Okta's (OKTA) Q2 Earnings and Revenues Surpass Estimates
Okta, Inc. OKTA reported second-quarter fiscal 2020 adjusted loss of 5 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 10 cents and the year-ago quarter loss of 15 cents.
Total revenues surged 48.5% from the year-ago quarter to $140.5 million and surpassed the consensus mark of $131 million. The growth was driven by higher subscription revenues.
Subscription revenues (94.3% of total revenues) surged 50.8% year over year to $132.5 million. Moreover, professional services and other revenues (5.7% of total revenues) increased 18.6% year over year to approximately $7.9 million.
Location wise, revenues from the United States (84.4% of total revenues) in second-quarter 2020 were $118.6 million, up 49.2% year over year. Non-U.S. Revenues (15.6% of total revenues) increased 45% year over year to $21.9 million.
Notably, on May 30, Okta announced opening of the cloud infrastructure provided by Amazon Web Services in Asia Pacific and an office in Germany to expand its international footprint.
Total calculated billings during the quarter were $155.8 million, up 42.4% year over year driven by new and existing commercial and enterprise customers and increased bookings.
Dollar-based retention rate in the trailing 12 months was 118%.
Okta, Inc. Price, Consensus and EPS Surprise
Okta added 450 new customers in the reported quarter, taking the total customer count to 7000, reflecting an increase of 36% year over year.
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 Fortune 500 companies chose Okta’s Cloud based Identity solutions in the reported quarter to support the company’s hybrid environment and adopt the Zero Trust security strategy. The contract covered Okta workforce products for over 400,000 global employees and contractors working for the Fortune 500 company.
Additionally, American Century Investments, a leading global asset management company adopted Okta’s Cloud based Identity solutions. The company chose Okta's customer identity products to provide a seamless and secure registration and login experience for its 600,000 customers.
Moreover, France-based company, ENGIE, which is a global 500 multinational electric utility, chose Okta’s workforce identity and customer identity products to accelerate digital transformation for its large B2B customers.
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, the company launched Advanced Server Access. Notably, Discovery purchased Advanced Server Access to help protect its infrastructure and extend the seamless authentication workflows to Linux and Windows machines.
Also, customers with more than $100,000 annual contract value (ACV) increased 46% year over year to 1222 driven by new enterprise customers. During the quarter, Okta added 80 net new customers with over $100,000 ACV.
Non-GAAP total gross profit surged 56.4% year over year to $108.5 million. Gross margin expanded 390 basis points (bps) to 77.2%.
Non-GAAP subscription gross profit surged 55.2% year over year to $109.5 million. Gross margin expanded 230 basis points to 86.2%.
Non-GAAP reported gross profit from professional and other services was ($1 million) compared with the year-ago figure of ($1.2 million). Gross margin expanded 530 basis points to (12.6%).
Non-GAAP research and development expenses increased 58.3% year over year to $31 million.
Additionally, non-GAAP sales and marketing (S&M), and general and administrative expenses increased 22.9% and 18.2% year over year to $69.1 million and $18.3 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.
Notably, headcount increased 40% year over year to 1,943 to support business growth.
Consequently, total non-GAAP operating expenses increased 33.7% year over year to $118.4 million owing to sales and marketing investments related to business growth strategies.
Non-GAAP operating loss was $9.9 million, lower than the year-ago loss of $19.2 million owing to revenue outperformance.
Balance Sheet and Cash Flow
Okta had $557.5 million in cash, cash equivalents and short-term investments as of Jul 31, 2019 compared with $547.5 million in the prior quarter.
Cash used in operations was $1.1 million in the reported quarter compared with $5.3 million used in the year-ago period.
Okta recorded negative free cash of $4.3 million in the reported quarter. The year-ago quarter’s free cash flow was negative $11.3 million.
Third-Quarter Fiscal 2020
Okta expects revenues in the range of $143-$144 million, indicating year-over-year growth of 35-36%. Non-GAAP operating loss is expected in the range of $16.5-$17.5 million and non-GAAP net loss is anticipated in the range of 12-13 cents per share.
Revenues are expected in the range $560-$563 million, indicating year-over-year growth of 40-41%. Non-GAAP operating loss is expected in the range of $62-$64 million and non-GAAP net loss is anticipated within 42-44 cents per share.
Zacks Rank & Stocks to Consider
Okta currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Computer Technology sector include Anixter International AXE, LogMeIn LOGM and Perficient PRFT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Anixter, LogMeIn and Perficient is currently pegged at 8%, 5% and 10.8%, respectively.
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