8-K: Okta Reports Strong Q2 FY26, Settles Derivative Lawsuits

Okta announced robust second-quarter fiscal year 2026 financial results with double-digit revenue growth and significant cash flow, alongside the preliminary approval of a settlement in stockholder derivative actions.

Summary

• Total revenue for Q2 FY26 was $728 million, an increase of 13% year-over-year, with subscription revenue growing 12% year-over-year to $711 million.
• Remaining Performance Obligations (RPO) grew 18% year-over-year to $4.152 billion, and current RPO (cRPO) increased 13% year-over-year to $2.265 billion.
• GAAP operating income reached $41 million (6% of total revenue), a significant improvement from a GAAP operating loss of $19 million (3% of total revenue) in Q2 FY25.
• Non-GAAP operating income was $202 million (28% of total revenue), up from $148 million (23% of total revenue) in Q2 FY25.
• GAAP net income was $67 million, compared to $29 million in Q2 FY25, with GAAP diluted net income per share of $0.37.
• Non-GAAP diluted net income per share was $0.91, an increase from $0.72 in Q2 FY25.
• Net cash provided by operations was $167 million (23% of total revenue), and free cash flow was $162 million (22% of total revenue), both significantly higher than the prior year.
• The company announced a settlement in multiple stockholder derivative actions, which alleged material misstatements regarding the Auth0 merger and failures in cybersecurity internal controls.
• The settlement includes the adoption, implementation, and maintenance of comprehensive corporate governance and internal control reforms for at least five years, covering insider trading, disclosure, audit committee procedures, cybersecurity risk management, and the roles of Chief Security Officer and Chief Compliance Officer.
• The U.S. District Court for the Northern District of California granted preliminary approval of the proposed settlement on August 18, 2025, with a final settlement approval hearing scheduled for October 24, 2025.
• Okta provided Q3 FY26 guidance, expecting total revenue of $728 million to $730 million (9-10% growth) and non-GAAP diluted net income per share of $0.74 to $0.75.
• Full-year fiscal 2026 guidance projects total revenue of $2.875 billion to $2.885 billion (10-11% growth) and non-GAAP diluted net income per share of $3.33 to $3.38.

Sentiment

Score: 8

Explanation: The company delivered strong Q2 FY26 financial results, exceeding expectations with double-digit revenue growth, a return to GAAP operating profitability, and robust cash flow generation. The significant increase in RPO and cRPO indicates healthy future revenue streams. Furthermore, the preliminary settlement of the long-standing stockholder derivative actions, coupled with the commitment to implement comprehensive corporate governance and cybersecurity reforms, removes a material legal and reputational overhang. These proactive measures are expected to strengthen the company's operational resilience and investor confidence.

Positives

• Strong Q2 FY26 financial results with 13% total revenue growth and 12% subscription revenue growth year-over-year.
• Significant improvement in GAAP operating income, moving from a loss of $19 million in Q2 FY25 to a profit of $41 million in Q2 FY26.
• Robust growth in Remaining Performance Obligations (RPO) by 18% and current RPO (cRPO) by 13% year-over-year, indicating strong future revenue visibility.
• Substantial increase in operating cash flow to $167 million and free cash flow to $162 million, demonstrating enhanced cash generation capabilities.
• Preliminary approval of the settlement in multiple stockholder derivative actions reduces legal uncertainty and potential future costs, removing a significant overhang.
• Implementation of comprehensive corporate governance and internal control reforms, particularly in cybersecurity, enhances company oversight, risk management, and investor confidence.

Negatives

• Incurred legal expenses related to the derivative actions, with a $2.25 million fee and expense amount for Settling Stockholders Counsel.
• The settlement is still subject to final court approval, meaning the legal matters are not fully concluded yet.
• The derivative actions alleged material misstatements and failures in cybersecurity internal controls, which could have had reputational implications.

Risks

• The Stipulation resolving the Derivative Matters may not have the expected impact.
• The proposed settlement might require more activity or expense than currently anticipated.
• Defendants may face challenges in overcoming objections or appeals regarding the proposed settlement.
• Unsatisfactory resolution of any future litigation or other disagreements.
• Macroeconomic conditions could reduce demand for solutions.
• Cybersecurity incidents could occur in the future, affecting the company or its third-party service providers.
• Inability to manage or sustain revenue growth and profitability.
• Insufficient financial resources to effectively compete in the market.
• Inability to attract new customers, or retain or sell additional solutions to existing customers.
• Failure to maintain strategic partnerships to promote or enhance solutions.
• Challenges in successfully expanding marketing and sales capabilities, including further specializing the go-to-market organization.
• Customer growth has slowed in recent periods and could continue to decelerate in the future.
• Interruptions or performance problems associated with technology, including service outages.
• Failure, or perceived failure, to fully comply with various privacy and security provisions.

Future Outlook

For Q3 FY26, Okta expects total revenue of $728 million to $730 million, representing a growth rate of 9% to 10% year-over-year; current RPO of $2.260 billion to $2.265 billion, representing a growth rate of 10% year-over-year; non-GAAP operating income of $160 million to $162 million, yielding a non-GAAP operating margin of 22%; non-GAAP diluted net income per share of $0.74 to $0.75; and non-GAAP free cash flow margin of approximately 21%. For the full year fiscal 2026, total revenue is projected to be $2.875 billion to $2.885 billion, representing a growth rate of 10% to 11% year-over-year; non-GAAP operating income of $730 million to $740 million, yielding a non-GAAP operating margin of 25% to 26%; non-GAAP diluted net income per share of $3.33 to $3.38; and non-GAAP free cash flow margin of approximately 28%. The announced acquisition of Axiom Security is expected to be immaterial to all guidance metrics.

Management Comments

• "Okta's unified identity platform is winning customers ranging from the world's largest global organizations to massive government agencies."
• "Our solid Q2 results are highlighted by continued strength in new product adoption, the public sector, Auth0, and cash flow."
• "In the age of AI, Okta's independence and neutrality will continue to give organizations the freedom to innovate securely and on their own terms."

Industry Context

Okta, a leading independent identity partner, continues to demonstrate strength in the identity management sector, particularly with new product adoption and penetration into the public sector and through its Auth0 acquisition. The company's emphasis on independence and neutrality in the age of AI positions it to capitalize on the growing need for secure and flexible identity solutions. The settlement of derivative actions, especially those related to cybersecurity, underscores the increasing regulatory and investor scrutiny on robust security and governance practices within the technology industry, setting a precedent for enhanced corporate responsibility.

Corporate Governance

Legal Proceedings

• Multiple stockholder derivative actions (In re Okta, Inc. Stockholder Derivative Litigation, Buono v. McKinnon et al., Nasr v. McKinnon et al., In re Okta, Inc. Stockholder Derivative Litigation (Del. Ch.)) were filed against certain current and former officers and directors.
• The lawsuits alleged material misstatements and omissions about the Auth0 merger and failure to implement and maintain an effective internal control system over cybersecurity.
• The parties entered into a Stipulation and Agreement of Settlement on June 26, 2025, to resolve these Derivative Matters.
• The proposed settlement received preliminary approval from the U.S. District Court for the Northern District of California on August 18, 2025.
• A final settlement approval hearing is scheduled for October 24, 2025, by videoconference.
• The settlement includes significant corporate governance and internal control reforms and a payment of $2,250,000 for Settling Stockholders Counsel's fees and expenses.

Stakeholder Impact

• Shareholders: Benefit from improved corporate governance, enhanced cybersecurity oversight, and the resolution of legal uncertainty from derivative lawsuits. Potential positive impact on stock valuation due to stronger internal controls and reduced legal risk.
• Management/Board: Subject to stricter oversight and reporting requirements, particularly regarding insider trading, disclosures, and cybersecurity, fostering greater accountability.
• Employees: Potential impact from changes in internal controls and reporting, fostering a stronger compliance culture and potentially improving data security practices.
• Customers: Benefit from enhanced cybersecurity measures and data protection, reinforcing trust in Okta's identity platform and services.
• Regulators: The implemented reforms address concerns related to disclosure and corporate governance, aligning with regulatory expectations and potentially reducing future regulatory scrutiny.

Next Steps

• Final settlement approval hearing for Derivative Matters scheduled for October 24, 2025.
• Board to adopt, implement, and maintain corporate governance and internal control reforms within 60 days of final judgment or at the next regularly scheduled Board meeting, for a period of not less than five years.
• Okta will file its Insider Trading Policy and Special Trading Procedures as exhibits to its Annual Report on Form 10-K and post them on its Investor Relations website.
• Audit Committee to review the Insider Trading Policy annually and amend as warranted.
• Disclosure Committee to provide quarterly reports to the Audit Committee and maintain records of meetings for at least five years.
• Audit Committee to adopt procedures for oversight of internal controls, review earnings call scripts, pre-approve SEC filings, review the Code of Conduct annually, and obtain quarterly compliance updates.
• Cybersecurity Risk Committee to meet at least quarterly, obtain reports from management, and report to the Board or Audit Committee regarding IT and cybersecurity systems and processes.
• Chief Security Officer to meet with the Cybersecurity Risk Committee at least quarterly and report annually on the effectiveness of Okta's cybersecurity program.
• Chief Compliance Officer to provide oversight for Okta's global ethics and compliance program and update the Audit Committee at least quarterly.
• Nominating and Corporate Governance Committee to review internal processes for independent director candidates, retain an independent search company, and identify objective criteria for selection.

Key Dates

Recommendation

The company delivered strong Q2 FY26 financial results, exceeding expectations with double-digit revenue growth, a return to GAAP operating profitability, and robust cash flow generation. The significant increase in RPO and cRPO indicates healthy future revenue streams. Furthermore, the preliminary settlement of the long-standing stockholder derivative actions, coupled with the commitment to implement comprehensive corporate governance and cybersecurity reforms, removes a material legal and reputational overhang. These proactive measures are expected to strengthen the company's operational resilience and investor confidence, making it an attractive investment.

Keywords

Okta, OKTA, financial results, Q2 2026, earnings, revenue, subscription, RPO, cRPO, cash flow, operating income, net income, cybersecurity, corporate governance, derivative lawsuit, settlement, Auth0, identity management, security