Okta, Inc. (OKTA) CEO Todd McKinnon on Q4 2020 Results - Earnings Call Transcript

Okta, Inc. (NASDAQ:OKTA) Q4 2020 Earnings Conference Call March 5, 2020 5:00 PM ET

Company Participants

Dave Gennarelli - Investor Relations

Todd McKinnon - Co-Founder and Chief Executive Officer

Bill Losch - Chief Financial Officer

Frederic Kerrest - Co-Founder and Chief Operating Officer

Conference Call Participants

Walter Pritchard - Citi

Melissa Franchi - Morgan Stanley

Heather Bellini - Goldman Sachs

Rob Owens - Piper Sandler

Andy Nowinski - DA Davidson

Gregg Moskowitz - Mizuho

Jonathan Ho - William Blair

Richard Davis - Canaccord

Taz Koujalgi - Guggenheim Partners

Shaul Eyal - Oppenheimer

Keith Bachman - Bank of Montreal

Alex Henderson - Needham

Pat Walravens - JMP Securities

Operator

Good day and welcome to Okta Fourth Quarter 2020 Earnings Call. Today’s conference is being recorded.

At this time I would like to turn the conference over to Dave Gennarelli. Please go ahead, sir.

Dave Gennarelli

Good afternoon and thank you for joining us on today’s conference call to discuss the financial results of Okta’s fourth quarter and fiscal year 2020. With me on today’s call are Todd McKinnon, Okta’s Co-Founder and Chief Executive Officer, Bill Losch, the company’s Chief Financial Officer and Frederic Kerrest, the company’s Co-Founder and Chief Operating Officer.

Today’s call will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the statements regarding our financial outlook and marketing position. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

Forward-looking statements represent our management’s beliefs and assumptions only as of the date made. Information on factors that could affect the company’s financial results, is included in its filings with the SEC from time to time, including the section titled, Risk Factors in its previously filed Form 10-Q.

In addition, during today’s call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents is available in our earnings release. You can also find more detailed information in our supplemental financial materials, which include trended financial statements and key metrics posted on our Investor Relations website.

On today’s call, we’ll quote a number of numerical growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison.

And now, I’d like to turn the call over to Todd McKinnon. Todd?

Todd McKinnon

Thanks, Dave and thanks, everyone for joining us today. Our strong fourth quarter financial results capped another fantastic year for Okta. Total fourth quarter revenue grew 45%, subscription revenue grew 46%, remaining performance obligations or RPO grew 66% and we generated record operating and free cash flow. What drove these results is our continued execution and growing presence as the standard for identity and access management. We’re now achieving these results at scale, while simultaneously investing in the business to capture a tremendous opportunity that remains in front of us.

One of the areas that we’ve been investing in, is growing our base of large enterprise customers. We’re seeing those investments pay off and it’s reflected in addition of a record 142 customers with annual contract value greater than $100,000 in the fourth quarter. Once again, over half of these additions were from new customers.

The total number of $100,000 plus customers is now 1,467, an increase of 41%. These large enterprise wins are from a wide range of industries. To provide some insights into the diversity of our customers and the types of challenges our products help them solve, I’ll share some details of a few notable wins and upsells from the fourth quarter.

The global 2000 power management company with over 100,000 employees, and doing business in more than 175 countries is establishing Okta as the identity standard, its Workforce, including contractors and partners, will be able to securely access both cloud and on-premise applications regardless of their locations. The company selected Okta in order to strengthen and modernize its security posture. They recognize tremendous value in Okta’s independence and neutrality to solve its Workforce and Customer Identity needs.

Autodesk is the global leader in design and engineering software. The company recently selected the Okta Identity Cloud to centralize identity and access management for its customers. The high scalability and availability provided by our Customer Identity solutions, including Okta Dynamic Scale was an important factor in the company selecting Okta. With Okta as the identity layer, Autodesk is investing in secure and flexible ways for its customers to securely access their products.

A leading European film and television studio and distributor with over 8 million subscribers worldwide is a new Customer Identity win. Included in the agreement was our new dynamic scale product which will be able to support peak website traffic of up to 90,000 connections per minute during a large event, such as the biggest soccer games of the season. The company expects to attract even more customers through recent partnerships with Netflix and Disney Plus, and will rely on Okta to deliver a secure customer experience.

NTT DATA, a top 10 global business an IT services provider was a notable upsell in the quarter with over 120,000 professionals in more than 50 countries. They launched a companywide initiative that combined the expertise and resources from its NTT DATA group companies to create a modern identity solution to unify its multiple global companies.

After its initial success deploying Okta’s Workforce Identity Products to provide secure Single Sign-On, NTT DATA expanded its deployment with universal directory, lifecycle management and workflows. The company will have centralized tools that power identity decisions across its complex ecosystem. This will automate processes as employees join, leave or move across the company, reducing time and costs associated with manual processes.

Security and privacy is of utmost importance to all our customers, but especially for those in the finance and banking industry. Trust is the foundation of their relationships with their customers, so it’s absolutely critical that their customers feel secure while accessing sensitive financial information. Our expertise and reputation within the finance vertical is earning us more and more customers, especially with Okta Customer Identity solutions. These customers range from regional banks to some of the largest financial institutions in the world.

There are three primary factors driving our success with customers. Number one is the rapid growth of cloud and hybrid IT. Identity has become increasingly complex as organizations move to the cloud. And over the past 11 years, we’ve built the broadest cloud-based identity platform that is scalable, caters to hybrid deployments is easily deployed and is highly customizable.

Two is digital transformation. Customers recognize that the cloud has changed everything, and is forcing every company to become a technology company. Organizations are now looking to Okta to help them navigate this new environment, and implement an identity solution that will meet their complex hybrid environment needs and improve their digital customer interactions.

And three is security. More than 70% of hacking-related breaches are caused by stolen credentials. With the adoption of zero trust environments, the traditional security perimeter has dissolved and identity is now at the heart of the new security step. Identity plays a critical role in each of these megatrends and organization are turning to Okta, because we are uniquely able to address the broadest set of use cases. We are independent and neutral and have built the most extensive catalogue of integrations. This is essential for organizations deploying best of breed applications, which is common in today’s mid to large-sized organizations.

Through our industry leadership and innovation, we’ve earned our customers’ trust, and in many cases, we’ve become a trusted advisor. The added benefit is that, as our customer base grows, we are able to generate more and more data insights that can be harnessed to enhance our existing products, such as Okta SecurityInsights, which we released last October and offer even better products. In turn, these products enable our customers to be more successful and generate a network effect flywheel which helps position us for continued market leadership.

Turning to our customer conference, because nothing is more important to us than the health and safety of the Okta community, we will be hosting Oktane20 as a virtual conference this year, Oktane Live, offering both our keynotes and dozens of breakout sessions online. As we followed the coronavirus news, it became clear that the best way to safely engage with our whole community is through a digital conference experience. Investor Day, which we’re hosting in conjunction with Oktane will be virtual as well.

Replacing the in-person events with dynamic video content will enable us to bring our customers partners, investors and employees together in a healthy and productive way. We look forward to sharing our vision, product innovations and latest customer journeys with you over the stream the week of March 30th.

As you may remember, last year at Oktane, we launched new products like Okta Access Gateway and Advanced Server Access. Access Gateway delivers a single point of management for administrators, and one place to go for end users to access both their cloud and legacy on-premise apps. Advanced Server Access provides continuous authentication and centralized access controls for servers. We’ve been happy with the early adoption of both products.

In my keynote address this year, I will touch on how Okta’s products are designed to meet a growing number of use cases, and how identity has become its own platform. I’ll cover how our Workforce Identity Products enable employees, contractors and partners to securely access the right technology they need to do their jobs, and how our Customer Identity Products enable our customers to build secure, digital experiences for their customers.

I’ll be talking more about additions to the Okta Identity Cloud that will enable us to deliver even more innovation and provide our customers with more freedom to build customized access experiences. Our modern architecture is built on a single stack of technology that provides our customers with easy deployments and is highly configurable. Oktane Live will be an amazing event that you won’t want to miss.

In closing, I’m very proud of what we accomplished in fiscal ’20. Here are the highlights. Revenue increased 47%, our non-GAAP operating margin improved by 210 basis points, and we were free cash flow positive for the year. We expanded our portfolio with several new products and services that provide even greater value to our customers and increased the number of use cases. We were recognized by market research firms as having the clear leadership position in identity and access management.

We were certified as a great place to work and strengthened our team by adding nearly 700 incredibly talented people around the world. We further expanded our presence with new domestic and international offices and new infrastructure in APAC. We established Okta ventures to help fuel the next generation of modern identity solution. And our Okta for good program continue to expand its reach with a launch of its first product innovation program focused on social impact with apps for good.

We couldn’t have done this without the dedication of our customers, the great ecosystem of global partnerships and a tireless work of our employees. For that, I am exceptionally grateful. But now it’s on to even greater things in fiscal ‘21 and beyond, as we are just beginning to tap into the massive market opportunity as we enable any organization to use any technology.

Thanks again for your time. And I’d now like to turn the call over to Bill to walk through more details of our financial results. Bill?

Bill Losch

Thanks, Todd. And thanks again to everyone for joining us. As a reminder, we have posted an earnings presentation that is available on our IR website and contains our detailed financial results. I think you’ll find it to be a useful summary. And as such, I will only cover a few of the notable highlights in my commentary this afternoon, leaving more time for Q&A.

As Todd mentioned, we maintained the strong momentum that we built throughout the year. Our better than expected top line growth has resulted in strong operating leverage as demonstrated by better than expected operating loss, operating margin, loss per share and cash flow.

Turning to our Q4 results, total revenue increased 45% driven by a 46% increase in subscription revenue. Subscription revenue represented 95% of our total revenue. RPO or backlog which for us is contracted subscription revenue, both billed and unbilled that has not yet been recognized grew 66% to just over $1.2 billion. The robust growth in total RPO reflects the continued success we’ve been seeing with large enterprise customers that Todd mentioned.

These contracts tend to be larger in value and longer in length. For example, the number of transactions with a total contract value of $1 million or more, grew over 80% compared to Q4 last year, and the weighted average term lengths of those transactions is nearly four years, which is 50% longer than our overall average term length.

As we continue to see success with winning the world’s largest organizations and broader adoption across our growing product portfolio, we expect the average contract size and term length to continue to trend upwards over time. Current RPO, which represents subscription revenue, we expect to recognize over the next 12 months, also experienced strong growth of 54%; an acceleration from the 52% growth in Q3. Year-over-year growth in current RPO is the more meaningful metric when viewed along with subscription revenue and billings growth.

Total calculated billings grew 42% and current calculated billings growth accelerated to 46%. The strength in billings continues to be driven by new and existing customers for both Workforce and Customer Identity across all our geographies.

Turning to retention, our dollar-based net retention rate for the trailing 12-month period was 119%, a 2 point increase from Q3. The increase was driven by strong customer upsell, particularly with our enterprise customers, as we grow our business with and within the world’s largest organizations. As we’ve mentioned in previous quarters, the net retention rate may fluctuate from quarter-to-quarter.

Before turning to expense items and profitability, I would like to point out that I will be discussing non-GAAP results going forward. Now looking at operating expenses. Total operating expenses grew 45% consistent with prior quarters. The increase is primarily driven by investments we are making to capture more of our large addressable market.

The biggest component to the spend increase is related to scaling headcount to support our strategic initiatives. We are adding headcount across the Board were primarily in our customer-facing and innovation teams. We’ve been successful in attracting and retaining great talent and total headcount grew 44% to over 2,200.

We generated record cash flow from operations and free cash flow, which yielded an 11% free cash flow margin. We ended the fourth quarter with $1.4 billion in cash, cash equivalents and short-term investments.

I know many of you look at the sum of revenue growth and free cash flow margin as a key metric when evaluating companies. We have significantly outperformed the Rule of 40 for the past two years. This exemplifies the leverage that is inherent in our financial model as we maintain industry-leading revenue growth, while showing steady free cash flow margin expansion.

Moving on to our business outlook. We remain optimistic about the demand for our products, but we continue to closely monitor the business environment to-date, we have not experienced any impact to our demand related to the coronavirus and this is reflected in our guidance.

For the first quarter of fiscal 2021, we expect total revenue of $171 million to $173 million, representing a growth rate of 37% to 38% year-over-year. Non-GAAP operating loss of $33.2 million to $32.2 million and non-GAAP net loss per share of $0.24 to $0.23 assuming weighted shares outstanding of approximately 123 million.

We are increasing our full year 2021 revenue outlook from the preliminary view that we provided last quarter. For the full fiscal year 2021, we now expect total revenue of $770 million to $780 million, representing a growth rate of 31% to 33% year-over-year. Also, we expect non-GAAP operating loss of $65 million to $57 million and non-GAAP net loss per share of $0.42 to $0.37, assuming weighted shares outstanding of approximately 125 million.

Consistent with our approach throughout last year, our bias is to reinvest revenue upside and investments to continue the innovation of our platform, fuel growth and further enhance our competitive positioning. That being said, we are taking a disciplined approach and will only invest in opportunities that we believe will yield a meaningful return.

We demonstrated that we were able to grow responsibly by balancing continued top line momentum with margin expansion and expect to be free cash flow positive again for fiscal ‘21, with some quarterly fluctuations due to working capital and seasonal factors. We’re also planning on capital expenditures of approximately $35 million in fiscal ’21 related to new and expanded facilities needed to accommodate our growing Workforce. I would also like to remind everyone for your models, the Q1 operating margin has some seasonality related to expenses for Oktane or annual sales kickoff, and the reset of payroll taxes.

In summary, this has been a tremendous year of growth across our entire business. Our industry-leading cloud-based platform is addressing more and more of our customers’ complex use cases as we continue to introduce new products and functionality, and we achieve particular success with large enterprise customers, both a testament to the investments we’ve been making. While the progress we made so far has been great. We believe this is just the beginning and plan to further capitalize on the tremendous market opportunity in front of us.

And finally as Todd mentioned, we’re going forward with our Investor Day in a virtual format. We’ll provide more details in the coming weeks, but note that we’ve moved Investor Day to April 1st. It’ll be a great event where you’ll hear more on Okta’s vision and strategy and you’ll have opportunities to ask questions.

With that, Todd, Frederic and I will take your questions now. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we’ll take our first question from Walter Pritchard from Citi. Please go ahead.

Walter Pritchard

Hi, thanks. Question for Frederic, and then one for Todd. So on the sales side, I mean, you saw it’s coming out of your sales kickoff you’re really looking to hire a lot of enterprise type reps. Can you help us understand as you move into ‘20 – fiscal ’21 here, sort of how the complexion of the sales capacity additions you’re looking to do in 2021 differs from where things were in ’20 and before?

Todd McKinnon

Yeah, I think it’s – a lot of it is consistent. I would say there’s a little bit more of a weight on enterprise, but a lot of it’s consistent. And the one thing we’ve done really well last year and continuing this year is you know, getting ahead of our sales hiring, which, you know, has been, you know, is a good testament to our success, that has been the results. And with our success, we also see hire in Salesforce gets – you know, getting high quality Salesforce on the team is really important and we’re being very successful with that. So I think it’s a portent positively for the future.

Walter Pritchard

Got it. And then just and other just product question. So on the Access Gateway and just generally, the maturity of some of these products that go after the tools of money that had previously been available mostly the on-prem type products, with another quarter of maturity, the products and out of the field selling, what can you tell us about – how you’re thinking about that opportunity? And when we may see more of an inflection with attached to those products?

Todd McKinnon

Yeah, you mentioned a couple of products. We’ve – we had a really strong year last year in terms of innovation with everything from Dynamic Scale to the couple you mentioned, like Access Gateway or Advanced Server Access. And all the products are doing really well.

I would say specifically, Advanced Server Access is – it’s an interesting product for us, because it’s really an entirely new use case for Okta – to Okta for admins and developers log into servers. And as you know, that every organization is building more apps, websites, mobile apps and that means, they have developers in a lot of cases, those environments aren’t, you know, they represent a big security risk, and we can help them with that. So that product is doing really well. And it’s a whole new flank for us, which is very exciting.

Access Gateway is a little different. It’s really, you think of it as an extending Okta into the on-premise world and the more simple to use and comprehensive way, and that helps every customer, but also helps particularly in large enterprise where they all know they want to do cloud, but they also have more legacy than other segments and the Access Gateway is really doing a good job unlocking a lot of opportunities there. So we’re very excited about all the product additions, particularly the Advanced Server Access and the Access Gateway.

Walter Pritchard

Great, thank you.

Operator

And we’ll take our next question from Melissa Franchi with Morgan Stanley. Please go ahead.

Melissa Franchi

Great. Thank you so much for taking my question. I wanted to just put a finer point on the commentary though, that you said on the macro environment, it’s helpful to hear that you’re not seeing any impact in customer buying behavior. But as we’re thinking about your guidance for this year, are you just anticipating it’s going to be a relatively stable spending environment similar to what you thought in ‘19? Are you embedding any additional conservatism?

Bill Losch

Yeah, Melissa so as we said or as I said, we’re – right now we’re not seeing any impact in our product demand from what’s happening with frankly, the tragedy that is the coronavirus. And that’s really what we’ve now reflected in our guidance. We’re obviously going to monitor that very closely. We’ve been very pleased with – the product demand we’ve been really pleased with the momentum of the business, which is why we raised the guidance for the full year by $20 million at the high end, 3% growth. And I think that’s how we’re looking at it right now, obviously we’re going to, you know, as I said, continue to monitor it very closely, but right now we’re seeing very, very strong demand for our products.

Melissa Franchi

Okay, that’s helpful. And I have one follow-up question. Product related question for Todd. Todd, you mentioned Dynamic Scale, and I think there was a number of deals that you referenced in prepared remarks that were – had Dynamic Scale involved. So can you just talk about what you’re seeing in terms of the early customer interest? And then how it expands your relationship with customers and the external customer opportunity? Thank you.

Todd McKinnon

Yeah, we’re excited about Dynamic Scale and the Customer Identity business. So and they’re both, you know, they go kind of hand and glove, because Customer Identity is about reaching you know, lots of concurrent customers using a service and many, many customers over the lifetime of the service.

And Dynamic Scale is perfect for that, because if you think about companies that are doing Customer Identity projects, they want to – it’s usually like an online version of their existing products or it’s a new product. And there’s a lot of, you know, time to market pressures for them. And there’s also a lot of, frankly, it’s difficult to forecast the usage for them. And it’s difficult for them to deal with regulatory issues in terms of, is the environment certified for regulation.

So, by using something like Okta, the identity layer, and those customer-facing initiatives, it really removes those burdens from companies, whether it’s the regulatory or that it’s a time to market lets them get out there faster. And then sometimes the unpredictability of the demand something like Dynamic Scale takes out off the table. So they can buy the Dynamic Scale product and be in rest assured that you know, up to 500,000 logins a minute, it’s going to work. And you know, something that customers are very, very excited about.

You know, I mentioned, the, you know, Autodesk in the prepared remarks. Another example is athenahealth. These are companies that are you know, remaking their businesses as online services and having a partner like Okta and the capability like our Customer Identity Solutions and Dynamic Scale will help them.

Melissa Franchi

Very interesting. Thank you.

Todd McKinnon

Thank you.

Operator

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

Heather Bellini

Great, thank you so much. Had a question for Bill and then a question for Todd. Todd, I wanted to ask, we’ve – you know, people have been talking to Microsoft lately, they’ve been trying to talk about how Azure Active Directory has been increasing its number of API connections and that the products getting more competitive. And then, you know, Ping was talking about the competitive landscape last night on the call – on their call.

I was just wondering if you could share with us, anything you’re seeing that might be different. And I guess, specifically also related to Microsoft, they’re given some of the comments they’ve made recently? And then the question for Bill would be, Bill, we continue to see obviously really strong and accelerating current RPO growth, which obviously is a good deal higher than billings growth? And I know those metrics bounce around from time to time there’s been periods where that’s been reversed. But is that what you would expect to see like kind of that type of delta that we’re seeing right now to continue between those two? If there’s any comments you could share with us to help us on that, that would be great. Thank you so much.

Todd McKinnon

Yeah, it’s interesting. So we – you know, as we’ve said a couple of times, the demand environment and the market environment for our products is very, very robust. You know, there’s more deals, there’s bigger deals, there’s – you know, our product seems to be, you know, really well positioned the right place, the right time. And we haven’t seen the competitive environment change. It’s really been consistent over the last several years.

I would say the last change was and it was more of maybe a perceived change, an actual change was, you know, five or six years ago when Microsoft first released their product you know, that was like, it actually accelerated things. It was really put a fine point on the importance of identity and over the, you know, intervening years, they’ve – I think that they've, you know, talked about it a lot, but we haven’t seen it in the market. We haven’t seen traction in the market. I didn’t follow their numbers. So I can’t comment specifically about those things.

And, you know, what we’ve seen is that companies have a really, really complex and heterogeneous environment. And where we really, really excel is connecting customers to everything in their stack. You know, I was talking to a customer this week and they’re moving 8,000 applications on the Okta. And, you know, a lot of these are internally developed, it’s every kind of functional footprint, it’s every vendor under the sun. This is a big company. And it’s that kind of complexity that you have to have a focus on doing that for a decade plus like we have, to build the platform and the capabilities to do that.

You have to start it in the cloud, because you have to be able to have a centrally managed and maintain identity sorry, integration network like we do. You have to be really committed to, you know, multiple cloud, multiple apps, multiple devices, and you know, you have to kind of you can’t be bound to a certain vendor or a certain stack and do that. And I think that that’s really proven out in the marketplace.

Frederic Kerrest

Hey, Heather this is Frederic. I would just add that, you know, the world from our perspective is really separated now into legacy and cloud. And we’ve always felt that the cloud is the future, so many of our competitors like Ping fall into that legacy bucket. And then I think when it comes to Microsoft, with our win rates remain very, very strong. You see that demonstrated the numbers that are based net retention, new customer accounts, but also the independence and neutrality that Todd mentioned, is a big factor.

First of all, folks do not want to be locked into any specific vendor. And you see that in our businesses that works data that we published in January. If you look at the best of breed, I mean of our customers and we have many, many large deployments of Office 365, right organizations like Hitachi that roll out hundreds and thousands of employees of Office 365 in three months using Okta.

But over 75% of our Office 365 customers are using another collaboration best of breed applications. So Zoom or Slack or something like that. And what that really means is that, the future is this, hybrid, multi cloud, lots of applications, heterogeneous environment. And you need to have the ability to connect deeply and broadly into all the technologies that people use, and not be wedded to one specific application or one stack.

Finally, I would say that, back to the question around Okta Access Gateway we received earlier, Okta Access Gateway is doing very, very well. And I think having that as an embedded part of the Okta Cloud Identity suite, having that be the pre-integrated solution that we provide to allow our legacy large enterprise customers who have legacy infrastructure to connect that in a modern way to the cloud is very differentiated.

And if you look at other organizations, Microsoft is an example, they have to do that through partnership and customers are really looking for an end-to-end solution for these critical Workforce and Customer Identity initiative. And we think that we’re very well positioned to do that now and going forward.

Bill Losch

And Heather to address your question about the correlation between billings and RPO. I think that, you know, the reason we introduced or started to really focus on current RPO last year is really because of the fact that, that correlation is difficult from the standpoint that current RPO really does smooth out what you can have as fairly significant variability and billings, which is really driven by invoice timing, and invoice duration. And especially when you’re doing business with larger and larger enterprise customers, which we are that variability on the buildings on a quarter-to-quarter basis can be even more. So that’s why we thought current RPO was actually a very good additional metric to take a look at. So it’s hard to say that correlation – you know what that correlation will be overtime, because of the variability on the billings.

Heather Bellini

Thanks, Bill.

Operator

We will take our next question from Sterling Auty with JP Morgan. Please go ahead.

Unidentified Participant

Hi, guys. This is [Matt] [ph] on for Sterling. Thanks for taking my question. You know, on the on the geographic split, you know, the international portion had a nice reacceleration this quarter. Just was wondering, were there any specific regions that you guys saw, you know, increased demand? And then going forward where are you guys focused in terms of what’s next?

Todd McKinnon

Thanks, Matt for the question. The growth that you’re talking about, we’re very excited about the growth in the overall business as well. And then obviously, internationally, because that’s a tough compare with North America. So that growth was driven by strength across all the regions. It’s still early, but we’re starting to see really good traction with notable international customers.

I’d refer to the global 2000 Power Management Company and European Film and Television Studios that Todd talked about in his prepared remarks. I mean, if you look at last few years, we’ve opened and expanded 5 international offices now, Stockholm, Munich, Amsterdam, Paris, Toronto and we’re going to continue to expand that footprint. We think there’s a very large opportunity internationally, something we’re focused on both directly and indirectly with our partner channel. We’re very excited about that and I think you’re going to continue to that growth in the month and of course and years ahead.

Unidentified Participant

Great, thanks guys.

Operator

And we’ll take our next question from Rob Owens with Piper Sandler. Please go ahead.

Rob Owens

Great and thanks for taking my question. A couple of things. Number one on the net retention rate and well I know, Bill said it’s going to bounce around a little bit, it did reaccelerate in a fourth quarter where actually your customer acquisition was really strong too. So was this just kind of a function of a Q4 where you saw a flush or was there more focused on both existing customers and saw some strong momentum on the customer acquisition size, I believe that reaccelerated after a couple of quarters of being somewhat flattish year-over-year? Thanks.

Bill Losch

Yeah, Rob. What really is driving that is, you’re right. We are now seeing both the dynamics of acquiring more customers, more of those large enterprise customers, which do have larger initial deal sizes. But what we’ve also saw in Q4, resulting in Q4 is that expansion within those customers is also strong. So what’s exciting for us about that is not only do we think as we move more and more into the large enterprise, we have the opportunity for large initial deal sizes, but we also have a lot more opportunity for expansion into those customers over time. And that’s really what drove the increase in the net retention rate by over the quarter.

Rob Owens

Great, thank you.

Operator

We’ll take our next question from Andy Nowinski with DA Davidson. Please go ahead.

Andy Nowinski

Great, thanks. Congrats on the great quarter again. Maybe just one question for Todd, and then one for Bill. So customers that spent more than $100,000 this quarter again, increased 41%, which is tremendous. And I think you said half are new. Are those new customers starting with more of your products on the initial deployment? Are you just getting into larger enterprises with more employees?

Todd McKinnon

It’s both. Yeah, we have more – with the new products and the innovation we have more ways for customer to get started with us, whether it’s Customer Identity or Workforce Identity or was advanced Server Access. And I think also, as you mentioned, the bigger companies have bigger employee bases and even a single product buy can be bigger like for like with a smaller company. So I think you see both dynamics driving there.

And it’s like really what – I think another thing that’s really important to us throughout the whole company is, we’re really, really focused on making them successful. So it’s one thing to get a company, but you know, even companies that have fairly large initial deals with us, our product portfolio is getting to a point where they can substantially expand. So that’s why our long-term orientation around really be obsessive about making the customer successful and turning them into fans is starting to pay off. And we’ve been doing that for since we started and I think you’re starting to see that really help us whether it’s net retention, whether it’s the number of the deals over $100,000. It’s, you know, things are really rolling.

Frederic Kerrest

And I would just add to that, Andy that if you look, we put out actually a press release, when we do earnings also around successful deployments, because as Todd said, it’s one thing to acquire new customers, but it’s much more important when you get them live and successful.

And today, we put one Zurich North America, obviously a very large insurance company, one of the biggest in the world, they standardize on Okta across 9,000 employees, but they also migrate authentication for over 45 customer and partner apps from on-premise solutions like CA SiteMinder for the Okta to any cloud in less than two months.

And the fact that you can get these very large organizations with very complex environments up and running and successful in short time, they see that success in these projects and that also obviously drives the opportunities for both cross sell and upsell down the road as we build a significant partnerships with these large organizations.

Andy Nowinski

That’s great. Thanks, guys. And then just a clarification mainly for Bill. It looks like your revenue guidance for Q1 is almost 2 points higher than normal seasonality, I think normally it’s right around 22% of the total for the year. Is there anything changing in the buying patterns or is that just a reflection of perhaps some conservatism in your annual outlook for Q3 and Q4?

Bill Losch

No, I think what you’re seeing, Andy is a couple of things. One is obviously we had a lot of momentum coming out of Q4, which we talked about as far as the significant increase in our current RPO that accelerated from 52% in Q3 to 54%. The fact that we had an acceleration in billings, so you’re seeing a lot of that come, you know as revenue, obviously in Q1.

I think the other thing, which is more of a modeling point, but it’s valid is the fact that now that we’re in a leap year, we actually get one more day of revenue recognition in Q1 so that also has an impact.

Andy Nowinski

Got it? Thanks. Keep up the good work, guys.

Todd McKinnon

Thank you.

Bill Losch

Thanks, Andy.

Operator

And we’ll take our next question from Gregg Moskowitz with Mizuho. Please go ahead.

Gregg Moskowitz

Thanks very much. Congrats on a really nice quarter guys. Just one question for Bill so – sure. So, Bill you know, you accelerated your rate of hiring this year as you had intended, but how are you thinking about fiscal ‘21 headcount at this time just vis-a-vis or you know, current expectation to grow revenue low 30 this year?

Bill Losch

You know, so like you said, we had an acceleration of headcount as we went into the second half of the year, 44% in the second half of the year growth compared to 40% in the first year or first half of the year. So very strong headcount growth which is really, I think a very phenomenal testament to the success we’ve had both attracting and retaining talent.

We’re going to continue to focus on hiring. Our expectation is to hire more in fiscal year ’21 this year than we did last year, the rate of growth will come down a bit, because the base is higher, but we’re still focused on hiring and growing that headcount, because that is the key part of our investing in specifically go-to market also innovation to capitalize on this huge market opportunity we see in front of us.

Gregg Moskowitz

Terrific, thank you.

Operator

We’ll take our next question from Jonathan Ho with William Blair. Please go ahead.

Jonathan Ho

Let me echo my congratulations as well. You know, Todd, I just wanted to start out with just one question. You know, you talked about, you know, Oktane customers now making the company their identity standard. And you’ve referenced this in so to your other calls as well. What does that mean to you? And in terms of maybe the multi product adoption as well as you know, the use of Oktanes for their own suppliers, I just want to get a sense for how you think about, you know, Okta as an identity standard? Thanks.

Todd McKinnon

Really it means, so the – what’s really different in this generation of technology is that, we live in a world where every platform had identity in it, whether it was Oracle apps or Microsoft network or IBM, they all had identity in there. And we moved the world now, because of the complexity, because of the heterogeneous environments, because of the best to breed, the pressure to do more, the pressure to have security where identity is its own platform.

And so when I say a company is moved to Okta as a standard, really – it’s really they’ve adopted that mindset that they need a single identity platform, that they have to have everything connected to that. It’s only way that they’re going to scale and transition things from on-prem in the cloud. It’s the only way they’re going to build customer, websites and mobile apps quickly. It’s the only way they’re going to really be able to keep it secure in a world where people are want to work from more places, they want more flexibility.

At the same time, they want it to be easy. That’s what I mean by, it also has you know, what you start to see happening as more companies standardize on us. It has very positive follow on effects like what you’re talking about where, you know, the fact that a company uses us, the partners logging in, you know, the connect together, the various people in their ecosystem. There’s an advantage of having Okta. It helps us work with industry to standardize the way some of these integrations work and have been built on our platform in a way that’s really beneficial to all of our customers. So yeah it’s important. I think it’s an important part of us executing on our long-term strategy and we’re excited about the progress.

Frederic Kerrest

And I would just add, Jonathan to that, that what you see in that is, there’s a lot of things. First of all, the dollar-based net retention number is clearly points to the customers becoming successful, adopting more and more. It’s also why we’re so focused on getting customers up and running and successful quickly, because that allows them to show internally, this is a new way. This is very important. This is something that we can standardize our company on.

You end up seeing organizations like NG, the giant energy company that ends up using us now, we started with one specific division and one specific country, now we are the global identity standard at NG across both their Workforce and their Customer and Identity Access management properties which becomes a huge opportunity obviously for us, but also for them, because it’s one company, one platform, one set of products they become comfortable with and allows us to build very powerful partnerships for the years ahead.

Jonathan Ho

Thank you.

Operator

We’ll take our next question from Richard Davis with Canaccord. Please go ahead.

Richard Davis

Hey, Thanks. Just a quick question. Last summer I think you guys announced was HR provisioning. And as I recall your first partnership is with Workday. You know, how’s that gone? You know, and have you added additional HR firms to your roster for this product? Thanks.

Frederic Kerrest

Thanks, Richard. Obviously, the opportunity to use a lot of these modern HR systems to start driving deep end-to-end advanced workflows for our customers is something that’s a huge opportunity for us. And it’s very early days as you said. Certainly it’s gone very well with Workday as it has with the other providers out there Ultimate Software and the others and you see very good examples of exactly how this plays out with our customers.

You heard in the prepared remarks today that Todd made around, NTT DATA and how they were a Workforce customer that kind of upsold themselves this quarter. Well, that was exactly what they did. They started with Single Sign-On and authentication and authorization became very successful. This quarter, they added Universal Directory, Lifecycle Management and Workflows to solve that HR end-to-end joiner-mover lever problem, where a company have to manage the onboarding, the transitioning of employees and then ultimately, when they leave.

This is something you’re going to see more and more of, we’ve talked in past quarters, large Fortune 500 and Fortune 100 organizations like Warner Media did the exact same thing started with Single Sign-On multi factor authentication, and then decided to implement HR as based provisioning using Okta and getting to that joiner-mover lever problem.

I think you’re going to see more and more of this, especially as companies realize that they can move to a lot of these modern cloud applications, use these heterogeneous environments and take advantage of all the advanced workflows we already have in the system and we keep releasing to help these customers be successful with these new opportunities ahead.

Richard Davis

Great, thank you very much.

Operator

We’ll take our next question from Taz Koujalgi with Guggenheim Partners. Please go ahead.

Taz Koujalgi

Hey, guys. Thanks for taking my question. Two questions. One is, if you look at the new customer revenues this year, it looks like you had a big uptick in new customer deal sizes adopted, because you’re landing bigger customers initially, but the new customer growth was a bit lighter than last year. So as we look forward to next fiscal year, how do you expect those to go very supportive? I do think the initial customer deal sizes keep going up or does that flatline and then we’ll see a bigger uptake of customer adds?

Bill Losch

Yeah, so the way we look at it is that, the trends that you saw this year, which is that, that we were still doing significant customer adds, we set a record this year or this quarter of customer adds of, and of 550 total customers and then also 142 customers paying us more than $100,000. So still very healthy adds. But what we’re also seeing more than that is bigger and bigger initial deal sizes, which is reflected in the RPO.

And I think what you’re going to see is that continue as we move – continue to move towards what we’ve been doing successfully, which is landing larger and larger enterprise customers with the larger initial deal sizes and as we said this quarter, as I said to Rob’s question earlier, this quarter we saw not only that, but we had really big expansion into those large customers. And that’s really what our focus is going to be going forward.

Taz Koujalgi

And then second, Bill your margin guide for fiscal ’21 implies just be flat operating margin, I think a negative 8%, which is same as what you had this year. And we have a long-term fiscal ‘24 margin guide of 16% to 18% which looks even steeper now, given your guide for fiscal ’21? Any comment or color on if you’re still on track certainly those fiscal ‘24 margin targets?

Bill Losch

Yeah, you know, when we set the longer-term model back in October of 2018, the model you know, always assumed that our move to profitability would be more back-end loaded. And the reason for that is, you know, we do focus on growth and profitability, but we’re optimizing for growth.

And we’ve seen huge opportunity for us, both because these, you know, secular tailwinds that we talked about and companies moving to cloud, moving to digitally transform themselves, wanting to be secure and do it in a scalable way are really continuing to push us forward and give us a lot of momentum.

And identity as Todd has talked about is becoming more and more of the standard for that. And that’s why we’re more foundational. So we’re focused on that. I think when we look at, you know, the business, we really focus on striking that right balance between optimizing revenue growth and expanding our free cash flow margin, which is, as we said, we, you know, have consistently over the last couple of years exceeded that Rule of 40 target, and that’s a big focus for us.

So we’re going to continue to make decisions based on assessing that, making investment decisions that really will, we believe, ramp our go-to market and innovation, because we see those big opportunities, but we’re always disciplined about those investments and making sure we have a really meaningful return on those. And that’s the way we’re going to continue to operate.

Taz Koujalgi

Okay, that’s helpful. Thanks, Bill.

Operator

We’ll take our next question from Shaul Eyal with Oppenheimer. Please go ahead.

Shaul Eyal

Thank you. Good afternoon, gents. Congrats on the quarter and the outlook. I had one question so clearly a very nice traction with respect to the journey into the enterprise. Can you talk to us maybe do a compare-contrast as we think about a typical sales cycle into the enterprise versus let’s say, the SMB, so to speak?

Frederic Kerrest

I want to make sure I understood your question. You said, sales cycle, right?

Shaul Eyal

Yeah, that is correct. As it relates to new customers.

Frederic Kerrest

Yeah, absolutely happy to talk about that. You know, I think one thing, Shaul thank you for the question. One thing that I think we really benefit from is with these large organizations, we don’t go in there with a forklift upgrade approach. So when we go in there, we’d help customers, large organizations, small organizations understand very quickly what their opportunities are, and help them find specific ways in which they can get up and running and successful in short order on the Okta Identity Cloud and with our products and give them an opportunity to get to know us as a company, our product, our platform and then they start digging in, you see it in the numbers, obviously, the dollar-based net retention, but it’s also very – it’s a much better message to deliver.

When we go meet with a Fortune 500 CIO, Chief Security Officer, CTO and we say, look, we understand this is new for you, we’re going to help you solve one specific problem that you have. We’re going to show you value and come back in 90 days or 180 days and talk to you about the other opportunities. It allows them to engage with us and the company very quickly, easily and on a high profile projects and when they get that early success, they always come back and say that was a great experience, what else can I do? Tell me all about your product, your platform, your roadmap. And so we don’t go in and say, hey, we’re going to forklift upgrade your legacy Oracle or SiteMinder or Ping installation and we’re going to show you value in 18 months, we say, hey, we’re going to help you with specific problems you have right now and then over time, we’ll show you the roadmap to retire those legacy products.

So from that perspective, certainly it’s a little bit longer of a sales cycle for Fortune 500, just in terms of their process and procurement, financial, legal, but in terms of the actual sales cycle itself on the front end, it’s pretty similar whether you’re a small organization or a large organization looking to start with a smaller deployment, big opportunities for us easy ways to show customer success, and then obviously build those partnerships and strong customer relationships over time.

Shaul Eyal

Got it. Thank you so much for that.

Operator

We’ll hear next from Keith Bachman with Bank of Montreal. Please go ahead.

Keith Bachman

Hi. Thank you very much for taking the question. I wanted to dig in a little bit more on the customer side of the business and a few questions underneath that. Any metrics you can give us, including growth rates is number one. And as we think about the growth opportunities, one of the things is penetration rates. And for instance, can you at least comment on what percent of your core business which the employee base, have you penetrated with the customer side of the business? And is that one of the ways that you’re keeping and actually growing that net retention rate? And then the final one is competition. Are you seeing any different dynamics and the competitive landscape associated with the customer side of the business as opposed to the employee side of business? Thank you very much.

Bill Losch

Yes. So as far as the penetration on the Workforce side, you know, the business as we talked about, you know, we have two really big markets that we’re addressing, it’s the Workforce and Customer Identity. The Workforce is still the significant majority of the business, the coverage that we have within a customer really can be dependent on the size of the customer, the complexity of the customer.

So, you know, as far as the number of users we have, in most cases, we have, you know, multiple products when we sell into an initial customer, and then have those opportunities to sell, you know, at advanced versions of products or more products to them. So, you know, the Workforce like I said is, is still the larger part of the business. Customer Identity has been growing and actually growing faster than the overall Workforce. So it’s become a bigger piece, but Workforce is still the significant part of the business.

Frederic Kerrest

And then, Keith, I would just add – this is Frederic. I would just add on the back of that you know, there’s still a lot of room to run inside these organizations that we currently have is customers with the existing set of products, in addition to all the new things that we’re releasing, that’s the first thing.

Second thing, if you just look at the number of organizations that we could potentially penetrate, I mean, it’s hundreds of thousands of them, right. So we’re very happy and fortunate with our almost 8,000 enterprise customers adding 550 a quarter, those are great results. But we’ve got a huge opportunity in terms of net new accounts that we can work with and how far we can get penetrated inside those accounts.

Secondly, to your question around competition, it’s really different when it comes to Customer Identity and Access Management. It’s really a build versus buy conversation. Historically, enterprises have set up, you know, basic databases, these LDAPs in their networks and reset usernames and passwords. And that’s pretty straightforward.

But what you’re starting to see really is, first of all, speed, people need to get up and running quickly and successfully and setting up all the servers and making sure they all work, it takes a lot of time, it’s heavy duty lifting.

Number two, as the huge enhancer around security here, you know, one of the things that happened over the quarter is, we added a number of large regional financial banks, who were both Workforce and Customer Identity and Access Management wins. And when you dig into that, you realize that it’s complicated.

And when they want to provide secure, reliable interfaces on the web and on mobile to customers to look at their financial data, you want to make sure you get it right, you want to make sure you have multi-factor authentication embedded if you need to, you can make it as seamless or as complex as the customer demands depending on the type of business.

And those are things that they have to do, because it’s in the revenue stream. So you got to get it out the door or your competitors going to do it. And that's a huge driver for the business. That being said, as Bill highlighted, Workforce Identity Management is still the majority of our business, Customer Identity Management is going very, very fast. That is a huge opportunity in the times ahead.

Operator

And we’ll take our next question from Alex Henderson with Needham. Please go ahead.

Alex Henderson

Speaking in under the wire. Wanted to ask a question about the implication of the cancellation of the Live attendance at Oktane, what that might do to your pipeline of leads coming out of Oktane? How you’re thinking about the difference between your normal 8,000 plus people showing up and doing it online? And then second, if you could go into, you know, the thoughts around what are you doing relative to potentially grounding sales people or whether any of your customers are resisting sales visits, and how that might impact your business and your thoughts going forward? Obviously, those are top of mine issues.

Bill Losch

Yeah, for sure. You know, you talked about – you mentioned the change in format for Oktane. So it’s – that to make it clear, that we’re really on top of the – you know, unfortunate coronavirus situation and we’re really making sure that we’re doing everything we need to do to ensure the safety and health of, you know, customers, employees. And it’s a dynamic situation so we’ll stay vigilant and making sure we keep watching it and make the right decisions.

I think we’re fortunate and that, we had Oktane scheduled at a time where we have several weeks to switch it to an online format. And, you know, we were – it is something we’ve done for several years in person and so we thought about, you know, what potential impact could we have in switching it, but it was pretty easy decision given the you know, decreased risk of health and safety by doing that.

But now that we’re ramping up on the online version of it, we’re really excited about it. We think that the breakout sessions are going to be amazing. The keynotes are going to be great and we’re actually seeing tons of additional registrations for the online experience. So it’s going to be amazing and we’re going get the message out there, and we got tons of exciting stuff to announce, and it’s going to be great.

On the – overall, other things we’re doing, you know, we haven’t seen any effects. And, you know, the robust – you know, the demand for our products is robust. And other than that it’s, you know, in terms of like, what visits and customer meetings, those are going on as normal. So that’s the answer to that question. But overall, we’re, you know, we’re going to optimize the health and safety of – and take prudent steps where it makes sense and keep an eye on things and, you know, keep leaning into this big long-term opportunity.

Alex Henderson

Just to know, how much of the, I think, you talked about as much as $6 million of expenditures that normally go out in the – for Oktane in the marketing side of it. How much of that can you recoup? How do we think about the impact of not doing it on the cost side of the equation, please? Thanks.

Bill Losch

It’d be a really high definition stream. Yeah, the – you know, we’ve taken a look at that obviously and there are kind of puts and takes as far as what the costs are. And we have baked that into the guidance that we gave you for Q1, so that is in those numbers.

Todd McKinnon

I would just say we, you know, again, we’ve benefited from the – you know, five weeks we had to make changes. So, I think Yeah, as Bill mentioned, it’s in the puts and takes that it’s good that we have five weeks to adjust.

Alex Henderson

Great, thank you.

Operator

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

Pat Walravens

Great, thank you. By the way, I applaud the decision to put your – the health and safety of your community first. Thank you for that. But totally switching gears –

Todd McKinnon

That includes you as well.

Pat Walravens

How do you guys think about Oktane ventures and what it’s supposed to achieve? And are you modeling it on something? Like, you know, Salesforce ventures is a good example of a model that you might have used?

Frederic Kerrest

Yeah. Thanks, Pat. So around the Okta ventures, I mean, Salesforce ventures is obviously a little bit more mature at this point. What we’re thinking really about is, how we can keep a good eye on the upcoming technologies that are focused on identity, security, privacy, obviously we’re doing a lot of things internally. You know, where we have an excellent organic product and engineering organization and they’re doing a lot of things. But we are looking at other companies that are out there who might be doing interesting things around identity, artificial intelligence, machine learning, blockchain and it is an emphasis on early stage investment, we’ve made four or five investments today.

You’ve seen its Trusted Key, a blockchain-based digital identity company an IoT identity company called Occam and another of others. And it allows us to have a good pulse on what’s happening in innovation, while at the same time, building strong relationships with companies that we think have very good futures in areas that are going to be very interesting to identity, security, privacy, the things that our customers really care about.

Pat Walravens

Awesome. And then Frederic, when you’re talking about all the customers that you’re getting up and running, it just occurred to me, when it takes longer than you would have thought to get a new customer up and running, what’s usually the hang up, what’s the biggest issue that you deal with?

Frederic Kerrest

It never happens, Pat. I’m just kidding. From time to time, we will it – it will take a little bit longer to get a customer up and running. It’ll be in large enterprise and what will happen is, you’ll have a change agent who’s brought in, I can think of a number of these cases in the second half or even in Q4, change agent comes in says, hey, we really need to accelerate our move to the cloud, but they have legacy infrastructure, they need to figure out exactly how they’re going to, you know, our enterprise that is, you know, doesn’t throw anything away, what they do is, they buy new things, and they glue them on the front. So they can use Okta to do a lot of that. But just figuring out kind of how that’s all laid out internally, is one piece of it.

And then secondly, there’s some change management that goes along with it. If you’re a large company that has 100,000 employees and folks are used to doing things at certain way, we’ve talked on this phone call about Office 365, so email or HR collaboration and all of a sudden, you’re going to shift into a cloud-based enterprise service, that’s going to take a little bit of change in the Workforce. So you see that happen from time to time.

And then finally, on the Customer Identity and Access Management side, they want to make sure they get it right. So we tend to do a lot of testing with them and just ensuring that it’s all perfect before it goes up in front of their customers. And a lot of times we’re just working very closely with those customers to make them comfortable with what they’re about to do. And then ultimately they can make Okta, the identity standard for the enterprise as Todd highlighted.

So yeah, we’re very excited about it. It is a very good experience. We do have a lot of repeat enterprise customers. They go from enterprise to enterprise and they call us right away and say there’s a lot of opportunity. So it’s something that is working well in the business.

Pat Walravens

Awesome, thank you.

Operator

And this concludes today’s question-and-answer session. I’d like to turn the call back over to Mr. Gennarelli for any additional or closing remarks.

Dave Gennarelli

Thanks, operator. As we mentioned, we’re hosting our Investor Day on April 1st, and I’ll be sending out more details with more specifics in the coming days. Thanks again for your time this afternoon.

Operator

Once again, that does conclude today’s conference. Thank you for your participation. You may now disconnect your phone lines.