Okta delivers strong Q1 results, expands public sector business

The cloud-based identity management firm announced new deployments for the states of Kansas and Iowa and saw the potential to build up business at the federal level, thanks in part to President Biden's cybersecurity executive order.

Okta on Wednesday published its first-quarter financial results, beating top and bottom-line expectations. 

The cloud-based identity management firm also announced an expansion of its public sector business with new deployments for the states of Kansas and Iowa. Additionally, Okta announced it has received a new provisional authorization from the US Defense Department, expanding its opportunity to offer cloud identity services to government agencies and their contractors. 

For the first quarter, Okta's non-GAAP basic and diluted net loss per share was 10 cents. Total revenue was $251 million, an increase of 37% year-over-year. 

Analysts were expecting a net loss of 20 cents on revenue of $238.31 million. 

"Broad-based demand for both our customer and workforce identity solutions led to another quarter of strong financial results and an excellent start to the fiscal year," CEO and co-founder Todd McKinnon said in a statement. "Organizations around the world are turning to Okta to improve the digital customer experience and to improve how their employees safely connect to their applications from anywhere." 

Okta had a busy quarter, opening up into new markets and accelerating its growth in others. First, the company announced its $6.5 billion acquisition of Auth0, speeding up its growth in the customer identity market. The acquisition closed on May 3, Okta said. Then, it announced products bringing it into two new markets -- governance and privileged access -- and expanding Okta's total addressable market from $55 billion to $80 billion. 

The company grew its total customers to more than 10,650 organizations in Q1. It highlighted new business with a range of customers, including Essilor Group, HERE, ImmoScout24, Slack, Western Health and Western Union. 

In the public sector, the Kansas Department of Labor has deployed Okta's Customer Identity products and leveraged Okta ThreatInsight to thwart bot attacks and prevent fraudulent unemployment claims. Meanwhile, the state of Iowa is using Okta to enable state employees to telework. It's also using Okta's Customer Identity products to connect citizens to online services, starting with a new Covid-19 assistance. 

Okta has been investing in its public sector business for some time, with customers at the federal, state and local levels. Its new provisional authorization within the Defense Department builds upon its existing federal certifications. Currently, Okta ranks fifth out of nearly 300 technology vendors in the most authorizations in the US federal government sector of all authorized cloud vendors (SaaS, IaaS and PaaS). 

Federal contracts represent a significant opportunity for Okta, particularly because of President Biden's executive order mandating a shift within federal agencies to zero-trust as-a-service architectures with 2FA. Federal agencies can only buy multi-factor authentication solutions from approved vendors like Okta. 

"We're excited to improve the nation's cybersecurity posture,"  Okta COO and co-founder Frederic Kerrest said to ZDNet on Wednesday. "We have been investing there, we're going to continue to invest there -- not only on the product but the go-to-market side as well. And I think there's going to be a lot of opportunity."

Looking further at Okta's first-quarter results, subscription revenue for the quarter came to $240 million, an increase of 38% year-over-year. 

Total calculated billings in Q1 were $364 million, an increase of 74% year-over-year. Calculated billings include the effect of billings process improvements that were enacted at the end of the first quarter of the fiscal year 2022. Excluding these changes, calculated billings would have been $293 million, an increase of 40% year-over-year.

RPO, or subscription backlog, was $1.89 billion, an increase of 52% year-over-year. Current RPO, which is contracted subscription revenue expected to be recognized over the next 12 months, was $899 million, up 45% compared to a year prior.

Net cash provided by operations was $56 million, or 22% of total revenue, compared to net cash provided by operations of $39 million, or 21% of total revenue, a year prior. Free cash flow was $53 million, or 21% of total revenue, compared to $30 million, or 16% of total revenue, a year prior. 

Okta's financial outlook for the second quarter and full-year fiscal 2022 includes the expected contribution from the acquisition of Auth0. The company expects a Q2 non-GAAP net loss per share of 36 cents to 35 cents. Revenue is expected to be between $295 million to $297 million.

For the full-year fiscal 2022, Okta expects a non-GAAP net loss per share of $1.16 to $1.13. It expects revenue of $1.215 billion to $1.225 billion, representing a growth rate of 45% to 47% year-over-year.

Okta also shared its long-term growth expectations, projecting it will have a revenue base of $4 billion by FY 2026 with a growth of at least 35% each year. It's targeting a free cash flow margin of 20% in FY 26. Okta expects to achieve that level of growth without any further M&A, Kerrest told ZDNet.

The company also announced Wednesday that CFO Mike Kourey is stepping down, effective June 1. Brett Tighe, Okta's SVP of Finance and Treasurer, has been appointed as interim CFO while the Company conducts a search for a permanent replacement.

Additionally, Okta said former Oracle CFO Jeff Epstein will join the board of directors, effective May 25.