Internet security is a perennial concern in business, and corporations continue to turn to the cloud to meet their growing software needs. These two factors are driving the growth of Okta (NASDAQ:OKTA), a cloud-based provider of enterprise identity and security solutions, which has ramped up its sales since its 2017 IPO.
Coming into the company's fourth-quarter report, investors were hoping to see continued growth on the top line and progress toward profits on the bottom line. Once again, Okta did not disappoint.
Okta earnings: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Change|
|Revenue||$115.5 million||$77.1 million||49.9%|
|Net income from continuing operations||($30.8 million)||($23.0 million)||N/A|
|Adjusted diluted earnings per share||($0.04)||($0.08)||N/A|
What happened with Okta this quarter
Okta easily beat its own guidance as it has every quarter this year. The company had called for $107 million to $108 million in revenue and an adjusted loss of $0.09 to $0.08 per share in its third-quarter report, significantly below the reported numbers in the chart above. Okta continued to grow rapidly by bringing on new customers, including a Fortune 10 company, and expanding relationships with current ones. The identity specialist also grew its base of customers spending at least $100,000 in annual recurring revenue by 50% year over year, to 1,038.
Among the customer wins noted by management was Hitachi, a global tech giant with more than 300,000 employees, which turned to the Okta Identity Cloud "to increase agility and securely consolidate the access experience across its hundreds of global business units." Okta also announced the addition of Brink's, the world's largest cash-management company, to the Okta identity cloud, and said it expanded deployments with Tyson Foods, Phillips 66, and Mexican food chain Qdoba, among other companies.
Gross margin continued to improve, rising 200 basis points, to 72.8%. The company reported its second quarter of positive free cash flow (FCF) with $4.8 million in FCF, and said FCF margin improved 690 basis points from the year-ago quarter. Elsewhere, operating margin improved as growth in sales and marketing, and general and administrative expenses moderated.
Finally, Okta announced a significant acquisition, saying it would buy Azuqua, a leader in no-code, cloud-based business application integration and workflow automation, for $52.5 million in an all-cash deal. Azuqua will give the company's Lifecycle Management product a boost and allow customers to automate more of their processes and connect to more apps. COO Frederic Kerrest said the move would help the company become a better "end-to-end service provider."
What management had to say
Okta's management continued to keep their focus on the long term, stressing the huge growth in the marketplace as some of the world's biggest companies embrace Okta's Identity Cloud and grow their integrations. Reflecting on the fourth-quarter performance, CEO Todd McKinnon said:
Large customers are increasingly turning to Okta as the identity standard for both their workforce and customers. The Okta Identity Cloud is uniquely positioned to both help organizations realize their digital transformation initiatives and adopt a Zero Trust security posture. We are seeing Okta's early platform investments paying off and we'll continue to make investments there and in the Okta Integration Network to capture the immense opportunity ahead.
COO Kerrest noted that the company continues to delight customers with a net retention rate of 120%. He also said the company would continue to build organically and make strategic acquisitions where appropriate.
In its guidance for 2019, management called for $530 million to $535 million in revenue, or 33% to 34% growth, and an adjusted loss per share of $0.53 to $0.48, compared to an adjusted loss per share of $0.32 in 2018. While that revenue forecast is in line with the company's previous statements, the guidance for a wider loss this year seemed to take investors by surprise, as losses had been narrowing in recent quarters.
That may explain why Okta shares were down in after-hours trading. However, given its recent growth, the long-term opportunity for the company remains just as appealing, if not more.