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 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-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 as 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. And 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 loving 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 web page. 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 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 SIEM 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 SIEM 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 omnichannel 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 prove 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 1-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 '22. We started the first quarter of this year with the 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 touchpoint 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 Customers' Choice and a Customers' 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 Customers' 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 3 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 FY '23.

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 1-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 1 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 remained 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 FY '23, 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 FY '23, 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, 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 '23 before discontinuing any reference to billings in FY '24. We continue to expect billings for FY '23 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 FY '26 with organic growth of at least 35% each year and 20% free cash flow margin in FY '26. 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 '26 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.

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 are certainly welcome to queue back up with additional questions. So first hand raise I saw was Hamza Fodderwala from Morgan Stanley.

Todd, to the best of your knowledge, do you know of any 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 examined the situation closely and found no measurable impact. I personally took the time to review numerous opportunities in Salesforce and spoke with over 400 customers following the security issue, while our management team engaged with more than 1,000 customers. We genuinely listened to their concerns and developed a comprehensive action plan in response. During my analysis, I delved into hundreds of opportunities, assessing comments and reasons for delays, which naturally occur in business. I was taken aback by the absence of any indications suggesting that lapses affected our business. Nevertheless, I recognize this was a significant issue for us. It certainly required our management team's attention, though I wouldn't label anything like this as a positive for the company. If there's a silver lining, the discussions we had were very constructive. Our customers witnessed our commitment to their success and recognized our dedication to addressing mistakes and taking action, which ultimately strengthens our long-term partnerships. This incident has highlighted that Okta serves as critical infrastructure and that identity management is essential. Customers want to see a company that supports them under pressure and acts in their best interest, and I believe we demonstrated that. As we move past this incident, I take pride in our response and in the fact that we are emerging as a stronger company because of it.

Great. Next question comes from Adam Tindle at Raymond James.

Brett, I just wanted to ask you, when you're talking about the fiscal '26 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? And maybe more specifically, do you think Q1 was sort of a peak loss quarter and we're going to 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?

I'll start, and then Brett can share his thoughts or answer your question from his viewpoint. I've spoken with many investors, and I consistently hear inquiries regarding growth and profitability. At a high level, I believe we have a significant market opportunity. You often hear us emphasize this, and it is indeed a transformative opportunity. The increasing reliance on cloud services, remote work, and heightened security focus means the world requires an identity platform. We are committed to developing that platform and making the necessary investments to realize our vision. We understand that efficient management is essential for a successful company. When I consider the balance between growth and profitability, I believe we have always maintained a sensible approach, investing for the future while ensuring those investments yield returns. We are not making imprudent investments, and we will keep operating this way. It would be shortsighted to dramatically alter our course when we have such a vast opportunity ahead 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, we've been balancing Rule of 40 since the beginning of this company, and we will continue to do so in the future. So balancing that growth and profitability over time as we go into this massive market opportunity in front of us. As far as the seasonality of the free cash flow in FY '23, 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 percent 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 '23 or FY '22 free cash flow margin. So hopefully it 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. And Q1 has always been seasonally our lowest sales quarter, and we're continuing to see that this year, whereas the lowest seasonal amount of the year. And so we build back up as we go through the year.

Brett, can you clarify what you mentioned about mid- to single high single digits?

Yes, mid- to high single digits, sorry, if I didn't say single digits in terms of free cash flow margin.

All right. Next up, we have Jonathan Ho from William Blair.

I just wanted to, I guess, maybe start out with trying to understand, I guess, your sales integration process. How has that gone? And can you give us a sense of maybe some of the incremental opportunities that have come out of that?

Yes. Jonathan, it's nice to see you. We just accelerated the 1-year anniversary of joining forces with Auth0, which is great. And 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've made a lot of progress as a combined company. Many parts of the back office functions were integrated over the course of FY '22, which is great. And we started Q1 with the combination of go-to-market organizations. I think there's no real finish line when it comes to integrations, but I think we're really focused on addressing this massive customer identity access management market in a way that, frankly, no other vendor can in terms of independence and neutrality, we have the only 2 modern public cloud solutions and certainly no in-house IT can. So I think we've made great progress. There's still a little bit to do, but we're in good shape.

Next question from Eric Heath at KeyBanc.

Great. 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.

Go ahead, Todd.

Sorry, Brett. IGA and PAM are areas we've discussed previously. They are not included in our guidance, and we do not expect a significant contribution from them in the guidance we provided. They are more long-term initiatives, and they hold great importance for our future as we are developing a primary cloud for identity. The market wants, and our customers desire, a single integrated access management platform that can handle access management across all resources, applications, on-premise applications, cloud applications, servers, and privileged accounts, while also providing governance reporting and attestation for that access management. We are building such a platform. As I noted in the prepared remarks, the IGA product is set to launch in North America this quarter, and we are very excited about that. It has performed well in the early access program, demonstrating not only that it works but also that customers are eager to purchase it and find it valuable, which is very encouraging. On the PAM front, we've decided to enhance our Advanced Server Access Management product with additional features, which will delay the release of the initial PAM product by a couple of quarters. We will keep you updated on that later in the year, but we are excited about both areas. The overall converged platform vision is really coming together, and we are looking forward to it.

Next, let's go to Gray Powell at BTIG.

Okay. Great. Thanks for taking the question and congratulations on the numbers. It's good to see them come through. So yes, Todd, it sounds like you're pulled into a lot more customer conversations this quarter than normal. So maybe two related questions, if it was an existing customer, how often is 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?

Thank you, Gray. It's great to see you. I've had many discussions with our customers, especially focused on specific security issues. As a management team, we recognized the significance of this for our customers and organized numerous Zoom meetings to discuss the situation. We aimed to reassure them that we were attentive to their concerns and were actively working on a published action report addressing those issues. We wanted to be proactive, engaging in extensive outreach and providing reassurance that we were managing the situation. Throughout these discussions, I realized that while it's unfortunate to find a silver lining in such events, the level and quality of our conversations with both existing and prospective customers were notably high. Initial feedback led to very strategic dialogues about our role as a foundational element of their technological infrastructure. We engaged with senior leaders, not only in IT and security but also in areas like executive management, Board-level discussions, risk, and compliance—domains where we traditionally had less engagement. These conversations were constructive, helping us instill confidence as our customers are looking for long-term partners in this critical area, and we demonstrated that we can fulfill that role.

Yes, Greg, 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 going to be more software-enabled, not less so, and identities at the core of that. And 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 going to look like. And 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 6 or 12 months ago, and I think it portends very well for the future.

Let's go to Gregg Moskowitz at Mizuho.

So you added 800 net new customers this quarter, which given the security incident was better than most investors were expecting. Two questions here. First, can you provide some color on what the linearity of new paid customers look like this quarter? And then second, so 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?

There was no degradation from the incident. In fact, we were close to all-time highs in gross retention at this point, which highlights the importance we hold for our customers. We are essential to their success. The linearity for the quarter appeared like any other quarter, and our Q1 linearity was typical for that time. We do not see any significant quantitative effects from the security incident, and we have thoroughly examined this. We will continue to monitor the situation carefully since it is a significant concern for us.

Okay. Next, we'll go to Josh Tilton at Wolfe Research.

CRPO, I believe, came in kind of ahead of the guidance you gave last quarter, but billings was sort of in that range. So how should we think about your ability to outperform on both these metrics for 2Q and kind of for the rest of the year?

Yes, I can address that question. We had a solid quarter with calculated billings growth of 52%. The current calculated billings growth was 54%, both adjusted for the recent changes in the billings process. We have discussed previously our intention to shift focus from billings to current RPO in fiscal year 2024, as we believe that billings can be influenced by various factors, which might distort the growth rate. I see this in two categories: operational issues that can impact growth positively or negatively, and specific factors like timing of invoices, invoice duration, and the changes in the billings process. While these decisions are made with the long-term health of the business in mind, they can lead to misleading metrics. Therefore, we are prioritizing current RPO as a more reliable indicator. Additionally, the relationship between billings and future subscription revenue growth is much weaker than that of current RPO and future subscription revenue. That's why we are emphasizing current RPO more now. The current RPO guidance is between 35% to 36%, translating to $1.48 billion to $1.49 billion, indicating strong business growth. It's important to note that the growth rate comparisons from Q1 to Q2 reflect the annualization of Auth0, which accounts for the 57% current RPO in Q1 for the entire company versus 35% to 36% in Q2. Auth0 impacts the Q1 comparison but is included in the Q2 comparisons. We want everyone to understand these reasons for the changes. As mentioned earlier, we will fully transition to current RPO in fiscal year 2024, as it offers a clearer picture of our business's health and growth prospects.

Great. Next we'll go to Keith Bachman of BMO.

Great. I wanted to ask a question about also the investment horizons and break it into two parts is, a, as you think about some of the investments you're making this year and longer-term profile, how much is the competitive landscape is influencing that? And what I mean by that is Microsoft is a formidable player. You have another pure plays and yet you're leaving yourself a lot of opportunity to shape investments through FY '26 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 '26? Does the operating loss improve as you march towards '26?

I will address the first part of your question, which I believe is very important. Our strategy is clear and has proven successful thus far. Moving forward, we expect continued success because identity has become an essential platform in today's IT landscape. To adopt and migrate to the cloud, support remote work, manage multiple devices securely, and create excellent customer-facing solutions, having a robust identity platform is critical. Thus, our strategy involves building that platform across both workforce and customer identity markets, as both are essential. We need to excel in both areas, and our approach is focused on achieving that. In terms of workforce identity, we're enhancing our position with new capabilities across the platform. We've previously discussed Privileged Access Management and Identity Governance and Administration, which are vital for the long term. For customer identity, our goal is to provide the best identity platform for developers and outshine all competitors. Our top three priorities involve significant investments to capture the customer identity market, which is our primary focus this year. We're aiming to establish identity as a fundamental cost for enterprises. In a few years, once we succeed, we will engage with every CIO, CEO, and Board of Directors, and they will recognize that investing in identity is crucial, with Okta being the leading platform in all relevant aspects. Our growth and investment plans encompass both product development and go-to-market strategies to solidify our position as a primary identity cloud for years to come.

And then Brett, any comments on...

Yes. Happy to handle that question. So when we think about the future, obviously, we're going to institute what we've done in the past, which is Rule of 40, right? We've been balancing it forever. We're going to continue to balance it in the future. So obviously, free cash flow is a part of that formula. But when you think about non-GAAP operating loss, obviously, non-GAAP operating loss will travel with that free cash flow improvement. Now when it will be non-GAAP operating profit, I can't exactly comment on that. But in other words, you should see the two travel together as we improve free cash flow margin, you're going to see an improvement in operating loss and eventually into operating profit at some point in the future.

Okay. Next, we'll go to Trevor Walsh at JMP.

Great. Todd, I want to just dig in on some of your comments around the longer-term platform view in the context of IGA and PAM. So 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 kind of comfort level. And I understand you're building obviously your IGA and PAM to kind of 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 ease of use? What is it that's going to make them kind of finally, again, regardless of when GA is here of make them kind of make that play?

Yes, that's a very good question. We often consider this from both the customer perspective and our viewpoint as a vendor. There are some key truths about the market for Privileged Access and Identity Governance, in particular. Access Management used to be more straightforward, but we've evolved in this space. There aren't many effective solutions available. When speaking to customers, even those who have adopted Identity Governance and Administration, they often haven't fully implemented it or are only using it in certain areas, leaving some resources and workloads uncovered, and overall dissatisfaction remains. Similarly, while Privileged Access has performed adequately in traditional setups, I believe that most of the market lacks a comprehensive solution. To encourage those customers to become buyers, we need to develop an excellent product, which is our focus. Rather than aiming to replace existing IGA or PAM tools, we see ourselves contributing to the next generation of technology that will require these solutions, and we plan to have the product ready for that market. Regarding the factors that would drive them to consolidate their current solutions, I would suggest that in ten years, many may still retain those established solutions since people tend to be resistant to change. It's normal for legacy solutions to remain in place for a long time. Our attention is on the next generation, new projects, and initiatives that will need improved products for the market.

Next we'll go to Adam Borg at Stifel.

Maybe just for Freddie. So you talked a little bit about the DoD conversations you had yesterday. Maybe just a broader update on the federal vertical, public sector more broadly and kind of how you think of that ramp this year?

Thank you, Adam, for your question. I'm glad you raised this topic. The opportunity in the federal government is significant for us, and I want to share some specific insights as well as relevant updates. We have been focusing on several key strategic plans this year that will carry into next year, particularly in customer identity management and international expansion, where we are already well-positioned. Investing in the right areas is essential, especially in the federal sector. This quarter, our biggest deal in terms of annual recurring revenue came from the federal division, which is specifically targeting customer identity and access management. The government is increasingly looking to adopt modern solutions for various progressive initiatives. We have been enhancing our federal capabilities over the years and have achieved medium and moderate FedRAMP status, with plans to achieve FedRAMP High and IL4 this summer. Our federal team has been performing exceptionally well, and we have a government summit scheduled in Washington, D.C. this month. The trends in the federal landscape align with what we see across the business: the federal government is adopting more cloud technology and integrating it with their current IT systems. They are also undergoing digital transformation, focusing on providing modern solutions and ensuring quick implementation with third-party interactions. Moreover, Zero Trust initiatives from the Biden administration and other government mandates for multifactor authentication highlight the need for improved security measures. This represents a tremendous opportunity for us, one we've strategically invested in over the years. We expect positive results this year that will set the stage for future success. It’s a significant focus area for us.

Next up, Rudy Kessinger at D.A. Davidson.

Great. Brett, so I mean look, Todd, you've been clear thus far with your comments that you didn't see any material impact from the breach in Q1. But 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. So really taking down $1 million ex that. So whereas typically, we would expect it to be raised. So what is the increased level of conservatism in there? And is it around the breach possibly having potential impacts? Or is it more of a increased conservatism from the macro environment? What's the increased level of seemingly conservatism in the revised guidance?

We raised our guidance by $25 million and we exceeded our previous guidance by the same amount. The small fluctuations, like a million here or there, are not significant. The key point is that we have a strong forecast just over $1.8 billion, growing at 40% at the top end, which is impressive given our size. When considering the full fiscal year guidance, we are reflecting on Q1 and a major milestone we achieved in that quarter, which was the sales integration. Integrating sales teams from two companies is a critical milestone, and the integration between Auth0 and Okta is no exception. We're pleased with the progress we've made, but we are also being careful and thoughtful about the pace of the ongoing integration because integration is an ongoing process without a definitive end. Therefore, as we look at revenue guidance, we are being cautious in that regard. We will continue to provide updates throughout FY '23 on our revenue, CRPO, and billings as the year progresses.

Okay. Next up, we have Andy Nowinski at Wells Fargo.

This is Justin Donati on for Andy. 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 how Okta is competing against Microsoft?

The competitive landscape has remained consistent for several years. We often receive this question and our response hasn't changed. The importance of identity is increasingly recognized globally, benefiting from ongoing trends in technology adoption, security, and customer management. In terms of competition, we see niche players lacking the breadth of services, as well as larger platforms. Among these, Microsoft stands out for its strong identity focus, particularly with its legacy product, Active Directory. They've attempted to extend this to the cloud identity space. When businesses choose between Microsoft and Okta, they are essentially deciding between the independence and flexibility offered by Okta versus being integrated into the Microsoft ecosystem. Microsoft's product announcements tend to lean heavily towards its own technology, reflecting a structure that discourages innovation with non-Microsoft solutions. This creates a feedback loop that fosters a more closed system on their end, while our ecosystem remains open and encourages collaboration with various vendors and developers. As a result, we believe our strategy of being a neutral player, connecting various identity solutions across all use cases, positions us effectively in the market. We are committed to building the best platform, whether it's for workforce governance, privileged access, or customer identity management.

Great. Next up, we'll go to Brian Essex at Goldman.

Great. Maybe just one from me, and I apologize I've been jumping around on a couple of calls so...

There's a few of them. No worries.

Yes. Sorry if I missed it, but maybe just an update on SIEM versus Workforce and maybe if we can split that between U.S. and international, just to give us a sense for how traction, in particular where SIEM is going and what the current environment, particularly in Europe might have on the adoption of either one of those segments?

Yes. Happy to talk about that, Brian. We updated this group last quarter on the specific breakout between Workforce and SIEM, which if memory serves, and Brett can correct me, we have 63% Workforce, 37% SIEM.

Yes.

There you go. It's a 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, but 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. 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. So 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 going to 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. So it's early days. I mean we're, again, very happy with revenue growth at 65% year-over-year to a $415 million quarter and the incremental fiscal year guidance to $1.8 billion plus for the year, but these are massive markets that are going to have durable growth for the next 3, 5, 10 years. And people adopting cloud technology, people putting in place more digital technology for their customers, their partners, their vendors, their suppliers, mean these are things that people are just getting going on. So 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. But we've seen no material change in both sides of the business are doing very well. Finally, what I would say is 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. So we have a great Fortune 500 insurance company that adopted both the customer identity 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.

Yes. That was a great answer. One detail to note is that the 28% and 72% split refers to all revenue and does not include SIEM or Workforce, just to clarify.

To be clear it's 78%, 22%, though. So it's 78% U.S., 22% international, yes.

All right. Excellent. Next, we'll go to Matt Hedberg at RBC.

Congrats on the results. You guys are having a lot of success outside the traditional VAR network. And I 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 over time, whether it's from VARs, partners, GSIs? Just how that composition might look in the future?

Yes, I'm happy to discuss that. We had a significant win this quarter with a Fortune 500 insurance company sourced through AWS. Regarding AWS, it's the largest cloud infrastructure provider, and we are proud to be their global technology partner. We are their preferred partner for identity, which is important because we have been developing this relationship for about 12 to 18 months, and we are starting to see the positive results. We are pleased with our growth and our direct sales teams, and there are now over 9,000 representatives co-selling with Okta. This partnership is still in its early stages but has the potential to be very significant for us. We appreciate the initial momentum and have already sourced several deals through this channel, with more to come as the relationship grows. Overall, our channel is evolving. We are not the same company we were two years ago and will look very different two years from now. We are growing from $1 billion to $1.8 billion, then to $4 billion soon. While many aspects of our channel, like systems, processes, and distribution, will remain consistent, there are also many areas that will need to change as we expand. This is particularly relevant for our international operations, where we can't have representatives everywhere. That's why having the right partners with the necessary distribution capabilities for implementations is essential. We've had a notable win with IBM Global Services, now known as Kyndryl, which reflects how even the largest system integrators recognize that the future differs from traditional on-premise technology and want to align their practices with us. We're excited about the early developments with AWS and believe there will be much more to discuss in the coming quarters and years.

Okay. Next up, we have Fatima Boolani at Citi.

Todd, I'll start with you. 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. So I just wanted to get your perspectives on what potential impacts you're seeing or bracing for particularly within the SIEM part of your portfolio and Auth0 specifically because that's a very developer-friendly and developer-oriented solution? And then I have a follow-up for Brett, please.

We're very excited about it and see a lot of potential. While we do hear anecdotes about concerns regarding the macro environment and a slowdown, the reality is we aren't experiencing that in our pipeline or business. We're continuing to execute as we have, believing that there's a significant opportunity in developers, SIEM, and building this primary cloud. We're monitoring the situation, but we believe there's a lot of potential, and we're working hard to seize it.

I also want to mention, Fatima, that we are not currently structured as a consumption-based contractual agreement. It's fairly typical to have a specific number of AMLs or MLs over a defined period. This contrasts with some other companies that operate on a more consumption-driven model.

Yes. The only other thing I would add to that is the demand remains strong across both sides of the business because of the 3 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 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 is kind of more of the guiding light for the business and how to think about forward momentum. Can you give us a little bit more flavor of the composition of that backlog type at a higher level between new business, renewal business, and expansion business? And 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. And that's it for me.

Yes, there's no difference to have the RPO or current RPO, which I would say I'd probably look at current RPO before I look at RPO, because RPO can be influenced by duration and whatnot on contracts. But the current RPO, yes, it's pretty similar to what it has been in the past. And from a net retention perspective, you can see it's been strong, 123% above our stated range, which has been what we thought was 115% to 120%. We were above it again for this quarter. So we're very pleased with the outcome for the quarter. And 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 don't get the right to get an upsell until you do a good job on the gross retention side of the house. So if we deliver success on an everyday basis, that gets us the right to get that upsell. And so 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. So we're really pleased with where things are 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 e-mail IR at [email protected]. And otherwise, we'll see you next quarter. Thank you.

And thanks, everyone. It's nice to see you all.

Thank you, everyone.

Thank you.