Earnings Call
Okta, Inc. (OKTA)
Earnings Call Transcript - OKTA Q4 2020
Operator, Operator
Good afternoon and thank you for joining us on today’s conference call to discuss the financial results of Okta’s fourth quarter and fiscal year 2020. With me on today’s call are Todd McKinnon, Okta’s Co-Founder and Chief Executive Officer, Bill Losch, the company’s Chief Financial Officer, and Frederic Kerrest, the company’s Co-Founder and Chief Operating Officer. Today’s call 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, the statements regarding our financial outlook and marketing position. These 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 its filings with the SEC from time to time, including the section titled, Risk Factors in its previously filed Form 10-Q. In addition, during today’s call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. 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. On today’s call, we’ll quote a number of numerical growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. And now, I’d like to turn the call over to Todd McKinnon. Todd?
Todd McKinnon, CEO
Thanks, Dave, and thanks everyone for joining us today. Our strong fourth-quarter financial results capped another fantastic year for Okta. Total fourth-quarter revenue grew 45%, subscription revenue grew 46%, remaining performance obligations or RPO grew 66%, and we generated record operating and free cash flow. What drove these results is our continued execution and growing presence as the standard for identity and access management. We’re now achieving these results at scale while simultaneously investing in the business to capture a tremendous opportunity that remains in front of us. One of the areas that we’ve been investing in is growing our base of large enterprise customers. We’re seeing those investments pay off and it’s reflected in the addition of a record 142 customers with annual contract value greater than $100,000 in the fourth quarter. Once again, over half of these additions were from new customers. The total number of $100,000 plus customers is now 1,467, an increase of 41%. These large enterprise wins are from a wide range of industries. To provide some insights into the diversity of our customers and the types of challenges our products help them solve, I’ll share some details of a few notable wins and upsells from the fourth quarter. The global 2000 power management company with over 100,000 employees, and doing business in more than 175 countries is establishing Okta as the identity standard. Its Workforce, including contractors and partners, will be able to securely access both cloud and on-premise applications regardless of their locations. The company selected Okta in order to strengthen and modernize its security posture. They recognize tremendous value in Okta’s independence and neutrality to solve its Workforce and Customer Identity needs. Autodesk is the global leader in design and engineering software. The company recently selected the Okta Identity Cloud to centralize identity and access management for its customers. The high scalability and availability provided by our Customer Identity solutions, including Okta Dynamic Scale, was an important factor in the company selecting Okta. With Okta as the identity layer, Autodesk is investing in secure and flexible ways for its customers to securely access their products. A leading European film and television studio and distributor with over 8 million subscribers worldwide is a new Customer Identity win. Included in the agreement was our new dynamic scale product which will be able to support peak website traffic of up to 90,000 connections per minute during a large event, such as the biggest soccer games of the season. The company expects to attract even more customers through recent partnerships with Netflix and Disney Plus, and will rely on Okta to deliver a secure customer experience. NTT DATA, a top 10 global business and IT services provider, was a notable upsell in the quarter with over 120,000 professionals in more than 50 countries. They launched a companywide initiative that combined the expertise and resources from its NTT DATA group companies to create a modern identity solution to unify its multiple global companies. After its initial success deploying Okta’s Workforce Identity Products to provide secure Single Sign-On, NTT DATA expanded its deployment with universal directory, lifecycle management, and workflows. The company will have centralized tools that power identity decisions across its complex ecosystem. This will automate processes as employees join, leave, or move across the company, reducing time and costs associated with manual processes. Security and privacy is of utmost importance to all our customers, but especially for those in the finance and banking industry. Trust is the foundation of their relationships with their customers, so it’s absolutely critical that their customers feel secure while accessing sensitive financial information. Our expertise and reputation within the finance vertical is earning us more and more customers, especially with Okta Customer Identity solutions. These customers range from regional banks to some of the largest financial institutions in the world. There are three primary factors driving our success with customers. Number one is the rapid growth of cloud and hybrid IT. Identity has become increasingly complex as organizations move to the cloud. Over the past 11 years, we’ve built the broadest cloud-based identity platform that is scalable, caters to hybrid deployments, is easily deployed, and is highly customizable. Two is digital transformation. Customers recognize that the cloud has changed everything, and is forcing every company to become a technology company. Organizations are now looking to Okta to help them navigate this new environment and implement an identity solution that will meet their complex hybrid environment needs and improve their digital customer interactions. And three is security. More than 70% of hacking-related breaches are caused by stolen credentials. With the adoption of zero trust environments, the traditional security perimeter has dissolved and identity is now at the heart of the new security step. Identity plays a critical role in each of these megatrends and organization are turning to Okta because we are uniquely able to address the broadest set of use cases. We are independent and neutral and have built the most extensive catalogue of integrations. This is essential for organizations deploying best-of-breed applications, which is common in today’s mid to large-sized organizations. Through our industry leadership and innovation, we’ve earned our customers’ trust, and in many cases, we’ve become a trusted advisor. The added benefit is that as our customer base grows, we are able to generate more and more data insights that can be harnessed to enhance our existing products, such as Okta SecurityInsights, which we released last October and offer even better products. In turn, these products enable our customers to be more successful and generate a network effect flywheel which helps position us for continued market leadership. Turning to our customer conference, because nothing is more important to us than the health and safety of the Okta community, we will be hosting Oktane20 as a virtual conference this year, Oktane Live, offering both our keynotes and dozens of breakout sessions online. As we followed the coronavirus news, it became clear that the best way to safely engage with our whole community is through a digital conference experience. Investor Day, which we’re hosting in conjunction with Oktane, will be virtual as well. Replacing the in-person events with dynamic video content will enable us to bring our customers, partners, investors, and employees together in a healthy and productive way. We look forward to sharing our vision, product innovations, and latest customer journeys with you over the stream the week of March 30th. As you may remember, last year at Oktane, we launched new products like Okta Access Gateway and Advanced Server Access. Access Gateway delivers a single point of management for administrators, and one place to go for end users to access both their cloud and legacy on-premise apps. Advanced Server Access provides continuous authentication and centralized access controls for servers. We’ve been happy with the early adoption of both products. In my keynote address this year, I will touch on how Okta’s products are designed to meet a growing number of use cases and how identity has become its own platform. I’ll cover how our Workforce Identity Products enable employees, contractors, and partners to securely access the right technology they need to do their jobs, and how our Customer Identity Products enable our customers to build secure digital experiences for their customers. I’ll be talking more about additions to the Okta Identity Cloud that will enable us to deliver even more innovation and provide our customers with more freedom to build customized access experiences. Our modern architecture is built on a single stack of technology that provides our customers with easy deployments and is highly configurable. Oktane Live will be an amazing event that you won’t want to miss. In closing, I’m very proud of what we accomplished in fiscal '20. Here are the highlights. Revenue increased 47%, our non-GAAP operating margin improved by 210 basis points, and we were free cash flow positive for the year. We expanded our portfolio with several new products and services that provide even greater value to our customers, and increased the number of use cases. We were recognized by market research firms as having the clear leadership position in identity and access management. We were certified as a great place to work and strengthened our team by adding nearly 700 incredibly talented people around the world. We further expanded our presence with new domestic and international offices and new infrastructure in APAC. We established Okta ventures to help fuel the next generation of modern identity solutions. Our Okta for good program continued to expand its reach with the launch of its first product innovation program focused on social impact with apps for good. We couldn’t have done this without the dedication of our customers, the great ecosystem of global partnerships, and the tireless work of our employees. For that, I am exceptionally grateful. But now it’s on to even greater things in fiscal '21 and beyond, as we are just beginning to tap into the massive market opportunity as we enable any organization to use any technology. Thanks again for your time. I’d now like to turn the call over to Bill to walk through more details of our financial results. Bill?
Bill Losch, CFO
Thanks, Todd, and thanks again to everyone for joining us. As a reminder, we have posted an earnings presentation that is available on our IR website and contains our detailed financial results. I think you’ll find it to be a useful summary. As such, I will only cover a few of the notable highlights in my commentary this afternoon, leaving more time for Q&A. As Todd mentioned, we maintained the strong momentum that we built throughout the year. Our better-than-expected top line growth has resulted in strong operating leverage as demonstrated by better-than-expected operating loss, operating margin, loss per share, and cash flow. Turning to our Q4 results, total revenue increased 45% driven by a 46% increase in subscription revenue. Subscription revenue represented 95% of our total revenue. RPO or backlog, which for us is contracted subscription revenue, both billed and unbilled that has not yet been recognized, grew 66% to just over $1.2 billion. The robust growth in total RPO reflects the continued success we’ve been seeing with large enterprise customers that Todd mentioned. These contracts tend to be larger in value and longer in length. For example, the number of transactions with a total contract value of $1 million or more grew over 80% compared to Q4 last year, and the weighted average term lengths of those transactions is nearly four years, which is 50% longer than our overall average term length. As we continue to see success with winning the world’s largest organizations and broader adoption across our growing product portfolio, we expect the average contract size and term length to continue to trend upwards over time. Current RPO, which represents subscription revenue we expect to recognize over the next 12 months, also experienced strong growth of 54%, an acceleration from the 52% growth in Q3. Year-over-year growth in current RPO is the more meaningful metric when viewed along with subscription revenue and billings growth. Total calculated billings grew 42% and current calculated billings growth accelerated to 46%. The strength in billings continues to be driven by new and existing customers for both Workforce and Customer Identity across all our geographies. Turning to retention, our dollar-based net retention rate for the trailing 12-month period was 119%, a 2 point increase from Q3. The increase was driven by strong customer upsell, particularly with our enterprise customers, as we grow our business with and within the world’s largest organizations. As we’ve mentioned in previous quarters, the net retention rate may fluctuate from quarter-to-quarter. Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results going forward. Now looking at operating expenses, total operating expenses grew 45% consistent with prior quarters. The increase is primarily driven by investments we are making to capture more of our large addressable market. The biggest component to the spend increase is related to scaling headcount to support our strategic initiatives. We are adding headcount across the Board, primarily in our customer-facing and innovation teams. We’ve been successful in attracting and retaining great talent, and total headcount grew 44% to over 2,200. We generated record cash flow from operations and free cash flow, which yielded an 11% free cash flow margin. We ended the fourth quarter with $1.4 billion in cash, cash equivalents, and short-term investments. I know many of you look at the sum of revenue growth and free cash flow margin as a key metric when evaluating companies. We have significantly outperformed the Rule of 40 for the past two years. This exemplifies the leverage that is inherent in our financial model, as we maintain industry-leading revenue growth while showing steady free cash flow margin expansion. Moving on to our business outlook. We remain optimistic about the demand for our products, but we continue to closely monitor the business environment to date. We have not experienced any impact on our demand related to the coronavirus, and this is reflected in our guidance. For the first quarter of fiscal 2021, we expect total revenue of $171 million to $173 million, representing a growth rate of 37% to 38% year-over-year. Non-GAAP operating loss of $33.2 million to $32.2 million and non-GAAP net loss per share of $0.24 to $0.23 assuming weighted shares outstanding of approximately 123 million. We are increasing our full-year 2021 revenue outlook from the preliminary view that we provided last quarter. For the full fiscal year 2021, we now expect total revenue of $770 million to $780 million, representing a growth rate of 31% to 33% year-over-year. Also, we expect non-GAAP operating loss of $65 million to $57 million and non-GAAP net loss per share of $0.42 to $0.37 assuming weighted shares outstanding of approximately 125 million. Consistent with our approach throughout last year, our bias is to reinvest revenue upside and investments to continue the innovation of our platform, fuel growth, and further enhance our competitive positioning. That being said, we are taking a disciplined approach and will only invest in opportunities that we believe will yield a meaningful return. We demonstrated that we were able to grow responsibly by balancing continued top line momentum with margin expansion and expect to be free cash flow positive again for fiscal '21, with some quarterly fluctuations due to working capital and seasonal factors. We are also planning on capital expenditures of approximately $35 million in fiscal '21 related to new and expanded facilities needed to accommodate our growing Workforce. I would also like to remind everyone for your models, the Q1 operating margin has some seasonality related to expenses for Oktane or our annual sales kickoff, as well as the reset of payroll taxes. In summary, this has been a tremendous year of growth across our entire business. Our industry-leading cloud-based platform is addressing more and more of our customers’ complex use cases as we continue to introduce new products and functionality, and we achieve particular success with large enterprise customers, both a testament to the investments we’ve been making. While the progress we made so far has been great. We believe this is just the beginning and plan to further capitalize on the tremendous market opportunity in front of us. And finally, as Todd mentioned, we’re going forward with our Investor Day in a virtual format. We’ll provide more details in the coming weeks but note that we’ve moved Investor Day to April 1st. It’ll be a great event where you’ll hear more on Okta’s vision and strategy and you’ll have opportunities to ask questions. With that, Todd, Frederic, and I will take your questions now.
Operator, Operator
Thank you. We’ll take our first question from Walter Pritchard from Citi. Please go ahead.
Walter Pritchard, Analyst
Hi, thanks. Question for Frederic, and then one for Todd. So on the sales side, I mean, you saw it’s coming out of your sales kickoff you’re really looking to hire a lot of enterprise type reps. Can you help us understand as you move into fiscal '21 here, sort of how the complexion of the sales capacity additions you’re looking to do in 2021 differs from where things were in '20 and before?
Todd McKinnon, CEO
Yeah, I think a lot of it is consistent. I would say there’s a little bit more of a weight on enterprise, but a lot of it’s consistent. And the one thing we’ve done really well last year and continuing this year is, you know, getting ahead of our sales hiring, which, you know, has been a good testament to our success, and that has been the results. And with our success, we also see hiring Salesforce getting – you know, getting high quality Salesforce on the team is really important, and we’re being very successful with that. So I think it’s a portent positively for the future.
Walter Pritchard, Analyst
Got it. And then just another product question. So on the Access Gateway and just generally, the maturity of some of these products that go after the tools that had previously been available mostly in the on-prem type products, with another quarter of maturity, the products and out of the field selling, what can you tell us about how you’re thinking about that opportunity? And when we may see more of an inflection with attached to those products?
Todd McKinnon, CEO
Yeah, you mentioned a couple of products. We’ve had a really strong year last year in terms of innovation with everything from Dynamic Scale to the couple you mentioned, like Access Gateway or Advanced Server Access. And all the products are doing really well. I would say specifically, Advanced Server Access is an interesting product for us, because it’s really an entirely new use case for Okta – to Okta for admins and developers to log into servers. And as you know, every organization is building more apps, websites, mobile apps and that means they have developers. In a lot of cases, those environments represent a big security risk, and we can help them with that. So that product is doing really well. It opens a whole new flank for us, which is very exciting. Access Gateway is a little different. It’s really, you think of it as extending Okta into the on-premise world and simplifying it, and that helps every customer, but also helps particularly in large enterprise where they all know they want to do cloud, but they also have more legacy than other segments and the Access Gateway is really doing a good job unlocking a lot of opportunities there. So we’re very excited about all the product additions, particularly Advanced Server Access and the Access Gateway.
Operator, Operator
And we’ll take our next question from Melissa Franchi with Morgan Stanley. Please go ahead.
Melissa Franchi, Analyst
Great. Thank you so much for taking my question. I wanted to just put a finer point on the commentary you said on the macro environment. It’s helpful to hear that you’re not seeing any impact in customer buying behavior. But as we’re thinking about your guidance for this year, are you just anticipating that it’s going to be a relatively stable spending environment similar to what you thought in '19? Are you embedding any additional conservatism?
Bill Losch, CFO
Yeah, Melissa. So as we said, or as I said, we’re right now not seeing any impact in our product demand from what’s happening with the tragedy that is the coronavirus. And that’s really what we’ve now reflected in our guidance. We’re obviously going to monitor that very closely. We’ve been very pleased with the product demand, and we’ve been really pleased with the momentum of the business, which is why we raised the guidance for the full year by $20 million at the high end, reflecting 3% growth. And I think that’s how we’re looking at it right now. Obviously, we’re going to, as I said, continue to monitor it very closely, but right now we’re seeing very, very strong demand for our products.
Melissa Franchi, Analyst
Okay, that’s helpful. And I have one follow-up question. Product related question for Todd. Todd, you mentioned Dynamic Scale, and I think there were a number of deals that you referenced in prepared remarks that had Dynamic Scale involved. So can you just talk about what you’re seeing in terms of the early customer interest? And then how it expands your relationship with customers and the external customer opportunities? Thank you.
Todd McKinnon, CEO
Yeah, we’re excited about Dynamic Scale in the Customer Identity business. They go hand in glove because Customer Identity is about reaching lots of concurrent customers using a service, and many customers over the lifetime of the service. Dynamic Scale is perfect for that because, if you think about companies that are doing Customer Identity projects, they want to create an online version of their existing products or a new product. There’s a lot of time to market pressures for them, and it’s difficult to forecast their usage and deal with regulatory issues in terms of environment certification. By using something like Okta, the identity layer in those customer-facing initiatives, it really removes those burdens from companies, whether it’s the regulatory or time to market, letting them get out there faster. Sometimes it can be unpredictable, but Dynamic Scale helps to alleviate those uncertainties. Customers are very excited about it. I mentioned Autodesk in the prepared remarks. Another example is athenahealth. These are companies that are remaking their businesses as online services, and having a partner like Okta with capabilities like our Customer Identity Solutions and Dynamic Scale will help them.
Operator, Operator
And we’ll take our next question from Heather Bellini with Goldman Sachs. Please go ahead.
Heather Bellini, Analyst
Great, thank you so much. I had a question for Bill and then a question for Todd. Todd, I wanted to ask, we’ve been hearing from people discussing Microsoft lately. They’ve been trying to talk about how Azure Active Directory has been increasing its number of API connections and that the product is becoming more competitive. And then, Ping was talking about the competitive landscape last night on their call. I was just wondering if you could share with us anything you’re seeing that might be different. And I guess, specifically also related to Microsoft, given some of the comments they’ve made recently? And then the question for Bill would be, Bill, we continue to see obviously really strong and accelerating current RPO growth, which obviously is a good deal higher than billings growth. And I know those metrics bounce around from time to time. There’ve been periods where that’s been reversed. But is that what you would expect to see like kind of that type of delta that we’re seeing right now to continue between those two? If there’s any comments you could share with us to help us on that, that would be great. Thank you so much.
Todd McKinnon, CEO
Yeah, it’s interesting. As we’ve said a couple of times, the demand environment and the market for our products is very, very robust. There are more deals, bigger deals, and our product seems to be really well positioned. We haven’t seen the competitive environment change. It’s been consistent over the last several years. I would say the last change was a perceived change when Microsoft first released their product five or six years ago. That actually accelerated things. It really put a fine point on the importance of identity. Over the intervening years, they’ve talked about it a lot but we haven’t seen it in the market. We haven’t seen traction in the market. I don’t follow their numbers, so I can’t comment specifically about those things. What we’ve seen is that companies have really complex and heterogeneous environments. We excel at connecting customers to everything in their stack. I was talking to a customer this week, and they’re moving 8,000 applications onto Okta. A lot of these are internally developed. This is a big company. You need a focus on doing this for over a decade to build the platform and the capabilities to do that. You have to start it in the cloud to have a centrally managed identity integration network like we do.
Frederic Kerrest, COO
Hey, Heather, this is Frederic. I would just add that from our perspective, the world has really separated into legacy and cloud. We’ve always felt that the cloud is the future. Many of our competitors like Ping fall into that legacy bucket. You see that demonstrated in our win rates, new customer accounts, and also the independence and neutrality that Todd mentioned is a big factor. First, folks do not want to be locked into a specific vendor, which you see in our business metrics published in January. Over 75% of our Office 365 customers are using other collaboration best-of-breed applications. The future is hybrid, multi-cloud, and lots of applications in a heterogeneous environment. You need to connect deeply and broadly into the technologies that people use without being tied to a specific application or stack. Finally, Okta Access Gateway is doing very well and being part of the Okta Cloud Identity suite differentiates us. We provide a pre-integrated solution for our legacy large enterprise customers to connect in a modern way to the cloud.
Bill Losch, CFO
To address your question about the correlation between billings and RPO, the reason we started to focus on current RPO last year is that it smooths the significant variability and billings driven by invoice timing and duration. Especially when dealing with larger customers, this variability can be more pronounced. That’s why we thought current RPO was a good additional metric to look at. It’s difficult to say what the correlation will be over time because of the variability in billings.
Operator, Operator
We will take our next question from Sterling Auty with JP Morgan. Please go ahead.
Unidentified Participant, Analyst
Hi, guys. This is Matt on for Sterling. Thanks for taking my question. On the geographic split, the international portion had a nice reacceleration this quarter. Just was wondering, were there any specific regions that you guys saw increased demand? And then going forward where are you focused in terms of what’s next?
Todd McKinnon, CEO
Thanks, Matt, for the question. The growth you’re talking about is driven by strength across all regions. It’s still early, but we’re starting to see really good traction with notable international customers. If you look at the last few years, we’ve opened and expanded five international offices: Stockholm, Munich, Amsterdam, Paris, and Toronto, and we’re going to continue to expand that footprint. We think there’s a very large opportunity internationally, something we’re focused on both directly and indirectly with our partner channel. We’re very excited about that and I think you’re going to continue to see that growth in the coming months and years ahead.
Operator, Operator
And we’ll take our next question from Rob Owens with Piper Sandler. Please go ahead.
Rob Owens, Analyst
Great and thanks for taking my question. A couple of things. Number one on the net retention rate, and while I know, Bill said it’s going to bounce around a little bit, it did reaccelerate in a fourth quarter where actually your customer acquisition was really strong too. So was this just kind of a function of a Q4 where you saw a flush or was there more focused on both existing customers and strong momentum on the customer acquisition side, I believe that reaccelerated after a couple of quarters of being somewhat flattish year-over-year? Thanks.
Bill Losch, CFO
What’s driving that is, you’re right, we are now seeing both the dynamics of acquiring more large enterprise customers, which do have larger deal sizes. But we also saw in Q4, strong expansion within those customers. What’s exciting is that moving into larger enterprises presents opportunities for larger initial deal sizes and more expansion over time. That’s really what drove the increase in the net retention rate this quarter.
Operator, Operator
We’ll take our next question from Andy Nowinski with DA Davidson. Please go ahead.
Andy Nowinski, Analyst
Great, thanks. Congrats on the great quarter again. Maybe just one question for Todd, and then one for Bill. So customers that spent more than $100,000 this quarter again increased 41%, which is tremendous. And I think you said half are new. Are those new customers starting with more of your products on the initial deployment? Are you just getting into larger enterprises with more employees?
Todd McKinnon, CEO
It’s both. Yeah, with the new products and innovation, we have more ways for customers to get started, whether it’s Customer Identity, Workforce Identity, or Advanced Server Access. Also, the bigger companies have larger employee bases and even a single product buy can be bigger compared to a smaller company. Both dynamics are driving growth. Additionally, throughout the company, we’re focused on making our customers successful. Even companies with large initial deals can substantially expand their use of our product portfolio. Our long-term orientation around making customers successful and turning them into fans is starting to pay off. We’ve been doing this since we started and it’s becoming evident in metrics like net retention and the number of deals over $100,000.
Frederic Kerrest, COO
I would just add to that, Andy, if you look, we put out a press release related to successful deployments, as it’s one thing to acquire new customers but getting them live and successful is more important. We had Zurich North America standardizing on Okta across 9,000 employees and migrating authentication for over 45 customer and partner apps in less than two months. These large organizations with complex environments can get up and running fast and their success drives opportunities for both cross-sell and upsell in the future.
Andy Nowinski, Analyst
That’s great. Thanks, guys. And then just a clarification mainly for Bill. It looks like your revenue guidance for Q1 is almost 2 points higher than normal seasonality, I think normally it’s right around 22% of the total for the year. Is there anything changing in the buying patterns or is that just a reflection of perhaps some conservatism in your annual outlook for Q3 and Q4?
Bill Losch, CFO
No, I think what you’re seeing, Andy, is a couple of things. First, we had a lot of momentum coming out of Q4, which saw a significant increase in our current RPO that accelerated from 52% in Q3 to 54%. This acceleration in billings is translating into revenue for Q1. Also, it’s worth noting that this year is a leap year, which gives us one more day of revenue recognition in Q1, so that also has an impact.
Operator, Operator
And we’ll take our next question from Gregg Moskowitz with Mizuho. Please go ahead.
Gregg Moskowitz, Analyst
Thanks very much. Congrats on a really nice quarter, guys. Just one question for Bill. You accelerated your rate of hiring this year as you had intended, but how are you thinking about fiscal '21 headcount at this time just vis-a-vis or, you know, current expectation to grow revenue low 30 this year?
Bill Losch, CFO
Like you said, we had an acceleration of headcount as we moved into the second half of the year, with 44% growth compared to 40% in the first half of the year. We’re going to continue to focus on hiring. Our expectation is to hire more in fiscal '21 this year than we did last year, although the growth rate will come down a bit, because the base is higher. But we’re still focused on hiring and growing that headcount, because it is key to our investment in go-to-market and innovation to capitalize on this huge market opportunity we see in front of us.
Operator, Operator
We’ll take our next question from Jonathan Ho with William Blair. Please go ahead.
Jonathan Ho, Analyst
Let me echo my congratulations as well. Todd, I just wanted to start out with one question. You talked about Oktane customers now making the company their identity standard. You’ve referenced this in a few other calls as well. What does that mean to you in terms of multi-product adoption as well as the use of Okta for their own suppliers? I just want to get a sense for how you think about Okta as an identity standard. Thanks.
Todd McKinnon, CEO
What’s really different in this generation of technology is that we live in a world where every platform had identity in it, whether it was Oracle apps or Microsoft networks or IBM, they all had identity in there. We’ve shifted to a world where, because of complexity and best-of-breed pressures, organizations need a single identity platform to scale and transition from on-premises to the cloud quickly. When I say a company has moved to Okta as a standard, it means they’ve adopted that mindset. More companies are standardizing on us, which has positive follow-on effects, like partners logging in and connecting various ecosystem members, which ultimately drives more success for us and our customers. This is important to execute on our long-term strategy and we’re excited about the progress.
Frederic Kerrest, COO
I would just add that what you see in that is there’s a lot of things. First, the dollar-based net retention number clearly points to the customers becoming successful and adopting more and more. It’s also why we’re focused on getting customers up and running and successful quickly, so they can demonstrate internally the benefits of standardizing on us. Organizations like NG, a giant energy company, are using us across multiple areas. This is a huge opportunity for us that is incredibly beneficial for them moving forward.
Richard Davis, Analyst
Hey, Thanks. Just a quick question. Last summer, I think you guys announced HR provisioning. As I recall, your first partnership was with Workday. How’s that gone? Have you added additional HR firms to your roster for this product? Thanks.
Frederic Kerrest, COO
Thanks, Richard. The opportunity to use modern HR systems to drive deep end-to-end advanced workflows is huge for us. It’s very early days, but it’s gone very well with Workday as well as other providers like Ultimate Software. You see good examples of how this plays out with our customers. You heard Todd mention NTT DATA, which added products this quarter. They started with Single Sign-On and have now adopted Lifecycle Management and Workflows to address their onboarding and offboarding processes. You’ll see more of this as companies realize the value of these modern cloud applications.
Operator, Operator
We’ll take our next question from Taz Koujalgi with Guggenheim Partners. Please go ahead.
Taz Koujalgi, Analyst
Hey, guys. Thanks for taking my question. Two questions. One is, if you look at the new customer revenues this year, it looks like you had a big uptick in new customer deal sizes adopted because you’re landing bigger customers initially, but the new customer growth was a bit lighter than last year. So as we look forward to next fiscal year, how do you expect those to go? Do you think initial customer deal sizes will keep going up, or do you see them flatlining? And then second, Bill, your margin guide for fiscal '21 implies just being flat operating margin at negative 8%, which is the same as this year, and we have a long-term fiscal '24 margin guide of 16% to 18%. Any comments on whether you’re still on track for those fiscal '24 margin targets?
Bill Losch, CFO
The trends you saw this year show that we were still doing significant customer adds, hitting a record with 550 total customers and 142 customers paying more than $100,000. We’re seeing healthy adds, but also larger initial deal sizes, which is reflected in the RPO. This should continue as we move towards landing larger enterprise customers for larger contracts. Regarding margins, we expect our move to profitability to be back-end loaded, focusing on growth and profitability simultaneously. We’re balancing revenue growth with free cash flow margin expansion as we consistently outperform the Rule of 40. We will make disciplined investment decisions to drive go-to-market and innovation while achieving meaningful returns. That’s how we will continue to operate.
Operator, Operator
We’ll take our next question from Shaul Eyal with Oppenheimer. Please go ahead.
Shaul Eyal, Analyst
Thank you. Good afternoon, gents. Congrats on the quarter and the outlook. I had one question regarding the journey into the enterprise compared to the SMB space. Can you discuss the typical sales cycle into the enterprise versus SMB?
Frederic Kerrest, COO
Sure, happy to do that. What we’ve found is with large organizations, we don’t go in with a forklift upgrade approach. We help them understand specific ways to get successful quickly on the Okta Identity Cloud. When we meet with a Fortune 500 CIO or Chief Security Officer, we approach them with a focus on their immediate needs. This allows for quicker engagement and ultimately helps in establishing our value. It’s a bit longer of a sales cycle for large enterprises due to their procurement processes, but we still see opportunities just as much as with smaller organizations looking for similar interior use cases.
Keith Bachman, Analyst
Hi. Thank you very much for taking the question. I wanted to dig into customer metrics. Any metrics you can give us on growth rates? Additionally, can you comment on what percent of your core business have you penetrated with customer identity? Is that one of the ways that you’re keeping and growing net retention? Also, are there different dynamics in the competitive landscape between customer identity as opposed to employee side?
Bill Losch, CFO
The Workforce segment remains the majority of our business. The coverage we have within a customer depends on their size and complexity. Many of our customers are using multiple products when they first come on board, providing opportunities for upsells. Customer Identity is growing at a faster rate than Workforce Identity but contributes less overall. There remain many opportunities in both segments, as we focus on expanding within current enterprises.
Frederic Kerrest, COO
As Keith noted, we have a long way to run inside the organizations we currently serve. With nearly 8,000 enterprise customers adding about 550 a quarter, our penetration remains low regarding potential accounts to work with and opportunities to grow within existing accounts. In terms of competition, Customer Identity presents a different landscape than Workforce, mainly due to a build-versus-buy conversation. Historically, enterprises have mainly set up basic identity systems internally and there’s a heavy lift in making those effective. Our experience indicates that companies need to move fast to respond to competition, which drives demand for our solutions.
Operator, Operator
And we’ll take our last question from Alex Henderson with Needham. Please go ahead.
Alex Henderson, Analyst
Thank you for taking my question. I wanted to ask about the cancellation of live attendance at Oktane and its impact on your pipeline of leads. How do you think about the difference between your normal 8,000 attendees and doing this online? Also, what are you doing regarding grounding salespeople and whether customers are resisting sales visits?
Bill Losch, CFO
We are right on top of the unfortunate coronavirus situation and ensuring we’re prioritizing the health of our customers and employees. We thought carefully about the implications of switching Oktane format; however, it was a clear decision once we saw the need for safety. Being able to switch to an online format allows for additional registrations beyond what would have attended physically. We’re confident that breaking down barriers will yield a successful outcome. Other than that, the demand for our products is robust, and sales meetings are proceeding as normal.
Todd McKinnon, CEO
We’ve benefited from the five weeks we had to adjust our strategy. We’re excited for the keynotes and breakout sessions coming up.
Pat Walravens, Analyst
How do you think about Okta Ventures and what it’s supposed to achieve? Are you modeling it on something like Salesforce Ventures?
Frederic Kerrest, COO
Okta Ventures is focused on keeping a close eye on emerging technologies centered around identity, security, and privacy. We’re looking at early-stage investments similar to what Salesforce Ventures has done, but we are still in early days. We’ve done five investments so far, including companies like Trusted Key and Occam, focusing on innovation while building relationships.
Pat Walravens, Analyst
When it takes longer than expected to get a customer up and running, what are the usual hang-ups?
Frederic Kerrest, COO
What can hold up deployment is when a change agent comes in and wants to accelerate their move to the cloud but grapples with legacy infrastructure. They might buy new solutions but struggle with integrating new ones. Change management can also affect timing, as large companies need to adjust to a new way of doing things. Lastly, we often do extensive testing to ensure everything is perfect before going live with customer-facing initiatives.
Operator, Operator
And this concludes today’s question-and-answer session. I’d like to turn the call back over to Mr. Gennarelli for any additional or closing remarks.
Operator, Operator
Thanks, operator. We’re hosting our Investor Day on April 1st and I’ll be sending out more details with specifics in the coming days. Thanks again for your time this afternoon.
Operator, Operator
Once again, that does conclude today’s conference. Thank you for your participation. You may now disconnect your phone lines.