OKTA Okta Inc

• Q3 revenue totaled $105.6 million, growing 58% year-over-year; subscription revenue grew 58% year-over-year
• Q3 operating cash flow margin improved over 20 points year-over-year
• Positive free cash flow for the quarter

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

“We had a record third quarter with 58% year-over-year growth for both revenue and billings, which was driven by increased momentum in the enterprise. We saw 55% growth in customers with over $100,000 annual recurring revenue, representing a record 100 net new adds in a quarter,” said Todd McKinnon, CEO of Okta. “We are also pleased to report that we were free cash flow positive for the first time in the third quarter. Our continued strength is a testament to the growing pervasiveness of identity and we believe we are well positioned to further benefit from these tailwinds as organizations continue their move to the cloud, while digitally transforming and securing their businesses.”

Third Quarter Fiscal 2019 Financial Highlights:

• Revenue: Total revenue was $105.6 million, an increase of 58% year-over-year. Subscription revenue was $97.7 million, an increase of 58% year-over-year.
• Operating Loss: GAAP operating loss was $28.5 million, or 27.0% of total revenue, compared to $34.5 million, or 51.6% of total revenue, in the third quarter of fiscal 2018. Non-GAAP operating loss was $6.5 million, or 6.1% of total revenue, compared to $19.4 million, or 28.9% of total revenue, in the third quarter of fiscal 2018.
• Net Loss: GAAP net loss was $29.5 million, compared to $33.1 million in the third quarter of fiscal 2018. GAAP net loss per share was $0.27, compared to $0.35 in the third quarter of fiscal 2018. Non-GAAP net loss was $3.9 million, compared to $17.9 million in the third quarter of fiscal 2018. Non-GAAP net loss per share was $0.04, compared to $0.19 in the third quarter of fiscal 2018.
• Cash Flow: Net cash provided by operations was $6.4 million, or 6.1% of total revenue, compared to cash used in operations of $9.5 million, or negative 14.2% of total revenue, in the third quarter of fiscal 2018. Free cash flow was positive $1.4 million, or 1.3% of total revenue, compared to negative $11.2 million, or negative 16.8% of total revenue, in the third quarter of fiscal 2018.
• Cash, cash equivalents and short-term investments were $546.0 million as of October 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 fourth quarter of fiscal 2019, the Company currently expects:

• Total revenue of $107 to $108 million, representing a growth rate of 39% to 40% year-over-year
• Non-GAAP operating loss of $12.5 to $11.5 million
• Non-GAAP net loss per share of $0.09 to $0.08, assuming shares outstanding of approximately 110 million

For the full fiscal 2019, the Company now expects:

• Total revenue of $391 to $392 million, representing a growth rate of 52% to 53% year-over-year
• Non-GAAP operating loss of $49 to $48 million
• Non-GAAP net loss per share of $0.37 to $0.36, 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 December 5, 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 (888) 256-1007 or (323) 994-2093 and using the passcode 1069664.

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 December 19, 2018 and may be accessed by dialing (888) 203-1112 or (719) 457-0820, conference ID: 1069664.

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 July 31, 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 5,600 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 EndedOctober 31, Nine Months EndedOctober 31, 2018   2017 2018   2017 As Adjusted (1) As Adjusted (1)   Revenue: Subscription $ 97,698 $ 61,863 $ 262,393 $ 165,459 Professional services and other 7,878   5,048   21,390   14,036   Total revenue 105,576 66,911 283,783 179,495 Cost of revenue: Subscription (2) 20,265 13,553 55,808 37,401

Professional services and other (2)

9,435   7,570   26,227   20,867   Total cost of revenue 29,700   21,123   82,035   58,268   Gross profit 75,876 45,788 201,748 121,227 Operating expenses: Research and development (2) 27,596 19,190 72,354 51,472 Sales and marketing (2) 56,911 47,567 165,408 120,761 General and administrative (2) 19,848   13,546   55,873   37,133   Total operating expenses 104,355   80,303   293,635   209,366   Operating loss (28,479 ) (34,515 ) (91,887 ) (88,139 ) Other income (expense), net (1,705 ) 509   (4,682 ) 872   Loss before provision for (benefit from) income taxes (30,184 ) (34,006 ) (96,569 ) (87,267 ) Provision for (benefit from) income taxes (667 ) (940 ) (1,883 ) (463 ) Net loss $ (29,517 ) $ (33,066 ) $ (94,686 ) $ (86,804 )   Net loss per share attributable to common stockholders, basic and diluted $ (0.27 ) $ (0.35 ) $ (0.89 ) $ (1.13 )   Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted 108,776   95,474   106,587   76,950    

___________________________________

(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 EndedOctober 31, Nine Months EndedOctober 31, 2018 2017 2018 2017   Cost of subscription revenue $ 2,383 $ 1,421 $ 5,813 $ 3,163 Cost of professional services and other revenue 1,305 979 3,277 2,186 Research and development 6,291 5,174 15,776 12,913 Sales and marketing 6,228 3,894 15,852 9,290 General and administrative 5,335   2,940   13,181   7,740   Total share-based compensation expense $ 21,542   $ 14,408   $ 53,899   $ 35,292    

OKTA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(unaudited)

   

October 31,2018

January 31,2018

As Adjusted (1)   Assets Current assets: Cash and cash equivalents $ 195,898 $ 127,949 Short-term investments 350,105 101,765 Accounts receivable, net of allowances of $1,425 and $1,472 70,136 52,248 Deferred commissions 21,695 17,755 Prepaid expenses and other current assets 20,280   17,781   Total current assets 658,114   317,498   Property and equipment, net 44,251 12,540 Deferred commissions, noncurrent 47,756 40,755 Intangible assets, net 14,989 11,761 Goodwill 18,074 6,282 Other assets 13,525   10,427   Total assets $ 796,709   $ 399,263     Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 12,085 $ 9,566 Accrued expenses and other current liabilities 6,305 6,187 Accrued compensation 20,250 12,374 Deferred revenue 206,146   159,816   Total current liabilities 244,786   187,943   Convertible senior notes, net 267,665 — Deferred revenue, noncurrent 4,977 4,963 Other liabilities, noncurrent 34,778   7,017   Total liabilities 552,206   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 706,810 565,653 Accumulated other comprehensive income (loss) (918 ) 391 Accumulated deficit (461,400 ) (366,714 ) Total stockholders’ equity 244,503   199,340   Total liabilities and stockholders’ equity $ 796,709   $ 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)

  Nine Months Ended October 31, 2018   2017 As Adjusted (1) Cash flows from operating activities: Net loss $ (94,686 ) $ (86,804 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Stock-based compensation 53,899 35,292 Depreciation, amortization and accretion 5,824 5,111 Amortization of debt discount and issuance costs 10,315 — Amortization of deferred commissions 14,963 10,911 Deferred income taxes (2,269 ) (960 ) Non-cash charitable contributions 1,008 708 Other 153 997 Changes in operating assets and liabilities, net of business combination: Accounts receivable (17,539 ) (12,742 ) Deferred commissions (25,907 ) (16,230 ) Prepaid expenses and other assets (4,238 ) (2,353 ) Accounts payable 1,354 6,255 Accrued compensation 7,973 5,931 Accrued expenses and other liabilities 8,182 (1,545 ) Deferred revenue 46,036   30,034   Net cash provided by (used in) operating activities 5,068   (25,395 ) Cash flows from investing activities: Capitalization of internal-use software costs (2,329 ) (4,072 ) Purchases of property and equipment (14,253 ) (5,570 ) Purchases of securities available for sale (478,138 ) (95,344 ) Proceeds from maturities of securities available for sale 219,650 21,985 Proceeds from sales of securities available for sale 12,470 1,538 Payments for business acquisition, net of cash acquired (15,616 ) —   Net cash used in investing activities (278,216 ) (81,463 ) 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 28,524 25,800 Proceeds from shares issued in connection with employee stock purchase plan 6,654 — Other (206 ) (343 ) Net cash provided by financing activities 342,352   221,367   Effects of changes in foreign currency exchange rates on cash and cash equivalents (990 ) 53   Net increase in cash, cash equivalents and restricted cash 68,214 114,562 Cash, cash equivalents and restricted cash at beginning of period 136,233   23,282   Cash, cash equivalents and restricted cash at end of period $ 204,447   $ 137,844    

(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 October 31, 2018 GAAP  

Stock-basedcompensation

 

Amortizationof acquiredintangibles

 

Amortizationof debtdiscount

  Non-GAAP Cost of revenue: Cost of subscription services $ 20,265 $ (2,383 ) $ (449 ) $ — $ 17,433 Cost of professional services 9,435 (1,305 ) — — 8,130 Gross profit 75,876 3,688 449 — 80,013 Gross margin 71.9

 %

3.4 % 0.5 % — % 75.8

 %

Operating expenses: Research and development 27,596 (6,291 ) — — 21,305 Sales and marketing 56,911 (6,228 ) — — 50,683 General and administrative 19,848 (5,335 ) — — 14,513 Operating loss (28,479 ) 21,542 449 — (6,488 ) Operating margin (27.0 )% 20.5 % 0.4 % — % (6.1 )% Other income (expense), net (1,705 ) — — 3,604 1,899 Net loss $ (29,517 ) $ 21,542 $ 449 $ 3,604 $ (3,922 ) Net loss per share (1) $ (0.27 ) $ 0.20 $ — $ 0.03 $ (0.04 )  

(1) GAAP and Non-GAAP net loss per common share calculated based upon 108,776 basic and diluted weighted-average shares of common stock.

    Three Months Ended October 31, 2017 GAAP (2)  

Stock-basedcompensation

 

Charitablecontributions

  Non-GAAP (2) Cost of revenue: Cost of subscription services $ 13,553 $ (1,421 ) $ — $ 12,132 Cost of professional services 7,570 (979 ) — 6,591 Gross profit 45,788 2,400 — 48,188 Gross margin 68.4

 %

3.6 % — 72.0

 %

Operating expenses: Research and development 19,190 (5,174 ) — 14,016 Sales and marketing 47,567 (3,894 ) — 43,673 General and administrative 13,546 (2,940 ) (754 ) 9,852 Operating loss (34,515 ) 14,408 754 (19,353 ) Operating margin (51.6 )% 21.6 % 1.1 % (28.9 )% Other income (expense), net 509 — — 509 Net loss $ (33,066 ) $ 14,408 $ 754 $ (17,904 ) Net loss per share (1) $ (0.35 ) $ 0.15 $ 0.01 $ (0.19 )  

(1) GAAP and Non-GAAP net loss per common share calculated based upon 95,474 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)

  Nine Months Ended October 31, 2018 GAAP  

Stock-basedcompensation

 

Charitablecontributions

 

Amortizationof acquiredintangibles

 

Amortizationof debtdiscount

  Non-GAAP Cost of revenue: Cost of subscription services $ 55,808 $ (5,813 ) $ — $ (449 ) $ — $ 49,546 Cost of professional services 26,227 (3,277 ) — — — 22,950 Gross profit 201,748 9,090 — 449 — 211,287 Gross margin 71.1

 %

3.2 % — % 0.2 % — % 74.5

 %

Operating expenses: Research and development 72,354 (15,776 ) — — — 56,578 Sales and marketing 165,408 (15,852 ) — — — 149,556 General and administrative 55,873 (13,181 ) (1,008 ) — — 41,684 Operating loss (91,887 ) 53,899 1,008 449 — (36,531 ) Operating margin (32.4 )% 18.9 % 0.4 % 0.2 % — % (12.9 )% Other income (expense), net (4,682 ) — — — 9,539 4,857 Net loss (94,686 ) 53,899 1,008 449 9,539 (29,791 ) Net loss per share (1) $ (0.89 ) $ 0.51 $ 0.01 $ — $ 0.09 $ (0.28 )  

(1) GAAP and Non-GAAP net loss per common share calculated based upon 106,587 basic and diluted weighted-average shares of common stock.

    Nine Months Ended October 31, 2017 GAAP (2)  

Stock-basedcompensation

 

Charitablecontributions

 

Amortizationof acquiredintangibles

  Non-GAAP (2) Cost of revenue: Cost of subscription services $ 37,401 $ (3,163 ) $ — $ (4 ) $ 34,234 Cost of professional services 20,867 (2,186 ) — — 18,681 Gross profit 121,227 5,349 — 4 126,580 Gross margin

67.5

 %

3.0 % — % — % 70.5

 %

Operating expenses: Research and development 51,472 (12,913 ) — — 38,559 Sales and marketing 120,761 (9,290 ) — — 111,471 General and administrative 37,133 (7,740 ) (754 ) — 28,639 Operating loss (88,139 ) 35,292 754 4 (52,089 ) Operating margin (49.1 )% 19.7 % 0.4 % — % (29.0 )% Other income (expense), net 872 — — — 872 Net loss $ (86,804 ) $ 35,292 $ 754 $ 4 $ (50,754 ) Net loss per share (1) $ (1.13 ) $ 0.46 $ 0.01 $ — $ (0.66 )  

(1) GAAP and Non-GAAP net loss per common share calculated based upon 76,950 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 EndedOctober 31, Nine Months EndedOctober 31, 2018 2017 2018 2017 Net cash provided by (used in) operating activities $ 6,439 $ (9,471 ) $ 5,068 $ (25,395 ) Less: Purchases of property and equipment (4,463 ) (414 ) (14,253 ) (5,570 ) Capitalization of internal-use software costs (604 ) (1,329 ) (2,329 ) (4,072 ) Free Cash Flow $ 1,372   $ (11,214 ) $ (11,514 ) $ (35,037 ) Net cash used in investing activities (10,545 ) (1,161 ) (278,216 ) (81,463 ) Net cash provided by financing activities 7,469 21,814 342,352 221,367 Free Cash Flow Margin 1.3 % (16.8 )% (4.1 )% (19.5 )%    

Calculated Billings

Three Months EndedOctober 31, Nine Months EndedOctober 31,

2018

2017 (1)

2018

2017 (1)

Total revenue $ 105,576 $ 66,911 $ 283,783 $ 179,495 Add: Unbilled receivables, current (beginning of period) 818 498 809 1,537 Deferred revenue, current (end of period) 206,146 135,010 206,146 135,010 Less: Unbilled receivables, current (end of period) (1,581 ) (902 ) (1,581 ) (902 ) Deferred revenue, current (beginning of period) (186,427 ) (122,173 ) (159,816 ) (102,966 ) Current calculated billings 124,532 79,344 329,341 212,174 Add: Deferred revenue, noncurrent (end of period) 4,977 2,145 4,977 2,145 Less: Deferred revenue, noncurrent (beginning of period) (5,471 ) (2,929 ) (4,963 ) (4,154 ) Calculated billings $ 124,038   $ 78,560   $ 329,355   $ 210,165    

(1) Current calculated billings and calculated billings for the three and nine months ended October 31, 2017 presented above have been modified to conform with the adoption of ASC 606, which now includes unbilled receivables.

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Investor Contact:Catherine Buaninvestor@okta.com415-604-3346

Media Contact:Jenna Kozelpress@okta.com888-722-7871