But what I knew at the time for sure is that we were going to finalize one of our finalist candidates and Jon being one of those finalist candidates. We were going to finalize it soon and be ready to roll in our original schedule, which was, like I said, to wrap it up in October. The decision came down to a few things. One is that the — I think that Jon is — I talked to dozens and dozens of candidates and interviewed and looked everywhere and different levels of experience and backgrounds, and every person I talk to, the person doing the job was outperforming them. Jon was doing a great job. I was with them in customer meetings around the world. I was, more importantly, talking about strategy going forward and understanding his strategic vision and his familiarity with the market and areas around the world and with the product segments and the identity industry, and he would just really shine brightly, it’s like the nine-month job interview.
And it really — he kind of made it hard for other candidates to compare. And I think — so once I made the decision that he was the right guy to be the Chief Revenue Officer, I also made the decision that I really like the current structure of business operations under Eugenio as the President of Business Operations — Global Business Operations. The marketing function under one of our strongest operational executives, Eric Kelleher and then Jon running sales and pre-sales and partners reporting directly to me. So basically, the flatter organizational structure where I have direct — the business operations, customer success, our customer — Chief Customer Officer, Marketing, and then Chief Revenue reporting directly to me, it was the best thing for us going forward.
So there’s really two decisions. It was who’s the best Chief Revenue Officer in the world, and then do we need that extra layer of a President. And the best thing for Okta for the future is to finish out the search for President and have these talented capable people in place that drive us forward.
Dave Gennarelli: Great. Let’s go to Hamza at Morgan Stanley.
Hamza Fodderwala: Hi. Thanks for taking my question. Todd, on a high level, could you speak to the switching costs of your products? And based on your very early conversations, would you anticipate some customer churn as a result of this incident?
Todd McKinnon: I think the switching costs vary. And it’s — one of the great things about both the customer identity products and the workforce identity products are that you can — they’re very flexible. You can implement them very quickly and easily. And then, you can also implement them in a way that’s quite comprehensive and connected to everything and very complete and cover every technology and every resource in the customer’s environment. So, the switching costs vary. I mean there are companies that have a relatively light implementation and the switching costs are pretty low and then there are implementations that are very deep and broad and lots of custom integrations and so forth and the switching costs are higher.
So, I think it varies. I don’t — I think there’s various reasons why people switch off. And I think it’s pretty hard, and it’s always in customers that are less likely adopted and have lower switching costs, which is — seems pretty obvious, but that’s true. And I think we’re — we’ve seen some people switching off various reasons. Sometimes it’s like we’ve said, our gross retention is mid-90%s, but so that means by definition, there’s some percentage that are switching off, various reasons for doing that. And I think at the end of the day, it’s going to be hard to directly ascribe it to one thing. So I think we’re just trying to make customers successful and provide huge value in the products. And our strategy of a converged platform on the workforce side and covering every identity use case with customer and workforce.
And we have, I think, prudent assumptions in the forward guide about what is baking in security incident or baking in macro. We’re comfortable with that guidance, and we’re going to go out there and execute our plan. And I think it’s going to be in the long term, we’re going to show a lot of success and deliver a lot of value to customers, and that’s going to drive success across the board.
Hamza Fodderwala: Thank you.
Dave Gennarelli: We’ll go to Joe Gallo at Jefferies.
Joe Gallo: Hey, guys, thanks for the question. Impressive margin performance this quarter and guidance next year. Can you just further unpack the drivers of leverage there? And then just talk through whether that inhibits the growth algo at all? And then, just maybe whether — how you think about longer-term growth? Do these margins kind of reflect a new reality of potentially a lower long-term sustainable growth? Thanks.
Brett Tighe: Thanks, Joe, nice to see you. So, in terms of the — how we’re achieving this, this is really something we’ve been working on for probably about 18 months at this point. And if you remember, last year, we started this cost structure, efficiency, whether it be from moving headcount to lower-cost regions or rationalizing software, rationalizing real estate. It’s been a long-time effort for us to be able to really set up the structure to be able to deliver these types of margins. I’m really excited that actually we can talk about Rule of 40 this year because that’s how we look at the business and manage the business and kind of think about it from the lens of growth versus profitability. But ultimately, all this hard work is allowing us to offer up and guide with confidence these margins that you see in the FY ’25 guidance, 17% non-GAAP operating margin, at least 19% free cash flow margin.
And so that’s a really good shift for us. We’ve set up that structure to be able to drive that efficiency, drive the leverage in the business. And as far as growth versus margin, we’re always going to balance the two. And ultimately look to balance the two. So I can’t give you anything beyond FY ’25, but we’re always going to manage the business through that lens of the Rule of 40, something we’re very proud of that we feel we can achieve this year, and we’ll always target as we as we move forward into FY ’25 and beyond. It’s something we really kind of pride ourselves on doing overall.
Joe Gallo: Thank you.
Dave Gennarelli: Next up, we’re actually going to go to Madeline Brooks at BofA. She got knocked out of the queue. I’m putting her back in the spot here.
Madeline Brooks: Thanks so much, Dave. Appreciate it. And just appreciate the transparency of your remarks. I know many people have said that, but just really want to emphasize that. So the question is, you know, if I look at what happened this quarter, my quick math implies that roughly 99% of net new cRPO came from the existing base. And it’s a two-parter. Across peers, these numbers begin to kind of turn positive, again, with contributions from net new customers increasing post-macro. So, the first part is why do you think the trend in your numbers is different than other cyber peers? And the second part is, is there any concern heading into next year, the existing customer base will already be saturated, leaving less room for upside, especially with this 90-day push out of new products and the potential headwind from the new bids given the recent security event?
