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Okta

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Okta Announces Record Second Quarter Fiscal 2018 Financial Results

Okta Announces Record Second Quarter Fiscal 2018 Financial Results

September 7, 2017
  • Q2 total revenue up 63% year-over-year; subscription revenue up 68% year-over-year
  • Q2 GAAP operating margin improved by 10 percentage points year-over-year; Non-GAAP operating margin improved by 20 percentage points, year-over-year
  • Named a leader and positioned highest in "ability to execute" in Gartner’s June 2017 Magic Quadrant for Access Management, Worldwide
  • Company had record attendance at Oktane17 in August, with registration growing over 50% year-over-year

SAN FRANCISCO--(BUSINESS WIRE)--Sep. 7, 2017-- 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, 2017.

“We had a very strong second quarter with revenue up 63% year-over-year while operating margin improved significantly once again,” said Todd McKinnon, CEO of Okta. “We also had record attendance last week at Oktane17, our annual customer and partner conference. We were thrilled to have had over 2,400 registrants, representing growth of more than 50% year-over-year, and we announced a number of new and exciting product enhancements. With these enhancements, we further extended our leadership in identity management. The Okta Identity Cloud remains the leading independent and neutral cloud identity solution to manage and secure the extended enterprise and transform the customer experience.”

Second Quarter Fiscal 2018 Financial Highlights:

  • Revenue: Total revenue was $61.0 million, an increase of 62.9% year-over-year. Subscription revenue was $56.1 million, an increase of 67.7% year-over-year.
  • Operating Loss: GAAP operating loss was $27.2 million, or 44.5% of total revenue, compared to $20.6 million in the second quarter of fiscal 2017, or 54.9% of total revenue. Non-GAAP operating loss was $15.2 million, or 24.9% of total revenue, compared to $16.9 million in the second quarter of fiscal 2017, or 45.0% of total revenue.
  • Net Loss: GAAP net loss was $27.0 million, compared to $20.6 million in the second quarter of fiscal 2017. GAAP net loss per share was $0.29, compared to $1.10 in the second quarter of fiscal 2017. Non-GAAP net loss was $15.0 million, compared to $16.9 million in the second quarter of fiscal 2017. Non-GAAP net loss per share was $0.16, compared to $0.90 in the second quarter of fiscal 2017.
  • Cash Flow: Net cash used in operations was $6.2 million, compared to $11.8 million in the second quarter of fiscal 2017. Free cash flow was negative $10.5 million, or 17.2% of total revenue, compared to negative $15.0 million, or 40.2% of total revenue, in the second quarter of fiscal 2017.
  • Cash, cash equivalents and short term investments were $213.2 million as of July 31, 2017.

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

Financial Outlook:

For the third quarter of fiscal 2018, the Company currently expects:

  • Total revenue of $62.0 to $63.0 million
  • Non-GAAP operating loss of $23.5 to $22.5 million
  • Non-GAAP net loss per share of $0.25 to $0.24 assuming shares outstanding of approximately 94.0 million

For the full fiscal 2018, the Company now expects:

  • Total revenue of $243.0 to $245.0 million
  • Non-GAAP operating loss of $78.4 to $76.4 million
  • Non-GAAP net loss per share of $0.98 to $0.95 assuming shares outstanding of approximately 80.6 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 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 7, 2017. 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 888-378-4361 or 719-325-4747, using the passcode 3768251.

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 21, 2017 and may be accessed by dialing 888-203-1112 or 719-457-0820, using the passcode 3768251.

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 and calculated billings. Certain of these non-GAAP financial measures exclude stock-based compensation and amortization of intangible assets.

Okta believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Okta’s financial condition and results of operations. The Company’s management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analysis, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with other software companies, many of which present similar non-GAAP financial measures to investors.

Management of the Company does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. 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 management about which expenses and income are excluded or included in determining these non-GAAP financial measures. Okta urges investors to review the reconciliation of its non-GAAP financial measures to the 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.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables at the end of this release.

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 Okta’s Prospectus filed with the Securities and Exchange Commission effective on April 6, 2017 as well as other documents that may be filed by the Company from time to time with the Securities and Exchange Commission. 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; 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; we face 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; 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 connects and protects employees of many of the world's largest enterprises. It also securely connects enterprises to their partners, suppliers and customers. With deep integrations to over 5,000 applications, the Okta Identity Cloud enables simple and secure access for any user from any device. Thousands of customers, including 20th Century Fox, Adobe, Dish Networks, Experian, Flex, LinkedIn, and News Corp, trust Okta to help them work faster, boost revenue and stay secure. Okta helps customers fulfill their missions faster by making it safe and easy to use the technologies they need to do their most significant work. Learn more at www.okta.com.

About Gartner

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

 

OKTA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

 
   

Three Months Ended

 

Six Months Ended

    July 31,  

July 31,

    2017   2016   2017   2016
 
Revenue                  
Subscription   $ 56,080     $ 33,439     $ 104,437     $ 61,002  
Professional services and other   4,915     3,997     9,565     8,221  
Total revenue   60,995     37,436     114,002     69,223  
Cost of revenue                  
Subscription (1)   12,691     8,466     23,848     15,926  
Professional services and other (1)   6,991     5,314     13,297     10,233  
Total cost of revenue   19,682     13,780     37,145     26,159  
Gross profit   41,313     23,656     76,857     43,064  
Operating expenses                  
Research and development (1)   16,923     9,655     32,282     18,421  
Sales and marketing (1)   39,597     28,421     76,777     54,822  
General and administrative (1)   11,948     6,142     23,587     13,087  
Total operating expenses   68,468     44,218     132,646     86,330  
Operating loss   (27,155 )   (20,562 )   (55,789 )   (43,266 )
Other income, net   382     56     363     88  
Loss before income taxes   (26,773 )   (20,506 )   (55,426 )   (43,178 )
Provision for income taxes   229     95     477     176  
Net loss   $ (27,002 )   $ (20,601 )   $ (55,903 )   $ (43,354 )
 
Net loss per common share, basic and diluted   $ (0.29 )   $ (1.10 )   $ (0.83 )   $ (2.32 )
 
Weighted-average shares used to compute net loss per common share   93,576     18,802     67,125     18,687  
 
     

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

 
   

Three Months Ended

 

Six Months Ended

   

July 31,

 

July 31,

    2017   2016   2017   2016
 
Cost of subscription revenue   $ 1,056     $ 446     $ 1,742     $ 839  
Cost of professional services and other revenue   738     313     1,207     586  
Research and development   4,438     736     7,739     1,354  
Sales and marketing   3,021     1,412     5,396     2,766  
General and administrative   2,725     757     4,800     1,488  
Total share-based compensation expense   $ 11,978     $ 3,664     $ 20,884     $ 7,033  
 
 

OKTA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 
    July 31,   January 31,
    2017   2017
    (unaudited)    

Assets

       
Current assets:        
Cash and cash equivalents   $ 126,464     $ 23,282  
Short-term investments   86,755     14,390  
Accounts receivable, net of allowances of $1,261 and $1,306   35,304     34,544  
Deferred commissions   13,279     13,549  
Prepaid expenses and other current assets   12,884     7,025  
Total current assets   274,686     92,790  
Property and equipment, net   13,302     11,026  
Deferred commissions, noncurrent   9,248     10,050  
Intangible assets, net   11,051     9,155  
Goodwill   6,282     2,630  
Other assets   1,658     4,984  

Total assets

  $ 316,227     $ 130,635  

Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)

       

Current liabilities:

       
Accounts payable   $ 9,848     $ 11,897  
Accrued expenses and other current liabilities   4,399     5,853  
Accrued compensation   11,334     9,866  
Deferred revenue   127,218     108,012  
Total current liabilities   152,799     135,628  
Deferred revenue, noncurrent   4,108     5,711  
Other liabilities, noncurrent   6,451     4,947  
Total liabilities   163,358     146,286  
Commitments and contingencies        
Redeemable convertible preferred stock       227,954  
Stockholders’ equity (deficit):        
Preferred stock        
Class A common stock   2      
Class B common stock   8     2  
Additional paid-in capital   496,801     44,469  
Accumulated other comprehensive income (loss)   70     (167 )
Accumulated deficit   (344,012 )   (287,909 )
Total stockholders’ equity (deficit)   152,869     (243,605 )

Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)

  $ 316,227     $ 130,635  
 
 
OKTA, INC.
SUMMARY OF CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 
   

Six Months Ended July

   

31,

    2017   2016
 

Operating activities:

       
Net loss   $ (55,903 )   $ (43,354 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation, amortization and accretion   3,288     1,972  
Stock-based compensation   20,884     7,033  
Amortization of deferred commissions   8,333     6,389  
Other   689     (114 )
Changes in operating assets and liabilities:        
Accounts receivable   (1,311 )   690  
Deferred commissions   (7,261 )   (6,122 )
Prepaid expenses and other assets   (5,940 )   (3,403 )
Accounts payable   1,183     1,650  
Accrued compensation   2,562     (2,901 )
Accrued expenses and other liabilities   (52 )   (169 )
Deferred revenue   17,604     11,456  

Net cash used in operating activities

  (15,924 )   (26,873 )

Investing activities:

       
Capitalization of internal-use software costs   (2,743 )   (2,325 )
Purchases of property and equipment and other   (5,156 )   (3,029 )
Net purchases of securities available for sale   (72,403 )   7,207  
Net cash provided by (used in) investing activities   (80,302 )   1,853  

Financing activities:

       
Proceeds from initial public offering, net of underwriters' discounts and commissions   199,948      
Other financing activities   (395 )   (289 )
Net cash provided by (used in) financing activities   199,553     (289 )
Effects of changes in foreign currency exchange rates on cash and cash equivalents   134     (54 )
Net increase (decrease) in cash, cash equivalents and restricted cash   103,461     (25,363 )

Cash, cash equivalents and restricted cash at beginning of year

  23,282     58,081  
Cash, cash equivalents and restricted cash at end of year   $ 126,743     $ 32,718  
 
 

OKTA, INC.

Reconciliation of GAAP to Non-GAAP Data

(In thousands, except percentages and per share data)

(unaudited)

 
    Six Months Ended July 31, 2017
            Amortization    
        Stock-based   of acquired    
    GAAP   compensation   intangibles   Non-GAAP

Costs and expenses:

               
Cost of subscription services   $ 23,848     $ (1,742 )   $ (4 )   $ 22,102  
Cost of professional services   13,297     (1,207 )       12,090  
Gross profit   76,857     2,949     4     79,810  
Gross margin   67 %   3 %       70 %
Research and development   32,282     (7,739 )       24,543  
Sales and marketing   76,777     (5,396 )       71,381  
General and administrative   23,587     (4,800 )       18,787  
Operating loss   (55,789 )   20,884     4     (34,901 )
Operating margin   (49 )%   18 %       (31 )%
Net loss   $ (55,903 )   $ 20,884     $ 4     $ (35,015 )
Net loss per share (1)   $ (0.83 )   $ 0.31     $     $ (0.52 )
 

(1) GAAP and Non-GAAP net loss per common share calculated based upon 67,125 basic and diluted weighted-average shares of common stock.

 
    Six Months Ended July 31, 2016
            Amortization    
        Stock-based   of acquired    
    GAAP   compensation   intangibles   Non-GAAP

Costs and expenses:

               
Cost of subscription services   $ 15,926     $ (839 )   $ (94 )   $ 14,993  
Cost of professional services   10,233     (586 )       9,647  
Gross profit   43,064     1,425     94     44,583  
Gross margin   62 %   2 %       64 %
Research and development   18,421     (1,354 )       17,067  
Sales and marketing   54,822     (2,766 )       52,056  
General and administrative   13,087     (1,488 )       11,599  
Operating loss   (43,266 )   7,033     94     (36,139 )
Operating margin   (63 )%   10 %   1 %   (52 )%
Net loss   $ (43,354 )   $ 7,033     $ 94     $ (36,227 )
Net loss per share (1)   $ (2.32 )   $ 0.38     $     $ (1.94 )
 

(1) GAAP and Non-GAAP net loss per common share calculated based upon 18,687 basic and diluted weighted-average shares of common stock.

 
 
OKTA, INC.
Reconciliation of GAAP to Non-GAAP Data

(In thousands, except percentages and per share data)

(unaudited)

 
   

Three Months Ended July 31, 2017

            Amortization    
        Stock-based   of acquired    
    GAAP   compensation   intangibles   Non-GAAP

Costs and expenses:

               
Cost of subscription services   $ 12,691     $ (1,056 )   $     $ 11,635  
Cost of professional services   6,991     (738 )       6,253  
Gross profit   41,313     1,794         43,107  
Gross margin   68 %   3 %       71 %
Research and development   16,923     (4,438 )       12,485  
Sales and marketing   39,597     (3,021 )       36,576  
General and administrative   11,948     (2,725 )       9,223  
Operating loss   (27,155 )   11,978         (15,177 )
Operating margin   (45 )%   20 %       (25 )%
Net loss   $ (27,002 )   $ 11,978     $     $ (15,024 )
Net loss per share (1)   $ (0.29 )   $ 0.13     $     $ (0.16 )
 

(1) GAAP and Non-GAAP net loss per common share calculated based upon 93,576 basic and diluted weighted-average shares of common stock.

 
    Three Months Ended July 31, 2016
            Amortization    
        Stock-based   of acquired    
    GAAP   compensation   intangibles   Non-GAAP

Costs and expenses:

               
Cost of subscription services   $ 8,466     $ (446 )   $ (47 )   $ 7,973  
Cost of professional services   5,314     (313 )       5,001  
Gross profit   23,656     759     47     24,462  
Gross margin   63 %   2 %       65 %
Research and development   9,655     (736 )       8,919  
Sales and marketing   28,421     (1,412 )       27,009  
General and administrative   6,142     (757 )       5,385  
Operating loss   (20,562 )   3,664     47     (16,851 )
Operating margin   (55 )%   10 %       (45 )%
Net loss   $ (20,601 )   $ 3,664     $ 47     $ (16,890 )
Net loss per share (1)   $ (1.10 )   $ 0.19     $ 0.01     $ (0.90 )
 

(1) GAAP and Non-GAAP net loss per common share calculated based upon 18,802 basic and diluted weighted-average shares of common stock.

 
 

OKTA, INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands)

(unaudited)

 

Free Cash Flow

    Three Months Ended   Six Months Ended
    July 31,   July 31,
    2017   2016   2017   2016
Net cash used in operating activities   $ (6,238 )   $ (11,838 )   $ (15,924 )   $ (26,873 )
Less:                
Purchases of property and equipment   (2,708 )   (2,102 )   (5,156 )   (3,029 )
Capitalized internal-use software costs   (1,535 )   (1,093 )   (2,743 )   (2,325 )
Free Cash Flow   $ (10,481 )   $ (15,033 )   $ (23,823 )   $ (32,227 )
Net cash provided by (used in) investing activities   (88,519 )   1,012     (80,302 )   1,853  
Net cash provided by (used in) financing activities   (555 )   48     199,553     (289 )
Free Cash Flow Margin   (17)%   (40)%   (21)%   (47)%
 

Calculated Billings

    Three Months Ended   Six Months Ended
    July 31,   July 31,
    2017   2016   2017   2016
Total revenue   $ 60,995     $ 37,436     $ 114,002     $ 69,223  
Add:                
Deferred revenue (end of period)   131,326     90,981     131,326     90,981  
Less:                
Deferred revenue (beginning of period)   (120,644 )   (81,962 )   (113,723 )   (79,525 )
Calculated Billings   $ 71,677     $ 46,455     $ 131,605     $ 80,679  
 

 

Source: Okta, Inc.

Okta, Inc.
Investor Contact:
Catherine Buan, 415-604-3346
investor@okta.com
or
Media Contact:
Lindsay Life, 888-722-7871
lindsay.life@okta.com