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https://killexams.com/exam_list/OktaKillexams : Okta pops as Cowen starts coverage, notes company navigating 'changing landscape'
Okta (NASDAQ:OKTA) shares jumped more than 7% in early trading on Tuesday, along with the broader market, as investment firm Cowen started coverage on the identity access company, pointing out that it is navigating a "changing landscape."
CONSTELLATION BRANDS, INC.
Analyst Shaul Eyal started Okta (OKTA) with a market perform rating and $70 price target, noting that the company is still navigating through its own execution issues, including the data breach from earlier this year, as well as growing competition, but it's still the leader in the identity access management space.
"... OKTA remains a constant IAM market leader according to Gartner as its end-to-end platform addresses both the mission critical customer and workforce identity use cases," Eyal wrote in a note to clients.
Eyal added that Okta's (OKTA) accurate third-quarter results and early look at fiscal 2024 could indicate that its troubles, particularly with sales execution, are starting to subside.
"On its [fiscal third-quarter] earnings call, for [fiscal 2024], management targeted non-GAAP profitability, an [operating] margin in the low-single digits, and meaningful increases to both free cash flow and free cash flow margin," Eyal added.
"We believe OKTA's accurate struggles are predominantly internal rather than external," Eyal continued.
Tue, 13 Dec 2022 00:56:31 -0600en-UStext/htmlhttps://www.msn.com/en-us/money/topstocks/okta-pops-as-cowen-starts-coverage-notes-company-navigating-changing-landscape/ar-AA15dPdkKillexams : Okta: Undervalued Leader In A Mission-Critical And Consolidating Market With Execution Problems
Okta (NASDAQ:OKTA) has been on a roller-coaster since the completion of its acquisition of Auth0 at the beginning of this year. Management publicly acknowledged integration problems on the Q2 FY23 earnings call at the end of August leading shares to plummetmore than 30%.Q3 FY23 earningsandmanagement commentaryshowed that Okta could have run out of negative surprises, which could pave the way for a more predictable future.
Taking a step back the company still operates in of the most important segments of today’s IT environment, IT security, where it holds a leading position within access management. This has been further cemented with the Auth0 acquisition that significantly strengthened the customer identity management leg after an already well-established workforce identity offering.
In addition, the identity management market has seen substantial M&A activity in the preceding quarters (on the top of the Auth0 acquisition) leading to a more concentrated market, which is usually beneficial for the existing players from a pricing perspective.
Meanwhile, the valuation of shares has fallen to a 40-45% discount compared to accurate acquisition prices of direct competitors even after the 26% post-earnings rally. These factors make me come to conclusion that Okta shares are a good risk/return investment at current levels even if executional risks still exist.
Q3 earnings: Better than feared
After scaring investors during the Q2 FY23 earnings call Okta released Q3 FY23 numbers recently that soothed investors’ nerves. The company beat its previously set revenue guidance by 3% close to its usual beat of 5-6%. More importantly in contrast to the Q2 quarter management raised the FY23 revenue outlook with the magnitude of the revenue beat (~$18 million) signaling confidence in the business for the closer future.
Another well-timed decision from management in my view was the preliminary communication of the FY24 revenue guidance as expectations had to be tempered sooner or later for that financial year. They guided for a seemingly conservative 16-17% YoY growth rate in contrast to the current run rate of ~30-35%. One reason I think it’s quite conservative is that the dollar-based net retention rate of Okta has been tracking above 120% for many quarters and shows no signs of a slowdown:
If this strong trend continues in the upcoming fiscal year as well revenue could grow by ~20% only from existing customers, which would already surpass the 16-17% guide of management. In addition, the number of new customers is steadily increasing as well, which will most probably add several percentage-points to topline growth in FY24 again:
To be honest, I’ve been surprised that even with such a soft guidance for FY24 shares rallied 26% after the earnings report. It seems that investors expected the negative news announced during the Q2 earnings call to get possibly worse. This didn’t happen eventually, so they breathed a sigh of relief.
With all this, I think significant risks of negative surprises have been eliminated for the upcoming earnings releases, which make the stock more investable. Before moving on to profitability, I want to take a quick look at current and expected revenue trends to get a clear picture of Okta’s top line growth in the aftermath of the Auth0 acquisition.
Q2 and Q3 quarters for FY2023 have been those ones where YoY comparisons haven’t been distorted by the Auth0 acquisition. In Q2 revenues grew 43.2% YoY followed by a 37.2% increase in Q3. Management guided for a conservative 27.7% YoY growth for Q4, but after considering the “usual” ~5% beat this would increase to 34.1%. Based on this current top line growth is tracking around 35%.
Looking at the current portion of remaining performance obligations (RPO), which is a good leading indicator for revenues shows a somewhat similar tendency. 36.3% YoY growth for Q2 followed by 33.8% for Q3. Management guidance of 21% YoY growth for Q4 seems quite conservative again, so take it with a pinch of salt.
All in all, it seems that the growth dynamic of the company has showed some slowdown in Q3 but based on Q4 guidance this doesn’t seem to be that bad. According to management the majority of this can be attributed to sales integration problems on the one hand as this is the first year when both former Auth0 and current Okta sales reps began to sell both solutions. Mastering both the customer identity solution of Auth0 and the workforce identity solution of Okta takes time for the sales reps. In the top that the sales attrition rate has increased above 20% for Q2 in the wake of the Auth0 acquisition from ~15% in pre-pandemic times, which is another aggravating factor for revenue growth. Management laid out a framework for overcoming these problems earlier, whose success seemed to bear already some fruit in Q3.
If Okta would get over these frictions in the sales engine it could probably reaccelerate the still impressive YoY revenue growth rate of ~35%, which could be an important catalyst for shares in my opinion.
The first steps toward profitability
Besides the stabilization (or reacceleration) of topline growth the other thing Okta must prove to investors is that it can achieve this with simultaneously decreasing the growth in expenses, especially in sales and marketing (S&M) expenses. As shown in the following graph these are still quite high and don’t seem to be coming down:
It’s welcoming news that operating expenses came down to 78% of revenues in the previous two quarters thanks to the proportional reduction in general and administrative (G&A) and research and development (R&D) expenses. However, S&M spending was still around 50% of revenues, which seems to be quite much for the first sight. Although looking at SaaS companies that have gone public in the past 5 years 50% seems to be the average.
Another aspect to gauge whether S&M spending is appropriate is to look at the so-called Magic Number, which shows the ability of S&M spending to generate future revenues:
The number of 0.56 for Q3 shows that S&M spending during Q2 has driven less increase in sales than the same amount of spending in the preceding quarters. This is in line with management comments on sales integration problems and increased attrition. If these problems show signs of progress indeed this should be reflected in the increase of the Magic Number in the upcoming quarters. Usually, a number above 0.5 is sufficient, but it should rather track above 0.75-1 to justify every single cent spent on S&M.
Based on Okta’s Investor Day presentation and management comments on Q2 and Q3 earnings calls there will be much more emphasis on profitability going forward, which already resulted in a slightly positive non-GAAP operating and free cash flow margin this past quarter:
For FY24, management announced a low-single-digit operating margin guidance and a not-specified significant increase in free cash flow margin, further strengthening their commitment to profitability.
This is welcoming news in my opinion, it seems that the current market environment has forced management to rethink their profitability vs growth strategy, which has been admitted by the CEO on the Q2 earnings call:
“I think overall, in the Okta sales team, I think one of the -- if I had to do all again, one of the things I would do differently is we had a super, super aggressive hiring plan coming into this year. And we were really trying to cover all the market and make sure we had every nook and cranny in terms of growth opportunity covered. And that, in retrospect, was a mistake. We should have been more from the beginning had a more of a moderated growth plan to make sure that we could achieve that at the level we wanted to. So that's one thing I would do differently.” – Todd McKinnon, CEO
This and several other comments suggest to me that management is taking a more transparent approach toward investors than in the preceding quarters. If this persists in the future, this is also welcoming news.
Still, the big question around S&M expenses is whether their reduction will lead to a significant slowdown in revenue growth or is it possible to counterbalance this with increasing sales efficiency? I think currently no one has the answer for this, but probably a bit of both. I believe possible negative or positive surprises in that regard could influence the share to a great extent.
Valuation based on accurate acquisitions of competitors
The valuation of Okta (and many other high-growth, zero-profit tech stocks) is usually a fiercely debated syllabu and there are always voices saying no matter how low a sales-based valuation multiple (P/S, EV/S) goes it’s still expensive because the company is burning cash. Luckily, this time there have been two further acquisitions this year in the identity management space, where a leading private equity firm with 40 years of history, Thoma Bravo (16) acquired two leading companies, Ping Identity, and ForgeRock (FORG) (the deal is waiting on DOJ approval). I suppose that they made a very thorough valuation before paying billions of dollars, which provides a good basis for deciding whether Okta shares are under- or overvalued.
Based on the purchasing price paid for the two companies, their balance sheets immediately before the acquisition and their expected revenues for calendar year 2022 I have calculated that Ping Identity has been acquired for an enterprise value of ~8.5x CY22 expected sales, while ForgeRock for ~9.3x CY22 expected sales.
Looking at Okta’s current market cap of $9.84 billion subtracting cash and short-term investments of $2.47 billion and adding long-term debt of $2.19 billion results in an enterprise value of $9.56 billion. Management gave an outlook for FY23 sales of $ 1.837 billion, which results in an EV/Sales multiple of 5.2. Compared to the multiples of 8.5 and 9.3 discussed above this shows a 39-44% discount. Furthermore, Ping Identity has been a 20% topline grower based on ARR, while ForgeRock a 30% one, so the differences in future growth prospects favor Okta as well. Finally, both companies acquired by Thoma Bravo were deeply in the red on the bottom line, so this doesn’t support the huge difference in valuations as well.
This makes me conclude that shares of Okta are undervalued at current levels, even if GAAP profitability is still not close on the horizon. If a strategic buyer paid these prices for direct competitors in the space, I think long-term investors can use this as a good rule of thumb in the future.
Market consolidation is welcoming news for Okta
The accurate acquisitions in the sector are not just good for valuation purposes, but I think they will be beneficial for the margins of Okta in the future as the level of competition in the sector decreases. If we look back at Gartner’s Magic Quadrant for Access Management in 2021, we could see five companies positioned as leaders. For now, there are only three left of them, as Okta acquired Auth0 (it was already announced back then) and Thoma Bravo acquired Ping Identity and ForgeRock:
I think this is a significant level of consolidation, which led perhaps the Department of Justice to take a closer look at the recently announced ForgeRock deal. However, it seems that the deal will slip through, which will lead ultimately to further consolidation. Finally, it’s important to note that Microsoft (MSFT) is still there as the largest player in the access management market providing strong competition for Okta.
Okta is trying to make strong efforts to differentiate itself, and position itself as the independent, neutral leader in identity management for both workforce and customer identity use cases. I think their message is a simple and effective one, which can be conveyed effectively to customers:
I believe that after sales reps get acquainted with both use cases strong cross-sell opportunities will be unleashed enabling Okta to go more aggressively after the $80 billion market opportunity.
One obvious risk factor is the sales attrition and sales integration problem of Okta. Based on the Q3 earnings call there has been progress on both:
“So, if you think about attrition, you heard about it earlier in the call, significant improvement, but it's one quarter. We're not getting overly excited. So we're remaining cautiously optimistic. We're not going to say, hey, one quarter is a trend. We got to see a longer trend. So, we're going to see that over time and make sure that continues to improve.
The second one is around the integration, the Customer Identity Cloud. You heard earlier today, there's some progress there, early progress. Larger number of sales reps and field being involved with customer identity deals. Once again, one quarter trend. We're pleased with where we are. It's -- but once again, cautiously optimistic.” Brett Tighe, CFO
As the CFO says investors shouldn’t get overly optimistic based on the results of one quarter, but it’s a good start. Let’s see how this evolves in the upcoming quarters.
Besides these executional problems macro headwinds have gotten worse during Q3:
“And then the third one we talked about last time was around the macro. And last time we talked about, like I just said, it wasn't very apparent to us, right? It was small. You could start to see signs of it. This quarter has gotten significantly -- it's worsened since then, so. And we're thinking it's going to get worse from here.” Brett Tighe, CFO on Q3 earnings call
So, how the macro landscape evolves is also an important risk factor. Until now, weakness has been more pronounced at Okta in the SMB segment in the U.S., so it’s important to follow whether it will spread to the larger enterprise segment.
My previous article on Okta was titled: Okta Stock: Large Risk, Large Return. Since then the large risk has been decreased to some extent with management acknowledging execution problems on the Q2 earnings call. The large return part still holds as valuation got cheaper, while long-term growth prospects are still compelling. An alternative title and also the conclusion could be: Okta Stock: Decreasing Risks, Large Return.
Tue, 06 Dec 2022 12:43:00 -0600entext/htmlhttps://seekingalpha.com/article/4562807-okta-undervalued-leader-in-a-mission-critical-and-consolidating-market-with-execution-problemsKillexams : Okta Stock Just Surged. Here's Why the Rally Could Keep GoingNo result found, try new keyword!After a brutal year for Okta (NASDAQ: OKTA), investors finally got some good news on Thursday, Dec. 1. Shares of the cloud identity specialist soared 26% as it easily beat estimates in its third ...Sat, 03 Dec 2022 23:26:00 -0600text/htmlhttps://www.nasdaq.com/articles/okta-stock-just-surged.-heres-why-the-rally-could-keep-goingKillexams : Has Okta Turned the Corner On Its Troubled Acquisition?
When Okta(OKTA4.15%) announced plans early last year to acquire Auth0, it seemed like a match made in heaven. Auth0's authentication and authorization services seemed like a natural fit with Okta's identity and access management solutions. However, the companies soon learned firsthand about the types of pitfalls that often accompany major integrations.
Mergers and acquisitions can be challenging at the best of times, and reports of sales force attrition and confusion among the ranks at Okta left investors with a lack of confidence in the company. Traders drove the stock down by nearly 34% on Sept. 1, the day after the company delivered its fiscal second-quarter report.
Fast-forward three months, and the market's response to the fiscal third-quarter results it reported Nov. 30 suggests Okta's problems are all in the rear-view mirror, and all is forgiven.
Image source: Getty Images.
A strong financial showing
For its fiscal 2023 third quarter, which ended Oct. 31, Okta's revenue rose 37% year over year to $481 million. Subscription revenue grew even more quickly, up 38%. This resulted in the bottom line breaking even on an adjusted earnings basis. While breaking even might not seem like a big deal, it was an improvement from the adjusted loss per share of $0.10 Okta reported just three months ago.
To provide the top- and bottom-line numbers context, analysts' consensus estimates were for revenue of $465.4 million and a loss per share of $0.24, so Okta beat expectations by a country mile.
Other metrics were equally positive. Okta's calculated billings -- which includes revenue plus its quarterly change in deferred revenue -- grew 37% year over year, suggesting a remarkable degree of consistency in its upcoming revenue growth. Another factor that points to a bright future is the company's remaining performance obligations -- or unbilled subscription revenue -- which climbed to $2.85 billion, up 21%. Its current remaining performance obligation -- reflecting revenue that Okta expects to earn over the coming 12 months -- was $1.58 billion, up 34%.
Okta's customer count topped 17,000, up roughly 22% year over year, while the count of its most valuable customers -- those with annual contract values of $100,000 or more -- grew 32%. Additionally, its dollar-based net retention rate, which represents spending growth from existing customers, remained steady at 122%.
Ironing out the wrinkles
It wasn't Okta's financial performance that spooked investors last quarter but rather the uncertainty and lack of confidence telegraphed by the cybersecurity company's management about the ongoing integration of the Auth0 and Okta sales organizations.
On the conference call to discuss the second-quarter results, co-founder and CEO Todd McKinnon suggested Okta was struggling to bring those teams together. "While we are making progress, we've experienced heightened attrition within the go-to-market organization as well as some confusion in the field, both of which have impacted our business momentum," McKinnon said.
As a result of those difficulties, Okta suggested it might not meet its long-term financial guidance, which included $4 billion in annual revenue and a 20% free-cash-flow margin by 2026.
Management laid out a three-step plan to get things back on track, including slowing the attrition that was bogging down the sales organization, unifying its pricing structure, and simplifying the go-to-market approach with clear sales guidance for its two cloud-based products.
Now, just three months later, Okta is back in Wall Street's good graces. McKinnon revealed that attrition, which had spiked in the second quarter, had fallen to its lowest rate in several quarters. He also said in an interview with MarketWatch that the company has "done a much better job clarifying the products and the positioning and saying we have two clouds: We have Workforce Identity Cloud and Customer Identity Cloud, and it's very clear what to sell, when."
He went on to say that the problem stemmed from a lack of properly communicating its intentions to the sales staff, an issue that has since been rectified.
Smooth sailing ahead?
For the fiscal 2023 fourth quarter now underway, Okta expects total revenue of $489 million, up roughly 28%, resulting in an adjusted loss per share of about $0.09. Even as management issued conservative guidance due to expectations of continued macroeconomic headwinds, its forecast was still better than analysts' consensus estimates, which called for revenue of $488 million and a loss per share of $0.12. Management put a cherry on top, increasing its full-year revenue guidance to growth of 41%, up from its previous forecast, which had called for growth in a range of 39% to 40%.
Perhaps even more importantly, Okta said it expects to report adjusted profits for full-year fiscal 2024, which begins Feb. 1, 2023.
To be clear, Okta isn't cheap in terms of traditional valuation metrics, but the stock was recently trading at its cheapest valuation ever -- less than 4 times next year's expected sales. Experts typically view a price-to-sales ratio of between 1 and 2 as reasonable. That said, investors also tend to reward companies that deliver robust growth -- and Okta clearly checks that box.
Management has made solid improvements en route to its goals while also delivering a classic beat-and-raise quarter. Wall Street hadn't expected so much progress so soon, and that gave investors cause to celebrate.
Fri, 02 Dec 2022 23:33:00 -0600Danny Venaentext/htmlhttps://www.fool.com/investing/2022/12/03/has-okta-turned-the-corner-on-troubled-acquisition/Killexams : Okta CEO promises profit for all of next year — ‘The problem was never that we didn’t have talented sales people’
Okta Inc. executives on Wednesday said they will report an adjusted profit in the fourth quarter and, in a surprise, predicted profitability for all of next fiscal year, trumping profit concerns stemming from accurate sales-operation issues.
For the fourth quarter, Okta OKTA, +4.82% guided for adjusted earnings of 9 cents to 10 cents a share on revenue of $488 million to $490 million. Analysts, on average, were expecting an adjusted loss of 12 cents a share on sales of $488.3 million, according to FactSet.
In a surprise announcement during the conference call, Chief Financial Officer Brett Tighe revealed a full forecast for fiscal 2024 as well. Most software companies shy away from such practices amid uncertainty about macroeconomic conditions. He said Okta executives are aiming for adjusted profits for the full year on revenue of $2.13 billion to $2.15 billion. Analysts on average expected adjusted losses of 30 cents a share on sales of $2.3 billion, beating profit projections widely but also missing sales expectations by more than $100 million.
Shares rallied as much as 18% in after-hours trading immediately following the release of the results, but those gains noticeably pared back to a steady 12% level after Tighe announced the outlook to analysts on the call. They have fallen 76% so far this year, compared with a 27% decline by the tech-heavy Nasdaq Composite Index COMP, +2.59%.
In an exclusive interview with MarketWatch ahead of the company’s conference call, Okta Chief Executive and co-founder Todd McKinnon said the company is not providing any forecasts past 2024 because of uncertainty in the macro environment.
“We’re thinking a pretty conservative assumption that the macro is going to get worse before it gets better, so that’s definitely factored into the guide,” McKinnon told MarketWatch.
On a more positive note, McKinnon said sales-rep attrition has been the lowest it has been in the past several quarters, following a spike last quarter. Okta also announced that Susan St. Ledger, the president of worldwide field operations, is retiring and McKinnon will take over her duties on an interim basis.
“What we’ve done over the last six months is what a lot of companies are doing, slowing hiring, re-evaluating real estate, doubling down on the things we know are high value. And some of the things that are maybe less value we’re doing less of, so that’s where we see the profitability come from,” McKinnon told MarketWatch.
Much of that comes from addressing the company’s struggle in combining Okta’s salesforce with sales reps acquired in the May 2021 acquisition of identity-platform Auth0 (pronounced “Auth Zero”), which is more focused on direct-to-user sales than Okta’s corporate focus.
“The problem was never that we didn’t have talented sales people,” McKinnon told MarketWatch. “The problem is that we didn’t enable them and clarify things with them.”
“We still have work to do,” McKinnon said. “We don’t think we’ve solved it after one quarter of a positive trend but I do think it’s progress.”
“The biggest factor: We’ve really done a much better job clarifying the products and the positioning and saying we have two clouds: We have Workforce Identity Cloud and Customer Identity Cloud and it’s very clear what to sell when,” he said.
Okta reported a third-quarter loss of $208.9 million, or $1.32 a share, compared with a loss of $221.3 million, or $1.44 a share, in the year-ago period. After adjusting for stock-based compensation expenses and other items, the company reported break-even results on a per-share basis, compared with a loss of 7 cents a share in the year-ago period. Revenue rose to $481.4 million from $350.7 million in the year-ago quarter.
Analysts had forecast an adjusted loss of 24 cents a share on revenue of $465.4 million, based on the company’s forecast for a loss of 24 cents to 25 cents a share on sales of $463 million to $465 million.
For the current year, Okta forecast an adjusted loss of 27 cents to 26 cents a share on revenue of about $1.84 billion, compared with the Street’s forecast of 73 cents a share on revenue of $1.82 billion.
So far in November, cloud software stocks have been getting trashed. While the S&P 500 SPX, +1.78% has gained 5.4%, and the Nasdaq has advanced 4.4%, the iShares Expanded Tech-Software Sector ETF IGV, +3.44% has risen 1.6%, the Global X Cloud Computing ETF CLOU, +3.63% has ticked up 0.8%, the First Trust Cloud Computing ETF SKYY, +3.28% has fallen 2%, and the WisdomTree Cloud Computing Fund WCLD, +3.81% has dropped 6.9%.
Wed, 30 Nov 2022 07:46:00 -0600en-UStext/htmlhttps://www.marketwatch.com/story/okta-promises-profit-and-stock-jumps-11669842681Killexams : Okta, Atlassian Are 'Zombie Stocks' In Danger Of Dropping To $0: Analyst
New Constructs CEO David Trainer added Atlassian CorpTEAM and Okta IncOKTA to his Zombie Stock list. Atlassian shares are down 63.1% and Okta shares are down 71.1% year-to-date, but Trainer said this week both stocks may still have more pain ahead.
Atlassian Struggling: Trainer's bear case on Atlassian was based on a breakdown of the company's fundamentals since the beginning of fiscal 2022. He said Atlassian's net operating profit after-tax (NOPAT) margin has dropped from 5% in fiscal 2021 to -6% in the past 12 months.
Unfortunately, rising interest rates mean the company can no longer access cheap capital, and Trainer said Atlassian has burned through $838 million in cash since the first quarter of fiscal 2021.
"Companies that inherently struggle to produce real cash flows, like Atlassian, are at risk of seeing their stock price go to $0," Trainer said.
Okta's Cash Burn: He said Okta was also burning cash at an alarming rate with no end in sight. The company burned $3.8 billion in free cash flow since 2018, and the company was facing stiff competition from larger, more profitable companies, such as Microsoft CorpMSFT and Oracle CorporationORCL. Trainer estimated Microsoft's NOPAT margin was 35%, Oracle's was 30% and Okta's was -52%.
"While Okta will struggle to fund its cash burn, its profitable competition will be better positioned to increase market share," Trainer said.
Benzinga's Take: Regardless of whether Atlassian or Okta shares eventually drop to zero, there's not much to like about the direction in which the companies or their stocks are headed at the moment.
Trainer has been dead-on so far in 2022 with similar bearish calls on stocks such as Blue Apron Holdings IncAPRN and AMC Entertainment Holdings IncAMC, so investors should certainly think twice before buying the dips in Atlassian or Okta.
Fri, 02 Dec 2022 08:26:00 -0600text/htmlhttps://www.benzinga.com/analyst-ratings/analyst-color/22/12/29944225/okta-atlassian-are-zombie-stocks-in-danger-of-dropping-to-0-analystKillexams : Okta, Inc. (NASDAQ:OKTA) Q3 2023 Earnings Call Transcript
Okta, Inc. (NASDAQ:OKTA) Q3 2023 Earnings Call Transcript November 30, 2022
Dave Gennarelli:Hi, everybody. Welcome to Okta's Third Quarter Fiscal Year 2023 Earnings Webcast. I'm Dave Gennarelli, Senior Vice President of Investor Relations at Okta. With me in today's meeting, we have Todd McKinnon, our Chief Executive Officer and Co-Founder; and Brett Tighe, our Chief Financial Officer. Today's meeting will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding ourfinancialoutlook and market positioning. Forward-looking statements involve known and unknown risks and uncertainties that may cause our genuine results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
Forward-looking statements represent our management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's financial results is included in our filings with the SEC from time to time, including the section titled Risk Factors in our previously filed Form 10-Q. In addition, during today's meeting, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents is available in our earnings release.
You can also find detailed information in our supplemental financial materials, which include trended financial statements and key metrics posted on our Investor Relations website. In today's meeting, we will quote a number of numerical growth changes as we discuss our financialperformance. And unless otherwise noted, each such reference represents a year-over-year comparison. And now, I'd like to turn the meeting over to Todd McKinnon. Todd?
Todd McKinnon: Thanks, Dave, and thank you, everyone, for joining us this afternoon. We're pleased with our Q3 results, but before reviewing them, I thought I'd provide an update on some of the progress with respect to the execution challenges we faced this year. Our confidence in our ability to further advance our leadership position in a very large market opportunity has not wavered. In fact, with all the great new products and functionality we announced at Okta in '22 earlier this month, we are more optimistic about our long-term prospects than ever. The action plan we initiated to stem attrition has delivered meaningful improvement over the last quarter. And while we're making progress with the execution challenges we outlined, we recognize that it will take several quarters to regain top line momentum in the business.
Adding to the challenge is a global macro environment that we anticipate becoming worse before it improves. Brett will talk more specifically about what we're seeing in our business in terms of the macro environment and the more cautious approach we're taking to our business outlook. We view these issues as short term in nature. We continue to focus on the long term while making the necessary adjustments to the business in the near term, including our commitment to meaningfully higher profitability and cash flow. One constant is that identity will remain a critically important element to organizations. At Oktane22 earlier this month, we officially unveiled our simplified two-cloud approach to the market: the Workforce Identity Cloud and the Customer Identity Cloud, two clouds, one Okta.
This alignment has alleviated prior confusion in the field and sets us up to build on these two powerful pillars. More importantly, this strategy has been enthusiastically received by our go-to-market team, customers and partners. A great proof point is the upward trend line of the number of sales reps that have closed Customer Identity Cloud deals over the past 3 quarters. The feedback that I personally received in my conversations with dozens of partners and customers at Oktane was overwhelmingly positive, and we firmly believe that it will only get better with time. Identity matters to every part of an organization, which is why it's such a strategic decision. CIOs care about high-performing IT. CMOs care about conversion and customer acquisition.
CTOs care about innovation. CFOs care about costs and efficiency. And CEOs and their boards care about all of these things. Identity can help address all of these. And having one account exec to speak to all of these decision makers will help drive a more cohesive identity strategy across the entire organization. Turning to our Q3 results. We added 650 new customers in the quarter, bringing our total customer base to over 17,000, representing growth of 22%. We continue to see growth with large customers for both, workforce and customer identity. And we are proud to work with some of the most important brands in the world, such as S&P Global, McKesson and Zoom. In Q3, we added 215 customers with $100,000-plus ACV, our total base of $100,000-plus ACV customers now stands at over 3,700 and grew 32%.
Here are just notable examples of customer wins in Q3, which come from a wide range of industries. KeyBanc, a Fortune 500 financial services company, was a significant Okta Workforce new business win. They sought a cloud based identity solution to help modernize their legacy systems, eliminate redundancies across tool sets and support their cloud first initiatives. Okta's Workforce Identity Cloud will provide a unified identity system, will also enhancing security through adaptive multi-factor authentication for KeyBanc's 25,000 globally distributed employees. A Fortune 100 global entertainment conglomerate was a big upsell this quarter. As a result of many acquisitions, the company has disparate identity providers that resulted in its employees having multiple different log-ins to access corporate apps resulting in friction, unpleasant user experiences and slowed business outcomes.
Having leveraged Okta Workforce for several business units, this customer is now deploying Okta Workforce Identity Cloud to cover its more than 200,000 employees. Today, they are one of our largest customers and we believe there is significantly more opportunity to unlock as we partner with them going forward. We also closed our biggest Customer Identity Cloud deal ever with a multinational technology company. This company began using Okta back in 2019 to better connect with its business partners. The company then sought to consolidate onto a single identity provider while accelerating revenue, moving to the cloud and enhancing its security posture. The Okta Customer Identity Cloud will help increase security and harden authentication for this customer amid increased security concerns, while maintaining the ease of their end user experience.
We also had another strong quarter with our public sector vertical. Year-to-date, our business with pub sec organizations has increased over 65% with great wins across both, Workforce and Customer Identity Clouds. A great workforce upsell in Q3 was with a huge federal agency that will cover tens of thousands of their employees. The agency is modernizing its legacy on-prem identity technology. We see significantly more opportunity to expand our relationship with this agency and the even larger agency that it rolls up to. We also continue to have success with state and local agencies, as they replace legacy identity solutions for both, their employees and their citizens. In Q3 alone, cities like Birmingham, Charlotte and Tampa all turned to Okta.
We got to meet with some of these customers just a couple of weeks ago at Oktane22 in San Francisco. This was our 10th Oktane and we had nearly 10,000 registrants for the in-person and online event, a sold out partner event, and 9 million views of the live opening keynote stream. During the event, we announced numerous new products, features and functionality that we believe will elevate Okta's market leadership position. In our strategy to build the primary cloud for identity, we now cover the most use cases of any company and help solve the most challenging identity issues that are being driven by the increasing deployment of cloud technology, the adoption of Zero Trust security and digital transformation projects. As Okta invests in both of our clouds and develops purpose built functionality for app building, IT and security teams, we're also investing in connecting our clouds.
This interoperability and connection has the ability to create greater value for customers and flexibility and security, and it can also become the catalyst for rapid innovation that drives business outcomes. The foundation of this interoperability is the Okta Identity platform where shared platform services and the Okta Integration Network reside. As the Okta Identity platform evolves, additional services will be available for customers, emphasizing capabilities that unlock even more use cases. Core to Okta's success is our independence and neutrality. The Okta Integration Network is the foundational technology that supports customer choice. It was innovative when we launched it 13 years ago, and it still offers the broadest selection and deepest integrations available.
The success we're having with customers around the world is directly related to the Okta Integration Network. Monolithic platforms try to imitate the Okta Integration Network but they can never replicate it. In fact, we're now taking the power of the Okta Integration Network to the next level with the power of our two clouds. By having both clouds together, we further enable this open ecosystem of choice. Workforce customers get the functionality of their craving, like seamless Zero Trust security, continuous authentication and fine grain authorization, all working out of the box. And for the SaaS builders, they know what enterprise readiness looks like because we define it in the Customer Identity Cloud and can plug into the Workforce customers around the world.
All of this pushes the identity industry forward, resulting in more standardization that benefits everyone. And finally, I want to thank Susan St. Ledger for her dedication to Okta the past two years. We wish her well in her retirement at the end of this fiscal year. We're initiating a search, but if a successor isn't in place at that time, I will step in to lead the go-to-market organization in the interim. Susan will stay on as an adviser to provide for a successful transition. We're looking forward to bringing on the next leader who will help Okta further penetrate the massive market opportunity. To wrap things up, we're pleased with our Q3 financial results. We've made some early progress to Strengthen our execution challenges, but we recognize we still have a lot more work to do to regain our business momentum.
I want to thank the entire Okta team for their tireless work. I also want to thank everyone who came out to support us at Oktane22. Now, here's Brett to walk you through more of Q3 financial details and our outlook for meaningfully increased profitability in Q4 and next year.
Brett Tighe: Thanks, Todd, and thank you, everyone, for joining us today. I'll start with some commentary on the macro environment and then get into our third quarter results, followed by our outlook. With regards to the macro environment, while we didn't experience a meaningful change in sales cycles, we are seeing signs that the environment has further weakened since we spoke last quarter. For example, in Q3, new pipeline is more weighted towards upsells, and we're experiencing some softening demand in the SMB market in North America. Turning to our Q3 results. Total revenue growth for the third quarter was 37%, driven by a 38% increase in subscription revenue. Subscription revenue represented 97% of our total revenue. International revenue grew 39% and represents 22% of our total revenue.
We experienced minor FX headwinds, which are incorporated into our reported numbers. RPO or backlog grew 21% to $2.85 billion. Impacting total RPO growth is the general shortening of term lengths of recently signed contracts and an increase in public sector contracts, which generally have a one-year term length. Our average term length is just over 2.5 years. Current RPO, which represents subscription revenue we expect to recognize over the next 12 months grew 34% to $1.58 billion. We view current RPO as the better metric to assess our quarterly performance relative to calculated billings, which as we've noted, can be noisy due to fluctuations in invoice timing and contract duration. Calculated billings and current calculated billings grew 37%.
Turning to retention. Our dollar-based net retention rate for the trailing 12-month period remains strong at 122%. This was driven by the strong upsell motion we are seeing with our existing customers as they expand on both, products and users. As always, the net retention rate may fluctuate from quarter to quarter as the mix of new business, renewals and upsells fluctuates. Consistent with prior quarters, gross retention rates remained very healthy in the mid-90% range, despite experiencing some sequential weakness in the SMB market. Before turning to expense items and profitability, I'll point out that I will be discussing non-GAAP results going forward. Looking at operating expenses. Total operating expenses for the quarter were lower than expected and allowed us to return to non-GAAP profitability with slightly positive operating income.
The better than expected profitability is primarily due to the combination -- of the past four quarters. Moving to cash flow. Free cash flow was $6 million. We ended the third quarter with a strong balance sheet anchored by nearly $2.5 billion in cash, cash equivalents and short-term investments. Overall, we're pleased with our Q3 results. Now, let's turn to our business outlook for Q4 and FY24. This outlook incorporates the execution challenges we experienced this year, which resulted in lower-than-expected capacity build as we move through the year. We're also taking a more cautious stance on the macro environment, which we believe will get worse before getting better. We expect to continue to benefit from the spend reduction measures we started implementing in Q3, including significantly reducing our hiring plans, rationalizing our facilities footprint and applying greater overall financial discipline.
The reductions will help us further Strengthen our operating margins and profitability in Q4 and beyond. For the fourth quarter of FY23, we expect total revenue of $488 million to $490 million, representing growth of 27% to 28%. Current RPO of $1.63 billion to $1.64 billion, representing growth of 21%. Non-GAAP operating income of $15 million to $17 million, and non-GAAP diluted net income per share of $0.09 to $0.10, assuming diluted weighted average shares outstanding of approximately 175 million. For FY23, we are raising our revenue outlook by approximately $18 million at the high end. We now expect revenue of $1.836 billion to $1.838 billion, representing growth of 41%. We are raising our profitability outlook by approximately $66 million at the high end.
We now expect non-GAAP operating loss of $41 million to $39 million; and non-GAAP net loss per share of $0.27 to $0.26, assuming weighted average shares outstanding of approximately 158 million. Lastly, I want to provide a few comments to help with modeling Okta. We're providing a non-GAAP fully diluted share count for Q4 because we expect to flip to positive non-GAAP net income for the quarter. We will continue to provide a basic share count for FY23 because of the net loss position for the full year. We expect Q4 to be our seasonally strongest quarter for free cash flow and expect free cash flow margin to be in the low double digits. We also expect free cash flow margin for FY23 to be in the low single digits. We are increasing our calculated billings outlook for FY23 by approximately $25 million to $2.065 billion to $2.075 billion, representing growth of 28% to 29% when viewed on a like-for-like basis or 20% to 21% on an as reported basis.
As we've noted throughout this year, this will be the final time we provide a billings outlook. While we are in the early phases of financial planning, we would also like provide a preliminary view of FY24. With our continued focus on expense control, we are focused on achieving non-GAAP profitability for FY24 and an operating margin in the low-single-digits. We are also targeting a meaningful increase to free cash flow and free cash flow margin over FY23 and will provide more specific cash flow comments on our Q4 call. From a revenue perspective, we are factoring in the execution challenges we faced this year, the go-to-market leadership transition and the growing uncertainties of the macroeconomic environment. We estimate total revenue to be in the range of $2.130 billion to $2.145 billion or growth of 16% to 17%.
While we had initially planned on providing an update on our long-term targets, we believe it's prudent to wait and revisit this once we have increased visibility and confidence in the macro environment, new global field operations leadership in place and have made more progress on the integration. To wrap things up, we're confident we have the right action plan in place to build on our progress and expand on our market leadership position. I'll turn it back to Dave for Q&A. Dave?
A - Dave Gennarelli: Thanks, Brett. In the interest of time, please limit yourself to one question, so that we can get to everyone. You're welcome to queue back up with additional questions afterward. So with that, we'll take the first question from Matt Hedberg at RBC. Matt?
Matt Hedberg: Congrats on the bounce back quarter here. Maybe, Brett, for you, on the revenue guide, thank you for that preliminary look, I think that's super helpful. Can you provide maybe some of the underlying inputs in that? How you're thinking about like customer adds, NRR, anything to kind of provide us a little better sense of sort of how you came up with that? I think it was 16% to 17% growth.
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Wed, 07 Dec 2022 05:04:00 -0600en-UStext/htmlhttps://www.yahoo.com/entertainment/okta-inc-nasdaq-okta-q3-181802992.htmlKillexams : Okta Stock Is Soaring. At Least One Software Firm Might Have Found Its Bottom.
Okta shares soared on Thursday after its third-quarter earnings beat analysts’ expectations. Even a downgraded growth forecast wasn’t enough to deter investors looking for technology stocks well placed for a rebound from current lows.
This earnings season has been marked by a series of warnings of cutbacks in corporate spending from business-software companies. Okta (ticker: OKTA) proved to be no exception, saying it expects revenue growth in its fiscal 2024 to decelerate to 16%-17% against consensus expectations of around 27%.