Okta (OKTA) Q2 2027 earnings call transcript

Hello Octane! We are thrilled to have you here for the most important AI security event of the year. The next decade will be defined by how we secure AI.

We got a lot of AI agents. I think it's time to put some Octane on them. We have some of the brightest minds in technology all here this week to focus on AI security. We're going to have a good time this week.

With Octa, these rogue agents have nowhere to hide. The next chapter of identity security is here, and it's up to us to lead it.

Hi everyone. Welcome to Octa 2nd quarter of fiscal 2027 earnings webcast. I'm Dave Generally, Senior Vice President of Investor Relations at Octa. Presenting in today's May, we'll be Todd McKinnon, our Chief Executive Officer and Co-Founder, and Brett Tye, our Chief Financial Officer. Eric Kelleher, our President and Chief Operating Officer, will join the Q&A portion of the meeting. Around the same time that the earnings press release at the wire, we posted supplemental commentary to the IR website.

Today's meeting will include forward-looking statements pursuing 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 section-tunnel risk factors in our previously filed Form 10K.

In addition, during today's meeting, we will discuss non-GAP financial measures, though we may not state it explicitly during the meeting, all references to profitability are a non-GAP. These non-GAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAP. The reconciliation between GAP and non-GAP financial measures and the discussion of the limitations of using non-GAP measures versus their closest GAP 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 numerical growth changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-of-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. Our Q2 financial performance was driven by broad-based strength across our core workforce identity and customer identity platforms, particular areas of strength were once again with large enterprises, partner engagement, and contribution from our newer products. This afternoon I'll walk through the strength of our core business, the momentum of our portfolio of new products, and our investments in product innovation and breadth. And finally, with AI security remaining top of mind for our customers, I'll share the advancements we're making with AI product development and early customer wins.

We were pleased to see an acceleration in annual contract value growth for both workforce identity and customer identity, driven by strong execution and sales productivity. Additionally, the emerging use of AI by organizations and threat actors alike has further elevated the role identity plays within a company security posture. Organizations are accelerating their infrastructure modernization timelines to address this heightened threat environment, and we're seeing conversations that begin with securing AI broaden into identity modernization initiatives.

Our portfolio of new products are an important and fast-growing component of our solution set. In Q2, new products represented approximately 30% of bookings. Oct identity governance was once again the leading contributor. On average, the ACV uplift when any of the new products are included in a deal is about 40%. Product innovation is a primary investment area aimed at accelerating top-line growth.

Those efforts have already resulted in faster product velocity, including advancements in our AI products and in the public sector. We're excited about the launch of Agent Gateway, which enforces policy at runtime and delivers vendor-neutral protection across platforms and clouds, including cloud code, cursor, GitHub co-pilot, Salesforce, Agentforce, and any agent pointed at an MCP endpoint. The public sector has been one of our best performing verticals over the past few years.

We looked to build on this momentum with the general availability of Octa for AI agents core. With this new SKU, Octa became the first independent neutral identity platform to bring AI agents governance to highly regulated environments, including FedRAMP and HIPAA. We're also unlocking more U. S. federal opportunities with the recently earned Impact Level 5 or IL-5, the highest level unclassified cloud authorization for the U. S. Department of Defense.

Achieving IL-5 authorization is a critical milestone as defense organizations aim to meet the DoD's 2027 Zero Trust mandate. In addition to our organic product innovation, we have a successful track record with our tuck-in acquisition strategy, which helps accelerate our product roadmap. We just completed the acquisition of PRMISO, a cloud-native identity security platform that detects and mitigates threats across human, non-human, and agentic identities in multi-cloud environments.

PRMISO will be integrated into a unified security offering with our existing ITP and ISPM solutions. The combination strengthens Octa's AI security offerings, with enhanced visibility into autonomous agent behaviors and additional runtime controls to ensure secure agentic activity in real-time.

While there's been a lot of talk by other companies about identity security for AI, Octa has generally available products that are already delivering real value for our customers. Octa's proven leadership and identity uniquely positions us to secure the AI era. Identity is the primary control plane for securing AI, and customers are extending the trusted foundation they already rely on, with Octa's neutral, modern, enterprise-grade identity platform to now cover agents.

We continue to build on three unique advantages to help our customers navigate the shift – distribution, product breadth, and neutrality. While adoption remains in its early stages, momentum is growing, and those advantages are translating into customer demand reflected in the dozens of AI deals we won in Q2. Our product breadth was a key driver in securing a multi-million dollar Octa for AI agents deal with a Fortune 50 healthcare company. AI was spreading across their organization, and they couldn't tell where their agents were, what those agents were connected to, and what they could do.

Octa will give them a single control plane to discover, secure, and govern those agents, helping them meet strict HIPAA compliance requirements. Octa will manage their entire identity fabric, including agent governance, privilege access, and identity security, helping to ensure every human, non-human, and agent identity is managed. Our distribution advantage comes from the reach and trust we built as the identity system of record for more than 20,000 customers.

We saw it at work with a global business management consulting firm that was racing to put its own AI agents into production. After considering an in-house build, the firm chose Octa for AI agents for its single control plane for human and non-human identities, faster deployment, and lower cost of ownership. Octa will carry the agents' identities through every handoff binding the agents to the original employee's delegation with a verifiable record that can satisfy client and regulator requirements.

Our neutrality was critical to an Octa for AI agents deal with one of the world's largest asset managers, where AI was rolling out faster than their security team could govern. Thousands of agents from multiple vendors were running to production, creating risks the organization couldn't consistently see or control. Only Octa's independent and neutral platform could cover their heterogeneous environment from employees and devices to AI agents without vendor lock-in. Octa will provide visibility across all agents and enforce least privilege access so every agent gets only what it needs. The common theme across these three wins and the other AI deals we've closed is that customers want to move quickly without compromising on security and control.

Octa for AI agents lets them do both by helping them discover, govern, and protect every agent. More broadly, the fragmentation of the AI landscape creates significant opportunities for Octa, as enterprises deploy agents across models, clouds, applications, and infrastructure. They need a neutral identity layer that can secure it all. That's why we partner with industry leaders including Anthropic, which this quarter named Octa, the first identity provider supporting enterprise managed auth for MCP connectors.

Now generally available, enterprise managed auth enables IT teams to centrally authorize and govern how cloud connects to enterprise applications. We also recently expanded our work with AWS, Cisco, OpenAI, Databricks, and Snowflake. Alongside more than 25 new cross-app access integrations, providing a standardized way to govern how AI agents connect to a growing ecosystem of enterprise applications and resources.

In just a few weeks, we'll talk more about AI security and product innovation at Octa and our annual customer conference. We'll bring the markets leaving minds together to lay out the industry blueprint, open standards, and new innovations required for building the secure edge of enterprise. In addition to the keynotes and product demos, we will host a Q&A for analysts and investors.

Come join us in Las Vegas or join us online for the AI security event of the year. To wrap things up, we're pleased with the strength and durability of our core workforce and customer identity businesses. And we're enthusiastic about the early success we're having with our AI products, as customers recognize our advantage as the leading neutral modern identity platform. It was a strong start to the first half of FY27.

And we look to build on our momentum as we move through this year and beyond. I want to thank the entire Octa team and our loyal customers and partners who put their trust in us every day. And now, here's Brett to cover the financial commentary.

Thanks, Todd. Thank you everyone for joining us today. Our strong Q2 financials build on the momentum we've generated over the past several quarters. We continue to focus on operational efficiencies throughout the organization while driving top line growth by investing in product innovation, go to market in our partner ecosystem. As a result, we experienced acceleration in many of our top line metrics while also maintaining very healthy profit and free cash flow margins.

I'll provide insights into our Q2 performance and then move into our outlook for Q3 and FY27. Q2 was a record bookings quarter for a non Q4, driven by strong pipeline conversion and deal expansions. We continue to see productivity gains within our go to market organization aided by our stable sales force that has low attrition and high AE tenure rates. Strength with large enterprise customers was punctuated by over 20% growth in $1 million plus ACV customers.

We now have over 600 customers with greater than $1 million in ACV. Additional areas of strength included our upsell and cross-sell motion and pipeline build. The investments we've been making into our partner ecosystem are resulting in positive outcomes for the business. When our partners are involved, our average deal size is bigger and the close rates improve. Channel partners were engaged in all of our top 20 deals in Q2 and our biggest deal of the quarter was partner sourced. At the beginning of this fiscal year, we made the decision to shift more of our professional services business to our GSI partners.

This change is reflected in the decrease in Q2 professional services revenue to approximately 1% of total revenue. We believe this change will lead to greater long-term benefits to fuel top line growth by deepening the relationship with these important partners in increasing our business with large enterprises.

Moving on to our balance sheet and capital allocation. We had another strong quarter of cash flow in Q2. While Q2 is typically our seasonal low for cash flow, it was much better than expected based on strong operating profitability and collections.

We ended the quarter with a healthy balance sheet consisting of approximately $2.3 billion in cash, cash equivalents and short-term investments. In June, our convertible notes reached maturity and we settled the remaining principal amount of $350 million in cash. Octa no longer has any convertible debt on the balance sheet. Over the course of Q2, we repurchased a retired approximately 1.5 million shares for a total cost of $125 million.

$555 million remains under the $1 billion repurchase program. We continue to regularly evaluate Octa's capital allocation priorities to ensure we're well positioned to deliver sustainable long-term value to our shareholders.

Now let's turn to our business outlook. We continue to take a prudent approach to Ford Guides. For the third quarter of FY27, we expect total revenue growth of 10%, current RPO growth of 11% to 12%, non-gap operating margin of 24% to 25%, and free cash flow margin of 21% to 23%. For the full year FY27, we now expect total revenue growth of 10% to 11%, non-gap operating margin of 26%, and a free cash flow margin of 28% to 29%. As a reminder, the FY27 revenue guidance includes about a one-point impact related to a strategic decision to shift more of our professional services business to our GSI partners. In addition, the FY27 free cash flow margin guidance includes about a one-point impact related to lower interest income due to the stock repurchase program and our cash settlement of the remainder of the 2026 notes.

To wrap things up, we're pleased with the first half of FY27 and are optimistic about the trend we're seeing in the business. We're investing for growth while remaining disciplined with our cost structure. Our strong core business and growing portfolio of new products provides the foundation to extend Octas leadership and identity security. We're well positioned to deliver profitable growth for years to come.

With that, I'll turn it back to Dave for Q&A. Dave?

Thanks, Brett. There's quite a few hands raised already and I'll take them in order to the top of the hour. And in the interest of time, please lend yourself to one question.

It was an amazing quarter on a lot of fronts. Specifically, one of the highlights is our place in the ecosystem. Our place in the ecosystem is super important and super strategic. And it's not just me saying that I think it's in all these customer conversations. I'm having many, many customer conversations and flying around meeting these customers that are trying to solve these security challenges in general, particularly around AI agents. And they see us as like the natural, naturally well positioned to secure this agentic future.

And so we're going after that on all fronts. Octa for AI agents is the main product front there. But it's also in short term, we can solve these problems in a lot of different ways. We can help them roll out agents today. We can give them visibility. I think longer term is something we're working on as well. I think longer term, the entire industry needs to work better together. The industry right now in security, everyone's coming at the customer saying they have the only answer. They can secure agents. They're going to be the one to do it. And the reality is it's going to take us all working together.

And so Octa has been working on these calls, the last five or six calls. We've talked about standards and ecosystem. And we made a huge step forward in terms of one of the main standards we've been working on, which is the standard we've talked about called cross app access. And so the huge step forward this time is when the biggest AI agent in the world, CLOD, is supporting cross app access. They released Enterprise Managed Auth, which is the first time an AI agent has been compatible with this protocol. And Octa is the first identity provider to support this protocol. Now it's an open protocol, so we hope every identity technology and company supports it. And we hope every other AI agent supports it.

And then also everyone in the resource side of the equation is starting to support it as well. We announced 26 top SaaS vendors are supporting from a resource perspective this protocol. So this is one example of many things we're going to be doing in the ecosystem to make this whole world fit together better, because that's what customers need. We need to stop everyone confusing the customer by saying one company is going to do it all and start defining how we can all work together to bring concrete solutions to these customers. In terms of like where the products stack up in the quarter we had, as I mentioned, a quarter was strong across almost every dimension.

Particularly strong was the 30% of the new bookings were from new products. Octa for AI agents inside of that bucket, there were dozens of deals in the quarter, including several million dollar plus deals, which is super exciting. But the reality is it's still very early. We do thousands of transactions every quarter. And as exciting as that is, Octa for AI agents, it's still too small to show up on the numbers right now.

But going forward, especially over the next couple of years, we're super optimistic. We think this being the system of record for agent in the enterprise and being the system of record for agent identity. In the fullness of time, it could be the biggest category of cyber. That's how bullish we are on it. It's going to take us some time to get there.

But I think we're off to a good start.

Yeah, I would just add, Eric. Like Todd said, we did close to a million dollar deals in the quarter, and we've got dozens of customers. But what I said last time around, the average deal size for AI deals being bigger than the average deal size for the rest of Octa, that still remains the case. But like Todd said, it is very early on. We are still very, it's a very nascent opportunity for us. And so looking forward to continuing to execute against that opportunity going forward.

Yeah, we'll take the next question from Jeffries.

Thanks. Two interesting trends there. First is that the biggest competitor is confusion. We're competing against confusion. So our solution has to be clarity. And customers are confused because there's so much excitement and so much opportunity in AI. It's the natural tendency of every vendor to say what we are doing and what we've done in the past is critical to AI.

We have the answer. We have the one answer. And I think that confuses the customer because they have 17 vendor meetings and every vendor tells them they have the right answer. So one of the things we're very focused on is getting close to the customers and learning from them and pouring that quickly back into our product roadmap.

And that process not only enables us to build a better product, a product that will deliver value to their customer and cut through the hype, it also that those experts on the ground help clarify in the customer's mind what needs to be done. And the simple fact is that it's a big trend. AI security is going to take a lot of different vendors working together.

And we don't have all the answers, but what we do know is that there are some no regrets investments. We know that every customer is going to have to figure out where their agents are. They're coming from all over the place. They're going to have to figure out what they can connect to. And they're going to have to figure out what they can do.

And no matter what happens at the model layer, the platform layer, the app layer, if applications build their own agents, or they get disrupted with agents, what the companies build themselves. That's all going to unfold. What model is the best as an open source model? Is it a frontier model, some company? And that's all going to unfold as it will over the next several years. But the no regrets decision is you have to have this foundation of where am I agents?

What can they connect to and what can they do? And this no regrets decision is what's leading to this momentum. It's leading to these dozens of deals, these million dollar deals. And they look at us as they say, hey, you know, most of the use cases for agents now, they're working on behalf of a user. They're automating workflows, helping users. And so it's a very natural place for the identity provider across enterprise to step in there and answer these questions.

One thing I would add to that is in addition to the agentic competition and the confusion and Todd really well articulated the conversations we're having with customers right now in that front. In addition to that, the overall core business also had a very strong quarter in every category. And as we talked about our workforce strength and customer identity strength and the competitive dynamics there, our differentiators remain the same as they've been. We have broad distribution with over 20,000 companies that already trust Okta to secure identity for their humans, to secure identity for their service accounts. And having an adjacent conversation about how we are now also going to be able to secure identity for their, their agents as they're deployed is a natural extension for us and it's how we can bring clarity to that overall conversation.

So that distribution helps our neutrality has always been a key differentiator for us as well. You hear us talk here about how we have over 8,000 integrations. Todd talked earlier about the expansive partnerships we have in the AI space and with the frontier models and technology providers, the platform providers and the hyperscalers. Our customers know that their their stack is going to evolve and they know that they're going to need to work with all of these technologies because they're advancing so rapidly.

And Okta is the neutral provider that allows them to work with all of that. And so the standards that Todd mentioned, the distribution we have, the neutrality that we have, all positions us very well to be able to to win this next opportunity.

Thanks, Eric.

And like you said, the materiality of the AI contribution, the business is, you know, three billion, roughly in revenue. And you saw the CRPR growth, it's a big number. And so we're optimistic about it moving the needle on that. And we think we're on the right path. And one interesting thing is that I'm not, you know, the conversations I have, it's kind of like, it's almost like an infrastructure foundational conversation.

It's not necessarily like, oh, a breach happened and now we're reacting. So I think that's good for what you said, because I don't want a big breach to like knock this all down the industry. I want customers to proactively put these no regrets investments in place and then have the right foundation to be successful. So I'm optimistic that that kind of we're on the right track there in terms of like clarifying the message for customers, having the right product in the market. And by the way, you know, one of the things that's true and helping cut through the confusion is that we have a GA product.

It's been generally available for a couple months now. That's, that's pretty rare, actually. If you go around and ask all the vendors, is your product generally available? You get no a lot of the times. Or it's an acquisition that's kind of still running as an acquisition. So we have a generally available product. We've shipped 24 significant enhancements to that product in the last two minutes, the last two months. We're moving fast. We're innovating. We're listening to customers.

And we're trying as hard as we can to make sure we turn this into solid top line acceleration across the board as soon as possible.

Is it just about all of them? Is it half of them? And because that'll just try to understand timing a little bit. We have a one of the things we put the organization in place to like I mentioned, we have a dedicated expert team in the field helping customers have these conversations.

And as many smart, motivated people as we put in that team to have these conversations, we fill up their calendar and they're working six days a week, 12 hours a day. And we keep adding people and keep filling up the conversations. And that's leading to this record pipeline we have. Last year we talked about, or last quarter we talked about record pipe. The pipe is even bigger.

And there's more pipeline. Now the question is how fast it will convert, right? And we don't have four years of history on conversion. So when we think about the future, there's obviously a some degree of being prudent about how fast that's going to convert. But the pipeline's there. Now it's up to us to take this generally available product and convert it as fast as possible.

And John, this product went GA on April 30th, right? So 90 days ago. So it's relatively new. But to your question around how many customers and a staff that might be valuable for you and we published this, I think with our post a common commentary today. Recent surveys we run across our customers, 81% of the CSOs that we talked to are aware right now that they're exposed with agents deployed in their enterprises, where they do not yet have an adequate security platform in place.

So very high percentage of our customers know that they have the need. And as Todd mentioned, our teams are working aggressively to schedule as many customer conversations as we can to make it really clear how we can help. So this has been very pleased with what we've seen in YouTube. Great. Nice. Nice job, guys.

Thanks.

You see the 22% growth in million dollar plus customers. It's a large enterprise that has been for several quarters is a very important part of this performance of the business. The second thing I would say is that we're the only identity vendor with this broad range of products. You see the 30% of bookings and new product introductions. That's a little bit of AI governance, privilege, identity threat protection.

We have this broad platform of products, and you're seeing that really shine. So this message of you can get a, you can buy from a one stop shop for identity. I was having a conversation with a large fortune 25 customer yesterday. And they have 200 identity vendors, 200.

They're already paying a significant amount of money for the part of their identity we're doing. But that, I mean, 200, they could replace, they could save tens of millions of dollars by standardizing us on us across the board. And we're the only identity vendor that could do that. Everyone else has a silo, whether it's just access management or it's really tied to their own stack or it's very, you know, privileged or governance.

We're the only one that has that breadth of products. So that's very important. And then the third thing, which is, which is really exciting is that these conversations about AI and our ability to help clarify how they can secure AI and how this ecosystem can fit them, can fit together to help them secure. It's catalyzing change conversations that are resulting in deals for other products.

So you might go in and have an AI conversation and they're like, you know what? We've been talking about upgrading our governance legacy product for six years. We just have to do that. Oh, and by the way, we should probably think about customer identity. And so you're starting to see that happen. So that's not an AI deal per se, but it's kind of like a large enterprise that has a bunch of vendors that wants to take out. And it's coming to the company that seems smart about AI and has a GA product and has real success there. And by the way, it has a large platform. It's a powerful combination.

Okay.

And then maybe the second part to that question is just, you know, 15% short term bookings growth year to date sounds like most of that is not from AI. But how do we think about the durability of that growth profile, you know, when I really starts to layer into the model. I think well, for the first part of your question, we, we absolutely believe that the exposure our customers are feeling to agents proliferating in their organizations and not yet being able to secure them is starting a lot of conversations and those conversations as Todd just mentioned and ensuring they have the identity security fabric, the platform that can solve all those use cases that's absolutely part of the conversations that we're seeing evolve with customers.

In that sense, the agent conversation is bringing a more acute awareness to perhaps their lack of readiness and their need to find an identity, a secure identity partner that they can have confidence is going to solve for their challenges both today and in their roadmap in the future. So that's absolutely something that that we think is contributing. But overall, as you look at the core business and Todd and Brett mentioned this, we saw strength of market and the million dollar and a hundred K plus cohort. We saw strength down market. We saw strength in public sector, our largest deal of the quarter was a public sector deal.

So we continue to have confidence in the durable strength of the core business as we're also starting to convert the pipe we talked about in Q1 and continued to build in Q2 for these new AI products that have come out. And as mentioned with with multiple million dollar wins just in this first quarter of availability.

I'll give you a very specific example. I was a couple weeks ago. I was in Pennsylvania talking to a large customer of Octo. It's a retailer. And the conversation was about a big M&A they were doing and the company they bought had a legacy identity provider. And the conversation I had was all about AI agents, Octa for AI agents, how we answer these three questions. And that conversation and the POC and the sales cycle that's just starting there absolutely helped us win the consolidation business to consolidate the acquired company all on Octa. Because it wasn't on Octa, that legacy identity. And of course, when you kind of bring a big company in like that, everyone wants to evaluate which vendors should we use.

You know, is this better for this? And that AI conversation catalyzes the whole thing to be hey, Octa knows where they're going. And they're the leaders here. Let's just get rid of all that old stuff and standardize on Octa. So that's a very concrete example of this phenomenon you just outlined in the abstract, but it's for sure happening day to day.

Yeah, I mean, you hit the nail on that Rudy Q one and Q two this year. I've been quite strong and Q two like we talked about record non Q four bookings record non Q four bookings quarter for us. It was really good.

So when we think about the guidance going forward, you know, we're applying the same guidance philosophy we have for several quarters. Now we've talked about getting closer to the pen.

So that's really that's pretty quite it's quite simple right with a great quarter and Q two great quarter and Q one Q three were applying that same guidance philosophy. So no change in terms of any of the variables that you just mentioned.

Is that also pulling a lot of these evaluations towards other areas, as you said, and customers wanting this no regret quote unquote durable economically scalable playing across humans and agents and it's a couple of questions but yeah. Yeah, I think they're about three in there let me let me approach first one and then Todd and Brett can comment comment on the second. The we absolutely believe that the uncertainty in the market right now around that customers are faced with in fact I was with a customer event last week abroad and had an opportunity to talk to a half dozen CSOs on their plans for how they're solving both core workforce and and customer identity and also a genetic identity.

And they share the concern that you just articulated which is the various players in the space and venture fund companies are moving very rapidly and it's difficult for them to have confidence in predicting what the future is going to be and one of the reasons that they come to octa and talk to octa is specifically because we are proven company we've been solving this problem for 17 for 17 years for over 20,000 customers and we've earned the trust of those customers and the partners that we work with to solve these problems.

And so they have confidence in our ability to work with them for the long term as well, not just for a short term in addition to that. This also again highlights the importance of our neutrality as they know the various stack components that they're using the various frontier, frontier models they're using.

All of those technologies are evolving, are evolving and leapfrogging each other regularly and they know that a bet with octa is a bet that's going to carry them with continuity through whatever happens elsewhere in the technology landscape so that that's absolutely one of the one of the one of the primary reasons our customers have confidence that octa is a smart long term bet. One of the interesting things is that a lot of these little companies are pivots. So they they started off as like trying to detect service accounts or trying to do service account discovery or agent discovery and they've more recently pivoted into this comprehensive vision like we have of discovery where my agents what can they connect to what can they do.

And so a lot of their products end to end are quite immature, they might be strong in one area but end to end and that's pretty frustrating for these CISOs and CAOs I talked to because they don't want, you know, they're hesitant enough about buying a small vendor because they're worried about getting that really resonates like I talked to CIOs and CSOs that are amazed we're iterating faster than startups and they're amazed by that. And yeah, it's tough to go wrong when you have a trusted vendor that's already in front of all your people and in your infrastructure and trusted security vendor.

It's a good position to be in.

Thanks a lot. Yeah, I think Microsoft is copying us, which I think they have been for 15 years. So I think they're copying what we're doing and they see the value of a agent registry and I think the challenge for them is going to be it's really hard to be neutral and it's really hard to, you know, make an agent registry that works as well for Amazon and Google and open AI and because it does for Azure and Microsoft.

But I think they have a similar vision and it looks at least from their blogs. I don't know if they have a real product yet, but at least from their blogs, it seems like they are copying us. And then I think service now in Salesforce or like every vendor, I think they're coming at the problem from their perspective service now is coming at it from a very like a asset management workflow management perspective and we found it very valuable to work with them because we can add a lot of value in that environment. We can really help them sever the connections, the trusted connections between agents and the rest of the ecosystem.

We're at that level of detail. We have the tokens. We have the protocols. So that can really help the control tower from service now actually come to fruition with a control kill switch that can actually kill the connections. That's been a really valuable partnership. Salesforce similar. It's like they're coming from more of the, you know, service and support and platform layer to some degree, but guess what, people log in to agent force through octa. And we can help people securely connect agent force to everything else in the ecosystem because the more agent force agents are connected to data across the ecosystem, the better and we can help with that. So everyone's kind of sticking in their own lane and lucky for us, our lane is perfect for this world.

Our lane is people to technology and then technology to multiple different vendors with multiple different plays in the technology space. We're very good at that. We've existed in that middle for 17 and a half years and it's a muscle we have in the company. It's a culture we have in the company and it's really paying off. That's great. Really helpful. Thanks, Todd. Yeah.

It's the whole new product portfolio was super strong. OIG is the biggest bucket in there. So as you're right, it's the biggest bucket. The whole bucket outperformed. Like I mentioned, 30% of bookings performance was across the board, everything. I think every product in there beat our plan internally, which was great. And more and more you're seeing the, I think when you think about OIG and privilege access management and access management, the most important thing is that we're starting to see them be sold as a sweet more.

Because we're transforming the identity industry. We're going from an identity industry that was very stovepiped. It was OIG was separate than access management was separate than customer was separate than privilege was separate than so that that that world's going away. And we're the only vendor that has everything under one vendor and we can, it's all integrated. It works great. It's not a bunch of stuff that was bought and slammed together. I mean, it's been a product that there's some acquisitions in there, but the vast majority of is organically developed and which is better for customers.

Customers want a real platform that works together, not a platform that was bought and renamed and slammed together and sold from one sales person.

And that's really resonating. So yeah, that part of the business, like I've said before in a couple of answers, that's what's driving the, that's what drove the overperformance is the new products and the core business workforce and customer both accelerated since the ACB growth accelerated since we last released it in Q4. So that's kind of the secret sauce there. And you can't, and you have to build that up over years, right? And that's just takes time. You can't slap stuff together and have a leading product, leading products take time.

As much as I'd like to rename it and have it be something cool and new. You can't do it. It takes time.

Okay.

80% of breaches are identity based attacks. And when you look at our customer base, relatively small percentage have the most advanced identity threat protection product. Identity threat protection. We've talked about it for a while, Jonathan. It's like very, very important and very unique and by the way, very differentiated. None of the other IDPs have this. It's, it not only evaluates session risk at the time of login, but also post login continuously monitors it, looks for risk signals, not only from octa, but risk signals from the ecosystem. From CrowdStrike and Palo Alto networks and, and takes those all together and can shut down sessions after login. So it's any company that is running identity without this technology.

It's you're at risk and you're behind, but not everyone's upgraded to it. So, I guess this is a plug. Everyone should upgrade to this thing. And if it's not, you don't get it from octa, force your vendor to build it and so you can get it. Or you could just buy it from us. Now, Permiso, the way to think about Permiso, it's like the next generation of that. So instead of 90 native risk detections, they have 400 native risk detections. So it's a, it's a much richer and deeper set of correlative processes and machine learning that can really look at a session deeply across many vectors and many variables and detect risk. And of course, that's going to pay off in just person login.

It's going to pay off in just an agent login. They also have a very strong threat research team they bring to the company. And it's most, this is probably the most exciting thing. It's the perfect size for octa to take and add to our products and extend our products. For what's going to be a big area for us is this advanced identity threat protection over time.

Yeah, we're really lucky to have them on board and it's been great to get to know them just closed. I think the acquisition actually officially closed only today. So we've been working with them preliminary, preliminarily, but now it's going to be great to dig in with them and build something great together. I asked the chat GPT and it said to call the product octa nexus.

There you go. There you go. John, I would just add this is this is another one of these tech tuck and M&As that we've done over the last several years. You've seen them be very successful and a variety of products. So we've got a good tracker here and we think this is going to be another nice addition to to the portfolio of products like Todd just said. It's pretty exciting for us. So looking forward to some of a bunch of this in the future.

So this is I want to be super concrete. I think it's the most helpful for everyone on the call when I'm super concrete about stuff. So we were talking to a company that ended up being a nice octa for AI agents deal in the quarter. And when the evaluation started, we were we ran our technology and we detected 50 instances of a cloud agent in the environment. And they were thinking about what they wanted to do. And then we came back a few weeks and there was 1500 cloud agents in the environment.

So it's like 52 weeks 1500. So it's these customers are it's really tangible the risk that they're seeing and the way this is coming into their organization. So this is, you know, catalyzing some of these deals this on rush of agents to a question about licensing and pricing and renewals and so forth. The everyone's figuring out how to price this stuff. Now I mentioned a lot of companies don't have a product so they can get up here and talk about like what they might do and this and that and the other and talk about all the stuff we have to have a pricing model because we're in the market. And so our pricing model is per user.

So if you want to buy octa for AI agents, you it's an uplift to your per user charge. The product works across different use cases. So it can be login for the user and the agent. It can be passing the agent credential across the whole chain of command. It can be governing the agent, but the pricing is per user and extension of the per user price. Now the first thing everyone says is, well, that's crazy seats are going away and you got to charge per agent. That all may be true.

But the way customers are using agents now and the way they want to buy is per user. And one of our advantages is we're super close to the customers. And as I'm sure this this is for sure going to evolve. And as we come up with ways that work for the customer and work for octa, how to package it and price it differently will iterate quickly and give them what they want.

But for now they like the predictability. They like the investments matches the business value they see. It's helping these deals move faster. So I think that's the winning formula for now. Is there any consumption limit on those per user pricing? Yeah, it's interesting question like we haven't done in our products. We haven't done that much, but we're starting to add that stuff. Because particularly, I don't know if you guys saw the announcement we did about supporting agent SSO in our base edition across the board as we did it on Monday.

Agents are going to log in way more than people. So in that product, we actually have a cap of agent SSO that we're actually not going to enforce right away. But we're putting the framework and the scaffolding in there to have a consumption based pricing eventually, because it's very likely that with agents proliferating and how they behave, that the usage is going to be quite high.

Okay, great. Thank you.

You have to show up in the LLM's. You have to show up. The agents are searching for tools. And so you have to be at the top of the leaderboard there. So we're really focused on making that happen. We made a ton of progress.

Yeah, it's really important. Okay. Thanks. Yeah.

I'm still in material. Still very small, very early innings. But like we've talked about here. We're excited about the long term opportunity. So for FY 27, we don't think it's going to be material, but 28 and beyond. We do, you know, if things keep going the way that they're going, then we do think that there is a real possibility for this to be material for the business in the long run.

Great. We got about five minutes left. Let's try to get to the rest of the questions.

I think there was this mindset three years ago that agents needed privilege access and so PAM was going to be the right place to do agents. I think it's, it's wrong. I think it's wrong. I think agents, agents do need privilege access for sure, but it needs to start on a much broader base. PAM is too narrow. PAM was, it had very small number of users in super lockdown environments.

Agents, the whole dream of agents is that they're for everyone. So it doesn't make sense to start your agent journey and figuring out where the agents are and what they can do and what they connect to. From the most lockdown thing sitting next to the Oracle database on a Sun server. It makes sense to start it from the broad IDP, whether it's customers or whether it's employees and then start from there and say, hey, how can I take this token that was generated for this user and pass it through with traceability and accountability all the way through the chain it needs to go through.

That's what we're seeing in the industry. It's a much better place to start, which is, I think a lot of these vendors are seeing that and that's why it's hard for them to get their products out. And that's why the products are more narrowly adopted and I think you're seeing us be really well positioned, which is why, which is why I think if you look at what Microsoft is doing or its companies with the access to more users that are at an advantage there versus narrow, narrow security vendors that were more boxed in.

Okay, next up is Joe Vandrick at Scotia Bank. Thanks, Dave.

You described it exactly right. It's spreading the kind of the core core foundation of Okta for AI agents, which is the directory entry that tracks the identity of an agent that puts that everywhere, ubiquitous. And so what the upsell is is like policy, how you want to do governance, how you want to have a software MCP gateway, a virtual MCP server, there's five or six or seven really key upsells, but in SSO edition is the core entry in the directory. There's another more important strategic reason to do it, and that's because we're on this mission to standardize AI security, and particularly this agent single sign on across the industry. And we're doing that on many fronts.

The biggest front right now is this cross app access protocol. And we mentioned a huge step forward where anthropic is supporting cross app access in what they call enterprise managed authorization. And we're the only identity provider that speaks this language and they're seeing it solve a customer and a problem in their customer base or they're putting it in a cloud and we're trying to get every agent company to follow their lead.

That's all very important. Now imagine going to every app, Salesforce, Slack, Asana, all these companies, hundreds and hundreds of these success companies, and tell them, hey, we want you to support this new protocol for agent single sign on. The first question is how many customers can do it? And now the answer is 20,000. So that's the reason to do it. It's to spread the standard and really catalyze this whole industry with customers benefiting the most.

The federal government. The public sector overall is really important and I'm pumped up about it. We've done so much work. I was recently in Maryland and Virginia talking to top government people. And like everyone else, they're really, really excited slash freaked out about AI. And we have super relevant offerings for them, both on just talk about legacy identity. I mean, they have the most legacy of the legacy identity and also an understanding of how critical it is. And so we're US federal DoD public sector in general is tremendous opportunity for us. It's only it's less than 10% of our business right now. So we have tons of success or tons of momentum, but tons of room to run there, which is quite impressive.

The other interesting thing in US federal specifically, I don't know if you're hearing this from other companies, but the first part of this year was kind of a mess. It was doge, no, no, they're going to have a job, no, every spending was being scrutinized. It's starting to normalize now. It's starting to get back to, you know, hey, they know they have projects to do. It's like more of a sane environment. They have to invest. They have to make long-term decisions.

I think that's benefiting us. Like we mentioned, it's the largest deal in Q3 was in US federal. And if you look at the next couple quarters for us, you know, there's tons of big opportunities out there. We're working hard to close.

Okay, great. Well, apologies. We weren't able to get to everybody before you go. Just let you know that in addition to the onsite and virtual bus tours coming through this this corner. We've, of course, got our octane conference, the week of September 21st will be at the Goldman Sachs Conference in San Francisco on September nine, the Wolf Conference in San Francisco on September 10.

The Piper Sandler Growth Conference in Nashville on September 15 and the JP Morgan software form and NAPPA on October 2nd. So we hope to see at one of those events. Thanks. Thanks, everyone.