Summary
Okta closed FY2022 Q3 with total revenue of $350.68 million, up 61.3% from $217.38 million in FY2021 Q3. The quarter included $46 million of revenue from Auth0, the acquisition that closed on May 3, 2021. Strip that out and Okta standalone revenue grew 40%. Subscription revenue grew 63% year over year. Remaining performance obligations reached $2.35 billion, up 48.6% from $1.58 billion a year earlier. Current RPO, the portion expected to be recognized over the next 12 months, was $1.18 billion, up 57%. Calculated billings came in at $389 million, up 54%. Management noted that billings process changes enacted at the end of FY2022 Q1 flattered that figure. Without them, billings would have been $387 million, up 53%.
The income statement tells a different story. Gross profit was $241.01 million, up 50.2%, but gross margin fell to 68.7% from 73.8% a year ago, a drop of 5.1 percentage points. Okta pins the compression on Auth0, which carries a higher relative cost and lower gross margin, plus more amortization of acquired developed technology. Operating loss widened to $198.56 million from $51.98 million, and operating margin fell to negative 56.6% from negative 23.9%. Net loss was $221.31 million against $72.76 million in FY2021 Q3, and diluted EPS was negative $1.44 versus negative $0.56. The GAAP loss includes $120 million, or $0.78 per share, tied to Auth0. Non-GAAP results were also weaker: an operating loss of $10 million, or 3% of revenue, compared with non-GAAP operating income of $6 million a year ago, and a non-GAAP net loss of $11 million, or $0.07 per share, versus non-GAAP net income of $6 million, or $0.04 per share.
Cash generation softened. Operating cash flow was $37.12 million in the quarter, down 14.5% from $43.43 million in FY2021 Q3. Free cash flow, a non-GAAP measure, was $33 million versus $42 million. Capital expenditures were $1.77 million, up 181.2% from $0.63 million, though the absolute amount is small. Deferred revenue, current portion, stood at $759.91 million, up 78.9% from $424.76 million a year earlier, which reflects the multi-year subscription backlog. Customer metrics held up. Customers with annual contract value above $100,000 totaled 2,825, up from 1,780. Dollar-based net retention rate for the trailing 12 months was 122%, down slightly from 123%.
Guidance points to a similar mix. For FY2022 Q4, Okta expects total revenue of $358 million to $360 million, a 53% year-over-year growth rate, a non-GAAP operating loss of $35 million to $34 million, and a non-GAAP net loss per share of $0.25 to $0.24 on roughly 154 million weighted-average shares. For the full fiscal year 2022, the company raised its outlook to total revenue of $1.275 billion to $1.277 billion, also 53% growth, a non-GAAP operating loss of $85 million to $84 million, and a non-GAAP net loss per share of $0.53 to $0.52 on about 147 million shares. Okta has not reconciled these forward-looking non-GAAP figures to their GAAP counterparts.
The risks are familiar and real. Management cites COVID-19 and its variants, longer sales cycles that delay deal closings, and near-term headwinds to cash flow, RPO and billings growth. Integration of Auth0 remains a workstream, and the company warns it may not achieve the expected synergies. A network or data security incident, service outages, and the ability to pay off convertible senior notes when due are all listed as risks. Okta also expects costs to rise as it returns to in-person sales and events. The company paid $79.3 million in cash for atSpoke, which closed on August 2, 2021, on top of the much larger Auth0 deal. That is the tension in the story: revenue up 61.3% while the GAAP operating loss widened.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $350.7M | $315.5M | +11.2% | $217.4M | +61.3% |
| Gross profit | $241.0M | $214.4M | +12.4% | $160.5M | +50.2% |
| Gross margin | 68.7% | 68.0% | +0.8 pp | 73.8% | -5.1 pp |
| Research & development | $130.5M | $122.4M | +6.6% | $58.1M | +124.5% |
| Sales & marketing | $203.9M | $198.3M | +2.8% | $109.8M | +85.7% |
| General & administrative | $105.1M | $157.1M | -33.1% | $44.5M | +136.4% |
| Total operating expenses | $439.6M | $477.8M | -8.0% | $212.4M | +106.9% |
| Operating income (loss) | -$198.6M | -$263.4M | +24.6% | -$52.0M | -282.0% |
| Operating margin | -56.6% | -83.5% | +26.9 pp | -23.9% | -32.7 pp |
| Net income (loss) | -$221.3M | -$276.7M | +20.0% | -$72.8M | -204.1% |
| Net margin | -63.1% | -87.7% | +24.6 pp | -33.5% | -29.6 pp |
| Diluted EPS | -$1.44 | -$1.83 | +$0.39 | — | — |
| Customers | 0 | 0 | — | 9,400 | -100.0% |
Risks
The Auth0 acquisition may disrupt business and relationships, and integration may burden management. MD&A says Auth0 contributed $46.0 million in total revenue for the quarter but total gross margin decreased to 69% from 74% partly because Auth0 revenue carries higher relative cost and lower gross margin. Unknown liabilities and preliminary purchase accounting could also affect future results.
Total gross margin decreased to 69% for the quarter from 74% in the prior-year quarter, and subscription gross margin decreased to 73% from 78%, primarily due to Auth0 revenue mix and increased amortization of acquired developed technology. MD&A expects gross margin may fluctuate in the near term.
Okta faces intense competition from larger, well-established companies, with Microsoft named as principal competitor. Competitors may bundle products, sell at zero or negative margins, or incorporate identity functionality, which could cause pricing pressure, reduced revenue and gross margins, and loss of market share.
Sales cycles are lengthening and becoming less predictable as Okta focuses on larger organizations and amid COVID-19. MD&A says longer sales cycles could delay deals and create near-term headwinds for cash flow, RPO and billings growth.
Conditional conversion features of the 2023 Notes were triggered as of October 31, 2021, making them convertible at holder option from November 1, 2021 to January 31, 2022 and classified as current liabilities. Cash settlement could reduce liquidity and conversion could dilute stockholders.
Okta has a history of losses and expects losses for the foreseeable future. Net loss widened to $221.3 million for the quarter from $72.8 million in the prior-year quarter, and operating loss widened to $198.6 million from $52.0 million, while operating expenses grew significantly.
COVID-19 and related public health measures, including the federal contractor vaccine mandate, could cause employee absences, resignations or labor market strains. Pandemic conditions have delayed purchasing decisions, lengthened payment terms, and could reduce contract value or duration.
Okta depends on executive officers and key employees. The former CFO stepped down and an interim CFO was appointed effective June 1, 2021, and competition for engineers and sales personnel in the San Francisco Bay Area is intense. A decline in perceived equity award value could harm recruiting and retention.
The business depends on renewals and expansion. Dollar-Based Net Retention Rate for the trailing 12 months ended was 122% as of October 31, 2021 compared with 123% as of October 31, 2020, and any material decline would harm future results.
Customer growth could fall below analyst or investor expectations as the customer base grows and Okta increases focus on the world's largest organizations. This could cause the stock price to fall and lead to securities class action suits.
A portion of revenue comes from partners reselling to government agencies, subject to budget cycles, audits, investigations, contract termination, and compliance costs. These can harm margins and make future sales difficult to predict.
Adverse general economic and market conditions and reductions in workforce identity and customer identity spending may reduce demand. Prolonged slowdowns may lead customers to renegotiate contracts on less advantageous terms, default, or not renew.
Operating cash flow decreased 14.5% to $37.1 million for the quarter from $43.4 million in the prior-year quarter, and free cash flow margin decreased to 10% from 19%. MD&A says operating cash flows may fluctuate between positive and negative amounts for the foreseeable future.
The dual class structure concentrates voting control with pre-IPO holders, including directors and executive officers, who held 42.8% of voting power as of October 31, 2021, limiting other stockholders' ability to influence corporate matters.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Current Remaining Performance Obligations (cRPO)
Free Cash Flow Margin
Free Cash Flow
Total Customers
Calculated Billings
Customers with Annual Contract Value Above $100,000
Summary, forecast, risks and KPIs are extracted from Okta, Inc.'s SEC filings for Q3 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.