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Okta's (OKTA) Q1 Earnings and Revenues Surpass Estimates

Zacks Equity Research

Okta, Inc. OKTA reported first-quarter fiscal 2020 adjusted loss of 19 cents per share that was narrower than the Zacks Consensus Estimate of 21 cents. However, the loss was wider than the year-ago loss of 9 cents.

Total revenues surged 49.8% from the year-ago quarter to $125.2 million and surpassed the consensus mark of $117 million.

Okta, Inc. Price, Consensus and EPS Surprise

Okta, Inc. Price, Consensus and EPS Surprise

Okta, Inc. price-consensus-eps-surprise-chart | Okta, Inc. Quote

Quarter Details

Subscription revenues (93.6% of its total revenues) surged 52.5% year over year to $117.2 million. Moreover, professional services and other revenues (6.4%) increased 18.9% year over year to approximately $8.1 million.

Non-U.S. Revenues (16%) increased 60% year over year.

Total calculated billings during the quarter were $147.2 million, up 53.4% year over year due to strength from new and existing commercial and enterprise customers and increased bookings.

Okta added 450 new customers in the reported quarter, taking the total customer count to more than 6,550.

Okta Identity Cloud’s capability to consolidate and easily integrate customers’ all existing applications, without compromising security or stability, is attracting customers. Okta products’ ability to automate process, secure data and reduce costs is also a positive.

Notably, one of the world's largest banks chose Okta’s Identity solutions in the reported quarter due to the ease of integration of Okta’s solutions with the bank’s existing technology. Additionally, a large pharmaceutical company chose Okta’s workforce solution “to streamline access to all their applications.”

Moreover, a financial planning software provider, eMoney, increased its business value with the company by choosing additional Okta Identity solutions.

Okta’s strategy to constantly improve its solutions is also a key reason behind the increasing adoption of the company’s solutions. In the reported quarter, Okta Hooks was launched, which enables developers to easily customize the Okta Integration Network. This is expected to enhance the capability of Okta Identity Cloud. Further, Okta continues to invest in security to help its customers “centralize access controls” and eliminate “identity-based attacks.”

Further, customers with more than $100,000 annual recurring revenues increased 53% year over year due to new additions from enterprise customers. During the quarter, Okta added 104 net new customers with over $100,000 annual recurring revenues.

Dollar-based retention rate in the trailing 12 months ended was 119%.

Operating Details

Non-GAAP gross profit surged 53.1% year over year to $94.8 million. Gross margin expanded 170 basis points to 75.7%.

Non-GAAP research and development expenses increased 76.2% year over year to $27.7 million.

Additionally, non-GAAP sales and marketing (S&M), and general and administrative expenses increased 66.1% and 42.5% year over year to $75.3 million and $16.7 million, respectively. Costs to support increasing international presence and expenses from on-boarding additional customers were the reasons behind the increase in S&M expenses.

Consequently, total non-GAAP operating expenses increased 64.5% year over year to $119.7 million owing to investments related to business growth strategies. Notably, headcount increased 40% year over year to 1,770 to support business growth.

Non-GAAP operating loss was $24.9 million, higher than the year-ago loss of $10.8 million.

Balance Sheet and Cash Flow

Okta had $547.5 million in cash, cash equivalents and short-term investments as of Apr 30, 2019 compared with $563.8 million sequentially.

Cash flow from operations was $21.3 million in the reported quarter compared with $3.9 million in the year-ago period owing to strong top-line performance.

Okta recorded positive free cash of $13.2 million in the reported quarter. The year-ago quarter’s free cash flow was negative $1.6 million.

Guidance

Second-Quarter Fiscal 2020

Okta expects revenues in the range of $130-$131 million, indicating year-over-year growth of 37-38%. Non-GAAP operating loss is expected in the range of $13.9-$14.9 million and non-GAAP net loss per share is anticipated in the range of 10-11 cents, with shares outstanding of approximately 115 million.

Fiscal 2020

Revenues are expected in the range $543-$548 million, translating to year-over-year growth of 36-37%. Non-GAAP operating loss is expected in the range $62-$67 million and non-GAAP net loss per share is anticipated within 45-49 cents, with shares outstanding of approximately 116 million.

Zacks Rank & Stocks to Consider

Okta currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Computer Technology sector include Microsoft Corporation MSFT, Cadence Design Systems, Inc. CDNS and ServiceNow, Inc. NOW. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Microsoft, Cadence and ServiceNow is pegged at 12.4%, 11% and 28% respectively.

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