Five of the top 10 deals in Q2 were with the US public sector, including the largest deal with the Department of Defense.
Free cash flow margin guidance is approximately 21% for Q3 and 28% for the full fiscal year.
Net Revenue Retention (NRR) has stabilized around 106%, with down-sell pressures subsiding.
Non-GAAP operating margin improved significantly, with Q3 guidance at 22% and full-year FY 2026 expected at 25-26%.
Okta ended the quarter with approximately $2.9 billion in cash, cash equivalents, and short-term investments.
Q2 showed solid results with strong contributions from new products like Okta Identity Governance, Privilege Access, and AI-driven identity threat protection.
Revenue growth is driven by large customers, public sector deals, and accelerating Auth0 bookings.
Active Strategic Alternatives Process and Ecosystem Ecosystem Development
The company confirmed that its strategic alternatives process is active but currently passive, given the high upside potential.
Management highlighted that ecosystem partners and device manufacturers are responding with innovations, adding value beyond spectrum.
Discussions with potential partners and investors focus on unlocking the full ecosystem value, which could be 4-5 times the company's current valuation.
The foundation laid by spectrum and network deployment is attracting ecosystem players, creating a robust future growth environment.
Management sees significant strategic value in ecosystem development, which enhances long-term asset worth and market positioning.
Industrial Business Recovery and Inventory Dynamics
ADI's industrial business has shown a consistent recovery, with growth accelerating across all subsectors including aerospace, defense, and healthcare.
Channel inventories remain lean, with end demand still below consumption by double digits, indicating ongoing inventory digestion.
Management expects Q4 industrial growth to be in the low to mid-teens quarter-over-quarter, despite typical seasonal declines.
The company has observed some catch-up in demand in Q4, supported by increased activity in aerospace, defense, and automation sectors.
Supply constraints in aerospace and defense are primarily due to capacity limitations and tooling delays, not demand shortages.
CapEx investments are being deployed to expand manufacturing capacity, especially in proprietary aerospace and defense products, to meet surging demand.
Dafinchi