Okta, Inc. (OKTA) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us today on day 3 and the final day of the UBS Global TMT Conference. I'm your friendly neighborhood SMID software analyst here in the U.S., Fatima Boolani. And at this time, I have the pleasure of hosting Frederic Kerrest, Co-Founder and COO of Okta with me. Thanks for sharing the stage with me today, Frederic, really appreciate the time.

Thanks for having me. I'm excited to be here. So day 3, so you -- truly, you save the best for last is that the idea?

I sure did. Got to keep them hanging on with an anchor tenant like you.

I can't wait. Also, since I'm in the witness protection program because I had to take away my green screen. No one even knows where I am, who knows what I might say now.

I like the stealth mode. It's good.

Good. Good. Good. Terrific. Yes. Thanks for having me. I'm excited to be here.

Terrific. Well, I know we've got a lot to talk about, so I'm going to jump right in. Maybe just to level set the discussion, you're coming off fresh off your third quarter results in what has been a remarkably unique year for almost all enterprise software companies, to state the obvious. But I think it would be beneficial for us just to have a brief overview of the operational and financial highlights coming out of 3Q and maybe contextualizing a lot of those observations against the backdrop of pandemic and then the 9-year -- 9 months in which you've navigated business through the pandemic.

Yes. Sure. I'm happy to start with that. We -- as you said, we wrapped up our Q3, and we had earnings last week. Look, it was a great quarter. I mean we had strength across all of our key metrics: RPO, revenue, billings, free cash flow. I think we had a particularly strong execution in the face of COVID, and we're continuing to build on our leadership position. Look, if you told me when we started the company 12 years ago that, today, we'd have I think 2,800 employees, 9,400 customers, it was, what, $220 million at Q2 '17, for the quarter growing in the 40 percentages, I would -- public for 15 quarters, I would have taken that on a heartbeat. But now kind of based on where I am, the last 3 years have been great as a public company. I think the next 3, 5, 10 are going to be way more interesting. But the macro tailwinds that we're working on and that we're benefiting from in helping our customers with our -- by hybrid cloud, everyone is moving to cloud, but they want to leverage the on-prem infrastructure they have today for their employees; digital transformation, most overused term in the industry, but basically, people need to have better interaction with their customers and partners and vendors and suppliers on websites and applications; and then Zero Trust security where the perimeter is basically gone, especially in this world where we're all working remotely, I think all these tailwinds, these have been going on for some years. They're going to keep going on for a decade. But I think they've been pulled forward in everyone's -- certainly in the buyer's mind and accelerated a little bit by COVID. So yes, overall, it was a very strong quarter. I think it's a very strong foundation. We're playing the long game. My Co-Founder and I started the business, and we're still running it today. And we have that long-term view. And so we're very happy with the quarter. But again, I think the next 3, 5, 10 years are going to be very, very interesting and exciting in our business.

Frederic, I want to dig into something you said around pull forward, and I think this is very topical for investors. And I think there's a nuance where there's a pull-forward event or a dynamic and catalyst for more durable growth moving forward. And it seems like the pandemic has become a catalyst for pulling forward a lot of very tough decisions that otherwise would have taken a number of years to play out. And so drilling into some of the demand applications for Okta, especially as the pandemic has intensified, can you juxtapose what's really changed for Okta, pre and post-COVID just from a demand pattern standpoint? And really, how has that manifested in your customer engagement and sales cycles?

Yes. Absolutely. So first, on the pull forward, look, I think -- I got the question a whole bunch of times earlier today, and I have over the last few days, so I think it's a very important point and I'm glad you bring it up. It's not a question of like a whole bunch of pipeline that we pull forward and that like it's going to cost us in the quarters down the road. It's more of a mindset. So if you look at large enterprise, yes, I mean, they're adopting more cloud services than they were last year. But I think they've really realized, especially in large enterprise, in regulated industries, in the federal government, it's hard to get to your data centers and it's hard to manage on-prem software in this remote world. And so if nothing else, I think that CXOs and large organizations who either have been in the industry a long time and/or have been inside their companies a long time and created a lot of political capital realize that this is one of those technology leapfrog moments that they can really take advantage of. Maybe they had on the plan next year to do a bunch of customer identity management and new websites, they're like, "Wow, I can do that this year." And by the way, if you're a Chief Security Officer of a large company and you go to the Board and say, I need $5 million to improve our Zero Trust security framework given that I just shipped 50,000 or 100,000 employees home, what Board is going to say no? So I think that's an interesting approach where people who understand what's going to happen and who've been around and who see what's going to happen are saying, "Hey, I can really take advantage of the situation." What it means for us? Look, our business is good. The pipeline is good, and we're all -- things are going well. We're very fortunate in this tough time for everyone in the economy that we can help them out. So specifically to the demand pattern you asked about, look, I think the pandemic-related headwinds that everyone thought about in March and April -- frankly, we paused hiring as an example. I think those pandemic-related headwinds and demand, much more modest than originally anticipated. I think the trends of cloud and hybrid IT, digital transformation, Zero Trust, I mean, they've all been accelerated, as I mentioned. I think our pipeline is very strong, gives us a lot of confidence in both the near and mid, long-term opportunity, certainly in Q4. But with large enterprises, it's not like you meet someone and they're buying $1 million of software the next day. So the pipeline going into the first half of next year is looking good. And then beyond that, again, we are in the early stages of this shift to cloud. You can take any set of numbers you want that we could talk through about how -- I don't know if it's first inning, second inning. I don't even really like baseball. But it's like the first part of this mega-transition that's going to happen over the next 5, 10, 20 years that is frankly going to be once -- certainly a once-in-my-career-type shift. When it comes to customer -- you asked about customer engagement and sales cycles briefly. I think customer engagements, look, where we're actively engaged, customers continue to find tremendous value in our products. I mean if you look at some of the metrics for what happened with -- in Q3 just now, we added $95,000, $100,000-plus ACV customers. Over half of those were net new, but that means 40% of which were those that were existing customers who ended up buying more. Large enterprise customers are now contributing significantly to our ACV. And if you look at the dollar-based net retention, it was always in the 115%, 120% range for as long as I can remember, way before we were even public. It ticked up to like 121% last quarter, and I remember I was making a bunch of comments about, "Hey, it will probably go back down." Now it's at 123%. And so what does that tell me? It tells me, if you're a large company, you're not looking to add vendors right now. You're looking to make sure that you have things in good stead. And when you do have good relationships with products that work and platforms that work and companies that you're happy working with, which I think Okta falls into those buckets, customers are excited to buy more. Does that mean that we're not going after net new logos? No, of course, that doesn't mean that way. We have 10,000-ish customers, 9,500 customers. That's great. We should have 50,000 or 100,000. I'm not a patient person. So it's like, "Why aren't we there today?" So yes, we have more to do. But look, we added another 450 customers, give or take, in the quarter. It's what we've been adding every quarter. They're just starting to get bigger. And then up-sell has been very strong, right, so -- with gross retention also very strong across all customer segments. So customer engagement is very good. And then finally, on the sales cycle, I mean, overall, it's been pretty stable and consistent. We haven't seen much change. Look, I think in the pandemic, new customers in government, education, retail, maybe they show some minor delays in these projects and they reassess some of them, but we're very broad across every industry. And even I remember in Q2, we added one of the large cruise ship lines as a customer, which you would assume that was probably not the best quarter for them to be doing business, yet somehow, they're like, "Hey, we also need to move forward, right?" At some point, people are going to get back to vaccinated. At some point, they're going to go back on cruises. It doesn't look like it's today or tomorrow, but hopefully some time soon, right? In the last few months, I think we've seen promising turnaround in even these organizations, and I think they're starting to gain more stability in these new environments. So...

And Frederic, clearly, the platform is addressing some very specific pain points. And if I think about hybrid cloud adoption, if I think about digital transformation, the common theme there is we're seeing an explosion of identities and access needs across the digital landscape and across digital experiences, whether it's for your employees or whether it's your end customers. Can you talk to us a little bit about the specific pain points that global enterprises are facing today vis-à-vis their device -- excuse me, identity explosion needs? And how are you especially solving those pain points?

Yes, absolutely. So I think if you kind of tie it back to the 3 trends I talked about, I mean, the first one is just helping companies modernize their IT. A lot of organizations, I think, have seen, "Hey, I want to buy these point cloud solutions." I started at, I hate to say it, Salesforce in 2002, almost 19 years ago.

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What's that?

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No, no, no, I was a lot taller and better looking, I'll tell you what, then, Anyway, so I certainly sitting there for 5 years as the company went public and started growing fast. I certainly drank a lot of Kool Aid on the value of the cloud, And I grew up writing software in the client server world in the '90s. So -- but if you think about most companies, they're not in the business of being professional software developers. So I know they all need to modernize their technology and everyone needs to become a technology company. Unfortunately, they're still going to have a limited number of developers. And so they're not going to have all the developers they need, certainly, to do core technology innovation in their own products, much less manage on-prem infrastructure for contact software, whether it's e-mail or collaboration or financials or HR or CRM, you can go down the list. So ROI, TCO, time and value, these things are all just much better in enterprise Software-as-a-Service, enterprise cloud for most companies. And so as companies think about modernizing their IT, they can reduce cost, they can drive operational efficiency, right? Customers can set up these best-of-breed technologies more and more seamlessly because they're not implementing them. They're implementing them as cloud services they're already running the first day. And so moving to this hybrid IT environment, I think, allows a lot of organizations to be a lot more flexible, a lot more nimble, a lot more agile. It's OpEx instead of CapEx. I mean you go down the list. That's number one. Number two, I think that we deliver a good, secure, seamless experience across both workforce and customer identity and access management. So if you think about developers, again, there's just a shortage in North America -- there's a shortage around the world of millions of developers. I think in North America alone, I saw the numbers recently, it was like north of 200,000 developers short in North America. We're only printing 30,000 a year in our university. So if you assume there's no growth in enterprise software and software development in general going forward, which I think we all believe there is, it's going to take 7 years to catch up. So what does that mean? Well, companies like UBS, companies like Okta, companies like Google and Facebook and Amazon, we're probably going to get the developers we need, and we're hiring very well and we're filling all the heads. In fact, I think last week or the week before, we hired more people that week than we ever had in our history. So things are going very well from that perspective. Unfortunately, we have some great Fortune 500 customers, whether it's John Deere or FedEx or Phillips 66, amazing companies, they're just not going to get all the developers they want. And it's not because FedEx is not a great company, I've been in Memphis, Tennessee. It's an amazing place. They're just not going to get as many as they need. So if you're the CTO of John Deere, who I know pretty well, he's got to say to himself, "Okay, I've got a shortage of developers and I've got all these important projects, I think the most important thing I need to do is make sure the technology in my tractors is as modern as possible that I can get GPS in there so that my customers, the farmers can have like optimized tracking in the fields when they're sowing the fields for the next crop season." And so what does that mean? That means customer have facing, identity management, still super important. You need to get price books in the hands of your distributors, if you're John Deere, but it falls secondary to actually making sure that your products are as technologically advanced as possible. So it's incumbent upon us. If we as Okta can make customer identity and access management super easy to just take off the shelf and put into your website or put in your application the same way Twilio has done for messaging with SMS, the same way Stripe has done for payments, although I would argue -- a lot of people need messaging, a lot of people need payments, everyone needs identity in their applications. I mean everyone has to authenticate. So I would argue that actually, the opportunity is much bigger for us. If we can make that super simple for people, we can help them accelerate business growth because this is top line initiatives. These are initiatives that are facing customers and partners and vendors and suppliers, so I think that's a big one. And then the final one, I would say, specific pain point is just around customers are trying to adopt the Zero Trust security model. I mean as everyone got shipped home, instantly had to go on WiFi at home, had to get on Zoom, had to figure out how their laptops were going to work, we had -- I had a number of large financial institutions -- I remember one of the largest credit card companies who's a customer of ours calling me like, hey, my -- is basically being driven down to its knees in like the first weekend since going home. It's used to doing 10,000 people, not 100,000 people. How can I solve these problems? And so people have to -- it forced people to very quickly get out of the mindset of the firewall, the 4 walls of the building, the badge to get in, the VPN token. What is this modern environment? And Zero Trust, which is a terrible name because Zero Trust sounds like no trust, whereas it's actually like -- Zero Trust, right, fine, leave that aside. Zero Trust is you just want to make sure that the right person has access to the right piece of information from the right device at the right time and that you're continuously validating that authentication and that access. And we can do that very seamlessly, and it reduces risk and it reduces the cost of the security incident. And no one wants to be on the front page of the Wall Street Journal for all the wrong reasons. So I think the more that we can help make that seamless and very easy for customers to use and deploy, the better off everyone will be.

Frederic, you sort of touched on this, but I want to unpack it further. Clearly, there are 2 parallel markets that have unfolded within the realm of identity and access management and maybe bifurcating that landscape between enterprise and workforce in consumer or B2C. Can you talk about your opportunity set within these distinct buckets? And the John Deere example was extremely helpful. But how do you think about the addressable dollar capture and market capture opportunity within both those buckets for you?

Yes, absolutely. So the business that we're in, this enterprise identity management, it's been around for 30 years. So if you go back to the '90s, Oracle had these products, Oracle identity and access manager. IBM bought Tivoli. So Tivoli, TIM and TAM, same thing, Tivoli Identity and Access Manager. CA had a suite of products here called Siteminder. They bought Netegrity. It was one of the smaller companies in the early 2000s. And this was all -- so enterprise identity management has been around for a while, but it was basically all workforce. Those all employees, contractors, consultants, making sure they had access to the right applications, the right infrastructure. But you got to rewind the clock 20 years, it was a very homogeneous environment. I mean you are a Microsoft shop or an SAP shop or an Oracle shop or an IBM shop. And there was a lot of identity in there, but the identity inside the Oracle stack, it's like me as an employee, yes, I had an identity, but it was the Oracle app server, web server talking to the Oracle app server, talking to the Oracle database server. So it was kind of like baked in there. And since it was all Oracle anyway, it was pretty easy. And then it's like, look, if you let me go, you took away my badge in the building, my VPN token. I was effectively deprovision from all these applications. It didn't matter when you took me out of the Oracle database, it was on-prem anyway and I couldn't get in there. So this was a heavy-duty -- it was like $1 of software for $5 or $10 of services. And I remember when we started the company, people were like don't get into identity management, it's a terrible business. No one's ever built a big business. And to entrepreneurs, that's like catnip, you're like, [ oh, no ], but that must be an opportunity.

Challenge accepted.

Yes, exactly. Well, I think probably despite ourselves. But anyway -- so Todd and I met at Salesforce. And so we had a first row seat to this shift going on that people starting to buy enterprise cloud services, subscribing to the software over the Internet, which is a crazy idea. And so that workforce piece of employee, I mean, that's what Salesforce did at the time, now they have all sorts of things. But at the time, it was really selling SFA to internal employee bases that were managing their SFA. And so as customers bought more of these things, they said, "Hey, this is interesting. I want to buy SuccessFactors to manage the HR for my employees and kind of start buying all these point applications." And so that's where we started. We started with workforce because it was a known quantity. People have this infrastructure. A lot of people have Microsoft Active Directory that they'd had for 30 years because it was baked into every piece of server software they have ever bought. And so connecting cloud applications to AD is kind of where we started, and that became our workforce business. And if you look for the first 5 years of coming, that's all we could buy -- that's all anyone could buy from us, what's basically workforce identity management. When we wrote the S-1 reg document in 2016 and went public in 2017, the TAM in there was $18 billion, and it was basically all workforce because it was -- Gartner and Forrester and IDC can call a bunch of big companies 5 years ago, they can call them and say, "Hey, how much are you spending on enterprise identity management?" And there's a line item in there for like the CA budget, the Oracle budget, the RSA budget. It's very easy to calculate. And so that's kind of where it started. And then I'd say 4, 5 years ago, some of our larger pharmaceutical customers called us and said, hey, you have this -- I'm using Okta for my employees. It's great. You've got this universal directory, It runs in the public cloud. It's a meta-directory. It's a virtual directory. I want to use it for my customers. And they were trying to get trial drugs out to doctors very quickly and get feedback in 90 days because that's how long they have from the FDA. But it takes 90 days to set up server infrastructure in your DMV to give access to doctors. And by then, like the whole trial period is over. So they're like, "These things are already running. We just want to use it." And at first, I remember, Todd and I were like, "No, you can't do that. That's not what we built it for." And they're like, "What do you mean?" And I say, "We don't even have a pricing model for it," Like we were all designing on per user per year, annual contracts. And whereas on the customer identity management side of our business, it's like per monthly active user or annual monthly active user contracts. We don't charge you for loading up the database with 50 million consumers. If your MLB, it's how many consumers are going to log in every month, right? And so we didn't even have any of those pricing or packaging or any of that stuff. And they're like, "Well, too bad, we're going to use it anyway, so figure it out." And it kind of pulled us into that business. And it's very interesting. Again, when we went public, it was not even in the S-1 registration document. When we updated all the numbers earlier this year, workforce TAM has gone from $18 billion to $30 billion. And CIAM, customer identity and access management, has gone from $0 to $25 billion. But it is -- so it is a thing, but it's a thing that's been a build versus buy story. There's been no legacy incumbent vendor putting up a website with a user name and a password registration database. It's not super hard. Everyone has been doing it. You and I have had Amazon.com accounts for 20-plus years, right? But where it starts to get interesting is like, okay, now we need security. Now I'm doing financial services. Private net worth customers, they need onetime SMS to the phone. Okay, now maybe I want 2 user -- 2 email addresses, so I can do password reset flows and make sure the person is what they say they are in case they get locked out. Now I need to stamp the device. Now you need to do all these other things, and that's where it starts to get very interesting. It's an almost entirely greenfield. We're one of the only companies to have that platform that spans both. And we highlighted, last quarter, customer identity management is now 25% of our business, growing north of 70% year-over-year. So the workforce business is going to go very well in the next 3, 5, 10 years. I mean all the Oracle stuff, IBM stuff, CA stuff, Ping stuff, all the legacy on-prem infrastructure, we're just going to take it out over time. I think the CIAM market is going to be very interesting, and we're definitely investing heavily there to make sure that we can take a leadership position because we're -- basically, that market is just getting defined right now.

Before we jump into the CIAM and -- opportunity and how you sort of look at things from -- under the microscope and bottom-up. Just with respect to the workforce opportunity, what do you say to investors who have concerns or fears that you're maybe at a point of maturation, maybe not saturation, but certainly maturation in terms of what you can do in that arena? And how would you sort of debunk some of those concerns that workforce maybe doesn't have as much runway as it did 3 or 5 years ago?

Well, I mean, the first thing I would point to the TAM. I mean whether you believe our numbers, from $18 billion to $30 billion or you have your own numbers, there's billions and billions of dollars, I think we can all agree, being spent every year on workforce identity and access management. And the number -- and the market is growing. So look, I think our business is, what, $600 million, out of the $800 million is workforce identity management. If you do the simple math, that's great. It's a drop in the bucket compared to what it could be. And what is that? Like 1% penetration, 2% penetration? I don't know. I think the large enterprise is a huge opportunity. And we typically don't go one on one on initial deals, right? And so that's one of the things that is a secret to our success is the land-and-expand story. I can go into any large company. I talk to Fortune 500 CXOs almost every day. And when I talk to them, my story resonates well because I don't say, "Look, oh, yes, you have a lot of Oracle identity manager. Look, we're going to do a forklift upgrade program, and you're going to see no value for 18 months, but at least you're going to pay me a lot of money." That's not the plan. The plan is, "Hey, I bet you -- I know you have Oracle. I know you have IBM. I know you have CA. You probably have them all." Every big company has them all because they bought other companies who had the other one and whatever. I say, "Look, I bet you have a specific project you're trying to do today, whether it's rollout Workday or Office 365 to 100,000 employees, whether it's put up some new really important mobile app or web application that you're going to try and sell a new B2C or B2B supply chain to or something like that, you have some important initiative where your existing on-premise identity management infrastructure is not the right fit. So give me a chance to help you with that over the next 3 or 6 months." And then I'll come back. And after I've earned the right to talk to you about the rest of your infrastructure, and I come back to them and I say, "How is that experience?" They're like -- they say it was great. Those -- it was -- and you see how fast the deployments get up and running. They'll take my word for it. Every earnings call, we put out these go-live press releases because I think it's very important to say net new logo wins and we won this deal and that deal. It's a lot more powerful when the CISO of FedEx put out an earning -- puts out a press release with us at our earnings saying, "I went live with 85,000 employees for 250 apps over a weekend, and Okta was amazing." That sells more than anything I could ever tell anyone. So we get these first deployments up and running, and then we go back to them and we say, "Okay, great. Now I've earned the right to show you, Fatima, what the program is going to be over the next 2 years to rip out all of your Oracle on-prem infrastructure." And we go through slowly but surely, and they end up becoming giant customers of ours. We have so much room to run the Global 2,000. [ Hank ] disclosed G2K penetration is like 20% at the end of FY '20 at these companies. I mean -- but what that means is they're paying us a few hundred thousand dollars a year. Their IT budgets are hundreds of millions, if not billions, of dollars. So there's so much room to run. Up-sell remains very, very strong across the board, right? We already talked about net revenue retention, 123%. And if you just start to look at some of the interesting numbers that are coming out of our earnings with large enterprise, it gets really interesting, right? Large enterprise customers are now contributing 80% of our total ACV. We have 320-plus customers who are paying us over $0.5 million a year. That's up 50% year-over-year. In Q3, top 25 contracts booked by TCV were all -- they were all over $1 million. Six of them were over $5 million. And the average contract size for our top 10 new customers in Q3 increased more than 60% versus Q3 last year. So I could say whatever I want. The numbers speak for themselves. The opportunity to grow with these companies is huge. And then finally, what I would say is it's not like we're sitting still. We are building a lot of product. And as we build more and more products and get more and more customers up and running, our products get better. If you think about some of our data products, like threat insights and data insights, as we get more and more users using the platform, we can protect more and more customers. If we see a nefarious actor behaving poorly against one customer, we can instantly protect the other 9,000 customers, and companies realize that. We're creating -- we're having more use cases. There's more ways they can use the service, more integrations, deeper signals. It makes our products better. And that virtuous cycle is something you can only get in the cloud.

Clearly, competitors have taken notice. You come at this problem with a cloud-native, very cloud-centric DNA. But how would you characterize the competitive dynamics from the hyperscaler point of view? And what does that sort of hand-to-hand combat look like in the competitive field?

Yes. Well, it's different on both sides of the business. So as I mentioned, in customer identity management, I mean, it's greenfield. So there are some small point players who are working on customer identity management as well they should, it's a huge market. But there's no one yet that's public or at scale like us. And certainly, that's growing the size we are as a public cloud service. So I think that business is going very well. It's incumbent upon us to make sure that we continue to accelerate. Like I said, we're going to be investing significantly. We have in this year. Going into next year, we're putting a lot of effort and energy in the wood behind that arrow, and I think it's going very, very well. But we have a lot of things we can do. So we're going to continue to invest there aggressively. On the workforce side, I mean I don't think that Oracle, IBM, CA are really competitors. No one is buying Oracle for doing a net new Oracle identity and access management on-prem implementation. I mean 0. So it's a question of like maintenance streams and when we're going to retire those. And those will come as they come, and that's why I think that business is going to do very well in the years ahead. There's no specific point of maintenance. It's just like they come up and they don't want to renew it, they move the rest of the stuff over, and that's more business for us. The ones we do look at are -- you talked about the hyperscale. Well, first of all, 2 of the 3 of them are very good partners of ours. We're the preferred vendor for Google for their GCP and for what they call [ LCS ], they're a large customer segment, which is 1,000 employees and above, which is great. And then on AWS, we've been very good partners with AWS for a long, long time. We recently -- I think last week, the week before, we are the only identity provider and the only managed security provider to be in AWS Marketplace, which means that for all customers who have these big contracts with AWS, they can actually use some of the dollars in those contracts to buy Okta through the AWS Marketplace. AWS reps get comped for that. So I think that's going to be a huge opportunity. I was on the keynote stage with Andy Jassy talking about that at re:Invent last Thursday. I think that's going to be a very big opportunity. We were the [ Is -- BIs ] in that showcase. So that's great. But I think the main player here that we pay attention to, and we are extremely paranoid about this, is Microsoft. We've maintained very, very high win rates against them since time immemorial. We haven't modified any platform. It's really easy to implement in the cloud. And we are focused on independence neutrality. I talked earlier about how it was a very homogeneous environment. 10, 15, 20 years ago, you were an SAP shop or an IBM shop. Today, there's over -- almost 7,000 pieces of technology that are pre-integrated into the Okta identity network. So all of the big cloud vendors, of course, but all of the VPNs and all of the firewalls and all the application accelerators and everything else that people are using, it's already pre-integrated. Because our business -- we don't have a horse to ride. We're not trying to push an application suite the way Microsoft is. Their business is all about Office 365. And by the way, we're the #1 provider of identity for Office 365 in the large enterprise as rated by Microsoft customers on the Microsoft website. So if you look at their biggest deployments, ENGIE or Nike or T-Mobile, they're all done actually with Okta as the identity provider because it's not their core business. So if you're some small 50-person company and you have -- you're all Microsoft through and through and you want to use their Azure AD product to plug-in Office 365, it will work just fine. But as soon as you have multiple branches, multiple domains, you think about large organizations, multinationals, the product just doesn't work. And again, you don't have to take my word for it, we have all the use cases that customers talk about. And the proof is in the pudding. If you look at large companies, whether it's on the customer identity and access management side of the house, with CarMax and Albertsons, if you look at the workforce side with T-Mobile and Hitachi, you look internationally, Siemens, Zurich, ENGIE, I mean, these are all very large organizations. North America, FedEx, John Deere, who have standardized wall to wall on Okta, I mean I think it kind of speaks for itself because we're not about pushing one piece of technology. We're about neutrality and independence. We have the best connections to all the products they're using today and the ones they're going to use tomorrow. And they know that we only have their best interest at heart, so they can use whatever technology is best for their business.

Fair enough. A lot of opportunity, a lot of very specific investments both in product, but certainly banks the question around go-to-market. I know you recently added to the executive bench with Susan St. Ledger, who I know really well. She's a total rock star. Having her be the new addition to the team, maybe speak to some of the go-to-market priorities that you have on your punch list for the next year. And what do you hope to achieve with her on board? And any changes that investors should expect in your go-to-market motion?

Yes, absolutely. We're very happy that Susan is going to be joining us. We've known her for obviously a long time. We crossed at Salesforce, and we had conversations with her before she joined Splunk. And I think the timing has been very good. Look, we've been very fortunate. Charles Race has done an amazing job. He's been a great guy for me to work with. He -- I mean he was the President at Informatica for, as he reminded me when he started here, for 44 quarters, and he will have done 16 with us. So after 60 quarters as a public executive, I think he's earned his retirement, and I congratulate him warmly. And he was a pleasure to work with. But we got to turn our eyes to the future. As you mentioned, Susan's coming. And she joined Splunk in about the same size and tripled their revenue in 4 years. So look, if she shows up here and does the same thing, I'm not going to be complaining about it. We have a good plan and a good strategy. She hasn't formally started. She starts on February 1, but kind of on a nights and weekends program. I've obviously been talking to her a little bit, as had Charles, just to make sure that she's up and running and we can get her thoughts as we start baking the plan for next year. There's going to be no significant dramatic change from 1 year to the other. We've got our input on it, but there's a lot of continuity. Charles is not going anywhere. He's graciously accepted to help us all the way through the transition. Things are pretty smooth. Our planning process is going very well, and we're going to continue to focus on the strategic points for next year. As we think about them, first of all, as you and I already discussed, customer identity and access management is going to be a huge opportunity. We're thinking a lot about the platform, right? We spent the last 2 years really breaking up the platform into componentized modular pieces that our customers can really use however they want, make them all available programmatically via the APIs that are publicly available. And that's going very, very well. You're starting to see us release more and more of these products that are built on top of that platform. Showcase, our customer event 2 months ago, we talked about whether it's customer identity and access management workflows, whether it's all the devices and SDKs that we've introduced. So that's going to continue. A big global push. I mean the opportunity for us internationally is huge. I mean our revenue is -- 16% of revenue is from international. It should be much bigger. But frankly, there's just so much opportunity in North America, and there will continue to be that you always got to balance. If I put that marketing dollar, where am I going to get the return on it? But we're making the long-term investments. This was obviously a tough year internationally, but we still went through with a lot of our big plans. We opened up Tokyo, our Tokyo office in September. We have our first country manager there. We've got a good employee base inside our building, but we've had great customers there for a long time in Hitachi and NTT. That's something that I know -- we also opened up Singapore. Those are things that I know Susan is excited to push on and I think are going to be big opportunities. I think from a direct sales force perspective, I mean the big opportunity for us, obviously, is to go from being a product company to a platform sales company, and that's exactly what she did in Splunk. And I think the results are very good there. So I'm very optimistic on all that. So I don't think there's going to be any significant changes. Look, like I said, we're very happy with the numbers. It's gone very well. The last 12 years have been great. I mean it's a small business compared to what it can be. It's a quaint little business. So I'm very excited about the times ahead. And I think it's going to be very exciting. And yes, we are happy to have Susan join us, and I'm excited to work with her on this. So...

As it relates to the international growth aspirations, a number of different vendors and peers of yours in the cybersecurity space do tend to partner with large distributors and resellers. Can you talk a little bit about the merits of that approach, particularly because you're a cloud-delivered solution? So it's not necessarily intuitive as to how a partner can add value. So I'm curious as to your feedback and thought process on that and why it actually does make sense to go to market with a traditional reseller or a distributor partner in international.

Yes. It's not just international, actually. We had a great Head of Channel who joined us 3 years ago and really took our partner program to the next level. I know some quarters ago, we talked about how the channel contributed something like 1/4 or half of the business for that quarter. I know we don't update it every single quarter. But I mean, it is a significant contribution already today, not only in North America but, as you said, internationally. There's a bunch of components to that. First of all, we've got brand-new tech partnerships like AWS Marketplace, which I think you can effectively call it channel in the times ahead. But if you look at the traditional channels, very good partnerships with the large resellers like the SHIs and the Insights. Things have gone very well with the security vendors, the Optivs, for example, has been a very good partner of ours, has done a very good job regionally and as a security expert with a lot of the great relationships they have at the CISO level. And then if you look at the global system integrator level, I mean, Accenture, Deloitte, PwC, KPMG, they have all standardized their identity security practices on Okta. Some of them want to run it even as an MSP. And they're doing it not only on the workforce having an access management side, but obviously, digital transformation is a huge opportunity. Things like Deloitte Digital, they are bringing -- brought in -- basically manage the service for a lot of large organizations. And if you look at their reference architecture, Okta is right in the middle of that. So those are huge opportunities, and they've gone very well in North America. But as you said, I mean, internationally, that is going to be something we are definitely going to push on. It's gone pretty well so far. There's already a number of areas. I'd point to the Middle East as a good example, whether it's Dubai Airports or Emirates Airlines, those are great Okta customers where we don't have any direct sales force presence there. So it's all been managed through the channel. It's gone very, very well. And then frankly, at the end of the day, like the traditional box pusher that people are used to or used to go in offices and literally physically see like boxes of Cisco routers that people are going to implement, I mean that is a thing of the past. I mean that is not the way the future is going to go. And smart resellers and smart distributors, they've gotten ahead of that. So the challenge then becomes, how do I -- obviously, customer success is huge when you're in the subscription business. That's some DNA we brought over from Salesforce and I think has done very well because, traditionally, in enterprise IT, particularly in identity management, vendors have done a terrible job of making customers successful. And I think that's in one of the secrets of our success is our #1 corporate value is love our customers and like do things that we need to do to make sure they're successful. It played out very well for us early on in the pandemic. We basically [indiscernible] our focus to making sure all of our employees and our families and our communities were safe and healthy and making sure the service was running as we saw, like tripling of MFA activity and all this other stuff as people were sent home. And that played off very well because customers remember that it's what you do in the tough times. When times are good, like they remember that. And so I think how we ensure that we teach and train all of our partners to deliver that kind of customer success the way we do, that's going to be a key piece of the pie. You're already seeing in the numbers, we're doing a good job of pushing professional services out. I think professional services is now down to 5% of our monthly revenue, if I'm not mistaken. I think it was $10 million on the $217 million number the last quarter. And that's not as though that's the only PS being done. That's the only PS being done by us. And we're now expert in services more than traditional professional services. The rest of that is being done by Accenture, Deloitte, they have tens and tens, if not hundreds, of train certified implementers throughout the world now that are doing these deployments in large organizations. And of course, as you know, they have those relationships at the C level. And so once you get in the door with them, you're in great shape. So absolutely, it's an opportunity not only in North America, but internationally. I think we have a great start with the channel. But yes, there's definitely a lot more we can do in the times ahead.

Frederic, I want to cap off our discussion just around the varying crosscurrents within the broader realm of identity. You've got a ton of different irons in the fire as it relates to product enhancements on the workforce access management side as well as customer. But maybe specifically on the workforce side because that has been your flagship platform, we have seen some blurring of the swim lanes within identity, right, IAM, governance, privileged access, life cycle management. So what do you see as sort of the next 3- to 5-year road map around these consolidating trends within identity and your perspective on this convergence? And how does it influence your road map from here?

Yes, absolutely. So look, I think our leadership position in identity -- it's fine because when we started, it was like there was 2 quadrants or 2 sectors or whatever. There was like traditional identity management, like Oracle, IBM, CA, and those were like the big boys. And then there was like the kid's table at Thanksgiving, identity-as-a-service. It had us and a bunch of other little start-ups that no one's ever heard of. And it was kind of like, "Hey, when do we all get to have one table at Thanksgiving?" I know we weren't supposed to have Thanksgiving together. I have Thanksgiving at home by myself with my family. Don't worry. But back in the day where we can all get together for big Thanksgiving meals, finally, 3 or 4 years ago, they consolidate all the quadrants. And now it's very clear that the future of identity is as a cloud service. And I think we've had a hand certainly in affecting that. And I think it's gone very well. So if you start with the premise and you understand how early we are in the migration to cloud, I mean, what is -- enterprise software is going to be about $500 million spend this year, it's still going to be 75% on-premises software. So everyone talks cloud, cloud, cloud. It's still just 1/4 of all the potential out there, and it's like 4% of enterprise IT spend globally. So there's a huge opportunity in the times ahead. And as things move more and more to the cloud, you're going to want to have all the adjacencies around core authentication that are sitting in the cloud as well. So you mentioned a few of them. It's not as though we go look at a bunch of quadrants and say that's the next product we should build. We have a vision and a plan and a program on where we're going. And then we spend a lot of time with our large customers and ask them what they want to do, and they help us shape our road map. So a good example of that is our product called Advanced Server Access, which allows developers in large organizations -- it makes it much easier to manage developer access to all of this cloud infrastructure, in AWS and Azure and GCP and everywhere else when you don't own the data center anymore. And as you know, everyone you talk to is like "I'm trying to get rid of all my data centers." So in that new world, you want to do -- you want to make sure you have the right access and you keep that access continuously validated just like Zero Trust authentication, which we talked about earlier. That is not done on an on-prem world. That's done in a cloud world. So we'll take PAM as an example. CyberArk, a good partner of ours. If you have CyberArk installed today, we can integrate with it, works fine. The future of the cloud is going to be privileged access management that's going to be run as a cloud service. So is Advanced Server Access a PAM product? No, not exactly. But if you look at it from a stance, it kind of is. And certainly, that is where the trend is going. I would, in fact, argue that all access in the cloud is privileged access because you can get access to anything from anywhere. And so because of that, you see that naturally shifting. Same is true with IGA. We have a great partnership today with SailPoint. If you have SailPoint on-prem, I've been talking to large companies, they have them. We integrate well with them. It's a great story. There's a reference architecture. But again, what is IGA? Governance and attestation. It's basically like derivative information off of identity. Identity is the primary information. And then this derivative is like tell me the news. Like, okay, Fatima let Frederic go. When she let him go, did they take away his access to everything he has access to? It wasn't letting have access. It was the news about it. Well, once all the authentication is actually happening in the cloud, are you really going to take all that authentication identity information and bring it back on-premises to do the analysis? I don't think so. And what is IGA? It's universal directory plus life cycle management plus entitlement management and some reporting. And if you kind of look at what we've been building, that's kind of what it's starting to look like. So look, I think it's a very strong position to be the leaders in identity management as a service. I think there's going to be more and more cloud in the future, I think we can all agree, not less. And as such, I think a lot of the on-prem traditional legacy vendors are going to have a tough time moving to the cloud. And I think the numbers speak for themselves. We try and showcase as many use cases as we can of actual customer go live and how they're using this service. And what you see is more and more large enterprises are starting with that one. I think that's -- it portends well for our business going forward.

Frederic, I really appreciate the conversation. We covered a ton of ground, and I appreciate the detailed and comprehensive discussion. Thank you so much for the time.

Thanks a lot for having me. I really enjoyed it.

Take care. You have a good one.

Thanks. Take care. Have a good day. Bye.