Okta(OKTA) - 2025 Q1 - Quarterly Report

Revenue and Financial Performance - Subscription revenue increased by 20% to $603 million for the three months ended April 30, 2024, driven by higher user numbers and additional product sales to existing customers[125][126] - Total revenue grew by 19$617 million for the three months ended April 30, 2024, with subscription revenue accounting for 98% of total revenue[125] - Gross profit increased by 25% to $469 million for the three months ended April 30, 2024, with a total gross margin of 76$14 million for the three months ended April 30, 2024, due to lower bookings[125][127] - Subscription revenue gross margin improved to 78% from 76% for the three months ended April 30, 2024, driven by improved spend efficiency[130] - Revenue grew from $1,300 million in fiscal 2022 to$1,858 million in fiscal 2023, a 43% increase, and further to $2,263 million in fiscal 2024, a 22$848 million in fiscal 2022, $815 million in fiscal 2023, and$355 million in fiscal 2024, with expectations of continued losses in the foreseeable future[212] - International revenue accounted for 22% and 21% of total revenue in fiscal 2023 and 2024, respectively[238] Customer Metrics and Retention - The company's Dollar-Based Net Retention Rate was 111% as of April 30, 2024, reflecting increased revenue from existing customers[126] - Dollar-based net retention rate decreased to 111% as of April 30, 2024, compared to 117% as of April 30, 2023, due to slower ACV growth from existing customers[153][160] - Total customers increased to 19,100 as of April 30, 2024, from 18,050 as of April 30, 2023, with 4,550 customers having ACV above $100,000[153][154] - The company had over 19,100 customers as of April 30, 2024, with more than 7,000 integrations with cloud, mobile, and web applications[95] - Customer growth has slowed recently and could fall below expectations, impacting future results[204] - Customer growth has slowed, and the company expects slower growth as it focuses on sales to large organizations[227] Operating Expenses and Cost Management - Sales and marketing expenses decreased by$16 million for the three months ended April 30, 2024, primarily due to lower employee compensation costs[137] - Research and development expenses remained flat at $163 million for the three months ended April 30, 2024, representing 27$516 million for the three months ended April 30, 2024, compared to $536 million in the same period last year[120] - Cost of subscription revenue increased by$7 million for the three months ended April 30, 2024, due to higher consulting, software, and third-party hosting costs[129] - Research and development expenses remained flat for the three months ended April 30, 2024, but are expected to increase in absolute dollars as the business grows[135] - Sales and marketing expenses decreased by $20 million (8$7 million (6%) for the three months ended April 30, 2024, primarily due to higher legal-related costs[140][141] Cash Flow and Financial Position - Cash, cash equivalents, and short-term investments totaled $2,320 million as of April 30, 2024, held for working capital and potential acquisitions[165] - The company repurchased$508 million principal amount of the 2025 Notes and $542 million principal amount of the 2026 Notes, resulting in a$106 million gain on early extinguishment of debt[170] - The company completed the acquisition of Spera for $58 million on February 1, 2024, with$12 million held in escrow for potential adjustments[171] - The company's deferred revenue as of April 30, 2024, was $1,410 million, with$1,391 million expected to be recognized as revenue within the next 12 months[175] - Cash provided by operating activities for the three months ended April 30, 2024, was $219 million, a$90 million increase compared to the same period in 2023[178] - Cash used in investing activities for the three months ended April 30, 2024, was $194 million, compared to$59 million provided in the same period in 2023[179] - Cash used in financing activities for the three months ended April 30, 2024, was $37 million, compared to$326 million used in the same period in 2023[181] - The company had cash, cash equivalents, and short-term investments totaling $2,320 million as of April 30, 2024, with$2,194 million invested in U.S. treasury securities, money market funds, certificates of deposit, and corporate debt securities[190] - The principal amount of the 2025 Notes outstanding as of April 30, 2024, was $552 million[193] - The principal amount of the 2026 Notes outstanding as of April 30, 2024, was$608 million[194] Risks and Challenges - Adverse economic conditions and reduced workforce and customer identity spending may harm revenue, results of operations, and cash flows[206] - Rapid growth in prior periods may not be sustainable, and failure to manage future growth could harm business prospects[208] - The company's dual-class stock structure concentrates 40.3% of voting power with pre-IPO stockholders as of April 30, 2024[336] - Rising interest rates in the U.S. have increased costs of labor and healthcare, potentially constraining budgets for the company and its customers[206] - The company has a history of losses and expects to incur losses for the foreseeable future[204] - The Dollar-Based Net Retention Rate is critical; any material decline could harm future results[204] - The company faces intense competition from larger, well-established companies, which may impact its competitive position[204] - Cybersecurity incidents in the past have harmed reputation and financial results, with potential for future incidents[204] - The company may experience quarterly fluctuations in results due to unpredictable factors, potentially falling below analyst expectations[204] - The company faces competition from Microsoft and other larger competitors with broader product offerings and greater resources[220] - Revenue growth depends on factors such as macroeconomic conditions, customer retention, and the ability to attract new customers[210][226] - The company’s ability to compete relies on maintaining adequate research and development resources and successful acquisitions[231] - Future acquisitions may pose integration challenges, as seen with the May 2021 acquisition of Auth0[234] - Quarterly results may fluctuate due to factors like demand for the platform, competition, and pricing pressure[228] - Risks associated with international expansion include macroeconomic conditions, localization costs, and compliance with foreign laws[238] - The company has not engaged in currency hedging, exposing it to exchange rate fluctuations that could impact costs and earnings[239] - Sales cycles are lengthening and becoming less predictable, particularly for larger organizations, which may harm financial results[241] - A portion of revenue comes from government entities, which are subject to budget cycles, compliance requirements, and potential audits[246] - The company faces risks from rapid technological change and the need to introduce new or enhanced products to remain competitive[240] - Strategic relationships with third parties, such as channel partners, are critical for growth, but competition and partner acquisitions could harm revenue[243] - The company may need to adjust pricing in response to inflation, interest rates, and competitive pressures, which could impact profitability[249] - Increased scrutiny of ESG matters may result in higher costs and impact the company's reputation and access to capital[254] - The company may need to raise additional capital to expand operations and invest in new technologies, which could dilute ownership interests or impose restrictive terms if debt financing is pursued[250] - The company faces risks related to privacy, data security, and data protection, particularly in Europe due to stringent laws and increased scrutiny over EU-U.S. data transfers[277] - Global data protection laws may impose additional liabilities, costs, and enforcement actions, potentially harming the company's business and financial condition[280] - Product implementation delays or inefficiencies could result in increased costs, customer dissatisfaction, and reputational harm[245] - Brand promotion efforts may not yield sufficient returns, and failure to enhance the brand cost-effectively could impair customer base expansion[248] - Cybersecurity incidents, including unauthorized access to systems or data, could harm the company's reputation and financial results[259] - The company relies on third-party service providers for infrastructure, and any disruptions could negatively impact customer access and platform reliability[256] - The company has experienced cybersecurity incidents involving third-party service providers, which could lead to reputational damage and financial harm[263] - Cybersecurity insurance may not cover all liabilities, and breaches could result in increased costs, litigation, and loss of customer trust[264] - The company's platform is critical for customer access, and any outages or performance issues could harm its reputation and financial condition[258] - Third parties may fraudulently induce employees or customers to disclose sensitive information, potentially leading to significant legal and financial exposure, loss of confidence in platform security, and harm to future business prospects[265] - Past failures or perceived failures to comply with privacy or security provisions could result in legal proceedings, actions, or penalties[266] - Compliance with evolving privacy and data security laws may limit the use and adoption of the company's services and increase regulatory scrutiny and enforcement[268] - The California Consumer Privacy Act (CCPA) and similar state laws create additional compliance obligations and risks, potentially increasing liability and adversely affecting the business[269] - Non-compliance with European data protection laws can result in fines of up to €20 million or 4% of total worldwide annual revenue, whichever is higher[281] - The company functions as a HIPAA Business Associate, subject to strict privacy and data security requirements, with potential significant liability for non-compliance[284] - Use of open-source software in products may expose the company to litigation, unanticipated licensing conditions, or the need to release proprietary source code[303] - Indemnity provisions in agreements with customers and third parties may expose the company to substantial liability for intellectual property infringement and other losses[306] - Increasing data protection laws restrict cross-border data transfers, requiring additional compliance mechanisms and resources[278] - Public concerns about privacy and data security may reduce customer engagement with the platform, potentially slowing business growth[275] International Expansion and Operations - The company plans to expand international operations in the Americas, Asia-Pacific, and Europe, which may strain managerial and operational resources[216] - The company plans to continue expanding international operations in the Americas, Asia-Pacific, and Europe[237] - Risks associated with international expansion include macroeconomic conditions, localization costs, and compliance with foreign laws[238] - The company has not engaged in currency hedging, exposing it to exchange rate fluctuations that could impact costs and earnings[239] Employee and Workforce Management - Employee headcount increased from 5,342 in April 2022 to 5,710 in April 2024, with workforce reductions of 300 and 400 employees in fiscal 2024 and 2025, respectively[214] Market and Competitive Landscape - The company faces competition from Microsoft and other larger competitors with broader product offerings and greater resources[220] - The company’s ability to compete relies on maintaining adequate research and development resources and successful acquisitions[231] - Strategic relationships with third parties, such as channel partners, are critical for growth, but competition and partner acquisitions could harm revenue[243] Technology and Product Development - The company faces risks from rapid technological change and the need to introduce new or enhanced products to remain competitive[240] - Product implementation delays or inefficiencies could result in increased costs, customer dissatisfaction, and reputational harm[245] - Use of open-source software in products may expose the company to litigation, unanticipated licensing conditions, or the need to release proprietary source code[303] Legal and Regulatory Compliance - Compliance with evolving privacy and data security laws may limit the use and adoption of the company's services and increase regulatory scrutiny and enforcement[268] - The California Consumer Privacy Act (CCPA) and similar state laws create additional compliance obligations and risks, potentially increasing liability and adversely affecting the business[269] - Non-compliance with European data protection laws can result in fines of up to €20 million or 4% of total worldwide annual revenue, whichever is higher[281] - The company functions as a HIPAA Business Associate, subject to strict privacy and data security requirements, with potential significant liability for non-compliance[284] - Increasing data protection laws restrict cross-border data transfers, requiring additional compliance mechanisms and resources[278] Cybersecurity and Data Protection - Cybersecurity incidents in the past have harmed reputation and financial results, with potential for future incidents[204] - The company faces risks related to privacy, data security, and data protection, particularly in Europe due to stringent laws and increased scrutiny over EU-U.S. data transfers[277] - Global data protection laws may impose additional liabilities, costs, and enforcement actions, potentially harming the company's business and financial condition[280] - Cybersecurity incidents, including unauthorized access to systems or data, could harm the company's reputation and financial results[259] - The company relies on third-party service providers for infrastructure, and any disruptions could negatively impact customer access and platform reliability[256] - The company has experienced cybersecurity incidents involving third-party service providers, which could lead to reputational damage and financial harm[263] - Cybersecurity insurance may not cover all liabilities, and breaches could result in increased costs, litigation, and loss of customer trust[264] - The company's platform is critical for customer access, and any outages or performance issues could harm its reputation and financial condition[258] - Third parties may fraudulently induce employees or customers to disclose sensitive information, potentially leading to significant legal and financial exposure, loss of confidence in platform security, and harm to future business prospects[265] - Past failures or perceived failures to comply with privacy or security provisions could result in legal proceedings, actions, or penalties[266] - Public concerns about privacy and data security may reduce customer engagement with the platform, potentially slowing business growth[275] Financial Instruments and Market Risks - The company's cash equivalents and investment portfolio are subject to market risk due to changes in interest rates, but a hypothetical 10% change in interest rates would not have a material impact on their value[192] - The company's revenue is not currently subject to significant foreign currency risk, as most sales are denominated in U.S. dollars[189] Corporate Governance and Controls - The company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by the Quarterly Report[196] - The company's dual-class stock structure concentrates 40.3% of voting power with pre-IPO stockholders as of April 30, 2024[336]