Cloud, obviously.
And as we get into more and more use cases, you know, we're, we're gonna be able to help these customers with more and more things. I think what's particularly exciting is the traction that we're getting in the enterprise, which we mentioned a little bit already on this call. But we're very happy with the 100 customers paying us over a $1,000,000 and, half of the 105 net new customers of a 100 k are net new logos to us. And and that's just great. That shows the continued, opportunity and momentum in the enterprise, which, I expect will continue for a long time.
And while these results are very good and we're we're very proud of the the hard work the team has done, I think when you look at the opportunity in the enterprise to help these customers, not only with, the specific challenges and opportunities they have today, but as they think about going forward, how their businesses are gonna change and some of the dislocation that they're gonna face, think this is huge opportunities for us and and we're really excited to try and take advantage of that and help these folks be successful.
Yeah. I'll just throw in there quickly too that the, the usage of the service is very high. We mentioned the stats in the proprietor works about, app logins and multi factor. But that's true across the board of all products. So that means customers are having success.
They're adopted their benefiting from the service, which, you know, in all these, all the craziness going on in the world right now, that makes us feel very good.
Alright. Next up, we have Shelley Yale from Oppenheimer.
Everybody. Good afternoon. Congrats on the quarter 1st. Congrats on the virtual call thumbs up without a doubt. Todd or Freddie, what has been the initial reaction to other workflow product, over the course of the past few months?
And also maybe just a word about the education vertical this quarter?
Yeah. Absolutely. The, the workflow product is doing very well. As you mentioned, that was something that we, GA at the beginning of the year, it's progressing very, very well. Customers are finding a lot of great use cases with it.
Right now is primarily focused on how we can integrate a lot of the, HR systems and make sure that the integrations are flowing properly downstream to the other applications. The typical use case there would be on the on the workforce side around the employee JML, the joiner mover lever problem people always have when you're onboarding a lot of folks when they're changing roles or when they're leaving the company. So there's a lot of great progress there. And then on the customer side, Now, you can, register and provision folks, but also entitle them to the right products. So there's a lot of great usage there, and there's a huge opportunity for us in times ahead as we broaden out the use cases around workflow.
So products doing very well, and I think that there's a very bright future for that product as we dig into it. And then on the second side, from the EDU side, we are continuing to see a lot of strength, in the business, obviously, as a lot of these, both, I would say a high school, but also secondary universities are going online. They're having to figure out how they're going to interact, not only with all students, but all the professors and everyone that's associated with that. I think we've given some examples in the past. I think Seaton Hall was a good one.
That we talked about on last quarter, and we've got more and more of these coming. So, yeah, that is certainly something that is going well for us. And, you know, I think it's something very important as we help, the education system figure out how it's gonna work in this increasingly digital amount of world.
Alright. Next up, Pat Walravens from JMP.
Oh, great. Thank you. Alright, Todd. So how do you make Okta the best place to work when everyone is working remotely?
It's, something we've worked on a lot. We actually, when we have our strategy for each year, our strategic plan, and the plan, it has, depends on the year, but it has 5 or 6 high level priorities. And when COVID 19 hit, we actually, we actually shifted around the strategy and made the number one, method. We call it a method that it's basically the strategic focus for the year be, called something called thriving at Okta. So making sure that the employees were, were taken care of.
We're motivated. We're happy. We're you know, able to work effectively and culturally, we maintain that cohesive group. So it's something we've thought about a lot, and it's the the the strategy and approach is quite, it's quite thorough and something that I've personally worked on a lot. And I would say that if I were to summarize it, the, The one thing is is like the leadership team needs to be really present and open and transparent and overcommunicate and, because it's hard to make all the perfect decisions when it's such a dynamic environment, but we can we can make sure that we're very communicative and transparent or reasoning, and it makes all the employees feel feel very bought in as a builder and owner of the company.
And, I think it's it's benefited us and it's it's a big part of the reason why we've been able to execute through over the last 6 months or so. But we've also it's not something that you can to, like, turn on, like, a, like, a switch during a a crisis like COVID 19. It's something we've built up over many, many years, the openness and the you know, leading by example and so forth. So we're lucky to have that foundation that we could capitalize on. We've we've gone through this year that we've been going through so far.
And next question is coming from Mandeep Singh from Bloomberg. And next question is coming from Mandeep Singh from Bloomberg.
Excellent. Thanks for taking my questions. So I was curious if you can, talk about how much adoption we have seen from increased VPN use with something like Citrix and also maybe characterize your win rates against paying that entity?
Service is one that can help with all sorts of existing infrastructure that you have. We integrate very well into a lot of the on prem infrastructure, our Okta Access Gateway product, that allows people to take advantage of that, has done very, very well. And it's helped us a lot in the large enterprise, over the past quarters, and that's continued to accelerate Frankly, we integrate well with VPNs. And if you have a a VPN that you're happy with, we've most likely got it pre integrated into the Okta service. That being said, I think people are also taking advantage of this opportunity to leapfrog technology and think about how they're gonna, deprecate their VPNs because VPNs are really good when you're thinking about accessing on premises infrastructure, servers, software, hardware, or other things.
But as people are moving more and more to the cloud, as they're moving a lot of these context services to the public cloud and allowing a lot of authentication putting in the cloud doesn't make that much sense to draw all the traffic back to your network just to push it back out to the public cloud. And in fact, we have a number of customers, including some large financial Solutions where they, ultimately had to move from, you know, 10 or 20000 employees working remotely on a VPN to instantly having 100,000 employees over a weekend going home, and VPNs are just not standing up. So while we work fine with the existing VPN Technologies, frankly, it's, I think it's something that you're going to see more and more transitions off of as the Okta Identity Cloud really continues to help customers. On your second question regarding, Ping identity, look, there's a set of legacy software providers, out there that, you know, that have been providing services for a number of years. Frankly, Ping identity is, a third our size growing half as fast.
It's not something we really focus on. We do see them from time to time, but a lot of times it's a situation where people say, look, I have ping running. Can you integrate to it? But over time, I'm gonna replace it as I wanna go modern. And as you see all the shift happening to both on the workforce and customer side to modern identity solutions.
I think it's gonna be, very clear differentiation times ahead.
Alright. And our final question comes from Joshua Tilton at Berenberg.
Hey, guys. Thanks for taking my question. Can you hear me? Yeah. I just, I, I just wanted to touch on the competitive landscape a little bit.
So we think about adaptive. They have numerous overlap being access management products. They have, you know, single sign on MFA and life cycle management, and they're now under the CyberArk umbrella. So does this change the competitive dynamic of the large enterprise access management market?
Yeah. Absolutely. You know, I think what you're seeing is the importance of enterprise identity as a public cloud, offering. And I think that what you're gonna see is more and more folks are looking to the core of identity is being very central to what they're trying to do, across their enterprises, right? Again, on the workforce or customer side, I think that's a very good example of a legacy software provider with an on premises solution, trying to find a way into the, the modern version of enterprise identity and an enterprise identity cloud.
You know, we we don't really see them much in the market. We know that the adaptive, product suite has been around for some time, and I don't think it had that much traction. So we pay attention to, all competitors, of course, but we're really focused on customer success. And customers are looking for one broad integrated modern identity solution, that helps them not only with the problems they have today, but the ones that are gonna come in the future. And we think that we're very well positioned to help customers not only with core identity, but a lot of the adjacencies that you might see coming down the down the path.
And we don't think about it in terms of, you know, there's a privileged access management market. We think about it in terms of what are the customer problems we can them with products like advanced server access, they're well integrated into the Okta service, which is something that people know and are comfortable with, and then we kind of move on to make them successful.
Alright. Thanks everyone. I hope you enjoy the new format. And before you go, just a couple of quick announcements. We'll be attending the virtual city tech conference on September 9th.
And as we mentioned earlier, the Okta showcase virtual event will be held on October 7th, and you'll receive more information on that in a few weeks. And that's it for today. If you have any follow-up questions, you can email us at investor@ okta.com. Thanks.
Thanks everyone. Thank you.