Okta, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2022, the three months ended April 30, 2021. Comparisons are with the three months ended April 30, 2020, unless stated otherwise. Amounts are in U.S. dollars.
Business context
Okta provides a cloud-based identity management platform and earns most revenue from multi-year subscriptions, typically billed annually in advance. At quarter-end, it reported more than 10,650 customers and over 7,000 integrations.
Financial and operating performance
| Metric | Q1 FY2022 | Prior-year quarter | Change / context |
|---|---|---|---|
| Total revenue | $251.0 million | $182.9 million | Up 37% |
| Subscription revenue | $240.1 million | $173.8 million | Up 38%; 96% of revenue |
| Gross profit / margin | $184.9 million / 74% | $134.4 million / 73% | Subscription gross margin was 78%, versus 79% |
| Operating loss | $90.7 million | $52.2 million | Operating expenses rose 48% to $275.6 million |
| Net loss | $109.2 million | $57.7 million | Loss per share was $0.83, versus $0.47 |
| Operating cash flow | $56.1 million | $38.7 million | Higher deferred revenue contributed to cash generation |
| Free cash flow | $52.8 million | $29.8 million | Free cash flow margin was 21%, versus 16% |
| Calculated billings | $364.0 million | $209.5 million | Reported growth of 74%; billing-process changes benefited the quarter |
| Dollar-based net retention | 120% | 121% | Trailing 12 months |
Customers with annual contract value above $100,000 increased to 2,075 from 1,580. Remaining performance obligations were $1.890 billion, including $898.5 million expected to be recognized over the next 12 months.
Stock-based compensation was $64.1 million, up from $37.7 million. The larger operating loss reflected higher headcount and spending, including sales and marketing, research and development, and acquisition-related costs. GAAP results include substantial noncash stock-based compensation and convertible-debt discount amortization; the company also reported non-GAAP operating loss of $15.9 million and non-GAAP net loss of $13.0 million.
Liquidity, debt and balance sheet
- Cash, cash equivalents and short-term investments totaled $2.690 billion at April 30, 2021. Cash, cash equivalents and restricted cash were $673.4 million.
- Deferred revenue was $624.9 million, of which $613.2 million was current.
- Convertible notes had principal outstanding of approximately $2.233 billion: $23.1 million of 2023 Notes, $1.060 billion of 2025 Notes and $1.150 billion of 2026 Notes. The 2023 Notes were currently convertible and classified as current at quarter-end; no material conversion requests for the 2025 Notes were outstanding.
- Operating lease liabilities totaled $197.8 million. Management said available liquidity and expected cash generation should meet projected needs for the foreseeable future, while noting cash flows may fluctuate.
Material changes, outlook and risks
Calculated billings growth was materially boosted by operational changes that caused customers to be billed earlier than under prior practice. Okta said growth would have been 40% year over year without that benefit. Subscription growth was attributed to new customers and increased usage and product purchases by existing customers.
No specific numerical financial guidance is provided in the supplied filing text. Management expects continued operating losses and cash flows that may vary between positive and negative in the foreseeable future. It expects operating expenses to rise in absolute dollars, while anticipating subscription gross margin improvement over the long term as the business scales. A return to in-person sales and events could increase costs.
Okta completed its acquisition of Auth0 on May 3, 2021, after quarter-end, for approximately $6.5 billion of consideration, including shares, cash and equity awards. The acquisition’s financial effects were expected to appear beginning in fiscal Q2. Management highlighted integration, retention, disruption, transaction-cost and acquired-liability risks; purchase-price allocation remained preliminary.
Other prominent risks include COVID-19-related sales-cycle delays and economic uncertainty, intense competition, customer renewal and retention, cybersecurity and service availability, privacy and regulatory compliance, and the ability to manage rapid growth. The filing states disclosure controls were effective at a reasonable-assurance level and reports no material legal matters as of April 30. It also notes the CFO was stepping down, with an interim CFO effective June 1, 2021.
Important facts for investors to verify
- How much future billings and cash-flow growth reflects earlier invoicing versus underlying demand; the filing estimates underlying billings growth at 40%.
- Whether retention, renewals and enterprise-customer growth remain resilient, given dollar-based net retention eased to 120%.
- Whether rising operating expenses and stock-based compensation can be offset by revenue growth and eventual margin improvement.
- The cash, dilution, integration costs, purchase accounting and expected benefits associated with the Auth0 acquisition.
- The terms, conversion activity and potential cash or share settlement effects of the convertible notes, including the 2023 Notes’ conditional convertibility.
- How COVID-19, cybersecurity, privacy regulation and competitive pressure affect sales cycles, customer spending and service delivery.