Catherine Buan - Vice President of Investor Relations Todd McKinnon - Co-Founder and Chief Executive Officer Bill Losch - Chief Financial Officer Frederic Kerrest - Co-Founder and Chief Operating Officer.

Terry Tillman - SunTrust Robinson Heather Bellini - Goldman Sachs Michael Casado - KeyBanc Capital Markets Sterling Auty - JP Morgan Jonathan Ho - William Blair Shaul Eyal - Oppenheimer Pat Walravens - JMP Securities.

Ladies and gentlemen, thank you for joining today to discuss Okta’s Third Quarter Fiscal 2018 Earnings Call. Today’s conference is being recorded. I’d like to turn the conference over to Catherine Buan, Vice President of Investor Relations. Ms. Buan, please go ahead..

Good afternoon, and thank you for joining us on today’s conference call to discuss Okta’s fiscal third quarter 2018 financial results.

With me today 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.

Statements made on this call include forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our financial outlook and market positioning.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made. 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. There are number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalents.

For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings release.

Further information on these and other factors that could affect the Company’s financial results is included in filings we make with the Securities and Exchange Commission the SEC from time to time, including the section titled Risk Factors in the quarterly report Form 10-Q previously filed with the SEC.

You can also find more detailed information in our supplemental financial materials, which includes trended financial statements and key metrics posted on our Investor Relations Web site. Now, I’d like to turn the call over to Todd McKinnon.

Todd?.

Thank you, Catherine, and thank you everyone for joining us today. I am pleased to report that during the third quarter, our total revenue grew 61% while subscription revenue grew 64%.

At the same time, we continue to show significant bottom line improvement operations with free cash flow margin improving 12 points in Q3 versus the same period last year. Our strong topline growth was driven by three factors; new customer wins in the quarter; increases in deal sizes; and momentum with existing customer expansions.

The total number of customers over $100,000 of ARR grew 50% year-over-year. This brings our total to 603 customers who spend more than $100,000 per year with Okta. This is an increase of 64 compared to the prior period and a record for the company.

Here are some examples of key customer wins in the quarter; first, a new customer win, we signed a multinational beverage company. This company wanted to modernize their enterprise IT and centralized access control for on premise and cloud.

They selected the Okta Identity Cloud as their identity access management solution for over 35,000 employees and 3,000 distributors. Okta will be replacing their existing Microsoft solution and the company will now migrate many of its cloud applications as well as on-premise systems to Okta.

This is a great example of how customers need to use best-of-breed technologies and can't be locked into a proprietary stack. Second, customer identity management continues to be a driver of growth.

To solve its customer identity challenges and improve user experience of their customer portal, the Fortune 500 insurance company expanded its Okta deployment to include three additional products; core API products, API access management and adaptive multifactor authentication.

This customer initially deployed Okta in 2016 for employees and has expanded with Okta for customer identity management. Third, another new customer win in Q3, a major international airport based on the U.S. selected Okta to protect against data breaches.

They needed an identity solution with single sign-on lifecycle management and multifactor authentication to reduce highly manual processes that result in exposure to security threats. Okta will be the strategic provider of identity and access across all mission-critical airport systems. Fourth, one of our largest deals in the quarter was an upsell.

It shows the strategic leverage of our deep integration with application partners on the Okta integration network. This national non-profit health system first adopted Okta to consolidate access across multiple identify domain and support its migration to the cloud.

Now, it has selected Okta to streamline its on-boarding process by integrating Okta lifecycle management with Workday to automate provisioning of cloud applications and decrease the manual processes in time require to on-board new employees.

These customer examples further demonstrate our increasing penetration in the enterprise market, and our dedication to customer satisfaction as we provide solutions across multiple applications in hybrid environment. They are also evident of the upsell potential we have. Many of our customers may start with two to three products.

Then as was the case with the healthcare customer this quarter, based on their positive customer experience, expand their relationships with Okta in more products. We are also continuing to replace legacy solutions and work with hybrid environment to support customers move to the cloud at any pace.

Our continued success and customer momentum was recently validated by Forster to name Okta the leader in its Forrester wave report for identity as a service in November. Gartner also named Okta as a leader in its magic quadrant for access management earlier this year.

If you look at these reports and how they've evolved over the last several years, you'll notice that identity is a rapidly evolving market with a broad range of vendors approaching it from different vantage point. On the one hand, you have a number of point solution providers who focus on a slice of the overall identity stack.

For example, identity governance administration or single sign-on. And on the other hand, you’ll see larger providers like Microsoft who offer their identity solutions as part of a broader proprietary stack. Notably, Okta is the only vendor to be included and named a leader in every major analyst report.

And that's not only because of our market position, it's because our strategy is fundamentally different. We built the Okta Identity Cloud to be the world's first independent and neutral cloud-based identity platform. We offer a complete and integrated identity stack that is built on a single code base.

It's not a point solution that needs to be integrated to other identity of products. It's not a combination of products acquired over the years, and it's not tethered to the success of a proprietary software stack.

We believe our independence and neutrality are critical, because customers need to use the best technologies with the assurance that we will securely connect every one of their users to the technology they want to use. This has been our mission from the start. We want to enable any organization to use any technology today and in the future.

So with this in mind, I would like to now turn to some of our key areas of focus for the next fiscal year. First, we will continue to broaden and deepen the Okta Integration Network, which is our most significant competitive moat.

Second, we will capitalize on the enormous and largely untapped opportunity in the customer identity market, one that we are well positioned to win. And finally, we will leverage the paradigm shift in security to identity. No matter what they're doing, every customer that buys Okta does so in part to be more secure.

I would like to spend a couple minutes on each of these points; first, about the Okta Integration Network. Customers need to use the best set of technologies to run their business. The proprietary stack model from the 90s is dead. Today, customers use hundreds of applications in a broad range of infrastructure technologies from many different vendors.

And in this new reality, integration is essential. Ease of use, centralized management and security, all depend on how well you connect the diverse set of systems to best empower the people who use them.

Given this technology sprawl in today's pace of innovation, organizations can't do it on their own they need an integration layer that connects everything for them. And if you talk to our customers, they will tell you Okta is that layer. The Okta Integration Network boasts the broadest and deepest catalog of integrations in the industry.

We are well known for how seamlessly we allow our customers to connect to disparate applications. Over 5,000 commercial applications and many more times private and custom applications are pre-integrated to the Okta Integration Network. So our customers, users, are able to securely access them anytime, anywhere from any device.

It is also integrated to other tools and technologies that fit in our customer’s IT environment. For example, we integrate our adaptive multifactor authentication service to network security providers like Palo Alto Networks to enable comprehensive security and hybridize the environment.

We integrate our single sign-on service to application delivery controllers like F5 to enable users to connect into on-premise applications like Oracle, SAP and even mainframe and to retire legacy identity solutions like CA, Tivoli and Oracle.

Also, we've integrated our API access management service with API management solutions like Apigee and MuleSoft, to enable organizations to have a complete and secure API strategy. We believe there's a very important and powerful network effective player.

When we integrate a new technology for one customer, it is immediately available for all of our customers. As a result, the Okta integration network is a significant differentiator and continues to be an important area of investment for us, because every product we offer is built to leverage these integrations.

The second area of our strategy, I'd highlight, is our API product and the continued momentum we're seeing in the customer identity market. The same functionality that powers our extended enterprise products has been extended behind the scenes by developers to power customer facing Web and mobile applications.

It seems like nearly every organization, even those who aren’t traditionally software companies, they're building the applications to unlock new routes to market and better engage with their customers. And it's happening at a lightening pace because the barriers to innovation are lower than ever.

There're billions of potential users around the world always connected, always ready to consume content. And anyone can build and rollout applications at scale. With the API economy, people no longer need to go from scratch micro-services and reasonable components make it easier than ever to build powerful new applications in days versus years.

Every company needs to participate in this because in order to be competitive, companies need to engage with their customers online. And no matter what these companies are building whether a customer loyalty Web site, mobile healthcare app or a full blown SAP product line, virtually every application needs an identity layer.

They need modern authentication to ensure users are who they say they are; they need authorization to ensure user’s permissions are enforced once they’re in the application; they need user management so that people can register and manage their profile; and they need the ability to capture and store information about users that can be leveraged to ensure the experience delivered is highly personalized.

Okta's API products are used to power this identity layer for any type of application that our customers are building. Customer identity management is growing rapidly, and has been a major area of investment and innovation for us this year, and will continue to be in the future.

While it's a relatively new and undefined market, we believe customer identity offers a very large and relatively untapped opportunity that we are ideally suited to capture because of our enterprise grade heritage and proven success with the hundreds of companies who use our API products today.

The third area of the Okta identity cloud strategy that I'd like to talk about is security. I’ve often asked if Okta as a security company? And the answer is 100% yes.

No matter what customers are buying from us, they're trusting Okta to help keep their businesses secure as they modernize IT for the extended enterprise or transform their customer experience. It's a valid question though. Identity wasn't traditionally thought of as a security product as much as it was seen as a way to manage users and devices.

But the paradigm to security has changed. When seemingly every company is moving to the cloud and building their own customer facing applications, the result is that those companies can also be breached in ways the tradition security parameters can't prevent. So much of today's security paradigm is about identity.

In fact, depending on what source you look at, the vast majority of security breaches are due to identity theft; specifically for lost or stolen credentials; threatening after to sit amongst the same people who interact with your business every day.

And when these people are coming in from any network device or location trying to access any application, people are the perimeter. We believe security needs to be managed and force around the user in his/her context.

If you can deeply understand who someone is, what devices they are using, where they are physically located, and what kind of day it is and what they are trying to access, you should be able to define and force very granular security policies. The last thing I would leave you with is this.

We believe the market opportunity for the Okta identity cloud is enormous and we are in the right place at the right time. Our strategy is to focus and invest deeply in the current market trend where we are in the very early stages of market penetration.

We will continue to innovate in our core products, expand our integration types, enhance our developer experience, improve security and grow user adoption. Before I hand it over to Bill, I want to reiterate how pleased we are with our performance and the momentum we are seeing in the business.

Today, I'm excited to announce plans for our new headquarters here in San Francisco to support our growth. I'll let Bill to go through some of the details with you, but our new office allows us to keep our corporate headquarters in one place, while it gives us ample capacity here in San Francisco for the long-term.

We appreciate your support through our journey and look forward to a strong finish to what has been a great year for us. I would now like to turn the call over to Bill to walk through our financial results.

Bill?.

Thanks, Todd. And thanks again to everyone for joining us. I'll first go through our results for the third quarter before getting into our guidance and outlook. We had a strong third quarter and are once again pleased with our results. Revenue for the third quarter totaled $68.2 million, growing 61% year-over-year.

Subscription revenue totaled $62.7 million in the third quarter, an increase of 64% year-over-year and comprise 92% of our total revenue, up from 90% in Q3 last year. Professional service revenue was $5.5 million, an increase of 33% over the same period last year.

As you know, professional services revenue is not a core driver of our top line momentum and we anticipate that it will continue to be a small proportion of our total revenue over time as more of this business successfully moves to our growing services partner ecosystem.

In terms of geographic breakdown, approximately 84% of our third-quarter revenue came from the U.S. and 16% came from outside the U.S. compared to 86% and 14% respectively in Q3 last year. Our international business is still in the early stages of expansion and continues to grow rapidly.

In the third quarter, international revenue grew more than 80% year-over-year and once again outpaced overall revenue growth. Moving on to billings. We recorded calculated billings of $78.6 million in the quarter, an increase of 54% over Q3 last year.

The strong billings growth we saw in the quarter was due to new business momentum, large deals and strong upsells.

As you heard from Todd's comments, we continue to see strength in new account wins and our deal sizes are increasing as reflected in the number of customers with annual recurring revenue greater than $100,000 and 603 up from 539 last quarter, and growing 50% year-over-year.

I would also point out that on the incremental 64 customers approximately two-thirds were new customers. Once again, we are pleased with our significant billings growth, driven by the seasonality of our large enterprise customers we expect another strong performance in Q4.

Looking ahead, we expect year-over-year calculated billings growth of 41% to 45% in Q4 on top of the excellent billings performance we also had in Q4 of last year. For the full year, we expect to achieve billings growth in the low to mid-50% range.

We continue to grow our customer base and ended the third quarter with over 3,950 customers, up 36% versus over 2,900 in Q3 last year. We continue to see strong expansion within our existing customer base. This is evidenced by our consistently strong dollar based retention rate, which was 123% for the trailing 12 months ended October 31st.

Strength in our dollar based retention rate is driven by the stickiness of our products, the upsell opportunity inherent in our model, as well as our continuously high customer satisfaction.

Todd discussed some specific Q3 expansion examples of customers that are increasingly using Okta as a core component in modernizing their overall key strategies, while others are expanding with Okta to create a secure and seamless customer experience.

Before turning to expense items and profitability, I would like to point that I will be discussing non-GAAP results, going forward. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results, can be found in our earnings release as well as the supplemental materials posted in our Investor Relations Web site.

Subscription gross margin was 80.7%, up over 150 basis points versus the third quarter last year. Our professional services gross margin was negative 19.1% compared to negative 25% in the third quarter last year. As a reminder, we recognize professional service costs when they are incurred regardless of when the revenue is recognized.

Therefore, our professional services margins will continue to fluctuate from quarter-to-quarter as we grow our business. Total gross margin reached a record high of 72.6% in the third quarter, up over 350 basis points year-over-year. Gross profit was $49.5 million, up 70% year-over-year.

We have seen our gross margins steadily increased in recent quarters as we have seen operational leverage improve. Turning now to operating expenses. We remain focused on balancing our investments for growth while improving leverage.

We showed a substantial margin improvement versus the comparable period last year, improving non-GAAP operating margins by 11 points year-over-year.

At the same time, we saw a sequential seasonal dip in our operating margins in the quarter as expected due largely to the costs associated with Oktane, our annual customer event, which was held in August.

Long term, we continue to expect that our operating margins will improve as our subscription revenue grows at a faster rate than our total operating expenses; however, we will continue to see quarterly fluctuations in the near term. Sales and marketing expense for Q3 was $45.7 million compared to $30.8 million in Q3 last year.

This represents 67% of total revenue, an improvement compared to 73% in the third quarter last year. While we are beginning to see some operational efficiencies in sales and marketing, we are continuing to invest in our go to market strategies across the board in order to meet the strong market demand we are seeing.

R&D expenses in Q3 was $14 million compared to $8.9 million in Q3 last year. This equates to 21% of revenue, which is consistent with what we saw in Q3 last year. R&D investment was up 58% year-over-year this quarter which is a testament to our commitments to be most reliable and innovative service in the market.

G&A expenses was 9.9 million for the quarter compared to 6.4 million in the third quarter last year. G&A was 14% of revenues versus 15% of revenue in Q3 last year. We expect that our G&A expense will continue to grow at a moderate pace on an absolute basis as we add personnel and systems to support our growth.

Our operating loss in the quarter was $20.1 million compared to a loss of $17 million last year. Operating margin was negative 29% compared to negative 40% in the same period last year. Before I move to net loss, let me address the effective tax expense this quarter.

We had a onetime tax benefit related to stock option exercises in Europe following a lockup expiration, which totaled approximately $940,000. Net loss per share in Q3 was $0.19 with 95.5 million basic shares outstanding. This compares to a net loss per share in Q3 last year of $0.89 with 19.2 million basic shares outstanding at the time.

Free cash flow was negative $11.2 million in the quarter compared to negative $11.8 million in the third quarter last year. Free cash flow margin was negative 16% a 12 point improvement compared to negative 28% for Q3 last year.

We expect to continue to make progress toward positive sustainable free cash flow, but it may not be in a linear trajectory on a quarterly basis given period to period fluctuations in working capital. Turning to the balance sheet we ended the third quarter with $223.6 million in cash and cash equivalents and short-term investments.

Lastly our total headcount was 1141growing 35% over Q3 last year. We continue to add headcount across the board as we support the growth of our business.

Moving onto guidance, for the fourth quarter fiscal 2018, we expect revenue in the range of $70 million $71 million representing a growth rate of 43% to 45% year-over-year, non-GAAP operating loss in the range of $18 million to $17 million, non-GAAP net loss per share in the range of $0.18 to $0.17 assuming 100 million weighted shares outstanding.

For the full-year fiscal 2018 we are updating our guidance as follows, revenue in the range of $252 million $253 million, representing a growth rate of 57% to 58% year-over-year, non-GAAP operating loss in the range of $73 million to $72, non-GAAP net loss per share in the range of $0.87 to $0.86 assuming 82 million weighted shares outstanding.

As we look ahead to fiscal 2019, we remain confident in our positioning in market opportunity. Although we are still early in financial planning for fiscal 2019 I would like to provide a preliminary view as you look at your models for next year.

First, these figures do not include any impact of ASC 606 which we plan to adopt using the full retrospective method beginning February 1st. As we gain more insight into our plan for fiscal 2019, we planned to update you when we will report Q4 fiscal 2018.

We currently estimate revenue for fiscal year 2019 will be between $331 million $336 million representing a growth rate of 31% to 33%. Also as Todd discussed, we announced today that we have signed a new lease agreement to move and expand our San Francisco headquarters and double our capacity.

While we will incur some incremental expenses in connection with this expansion in fiscal 2019, this allows us to expand and scale our operations to accommodate future growth and will result in lower real estate per headcount over time.

But we do not plan to complete our movement till the end of our next fiscal year, the new lease agreement will result in additional capital expenditures and operating expenses beginning Q1 of fiscal 2019.

We estimate the CapEx impact which will be in fiscal year '19 of up to $15 million, primarily resulting from the build out of our new office space net of the allowance from our landlord. When we issue full guidance for fiscal 2019 on our Q4 earnings call it will include the impact of the lease on our operating expenses.

In summary, we had another successful quarter that demonstrate the increasing demand for identity solutions, we look forward to closing out our first year as a public company and hope to see many of you on the road soon. With that Todd, Frederic and I will take your questions.

Operator?.

Thank you. [Operator Instructions] And we'll take our first question from Terry Tillman with SunTrust Robinson. Please go ahead..

One of the other things that was striking to me was just the traction with large deal, if I got it correct, I think you talked about two thirds of these 100,000 plus ARR-type customers were new customers. Well hope, I got that right, but what I am curious about is.

Are you getting a bigger average enterprise size customer that just has a lot more users? Or are they doing more use cases upfront? Or is there an expansion of just strategic customer experience of use case?.

I think that the first thing is that it's -- the problems we solve are valuable of the companies all. The solution of the problem is very valuable the companies of all sizes. But when you're very large enterprise whether it’s a large number of employees or very large number of customers for our customer, the solution is more valuable.

The value of the solution grows with the numbers involved. So a big part of our strategy to be very aggressive and selling our products to largest organizations in the world.

So what you're seeing is that you're seeing kind of all the things you described and you're seeing bigger initial views with the large enterprises, you're seeing bigger expansion because the products suite is maturing, so there's more products to address more use cases and the problems that the largest enterprises in the world are having, are getting -- are growing and growing every day, and we can bring a solution to those problems..

And my follow-up question and then I'll turn it over. It's just winning the hearts and minds of developers and there's the correlation there with the customer identity management, the customer experience, obviously Stormpath was an important strategic move. You got a developer edition.

You actually announced something today that I saw was interesting also for start-up.

But how we're going to understand your traction was actually winning hearts and minds of the developers? Is there other metrics you're going to be able to start to provide? Or is it going to be seen in the large deals? Or just more kind of use case examples that you put in press release? Just help us understand more of the report card and how we're going to know how what you're doing with developers?.

I think it's a great question and something we think it about a lot. I think that the main -- the main metric is success with customer identity. So success with helping our customers build better solutions for their customers.

And there's a lot of other things you mentioned that are interesting for us to think about this potential metrics and we will think about those, but the end gain for this is customer identity in the more of our customers we can help build better website build better mobile app increase their customer experience will be successful in that regard..

And we will take our next question from Heather Bellini with Goldman Sachs. Please go ahead..

I have got a question just looking at how solid your growth in total customers has been. I think it's been around 35%, 36% each quarter of this year.

I was wondering if you could share with us, how you're the sales higher that you have been aggressively making over the past year, kind of matriculating? And how quickly are you seeing and actually get to full productivity? And I'm wondering if they are getting there may be faster and that’s what able to sustain such high growth in your total customer account each quarter?.

This is Frederic speaking. So I think that’s a very speed observation I think that we have been fortunate with the sales continued sales hiring that we have had. I think there is a couple of things working there.

The first thing is that we've had a good retention of sales folks and as you know as a salesperson becomes more tenured in the organization, they become more and more productive that’s the first thing.

Second thing I think that what you are starting to see is also the macro trend of the more and more growth across all the different segments, not only in the enterprise, but the commercial business is particularly strong. You're starting to see us grown more and more internationally as we talked about, which continues to be a big part of the revenue.

And then frankly at the most macro level every organization needs to become a technology company. And as they are adopting more technology, there is more need. And frankly there is just more deals. So we are excited about. What we have seen the momentum this year I expect that to continue into Q4 and frankly going into next year..

We found more deals make the sales person more productive..

We will take our next question from Rob Owen with KeyBanc Capital Markets..

This is Michael Casado for Rob Owen. I had one on Okta for start ups.

Could you guys frame your expectations for conversion rates following that first three year? Any impact that may have in margins? And I guess how you feel these relationships ramping over time?.

This is Frederic again that’s a good question. We have thought a lot about that. Frankly there are moving to Okta for startup is something that was demand driven.

We just get a lot of organization who have been calling us as soon as they get up and running whether it's to manage their employees or whether they are building new product and want to take identity off-the-shelf and put it right into those products. And that was kind of a result of it.

So of course down the road we see that as an opportunity as all these organizations grow they will become commercial segment opportunities and down the road into the enterprise of course.

But right now we are really focused on providing opportunity for start up to get and running to use the service to embed Okta for their customer facing properties, and to get going. We don’t have any specific metrics at this point that we are looking to in terms of conversion or margin expansion..

The pay off there will be in five years when the next wave of medium size and large companies that are starting up today have Okta embedded..

And then Todd you also talked about expanding integration has been a key area of focus for next year.

I guess given your existing integration portfolio where are you seeing the most opportunities to drive further integration? And is this an effort aimed at driving more differentiation? Or would they targeting certain segments of the market?.

Our focus there is really, it's making our customers, making it really-really seamless and simple and frictionless for our customers to adopt new technology. So that's the driving force behind it. We started really as integration to applications, so single sign on, provisioning, security, identity in the application.

And really the innovation there has been broadening that, so it's not just other applications, it's not just integration to sales force and work there and service now, but it's integration to other types of things, whether it's a firewall, VPN, or application delivery controller or API -- API gateway, so it's the types of integration and the depth along those different types that, that's where we're investing.

The application we were -- we're kind of filling up the application race. We've that flywheel spinning and we've over 5,000 integrations and many-many more private and custom application integrations.

And it's about the different type of integration to different types of the stack, because from the customers perspective, and that's what most important. From the customer perspective, they need identity integrated everything, their firewalls, their API gateways, their devices, not just their applications and that's the key area of focus for us..

And we'll take our next question from Sterling Auty with JP Morgan..

Two questions so first one is. Relative to your guidance that you gave for this quarter so that upside, you gave three levers for what's driving the growth.

I'm curious what contributed the biggest dollar amount through that upside? Was it the expansion with existing customers? The additions -- so you know the three levers, so which of the three gave us the biggest dollar contributions to the upside?.

Sterling, I think that the contributions were fairly consistent among the three. I mean certainly we brought in new business, as evidenced by what we talked about as far as two-thirds of the incremental customers that are now paying us under a $100,000, came from new business.

Expansion within those existing customers is still very strong, so I think all of the toggles that we've talked about contributed and probably contributed fairly equally across the board..

And then my follow-up is. You've highlighted one of the strategic goals for this coming fiscal year is the customer section, so the external use case, and you've talked about in the past Adobe and creative products et cetera, but how many customers -- is it -- that were reaching a tipping point? And it's not as much as an evangelical sale.

Or what is it that you think makes this fiscal year going to be the tipping point for that business?.

I think it's couple of things, one is that this pressure, this relentless pressure for every organization to become more of a technology company, what we mean by that is, every organization has to build a better website, build a better mobile app, they've to build new products, they've to enhance their existing products to be more connected and more digital.

So that's just a macro trend that's very-very prevalent in gaining momentum.

And the second thing is frankly that our products are getting better there and over the last couple of years we've invested a lot and what you can do with our APIs and how can embed things and the power that you can gain in the speed the market and the productivity you can gain by using our products versus building some of these things yourself is very profound now.

So I think those two things is why we think it’s such an interesting feature for that for that customer identity market..

We'll take our next question from Jonathan Ho with William Blair..

I just wanted to start out with the multiproduct adoption.

Can you maybe give us a little bit more color on which of the products within the platform are seeing faster adoption, and any type of color in terms of what their relative growth rates would be would be helpful as well?.

Yes, absolutely happy to do that. The products, the six products that you're talking about on the integrated identity cloud are all performed very-very well.

I mean some obviously single sign-on which was our first product through lifecycle management, multifactor authentication, they are all significantly contributing to revenue at this point, even including the latest products that we released just last year, API asset management is now used in production at very large organization.

So we're really starting to see a balance across many if not all of the products in terms of their contribution to revenue and we are seeing the ability for organizations of all sizes frankly even in the enterprise to land with any of those six product and specific use cases and expand out further so it’s really a very productive thing that we're seeing in terms of how the different products are being used, adopted and implemented inside organization..

Got it and then you talked a little bit about making incremental investments.

Can you maybe give us a sense around your philosophy between how you balance taking advantage of new opportunities with also showing that operating leverage over time?.

So, the way we historically and still look at it is, we really do focus on achieving sales efficiency and measuring our sales efficiency and balancing that against what that growth or growth opportunities are.

So we've done a good job historically keeping that sales efficiency kind of in that range of about you know an 18 month payback if not less and we really think that given our long contract lengths, given the expansion opportunities we have the business.

That really does add a significant amount to our customer lifetime value by making those investments. And what we've done is historically made sure that we're balancing how we invest to over time maintain that efficiency, and that's really the way we've been focusing on it..

[Operator Instructions] We'll take our next question from Shaul Eyal with Oppenheimer..

Todd, success with large customers without a doubt a point which seems to be accelerating, is it driven by more internal budgets being allocated to identity? Is that the budgets within the security space are being allocated from one category to more of a cloud driven one? Is it the result of some recent market education or maybe just all of the above?.

I think it's -- we try to have the customers give us their budget in detail, but it doesn't always work. It's little bit hard, but it is very important dynamic to understand.

And the color I would add there from what we understand is that customers are really for the employee identity, they really -- it's kind of 50-50 between trying to adopt new cloud and mobile technologies efficiently and with ease of use and being more secure.

And that part of the business the security part is a bigger driver and the security budget is a bigger contributor than it's ever been. We have seen that trend over the last two years and the security driver for the internal identity market is driving more than ever been.

But it's still 50-50 kind of like new technology -- a facilitator for new cloud and mobile or versus security. on the customer identity side it's the trend I talked about before where these companies are putting the investment and becoming more digital -- getting a great customer experience a great mobile app.

and that's something that we've seen over the last couple of years and that continue to accelerate as well. And I think you're seeing these accelerations both of these trend happened faster in larger companies because the problem is bigger. They have more customers, they have more employees, and they can get more value out something like Okta..

And one thing I would add to that I think when you think about managing and securing the extended enterprise so how they are trying to make their employees more productive and more secure they are also just thinking about reducing costs a lot of times, where -- when its customer identity management these are really new opportunities.

These are new revenue opportunities and they are thinking about top line growth which makes these opportunities exciting. And I think as we see every organization is thinking about how they can grow the top line and in this new world it's really about how they can do that digitally securely with their customers..

Bill maybe just one for you.

Accounts receivable, I don't it seems to be slightly up from prior quarter on linear basis, is it where it should be or is it just -- it's fine over the slightly more backend loaded quarter? How should we be thinking about it?.

Yes, it’s a good question, so I think it's a couple dynamics. One is we did have some slippage in collections in this quarter which had an impact on our free cash flow. So obviously the receivables were little higher because of that.

but also as we move into larger and larger enterprise customers as we are doing and landing those customers there is more of the backend of the quarter so to speak when those -- that business gets book. And so you are going to see a natural increase in your AR on a period to period -- quarter-to-quarter basis because of that..

We’ll take our last question from Pat Walravens with JMP Securities. Please go ahead..

So I have one for Todd and maybe Freddie on this one and then one for Bill.

So the first one is, can you guys update us on where the relationship with Google is? And in particular any change since they bought BDM in September? And then also what is this beyond core that they keep talking about? And how does that fit into your vision of the world?.

Google continues to be a really strong partner of ours. We -- I mentioned earlier on the call, large multinational beverage company that was one of our significant deals in the quarter that was landed in partnership with Google. So we are continuing to collaborate with them effectively within the -- in the marketplace. So we haven't seen any change.

We don't -- we were in close with partnership we don’t foresee any change there with that partnership..

The BeyondCorp, yes..

The BeyondCorp, you haven't heard the BeyondCorp it's really an articulation of what is the future for network architecture for companies. So instead of having an office, datacenter and VPN, you have basically users accessing things all over different networks.

And then you have a personal level of security about each user that's how you secure it versus the firewall parameter. And it's really the design pattern that we facilitate because to have BeyondCorp, you have to have that personal level of identity and security and that's what we do.

So, we're evangelizing the BeyondCorp, we hope more and more people adopt it because we're -- we provide a key-key part of that design pattern..

And then Bill, so in my model and it probably goes back further then my model goes, but I think this is nine quarters in a row where subscription revenue per customer has gone up.

I mean any reason that shouldn't just keep happening?.

Well we've been very pleased with that fact that it's happening today, and certainly what that's been driven by is the more and more customers that we're getting that our larger enterprise is paying us as we said in the metric that we talked about today, greater than a 100,000 a year.

We think there's tremendous opportunity going forward, as we both land and have expansion in those customers for all the reasons we've talked about as far as their need for moving to cloud, digital transformation, in digitally their customers and so we're pretty pleased with that trend and we do think there's a tremendous amount of opportunity for us there in the future..

And I would just -- I would highlight that it's part of our strategy, this is a platform strategy. So the identity clouds with broad platform with multiple products that traditionally in the past have been done by different vendors and we've brought them together.

So it's part of our strategy to have this platform that can be adopted with one solution or one use case and then more and more solutions and products and use cases adopted over time as the usage of the platform expands.

So it's built into our technical strategy, our product strategies and it's good that we -- it's positive that we've seen in borne out over the last nine quarters to use your figure. I haven't validated that figure myself, but we -- that's part of our strategy going forward as well. So, it's a good thing to call out because it is important to us..

And that does conclude our question-and-answer session. I would like to turn the conference back over to Todd McKinnon for any additional or closing remarks..

So, I would just like to close out the call by saying that with the success we've had so far in the first three quarters this year, we feel like in a lot of ways we're even more energized than ever, because every success we have just really tells us how big the opportunity is for the identity cloud and really for the impact we can have as we help customers, adopt this next wave of technology, both for internal use for their employees and also as they become technology companies themselves.

So, it's a big -- it's a big mission, it's a big -- it's a big opportunity that we're working on, and we're excited about the progress we've made, but we also are working hard to make sure that the success continues far into the future. So, with that, we'll wrap it up.

Thanks for your attention and we look forward to seeing many of you on the road in the coming weeks and months..

And once again that concludes today's presentation. We thank you all for your participation and you may now disconnect..