Good day and welcome to the Okta Third Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Catherine Blonde, Vice President of Investor Relations. Please go ahead, ma'am.
Good afternoon, and thank you for joining us on today's conference call to discuss Okta's fiscal third quarter 2019 financial results. My name is Catherine Buan, VP of Investor Relations at Okta. With me on today's call are Todd Mckinnon, Okta's Co Founder And Chief Executive Officer Bill Lache, the company's Chief Financial Officer and Carras, the company's co founder and Chief Operating Officer. Statements made on this call include forward looking statements pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our financial outlook, are market positioning and benefits that may be derived from our recent acquisition. Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements.
You should not rely upon forward looking statements as predictions of future events. Forward looking statements represent our management's beliefs and assumptions only as of the date such statements are made. In addition, during today's call, we will discuss non for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non GAAP financial measures versus their closest GAAP equivalent. For example, other companies may calculate non GAAP financial measures differently or may use other measures to evaluate their performance.
All of which could reduce the usefulness of our non GAAP financial measures as tools for comparison. A reconciliation between GAAP and non GAAP financial measures is available on our earnings release. Further information on these and other factors that could affect the company's financial results is included in filings we make with the Securities And Exchange Commission, which SEC from time to time, including the section titled Risk Factors in the Quarterly Report on Form 10 Q previously filed with the SEC. Can also find more detailed information in our supplemental financial materials, which includes trended financial statements and key metrics posted on our Investor Relations website. Now, I'd like to turn the call over to Todd McKinnon.
Todd?
Thanks, Catherine, and thanks everyone for joining us today. We begin the call, I'd like to take a moment to recognize this day of Memorial for the late President George H. W. Bush. We honor his presidency and life time of public service to our country and our thoughts are with his family today.
Our 3rd fiscal quarter was another outstanding quarter for Okta, with total revenue and calculated billings, both up 58% year over year. We continued to invest across our business, while improving our bottom line. Operating margin improved over 22 points and free cash flow margin improved more than 18 points year over year, making us free cash flow positive for the first time. We also had total to over 5600 customers. Even more exciting is the momentum with our largest customers.
We saw 55% growth and customers with over $100,000 in annual recurring revenue, which represents a record 100 net new adds in a quarter. This momentum is an indicator that identity is an increasingly strategic imperative for organizations in every industry and validates Okta's approach to helping organizations manage we address 2 markets: workforce identity, the identities of employees, contractors and partners and customer identity, the identities of our customer's customer we closed a number of significant deals in the quarter. I'll highlight a few of them. First, Kurt Global Holdings, a car rental company that operates in 150 countries, is an exciting new deal for us. Chose Okta to securely connect all of its employees to the hundreds of applications they use to run their business.
Hertz will use our workforce identity products, namely Okta's single sign on universal directory and multi factor authentication to provide a better and more secure user experience for its associates around the world and reduce IT help desk and administration costs. Next, an international financial services company with over 750,000 members was a new customer and lacked a full view of its customers and did not support its digital initiatives.
They worked with Deloitte to find a
single identity platform that could manage and secure both its members and employees. They selected Okta's customer identity products to provide personalized experiences for its members and our workforce identity products, including single sign on, universal directory, lifecycle management, and adaptive authentication to streamline employee access to workforce applications. A noteworthy upsell in the quarter was the U. S. Department of State who had initially purchased Okta for authentication for its more than 100,000 external industry partners, but will now expand to its entire workforce.
The state department evaluated multiple identity solutions to strengthen its security posture and support its transition to the cloud. We believe the state department selected Okta as its enterprise wide workforce identity solution because of our credibility across government sector to secure identities and digital assets across a wide variety of users and technologies. Okta's single sign on universal directory life cycle management and adaptive multi factor authentication products will provide 170,000 state department employees, contractors, and agency partners with secure seamless access to web and cloud based applications such as Office 365, ServiceNow, Box and AWS. We are very excited about the customer momentum in the quarter. Not only are we seeing more deals, we're also seeing broader adoption of our technology and will continue to innovate and expand on our platform.
There are a couple overarching takeaways I want to highlight from the third quarter. First, We are seeing traction with the awareness around identity is increasing and the space is becoming better defined. Meanwhile, large players such as Deloitte and VMware have recognized Okta as a vendor of choice for identity solutions, which further enhances our positioning in these partner opportunities. We're pleased with our momentum partner deals in the quarter including the U. S.
Department of State and believe we are in the early innings of seeing upside from these relationships. And second, we've continued to build out our 0 Trust security framework. Last quarter, I talked about our acquisition of ScaleFT, an important step in furthering our position in 0 trust security. We believe that identity is the foundation for enabling 0 trust security and we're encouraged to see that, that validated both by our customers in the industry. Last month, Forrester Research published its first ever wave evaluation of the 0 Trust security framework in which Okta was recognized as a strong performer and earned the highest score in the criteria, people workforce security, vision and strategy, and market approach we're very pleased with our consistently strong results and the momentum we're seeing, and we think it's being driven by several factors We believe significant technology transitions are pushing the market in our direction.
1st, every organization we talk to is on a journey to the cloud second, They're thinking about how to become technology companies and better engage with customers online or through custom and mobile applications. And third, so security has become a priority at the highest level. As these transitions unfold, organizations are recognizing the critical role that identity must play in their environments. And while cloud, digital transformation and security are top priorities, most organizations will grow alongside all three of these transitions as they continue to mature over time. The market validating our belief that identity is the foundation for securely connecting people and technology.
And we believe that Okta is leading in identity and winning for a few important reasons. First, we have a fundamentally different approach to the space than our competitors. The Okta Identity Cloud is a completely independent and neutral cloud platform for identity. Because our business isn't tethered to the success of specific applications, customers appreciate that Okta will let them choose and continuously adopt the best technologies for their business. Helps them future proof to place for our customers, we strive to integrate to every technology those customers will want to use with more than 5500 pre built integrations to cloud and on premise applications and advanced integrations to network security providers like Palo Alto Networks, security analytics providers like Blunk and IT operations providers like ServiceNow, we believe the Okta integration network is our single biggest differentiator in the market.
The breadth and depth of our integrations are critical especially in this industry because the kinds of capabilities that we are the result of our the ability to roll out applications in days or weeks versus months or years, the ability to address a very complex set of problems with a simple and intuitive solution and the ability to keep pace with technology. And what we've seen as a result is a powerful network effect that is generating a ton of value for Okta, our customers and our ecosystem of partners, as we integrate to more technologies we become more valuable to our customers. As we attract more customers, technology providers become more incentivized to integrate Okta. The third reason we're winning is that we're uniquely able to serve as the identity standard for our customers because we offer a single identity platform for every type of user in an organization's ecosystem, from their employees and contractors to their partners and Okta as this single standard and retire legacy infrastructure along the way, including both long time customers like Experian, Allergan or Adobe, and newer customers like Major League Baseball, who recently presented at our Investor Day. They are able to manage and secure all of their identities in a consistent way from a single platform.
The last thing I'll call out that sets us apart is our customer first focus, we think of customer success in a much broader way than most technology companies, even most cloud technology companies, For most, customer success is about making sure customers are successful on your platform that they're able to successfully implement it and use it. This is, of course, true for us as well. However, since Okta is an enabling platform for people and technology, it has to be more our customers buy Okta to make the rest of their technology even better. For example, many use Okta to automate provisioning from their HR systems to downstream applications, Even more use Okta to roll out applications like Office 365 of highly distributed environments, their metrics for success aren't just about being successful with Apta, they're about being able to automate provisioning through Workday to improve employee onboarding and offboarding or being able to roll out Office 365 to large global organizations in of weeks. These are the kinds of success stories we care about most.
And since we've done these kinds of implementations countless times, our customers are able In summary, the market is being driven our way as momentum in cloud, digital transformation and security are all converging on identity. And we're winning because of our independent neutral approach, the breadth and depth of the Okta integration network and our ability to offer one platform for every use case, and our customer first focus. Thanks again for your time today and I'll now turn it over to Bill to walk through the financial results.
Thanks, Todd, and thanks again to everyone for joining us. I'll first go through our results for the third quarter of fiscal year 2019 before discussing our outlook. We had another strong quarter with revenue totaling $105,600,000 growing 58% year over year. Subscription revenue totaled $97,700,000 in the 3rd quarter, an increase of 58% year over year. Representing 93% of our total revenue, up slightly from 92% in Q3 last year.
Professional services revenue was $7,900,000, increase of 56 represented approximately 16 business as a long term growth driver, and we are investing strategically to foster this incremental growth opportunity. Moving on to billings. The current portion of calculated billings graph for the quarter was 57% year over year. Total calculated billings for the 3rd quarter totaled $124,000,000, an increase of 58% over Q3 last year. We are very pleased with our calculated billings growth and the underlying demand that continues to drive our business.
Contributing to our high billings growth rate was better than expected bookings linearity in the quarter and the beneficial timing of certain invoices. Our growth has benefited from momentum of new customer additions, as well up sells within our customer base across all of our segments. 100, up 42% year over year, a slight acceleration from Q2. We saw broad additions across our enterprise customer base added a record number of net new customers with annual recurring revenue greater than $100,000, up 100 from the previous quarter to 9.37 representing a 55% year over year growth. Our dollar based retention rate for the trailing 12 months ended October 31st remained strong in 20%, demonstrating the ongoing success we are having expanding within our existing customer base.
Before turning to expense items and profitability, I would like to point out that I will be discussing non GAAP results going forward. Our GAAP financial results, along with the reconciliation between GAAP and non GAAP results, can be found in our earnings release, as well as the supplemental materials posted on our Investor Relations website. Subscription gross margin continues to be strong at 82.2% up 180 basis points versus the third quarter last year. Our professional services gross margin was negative 3.2% compared to negative 30.6 percent in the third quarter last year, primarily due to strong utilization and improving operational leverage. Total gross margin was 70 year over year.
Our gross margin represented a new record high as we continue to scale our platform. Turning now to operating expenses. $43,700,000 in Q3 last year. This represents 48% of total revenue, an improvement from 65% in the third quarter last year. This year over year improvement was aided by year, but in Q2 this year.
R and D expense in $14,000,000 in Q3 last year. This represents a growth rate of 52% as we continue to invest significantly in the Okta identity platform and our Okta integration network. At the same time, R and D as a percentage of revenue remained fairly consistent at 20% compared to 21% in Q3 last year. G and A expense was $14,500,000 for the 3rd quarter compared to $9,900,000 in the third quarter of last year, G and A was 14 headcount was 1473 as of October 31, growing 29% over Q3 of last year. We are adding headcount across the board to support the growth of our business and expect headcount growth to continue to accelerate in the fourth quarter, as we further invest We remain focused on durable growth, and as a result, we see continued improvement in our operating margin, while maintaining strong top line growth.
Operating loss in the quarter was $6,500,000, which is a margin of negative 6.1% compared to a negative 28.9% in the same period last year, a significant improvement of over 22 points. Net loss per share in Q3 with 109,000,000 basic shares outstanding. This compares to a net loss per share in Q3 last year of $0.19 with 95,000,000 basic shares outstanding at the time. Operating cash flow was positive 6 point operating cash flow margin was 6.1% compared to negative 14.2% in Q3 last year, an improvement of over 20 points. Our top line outperformance and continued margin improvement resulted in positive free cash flow in the quarter for the first time.
Free cash flow came in as a positive $1,400,000 in the quarter. Free cash flow margin was 1.3% an improvement of over 18 points compared to a negative 16.8% for Q3 last year. We are particularly pleased with this given the impact we saw with CapEx in the quarter due continue to expect to see variability in free cash flow margin due to this expansion, along with ongoing fluctuations in working capital. Turning to the balance sheet. We ended the 3rd quarter with $546,000,000 in cash, cash equivalents and short term investments.
This includes the net proceeds of $307,000,000 from the convertible senior notes we issued in Moving on to guidance. For the fourth quarter of fiscal 2019, we expect total revenue of 107 to $108,000,000, representing a growth rate of 39% to 40% year over year. Non GAAP operating loss of 12.5 of $0.09 to $0.08, assuming shares outstanding of approximately $110,000,000. For the full year of fiscal 2019, we now expect total revenue of $391,000,000 to $392,000,000, representing a growth rate of 52% to 53% year over year. Non GAAP operating loss of $49,000,000 to $48,000,000.
Non GAAP net loss per share of $0.37 to $0.36, assuming shares outstanding of approximately 107,000,000. Although we are still early in financial planning for fiscal 2020, I would like to 20 to be between $510,000,000 $520,000,000, representing a growth rate of 30% to 33%. In summary, I'm pleased with our consistent execution and the results we reported this quarter. We remain committed durable growth as outlined at our Investor Day in October. We see this growth coming from customer momentum, partners channel traction, international expansion and innovation in our platform and network.
In particular, this quarter, we're excited about the continued traction we see across our partner ecosystem them, we remain from the market tailwinds that are elevating the need for identity. These tailwinds in addition to the success we've seen with our leading platform integration network and customer first approach continue to put us in a winning position. We are excited about the opportunities ahead and look forward closing out the
Thank And we'll take our first question today from Sterling Auty with JP Morgan.
Yeah, thanks. Hi, guys. I believe Microsoft Azure Active Directory had a couple notable outages in the recent past year. And I'm just wondering if that's actually changed the kind of conversations or the number of discussions driving more interest in your solution? Or is it even having an adverse effect where companies are perhaps nervous about identity in the cloud?
Hey, Sterling. It's a good question. We're having so many conversations with so many customers. And they're all follow kind of the same key big trends. 1 is just customers need help adopting more cloud.
They're thinking about apps, Office 365, Google apps, they're thinking about infrastructure, Amazon, Azure, they're thinking about business apps, Salesforce, Work day of service now. And there's lots of different the reliability, as you mentioned, is one thing, but there's just a whole host of things they're trying to figure out. And they're trying to figure out security to make sure these apps are accessible and secure. They're trying to figure out how to get the most business benefits out of it. And they are increasingly realizing that identity is at the key to a lot of that.
If you want to do a secure deployments, if you want to do quick if you want to do, deployments that will get the business benefits, you have to have your identity story straight. That visavis Microsoft specifically, one thing that's interesting is that because of our breadth of customers now, over 5600 customers. And many, many of those customers using some technology from Microsoft we actually get visibility into the reliability of Microsoft's products. So we actually it's not just in conversations with customers, it's actually in conversations with prospective customers, but it's in conversations with existing customers, talking about, what was the extent of this adage, can you understand how broadly the impact was? So, we're able to help customers understand the breadth of some of the technology choices they are using and the pros and cons, and that's the benefit of being this independent and neutral platform.
So I would say, it is something where we see, but in the grand scheme of things, it's one of the many conversations we're having.
All right, great. And then one quick follow-up on 0 Trust. How should we think about what portion of the 0 Trust architecture that Okta will ultimately provide. And I guess what I'm thinking about is, it seems like in some of these models, you'll have some of the cloud gateway companies playing a role as well. So is that an area where we should look for increased partnership from Okta moving forward?
It's a good question. So zero trust is the term in the industry these days or fairly recent term ministry, which basically means, don't trust the network. Give the user the same experience regardless of whether it's an internal network or a network from home or a network from a coffee shop, given the same experience, same great ease of use, and most importantly, same great security. So many times customers aren't asking for 0 trust per se. They're asking for, how do you make this all secure?
And they're saying, we love the cloud. We're trying to build better customer facing applications, but security is paramount, and we need help securing that all. And what they're increasingly realizing is that identity is the key to that. You have to control identity to give a really great user experience and a secure user experience. So now 0 Trust is the industry trying to put a design pattern in place around what this truly looks like?
And what are the different components you need? And what do you need on the client? What do you need on the device? What do you need in terms of, as you mentioned, gateways and other things? And there's people have different opinions, but one thing that's becoming very clear is that you have to have identity covered well.
You have to have a good identity backbone to do security and to do 0 trust. So I think what you'll see is, and you see it in our results, that identity is prevalent and pervasive, and, especially as customers who do more cloud, do more and want to be more secure, And then the actual details of that, whether you need a gateway or whether how the VPNs fit in, those details will be figured out over time, but identity is going to be at the core.
Got it.
Next, we'll hear from Terry Tillman with SunTrust.
Hey, good afternoon, everyone. Thanks for taking my questions and a great set of results Maybe the first question because we heard a lot in y'all's prepared remarks about partner momentum. I know earlier in the year, it sounded it looked like you all kind of find your partner program with partner connect and maybe redesigned it. So I don't know if some of that's behind, kind of this amped up success with partners, but maybe you could talk about some of the things structurally you've been doing around partnering and then maybe more specifically, VMware and Deloitte a little bit more efficiency in terms of the momentum with them?
Yes, absolutely. Hi, Jay. This is Frederick. Happy to talk about that. I think you bring up a very important point, which is the importance of partners in our business.
It's something we've obviously been working on a number of years, these things are not things that you can just turn on overnight. I think you highlighted a couple of examples of some of the big categories that I would point to and that we see a lot of momentum growing in our business. The first one are the global system integrators. You mentioned Deloitte, but also some of the other folks that are out there as strategic advisors and implementers to large enterprise and public organizations. Deloitte is doing very well.
I was just actually in Europe last week with a number of our customers opening up our France office and had an opportunity to speak with some of the senior partners there. And they're as excited in Europe as they are in North America to work with us, both on the security implementation side, but also on the large digital transformation projects that they want to be involved with. The second piece are very large technology partnerships that are starting to come into play. Again, you mentioned a very important one, VMware. For those of you who might not remember all the details, we announced an important partnership that we started May at Oktane with VMware, with 1st technology and business integrations between our teams.
We furthered that at VMware's VM World And VM World Europe, Barcelona in early November, where we talked about the 2nd level of now technology integration, as well as extending that partnership out to VMware's channel. And again, in Europe last week, I heard from a lot of folks in the VMware channel who are very excited about this partnership, as well as customers and prospects excited at seeing us work with such a large important company and an important piece of technology for them. And then finally, I would just point to the Okta integration network, which continues to be, the de facto standard in the industry for the best and broadest deepest integrations across thousands of not only applications, but pieces of infrastructure, networking gear, and everything else with dozens of advanced integrations that are really benefiting our customers where they find these solutions and drive a lot of value. So We are seeing a lot across all the different pieces of our partner ecosystems, which we continue to invest in. But like our business, these are early days in the changes ahead are very large and we're excited to keep building upon these results.
Yes. And I
would add, Terry, that, the the programmatic things that Freddie talked about are very important. But one thing I've noticed is that the business results we're showing are really motivating the partners So if you talk about 100 new deals over $100,000 in ARR, partners noticed that as well. And they want to be, they want to be on board with this, the latest trends and the leader in this industry. And that's the business success and the momentum in the market is driven the partner momentum as much as anything else we've done programmatically.
That's great. Thanks to both of you for the answer. And I guess Just my quick follow-up is on threat insight. Todd, I know earlier in the year, you all kind of unveiled, kind of where you could go with all this analytics horsepower. It looked like the way some of this could work is you have to buy the higher price point, the SSO or the MFA product to get access to it.
But what can you just do in terms of an update on Threat Insight, how it's being received and just where you are with that? Thanks again.
Threat insights is essentially, it's really important for the value it delivers to customers and it delivers you in a way that's pretty special. Because we see so many customers and so many logins, we can detect threats across the entire ecosystem. And then we can expose that threat intelligence back to individual customers and let them, configure policies in Okta that would make certain decisions based on those threats that are relevant to an individual customer. So it's just it's because we see the data, we can make the product more valuable for individual customers, and it's one of the benefits of being on the cloud platform. The Threat Insights is going very well.
We are We're continuing to roll it out and uptake has been very positive. We're working with getting a lot of feedback from customers, not just on print insights, but in the overall policy engine and continuously innovating around the capabilities as we do for all of our features, we have this model, this cloud model, which allows us to continuously release features and functions, but also the data changes all the time. So as threats emerge, it's updated real time and threat insights. So it's a very powerful capability that's being, well received by the customer base.
Mr. Tillman, do you have anything further?
I think I've taken enough of their time. Thank you.
Thank you. We'll now hear from Alex Henderson with Needham.
Great. Thank you very much. I was hoping you could talk a little bit about the competitive landscape relative to Cisco's acquisition of Duo and to what extent you're seeing any change in the behavior of customers that they've been associated with, or to what extent, as you're going through your competitive processes, you are taking more business from that channel or what any change in that dynamic?
We haven't seen a change. The big picture is that there's there are a lot of deals. I mean, the market is really accelerating. There are a lot of deals. And we the overall competitive trends are very consistent with what we seen.
Our win rates have been consistent for several years with respect to all the competitors. The competitors are different. Like, it's very different when you're competing with someone like a Microsoft where the dynamic is customers, they really don't want to be locked into Microsoft. They're worried about locked into a certain platform, particularly Microsoft, So there, it's about this broad identity platform that can support multiple technologies, give the customer choice freedom from any kind of being driven down a certain path, that's powerful to them. Different competitors are different.
So maybe a legacy competitor, it's all about a product set that's not being updated or not being migrated to the modern environment and they see us as the as their pathway to the future, their pathway to the cloud, their pathway to digital transformation or a point competitor, maybe that just doesn't have the breadth of coverage and can't get into deals and can't cover the field, or maybe it's just more of a niche solution, not a broader platform. So I think back to your question about, Duo and Cisco, first of all, you asked the question about competitive, but I would first say is that, we're very strong partners with both Cisco and with Duo. Duo, we have a seamless integration with Duo on our platform. We have a very seamless integration with Cisco. Their firewall products So we're very, very happy with those partnerships and those continue to be very productive.
On the competitive side, we do have some product overlap with Duo, and we continue to compete with them. And I think it's natural that you're going to see anytime there's a big acquisition like that, you're going to see some disruption in terms of the the execution of them independently. And I think we are seeing that to some degree, but, we think that the partnership will continue and where we compete, we'll compete and the environment will be consistent over time. And the big picture, it's, there's a lot of value to be created for customers and we're busy trying to capture and deliver that as much as possible.
Yes, so one broader question. So clearly as we're moving to a world where the center of gravity of security is moving out of the enterprise and into the cloud, the architecture of security delivery has to change And I assume that no single company is going to be able to provide the full platform in that environment where we're federating multiple security clouds together. Does Okta end up being the connected, the primary connective tissue between them? And if that's the case, how do what role do you play in the policy piece of that?
Well, I think I think if you think about the definition of the word platform, at least how we think about it, it's a platform by definition is a set of underlying capabilities that then other people build on top of to provide the full set of value to the ecosystem. So if you think of like Windows, Microsoft couldn't build every application. So they built the Windows platform and then they developer community built all the applications. If you think about, there's other example, iOS, right? Apple couldn't build all the apps into iOS.
So they open up this platform, the App Store, and then developers built it. So we think of when you say the entire security ecosystem, we absolutely agree. We think that We think that no one company can build it all. It's all about choice for the customers. But then you get back down to like what is the platform and what is the right thing to pivot off of to be the basic thing you need to have a handle on that then other people can build around.
And for us, that's identity. We think by being the system of record for identity, we can be the foundational platform and other people can build around us. So the way we think about the world is, we're the identity platform and then all these other adjacent categories will plug into us and provide the application, quote unquote, for our the quotes for our platform. So that's how we think about the world. You know, and I think it's if you think about looking at how we're investing in the product, it's consistent with that.
I think, Alex, just to add on that, you see that also from a customer perspective. I mean, what they say is they're very excited about a lot of the advanced integrations that we have in the Okta integration network because it allows them to leverage the investments that they've made for example, in Palo Alto Networks, get it pre integrated with Okta, and that way they can get more value out of both of the solutions, the Palo Alto Network firewall talk to Okta and back and forth. So you actually get more information by connecting them. In fact, we have a number of, and I see this more and more with our large enterprise customers a good example was a large financial institution. I think in Texas was the first one to do this.
They are now actually writing into all of their new technology contracts that the solutions they're buying must be pre integrated to Okta. So what you're getting is not only the existing technology vendors know that they need to partner, but the next generation security vendors are coming to us and saying, clearly, you're the new identity standard. This single identity platform is foundational. We want to make sure we're pre integrated to it and you really see that flywheel spinning, which I think is going to be very exciting for customer success and the times ahead.
Next we'll hear from Richard Davis with CG Financial. Hey, thanks.
Maybe I'll take a remix on Sterling's question a little bit. So when do you guys think we're going to get to the point where you and maybe another modern security vendor or 2 will allow chief security officers to save money and kind of deprovision or stop spending on security systems that when I talk to these guys and gals are just like we know we're over ensuring with stuff that's repetitively redundant, so to speak. Do you think there's a point where we get to that point where you can walk in and go look. It's a hard dollar ROI. You can like cut off 6 different things.
Thanks.
I think that, it's an interesting question. From our perspective, it's about the choice, right? And it's about choice to pick the apps, the infrastructure, the platforms, the security tools that are best for the customer. I think in some cases, that's a consolidation of spend around certain vendors. In some cases, it's branching out into new areas for some business driver business growth.
Ability that customers need. I think as many customers, I talk to that want to consolidate and cut down on vendors, many more want to want our branching into new areas and want to expand. I think it's got to have flexibility to go both ways. But I do think that you have to, and I think you see this in all of the super successful companies, you have to have, you have to manage something that is something that the customer can pivot around, whether it's With us, it's the person and the identity. With other vendors, it's different things.
But, we're very confident that our strategy of being the system of record for identity is the right strategy and give customers the flexibility take the technology in the way it needs to be best for them.
Got it. And then just a quick follow-up. So, look, we've seen identity management kind of evolve from password reset companies to multi factor to adaptive MFA. So have you guys ever said like how much penetration, whatever the highest part of Maslov's hierarchy of identification is there? Is it 10%?
Is it 5% of it? I mean, I know you're at the foothills. Have you looked at that on that basis at all or not?
I think it's I don't have the numbers. I think it's my impression from customers I talked to and so forth, it's the super sophisticated, machine learning driven is very, very rare. I think most customers are are trying to get things integrated and get the right security policy on the right resources. I think the promise is longer term, more autonomous, more, machine learning type things, the kind of the truly adaptive for everything, but Most customers just want the flexibility to connect all their technology and then do policies appropriate for the right resources. Based on the risk level.
And I think that it's kind of people know it's a good idea. The reason it's hard is because stuff's not integrated. And one of the things we're doing is trying to bring that pre integrated approach to it with our the Okta integration network. And we think if we can integrate everything, we can give customers this basically a fighting chance to do the right policy on the right resources, and that's going to make things much better in terms of ease of use for the users but also for security.
We'll now hear from Heather Bellini with Goldman Sachs.
Great. Thank you so much for the question. I had 2 for you guys. I guess the first one would be, you continue to just have a really good improvement in the net new customer count with over $100,000 in spending 90 last quarter, 100 this quarter. Is something changing in terms of the number of products that
they might be purchasing upfront
for the first time, is it potentially that they're just adding, they're doing larger deal sizes of a single product than maybe what you were seeing before was wondering if you could give us some color there. And then I had a question. I know someone asked about some of the issues that Microsoft had over the last few months. But I was more wondering when you see headlines like the one with Marriott last week, does that ever do you see breaches like that ever causing kind of a a spike in deal activity or at least kind of RFPs for you guys? Thank you.
Thanks, Heather. I'll take the first question, regarding what we're seeing in that momentum. I think it's a couple of things. First of all, I'm see, we're very fortunate, right, in that we're addressing 2 large markets, workforce identity management and customer identity management. So what you see is you see customers that can now start in either of those large two markets with any of our 5 different products.
And as you So they could start, for example, with multi factor authentication for a customer situation, and then they could find ways to deploy it internally for workforce. So there's a lot of points where they can land and expand. Number 2, I think you're starting to see us just there's a natural momentum between as we roll out 40 new releases a year in our agile software development model. There's a lot more features and functions coming all the time and there are more and more advanced use cases, we can help customers address. At the same time, you're starting to see larger and larger enterprises turning around and saying, we are going to have a cloud first approach.
Last week, when I was in Europe, I remember meeting with a large utility a couple of years ago, and they said, we're never going to have anything in the cloud. And that same utility. 1 of the largest utility companies in Europe started the conversation last week with, we now have a cloud first mandate across the business. And so you're just seeing much larger organizations saying, we have to get on this journey to the cloud. We have to undertake a digital transformation And so the convergence of us being able to provide more solutions for them and the enterprise finding more and more ways to leverage the service I think is what you're starting to see drive those results.
By the way, that's the same reason that organizations like Deloitte are finding more and more interest in working with us because obviously they're working with the largest organizations in the world. What I would say though, it's very early. So I think that in this transformation, our best days buy far are ahead of us in helping these large enterprises. We're very happy with the results we have, but I think that it's going to be very exciting in the times ahead. And then On the second piece regarding Marriott specifically, we can't point to anything this week where there are more inbound phone calls from organizations looking for that.
Certainly, it is unfortunate whenever you read one of those headlines for those organizations, because it's a very tough position to be in. But yes, I think it highlights a couple of things. First of all, it highlights the fact that every company has to think about they're going to modernize their technology and how they're going to prioritize security in a new way, whether you're a high-tech company, whether you're retail company, whether you're in the hospitality industry, it applies to every organization. Number 2, I think it also highlights what we all know, which is there's a significant dearth of advanced software developers in the world in North America and specifically in security, And you can imagine that for a lot of these large companies, it's hard just to attract all of these advanced security software developers to their companies. And then finally, identity is only now starting to become the center.
People are now starting to come around to the fact that it is so critical But it's taken a while and certainly a lot of these companies have had these resources available. So, you know, Marriott's been out there with their programs for many, many years. Now it's time to modernize them. I think I would just point to what we just did with the Albertsons customer press release that went out today as well. A very good example of a company that's been around 80 plus years.
They've had loyalty and rewards programs for a long time, but they realize it's time to modernize And so they started working with us a couple of quarters ago. And today, there's 30,000,000 consumers accessing Albertsons Safeways and all of their customer identity management resources on a weekly basis. I think those are the kinds of trends that you're going to see more and more of in the times ahead. And certainly, we think that we're very excited about the opportunity to help a lot of customers with those opportunities in their businesses.
Great. Thank you very much.
Next we'll hear from shaul Eyal with Oppenheimer.
Thank you. Good afternoon guys. Congrats on another
set of strong results. I want to actually touch on absolutely, absolutely. I wanted to ask about, some of the clients and contract announcements you've made probably starting with Albertson appears to be a sizable customer. I think you've indicated 30,000,000 customers slash users from their perspective interacting. On a weekly basis.
Was that a displacement? Probably not, but just want to hear your thinking about it. And also maybe talk to us, Todd or Freddie about the process, maybe the timeframe it took from POC to PEO And probably what are the other long term opportunities you can see with this specific client? And then I have a question on the state department contract.
Yes, absolutely. Thanks for the question, Sean. I'll start with Albertsons. So your first question was about what we displaced there. I mean, Albertsons, like a lot of large organizations, has been built up over the years through M and A.
Right? So if you look, they have today dozens of different properties in food and drug retail, And so as these different organizations have evolved and as Albertson has rolled up more and more of these different brands, each of those different companies has come with their own set of infrastructure. So in fact, there was legacy infrastructure, but not just at Albertsons proper at Safeway and at all the other brands. And so what you have is this sprawl where they have many different installations. Some of them might be homegrown.
Some of them might be a CA. Some of them might be of Oracle or IBM. And so what happens is you as an end customer, it's a bad experience for you. Because you might have an Albertsons log in and a Safeway log in. You don't get the value across both of them.
They don't know what you're doing. Then at Albertsons, obviously, they want one view of you. So they know where you're purchasing across all their properties, both on the web, on the mobile, physically inside the stores. And so by transforming across all those different pieces of on prem infrastructure, moving to a centralized cloud platform like the Okta Identity Cloud, putting all of those different resources inside one central database, they're using our Okta universal directory and allowing their customers to have a much more seamless experience it's enhancing the customer experience, but it's also obviously on the back end providing Albertsons with much better visibility into what their customer is doing across all these different properties. And that is the true value.
So absolutely, we did displace legacy technology, but it wasn't just one piece. It was undoubtedly many pieces that they were having a lot of trouble federating because, you know, they've been around for 10, 15, 20 years inside different data centers, and it gets very, very complicated. On your second question around the time to work with the customer, I think you'll probably be pleasantly surprised. Albertsons has been a customer of ours for less than four quarters. I can go back and look exactly, but certainly, I think it was since the beginning of this fiscal year, where they signed up.
And I think that time to value is something that you really only get with a modern cloud platform The fact that they were able to roll out 30,000,000 customer visits on a weekly basis across all these different myriad properties both physically, both on the web, on mobile applications, and the fact that we're able to do that in a matter of a couple of quarters, That's how you get this customer success. And it's because of the foundational platform that we have in there, that you start seeing, they get very quick ROI. The TCO is easily understandable and very quickly they go from help us helping them solve one specific problem where we become then the identity standard, and we become pervasive across their entire organization. And identity really becomes this foundation platform, they get a lot of comfort around and they can build on. So that's specifically around Albertsons.
I believe you also had a question. You said a follow-up question around the state department. Yes.
No. Fredi, thank you. This is really great, great color. Thank you for that. And probably on the state department, that comes under the federal verticals.
Talk to us a little bit maybe specifically about this product, this contract, but also How do you see the opportunity on the federal vertical? And what are you guys doing to probably accelerate that without a doubt, I would imagine such a contract should entice and accelerate the appetite to do much more. You get a state department, these guys that they all talk to each other. You can get a great reference here and the Sky could potentially be the limit here in that in the federal vertical.
I certainly hope that you're right, Charles. So we're working on that every day. In the meantime, I'll give you some specific details around that. Look, I think public sector very much like the question around partners earlier on the call. This is not something you can turn on overnight.
I mean, this is something we've been working on. With a federal team in place, I think, for coming over 3 years now. It's not just at the federal level, but we do very well at state and local. And again, you see all sorts of organizations seeing these major imperatives of the journey to the cloud and how they're going to become technology companies think when you think about public sector in the U. S.
State Department is one example. It's a good one, but it's just one example. Certainly, the federal fiscal year ends in September, which coincides with our Q3, which is why we're not terribly surprised to see some good business from the federal sector as they wrap up their year and they look to the year ahead. But I would highlight that we've been working on a lot of the underpinnings for our platform and to make it viable and a good, strong, viable, secure, reliable, scalable performance solution for the government agencies for a long time. For example, we have been HIPAA compliant for quite some time.
We are now already FedRAMP Moderate certified on the platform. And we also have native support for things like PIV and CAC, which allows the government to use a lot of our Okta workforce products And then finally, you see a lot of big initiatives that are happening inside the government. For example, they have the modernized government technology act, with establishes funds to improve federal technology. You also have the White House, which is pushing this cloud smart strategy which anything that can go to the cloud should go to the cloud. And I think these are just some of the examples of what you see.
And obviously, we're very fortunate that we can these organizations make those moves. And we're very happy with the success we've had. But again, I think the opportunity in the times ahead is very good. Over the last couple of years, you've seen us work more and more with government agencies, organizations like the Department of Justice, the Center for Medicare And Medicaid Services, and now the state department. So certainly we're starting to get good traction.
It's important to make these customers successful, which we do, but we're very excited about the opportunity ahead. And I think it's, again, very early days, and we're excited about what we can possibly do in this segment.
Next, we'll hear from Pat Walravens with GMP Securities. Great. Thank you very much. And let me add my congratulations.
Hey, Todd, can you walk us through just sort
of at a high level the steps that, you're taking to make sure bad guys don't breach the Okta network?
It's a yes, I mean, it's a big focus for us. We, 1st of all, the main thing that customers, when customers think about Okta, the main thing that they are trying to solve for is combining both ease of use for their end users and security for their own applications and services. So they see Okta as a way to make their own technology more secure. And whether it's making sure that accounts are provisioned at the right time, making sure that the right people actually have access to the right services at the right time, making sure that there's the right amount of authentication, whether it's a single password, whether it's multi factor, whether it's a certain policy, all that makes a tremendous amount of improvement and how things are easy to use and then how things are secure. And if they're building a customer facing site or mobile app, you're doing all of that while at the same time increasing their time to value and their productivity of their developers that they have to spend to build that thing.
So obviously, the foundation of all that is that the Okta service itself is secure. And the we've kind of that's what we've hung our hat on. And by investing a tremendous amount in, the basic architecture, the processes and procedures, the the technology reviews, the redundancy. It's something that it has to be built in from the ground up. It has to be consistently followed for years years years.
It has to be part of the culture. It's, something that's very, very hard to replicate. And It's not only a technical thing, but it's also a communication thing. And we have this conversation with customers in the in so that it's a customer that's learning BaaS for the first time or whether it's a customer that's expanding their usage with us. We're very good at talking to them about this in a very open and transparent way so they can understand what we do.
They can understand, how we mitigate risk and they can understand why it's kind of hard to replicate and something that's very valuable to them as they try to transform their technology.
Next, we'll hear from Gray Powell with Deutsche Bank. Mr. Powell, your line is open. We can hear you now.
Hey Greg, loud and clear.
All right. Hey, thanks. Yes, I'll be quick. So it definitely seems like you all seen an uptick of the adoption of MFA this year, just ballpark, where do you think overall industry adoption is or what stage do you think it's in? And then how do you feel about the growth of the product set over the next 12 months versus the last 12?
Thanks.
I think multi factor authentication is the stage it is, is everyone knows it's a good idea. I think it's still too hard to roll out. In general, I think we're trying to make it easier by making it pre integrated by connecting to our policy engine by, delivering it as a cloud solution. So we're getting better. But I think there's a lot of the industry as a whole, has to move from everyone knows it's a good idea to having a kind of this broadly deployed multifactor connecting to a policy engine and we're trying to help.
I think, product innovation is critical to us and, we're we're very excited about what's ahead for us in terms of product innovation and releasing new capabilities. And, we're We're going to have I encourage everyone to stay tuned. We have our customer conference coming up in just three and a half months, and we'll have a ton of announcements there.
We'll now hear from Jonathan Ho with William Blair.
Hi, good afternoon. I just wanted to start out with maybe the international opportunity and where maybe where you see the most opportunity to leverage investments as well as maybe how the challenges differ in the international market that. Yeah, sure. Hi, Jonathan. Nice to hear from you.
Happy to chat a little bit about think the first thing is, we're very excited about the opportunity in international. And I think that you're starting to see the results speak for themselves. That business is growing and growing fast. I think there's a lot of opportunity in terms of not only the customer interest, for what we do, but also in working with a lot of these channel partners because those markets are much more fragmented. Obviously, you have Countries in Europe, Asia Pacific is the same.
And so to the question about partners that we had earlier, one of the things that we've spent a lot of time on over the last 12, 24 months is really making sure that we have the right partner programs with the right incentives, making it very easy for our partners to adopt our products and help distribute them in the market. Think you're going to see more and more of that. We've also historically made the right investments ahead of time that I think are now bearing fruit. So for example, we have had data centers in Europe where they can fail over data to a second data center in Europe, without ever coming to North America. That's a solution that's been out there for quite some time.
We're in the process of implementing the same in Asia Pacific to again, give customers the comfort that they can keep their data in region if they're interested And again, with very high levels of control, security, reliability, availability. And I think some of those things are very important. At the same time, you've also seen us continue to invest in expansion of our offices. Our office in London has continued to grow over the last four or five years, and we've continued to take on more office space there with opportunity. I mentioned that we opened formally our Paris office last week, we've had an office in Sydney for some time and we're continuing to invest there.
So, I think the opportunities in international are early. They're exciting. They're big and they're huge opportunities for us in the years ahead.
Our final question will come from Rob Owens with KeyBanc Capital Markets.
In under the gun. Kind of feel like now I can take as long as I want to. Good afternoon guys. I want to drill down a little bit. The floor is yours.
Want to drill down a little bit into the international financial services win, both on the workforce ID side and the customer ID side. Just relatively where do you get more dollars? Is it on the workforce side or the customer side as you see some of these guys bite on both sides of the apple?
Yeah, happy to talk about that, Rob. I think that one thing we should talk about is what's happening today and then I think we should talk about trends and what we see happening in the future. Look, today, and as evidenced by our business, we started with workforce identity manage So the first, we're coming up on wrapping up our 10th year business, which is great. Our 1st 5 years of business, we basically only had a workforce identity management product Not why is that? Well, workforce identity, formerly known as enterprise identity, it's something that's well known.
It's been in the industry for 20, 25 years. Legacy software vendors, Oracle, IBM CA have had solutions here for the days of homogeneity when you were an IBM shop or an Oracle shop, And so it was a well understood, kind of need as we came into the market. So if you look at our first thousand customers, all they could buy actually was workforce identity. Now, that's great and that's going to continue to grow and that's a big market and we're barely scratching the surface. And you're going to see more and more workforce identity business in the years ahead.
What's happened over the last few years is customers have started to say, Hey, I've built this customer identity management infrastructure myself in the past. It's getting complicated. We talked about examples like Marriott, security is important, password reset flows, registration across devices, multiple email addresses, these are very complex pieces of technology for companies to build themselves. So they've started, using solutions like what we have in the customer identity and access management in the Okta Identity Cloud. So it is a newer part of our business, right, also growing very quickly.
But what's exciting is in the times ahead, if you think about a large organization, like dignity health, which is a customer of ours, We can help them with their workforce, obviously, which is tens or maybe 100 of 1000 of employees in certain cases. We have set of products. They're very well suited. There's a lot of use cases for them. But in in the on the customer identity side, as they put more and more online, as they digitize more and more of their business, there's more and more constituents that an organization like Dignity Health needs to interact with.
For example, they could have patient portals that you and I go and pay our bills on. They could have physician portals where physicians come and get information on patients. They could have vendor or supplier portals where they talk about their supply chain. So whereas an organization could have one large workforce opportunity for us to help them with they could start to develop more and more of these customer identity management opportunities as well. And that's why I think you see that people have very good ideas on how large the market is for workforce, which is very large.
And they're starting to develop those ideas around customer identity management. So that's a long way, winded way of saying today, customers can land with either workforce or customer identity with either of our five products. They find ways to cross sell and upsell themselves because of our very high customer dollar based net retention rate of 120%. But in the times ahead, I think it's a toss-up on which of these 2 large markets are going to continue to grow faster. A lot of opportunity.
Obviously, we want to be there to help the customers with either one It's certainly something that we're going to continue to keep an eye on it in the times ahead.
That will conclude today's question and answer session. I will now turn the over to Todd Mckinnon for any additional closing remarks.
So we appreciate the
time today. We are, excited about our progress this year. And but the most exciting thing for us I think is that we're still very early in these big trends. We're this trend of cloud adoption. We've been talking about it for a long time, but when you look at, organizations around the world, whether they're large companies, governments, international markets.
Cloud is a big transformation. It's going to take many, many years ahead. And we're going to be there to help customers along the way. Same with digital transformation. That's a continuously evolving thing.
And, we're very I'm excited that identity is the core of that and it's going to be a growth driver for years ahead. And finally, security is just as timeless. So while we're excited about the results, we're more excited about the future potential and we're working hard every day to make sure we capitalize on this. So thank you very much for We look forward to seeing you on the road or talking to you in next quarterly call.
That will conclude today's conference call. Thank you for your participation. You may now disconnect.