Okta, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 31, 2021 (not calendar Q4 alone). Filed March 4, 2021. Okta sells cloud-based identity management software primarily through multi-year subscriptions; subscriptions made up 95% of revenue. The company reported more than 10,000 customers and over 7,000 integrations.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $835.4 million | $586.1 million |
| Subscription revenue | $796.6 million | $552.7 million |
| Gross margin | 74% | 73% |
| Operating loss | $204.2 million | $185.8 million |
| Net loss | $266.3 million | $208.9 million |
| Cash from operating activities | $128.0 million | $55.6 million |
| Free cash flow* | $110.7 million | $36.3 million |
| Calculated billings | $976.0 million | $703.6 million |
| Remaining performance obligations | $1.797 billion | $1.210 billion |
*Company-defined non-GAAP measure: operating cash flow less purchases of property and equipment, net of proceeds, and capitalized internal-use software. Dollar-based net retention was 121%, versus 119%. Customers with annual contract value above $100,000 increased to 1,950 from 1,467. Non-GAAP net income was $16.2 million, but this measure excludes significant items, including stock-based compensation and debt discount amortization; GAAP net loss was $266.3 million.
At year-end, cash, cash equivalents and short-term investments totaled $2.556 billion. Total liabilities were $2.605 billion and stockholders’ equity was $694.0 million. Convertible notes had $2.250 billion in aggregate principal outstanding across 2023, 2025 and 2026 maturities; $908.7 million net carrying value was classified as current, including the 2023 and 2025 notes, which were convertible at holders’ option in the quarter after year-end.
Changes versus prior year
- Revenue rose 43% (subscription revenue rose 44%); management attributed growth to new customers, more users and additional products sold to existing customers.
- Gross margin improved by one percentage point. Subscription gross margin held at 79%; professional services remained loss-making, though its gross margin improved to negative 23% from negative 29%.
- Operating expenses increased 34% to $821.9 million, while sales and marketing declined as a share of revenue from 58% to 51%. The operating loss nevertheless widened by $18.3 million.
- Net loss increased by $57.4 million, with interest expense rising to $72.7 million from $27.0 million, primarily reflecting the 2025 and 2026 convertible notes.
- Operating cash flow and free cash flow increased substantially. Calculated billings grew 39%, while current RPO reached $841.8 million, up from $592.3 million.
Outlook, commentary and notable items
- The filing provides no specific numerical revenue or earnings guidance. Management expects continued investment and operating losses for the foreseeable future, while stating existing liquidity should meet projected needs for the foreseeable future.
- COVID-19 effects remained uncertain. Okta reported longer and less predictable sales cycles, potential near-term pressure on deal closings, cash flow, billings and RPO, and increased allowances related to collection uncertainty. Remote work and Zero Trust adoption were described as supporting demand; virtual events and reduced travel also lowered some costs.
- On March 3, 2021, after year-end, Okta agreed to acquire Auth0 for $6.5 billion in Okta stock and assumed equity awards, subject to customary conditions and approvals. The expected closing was in FY2022 Q2, ending July 31, 2021. The company cautioned that the deal could affect liquidity and results and involve integration, execution and dilution risks.
- Key risks include intense competition (Microsoft identified as its principal competitor), customer renewal and retention, service availability and cybersecurity, privacy regulation, continued losses, and the ability to manage growth. The dual-class structure gave pre-IPO holders, including directors, executives and affiliates, 48% of voting power at January 31, 2021.
- The notes’ conversion features create potential cash, liquidity and dilution exposure. FY2021 interest expense included substantial non-cash debt discount amortization. No material legal proceedings were reported; the auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth, billings, RPO and 121% net retention persist, particularly given longer sales cycles and economic uncertainty.
- How GAAP losses, stock-based compensation and convertible-note accounting compare with company-defined non-GAAP profitability and free cash flow.
- The cash and share consequences of note conversions, including current classification of the 2023 and 2025 notes and potential dilution.
- Completion, final consideration, financing and integration progress for the Auth0 acquisition, including effects on liquidity and shareholder dilution.
- Security, privacy, service uptime and customer renewal developments, as well as the impact of COVID-19 and competitive pricing.