Okta, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2020. Fiscal Q4 ended on that date. The filing was signed March 5, 2020. Okta provides a cloud-based identity management platform through subscriptions, with revenue primarily recurring and recognized over contract terms.
Financial performance and position
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $586.1 million | $399.3 million | +47% |
| Subscription revenue | $552.7 million | $370.9 million | +49% |
| Gross margin | 73% | 72% | +1 percentage point |
| Operating loss | $185.8 million | $119.6 million | Loss widened |
| Net loss | $208.9 million | $125.5 million | Loss widened |
| Non-GAAP operating loss | $48.5 million | $41.5 million | Loss widened |
| Non-GAAP net loss | $36.7 million | $34.1 million | Loss widened |
| Operating cash flow | $55.6 million | $15.2 million | Improved |
| Free cash flow | $36.3 million | $(6.8) million | Improved |
| Calculated billings | $703.6 million | $488.2 million | +44% |
Professional services and other revenue was $33.4 million, up 18%; its gross margin was negative 29%, reflecting investment in the services organization. Subscription gross margin remained 79%. Sales and marketing remained the largest operating expense, at $340.4 million, up 49%. GAAP net loss per share was $1.78 versus $1.17 in FY2019. Stock-based compensation rose to $126.6 million from $76.3 million.
Liquidity: Cash, cash equivalents and short-term investments totaled $1.403 billion at year-end; working capital was $1.053 billion. Deferred revenue was $371.5 million, including $365.2 million current. Management said existing liquidity and expected customer receipts should meet working-capital and capital-expenditure needs for at least 12 months, while noting future capital needs could vary.
Cash flows: Investing activities used $688.0 million, primarily reflecting investment purchases and the Azuqua acquisition, partly offset by investment maturities and sales. Financing activities provided $853.4 million, principally related to the 2025 convertible-note issuance and related hedge transactions.
Debt: At year-end, $120.6 million principal remained on 0.25% convertible notes due 2023 and $1.060 billion principal on 0.125% convertible notes due 2025. The 2023 notes were classified as current because holders could convert during the quarter ending April 30, 2020; the filing reported only an immaterial amount of conversion requests as of filing. The 2025 notes were not then convertible under their stated conditions. Convertible-note carrying values were below principal due to accounting discounts; the notes’ fair values exceeded carrying amounts.
Material changes and operating metrics
- Revenue growth moderated to 47% from 56% in FY2019, while net loss increased to $208.9 million from $125.5 million.
- Customer count rose to 7,950 from 6,100; customers with annual contract value above $100,000 increased to 1,467 from 1,038.
- Dollar-based net retention declined to 119% from 120%. Management attributed growth to new customers, increased user deployments and additional products sold to existing customers.
- Remaining performance obligations were $1.210 billion, of which $592.3 million was expected to be recognized in the next 12 months. Contract duration averaged 2.6 years.
- International revenue was 16% of total revenue, unchanged from FY2019.
- Fiscal Q4 revenue was $167.3 million, compared with $115.5 million in the prior-year quarter; Q4 net loss was $50.5 million versus $30.8 million.
Outlook, commentary, risks and unusual items
The filing does not provide a clear numerical revenue or earnings forecast. Management expected continued investment in research and development, sales and marketing, infrastructure, customer support and international operations. It anticipated operating expenses would rise in absolute dollars, with sales and marketing expected to remain the largest expense category; it also expected subscription gross margin to improve over time through scale, while acknowledging near-term fluctuation.
- Profitability: Okta reported a history of annual losses and expected losses to continue for the foreseeable future. FY2020 operating expenses exceeded revenue.
- COVID-19: The filing warned that the emerging coronavirus outbreak could disrupt workforces, economies and markets, reduce technology spending and adversely affect demand and results. The scale of any impact was uncertain.
- Execution and competition: Risks include sustaining growth, customer retention and expansion, longer and less predictable enterprise sales cycles, scaling operations, and competition—especially from Microsoft and other larger providers.
- Security and availability: A breach, service outage, third-party infrastructure failure or inability to scale could damage trust, reduce renewals, trigger service credits or contract termination, and create legal or remediation costs. Okta relies on AWS and other service providers.
- Regulatory and international exposure: Privacy and data-protection rules, including GDPR and CCPA, data-transfer uncertainty, government-contract requirements, foreign exchange and tax rules may increase costs or constrain operations.
- Debt and dilution: Note conversions or fundamental-change repurchases could require cash or shares; warrants and equity compensation may dilute shareholders. The 2023 notes’ conversion condition was met at year-end.
- Unusual FY2020 item: Okta repurchased $224.4 million principal of 2023 notes for $604.8 million total consideration, including approximately $224.4 million cash and 3.0 million shares, and recorded a $14.6 million loss on early extinguishment. It issued $1.060 billion of 2025 notes and acquired Azuqua for approximately $44.2 million net of cash acquired.
- Contingencies and controls: The company reported no material legal proceedings at year-end. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Key facts for investors to verify
- Whether subscription growth, customer additions and expansion can offset the decline in dollar-based net retention and the rising operating loss.
- How much of reported cash generation depends on advance billings, deferred revenue and other working-capital movements; compare operating cash flow with GAAP losses and stock-based compensation.
- The cash, conversion and dilution consequences of the 2023 and 2025 notes, including the 2023 notes’ conversion status and associated warrants and hedges.
- The composition and duration of remaining performance obligations, and how much converts to revenue and cash over the next year.
- The actual effects of COVID-19, competitive pricing, privacy regulation, cybersecurity incidents and reliance on third-party cloud infrastructure.
- Whether non-GAAP trends remain favorable after considering exclusions, particularly stock-based compensation, debt discount amortization and debt-extinguishment costs.