Okta, Inc. Q1 FY2026 Earnings Call

Hi, everyone. Welcome to Okta's First Quarter of Fiscal 2026 Earnings Webcast. I'm Dave Gennarelli, Senior Vice President of Investor Relations at Okta. Presenting in today's meeting will be Todd McKinnon, our Chief Executive Officer and Co-Founder; and Brett Tighe, our Chief Financial Officer. Eric Kelleher, our President and Chief Operating Officer, will join the Q&A portion of the meeting. At around the same time that the earnings press release hit the wire, we posted supplemental commentary to our IR website. 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 our 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. Though we may not state it explicitly during the meeting, all references to profitability are non-GAAP. These non-GAAP financial measures are in addition to, and not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents are 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 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. We had a solid start to FY '26, highlighted by continued strength with large customers, Auth0, new product contribution, strong cash flow, and record profitability. Brett will cover more of the Q1 financial highlights, and I'm going to cover product innovation, our recent Showcase event, and the latest with the Okta Secure Identity Commitment. New products, such as Okta Identity Governance, Okta Privileged Access, Okta Device Access, Fine Grained Authorization, Identity Security Posture Management, and Identity Threat Protection with Okta AI, had another quarter of strong contribution. Our combined governance portfolio of Okta Identity Governance, Lifecycle Management, and Workflows has grown substantially over the past few years. With strong adoption of our governance products, Okta is becoming even more valuable and integrated into our customers' IT infrastructure and security posture. This is evidenced by the massive growth we've experienced in Workflow executions, which have increased nearly 400% over the past three years to nearly $40 billion in March alone. OIG has been a tremendous success to date. We are hearing from partners and industry analysts that OIG is now ready to hit mainstream adoption, especially with recently delivered key capabilities like separation of duties and on-prem connector. These new capabilities helped with great customer wins in Q1 like the Global 2000 insurance company noted in our posted commentary. As cyber threats evolve, identity remains the first line of defense. That's why innovation at Okta never stops. In early April, we hosted Showcase, which is our biggest event outside of Oktane to highlight product innovation. Our newest advancements help organizations protect their employees, customers and AI systems. The key themes at Showcase this year were: one, how Okta is protecting non-human identities, or NHIs; and two, how Auth0 is helping developers build secure AI agents. NHIs have been around for a long time. What's new is how the recent boom in AI agents has resulted in exponential growth in NHIs. NHIs include service accounts, shared accounts, machines and tokens. NHIs often operate outside traditional identity governance frameworks and can leave organizations vulnerable to security risks. In fact, last year, only 15% of organizations said they are confident in their ability to secure NHIs. Okta addresses this problem with Identity Security Posture Management and Okta Privileged Access. By combining these two products, customers can discover, secure and manage NHIs with an end-to-end secure identity fabric to secure both human identities and NHIs across a single system. This integrated approach protects non-federated and privileged identities, ensuring AI-driven automation and machine-to-machine interactions remain governed under Zero Trust policies while continuously monitoring NHI risks and vulnerabilities across the enterprise. On the developer side, customers have another compelling reason to adopt Auth0. Auth for GenAI addresses the problem of AI agents creating unsecured NHIs by enabling developers to integrate secure identity into their GenAI applications. This helps ensure that AI agents have built-in authentication, Fine Grained Authorization, async workflows, and secure API access. Auth for GenAI secures AI agents at every step without slowing them down, providing developers with the trusted tools and flexibility they need. The product has had a successful developer preview and we expect the GA launch this summer. To get all the details of the announcements coming out of Showcase, we encourage you to review the comprehensive summary available on the Investor Relations website. We also continue to elevate the industry with the Okta Secure Identity Commitment, which is our work to lead the fight against identity-based cyberattacks. In support of this commitment, we're now highlighting the great security work already being done by Okta's threat intelligence team and making their insights more actionable. With thousands of customers across a multitude of diverse industries, Okta is uniquely able to analyze threat activity. I encourage you to check out a blog post we shared that highlighted Okta threat intelligence's in-depth research on how adversaries are conducting IT contracting scams using AI and our recommendations to help mitigate these threats. To wrap things up, we're pleased with the start of the fiscal year, and we're excited about the future with our growing portfolio of modern identity solutions. More and more, customers are looking to consolidate their disparate and ineffective identity systems, and Okta is there to meet them with the most comprehensive and unified identity security platform in the market today. As always, I want to thank the entire Okta team for their tireless effort and also thank our loyal customers and partners who put their trust in us every day. Now, here is Brett to cover the financial commentary and talk about how we're positioned for long-term profitable growth.

Thanks, Todd, and thank you, everyone, for joining us today. We posted solid Q1 results with another quarter of exceptional cash flow and record operating profitability and profit margin. My commentary will provide insights to our Q1 financial performance and then move into our outlook for Q2 and FY '26. We entered the first quarter with the previously announced realignment of our go-to-market team, which further specialized our sales force into Okta sellers and Auth0 sellers. While it's still too early to judge the overall success of this realignment, we're encouraged by some of the early signals in the Q1 results. In particular, Auth0 performed quite well following a record Q4. We were also pleased to see pipeline strengthening throughout March and April. We remain confident that increased go-to-market specialization will yield long-term benefits for Okta and our customers. Adding to our confidence is the recent performance we're seeing in the parts of our business that had already been specialized. At the beginning of last year, we moved the team focused on the U.S. SMB market to a hunter-farmer model. That team performed well in Q1 and underscores how specialization can drive improvements over time. Another area that has been specialized for some time is the U.S. public sector vertical, which has been an area of strength over the last few years. The strength has been a direct result of Okta's strategic commitment and investments in the U.S. public sector. Our public sector team had a strong Q1 as two of our top three and four of our top 10 deals were in the public sector, including the federal deal we called out in our posted commentary. Clearly, there is a lot going on in the U.S. federal vertical, and we are monitoring the developing situation closely. While we anticipate some near-term uncertainty in our federal business, we remain highly confident in the long-term public sector opportunity. That's because Okta delivers the efficiency and security benefits that government agencies require, and our FedRAMP High and IL4 certifications distinguish Okta from the field. Now, let's turn to our business outlook for Q2 and FY '26. We continue to take a prudent approach to forward guidance that factors in our go-to-market specialization that was rolled out in Q1 of FY '26. Additionally, we're now factoring in potential risks related to the uncertain economic environment for the remainder of FY '26. For the second quarter of FY '26, we expect total revenue growth of 10%, current RPO growth of 10% to 11%, non-GAAP operating margin of 26%, and free cash flow margin of approximately 19%. For the full year FY '26, we expect total revenue growth of 9% to 10%, non-GAAP operating margin of 25%, and a free cash flow margin of approximately 27%. To wrap things up, we remain focused on reigniting growth and driving spend efficiencies in cash flow. We've demonstrated exceptional leverage in our model and remain positioned to deliver profitable growth for years to come. We're excited about the adoption of new products, the rapid pace of innovation, and are confident that Okta is positioned to lead the identity industry. With that, I'll turn it back to Dave for Q&A.

Thanks, Brett. I see there are quite a few hands raised already, and I'll take them in order until the top of the hour. In the interest of time, please limit yourself to one question. With that, we'll go to the first question from Brad Zelnick followed by Eric Heath.

Great. Thanks so much for taking the question. Nice to see everybody. And Q1 is the beginning of the year, so always interesting dynamics. Maybe just to kick it off, you’ve layered in this additional conservatism into your guide. What is it that you saw in the quarter? Now you have two layers of conservatism for the specialized go-to-market, adding in what your thoughts are on the macro, can you talk more about what the combination of those two factors, how much they impacted Q1, and how to think about them going forward? Thanks.

Yeah, I'll start. Nice to see you, Brad. I think the Q1, we're very happy with Q1. We're really on track for the year and we made a lot of great progress in the quarter. I think there's the qualitative metrics we talked about and we've talked about so far on the call, but then there's just the conversations we're having with customers about how important what we do is to them and how much they're investing in everything from the traditional things we've helped them with, cloud transformation, and of course, security, but now with what's going on with all these AI projects and moving from POCs to production and how we can help with that and how we can help them build Auth for GenAI applications. And so, it's all very, very exciting. I think we can talk about the guidance and the forward look and our some of our thoughts there, but it's kind of the base and the foundation as a company that's really on track for the year and very optimistic about the future.

I can add to the guidance discussion. You were asking about the macro conditions in Q1 compared to our future outlook. In terms of the macro environment, we did not observe any impact in Q1. Compared to previous quarters, the situation has not changed significantly. We’ve discussed this extensively in recent years, but there hasn't been an incremental difference. Moving forward, we are mindful of the overall environment, based on customer conversations, news impressions, and discussions with our sales teams. The general tone seems to have shifted. While we can't say it's certain, we are factoring this sentiment into our guidance. It's important to note that, as I've mentioned previously, our guidance philosophy has evolved. We are not incorporating as much conservatism as we used to. Even though we've included a new factor for macro considerations, we are not reverting to our old model. There’s still less conservatism in our approach. We are making a slight adjustment for macro concerns; however, the go-to-market specialization factor remains consistent with what we established at the start of Q1. As Todd mentioned, we believe we are on track and headed in the right direction, and we feel positive about our current position.

Thanks, Dave. Following up on that line of questioning, we saw some sub-seasonal growth in cRPO for the first quarter, and we've heard from other security companies that April was particularly challenging, although conditions may be improving in May. Can you share if there were any areas that were a bit softer than expected during the quarter? I noticed that international growth decelerated more than in the U.S. Could you provide any insights on that?

We didn't experience any softness in April; it was very consistent. This follows a very strong Q4 where we performed exceptionally well, and we continued to show solid performance in Q1, including throughout April. We didn't see any signs of weakness. Despite some discussions in the industry about April being a challenging month, our numbers indicate a strong start to the year. When Brett mentions our cautious approach and how we're considering macroeconomic uncertainties moving forward, that's definitely something we are focusing on for the future.

Great. Good afternoon. When we look at the go-to-market specialization, where are we in that process? And can you maybe share with us what some of your most impactful learnings have been, and maybe the progress that's been seen on that business side? Thank you.

Thank you, Jonathan. We're off to a solid start. In our business during the first quarter, there's typically a lot of territory replanning and reassignment. This year, with our shift to specialization for sellers for the Auth0 and Okta platforms, we've experienced more change than usual. As a result, our costs have also changed to some extent, but Q1 was a strong start. We had excellent performance on the Auth0 side, which aligns with our increased specialization, and we've seen a robust pipeline build throughout the quarter. Even in the first few weeks of Q2, those trends have continued. We're optimistic, though we recognize that this is just a small part of the overall year, so we need to keep executing well. The growth of new products on the Okta side has been very encouraging. We highlighted the success of our Governance business, Privileged Access, Device Access, and Identity Threat Protection. There’s a wide range of identity security tools available, and the sales team on the Okta side is effectively engaging with customers, demonstrating how we can address everything from non-human identities and AI workloads to essential password-less and phishing-resistant authentication, which many companies are still focusing on. We can support them across this broad spectrum.

Jonathan, you inquired about the lessons we've learned from this experience. I want to add a couple of points to Todd's comments. Firstly, we've realized that specialization is effective. As Brett mentioned, this represents our third wave of go-to-market specialization, with our initial focus on the public sector several years ago. We've had significant success with that team, which has consistently performed well. Last year, we introduced the hunter-farmer model for our U.S. commercial business, and we've expressed our satisfaction with the outcomes from that transition. Additionally, we've learned that we can now implement the Okta and Auth0 platform specialization. We are confident this approach works. However, we've also recognized that it requires time. Relating to Todd's earlier comments, we are concluding our first quarter. February is when we redefine territories and reassign responsibilities. This allows us to accelerate enablement by concentrating our representatives on specific buyers and platforms. We've executed effectively this quarter, and as Brett and Todd noted, we're prepared for the three quarters ahead. We have considerable work to accomplish, but we remain very confident in our strategy.

Great. Thanks for taking my question. So, just given your previous commentary around the seat headwinds abating, which implies easier second half comps, just how should we interpret the embedded kind of seat expansion and recovery curve going into second half? And just what is this kind of guidance conservatively assuming on that front? Are there any kind of embedded assumptions around kind of new business, recovery potentially being offset because of any macro concerns you have, which is you're not seeing it yet, but anything that you're embedding there?

Certainly. Shrenik, just to recap for everyone on the call, we've mentioned that net revenue retention is facing some challenges, especially regarding seat upsells and renewals during mid-contracts. We expect these headwinds to persist into the first half of FY '26. Of course, if economic conditions change, it could influence our performance in various ways. What you're really asking about is the trend for net revenue retention. At the moment, we anticipate it will remain within a certain range, with some room for fluctuation. However, should macroeconomic factors turn negative for us, that could affect our outcomes as well. We don't have a specific number to provide in our guidance, but it's factored into our overall outlook. I hope that clarifies your question.

Thank you for your question. I've noticed that there are many inquiries about cRPO. Your cRPO guidance for Q2 indicates a sequential decline for the second consecutive quarter, which is unprecedented. While I understand you're considering some macroeconomic uncertainties, historically, Okta has shown sequential growth in cRPO during Q1 and Q2 even when the macro conditions were much worse, such as during COVID or significant inflation. The current macro environment seems more favorable than those times, yet you're predicting another sequential decline for the second quarter in a row. I'm curious if there's anything you can share about whether there was any pull-forward in Q4 or if other factors might contribute to making this period different from the previous three to four years.

I would say that during the period you mentioned, we were experiencing faster growth than we are now, based on our guidance. However, I want to caution everyone or at least offer some advice on how to model current RPO. I've discussed the current RPO coverage ratio in annual terms before, and if you break it down into quarters, you'll notice a revealing trend. When we provided guidance for subscription revenue last quarter, you might have observed a decline, particularly in the current RPO expectation of around $2.2 billion. To be specific about the analysis, take the current RPO and compare it to the subscription revenue in the following quarter. If you divide the subscription revenue by the current RPO number, you will see what I mean. If you apply the seasonality for fiscal year 2024 and fiscal year 2025, this number would likely be a bit lower than the $2.205 billion we shared today. Essentially, this is what current RPO reflects. We know there is a strong correlation between one quarter of subscription revenue and the total value, so these factors are crucial to consider when modeling current RPO.

Thanks, Dave. Thanks for the question, guys. I wanted to double-click back on the go-to-market, the specialization. It sounds like you guys are happy with the results there. Todd, you mentioned OIG a number of times on the call. I'm curious, in this Q1, have you experimented with some additional bundles to kind of drive cross-sell? I mean, we're hearing more of that in our checks. Just kind of curious on how you kind of thought about that for Q1 and how that might benefit the remainder of the year.

We have introduced suite-based pricing for the Okta platform, starting in Q1, and we're seeing positive results as customers are interested in purchasing multiple products in various configurations. The best configuration includes all products, while the initial basic suite contains some core offerings. This strategy has made good progress in Q1, but we believe there is still significant potential for growth as we are well-positioned in the market. We are the only independent neutral identity platform with a comprehensive range of products across governance, privileged access, threat protection, device access, and access management. We're excited about the opportunities this bundle presents. Additionally, when I speak with customers, they express a desire to consolidate strategically. They are analyzing their landscape and recognizing that while they can't consolidate everything, they want to streamline at the right points. We encourage them to consolidate around identity, ensuring that it remains independent and neutral. This approach allows them to reduce costs, gain multiple capabilities from a single vendor, and maintain their choice without being locked into a specific ecosystem, cloud environment, collaboration space, or set of security tools. This philosophy underpins our suite-based pricing strategy.

Hi, good afternoon. Thank you for taking the question. I guess, Todd, for you, on the developer side, curious to see if you're beginning to see demand for OAuth for MCP authentication, and how should we think about the way that Okta may be levered to agentic demand there?

It's super exciting. You often hear about the significant advancements in AI, and we have our Auth for GenAI capability, which can be seen as strategic enhancements to the Auth0 platform tailored for building AI agents and workflows. This feature is currently in developer preview and will be available to everyone shortly. We are thrilled about it, as it provides additional reasons for users to choose Auth0 and increase their monthly active users. The MCP is a big deal. I see it as a potential new Internet, altering the way we communicate with tools and technology through LLMs and a new generation of browsers and user agents on the AI Internet. People often overlook that within the web's internals, HTTP uses a user agent tag to connect to resources. The MCP might represent a new kind of Internet where AI agents serve as clients instead of user agents, communicating with MCP servers. This shift represents an exciting evolution in our industry and expands the capabilities of software and systems, although we're still in the early stages. The protocol was announced about six weeks ago, and companies are now integrating MCP servers into their offerings while developers experiment with its implications. We're eager to collaborate with standards bodies to integrate OAuth into the MCP protocol. That's a specific example, but the main point is that this software layer presents a tremendous opportunity, and we are actively working to be a significant player in it, helping the industry and our customers leverage these capabilities. Customers are equally enthusiastic; everyone I speak to—from Washington to Europe to New York—is excited about the potential developments and recognizes the importance of identity in this framework. We are committed to being a major contributor to this change.

Hey, good afternoon. Thank you, all. For Eric and Brett, I'm wondering if there is a way to think about to what extent some of the cross-sell can impact the growth algorithm going forward. So, I guess, did you see a negative impact in 1Q in productivity from the go-to-market changes? And then, going forward, how do you think about when we could start to see go-to-market changes positively contribute to the growth algorithm NRR in particular? And are we at the point where we can think about this through productivity lens, or how do you think about productivity lens in terms of benchmarking and where productivity is going? Thank you.

I’ll start and then Eric can add anything I miss. From an overall perspective for Q1, one reason we believe we're on track is not just the quantitative metrics but also the significant changes in the field. There are now more specialized representatives than there were last Q1. Many of the statistics mentioned are as good as or better than last Q1, which is encouraging. If we made more changes in Q1 compared to the last quarter, and the numbers haven't dropped, that suggests positive momentum. Regarding your question on whether upselling will benefit net revenue retention due to specialization, that's a key motivation for us. The depth of our product portfolios makes it challenging for generalists to cover everything effectively. We want our team to focus on specific products, allowing them to improve their selling skills over time, which should lead to better outcomes for net revenue retention. The changes we're implementing are not just for Q1 or Q2 but are strategic moves to prepare us for any economic conditions in the future. There are many compelling reasons for specialization, which reflect our confidence and enthusiasm about the future based on the adjustments we've made in Q1.

And I agree with Brett's comments. What I would add to that is, it's also a win for our customers, is our customers now have the opportunity to work with go-to-market teams that are really focused on the platform that's relevant to those customers. So, to your question about cross-sell and upsell, we are confident that with focus on the platform, our individual sellers and our pre-sales teams, and our technical account managers will be able to go deeper on the specific capabilities and learn more about them faster. And that's particularly important as we've, in recent years, increased our pace of product innovation. So, just on the Okta platform in recent quarters, you've heard us talk about Identity Threat Protection with Okta AI, Identity Security Posture Management, Okta Identity Governance, Okta Privileged Access. We have a whole host of new capabilities that we're bringing to market and our sellers need to stay abreast of these changes so that they can help our customers stay abreast of these changes and understand what new value that we can provide for them. And then, we have a very parallel opportunity on the Auth0 side. Todd just talked about Auth for GenAI and we just announced that at our Showcase event last month. So, we believe specialization is going to help us move faster. It will help us stay focused. It will accelerate our enablement for these teams. And ultimately, it will help us provide a better experience for our customers and get more value with this faster as well.

I believe that focus is essential, just as Eric mentioned earlier. A great example can be seen in the hunter-farmer regions he discussed, where we experienced a strong new business quarter in Q1. Most of the top ten deals in that quarter were new business deals. We truly believe that our focus is going to make a significant difference, particularly in areas where we have already specialized, and we expect this to be beneficial in the long run. This is why you hear our optimistic outlook.

Thank you.

Next question from Saket, followed by Gray Powell.

Okay, great. Hey guys, thanks for taking my question here. Todd, maybe for you just on that last line of questioning. Can you just talk a little bit about the new logo pipeline for the rest of the year, particularly in the Workforce business? And maybe relatedly, how you feel competitively there as you offer more of a platform?

I am very optimistic about our competitive position and the potential for new customer acquisitions. We often discuss our platform sales and the revenue expected from new products like governance, which is now generating over $400 million, along with Privileged Access, which is gaining traction, and Identity Security Posture Management, which offers exceptional capabilities. We view these as a collective effort, focusing not only on suites and pricing but also on how these new products can help us attract new customers. The interest we've seen in Identity Security Posture Management is remarkable; this product stands out from anything we've offered before as it scans customer environments and proactively notifies them about identity security posture issues, including non-human identities that many companies struggle to manage. This can often serve as a gateway to new customers, allowing us to integrate further into their identity security systems over time with additional products. Importantly, these new offerings are not merely upsells to our existing clients but are instrumental in acquiring new ones. Our product suite is unparalleled in the industry; no other company combines the independence and neutrality, along with the robust, scalable, and reliable cloud-based architecture that we have, not to mention the extensive range of products we offer. No one else has the combination of Access Management, Governance, Privileged Access Management, Posture Management, Device Access, Threat Protection, and more, especially not integrated like we are with 8,000 integrations. Our leadership in independent neutral identity is unrivaled. There are many reasons for optimism, as reflected in our numbers over the past couple of quarters. Now, it’s our task to ensure this momentum continues into strong performance for the remainder of the year and beyond.

Okay, great. Thanks for taking the question. Maybe just a follow-up one on guidance, if it's okay. So, I'm just looking at the numbers. Full year revenue guidance calls for 9% to 10% growth. You grew closer to 12% in Q1. You beat numbers by a little bit in Q1, which is good. Just how should we think about the exit rate in Q4? I know you don't want to get too granular, but does something in the 8% range seem about right? And then, what factors or products have the best chances of just driving upside as the rest of the year plays out?

I can start with some high-level thoughts, and I'm sure Brett will provide additional insights on exit run rates. The biggest opportunity for us lies in large enterprises. Over the last few quarters, particularly in Q1, we saw a 20% increase in the number of customers with $1 million in annual recurring revenue or higher. We still have significant room to grow within the Global 2000 and the top 5,000 largest companies and organizations globally. This presents a tremendous opportunity for us. Many of these organizations have heavily invested in on-premise technology and identity solutions, which come with substantial costs. With the ongoing shift towards cloud migration, the emphasis on security, and the drive to leverage AI advancements, these companies are prompted to reevaluate and upgrade their identity systems. Our proposition is to utilize our independent, neutral identity fabric, leveraging our wide range of products and capabilities. The potential for growth in this area is enormous, driven by multiple catalysts for change. Additionally, our products are significantly improved. The breadth, maturity, scalability, security, reliability, and proven success with our customer base—including large government bodies, healthcare, and financial services—demonstrate the effectiveness of Okta. Many of these large companies are not only finding success with individual products but are also purchasing a variety of our offerings, which highlights our value.

In terms of the guidance, let's get through a few more quarters before I start answering questions about fiscal year 2027. We have a long way to go. We've mentioned that the first quarter is our smallest, seasonally smallest quarter of the year. So, we won't draw too many conclusions from Q1. As we have discussed, we're on track and feel good about our current position, but we need to execute effectively in the second, third, and fourth quarters before we begin discussing the scale of what we're planning for 2027.

Thank you, everyone. I have a question for Brett. Regarding the incremental conservatism we're implementing based on the tone of our conversations, could you elaborate on that? Is it primarily related to new logos or net revenue retention? Is it relevant across the entire business or specifically in Public Sector? How did you all approach this incremental caution?

Yes, Mike, regarding the broader macro environment, we are indeed exercising some caution with respect to the federal sector, even though it isn't a large component of our business. It's important to note that this sector does renew annually due to the one-year contract requirements of the U.S. federal government. Therefore, it represents a slice of the overall macro landscape. Generally, we are seeing this cautious sentiment reflected across the board. Over the past couple of years, we've discussed the challenges we've encountered concerning net revenue retention, and I don't anticipate these challenges changing significantly if the macro environment turns negative as we progress through the entire fiscal year.

Yes, as I consider the ongoing discussion, I want to highlight that we are maintaining our investment levels. We continue to invest in this opportunity. Although the forward-looking macroeconomic outlook appears cautious and we are taking a careful approach, the numbers speak for themselves. The first quarter was quite strong, and the pipelines leading into the second quarter are growing, which we find very encouraging. It's a matter of being prudent in our guidance, but we are not altering our investment strategies, execution, or staffing in order to capitalize on this opportunity. This is an important consideration for everyone involved.

Great. Thanks, Dave, and thank you guys for taking my questions. Since DiFucci hasn't gone yet, I guess I will focus on cRPO a little bit here. And...

Yes, that's a good question, Rob. So, first and foremost, every year has had a higher growth rate. So that higher growth rate masks the 89 days versus 92 days. And remember, last year, it was a leap year, so there were 90 days in Q1, so that's a tougher compare. The other factor is, if you remember what I've said for the last two quarters, our guidance philosophy has less conservatism in it. So, the beat is not going to be as large. And so, you see that come to fruition here. You can see it in the annual guidance that we've given here today, which is we've held flat despite a beat. There would have been a different mechanic that would have happened in prior years because we had more conservatism in the model. So, those are the two main reasons, Rob. Hopefully that's helpful.

Thank you, guys. Hi, good afternoon. Maybe to continue and beat a dead horse on that macro front, you did call out a strong March and a strong April, kind of deviating for some other companies who called out a little bit of a pause, just a little bit of a pause during April. With May coming to an end in a handful of days, and I understand the linearity within the quarter, between the months of the quarter, how would you characterize the first month of the quarter? Did it build? Did it continue building on the strength you've seen during March and April?

It's a good question. I believe that while the conversations and sentiments have become more negative about our outlook, the actual numbers have not reflected that change. The pipeline and performance metrics have remained consistent with what we observed in the first quarter. There seems to be a disconnect between our discussions and the realities reflected in the data. Like everyone else on the call, we hear from other companies reporting a slight downturn in business during March and April, and this information could influence our customers as well. This situation might create a bit of an echo chamber, leading to unnecessary concern. However, I think it's wise to proceed with some caution. We are actively investing and executing our strategies, and so far, those efforts have not yet impacted our numbers.

Thank you. It seems that the customer identity segment of the business did well. Was this performance widespread, or was it largely influenced by a few significant deals? I understand one of your major cloud-native customers experienced a notable event this past quarter. How might such an event lead to a substantial renewal? Additionally, what is the typical timeframe for securing such a large renewal?

The customer identity business is performing well, particularly with Auth0. Auth0 had a strong first quarter, and similar to other areas of the business, one of its most successful customer groups was the large customer cohort, which was also the case for Auth0 in Q1. It will be interesting to see how the GenAI space and Auth for GenAI evolve in the future. There are major companies developing solutions that may leverage Auth for GenAI, but there are also many smaller companies working on innovations around AI agents. A lot of the interest in the developer preview of Auth for GenAI has come from these smaller companies. While Auth0 had a successful quarter with significant deals in Q1, we are optimistic that this success will continue throughout the rest of the year and will be broadly based.

I would like to add that the most significant deal in the quarter was actually an Auth0 deal from a specialized team. We feel quite positive, especially since Todd mentioned it earlier, as they had a very strong Q4. Following that with another solid Q1 really demonstrates the results of our efforts over the past couple of years, where we have focused heavily on Auth0, sold to that market, and made significant progress. There were large deals, but also many other deals as well. We are optimistic about our current trajectory and look forward to how the team will perform for the remainder of the fiscal year.

Thank you. I have a follow-up question for Todd regarding AI. The adoption of agentic is starting to gain momentum, particularly among leading-edge enterprises, but many investors are still curious about when identity security will be effectively implemented to protect these agents. Looking at Okta, as you mentioned earlier, Auth for GenAI is currently in developer preview and will be released soon. From a customer adoption perspective, how do you anticipate these developments will unfold for Okta moving forward?

You are absolutely correct. The industry is transitioning from proof of concepts to actual production, and this shift is just beginning. Currently, only the most forward-thinking organizations are implementing production AI and developing use cases at scale that yield clear business benefits. Agentic workflows and systems are impressive, but they also highlight a longstanding issue with non-human identities. These non-human identities have existed in companies, with tokens used for accessing systems, APIs, and service accounts for a long time, and many companies have not effectively addressed this challenge. This is why we are concentrating on that layer. While it isn't specific to AI, the issue is intensified by AI. Our Identity Security Posture Management can detect these non-human identities, and our Privileged Solution, along with our General Access Management Solution, enables companies to secure these identities. This is crucial for organizations that are merely in the proof-of-concept stage with these agents and have not fully moved to production yet. It highlights the problem they need to address as they consider transitioning to production. This is a significant aspect of the current market dynamics. As more of these projects enter production, we anticipate that this issue will become even more pressing. Thus, we expect to see a rapid increase as more companies shift into production.

Thanks, Dave. Couple of questions for you, Brett. As you look at the mix of contribution this quarter between seats, new products, cross-sell, can you tell me how it came out relative to your plan and what areas you think you did a little bit better, and what areas are perhaps not as good? And also, I think last quarter, you gave some details on new products as a percent of bookings. Can you refresh our minds where do we stand right here right now? How the momentum and trajectory is looking there?

For new products, we'll start by addressing them in reverse. NPI new products, which we have discussed extensively during this call, saw another strong quarter. Regarding the mix of new business compared to upsell and cross-sell, we had a solid new business quarter, one of our better ones in recent months, which is promising. However, it's important to note that our pipeline still leans more towards upsell than it has historically. When I mention upsell, I'm referring to both upsell and cross-sell. We performed well in cross-sell and also saw good results from seat upsells. Overall, this contributes to our confidence that we are on track. We had a successful quarter, and the team executed effectively to achieve our targets.

Okay. Thanks, Dave. Brett, the cRPO color from earlier was helpful. I just wanted to build on that coverage ratio that you talked about. If I hold that metric to typical seasonality, obviously, cRPO is going to decline again sequentially in Q2, but I think it actually starts to grow sequentially in Q3 and Q4 if I did the math correctly. And I hate to beat a dead horse, but the context here is we obviously had that as a key metric. cRPO was down this quarter. Your guidance implies it's down next quarter and there's a figure that this is just going to be a sequential decline persisting where new bookings are in perpetual decline, but I think that metric that you talked about on coverage ratio is refuting that. So, if you could maybe just touch on the color of the shape of cRPO for the year? Because I think Q2 might actually be the bottom, if I'm getting this right.

Yes, in terms of dollars, that's probably about accurate. I haven't done the exact calculations based on the guidance, but it seems to be in that range. Let's get through Q2, and then we'll provide an update, but I think your assessment is likely correct.

Great. Thanks, guys. So, your cRPO growth has been 13% to 15% year-over-year in the last five quarters. If we look at your subscription revenue growth versus cRPO growth on a one- to two-quarter lag, it's been very tight the last couple of years. And so, why shouldn't subscription revenue growth be in that 13% to 15% range the next couple of quarters?

Because we're telling you it's not. No, I'm just joking, but ultimately, if you don't look, I just think it's a fool's errand to get into the growth conversation. I've told you guys, I don't know how many times at this point, look at the coverage ratios. That is like I don't know what the correlation is, but the R-squared has got to be like 0.9 or 0.95. So, like we got to stop looking at percentages and look at the actual dollars because that's the mechanics of how the math works through the financials. So, use the dollars, forecast like I've told you, either the annual or the current quarter one that Adam was just bringing up and I would just highly recommend going down that path. There's only one way to do it. I don't think we need to innovate on how to do revenue accounting. Let's stick with how it is or how I've described it.

Thanks, Dave. I'm not going to hit that. You know what I think of that. But anyway, Brett, you previously talked about the seat and MAU upsell headwinds mid-contract or at time of renewal for some of your older customer cohorts. It seems like you're doing well with new products. It really does, and we hear that too in the field. So, is that headwind still why NRR declined for the fourth consecutive quarter? And do you still expect to see that alleviate sometime in the near future or has the macro backdrop given you signs that this may persist? It sounds like it might be the latter.

Yes, we do expect it to stay within this range. To answer your first question, yes. However, if the macro situation worsens significantly, it will negatively impact NRR by default. It will also make acquiring new business more difficult. This challenge won't be limited to just one part of the business. So, I think that's the best answer I have for you, John.

Here we have about four minutes left. We'll go to Josh Tilton, followed by Keith Bachman.

Thank you, guys. Todd, maybe one for you. When you first started talking about the customer identity opportunity, I think to us it kind of made a lot of sense why your customers would choose to buy this stuff instead of building it out of the box. That was, I guess, more for the traditional SaaS world. So, what I'm trying to understand is, there seems to be a lot of newfound excitement on the customer identity side as we head into this agentic world. Is there anything about a future of agent-based apps that is going to make it even more of a no-brainer to go with buying this out of the box from you guys on the customer identity side instead of trying to develop it themselves compared to maybe the old-school SaaS world?

I believe the trend is shifting towards buying solutions rather than building them. While AI may not be a significant catalyst for this change, it aligns with the improving quality of solutions available. A decade ago, effective customer identity solutions were scarce, but now with Auth0, we offer an excellent developer experience that enables easy adoption and gradual upselling. As we transition into an AI-driven world with agents integrating customer identity into applications, it may not drastically change the landscape, but it does support the trend of purchasing these solutions instead of developing them in-house. This is one of the reasons we are optimistic about our business.

Hi, thank you very much. Good evening, good afternoon. Todd, I wanted to direct this back to you and to follow up on, as you say, the non-human side of the business. And the broader question is, why do you think Okta will win in that environment? And I think a lot of investors assume it is going to be a big market. Pricing may be different. But why does Okta win versus when we were at RSA, talking to CyberArk or SailPoint or Saviynt, whoever it is, all think that they're in a position to win, particularly since our take, it sounds like governance will be part of identity with agents, more so than say just access, but maybe just kind of run through, if the market develops as investors think it will, why does Okta win in the agent world or non-humans?

Well, I think today it's because we're the only one with a complete solution. And we have this breadth of products that can help solve this problem from detection to vaulting to governance workflows, and I'm talking specifically about NHIs.

Great. Thanks, guys. So, your cRPO growth has been 13% to 15% year-over-year in the last five quarters. If we look at your subscription revenue growth versus cRPO growth on a one- to two-quarter lag, it's been very tight the last couple of years. And so, why shouldn't subscription revenue growth be in that 13% to 15% range the next couple of quarters?

Because we're saying it's not. I'm just joking, but ultimately, I think it's misguided to engage in the growth conversation. I've mentioned numerous times that you should focus on the coverage ratios. I can't pinpoint the exact correlation, but it must be very high. We need to stop concentrating on percentages and instead look at actual dollar amounts, as that reflects the true financial mechanics. So, use the dollar figures and forecast as I suggested, whether it's for the annual figures or the current quarter that Adam just mentioned. I highly recommend following that approach. There's only one effective way to do it. I don't believe we need to innovate on how we account for revenue; we should stick with the current methods that I’ve explained.

Thanks, guys. I apologize that we didn't get to all the questions. I just want to let you know before we go that in addition to hosting several on-site and virtual bus tours this quarter, we'll be attending the Baird Tech Conference in New York on June 3, the FBN Virtual Conference on June 4, and the BMO Virtual Conference on June 10, and we hope to see you at one of those events. Thank you.