Okta, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm 76 Consolidated Balance Sheets 80 Consolidated Statements of Operations 81 Consolidated Statements of Comprehensive Loss 82 Consolidated Statements of Stockholders’ Equity (Deficit) 83 Consolidated Statements of Cash Flows 85 Notes to Consolidated Financial Statements 87 74 Report of Ernst & Young LLP, Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Okta, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Okta, Inc. (the Company) as of January 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for each of the three years in the period ended January 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 4, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue recognition - Identifying and evaluating terms and conditions in contracts 75 Description of the Matter As explained in Note 2 to the consolidated financial statements, the Company derives revenue from subscription fees and professional services fees. The Company’s arrangements are generally non-cancellable and non-refundable. In addition, the arrangements do not provide customers with the right to take possession of the software and, as a result, are accounted for as service arrangements. Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancellable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer. Revenue for the Company’s professional services is recognized as services are performed in proportion to their pattern of transfer. Auditing the Company’s accounting for revenue recognition was challenging, specifically related to the appropriate identification and evaluation of non-standard terms and conditions. For example, certain non-standard terms and conditions required judgment to identify the distinct performance obligations and determine the timing of revenue recognition. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s internal controls over the identification and evaluation of terms and conditions in contracts that impact revenue recognition, including the identification of performance obligations and the determination of the timing of revenue recognition. This included testing relevant controls over the information systems that are used in the initiation, billing and recording of revenue transactions. Among other procedures, on a sample basis, we tested the completeness and accuracy of management’s identification and evaluation of the non-standard terms and conditions in contracts. We also tested amounts recognized pursuant to contractual terms and conditions by examining the relationship between revenue recognized and accounts receivable and related cash collections. Further, we selected a sample of contractual arrangements to test that management had properly assessed the impact of any non-standard terms on the identified performance obligations and timing of revenue recognition. Additionally, to verify completeness of non-standard terms and conditions, we obtained confirmations of terms and conditions for a sample of arrangements with customers. Convertible Notes 76 Description of the Matter As explained in Note 9 to the consolidated financial statements, in June 2020 the Company issued $1.15 billion of convertible senior notes due June 15, 2026 (2026 Notes), which permit the Company to settle in cash or stock at its option. Concurrent with the offering of the 2026 Notes, the Company entered into separate capped call transactions to reduce potential dilution upon conversion of the 2026 Notes. Simultaneous with the issuance of the 2026 Notes, the Company repurchased a portion of the convertible notes issued in February 2018, due February 15, 2023 (2023 Notes) (Second Partial Repurchase of 2023 Notes), and accounted for this transaction as a debt extinguishment. These transactions are collectively referred to as the Convertible Notes Transactions. Auditing the Company’s accounting for the Convertible Notes Transactions was complex due to the significant judgment required in determining the liability component of the related convertible notes as well as the balance sheet classification of the elements of the 2026 Notes. The Company accounted for the Convertible Notes Transactions as separate liability and equity components, determined the fair value of the respective liability components based on an estimate of the fair value of a similar liability without a conversion option and assigned the residual value to the equity component. The Company estimated the fair value of the liability component of the 2026 Notes, 2025 Notes and 2023 Notes using a discounted cash flow model with a risk adjusted yield for similar debt instruments, absent any embedded conversion feature. In estimating the risk adjusted yield, the Company used both an income and market approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility, risk-free rate, and observable trading activity for the Company’s existing Notes. For the market approach, the Company performed an evaluation of issuances of convertible debt securities by other comparable companies. Additionally, a detailed analysis of the terms of the 2026 Notes was required to determine existence of any derivatives that may require separate mark-to-market accounting under applicable accounting guidance. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s Convertible Notes Transactions. For example, we tested the Company’s controls over the initial recognition and measurement of the Convertible Notes Transactions, including the recording of the associated liability and equity components. Our testing of the Company’s initial accounting for the Convertible Notes Transactions, among other procedures, included reading the underlying agreements and evaluating the Company’s accounting analysis of the initial accounting of the Convertible Notes Transactions, including the determination of the balance sheet classification of each transaction, identification of any derivatives included in the arrangements, and determination that the Second Partial Repurchase of 2023 Notes was a debt extinguishment. Our testing of the fair value of the liability components of the 2026 Notes and the Second Partial Repurchase of 2023 Notes, included, among other procedures, evaluating the Company's selection of the valuation methodology and significant assumptions and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. Specifically, when assessing the key assumptions, we focused on the Company’s assumptions used to determine the risk adjusted yield as well as its analysis of comparable issuances of debt securities by other companies. In addition, we involved a valuation specialist to assist in our evaluation of the significant assumptions and methodology used by the Company. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2013. San Francisco, California March 4, 2021 77 Report of Ernst & Young LLP, Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Okta, Inc. Opinion on Internal Control Over Financial Reporting We have audited Okta, Inc.’s internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Okta, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for each of the three years in the period ended January 31, 2021, and the related notes and our report dated March 4, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Francisco, California March 4, 2021 78 OKTA, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) As of January 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 434,607 $ 520,048 Short-term investments 2,121,584 882,976 Accounts receivable, net of allowances of $ 3,451 and $ 1,166 194,818 130,115 Deferred commissions 45,949 33,636 Prepaid expenses and other current assets 81,609 32,950 Total current assets 2,878,567 1,599,725 Property and equipment, net 62,783 53,535 Operating lease right-of-use assets 149,604 125,204 Deferred commissions, noncurrent 108,555 77,874 Intangible assets, net 27,009 32,529 Goodwill 48,023 48,023 Other assets 24,256 18,505 Total assets $ 3,298,797 $ 1,955,395 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 8,557 $ 3,837 Accrued expenses and other current liabilities 53,729 36,887 Accrued compensation 71,906 40,300 Convertible senior notes, net 908,684 100,703 Deferred revenue 502,738 365,236 Total current liabilities 1,545,614 546,963 Convertible senior notes, net, noncurrent 857,387 837,002 Operating lease liabilities, noncurrent 179,518 154,511 Deferred revenue, noncurrent 10,860 6,214 Other liabilities, noncurrent 11,375 5,361 Total liabilities 2,604,754 1,550,051 Commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, par value $ 0.0001 per share; 100,000 shares authorized, no shares issued and outstanding as of January 31, 2021 and 2020 — — Class A Common stock, par value $ 0.0001 per share; 1,000,000 shares authorized; 122,824 and 113,990 shares issued and outstanding as of January 31, 2021 and 2020, respectively 12 11 Class B Common stock, par value $ 0.0001 per share; 120,000 shares authorized; 8,159 and 8,648 shares issued and outstanding as of January 31, 2021 and 2020, respectively 1 1 Additional paid-in capital 1,656,096 1,105,564 Accumulated other comprehensive income 5,390 892 Accumulated deficit ( 967,456 ) ( 701,124 ) Total stockholders’ equity 694,043 405,344 Total liabilities and stockholders’ equity $ 3,298,797 $ 1,955,395 See Notes to Consolidated Financial Statements. 79 OKTA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended January 31, 2021 2020 2019 Revenue Subscription $ 796,613 $ 552,688 $ 370,855 Professional services and other 38,811 33,379 28,399 Total revenue 835,424 586,067 399,254 Cost of revenue Subscription 170,095 116,445 77,354 Professional services and other 47,586 42,937 36,067 Total cost of revenue 217,681 159,382 113,421 Gross profit 617,743 426,685 285,833 Operating expenses Research and development 222,826 159,269 102,385 Sales and marketing 427,350 340,356 227,960 General and administrative 171,726 112,892 75,110 Total operating expenses 821,902 612,517 405,455 Operating loss ( 204,159 ) ( 185,832 ) ( 119,622 ) Interest expense ( 72,660 ) ( 27,017 ) ( 15,072 ) Interest income and other, net 12,891 17,089 9,180 Loss on early extinguishment and conversion of debt ( 2,263 ) ( 14,572 ) — Interest and other, net ( 62,032 ) ( 24,500 ) ( 5,892 ) Loss before provision for (benefit from) income taxes ( 266,191 ) ( 210,332 ) ( 125,514 ) Provision for (benefit from) income taxes 141 ( 1,419 ) ( 17 ) Net loss $ ( 266,332 ) $ ( 208,913 ) $ ( 125,497 ) Net loss per share, basic and diluted $ ( 2.09 ) $ ( 1.78 ) $ ( 1.17 ) Weighted-average shares used to compute net loss per share, basic and diluted 127,212 117,221 107,504 See Notes to Consolidated Financial Statements. 80 OKTA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year Ended January 31, 2021 2020 2019 Net loss $ ( 266,332 ) $ ( 208,913 ) $ ( 125,497 ) Other comprehensive income (loss): Net change in unrealized gains or losses on available-for-sale securities 779 1,220 179 Foreign currency translation adjustments 3,719 ( 9 ) ( 889 ) Other comprehensive income (loss) 4,498 1,211 ( 710 ) Comprehensive loss $ ( 261,834 ) $ ( 207,702 ) $ ( 126,207 ) See Notes to Consolidated Financial Statements. 81 OKTA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (dollars in thousands) Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balances as of January 31, 2018 70,609,898 $ 7 33,361,106 $ 3 $ 565,653 $ 391 $ ( 366,714 ) $ 199,340 Issuance of common stock upon exercise of stock options and other activity, net 6,465,957 1 104,084 — 37,610 — — 37,611 Issuance of common stock under employee stock purchase plan 615,210 — — — 13,727 — — 13,727 Issuance of common stock for settlement of RSUs 976,248 — — — — — — — Issuance of common stock pursuant to charitable donation 20,000 — — — 1,008 — — 1,008 Conversion of Class B common stock to Class A common stock 22,406,009 2 ( 22,406,009 ) ( 2 ) — — — — Equity component of convertible senior notes, net of issuance costs — — — — 77,631 — — 77,631 Issuance of warrants related to convertible senior notes — — — — 52,440 — — 52,440 Purchases of hedges related to convertible senior notes — — — — ( 80,040 ) — — ( 80,040 ) Stock-based compensation — — — — 76,867 — — 76,867 Other comprehensive loss — — — — — ( 710 ) — ( 710 ) Net loss — — — — — — ( 125,497 ) ( 125,497 ) Balances as of January 31, 2019 101,093,322 10 11,059,181 1 744,896 ( 319 ) ( 492,211 ) 252,377 Issuance of common stock upon exercise of stock options and other activity, net 5,323,410 1 100,007 — 45,731 — — 45,732 Issuance of common stock under employee stock purchase plan 322,795 — — — 18,767 — — 18,767 Issuance of common stock for settlement of RSUs 1,716,222 — — — — — — — Issuance of common stock for bonus settlement 34,600 — — — 2,809 — — 2,809 Issuance of common stock pursuant to charitable donation 15,000 — — — 1,746 — — 1,746 Conversion of Class B common stock to Class A common stock 2,511,409 — ( 2,511,409 ) — — — — — Equity component of convertible senior notes, net of issuance costs — — — — 217,347 — — 217,347 Equity component of early extinguishment of convertible senior notes 2,973,311 — — — ( 26,713 ) — — ( 26,713 ) Proceeds from hedges related to convertible senior notes — — — — 405,851 405,851 Payments for warrants related to convertible senior notes — — — — ( 358,622 ) — — ( 358,622 ) Purchases of capped calls related to convertible senior notes ( 74,094 ) ( 74,094 ) Stock-based compensation — — — — 127,846 — — 127,846 Other comprehensive income — — — — — 1,211 — 1,211 Net loss — — — — — — ( 208,913 ) ( 208,913 ) Balances as of January 31, 2020 113,990,069 $ 11 8,647,779 $ 1 $ 1,105,564 $ 892 $ ( 701,124 ) $ 405,344 82 Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Issuance of common stock upon exercise of stock options and other activity, net 4,113,825 1 254,858 — 45,619 — — 45,620 Issuance of common stock under employee stock purchase plan, net of cancellations 247,131 — — — 25,911 — — 25,911 Issuance of common stock for settlement of RSUs 2,109,393 — — — — — — — Issuance of common stock for bonus settlement 85,701 — — — 9,818 — — 9,818 Issuance of common stock pursuant to charitable donation 42,500 — — — 9,292 — — 9,292 Conversion of Class B common stock to Class A common stock 743,190 — ( 743,190 ) — — — — — Exercise of hedges related to convertible senior notes ( 167,946 ) — — — — — — — Equity component of convertible senior notes, net of issuance costs — — — — 306,220 — — 306,220 Equity component of early extinguishment and conversion of convertible senior notes 1,660,104 — — — 70,493 — — 70,493 Proceeds from hedges related to convertible senior notes — — — — 195,046 — — 195,046 Payments for warrants related to convertible senior notes — — — — ( 175,399 ) — — ( 175,399 ) Purchases of capped calls related to convertible senior notes — — — — ( 133,975 ) — — ( 133,975 ) Stock-based compensation — — — — 197,507 — — 197,507 Other comprehensive income — — — — — 4,498 — 4,498 Net loss — — — — — — ( 266,332 ) ( 266,332 ) Balances as of January 31, 2021 122,823,967 $ 12 8,159,447 $ 1 $ 1,656,096 $ 5,390 $ ( 967,456 ) $ 694,043 See Notes to Consolidated Financial Statements. 83 OKTA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended January 31, 2021 2020 2019 Cash flows from operating activities: Net loss $ ( 266,332 ) $ ( 208,913 ) $ ( 125,497 ) Adjustments to reconcile net loss to net cash provided by operating activities: Stock-based compensation 196,181 126,624 76,320 Depreciation, amortization and accretion 36,865 17,815 8,001 Amortization of debt discount and issuance costs 68,424 25,892 14,279 Amortization of deferred commissions 39,661 28,588 20,852 Deferred income taxes ( 1,182 ) ( 2,253 ) ( 765 ) Non-cash charitable contributions 9,292 1,746 1,008 Loss on early extinguishment and conversion of debt 2,263 14,572 — Other, net 5,537 ( 11 ) 640 Changes in operating assets and liabilities: Accounts receivable ( 66,373 ) ( 37,515 ) ( 39,682 ) Deferred commissions ( 81,016 ) ( 61,224 ) ( 41,342 ) Prepaid expenses and other assets ( 13,174 ) ( 4,080 ) ( 10,334 ) Operating lease right-of-use assets 19,053 12,951 17,239 Accounts payable 4,081 1,689 ( 1,437 ) Accrued compensation 44,157 23,034 7,429 Accrued expenses and other liabilities 5,527 9,972 5,800 Operating lease liabilities ( 17,150 ) ( 9,716 ) ( 6,642 ) Deferred revenue 142,148 116,432 89,303 Net cash provided by operating activities 127,962 55,603 15,172 Cash flows from investing activities: Capitalization of internal-use software costs ( 4,159 ) ( 3,888 ) ( 2,851 ) Purchases of property and equipment ( 13,083 ) ( 15,442 ) ( 19,811 ) Proceeds from sales of property and equipment — — 740 Purchases of securities available for sale and other ( 2,029,030 ) ( 999,387 ) ( 631,488 ) Proceeds from maturities and redemption of securities available for sale 535,123 356,277 298,650 Proceeds from sales of securities available for sale and other 206,129 27,271 173,072 Purchase of intangible assets ( 126 ) ( 8,589 ) — Payments for business acquisition, net of cash acquired — ( 44,283 ) ( 15,632 ) Net cash used in investing activities ( 1,305,146 ) ( 688,041 ) ( 197,320 ) Cash flows from financing activities: Proceeds from issuance of convertible senior notes, net of issuance costs 1,134,841 1,040,660 334,980 Payments for repurchases of convertible senior notes ( 446 ) ( 224,414 ) — Purchases of hedges related to convertible senior notes — — ( 80,040 ) Proceeds from hedges related to convertible senior notes 195,046 405,851 — Proceeds from issuance of warrants related to convertible senior notes — — 52,440 Payments for warrants related to convertible senior notes ( 175,399 ) ( 358,622 ) — Purchases of capped calls related to convertible senior notes ( 133,975 ) ( 74,094 ) — Proceeds from stock option exercises, net of repurchases 45,620 45,363 36,861 Proceeds from shares issued in connection with employee stock purchase plan 25,911 18,767 13,727 Other, net — ( 126 ) ( 206 ) Net cash provided by financing activities 1,091,598 853,385 357,762 Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash 2,263 ( 209 ) ( 632 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 83,323 ) 220,738 174,982 Cash, cash equivalents and restricted cash at beginning of year 531,953 311,215 136,233 Cash, cash equivalents and restricted cash at end of year $ 448,630 $ 531,953 $ 311,215 84 Year Ended January 31, 2021 2020 2019 Supplementary cash flow disclosure: Cash paid during the period for: Interest $ 3,759 $ 862 $ 403 Income taxes 978 1,123 514 Non-cash investing and financing activities: Issuance of common stock for repurchases and conversions of convertible senior notes 307,910 380,406 — Benefit from exercise of hedges related to convertible senior notes 37,076 — — Common stock issued as charitable contribution 9,292 1,746 1,008 Operating lease right-of-use assets exchanged for lease liabilities 45,611 16,832 127,575 Property and equipment acquired through tenant improvement allowance 4,811 304 22,236 Property and equipment and other accrued but not yet paid 974 855 7,225 Issuance of common stock for bonus settlement 9,818 2,809 — Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the amounts shown in the statements of cash flows above: Cash and cash equivalents $ 434,607 $ 520,048 $ 298,394 Restricted cash, current included in prepaid expenses and other current assets 4,553 467 1,384 Restricted cash, noncurrent included in other assets 9,470 11,438 11,437 Total cash, cash equivalents and restricted cash $ 448,630 $ 531,953 $ 311,215 See Notes to Consolidated Financial Statements. 85 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Overview and Basis of Presentation Description of Business Okta, Inc. (the Company) is the leading independent identity management platform for the enterprise. The Okta Identity Cloud enables the Company's customers to securely connect the right people to the right technologies and services at the right time. The Company was incorporated in January 2009 as Saasure, Inc., a California corporation, and was later reincorporated in April 2010 under the name Okta, Inc. as a Delaware corporation. The Company is headquartered in San Francisco, California. Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year ends on January 31. References to fiscal 2021, for example, refer to the fiscal year ended January 31, 2021. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. Actual results could vary from those estimates. The Company’s most significant estimates include the SSP for each distinct performance obligation included in customer contracts with multiple performance obligations, the determination of the period of benefit for deferred commissions, the determination of the effective interest rate of the liability components of its convertible senior notes, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation of deferred income tax assets and the valuation of acquired intangible assets. In March 2020, the World Health Organization (WHO) declared the outbreak of the novel coronavirus, COVID-19, a pandemic, which continues to spread across the globe. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the consolidated financial statements for the year ended January 31, 2021. As events continue to evolve and additional information becomes available, our assumptions and estimates may change materially in future periods. Foreign Currency The functional currencies of the Company’s foreign subsidiaries are the respective local currencies. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss within the consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit). Foreign currency transaction gains and losses are included in other expense, net in the consolidated statements of operations and were not material for the years ended January 31, 2021, 2020 or 2019. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the average exchange rate during the period, and equity balances are translated using historical exchange rates. 2. Summary of Significant Accounting Policies Segment Information The Company operates in a single operating segment. The Company’s chief operating decision maker is its chief executive officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources. 86 Revenue Recognition The Company derives revenue from subscription fees (which include support fees) and professional services fees. The Company sells subscriptions to its platform through arrangements that are generally one to five years in length. The Company’s arrangements are generally non-cancellable and non-refundable. Furthermore, if a customer reduces the contracted usage or service level, the customer has no right of refund. The Company’s subscription arrangements do not provide customers with the right to take possession of the software supporting the platform and, as a result, are accounted for as service arrangements. This revenue recognition policy is consistent for sales generated directly with customers and sales generated indirectly through channel partners. The Company determines revenue recognition through the following steps: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, the Company satisfies a performance obligation. Subscription Revenue Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancellable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer. Professional Services Revenue The Company’s professional services principally consist of customer-specific requests for application integrations, user interface enhancements and other customer-specific requests. Revenue for the Company’s professional services is recognized as services are performed in proportion to their pattern of transfer. Contracts with Multiple Performance Obligations Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative SSP basis. The Company determines SSP based on observable, if available, prices for those related services when sold separately. When such observable prices are not available, the Company determines SSP based on overarching pricing objectives and strategies, taking into consideration market conditions and other factors, including customer size, volume purchased, market and industry conditions, product-specific factors and historical sales of the deliverables. Deferred Revenue Deferred revenue consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s subscription and support services and professional services arrangements. The Company primarily invoices its customers for its subscription services arrangements annually in advance. The Company’s payment terms generally provide that customers pay the invoiced portion of the total arrangement fee within 30 days of the invoice date. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as deferred revenue, noncurrent in the consolidated balance sheets. Deferred Commissions Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new revenue contracts, including incremental sales to existing customers, are deferred and then amortized on a straight-line basis over a period of benefit, which the Company has determined to be generally five years . The Company determined the period of benefit by taking into consideration the terms of its customer contracts, its technology and other factors. Sales commissions for renewal contracts (which are not considered commensurate with sales commissions for new revenue contracts and incremental sales to existing customers) are deferred and then amortized on a straight-line basis over the related 87 period of benefit, which is generally the related contract renewal term. Amortization expense is included in sales and marketing expenses in the accompanying consolidated statements of operations. Sales commissions capitalized as contract costs totaled $ 81.0 million and $ 61.3 million in the years ended January 31, 2021 and 2020, respectively. Amortization of contract costs was $ 39.7 million, $ 28.6 million and $ 20.9 million for the years ended January 31, 2021, 2020 and 2019, respectively. There was no impairment loss in relation to the costs capitalized. Cost of Revenue Costs of revenue primarily consist of costs related to providing the Company’s cloud-based platform to its customers, including third-party hosting fees, amortization of capitalized internal-use software and finite-lived purchased developed technology, customer support, other employee-related expenses for security, technical operations and professional services staff, and allocated overhead costs. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less from the date of purchase. Cash equivalents generally consist of investments in money market funds. The fair market value of cash equivalents approximated their carrying value as of January 31, 2021 and 2020. As of January 31, 2021 and 2020, the Company's long-term restricted cash balance was $ 9.5 million and $ 11.4 million, respectively, primarily related to letters of credit for its facility lease agreements. Short-Term Investments The Company’s short-term investments comprise U.S. treasury securities and corporate debt securities. The Company determines the appropriate classification of its short-term investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its short-term investments as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, short-term investments, including securities with stated maturities beyond twelve months, are classified within current assets in the consolidated balance sheets. Available-for-sale securities are recorded at fair value each reporting period and are periodically evaluated for unrealized losses. For unrealized losses in securities that the Company intends to hold and will not more likely than not be required to sell before recovery, the Company further evaluates whether declines in fair value below amortized cost are due to credit or non-credit related factors. The Company considers credit related impairments to be changes in value that are driven by a change in the creditor’s ability to meet its payment obligations, and records an allowance and recognizes a corresponding loss in interest income and other, net when the impairment is incurred. Unrealized non-credit related losses and unrealized gains are reported as a separate component of accumulated other comprehensive loss in the consolidated balance sheets until realized. Realized gains and losses are determined based on the specific identification method and are reported in interest income and other, net in the consolidated statements of operations. Accounts Receivable and Allowances Accounts receivable are recorded at the invoiced amount, net of allowances. These allowances are based on the Company’s assessment of the collectibility of accounts by considering the age of each outstanding invoice, the collection history of each customer, and an evaluation of current expected risk of credit loss based on current economic conditions and reasonable and supportable forecasts of future economic conditions over the life of the receivable. We assess collectibility by reviewing accounts receivable on an aggregated basis where similar characteristics exist and on an individual basis when we identify specific customers with collectibility issues. Amounts deemed uncollectible are recorded as an allowance in the consolidated balance sheets with an offsetting decrease in deferred revenue or a charge to general and administrative expense in the consolidated statements of operations. 88 As of January 31, 2021, allowances include collectibility concerns stemming from business and market disruption caused by COVID-19 and may fluctuate materially in future periods as the duration and severity of the impact of the COVID-19 pandemic remains uncertain. Property and Equipment Property and equipment, net, is stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets. Repairs and maintenance costs are expensed as incurred. The useful lives of property and equipment are as follows: Useful lives Capitalized internal-use software costs 3 years Computers and equipment 3 years Furniture and fixtures 7 years Leasehold improvements Shorter of estimated useful life or remaining lease term Business Combinations When the Company acquires a business, the purchase price is allocated to the net tangible and identifiable intangible assets acquired based on their estimated fair values. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. Goodwill and Other Long-Lived Assets The excess of the purchase price over the estimated fair value of net assets of businesses acquired in a business combination is recognized as goodwill. Goodwill is tested for impairment annually on November 1 st or more frequently if certain indicators are present. Long-lived assets, such as property and equipment and finite-lived intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount exceeds the undiscounted cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds its fair value. The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives in cost of revenue in the consolidated statements of operations. 89 Operating Leases and Incremental Borrowing Rate The Company leases office space under operating leases with expiration dates through 2028. The Company determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at lease commencement. Lease liabilities are measured based on the present value of the total lease payments not yet paid discounted based on the more readily determinable of either the rate implicit in the lease or the Company’s incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. Lease liabilities due within twelve months are included within accrued expenses and other current liabilities on the Company's consolidated balance sheet. The estimation of the incremental borrowing rate is based on an estimate of the Company's unsecured borrowing rate for its Notes, adjusted for tenor and collateralized security features. Right-of-use assets are measured based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) tenant incentives received, incurred or payable under the lease. Recognition of rent expense begins when the lessor makes the underlying asset available to the Company. The Company does not assume renewals or early terminations of its leases unless it is reasonably certain to exercise these options at commencement and does not allocate consideration between lease and non-lease components. For short-term leases, the Company records rent expense in its consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as incurred. Convertible Senior Notes The Company accounts for the issuance of convertible senior notes in accordance with FASB ASC Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, as the Notes have a net settlement feature and may be settled wholly or partially in cash upon conversion, the Company is required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component is computed by estimating the fair value of a similar liability without the conversion option using income and market based approaches. For the income-based approach, the Company uses a convertible bond pricing model that includes several assumptions such as volatility, the risk-free rate, and observable trading activity for the Company's existing Notes. For the market-based approach, the Company observes the price of derivative instruments purchased in conjunction with our convertible senior note issuances or the Company evaluates issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the instrument. This difference represents a debt discount that is amortized to interest expense over the respective terms of the Notes using an effective interest rate method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, the allocation of issuance costs incurred between the liability and equity components were based on their relative values. Similarly, in accordance with ASC Subtopic 470-20, transactions involving contemporaneous exchanges of cash between the same debtor and creditor in connection with the issuance of a new debt obligation and satisfaction of an existing debt obligation by the debtor should be evaluated as a modification or an exchange transaction depending on whether the exchange is determined to have substantially different terms. When the exchange is deemed to have substantially different terms due to a significant difference between the value of the conversion option immediately prior to and after the exchange, the transaction is accounted for as a debt extinguishment. Pursuant to ASC Subtopic 470-20, total consideration for the satisfaction of an existing debt obligation is separated into liability and equity components by estimating the fair value of a similar liability without a conversion option and assigning the residual value to the equity component. The effective interest rate used to estimate the fair value of the liability component is based on the income and market based approaches used to determine the effective interest rate of the new debt obligation, adjusted for the remaining tenor of the extinguished debt. The difference between the fair value and the amortized carrying value of the extinguished debt, net of the proportionate amounts of unamortized debt discount and remaining unamortized debt issuance costs, is recorded as a gain or loss on extinguishment. Advertising Expenses Advertising costs are expensed as incurred. Advertising expense was $ 33.1 million, $ 17.0 million, and $ 10.0 million for the years ended January 31, 2021, 2020 and 2019. 90 Income Taxes The Company accounts for income taxes in accordance with the liability method of accounting for income taxes. Under this method, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce its deferred tax assets to the net amount that the Company believes is more likely than not to be realized. In assessing the need for a valuation allowance, the Company has considered its historical levels of income, expectations of future taxable income and ongoing tax planning strategies. Because of the uncertainty of the realization of the deferred tax assets, the Company has recorded a full valuation allowance against its deferred tax assets. Realization of its deferred tax assets is dependent primarily upon future U.S. taxable income. The Company recognizes and measures tax benefits from uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. Although the Company believes that it has adequately reserved for its uncertain tax positions, it can provide no assurance that the final tax outcome of these matters will not be materially different. The Company evaluates its uncertain tax position on a regular basis and evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of an audit and effective settlement of audit issues. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on the Company’s financial condition and results of operations. The provision for income taxes includes the effects of any accruals that the Company believes are appropriate, as well as the related net interest and penalties. Concentrations of Risk and Significant Customers The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. Cash and cash equivalents and short-term investments are currently held in three financial institutions and, at times, may exceed federally insured limits. As of January 31, 2021 and 2020 and for each of the three years ended January 31, 2021, no single customer represented greater than 10% of accounts receivable or greater than 10% of revenue, respectively. In order to reduce the risk of downtime of the Company’s subscription services, the Company uses data center facilities operated by a third-party located in Virginia, Oregon, Ohio, Germany, Ireland, Singapore and Sydney. The Company has internal procedures to restore services in the event of disaster at any of its current data center facilities. Even with these procedures for disaster recovery in place, the Company’s subscription services could be significantly interrupted during the time period following a disaster at one of its sites and the subsequent restoration of services at another site. 91 Geographical Information Revenue by location is determined by the billing address of the customer. The following table sets forth revenue by geographic area (in thousands): Year Ended January 31, 2021 2020 2019 United States $ 701,635 $ 494,529 $ 337,367 International 133,789 91,538 61,887 Total $ 835,424 $ 586,067 $ 399,254 Other than the United States, no individual country exceeded 10% of total revenue for the years ended January 31, 2021, 2020 and 2019. Property and equipment by geographic location is based on the location of the legal entity that owns the asset. As of January 31, 2021 and 2020, substantially all of the Company’s property and equipment was located in the United States. Net Loss per Share The Company computes basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. Under the two-class method, basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase, without consideration for potentially dilutive securities as they do not share in losses. The diluted net loss per share attributable to common stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, unvested restricted stock units (RSUs) purchase rights issued under the 2017 Employee Stock Purchase Plan shares subject to repurchase from early exercised options, unvested common stock and restricted stock issued in connection with certain business combinations, convertible senior notes and warrants are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. Since the Company's IPO, Class A and Class B common stock are the only outstanding equity of the Company. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion rights. See Note 15. Recently Adopted Accounting Pronouncements In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, which changes the existing incurred loss impairment model for financial assets held at amortized cost. The new model uses a forward-looking expected loss method to calculate credit loss estimates. ASU 2016-13 also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The Company adopted the requirements of ASU 2016-13 as of February 1, 2020 on a modified retrospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15), which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The Company adopted the requirements of ASU 2018-15 as of February 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12), as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation and clarifies the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company early adopted ASU 2019-12 as of February 1, 2020 on a 92 prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature-related balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS), which is consistent with the Company’s accounting treatment under the current standard. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently evaluating the timing, method of adoption and overall impact of this standard on its consolidated financial statements. 3. Business Combinations During the year ended year ended January 31, 2020, the Company completed a business combination for a purchase price of $ 44.2 million, net of $ 1.1 million in cash acquired. The Company recorded $ 15.7 million for developed technology intangible assets with an estimated useful life of five years and recorded $ 29.9 million of goodwill which is primarily attributed to the assembled workforce as well as the integration of the acquired technology. The Company incurred $ 3.0 million of acquisition-related costs, which were recorded as general and administrative expense in the quarter ended April 30, 2019. The Company also entered into deferred compensation arrangements in connection with prior acquisitions totaling $ 10.8 million, of which $ 3.0 million was recognized as compensation during the year ended January 31, 2021. The remaining deferred compensation balance is immaterial. These acquisitions did not have a material impact on the Company’s consolidated financial statements; therefore, historical and proforma disclosures have not been presented. 93 4. Cash Equivalents and Short-term Investments The amortized cost, unrealized gain (loss) and estimated fair value of the Company’s cash equivalents and short-term investments as of January 31, 2021 and 2020 were as follows (in thousands): As of January 31, 2021 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash equivalents: Money market funds $ 311,257 $ — $ — $ 311,257 Total cash equivalents 311,257 — — 311,257 Short-term investments: U.S. treasury securities 1,888,882 1,571 ( 22 ) 1,890,431 Corporate debt securities 230,726 429 ( 2 ) 231,153 Total short-term investments 2,119,608 2,000 ( 24 ) 2,121,584 Total $ 2,430,865 $ 2,000 $ ( 24 ) $ 2,432,841 As of January 31, 2020 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash equivalents: Money market funds $ 416,584 $ — $ — $ 416,584 U.S. treasury securities 19,996 — — 19,996 Total cash equivalents 436,580 — — 436,580 Short-term investments: U.S. treasury securities 575,920 686 ( 8 ) 576,598 Corporate debt securities 305,859 519 — 306,378 Total short-term investments 881,779 1,205 ( 8 ) 882,976 Total $ 1,318,359 $ 1,205 $ ( 8 ) $ 1,319,556 All short-term investments were designated as available-for-sale securities as of January 31, 2021 and 2020. The following table presents the contractual maturities of the Company's short-term investments as of January 31, 2021 and 2020 (in thousands): As of January 31, 2021 Amortized Cost Estimated Fair Value Due within one year $ 1,509,241 $ 1,510,810 Due between one to five years 610,367 610,774 Total $ 2,119,608 $ 2,121,584 As of January 31, 2021 and 2020, the Company included $ 31.0 million and nil , respectively, of unsettled maturities of short-term investments in Prepaid expenses and other current assets. The Company included $ 10.5 million and $ 5.7 million of interest receivable in Prepaid expenses and other current assets as of January 31, 2021 and 2020, respectively. The Company did not recognize an allowance for credit losses against interest receivable as of January 31, 2021 and 2020 because such potential losses were not material. The Company had 10 and 7 short-term investments in unrealized loss positions as of January 31, 2021 and 2020, respectively. There were no material gross unrealized gains or losses from available-for-sale securities and no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income for the years ended January 31, 2021, 2020 and 2019. For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) the Company has the intention to sell any of these investments, (ii) it is not more likely than not that the Company will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis 94 and (iii) the decline in the fair value of the investment is due to credit or non-credit related factors. Based on this evaluation, the Company determined that for short-term investments, there were no material credit or non-credit related impairments as of January 31, 2021 and 2020. 5. Fair Value Measurements The Company measures its financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure as follows: Level 1—Valuations based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2—Valuations based on other inputs that are directly or indirectly observable in the marketplace. Level 3—Valuations based on unobservable inputs that are supported by little or no market activity. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents information about the Company’s financial assets that were measured at fair value on a recurring basis using the above input categories (in thousands): As of January 31, 2021 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 311,257 $ — $ — $ 311,257 Total cash equivalents 311,257 — — 311,257 Short-term investments: U.S. treasury securities — 1,890,431 — 1,890,431 Corporate debt securities — 231,153 — 231,153 Total short-term investments — 2,121,584 — 2,121,584 Total cash equivalents and short-term investments $ 311,257 $ 2,121,584 $ — $ 2,432,841 As of January 31, 2020 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 416,584 $ — $ — $ 416,584 U.S. treasury securities — 19,996 — 19,996 Total cash equivalents 416,584 19,996 — 436,580 Short-term investments: U.S. treasury securities — 576,598 — $ 576,598 Corporate debt securities — 306,378 — 306,378 Total short-term investments — 882,976 — 882,976 Total cash equivalents and short-term investments $ 416,584 $ 902,972 $ — $ 1,319,556 The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable and accounts payable approximate fair value due to their short-term maturities and are excluded from the fair value table above. Fair Value Measurements of Other Financial Instruments The following table presents the carrying amounts and estimated fair values of our financial instruments that are not recorded at fair value on the consolidated balance sheets (in thousands): 95 As of January 31, 2021 Net Carrying Amount (1) Estimated Fair Value 2023 convertible senior notes $ 36,092 $ 216,926 2025 convertible senior notes $ 885,465 $ 1,605,508 2026 convertible senior notes $ 867,643 $ 1,493,850 (1) Before unamortized debt issuance costs. The principal amounts of the 2023 Notes, the 2025 Notes and the 2026 Notes are $ 40.2 million, $ 1,060.0 million and $ 1,150.0 million, respectively. The difference between the principal amounts of the 2023 Notes, the 2025 Notes and the 2026 Notes and the respective net carrying amounts before unamortized debt issuance costs represents the unamortized debt discount (See Note 9 for additional details). The estimated fair values of the Notes, which are Level 2 financial instruments, were determined based on the quoted bid prices of the Notes in an over-the-counter market on the last trading day of the reporting period. As of January 31, 2021, the difference between the net carrying amount of the Notes and their estimated fair values represented the equity conversion value premium the market assigned to the Notes. Based on the closing price of our common stock of $ 259.01 on January 31, 2021, the if-converted value of the 2023 Notes, 2025 Notes and 2026 Notes exceeded the principal amount of $ 40.2 million, $ 1,060.0 million and $ 1,150.0 million, respectively . 6. Goodwill and Intangible Assets, net Goodwill As of January 31, 2021 and 2020, goodwill was $ 48.0 million. During the year ended January 31, 2020, the Company recorded $ 29.9 million of goodwill in connection with a business combination that was completed in March 2019. No goodwill impairments were recorded during the years ended January 31, 2021, 2020 and 2019. Intangible Assets, net Intangible assets consisted of the following (in thousands): As of January 31, 2021 Gross Accumulated Amortization Write-offs Net Capitalized internal-use software costs $ 30,259 $ ( 19,478 ) $ — $ 10,781 Purchased developed technology 28,800 ( 12,694 ) — 16,106 Software licenses 126 ( 4 ) — 122 $ 59,185 $ ( 32,176 ) $ — $ 27,009 As of January 31, 2020 Gross Accumulated Amortization Write-offs Net Capitalized internal-use software costs $ 24,890 $ ( 14,828 ) $ ( 119 ) $ 9,943 Purchased developed technology 28,800 ( 6,321 ) — 22,479 Software licenses 1,112 ( 1,005 ) — 107 $ 54,802 $ ( 22,154 ) $ ( 119 ) $ 32,529 The Company capitalized $ 5.5 million and $ 5.1 million of internal-use software costs during the years ended January 31, 2021 and 2020, respectively. During the year ended January 31, 2020, the Company recorded $ 24.2 million of purchased developed technology in connection with a business combination and an asset acquisition. The remaining weighted-average useful life of all purchased developed technology was 3.1 years and 3.9 years as of January 31, 2021, and 2020, respectively. 96 Amortization expense of intangible assets for the years ended January 31, 2021, 2020 and 2019 was $ 11.1 million, $ 10.6 million, and $ 5.8 million, respectively. As of January 31, 2021, estimated remaining amortization expense for the intangible assets by fiscal year was as follows (in thousands): Remaining Amortization 2022 $ 10,354 2023 8,416 2024 7,354 2025 885 Total $ 27,009 7. Balance Sheet Components Property and Equipment, net Property and equipment consisted of the following (in thousands): As of January 31, 2021 2020 Computers and equipment $ 1,242 $ 3,567 Furniture and fixtures 13,948 11,014 Leasehold improvements 69,862 55,363 Property and equipment, gross 85,052 69,944 Less accumulated depreciation ( 22,269 ) ( 16,409 ) Property and equipment, net $ 62,783 $ 53,535 Depreciation expense was $ 9.4 million, $ 8.8 million and $ 5.7 million for the years ended January 31, 2021, 2020 and 2019, respectively. Allowances The Company’s accounts receivable allowances for the years ended January 31, 2021, 2020 and 2019 were as follows (in thousands): As of January 31, 2021 2020 2019 Balance, beginning of period $ 1,166 $ 2,098 $ 1,472 Additions (reductions) 3,252 ( 673 ) 888 Write-offs ( 967 ) ( 259 ) ( 262 ) Balance, end of period $ 3,451 $ 1,166 $ 2,098 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): As of January 31, 2021 2020 Accrued expenses $ 24,717 $ 22,530 Accrued taxes payable 2,462 1,591 Operating lease liabilities 23,403 12,064 Other 3,147 702 Accrued expenses and other current liabilities $ 53,729 $ 36,887 97 Other Liabilities, Noncurrent Other liabilities, noncurrent consisted of the following (in thousands): As of January 31, 2021 2020 Deferred tax liabilities $ 3,877 $ 1,558 Other 7,498 3,803 Other liabilities, noncurrent $ 11,375 $ 5,361 8. Deferred Revenue and Performance Obligations Deferred Revenue Deferred revenue, which is a contract liability, consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met. Subscription revenue recognized during the years ended January 31, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was $ 361.0 million and $ 241.1 million, respectively. Professional services and other revenue recognized in the years ended January 31, 2021 and 2020 from deferred revenue balances at the beginning of the respective periods was not material. Transaction Price Allocated to the Remaining Performance Obligations Transaction price allocated to the remaining performance obligations represents all future, non-cancellable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancellable amounts that will be invoiced and recognized as revenue in future periods. As of January 31, 2021, total remaining non-cancellable performance obligations under the Company’s subscription contracts with customers was approximately $ 1,796.9 million. Of this amount, the Company expects to recognize revenue of approximately $ 841.8 million, or 47 %, over the next 12 months, with the balance to be recognized as revenue thereafter. Remaining performance obligations for professional services and other contracts as of January 31, 2021 were not material. 9. Convertible Senior Notes, Net 2023 Convertible Senior Notes The 2023 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.25 % per year. Interest is payable in cash semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018. The 2023 Notes mature on February 15, 2023 unless earlier repurchased or converted. The Company may not redeem the 2023 Notes prior to maturity. The total net proceeds from the 2023 Notes, after deducting initial purchasers’ discounts and debt issuance costs, was $ 335.0 million. In September 2019, the Company used part of the net proceeds from the issuance of the 2025 Notes to repurchase a portion of the 2023 Notes, which consisted of a repurchase of $ 224.4 million aggregate principal amount of the 2023 Notes in privately-negotiated transactions for aggregate consideration of $ 604.8 million, consisting of approximately $ 224.4 million in cash and approximately 3.0 million shares of Class A common stock. The $ 604.8 million in aggregate consideration was allocated between the debt and equity components in the amounts of $ 197.7 million and $ 407.1 million, respectively, using an effective interest rate of 4.00 % to determine the fair value of the liability component. As of the repurchase date, the carrying value of the notes subject to the First Partial Repurchase of 2023 Notes, net of unamortized debt discount and issuance costs, was $ 183.1 million. The First Partial Repurchase of 2023 Notes resulted in a $ 14.6 million loss on early debt extinguishment during the year ended January 31, 2020, of which $ 3.8 million consisted of unamortized debt issuance costs. In June 2020, the Company used part of the net proceeds from the issuance of the 2026 Notes to repurchase a portion of the 2023 Notes, which consisted of a repurchase of $ 69.9 million aggregate principal amount of the 2023 Notes in privately-negotiated transactions, for aggregate consideration of $ 260.5 million, consisting of approximately $ 0.2 million in cash and approximately 1.4 million shares of Class A common stock. The $ 260.5 98 million in aggregate consideration was allocated between the debt and equity components in the amounts of $ 61.8 million and $ 198.7 million respectively, using an effective interest rate of 4.90 % to determine the fair value of the liability component. As of the repurchase date, the carrying value of the notes subject to the Second Partial Repurchase of 2023 Notes, net of unamortized debt discount and issuance costs, was $ 59.6 million. The Second Partial Repurchase of 2023 Notes resulted in a $ 2.2 million loss on early debt extinguishment during the year ended January 31, 2021, of which $ 1.0 million consisted of unamortized debt issuance costs. The interest rates used in the 2023 Notes Partial Repurchases were based on the income and market based approaches used to determine the effective interest rate of the 2025 Notes and 2026 Notes, adjusted for the remaining tenor of the 2023 Notes. As of January 31, 2021, $ 40.2 million of principal remained outstanding on the 2023 Notes. The terms of the 2023 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the 2023 Indenture). Upon conversion, the 2023 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. The 2023 Notes are convertible at an initial conversion rate of 20.6795 shares of Class A common stock per $1,000 principal amount of the 2023 Notes, which is equal to an initial conversion price of approximately $ 48.36 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2023 Indenture. Prior to the close of business on the business day immediately preceding October 15, 2022, holders of the 2023 Notes may convert all or a portion of their 2023 Notes only in multiples of $1,000 principal amount, under the following circumstances: • during any fiscal quarter commencing after the fiscal quarter ending on April 30, 2018 (and only during such fiscal quarter), if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2023 Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate on such trading day; or • upon the occurrence of specified corporate events, as described in the 2023 Indenture. On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2023 Notes regardless of the foregoing circumstances. For at least 20 trading days during the period of 30 consecutive trading days ended January 31, 2021, the last reported sale price of the Company’s common stock was equal to or exceeded 130 % of the conversion price of the 2023 Notes on each applicable trading day. As a result, the 2023 Notes are convertible at the option of the holders during the fiscal quarter ending April 30, 2021 and were classified as current liabilities on the consolidated balance sheet as of January 31, 2021. During the year ended January 31, 2021, the Company paid approximately $ 0.3 million in cash and issued approximately 0.2 million shares of Class A common stock to settle approximately $ 10.4 million principal amount of 2023 Notes (not in connection with the Second Partial Repurchase of the 2023 Notes). The loss on early note conversion was not material. During the fourth quarter of fiscal 2021, the Company received additional conversion requests, and approximately $ 4.3 million aggregate principal amount of the 2023 Notes were primarily settled in shares of Class A common stock in the first quarter of fiscal 2022. In addition, subsequent to January 31, 2021, the Company received conversion requests for approximately $ 3.2 million aggregate principal amount of the 2023 Notes. Holders of the 2023 Notes who convert their 2023 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2023 Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2023 Indenture), holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes at a price equal to 100 % of the principal amount of the 2023 Notes being repurchased, plus any accrued and unpaid interest. 99 In accounting for the issuance of the 2023 Notes, the Company separated the 2023 Notes into liability and equity components, using an effective interest rate of 5.68 % to determine the fair value of the liability component. This interest rate was based on both an income and a market based approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate. For the market approach, the Company observed the price of the Note Hedges (see below) it purchased for its 2023 Notes and also performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The following table sets forth total interest expense recognized related to the 2023 Notes (in thousands): Year Ended January 31, 2021 2020 Contractual interest expense $ 180 $ 606 Amortization of debt issuance costs 312 985 Amortization of debt discount 3,316 11,219 Total $ 3,808 $ 12,810 Total initial issuance costs of $ 10.0 million related to the 2023 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2023 Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital. The Company initially recorded liability issuance costs of $ 7.7 million and equity issuance costs of $ 2.3 million. The 2023 Notes, net consisted of the following (in thousands): As of January 31, 2021 Liability component: Principal $ 40,246 Less: unamortized debt issuance costs and debt discount ( 4,591 ) Net carrying amount $ 35,655 Equity component: 2023 Notes $ 9,328 Less: issuance costs ( 271 ) Carrying amount of the equity component (1) $ 9,057 (1) Included in the consolidated balance sheets within Additional paid-in capital. Note Hedges In connection with the pricing of the 2023 Notes, the Company entered into convertible note hedges with respect to its Class A common stock. The Note Hedges are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2023 Notes, approximately 7.1 million shares of its Class A common stock for approximately $ 48.36 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2023 Notes, exercisable upon conversion of the 2023 Notes. The Note Hedges will expire in 2023, if not exercised earlier. The Note Hedges are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2023 Notes under certain circumstances. The Note Hedges are separate transactions and are not part of the terms of the 2023 Notes. The Company paid an aggregate amount of $ 80.0 million for the Note Hedges. The amount paid for the Note Hedges was recorded as a reduction to Additional paid-in capital in the consolidated balance sheets. In September 2019 and in June 2020, and in connection with the First Partial Repurchase of 2023 Notes and Second Partial Repurchase of 2023 Notes, the Company terminated Note Hedges corresponding to approximately 100 4.6 million and 1.4 million shares for cash proceeds of $ 405.9 million and $ 195.0 million, respectively. The proceeds were recorded as an increase to Additional paid-in capital in the consolidated balance sheets. During the year ended January 31, 2021, the Company exercised and net-share-settled a portion of the Note Hedges, corresponding to approximately $ 10.4 million principal amount of 2023 Notes and received approximately 0.2 million shares of Class A common stock and an immaterial cash payment. As of January 31, 2021, Note Hedges giving the Company the option to purchase approximately 0.8 million shares (subject to adjustment) remained outstanding. Warrants In connection with the issuance of the 2023 Notes, the Company also entered into separate warrant transactions pursuant to which it sold net-share-settled (or, at the Company’s election subject to certain conditions, cash-settled) warrants to acquire, subject to anti-dilution adjustments, up to approximately 7.1 million shares over 80 scheduled trading days beginning in May 2023 of the Company’s Class A common stock at an initial exercise price of approximately $ 68.06 per share (subject to adjustment). If the Warrants are not exercised on their exercise dates, they will expire. If the market value per share of the Company’s Class A common stock exceeds the applicable exercise price of the Warrants, the Warrants could have a dilutive effect on the Company’s Class A common stock unless, subject to the terms of the Warrants, the Company elects to cash settle the Warrants. The Warrants are separate transactions and are not part of the terms of the 2023 Notes or the Note Hedges. The Company received aggregate proceeds of $ 52.4 million from the sale of the Warrants in connection with the 2023 Notes. The proceeds from the sale of the Warrants were recorded as an increase to Additional paid-in capital in the consolidated balance sheets. In September 2019 and in June 2020, and in connection with the First Partial Repurchase of 2023 Notes and Second Partial Repurchase of 2023 Notes, the Company terminated Warrants corresponding to approximately 4.6 million and 1.4 million shares for total cash payments of $ 358.6 million and $ 175.4 million, respectively. The termination payments were recorded as a decrease to Additional paid-in capital in the consolidated balance sheets. As of January 31, 2021, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding. 2025 Convertible Senior Notes The 2025 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.125 % per year. Interest is payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. The 2025 Notes mature on September 1, 2025 unless earlier redeemed, repurchased or converted. The total net proceeds from the 2025 Notes, after deducting initial purchasers’ discounts and debt issuance costs, were $ 1,040.7 million. The terms of the 2025 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the 2025 Indenture). Upon conversion, the 2025 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. The 2025 Notes are convertible at an initial conversion rate of 5.2991 shares of Class A common stock per $1,000 principal amount of the 2025 Notes, which is equal to an initial conversion price of approximately $ 188.71 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2025 Indenture. Prior to the close of business on the business day immediately preceding June 1, 2025, holders of the 2025 Notes may convert all or a portion of their 2025 Notes only in multiples of $1,000 principal amount, under the following circumstances: • during any fiscal quarter commencing after the fiscal quarter ending on January 31, 2020 (and only during such fiscal quarter), if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2025 Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2025 Notes for each trading day of that five consecutive 101 trading day period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate on such trading day; • if the Company calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or • upon the occurrence of specified corporate events, as described in the 2025 Indenture. On or after June 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2025 Notes regardless of the foregoing circumstances. For at least 20 trading days during the period of 30 consecutive trading days ended January 31, 2021, the last reported sale price of the Company’s common stock was equal to or exceeded 130 % of the conversion price of the 2025 Notes on each applicable trading day. As a result, the 2025 Notes are convertible at the option of the holders during the fiscal quarter ending April 31, 2021 and were classified as current liabilities on the consolidated balance sheet as of January 31, 2021. No requests to convert material amounts of notes are currently outstanding. The Company may redeem for cash all or any portion of the 2025 Notes, at its option, on or after September 6, 2022, if the last reported sale price of the Company’s Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on and including the trading day preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the 2025 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. During the year ended January 31, 2021, the Company did not redeem any of the 2025 Notes. Holders of the 2025 Notes who convert their 2025 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2025 Indenture) or in connection with the Company’s issuance of a redemption notice are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indenture), holders of the 2025 Notes may require the Company to repurchase all or a portion of their 2025 Notes at a price equal to 100 % of the principal amount of the 2025 Notes being repurchased, plus any accrued and unpaid interest. In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components using an effective interest rate of 4.10 % to determine the fair value of the liability component. This interest rate was based on both an income and a market based approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate. For the market approach, the Company performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The following table sets forth total interest expense recognized related to the 2025 Notes (in thousands): Year Ended January 31, 2021 2020 Contractual interest expense $ 1,325 $ 519 Amortization of debt issuance costs 2,097 769 Amortization of debt discount 33,932 12,919 Total $ 37,354 $ 14,207 Total issuance costs of $ 19.3 million related to the 2025 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2025 Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital. The Company recorded liability issuance costs of $ 15.3 million and equity issuance costs of $ 4.0 million. 102 The 2025 Notes, net consisted of the following (in thousands): As of January 31, 2021 Liability component: Principal $ 1,060,000 Less: unamortized debt issuance costs and debt discount ( 186,971 ) Net carrying amount $ 873,029 Equity component: At Issuance 2025 Notes $ 221,387 Less: issuance costs ( 4,040 ) Carrying amount of the equity component (1) $ 217,347 (1) Included in the consolidated balance sheets within Additional paid-in capital. 2025 Capped Calls In connection with the pricing of the 2025 Notes, the Company entered into capped call transactions with respect to its Class A common stock. The 2025 Capped Calls are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2025 Notes, approximately 5.6 million shares of its Class A common stock for approximately $ 188.71 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2025 Notes, exercisable upon conversion of the 2025 Notes. The 2025 Capped Calls have initial cap prices of $ 255.88 per share (subject to adjustment) and will expire in 2025, if not exercised earlier. The 2025 Capped Calls are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2025 Notes under certain circumstances. The 2025 Capped Calls are separate transactions and are not part of the terms of the 2025 Notes. The Company paid an aggregate amount of $ 74.1 million for the 2025 Capped Calls. The amount paid for the 2025 Capped Calls was recorded as a reduction to Additional paid-in capital in the consolidated balance sheets. 2026 Convertible Senior Notes The 2026 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.375 % per year. Interest is payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The 2026 Notes mature on June 15, 2026 unless earlier redeemed, repurchased or converted. The total net proceeds from the 2026 Notes, after deducting initial purchasers’ discounts and debt issuance costs, were $ 1,134.8 million. The terms of the 2026 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the 2026 Indenture, and together with the 2023 Indenture and 2025 Indenture, the Indentures). Upon conversion, the 2026 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. The 2026 Notes are convertible at an initial conversion rate of 4.1912 shares of Class A common stock per $1,000 principal amount of the 2026 Notes, which is equal to an initial conversion price of approximately $ 238.60 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the Indenture. Prior to the close of business on the business day immediately preceding March 15, 2026, holders of the 2026 Notes may convert all or a portion of their 2026 Notes only in multiples of $1,000 principal amount, under the following circumstances: • during any fiscal quarter commencing after the fiscal quarter ending on October 31, 2020 (and only during such fiscal quarter), if the last reported sale price of our Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2026 Notes on each applicable trading day; 103 • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of our Class A common stock and the conversion rate on such trading day; • if the Company calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or • upon the occurrence of specified corporate events, as described in the 2026 Indenture. On or after March 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2026 Notes regardless of the foregoing circumstances. During the year ended January 31, 2021, the conditions allowing holders of the 2026 Notes to convert were not met. The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on or after June 20, 2023, if the last reported sale price of the Company’s Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on and including the trading day preceding the date on which we provide notice of redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. During the year ended January 31, 2021, the Company did no t redeem any of the 2026 Notes. Holders of the 2026 Notes who convert their 2026 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) or in connection with the Company’s issuance of a redemption notice are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indenture), holders of the 2026 Notes may require the Company to repurchase all or a portion of their 2026 Notes at a price equal to 100 % of the principal amount of the 2026 Notes being repurchased, plus any accrued and unpaid interest. In accounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability and equity components using an effective interest rate of 5.75 % to determine the fair value of the liability component. This interest rate was based on both an income and a market based approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility, the risk-free rate and observable trading activity for the Company’s existing Notes. For the market approach, the Company performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The following table sets forth total interest expense recognized related to the 2026 Notes (in thousands): Year Ended January 31, 2021 Contractual interest expense $ 2,731 Amortization of debt issuance costs 813 Amortization of debt discount 27,954 Total $ 31,498 Total issuance costs of $ 15.2 million related to the 2026 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2026 Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital. The Company recorded liability issuance costs of $ 11.1 million and equity issuance costs of $ 4.1 million. 104 The 2026 Notes, net consisted of the following (in thousands): As of January 31, 2021 Liability component: Principal $ 1,150,000 Less: unamortized debt issuance costs and debt discount ( 292,613 ) Net carrying amount $ 857,387 At Issuance Equity component: 2026 Notes $ 310,311 Less: issuance costs ( 4,090 ) Carrying amount of the equity component (1) $ 306,221 (1) Included in the consolidated balance sheets within Additional paid-in capital. 2026 Capped Calls In connection with the pricing of the 2026 Notes, the Company entered into capped call transactions with respect to its Class A common stock. The 2026 Capped Calls are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2026 Notes, approximately 4.8 million shares of its Class A common stock for approximately $ 238.60 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2026 Notes, exercisable upon conversion of the 2026 Notes. The 2026 Capped Calls have initial cap prices of $ 360.14 per share (subject to adjustment) and will expire in 2026, if not exercised earlier. The 2026 Capped Calls are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2026 Notes under certain circumstances. The 2026 Capped Calls are separate transactions and are not part of the terms of the 2026 Notes. The Company paid an aggregate amount of $ 134.0 million for the 2026 Capped Calls. The amount paid for the 2026 Capped Calls was recorded as a reduction to Additional paid-in capital in the consolidated balance sheets. 10. Leases The Company has entered into various non-cancellable office space operating leases with original lease periods expiring between 2021 and 2028. These leases do not contain material variable rent payments, residual value guarantees, covenants or other restrictions. The Company's corporate headquarters lease in San Francisco has a 10 year term, which expires in October 2028. The Company is entitled to two five-year options to extend this lease, subject to certain requirements. Operating lease costs were as follows (in thousands): Year Ended January 31, 2021 2020 2019 Operating lease costs (1) $ 33,076 $ 23,193 $ 23,290 (1) Amounts are presented exclusive of sublease income and include short-term leases, which are immaterial. The weighted-average remaining term of the Company’s operating leases was 6.8 and 7.9 years and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.6 % and 5.7 % as of January 31, 2021 and January 31, 2020, respectively. Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of January 31, 2021 were as follows (in thousands): 105 Operating Leases 2022 $ 34,410 2023 37,910 2024 38,823 2025 36,289 2026 26,839 Thereafter 73,135 Total lease payments 247,406 Less imputed interest ( 44,279 ) Total operating lease liabilities $ 203,127 Cash payments included in the measurement of the Company’s operating lease liabilities were $ 31.1 million and $ 18.3 million for the years ended January 31, 2021 and January 31, 2020, respectively. The Company recorded an impairment charge for operating lease right-of-use assets of $ 3.1 million and nil for the years ended January 31, 2021 and January 31, 2020, respectively. 11. Commitments and Contingencies Letters of Credit In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $ 11.2 million and $ 11.9 million were issued and outstanding as of January 31, 2021 and 2020, respectively. No draws have been made under such letters of credit. Purchase Obligations As of January 31, 2021, future minimum purchase obligations, such as data center operations and sales and marketing activities, were as follows (in thousands): Purchase Obligations 2022 $ 53,992 2023 38,370 2024 32,844 2025 1,604 2026 1,417 Total contractual obligations $ 128,227 Legal Matters From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. There were no such material matters as of January 31, 2021 and 2020. Warranties and Indemnification The Company’s subscription services are generally warranted to perform materially in accordance with the Company’s online help documentation under normal use and circumstances. Additionally, the Company’s arrangements generally include provisions for indemnifying customers against liabilities if its subscription services infringe a third party’s intellectual property rights. Furthermore, the Company may also incur liabilities if it breaches the security or confidentiality obligations in its arrangements. To date, the Company has not incurred significant costs and has not accrued a liability in the accompanying consolidated financial statements as a result of these obligations. The Company has entered into service-level agreements with a majority of its customers defining levels of uptime reliability and performance and permitting certain customers to receive credits for paid amounts related to subscription services when the Company fails to meet the defined levels of uptime. In very limited instances, the Company allows customers to early terminate their agreements in the event that the Company fails to meet those 106 levels as they may constitute a breach of contract. If the customer did terminate, they would receive a refund of prepaid unused subscription fees. To date, the Company has not experienced any significant failures to meet defined levels of uptime reliability and performance as a result of those agreements and, as a result, the Company has not accrued any liabilities related to these agreements in the consolidated financial statements. 12. Common Stock and Stockholders' Equity Common Stock Holders of Class A and Class B common stock are entitled to one vote per share and 10 votes per share, respectively, and the shares of Class A common stock and Class B common stock are identical, except for voting and conversion rights. Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder on a one -for-one basis, and are automatically converted into Class A common stock upon sale or transfer, subject to certain limited exceptions. Shares of Class A common stock are not convertible. In September 2019 and June 2020, in connection with the 2023 Notes Partial Repurchases, the Company issued approximately 3.0 million and 1.4 million shares of Class A common stock, respectively. In addition, during the year ended January 31, 2021, the Company issued approximately 0.2 million shares of Class A common stock in connection with 2023 Notes conversion requests and received approximately 0.2 million shares of Class A common stock from the settlement of Note Hedges. See Note 9 for additional details. As of January 31, 2021, shares of common stock reserved for future issuance were as follows: As of January 31, 2021 Options and unvested RSUs outstanding 12,702,220 Available for future stock option and RSU grants 20,574,441 Available for ESPP 4,633,093 37,909,754 Awards Issued as Charitable Contributions During the years ended January 31, 2021, 2020 and 2019, the Company issued 42,500 , 15,000 and 20,000 shares, respectively, of Class A common stock as charitable contributions and recognized $ 9.3 million, $ 1.7 million and $ 1.0 million, respectively, as general and administrative expense in the consolidated statements of operations. 13. Employee Incentive Plans The Company’s equity incentive plans provide for granting stock options, RSUs and restricted stock awards to employees, consultants, officers and directors. In addition, the Company offers an ESPP to eligible employees. Stock-based compensation expense by award type was as follows (in thousands): Year Ended January 31, 2021 2020 2019 Stock options $ 21,371 $ 21,888 $ 23,466 RSUs 164,412 94,637 41,637 ESPP 10,373 9,408 7,248 Restricted stock awards 25 590 1,608 Restricted common stock — 101 2,361 Total $ 196,181 $ 126,624 $ 76,320 107 Stock-based compensation expense was recorded in the following cost and expense categories in the Company’s consolidated statements of operations (in thousands): Year Ended January 31, 2021 2020 2019 Cost of revenue: Subscription $ 21,895 $ 12,923 $ 7,837 Professional services and other 8,083 7,164 4,983 Research and development 63,270 37,683 22,642 Sales and marketing 53,802 38,077 22,916 General and administrative 49,131 30,777 17,942 Total $ 196,181 $ 126,624 $ 76,320 Equity Incentive Plans The Company has two equity incentive plans: the 2009 Stock Plan (2009 Plan) and the 2017 Equity Incentive Plan (2017 Plan). All shares that remain available for future grants are under the 2017 Plan. As of January 31, 2021, options to purchase 1,074,212 shares of Class A common stock and 7,175,901 shares of Class B common stock remained outstanding. Stock Options Options issued under the Plan generally are exercisable for periods not to exceed ten years and generally vest over four years with 25 % vesting after one year and with the remainder vesting monthly thereafter in equal installments. Shares offered under the Plan may be: (i) authorized but unissued shares or (ii) treasury shares. A summary of the Company’s stock option activity and related information was as follows: Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding as of January 31, 2020 12,359,302 $ 11.82 6.2 $ 1,436,487 Granted 402,891 145.08 Exercised ( 4,368,683 ) 10.44 Canceled ( 143,397 ) 19.23 Outstanding as of January 31, 2021 8,250,113 $ 18.93 5.6 $ 1,980,668 As of January 31, 2021 Vested and expected to vest 8,250,113 $ 18.93 5.6 $ 1,980,668 Vested and exercisable 6,818,491 $ 9.93 5.2 $ 1,698,330 The weighted-average grant-date fair value of options granted was $ 63.32 , $ 37.35 and $ 17.21 during the years ended January 31, 2021, 2020 and 2019, respectively. The total grant-date fair value of stock options vested was $ 19.7 million, $ 23.7 million and $ 23.8 million during the years ended January 31, 2021, 2020 and 2019, respectively. The intrinsic value of the options exercised, which represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option, was $ 772.3 million, $ 558.6 million and $ 309.3 million for the years ended January 31, 2021, 2020 and 2019, respectively. As of January 31, 2021 and January 31, 2020, there was a total of $ 31.1 million and $ 28.2 million, respectively, of unrecognized stock-based compensation expense related to options, which was being recognized over a weighted-average period of 1.4 years. 108 The Company used the Black-Scholes option pricing model to estimate the fair value of stock options granted with the following assumptions: Year Ended January 31, 2021 2020 2019 Expected volatility 45 % 43 % 40 % Expected term (in years) 6.3 6.3 6.3 Risk-free interest rate 0.37 % - 0.44 % 1.55 % - 2.27 % 2.70 % Expected dividend yield — — — Restricted Stock Units A summary of the Company’s RSU activities and related information is as follows: Number of RSUs Weighted- Average Grant Date Fair Value Per Share Outstanding as of January 31, 2020 4,893,241 $ 77.99 Granted 2,198,704 173.64 Vested ( 2,195,094 ) 80.28 Forfeited ( 444,744 ) 90.01 Outstanding as of January 31, 2021 4,452,107 $ 122.90 The Company granted 2,198,704 RSUs with an aggregate fair value of $ 381.8 million for the year ended January 31, 2021. As of January 31, 2021, there was $ 502.8 million of unrecognized stock-based compensation expense related to unvested RSUs, which is being recognized over a weighted-average period of 2.5 years based on vesting under the award service conditions. The total fair value of RSUs vested during fiscal 2021, 2020 and 2019 was $ 410.4 million, $ 193.9 million and $ 58.7 million, respectively. Employee Stock Purchase Plan The ESPP provides for 12-month offering periods beginning June 21 and December 21 of each year, and each offering period consists of up to two six-month purchase periods. The Company estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions: Year Ended January 31, 2021 2020 2019 Expected volatility 48 % - 54 % 43 % - 59 % 39 % - 70 % Expected term (in years) 0.5 - 1.0 0.5 - 1.0 0.5 - 1.0 Risk-free interest rate 0.09 % - 0.18 % 1.53 % - 2.05 % 2.12 % - 2.62 % Expected dividend yield — — — During the year ended January 31, 2021, the Company's employees purchased 247,142 shares of its Class A common stock under the ESPP. The shares were purchased at a weighted-average purchase price of $ 104.84 , with proceeds of $ 25.9 million. During the year ended January 31, 2020, the Company's employees purchased 322,795 shares of its Class A common stock under the ESPP. The shares were purchased at a weighted-average purchase price of $ 58.14 with proceeds of $ 18.8 million. As of January 31, 2021, there was $ 10.1 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over an average vesting period of 0.9 years. 109 14. Income Taxes The domestic and foreign components of pre-tax loss for the years ended January 31, 2021, 2020 and 2019 were as follows (in thousands): Year Ended January 31, 2021 2020 2019 Domestic $ ( 282,026 ) $ ( 220,846 ) $ ( 128,214 ) Foreign 15,835 10,514 2,700 Loss before provision for (benefit from) income taxes $ ( 266,191 ) $ ( 210,332 ) $ ( 125,514 ) The components of the provision for (benefit from) income taxes for the years ended January 31, 2021, 2020 and 2019 were as follows (in thousands): Year Ended January 31, 2021 2020 2019 Current: Federal $ 11 $ 33 $ — State 136 86 61 Foreign 1,294 822 667 Total current provision for income taxes 1,441 941 728 Deferred: Federal 51 ( 518 ) ( 620 ) State 5 ( 406 ) ( 130 ) Foreign ( 1,356 ) ( 1,436 ) 5 Total deferred benefit from income taxes ( 1,300 ) ( 2,360 ) ( 745 ) Total provision for (benefit from) income taxes $ 141 $ ( 1,419 ) $ ( 17 ) For the tax year ended January 31, 2021, the income tax expense from profitable jurisdictions was partially offset by the excess tax benefits from stock-based compensation in the United Kingdom. For the tax year ended January 31, 2020 the income tax benefit resulted from the release of valuation allowance in the United States in connection with an acquisition and excess tax benefits from stock-based compensation in the United Kingdom. For the tax year ended January 31, 2019, the income tax benefit resulted from the release of valuation allowance in the United States in connection with an acquisition and excess tax benefits from stock-based compensation in the United Kingdom. The income tax expense and benefits in the years ended January 31, 2021, 2020 and 2019 were partially offset by foreign income taxes, state taxes and tax amortization of goodwill. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended January 31, 2021, 2020 and 2019: Year Ended January 31, 2021 2020 2019 Tax at federal statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 4.1 4.0 3.8 Change in valuation allowance ( 101.0 ) ( 100.1 ) ( 68.5 ) Stock-based compensation 70.2 59.8 45.5 Research and development credits 6.4 18.0 — Other, net ( 0.8 ) ( 2.0 ) ( 1.8 ) Effective tax rate ( 0.1 ) % 0.7 % — % 110 The tax effects of temporary differences and related deferred tax assets and liabilities as of January 31, 2021 and 2020 were as follows (in thousands): As of January 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 607,483 $ 370,705 Stock-based compensation 18,952 18,680 Deferred revenue 1,144 1,960 Operating lease liabilities 51,702 42,073 Other reserves and accruals 16,586 6,414 Research and development and other credits 57,060 39,918 Disallowed interest 6,091 4,507 Total deferred tax assets 759,018 484,257 Valuation allowance ( 555,199 ) ( 361,606 ) Total deferred tax assets, net 203,819 122,651 Deferred tax liabilities: Convertible debt ( 112,547 ) ( 50,963 ) Deferred commissions ( 38,710 ) ( 27,569 ) Capitalized internal-use software costs ( 2,691 ) ( 2,248 ) Goodwill ( 306 ) ( 262 ) Operating lease right-of-use assets ( 37,522 ) ( 31,165 ) Depreciation and amortization ( 8,522 ) ( 8,315 ) Total deferred tax liabilities ( 200,298 ) ( 120,522 ) Net deferred tax assets $ 3,521 $ 2,129 As a result of continuing losses, the Company has determined that it is not more likely than not that it will realize the benefits of the U.S. deferred tax assets and, therefore, the Company has recorded a valuation allowance to reduce the carrying value of the U.S. deferred tax assets, net of U.S. deferred tax liabilities, to approximately zero. The U.S. valuation allowance increased by $ 193.6 million and $ 157.7 million during the years ended January 31, 2021 and 2020, respectively. As of January 31, 2021, the Company had approximately $ 2,390.3 million of federal and $ 1,541.9 million of state net operating loss carryforwards available to offset future taxable income. If not used, the federal and state net operating loss carryforwards will begin to expire in 2029 and 2022, respectively. As of January 31, 2021, the Company had approximately $ 49.4 million of UK net operating losses which do not expire. As of January 31, 2021, the Company had federal research and development tax credit carryforwards of $ 50.3 million and California research and development tax credit carryforwards of $ 33.4 million. The federal research and development credits will start to expire in 2030 while the California research and development credits do not expire. The Company also had California Enterprise Zone credits of $ 1.0 million that begin to expire in 2023. The Company’s ability to use the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws. The Company attributes net revenue, costs and expenses to domestic and foreign components based on the terms of its agreements with its subsidiaries. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are to be reinvested offshore indefinitely. If the Company repatriated these earnings, the resulting income tax liability would be insignificant. The Company is subject to taxation in the United States and various states and foreign jurisdictions. On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future use of net operating losses, temporary changes to the prior and future 111 limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. The Company does not expect there to be a material tax impact on its consolidated financial statements at this time, and will continue to assess the implications of the CARES Act and its continuing developments and interpretations. A reconciliation of beginning and ending amount of unrecognized tax benefit was as follows (in thousands): Year Ended January 31, 2021 2020 2019 Gross amount of unrecognized tax benefits as of the beginning of the year $ 15,987 $ 23,931 $ 11,719 Additions based on tax positions related to a prior year — 658 1,859 Additions based on tax positions related to current year 7,189 6,866 10,353 Reductions based on tax positions taken in a prior year ( 952 ) ( 15,468 ) — Gross amount of unrecognized tax benefits as of the end of the year $ 22,224 $ 15,987 $ 23,931 The Company is subject to taxation in the U.S. and various other state and foreign jurisdictions. As the Company has net operating loss carryforwards for U.S. federal and state jurisdictions, the statute of limitations is open for all years. For material foreign jurisdictions, the tax years open to examination include the tax years 2016 and forward. As of January 31, 2021, 2020 and 2019, the Company had unrecognized tax benefits which would not impact the effective tax rate because of the valuation allowance. The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes. The Company did not have any uncertain tax positions as of January 31, 2021 for which it was reasonably possible that the positions will increase or decrease within the next twelve months. As of January 31, 2021 and 2020, the Company had no t accrued any interest or penalties related to unrecognized tax benefits. 15. Net Loss Per Share The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities. The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data): Year Ended January 31, 2021 2020 2019 Class A Class B Class A Class B Class A Class B Numerator: Net loss $ ( 248,892 ) $ ( 17,440 ) $ ( 192,138 ) $ ( 16,775 ) $ ( 107,926 ) $ ( 17,571 ) Denominator: Weighted-average shares outstanding, basic and diluted 118,882 8,330 107,809 9,412 92,452 15,052 Net loss per share, basic and diluted $ ( 2.09 ) $ ( 2.09 ) $ ( 1.78 ) $ ( 1.78 ) $ ( 1.17 ) $ ( 1.17 ) 112 As the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands): Year Ended January 31, 2021 2020 2019 Issued and outstanding stock options 8,250 12,359 17,804 Unvested RSUs issued and outstanding 4,452 4,893 4,836 Unvested restricted stock awards issued and outstanding — 177 388 Unvested shares subject to repurchase — 5 48 Unvested restricted common stock issued and outstanding — — 400 Shares committed under the ESPP 137 253 271 Shares related to 2023 Notes 832 2,494 7,134 Shares subject to warrants related to the issuance of 2023 Notes 1,048 2,494 — Shares related to 2025 Notes 5,617 5,617 — Shares related to 2026 Notes 4,820 — — 25,156 28,292 30,881 The Company uses the if-converted method for calculating any potential dilutive effect of the conversion options embedded in the Notes on diluted net income per share, if applicable. The conversion options of the 2023, 2025 and 2026 Notes are dilutive in periods of net income on a weighted-average basis using an assumed conversion date equal to the later of the beginning of the reporting period and the date of issuance of the respective Notes. The exercise rights of the Warrants will have a dilutive impact on net income per share of common stock under the treasury-stock method when the average market price per share of the Company’s Class A common stock for a given period exceeds the conversion price of $ 68.06 per share. During the year ended January 31, 2021, the average price per share of the Company’s Class A common stock exceeded the exercise price of the Warrants; however, since the Company is in a net loss position there was no dilutive effect during any period presented. 16. Subsequent Events On March 3, 2021, the Company entered into a definitive agreement to acquire Auth0, an identity management platform, pursuant to the Merger Agreement. Upon consummation of the transaction contemplated by the Merger Agreement, all outstanding shares of Auth0 capital stock, options, warrants, convertible securities, phantom equity and other outstanding equity interests will be cancelled in exchange for aggregate consideration of $ 6.5 billion in the form of shares of Class A common stock of the Company and assumed awards of corresponding Company equity interests, subject to customary purchase price adjustments and certain customary cash payouts in lieu of shares of Company Class A common stock, as provided by the Merger Agreement. The purchase price payable in shares of Class A common stock will be valued at $ 276.2147 per share (which price was calculated based on the daily volume-weighted average sales price per share of Company Class A common stock for the 20 trading days ending on February 26, 2021). The per share price of these shares has been fixed as of the Merger Agreement signing date, and the aggregate value of these shares will fluctuate based on changes in our share price between the signing and closing dates. The proposed transaction is expected to close during the Company’s second quarter of fiscal 2022, the quarter ending July 31, 2021. The closing of this transaction is subject to certain customary closing conditions and approvals. 113 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.