01—Abstract
Summary
Summary of the 10-K filed March 14, 2019. Cited figures are marked; the original filing is the authoritative source.
Okta, Inc. (Nasdaq: OKTA) reports in this fiscal 2019 Form 10-K (year ended January 31, 2019) that it is the leading independent identity management platform for the enterprise, serving more than 6,100 customers as of January 31, 2019, up from 4,350 a year earlier.
Total revenue was $399.3 milliona, up from $256.5 million, and subscription revenue was $370.9 million. Gross margin improved to 72% from 69%, and non-GAAP operating margin improved to (10)% from (24)%. However, the company still posted a GAAP net loss of $125.5 million, compared with $109.8 million in fiscal 2018, and an operating loss of $119.6 million.
Free cash flow was $(6.8) million, a substantial improvement from $(37.2) million, and operating cash flow turned positive at $15.2 millionb. Balance sheet activity was significant during the year. The company issued $345.0 million of 0.25% convertible senior notes due 2023 and used $80.0 million of the proceeds to purchase note hedges.
Cash, cash equivalents and short-term investments reached $563.8 millionc at year end. The conditional conversion feature of the notes was triggered as of January 31, 2019, so the notes are classified as a current liability of $271.6 million on the balance sheet. The filing also reports a Dollar-Based Retention Rate of 120% and Calculated Billings of $488.2 million, up 55%.
Remaining noncancelable subscription performance obligations were approximately $728.9 milliond, with about 53% expected to be recognized over the next 12 months. Key investor considerations include the company's continued operating losses, the 54.8% voting power held by pre-IPO holders through its dual-class structure, the risks tied to the conversion of the 2023 Notes, and its pending acquisition of Azuqua, Inc. for approximately $52.5 million in cash.
02—Key points
Key Highlights
- Total revenue of $399.3 million, up 56% from $256.5 million in fiscal 2018; subscription revenue of $370.9 million.
- Gross margin improved to 72% from 69%; non-GAAP gross margin rose to 75% from 72%.
- GAAP operating loss narrowed in margin terms to (30)% from (44)%, while the net loss widened to $125.5 million from $109.8 million.
- Non-GAAP operating margin improved to (10)% from (24)%; operating cash flow was $15.2 million versus $(25.2) million a year earlier.
- Customers grew to over 6,100 from 4,350; customers with ACV above $100,000 rose to 1,038 from 691.
- Issued $345.0 million of 0.25% convertible senior notes due 2023, with the conversion feature triggered and the notes classified as current; cash and short-term investments totaled $563.8 million.
- Dual-class structure gives directors, executive officers and affiliates 54.8% of voting power as of January 31, 2019; agreed to acquire Azuqua, Inc. for about $52.5 million in cash on March 5, 2019.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2019, Okta lost $0.31.
- Revenue$399.3M100.0%
- Cost of revenue−$113.4M28.4%
- Gross profit$285.8M71.6%
- Operating costs−$405.5M101.6%
- Operating income−$119.6M30.0%
- Interest, other & tax−$5.9M1.5%
- Net income−$125.5M31.4%
04—Financials
Financial Highlights
Figures from 10-KFY2019filed March 14, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $399.25M$259.99M | +53.6% |
| Cost of Revenue | $113.42M$80.75M | +40.5% |
| Gross Profit | $285.83M$175.79M | +62.6% |
| R&D Expenses | $102.39M$70.82M | +44.6% |
| Operating Expenses | $405.45M$287.64M | +41.0% |
| Operating Income | -$119.62M-$111.85M | −6.9% |
| Interest Expense | $15.07M$0 | — |
| Net Income | -$125.50M-$109.85M | −14.2% |
| EPS (Basic) | $-1.17$-1.32 | +11.4% |
| Shares Outstanding (Basic) | 107.50M83.00M | +29.5% |
05—Questions
Frequently Asked Questions
How fast is Okta's revenue growing and what is driving it?
Total revenue rose to $399.3 million in fiscal 2019 from $256.5 million in fiscal 2018, an increase of 56%. Subscription revenue grew 57%, which the filing attributes to new customers as well as more users and additional products sold to existing customers. Calculated Billings increased 55% to $488.2 million, and the Dollar-Based Retention Rate was 120% for the trailing twelve months.
Is Okta profitable?
No. Okta reported a GAAP net loss of $125.5 million in fiscal 2019, compared with $109.8 million in fiscal 2018, and expects to keep incurring losses for the foreseeable future. Non-GAAP operating loss was $41.5 million, and non-GAAP operating margin improved to (10)% from (24)%. The filing says operating expenses are expected to increase significantly over the next several years.
What are the main risks related to the convertible notes?
The 2023 Notes became convertible at holders' option during the quarter ending April 30, 2019, and are classified as a current liability of $271.6 million on the balance sheet. The company intends to settle principal in cash, so conversions could require significant cash. The filing also notes potential dilution from conversions and that the note hedges and warrants may affect the stock price and diluted share count.
Who controls voting power at Okta?
Holders of Class B common stock, which carries ten votes per share, hold a concentrated share of voting power. Directors, executive officers and their affiliates held 54.8% of voting power as of January 31, 2019. The Class B holders can control matters requiring stockholder approval until April 12, 2027, which could limit other stockholders' ability to influence corporate decisions or discourage takeover proposals.
What major events occurred after fiscal year end?
On March 5, 2019, Okta agreed to acquire Azuqua, Inc., a no-code, cloud-based integration platform, for total cash consideration of approximately $52.5 million. The acquisition is expected to close in the first quarter of fiscal 2020, subject to closing conditions, and the company does not expect it to have a material impact on its consolidated financial statements.
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