In case you’re interested…
Brief Summary
Happy Thursday to all! Here’s what I think about Okta’s Q2 2019 earnings report.
Oka’s growth remained strong. Operating losses narrowed but not by as much as we are used to. It was a big spending quarter but that should fuel growth in the upcoming quarters.
Guidance for the third quarter was very tepid, per usual. 2% sequential growth once again. C’mon, Okta should beat that no problem.
Financial Summaries
Fourth Quarter Fiscal 2018 Financial Highlights:
Revenue: Total revenue was $77.8 million, an increase of 59% year-over-year.
Subscription revenue was $72.0 million, an increase of 64% year-over-year.
Operating Loss: GAAP operating loss was $25.3 million, or 32.6% of total revenue, compared to $18.0 million in the fourth quarter of fiscal 2017, or 36.8% of total revenue.
Non-GAAP operating loss was $10.8 million, or 13.9% of total revenue, compared to $12.7 million in the fourth quarter of fiscal 2017, or 25.9% of total revenue.
Cash Flow: Net cash provided by operations was $0.2 million or 0.2% of total revenue, compared to cash used in operations of $6.7 million or 13.7% of total revenue, in the fourth quarter of fiscal 2017.
Free cash flow was negative $2.2 million, or 2.8% of total revenue, compared to negative $9.8 million, or 20.1% of total revenue, in the fourth quarter of fiscal 2017.
Cash, cash equivalents and short-term investments were $229.7 million as of January 31, 2018.
First Quarter Fiscal 2019 Financial Highlights:
Revenue: Total revenue was $83.6 million, an increase of 60% year-over-year. Subscription revenue was $76.8 million, an increase of 59% year-over-year.
Operating Loss: GAAP operating loss was $25.0 million, or 29.9% of total revenue, compared to $27.4 million in the first quarter of fiscal 2018, or 52.4% of total revenue.
Non-GAAP operating loss was $10.8 million, or 13.0% of total revenue, compared to $18.5 million in the first quarter of fiscal 2018, or 35.4% of total revenue.
Cash Flow: Net cash provided by operations was $4.0 million, or 4.8% of total revenue, compared to cash used in operations of $9.7 million, or 18.5% of total revenue, in the first quarter of fiscal 2018.
Free cash flow was negative $1.6 million, or 1.9% of total revenue, compared to negative $13.3 million, or 25.5% of total revenue, in the first quarter of fiscal 2018.
Cash, cash equivalents and short-term investments were $547.0 million as of April 30, 2018.
Second Quarter Fiscal 2019 Financial Highlights:
Revenue: Total revenue was $94.6 million, an increase of 57% year-over-year.
Subscription revenue was $87.9 million, an increase of 59% year-over-year.
Operating Loss: GAAP operating loss was $38.4 million, or 40.6% of total revenue, compared to $26.2 million in the second quarter of fiscal 2018, or 43.5% of total revenue.
Non-GAAP operating loss was $19.2 million, or 20.3% of total revenue, compared to $14.2 million in the second quarter of fiscal 2018, or 23.6% of total revenue.
Cash Flow: Net cash used in operations was $5.3 million, or 5.6% of total revenue, compared to cash used in operations of $6.2 million, or 10.4% of total revenue, in the second quarter of fiscal 2018.
Free cash flow was negative $11.3 million, or 12.0% of total revenue, compared to negative $10.5 million, or 17.4% of total revenue, in the second quarter of fiscal 2018.
Cash, cash equivalents and short-term investments were $536.3 million as of July 31, 2018.
My Thoughts
I thought the quarter was pretty good at first look. Subscription revenue stayed strong at 59%, same as last quarter. Revenue saw a slight deceleration, but no one is complaining with 57% growth.
The non-GAAP operating loss narrowed by about 4%, which is a good sign, but much slower than Q1. In Q1, operating losses narrowed from -38% to -13%. Whereas, in Q2, they went from -24% to -20%.
Looking at the operating expenses in Q1:
R&D grew: 33%
S&M grew: 40%
SG&A grew: 29%
Total grew: 35%
Versus Q2:
R&D grew: 47%
S&M grew: 55%
SG&A grew: 75%
Total grew: 56%
So we can see that this was a big spending quarter. Capital expenditures grew 88% also, which was why free cash flow margins losses didn’t narrow as much as Q1.
But growth stayed strong and the company likely sees a greenfield opportunity to spend money. I personally would like to see the company become free cash flow positive pretty soon but it is not likely. Seeing as it has over $500 million in cash, it’s really not too much of an issue though.
All in all, it was a spending quarter. It will be interesting to see how it pays off in subsequent quarters.
Very best,
CMFish: OKTA Ticker Guide