Okta delivered significant operating leverage during its fiscal second quarter of 2027 as subscription growth, improving sales momentum and continued cost discipline pushed GAAP operating margin to more than twice its prior-year level.
Total revenue increased 11% year over year to $805 million.
Subscription revenue increased 12% to $793 million and represented approximately 99% of total revenue, underscoring the highly recurring nature of Okta’s identity and access management business.
The company’s subscription backlog also continued expanding at a faster rate than reported revenue.
Remaining performance obligations increased 17% year-over-year to $4.858 billion.
Current remaining performance obligations, representing contracted revenue expected to be recognized over the next 12 months, increased 14% to $2.585 billion.
Growth in RPO provides additional visibility into future revenue because it reflects customer commitments that have already been contracted but not yet fully recognized.
With both total and current RPO growing faster than quarterly revenue, Okta enters the second half of the fiscal year with an expanding base of contracted business.
The most significant financial improvement came from profitability.
GAAP operating income increased to $107 million from $41 million in the prior-year period.
GAAP operating margin expanded to 13% from 6%, representing a 700-basis-point year-over-year improvement.
That expansion means Okta converted a substantially larger percentage of revenue into operating profit even while continuing to invest in product development, sales and emerging areas such as AI identity security.
The faster increase in operating income relative to revenue demonstrates substantial operating leverage.
While revenue increased 11%, GAAP operating income rose by approximately 161%.
The improvement reflects the combination of continued subscription growth and greater discipline around the company’s expense base.
On a non-GAAP basis, operating income increased to $226 million from $202 million.
Non-GAAP operating margin remained at 28%.
The stable adjusted margin indicates that Okta maintained a high level of underlying profitability while continuing to fund growth initiatives.
GAAP net income also increased significantly.
Net income reached $116 million compared with $67 million in the prior-year quarter, representing growth of approximately 73%.
Diluted GAAP earnings per share increased to $0.65 from $0.37.
The faster growth in earnings compared with revenue further demonstrates the impact of Okta’s improving cost structure and operating efficiency.
Cash generation remained strong as well.
Operating cash flow reached $234 million during the quarter.
Free cash flow totaled $227 million, meaning Okta converted a substantial portion of its quarterly revenue into cash available after capital expenditures.
Strong free cash flow gives the company additional flexibility to invest in product development and strategic initiatives while maintaining a stronger financial position.
The quarter also showed signs of improving commercial momentum.
Okta reported accelerating annual contract value trends across both its Workforce Identity and Customer Identity businesses.
Workforce Identity helps organizations manage authentication, access and security for employees, contractors and other internal users.
Customer Identity provides similar infrastructure for organizations managing authentication and access for their own customers.
Having stronger contract-value trends across both categories suggests that demand is not concentrated in a single part of the company’s portfolio.
Okta’s identity platform has become increasingly important as organizations operate across cloud applications, remote workforces and complex technology environments.
Employees may need access to dozens or even hundreds of applications, while customers increasingly expect secure digital experiences across websites and mobile applications.
Identity systems provide a central layer for determining who or what should have access to specific applications and data.
That role is becoming more strategically important as companies adopt artificial intelligence.
Okta is positioning identity infrastructure as a foundational security layer for AI agents.
Agentic AI systems can perform tasks on behalf of users, interact with applications and potentially access sensitive enterprise data.
Those capabilities create a new category of digital identities that organizations may need to authenticate, authorize and monitor.
Traditional identity systems have largely focused on humans and applications.
The emergence of AI agents could significantly increase the number of machine identities operating within enterprise environments.
Organizations may therefore need systems capable of determining what individual AI agents are allowed to access, what actions they can perform and under whose authority they are operating.
Okta sees an opportunity to extend its identity platform into that environment.
If enterprises begin deploying large numbers of AI agents, identity management could become an important control point for preventing those systems from accessing unauthorized information or taking inappropriate actions.
The opportunity aligns with Okta’s broader strategy of making identity an independent security layer across enterprise technology.
Rather than securing only a specific application or infrastructure environment, Okta’s platform is designed to manage access across numerous cloud and on-premise systems.
Adding AI agents to that identity landscape could broaden the long-term addressable market.
Newer products are also becoming more meaningful contributors to the company’s growth.
Okta highlighted Okta Identity Governance as one of the products helping drive expansion.
Identity governance allows organizations to manage which users have access to applications and data, review those permissions and remove unnecessary access.
These capabilities can help businesses reduce security risk while meeting compliance requirements.
As organizations add more applications and digital identities, governance becomes increasingly complex.
Employees can accumulate access permissions over time as they change roles or join new projects.
Identity governance systems help organizations determine whether those permissions remain appropriate.
The product therefore represents a natural extension of Okta’s core authentication and access-management capabilities.
Customers already using Okta for authentication can add governance functionality to manage the broader lifecycle of user access.
That creates an additional cross-selling opportunity within Okta’s installed base.
The company can increase revenue not only by adding customers but also by expanding the number of identity products used within existing organizations.
The accelerating annual contract value trends reported during the quarter suggest that this broader product strategy is gaining traction.
Larger contracts can reflect additional user seats, increased adoption of newer products or broader deployments across customer organizations.
The combination of customer expansion and new product adoption can support growth even as Okta reaches a larger scale.
The $4.858 billion of remaining performance obligations provides another indication of that future revenue base.
RPO now equals more than six times the company’s quarterly revenue, although the contracted revenue will be recognized over different periods.
Current RPO of $2.585 billion provides a more immediate measure of the business expected to convert into revenue during the coming year.
Its 14% growth rate exceeded the company’s 11% consolidated revenue growth during the quarter.
That difference suggests contracted subscription activity remains healthy.
Management’s fiscal 2027 outlook reflects continued confidence in the business.
Okta expects full-year revenue between $3.216 billion and $3.226 billion.
At the midpoint, the guidance implies approximately $3.221 billion of annual revenue.
The company also expects non-GAAP free cash flow between $910 million and $930 million.
At the midpoint, that would represent approximately $920 million of annual free cash flow.
Okta expects its non-GAAP free cash flow margin to reach approximately 28% to 29%.
That level of cash generation would represent a significant financial characteristic for a cybersecurity software company continuing to grow at a double-digit rate.
The free cash flow outlook also reinforces management’s emphasis on maintaining disciplined growth.
Okta has moved beyond a period in which increasing revenue was the primary financial objective and is now demonstrating that its subscription business can generate substantial operating income and cash flow.
The fiscal second quarter illustrated that transition clearly.
Revenue increased 11%, but GAAP operating income more than doubled.
GAAP operating margin expanded by seven percentage points, net income rose 73% and free cash flow reached $227 million.
At the same time, the company maintained growth in contracted subscription revenue and reported improving annual contract value trends.
That combination provides a stronger foundation for investment in areas such as identity governance and AI security.
The development of agentic AI could become particularly important for Okta over time.
As businesses move from AI assistants that primarily generate information toward agents that can independently perform actions, security controls around identity and permissions will become more critical.
An AI agent capable of accessing corporate databases, financial systems or customer records may need the same types of authentication and authorization controls applied to employees.
Potentially, those controls could need to be even more granular because an agent may perform thousands of automated actions at machine speed.
Okta is positioning its platform to manage these emerging non-human identities alongside the workforce and customer identities it already secures.
If that market develops as management expects, AI agents could create another long-term source of demand for identity infrastructure.
For now, Okta’s existing businesses continue to produce healthy growth.
Subscription revenue reached $793 million, RPO increased to nearly $4.9 billion and newer products such as Identity Governance are contributing to customer expansion.
The most notable change, however, is the company’s increasing profitability.
A 13% GAAP operating margin compared with 6% a year earlier demonstrates that Okta is beginning to generate significantly greater earnings from its existing scale.
The company’s 28% non-GAAP operating margin and expected 28% to 29% full-year free cash flow margin further reinforce that shift.
Overall, Okta’s fiscal second quarter combined double-digit subscription growth, accelerating contract activity and substantial operating leverage.
Revenue reached $805 million, GAAP operating income increased to $107 million and GAAP net income rose to $116 million.
Meanwhile, $227 million of quarterly free cash flow and nearly $4.9 billion of remaining performance obligations provide both financial flexibility and visibility into future business.
As Okta expands newer products and develops identity infrastructure for AI agents, management is attempting to maintain that growth while continuing to increase profitability.
With fiscal 2027 revenue expected to exceed $3.2 billion and annual free cash flow potentially approaching $1 billion, Okta is entering the next stage of its growth with a substantially stronger earnings and cash-generation profile.
KEY QUOTE:
“Our Q2 performance was highlighted by accelerating cRPO, success with our largest customers, and strong profitability and cash flow.”
Brett Tighe, Chief Financial Officer of Okta
