Ladies and gentlemen, thank you for joining today to discuss Okta’s Third Quarter Fiscal 2018 Earnings Call. Today’s conference is being recorded. I’d like to turn the conference over to Catherine Buan, Vice President of Investor Relations. Ms. Buan, please go ahead.

Good afternoon, and thank you for joining us on today’s conference call to discuss Okta’s fiscal third quarter 2018 financial results. With me today on today’s call are Todd McKinnon, Okta’s Co-Founder and Chief Executive Officer; Bill Losch, the Company’s Chief Financial Officer; and Frederic Kerrest, the Company’s Co-Founder and Chief Operating Officer. Statements made on this call include forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our financial outlook and market positioning. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made. In addition, during today’s call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior, to measures of financial performance prepared in accordance with GAAP. There are number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings release. Further information on these and other factors that could affect the Company’s financial results is included in filings we make with the Securities and Exchange Commission the SEC from time to time, including the section titled Risk Factors in the quarterly report Form 10-Q previously filed with the SEC. You can also find more detailed information in our supplemental financial materials, which includes trended financial statements and key metrics posted on our Investor Relations Web site. Now, I’d like to turn the call over to Todd McKinnon. Todd?

Thank you, Catherine, and thank you everyone for joining us today. I am pleased to report that during the third quarter, our total revenue grew 61% while subscription revenue grew 64%. At the same time, we continue to show significant bottom line improvement operations with free cash flow margin improving 12 points in Q3 versus the same period last year. Our strong topline growth was driven by three factors; new customer wins in the quarter; increases in deal sizes; and momentum with existing customer expansions. The total number of customers over $100,000 of ARR grew 50% year-over-year. This brings our total to 603 customers who spend more than $100,000 per year with Okta. This is an increase of 64 compared to the prior period and a record for the company. Here are some examples of key customer wins in the quarter; first, a new customer win, we signed a multinational beverage company. This company wanted to modernize their enterprise IT and centralized access control for on premise and cloud. They selected the Okta Identity Cloud as their identity access management solution for over 35,000 employees and 3,000 distributors. Okta will be replacing their existing Microsoft solution and the company will now migrate many of its cloud applications as well as on-premise systems to Okta. This is a great example of how customers need to use best-of-breed technologies and can't be locked into a proprietary stack. Second, customer identity management continues to be a driver of growth. To solve its customer identity challenges and improve user experience of their customer portal, the Fortune 500 insurance company expanded its Okta deployment to include three additional products; core API products, API access management and adaptive multifactor authentication. This customer initially deployed Okta in 2016 for employees and has expanded with Okta for customer…

Thanks, Todd. And thanks again to everyone for joining us. I'll first go through our results for the third quarter before getting into our guidance and outlook. We had a strong third quarter and are once again pleased with our results. Revenue for the third quarter totaled $68.2 million, growing 61% year-over-year. Subscription revenue totaled $62.7 million in the third quarter, an increase of 64% year-over-year and comprise 92% of our total revenue, up from 90% in Q3 last year. Professional service revenue was $5.5 million, an increase of 33% over the same period last year. As you know, professional services revenue is not a core driver of our top line momentum and we anticipate that it will continue to be a small proportion of our total revenue over time as more of this business successfully moves to our growing services partner ecosystem. In terms of geographic breakdown, approximately 84% of our third-quarter revenue came from the U.S. and 16% came from outside the U.S. compared to 86% and 14% respectively in Q3 last year. Our international business is still in the early stages of expansion and continues to grow rapidly. In the third quarter, international revenue grew more than 80% year-over-year and once again outpaced overall revenue growth. Moving on to billings. We recorded calculated billings of $78.6 million in the quarter, an increase of 54% over Q3 last year. The strong billings growth we saw in the quarter was due to new business momentum, large deals and strong upsells. As you heard from Todd's comments, we continue to see strength in new account wins and our deal sizes are increasing as reflected in the number of customers with annual recurring revenue greater than $100,000 and 603 up from 539 last quarter, and growing 50% year-over-year. I would also…

Thank you. [Operator Instructions] And we'll take our first question from Terry Tillman with SunTrust Robinson. Please go ahead.

One of the other things that was striking to me was just the traction with large deal, if I got it correct, I think you talked about two thirds of these 100,000 plus ARR-type customers were new customers. Well hope, I got that right, but what I am curious about is. Are you getting a bigger average enterprise size customer that just has a lot more users? Or are they doing more use cases upfront? Or is there an expansion of just strategic customer experience of use case?

I think that the first thing is that it's -- the problems we solve are valuable of the companies all. The solution of the problem is very valuable the companies of all sizes. But when you're very large enterprise whether it’s a large number of employees or very large number of customers for our customer, the solution is more valuable. The value of the solution grows with the numbers involved. So a big part of our strategy to be very aggressive and selling our products to largest organizations in the world. So what you're seeing is that you're seeing kind of all the things you described and you're seeing bigger initial views with the large enterprises, you're seeing bigger expansion because the products suite is maturing, so there's more products to address more use cases and the problems that the largest enterprises in the world are having, are getting -- are growing and growing every day, and we can bring a solution to those problems.

And my follow-up question and then I'll turn it over. It's just winning the hearts and minds of developers and there's the correlation there with the customer identity management, the customer experience, obviously Stormpath was an important strategic move. You got a developer edition. You actually announced something today that I saw was interesting also for start-up. But how we're going to understand your traction was actually winning hearts and minds of the developers? Is there other metrics you're going to be able to start to provide? Or is it going to be seen in the large deals? Or just more kind of use case examples that you put in press release? Just help us understand more of the report card and how we're going to know how what you're doing with developers?

I think it's a great question and something we think it about a lot. I think that the main -- the main metric is success with customer identity. So success with helping our customers build better solutions for their customers. And there's a lot of other things you mentioned that are interesting for us to think about this potential metrics and we will think about those, but the end gain for this is customer identity in the more of our customers we can help build better website build better mobile app increase their customer experience will be successful in that regard.

And we will take our next question from Heather Bellini with Goldman Sachs. Please go ahead.

I have got a question just looking at how solid your growth in total customers has been. I think it's been around 35%, 36% each quarter of this year. I was wondering if you could share with us, how you're the sales higher that you have been aggressively making over the past year, kind of matriculating? And how quickly are you seeing and actually get to full productivity? And I'm wondering if they are getting there may be faster and that’s what able to sustain such high growth in your total customer account each quarter?

This is Frederic speaking. So I think that’s a very speed observation I think that we have been fortunate with the sales continued sales hiring that we have had. I think there is a couple of things working there. The first thing is that we've had a good retention of sales folks and as you know as a salesperson becomes more tenured in the organization, they become more and more productive that’s the first thing. Second thing I think that what you are starting to see is also the macro trend of the more and more growth across all the different segments, not only in the enterprise, but the commercial business is particularly strong. You're starting to see us grown more and more internationally as we talked about, which continues to be a big part of the revenue. And then frankly at the most macro level every organization needs to become a technology company. And as they are adopting more technology, there is more need. And frankly there is just more deals. So we are excited about. What we have seen the momentum this year I expect that to continue into Q4 and frankly going into next year.

We found more deals make the sales person more productive.

We will take our next question from Rob Owen with KeyBanc Capital Markets.

This is Michael Casado for Rob Owen. I had one on Okta for start ups. Could you guys frame your expectations for conversion rates following that first three year? Any impact that may have in margins? And I guess how you feel these relationships ramping over time?

This is Frederic again that’s a good question. We have thought a lot about that. Frankly there are moving to Okta for startup is something that was demand driven. We just get a lot of organization who have been calling us as soon as they get up and running whether it's to manage their employees or whether they are building new product and want to take identity off-the-shelf and put it right into those products. And that was kind of a result of it. So of course down the road we see that as an opportunity as all these organizations grow they will become commercial segment opportunities and down the road into the enterprise of course. But right now we are really focused on providing opportunity for start up to get and running to use the service to embed Okta for their customer facing properties, and to get going. We don’t have any specific metrics at this point that we are looking to in terms of conversion or margin expansion.

The pay off there will be in five years when the next wave of medium size and large companies that are starting up today have Okta embedded.

And then Todd you also talked about expanding integration has been a key area of focus for next year. I guess given your existing integration portfolio where are you seeing the most opportunities to drive further integration? And is this an effort aimed at driving more differentiation? Or would they targeting certain segments of the market?

Our focus there is really, it's making our customers, making it really-really seamless and simple and frictionless for our customers to adopt new technology. So that's the driving force behind it. We started really as integration to applications, so single sign on, provisioning, security, identity in the application. And really the innovation there has been broadening that, so it's not just other applications, it's not just integration to sales force and work there and service now, but it's integration to other types of things, whether it's a firewall, VPN, or application delivery controller or API -- API gateway, so it's the types of integration and the depth along those different types that, that's where we're investing. The application we were -- we're kind of filling up the application race. We've that flywheel spinning and we've over 5,000 integrations and many-many more private and custom application integrations. And it's about the different type of integration to different types of the stack, because from the customers perspective, and that's what most important. From the customer perspective, they need identity integrated everything, their firewalls, their API gateways, their devices, not just their applications and that's the key area of focus for us.

And we'll take our next question from Sterling Auty with JP Morgan.

Two questions so first one is. Relative to your guidance that you gave for this quarter so that upside, you gave three levers for what's driving the growth. I'm curious what contributed the biggest dollar amount through that upside? Was it the expansion with existing customers? The additions -- so you know the three levers, so which of the three gave us the biggest dollar contributions to the upside?

Sterling, I think that the contributions were fairly consistent among the three. I mean certainly we brought in new business, as evidenced by what we talked about as far as two-thirds of the incremental customers that are now paying us under a $100,000, came from new business. Expansion within those existing customers is still very strong, so I think all of the toggles that we've talked about contributed and probably contributed fairly equally across the board.

And then my follow-up is. You've highlighted one of the strategic goals for this coming fiscal year is the customer section, so the external use case, and you've talked about in the past Adobe and creative products et cetera, but how many customers -- is it -- that were reaching a tipping point? And it's not as much as an evangelical sale. Or what is it that you think makes this fiscal year going to be the tipping point for that business?

I think it's couple of things, one is that this pressure, this relentless pressure for every organization to become more of a technology company, what we mean by that is, every organization has to build a better website, build a better mobile app, they've to build new products, they've to enhance their existing products to be more connected and more digital. So that's just a macro trend that's very-very prevalent in gaining momentum. And the second thing is frankly that our products are getting better there and over the last couple of years we've invested a lot and what you can do with our APIs and how can embed things and the power that you can gain in the speed the market and the productivity you can gain by using our products versus building some of these things yourself is very profound now. So I think those two things is why we think it’s such an interesting feature for that for that customer identity market.

We'll take our next question from Jonathan Ho with William Blair.

I just wanted to start out with the multiproduct adoption. Can you maybe give us a little bit more color on which of the products within the platform are seeing faster adoption, and any type of color in terms of what their relative growth rates would be would be helpful as well?

Yes, absolutely happy to do that. The products, the six products that you're talking about on the integrated identity cloud are all performed very-very well. I mean some obviously single sign-on which was our first product through lifecycle management, multifactor authentication, they are all significantly contributing to revenue at this point, even including the latest products that we released just last year, API asset management is now used in production at very large organization. So we're really starting to see a balance across many if not all of the products in terms of their contribution to revenue and we are seeing the ability for organizations of all sizes frankly even in the enterprise to land with any of those six product and specific use cases and expand out further so it’s really a very productive thing that we're seeing in terms of how the different products are being used, adopted and implemented inside organization.

Got it and then you talked a little bit about making incremental investments. Can you maybe give us a sense around your philosophy between how you balance taking advantage of new opportunities with also showing that operating leverage over time?

So, the way we historically and still look at it is, we really do focus on achieving sales efficiency and measuring our sales efficiency and balancing that against what that growth or growth opportunities are. So we've done a good job historically keeping that sales efficiency kind of in that range of about you know an 18 month payback if not less and we really think that given our long contract lengths, given the expansion opportunities we have the business. That really does add a significant amount to our customer lifetime value by making those investments. And what we've done is historically made sure that we're balancing how we invest to over time maintain that efficiency, and that's really the way we've been focusing on it.

[Operator Instructions] We'll take our next question from Shaul Eyal with Oppenheimer.

Todd, success with large customers without a doubt a point which seems to be accelerating, is it driven by more internal budgets being allocated to identity? Is that the budgets within the security space are being allocated from one category to more of a cloud driven one? Is it the result of some recent market education or maybe just all of the above?

I think it's -- we try to have the customers give us their budget in detail, but it doesn't always work. It's little bit hard, but it is very important dynamic to understand. And the color I would add there from what we understand is that customers are really for the employee identity, they really -- it's kind of 50-50 between trying to adopt new cloud and mobile technologies efficiently and with ease of use and being more secure. And that part of the business the security part is a bigger driver and the security budget is a bigger contributor than it's ever been. We have seen that trend over the last two years and the security driver for the internal identity market is driving more than ever been. But it's still 50-50 kind of like new technology -- a facilitator for new cloud and mobile or versus security. on the customer identity side it's the trend I talked about before where these companies are putting the investment and becoming more digital -- getting a great customer experience a great mobile app. and that's something that we've seen over the last couple of years and that continue to accelerate as well. And I think you're seeing these accelerations both of these trend happened faster in larger companies because the problem is bigger. They have more customers, they have more employees, and they can get more value out something like Okta.

And one thing I would add to that I think when you think about managing and securing the extended enterprise so how they are trying to make their employees more productive and more secure they are also just thinking about reducing costs a lot of times, where -- when its customer identity management these are really new opportunities. These are new revenue opportunities and they are thinking about top line growth which makes these opportunities exciting. And I think as we see every organization is thinking about how they can grow the top line and in this new world it's really about how they can do that digitally securely with their customers.

Bill maybe just one for you. Accounts receivable, I don't it seems to be slightly up from prior quarter on linear basis, is it where it should be or is it just -- it's fine over the slightly more backend loaded quarter? How should we be thinking about it?

Yes, it’s a good question, so I think it's a couple dynamics. One is we did have some slippage in collections in this quarter which had an impact on our free cash flow. So obviously the receivables were little higher because of that. but also as we move into larger and larger enterprise customers as we are doing and landing those customers there is more of the backend of the quarter so to speak when those -- that business gets book. And so you are going to see a natural increase in your AR on a period to period -- quarter-to-quarter basis because of that.

We’ll take our last question from Pat Walravens with JMP Securities. Please go ahead.

So I have one for Todd and maybe Freddie on this one and then one for Bill. So the first one is, can you guys update us on where the relationship with Google is? And in particular any change since they bought BDM in September? And then also what is this beyond core that they keep talking about? And how does that fit into your vision of the world?

Google continues to be a really strong partner of ours. We -- I mentioned earlier on the call, large multinational beverage company that was one of our significant deals in the quarter that was landed in partnership with Google. So we are continuing to collaborate with them effectively within the -- in the marketplace. So we haven't seen any change. We don't -- we were in close with partnership we don’t foresee any change there with that partnership.

The BeyondCorp, yes.

The BeyondCorp, you haven't heard the BeyondCorp it's really an articulation of what is the future for network architecture for companies. So instead of having an office, datacenter and VPN, you have basically users accessing things all over different networks. And then you have a personal level of security about each user that's how you secure it versus the firewall parameter. And it's really the design pattern that we facilitate because to have BeyondCorp, you have to have that personal level of identity and security and that's what we do. So, we're evangelizing the BeyondCorp, we hope more and more people adopt it because we're -- we provide a key-key part of that design pattern.

And then Bill, so in my model and it probably goes back further then my model goes, but I think this is nine quarters in a row where subscription revenue per customer has gone up. I mean any reason that shouldn't just keep happening?

Well we've been very pleased with that fact that it's happening today, and certainly what that's been driven by is the more and more customers that we're getting that our larger enterprise is paying us as we said in the metric that we talked about today, greater than a 100,000 a year. We think there's tremendous opportunity going forward, as we both land and have expansion in those customers for all the reasons we've talked about as far as their need for moving to cloud, digital transformation, in digitally their customers and so we're pretty pleased with that trend and we do think there's a tremendous amount of opportunity for us there in the future.

And I would just -- I would highlight that it's part of our strategy, this is a platform strategy. So the identity clouds with broad platform with multiple products that traditionally in the past have been done by different vendors and we've brought them together. So it's part of our strategy to have this platform that can be adopted with one solution or one use case and then more and more solutions and products and use cases adopted over time as the usage of the platform expands. So it's built into our technical strategy, our product strategies and it's good that we -- it's positive that we've seen in borne out over the last nine quarters to use your figure. I haven't validated that figure myself, but we -- that's part of our strategy going forward as well. So, it's a good thing to call out because it is important to us.

And that does conclude our question-and-answer session. I would like to turn the conference back over to Todd McKinnon for any additional or closing remarks.

So, I would just like to close out the call by saying that with the success we've had so far in the first three quarters this year, we feel like in a lot of ways we're even more energized than ever, because every success we have just really tells us how big the opportunity is for the identity cloud and really for the impact we can have as we help customers, adopt this next wave of technology, both for internal use for their employees and also as they become technology companies themselves. So, it's a big -- it's a big mission, it's a big -- it's a big opportunity that we're working on, and we're excited about the progress we've made, but we also are working hard to make sure that the success continues far into the future. So, with that, we'll wrap it up. Thanks for your attention and we look forward to seeing many of you on the road in the coming weeks and months.

And once again that concludes today's presentation. We thank you all for your participation and you may now disconnect.