Okta, Inc. (OKTA) Earnings

Management highlights

- Core Business and General Performance * Okta delivered a strong start to FY27, with results driven by large enterprise demand, strong partner engagement, and growing contribution from newer products. Both the Okta and Auth0 core platforms maintained steady momentum. * Go-to-market performance improved after the prior year's sales team specialization into separate Okta (security/IT buyers) and Auth0 (developer buyers) teams. The team is now fully settled, delivering increased sales productivity, strong pipeline growth, and low account executive (AE) attrition. * Net retention rate inflected up to 107%, and current RPO grew 12% year-over-year, reflecting Okta's increased strategic positioning with customers. - AI Agent Strategy and Product Updates * Management identifies agentic AI as the fastest growing and least governed category of enterprise identities, creating a large new market opportunity for Okta. Okta treats AI agents as first-class identities to be secured and governed via the existing identity platform, aligning with the company's core competency. * Okta holds three unique, mutually reinforcing advantages in the AI agent security market: 1) Distribution: Okta is already the trusted identity system of record for over 20,000 customers, creating a natural distribution flywheel for extending identity services to agents; 2) Product Breadth: Okta offers two purpose-built AI agent products: Okta for AI Agents (GA'd last month, a control plane for enterprise customers to discover, govern, and manage internal agents) and Auth0 for AI Agents (a secure identity foundation for developers building agents into customer-facing products); 3) Neutrality: Okta is an independent identity platform that works with all major AI, cloud, and agent frameworks, avoiding vendor lock-in for customers that deploy agents across multiple platforms. * Okta has established strategic integrations and partnerships with all major ecosystem players, including ServiceNow (integrated Okta for AI Agents with ServiceNow AI Control Tower), Google, Amazon Bedrock Agent Core, OpenAI, and Anthropic. * Pipeline generation for AI agent products was very strong in Q1, though the new products do not yet make a material contribution to revenue. * New products overall have a 40% ACV uplift when included in customer deals, and AI-specific deals already have an average size significantly larger than Okta's core deal average. - Balance Sheet and Capital Allocation * Okta ended Q1 with ~$2.6 billion in cash, cash equivalents, and short-term investments. The company will settle the remaining $350 million of maturing convertible notes in cash next month. * In Q1, Okta repurchased and retired just over 3 million shares for $241 million, leaving $680 million remaining under the $1 billion share repurchase program announced in January. Management continues to repurchase shares as it believes Okta stock is undervalued. - New Product and Core Portfolio Momentum * Okta Identity Governance has evolved from primarily a cross-sell add-on to also a net new land product that displaces legacy solutions. Privileged access management (PAM) is on a slower maturity curve but is seeing strong early traction, accelerated by the recent acquisition of Aembit. * Public sector (federal/state) business had a strong quarter, adding to broad-based performance.

Guidance

- For Q2 FY27, management guidance is: 9% total revenue growth, 11% current RPO growth, 26% non-GAAP operating margin, and 20% to 21% free cash flow margin. - For full-year FY27, management updated guidance to 9% to 10% total revenue growth, 25% to 26% non-GAAP operating margin, and 27% to 28% free cash flow margin. The 1-point revenue headwind from the strategic shift of professional services to global systems integrator partners (starting in Q2) is already incorporated into this guidance. A 1-point headwind to free cash flow margin from lower interest income (driven by share repurchases and cash settlement of convertible notes) is also incorporated. - Management maintains a prudent approach to guidance, and does not count on material near-term revenue contribution from AI agent products, given the early stage of the market.

Segment performance

No explicit segment-level financial performance (absolute revenue or revenue contribution percentage) is broken out for individual product segments in this earnings call. Management notes that the combined new product portfolio (including Okta Identity Governance, privileged access management, and the newly launched AI agent products) represented approximately 25% of total Q1 bookings, up from 25% year-over-year. Large enterprise customers (customers with ACV greater than $1 million) now represent 85% of total ACV, up from the prior 80% mark, reflecting a continued mix shift toward larger accounts. Okta Identity Governance remains the leading contributor among the new product portfolio. Partner-sourced bookings grew meaningfully in the quarter, with multiple million-dollar-plus partner deals closed.

Risks & headwinds

- AI agent product market adoption is still in early stages, and there is uncertainty around how quickly pipeline will convert to material revenue, how pricing models will evolve for fully autonomous agents, and whether competitive dynamics will pressure margins or market share. - The shift of professional services to partner networks is a recent strategic change, and early results are positive, but there is uncertainty around how the transition will impact long-term revenue and customer satisfaction. - Inference and AI R&D costs are rising across the industry, requiring increased scrutiny of ROI to avoid inefficient spending on unproven AI use cases. - Forward-looking statements are subject to general market and macroeconomic risks, including changes in customer IT security budgets and competitive pressures, which could cause actual results to differ materially from guidance. All AI-related opportunities are dependent on customer adoption and market development that may not materialize as expected.

Analyst Q&A

• Q: Are enterprises actually securing AI agents today, or is this still just an early conversation? When will mass adoption begin? /

  A: All enterprises are already deploying AI agents in some form, but almost all do so in an ungoverned, insecure way. Customers are just beginning to build formal security programs and frameworks for agent management, leading to record high interest and pipeline for Okta's AI products. AI products are still early and do not contribute materially to revenue today, but the AI conversation has already pulled through more demand for Okta's core and existing new products, which is already contributing to the 12% revenue growth and 107% net retention rate seen in Q1.

• Q: How does Okta's role in AI agent security differ from embedded capabilities offered by hyperscalers and AI platform providers? Why do customers need a separate neutral layer? /

  A: Okta's core role is to provide a centralized, cross-platform directory of all agents, set access policies controlling which resources agents can connect to, and add an authorization layer that controls what actions agents can take after connection, without requiring customers to rewire their existing enterprise applications. Enterprises are adopting agent capabilities from dozens of providers, including hyperscalers, model providers, and independent application vendors. Customers want an independent neutral identity layer that works across all these platforms to avoid vendor lock-in, which Okta is uniquely positioned to provide.

• Q: How durable is the strong Q1 bookings growth, and what is driving the mix shift to 85% of ACV from large customers? /

  A: Okta's identity business is highly durable because identity infrastructure is sticky and hard to replace once installed, with long-term customer relationships. The strong Q1 performance was broad-based, with strength across AI pipeline, core products, new product cross-sell, partner bookings, and public sector. The shift to 85% ACV from large customers is the result of multi-year focused investments in the large enterprise segment, which remains a top strategic priority, and there is still significant remaining upside in the Global 2000 market.

• Q: How does Okta differentiate its AI agent security offering from competing identity vendors who have similar messaging? /

  A: Okta first published a clear industry blueprint for secure agentic enterprises to define requirements and swim lanes for different providers, which has been well received by customers. Okta also has a unique existing distribution advantage: over 20,000 enterprises already trust Okta to secure all their human and service account identities, so customers naturally turn to Okta first to add agent identity governance. As more customers go live with Okta's AI products, customer references and traction will further differentiate Okta's offering.