•Operating cash flow of $53 million and free cash flow of $49 million
SAN FRANCISCO – August 30, 2023 – Okta, Inc. (Nasdaq: OKTA), the leading independent identity partner, today announced financial results for its second quarter ended July 31, 2023.
“Our focus on execution and efficiency has delivered solid top-line results with significant improvements to operating profit and cash flow year-over-year,” said Todd McKinnon, Chief Executive Officer and co-founder of Okta. “We are building on our position as the leading independent identity partner. Both new and existing customers are getting tremendous value from the Okta platform as they seek to simplify their infrastructure while increasing security by integrating identity into their most important projects. We’re confident in our long-term opportunity and driving innovation for our customers, while delivering non-GAAP profitable growth to our shareholders.”
Second Quarter Fiscal 2024 Financial Highlights:
•Revenue: Total revenue was $556 million, an increase of 23% year-over-year. Subscription revenue was $542 million, an increase of 24% year-over-year.
•RPO: RPO, or subscription backlog, was $3.03 billion, an increase of 8% year-over-year. cRPO, which is subscription backlog expected to be recognized over the next 12 months, was $1.77 billion, up 18% compared to the second quarter of fiscal 2023.
•GAAP Operating Loss: GAAP operating loss was $162 million, or (29)% of total revenue, compared to a GAAP operating loss of $208 million, or (46)% of total revenue, in the second quarter of fiscal 2023.
•Non-GAAP Operating Income/Loss: Non-GAAP operating income was $59 million, or 11% of total revenue, compared to a non-GAAP operating loss of $15 million, or (3)% of total revenue, in the second quarter of fiscal 2023.
•GAAP Net Loss: GAAP net loss was $111 million, compared to a GAAP net loss of $210 million in the second quarter of fiscal 2023. GAAP net loss per share was $0.68, compared to a GAAP net loss per share of $1.34 in the second quarter of fiscal 2023.
•Non-GAAP Net Income/Loss: Non-GAAP net income was $56 million, compared to a non-GAAP net loss of $16 million in the second quarter of fiscal 2023. Non-GAAP basic and diluted net income per share were $0.34 and $0.31, respectively, compared to non-GAAP basic and diluted net loss per share of $0.10 in the second quarter of fiscal 2023.
•Cash Flow: Net cash provided by operations was $53 million, or 10% of total revenue, compared to net cash used in operations of $19 million, or (4)% of total revenue, in the second quarter of fiscal 2023. Free cash flow was $49 million, or 9% of total revenue, compared to negative $24 million, or (5)% of total revenue, in the second quarter of fiscal 2023.
•Cash, cash equivalents, and short-term investments were $2.11 billion at July 31, 2023. During the quarter, the company repurchased $142 million principal amount of the convertible senior notes due in
1
2025, and $242 million principal amount of the convertible senior notes due in 2026, resulting in a gain on early extinguishment of debt of $42 million.
The section titled "Non-GAAP Financial Measures" below contains a description of the non-GAAP financial measures, and reconciliations between GAAP and non-GAAP information are contained in the tables below.
Financial Outlook:
For the third quarter of fiscal 2024, the Company expects:
•Total revenue of $558 million to $560 million, representing a growth rate of 16% year-over-year;
•Current RPO of $1.780 billion to $1.785 billion, representing a growth rate of 13% year-over-year;
•Non-GAAP operating income of $53 million to $55 million; and
•Non-GAAP diluted net income per share of $0.29 to $0.30, assuming diluted weighted-average shares outstanding of approximately 180 million and a non-GAAP tax rate of 26%.
For the full year fiscal 2024, the Company now expects:
•Total revenue of $2.207 billion to $2.215 billion, representing a growth rate of 19% year-over-year;
•Non-GAAP operating income of $215 million to $220 million;
•Non-GAAP diluted net income per share of $1.17 to $1.20, assuming diluted weighted-average shares outstanding of approximately 179 million and a non-GAAP tax rate of 26%; and
•Non-GAAP free cash flow margin of 15%.
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 forward-looking non-GAAP financial measures to their most directly comparable GAAP measures because certain items are out of Okta’s control or cannot be reasonably predicted. Accordingly, reconciliations for forward-looking non-GAAP financial measures are not available without unreasonable effort.
Webcast Information:
Okta will host a live video webcast at 2:00 p.m. Pacific Time on August 30, 2023 to discuss the results and outlook. The news release with the financial results will be accessible from the Company’s website at investor.okta.com prior to the webcast. The live video webcast will be accessible from the Okta investor relations website at investor.okta.com. A replay will be available on the Okta investor relations website following the completion of the event.
Supplemental Financial and Other Information:
Supplemental financial and other information can be accessed through the Company’s investor relations website at investor.okta.com.
2
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 income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net margin, non-GAAP net income (loss) per share, basic and diluted, non-GAAP tax rate, free cash flow and free cash flow margin. Certain of these non-GAAP financial measures exclude stock-based compensation, non-cash charitable contributions, amortization of acquired intangibles, acquisition and integration-related expenses, restructuring costs related to severance and termination benefits and lease impairments in connection with the closing of certain leased facilities, amortization of debt issuance costs and (gain) loss on early extinguishment of debt. Acquisition and integration-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of the transaction close.
Stock-based compensation is non-cash in nature and is generally fixed at the time the stock-based instrument is granted and amortized over a period of several years. Although stock-based compensation is an important aspect of the compensation of our employees and executives, the expense for the fair value of the stock-based instruments we utilize may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. We believe excluding stock-based compensation provides meaningful supplemental information regarding the long-term performance of our core business and facilitates comparison of our results to those of peer companies.
We also exclude non-cash charitable contributions, amortization of acquired intangibles, acquisition and integration-related expenses, restructuring costs related to severance and termination benefits and lease impairments in connection with the closing of certain leased facilities, amortization of debt issuance costs and (gain) loss on early extinguishment of debt from the applicable non-GAAP financial measures because these adjustments are considered by management to be outside of our core operating results.
In addition to these exclusions, starting in fiscal 2024, we subtract an assumed provision for income taxes to calculate non-GAAP net income. We utilize a fixed long-term projected tax rate of 26% in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods. The non-GAAP tax rate could be subject to change for a variety of reasons, including changes in tax laws and regulations, significant changes in our geographic earnings mix, or other changes to our strategy or business operations. We will periodically reevaluate the projected long-term tax rate, as necessary, for significant events, based on our ongoing analysis of relevant tax law changes, material changes in the forecasted geographic earnings mix, and any significant acquisitions.
We define free cash flow, a non-GAAP financial measure, as net cash provided by (used in) operating activities, less cash used for purchases of property and equipment, net of sales proceeds, and capitalized software. Free cash flow margin is calculated as free cash flow divided by total revenue. We use free cash flow as a measure of financial progress in our business, as it balances operating results, cash management, and capital efficiency. We believe information regarding free cash flow provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments, to fund ongoing operations, and to fund other capital expenditures. Free cash flow can be volatile and is sensitive to many factors, including changes in working capital
3
and timing of capital expenditures. Working capital at any specific point in time is subject to many variables, including seasonality, the discretionary timing of expense payments, discounts offered by vendors, vendor payment terms, and fluctuations in foreign exchange rates.
We periodically reassess the components of our non-GAAP adjustments for changes in how we evaluate our performance and changes in how we make financial and operational decisions, and consider the use of these measures by our competitors and peers to ensure the adjustments remain relevant and meaningful.
Okta believes that non-GAAP financial information, when taken collectively with GAAP financial measures, 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 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 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.
4
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, business strategy and plans, market trends and market size, opportunities and positioning. These forward-looking statements are based on current expectations, estimates, forecasts and projections. 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 and similar expressions are intended to identify these forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond our control. For example, the market for our products may develop more slowly than expected or than it has in the past; there may be significant fluctuations in our results of operations and cash flows related to our revenue recognition or otherwise; we may not achieve expected synergies and efficiencies of operations between Okta and Auth0, and we may not be able to successfully integrate the companies; global economic conditions could worsen; a network or data security incident that allows unauthorized access to our network or data or our customers’ data could damage our reputation and cause us to incur significant costs; we could experience interruptions or performance problems associated with our technology, including a service outage; and we may not be able to pay off our convertible senior notes when due. Further information on potential factors that could affect our financial results is included in our most recent Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission. The forward-looking statements included in this press release represent our views only as of the date of this press release and we assume no obligation and do not intend to update these forward-looking statements.
5
About Okta
Okta is the World’s Identity Company. As the leading independent Identity partner, we free everyone to safely use any technology—anywhere, on any device or app. The most trusted brands trust Okta to enable secure access, authentication, and automation. With flexibility and neutrality at the core of our Okta Workforce Identity and Customer Identity Clouds, business leaders and developers can focus on innovation and accelerate digital transformation, thanks to customizable solutions and more than 7,000 pre-built integrations. We’re building a world where Identity belongs to you. Learn more at okta.com.
Okta uses its investor.okta.com and okta.com/blog websites as a means of disclosing material non-public information, announcing upcoming investor conferences and for complying with its disclosure obligations under Regulation FD. Accordingly, you should monitor our investor relations and okta.com/blog websites in addition to following our press releases, SEC filings and public conference calls and webcasts.
Investor Contact:
Dave Gennarelli
investor@okta.com
Media Contact:
Kyrk Storer
press@okta.com
6
OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, shares in thousands, except per share data)
(unaudited)
Three Months Ended July 31,
Six Months Ended July 31,
2023
2022
2023
2022
Revenue:
Subscription
$
542
$
435
$
1,045
$
833
Professional services and other
14
17
29
34
Total revenue
556
452
1,074
867
Cost of revenue:
Subscription(1)
128
117
250
228
Professional services and other(1)
21
21
41
41
Total cost of revenue
149
138
291
269
Gross profit
407
314
783
598
Operating expenses:
Research and development(1)
172
156
335
318
Sales and marketing(1)
261
265
517
517
General and administrative(1)
119
101
229
211
Restructuring and other charges
17
—
24
—
Total operating expenses
569
522
1,105
1,046
Operating loss
(162)
(208)
(322)
(448)
Interest expense
(2)
(3)
(5)
(6)
Interest income and other, net
18
5
35
7
Gain on early extinguishment of debt
42
—
73
—
Interest and other, net
58
2
103
1
Loss before provision for income taxes
(104)
(206)
(219)
(447)
Provision for income taxes
7
4
11
6
Net loss
$
(111)
$
(210)
$
(230)
$
(453)
Net loss per share, basic and diluted
$
(0.68)
$
(1.34)
$
(1.42)
$
(2.89)
Weighted-average shares used to compute net loss per share, basic and diluted
162,755
157,400
162,051
156,650
(1) Amounts include stock-based compensation expense as follows:
Three Months Ended July 31,
Six Months Ended July 31,
2023
2022
2023
2022
Cost of subscription revenue
$
21
$
18
$
37
$
35
Cost of professional services and other
4
3
8
7
Research and development
74
70
142
140
Sales and marketing
41
39
79
78
General and administrative
45
40
85
81
Total stock-based compensation expense
$
185
$
170
$
351
$
341
7
OKTA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
(unaudited)
July 31,
January 31,
2023
2023
Assets
Current assets:
Cash and cash equivalents
$
356
$
264
Short-term investments
1,750
2,316
Accounts receivable, net of allowances
388
481
Deferred commissions
101
92
Prepaid expenses and other current assets
91
76
Total current assets
2,686
3,229
Property and equipment, net
49
59
Operating lease right-of-use assets
92
122
Deferred commissions, noncurrent
218
210
Intangible assets, net
211
241
Goodwill
5,406
5,400
Other assets
51
46
Total assets
$
8,713
$
9,307
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$
13
$
12
Accrued expenses and other current liabilities
95
112
Accrued compensation
123
99
Deferred revenue
1,225
1,242
Total current liabilities
1,456
1,465
Convertible senior notes, net, noncurrent
1,451
2,193
Operating lease liabilities, noncurrent
122
142
Deferred revenue, noncurrent
17
18
Other liabilities, noncurrent
27
23
Total liabilities
3,073
3,841
Stockholders’ equity:
Preferred stock
—
—
Class A common stock
—
—
Class B common stock
—
—
Additional paid-in capital
8,359
7,974
Accumulated other comprehensive loss
(14)
(33)
Accumulated deficit
(2,705)
(2,475)
Total stockholders’ equity
5,640
5,466
Total liabilities and stockholders' equity
$
8,713
$
9,307
8
OKTA, INC.
SUMMARY OF CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
Six Months Ended July 31,
2023
2022
Cash flows from operating activities:
Net loss
$
(230)
$
(453)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation
351
341
Depreciation, amortization and accretion
43
61
Amortization of debt issuance costs
2
2
Amortization of deferred commissions
49
39
Deferred income taxes
3
2
Lease impairment charges
25
—
Gain on early extinguishment of debt
(73)
—
Net gain on strategic investments
—
(2)
Other, net
4
2
Changes in operating assets and liabilities:
Accounts receivable
92
74
Deferred commissions
(65)
(50)
Prepaid expenses and other assets
(14)
(2)
Operating lease right-of-use assets
12
14
Accounts payable
1
24
Accrued compensation
24
(55)
Accrued expenses and other liabilities
(4)
1
Operating lease liabilities
(20)
(13)
Deferred revenue
(18)
15
Net cash provided by operating activities
182
—
Cash flows from investing activities:
Capitalized software
(7)
(6)
Purchases of property and equipment
(2)
(7)
Purchases of securities available-for-sale and other
(577)
(571)
Proceeds from maturities and redemption of securities available-for-sale
1,101
521
Proceeds from sales of securities available-for-sale and other
61
—
Purchases of intangible assets
—
(2)
Payments for business acquisitions, net of cash acquired
(22)
(4)
Net cash provided by (used in) investing activities
554
(69)
Cash flows from financing activities:
Payments for repurchases of convertible senior notes
(671)
—
Payments for warrants related to convertible senior notes
(4)
—
Proceeds from stock option exercises, net of repurchases
8
9
Proceeds from shares issued in connection with employee stock purchase plan
26
19
Net cash provided by (used in) financing activities
(641)
28
Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash
2
(6)
Net increase (decrease) in cash, cash equivalents and restricted cash
97
(47)
Cash, cash equivalents and restricted cash at beginning of period
271
273
Cash, cash equivalents and restricted cash at end of period
$
368
$
226
9
OKTA, INC.
Reconciliation of GAAP to Non-GAAP Data
(dollars in millions, shares in thousands, except per share data)
(unaudited)
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, adjusted for stock-based compensation expense included in cost of revenue, amortization of acquired intangibles and acquisition and integration-related expenses.
Three Months Ended July 31,
Six Months Ended July 31,
2023
2022
2023
2022
Gross profit
$
407
$
314
$
783
$
598
Add:
Stock-based compensation expense included in cost of revenue
25
21
45
42
Amortization of acquired intangibles
12
12
24
22
Acquisition and integration-related expenses
—
—
—
1
Non-GAAP gross profit
$
444
$
347
$
852
$
663
Gross margin
73
%
70
%
73
%
69
%
Non-GAAP gross margin
80
%
77
%
79
%
76
%
Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin
We define non-GAAP operating income (loss) and non-GAAP operating margin as GAAP operating loss and GAAP operating margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles, acquisition and integration-related expenses and restructuring costs related to severance and termination benefits and lease impairments in connection with the closing of certain leased facilities.
Three Months Ended July 31,
Six Months Ended July 31,
2023
2022
2023
2022
Operating loss
$
(162)
$
(208)
$
(322)
$
(448)
Add:
Stock-based compensation expense
185
170
351
341
Non-cash charitable contributions
1
1
2
2
Amortization of acquired intangibles
18
22
41
42
Acquisition and integration-related expenses
—
—
—
7
Restructuring costs
17
—
24
—
Non-GAAP operating income (loss)
$
59
$
(15)
$
96
$
(56)
Operating margin
(29)
%
(46)
%
(30)
%
(52)
%
Non-GAAP operating margin
11
%
(3)
%
9
%
(6)
%
10
Non-GAAP Net Income (Loss), Non-GAAP Net Margin and Non-GAAP Net Income (Loss) Per Share, Basic and Diluted
We define non-GAAP net income (loss) and non-GAAP net margin as GAAP net loss and GAAP net margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles, acquisition and integration-related expenses, amortization of debt issuance costs, gain on early extinguishment of debt and restructuring costs related to severance and termination benefits and lease impairments in connection with the closing of certain leased facilities. In addition, starting in fiscal 2024, we subtract an assumed provision for income taxes to calculate non-GAAP net income. We utilize a fixed long-term projected tax rate of 26% in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods.
We define non-GAAP net income (loss) per share, basic, as non-GAAP net income (loss) divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted.
We define non-GAAP net income (loss) per share, diluted, as non-GAAP net income (loss) divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted adjusted for the potentially dilutive effect of (i) employee equity incentive plans, excluding the impact of unrecognized stock-based compensation expense, and (ii) convertible senior notes outstanding and related warrants. In addition, non-GAAP net income (loss) per share, diluted, includes the impact of our note hedge and capped call agreements on convertible senior notes outstanding, as applicable. The note hedge and capped call agreements are intended to offset potential dilution to our Class A common stock upon any conversion or settlement of the convertible senior notes under certain circumstances. Accordingly, we did not record any adjustments for the potential impact of the convertible senior notes outstanding under the if-converted method.
Three Months Ended July 31,
Six Months Ended July 31,
2023
2022
2023
2022
Net loss
$
(111)
$
(210)
$
(230)
$
(453)
Add:
Stock-based compensation expense
185
170
351
341
Non-cash charitable contributions
1
1
2
2
Amortization of acquired intangibles
18
22
41
42
Acquisition and integration-related expenses
—
—
—
7
Amortization of debt issuance costs
1
1
2
2
Gain on early extinguishment of debt
(42)
—
(73)
—
Restructuring costs
17
—
24
—
Tax adjustment
(13)
—
(23)
—
Non-GAAP net income (loss)
$
56
$
(16)
$
94
$
(59)
Net margin
(20)
%
(47)
%
(21)
%
(52)
%
Non-GAAP net margin
10
%
(4)
%
9
%
(7)
%
Weighted-average shares used to compute net loss per share, basic and diluted
162,755
157,400
162,051
156,650
Non-GAAP weighted-average effect of potentially dilutive securities
15,987
—
15,430
—
Non-GAAP weighted-average shares used to compute non-GAAP net income (loss) per share, diluted
178,742
157,400
177,481
156,650
Net loss per share, basic and diluted
$
(0.68)
$
(1.34)
$
(1.42)
$
(2.89)
Non-GAAP net income (loss) per share, basic
$
0.34
$
(0.10)
$
0.58
$
(0.37)
Non-GAAP net income (loss) per share, diluted
$
0.31
$
(0.10)
$
0.53
$
(0.37)
11
OKTA, INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(dollars in millions)
(unaudited)
Free Cash Flow and Free Cash Flow Margin
We define free cash flow, a non-GAAP financial measure, as net cash provided by (used in) operating activities, less cash used for purchases of property and equipment, net of sales proceeds, and capitalized software. Free cash flow margin is calculated as free cash flow divided by total revenue.
In fiscal 2024, we updated our definition of free cash flow to include on-premise software purchases in addition to capitalized internal-use software costs within capitalized software.
Three Months Ended July 31,
Six Months Ended July 31,
2023
2022
2023
2022
Net cash provided by (used in) operating activities
$
53
$
(19)
$
182
$
—
Less:
Purchases of property and equipment
(2)
(2)
(2)
(7)
Capitalized software
(2)
(3)
(7)
(6)
Free cash flow
$
49
$
(24)
$
173
$
(13)
Net cash provided by (used in) investing activities
$
495
$
19
$
554
$
(69)
Net cash provided by (used in) financing activities
