Okta (OKTA -2.52%), the cloud-based identity-for-the-enterprise specialist, turned in one of its strongest quarters yet on Thursday.

The SaaS company said revenue in the quarter rose 45% to $167.3 million, which was well ahead of its own guidance at $155-$156 million and analyst estimates of $155.9 million. Revenue from subscriptions grew 46% in the quarter to $158.5 million as the company continues to attract new customers and expand current relationships.

Performance improved on the bottom line as well, and the company finished the year with free cash flow of $36.3 million, up from a loss of $6.8 million in 2018, marking its first year with positive free cash flow. For the quarter it reported an adjusted loss of just $0.01, ahead of the company's own guidance for a loss of $0.05 to $0.04 and the analyst consensus of a loss of $0.05.

Co-founders Todd McKinnon and Frederic Kerrest on the Nasdaq floor

Image source: Okta.

Below are some other key metrics investors should be aware of:

  • Okta's remaining performance obligations, or its backlog, grew 66% to $1.21 billion, showing that demand for its services is growing faster than quarterly revenue may indicate.
  • Dollar-based net retention, or how much existing customers are spending with Okta, was 119% over the last four quarters, up from 117% in the third quarter.
  • Customer additions were a record in the quarter, with 550 new customers working with Okta, bringing the grand total to 7,950. The company also added a record number of customers spending $100,000 annually on the platform -- 142 -- and now has 1,467 of those high-value customers.

Competitive advantages are strengthening

Okta may be reaching a tipping point in its performance. The company's specialization in identity and security and commitment to its customers have helped it build up a level of trust and goodwill with its customer base. Discussing how the business is organically expanding on the earnings call, CEO Todd McKinnon said, "Our long-term orientation around really being obsessive about making customers successful and turning them into fans is starting to pay off," and added that the company's product portfolio has reached a point where it can grow almost any customer relationship.

According to COO Frederic Kerrest, 73% of Okta's customers expect to expand their business with the company this year, while 0% said they expect to spend less.

To meet that growing demand, the company is ramping up hiring, increasing its headcount by about 40% over the last year as the company grows both its sales force and tech team. That, in turn, has helped the company develop new products like Dynamic Scale that allow its customers to handle as many as half a million sign-ups in a minute, making Okta appealing to even the largest companies with the greatest security and identity needs.

A flywheel effect appears to be emerging in the business: Increased customer spending allows Okta to develop new products and expand its workforce, which in turn allows the company to develop new products that increase customer loyalty and reach new customers. 

The company's latest quarter shows off signs of these strengthening competitive advantages. Revenue growth, for example, held steady from the third quarter, and only decelerated slightly over the course of 2019. Profitability has improved consistently on an adjusted and free cash flow basis. Its dollar-based net margin rose for the first time in at least two years, as the metric had been flat or down slightly in previous quarters, and customer growth is as strong as it's ever been.

Looking ahead to 2020

Though Okta's guidance was characteristically conservative, the company looks poised for another strong year. It appears to have little exposure to the coronavirus outbreak as it has no business in China, and its cloud-based products help people work remotely, potentially making it more valuable if companies ask employees to stay at home to prevent the spread of the virus.

Okta is also set to unveil its newest products at its annual Oktane conference, held virtually this year, which will also include an Investor Day conference on April 1.

In its guidance, the company called for revenue growth of 31%-33% for fiscal 2021 -- but given the company's momentum, strong execution, and new products that are likely to come out at Oktane, I'd expect Okta to again top that forecast.