Okta Announces Record Second Quarter Fiscal 2019 Financial Results

Okta, Inc. (NASDAQ: OKTA), the leading independent provider of identity for the enterprise, today announced financial results for its second fiscal quarter ended July 31, 2018.

“We continued to see momentum across our business in the second quarter of the fiscal year, with year-over-year subscription revenue growth of 59%, including particular strength in the enterprise,” said Todd McKinnon, CEO of Okta. “Growth in customers with over $100,000 annual recurring revenue accelerated to 55% year-over-year in Q2, which is a testament to the increasing strategic need for an identity solution as organizations move to the cloud. This need is pervasive and imperative, and I believe we are in the early stages of capitalizing on this high growth opportunity.”

Second Quarter Fiscal 2019 Financial Highlights:

  • Revenue: Total revenue was $94.6 million, an increase of 57% year-over-year. Subscription revenue was $87.9 million, an increase of 59% year-over-year.
  • Operating Loss: GAAP operating loss was $38.4 million, or 40.6% of total revenue, compared to $26.2 million in the second quarter of fiscal 2018, or 43.5% of total revenue. Non-GAAP operating loss was $19.2 million, or 20.3% of total revenue, compared to $14.2 million in the second quarter of fiscal 2018, or 23.6% of total revenue.
  • Net Loss: GAAP net loss was $39.2 million, compared to $26.0 million in the second quarter of fiscal 2018. GAAP net loss per share was $0.37, compared to $0.28 in the second quarter of fiscal 2018. Non-GAAP net loss was $16.4 million, compared to $14.1 million in the second quarter of fiscal 2018. Non-GAAP net loss per share was $0.15, compared to $0.15 in the second quarter of fiscal 2018.
  • Cash Flow: Net cash used in operations was $5.3 million, or 5.6% of total revenue, compared to cash used in operations of $6.2 million, or 10.4% of total revenue, in the second quarter of fiscal 2018. Free cash flow was negative $11.3 million, or 12.0% of total revenue, compared to negative $10.5 million, or 17.4% of total revenue, in the second quarter of fiscal 2018.
  • Cash, cash equivalents and short-term investments were $536.3 million as of July 31, 2018.

The section titled "Non-GAAP Financial Measures" below contains a description of the non-GAAP financial measures and reconciliations between historical GAAP and non-GAAP information are contained in the tables below.

Financial Outlook:

For the third quarter of fiscal 2019, the Company currently expects:

  • Total revenue of $96 to $97 million, representing a growth rate of 43 to 45% year-over-year
  • Non-GAAP operating loss of $15 to $14 million
  • Non-GAAP net loss per share of $0.12 to $0.11, assuming shares outstanding of approximately 109 million

For the full fiscal 2019, the Company now expects:

  • Total revenue of $372 to $375 million, representing a growth rate of 45 to 46% year-over-year
  • Non-GAAP operating loss of $59 to $57 million
  • Non-GAAP net loss per share of $0.48 to $0.46, assuming shares outstanding of approximately 107 million

These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Okta has not reconciled its expectations as to non-GAAP operating loss and non-GAAP net loss per share to their most directly comparable GAAP measure because certain items are out of Okta’s control or cannot be reasonably predicted. Accordingly, a reconciliation for forward-looking non-GAAP operating loss and non-GAAP net loss per share is not available without unreasonable effort.

Conference Call Information:

Okta will host a conference call and live webcast for analysts and investors at 2:00 p.m. Pacific Time on September 6, 2018. The news release with the financial results will be accessible from the Company’s website at investor.okta.com prior to the conference call. Interested parties can access the call by dialing (800) 458-4121 or (323) 794-2093 and using the passcode 7723598.

A live webcast of the conference call will be accessible from the Okta investor relations website at investor.okta.com. A telephonic replay of the conference call will be available through September 20, 2018 and may be accessed by dialing (888) 203-1112 or (719) 457-0820, using the passcode 7723598.

Supplemental Financial and Other Information:

Supplemental financial and other information can be accessed through the Company’s investor relations website at investor.okta.com.

Non-GAAP Financial Measures:

This press release and the accompanying tables contain the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss, non-GAAP net loss per share, free cash flow, current calculated billings and calculated billings. The accompanying tables present and define calculated billings consistent with ASC 606. Certain of these non-GAAP financial measures exclude stock-based compensation, amortization of debt discount, charitable contributions, and amortization of intangible assets.

Okta believes that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies.

The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by the Company's management about which expenses and income are excluded or included in determining these non-GAAP financial measures. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP.

Okta encourages investors to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company’s business.

Please see the reconciliation tables at the end of this release for the reconciliation of GAAP and non-GAAP results.

Forward-Looking Statements:

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook and market positioning. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” “shall” and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond Okta’s control. Okta’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in the Company's filings and reports with the Securities and Exchange Commission (SEC), including our Form 10-Q for the fiscal quarter ended April 30, 2018, as well as other filings and reports that may be filed by the Company from time to time with the SEC. In particular, the following factors, among others, could cause results to differ materially from those expressed or implied by such forward-looking statements: the market for our products may develop more slowly than expected or than it has in the past; quarterly and annual operating results may fluctuate more than expected; variations related to our revenue recognition may cause significant fluctuations in our results of operations and cash flows; assertions by third parties that we violate their intellectual property rights could substantially harm our business; any unreleased products, features or functionality referenced in this or other presentations, press releases or public statements are not currently available and may not be delivered on time or at all; a network or data security incident that allows unauthorized access to our network or data or our customers’ data could harm our reputation, create additional liability and adversely impact our financial results; the risk of interruptions or performance problems, including a service outage, associated with our technology; intense competition in our market; weakened global economic conditions may adversely affect our industry; the risk of losing key employees; changes in foreign exchange rates; general political or destabilizing events, including war, conflict or acts of terrorism; our ability to successfully identify and integrate acquisitions, strategic investments, partnerships or alliances; our ability to pay off our convertible senior notes when due; and other risks and uncertainties. Past performance is not necessarily indicative of future results. The forward-looking statements included in this press release represent Okta’s views as of the date of this press release. The Company anticipates that subsequent events and developments will cause its views to change. Okta undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing Okta’s views as of any date subsequent to the date of this press release.

About Okta

Okta is the leading independent provider of identity for the enterprise. The Okta Identity Cloud enables organizations to both secure and manage their extended enterprise, and transform their customers’ experiences. With over 5,500 pre-built integrations to applications and infrastructure providers, Okta customers can easily and securely adopt the technologies they need to fulfill their missions. Over 5,150 organizations, including 20th Century Fox, JetBlue, Nordstrom, Slack, Teach for America and Twilio, trust Okta to securely connect their people and technology.

OKTA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

Three Months Ended
July 31,
Six Months Ended
July 31,
2018201720182017
As Adjusted (1)As Adjusted (1)
Revenue:
Subscription $ 87,854 $ 55,317 $ 164,695 $ 103,596
Professional services and other 6,732 4,942 13,512 8,988
Total revenue 94,586 60,259 178,207 112,584
Cost of revenue:
Subscription (2) 19,211 12,691 35,543 23,848
Professional services and other (2) 9,017 6,991 16,792 13,297
Total cost of revenue 28,228 19,682 52,335 37,145
Gross profit 66,358 40,577 125,872 75,439
Operating expenses:
Research and development (2) 24,829 16,923 44,758 32,282
Sales and marketing (2) 59,004 37,891 108,497 73,194
General and administrative (2) 20,955 11,948 36,025 23,587
Total operating expenses 104,788 66,762 189,280 129,063
Operating loss (38,430 ) (26,185 ) (63,408 ) (53,624 )
Other income (expense), net (1,762 ) 382 (2,977 ) 363
Loss before provision for (benefit from) income taxes (40,192 ) (25,803 ) (66,385 ) (53,261 )
Provision for (benefit from) income taxes (985 ) 229 (1,216 ) 477
Net loss $ (39,207 ) $ (26,032 ) $ (65,169 ) $ (53,738 )
Net loss per share attributable to common stockholders, basic and diluted $ (0.37 ) $ (0.28 ) $ (0.62 ) $ (0.80 )
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted 106,702 93,576 105,475 67,125

___________________________________

(1) The condensed consolidated statement of operations for the prior periods presented above have been adjusted to reflect the adoption of ASC 606.

(2) Amounts include share-based compensation expense as follows (in thousands):

Three Months Ended
July 31,
Six Months Ended
July 31,
2018201720182017
Cost of subscription revenue $ 1,901 $ 1,056 $ 3,430 $ 1,742
Cost of professional services and other revenue 1,083 738 1,972 1,207
Research and development 5,272 4,438 9,485 7,739
Sales and marketing 5,471 3,021 9,624 5,396
General and administrative 4,495 2,725 7,846 4,800
Total share-based compensation expense $ 18,222 $ 11,978 $ 32,357 $ 20,884

OKTA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(unaudited)

July 31, 2018January 31, 2018
As Adjusted (1)
Assets
Current assets:
Cash and cash equivalents $ 192,882 $ 127,949
Short-term investments 343,374 101,765
Accounts receivable, net of allowances of $962 and $1,472 59,839 52,248
Deferred commissions 19,848 17,755
Prepaid expenses and other current assets 17,433 17,781
Total current assets 633,376 317,498
Property and equipment, net 40,670 12,540
Deferred commissions, noncurrent 43,287 40,755
Intangible assets, net 16,006 11,761
Goodwill 18,095 6,282
Other assets 12,483 10,427
Total assets $ 763,917 $ 399,263
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 12,577 $ 9,566
Accrued expenses and other current liabilities 6,333 6,187
Accrued compensation 12,803 12,374
Deferred revenue 186,427 159,816
Total current liabilities 218,140 187,943
Convertible senior notes, net 263,762
Deferred revenue, noncurrent 5,471 4,963
Other liabilities, noncurrent 31,399 7,017
Total liabilities 518,772 199,923
Commitments and contingencies
Stockholders’ equity:
Preferred stock
Class A common stock 10 7
Class B common stock 1 3
Additional paid-in capital 677,497 565,653
Accumulated other comprehensive income (loss) (480 ) 391
Accumulated deficit (431,883 ) (366,714 )
Total stockholders’ equity 245,145 199,340
Total liabilities and stockholders’ equity $ 763,917 $ 399,263

(1)

The condensed consolidated balance sheet for the prior period has been adjusted to reflect the adoption of ASC 606.

OKTA, INC.

SUMMARY OF CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

Six Months Ended July 31,
20182017
As Adjusted (1)
Cash flows from operating activities:
Net loss $ (65,169 ) $ (53,738 )
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation 32,357 20,884
Depreciation, amortization and accretion 3,699 3,288
Amortization of debt discount and issuance costs 6,413
Amortization of deferred commissions 9,613 7,006
Deferred income taxes (1,575 )
Non-cash charitable contributions 1,008
Other 18 689
Changes in operating assets and liabilities, net of business combination:
Accounts receivable (7,240 ) (1,311 )
Deferred commissions (14,240 ) (9,517 )
Prepaid expenses and other assets (800 ) (4,900 )
Accounts payable 2,557 2,732
Accrued compensation 498 2,562
Accrued expenses and other liabilities 4,679 (1,601 )
Deferred revenue 26,811 17,982
Net cash used in operating activities (1,371 ) (15,924 )
Cash flows from investing activities:
Capitalization of internal-use software costs (1,725 ) (2,743 )
Purchases of property and equipment (9,790 ) (5,156 )
Purchases of securities available for sale (320,018 ) (86,776 )
Proceeds from maturities of securities available for sale 79,500 12,835
Proceeds from sales of securities available for sale 1,538
Payments for business acquisition, net of cash acquired (15,638 )
Net cash used in investing activities (267,671 ) (80,302 )
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriters' discounts and commissions 199,948
Proceeds from issuance of convertible senior notes, net of issuance costs 334,980
Purchase of convertible senior notes hedge (80,040 )
Proceeds from issuance of warrants related to convertible notes 52,440
Payments of deferred offering costs (4,038 )
Proceeds from stock option exercises, net of repurchases 21,055 3,916
Proceeds from shares issued in connection with employee stock purchase plan 6,654
Other (206 ) (273 )
Net cash provided by financing activities 334,883 199,553
Effects of changes in foreign currency exchange rates on cash and cash equivalents (632 ) 134
Net increase in cash, cash equivalents and restricted cash 65,209 103,461
Cash, cash equivalents and restricted cash at beginning of period 136,233 23,282
Cash, cash equivalents and restricted cash at end of period $ 201,442 $ 126,743

(1)

The condensed consolidated statement of cash flows for the prior period has been adjusted to reflect the adoption of ASC 606.

OKTA, INC.

Reconciliation of GAAP to Non-GAAP Data

(In thousands, except percentages and per share data)

(unaudited)

Three Months Ended July 31, 2018
GAAP

Stock-based
compensation

Charitable
contributions

Amortization
of debt
discount

Non-GAAP
Cost of revenue:
Cost of subscription services $ 19,211 $ (1,901 ) $ $ $ 17,310
Cost of professional services 9,017 (1,083 ) 7,934
Gross profit 66,358 2,984 69,342
Gross margin 70.2 % 3.1 % % 73.3 %
Operating expenses:
Research and development 24,829 (5,272 ) 19,557
Sales and marketing 59,004 (5,471 ) 53,533
General and administrative 20,955 (4,495 ) (1,008 ) 15,452
Operating loss (38,430 ) 18,222 1,008 (19,200 )
Operating margin (40.6 )% 19.2 % 1.1 % % (20.3 )%
Other income (expense), net (1,762 ) 3,554 1,792
Net loss $ (39,207 ) $ 18,222 $ 1,008 $ 3,554 $ (16,423 )
Net loss per share (1) $ (0.37 ) $ 0.17 $ 0.01 $ 0.04 $ (0.15 )
(1) GAAP and Non-GAAP net loss per common share calculated based upon 106,702 basic and diluted weighted-average shares of common stock.
Three Months Ended July 31, 2017
GAAP (2)

Stock-based
compensation

Non-GAAP (2)
Cost of revenue:
Cost of subscription services $ 12,691 $ (1,056 ) $ 11,635
Cost of professional services 6,991 (738 ) 6,253
Gross profit 40,577 1,794 42,371
Gross margin 67.3 % 3.0 % 70.3 %
Operating expenses:
Research and development 16,923 (4,438 ) 12,485
Sales and marketing 37,891 (3,021 ) 34,870
General and administrative 11,948 (2,725 ) 9,223
Operating loss (26,185 ) 11,978 (14,207 )
Operating margin (43.5 )% 19.9 % (23.6 )%
Other income (expense), net 382 382
Net loss $ (26,032 ) $ 11,978 $ (14,054 )
Net loss per share (1) $ (0.28 ) $ 0.13 $ (0.15 )
(1) GAAP and Non-GAAP net loss per common share calculated based upon 93,576 basic and diluted weighted-average shares of common stock.
(2) Financial information for prior period presented above has been adjusted to reflect the adoption of ASC 606.

OKTA, INC.

Reconciliation of GAAP to Non-GAAP Data

(In thousands, except percentages and per share data)

(unaudited)

Six Months Ended July 31, 2018
GAAP

Stock-based
compensation

Charitable
contributions

Amortization
of debt
discount

Non-GAAP
Cost of revenue:
Cost of subscription services $ 35,543 $ (3,430 ) $ $ $ 32,113
Cost of professional services 16,792 (1,972 ) 14,820
Gross profit 125,872 5,402 131,274
Gross margin 70.6 % 3.1 % % % 73.7 %
Operating expenses:
Research and development 44,758 (9,485 ) 35,273
Sales and marketing 108,497 (9,624 ) 98,873
General and administrative 36,025 (7,846 ) (1,008 ) 27,171
Operating loss (63,408 ) 32,357 1,008 (30,043 )
Operating margin (35.6 )% 18.1 % 0.6 % % (16.9 )%
Other income (expense), net (2,977 ) 5,935 2,958
Net loss (65,169 ) 32,357 1,008 5,935 (25,869 )
Net loss per share (1) $ (0.62 ) $ 0.31 $ 0.01 $ 0.05 $ (0.25 )
(1) GAAP and Non-GAAP net loss per common share calculated based upon 105,475 basic and diluted weighted-average shares of common stock.
Six Months Ended July 31, 2017
GAAP (2)

Stock-based
compensation

Amortization
of acquired
intangibles

Non-GAAP (2)
Cost of revenue:
Cost of subscription services $ 23,848 $ (1,742 ) $ (4 ) $ 22,102
Cost of professional services 13,297 (1,207 ) 12,090
Gross profit 75,439 2,949 4 78,392
Gross margin 67.0 % 2.6 % % 69.6 %
Operating expenses:
Research and development 32,282 (7,739 ) 24,543
Sales and marketing 73,194 (5,396 ) 67,798
General and administrative 23,587 (4,800 ) 18,787
Operating loss (53,624 ) 20,884 4 (32,736 )
Operating margin (47.6 )% 18.5 % % (29.1 )%
Other income (expense), net 363 363
Net loss $ (53,738 ) $ 20,884 $ 4 $ (32,850 )
Net loss per share (1) $ (0.80 ) $ 0.31 $ $ (0.49 )
(1) GAAP and Non-GAAP net loss per common share calculated based upon 67,125 basic and diluted weighted-average shares of common stock.
(2) Financial information for prior period presented above has been adjusted to reflect the adoption of ASC 606.

OKTA, INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands)

(unaudited)

Free Cash Flow
Three Months Ended
July 31,
Six Months Ended
July 31,
2018201720182017
Net cash used in operating activities $ (5,343 ) $ (6,238 ) $ (1,371 ) $ (15,924 )
Less:
Purchases of property and equipment (5,313 ) (2,708 ) (9,790 ) (5,156 )
Capitalization of internal-use software costs (674 ) (1,535 ) (1,725 ) (2,743 )
Free Cash Flow $ (11,330 ) $ (10,481 ) $ (12,886 ) $ (23,823 )
Net cash used in investing activities (28,729 ) (88,519 ) (267,671 ) (80,302 )
Net cash provided by (used in) financing activities 15,438 (555 ) 334,883 199,553
Free Cash Flow Margin (12.0 )% (17.4 )% (7.2 )% (21.2 )%
Calculated Billings
Three Months Ended
July 31,
Six Months Ended
July 31,
2018

2017(1)

2018

2017(1)

Total revenue $ 94,586 $ 60,259 $ 178,207 $ 112,584

Add:

Unbilled receivables, current (beginning of period) 1,619 2,151 809 1,537
Deferred revenue, current (end of period) 186,427 122,173 186,427 122,173
Less:
Unbilled receivables, current (end of period) (818 ) (498 ) (818 ) (498 )
Deferred revenue, current (beginning of period) (173,548 ) (111,759 ) (159,816 ) (102,966 )
Current calculated billings 108,266 72,326 204,809 132,830
Add:
Deferred revenue, noncurrent (end of period) 5,471 2,929 5,471 2,929
Less:
Deferred revenue, noncurrent (beginning of period) (4,346 ) (3,578 ) (4,963 ) (4,154 )
Calculated billings $ 109,391 $ 71,677 $ 205,317 $ 131,605
(1) Current calculated billings and calculated billings for the three and six months ended July 31, 2017 presented above have been modified to conform with the adoption of ASC 606, which now includes unbilled receivables.

Contacts:

Okta, Inc.
Investor Contact:
Catherine Buan, 415-604-3346
investor@okta.com
or
Media Contact:
Jenna Kozel, 888-722-7871
press@okta.com

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