You may begin.
Good afternoon. This is Catherine Braun, VP of Investor Relations at Okta, and thank you for joining us on today's conference to discuss Okta's fiscal fourth quarter fiscal year 2018 financial results. 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 Frederick Karast, 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 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 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 forward looking statements.
You should not rely upon forward looking statements as predictions of future events. Forward looking statements represent our management's belief and assumptions only as of the date such statements are made. In addition, during today's call, 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. There are a number of limitations related to the use of these non GAAP financial measures versus their closest GAAP equivalents.
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 in our earnings release. Further information on these and other factors that could affect the company's financial results is included in filings we made with the Securities And Exchange Commission from time to time, including the section titled Risk Factors in the Quarterly Report on Form 10 Q previously filed with the SEC. You can also find more detailed information in our supplemental financial materials, which includes trended financial statements in 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 to everyone for joining us today. This was a record quarter for the company with revenue of $77,800,000, up 59 percent versus last year, making us one of the fastest growing SaaS companies in the public markets. Subscription revenue grew even faster in the quarter, up 64% year over year, In addition, quarterly billings were up 67% year over year, while free cash flow margins improved 17 percentage points. Our performance over the fiscal year clearly shows that there is both high growth and increasing leverage in our business. But beyond this, it highlights the importance of our number one core value and that is love our customers.
Our mantra is to focus on our customer success ensuring that they achieve long term value from their Okta Partnership. And as a result, our total customer count in the quarter grew to over 4350, representing a net add of 400 new customers, our highest net 121 percent for the past 12 months as of January 31st. Furthermore, 6.91 customers now spend over $100,000 on an annual basis with us, an increase of 56% year over year accelerating from 50% year over year growth in the previous quarter. Here are some examples of key customer wins in the quarter and why they are investing in Okta for their businesses. 1st, JetBlue, which flies more than 40,000,000 customers a year, on an average of growth strategy is fueled in part by their award winning True Blue loyalty program and their premium service offering meant.
JetBlue shows the Okta Identity Cloud to support the migration away from legacy technologies, providing a reliable and secure booking and travel experience for millions of customers, with our API products, specifically single sign on universal directory, API access management and lifecycle management. The second example to support its rapidly changing business model. Legacy solutions were costly, require custom integrations and did not support modern protocols such as OpenID Connect and OAuth. The customer looked to Okta to support its B2B portals and help roll out business critical applications that support its supply chain. They purchased all 5 of the products in the Okta Identity Cloud to accomplish these goals.
Lastly, an upsell this quarter, Pharma's insurance currently uses Okta single sign on and adaptive multi factor authentication to help securely connect its approximately 20 for customer identity. These customer examples further demonstrate customers as we provide solutions across multiple applications and hybrid environments. Then as was the case with farmers this quarter, based on their positive customer experience, expand their relationships with Okta adding more products and users. We are also continuing to replace legacy solutions and work with hybrid environments to support customers move to the cloud at any pace. When I talk to customers, they don't want one vendor dominating their IT spend and dictating the use of just good enough technology.
CIOs and CSOs have to use the best products and rarely does one vendor have the best products across CRM, collaboration, file systems, devices, networks or infrastructure. Customers need the best technology, and in order to have the best of breed, they need their systems to talk to each other. Through the Okta integration network, we provide all of the integrations our customers need to successfully invest in and use the best technologies. So if an organization wants to use Office 365 in Box and Slack and not use Skype and OneDrive, they can do it. And they can have one unified customers is that they need help connecting to their customers.
Every company feels the sense of urgency to become a technology company. And we believe the Okta Identity Cloud is a foundational solution to this problem. This has been our mission from the start. We want to enable any organization to use any technology today and in the future. With all their users, both inside and outside the organization, we remain convinced that identity is a linchpin to securely manage all of for this fiscal year, security, the customer identity market, and the Okta integration network.
First, we believe we can increase our share of spend and security. The threat landscape has shifted to focus increasingly on phishing and social engineering based attacks on credentials. In fact, it has been reported that 81 percent of breaches involve stolen or weak credentials. The Okta Identity Cloud is strategically positioned in the security stack help prevent compromised visibility into billions of authentication events across millions of active users in their devices will continue to represent a significant competitive edge. And will help our customers stay ahead of today's sophisticated attackers.
Modern identity solutions like Okta have redefined the security landscape. 2nd, we want to win the customer identity market. Every company has to become a technology company and find better ways to interact with their customers before their competition does. We already have doing big deployments to securely enhance their customer facing applications. With our scale and enterprise identity, we bring the leading identity technology to an organization's customer experience As more and more companies are engaging their customers with streamlined digital experiences, Okta helps organization keep their customers happy while keeping their systems secure.
The Okta Identity Cloud helps protect customer information by securing personal information and hardening access control, and it helps their businesses by helping them understand their own customers better. 3rd, we will continue to leverage and expand When I talk to customers, they tell me that they need to use the best technologies to run their business. Okta allows them to do so through a single platform. We now have over 5500 prebuilt integrations with applications and infrastructure providers. We partner with thousands of technology vendors and with all the major platforms.
In a best of breed world, we make sure that your system stays integrated. You can choose any vendor and you can connect to any relevant technology. Our platform enables an integration model by one customer or partner to be leveraged immediately by all of our customers leading to a powerful network effect. We will be announcing more about these focus areas at Octane coming up this May 22 through 24th in Las Vegas. We're also thrilled to have President Barack Obama keynoting.
Stay tuned for all the news. As we look ahead, we're excited by our potential. We have over 4350 customers, but thousands more need the Okta Identity Cloud. Our existing customers can greatly benefit from further adoption of our broad product portfolio. And finally, we're very early in our success in the Global 2000.
We're hard at work, making sure we capitalize on the opportunity in front of us. And before I hand it back over to Bill, I want to thank our investors, our customers, our partners and our people here at Okta, a quarter like this one and our success over the years are both because of you. And now, I'd like to turn the call over to Bill
to walk through the financial results. Bill? Thanks, Todd, and thanks again to everyone for joining us. I'll first go through successful year for Okta. Revenue for the 4th quarter totaled $77,800,000, growing 59% year over year.
Subscription revenue totaled $72,000,000 in the 4th quarter, an increase of 64% year over year and comprised 93% of our total revenue. Up from 90% in Q4 last year. Professional service revenue was $5,700,000, an increase of 19% over the same period last year. In terms of geographic breakdown, approximately 85% of our 4th quarter revenue came from the U. S.
And 15% came from outside the U. S, compared to 86% 14% respectively in Q4 last year. Our international business continues to grow nicely, but we remain in the early stages of capitalizing on our international opportunity. International revenue growth continues to outpace overall revenue growth. And for fiscal year 2018, international revenue grew 85% year over year.
Moving on to billings. We had another very strong quarter for billings and achieved calculated billings of $104,800,000 in the quarter, an increase of 67% over Q4 last year. Strengthen billings continues to be driven by momentum with both new and existing customers, across enterprise and commercial segments as well as an increase in deal sizes. Also, as we mentioned in the release of our preliminary results on February 21st, The growth we saw in billings was partially a result of a few customers with multi year upfront billings. We also look at current billings, which we believe more closely represent the momentum in our business.
Current billings grew 60% year over year in fourth quarter. Our consistently strong billings growth has been driven by balanced momentum both within our customer base and with new customer additions. As Todd discussed, we saw our largest quarterly addition of customers with ARR greater than $100,000 in the quarter, representing growth of 56% year over year. Similar to last quarter, the majority of these customers were new customers, demonstrating the ongoing success we are having with the enterprise market. The addition of over 400 net new customers in the quarter was also the largest number of quarterly additions we've ever seen.
We ended the 4th quarter with over 4350 customers, up 40% over the fourth quarter last year. Not only did we see strength in our enterprise segment, but we also strength in the commercial space. Our strong dollar based net retention rate, which has historically been over 120% came in expanding within our existing discussing non GAAP results going forward. Our GAAP financial results, along with a 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 was 81.1 percent, up 169 basis points versus the 4th quarter last year.
Our professional services gross margin was negative 13.0% compared to negative 16.6% in the fourth quarter last year. Total gross margin continues to trend higher and reached a new high of 74.1% in the 4th quarter, up over 400 basis points year over year. Gross profit was $57,700,000, up 69% year over year. Our gross margin has been steadily increasing as we have experience improving operational leverage. Turning now to operating expenses.
We remain focused on balancing our investments for growth, while improving leverage and our performance has proven that our model works. 4th quarter improved twelve points over last year. We will continue to see quarterly fluctuations in our operating margin as we grow our business, but we continue to expect that our operating margins will improve annually as our subscription revenue grows at a faster rate than our total operating expenses. We also expect to Sales and marketing expense for Q4 was $42,600,000 compared to $29,800,000 in Q4 last year. This represents 55% of total revenue, an improvement compared to 61% in the fourth quarter last year.
We are pleased with the efficiencies to capitalize on our substantial market opportunity. R and D expense in Q4 was compared to $9,700,000 in Q4 last year. We continue to invest in R&D as we enhance and evolve our products. G and A expense was $11,600,000 for the 4th quarter, compared to $7,300,000 in the fourth quarter last year. G and A was 15% of revenue, consistent with what we saw in Q4 last year.
G and A expenses continue to grow at a moderate pace on an absolute basis as we have added personnel and systems to support our growth and the infrastructure required as a public company. Our operating loss in the quarter was $10,800,000 compared operating margin was negative 14% compared to negative 26% in the same period last year. Net loss per share in Q4 was $0.10 with 101,000,000 basic shares outstanding. This compares to a net loss per share in Q4 last year of $0.66 with 19,600,000 basic shares outstanding at that time. Operating cash flow was positive $155,000 in the 4th quarter, compared to a negative $6,700,000 in Q4 last year.
Free cash flow was negative $2,200,000 in the quarter, compared to a negative $9,800,000 in the fourth quarter last year. Free cash flow margin was negative 2.8% a 17 point improvement compared to negative 20.1 percent for Q4 last year. Our free cash flow in the quarter benefited from strong bookings and strong collections. While we are pleased with our ongoing improvement in free cash flow margin, we expect to see variability in free cash flow margin in the coming quarters due to increased CapEx as associated with our office expansion along with ongoing fluctuations in working capital. Turning to the balance sheet.
Ended the 4th quarter with $229,700,000 in cash, cash equivalents and short term investments. Following year end, we added approximately $300,000,000 in cash to our balance sheet in the 1st fiscal quarter resulting from the convertible senior note offering that we closed in February This capital raise provided us with additional financial flexibility to help scale our business and respond quickly to any potential strategic opportunities. Lastly, our total headcount was 1176 as of January 31, 2018, growing 31% over January 31, 2017. We continue to add headcount across the board as we support the growth of our business. Quickly touching on the financial highlights for the full fiscal year.
Revenue totaled $260,000,000 an increase
of
year over year. Calculated billings totaled $314,900,000, an increase of 62% year over year. Current billings, which as I mentioned earlier, more closely represent the momentum in our business, increased 57% year over year. Gross margin was 71.9%, up from 67.3% in fiscal 2017. Operating loss was $65,700,000 or 25 percent of revenue compared to $65,800,000 or 41 percent of revenue last year.
And finally, free cash flow was negative $37,200,000 $53,800,000 in fiscal 2017 or 33.6 percent of revenue. Before I get into our outlook, I'll discuss the adjustments we expect to see going forward resulting from the adoption of the ASC 606 revenue recognition standard. Which occurred on February 1, 2018. We adopted the new accounting standard using the full retrospective method and our adjusted financial results for fiscal 20172018 are summarized in materials posted on our Investor Relations website. The new accounting standard has minimal impact on our business overall.
Under 606, we expect the adjustment to our revenue in fiscal year 2019 be a headwind of approximately $3,000,000 to $4,000,000. And we expect this will lower our sales and marketing expenses, which net of the headwind in revenue, will lead to an improvement in non GAAP operating loss of approximately $5,000,000 to $7,000,000 for the full year. And of course, there is no impact to our free cash flow. Note that the guidance I'm about to provide includes the adjustments under ASC 606 that I just described and the corresponding growth rates I'm about to provide. Compare our guidance to our adjusted Revenue in the range of $78,000,000 to $79,000,000, representing a growth rate of 49% to 50% year over year.
Non GAAP operating loss in the range of $17,100,000 to $16,100,000. Non GAAP net loss per share in the range of $0.16 to $0.15, assuming 103,000,000 weighted shares outstanding. For the full year of fiscal 2019, we expect revenue in the range of $343,000,000 to $348,000,000, representing a growth rate of 33% to 35% year over year. Non GAAP operating loss in the range of $72,000,000 to $67,000,000. Non GAAP net loss per share in the range of $0.67 to $0.62, assuming 106,000,000 weighted shares outstanding.
I'd also like to give you some color on our CapEx expectations for fiscal 2019 given the investments in our new San Francisco headquarters. As we mentioned on our call last quarter, There will be operating expenses associated with the move, which have been incorporated into our guidance for fiscal 2019. We also would remind you that we expect to see $15,000,000 in capital expenditures over the course of the fiscal year resulting In summary, we had a great quarter. We are pleased to have closed out our 1st fiscal year as a public company on a high note. We look forward to building on our momentum in the quarters ahead.
With that, Todd Frederick and I will take your questions.
You. And we'll take our first question from Terry Tillman with SunTrust Robinson Humphrey. Please go ahead.
Hey, good afternoon and congratulations on quarter. And Bill, thanks for all the detail and the adjustments. I'm sure there was a lot of work. Yes. First question just, Todd, relates to the businesses at work is a great report and you had the event around that.
And it was just great to see all the different traction. And obviously, you guys are doing extremely well, just helping businesses, whether it's commercial or enterprise businesses, deal with cloud proliferation and really making it easier for knowledge workers use these apps in a secure way. But what about other areas such as like agile development DevOps or getting into things that are more infrastructure privilege identity, where are you in that opportunity and how interesting of an opportunity is that for you?
Yes. One of the cool things about the Identity Cloud and this really, this, this new type of platform we've defined, all around identity is that there's a lot of interesting areas around So yeah, you mentioned a couple of them DevOps and things like that. But we're really focused on the the big main areas that I talked about. 1, as you mentioned, the core employee identity. And then 2, is really customer identity.
You think about every company, thinking about how they can be more of a technology company, build better customer websites, customer mobile apps, and identity and connecting to those customers securely is a big part of So that's a very exciting area for us. And then, we mentioned that the 3rd big priority for us is really continue to expand Okta integration network. So, yeah, we're, we have, we have, we have a lot of momentum, but we also have a lot of work to do on these big broad markets. And, but we're also opportunistic about other adjacencies as they come up.
Okay, great. And then just to follow-up is on customer identity, which is a big focus maybe an update in terms of being able to engage with and interact with developers because they could be important in these design wins that lead to developed apps And just what have you all what kind of learnings have you all had in the early quarters of being out there trying to sell customer identity and just how that go to market motion would vary versus just selling your traditional products? Thanks.
Yes, sure. Customer identity is is very robust and very strong. A couple of the examples I use I mentioned in my prepared comments about JetBlue was a great customer identity win for us last quarter. That was a new customer and then an upsell at Farmers Insurance, which was the upsell was really about customer identity as well. So that part of the business is robust and the potential there is really the growth there, the growth potential there in the momentum there are big.
The as you mentioned, it does have a new because we've talked about this on previous calls. It does have a a new constituency in there. And that's the engineers and the developers building these solutions at our customers. So different from employee identity is those UIs and those applications are usually prebuilt or SaaS vendors or packaged applications where customer identity is involved in engineering team or product team building things. And, we've made tons of strides in last year about it with our developer facing offering and reaching out to the developer community and the product and technology that's API enabled and has the best most modern software development kits for all the language And so we're, yeah, we're super excited about our progress there and, it's driving some of that success in the customer identity market.
And this is Frederick.
Just to add to that, I think since we integrated the storm path came into our company about a year ago, we've seen great track an uptake in everything from our libraries to the documentation. And I think that's best represented by we just hosted a couple of weeks ago our first a developer conference called iterate here in San Francisco. We had some great partners from some of the other leading developer focused software companies that are out there. It was a great first start. I expect we'll do a lot more on that.
And those are just some good tangible examples of how we're moving forward there.
Thank you.
And we'll take our next question from Rob Owens with KeyBanc Capital Markets.
Hey guys, this is Mike Casado on for Rob Owens. Given the momentum we've seen with record customer additions in this quarter as well as 2 consecutive quarters of record additions to that large deal cohort. Can you comment on the relative contribution of customer additions, large deal commitments, expansion activity in explaining the quarter's upside?
Yes, we're happy to try to give color on that. I think that the numbers we've talked about, the customer count and the the customer's paying us over $100,000 ARR. That's kind of what drove the upside. And that's kind of consistently with what we've disclosed before, those metrics describe more new customers, more customers doing bigger deals. And If you look at our strategic focus going forward, these things, customer identity, especially security, And this the neutrality and the heterogeneity represented by the Okta integration network, these things apply to customers of all size, but they, I think, apply even more and they're more relevant to larger customers, which is why that's a big part of our area going our focus going forward.
So that's really how I would characterize the upside there.
So this is Fred.
I'd just add to that, as you actually in your question, it's not the first time that we're seeing kind of that increased growth and acceleration. It's an ongoing trend. I think taking a step back, it's just a sign of this early, but very powerful shift that you're seeing in the enterprise of more and more companies adopting enterprise cloud solutions and the opportunities that we can help them with that adoption.
No, that makes sense. Thanks, Freddie. And then as you guys look at scaling the sales organization, at least in the context and the momentum we've seen, can you speak to the internal metrics you're targeting or potential rep productivity floors you may set in planning for incremental hires, whether that's heading into the year or throughout the year?
The way we look at that basically and we've managed this for several years now is that We want to grow as fast as possible, but we also want to want our sales and marketing cost to be paid back and that's the floor we look at, right? So that payback of sales and marketing investment, over time. So it's like grow as fast as you can, but make sure that you're not doing it a point where your sales and marketing cost investment is becoming inefficient. So, we're, that's kind of how we manage the business. And that's been consistent for 4 years how we've done that.
That makes sense. Thanks for taking the question guys.
Yes, sure. Thanks for that. Thanks for calling in and asking.
And we'll take our next question from Sterling Auty with JP Morgan.
Yeah, thanks. Hi, guys. Wanted to, to ask, Todd, you laid out
the priorities for 2018. How do we translate or interpret that into what that means for possible new product introductions this year to accomplish those goals?
I think that,
well, I can't give everything away because we have octane coming up. But I would say broadly speaking that the areas I outlined are strategic focus areas. So security, customer identity and the Okta integration network, you'll notice that those aren't products, right? Our specific products are things like single sign on, universal directory, lifecycle management, API access management. So those focus areas really those can be we can do a lot in those focus areas with our current products and we can also broaden our product product portfolio within those focus areas.
So we're kind of working hard on both dimensions and we'll have some updates at Oktane and, we're excited about the next year and the years after that.
Sounds good. And one follow on. As you look at the strength in the quarter to those product areas, how would you kind of at least rank order qualitatively where you were seeing the biggest pull through in terms of the choices of customers?
I would I think that we in terms of like, product mix or customer identity or employee identity, that as I mentioned in response to the previous or a couple of questions ago, There wasn't anything that was really different materially from previous quarters. It was just bigger companies are buying bigger subscriptions from Okta as the evidence there is that the number of customers now paying us over $100,000. Customer identity continues to be strong. We gave some really good examples of customer identity wins. This jetblue, which is a new customer and also farmers, which is an upsell.
And then we're also adding new customers. So in terms of like hitting on all cylinders, the growth and momentum is powerful.
Sounds good. Thank you.
Thanks, Johnny.
And we'll take our next from Alex Henderson with Needham. Please go ahead.
Thank you very much. I've got a couple of questions for you, if I could. First one is, I was wondering if you could talk a little bit about the competitive landscape. Some of the companies like Centropie or Duo or people like that that are trying to, own in on your category. Clearly, you guys are outperforming all of them, but, any sense of price pressure or alternate price points would be helpful to talk about.
And the second question, I was just over at the cyberark conference. And they highlighted, you guys, in the context of your partnerships and how that you've helped them get some business. They also mentioned that they had reciprocated the other direction. So the question is, relative to your partnership structure, how much of your lead book is a function of you going in partnership with other companies that are pulled in on a project and then see that they need, a portion of what you're offering and bring you in, how big of a piece is that?
Thanks, Alex. Greatly appreciate. This is Frederick. I'm happy to talk a little bit about that. I'll take your questions in order.
So the first one on the competitive side, I think as we've outlined, earlier in our prepared remarks and certainly in the as a follow on to previous quarters, the market opportunities that we're going after are very large market right? So when you think about managing and securing the extended enterprise and then you think about customer identity and access management, there's tens of 1,000,000,000 of dollars being spent in these spaces. Every year. So obviously when you have these very large market opportunities, there is going to be competition. You mentioned some of them There's also some of the platform players that are traditionally trying to bundle some of their applications together.
But I think that the reason that we're seeing a lot of success and we're very fortunate in the business are a couple of the key characteristics of the Okta Identity Cloud, specifically, and in particular, Independence, I think, is very important. As we talked about, a lot of these large enterprises that are deploying applications, they're doing it in a best of breed world. They're picking the best collaboration apps, the best enterprise mobility apps, whatever the case may be. And we obviously are is to enable any organization to use any technology, right? So when you do that, we're not beholden to any product suite and we can really play that role of Switzerland across operating systems, across networks, across devices, across applications.
And I think that really has played to our advantage specifically, when it comes to competition, we have not seen any change in competitive rates. Obviously, we're paranoid folks, right? We're always watching this very, very carefully. But we continue to be very fortunate and have a lot of success in the market and nothing's really changed on that front. Tia, I think it plays also into your second question around cyberark and more broadly, it's a good example of the Okta integration network, right?
When you think about the business we're in, which is helping all these organizations take advantage of modern technologies, right, take advantage of the existing infrastructure and legacy investments they've made, but also these modern technologies they want to deploy, we have to have the best and the broadest integrations to all the applications, all the network devices, all the mobility providers, all the operating systems out there, which is why we have north of 5 1500 pre integrated cations and integrations into the Okta integration network today. A very good example of that is CyberArk. We do have a good partnership with them. I think it's a good example of where Todd was talking about. There's a lot of opportunity just with the existing product set we have to go deeper and broader.
And we're always going to look at other opportunities to grow organically and build new products and help our customers with new problem sets. But at the same time, we know that we can't build everything out there and customers have existing investments in things like CyberArk. So we have a very good partnership with them, a very reliable integration something that's I think serving our joint customers very well in the market. And I think it's a good example of us making sure that we're working with all the best of breed technologies out there to make our customers successful.
Could you throw any numbers around the degree to which that's additive in any given period? And if I could follow-up with one additional point, SD WAN and digital transformations are obviously driving a lot of decision making. How, any quantification of how often that's a driver of pulling you into a, a, a transaction, as a facilitating, technology footprint.
Yeah, sure. Absolutely. So, I don't have any specific numbers on what the cyberark partnership or other partnerships bring us into. In general, as we've talked about before, we have a largely direct go to market sales motion today. We do work closely with both technology and distribution partners, the global system integrators.
You might have seen KPMG just announced today. That they're building a practice around our cyber practice around Okta, which is great. And you're going to continue to see that as we expand in particular internationally, but I don't have any specific numbers give you there. On the latter point, yes, digital transformation always makes me laugh. It might be the most common or overused term these days and kind of see to mean everything to everyone.
Certainly, when you break it down, look, every company has to become more modern when comes to their existing enterprise infrastructure, which have to provide a better user experience to their employees. They have to make the technology more secure. They have to reduce costs. Those are things that continue to happen. And then on the customer facing side, every company has to become a technology company.
Some degree, right? Every company has to improve their customer interactions, their partner and vendor experiences because if they don't, their competitors are going to do that. And so certainly, I mean, those are very broad trends that I think, again, I personally believe are pretty early in the market, but I mean, we're certainly tied into a lot of innovation a lot of innovation and a lot of projects that have those terms somewhere baked in there.
Thank you very much.
Thank
you. We'll take our next question from Jonathan Ho with William Blair.
Hi, good afternoon and congratulations on the strong quarter. I just wanted to start out with your international business and just get a sense of you think about the maturity of some of the markets outside of the U. S? And potentially, how do you expand into those markets or drive faster adoption?
Yes, absolutely. Thanks, Jonathan. This is Frederick again. I think it's early days for our international expansion But I think the opportunity for growth there obviously is tremendous. If you look at the business opportunity in North America, no surprise, right, company that was started in North America, there's a lot of existing opportunity here and we just have to start continuing to penetrate that across all segments.
But the international opportunity is about big growth opportunity for us. It's one that we're making very good strides in, in my opinion. This last quarter overall was the strongest quarter that the EMEA business in particular has ever had with some great new customers joining us in Europe. And in segments that are newer to Europe, for us, for example, Financial Services, Great New Financial Services customer that joined us in Europe. And you're gonna start to continue, you're gonna continue to see that.
I think we hired a new GM of Europe. He's been on board about 6 months. I think he's doing a great job in getting his feet under him. And I to see that continue to progress as we go. I think just trailing on the last question, one of the ways we're going to continue to do that is not just direct but more and more partners internationally in Europe and particularly Asia Pacific and those are the things that you should expect to hear from us in the quarters and years ahead.
Got it. And then just as a quick follow-up, I think you guys added 2 factor authentication as one of the base standards in terms of your core product. Can you talk a little bit about the dynamics there and whether there's been any shift in terms of the adoption of multi factor? Has this accelerated things? I just wanted to understand maybe the dynamics around that and potentially the win rates as well?
The adoption, so we did. We added basic multi factor authentication to our standard single sign on product. And the adoption of that has been fantastic. And I think that product single sign on, it's the best product in the market by far. It's the momentum there continues.
But also at the same time, our adaptive multi factor authentication continues to do very, very well. And so the basic components of a multi factor in the single sign on product means the objective there was more companies having better security by default. And that's been accomplished there. And then at the same time, we're driving up sells into our adaptive multi factor authentication product, which is has all the advanced factors like you can use your phone and just push technology. You can have advanced policies around when the second factor for certain resources prompted, etcetera, etcetera.
So we seem to have hit the mark there in terms of the momentum and the growth with both the basic product single sign on and the really quote unquote the upsell product, which is adaptive multi factor authentication.
Great. Thank you.
And we'll take our next question from Gray Powell with Deutsche Bank.
For taking the questions and congratulations on the report.
Thanks, Matt.
So just a couple of quick questions. Is there a way to roughly quantify the mix of your growth that's coming from the support of on premise applications versus cloud apps? And then Well, what stage or what inning do you think we're at with the opportunity to displace legacy on prem solutions?
It's a really good question. I don't have the number in terms of like I don't have a number about what growth is being driven from on prem apps versus cloud apps. I think that I'll just say that this company was started on a belief that the center of gravity of IT was going to shift to the cloud, but also we're pretty pragmatic. We think that they'll always be on premise to some degree. So we've built a platform that is a cloud based platform, but it can connect very powerful and can connect on premise and cloud And I think one of the big picture factors that's driving our success is that the shift to the cloud is happening, right?
And it's accelerating. And that's why more people are choosing us and more people, more of their workloads are in the cloud and on and on and on. In terms of the what inning are we in, we joke about it. Like, we say where it's in the early innings, like, we think it's definitely like this 1st or second inning, but it's one of those games where it's like 11 to 9 and both of the starting pitchers have been knocked out and it's been going on for a while. So It's going to be a long day at the ballpark, but fun day, a fun day.
Greg, I would, this is Frederick. I would just add to that that When it comes to legacy identity providers, some of the traditional on premise incumbents that you would expect I would just add a couple of things. First of all, it's a gradual process, right, meaning that you're going to see this existing IT infrastructure that anything away. What they do is they buy new technologies and they try and integrate them. That works very well for us.
We work very well in this hybrid environment and typically we'll go into a customer They'll have a specific problem that they're trying to solve. They might have Oracle or IBM running on premise. They have a specific problem or initiative they're trying to solve. They're trying to roll out Office 360 or roll out Workday to a wide deployment, we integrate with Oracle and IBM, get them up and running quickly. We get that deployment rolled out to all their employees.
And then within a quarter or 2 quarters, we come back to the CIO and talk to him or her and we say, how was that experience? They say that was great. And then we've earned the right to say, great. Now let's talk about your existing Oracle or IBM on premise infrastructure and here's the roadmap over the next 12 or 4 months for us to turn the lights off very strong net dollar retention rates that we have and the continued expansion in the enterprise.
Got it. That's really helpful. Thank you.
And we'll take our next question from Richard Davis with Canaccord.
Hey, thanks.
So I guess two quick ones. One of the things that's important to developers is strong support of open source systems. Could you kind of talk about, I think it's your Okta developer experience team. But how they think about and work with that part of the ecosystem in terms of FDKs working with Android, Java, Angular, etcetera, and stuff like that?
Yes, it's a big part. I mean, if you're building something, a lot of developers are choosing open source tools and languages and platforms, and we want to be on all of them. And you've seen the announcements over the last 6 months or so broadening our reach into more and more of those environments and those platforms. And think of that, think of the developer experience as like mapping the core APIs of the Okta Identity Cloud to those specific languages, right? Because every developer wants the native support for what they're doing in their language.
And that's we're busy doing that and you can expect to see more of that over the months and years ahead.
And then just a quick follow-up. You guys didn't get hit with the, I guess it was that SAML authentication bypass vulnerability. Is there Do you have like a workflow or what allows you to dodge those bullets? Because those are bad dudes out there trying to mess things up.
Yeah. I mean, the, there's a couple of things that are really important. One is that security bugs and bugs around security and vulnerabilities and security and problems, it's inevitable, right? You see what's happened with things like the chips with meltdown inspector. You've seen over the years, we've seen different vulnerabilities and different compromises.
I think our big advantage is that, similar to how we can effectively scale to thousands of integrations and maintain and enhance the Okta integration at high velocity is that we can do it centrally, right? We can manage and we can maintain the system centrally and those benefits accrue to all of our customers. And it's true for like new features we release. We release them once and there's no upgrade required. And it's also true if we have to fix security vulnerabilities, right?
We fix them once centrally and they're immediately patched everywhere. And it's a huge advantage to the cloud model. It's a huge advantage how we've architected our service. And then that's regardless of the specifics of any one issue, it's just kind of an architectural superiority of what we're doing and it's kind of it's playing out well for us.
Got it. That's helpful. Thanks.
And we'll take our last question from Heather Bellamy with Goldman Sachs. Please go ahead.
Great. Thank you. Yeah, I just had a question, most of these have been asked already, but just one that I still had you guys talked about on your roadshow ACV per large customer. And I know you cited you had 691 customers now spend over $100,000 and you talked about the growth rate. But can you talk about how the ACV, they've been spending those customers over $100,000 has been trending over the to the past year?
Thank you.
Yes, Heather. So the trend has been very positive, from the standpoint that whatever metric you look at externally, if you look at those customers, but frankly, more importantly, how we look internally and annual contract value from those customers has been increasing and been increasing on a sequential basis each quarter.
Okay. And no, on the roadshow, you guys also talked about the cohorts, the different cohorts. Do you guys have any updated stats in terms of the cohort numbers that you were discussing back then?
Yes. I mean, I think the for those particular cohorts, we were talking about on the roadshow and have talked about subsequently. The combination of the strong net retention rate that we've been posting in addition to the fact that our gross margin, subscription gross margin, especially has been growing. Those cohorts continue to generate more and more profitability for us. So we feel really good about how that's been working for us to this point.
And we have one more question. We'll take our last question from Rob Owens with KeyBanc Capital Markets. Rob, would you
like something if
you could unmute yourself?
I think they maybe already asked one. It wasn't Rob. It was
Hey, guys. Sorry about that. It was a mute button. Mike Casado here for Rob Owens. Just one last one from hi.
Just one for more for me, sort of related to Heather's question, recognizing that you guys posted a very healthy retention rate, I still wanted to ask if you've seen any changes in the up in cross sell cadence, just given the strength you've seen in initial commitments?
Yes. I mean, I think that we've seen we continue to see very strong upsell and cross sell, expansion in the business. We had, as you point, with the initial commitments that customers are making, we have seen those increase also. But across the board, we've seen, good traction and good positive expansion on both upsell and cross sell. And I think one important thing to also mention is that in this past quarter, not only do we have a very strong net retention rate, but our gross retention rate actually ticked up a bit too.
And that does conclude our question and answer session for today. I'd like to turn the conference back over to Todd for any additional or closing comments.
I'd like to just thank everyone for the support and attention. And we love talking about the story in the business. And we also are very, very focused on the future. And we're working on building a very important long term, large successful technology company. And While we've had some success, we do believe that we're we've only just begun on this journey and we look forward to the next quarters and years as we as the story continues to play out continue to follow-up on that success.
Thank you very much.
And once again, that concludes today's presentation. We thank you all for your participation and you may now