Okta, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended January 31, 2018. The filing also reports fourth-quarter results for the three months ended January 31, 2018. Okta sells cloud-based identity and access management subscriptions and related professional services.
Financial results
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $260.0 million | $160.3 million |
| Subscription revenue | $239.2 million | $143.1 million |
| Gross profit / margin | $179.2 million / 69% | $104.4 million / 65% |
| Operating loss | $116.4 million | $83.1 million |
| Net loss | $114.4 million | $83.5 million |
| Operating cash flow | $(25.2) million | $(42.1) million |
| Free cash flow | $(37.2) million | $(53.8) million |
| Calculated billings | $314.9 million | $194.5 million |
Revenue grew 62% year over year, led by 67% growth in subscriptions; professional services and other revenue rose 21%. GAAP gross margin improved four percentage points. Despite higher revenue, GAAP operating and net losses widened as the company invested in growth. Non-GAAP operating loss was nearly flat at $65.7 million versus $65.8 million; these measures exclude specified costs, including stock-based compensation.
Fourth quarter: Revenue was $77.8 million, compared with $48.8 million in the year-earlier quarter. Gross margin was 71%, versus 68%; operating loss was $25.3 million versus $18.0 million, and net loss was $24.7 million versus $18.2 million.
Liquidity, debt and business metrics
At January 31, 2018, cash, cash equivalents and short-term investments totaled $229.7 million, versus $37.7 million a year earlier; working capital was $124.7 million, versus a deficit of $41.7 million. Deferred revenue was $168.7 million. The company had $35.8 million available under its $40 million Silicon Valley Bank revolving facility, with no borrowings outstanding. Operating cash use improved year over year, while free cash flow remained negative.
Customer count rose to 4,375 from 3,114. Customers with annual contract value above $100,000 increased to 691 from 443. Dollar-based retention was 121%, down from 123%. International revenue was 15% of total, up from 13%.
Outlook, risks and notable items
- Management expected operating expenses to increase and losses and negative operating cash flows to continue for the foreseeable future. It believed available cash, investments, credit and customer receipts would fund working capital and capital needs for at least 12 months. No specific revenue or earnings guidance is provided in the supplied filing text.
- Management expected subscription gross margin to improve over time with scale, while noting near-term fluctuations. Sales and marketing was expected to remain the largest operating expense category.
- Key risks include intense competition, slowing growth or weaker renewals and customer expansion, service outages or security incidents, reliance on AWS and other third parties, and privacy and regulatory compliance. Okta planned to meet GDPR requirements by May 25, 2018; noncompliance could expose the company to significant penalties.
- Stock-based compensation increased to $49.9 million from $17.1 million, materially affecting GAAP results. A $1.1 million write-off of capitalized software costs and the Stormpath acquisition and related compensation were notable items.
- Okta adopted the new revenue recognition standard on February 1, 2018 using the retrospective method. The filing says the effect on FY2018 and FY2017 revenue was not material; the principal change was deferring more contract-acquisition commissions and amortizing them over a five-year benefit period.
- Subsequent financing: In February 2018, after year-end, Okta issued $345 million of 0.25% convertible senior notes due 2023 and received approximately $334 million of net proceeds before note-hedge and warrant transaction effects. The notes may create cash obligations or dilution depending on settlement and conversion; they were not year-end debt.
- The company entered a 10-year San Francisco headquarters lease with a stated total commitment of $206.3 million, subject to a tenant-improvement allowance of up to $24.7 million. It also disclosed $284.9 million in total contractual obligations, primarily operating leases and purchase obligations.
Investor verification priorities
- Track subscription growth, billings, retention and large-customer expansion against the continuing GAAP losses and management’s spending plans.
- Assess cash burn and liquidity, including the impact of lease commitments and the 2023 convertible notes, hedges and warrants.
- Review the scale and persistence of stock-based compensation and its effect on GAAP-versus-non-GAAP comparisons and potential dilution.
- Monitor service availability, security incidents, GDPR compliance and customer or contractual consequences of any disruption.