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spk09: Hi, everybody. Welcome to Okta's second quarter of 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 Tai, our Chief Financial Officer, and Frederick Karest, 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 represent 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-Q. In addition, during today's meeting, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. The 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 on 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'll 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. And now I'd like to turn the meeting over to Todd McKinnon. Todd.
spk08: Thanks Dave, and thanks everyone for joining us this afternoon. While the identity market opportunity remains healthy, our Q2 financial results were mixed. We produced better than expected profitability, but our top line metrics were not where we wanted them to be due to challenges related to the integration of the Auth0 and Okta sales organizations, as well as modest macro headwinds. I'll start today's call by going into more detail on our Q2 performance and then talk about the specific actions we're taking to improve our performance. I'll then finish with some other notable items from the quarter. As we evaluated our Q2 results, there were three primary areas we dug into more closely. The first area was to search for any potential latent impact from the security incident earlier this year. We believe the security incident did not have a quantifiable impact on our business in Q2. which is consistent with last quarter. We spend less time discussing the details of the incident with customers and prospects with each passing month. In fact, many customers have expressed their increased confidence in Okta after we implemented a series of additional security measures as part of our Security Action Plan, which is available on okta.com. The second area was any discernible impact from the evolving macro environment. We are starting to notice some tightening of IT budgets and lengthening sales cycles relative to last quarter. This leads us to believe that the weakening economy is having some impact on our business. And the third area we examined was impact from the integration of the Okta and Auth0 sales teams, which occurred at the beginning of this fiscal year. When talking about Auth0, it's important to revisit the strategic rationale of why we acquired Auth0. Individually, Okta and Auth0 were leading identity providers. Together, we offer the most comprehensive identity platform in the market that is unmatched competitively and creates powerful long-term network effects for us and for our customers. Organizations around the globe are looking for scalable and secure ways to digitally interact with their customers. Together with Auth0, we win the customer identity market faster and accelerate our vision of establishing Okta as a primary cloud. Integrations are always difficult and touch every part of an organization. While we are making progress, we've experienced heightened attrition within the go-to-market organization as well as some confusion in the field, both of which have impacted our business momentum. In order to improve our performance going forward, We've implemented a number of action items. For starters, we're committed to stemming attrition within our go-to-market team. This is a top priority for me and my staff, and we're in lockstep on actions to take. This includes making changes to our organizational structure to better align on our strategy. increased sales training and enablement, and also improving the comp structure for the go-to-market team to ensure they feel set up for success. The second action we've taken is to improve our go-to-market effectiveness. Earlier this month, we unified the pricing, quoting, and opportunity management system. This is a big deal because the sales team is now working from a single integrated CRM system, which wasn't the case previously. And third, As of the beginning of this month, we've simplified our approach to our markets, and we are excited to share this high-level plan with all of you today. As part of our plan to achieve that, we're moving forward with a more clearly defined approach with the unveiling of the Customer Identity Cloud and Workforce Identity Cloud. Auth0 will power the Customer Identity Cloud. OctaSiam, which is often deployed for what we call extended workforce use cases, will move into the Workforce Identity Cloud. This alignment plays to the strengths of both products, the type of users they best serve, and the distinct buying centers of customer identity and workforce identity. And this simplification will greatly benefit the go-to-market team immediately by removing confusion about which SIAM product to lead with. To be clear, this change refines how our sales reps go to market and does not change the product or service we deliver to our customers. Recall that Okta's traditional strength is selling identity to the Chief Information Officer and Chief Security Officer. In order to elevate the strategic importance of customer identity, we need to improve our relationship with the other members in the C-Suite, including the Chief Digital Officer, Chief Technology Officer, and Chief Product Officer, who are more heavily influenced by developers in their organization. Reaching developers and selling to this audience is Auth0's strength. The more buyers we can effectively reach, the more identity use cases Okta can help them solve. Becoming the vendor of choice for more identity use cases across the C-suite results in Okta becoming a strategic vendor for the CEO and entire organization. These changes stem from our learnings over the past two quarters. Ultimately, this allows us to deliver more customer value and is a big step toward our vision of Okta as a primary cloud. We are in the process of communicating more of the specific details directly with our customers now and over the coming weeks. Based on early feedback from some of our largest customers, they are excited about how this plan fits into their long-term technology strategies. Turning back to our Q2 results, we added 600 new customers in the quarter, bringing our total customer base to 16,400, representing growth of 26%. We continue to see growth with large customers for both workforce and customer identity. And we are proud to work with some of the most important brands in the world, such as NTT Data, Siemens, and NASDAQ. In Q2, we added 220 customers with $100,000 plus ACV, which is our second highest new quarterly ads for this cohort. Our total base of $100,000 plus ACV customers now stands at over 3,500 and grew 35%. cohorts for even larger customers that have an ACV of $250,000, $500,000, and a million-plus dollars all grew north of 40%. In fact, we had a record quarter for new $1 million ACV customers in Q2. This base of large customers represents roughly 80% of total ACV. Here are just a few notable examples of customer wins in Q2, which come from a wide range of industries. Elevance Health, formerly known as Anthem, a Fortune 50 health insurance provider, was a substantial workforce and customer identity win. Next, the state of Maryland was an outstanding new workforce win. Maryland is focused on building resilience and decreasing risk as threat actors increase attacks on state and local governments. The state's legacy identity management tool was burdensome and lacked the functionality to support the evolving needs of the state. This initial deployment will enhance security and provide the foundation for a statewide identity strategy. Okta lifecycle management and workflows will also enable the state to be more productive by automating onboarding and offboarding of users. A great upsell in the quarter was with the U.S. Department of Homeland Security. The DHS expanded its use of Okta workforce to support the department's modernization and mission initiatives. Okta will be used to build a modern identity solution for the department and help standardize authentication against all shared applications and services. Additionally, Okta Adaptive MFA will be used to build the department's cyber posture and support its zero-trust architecture. I'm sure you noticed that a couple of the customer call-outs were government organizations. They were just two of many government wins and upsells we had in the quarter. One of our primary focus areas this year is to increase our presence in the federal vertical. To date, we've experienced significant growth rates in the federal vertical, as well as state and local. We've built solid momentum going into what is typically the biggest quarter of the year for our federal business. Two important upcoming federal business milestones to note are FedRAMP high authorization and the launch of the Okta Military Cloud, both of which we anticipate achieving by the end of this year. We're also very excited about the recent North American launch of Okta Identity Governance. This is a significant step forward as we deliver a unified and comprehensive identity platform and further Okta's position as a strategic identity partner for businesses across the globe. Our approach to this was to rethink the way governance was traditionally done and build a product on Okta principles of cloud-native technology that is easy to use. This means delivering a product that drives better security and compliance outcomes, is easy to deploy and maintain for IT teams, and is simple for employees to use. This resulted in a modern unified IAM governance solution focused on improving an organization's security posture. Okta Identity Governance is already off to a great start with dozens of customers. A great early win was with Kindrel, the managed services business spun out of IBM. Kindrel expanded with Okta Identity Governance this quarter to secure access to their applications to mitigate modern security risks and improve IT resource efficiency. It was just a couple of quarters ago that Kendrell became a workforce and customer identity customer. We're now looking forward to the global launch later this year. We'll talk more about our products and product roadmap at Octane 22, which we're hosting in person in San Francisco this coming November. This is Octane's 10th anniversary, and it will be better than ever. We'll also be hosting Investor Day as a hybrid event in conjunction with Octane, so we hope to see you there in person or virtually. And finally, I want to acknowledge a few updates to our executive leadership team and board. First, after 13-plus intense years building Okta together, my co-founder and partner, Freddie Karest, is going to be taking a much-deserved 12-month operating sabbatical beginning November 1st to spend time with his family, recharge his batteries, and think about what's next for Okta. Freddie will be staying close to the company as executive vice chairman and board member during his sabbatical. I also want to thank Dia Jolly, our Chief Product Officer, for her contributions to Okta over the last four years. Dia is an exceptional product leader, and I couldn't be more excited to see her pursue her passion as an entrepreneur and builder. We appreciate her staying on as an advisor through early next year as we simplify and align our product teams with the new go-to-market strategy. Going forward, we're splitting the role, so Eugenio Pace will lead product development for the Customer Identity Cloud, and Shagnik Nandy, our CTO, will be the interim lead for Workforce Identity Cloud products. And lastly, I'd like to welcome Emily Choi, Coinbase's president and COO, who recently joined our board of directors. Over the last decade, Emily helped scale Coinbase and LinkedIn into two highly influential technology companies. She brings a wealth of experience working with technology entrepreneurs, and we look forward to bringing her perspective to Okta's board. We have incredibly strong teams and leaders across the company who continue to deliver for customers, and I am committed to investing in their strength and productivity for our long-term success. To wrap things up, I want to thank the entire Okta team for their hard work. The sales integration challenges we've encountered lay squarely on my shoulders, and I recognize we have more work to do to regain our momentum. We've taken some decisive actions that we believe will get us back on track. I'm more energized than ever. and confident that the steps we are taking will yield improved results. Identity is a critical component of every company's zero trust security, digital transformation, and adoption of cloud. These three megatrends continue to support our view that identity is a strategic priority for organizations of all sizes. We remain focused on the massive $80 billion market opportunity in front of us. Okta is critical infrastructure for over 16,000 organizations around the globe. Every organization needs identity, and Okta is the recognized market leader that is best positioned to capture this opportunity. Now here's Brett to walk you through more of the Q2 financial details and outlook for the rest of FY23.
spk07: Thanks, Todd. And thank you everyone for joining us today. I'll start with some of the results for the second quarter and then provide our business outlook. Keep in mind that we are now past the one year anniversary of the Auth0 acquisition and quarterly year over year comparisons are now on a like for like basis. Let's take a closer look at our Q2 results and then I'll go over the outlook for the second half of the fiscal year. Total revenue growth for the second quarter was 43%, driven by a 44% increase in subscription revenue. Subscription revenue represented 96% of our total revenue. International revenue grew 52% and represents 22% of total revenue. With this level of international exposure, we had minor FX headwinds, but it's an area we are closely monitoring. Looking at the ACV split between workforce identity and customer identity, Workforce ACV grew 36% and represented 63% of total ACV. Customer identity ACV grew 47% and represented 37% of total ACV. We're pleased with the durable growth of the workforce business, especially at its current scale. While the customer identity business continues to outpace the overall business, The growth was impacted by the sales integration challenges that Todd outlined. RPO or backlog, which for us is contracted subscription revenue, both billed and unbilled that has not yet been recognized, grew 25% to $2.79 billion. Impacting total RPO growth is the general shortening of term lengths of recently signed contracts, in addition to our increase in public sector contracts, which generally have a one-year term length. Our average term length remains just under three years. Current RPO, which represents subscription revenue we expect to recognize over the next 12 months, grew 36% to $1.5 billion. The growth in current RPO was driven by strength across new and existing customers. 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 fluctuation in invoice timing and duration. Calculated billings and current calculated billings grew 36%. Turning to retention, our dollar-based net retention rate for the trailing 12-month period remained strong at 122%. This was driven by the strong upsell motion we are seeing with our existing customers as they expand on both products and users. As always, the net retention rate may fluctuate from quarter to quarter as the mix of new business renewals and upsells fluctuates. Consistent with prior quarters, gross retention rates remained very healthy and reflect the value of our products to our customers. Before turning to expense items and profitability, I'll point out that I'll be discussing non-GAAP results going forward. Looking at operating expenses. Total operating expenses for the quarter were lower than expected primarily related to lower than anticipated headcount additions. Operating loss was $15 million and much better than we expected primarily due to the combination of revenue over performance and lower than expected operating expenses. Total headcount increased 38% and is nearly 5,800. Moving to cash flow. Free cash flow was negative $24 million. We anticipate Q2 free cash flow being the seasonal low point for free cash flow this year. We ended the second quarter with a strong balance sheet anchored by nearly $2.5 billion in cash, cash equivalents, and short-term investments. Now, let's get into our outlook. We're factoring in our Q2 performance, sales integration challenges, heightened sales attrition, and an evolving economic environment. To help contextualize this, over half of the outlook headwind relates to our sales integration challenges. A secondary portion of the reduction relates to the heightened attrition, which resulted in a lower than expected capacity build as we move through the year. And finally, a smaller portion is additional conservatism related to the macro environment. We are also improving our profitability outlook for the second half of the year. The spend reductions will be achieved by reducing our hiring plans, rationalizing our facilities footprint, and applying greater overall financial discipline. We believe these steps will improve our operating margins and ability to attain our free cash flow targets for the year. For the third quarter of FY23, we expect total revenue of $463 million to $465 million, representing growth of 32% to 33%. We expect current RPO of $1.54 billion to $1.55 billion, representing growth of 30% to 31%. non-GAAP operating loss of $37 million to $36 million, and non-GAAP net loss per share of $0.25 to $0.24, assuming weighted average shares outstanding of approximately $158 million. For FY23, we are raising our revenue outlook by approximately $5 million at the high end to $1.812 billion to $1.820 billion, representing growth of 39% to 40%. We are raising our profitability outlook by approximately $57 million. We now expect non-GAAP operating loss of $110 million to $105 million and non-GAAP net loss per share of 73 cents to 70 cents, assuming weighted average shares outstanding of approximately 157 million. Lastly, I want to provide a few comments to help with modeling Okta. As I've mentioned in past quarters, we look at growth and profitability through the rule of 40 lens. Despite the downward pressures on the top line, we're making adjustments to our original spend assumptions and are committed to staying over 40 for the fiscal year. This includes a free cash flow margin in the low single digits for FY23. We expect to return to positive free cash flow in the third quarter and expect Q4 to be our seasonally strongest quarter for free cash flow. Next, 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 are lowering our calculated billings outlook for the year by approximately $140 million due to the outlook headwinds outlined earlier. We now expect calculated billings for FY23 to be approximately $2.04 billion to $2.05 billion, representing growth of 27% when viewed on a like-for-like basis or 19% on an as-reported basis. Given our near-term outlook coupled with the uncertainties of the evolving macro environment, we are reevaluating our FY26 targets at this time. Having said that, we will continue to balance growth and profitability, and we look forward to updating you on our long-term outlook on the Q3 earnings call. To wrap things up, we're confident we have the right action plans in place to build on our progress and expand on our market leadership position. I'll turn it back to Dave for Q&A. Dave?
spk09: Thanks, Brett. I see that there's quite a few hands raised already, and I will take them in that order. And 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 after that. So with that, I will start with Eric. Eric, he that key bank, Eric.
spk04: Great. Thanks, Dave. And thanks for taking the question. So Todd, Freddie, appreciate the detail on how you're reorienting the product portfolio. But I wanted to drill in on how you're changing the kind of sales organization as Freddie takes some time off and then also just any additional call you could provide on maybe how you're reorienting some of the sales comp structures going forward.
spk08: Yeah, for sure. Thanks for the question. I think there's, in terms of, I'll start first with sales organization. The big change on the sales organization was at the beginning of this fiscal year, so Feb 1. And that's where we took the Auth0 sales team that sold as an independent group all through last year for the first three quarters after the acquisition. And we combined them together with the Okta sales team. And so the idea there is that Hundreds and hundreds of Okta reps sell the whole portfolio, Okta plus Auth0. And then the Auth0 reps that came over sold the Okta portfolio and the Auth0 portfolio. So that was a real significant step in the integration. One thing I want to clarify is that Freddie doesn't manage the sales team. That's under Susan St. Ledger and Steve Roland, our CRO. Freddie's very involved in talking to customers and so forth. And we can talk about that separately, but the sales integration organizationally was a combination of the teams. earlier this year. I think the headwinds are really about how do you take those hundreds and hundreds of reps and make them productive selling both Customer Identity Cloud and Workforce Identity Cloud. And there's a couple of things that go into that. The first thing is that we really have to reach a new buyer for Okta, which is Okta traditionally was about CIOs and CISOs, but for customer identity to be successful, we have to reach VPs of technology, CTOs, all of the chief marketing officers, chief digital officers, the whole suite of C-suite executives that will, if we win them all and we have an identity platform for all those use cases, we can better achieve our goal of being the primary cloud and a primary piece of their strategic landscape going forward. So that's the high level motivation for doing the acquisition. And if you take it back to the tactics, combining the sales teams together, reaching those buyers, we're super bullish and confident on the long-term strategic implication of providing this unified identity platform for all of these buyers and all of these use cases. and we're bold and big on that but i think frankly on the tactics we're iterating and making sure that as we make mistakes or have to do things more optimally we course correct so i think one good example of this is really simplifying the way we enable those sellers and the product portfolio we offer we that they offer to the customers we're making it more simple it's like there's a customer identity cloud and that's all zero And there's a workforce identity cloud, which is both for employees and for your extended workforce partners and suppliers and things that are kind of workforce-like. And those are the platforms in the product suites you go to market with. And so for these hundreds and hundreds of sellers, it's going to be much easier to enable them and train them and have them bring this vision and this product portfolio to market.
spk04: Thanks, Todd.
spk08: Yeah.
spk09: Next, let's go to Alex Henderson in Edom.
spk06: Great. Thank you very much. I've been focused on understanding the recent news flow that's come out in October since the hack that was announced and particularly the scatter swine and the octopus program.
spk08: Don't you love the names?
spk06: Excuse me?
spk08: Don't you love the names?
spk06: Yeah, I know. They're awesome, right? And then there's an additional one that came out recently talking about the SMS cloning mechanics and the opportunity for people to use those to penetrate better permissions into the cloud and upgrade their permissions. That obviously happened after the end of the quarter when it apparently attacked 140-plus Okta customers. Can you please address that piece of the puzzle? Because it's a little transparent to us when we see all of that. I had a conversation with Avar this morning. He said he's already seen some pushback from customers as a result of that in terms of closing deals as we speak.
spk08: Yeah, Alex, I want to make sure I understand. You said October. Is that you?
spk06: It's called Octopussy.
spk08: Yeah. OK, sorry. You didn't mean the month of October. Yeah.
spk06: Yeah.
spk08: Yeah. So there this the issue the issue you're talking about is there was it's actually a recent occurrence of something that happens all the time, which is there are these phishing attacks going on all the time. And the bad guys, the threat actors, they try to use the most commonly used identity system. And that's so they often target us because we have so many customers that use Okta. They try to have a fake Okta site and get users into trick users into putting their credentials in this fake site and then they can break in that way. And we have entire teams that their job is to monitor the dark web and infrastructure providers to take down these fake sites and notify customers. The incident you're talking about, it's the octopus and the squatter. The swine squatter. Yeah, swine squatter, that's the same issue. It's the same threat actor. And the unique one, and this was, they targeted 130 Okta customers. The unique thing about this one is not that they targeted Okta customers, but that for a few customers, it actually worked and they got in. And so the reason why is because they had some innovative approach on their attack where how they fished for not only the password, but also the one-time code and some other less secure, like SMS tokens, less secure ways to authenticate into Okta. So it usually doesn't work, but this was a novel approach. So it worked on a few customers. So the takeaway for us is that we need to make, so the vision here and what customers need to do is we need to move to having no password. and and so it's not fishable and our platform can get them there but it's very configurable now and you can configure it in multiple scenarios based on which resource you're protecting or which how risk averse you are from these kind of attacks and you can go all the way from just a password which is very fishable all the way up to impossible to phish. No login page, no password. You have to be on your work machine that's cryptographically verified and it's not phishable. So I think the problem is that some of these customers were in a situation that they had a resource that was sensitive and they were using this approach that turned out to be not as secure as it should. So the task for us is first openness and transparency. We're being very aggressive about communicating what happened. I don't know if you saw, but we have a blog post on this that is water swine that kind of outlined everything that happened. And we share that with customers. And then also we need to do a better job, I think, helping them understand exactly what's going on. the configuration of the product and what the risk versus their configuration, the risk of the risk appetite on the resource they're protecting and help the whole industry along with our customers move up toward this unfishable configuration, which is no password, no login page.
spk06: So is there no impact in your results in August as a result of that high visibility event?
spk08: Well, first of all, in Q2, it was after Q2. So there's clearly no results. But all of our conversations with customers has been very confident in our ability to protect them and configure the product in a way that's effective and we're being a good partner to them to understand how to defend these things en masse because this is happening all the time to customers. They know that all of their infrastructure is being attacked and having partners that can help them ratchet up their defenses all the way toward this unfishable configuration is something they're very comfortable with.
spk06: Great. Thank you very much for the clarity.
spk08: Yeah, hopefully that helps. I know it's a lot of detail.
spk09: Let's go to Greg Malskiewicz and Mizuho.
spk02: Okay. Uh, thank you very much for taking the question. So, uh, you know, without a doubt, uh, zero Todd is a very strong solution for developers, but this refined go to market is, um, as you noted, a different design than what was initially articulated, uh, following the announcement of the acquisition about 18 months ago. And so some may wonder, you know, is this a first step towards the emphasizing Octus core science solution? Uh, so can you tell us why that is not the case? And then secondly, Given the big convergence that's happening in identity and access across workforce and SIAM, will this have any bearing, in your opinion, on your ability to sell joint workforce and SIAM deals going forward?
spk08: Yeah, I think it's a super insightful question. And I think the way to describe this is a clarification and a simplification. And I'll explain a little bit more what I mean. If you think about the SIAM market, customer identity market, first of all, it's a new category and it's emerging. And we are extremely bullish long-term on how big and impactful this could be. Every digital interaction with every person on the planet, with every organization is in some format, the customer identity. And so it's an evolving market and, and you have to, as much as you participate in the market, you have to try to drive it forward. So As we make clarifications and as we adopt our strategy, we're adapting to this market that's evolving, but we're also defining the market. So it's really exciting. So if you think about the market, think about it as a spectrum. So on one end of the spectrum is your pure new app. It's B2C, or sorry, it's a consumer app directly to the consumer. Think about Warby Parker. There's a development team. It's driving revenue. The whole business is probably online. It has to be super flexible, super extensible. And to do the identity for that and the multi-factor and the password list and all the capabilities, that's one end of the spectrum. That's really off zero is bread and butter. The other end of the spectrum is really very similar to workforce. It's think about it like it's you're giving access to partners or maybe a mix of partners or customers to your instance of email or to your instance of Salesforce or to your SaaS app off the shelf. That's really where OctoSiam was. And there wasn't a bright line in that spectrum where on the left side, it was all OctoSiam and on the right side, it's all Auth0. they were kind of blended along that spectrum. So on one side was very clearly Asero, on the other side was very clearly Okta, but as you got to the middle, it was more mixed. And that's why the two companies before the acquisition, there was some overlap, but 65, 70% of the market was not overlap. It was Okta or it was Asero. So if what we're doing now, what we're really saying is the majority of the Okta SIAM use cases that were really extended workforce, we're being really clear about that. And now the the Okta SIAM platform is focused on extended workforce. And we're saying the Auth0 platform is the SCIAM platform. So there's probably some in the middle where you're shifting one from the other, but it's really a clarification in terms of there's no, a bunch of sales reps aren't going to spend time interpreting where in the middle of the spectrum they are. We've taken that middle, we've clarified it and said, this is SCIAM, this is workforce, hundreds and hundreds of reps, go get the market.
spk01: And if I can just add to that, a couple of examples might help. First of all, you got to remember the historical context here. Historically, we started, Okta started as a workforce-focused business. We added customer identity and access management. And you see a lot of those examples of people using Okta customer identity and access management. is that extended workforce that Todd was just talking about. For example, Flex, the giant contract manufacturer, they use Okta customer identity and access management to manage the distributors that they have on their supply chains. It's a limited number. They know exactly who they are. It works a lot more like an extended workforce. If you think about what we're trying to do here with the customer identity cloud and the workforce identity cloud, it's about simplification. It's about making it easier for customers to understand where they should go, who they should talk to, as well as for our sales force to communicate that. And so that's the driving force. Finally, what I would say is we have good examples so far. It's your question about how it's going to work cross-selling. We have good examples so far already of Okta and Auth0 working very well together just over the last couple of quarters. We've talked about some of them on this earnings call, Fifth Third Bank, Eventbrite, Dick's Sporting Goods, News Corp. Plenty of organizations that see the value of Okta Workforce and want to also buy Auth0. And then finally, we have a very good example, just this quarter of Vialto Partners, which is a big spin out of PwC. It's their global mobility services provider. They actually bought, it's a new workforce customer and a new Auth0 customer. Conveniently, they also bought IGA, which we're happy to talk about. And that's supporting their modernization efforts and secure access across the entire organization. So.
spk08: But you make it, the other thing, the other good point was that we, it's very important, it's a very important part of our strategy that to this, when we solve the use cases for all the members of the C-suite from security, IT, chief digital, chief marketing, chief product, chief technology, When we solve all of those, the goal of that is to appeal across the whole enterprise to the CEO, to the board. We are the strategic identity platform. So you are right. We have to be able to integrate those, all of the products and all the platforms so that when the CEO or... another top leader looks at it, they rationally make sense together. And so over time, you'll see that to happen across all the products, not just the obvious ones like Workforce and IGA, which we had the GAF and we're excited about, but Auth0 and the five other products we build over the next couple of years.
spk02: Thanks, guys. Appreciate the explanation.
spk09: Okay, let's go to Andy Nowinski at Wells Fargo.
spk05: Okay, thank you. I guess I just had a quick clarification first. Did you say you're reevaluating that fiscal 26 targets? So taking that $4 billion revenue target off the table for now until you reevaluate it. And then my question was, you know, we're getting a lot of, I guess, questions from investors as to what actually triggered the need for these go-to-market refinements since, you know, over the last call it 12 months, whether it was the elevated attrition that, prompted you to make these changes or the recent macro changes that we're seeing with the extended deal cycles? Just kind of curious as to if you can point your finger to why now? Thanks.
spk08: Yeah, it's a great question. On the first part of your question, so the $4 billion FY26 target, if we're going to achieve that, when we're going to achieve that, we have to have a successful customer identity cloud. And so as we reevaluate in the short term how to keep that momentum going, I think it's prudent to make sure that we reevaluate that target given these short term changes that we're optimizing for the customer identity cloud. And we're committed to coming back to everyone on the next earnings call with a very detailed, refined version of that, of those commitments and that target, which I think is very important. So that's the first thing. And then on the second thing, the sequence of events here, I think, which is important for everyone to understand is that the sales integrate, the sales teams were integrated this year. So it's really six months of information and learnings that we have to iterate on this thing. Last year, Auth0 ran as a separate sales team and they had a great year. So we know there's market fit. We know we can grow this thing. It's just about the integration of the sales teams and what that drove in terms of attrition and some of the things we've talked about in terms of optimizing how we get that back on track to achieve this strategic imperative, which is we have to be the winner and the opportunity is tremendous in this long-term customer identity market. Thanks, Todd.
spk09: Yeah, let's go to Adam Tindall at Raymond James.
spk03: Okay, thank you. I just wanted to maybe start, Todd, if we could, you know, maybe revisit some of the industrial logic for the Auth0 acquisition, that the idea was, you know, some synergies, the business is better together, but now we're separating them. And I guess the question would be, what would you have done differently in that assessment? Because I know future M&A, you talked about being a potential catalyst for the company. So what have you learned And secondly, what will Eugenio do in his new role to reenergize the more standalone off zero science?
spk08: The what did you mean by industrials? I didn't I didn't follow that part. I want to make sure I understand your question.
spk03: The industrial logic behind acquiring off zero was partly often off zero are better together. Yeah, I understand. Yeah.
spk08: So I don't I think that we're not so first of all the the the idea for the acquisition was that the high level idea was that customer identity is a massive opportunity every digital interaction with every person to every company and every product is going to be digital. And in some sense, customer identity is at the core of all of that. So that's a massive opportunity. And secondly, we're building the primary cloud for identity. So our future and our success and our vision of freeing everyone to safely use any technology, it's predicated on creating a world where identity is one of the most strategic platforms a company buys, every organization, every size. And if you want to be one of the most strategic platform that every company buys, you have to cover all the use cases. There's no scenario where I go talk to the CIO or the CEO or board of a major healthcare chain like I did this morning. And I say, I'm the workforce vendor for, I'm the identity vendor for your workforce. It has to be for your workforce and your customers and your extended workforce and everything in between. So the rationale for the acquisition was this big new category of identity and very clear difference in the lower level buyer. It's not a CIO or CISO many times. Many times it's a VP of technology, it's a CTO, it's a VP of digital, it's chief digital officer, and us getting to those buyers, and more importantly, having the product and the developer experience that the organizations under those leaders would adopt, and there would be an uptake there, And they would be built into their solutions. That was very important. So that's the high level strategic rationale for this. Now, you fast forward. And in the first nine months of the integration, which was last year, the deal closed in May of last year. So in the first nine months, we integrated some of the back office systems like the HR system and so forth. But largely, the product team and the sales team ran alone. And they had an awesome year. And so this year, the next step forward is like, let's take the hundreds and hundreds of Okta sellers and put the Auth0 product in their bag and have them scale that growth. And so that was a big coming together of the two companies. And as we've gone through that process in the first six months, we've learned a lot. And one of the big things we learned is that the market, in terms of talking to customers and pipeline and so forth,
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