Dave Gennarelli: Let’s go over to our new customer, Eric Heath at KeyBanc.
Eric Heath: Todd, I mean, you previously talked about kind of expanding the sort of channel partners you work with to more of the, call it, the new school channel partners, the GSIs and marketplace. Just curious if you can give us an update on how that avenue performed, that indirect sales motion performed in the quarter? And maybe if you can just kind of give us an update on how much of that business today is kind of coming from these newer channel partners versus maybe the traditional channel partners?
Todd McKinnon: I think the trends in the quarter were consistent with what we’ve seen. The Amazon Marketplace continues to do very well. I think that’s a good model for how customers want to buy in general, looking to marketplaces from big cloud platforms and procuring solutions through there. That’s a trend we’re investing into. We’re also working really hard. The customer identity business, the Customer Identity Cloud has a very interesting big, long-term opportunity for partners, which is as we’ve talked about over and over, and you all understand that these applications and these sites are built. And so, this is a huge opportunity for large SIs. And frankly, an area where with the workforce business, if you talk to a big global SI, the cloud modern workforce identity business, a lot of times is — it’s kind of too easy.
They’d rather spend their time with a legacy stack where they have a lot of services dollars to wrap around that. And so getting the big SIs interest at times has been challenging for Okta. We’ve had some success, but compared to the businesses, opportunity for helping people deploy workforce technology, it’s relatively small. The customer identity side is a huge opportunity with people wanting to build solutions and companies needing help, building transformative customer-facing projects. And getting that motion started is really important on the partner side of the Customer Identity Cloud business.
Brett Tighe: Yes. I might just add to that in the sense that — on the indirect side, we do continue to see more and more of the business be part of the indirect channel. Also, like just Todd said, the marketplaces are growing quite rapidly. It’s a very interesting way for people to buy from us.
Dave Gennarelli: Next up, Peter Weed at Bernstein.
Peter Weed: Congratulations on the continued progress that you’re making. One of the things that I was really impressed with is the continued leverage that you’re getting in OpEx. I completely understand the sales and marketing side. But I think we saw it continue to strongly come through in R&D and G&A. I wanted to kind of hear how you’re thinking about that, particularly on the R&D side. Was that coming from freezing of hiring? Was that kind of an increase in churn of people in R&D. And then kind of on the right level going forward, I think my quick penciling out is you’re in the high-teens percent subscription revenue on a non-GAAP basis right now. Is that kind of the level that you want to keep it out? Is that too lean and you’re thinking about bringing in a bit more next year? Is this something you’re trying to get even more? Like, how are you just thinking about that on the R&D side, given the criticality of these people kind of to the future platform?
Brett Tighe: Yes. I’ll let Todd talk about maybe the second part of that question, but I can answer more of the financial side of it, which is — when we talked to you last, we talked about some cost efficiency measures that we implemented. And those cost efficiency measures, you’ll see them coming through not only in Q3 in the results, but also our guidance for Q4 and FY24, which is — we slowed down hiring. I mean you can look at the quarter-over-quarter increase, it was about half of what it’s been the last four quarters. And that was us slowing down everything as growth moderated, right? This concept of balancing growth and margin over the years is something we’ve applied in the past, and you can see it happening even in FY23 and into FY24.
And so, that just didn’t affect R&D. It affected some other areas across the P&L. We also rationalized real estate footprint, which, although it’s not gets allocated across the P&L, so you’ve seen an effect there. So you’re seeing it across the board of these cost-saving initiatives for us to kind of drive the profitability up so much so that we’re slightly positive this quarter and guiding positive in Q4. But I’ll let Todd answer the second part of the question, what’s the right level?
