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OKTA.OQ - Q2 2018 Okta Inc Earnings Call
EVENT DATE/TIME: SEPTEMBER 07, 2017 / 9:00PM GMT

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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Call
CORPORATE PARTICIPANTS
Catherine Buan Okta, Inc. - Vice President of Investor Relations
J. Frederic Kerrest Okta, Inc. - Co-Founder, COO and Director
Todd McKinnon Okta, Inc. - Co-Founder, Chairman & CEO
William E. Losch Okta, Inc. - CFO

CONFERENCE CALL PARTICIPANTS
Heather Anne Bellini Goldman Sachs Group Inc., Research Division - Research Analyst
Patrick D. Walravens JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst
Richard Hugh Davis Canaccord Genuity Limited, Research Division - MD and Analyst
Robbie David Owens KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst
Sterling Auty JP Morgan Chase & Co, Research Division - Senior Analyst

PRESENTATION
Operator
Ladies and gentlemen, thank you for joining today to discuss Okta's second quarter 2018 financial results. Today's conference is being recorded.
I'd like to turn the call over to Catherine Buan, Vice President of Investor Relations. Ms. Buan, please go ahead.

Catherine Buan - Okta, Inc. - Vice President of Investor Relations(technical difficulty)
today's conference call to discuss Okta's fiscal second quarter 2018 financial results. With me on today's call are Todd McKinnon, Okta's Co-Founderand 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 ReformAct 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'll discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitutefor or superior to measures of financial performance prepared in accordance with GAAP. There are a 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 from time to time, including the section titled Risk Factors in the company's Form S-1 previously filed with the SEC. You
can also find more detailed information in our supplemental financial materials, which includes trended financial statements and selected metrics
posted on our Investor Relations website.
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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Call
Now I'd like to turn the call over to Todd McKinnon. Todd?

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
Thanks, Catherine, and thanks to everyone for joining us. We reported a very strong second quarter, and I'm pleased to share our results with you
today.
We're also coming off the heels of our customer and partner conference, Oktane17, which brought a number of exciting announcements in thelast week. This year's Oktane was the largest event we've ever had with over 2,400 individuals registered, including over 350 partners and over 100
C-level executives who participated in our Executive Summit. It was an incredibly successful event, and it wouldn't have been possible without theenthusiasm and support from our customers, partners and employees.
I'll begin the call today with a brief overview of our performance in the quarter and then go through some of the updates to our business with a
few notable customer wins. Finally, Bill will walk through the financial results in detail.
In our second quarter as a public company, we once again achieved record quarterly revenue in billings. At the same time, we saw significant
improvements in our operating and free cash flow margins year-over-year. Total revenue grew 63% year-over-year to a record $61 million, while
subscription revenue grew 68% year-over-year to $56 million. Calculated billings grew 54% year-over-year to $72 million. And we continued tosee improving leverage in our business, demonstrated by a 20 point improvement in our non-GAAP operating margin and a 23 point improvementin our free cash flow margin year-over-year.
I know a number of you are still relatively new to the Okta story, but I'd like to take a few moments to explain what we do and why our customers
choose Okta as the identity platform for their business ecosystems. What we do is based on a relatively simple concept. Identity is the foundation
for connections between people and technology. The single biggest driver of our market continues to be the fundamental shift of organizations
moving to the cloud.
We have seen a relentless rush of new technologies and device proliferation that has resulted in ever-increasing complexity and security challenges
for organizations. Born and built in the cloud, we are on the right side of history in this shift and are well positioned to capitalize on this market as
the leading independent provider of identity for the enterprise.
The value proposition that we bring to the market has been further validated by Gartner in their recently released Access Management Magic
Quadrant. We were not only named a leader in this report but achieved the highest positioning in ability to execute. We believe we are in thedriver's seat as this transformation unfolds, and Okta continues to set the standard for managing identity in the extended enterprise and transforming
the customer experience.
We have developed a comprehensive identity management platform called the Okta Identity Cloud, which enables customers to securely connect
their users to practically any technology anywhere at any time and from any device. The Okta Identity Cloud is made up of 6 individual products:
Okta Single Sign-On, Universal Directory, Adaptive Multi-Factor Authentication, Lifecycle Management, Mobility Management and API Access
Management.
Together, these products enable millions of users to securely access the applications and data they need. Our customers use our products for
managing a range of identities across their businesses, and we have focused on 2 distinct use cases in our approach to the market.
Number one, Okta for the extended enterprise. We enable organizations to connect people and technology within and outside their businesses,
which we refer to as the extended enterprise. The extended enterprise includes not just an organization's employees but also contractors, partners
and suppliers who require varying levels of access to an organization's resources and tools. These extended enterprise environments can become
very complex to manage given the ever-growing network of individuals and applications that are added to an ecosystem as an organization grows.

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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Call
It's becoming increasingly important for CIOs to understand not just who is accessing their organization's applications but the context of when,
where and how individuals are accessing systems without limiting access to the applications they need. As such, identity is becoming a morestrategic part of managing an IT infrastructure, and organizations have been turning to the Okta Identity Cloud to help them solve this problem,
which in turn helps companies grow faster, cut costs, increase efficiency, and enhance security and compliance.
Number two, Okta for the customer experience. It has become increasingly apparent that every company is becoming a technology company.
Organizations of all sizes and industries are building mobile, web and API-driven applications and, in one way or another, are using technology totransform their customers' experience. Products across the Okta Identity Cloud can be used by business leaders to bring an identity layer into theirown innovations, enabling personalized, secure and engaging new experiences for their users. We have invested significant time and resources inour offerings for software developers to enable the integration of Okta into customer-facing applications.
The addition of the Stormpath team further accelerates this investment, builds on our existing products and emphasizes our continued focus on
the developer. We also announced some exciting updates to Oktane last week, including our Developer Edition, which I'll elaborate on further ina few minutes.
As organizations increasingly see the strategic value of identity, our solutions have become a more integral part of their daily operations, bothwithin their organizations and in managing their customers' experience. As a result of the growing use of our platform from both a customer anduser perspective, we've seen our ecosystem of applications continue to grow.
We announced at Oktane an expanded set of integrations called the Okta Integration Network, which broadens the network to connect more
technologies across the enterprise. The Okta Integration Network includes connections to a range of technologies provided by partners, such as
Palo Alto Networks, F5, IBM and Cisco, delivering new solutions around workflow management, business analytics, security automation and hybridIT.
We believe the Okta Integration Network offers the most comprehensive library of both public and custom applications, which gives the customer
the power to use whatever applications they want within the Okta Identity Cloud. And our customers value this flexibility and freedom of choice.
One of the benefits of the network we've built is the plethora of data we are able to gather and analyze, which we can learn from and use to help
our customers make better informed decisions around technology adoption. At Oktane, we announced the launch of our Businesses @ Workdashboard, which captures the aggregate anonymized data from our network of thousands of companies, organizations, applications, custom
integrations and millions of daily authentications from around the world to enable real-time visibility into the most relevant trends in cloud
applications among our users.
Our dedication to our customers and innovation is clear given the numerous product enhancements that we announced at Oktane last week.
These updates make the Okta Identity Cloud an even more comprehensive category-defining offering for managing identities across both theextended enterprise and for the customer experience.
Specifically, there are 3 categories of announcements from Oktane. First, we announced new functionality for many of our IT products. We added
2-factor authentication and common password detection to our Single Sign-On product, increasing security for all Okta SSO customers. Continuingwith security, we enhanced the Okta Adaptive Multi-Factor Authentication product to seamlessly integrate with more of our customers' environments,
including on-premise and customer applications. This enables much more broad-based contextual access management and adaptive risk-based
authentication.
We added self-service registration and enhanced account suspension capabilities to our Okta Lifecycle Management product, which both reduces
costs and enhances security. And last but not least, we added significant LDAP support to our Okta Universal Directory product, giving it thecapability to bridge the gap with legacy on-premises systems that many large enterprises use.
Second, we announced an enhanced integration with Palo Alto Network's security platform to provide security across cloud, on-premise and hybrid
applications and data centers. With this deeper product integration, organizations will be able to automatically respond to threat actors to help
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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Callprevent cyber attacks. With Okta at the identity level and Palo Alto Networks at the network to cloud and endpoint, this gives customers the ability
to automate, monitor and analyze action against security threats.
Finally and most importantly, we announced significant enhancements to the Okta API products with new developer product capabilities and a
new Developer Edition. We're extremely excited about these new capabilities, which help companies transform their customer experiences.
And we've continued to see very strong growth in this part of our business. These product enhancements make it much easier for developers in
any organization, in any industry to build and scale sophisticated and streamlined customer-facing applications. With this updated suite of developer
resources, we are solidifying our position as the leading identity resource for anyone building software today.
Our focus on keeping up with the rapid pace of innovation in the market has helped us to develop what we believe is the most comprehensive
identity solution available today. As I previously mentioned, we were pleased to be recognized as a leader in Gartner's Magic Quadrant for Access
Management. Prior to this year, Gartner had separately evaluated legacy on-premises vendors and modern cloud solutions. We were named aleader in every single version of what Gartner called Identity as a Service. This year, Gartner combined all vendors into a single category. In this
newly created Access Management category, Okta leads every vendor in the ability to execute, including among others, Microsoft, Computer
Associates, Oracle and IBM.
Now I'll move on to a few notable customer examples from the quarter. First, a large North American grocery retailer selected the Okta Identity
Cloud as the cornerstone of their online and mobile experiences for their customer loyalty, rewards and e-commerce programs. The company isusing Okta API Access Management as a critical part of how they are going to re-architect their customer experience. With Okta, the retailer will
enable over 50 million customers across multiple grocery brands to access targeted promotions, conduct e-commerce and leverage loyalty rewards
via one central identity platform. This is a great example of how customers use the Okta Identity Cloud to enhance their customers' experiences
and ultimately drive customer loyalty.
Second, we continue to see expansion across our current customer base. For example, after an initial success across multiple subsidiaries, a global
electronics company extended their commitment to Okta by establishing the Okta Identity Cloud as their company-wide standard for identity andaccess management. Their expanded use of Okta will support over 250,000 employees worldwide and will empower the company's brand acrossseveral industries. With the Okta Identity Cloud, the company plans to consolidate multiple disparate identity and access management products
and accelerate their global adoption of the cloud.
Third, after initial internal rollout of Okta to manage employee access to applications, a major North American home, life and auto insurancecompany this quarter extend their commitment to Okta. Now more employees and over 40,000 insurance agents will use Okta to securely accessapplications. With security an important requirement for their company, they will leverage Okta's Adaptive Multi-Factor Authentication to secure
their extended enterprise.
These customer examples are particularly exciting as they demonstrate our increasing momentum with large enterprise customers. We are seeing
more frequent instances where we are beating or replacing legacy solutions, further demonstrating our strong competitive position in the market.
Our average deal sizes have continued to grow, and we have consistently had success upselling customers of all sizes into larger deployments.
And perhaps most importantly, our customers are extremely satisfied with the products and level of service we deliver them.
Looking back on the quarter, I'm very pleased with our results and even more excited about the future. We've continued to define and expand themarket for identity solutions, and we believe we are well positioned to capitalize on our expansive market opportunity. With the new enhancements
to the Okta Identity Cloud and our initiatives with the developer community, we've extended our lead in identity management for the enterprise.
We appreciate everyone's support to date and look forward to reporting on our progress in the quarters ahead. I'd now like to turn the call over toBill to walk through our financial results. Bill?

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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Call
William E. Losch - Okta, Inc. - CFO
Thanks, Todd, and thanks again to everyone for joining us. Let me start with a brief reminder on our financial model and go through our fiscal
second quarter results in detail before moving on to our outlook for the third quarter and full year fiscal 2018.
For those of you who may have just started to learn about Okta, we generate revenue primarily by selling subscriptions to our cloud-based platformthat are generally 3 years for our large enterprise customers and 1 to 2 years for our smaller mid-market customers. We typically invoice customers
annually and in advance. Our subscription fees are based on the products customer is using and the number of users.
Our professional services revenue include fees for assisting customers implementing our products. We aim to enable our customers' success anddrive higher subscription revenue as these customers expand their usage of the Okta Identity Cloud.
We had a successful second quarter and are pleased with our results. Revenue for the second quarter totaled $61 million, growing 63% year-over-year.
Subscription revenue totaled $56.1 million in the second quarter, an increase of 68% year-over-year, and comprised 92% of our total revenue, up
from 89% in Q2 last year. Professional services revenue was $4.9 million, an increase of 23% over the same period last year. As a reminder, professional
service 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 overall revenue
over time, given the success of our partner ecosystem.
In terms of geographic breakdown, approximately 85% of our second quarter revenue came from the U.S. and 15% came from outside the U.S.
compared to 88% and 12%, respectively, in Q2 last year. We continue to expand our footprint internationally with international revenue growing
over 100% this quarter year-over-year.
Moving on to billings. We recorded calculated billings of $71.7 million in the quarter, an increase of 54% over Q2 last year. We are pleased with ourbillings growth as it demonstrates the strong underlying demand for our products. We do not plan on giving billings guidance on a regular basis,but given the exceptional 63% year-over-year growth we saw in the first half of the year, I'll give you some color on our expectations.
For the full fiscal year, we continue to expect very strong billings growth in the 50% range. We maintained strong growth in our customer baseand ended the second quarter with over 3,650 customers, up 38% versus 2,650 customers in Q2 last year. We also finished the quarter with 539
customers with an annual contract value above $100,000, up 52% compared to Q2 last year.
It's important to note that the majority of these large customer additions came from new logos, demonstrating our increasing traction landing
deals in the large enterprise market. These large customer land deals also paved the way for more sizable upsell opportunities in the future, a key
driver of our business long term.
In addition, we continue to expand with our existing customers, which translates to a consistently strong dollar-based retention rate, which was
123% for the trailing 12 months ended July 31. Strength in our dollar-based retention rate is driven by the stickiness of our products as well as ourhigh customer satisfaction, which Todd mentioned.
Before turning to expense items and profitability, I would like to point out 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 on our Investor Relations website.
Subscription gross margin was 79.3%, up over 300 basis points versus the second quarter last year. Our professional services gross margin was
negative 27.2% compared to negative 25.1% in the second quarter last year. As a reminder, we recognize professional service costs when they are
incurred regardless of when the revenue is recognized. Therefore, professional services margins will continue to fluctuate from quarter-to-quarter.
As we have mentioned in the past, we will continue to leverage our partners for support services as we expand our business.
Total gross margin was a record 70.7% in the second quarter, up over 540 basis points year-over-year. Gross profit was $43.1 million, up 76%
year-over-year. We continue to expect our overall gross margin will move higher over time as we see operational leverage improve, but we will
see some variability.
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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Call
Turning now to operating expenses. We remain focused on balancing our investments for growth while improving leverage. We saw an exceptional
increase in our operating margin this quarter as we outperformed on revenue and our expenses were lower than expected. Longer term, we expect
to continue improving our operating margins 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 Q2 was $36.6 million compared to $27 million in Q2 last year. This represents 60% of total revenue, an improvementcompared to 72% in the second quarter last year. We are beginning to see some operational efficiencies earlier than expected from our priorinvestments.
R&D expense in Q2 was $12.5 million compared to $8.9 million in Q2 last year. As a percentage of total revenue, R&D was 20% in Q2 versus 24% in
the same period last year. We remain focused on innovation as evidenced by the number of product enhancements we announced at Oktane, andwe will continue to invest in R&D to fuel this development.
G&A expense was $9.2 million for the quarter compared to $5.4 million in the second quarter last year. G&A was 15% of revenue versus 14% ofrevenue in Q2 last year. We expect that our G&A expense will continue to grow at a moderate pace on an absolute basis as we have added personnel
and systems to support our transition to a public company.
Our operating loss in the quarter was $15.2 million compared to a loss of $16.9 million last year. Operating margin was negative 25%, a 20 point
improvement compared to negative 45% in the same period last year. We expect our operating margin in the third quarter will be closer to what
we saw in the first quarter of this year due to the impact of Oktane.
Net loss per share in Q2 was $0.16 using 93.6 million basic shares outstanding. This compares to a net loss per share in Q2 last year of $0.90, using
18.8 million basic shares outstanding at the time.
Free cash flow was negative $10.5 million in the quarter compared to negative $15 million in the second quarter last year. Free cash flow margin
was negative 17%, a 23 point improvement compared to negative 40% for Q2 last year. We expect to continue to make progress toward positive,
sustainable free cash flow on a year-over-year basis, but it may not be in a linear trajectory on a quarterly basis in period-to-period fluctuations inbillings, elections and other working capital.
Turning to the balance sheet. We ended the second quarter with $213.2 million in cash, cash equivalents and short-term investments. We remain
comfortable with our cash position.
Lastly, we ended the quarter with a total headcount of 1,096, growing 38% over Q2 last year. We continue to add headcount across the board as
we invest in our innovation and support the fast growth of our business.
Moving on to guidance. For the third quarter fiscal 2018, we expect revenue in the range of $62 million to $63 million, representing a growth rateof 47% to 49% year-over-year; non-GAAP operating loss in the range of $23.5 million to $22.5 million; non-GAAP net loss per share in the range of$0.25 to $0.24, assuming 94 million weighted shares outstanding.
For the full year fiscal 2018, we are updating our guidance as follows: revenue in the range of $243 million to $245 million, representing a growthrate of 52% to 53% year-over-year; non-GAAP operating loss in the range of $78.4 million to $76.4 million; non-GAAP net loss per share in the range
of $0.98 to $0.95, assuming 80.6 million weighted shares outstanding.
In summary, we had a successful second quarter, demonstrated by our strong top line growth. While we are also pleased with our improving
leverage, we are continuing to invest in our business to capitalize on the large opportunities at hand. We look forward to seeing many of you overthe coming weeks on the road.
With that, Todd, Frederic and I will take your questions. Operator?

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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Call

QUESTIONS AND ANSWERS
Operator(Operator Instructions) And we'll take our first question from Rob Owens with KeyBanc Capital Markets.

Robbie David Owens - KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst
First, I just want to ask about something you announced at your Analyst Day relative to LDAP integration and curious to -- if you can provide somecolor if that had been a sticking point for smaller organizations in the past, and what the potential implications are in your small and mid-market
customers.

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
So I think the -- we did -- as you mentioned, Rob, we announced Universal Directory now supports the LDAP protocol natively, and it's a little bitof a -- it's an important enhancement for a couple reasons. The first reason is that, as you mentioned, it enables companies that are using any LDAP
native application to connect it directly up to Universal Directory, which does help some of these smaller companies that are rolling out some ofthese DevOps types of workloads and connecting them up to Universal Directory seamlessly. But on the -- in the larger enterprise, while we've
replicated to and from LDAP for a long time, that -- in that scenario, we could support LDAP, but they still had to keep the LDAP server around. But
with this enhancement, now they can actually retire that legacy infrastructure. So they don't have to actually run those LDAP servers. So it actually
helps both large enterprise and smaller companies. That's why it's so important to us.

Robbie David Owens - KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst
Great. And then second, Bill, you talked about your success within large customers and the new logo additions. Can you give us color on, as you're
seeing these larger deals come in, is this for a single product? Do you see multiproducts typically with your larger customers right off the bat? Ordoes it remain kind of a nice upsell opportunity as you move forward?

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
I think it's -- when they start using us, the land deal is usually a single product. And what happens is that, over time, we make them successful, andthen by the time they get to deploying more and more products, we become the standard. We talked about -- I talked about this -- the electronics
company, the global electronics company that standardized us across all of their subsidiaries. And that was the example there where they've used
us in some subsidiaries for a single product and then multiple products, and this deal was really a very, very large upsell where they've reallystandardized on this -- on us for all their identity needs. And as a result, they're taking out a bunch of legacy vendors across their entire landscape,so the answer is kind of both, right. It's like single product initially and then multiproducts over time.

Operator
And we'll take our next question from Heather Bellini with Goldman Sachs.

Heather Anne Bellini - Goldman Sachs Group Inc., Research Division - Research Analyst
I had a question about the executive, the 100 C-level execs you mentioned that you hosted last week for the executive track. And in particular, I'm
just wondering how has their usage of Okta changed over the last few years and just the narrative that they have with the company. So I guess I'm

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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Callwondering, did it start out that people thought of them -- thought of you as a security offering and now that's changed from being security focusedto one that's also revenue enhancing? I'm just wondering kind of how you've seen the relationship with those customers evolve. And I guess we'll
start there, and then I had a follow-up.

J. Frederic Kerrest - Okta, Inc. - Co-Founder, COO and Director
Thanks, Heather. This is Frederic. So as you mentioned, at Oktane last week, we had our second annual Executive Summit. We had the first one lastyear. And the size of the room certainly grew substantially as did the representation of C-level executives at some of our larger enterprise customers.
And I think that's due to a couple of things. First of all, just the macro trend, right. The trends that we see of company's needing to manage andsecure their extended enterprise and transform their customer experiences, this is something that is becoming relevant to every organization andnot just to small and mid-market companies. And so as large organizations think about how they're going to do this, certainly, they have, at theimplementation level, they have interest. But these are executives who are thinking about their broad plans in terms of how they can not only
reduce the cost in their organizations but also increase their revenue while, as you said, enhancing their security posture along the way. And I thinkthat you see that as a result in that group of executives that joined us.

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
Yes, I will just add...

Heather Anne Bellini - Goldman Sachs Group Inc., Research Division - Research Analyst
And then just one follow-up (inaudible)...

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
I would just -- one thing I would add -- I was going to say, Heather, from my perspective, you just saw a maturation of -- from a couple years ago,
it was like they were kind of learning about the platform and learning the breadth of the platform, and this year, it was more about how am I -how was this going in terms of big transformation of my company. And so the maturity of the conversations had progressed a lot.

Heather Anne Bellini - Goldman Sachs Group Inc., Research Division - Research Analyst
Okay. And that segues into my other question, which is really then, if you were to kind of cohort these people to the extent that you can, how haveyou seen their adoption of Okta products evolve? Meaning, did they start out with just one and now these are kind of mostly multiproduct customers?
Is there anything you could share with us about their profile?

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
I think one thing I've noticed is that there's far more of them are using us for customer experience, so there -- that part of our business has grown.
That's just matured a lot, especially with these large companies.

J. Frederic Kerrest - Okta, Inc. - Co-Founder, COO and Director
Yes. What I would add to that, Heather, is I think when -- if you're a large organization, and you're -- a few years ago, it was like, okay, I'm going totake a risk on a new cloud-based identity service. I'm going to try it for one part of my business. I can think of a large manufacturing customer ofours in the Midwest who started with they had an internal project for their employees. They started with a specific set of use cases and a couple ofour products, and very quickly, they saw success within a couple quarters and came back to us very quickly and said, okay, now I'm more comfortable
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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Callwith the company, with the product suite. I want to understand the entire breadth of what you do, how you can help me not only on my extended
enterprise but also with my transformational customer projects, and I really want to align this with what I'm seeing going forward. And I think thatis a good example of what we're seeing across the board in the large enterprise.

Operator(Operator Instructions) We'll take our next question from Sterling Auty with JPMorgan.

Sterling Auty - JP Morgan Chase & Co, Research Division - Senior Analyst
Want to start on the operational front. Wonder if you can give us an update on where you are in terms of your sales hiring for the year relative to
your original expectations.

William E. Losch - Okta, Inc. - CFO
Yes, Sterling. So on the sales front, we're hiring very robustly on our key in sale to marketing roles, and so that we're -- we've had aggressive targets.
And we are meeting those targets as far as hiring those sales folks because that's obviously very important as we grow to realize these huge
opportunities we have in the market.

Sterling Auty - JP Morgan Chase & Co, Research Division - Senior Analyst
And maybe, Freddy or Todd, can you characterize, where are you finding the incremental sales rep? And is the profile of that salesperson changing
as the adoption rate and the use case in terms of what you're being brought in for now seems to be evolving?

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
I think that one thing we've seen is that as we do these larger enterprise deals that really become the standard across these large enterprises -- I
mentioned a couple of them before, the large electronics, the global electronics company and then the large grocery chain. These kind of deals
are more complicated, so I think it requires a more experienced enterprise-type rep. So I think that would be one in terms of hiring profile we've -over the last couple years, we've adjusted to.

J. Frederic Kerrest - Okta, Inc. - Co-Founder, COO and Director
One thing I would add, though, Sterling, to your question is with the growth that we are seeing and the momentum that we have in the market,
right, success begets success, and we have more and more of our successful enterprise reps are referring in folks that they know from past lives.
And I think that that's helped us a lot, especially as we continue to expand not only in North America but internationally as well.

Sterling Auty - JP Morgan Chase & Co, Research Division - Senior Analyst
That's actually a good segue into my follow-up was how would you characterize where you are in the build-out of the international operations.
And what are you seeing out of international customers in terms of demand and how that might mirror what you saw maybe a year-or-so ago here
in the Americas?

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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Call
William E. Losch - Okta, Inc. - CFO
Yes, Sterling. The international business is outpacing the U.S. in revenue growth, and we're excited to see that the macro trends of acceleration in
the enterprise cloud that we saw -- have seen in the U.S. is also extending itself internationally. So we're very, very optimistic about that. And as aresult, we are focused on building out our go-to-market operations, investing there. And also, over time, we're expanding and leveraging ourchannel partners, and we'll be doing that to give us more reach and leverage internationally, Europe and in Asia.

Operator
And we'll take our next question from Richard Davis with Canaccord.

Richard Hugh Davis - Canaccord Genuity Limited, Research Division - MD and Analyst
Two quick questions. So one of the hard things that a senior manager, the CEO has to decide for companies at your stage is kind of where to draw
the line between partners and internal teams to ensure that these great large customers have successful deployment. If you underinvest, you hurt
growth. If you overinvest, you hurt margins. How do you think about that balancing act as your business kind of evolves?

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
Yes. It's interesting. I -- the way I look at it is that make the customers successful. That's the first and, in many cases, the only priority, make themsuccessful, especially in our business, which is a -- it's a transformational technology. They're long-term relationships. The strategic value we provide
to the customers is very valuable to them and to us so make the customer successful. So that being said, as we've invested more in partners interms of systems integrators and channel sales partners, we're not the only people in the world that can make the customer successful. So as longas we don't violate that first priority, we're very happy to partner and have the best folks in the industry help us with our #1 goal, which is customer
success.

Richard Hugh Davis - Canaccord Genuity Limited, Research Division - MD and Analyst
As I'm driving and trying not to get run over by a car. Second question is you had Stormpath for now about a few months now. What's gone wellso far? What would you like to see go better over the next 12 months? That's it.

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
Yes. I think, this is -- having an offering that is consumable by any developer as they build any application and helping all these folks out there
trying to transform their customer experience is a big priority for us. So I mean, like anything, I wish it was all going much faster. I'm very impatientwith these kind of things. But that being said, we've made a ton of progress, a lot of which we showed off at Oktane. Last week, we have a new
Developer Edition. We have -- and we've done a much better job at really exposing all the capabilities of our platform in a very easy-to-understandand consume and very powerful way for developers because all these customer experience transformation projects have development teams
involved, and we're going to be the lead in identity provider to developers. And that's the goal, and we're off to a really good start.

Operator
And we'll take our last question from Patrick Walravens with JMP Group.

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Client Id: 77

SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Call
Patrick D. Walravens - JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst
I have 2. So the first one is that I really enjoyed the conference, and I like the customer conversations and the customer panels. One of the things
that I noticed, though, is when enterprises adopt you guys, they're often replacing not just one solution but a bunch. And so I was wondering if
you could sort of address that and, at the same time, talk about competitively what you see in these sales cycles.

J. Frederic Kerrest - Okta, Inc. - Co-Founder, COO and Director
Yes, absolutely. I'm happy to do that. So when you think about a large enterprise, right, and we can take Experian as an example, they are one of
the large credit agencies, obviously. They have been around for a long time, and they have a lot of on-prem infrastructure as you mentioned. And
so there's a lot of opportunity to retire different types of systems. Some of them will be specifically focused around core identity and accessmanagement. Others will be around gateways for API access they might have built themselves. And so certainly, as they find more and more use
cases where they can extend and leverage the service and the platform and the products that we have, there are more and more ways for themto take cost and infrastructure from legacy providers out of the equation.

Patrick D. Walravens - JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst
Okay. And then, I guess, Todd, for you, maybe. I remember when you interviewed Diane Greene. That was -- I think that was last year's conference.
That was great. And then this year, I noticed that Google was the sole titanium sponsor at the conference. So -- what is the -- it seems like therelationship is somewhat special. What is the relationship with Google?

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
Well, I think that Google is an important player in cloud applications and cloud infrastructure. And what the -- for Google, we can help them,especially in the large enterprise, connect their applications and their cloud infrastructure to the directories and the on-premise identity systems
that these large enterprise customers we're both going after have. So -- and then from us, of course, our prerogative is to connect in an independentneutral way to every major cloud infrastructure and cloud application platform. It's one of the things that really -- platforms. It's one of the things
that really differentiates us. We don't have -- we're not selling Infrastructure as a Service. We're not selling applications. I mean, we're selling identity,
and Identity as a Platform, and we can play this neutral and independent role and let the customer choose whatever is best for them. So for us, it's
just part of our mission to connect to companies like Google and, by the way, which is the same way we connect to Amazon and the same way weconnect to Microsoft and Salesforce and all the leading cloud, infrastructure and application companies. So that -- it's really a synergistic relationship,
which is why I think both of us are investing in the partnership.

Operator
And it appears there are no further questions. I would like to turn the conference back over to Todd McKinnon for any additional remarks.

Todd McKinnon - Okta, Inc. - Co-Founder, Chairman & CEO
So thanks for your time and attention. I mean, this -- we've talked a lot about on this call. But Okta is about -- the story of Okta is about a couple ofimportant trends. One is the move to the cloud, which continues. That march continues really unabatedly. And then also, as companies try totransform their customer experience, Okta can help them do both. We can help them adopt new technology. We can help them transform theircustomer experience, and it's really what leads to this big market opportunity we have, which is why we're so focused on executing in a bothaggressive way but also an efficient way, which is why you see the results we've posted. So we're really excited about the progress, but we also
look forward, and we're very excited about the quarters and the years ahead. So thanks for your time, and have a good afternoon.

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SEPTEMBER 07, 2017 / 9:00PM, OKTA.OQ - Q2 2018 Okta Inc Earnings Call
Operator
And once again, that concludes today's presentation. We thank you all for your participation, and you may now disconnect.

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