Coming into Okta's (NASDAQ:OKTA) third-quarter earnings report, investors may have been nervous. Shares of the cloud-based digital-access specialist had gotten swept up in the market sell-off in recent weeks, pushing Okta stock down after its post-earnings pop in September.

However, the latest quarterly report, released Wednesday afternoon, assuaged some concerns, as the cloud company's strong momentum continued from the second quarter and the company racked up another round of impressive growth. 

Okta earnings: The raw numbers

Metric Q3 2019 Q3 2018 Year-Over-Year Change
Revenue $105.6 million $66.9 million 57.8%
Net income from continuing operations ($29.5 million) ($33 million) N/A
Adjusted earnings per share ($0.04) ($0.19) N/A

Data source: Okta third-quarter report.

What happened this quarter

Okta once again blew past its own guidance, with strong growth in customer numbers. Revenue growth of 58% was much better than the company's forecast of 43%-45%, and its $0.04-per-share adjusted loss easily beat its guidance for a loss of $0.11 to $0.12. Okta also delivered its first free-cash-flow-positive quarter, with FCF of $1.4 million. 

Employees sit around a table in the break room at Okta

Image source: Okta.

Other highlights from the quarter:

  • Okta added more than 450 customers in the quarter, to bring its total customer base to more than 5,600, up 42%. Growth among its largest customers was even stronger, as customers that generate at least $100,000 in annual recurring revenue increased 55% from a year ago to 937, with more than 100 new additions in the quarter.
  • Customer gains in the quarter included Albertsons, the country's second-largest traditional supermarket chain and parent of Safeway, which deployed Okta's customer-identity products to help it manage customer-centric processes such as e-commerce and its loyalty programs. Okta is powering user registration and authentication for more than 30 million customers every week, giving customers such as Albertsons more flexibility, scale, and control. 
  • Okta also announced new or expanded deployments with the Transportation Security Administration, Sonoco, LendingClub, and Hertz
  • Gross margin increased from 68.4% to 71.9%, largely driven by a moderation in the growth of sales and marketing expenses, the company's biggest line item. Sales and marketing costs grew 19.6% to $56.9 million in the quarter.

What management had to say

Okta was pleased with the results in the quarter, in particular the strong growth in larger accounts.

CEO Todd McKinnon had this to say in the company's press release:

We had a record third quarter ... Our continued strength is a testament to the growing pervasiveness of identity, and we believe we are well positioned to further benefit from these tailwinds as organizations continue their move to the cloud, while digitally transforming and securing their businesses.

COO Frederic Kerrest touted the new partnership with Albertsons, saying it shows the potential of the company's customer identity products, and projected a long growth runway.

Looking ahead

Okta raised its guidance once again for the full year. The company sees revenue of $391 million to $392 million, a 52%-53% increase, up from a previous forecast of $372 million to $375 million, or 45%-46% growth. On the bottom line, the company forecasts an adjusted per-share loss of $0.36 to $0.37, an improvement over the previous estimate of $0.46 to $0.48. For the current quarter, management expects revenue of $107 million to $108 million, or 39%-40% growth. On the bottom line, it expects a loss of $0.08 to $0.09 a share.

The cloud-based security specialist also issued preliminary guidance for 2020, calling for $510 million to $520 million in revenue, or 30%-33% growth. Though that represents a significant slowdown from the current year's pace, Okta expects growth to stabilize at that rate. It said at its investor day conference in October that it's targeting at least 30% revenue growth over each of the next five years.

With strong tailwinds from cloud adoption and its leading position as an independent and neutral identity platform, the company continues to bring in new customers and rapidly grow the business.

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