Okta's (OKTA) Q3 Earnings and Revenues Surpass Estimates

Okta, Inc. OKTA reported third-quarter fiscal 2020 adjusted loss of 7 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 12 cents. However, the figure was wider than the year-ago quarter loss of 4 cents.

Total revenues surged 45% from the year-ago quarter to $153 million and surpassed the consensus mark by 7%. The growth was driven by higher subscription revenues.

Quarter Details

Subscription revenues (94.4% of total revenues) surged 47.9% year over year to $144.5 million. Moreover, professional services and other revenues (5.6% of total revenues) increased 8.1% year over year to approximately $8.5 million.

Location wise, revenues from the United States (84.9% of total revenues) in third-quarter fiscal 2020 were $130 million, up 46.1% year over year. Non-U.S. Revenues (15% of total revenues) increased 35.3% year over year to $23 million.

Notably, on Oct 7, Okta announced a strategic partnership with Atlassian, integrating Okta’s authentication technology into Atlassian cloud products.

Total calculated billings during the quarter were $175.6 million, up 41.6% 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 117%.

Okta, Inc. Price, Consensus and EPS Surprise

Okta, Inc. Price, Consensus and EPS Surprise

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

User Details

Okta added 400 new customers in the reported quarter, taking the total customer count to 7400.

Okta Identity Cloud’s capability to consolidate and easily integrate customers’ 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, Berry Global chose Okta’s Identity solutions in the reported quarter. The contract covered Okta’s workforce products to improve the sign-on experience for employees, reduce helpdesk request by enabling self-service password resets, and enhanced security with multi-factor authentication.

Additionally, Dentsu Group, a global 2000 advertising and marketing services company, deployed Okta’s strategy solutions globally to unify the entire company, increase collaboration, and enhance security for its global workforce of over 60,000 employees.

Moreover, a Fortune 50 telecommunications company selected Okta’s customer identity solutions over Microsoft in order to decrease maintenance and infrastructure costs, and provide faster time to value for its customers.

Further, a Fortune 500 financial services company purchased Okta Access Gateway, the UniFi access to both cloud and on-premise applications and also enhanced security for over 10,000 employees.

Okta’s strategy to constantly improve its solutions is also a key reason behind the increasing adoption of the company’s solutions.

The company announced Okta DynamicScale solution, a new high capacity customer identity solution that enables transformative scale for large businesses and highly-trafficked apps and sites on the Internet, supporting traffic bursts and extended use of up to 500,000 authentications per minute.

Moreover, the company launched Okta SecurityInsights solution that provides global organizations with personalized security detection and remediation capabilities at the end user, administrator and customer network levels.

Also, customers with more than $100,000 annual contract value (ACV) increased 40% year over year to 1300 driven by new enterprise customers. During the quarter, Okta added 103 net new customers with over $100,000 ACV.

Operating Details

Non-GAAP total gross profit surged 48.8% year over year to $119.1 million. Gross margin expanded 200 basis points (bps) to 77.8%.

Non-GAAP subscription gross profit surged 48.7% year over year to $119.3 million. Gross margin expanded 40 bps to 82.6%.

Non-GAAP reported gross profit from professional and other services was ($0.3 million), flat year over year. Gross margin contracted basis points to (3.3%).

Non-GAAP research and development expenses increased 45.2% year over year to $30.9 million.

Additionally, non-GAAP sales and marketing (S&M), and general and administrative expenses increased 50.5% and 37.6% year over year to $76.3 million and $20 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 47.1% year over year to $127.2 million owing to sales and marketing investments related to business growth strategies.
 
Non-GAAP operating loss was $8.1 million, wider than the year-ago loss of $6.5 million.

Balance Sheet and Cash Flow

Okta had $1.37 billion in cash, cash equivalents and short-term investments as of Oct 31, 2019 compared with $557.5 million in the prior quarter.

Cash provided by operations was $10.6 million in the reported quarter compared with $6.4 million used in the year-ago period.

Okta recorded free cash of $9.2 million in the reported quarter. The year-ago quarter’s free cash flow was $1.4 million.

Guidance

For fourth-quarter fiscal 2020, Okta expects revenues in the range of $155-$156 million, indicating year-over-year growth of 34-35%.

Non-GAAP operating loss is expected in the range of $9.1-$10.1 million and non-GAAP net loss is anticipated in the range of 4-5 cents per share.

For full fiscal 2020, revenues are expected in the range $574-$575 million, indicating year-over-year growth of 44%.

Non-GAAP operating loss is expected in the range of $52.1-$53.1 million and non-GAAP net loss is anticipated within 34-35 cents per share.

Zacks Rank & Stocks to Consider

Okta currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Marchex, Inc. MCHX, Fortinet, Inc. FTNT and Baidu, Inc. BIDU. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Marchex, Fortinet and Baidu is currently pegged at 15%, 14% and 2.3%, respectively.

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