Okta, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended April 30, 2022; comparisons are with the three months ended April 30, 2021. Amounts below are in U.S. dollars; financial figures are rounded to millions unless noted.
Business context
Okta provides cloud-based identity and access services through a subscription-led SaaS model. It reported more than 15,800 customers and over 7,000 integrations. The quarter includes Auth0, acquired May 3, 2021, whose revenue, expenses, and acquired-intangible amortization affected year-over-year comparisons.
Financial performance and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $414.9m | $251.0m |
| Subscription revenue | $397.9m | $240.1m |
| Gross profit / margin | $283.8m / 68% | $184.9m / 74% |
| Operating loss / margin | $239.7m / (58%) | $90.7m / (36%) |
| Net loss | $242.7m | $109.2m |
| Operating cash flow | $18.8m | $56.1m |
| Free cash flow | $11.0m | $52.8m |
Revenue grew 65% year over year; subscription revenue grew 66%. Subscription gross margin was 72%, down from 78%, while professional-services gross margin remained negative but improved to (19%) from (25%). Stock-based compensation was $169.5m, compared with $64.1m.
At April 30, cash, cash equivalents, and short-term investments totaled $2.487bn. Short-term investments were $2.293bn; their unrealized losses totaled $28.9m, primarily associated with interest-rate movements. Convertible senior notes had approximately $2.215bn of principal outstanding, including $5.2m of 2023 notes classified as current. Total liabilities were $3.573bn and deferred revenue was $971.3m.
Remaining performance obligations (RPO) were $2.710bn, of which $1.413bn was current and expected to be recognized over the next 12 months. Calculated billings were $389.2m, up 7% year over year as reported; management said growth was 52% on a like-for-like basis after adjusting for prior-year billing-process changes.
Material changes and notable items
- Operating expenses rose materially: research and development increased 135%, sales and marketing 72%, and general and administrative 82%. Higher headcount, Auth0-related costs, stock compensation, and increased event and travel spending contributed.
- Subscription cost growth and Auth0-related amortization contributed to lower gross margin. Management attributed the subscription-margin decline primarily to Auth0’s lower relative margin and acquired-technology amortization.
- Adoption of ASU 2020-06 reduced Q1 FY2023 net interest expense by approximately $20.8m and reduced net loss per share by $0.13. The accounting change also increased the reported carrying amount of convertible debt and reduced additional paid-in capital.
- Operating cash flow declined to $18.8m, with working-capital movements including lower accrued compensation and deferred revenue. Free cash flow fell to $11.0m from $52.8m.
Outlook, risks, and contingencies
The filing provides no numerical forward guidance in the supplied text. Management expects operating losses and operating cash flows that may fluctuate between positive and negative for the foreseeable future, and believes available liquidity and cash generated from sales should meet projected needs for the foreseeable future. It expects expenses to continue increasing, particularly sales and marketing, and expects subscription gross margin to improve over the long term, while noting near-term fluctuations are possible.
Management cited lengthening and less predictable sales cycles, macroeconomic and inflation uncertainty, COVID-19 effects, competition, and the challenges of integrating Auth0. Cybersecurity, service availability, privacy compliance, and data-transfer regulation are significant risks. A shareholder putative class action filed May 20, 2022 concerns disclosures about cybersecurity controls and a January 2022 third-party support-provider compromise; Okta said it intends to defend the case. The filing reported no material legal matters as of April 30, 2022. The 2023 notes were convertible at holders’ option during the quarter ending July 31, 2022, creating potential cash-settlement and dilution considerations. Disclosure controls were assessed as effective at a reasonable assurance level.
Investor verification priorities
- Track whether revenue growth, current RPO, and billings support future subscription growth; assess the comparability caveat behind the 52% like-for-like billings figure.
- Monitor gross-margin recovery and the scale and persistence of operating losses, stock-based compensation, and Auth0 integration and amortization costs.
- Review operating cash flow and free cash flow trends, including working-capital effects, against management’s liquidity expectations.
- Check note conversion, settlement, and dilution developments, particularly for the 2023 notes and outstanding related warrants.
- Follow the cybersecurity-related lawsuit and any further disclosures, remediation, customer impact, or regulatory consequences.