Okta: Free Cash Flow Margin Rises to 12%

Okta (OKTA -0.45%)leader in identity and access management solutions, reported its fiscal 2025 second quarter results on August 28, 2024.

The company delivered strong financial performance, exceeding management’s expectations in several key areas. Total revenue was $646 million, beating the estimated range of $631 million to $633 million. Non-GAAP operating income was $148 million, significantly above expectations of $123 million to $125 million.

Okta also reported non-GAAP diluted net income per share of $0.72, beating guidance of $0.60 to $0.61. Overall, this quarter showed solid revenue growth and substantial improvements in financial metrics.

Source: SEC documents. Expectations based on management guidance as provided in the 2024-05-29 earnings report.

Understanding Okta

Okta is a leading provider of digital identity and access management solutions. Its cloud-based platform enables organizations to securely connect the right people to the right technologies at the right times. Recently, Okta has focused on expanding its operations and diversifying its product and service offerings. Key success factors include market demand for digital transformation, product diversification, a strong partner ecosystem and the scalability of its platform.

The company’s identity and access management solutions address workforce identity needs and customer identity needs, benefiting from an accelerating trend toward cloud adoption and digital transformation. In recent periods, Okta has focused on expanding its customer base while increasing value for existing customers, leveraging partnerships to improve its market reach.

Quarterly highlights

In the second quarter of fiscal 2025, Okta achieved significant financial and operational milestones. Total revenue was $646 million, up 16 percent from $556 million last year. Subscription revenue rose 17% year over year to $632 million from $542 million.

The company’s current remaining performance obligations (cRPO) were $1.995 billion, up 13% year-over-year, indicating strong future revenue visibility. Non-GAAP operating income increased significantly to $148 million from $59 million, marking a 151% year-over-year increase. Non-GAAP diluted net income per share also saw robust growth to $0.72, up from $0.31. Free cash flow was reported at $78 million, or 12% of total revenue, well above 5%.

In terms of product and service diversification, Okta continued to move forward with innovations in both Workforce Identity Cloud and Customer Identity Cloud. Specifically, it has seen increased adoption of its identity management solutions, fueled by the growing need for secure digital access as businesses transition to cloud-based environments. The increase in subscription revenue highlights the effectiveness of Okta’s strategy to expand its service offerings and increase customer value.

On the financial front, Okta saw a notable decrease in its GAAP operating loss, which fell to $19 million from $162 million in the year-ago period. GAAP net income turned positive at $29 million, compared to a loss of $111 million a year ago. This improvement underscores the company’s operational efficiency efforts. Additionally, free cash flow growth of 59% from $49 million to $78 million continues to signify strong operational execution.

Looking ahead

Looking ahead, Okta provided its outlook for the third quarter of fiscal 2025, expecting total revenue between $648 million and $650 million, representing 11% year-over-year growth. The company estimates a CRPO of $1.985 billion to $1.990 billion, an increase of 9% year-over-year. Management also anticipates non-GAAP operating income between $118 million and $120 million. Non-GAAP diluted net income per share is expected to be in the range of $0.57 to $0.58.

For the full fiscal year 2025, Okta’s guidance includes total revenue in the range of $2.555 billion to $2.565 billion, marking 13% year-over-year growth. Non-GAAP operating income is projected to be between $535 million and $545 million. The company expects non-GAAP diluted net income per share to fall between $2.58 and $2.63, with an anticipated free cash flow margin of approximately 23%.

The company continues to focus on its three main goals: improving security, reactivating growth and scaling efficiently. Investors should monitor developments in these areas, along with the company’s progress in product diversification and partnerships. In addition, Okta has set the stage for sustained growth by capitalizing on emerging trends in AI-based cybersecurity solutions.