Okta(US:OKTA)2024-08-29 20:03PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Okta's unaudited financial statements for Q2 2024 show a 16% revenue increase and a shift to net income, detailing key financial events Condensed Consolidated Balance Sheets | Balance Sheet Items | July 31, 2024 (unaudited) | January 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $515 million | $334 million | | Total current assets | $3,038 million | $2,980 million | | Goodwill | $5,448 million | $5,406 million | | Total assets | $9,067 million | $8,989 million | | Liabilities & Equity | | | | Deferred revenue (current) | $1,394 million | $1,488 million | | Total current liabilities | $1,660 million | $1,782 million | | Total liabilities | $2,934 million | $3,101 million | | Total stockholders' equity | $6,133 million | $5,888 million | Condensed Consolidated Statements of Operations | Metric | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $646 million | $556 million | +16.2% | | Gross Profit | $491 million | $407 million | +20.6% | | Operating Loss | $(19) million | $(162) million | +88.3% | | Net Income (Loss) | $29 million | $(111) million | N/A | | Diluted EPS | $0.15 | $(0.68) | N/A | | Metric | Six Months Ended July 31, 2024 | Six Months Ended July 31, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,263 million | $1,074 million | +17.6% | | Gross Profit | $960 million | $783 million | +22.6% | | Operating Loss | $(66) million | $(322) million | +79.5% | | Net Loss | $(11) million | $(230) million | +95.2% | | Diluted EPS | $(0.06) | $(1.42) | +95.8% | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (Six Months Ended July 31) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $305 million | $182 million | | Net cash provided by (used in) investing activities | $(38) million | $554 million | | Net cash used in financing activities | $(87) million | $(641) million | | Net increase in cash, cash equivalents and restricted cash | $180 million | $97 million | Notes to Condensed Consolidated Financial Statements - On February 1, 2024, the Company acquired Spera, an identity security platform provider, for $58 million in cash to broaden its identity threat detection and security posture management capabilities58 - Total remaining non-cancelable performance obligations (RPO) under subscription contracts was approximately $3,505 million as of July 31, 2024. The company expects to recognize $1,995 million (57%) of this amount over the next 12 months34 - During the quarter, the company repurchased $43 million principal amount of its 2026 Convertible Senior Notes for $40 million in cash, resulting in a gain on early extinguishment of debt of $3 million35 - The company entered into a settlement agreement for a securities class action lawsuit for $60 million, which is covered by its Director & Officer (D&O) insurance and the company's retention. The settlement is subject to final court approval42 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting a 16% revenue increase, improved operating efficiency, and sufficient liquidity despite a decreased dollar-based net retention rate Results of Operations - Subscription revenue for the three and six months ended July 31, 2024, increased by 17% and 18% YoY, respectively, driven by increased users, additional product sales, and new customers858687 - Total gross margin improved to 76% for the three and six months ended July 31, 2024, compared to 73% in the prior year periods, primarily due to improved spend efficiency899094 - Operating expenses decreased across all major categories for the three and six months ended July 31, 2024, primarily due to reductions in stock-based compensation expense and lower headcount9697100 Key Business Metrics | Metric | As of July 31, 2024 | As of July 31, 2023 | | :--- | :--- | :--- | | Number of customers | 19,300 | 18,400 | | Customers with ACV > $100,000 | 4,620 | 4,205 | | Dollar-based net retention rate | 110% | 115% | | Current remaining performance obligations | $1,995 million | $1,772 million | | Total remaining performance obligations | $3,505 million | $3,027 million | - The decrease in the Dollar-Based Net Retention Rate to 110% from 115% YoY was primarily a result of the macroeconomic environment, with overall ACV from existing customers increasing at a slower rate119 Liquidity and Capital Resources - As of July 31, 2024, principal sources of liquidity were cash, cash equivalents, and short-term investments totaling $2,358 million122 - Net cash provided by operating activities increased to $305 million for the six months ended July 31, 2024, up from $182 million in the prior year period, primarily due to increased cash from customers and improved spend efficiency133 - The company believes its existing cash, investments, and cash from sales will be sufficient to meet its working capital and capital expenditure needs for the foreseeable future130 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company outlines its primary market risks, including foreign currency and interest rate risks, noting minimal impact from hypothetical changes due to U.S. dollar-denominated sales and investment classifications - The company's revenue is not currently subject to significant foreign currency risk as most sales are denominated in U.S. dollars. A hypothetical 10% change in exchange rates would not have a material impact141 - The company's investment portfolio is subject to interest rate risk. However, because investments are classified as "available-for-sale," gains or losses are generally not recognized unless the securities are sold143 - The company's convertible senior notes have fixed annual interest rates, but their fair value is exposed to interest rate risk and fluctuations in the company's common stock price146 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of July 31, 2024, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of July 31, 2024148 - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting149 PART II. OTHER INFORMATION Item 1. Legal Proceedings This section references Note 8 for details on legal proceedings, including a $60 million securities class action settlement and related shareholder derivative lawsuits - The company provides information on legal proceedings by referencing Note 8, "Commitments and Contingencies," in the financial statements152 Item 1A. Risk Factors This section details significant risks including cybersecurity incidents, intense competition, dependence on customer renewals, and financial risks related to stock structure and past losses - The company has experienced cybersecurity incidents in the past that allowed unauthorized access and harmed its reputation and financial results, and similar incidents may occur in the future155220 - Okta faces intense competition from larger, well-established companies, with its principal competitor being Microsoft, which has substantially greater financial and technical resources156173 - The business depends on customers renewing subscriptions. A material decline in the Dollar-Based Net Retention Rate, which has already decreased YoY, would harm future results of operations156182 - The dual-class stock structure concentrates 39.4% of the voting power with pre-IPO stockholders, including directors and executive officers, which limits the ability of Class A stockholders to influence corporate matters159307 Item 5. Other Information This section discloses that Chief Revenue Officer Jon Addison adopted a Rule 10b5-1 trading plan to sell up to 9,850 shares of Class A common stock starting October 14, 2024 - On July 15, 2024, Chief Revenue Officer Jon Addison adopted a Rule 10b5-1 trading plan to sell up to 9,850 shares of Class A common stock, starting October 14, 2024337 Item 6. Exhibits This section lists exhibits filed with the quarterly report, including corporate governance documents, officer certifications, and XBRL data files - A list of exhibits filed with the quarterly report is provided, including the Amended and Restated Bylaws, officer certifications, and XBRL interactive data files338340