Okta, Inc. (OKTA) Earnings

Management highlights

- **Core Business Strength**: Q2 saw record non-Q4 bookings driven by broad-based strength in workforce and customer identity platforms. Large enterprise customers drove significant growth, with over 20% year-over-year growth in ACV for customers exceeding $1 million; the company now has over 600 such customers. - **AI Security Momentum**: Okta is actively securing AI agents, closing dozens of deals in Q2, including multi-million dollar wins. Key partnerships include Anthropic (first IDP supporting Enterprise Managed Auth for MCP connectors), AWS, Cisco, OpenAI, Databricks, and Snowflake. - **Product Innovation & GA Releases**: The recently launched 'Okta for AI Agents' is generally available and already delivering value. Other key launches include Agent Gateway for runtime policy enforcement and Agent SSO included in the core SSO product to standardize industry protocols. - **Strategic Acquisitions**: Completed the acquisition of Permiso, a cloud-native identity security platform. This enhances Okta’s Identity Threat Protection (ITP) and Identity Security Posture Management (ISPM) solutions, adding advanced post-authentication behavioral analysis and threat detection capabilities. - **Public Sector Growth**: The public sector remains a top-performing vertical. Okta achieved IL-5 authorization (highest unclassified cloud authorization for the DoD) and launched 'Okta for AI Agents Core' to support FedRAMP and HIPAA-compliant environments. - **Partner Ecosystem**: Channel partners were engaged in all top 20 deals of Q2. Professional services revenue shifted significantly to GSI partners, reducing direct professional services revenue to ~1% of total revenue to focus on long-term top-line growth.

Guidance

- **Q3 FY2027 Outlook**: Total revenue growth expected at 10%; Current RPO growth expected at 11-12%; Non-GAAP operating margin expected at 24-25%; Free cash flow margin expected at 21-23%. - **Full Year FY2027 Outlook**: Total revenue growth raised/expected at 10-11% (previously lower); Non-GAAP operating margin expected at 26%; Free cash flow margin expected at 28-29%. - **Adjustments Note**: The FY27 revenue guidance includes a ~1 percentage point negative impact from shifting professional services to GSI partners. The FCF margin guidance includes a ~1 percentage point negative impact from lower interest income due to stock repurchases and cash settlement of convertible notes.

Segment performance

Okta did not provide a breakdown of financial performance by specific product segment (e.g., Workforce Identity vs. Customer Identity) in absolute terms or revenue contribution percentages. Management highlighted that new products represented approximately 30% of bookings and contributed to an average ACV uplift of 40% when included in deals, but specific segmental revenue figures were not disclosed.

Risks & headwinds

- **Market Confusion**: Competition is largely characterized as 'confusion' among vendors claiming to have the sole solution for AI security, requiring Okta to provide clarity. - **Early Stage Adoption**: While momentum is growing, AI agent security is still in its early innings, and revenue contribution is currently immaterial. - **Regulatory Mandates**: Defense organizations must meet the DoD's 2027 Zero Trust mandate, creating urgency but also execution risk if authorization delays occur. - **Vendor Consolidation Risk**: Customers are wary of small, AI-first private vendors that may be acquired or fail, preferring established neutral platforms like Okta.

Analyst Q&A

• Q: How material is the Anthropic partnership and what is the deal size/ratio for AI agents? /

  A: Todd McKinnon stated that while the partnership is strategically vital, the actual revenue contribution is still very early and too small to materially impact numbers yet. However, they closed dozens of AI deals in Q2, including several multi-million dollar ones. Brett Tighe added that average deal sizes for AI are larger than Okta's average, but it remains a nascent opportunity. They are focusing on standards like cross-app access, with Anthropic being the first major AI agent to support this protocol via Okta.

• Q: When will AI security turn into meaningful revenue? Is it reactive to breaches or proactive? /

  A: Todd McKinnon emphasized that customers are making proactive 'no-regret' investments rather than reacting to breaches. He noted that Okta has a generally available product with 24 enhancements in two months, which helps cut through market confusion. He expects AI to drive top-line acceleration soon, citing strong pipeline conversion. Eric Heath added that 81% of surveyed CISOs know they lack adequate security for deployed agents, indicating high demand readiness despite the early stage of the technology.

• Q: What is driving CRPO acceleration, and are deal cycles accelerating due to AI concerns? /

  A: Todd McKinnon ranked three drivers: 1) Large enterprise strength ($1M+ ACV customers grew >20%); 2) Broad product portfolio (new products account for 30% of bookings); 3) AI conversations catalyzing broader platform consolidation. He provided an example where an AI conversation helped win a legacy consolidation deal after an M&A. Eric Heath confirmed that the AI awareness is forcing customers to evaluate their entire identity fabric, accelerating migrations away from legacy, siloed vendors.

• Q: How does Okta view competition from majors like Microsoft, Salesforce, and ServiceNow? /

  A: Todd McKinnon claimed Microsoft is 'copying' Okta’s vision of an agent registry but faces challenges in neutrality across diverse ecosystems (Amazon, Google, etc.). He described ServiceNow and Salesforce as approaching the problem from their own workflow/platform perspectives. Okta positions itself as the neutral layer connecting these platforms, leveraging its 17-year history in identity-to-technology mapping. He argued that Okta’s neutrality and breadth make it the natural choice for governing heterogeneous agent environments without vendor lock-in.

• Q: How is Okta pricing AI agents, and how does Agent SSO fit into the strategy? /

  A: Todd McKinnon explained that current pricing is per user (an uplift to existing licenses) because customers prefer predictability and the model fits current usage patterns, even as agent counts grow rapidly (citing a jump from 50 to 1,500 agents in one client). He noted that while consumption-based pricing might emerge later, the per-user model drives faster sales cycles. Regarding Agent SSO, he stated it is included in the base edition to spread the standard of agent identity entry points across their 20,000 customers, catalyzing industry-wide adoption of secure agent protocols.