OKTA conference call notes

Very positive in general I thought, although down a little after-hours. Who knows what that means?

The main them was traction in the “worlds largest organisations” a phrase they repeated a million times. Larger, longer sales contracts, so RPO up. Also the top-25 contracts from this quarter are worth twice the top-25 contracts from the year ago quarter.

Slight deceleration in revenue yoy (to +48%), but that seems a red-herring when remaining performance obligations (RPO) is increasing strongly. You’d expect a decrease in quarterly revenue growth if the revenue is booked over longer periods.

The important theme (which is similar for ESTC, MDB, AYX, ZS etc):
Momentum → powered by rapid growth cloud, hybrid, digital transformation and security megatrends.

They think Okta is uniquely positioned.

New customer adds is not accelerating on an absolute basis which is interesting. They do mention their focus on the “worlds largest organisations”. But would be really nice to see that number accelerate.

Lot to like about that quarter I think, anyone else have thoughts?


Q1 2020

Revenue: +49%
Subs revenue: +51%
Billings: +42%
RPO: +68%
450 new customers =>7000
+46% Customers ACV >$100k (over half new customers) >1200 customers

Momentum → powered by rapid growth cloud, hybrid, digital transformation and security megatrends.
Okta - uniquely positioned


Fortune 50 - replace legacy that supports hybrid, zero-trust strategy. One of our largest deals.
Okta workforce: 400k employees, 100s cloud and on-prem apps
Okta customer identity: improve access to partner portal
Provides visibility of app usages, reduce friction

American century investments (Asset Manager) - NEW: replace legacy, auth for retail/mobile. 600k customers.
NG - Upsell. First adopted Oktas workforce identity products.
Purchased customer identity products.

Advanced server access (new)

Discovery - upsell. First adopted Okta workforce. Protect infrastructure and extend auth to linux and windows.

Focussing on worlds largest organisations.

Indicator - 68% growth in total RPO - evidence deal sizes are getting larger, contract term lengths getting longer.
Q2 top-25 contracts, average contract doubled compared to top 25 contracts yoy

More integrations. More customer success, winning more customers… virtuous loop.


Oktane new products
Transitioning from products to a componentised model [GD: hmm…]
Okta Access Gateway - authentication for on-prem apps

Gartner Magic Quadrant for Access Management - leader since start of quadrant.

#### Finances
|                              |                   |                                                                                    |
| Revenue                      | $140m             | +49%                                                                               |
| Subs revenue                 | 94% total revenue | +51% (versus 93% total revenue yoy)                                                |
| International revenue        | 16% of revenue    | +45% same yoy                                                                      |
| Total Billings               | +42%              |                                                                                    |
| Current Billings             | +44%              | driven by new and existing. Stronger than expected bookings                        |
| Total RPO                    | $914m             | +68% Reflects large enterprise success - expect contract size and term to increase |
| Current RPO (next 12 months) | $461m             | +52% - yoy growth in Current RPO good metric - eliminates variance in invoices     |
| DBNRR                        | 118%              | minus 1% qoq. May fluctuate from quarter to quarter                                |
| Subs Gross margin            | 82.6%             | +230bps                                                                            |
| Total GM                     | 77.2%             | +390bps                                                                            |
| Gross profit                 | +56%              |                                                                                    |
| OpExp                        | +34%              | increase from S&M. Scaling headcount.                                              |
| Headcount                    | +40%              |                                                                                    |
| Operating loss               | $-10m             |                                                                                    |
| Operating margin             | $-7%              | vs -20% yoy. Better than expected. Oktane timing benefited.                        |
| Net loss/share               | $-0.05            | 115m shares. versus $0.15 107m Q2 2019.                                            |
| Op Cash flow                 | $-1.1m            | Margin: -1% vs -6% Q2 2019.                                                        |
| FCF                          | -$4.3m            | Margin: -3% vs -12% Q2 2019. Expect positive FCF for year.                         |
| Cash and equivs              | $557m             |                                                                                    |

Raising FY outlook. Reinvesting unexpected Q2 upside in Q3/Q4.

|                         | Guidance          |             |
| Total Revenue           | $143-144m         | +35->36%    |
| Non GAAP Operating Loss | -($17.5m->$16.6m) |             |
| Net loss/share          | -$(0.13->0.12)    | 117m shares |
| FY20 Total revenue      | $560-563m         | +40->41%    |
| Non GAAP Operating Loss | -($64m->$62m)     |             |
| Net loss/share          | -$(0.44->0.42)    | 116m shares |

Q and A

Q: Competitive environment. How customers are starting to react to on-prem. Impact of competitive dynamics.
A: Major dynamics - moving to cloud or not. If so, we do very well. Everyone is moving to cloud, we’re differentiated. Hard to upgrade etc. Added Okta Access Gateway - bridge to move faster to cloud. Moves on-prem access to cloud.

Strong start for OAG.

Q: RPO growth strong. Demand perspective, slowdown in macro… any change vs 3months ago?
A: No. Very strong macro demand. Expect massive tailwinds to remain C-level priorities.

Q2 - balanced, success across board, geographically, segments, federal, no underperformance.

Q: Outperformance on larger deals. Cross-sell, upsell etc?
A: Excited about traction with “worlds largest organisations”. Lot of upsell. Over last couple of years, new products. We’re landing in new places in organisations. Eg: Pacific Life - new customer, customer id management - new portals for new type of customer.

Largest orgs have a lot of complex tech, lot of friction, we can help. Bigger deals, but excited about potential to grow in these accounts.

Q: Server access product. Recent breaches leading to more inbound interest?
A: Lot of interest in product, mainly in more modern shops, - moving so fast, might not lock down the servers etc as they should. Fits in well there.

Q: Deal lengths. 5 year deal, not providing incentive?
A: Yes, customer driven. Want us to be the long-term partner.

Q: Oktane pipeline: Impressed by how many turn up to that conference. What does lead book look like? Time to close?
A: Tremendously influential, existing customers learning about breadth. So spend a lot of time telling customers about breadth. New prospects learning about the product. See every year a lot of impact on marketing funnel and sales.

So we continue to invest in it.

Q: Ping filing IPO?
A: [GD: never heard of this, check out https://techcrunch.com/2019/08/23/ping-identity-files-for-10…. World separated into legacy and cloud. Future direction is all cloud. Competitors are in legacy bucket, eg: IBM, Computer Associates, or standalone like Ping. Market has decided cloud, which is why we’re twice the size growing twice as fast as Ping.

Q: Change to package to componentised platform. What does that do to pricing and procurement?
A: About addressing more usecases. Giving flexibility to customers to use for usecases that were difficult/impossible previously. eg: use very small part of MFA to get started, or Okta does auth, but third-party does identity verification.

More flexibility.

Q: Server AS - competitive landscape, head-to-head?
A: We’re competing with bad security. Shared admin credentials etc. We can go in and put fine-grained access control, works in all devops workflows. Not competing with CyberArk etc., we partner on those.

Q: Macro. International revenue growth decelerated yoy. Anything about that?
A: International remains strong. As percent of business, remained consistent. US outperformance. Trends are international, success in Worlds largest organisations. Strong demand across the board

Q: Billings growth 42%. RPO and subscription +50+%. Puts and takes.
A: Current RPO meaningful metric in conjunction with Billings growth, eliminates timings. +52% [GD: didnt really answer question]

Q: Large enterprise going direct. Contribution from partners and System Integrators (deloitte,acension, pwc).
A: Investments in partners continuing to pay off. Impt part of strategy (particularly international). SIs very strong partners, large orgs have relationships with the SIs. SIs think about building digital transformation practices, Okta Identity Cloud becomes strategic, we can help with both security and digital transformation.

Strong support, lots of their employees getting certified in Okta.

Q: Competitive positioning of sso, mfa. With regards to lifecycle management?
A: Very solid. Gartner quadrant - gartner talking to “worlds largest organisations”. Many usecases. We’re working across the board to be flexible across all usecases.

  1. Fortune 50 new customer - looking at reducing IT friction by automating the provisioning of applications
  2. Workflows - strengthen end-to-end usecases, automating multi-app, multi-step workflows. Employee onboarding, offboarding. Lot of opportunity.

Q: More large enterprise deals. Mix of use different?
A: More and more opportunities to think about the big 3 macro trends. Cloud. Security. Growth. Using more and more parts of the product.

Exciting: All the new ways to find value quickly with specific parts of org and application suite.
EG: Sendgage? Digital learning - within 6 months able to deploy customer identity management to 10’s millions students. Time-to-value is very attractive.

vvvvvvvvvvvvvvvvvvvvvvvvvvvv This is interesting to think about. Suggests not customer driven. vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
Q: New customer adds +450 is strong. Why not accelerating?
A: Yes, fairly consistent qoq. Larger enterprises. Bigger deals, longer term lengths.

Q: Absolute dollar growth in subscriptions. Almost doubled off Q1. How much is seasonal?
A: Driven by traction with large enterprise. Longer terms,

Q: Advanced server access - uplift impact on overall bill?
A: GA a few months ago. Early success is positive, modern dev shops are the customers. Long-term, this is the future of software development, so thats a big macro-trend.

Q: How much average contract duration increased yoy?
A: ACD - 2-3 years. Ticking up within that range. We expect it to continue to increase.

Q: Headcount +40%. Expect it to accelerate?
A: Q2 higher than expected revenue, will invest (Q3) in customer facing headcount, and innovation headcount. So expect acceleration.

Q: Employee vs customer segments. Growth rates, vision, TAM, pricing etc.
A: Workforce Identity - largest piece of business. Customer Identity - growing well. Think both markets are very big, and we can do both. Upsell and cross-sell opportunity. Pricing: Workforce based on end-user structure, Customer Identity - active user pricing structure.

One thing missed: We’re the only company that has scale in both of those businesses.

Q: Ping - different competitive landscape between Employee vs Customer. ForgeRock, Ping.
A: ForgeRock on customer side. Slight difference in set of competitors. Customer identity is more a build vs buy. Workforce side no-one builds it themselves.

Q: How long it takes to ramp new hires? Labour market challenges?
A: Customer facing - getting better and better talent (vs 24 months ago). Always challenging to hire best people.

Q: NRR decrease. Larger customer impact, going forward?
A: Expect NRR to continue to remain healthy, but may fluctuate up or down a few points.

Q: Larger size deals, sales cycle versus SMB deals.
A: These deals very strategic in large enterprises. SMBs do annual contracts, see more and more multi-year deals across all businesses.

Larger deals take longer obviously. Pretty typical.

Q: Legacy displacement. Magnitude of opportunity?
A: We think of every company. Legacy not sold very broadly, super-expensive. Our opportunity is much broader than the very large customers. Desire to move away from legacy is very high.


I also liked the call. A few things I thought were interesting:

Continuing to expand their product offerings to clients ie land and expand and the strategy is working with current customers increasing their spending

Increased focus on larger customers and longer contracts

They aren’t giving discounts for longer contracts, it’s customers asking for it

The shift to the cloud helps them and this shift isn’t going away, it may be just starting

Margins improved yoy to 72%

Management was clear that they did not see any signs of a macro slowdown for their business

Seemed to give conservative guidance: rev growth of just 35% yoy

Stock is down AF, which could be a good chance to increase position size.


I see growth deceleration in rev (49% vs 57% Q2 last yr), billing (42% vs 53%) and customer (>$100K) counts (36% vs 41%). They did add RPO that shows better growth. Can these all be explained by going after larger enterprises thus longer sales cycle w/ less sales book right now?

Their CC is very upbeat, from macro to micro. My concern is that their hiring is up 40% for two quarters now and whether they will successfully bring the new hires to great productivity. Lots of new people to train and manage.


Agreed - I think there were a lot more cautionary signals in this versus Elastic for instance and it was a stretched valuation in the first place.

I’m not selling but I don’t see this as anywhere near the same buying opportunity as say ZS or even Elastic as it is now even after today’s rise.



I thought the report was great, and the indications bode well for the longer term growth.

down >8% this morning… I think the short term valuation concerns that is reflected in this drop represent a good opportunity to add, and I did so.



Here are five analyst recommendations from this morning.

Guggenheim analyst Imtiaz Koujalgi raised the price target on Okta, Inc (NASDAQ: OKTA) to $152.00 (from $125.00) while maintaining a Buy rating.

Oppenheimer analyst Shaul Eyal raised the price target on Okta, Inc (NASDAQ: OKTA) to $140.00 (from $130.00) while maintaining a Outperform rating.
The analyst commented, “OKTA reported strong F2Q20 results that handily beat Street estimates (revenue, margins, EPS, billings, FCF). Guidance for FY20 was revised higher again. The following factors support the strength realized by OKTA: 1) Fortune 500 enterprises are adopting its solutions as part of their digital transformation and cloud migration strategy. 2) Additional uses-cases targeting customers at large scale (>100K) users are driving new revenue opportunities. 3) New products like Access Gateway and Advanced Server Access are enabling OKTA Identity Cloud to extend to on-premise apps. As a result, we are raising our FY20 estimates and believe OKTA remains at the early stages of a sizable TAM opportunity especially with large organizations migrating workloads to the cloud. Raising PT from $130 to $140.”

Canaccord Genuity analyst Richard Davis raised the price target on Okta, Inc (NASDAQ: OKTA) to $145.00 (from $125.00) while maintaining a Buy rating.

Piper Jaffray analyst Andrew Nowinski raised the price target on Okta, Inc (NASDAQ: OKTA) to $160.00 (from $120.00) while maintaining a Overweight rating.

In a report released today, Jonathan Ruykhaver from Robert W. Baird maintained a Hold rating on Okta Inc (OKTA – Research Report).


I also liked the quarter, a nice beat and raise as expected.

What worried me initially about the earnings release was the “new” metric “remaining performance obligations” (RPO). I was initially thinking that maybe management tries to shift focus from slowing revenue growth by introducing this new metric, which still shows very good growth. But then I checked back to the Q1 2020 cc and found this:

“It’s likely that you’ve heard other software companies reference RPO or backlog, which for us is contracted subscription revenues, both build and un-build that have not yet been recognized. We’ve been reporting RPO in our quarterly SEC filings since Q1 of last year as part of the adoption of ASC 606. We report both current RPO, which will be recognized as subscription revenue over the next 12 months and total RPO.”

So it’s not really a new metric and shouldn’t be seen as a distraction move by management in my view. At the end it helps us understand the business better than before, which is definitely a positive. Just wanted to share this little research in case someone else got a bit worried like me… :slight_smile: