Brief Summary
Happy Wednesday to all! Here’s what I think about Okta’s Q3 2019 earnings report.
Oka’s growth remained very strong. Operating losses narrowed by a lot and free cash flow margins improved by a ton!
Let’s dig in. As always, here are the past quarters to give you some context.
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.
Third Quarter Fiscal 2019 Financial Highlights:
Revenue: Total revenue was $105.6 million, an increase of 58% year-over-year. Subscription revenue was $97.7 million, an increase of 58% year-over-year.
Operating Loss: GAAP operating loss was $28.5 million, or 27.0% of total revenue, compared to $34.5 million, or 51.6% of total revenue, in the third quarter of fiscal 2018.
Non-GAAP operating loss was $6.5 million, or 6.1% of total revenue, compared to $19.4 million, or 28.9% of total revenue, in the third quarter of fiscal 2018.
Cash Flow: Net cash provided by operations was $6.4 million, or 6.1% of total revenue, compared to cash used in operations of $9.5 million, or negative 14.2% of total revenue, in the third quarter of fiscal 2018.
Free cash flow was positive $1.4 million, or 1.3% of total revenue, compared to negative $11.2 million, or negative 16.8% of total revenue, in the third quarter of fiscal 2018.
My Thoughts
Growth stayed strong. 58% and 58% growth in subscription sales as well. And we’re really starting to see some crazy operating leverage. On a non-GAAP operating basis, losses went from -28% to just -6% of sales. Not too long ago I remember Okta’s losses were huge, unstomachable to some. Now it could break even in a couple quarters.
This is a testament to these cloud companies. Operating leverage is impressive at scale.
Gross margins stayed strong at 72%.
As always, management guided for next quarter very conservatively. This has been a repeating trend. It’s kind of win-win for them now. The market has gotten use to their sandbagging and then blowing expectations out of the water. But then they don’t have a super high bar to hit.
Seems to be working. But with the valuation of this one, if it misses guidance watch out below! For the time being, everything is on track. An impressive quarter.
Very best,
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