01—Abstract
Summary
Summary of the 10-K filed March 12, 2018. Cited figures are marked; the original filing is the authoritative source.
Okta, Inc. (Class A common stock listed on NASDAQ under "OKTA" since April 7, 2017) describes itself as the leading independent provider of identity for the enterprise, with the Okta Identity Cloud as its platform.
As of January 31, 2018, it had more than 4,350 customers and over 5,500 integrations, and it operates as one reportable segment on a SaaS subscription model. Fiscal 2018 total revenue was $260.0 milliona, up from $160.3 million in fiscal 2017, with subscription revenue of $239.2 million. Gross margin improved to 69% from 65%, but operating loss was $116.4 million and net loss was $114.4 million (net loss per share of $1.38), compared with a net loss of $83.5 million in fiscal 2017.
Free cash flow was negative $37.2 millionb, and net cash used in operating activities was $25.2 million. Balance sheet and capital items are notable for investors. Cash, cash equivalents and short-term investments totaled $229.7 million at January 31, 2018, up from $37.7 million a year earlier, largely reflecting the April 2017 IPO, which raised $200.0 million net of underwriting discounts.
Deferred revenue was $168.7 millionc, and the company had no borrowings under its $40.0 million Silicon Valley Bank revolving line. Subsequent to year end, in February 2018, Okta issued $345.0 million of 0.25% convertible senior notes due 2023, with an initial conversion price of approximately $48.36 per share.
The filing also discloses a dual-class structure in which Class B holders (10 votes per share) held 59.0%d of voting power as of January 31, 2018. Key risks highlighted in the filing include ongoing net losses, intense competition from larger companies, dependence on AWS for hosting, data security and privacy exposure (including the upcoming GDPR effective May 25, 2018), and the accounting impact of ASU 2014-09 (Topic 606) adopted February 1, 2018, which the company says is not material to fiscal 2018 and 2017 revenue but changes commission deferral and cost accounting.
02—Key points
Key Highlights
- Total revenue of $260.0 million in fiscal 2018, up from $160.3 million in fiscal 2017 and $85.9 million in fiscal 2016; subscription revenue was $239.2 million.
- Gross margin of 69% in fiscal 2018 versus 65% in fiscal 2017; non-GAAP gross margin was 72%.
- Net loss of $114.4 million in fiscal 2018 (net loss per share of $1.38) versus $83.5 million in fiscal 2017; operating loss was $116.4 million and non-GAAP operating loss was $65.7 million.
- Free cash flow was negative $37.2 million in fiscal 2018 compared with negative $53.8 million in fiscal 2017; net cash used in operating activities was $25.2 million.
- Cash, cash equivalents and short-term investments of $229.7 million at January 31, 2018, following the IPO's $200.0 million in net proceeds; the $40.0 million credit line was undrawn.
- Dollar-based retention rate of 121% for the trailing 12 months, with 691 customers above $100,000 annual contract value (up from 443 a year earlier) and over 4,350 customers overall.
- Subsequent event: $345.0 million of 0.25% convertible senior notes due 2023 issued in February 2018; Class B holders controlled 59.0% of voting power as of January 31, 2018.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2018, Okta lost $0.42.
- Revenue$260.0M100.0%
- Cost of revenue−$84.2M32.4%
- Gross profit$175.8M67.6%
- Operating costs−$287.6M110.6%
- Operating income−$111.9M43.0%
- Interest, other & tax$2.0M0.8%
- Net income−$109.8M42.3%
04—Financials
Financial Highlights
Figures from 10-KFY2018filed March 12, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $259.99M$160.33M | +62.2% |
| Cost of Revenue | $80.75M$55.95M | +44.3% |
| Gross Profit | $175.79M$104.86M | +67.6% |
| R&D Expenses | $70.82M$38.66M | +83.2% |
| Operating Expenses | $287.64M$179.53M | +60.2% |
| Operating Income | -$111.85M-$74.67M | −49.8% |
| Interest Expense | $0$0 | — |
| Net Income | -$109.85M-$75.06M | −46.4% |
| EPS (Basic) | $-1.32$-3.94 | +66.5% |
| Shares Outstanding (Basic) | 83.00M19.04M | +336.0% |
05—Questions
Frequently Asked Questions
How fast did Okta's revenue grow in fiscal 2018?
Total revenue rose to $260.0 million in fiscal 2018 from $160.3 million in fiscal 2017, an increase of 62% as stated in the filing. Subscription revenue grew 67% to $239.2 million, while professional services and other revenue grew 21% to $20.8 million.
Is Okta profitable, and what are its losses trending toward?
No. Okta reported net losses of $76.3 million, $83.5 million and $114.4 million in fiscal 2016, 2017 and 2018, respectively. The company states it expects to continue incurring net losses for the foreseeable future and expects operating expenses to increase significantly over the next several years, particularly in sales and marketing.
How did the IPO and the convertible notes affect Okta's capital position?
The April 2017 IPO sold 12,650,000 Class A shares at $17.00 and raised $200.0 million net of underwriting discounts, before about $5.6 million of offering costs. In February 2018, after year end, Okta issued $345.0 million of 0.25% convertible senior notes due 2023, with net proceeds of approximately $334.0 million. The company used $80.0 million of those proceeds for note hedge transactions, partially offset by $52.4 million received from warrant transactions.
What concentrated control exists over Okta's voting power?
Okta has a dual-class structure in which Class B common stock carries ten votes per share and Class A carries one. Directors, executive officers and their affiliates held in the aggregate 59.0% of the voting power as of January 31, 2018. The filing states this control could continue until April 12, 2027, the ten-year anniversary of the IPO closing.
What are the main risks tied to Okta's operations and regulation?
The filing cites intense competition from larger companies such as Microsoft, IBM and Oracle; reliance on Amazon Web Services for hosting; security breach exposure; and service-level commitments that could require service credits or refunds. It also highlights regulatory exposure, including the EU General Data Protection Regulation, which takes effect May 25, 2018, with fines of up to €20 million or 4% of worldwide annual turnover, and HIPAA business associate obligations.
06—Continue