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

Perfect. Welcome, everyone, to day 1 of the Citi Tech Conference. I'm Joel Omino, I am a research associate on the software team, and I support Fatima Boolani in covering Okta. And so we're very happy today to have with us Okta's very own CFO, Brett Tighe.

Happy to be here, thanks for having me.

Perfect. So I think to get started on this discussion, maybe just give us an overview and an update on where Okta is today, in terms of your story and moving from the access management that we're all familiar with, to some of the exciting things you're doing in the identity space.

Yes, absolutely. So as a reminder, we've got two main sides of the business. One is workforce identity, the other is customer identity. Both are trending well, you guys can look at the earnings results, both had good growth in the quarter. But workforce identity is really comprised of 3 major product lines. One is access management. The second is governance, we just came out with. And the third 1 is privileged access, which will be going GA later this year. It's in early access at this point. And then we've got customer identity, which secures our customers' customers' identities. And so that's really the kind of like map of the overall company in terms of the product lines. Guidance is about $2.2 billion this year at the top end of the range for revenue, and margins, we're guiding about free cash flow around 15% for the year. So that's really how things are laying out right now.

And then maybe could you talk about why Okta is making these changes, right? What are you seeing in the market? What are you seeing from customers in terms of wanting to have IGA, PAM and all these parts from one vendor?

Yes. It's part of the natural progression, right? So if you remember, we started in workforce identity really access management, started as accessing that small, medium-sized business all the way up through the lower enterprise. And over the years, we've been able to expand the strategic arena, the highest end accounts, the Global 2000 accounts. And so if you think about that from an access management perspective, naturally you want a governance tool that sits in besides that. And then naturally, you're going to want to have a privileged access management tool as well. And for us, we look at it as a complete platform, and that's what our customers have been asking us for. Look, we want to access via our -- to our critical resources for our employees, for A, B or C applications. And so it wouldn't be as efficient to go to another governance vendor or another PAM vendor. And so that's how we've built out the entire product suite. Obviously, governance has only been GA for a few quarters. PAM is going to go GA later this year. And so we're excited about the opportunity to be a single pane of glass for our customer base and really address as many of the identity use cases out there as possible.

Okay. certainly. And we'll definitely dive into Workforce Identity cloud, customer identity cloud later on. But I think just to continue to level set here, we have to talk macro and execution. So over the past several quarters, there have been some negative macro impacts on the business. And there have also been some execution challenges. But more recently, we are starting to see some recovery in that aspect. So can you just take us through what happened last year and sort of what changes were made that we're now seeing bear fruit?

Yes, absolutely. So execution challenges late --, we'll say first half of last year, really were around too much capacity in the system from a go-to-market perspective, so we were having attrition issues. We weren't also clear with our messaging on where to sell each of our customer identity tools at the time. And so the changes that we made late last year or -- well, midway through last year, about Q3 of last year, was to slow down hiring, absorb all the capacity we had, clarify the messaging that we had for customer identity. So if you all remember, we acquired Auth0. Okta had, had a legacy customer identity product and making sure that the clarity was that, look, the customer identity product that we sell, it's really the Auth0 product except for in situations where FedRAMP is needed, which is where the Okta customer identity product comes in. So just clarifying the message with the field, clarifying the message with our partners, our customers, really made a big difference. And so flash forward, 4 quarters later, we've had very healthy attrition in the field. You see 2 quarters this year, Q1 and Q2 with really strong execution. You see it in the results, obviously, current RPO growth in the quarter for Q2 exceeding our expectations by a significant amount, revenue exceeding. Margins are exceeding by significant amounts in the first half, leading to raises for both top and bottom line for the full fiscal year. And so really, we feel like we've executed that execution challenge. We feel like we're doing a lot better. Obviously, we can always be better. I mean we're impatient people. We feel like we could even be better from here, but we feel like those challenges are behind us. In terms of the macro, that obviously has been a headwind for us. We did see the macro stabilize in the quarter. We saw it through a variety of metrics, but ultimately, we do feel it's still a headwind, but it didn't get worse in Q2. We did expect it to get worse through the balance of the year. We no longer believe that. We do believe for the back half of the year, our macro expectation is that it stabilizes from here. But to be very clear, it is still a headwind to us, still a headwind to growth. But we're pleased with how the team is operating both on the top line and on the bottom line. So things are going well so far in the first half of fiscal year '24.

Okay. Great. And I think something that could be helpful is you spoke about you're seeing certain metrics improve and that's what's giving you confidence in a stabilizing macro. Could you talk about what these metrics are?

Yes. So the big one for me is if you think about one of the vectors of growth for us for business over the years, it has been upsells related to seat count on the workforce side or expansions on the monthly active user side on the customer identity side. So for the prior couple of quarters, we had seen a headwind in those numbers. Specifically, people were just adding more because they expect to hire more people on the workforce side or they expect more economic activity in terms of more users on their applications. And so in Q2, we saw that, that trend stabilized. That was the biggest one for us because you could -- you saw the numbers in terms of headwind growing every quarter. But in Q2, it did stabilize. So that's a big one for us. The other thing from a contract duration standpoint, we've seen that be lower and actually be a headwind to contract duration. We actually saw that tick up a little bit in the quarter. And so those are the 2 main metrics that we've really kind of focused on. I mean, there's other new business versus upsell as well that stabilized. In other words, the mix of upsell is much higher than the mix has been historically. And so that stabilized in the quarter. So there's a few things in the quarter we just saw that were good signs that things were not getting worse, let's put it that way. It's not like it's getting a lot better, but it's just not getting worse from a macro perspective. So we're happy to see that.

I mean certainly encouraging.

Encouraging, exactly. But as I have said in the past, 1 quarter doesn't make a trend. So we are still being cautiously optimistic about the back half of the year.

Fair enough. And then I think maybe just to add some context on this. Could we talk about the impacts that you've seen maybe across workforce and customer or across the different customer segments, whether it's large or small.

Yes, we've seen it pretty broad-based. Both have been impacted. And specifically on that number I was just talking about with the expansions related to seat count or MAU or monthly active user count, that has been fairly similar across both sides of the business. In terms of the segmentation, maybe -- I mean, both have been impacted. I mean our customer count adds haven't been as big as we've historically seen. Potentially, that means it's a little bit more SMB-focused, but I don't think that's the case. I think it's definitely broad-based between enterprise and SMB. In terms of internationally, we haven't seen much of a difference versus U.S. So it really seems across the board from a macro perspective, in the statistics that we can see and the quantitative that we see in the business. The other thing I should have mentioned actually in addition to some of the macro stabilization also on this point of where it is and where it isn't, just talking with our sales teams. Qualitatively, they're telling us things are stabilizing. And qualitatively, they tell us that it's really broad-based, it's not just in a single location. So we've got the quant to back it up and also the qualitative side, just chatting with our go-to-market executives.

Okay. It makes sense. And I think just on that note, in this last quarter, we did see that improvement, and it really was a good quarter for large deals, right? But I think the question some may have is, are you viewing this more as a onetime situation, onetime event of large deals, or is this a sign that really that execution is going to continue to improve, and we might see more of this going forward?

Yes, look, we've always been focused on big deals. I mean, that's something -- you guys all saw the -- if you haven't looked at the investor presentation that we gave last November at Oktane at our Investor Day, we talked about 1/3 penetrated into Global 2000, 70% into the Fortune 500. So we do look at this businesses through the lens of big deals and big customers. We obviously can access the entire market, given how great our product is. It can access all sizes of companies, all types of companies and organizations out there. So it's something we've been focusing on for years and we'll continue to focus on. Big deals are lumpy, right? Like we had a good big deal quarter. Are we going to expect that every quarter? Absolutely not, because it's the way big deals work. They're big and chunky and they're very binary. There's just like, nowhere in between. And so we're pleased with how the quarter went, but we're not expecting it to be every quarter like this. It was one of the best big deal quarters we've ever had in the company's history, and we're pleased with it. But what have we done lately? We've got to go execute in Q3 and Q4, we've got big expectations for the back half and looking forward to executing in this environment.

Okay. Fair enough. Fair enough. So I think another key topic around Okta is just the head of the go-to-market, right? There's still a vacancy there. It's been -- we're creeping up on a year now since the retirement of Susan St. Ledger was announced. So is there anything you can share in terms of what is keeping the search going? Are there certain boxes that are turning out a bit harder to check?

Yes. We want to make sure we get it right because this is a hire that's not about next quarter or even FY '25, it's about the next 3 to 5 years. So we're taking our time, making sure we get it right. It's a very important hire for us as a company. And so we're making progress, and hopefully at some point soon we have an update, but we're going to take our time and make the right decision for the long term. We are, like I said, working hard at it. Todd and I's top priority, so.

Yes. And then I think also at the last earnings, you spoke about Frederic not coming back as COO. So is that now a vacancy? What's happening around that position?

No. Before Freddie left, Freddie, we had moved his organizational responsibilities into other organizations -- before he left for his sabbatical, to be clear. And so we've been operating as if Freddie hasn't been here since Freddie went on sabbatical. We're going to miss him. I love Freddie, he's a great person to work with, but I'll still get to work with him on a less regular basis because he is the Vice Chairman of the Board. He will remain the Vice Chairman of the Board. And so he will remain very connected to us. In fact, he was giving both Todd and I some constructive criticism as recently as last week on the earnings call. So he's very dialed in and very interested in making sure that we're successful as an organization. And I'm excited for Freddie in the next stage of his life, but we will not be backfilling the role. We've spread all the organizational responsibility into other staff members across the team, so.

Perfect. So we see this execution improving, like you've talked about, but there's still this vacancy, right, in the head of sales. So how do you think about the risk of when you install new leadership, there's always risk of attrition, a drop in productivity. Are you baking that into your assumptions and your expectations as well?

We haven't baked anything for the back half of the year, because we don't have a new person in the seat. And so when the person does come in or -- we'll obviously factor all that in. But ultimately -- and like you said, in any executive change, there's always a potential for change. There's also a potential that nothing changes, right? And so we'll be ready for both, but ultimately, I think as a company, as Okta, I think you guys have all seen over the years. If we see a problem, we make a change. We don't need an executive that can tell us that we're having an issue. We can go and look at the data, we can see how things are going, and we'll make a change if a change is necessary. If there's no changes needed to be made, we won't make a change. So we don't fear change. We've been a company of change since we started this company. And so -- and that's what Todd and Freddie really built into the organization is, don't fear change, be agile, be open to doing something different. I mean, frankly, what we as a company created, it was a completely different category that no one believed could be out on its own, and look how far we've gotten. So I don't think we're worried about this. And frankly, we're excited about the opportunity to bring in some new blood. And so I think that would be -- it will be good one way or the other.

Okay. And I think maybe just one more just on GTM and sales. We have to talk about the channel. You made some recent changes to your channel program, revamped it. Could you just talk about what you're doing there and how it's different from what you had before?

And we're -- if you get nothing out of what I'm about to say it's adding focus, right? Adding focus is really what our point was, right? We used to have a lot of channel partners, and we didn't feel like the ROI being -- because we were spread so thin, was where we wanted it to be. And so we wanted to focus on the partners who were adding a lot of value to our organization and to our customers. And so that's effectively what we did with this new program that we released a few months ago. The other thing I would say just in terms of partners is we want to continue to diversify our partner community. Historically, we've been very focused on VARs and resellers, and they are one of the reasons why we're successful. But -- and we're going to continue to believe in that success. We're going to continue to invest in that area. But we need to be able to continue to invest in other areas as well. So think of the cloud marketplaces, think AWS. You guys heard about them at the Investor Day last November. Clearly, that is a very fast-growing channel for us. And then the other -- and that's not just AWS, but just the cloud marketplace is an area we want to continue to dive into. The other one is GSIs. We've got some system integrators, some regional ones that are -- they've been very successful with us, but we need to get the GSIs involved more. And so we're going to continue to make a focus there and continue to invest there. A perfect example would be around governance, right? So our governance tool is really good, like all of our other tools. It just turns on, it just works. That's why you heard about Ryder, the Global 2000 company that we talked about in the earnings call, they had struggled with the legacy provider. They then had us up and running in a few weeks. And so one of the things that goes into a governance tool, our tool does work but -- and does work very quickly out of the box, but there's a lot of process work that you want to do up above before you do the implementation. So that's an example of an area we want to delve into with the GSIs, and see if we can continue to make inroads into the GSI community. So our partner strategy is not just about doubling down on the areas we've had a lot of success, like the VARs and the resellers, but also trying to diversify our partners ecosystem so that we can reach our customers and reach our potential customers as easily as possible.

Fair enough. And any details that maybe you're able to share with us in terms of partner channel contribution today, the sort of traction that you're seeing in the different geographic regions.

Yes. So the stat we've used before is it's about 1/3 of total revenue come through the channel. So -- and that continues to be the case today, and we look to expand that. But we want to expand it from an efficiency perspective. We want to be able to have a higher OI. And so we want to -- we'll be thoughtful of where this -- where the revenue is coming from.

Okay. Got it. So I think let's go into the workforce side first. This is the more mature part of the business, right, but still seeing healthy growth, although there recently was a deceleration if we just look at the ACV. Maybe you can give us some context around that. But then on top of that, could you just talk about the opportunity that you see specifically within Workforce and why it's still -- there's still a significant runway.

Yes. I mean it's a big business. It's over $1 billion in ACV, which is much larger than when I started here 8 years ago, 8.5 years ago, but it's still a fraction of what it could be. We view the entire Workforce TAM to be about $50 billion. And so 1 versus 50%, we still feel like we're very lightly penetrated. We've got a lot of opportunity there. It has been impacted by the macro. Both sides of the business have been impacted by the macro, I would say fairly evenly, just like I was talking about earlier. And so yes, there's a lot of opportunity. We're adding governance. We're going to add PAM. It's going to become a really strong product suite altogether. It's great as it is today, but we can make it even stronger, not just through adding governance and PAM, but adding additional functionality into each of the kind of pillars, if you will, over time. So we're excited about Workforce. And it's one of the -- it's a workhorse or, if you will, for us, it's been a great business, and we're going to continue to invest in it as it is -- continue to grow quickly.

Fair enough. And I think just to get a bit more specific here, so single sign-on multi-factor authentication. There's a debate today that these use cases are more so commoditized, right? And feel free to disagree with that point of view. But if that's the case, then what is the strategy around this? Because those are large parts of your workforce business. So what's the strategy around that?

Well, there's a ton of companies out there that still don't even have SSO and MFA right? So that's why we continue to add value, not just so into those products, but also to add value of having governance, having workflows, having life cycle management, having PAM. It's to work together, right? If you think about it, access management is just 1 pillar of the 3 pillars at this point in workforce. And so I don't -- we don't think it's being commoditized, but if it does, there's a ton of value in these other pieces of the pie, if you will. I mean, look at governance, it's -- for the customers who have it right now, it's 1/3 of their total workforce spend and it's only been around for a few quarters. And that's with a product that has got a ton of potential, even beyond the current product set. And so we believe there's a tremendous amount of value, not just in the traditional core set of products, but also in the additions that we're adding here with governance and PAM and how it all works together because you can gain value by being an access management customer, if you were to add governance and PAM, and they all can help each other and actually add more and more value to you as an organization. And so we're excited about the opportunity [ at ] workforce.

Okay. And then you mentioned the different pieces of the pie. So I just want to talk about OIG, right, your IGA product. I think for a couple of quarters now, it's surpassed management's expectations, right?

Yes.

So what is really going right, in terms of your execution there and in terms of customer reception?

Yes, I think it's really the field executing really well. And I think it's also a customer demand that's really been asking for, right? One of the reasons we're in governance is we obviously saw an opportunity there, but also a lot of our customers saying, "Hey, it would be really great if -- we use you for access management, but either we don't have a tool or we have a legacy tool and we just want it in 1 place." And so it's really the result of the hard work. And yes, it has exceeded our expectations. We didn't expect to have the success in the replacements area that we have been having. You heard about Ryder, like I just said. There's some other companies out there that you can -- we can reference. But ultimately, we're just having more success in greenfield opportunities and in the replacement opportunity. And as a reminder to everybody, when we went into this market, we thought we were going to do the same thing as we did in Access Management, which is [ go ] work in SMB to lower enterprise, we did with the original workforce tool and say, and basically give it to customers that either didn't have the time or the money to go with one of the legacy providers. And that is definitely working, but we're also having success in some of these replacement opportunities. So it's -- we're just -- we're pleased with how things are going, but it's still early innings. It's still a small business and we've got a lot of room to run. I think one of the things that does help us also, by the way, in the execution is around how some of the pieces of governance are actually some of the products we've been selling for years. Like Workforce is one of the components of a governance tool. And so I think combined with the fact that the team is really doing a great job, we're having some success early. But like I said, it's early, we still have a long ways to go. So let's not get overly excited too early.

Okay. We will try not to. So if we look at PAM, I think the last piece on Workforce here, it is GA in the fiscal fourth quarter, right? But any preliminary thoughts in terms of competitive positioning, pricing versus other PAM products? Because it does tend to be a pricier product in the identity sector.

Yes. So it's going to -- we're going to run the same play we did in Governance. So go for the customers that couldn't afford it or didn't have the time to be able to implement some of the legacy providers, so that SMB up to lower enterprise. And hopefully, it will go to the same way as governance, we have a little more success than we thought, but we're being very prudent with our expectations around PAM at this point. And we'll update everybody in terms of pricing and how it's going, like we've done with the 1/3 concept, 1/3 of WIP spent for Governance. We'll update you guys when we have a large enough [ vended ] to talk about how things are going.

All right. So just switching gears to the customer identity cloud. I think -- can you just lay out the opportunity here? And I think especially talk about the competitive landscape because Microsoft did recently come out with their own Entra External ID, I think is what they're calling it. So could you just lay out for us what's happening in that space?

Yes. This is really around securing our customers' customers' identities, right? Think about you log into an application. In a lot of cases, you're going to be using our customer identity tool, you just don't know it. And so yes, there's a lot of opportunity. Or think about all the applications, think about how many apps you have on your phone right now. We have the potential to be able to secure all of those customers' identities. Really, this is a build versus buy market. One of the strengths we have as an organization through the Auth0 acquisition is a very strong developer up motion. And so we have to convince the developer community to build their applications with our technology in it, not try to build their applications and then build identity on top of that. Building identity is very hard, very costly to maintain. And so we do it every day. And so ultimately, they should be buying it from us. That's really the whole thing here. We need to be able to convince the market to buy it from us, not build it themselves. And so there really isn't much competition in this environment. It's really that -- that's the -- that's what we have to do is to convince the market that why are you taking all the time and all your precious developer resources to focus on something that's very hard? You should be focusing on your core business of doing A, B or C, let us worry about the hard technological side of things.

Okay. And then maybe to just touch on the broader competitive environment. So we have other identity vendors in the space also going through this motion of consolidating different sub categories of identity. And then we, of course, have Microsoft, right? So could you talk about how the competitive landscape and competitive dynamics have changed over the past couple of quarters? And maybe touch on whether it's just market noise, or if there's some actual tangible dynamics?

We haven't seen any change in the competitive environment really, because it goes back to that key concept of buy versus build. We have the best product in the market. It's very developer-friendly. I'll tell you a story, actually. About a year ago, Eugenio Pese, one of the founders of Auth0, who is our President of Business Operations, had the entire management team build identity into an application. And some of us can barely turn on our iPhones and all of us were able to build the identity using Auth0 and using the customer identity cloud into this application in 45 minutes or less. We've made it very user-friendly. We want people to be able to do it so fast and very easy. They don't even have to think about it just, okay, I want to build an application and I want to have identity, it's Okta customer identity cloud. So we want to continue to make inroads there and continue to win that market in that way. It's been very successful for us. You've seen -- or we've talked about these self-service subscriptions that we have, right? It's either a monthly or a free. I said last November at Investor Day about 45% of the new logos that came into the door on the customer identity side came via that monthly self-service, which is basically developers going and trying it on their own, either via a small credit card swipe or just having limited functionality through a free offering. And so we continue to try to invest there and continue to have success. And ultimately, we believe that's how we're going to win the market in the long run.

Okay. That's fair enough. So I think I'm obligated to ask about generative AI, even if we talk about it for a few minutes. I think you've been clear that you're making investments here. I believe Todd, the CEO recently spoke about some $40 million going towards AI in your R&D budget. So what's clear to us is what every vendor is saying they're going to do with generative AI, or with AI. But maybe what's less clear is where this differentiation comes from and where it starts to happen. So could you talk about why your road map in AI is different or better than some of your peers?

Yes. I mean we've been using machine learning in the product for a long time. So to be able to make access decisions, we've got a huge data repository that effectively helps us make decisions based on if -- where you're sitting. Is that your picture that just came up when you did your iPhone. So we've been using machine learning or AI for a long time. For us, we look at it as an opportunity where identity becomes more and more important. Because if you think about it, AI brings more connections, more [ identities ] out there. And so we believe, ultimately, that just rises the importance of identity, which is already a very strategic area for many companies. And so it just will become more and more important over time. And so that's how we look at the AI kind of like opportunity. It helps us from a revenue perspective. We will be releasing some new products at Oktane. So everybody should tune into Oktane in early October. I don't want to steal the thunder of the team, but there should be some very interesting stuff coming out around AI for our product set as well, in addition to what we've been already doing for years.

Okay. And then maybe flowing from that into -- you're making these investments in AI. You're making these investments across IGA, PAM, all these new areas you're going into. What are the profitability levers that you have at your disposal so that we can keep seeing those margin improvements, but then making sure that we're not sacrificing on any growth opportunities?

Yes. We made some significant margin improvements this year. Obviously with the guidance, 15% free cash flow margin this year, which would be about 12 points of improvement. That's thanks in large part to a lot of the efforts we've been -- we started actually in FY '23. So one of the things that we do as an organization is we look at the business through the lens of the Rule of 40, so balancing revenue growth and free cash flow margin is something we've been doing for as long as I've been here, 8-plus years, and we'll continue to do so into the future. And so when we saw that revenue growth would be a little bit lower in FY '24, we already started making decisions in FY '23 to improve those margins. So things like rationalizing real estate, things like slowing down hiring, things like cost rationalization, like software. Looking at our software stack and saying, "Hey, can we be more efficient with that". And so that helped us into FY '24. The other thing that we did at the same time while we were doing that was actually setting up low-cost regions. So we've opened India in -- earlier in the year, we opened Poland earlier this year. We already had a presence in the Philippines. Because the vast majority of our employees sat in high-cost regions. And so we need to internationally diversify better in terms of high cost versus low-cost regions. And so we started setting that up, that's helping us a little bit in '24, but we believe that can help us in '25 and beyond. So we do believe there's a lot of opportunity to continue to drive margins, but we also don't want to do it at the expense of growing the top line. So it's balancing the two between -- balancing growth and profitability, something we've been talking about, which is profitable growth across the organization. It's really resonating with the team. So when they see an opportunity to grow us faster, can they do it in a profitable manner? Is there a way to save margin or save costs so you can improve margins? Or is there a way to grow the top line as well. So we're really excited about the progress on the margins. But our intent is to continually profitably grow this company.

Got it. We are about 10 minutes out. So I just want to poll the audience, see if there's anyone that has a question for Brett. Okay. Great. So I think I want to touch on sales productivity and sales capacity as well, just along the same line of these investments you're making and several products you're going into. So what does your sales productivity look like today? Obviously, it has improved, but then how are you thinking about the room for improvement in that area?

Yes. It's improved. Is it exactly where we would like it to be? No. We would love it to be higher, right? We know there's a macro effect on there, right? We know that, that's a challenge, especially on the new business side like we've talked about over the last couple of quarters. But even without that, we always think we can be better, right? That's why we continue to enable the field. That's why we continue to release new products. We can always be better as an organization. And I think we're going to continue to strive to do better. But we're obviously -- it's one of the key metrics we look at as an organization and helps us determine do we want to add more capacity in, what do we want to do in terms of future planning? And so we're trending in a good direction, but we've got a big second half in front of us, and we want to see how things go for the balance of the year.

Okay. And maybe specifically, when we think about the fact that you're going into PAM, you've just gotten into IGA, there's stuff happening on the customer side. Should we think of Okta needing to build significantly more capacity in order to handle and to market all of these new ventures? Or is capacity level currently sufficient to deal with all that?

I can answer that question better in 2 quarters. I think it's -- we're excited where things are today. We're excited with the trend of productivity and where things are going. But the second half is a big half for us, seasonally, it will be -- it's bigger than our first half. And so there's been good traction with governance. PAM won't really make a difference in the second half because it will come out toward the end of the year, so it won't make a material difference. But over the years, we expect it to be material just like governance will be material over the years. But we are looking to the second half to see how things are going and make a decision based upon that.

Okay. And what about if we try to think about how long it can take a sales rep to get ramped on IGA and be perfect at selling IGA and the same, maybe not perfect?

That is quite the task right there.

And the same for PAM, just trying to get at what sort of lag might there be in terms of getting your sales organization ready to push out these products? Because in the meantime, other companies are also trying to make their headway in these areas.

It will take time. I don't have an exact number for you. I mean it's -- I mean, look, we still need to get better at customer identity selling. Right? Like we're good at Workforce, Access Management. We're getting better at Customer Identity, that trend of deal participation across the field in terms of the customer identity side is getting better and better. Governance is a good tangential sale because like I said, workflows is a core component of the product. But it takes time, right? I mean, you've got to -- as a rep, you've got to be enabled on it, but then you have to go in and get some at bats, right? I mean you've got to see what works, what doesn't work, what pipeline looks good versus what pipeline looks good, but maybe isn't as good. You get -- basically prosecuting that pipe and getting it through the funnel. So it's -- it will take some time for each one of these to kind of take hold inside the field. We've had some early wins, and I think that's always helpful, right? Because you look around as a rep and you want to see the fastest way to your quota, right? That's what all reps think about, what's the fastest way to my quota. They're going to do that. But if they see reps getting big checks because of A product or B product, they're going to go talk to that rep and be like, "Hey, what did you do there? How can I learn from you? What did you -- and so it's good to talk about these big deals, not just for all of us as investors, but also for our field to hear about some of these bigger deals, so they can go -- know who to go talk to and say, "Oh, that rep has that account, they made that much money on that deal. Okay, so what did you do, and how did you look for it? And so I think it does take time for us to mature as a field, when new products come up, that's just part of any new product introduction. It's harder than it seems, but it's over the long run, it's a great investment of our time and money because ultimately, becoming a multiproduct company will only add value to this organization.

Okay. Fair enough. I think just another one on the financial model here. So we've seen this pipeline be more weighted towards upsell, like you said. And customer growth, in terms of just net new customers, has been a bit lighter, right, than in past quarters. So it creates a scene where there's a little bit less opportunity for expansion down the road. So could you talk about how you're thinking of navigating this and maybe bringing NRR back to the 120% plus level?

Yes. Well -- it is -- yes, the net retention has been impacted by last year's '23 adds. And we do expect net retention, so we're all on the same page to tick down through the balance of FY '24. That's not because growth retention is going anywhere. Growth retention will remain stable in that mid-90% range, but it is that upsell rate. And that upsell rate is directly related to the macro impact. So MAU upsells or seat upsells on the workforce side, we do believe we're continuing to be impacted by the workforce or by the macro side of the house. So it is workforce and both customer identity that will be impacted by that macro impact. In terms of future beyond that, I don't have -- we haven't planned it out yet, but that's kind of how we're thinking about net retention. In terms of your customer account question, yes, we're continuing to focus on new business. It is something that we're really spending some time on, but there's only so much we can do around the macro side of the house. We obviously want to add as many new customers as possible, and we'll continue to work to do so over the balance of the second half.

Okay. There's one last [ gentleman ] -- sure.

On the IGA side, what are you seeing on the ASP growth for customers? How should we look at it?

Yes. So right now, of the customers that we have that have the governance tool, it's about 1/3 of their workforce total. So in other words, if they're spending $100 in workforce, they're spending #33 on the governance tool. Now to be clear, that's not the entire. We've got 18,400 customers. It's a much, much smaller number than that. But -- so it's a -- but it's a good start. It's been holding in that range since we released it. kind of around that range, kind of bounces around quarter-to-quarter, but it's in that range, which is good.

Great. Yes.

Brett, on your [ tracking of IGA trend, is there anything from a sales perspective that you can get ] [ that just changes ]

No, there's no changes in terms of -- your question was around governance. And do we -- are we comping the field any differently? No, we -- a dollar of bookings is a dollar of quota retirement in our comp plans. So we don't incent differently for products. We don't incent differently of upsell versus new business. We believe a dollar is a dollar because what we want to incent for the field is to do the right thing for the customer. Because the right thing for the customer means that they get good value, long-term value, and that's why you see these growth retention rates in the mid-90s. We believe in -- loving our customers is one of our company values. And so that's why we do the comp plans the way we do, to try to drive as much value for the customers. In the long run, we feel that we're going to be better off and the customers will be better off as a result.

And just to sneak one in here at the last second. I think I wanted to talk about the public sector. In the past couple of months, last couple of quarters, you've really gotten the necessary authorizations to sell your public sector in the military. So what is the opportunity you see here? And I'm just curious on the competitive landscape within public sector and maybe how that differs from just the general identity competitive landscape.

Yes. We've really focused on public sector. It's been one of the fastest-growing areas in the company, and we're really pleased with it. Yes, the certifications you're talking about is we've gotten FedRAMP high. We've got IL-4 and we actually can address some IL-5 use cases. And we do believe that's been a tailwind to our growth. It is still a small part of our business, but it is growing quickly. And that's not just for federal, to be clear. It's also like state and local and educational organizations. That's growing really well as well. I think the FedRAMP certs help in those situations. But yes, we're very pleased with how things are going. The competitive environment is no different than the rest of the competitive environments. So it's there, there's no real change there, but it's -- yes, it's an area that we're really focused on. And if you remember, that was one of our strategic initiatives last year. And you can see it's bearing fruit for us, not just last year, but even into this year as well. So we look forward to the opportunity there.

Okay. Well, perfect. Thank you so much, Brett, for your time. Thanks, guys, for joining us, and please enjoy the rest of the conference.