Okta, Inc. (OKTA) Earnings Call Transcript

This presentation contains forward-looking statements. We reserve the right to change the information in this presentation. More information can be found in our securities filings.

Good morning, everybody. Welcome to Investor Summit at Octane '26. So we've got Todd McKinnon, our Co-Founder and CEO. We've got Ric Smith, our President of Products and Technology and Jon Addison, our CRO. So we're going to do it tight 60 minutes. But before we take questions, I'm going to turn it over to Todd for some quick opening commentary. [Audio Gap]

Lots of new vendors. There's going to be different dynamics in the industry, but Okta is very committed to really winning in this era and building a long-term value-creating company. So thanks for all the support, and thanks for coming to Octane, and we're excited to answer some questions to try to illustrate where we're up to it in a little bit more detail. David, you're going to make the decision on goods to ask? Awesome. Be nice to David.

Keith Bachman from Bank of Montreal and I appreciate the time. Todd, I just wanted to ask you a question about the market dynamics. And what I mean by that is your keynote today highlighted Blueprint, which is a way to try to bring vendors together. And then underneath that, you talk about messages such as governance and orchestration are key themes. Yet there's a lot of vendors trying to get into that space, not only security vendors. IBM has Watson Government, Watson Orchestrate. ServiceNow has Control Tower, which the value proposition sounds remarkably like some of the things that you're trying to do. And so I just wondered if you could talk a little bit about Okta's positioning here and right to win when there's a lot of folks trying to go after the same real estate and not even necessarily security vendors, but a lot of folks trying to have that governance and orchestration layer, which is necessary for adoption. So just talk a little bit about the competitive dynamics and you're right to win.

I think there's a lot of work to do, like the example. So fundamental to our strategy and our belief is that Agentic is not 1 discrete thing. It's really a transformation of every layer in the stack. So it's new agents, it's new platforms to build agents, but it's also agents in every part of the stack. You've heard say this several times now. But the implications of that are that when you talk about control tower or management and visibility, there's actually a lot of work to do there. Like, for example, a control tower and visibility in terms of the effectiveness in the ROI, the business ROI of agents, you could put a control tower on that. It's very actually different from a visibility and control, security, governance control tower. So I guess it's a long-winded way of saying that there's a lot of opportunity for all of us to be successful, which is why strategically, the point of the Blueprint is to -- we're trying to make the pie bigger for everyone by catalyzing the market. I mean there's unprecedented interest. I mean it really in a very concrete way, it's a conversation everyone wants to have and everyone knows it's going to be a problem. But I think the market in terms of actually allocating budget to build the secure Agentic enterprise is being hamstrung by the confusion. Customers, they don't want to make the wrong decision. And we've been successful with Okta for AI agents. It's off to a great start. It's growing incredibly fast. But that's because we've positioned it as this really no regrets foundation, like basically, like we go to customers and we say, however, this unfolds over the next 5 or 10 years, you're going to have to have a secure way to connect things together. That's not going away. In fact, it's been around for a while. You've had to connect software together. And it's only going to get supercars in terms of that requirement. So you need to manage tokens, you need to have this registry, and that's worked. But to really take the market to the potential we think it can be. And let's be clear, we think the identity foundations of the Blueprint could be a bigger market than all of [indiscernible] and IAM is one of the biggest markets in cyber already. I believe IAM will be the biggest market in cyber in 5 years. That's pretty clear to me that's going to happen. And agentic could be bigger than at all. Agentic, the security and governance and visibility for Agentic being the control layer for that could be bigger than all of identity is today. Now how do we make that happen? We have to bring this clarity. And we have to make sure customers can get help and the industry can help customers understand how to rationalize this all and put things in buckets. And of course, there's going to be debates and skirmishes at the margin. It's not like I'm sure that other companies have an opinion on. They should do this identity part and that's fine. But by and large, we're going to clarify what the gateway should do, what's the difference between an AI gateway and an MCP gateway and how those work together and how the -- what risk means across -- those kind of things can be clarified and catalyze the market, and that's the point of the Blueprint. And the Blueprint members, it's only been 6 months or so we've been working on this in serious dedicated budget and effort. And it's going well. I mean, the proof is in the pudding. The alliance members have to keep working together, certify their products as the technology evolves, but I'm very optimistic about it. And the strategic objective here is, let's be clear, is to bring clarity and make the pie bigger for everyone. And I think we have a good shot of doing that. And like I said, I'm super motivated and fired up to meet this need and move the industry forward. Because, yes, it's -- the downside scenario is fragmented approaches, not good governance, not good risk management and not getting where we need to be as an industry.

Brian Essex from JPMorgan. We caught up really briefly, and you asked me one of the things that I thought was impressive and my reply was the third-party IDP access.

Yes, third-party integration.

Yes. So sacrilege in the past. Would love to hear the backdrop for that? And how many deals -- when you've been selling Okta agentic identity platform. How many of those conversations maybe had a bottleneck because a competitor of yours was in the IAM business for that customer? And how much do you think this would accelerate market adoption of your agentic platform.

Yes, I can start, and Ric, you can chime in here. You've been super close to this. By the way, Okta has a secret weapon here and my friend, Ric Smith. He's been here 1 year and making a huge difference, accelerating our R&D. So the access management for employees, the market share is pretty stable. Microsoft has about 40%. Okta has about 30% and then there's some smaller players and a lot of kind of like niche players, I would say, below that. The whole market is growing, so that's good. But Okta for AI agents is a GA product and so we're the only 1 with the GA product, which is a great position to be in. We're innovating quickly. So there's a lot of customers out there that have a Microsoft IDP. And they're coming to us, particularly the big ones, big global deployments, multinational, thinking of a multinational auto manufacturing company, thinking of 2 or 3 other very large accounts that see this as a big problem in their antra-IDP shops. And we have seen -- so -- and they want to use Okta for AI agents, which is exciting. Now I would say the vast majority still of our conversations about Okta for AI agents are people with the Okta IDP, for sure, but particularly in the largest of the large enterprise, which is an overall area of strength for Okta in general in the last year or two. The fact that we're supporting IDPs outside of Okta is very compelling. So that's exciting. And the other exciting thing is that we're seeing that I can think of 2 or 3 specific cases ones with a software company, a 35-year-old software company, a couple of other ones come to mind where they're actually -- you can't replace [indiscernible] because it's the log-in for Office 365. But the Okta for AI agents product is actually pulling in the whole platform. They know AI is a big deal. They've been not happy with Microsoft because it's not really great at connecting with non-Microsoft technologies, and this has been thing to get them over the edge of going into the whole platform, governance, privilege, Okta for AI agents and workforce IDP. And that one actually has -- those two I'm thinking of actually have a big [indiscernible] and customer identity expansion as well. So it's catalyzed in the platform, which is the -- that's like a big time upside scenario for Okta. We win the Agentic identity market. It pulls through the rest of the platform in a way that changes the market share dynamics overall. It's super exciting.

Yes. I mean I think you stated it very accurately. Like most of our conversations that we have actually start on the AI front, and then that leads to a larger platform sale. Most of that is the result of the customer having a clear understanding that it's time to actually evolve their identity platform in order to be able to handle what's happening in the agentic world. In terms of us being able to connect to another IDP, it is early days in terms of that kind of opportunity. We're seeing more and more demand for that. And it's not just unique to what's happening with Okta for AI. We're seeing it across all the products, and we have a motion to actually start opening up governance, TAM as well as the Acero platform so that we can attach to an independent IDP other than Okta, so that we can use that as a land and expand opportunity for the platform. One other thing I'd say on that is this is really where specialization in go-to-market is helping. We made a move to specialize how we go-to-market in the field with our customers with deep domain expertise in kind of 3 product areas. So we have a takeoff team for AI, deep subject matter experts on cafes and our AI solutions. They're often opening the door and those doors lead in different directions. And like Rick said, it really is creating the opportunity for broad platform modernization across all identity use cases and 4 identity types. That leads us to the CIO and the CISO, where we have the Optus specialist team, but it also leads us to external-facing applications and all 0. So we see many examples now where the AI conversation is opening the door to a much broader opportunity for Okta, and it's going across both the Okta and also platforms in all of their forms. So the go-to-market structure that we've had in place now for 18 months is really helping elevate that.

And join me in congratulating on my friend here for 5 years at Okta. When I first met Jon, I was interviewing him for the GM of EMEA role. And I just want to thank you for making my promotion decisions look smart.

Number one, role in life, make the boss look smart.

Never fail.

Eric Heath from KeyBanc. Now I think one of the things you said, Todd, I totally totally appreciate. There's a lot of noise. It's hard for the CSOs to cut through the noise and understand all the different technologies and who's differentiated and everybody's got their own story and they're all telling the same story essentially. Long winded way, I guess, of saying like, you do have some platform vendors that have gotten into identity and they tell us similar story and the third are trying to secure identity for agents as well. So how are you seeing them show up, if at all, the larger platform vendors? And secondarily, is the bundling effect what they can do with flex pricing and platformization having any impact or see it having any impact to selling Okta for agents.

I think it's going to play out -- I think the market share established over the next 3 years for the agent, call it, the system of record for agent identities. It's going to play out over the next 3 years. And the market share is -- there's going to be massive growth and the market share is going to be set probably in 3 years. So there is going to be competition. I mean, people are waking up to this after many, many years that identity is going to be the biggest part of cyber and that the agentic control plane might be a bigger market than all of that together. Because really, you're talking about the control plane or at least some foundational pieces of the Blueprint for all of technology, because everything has become agentic. When we talk about the agent, the Blueprint for the secured agentic enterprise, we're talking about the blueprint for all of security. That's why it takes a village. It's not going to Okta out there all alone, securing everything. It's just not going to happen. There's too much technology, and there's too many pieces that have to come together to make it happen. But I do think that market share is going to be set over the next 3 years -- and for agentic identity, and we are very focused on winning that. It's all systems go to win that. And I think we have a lead, it's very early. But our advantages are -- it echoes with what we've been talking about for many years. We're not trying to sell a model. We're not trying to sell a broad development platform. So yes, some people will want to go all in and they'll be constrained and [indiscernible] strung by that. But the vast majority of people, especially in this fast evolving somewhat confusing environment of agentic and rebuilding their company and their infrastructure. They like the choice. They like the flexibility. So I like our position, and there's not another there's not another company that has that focus on identity. And if we do our job right and laying the landscape in a way that people are clear on how the Blueprint parts have to work together, and how in those different pillars of the Blueprint, how identity plays such a relevant role, I like our chances. But it's not -- I mean, it's not a defined market -- I mean it's not a -- the market share has not decided that. It's too early. So we go have to go out and win it, and we're making sure we build the company and the culture and the environment to win it. That's why we're -- everything at Okta is ramping up the intensity, the expectations, the standards, we are not going to lose this. I'm totally dedicated to winning this and I like our chances.

Gray Powell with U.S. Bank. So I had a question on the buying center, particularly related to Okta for AI agents. And just for better or worse, security or identity historically is just -- like a tax on the business versus something that enables business. So do you see the buying center changing with AI? Like is it more closely aligned with something like a marketing budget or something that could generate revenue versus traditional security budget dollars?

Yes. We face this challenge for some time just relating to identity. And broadly speaking now, identity management is a topic where we need to address the needs of people who are building technology to compete and sell goods and services Also, clearly, it's of high relevance to CIOs and CSOs and the stock. And so for some time, we've been working really hard to make sure that we've got the right team in place to specifically address those needs. We don't really see that playing out much more differently when we think about agentic security. So the agentic security topic and it's kind of clear understanding as we're seeing it in our customer base, but to solve it, they see agents as a primary identity type that's a natural evolutionary step in the relationship capital that we've built over 17 years in our customer base. Now it means that we've got to be, like, tight with our customers across a really broad set of stakeholders. It means in really big companies, we've got to be aligned internationally so that we understand their strategies. We're ahead of the curve when they think when we're thinking about securing all of their external-facing apps or their resources to humans, non-humans and agents in the future. So there's a lot of work to be done, especially in enterprise and strategic customers, but I feel really good about our positioning, the relationships that we built over time, and we're seeing budgets typically come out of our traditional stakeholder groups. So CIO, CISO budget. We're seeing a lot of new program spend. And increasingly, we've seen budget come out of R&D and engineering, especially for things like building external-facing agents.

Yes. I think you'll see an evolution over the next year from all the -- almost -- I'd say 80% of the conversations that I have are with IT or security, Gray, so like traditional buyers. And -- but I see a big trend changing. You're going to get more like the traditional customer identity business where it's like marketing and Chief Digital Officer. You're seeing that start to happen more and more. I was meeting with one of the major airlines recently and at the table where they're -- basically, it's their kind of Chief Digital Officer, which is like business driven. They want growth. It's a loyalty program growth, more in loyalty program. And then you saw -- then the Chief Security Officer was more of traditional risk management lockdown internal systems. And you can tell that, that's -- conversations are going to evolve that way. There's going to be more of that what typically would have been like the [indiscernible] buyer. And I think we've done a good job leveraging our relationship with IT and security in the Workforce identity Foundation and getting Okta for AI agents off the ground and rolling there. And I think you'll see a similar thing on the customer identity side. But I think it makes sense, right? I think people are starting with their internal processes. Maybe the risk is lower there. They don't want to mess up. Maybe they don't want to mess up the customer-facing experience. I do want to mess up your loyalty program as an airline, but that's a trend I see.

Rich Polland, Wells Fargo. So Todd, I think today on stage, we're talking a lot about the agentic commerce opportunity the productization there with Auth0. I just kind of wanted to put a finer point of active [indiscernible] in recent events with news and anything. It feels like that to be meeting.

Super interesting, yes. I think like I'm going to -- I feel like I'm a broken record here, but I think there is a big opportunity for more standardization there. All these products like Instinct and use and the open Claude and the other ones, it's pretty rudimentary. It's like type in your password, then I'll use a password. And I think we need a better solution. It's like if you're building a customer-facing app for many years, the bot was bad. Like bots were -- you don't want to shut them down and you do want bots, taking the tickets and scalping them and bots were blocked and we have a whole capability to block bots, now bots are good. And last, you're worried about like Amazon is, you're worried about your Amazon credential has been out there and losing control and someone hacks into 1 of these use or 1 of these things and like buys $5 million worth of Amazon stuff. Amazon is going to be responsible. So I think we need better standards. I think the industry has to evolve. And I think as the blueprint expands, it will start to cover more and more customer-facing. If we do our jobs right, I can start to cover more and more customer-facing scenarios. But yes, it's still early days, especially on the customer-facing side.

And I would add the -- like most of our customers, particularly in the Cine business, they're starting to see a drift in traffic. So like traditional digital properties are in decline in terms of the traffic as a result of more and more consumers going through agents. And the standards in place like UCP are very early. So there's not broad adoption, not a lot of interoperability, but every one of our customers sees at full, and that's why we're partnered with Google to go out there and try to like open up that line for them. And to the earlier question regarding like, are we seeing more traction revenue opportunities or helping guide our customers and revenue opportunities. Beyond just agentic, they're actually coming to us and trying to find paths that they can look at the log-in process as part of the conversion process. So I mean, if you end up in the [indiscernible] platform keynote, you'll be seeing a presentation around conversion Suite, which offers that opportunity to afford and to our customers.

Josh Tilton with Wolfe Research. Todd, I want to go back to something you said when you started, you used the words, we're lucky for where we're positioned in the industry. Can you maybe, in the context that, that compare the demand and the adoption curve that you're seeing for your Okta for AI agents offering to what you saw during quoted the demand when I argue you were just as lucky for your position in the market at that time.

Yes. COVID was definitely a catalyst. It really -- I would say it was like the big final push of the multiyear secular shift to being the perimeter is not the network. You really have to have a strong identity foundation. I don't think it was -- like I said, I don't think it was -- in terms of shift in the industry, it was like kind of the culmination of that shift. And then the next -- last -- after COVID and 0 interest rates last 3 or 4 years, we've all been trying to figure out what the next big catalyst we found it, which is very exciting. This one is -- it's hard to compare. It's such a weird time in COVID and everyone was trying to adjust and so forth, but this one feels way bigger to me. This one feels -- it's not the final push of a multiyear thing. This feels like something new, not new in the sense that it's totally disconnected from what we've done before, but the energy and the potential it feels much bigger.

Fatima Boolani from Citi. No, still in New York time. I appreciate the questions. One for Todd and I'm going to slip one in for Rick as well, if possible. Todd, just on the Blueprint Alliance, the spirit of the effort is very clear, the ethos is clear. But can you maybe expand on what the next phase of the Blueprint Alliance is going to be outside of building more consortium and more vendor inclusion? And ultimately, what I'm trying to ask is that should we expect the next phase of that alliance to include economic incentives whereby John, you go to customers and have joint go-to-market incentive agreements with the CrowdStrike where ultimately you are getting paid for building a coalition around this effort and a follow-up for Ric.

No, it's a really smart question, and kind of follow the money. I think the next -- so this is very important to us. And the next phase, I think, is it has to catch on with customers, meaning customers have to accept it and make it clear to everyone involved on the vendor side that they want this and then. If it doesn't get that kind of traction, it's not going to be super successful. So customer adoption and customer endorsement is super important. But that's the only thing that I've been working at enterprise companies for a long time. And the 1 thing that really is powerful as customers requesting things. So that's really important. And then I think the next more -- we have a really good version of the white paper that I'm very proud of. The next step is really the -- working with the alliance partners to check the reference architecture that the products are working together. And that will just -- it will just be a good virtuous cycle with customers endorsing it and now they're seeing results of the products are working together and tangible evidence of the clarity versus the conclusion. I think those are 2 very important steps. In terms of like -- the economic incentives, I think those are interesting but probably premature now until we get those 2 steps. The 1 thing I will say is that we're talking Blueprint, which is very high level industry landscape type stuff. And then we talk about this agent SSO. And that's like -- macro and now we're going to micro. And agent SSO is -- we've been working on this for 4 years. It's perfect for agents. They all need it. It's got a ton of traction, a ton of momentum. And in terms of incentive, the reason why we're enabling cross-app access support in every Okta product is because we have to catalyze the ecosystem. We have to give these ISVs a reason to support it. They all have 50 things to do. They're all working about on AI agents and doing this stuff and they have to have an incentive. And the incentive is going to be customers ask for it. And if customers have the -- 1 of the most popular AI agents in Cloud, like they do speak in this protocol, and it's in every Okta product. We can't go to an ISV and say, "Hey, support cross-access is an open protocol." The first thing they ask is, okay, how many customers can use it. the answer that used to be like, well, I'm not sure. But now the answer is very clear. Every Okta customer, and by the way, every pain customer because they support it, which is awesome. And every customer that uses Claude. So that number is big. So you should -- when we talk over the next 6 months or a year, the question you used to ask me is, how many ISVs supporting cross-out accents and that number better growth. And if you -- if that number is growing, you can get confidence in this micro standardization effort. And if you get confidence in this micro standardization effort, you should have more confidence in the macro effort, too.

[indiscernible] Your spoiled for choice in terms of where you can invest the R&D envelope clearly the velocity of the portfolio expansion picked up. How should we think about where you're kind of putting your chips and I'm coming from the standpoint of the earlier question on if we see a massive explosion on consumer AI interfaces and B2C use cases, there is a completely different technology investment strategy behind that. So how do you kind of think about allocation of your R&D capital behind those opportunities?

I mean we're pretty financially aligned in R&D. So when we groom the portfolio, we're looking at like what are the major drivers in terms of current revenue, what are the bigger bets down the line? And we have no fear of moving resources even if we have to cross the lines between the different platforms. So we're here to win, and that's the only way to win.

One thing I would be clear, everyone, so we combine Auth0 and Okta R&D. So it all works for Ric. So here, you can move pieces around, make sure the investment across the entire portfolio is aligned on the biggest impact things. I think it's been a -- it's a great thing. It's really help Okta for AI agents in the gateway and so forth.

Saket Kalia at Barclays. Thank you for hosting the session Jon, maybe for you, I want to change it up a little bit. I'd love to talk about some of the observations that you have from specializing the sales force, right? It seems like it's been a great success based on some of the metrics. But maybe outside of the agent opportunity, which we all clearly excited about, do you still feel like there's low-hanging fruit for better execution just in the core workforce and Auth0 businesses. That makes sense?

Indeed. I mean I think the momentum, the durability of our core business is really strong. It's a really big part of the success we've had this half. A large part of that is the improvements in the accelerated benefits of sales productivity. For 18 months, we've had a very stable operating model in go-to-market. It's benefited from specialization like I said, in several forms. We specialized it around our public sector opportunity. We've specialized in commercial and down segment around like specific customer need around new logo acquisition and installed base and account management. And like I said, in platform specialization above that for enterprise and strategic. It's super clear that when we think about specialization, and obviously, many companies at our phase and our stage with this broad range of product capability and demand that solve specific problems for customers and our stakeholders that we manage. There are various choices around how you specialize. And we take our Norstar from what is it that the customer needs? What is it the customer needs to be successful in the thought leadership, relationship capital, technical expertise and partner ecosystems so that they can invest in the Opto and also platforms and think about really a generational strategic bets over the long term. And that's how we think about specialization. And so if you look at all of the incredible innovation that we've built in around the all CRO and after platforms over years, like they're very broad platforms. They have a lot of use cases covered. They require a lot of specificity, a lot of understanding about the competitive landscape, the buying processes of stakeholders when they think about those platforms, the different identity use cases change. So it does require learning. And our tenure in sales is very high. Like I said, AI productivity is very strong and our attrition is low. And so we're getting the benefit from that. And so when we think about the future, we feel about shifts in those areas carefully and prudently. And we really think, right now, we're on the right path and the structure and the team, the capacity we've got and how it's yielding pipeline and sales productivity.

Shrenik Kothari from Baird. So Todd, on the keynote to pretty much highlighted why you made the agentic assets available to everyone? And clearly, as we just highlighted, it's a frictionless on-ramp for customers to talk more. I just wanted to connect the dots here a little bit since you already have several target customers who are already using docker agents. And you mentioned that the keynode that first step is the connection point. And then if you need more complexity cases requirements for governance and run term enforcement. So just curious in terms of the monetization journey for the customers on Okta for agents, how is that are progressing?