Okta, Inc.

strengthened 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 remain strong at 800, bringing our total customer base to 15,800, representing growth of 48%. We also continue to do well with large customers. In Q1, we added over 200 customers with $100,000 plus ACV. These new large customers continue to be balanced between new customers and upsells. Our total base of $100,000 plus 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 SIAM 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 SIAM 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, trip actions. 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 FY22. 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 Octane user conference is always a fantastic touchpoint for existing customers and prospects. This year, we're augmenting Octane 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 Octane 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 megatrends 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 FY23.

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 dollars. 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, cash equivalents, and short-term investments. Now, let's get into our financial outlook. For the second quarter of FY23, we expect total revenue of $428 million, to $430 million, representing growth of 36%. We expect current RPO of $1.48 billion to $1.49 billion, representing growth of 35% to 36%. Non-GAAP operating loss of $44 million to $43 million and non-GAAP net loss per share of $0.32 to $0.31, assuming weighted average shares outstanding of approximately $156 million. For the full year FY23, we are raising our revenue outlook and now expect total revenue of $1.805 billion to $1.815 billion, representing growth of 39% to 40%. Additionally, we expect non-GAAP operating loss of $167 million to $162 million and non-GAAP net loss per share of $1.14 to $1.11 million. 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 FY23 before discontinuing any reference to Billings in FY24. We continue to expect billings for FY23 to be approximately $2.18 billion to $2.19 billion, representing growth of 35% to 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. And 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 FY26 with organic growth of at least 35% each year and 20% free cash flow margin in FY26. 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 FY26 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. So first hand raised I saw was Hamza Fadarwala from Morgan Stanley.