Okta, Inc. (NASDAQ:OKTA) Q2 2024 Earnings Call Transcript

On the privilege side, I think that — and also on the government side, it’s like — I always get surprised when companies take out a big piece of technology that they invested in that’s working. And the secret about some of these big governance deployments is they’re actually not working that well. And they kind of went into it with this broad view of all the functionality they would need and how everything they want to hook it up to and what they’re seeing after several years is that they’re kind of really only using part of it. And then when you compare what we have to that, it’s — sometimes we exceed what they’re actually using. So then the decision to actually swap it out is kind of beating our expectations. My guess is that it could — the same thing could happen in privilege.

I would guess that it’s just a conservative guess would be that it’s going to be where we have success, it’s going to be where they don’t have a solution and its — they want to extend the benefits they’ve seen with Okta Access Management and Governance into those privileged resources. And I think that probably means coexistence. But I still continue to block set this over and over to many people that we’ve talked before. It’s like I think that we’re really in almost a different market. The company that had Oracle and Sun servers in their own data center, and they put CyberArk in there, they’re not going to take that out for Okta Privilege. But I do think that, that same company may have a division that’s doing more cloud development, they have containers and they want to get quickly some the same benefits they have for their Okta deployment on top of some of those resources and get the auditing capabilities and the workflow capabilities and the access control capabilities.

But I just don’t see them taking out a legacy CyberArk deployment that’s kind of working and protecting their Oracle database and their own data center.

Ray McDonough: Great. Thanks for the color. That’s makes sense.

Todd McKinnon: Yes. Happy to help.

Dave Gennarelli: Hey, let’s go to what I believe is [Caroline] (ph), Goldman Sachs.

Unidentified Analyst: Yes, thank you. Quick one from me is just on Okta’s new partner program. I think you launched that in April of this year. Just Curious what the initial reception to that has been? And then also, given the differences in go-to-market and workforce and customer, kind of how does that translate to the partner strategy in each of those clouds?

Todd McKinnon: Yes, the partner revamped the purposes behind it were — the fundamentals were super sound. We wanted to get more focused, more focused on the most valuable partners — and it’s — we’ve had that launched for a couple of quarters now. It’s going well. I think we’re seeing good partner contribution in the pipeline, which is a good thing. Overall, it’s not specific to that program — those program changes. But overall, partners continue to be super important for Okta. Particularly, excited about the partnership with Google Workspace for their go-to-market. The Google Workspace sellers around the world and a public sector can sell Okta, and that’s a natural — really natural alignment there with — we’re trying to give the Google customers a bunch of choice in technology and Google is trying to give the same message kind of saying you can use workspace and the Google tools to collaborate with anyone, across company boundaries, no matter what you use for the rest of your communications and collaboration infrastructure.

So it’s a very aligned go-to-market that we’re excited about that one. We’re excited about the cloud service provider marketplaces. That’s a new channel that’s really emerging and been strong for us. We’ve mentioned the AWS Marketplace for a couple — a few quarters in a row. It continues to grow very quickly. Customers want to that they really have big investments with Amazon, they want to retire and pay down some of their AWS credits, and they can do that on Okta through the marketplace, which is great. So partnership is really important. I think one of the biggest opportunities and something we’re really focused on and trying to really mature is our motion with the Global Systems Integrators. Global Systems Integrators are especially in large enterprise on workforce.

They do a lot of business, and they’re going to be really key as we start to rip and replace some of these legacy technologies, especially on the governance side. So the relationship and the partnerships with the Global Systems Integrators is super important. We’re focused on that. And very interesting on the customer identity side, it’s a natural — it’s very naturally appealing to the Global Systems Integrators because they’re trying to — they want to develop solutions and do digital transformations for these companies and customer identity to help them do that. They can help them build some of the other differentiating capabilities and not have to recreate some of the identity parts that we already do in customer identity cloud. So it’s an important part of our business.

We’re kind of a — we’ve always Okta is like very good at partnering just because it’s been so important to us from the beginning. We had to partner with ISVs and apps and in the channel and so forth, and we’re pretty proud of our ability to partner, but we’re continued to double down on it because it is an important part of the ecosystem part of our business.

Dave Gennarelli: Hey, we’ve got — we’re up on time, but let’s go into overtime here. We’ve got five more hands raised. Let’s go to…

Todd McKinnon: We have to start scheduling these longer.

Dave Gennarelli: Yes. Let’s go to — I think [Patrick] (ph) at Wolfe.

Unidentified Analyst: Yes. Hi, guys. It’s Patrick on for Josh.

Todd McKinnon: Hi, Patrick.

Unidentified Analyst: Congrats on the quarter over time. So you mentioned that OpenAI expanded the relationship. And I think that’s not the first time, maybe the second or third time that you’ve actually called that out. Is that kind of coming from the customer side or the workforce side? I’m just curious if you can talk a little bit more on what products they’re expanding with and seeing uses with. And then also, was that any meaningful contribution to growth in the quarter from OpenAI specifically?

Todd McKinnon: Patrick, I lost you for a minute there. So if the question was for me, I needed you to repeat like the first 20 seconds.

Brett Tighe: Yes. I lost you as well.

Unidentified Analyst: Okay, can you hear me.

Todd McKinnon: Yes, we can hear you. You came back [Multiple Speakers]

Unidentified Analyst: Sorry about that. So I was asking about OpenAI. I think this is like the second or third time that you’ve called out. significant expansion with them in a quarter in a relatively short time. Is that kind of coming on the customer side, the workforce side, what products are they using and seeing success with? And then was there any meaningful contribution to growth from them in the quarter with that expansion?

Todd McKinnon: Yes. So OpenAI is super interesting. So they’re — OpenAI as a customer identity cloud customer, which so when you log in and ChatGPT, you log in through Okta. And it’s interesting because a developer inside of OpenAI three years ago picked our customer identity cloud because it had a great developer experience and from the website and started using it. And this Chat — and at the time, it was the log-in for their APIs and then ChatGPT took off. And now, as you mentioned, we’ve had really pretty sizable transactions with them over the last couple of quarters. And so it’s a great testament to our strategy on customer identity, having something that appeals to developers. And you saw they did something pretty interesting — and so this is really a B2C app, right, of ChatGPT but they — now they recently launched their enterprise offering, and they want to connect ChatGPT to enterprises.

So this is — Okta is really good at this, too, because our customer identity cloud connects our customers to consumers, but also connects our customers to workforces. So then you have to start supporting things like single sign-on and Sam and Open ID and authorization. And so it’s just open API continues to get the benefits of being able to focus on what they want to focus on, which is obviously their models in the LLMs and the capabilities, and we can focus on the identity plumbing that wires it together. So the transaction was — it was one of the top — I mentioned the top 25 transactions. The total TCV of all this transaction was — this quarter was $100 million. It was one of those top 25 transactions, but I don’t — I haven’t done the math on the TCV for how much of the $100 million it was.

But it was one of our — it was on the larger side this quarter.

Dave Gennarelli: Great. Let’s go to Shrenik at Baird.

Shrenik Kothari: Hey, thanks for prolonging the Q&A. I think it’s a good idea. So Todd, Brett, great to hear the cross-sell momentum to speak about OIG and PAM and PAM, of course, the early traction as well as the device access. On the commentary, on Okta for Global 2000, I think that, Todd, you expanded upon it. It’s like an architecture differentiator and then a competitive advantage. And I guess on impressing you mentioned that the solution has already become a critical component of your sort of large new upsell transaction. So just curious, like, is that becoming or potentially will become a driver. Is it still just like an add-on to the bundle at this point? So just curious in terms of its contribution in terms of the upsell and the uplift momentum? And how are you and Brett as well kind of factoring it and going forward. Really be helpful.