Hi, everybody. Welcome to Okta's first quarter fiscal year 2023 earnings webcast. I'm Dave Gennarelli, Senior Vice President of Investor Relations at Okta. With me in today's meeting, we have Todd McKinnon, our Chief Executive Officer and Co-founder, Brett Tighe, our Chief Financial Officer, and Frederic Kerrest, our Executive Vice Chairman, Chief Operating Officer and Co-founder. Today's meeting will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook and market positioning. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represents our management's beliefs and assumptions only as of the date made.
Information on factors that could affect the company's financial results is included in our filings with the SEC from time to time, including the section titled Risk Factors in our previously filed form 10-K. In addition, during today's meeting, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents is available in our earnings release. You can also find more detailed information in our supplemental financial materials, which include trended financial statements and key metrics posted on our investor relations website.
In today's meeting, we will quote a number of numeric or growth changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-over-year comparison. Now I'd like to turn the meeting over to Todd McKinnon. Todd.
Thanks, Dave, and thank you everyone for joining us this afternoon. Before getting into our Q1 results, I thought it would be helpful to first talk about the security event from last quarter. Okta has a culture of learning and improving, and we're moving forward with our core values of love our customers and transparency as the foundation. By now, I'm sure most of you are familiar with the conclusions we shared coming out of our investigation. You can find the details on our new Transparency webpage. In the days and weeks following the incident, we connected with thousands of customers. We have committed to taking action on a number of fronts, including requiring more robust security measures from our third-party service providers and better processes for communications, which reflect the input from our customer conversations.
One theme that has become crystal clear from these customer conversations is that Okta is even more critical than ever to an organization's IT environment and security posture. Additionally, these conversations further strengthen our belief that as cloud deployments proliferate, there will be just a few primary clouds that really matter inside an organization. Identity is the connective tissue to all of the other primary clouds as it facilitates choice and flexibility while enhancing security and reducing risk in other technologies. Okta is well-positioned to establish itself as a primary cloud and the standard for digital identity. Finally, I'm sure this audience is wondering what impact the security incident had on our financial results. While we've done a lot of analysis, it's difficult to attribute any quantifiable impact on our solid Q1 results. When looking at key indicators, our competitive win rates and renewal rates have remained strong.
In Q1, RPO grew 43% and current RPO grew 57%. Total revenue grew 65%, and Okta standalone revenue grew 39%. New customer additions remained strong at 800, bringing our total customer base to 15,800, representing growth of 48%. We also continued to do well with large customers. In Q1, we added over 200 customers with a $100,000+ ACV. These new large customers continue to be balanced between new customers and upsells. Our total base of a $100,000+ ACV customers now stands at over 3,300 and grew nearly 60%. Here are just a few notable examples of customer wins in Q1, which come from a wide range of industries. A Fortune 500 insurance company was a great Okta CIAM and workforce win. What's more, this customer was sourced through the AWS Marketplace, which has been doing well for Okta since we became available there in late 2020.
The company sought best-of-breed tools to modernize the organization's aging IT infrastructure. Their legacy on-prem tools lack the capacity and stability to meet the needs of the business. Okta will provide a cloud-native identity solution to support their modernization efforts while also addressing their on-prem infrastructure needs with Okta Access Gateway. Next, a Fortune 50 global retail pharmacy was a fantastic new Okta CIAM win this quarter. The organization was facing significant shortcomings in functionality and rising maintenance costs with its legacy system, which resulted in a negative user experience and lower customer retention.
The organization chose Okta as its partner to modernize its identity strategy and build deeper relationships with its tens of millions of global customers across multiple brands through secure omni-channel digital experiences. We had a strong Auth0 win with a Fortune 50 shipping and receiving company. They selected Auth0 to support its digital transformation journey and to improve their customer experience by adopting innovative technologies. Auth0's ease of use, flexibility, and customization proved to be the best solution. Finally, TripActions, an all-in-one travel, corporate card, and expense management company, was another great example of a new Auth0 win with an existing Okta customer. TripActions has leveraged Okta Workforce products since 2019 to secure access to its employees and enhance its provisioning capabilities. Now, Auth0's scalability, reliability, and ease of deployment will support TripActions as it prepares for continued growth while freeing up developers to focus on application modernization.
Last month, we celebrated the one-year anniversary of joining forces with Auth0. We've made a lot of progress as a combined company, with many parts of the back-office functions integrated over the course of FY 2022. We started the first quarter of this year with a combination of the go-to-market organizations. Together, we are addressing the massive Customer Identity market in a way that no other vendor or in-house IT team can. On the product front, we're excited for the North American launch of Okta Identity Governance later this quarter after a successful early access program. Customers are seeking a cloud-first approach to their identity governance needs, and Okta Identity Governance brings modern IGA to the market.
Part of how we build demand and pipeline is through in-person customer engagement. Our annual Oktane user conference is always a fantastic touch point for existing customers and prospects. This year, we're augmenting Oktane with a series of smaller regional events. Just a few weeks ago, we hosted the first Okta City Tour event in New York City. I can't overstate how energizing it is to be physically in front of customers again, and the team could really feel the excitement in the room. There were hundreds of current and potential customers in attendance, and not surprisingly, the common theme was that every company needs an identity-first strategy that solves for today and builds for tomorrow. We'll be hosting more customer events across the U.S., Europe, and APAC as we lead up to Oktane in early November.
Speaking of customer conversations, Okta was the only vendor recognized as an overall access management customer's choice and a customer's choice across all categories evaluated in a recent Gartner Peer Insights Voice of the Customer report. This distinction is based on customer reviews of both Okta and Auth0 product offerings. This is the fourth time in a row that Okta has been recognized as a customer's choice in this report. To wrap things up, it's going to be an exciting year. We're best positioned to execute against a massive $80 billion addressable market driven by the three mega trends of the deployment of cloud and hybrid IT, digital transformation projects, and the adoption of Zero Trust Security. Our win rates remain very strong. Okta has become even more strategic to organizations, and we're the recognized leader in the market.
Now here's Brett to walk you through more of the Q1 financial details and outlook for FY 2023.
Thanks, Todd, and thank you everyone for joining us today. I'll start with some of the results for the first quarter, as well as provide our business outlook. Total revenue for the first quarter accelerated to 65%, driven by a 66% increase in subscription revenue. Subscription revenue represented 96% of our total revenue. On an Okta standalone basis, total revenue grew 39%. Auth0 revenue net of $1 million in recognized purchase accounting adjustments was $66 million. We've reached the one-year anniversary of the acquisition, and as a reminder, we will not be breaking out Auth0 contributions going forward. RPO or backlog, which for us is contracted subscription revenue, both billed and unbilled, that has not yet been recognized, grew 43% to $2.71 billion. Current RPO, which represents subscription revenue we expect to recognize over the next 12 months, experienced growth of 57% to $1.41 billion.
The growth in current RPO was driven by strength across new and existing customers for both Okta and Auth0. We view current RPO as the better metric to assess our quarterly performance relative to calculated billings, which, as we've noted, can be noisy due to fluctuations in invoice timing and duration. Calculated billings grew 52% when adjusted for the billings process improvements and current calculated billings grew 54%. Calculated billings, as reported, grew 7% and current calculated billings grew 8%. It's been one year since we adopted the billings process improvements that were implemented in Q1 of last year. We are looking forward to consistent year-over-year comparisons going forward. Turning to retention.
Our dollar-based net retention rate for the trailing 12-month period remains strong at 123%. This was driven by the strong upsell motion we are seeing with our existing customers across both Okta and Auth0 as they expand on both products and users. Consistent with prior quarters, gross retention rates remain very healthy and reflect the value of our products to our customers. As always, the net retention rate may fluctuate from quarter to quarter as the mix of new business renewals and upsells fluctuates. Before turning to expense items and profitability, I'll point out that I will be discussing non-GAAP results going forward. Now, looking at operating expenses. Total operating expenses grew 68%. The growth in expenses is primarily attributable to the inclusion of Auth0. Total headcount now stands at over 5,300 employees, up 75% year-over-year. Moving to cash flow.
Free cash flow was $11 million, which yielded a 2.7% free cash flow margin. We ended the fourth quarter with a strong balance sheet anchored by $2.5 billion in cash equivalents, and short-term investments. Now, let's get into our financial outlook. For the second quarter of FY 2023, we expect total revenue of $428 million-$430 million, representing growth of 36%. We expect current RPO of $1.48 billion-$1.49 billion, representing growth of 35%-36%. N on-GAAP operating loss of $44 million-$43 million and non-GAAP net loss per share of $0.32-$0.31, assuming weighted average shares outstanding of approximately 156 million. For the full year FY 2023, we are raising our revenue outlook and now expect total revenue of $1.805 billion-$1.815 billion, representing growth of 39%-40%. Additionally, we expect non-GAAP operating loss of $167 million-$162 million and non-GAAP net loss per share of $1.14-$1.11, assuming weighted average shares outstanding of approximately 157 million. Lastly, I want to provide a few comments to help with modeling Okta.
To help with your transition to modeling on Current RPO, we will continue providing a full year billings outlook for FY 2023 before discontinuing any reference to billings in FY 2024. We continue to expect billings for FY 2023 to be approximately $2.18 billion-$2.19 billion, representing growth of 35%-36% when viewed on a like-for-like basis, or 27% on an as-reported basis. From a seasonality perspective, we anticipate billings in the second half of the year to represent roughly 60% of the full year total, which is consistent with normal seasonality and our comments last quarter. Finally, we continue to expect free cash flow margin for the year to be a few points lower than last year, and quarterly free cash flow margin to follow pre-COVID seasonal patterns, with Q4 being the strongest.
Our long-term financial goals anchor on at least $4 billion of revenue in FY 2026, with organic growth of at least 35% each year and 20% free cash flow margin in FY 2026. To achieve these targets, we will continue to scale the company from a people and processes standpoint, including investing in talent across all areas of the company, as well as in systems to prepare us for the next phase of growth. For many years, we have looked at growth and profitability through the Rule of 40 lens. We continue to do so and expect to stay over 40 for the fiscal year. We have demonstrated the powerful leverage we have in our model, and we are committed to improving profitability and free cash flow margin each year on our way to the FY 2026 goal.
To wrap things up, we had a solid quarter and look forward to building on our progress. With our strong foundation and market leadership position, we plan to further capitalize on the $80 billion market opportunity in front of us. We have a powerful financial model and expect to benefit from substantial operating leverage over time. With that, I'll turn it back over to Dave for Q&A. Dave?
Thanks, Brett. I see that there are already quite a few hands raised, and I'll take them in order. In the interest of time, please limit yourself to one question so that we can get to everybody, and you're certainly welcome to queue back up with additional questions. First hand raised I saw was Hamza Fodderwala from Morgan Stanley.
All right. Thank you for taking my question. Todd, to the best of your knowledge, do you know of any, you know, sales cycles that were perhaps elongated or perhaps any prospects that were in the pipeline that may have withdrawn their consideration of Okta after the incident, back in March?
We've looked, and we can't see any quantifiable impact. I actually spent a good amount of time myself looking through opportunity by opportunity in Salesforce, 'cause as you know, I talked to over 400 customers after the security issue, and the management team talked to over 1,000 customers. We really heard the concerns firsthand and responded to them with our detailed action plan. I was curious as we did our analysis, like, I wanted to see for myself on the ground what was happening. I looked through hundreds and hundreds of opportunities myself, looked at the comments, looked at things that were pushed, looked at the reasons why they were pushed. You know, in the normal course of business, of course, things get pushed, things get pulled in, but I wanted to see for myself.
I was really surprised the lack of anything about lapses impacting the business. I do think it was a significant issue for us. It was significant. You know, in terms of impacting our time and what we focused on at a management team level, it was significant. You know, I would never say something like this is positive for the company. If you do wanna take a positive view on it, the conversations were really good, and I think that our customers got to see firsthand our focus on them and our focus on how we're 100% committed to making them successful.
When we have a mistake, when we do something we could. When there's something we could do better, we listen to them, and we take action, and we build that long-term partnership that they crave. One thing that this has made really clear is that Okta is critical infrastructure, and identity is critical infrastructure. I think customers wanna see a company that will come through under pressure and have their back under pressure and act in their interest under pressure. I think that's what they saw. As we start to put it in the rearview mirror, I feel pride in how we responded and the fact that we're building a stronger company because of it.
Thank you.
Great. Next question comes from Adam Tindle at Raymond James.
Okay. Thanks, Dave. Brett, I just wanted to ask you, and when you were talking about the fiscal 2026 targets, you talked about continuing to invest to get there. Obviously, in this market, there's been a lot more focus on profitability lately, and I'm just wondering about the balance between those two. Maybe more specifically, do you think Q1 was sort of a peak loss quarter, and we're gonna see continuous improvement from here? I know there's been fits and starts with profitability, but trying to get a sense of whether the worst is kind of behind us, why or why not? Thank you.
Yeah.
Yeah. Adam, I'll jump in first, Adam, and then Brett can give his feelings as well or answer your question from his perspective. Obviously, I've talked to a lot of investors, and I think about this pretty simply from a high level, that we have a massive market opportunity. I know you hear us say that a lot, but it truly is, it's a transformative market opportunity. The world needs identity. With more cloud and more remote work and more focus on security, more digital transformation, they need an identity platform. We're very focused on building that identity platform and investing, making the right investments to bring our vision to fruition.
We also know that to run a good company, you have to run it efficiently. When I look at the trade-offs between growth and profitability, I feel like we've always had a reasonable trade-off between investing for the future, but doing so in a way that we made sure the investments paid back. We're not running around making investments that aren't prudent, and we continue to operate that way. I feel like it would be shortsighted to change course dramatically on that when we still have this massive opportunity in front of us.
I'll just add to that. Thank you, Adam, for the question. Look, I mean, we remain confident in the model, and just what Todd was saying, you know, we've been balancing Rule of 40 since the beginning of this company, and we will continue to do so in the future. Balancing that growth and profitability over time as we go into this massive market opportunity in front of us.
As far as more specifically to your question around the seasonality of the free cash flow in FY 2023, if you look at pre-COVID free cash flow, we did traditionally have a dip in free cash flow margin in Q2, so we do expect that to drop kind of in that mid- to high- negative free cash flow margin % in Q2, but then we will exit the year with the highest free cash flow margin in Q4, which will then get us to that a few points lower than FY 2023 or FY 2022 free cash flow margin. Hopefully that gives you a little bit more information about how we're seeing that traditional kind of seasonality return in our business.
The primary reason for that is, if you think about the way we bill our customers, the collections number in Q2 is traditionally the lowest because we collect a lot of money in Q1 from the Q4 strength in bookings. You know, Q1 has always been seasonally our lowest sales quarter, and we're continuing to see that this year, where it's the lowest seasonal amount of the year. We build back up as we go through the year. Ultimately, that's why you see that little bit of a dip in free cash flow margin in FY 2020 in Q2, just like we've seen in prior years prior to COVID.
Hey, Brett, can you clarify what you said around mid- to high-single digits?
Yeah, mid to high single digits. Sorry if I didn't say single digits in terms of free cash flow margin.
Great. All right. Next up, we have Jonathan Ho from William Blair.
Hi, good afternoon. I just wanted to, I guess, maybe start out with trying to understand, you know, I guess your sales integration process. You know, how has that gone, and can you give us a sense of maybe some of the incremental opportunities that have come out of that? Thank you.
Yeah. Hi, Jonathan. How are you? It's nice to see you. We just celebrated the one-year anniversary of joining forces with Auth0, which is great. As we've said in the past, the key here is keeping the momentum going in both Okta and Auth0. Both businesses were doing very well, and that's the continued focus. We made a lot of progress as a combined company. Many parts of the back-office functions were integrated over the course of FY 2022, which is great. We started Q1 with combining the go-to-market organizations.
I think, you know, there's no real finish line when it comes to integrations, but I think we're really focused on addressing this massive Customer Identity and access management market in a way that frankly, no other vendor can in terms of independence and neutrality. We have the only two modern public cloud solutions, and certainly no in-house IT can. I think we've made great progress. There's still a little bit to do, but we're in good shape.
Okay. Next question from Eric Heath at KeyBanc.
Great. Thank you. Just first one, curious if there's any update around how you're considering the contribution of IGA and/or PAM into your guidance. I believe last quarter you said it wasn't being factored in.
Yeah. We're- [crosstalk]
Go ahead, Todd.
Sorry, Brett.
Go ahead.
IGA and PAM are areas we've talked about before. They aren't in our guidance. We're not counting on material contribution in the guidance we provided. They're really longer-term plays, and they're very important in the longer term because we're building this primary cloud for identity. What the market wants, what the buyers want, what the customers want, is they want one integrated access management platform that will do access management across all the resources, apps, on-premise apps, cloud apps, servers, privileged accounts, and also do the governance, reporting and attestation on that access management. That's the platform we're building. As I mentioned in the prepared comments, the IGA product is going to be launched in North America this quarter. We're very excited about that.
It's had great success in the early access program, which proves out not only that it's working, but also that customers wanna buy it and find it valuable, so that's very validating. On the PAM side, we made the decision to add a few more features to our enterprise server access management product, and then that pushes out the release of the PAM, the initial PAM product a couple quarters, and we'll have more updates for you on that through later on in the year. We're excited about both areas, and the whole converged platform story is really, really coming together. We're excited about that.
Okay, next, let's go to Gray Powell at BTIG.
Okay, great. Thanks for taking the question. Congratulations on the numbers. It's good to see them come through. Yeah, Todd, it sounds like you're pulled into a lot more customer conversations this quarter than normal. Maybe two related questions. If it was an existing customer, how often did the conversation get elevated to a C-level executive versus sort of the typical security team that you'd be talking with? And then if it was a new customer, did you see them taking any extra steps through the deal process? Was there like an extra conversation or just something extra that happened to get them over the finish line?
Yeah, thanks, Gray. It's nice to see you. The customer conversations, I talk to a lot of customers in general. There were a bunch of very specific security issue conversations. What we did as a management team is, this was a big deal for customers, so we got on Zoom with them and had hundreds and hundreds of meetings to talk to them about what happened, reassure them that we were listening to their concerns, we were addressing their concerns, and we have a published action report that we're executing on that takes into account all of those concerns. We wanted to be very proactive about it, do a lot of outreach, a lot of conversations, and reassure them that we had things under control.
During those conversations, I said before that it's you never wanna say there's a positive out of something like this, but the level of conversations and the people we were engaged with in these customers and prospective customers was incredibly senior. The conversations, after some initial communication and feedback, became very strategic along the lines of, "We're counting on you to be the backbone of our entire technological infrastructure," things like this. With very senior people, both on the traditionally, where we've been really strong, having conversations on the IT side and on the security side. We got into new areas like executive management, board-level conversations, risk and compliance, and areas that traditionally we haven't talked to as much.
The conversations were, you know, productive in that sense. I think we did a good job of instilling confidence because customers do want a partner, and they want a long-term partner, and they know that this is a critical area, and I think we were able to show them that we were that partner.
Yeah. Gray, I would just add, look, identity and security, if they were not before, have certainly become even more so top priorities for C-level executives and board members. The future of the enterprise is gonna be more software-enabled, not less so, and identity is at the core of that. As Todd said, a lot of these larger organizations are literally saying, "I'm looking for a foundational partner around identity to build out my infrastructure."
Just yesterday, we had the global CIO of one of the major branches of the DoD in our office with his entire executive team, talking to us for the entire day about the future of identity and what it was gonna look like. I mean, these are just the kinds of conversations, frankly, that regardless of what happened in Q1 with that security event or not, we were not having these conversations six or 12 months ago, and I think it portends very well for the future.
Understood. Okay, thank you very much.
Okay, let's go to Gregg Moskowitz at Mizuho.
All right, thanks very much for taking the question. You added 800 net new customers this quarter, which, given the security incident, was better than most investors were expecting. You know, two questions here. First, can you provide some color on what the linearity of new paid customers look like this quarter? Second, Brett, I know you said that gross renewal rates were very healthy, but just to be clear on this point, was there any degradation in Q1 as a result of the incident? Thank you.
Oh yeah, no degradation from the incident. In fact, we are near all-time highs at this point on gross retention, which frankly just shows what Frederic and Todd have been talking about for the first part of this call, which is how important we are to our customers, right? We're critical to their success. As far as the linearity in the quarter, it looked like any other quarter. You know, our Q1 linearity was like a normal Q1 linearity. We've, like we said, we don't see any real quantitative effects from the security incident. Believe us, we've looked. Obviously, we're gonna continue to look because, you know, we're being thoughtful about this and, you know, making sure that we're keeping an eye on this 'cause this has been an important issue for us.
Great. Thank you.
Okay. Next, we'll go to Joshua Tilton at Wolfe Research.
Hey, guys. Thanks for taking my question. cRPO, I believe, came in kind of ahead of the guidance you gave last quarter, but billings was sort of in that range. How should we think about your ability to outperform on both these metrics for 2Q and kind of for the rest of the year?
Yeah, I can take that question. Look, I mean, you know, we had a good quarter. Billings, you know, 52% calculated billings growth. You know, current calculated billings growth was 54%. Both of those are adjusted for the billings process change. But look, we've talked to you for several quarters in a row and kind of why we're alluding to shifting off of billings to current RPO in FY 2024 is we just frankly believe billings has got some noise in it. Sometimes it's, you know, it helps the growth rate, sometimes it makes the growth rate have a headwind to it. I look at it in kind of like two different buckets.
I look at it as kind of like operational, run the business type issues that can influence the growth rate up or down. I put the, you know, the kind of things we've talked about in the past, which are, you know, invoice timing dynamics that we've obviously chatted about over the last several quarters. Invoice duration, and then the billings process change. Those are operational things that are going on that we're making decisions with at the time that we believe are in the best interest of the long-term health of the business, but they can influence the metric up or down in a kind of an incorrect way. That's why we've kind of shifted us more toward current RPO. That's one bucket of kind of like one umbrella of areas that we think make calculated billings is really just not the best metric.
Then the second one, which I would argue is actually more important is if you think about the correlation between billings and future subscription revenue growth, it is much weaker than the correlation between current RPO and future subscription revenue. That's why we've been talking more about current RPO these days. Look, the current RPO guidance, you know, 35%-36%, $1.48 billion-$1.49 billion, you know, strong growth in the business. One thing I do wanna point out, between the growth rates from Q1 to Q2 in a lot of our metrics, we've got the annualization of Auth0.
You know, obviously 57% current RPO in Q1 for the full company. Then, you know, 35%-36% in Q2. Nothing's going on other than the fact that Auth0 is not in the Q1 compare period and is in the Q2 compare period. We're gonna see that also in billings. We're gonna see it in the customer count numbers. I just wanna make sure everybody's aware that, you know, that's really the reasons for the change. Like I said, we're gonna continue to push more toward current RPO. Like I said earlier in the call, we're definitely gonna get off of billings in FY 2024 and really just focus on current RPO, because ultimately, we feel it is a better metric for all of us to discuss because it's a higher correlation and just a better metric to understand how the health of our business is going.
Thanks for the color.
Great. Next, we'll go to Keith Bachman at BMO.
Great. Thank you very much. I wanted to ask a question about also the investment horizons and break it into two parts. A, as you think about some of the investments you're making this year and longer term profile, how much of the competitive landscape is influencing that? And what I mean by that is, you know, Microsoft is a formidable player. You have other pure plays, and yet, you know, you're leaving yourself a lot of opportunity to shape investments through FY 2026 before generating meaningful cash flow.
So just trying to understand how much the competitive nature of the segment is influencing it. And then B, Brett, in particular, I want to try this question again. You're guiding to call it $165 million op loss this year. Can you at least comment on your journey to 2026? You know, does the operating loss improve as you march towards 2026?
Yeah, I'll take the first part. I think it's a really important question. The strategy is very, very clear. We have been successful and going forward, we will be successful because identity has become a critical platform in the modern IT environment. If you wanna adopt cloud, if you wanna migrate to the cloud, if you wanna support remote work, if you wanna support multiple devices, if you wanna do it in a secure way, if you wanna build great customer-facing solutions, you need identity and you need an identity platform. The strategy is to build that platform, whether it's across both markets, and both markets are key. You can't have the de facto primary cloud identity platform only being in Workforce or only being in Customer Identity. You have to be in both. You have to dominate both.
Our strategy is to do just that. On the Workforce side, we're extending our lead with capabilities throughout the platform. We've talked a little bit about PAM and IGA, which are important in the longer term. On the Customer Identity side, it's we have to have the best identity platform for developers, and we have to have the best identity platform, bar none, across all the competitors. That's what we're focused on. If you look at our top three. If the investment required to do that is an investment that's gonna help us win the Customer Identity market, which is our top company priority for this year, it's gonna help establish this concept and this idea that identity is one of these primary clouds in enterprises.
We're gonna talk to every CIO and every CEO and every Board of Directors in a few years once we are successful, and they're gonna agree that identity is a critical investment area, and Okta has the number one leading identity platform across all these dimensions. That's what we're shooting for, and that's what when we say we're gonna grow and we're gonna invest, it's both products, it's both go-to-market to extend our lead and establish this concept of this primary identity cloud for many years in the future.
Okay, great. Brett, any comments from?
Yeah, sure. Happy to handle that question. When we think about the future, obviously, we're gonna institute what we've done in the past, which is Rule of 40, right? We've been balancing it forever. We're gonna continue to balance it in the future. Obviously, free cash flow is a part of that formula. When you think about non-GAAP operating loss, obviously non-GAAP operating loss will travel with that free cash flow improvement.
Yeah.
Now when it will be non-GAAP operating profit, I can't exactly comment on that. In other words, you should see the two travel together. As we improve free cash flow margin, you're gonna see an improvement in operating loss and eventually, you know, into operating profit at some point in the future.
Okay. Thanks, Brett and Todd.
Okay. Next, we'll go to Trevor Walsh at JMP.
Great. Hi, team. Thanks for taking my questions. Todd, I wanted to just dig in on some of your comments around the longer-term platform view in the context of IGA and PAM.
Yeah.
It seems like customers, especially on the larger side, are content with kind of maintaining their IGA tool, their PAM tool, and their access tool, and that's just their kinda comfort level. I understand you're building obviously your IGA and PAM to kinda help expand their view of that. But outside of you just releasing those products and them coming to you, what do you feel like is their consolidation kind of drivers on their end? Is it a cost thing? Is it an ease of use? What is it that's gonna make them kind of finally, you know, regardless of when GA is here, to make them kind of make that play in the longer view?
Yeah, I think it's a really good question, and we think about this a lot from the customer lens into the market, and then of course, us as a vendor from our lens into the customer's world. There, there's a couple realities about the market for privilege access and identity governance, specifically. Access management used to be more like this, but we've changed it in that market. There aren't a lot of good solutions. If you talk to these customers, even customers that have adopted IGA, they haven't adopted it completely, or it's in pockets, or it's not covering all the resources and workloads that they want it to cover, and no one loves it. Similarly with privileged access, it's worked well in a legacy environment. I would say that a majority of the market doesn't have a solution.
What it's gonna take to get that, to get those customers to be buyers is to build a great product, and that's what we're focused on. I wouldn't think about this as a, we're gonna go replace a bunch of installed IGA or PAM tools. I would think about this as, like, the next generation of technology is gonna need these solutions, and we're gonna have the product for that market.
In terms of what specifically would drive them to consolidate their existing solutions, I would put out there that in 10 years they probably will keep those solutions. You know, people don't change very often. People are pretty reticent to change. It's fine if some of these legacy solutions are out there for years and years and years and years. What we're focused on is the next generation, the new projects, the new initiatives that are gonna need a better product for the market, and that's what we're
Great. Thanks.
Yep.
Next, we'll go to Adam Borg at Stifel.
Hey, guys, thanks so much for taking the question. Maybe just for Frederic. You talked a little bit about the DoD conversation you had yesterday. Maybe just a broader update on the federal vertical public sector more broadly and kinda how you think about that ramp this year. Thanks again.
Yeah. Thanks, Adam, for the question and happy to talk about it. You know, I'm glad that you brought it up. The federal government opportunity is a massive one for us. I'll give you some specific thoughts, and then I'll give you also some details that I think are pretty relevant most recently. First of all, we've talked about for a while that, you know, part of our big strategic plan, there's a few of them that we're focused on right now for this year and going into next year on Customer Identity management, around international. We're already in a lot of the places we need to be, so we just need to continue to invest in the right places. In federal is a big one for us.
First of all, federal was the biggest deal of our quarter, this year, this quarter in terms of ARR. That federal division was specifically focused on Customer Identity and access management. You really see that the government is thinking about how they can adopt more of these modern solutions for a lot of their forward-thinking initiatives. You know, we've been working for a long time on bolstering up our federal capabilities, and you know, we've been FedRAMP Moderate for some time. We've got FedRAMP High and IL4 that are scheduled for this summer. We've got a fantastic federal team that's been building up with very good results. We've got a government summit that's happening later on this month in Washington, D.C.
The tailwinds in the federal space are the same ones that we've been talking about overall in the business. First of all, the federal government is adopting more cloud technology, and they wanna integrate it into their existing IT infrastructure. Number two, they are going through digital transformation just like everyone else, and so they're really focused on how they can provide modern solutions, get them up and running quickly, and obviously interacting with their third parties. Then third of all, you wanna talk about Zero Trust. It's everything from the Biden administration to a lot of the other initiatives that you see coming out of the different departments around mandating multi-factor authentication and just mandating better hygiene when it comes to the federal government, which, you know, for us is great. It is a huge opportunity.
It's one we've been investing in intelligently over the last number of years. I think the results this year are gonna be good, and they're gonna be, they're gonna lead us really well into the coming years as well. It's a big opportunity for us and something we're really focused on.
Awesome. Thanks again.
Okay, next up, Rudy Kessinger at D.A. Davidson.
Great. Thanks. Brett, so you know, I mean, look, Todd, you've been clear, you know, thus far with your comments that you didn't see any material impact from the breach in Q1. I guess if we look at the guidance revision, you took the full year revenue guide up by $25 million, but you had a $26 million beat in Q1. You're really taking down $1 million except that. Whereas, you know, typically we would expect it to be raised. What is the increased level of conservatism in there, and is it around, you know, the breach possibly having potential impacts, or is it more of a increased conservatism from the macro environment? What, what's the increased level of seeming conservatism in the revised guidance?
Yeah. We, you know, we did raise our guide by $25 million, and I think we did beat our guidance by $25 million, so, you know, whatever, 1 million dollars here or there, it doesn't really matter. The bottom line is we've got a strong guide, you know, a little over $1.8 billion, growing 40% at the top end. You know, pretty solid growth given how big we are. I think the thing when we think about the guidance for the full fiscal year is actually reflecting on Q1 and one of the milestones we had in Q1, which is the sales integration, right? In any integration or acquisition and integration of two companies, the sales integration is one of the biggest milestones there are.
For this integration between Auth0 and Okta, two great sales teams being brought together, and it's no different, right? It was a great milestone for us. It was a big one for us, and we're pleased with the progress thus far. But obviously we're being thoughtful and prudent around the rate and pace of the continued integration because you know, integration, there's no end date to integration, right? We're always continuing to make progress. When we think about the revenue guidance, we're just being thoughtful from that perspective. We'll update you obviously as we progress through FY 2023 on how things are going and give you guys updates on revenue and cRPO and obviously billings for the balance of this year.
Okay, next up we have Andy Nowinski at Wells Fargo.
Hi, this is Justin Donati in for Andy. Thanks for taking our questions. Just one quick one, kind of tying on to an earlier question about competition. Microsoft launched their new Entra product suite this week, so can you just provide any more color on, you know, how Okta is competing against Microsoft? Thank you.
Yeah, happy to do that. The competitive environment we're seeing really hasn't changed in a number of years. I know we seem to get this question every time we chat, and we kind of give the same answer. That's the reality of what we're seeing, and I think the world has more and more of the world is understanding how important identity is and how critical it is to all the things we talked about from technology adoption, security, customer management, and customer success, and it's really accelerating, or it's benefiting from all these accelerated trends. I think when we see coopetition, we see point players that don't have the breadth and scale, or we see the big platforms. Microsoft, as you mentioned, is probably has the most focus of the big platforms.
They traditionally, in the legacy world, had the best identity franchise with Active Directory on-premises, and so they've tried to use that to force their way into cloud identity. When someone chooses between Microsoft and something like Okta, they're really making a choice between do they want independence and neutrality and do they want technical choice with Okta, or do they want to be more roped into and constrained into the Microsoft ecosystem. I think if you see all the product announcements, not just the recent ones Microsoft makes, they're very centered on Microsoft technology. It makes sense because you wouldn't get promoted if you were the product manager working on their identity technology, and you came up with a great new feature that connected customers to some non-Microsoft technology.
There's a feedback loop into that platform that keeps that system more closed and more constrained and a positive feedback loop in our ecosystem that makes it connected to more things and more vendors want to play with us and want to integrate to us, more developers want to use us. That's how we see the market really bifurcating there. We think our strategy is right. We think our strategy to be the neutral player and to connect everything and to have the best solutions across all of the identity use cases, whether it's workforce, governance, privileged access, Customer Identity access management, whether you're developer-centric, whether you're IT-centric, we have the best platform, and that's what we're focused on building.
Great. Next up, we'll go to Brian Essex at Goldman.
Great, thank you. Thank you for taking the question. Maybe just one from me, and I apologize. I've been jumping around on a couple calls, so.
There's a few of them. No worries.
Yeah. Sorry if I missed it, but maybe just an update on, you know, CIAM versus Workforce, and maybe if we can split that between, you know, U.S. and international, just to give us a sense for, you know, how traction in particular with CIAM is going, and what the current environment, particularly in Europe, might have on the adoption of, you know, either one of those segments?
Yeah. Happy to talk about that, Brian. You know, we updated this group last quarter on the specific breakout between Workforce and CIAM, which if memory serves, and Brett can correct me, was 63% Workforce, 37% CIAM. Yes, there you go. That's memory from 90 days ago. So we'll be updating that as we go. It is largely unchanged. Revenue splits this quarter were 78% U.S., 22% international. You know, international grew 118% year-over-year, and I think that plays really well into exactly what I was talking about earlier with some of our key strategic pillars. One of those is international.
You know, it's been a little bit more challenging, obviously, over the last 24 months, given that we haven't really been able to travel internationally. That being said, we still had very successful office openings, both in Europe, expanding there with our Munich office opening, but also in Japan and Singapore and elsewhere, and those businesses are going very, very well. We feel like we're in all the right places. Now we just need to accentuate the investments that we've made in those geographies, and I think that's gonna start to play out very well. We've hired some amazing leadership to take over those areas as well, international, for both Europe and Asia Pacific, and so I'm very optimistic there. I think that the trends, again, of what we're doing, these are very, very big markets. It's early days.
I mean, we're again very happy with revenue growth is 65% year-over-year to a $450 million quarter and the incremental fiscal year guidance to $1.8 billion+ for the year. These are massive markets that are gonna have durable growth for the next three, five , 10 years. People adopting cloud technology, people putting in place more digital technology for their customers, their partners, their vendors, their suppliers. I mean, these are things that people are just getting going on. I expect that they'll continue to go for some time, and we'll update those specific breakouts from time to time as we go. We've seen no material change, and both sides of the business are doing very well.
Finally, what I would say is, you know, we try and be specific in our details around the new customer wins that we highlight in some of the prepared remarks, just to give you an idea. We have a great Fortune 500 insurance company that adopted both the Customer Identity and access management and Workforce at the same time, but we also had Fortune 50 Customer Identity and access management wins for both Okta and Auth0 separately this quarter, which I think again just highlights how powerful having both of those platforms are and specifically to your original question, how much opportunity there is in Customer Identity and access management.
Yeah, that was a great answer. One detail. The 28%, 72% split was just all revenue. It wasn't CIAM or Workforce, just to be clear.
To be clear.
Very helpful. Thank you.
To be clear, 70.
78%, 22%, though.
7 8%, 22% .
78% U.S., 22% international. Yeah.
All right. Excellent. Next, we'll go to Matthew Hedberg at RBC.
Great. Thanks for taking my question, guys. Congrats on the results. You guys are having a lot of success outside the traditional VAR network, and I know, you know, some of those VAR checks can be noisy at times. Now, when I hear that large Fortune 500 win through AWS, that's super exciting to me. I guess I'm wondering, can you talk about how your business mix might change from, you know, over time, whether it's VARs, partners, GSIs, just, you know, how that composition might look in the future?
Yeah, happy to talk about that. As you mentioned, we had a really big win for the quarter with a Fortune 500 insurance company that was sourced through AWS. Just to talk first about AWS, I mean, AWS is obviously the biggest cloud infrastructure provider out there. We're very proud to partner with them as a global technology partner. We're their preferred partner for identity, which matters, and it matters because we've been working on this relationship now for, I think, 12 or 18 months, and you're really starting to see it bear fruit. I mean, they have, you know.
We're very happy again with the growth in our business and direct sales reps, but they have over 9,000 reps that are co-selling with Okta today, and this partnership is in the very early stages, and it has the opportunity to really be very meaningful for us. We're pleased with the early momentum. We've already sourced multiple deals from this avenue, and we'll share more as the relationship matures. I think overall, you know, the channel is maturing. We're not the same company that we were two years ago, and we're gonna be a very different company two years from now.
Look, we're going from $1 billion to $1.8 billion to $4 billion around the corner, and that means that there's a lot of things that we're gonna keep the same when it comes to our channel in terms of system, process, distribution, but there's also a lot of things that have to change as we grow and as we expand. I think playing right into that international comment that I made earlier, we're not gonna have reps in all those places. Having the right partners that have the right distribution and the capabilities to do these kinds of implementations, both the sourcing side, like AWS, but also implementation.
Look, IBM Global Technology Services, renamed Kyndryl, they were a great win from last quarter. I think that just shows that even the biggest system integrators in the world are realizing the future is different than it was with on-premise technology, and they wanna build their practices around us. We're very excited. I think it's early days for AWS. It's a good telltale sign, but there's gonna be a lot more to talk about in the quarters and years ahead.
Great call. Thanks, Frederic.
Okay, next up we have Fatima Boolani at Citi.
Good afternoon. Thank you for taking my questions. Todd, I'll start with you. You know, I think there's a lot of sort of concern in the investor community with respect to enterprise software consumption patterns from the likes of high-tech, fintech companies. We've all sort of seen what's happened in the VC community. I just wanted to get your perspectives on what potential impacts you're seeing or bracing for, particularly within the CIAM part of your portfolio and Auth0 specifically because that's a very developer-friendly and developer-oriented solution. Then I have a follow-up for Brett, please.
We're very excited about it. We see a ton of potential. We hear a lot of the anecdotes about concerns and macro and slowdown, but the reality is we're not seeing it in the pipeline or in the business. We're executing as we have been, which is we think it's a big opportunity, developers, CIAM, building this primary cloud, and we're watching things, of course, but we think there's a lot of potential, and we're working hard to capture it.
All right.
I'd also add to that, Fatima, that you know, currently, we're not set up as a consumption-based contractual arrangement. It's a pretty standard, you know, buy certain number of AMOUs or MAUs over a certain timeframe. It's not like some of the other businesses that are out there that are more consumption-based.
That's fair.
Yeah. The only other thing I would add to that is, you know, the demand remains strong across both sides of the business because of the three macro trends we've talked about. I mean, the customer base grew 48% to 15,800, and the base of large customers grew at nearly 60%. And, you know, our pipeline grows each year, obviously, as the business grows. Our pipeline is currently at record levels, so.
Fair enough. I appreciate that color. Brett, for you, just on the software backlog and sort of the orientation towards having us think about RPO and cRPO as kind of more the guiding lights for the business and how to think about forward momentum. Can you give us a little bit more of a flavor of the composition of that backlog pipeline, you know, maybe at a higher level between new business, renewal business, and expansion business? The reason I ask is because I wanted to get a better flavor of how I should think about dollar-based net retention moving forward as you've lapped through Auth0. That's it for me. Thank you.
Gotcha. Yeah, there's no difference to how the RPO or current RPO, which I would say I'd probably look at current RPO before I would look at RPO, because, you know, RPO can be influenced by duration and whatnot on contracts. The current RPO, yeah, it's pretty similar to what it has been in the past. Look, from a net retention perspective, you can see it's been strong, you know, 123% above our stated range, which has been what we thought was 115%-120%. We were above it again for this quarter, so we're very pleased with the outcome for the quarter. I think it really just speaks to the strength in our business, especially on the gross retention.
You heard that earlier today in the call. I fundamentally believe that, you know, you don't get the right to get an upsell until you do a good job on the gross retention side of the house. If we deliver success on an everyday basis, that gets us the right to get that upsell. You know, we've had great gross retention, and it's been ticking up a little bit as we've gone through the pandemic and exiting the pandemic. We're really pleased with where things are at currently.
Okay, I think we got to everybody's questions. That's great. That's it for today's meeting. If you have any follow-up questions after this, you can email IR at investor@okta.com. Otherwise, we'll see you next quarter. Thank you.
Yeah. Thanks, everyone. It's nice to see you all.
Thank you, everyone.
Thank you.