Business context and reporting period
Okta, Inc. provides a subscription-based identity management platform. This unaudited Form 10-Q covers the three months ended April 30, 2020 (fiscal 2021 first quarter); comparisons are with the three months ended April 30, 2019. Subscription revenue was 95% of total revenue. Okta reported more than 8,400 customers and over 6,500 platform integrations.
Financial and operating performance
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $182.9 million | $125.2 million |
| Gross profit / margin | $134.4 million / 73% | $90.1 million / 72% |
| Operating loss | $52.2 million | $51.8 million |
| Net loss | $57.7 million | $52.0 million |
| Operating cash flow | $38.7 million | $21.3 million |
| Free cash flow (company-defined) | $29.8 million | $13.2 million |
| Calculated billings | $209.5 million | $147.2 million |
Revenue rose 46% year over year, led by subscription revenue, up 48%; professional services revenue increased 13%. Gross margin improved one percentage point, while subscription gross margin remained 79%. Operating expenses were $186.6 million, or 102% of revenue, versus $141.9 million, or 113%. GAAP net loss per share was $0.47 versus $0.46. Stock-based compensation was $37.7 million, compared with $22.7 million.
Operating cash flow improved, supported in part by noncash expenses and a $26.7 million increase in deferred revenue. Investing activities provided $50.6 million, principally reflecting investment sales and maturities; financing activities provided $14.2 million, primarily from option exercises. Cash, cash equivalents and restricted cash ended the quarter at $634.3 million.
At April 30, 2020, cash, cash equivalents and short-term investments totaled $1.447 billion. Total liabilities were $1.624 billion, including convertible notes with principal of $120.6 million due 2023 and $1.060 billion due 2025. The 2023 notes’ net balance-sheet carrying amount was $102.2 million and was classified current because holders could convert during the quarter ending July 31, 2020. The 2025 notes were not then convertible under their stated conditions. Deferred revenue was $398.2 million; total remaining performance obligations (RPO) were $1.240 billion, including $619.1 million expected to be recognized in the next 12 months.
Material changes versus the prior comparable period
- Revenue increased 46%; gross margin rose from 72% to 73%.
- Operating loss was broadly unchanged despite higher revenue; net loss widened by $5.7 million. Interest expense increased $6.5 million, primarily due to the 2025 notes and related discount amortization.
- Operating cash flow increased $17.4 million and company-defined free cash flow increased $16.6 million.
- Calculated billings grew 42%; RPO rose from $792.0 million to $1.240 billion. Current RPO increased from $416.0 million to $619.1 million.
- Customers with annual contract value above $100,000 rose to 1,580 from 1,142. Dollar-based net retention was 121%, versus 119%.
Outlook, commentary, risks and unusual items
Okta gave no specific quarterly or annual financial guidance in the supplied filing text. Management said cash, cash equivalents, short-term investments and expected cash from product sales should be sufficient for working capital and capital expenditures for at least the next 12 months. It also expected continued operating losses and operating cash flows that may fluctuate between positive and negative.
Management described COVID-19 effects as uncertain. Longer sales cycles and delayed deal closings could pressure near-term cash flow, billings and RPO; payment delays, customer concessions and collection concerns were also risks. The company increased its allowance for doubtful accounts and sales reserves amid economic uncertainty. Management reported no material adverse COVID-19 impact on the quarter’s financial statements, while warning that assumptions could change. Work-from-home operations and a virtual user conference reduced certain employee, travel and event costs; hiring growth had also slowed.
Key risks include recession-driven reductions in customer spending, sales delays, customer payment or renewal issues, competition, service interruptions and cybersecurity or privacy incidents. Okta also highlighted potential dilution or cash requirements from convertible-note conversions and repurchases. The 2023 notes were convertible at holders’ option for the May–July 2020 quarter; management reported only immaterial conversion requests and conversions as of the filing date. No material legal proceedings were reported. Disclosure controls were considered effective.
Important facts for investors to verify
- Whether COVID-19-related sales-cycle extensions, customer concessions and collection risks affect subsequent billings, RPO, renewals and cash flow.
- Whether the 2023 notes were converted, and the resulting cash, share dilution and classification effects; monitor the separate 2025 notes and related capped calls.
- How much reported cash generation reflects recurring operations versus deferred-revenue movements and noncash charges, including substantial stock-based compensation.
- Whether revenue growth, retention, gross-margin improvement and the company’s stated liquidity position persist in later periods.