Okta(OKTA) - 2026 Q1 - Quarterly Report

Revenue and Profitability - Subscription revenue for the three months ended April 30, 2025, was $673 million, a 12$603 million in the same period of 2024[117] - Total revenue for the same period was $688 million, up from$617 million, reflecting a 12% year-over-year growth[117] - The gross profit margin improved to 77% for the three months ended April 30, 2025, compared to 76% in the prior year[119] - Operating income for the three months ended April 30, 2025, was $39 million, a significant improvement from an operating loss of$47 million in the same period of 2024[117] - The company reported a net income of $62 million for the three months ended April 30, 2025, compared to a net loss of$40 million in the same period of 2024[117] - Subscription revenue constituted approximately 98% of total revenue for the three months ended April 30, 2025[119] - Gross profit for the same period was $533 million, representing a 14$469 million year-over-year[125] - Subscription gross margin improved to 80% from 78% year-over-year, driven by improved spend efficiency[126] Customer Metrics - The dollar-based net retention rate was 106% as of April 30, 2025, indicating strong customer retention and expansion[123] - The number of customers with an annual contract value above $100,000 increased by 7$100,000 increased to 4,870 from 4,550 in 2024[145] - The dollar-based net retention rate decreased to 106% from 111% year-over-year, impacted by the macroeconomic environment[145] Expenses and Costs - The cost of subscription revenue was $136 million, resulting in a gross margin of 80$155 million, up 6% from $148 million in the same period of 2024[125] - Research and development expenses decreased to$154 million, down 6% from $163 million, primarily due to a reduction in stock-based compensation[131] - Sales and marketing expenses remained flat at$237 million, with a decrease in percentage of revenue from 38% to 34%[133] - General and administrative expenses decreased to $103 million, down 11$117 million, attributed to reduced stock-based compensation and legal settlement costs[135] Cash Flow and Investments - As of April 30, 2025, the company had cash, cash equivalents, and short-term investments totaling $2,725 million for working capital and potential acquisitions[155] - For the three months ended April 30, 2025, net cash provided by operating activities was$241 million, an increase of $22 million compared to the same period in 2024[166] - Cash used in investing activities during the three months ended April 30, 2025, was$120 million, a decrease from $194 million in the same period in 2024[167] - Cash used in financing activities was$45 million for the three months ended April 30, 2025, an increase of $8 million compared to the same period in 2024[168] Debt and Financing - In fiscal 2025, the company repurchased$42 million principal amount of the 2025 Notes for $40 million in cash, and$258 million principal amount of the 2026 Notes for $240 million in cash, resulting in an aggregate gain on early extinguishment of debt of$19 million[159] - The company issued the 2025 Notes with a principal amount of $1,060 million, of which$510 million remains outstanding as of April 30, 2025[183] - The 2026 Notes have a principal amount of $1,150 million, with$350 million remaining outstanding as of April 30, 2025[184] - The company continues to assess its capital structure and may seek additional equity or debt financing in the future[160] Market and Competitive Landscape - The company experienced revenue growth rates of 43%, 22%, and 15% during fiscal years 2023, 2024, and 2025, respectively[196] - The company incurred net losses of $355 million and$815 million in fiscal years 2024 and 2023, respectively, despite achieving profitability in fiscal 2025[204] - The company faces intense competition, particularly from larger, well-established companies, with Microsoft identified as a principal competitor[201] - The company’s revenue growth is dependent on retaining existing customers and expanding commercial relationships, which may fluctuate due to various factors[206] - The company may experience quarterly fluctuations in results due to demand variability, customer retention, and competitive landscape changes[208] Operational Risks and Challenges - The company has faced cybersecurity incidents in the past, which have harmed its reputation and financial results[195] - Economic conditions, such as inflation and interest rates, may adversely impact demand for the company’s solutions, affecting revenue[195] - The company anticipates increased operating expenses in future periods, which may not be offset by revenue growth, potentially harming financial results[198] - The company faces challenges in expanding operations internationally, including compliance with varying legal and regulatory requirements[218] - The company may need to adjust pricing strategies in response to inflation, interest rates, and competitive pressures[230] Compliance and Regulatory Issues - Compliance with evolving privacy and data security regulations may impose additional burdens and costs, potentially limiting service adoption[247] - The company has attained multiple privacy certifications, including the Privacy Recognition for Processors and the European Union Cloud Code of Conduct, Level 2, which are essential for retaining and attracting customers[255] - Increasing global data protection laws may raise compliance costs and expose the company to greater enforcement risks, potentially impacting business operations[258] - Non-compliance with data protection obligations can trigger significant fines and penalties, leading to increased resource expenditure for compliance[260] Technology and Security - The company has implemented various security measures, but these may not be sufficient to prevent all cybersecurity threats[239] - The company relies on third-party service providers for technology infrastructure, which may lead to service interruptions if these providers fail to meet capacity requirements[236] - The company must ensure its solutions integrate with various operating systems and platforms; failure to do so may reduce competitiveness and harm results[265] - The company is investing in expanding its AI capabilities, including the deployment and improvement of existing machine learning and AI technologies, as well as developing new product features using generative AI[273] Intellectual Property - The company faces risks related to intellectual property ownership and licensing rights surrounding AI technologies, which may require additional investment in proprietary datasets and machine learning models[274] - The company relies on a combination of patents, copyrights, trademarks, and trade secret laws to protect its proprietary rights, but these protections may be inadequate[275] - The company may incur significant costs related to monitoring and enforcing its intellectual property rights, which could distract management and impair its competitive position[277]