What changed in this filing

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Item 1. Financial Statements

2021-05-27 compared with 2020-12-03 · 153 added, 216 removed, 521 unchanged (41% of the section changed)

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of October 31, 2020 and January 31, 2020

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2020 and 2019

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended October 31, 2020 and 2019

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended October 31, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2020 and 2019

Condensed Consolidated Balance Sheets as of April 30, 2021 and January 31, 2021

Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2021 and 20 20

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2021 and 2020

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended April 30, 202 1 and 2 020

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2021 and 2020

Notes to Condensed Consolidated Financial Statements

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• our future financial performance, including our revenue, costs of revenue, gross profits, margins and operating expenses;

• the impact of the global coronavirus pandemic on our business and operations;

• the impact of the global COVID-19 pandemic on our business and operations;

• trends in our key business metrics;

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• the impact of recent accounting pronouncements on our financial statements;

• our ability to successfully integrate and realize the benefits of strategic acquisitions or investments, including our acquisition of Auth0, Inc.

Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond our control.

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(In thousands, except per share data)

October 31, 2020 January 31, 2020

April 30, 2021 January 31, 2021

Current assets:

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100,000 shares authorized;

no shares issued and outstanding as of October 31, 2020 and January 31, 2020

no shares issued and outstanding as of April 30, 2021 and January 31, 2021

Class A common stock, par value $ 0.0001 per share;

1,000,000 shares authorized;

121,283 and 113,990 shares issued and outstanding as of October 31, 2020 and January 31, 2020, respectively

125,056 and 122,824 shares issued and outstanding as of April 30, 2021 and January 31, 2021, respectively

Class B common stock, par value $ 0.0001 per share;

120,000 shares authorized;

8,219 and 8,648 shares issued and outstanding as of October 31, 2020 and January 31, 2020, respectively

7,524 and 8,159 shares issued and outstanding as of April 30, 2021 and January 31, 2021, respectively

Additional paid-in capital 1,753,842 1,656,096

7 unchanged sentences

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Subscription $ 240,058 $ 173,781

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Interest income and other, net 4,355 4,899

Loss on early extinguishment and conversion of debt ( 89 ) ( 14,572 ) ( 2,263 ) ( 14,572 )

Loss on conversion of debt ( 136 ) —

Interest and other, net ( 18,541 ) ( 5,865 )

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Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Net loss $ ( 109,232 ) $ ( 57,662 )

Other comprehensive income (loss):

Other comprehensive income:

Net change in unrealized gains or losses on available-for-sale securities ( 813 ) 4,634

Foreign currency translation adjustments 1,033 ( 1,784 )

Other comprehensive income (loss) ( 2,950 ) 1,788 1,679 454

Other comprehensive income 220 2,850

Comprehensive loss $ ( 109,012 ) $ ( 54,812 )

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Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Common stock and additional paid-in capital:

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Stock-based compensation 64,112 38,038

Equity component of convertible senior notes, net of issuance costs ( 12 ) 217,347 306,220 217,347

Equity component of early extinguishment and conversion of convertible senior notes 8,829 ( 26,713 ) 70,493 ( 26,713 )

Equity component of conversion of convertible senior notes 15,420 —

Proceeds from hedges related to convertible senior notes 1 —

Payments for warrants related to convertible senior notes — ( 358,622 ) ( 175,399 ) ( 358,622 )

Purchases of capped calls related to convertible senior notes — ( 74,094 ) ( 133,975 ) ( 74,094 )

Other, net — ( 3 ) ( 3 )

Balance, end of period 1,753,856 1,168,140

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Balance, end of period ( 1,076,688 ) ( 758,786 )

Accumulated other comprehensive income (loss):

Accumulated other comprehensive income:

Balance, beginning of period 5,390 892

Other comprehensive income (loss) ( 2,950 ) 1,788 1,679 454

Other comprehensive income 220 2,850

Balance, end of period 5,610 3,742

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(In thousands)

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

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Non-cash charitable contributions 2,024 536

Loss on early extinguishment and conversion of debt 2,263 14,572

Loss on conversion of debt 136 —

Other, net ( 3,804 ) 915

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Purchases of intangible assets ( 113 ) —

Payments for business acquisition, net of cash acquired — ( 44,223 )

Net cash used in investing activities ( 1,267,882 ) ( 125,102 )

Net cash provided by investing activities 151,905 50,604

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes, net of issuance costs 1,134,841 1,040,760

Payments for repurchases of convertible senior notes ( 447 ) ( 224,414 )

Payments for conversions of convertible senior notes ( 12 ) —

Proceeds from hedges related to convertible senior notes 1 —

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 16,190 14,172

Proceeds from shares issued in connection with employee stock purchase plan 12,821 9,005

Other, net — ( 5 )

1 unchanged sentence

Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash 647 ( 1,128 )

Net increase (decrease) in cash, cash equivalents and restricted cash ( 108,251 ) 740,156

Net increase in cash, cash equivalents and restricted cash 224,806 102,340

Cash, cash equivalents and restricted cash at beginning of period 448,630 531,953

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Issuance of common stock for repurchases and conversions of convertible senior notes 94,308 —

Common stock issued as charitable contribution 4,662 1,162

Benefit from exercise of hedges related to convertible senior notes 30,623 —

Operating lease right-of-use assets exchanged for lease liabilities 828 41,444

Property and equipment acquired through tenant improvement allowance 4,811 1,682

Impairment of operating lease right-of-use asset 2,587 —

Issuance of common stock for bonus settlement — 9,818

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(the “Company”) is the leading independent identity management platform for the enterprise.

The Okta Identity Cloud enables the Company’s customers to securely connect people to technology, anywhere, anytime and from any device.

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.

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The Company’s most significant estimates include the stand alone selling price (“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 condensed consolidated financial statements for the three and nine months ended October 31, 2020.

As events continue to evolve and additional information becomes available, our assumptions and estimates may change materially in future periods.

In March 2020, the World Health Organization (“WHO”) declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic, which has continued to spread across the globe.

As events continue to evolve and additional information becomes available, the Company’s assumptions and estimates may change materially in future periods.

Accounting Standards and Significant Accounting Policies

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January 31, 2021.

Except for the accounting policies for short-term investments and accounts receivable and allowances that were updated below as a result of adopting the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13) on February 1, 2020, there have been no significant changes to our significant accounting policies for the nine months ended October 31, 2020.

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 condensed 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 condensed 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 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 known disputes or collectibility issues.

Amounts deemed uncollectible are recorded as an allowance in the condensed consolidated balance sheets with an offsetting decrease in deferred revenue or a charge to general and administrative expense in the condensed consolidated statements of operations.

As of October 31, 2020, allowances reflect collectibility and concession 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.

The Company further described its accounting policy for strategic investments below.

There have been no significant changes to the Company’s significant accounting policies for the three months ended April 30, 2021.

Strategic Investments

The Company holds strategic equity investments in privately held companies that are included in Other assets on the condensed consolidated balance sheets.

Investments in privately held companies without readily determinable fair values in which the Company does not own a controlling interest or have significant influence over are measured using the measurement alternative.

In applying the measurement alternative, the Company adjusts the carrying values of strategic investments based on observable price changes from orderly transactions for identical or similar investments of the same issuer.

Additionally, the Company evaluates its strategic investments at least quarterly for impairment.

Adjustments and impairments are recorded in Interest and other, net on the condensed consolidated statements of operations.

In determining the estimated fair value of its strategic investments in privately held companies, the Company uses the most recent data available to the Company.

Valuations of privately held securities are inherently complex due to the lack of readily available market data and require the use of judgment.

The determination of whether an orderly transaction is for an identical or similar investment requires significant Company judgment.

In its evaluation, the Company considers factors such as differences in the rights and preferences of the investments and the extent to which those differences would affect the fair values of those investments.

The Company’s impairment analysis encompasses an assessment of both qualitative and quantitative factors including the investee's financial metrics, market acceptance of the investee's product or technology, general market conditions and liquidity considerations.

Concentrations of Significant Customers

As of October 31, 2020, one channel partner represented approximately 13 % of accounts receivable.

As of January 31, 2020, no single customer represented greater than 10% of accounts receivable.

For the nine months ended October 31, 2020 and 2019, no single customer represented greater than 10% of revenue.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued 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 condensed 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 condensed 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 prospective basis.

The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

As of April 30, 2021 and January 31, 2021, no single customer represented greater than 10% of accounts receivable.

For the three months ended April 30, 2021 and 2020, no single customer represented greater than 10% of revenue.

Recent Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU No.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

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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 balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes.

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.

Business Combinations

On March 18, 2019, the Company acquired all issued and outstanding capital stock of Azuqua, Inc.

(Azuqua), a company which provides a no-code, cloud-based integration platform that automates workflows between applications and services.

The acquisition date cash consideration transferred for Azuqua was $ 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 Azuqua’s technology and the Company’s 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.

In connection with Azuqua and prior acquisitions, the Company entered into deferred compensation arrangements totaling $ 10.8 million, of which $ 2.6 million was recognized as compensation during the nine months ended October 31, 2020.

The remaining deferred compensation balance of $ 2.2 million is associated with the acquisition of Azuqua and is being recognized over a future period of 1.4 years subject to continued service with the Company.

These acquisitions did not have a material impact on the Company’s condensed consolidated financial statements;

therefore, historical and proforma disclosures have not been presented.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and the Company intends to adopt this standard using the modified retrospective method in its first quarter of fiscal 2023.

The Company is currently evaluating the overall impact of this standard on its consolidated financial statements.

Cash Equivalents and Investments

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 October 31, 2020 and January 31, 2020 were as follows (in thousands):

As of October 31, 2020

The amortized cost, unrealized gain (loss) and estimated fair value of the Company’s cash equivalents and short-term investments as of April 30, 2021 and January 31, 2021 were as follows (in thousands):

As of April 30, 2021

Cash equivalents:

Money market funds $ 182,188 $ — $ — $ 182,188

Corporate debt securities 6,412 — ( 1 ) 6,411

Total cash equivalents 188,600 — ( 1 ) 188,599

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Money market funds $ 311,257 $ — $ — $ 311,257

treasury securities 19,996 — — 19,996

Total cash equivalents 311,257 — — 311,257

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Total $ 2,430,865 $ 2,000 $ ( 24 ) $ 2,432,841

All short-term investments were designated as available-for-sale securities as of October 31, 2020 and January 31, 2020.

The following table presents the contractual maturities of the Company’s short-term investments as of October 31, 2020 (in thousands):

As of October 31, 2020

All short-term investments were designated as available-for-sale securities as of April 30, 2021 and January 31, 2021.

The following table presents the contractual maturities of the Company’s short-term investments as of April 30, 2021 (in thousands):

As of April 30, 2021

Due within one year $ 1,439,815 $ 1,440,719

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Total $ 2,029,015 $ 2,030,180

As of October 31, 2020 and January 31, 2020, the Company included $ 41.0 million and nil , respectively, of unsettled maturities of Short-term investments in Prepaid expenses and other current assets.

The Company included $ 10.9 million and $ 5.7 million of interest receivable in Prepaid expenses and other current assets as of October 31, 2020 and January 31, 2020, respectively.

The Company did not recognize an allowance for credit losses against interest receivable as of October 31, 2020 and January 31, 2020 because such potential losses were not material.

The Company had 62 and 7 short-term investments in unrealized loss positions as of October 31, 2020 and January 31, 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 three and nine months ended October 31, 2020 or 2019.

As of April 30, 2021 and January 31, 2021, the Company included $ 43.0 million and nil , respectively, of unsettled purchases of short-term investments in Accrued expenses and other current liabilities on the condensed consolidated balance sheets and nil and $ 31.0 million, respectively, of unsettled maturities of short-term investments included in Prepaid expenses and other current assets on the condensed consolidated balance sheets.

The Company included $ 9.5 million and $ 10.5 million of interest receivable in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of April 30, 2021 and January 31, 2021, respectively.

The Company did not recognize an allowance for credit losses against interest receivable as of April 30, 2021 and January 31, 2021 because such potential losses were not material.

The Company had 32 and 10 short-term investments in unrealized loss positions as of April 30, 2021 and January 31, 2021, respectively.

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 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 October 31, 2020 and January 31, 2020.

Based on this evaluation, the Company determined that for short-term investments, there were no material credit or non-credit related impairments as of April 30, 2021 and January 31, 2021.

Strategic Investments

The Company's investments also include strategic equity investments in privately held companies, which do not have a readily determinable fair value.

As of April 30, 2021 and January 31, 2021, the balance of such strategic investments was $ 7.8 million and $ 3.1 million, respectively.

Fair Value Measurements

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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 October 31, 2020

As of April 30, 2021

Level 1 Level 2

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Money market funds $ 182,188 $ — $ — $ 182,188

Corporate debt securities — 6,411 — 6,411

Total cash equivalents 182,188 6,411 — 188,599

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Money market funds $ 311,257 $ — $ — $ 311,257

treasury securities — 19,996 — 19,996

Total cash equivalents 311,257 — — 311,257

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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 condensed consolidated balance sheets (in thousands):

As of October 31, 2020

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments that are not recorded at fair value on the condensed consolidated balance sheets (in thousands):

As of April 30, 2021

Net Carrying Amount (1)

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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 October 31, 2020, 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 $ 209.83 on October 31, 2020, the if-converted values of the 2023 Notes and 2025 Notes exceeded the principal amounts of $ 40.2 million and $ 1,060.0 million, respectively, while the if-converted value of the 2026 Notes was less than the principal amount of $ 1,150.0 million.

As of April 30, 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 the Company’s common stock of $ 269.70 on April 30, 2021, the if-converted values of the 2023 Notes, 2025 Notes and 2026 Notes exceeded the principal amounts of $ 23.1 million, $ 1,060.0 million and $ 1,150.0 million, respectively.

Deferred Commissions

Sales commissions capitalized as contract costs totaled $ 21.5 million and $ 15.3 million in the three months ended October 31, 2020 and 2019, respectively, and $ 51.8 million and $ 36.7 million in the nine months ended October 31, 2020 and 2019, respectively.

Amortization of contract costs was $ 10.3 million and $ 7.3 million for the three months ended October 31, 2020 and 2019, respectively, and $ 28.4 million and $ 20.5 million for the nine months ended October 31, 2020 and 2019, respectively.

Sales commissions capitalized as contract costs totaled $ 14.9 million and $ 11.9 million in the three months ended April 30, 2021 and 2020, respectively.

Amortization of contract costs was $ 11.8 million and $ 8.7 million for the three months ended April 30, 2021 and 2020, respectively.

There was no impairment loss in relation to the costs capitalized.

Goodwill and Intangible Assets, net

As of October 31, 2020 and January 31, 2020, goodwill was $ 48.0 million.

No goodwill impairments were recorded during the three and nine months ended October 31, 2020 and 2019.

As of April 30, 2021 and January 31, 2021, goodwill was $ 48.0 million.

No goodwill impairments were recorded during the three months ended April 30, 2021 and 2020.

Intangible Assets, net

Intangible assets consisted of the following (in thousands):

As of October 31, 2020

As of April 30, 2021

Gross Accumulated Amortization Write-offs Net

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$ 59,185 $ ( 32,176 ) $ — $ 27,009

The Company capitalized $ 1.6 million and $ 1.8 million of internal-use software costs in the three months ended October 31, 2020 and 2019, respectively and $ 4.7 million and $ 3.5 million in the nine months ended October 31, 2020 and 2019, respectively.

Stock-based compensation expense included in the total amounts capitalized were immaterial.

The remaining weighted-average useful life of all purchased developed technology was 3.3 years as of October 31, 2020.

Amortization expense of intangible assets for the three months ended October 31, 2020 and 2019 was $ 2.7 million and $ 2.6 million, respectively, and $ 8.2 million and $ 7.7 million for the nine months ended October 31, 2020 and 2019, respectively.

As of April 30, 2021, and January 31, 2021, the remaining weighted-average useful life of all purchased developed technology was 2.9 years and 3.1 years, respectively.

Amortization expense of intangible assets for the three months ended April 30, 2021 and 2020 was $ 2.9 million and $ 2.8 million, respectively .

Deferred Revenue and Performance Obligations

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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 three months ended October 31, 2020 and 2019 that was included in the deferred revenue balances at the beginning of the respective periods was $ 174.0 million and $ 123.5 million, respectively, and $ 334.2 million and $ 224.0 million in the nine months ended October 31, 2020 and 2019, respectively.

Professional services and other revenue recognized in the three and nine months ended October 31, 2020 and 2019 from deferred revenue balances at the beginning of the respective periods was not material.

Subscription revenue recognized during the three months ended April 30, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was $ 202.1 million and $ 147.0 million, respectively.

Professional services and other revenue recognized in the three months ended April 30, 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, noncancelable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and noncancelable amounts that will be invoiced and recognized as revenue in future periods.

As of October 31, 2020, total remaining noncancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 1,581.8 million .

Transaction price allocated to the remaining performance obligations represents all future, non-cancelable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods.

As of April 30, 2021, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 1,889.8 million .

Of this amount, the Company expects to recognize revenue of approximately $ 898.5 million, or 48 %, over the next 12 months, with the balance to be recognized as revenue thereafter.

Revenue from remaining performance obligations for professional services and other contracts as of October 31, 2020 was not material.

Remaining performance obligations for professional services and other contracts as of April 30, 2021 were not material.

Convertible Senior Notes, Net

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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.

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.

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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 three and nine months ended October 31, 2019, of which $ 3.8 million consisted of unamortized debt issuance costs.

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 (“Second Partial Repurchase of 2023 Notes”, and together with the First Partial Repurchase of 2023 Notes, the “2023 Notes Partial Repurchases”).

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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 nine months ended October 31, 2020, of which $ 1.0 million consisted of unamortized debt issuance costs.

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 October 31, 2020, $ 40.2 million of principal remained outstanding on the 2023 Notes.

As of April 30, 2021, $ 23.1 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”).

2 unchanged sentences

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:

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 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;

• 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 twenty trading days during the period of thirty consecutive trading days ended October 31, 2020, 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 January 31, 2021 and were classified as current liabilities on the condensed consolidated balance sheet as of October 31, 2020.

During the three and nine months ended October 31, 2020, 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 2023 Notes Partial Repurchases).

circumstances.

For at least 20 trading days during the period of 30 consecutive trading days ended April 30, 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 July 31, 2021 and were classified as current liabilities on the condensed consolidated balance sheet as of April 30, 2021.

During the three months ended April 30, 2021, the Company issued approximately 0.4 million shares of Class A common stock and paid an immaterial amount in cash to settle approximately $ 17.1 million principal amount of 2023 Notes.

The loss on early note conversion was not material.

No requests to convert material amounts of notes are currently outstanding.

During the three months ended April 30, 2021, the Company received additional conversion requests, and approximately $ 2.9 million aggregate principal amount of the 2023 Notes were primarily settled in shares of Class A common stock during the three months ending July 31, 2021.

No requests to convert material amounts of the 2023 Notes are currently outstanding.

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.

6 unchanged sentences

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Contractual interest expense $ 20 $ 75

7 unchanged sentences

The 2023 Notes, net consisted of the following (in thousands):

As of October 31, 2020

As of April 30, 2021

Liability component:

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Net carrying amount $ 20,781

As of October 31, 2020

As of April 30, 2021

Equity component:

3 unchanged sentences

(1) Included in the condensed consolidated balance sheets within Additional paid-in capital.

In connection with the pricing of the 2023 Notes, the Company entered into convertible note hedges with respect to its Class A common stock (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”).

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.

6 unchanged sentences

The proceeds were recorded as an increase to Additional paid-in capital in the condensed consolidated balance sheets.

During the three months ended October 31, 2020, the Company exercised a portion of the Note Hedges, corresponding to approximately $ 10.4 million principal amount of 2023 Notes, which will be net share settled in our fiscal fourth quarter in accordance with their contractual terms.

As of October 31, 2020, Note Hedges giving the Company the option to purchase approximately 0.8 million shares (subject to adjustment), which excludes the exercised portion to be net share settled in our fiscal fourth quarter, remained outstanding.

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 (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).

During the three months ended April 30, 2021, the Company exercised and net-share-settled Note Hedges corresponding to approximately $ 7.5 million principal amount of 2023 Notes and received approximately 0.1 million shares of Class A common stock and an immaterial cash payment.

During the three months ended April 30, 2021, the Company exercised Note Hedges corresponding to approximately $ 9.6 million principal amount of 2023 Notes that are expected to be net-share-settled in the second quarter of fiscal 2022, and subsequent to April 30, 2021, the Company further exercised an immaterial amount of Note Hedges.

As of April 30, 2021, Note Hedges giving the Company the option to purchase approximately 0.7 million shares (subject to adjustment), which excludes the exercised portion expected to be net-share-settled in the second quarter of fiscal 2022, remained outstanding.

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 (the “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.

5 unchanged sentences

The termination payments were recorded as a decrease to Additional paid-in capital in the condensed consolidated balance sheets.

As of October 31, 2020, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding.

As of April 30, 2021, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding.

2025 Convertible Senior Notes

12 unchanged sentences

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.

During the three months ended October 31, 2020, the conditions allowing holders of the 2025 Notes to convert were not met.

During the three months ended April 30, 2021, the conditions allowing holders of the 2025 Notes to convert during the three months ending July 31, 2021 were no longer met, and as a result, the 2025 Notes were classified as noncurrent liabilities as of April 30, 2021.

No requests to convert material amounts of the 2025 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 three months ended October 31, 2020, the Company did no t redeem any of the 2025 Notes.

During the three months ended April 30, 2021, the Company did no t 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.

6 unchanged sentences

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Contractual interest expense $ 331 $ 331

7 unchanged sentences

The 2025 Notes, net consisted of the following (in thousands):

As of October 31, 2020

As of April 30, 2021

Liability component:

8 unchanged sentences

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 (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”).

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.

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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;

• 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;

• 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 the Company’s 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;

• 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 the Company’s 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;

1 unchanged sentence

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 three months ended October 31, 2020, the conditions allowing holders of the 2026 Notes to convert were not met.

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 three months ended October 31, 2020, the Company did no t redeem any of the 2026 Notes.

During the three months ended April 30, 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 three months ended April 30, 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.

3 unchanged sentences

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 debt securities without conversion features by other companies with similar credit risk ratings at the time of issuance.

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):

Three Months Ended Nine Months Ended

October 31, 2020

Three Months Ended

Contractual interest expense $ 1,078

7 unchanged sentences

The 2026 Notes, net consisted of the following (in thousands):

As of October 31, 2020

As of April 30, 2021

Liability component:

8 unchanged sentences

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 (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”).

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.

3 unchanged sentences

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.

The amount paid for the 2026 Capped Calls was recorded as a reduction to Additional paid-in capital in the condensed consolidated balance sheets.

The Company has entered into various non-cancelable office space operating leases with original lease periods expiring between 2023 and 2028.

2 unchanged sentences

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Operating lease cost (1)

1 unchanged sentence

(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 7.1 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 October 31, 2020 and January 31, 2020, respectively.

Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of October 31, 2020 were as follows (in thousands):

Operating Leases

The weighted-average remaining term of the Company’s operating leases was 6.6 years and 6.8 years as of April 30, 2021 and January 31, 2021, respectively, and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.6 % as of April 30, 2021 and January 31, 2021.

Maturities of the Company’s operating lease liabilities, which do not include short-term leases, were as follows (in thousands):

As of April 30, 2021

2022 $ 25,396

Thereafter 73,135

2 unchanged sentences

Total operating lease liabilities $ 197,813

Cash payments included in the measurement of the Company’s operating lease liabilities were $ 7.7 million and $ 6.1 million for the three months ended October 31, 2020 and 2019, respectively, and $ 22.7 million and $ 10.9 million for the nine months ended October 31, 2020 and 2019, respectively.

Cash payments included in the measurement of the Company’s operating lease liabilities were $ 9.1 million and $ 7.1 million for the three months ended April 30, 2021 and 2020, respectively.

No impairment charges for operating lease right-of-use assets were recorded during the three months ended April 30, 2021 and 2020, respectively.

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 October 31, 2020 and January 31, 2020, respectively.

In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $ 10.8 million and $ 11.2 million were issued and outstanding as of April 30, 2021 and January 31, 2021, respectively.

No draws have been made under such letters of credit.

Noncurrent restricted cash of $ 8.6 million associated with these letters of credit is included in Other assets on the condensed consolidated balance sheets as of April 30, 2021 and January 31, 2021.

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 October 31, 2020.

There were no such material matters as of April 30, 2021 .

Employee Incentive Plans

3 unchanged sentences

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Cost of revenue

5 unchanged sentences

Total $ 64,112 $ 37,728

Stock-based compensation expense recorded to research and development in the condensed consolidated statements of operations excludes amounts that were capitalized related to internal-use software for the three and nine months ended October 31, 2020 and 2019.

Equity Incentive Plans

2 unchanged sentences

All shares that remain available for future grants are under the 2017 Plan.

As of October 31, 2020, options to purchase 1,176,642 shares of Class A common stock and 8,065,566 shares of Class B common stock remained outstanding.

As of April 30, 2021, options to purchase 1,586,610 shares of Class A common stock and 6,522,253 shares of Class B common stock remained outstanding.

Shares of common stock reserved for future issuance were as follows:

October 31, 2020

April 30, 2021

Stock options and unvested RSUs outstanding 13,221,003

8 unchanged sentences

Canceled ( 51,641 ) 93.82

Outstanding as of October 31, 2020 (unaudited) 9,242,208 $ 18.21 5.8 $ 1,770,981

As of October 31, 2020

Outstanding as of April 30, 2021 (unaudited) 8,108,863 $ 40.30 5.7 $ 1,863,785

As of April 30, 2021

Vested and exercisable (unaudited) 6,665,149 $ 11.44 5.0 $ 1,721,356

As of October 31, 2020, there was a total of $ 36.2 million of unrecognized stock-based compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.5 years.

As of April 30, 2021, there was a total of $ 111.6 million of unrecognized stock-based compensation expense related to options, which is being recognized over a weighted-average period of 2.6 years.

Restricted Stock Units

6 unchanged sentences

Forfeited ( 137,276 ) 121.59

Outstanding as of October 31, 2020 (unaudited) 4,827,118 $ 112.24

As of October 31, 2020, there was $ 501.8 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.6 years based on vesting under the award service conditions.

Outstanding as of April 30, 2021 (unaudited) 5,112,140 $ 156.75

As of April 30, 2021, there was $ 750.8 million of unrecognized stock-based compensation expense related to unvested RSUs, which is being recognized over a weighted-average period of 2.7 years based on vesting under the award service conditions.

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:

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Expected volatility — % — % 50 % - 54 %

Expected term (in years) — — 0.5 - 1.0

Risk-free interest rate — % — % 0.17 % - 0.18 %

1.95 % - 2.05 %

Expected dividend yield — — — —

During the nine months ended October 31, 2020, the Company’s employees purchased 127,734 shares of its Class A common stock under the ESPP.

The shares were purchased at a weighted-average purchase price of $ 100.38 per share, with total proceeds of $ 12.8 million.

As of October 31, 2020, there was $ 2.0 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over an average vesting period of 0.5 years.

For the three and nine months ended October 31, 2020, the Company recorded a tax provision of $ 0.2 million and tax benefit of $ 0.6 million on a pretax loss of $ 72.6 million and $ 191.2 million, respectively.

The effective tax rate for the three and nine months ended October 31, 2020 was ( 0.3 )% and 0.3 %, respectively.

As of April 30, 2021, there was $ 6.7 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over an average vesting period of 0.6 years.

For the three months ended April 30, 2021, the Company recorded an immaterial income tax provision on pretax losses of $ 109.2 million.

The effective tax rate for the three months ended April 30, 2021 was approximately 0.0 %.

The effective tax rate differs from the statutory rate primarily as a result of not recognizing deferred tax assets for U.S.

losses due to a full valuation allowance against U.S.

deferred tax assets and excess tax benefits from stock-based compensation in the United Kingdom.

The tax benefit recognized for the nine months ended October 31, 2020 was partially offset by income tax expense in profitable foreign jurisdictions and U.S.

For the three and nine months ended October 31, 2019, the Company recorded a tax provision of $ 0.3 million and tax benefit of $ 2.3 million on pretax losses of $ 63.1 million and $ 160.7 million, respectively.

The effective tax rate for the three and nine months ended October 31, 2019 was ( 0.6 )% and 1.4 %, respectively.

deferred tax assets and income tax expense related to profitable foreign jurisdictions, U.S.

state taxes and excess tax benefits from stock-based compensation in the United Kingdom.

For the three months ended April 30, 2020, the Company recorded a tax benefit of $ 0.4 million on a pretax losses of $ 58.1 million.

The effective tax rate for the three months ended April 30, 2020 was 0.7 %.

The effective tax rate differs from the statutory rate primarily as a result of not recognizing deferred tax assets for U.S.

losses due to a full valuation allowance against U.S.

deferred tax assets, release of the valuation allowance in the United States in connection with the Azuqua acquisition and excess tax benefits from stock-based compensation in the United Kingdom.

The tax benefit recognized for the nine months ended October 31, 2019 was partially offset by income tax expense in profitable foreign jurisdictions and U.S.

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 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 condensed consolidated financial statements at this time, and will continue to assess the implications of the CARES Act and its continuing developments and interpretations.

deferred tax assets and excess tax benefits from stock-based compensation in the United Kingdom.

The tax benefit recognized for the three months ended April 30, 2020 was partially offset by income tax expense in profitable foreign jurisdictions and U.S.

Net Loss Per Share

1 unchanged sentence

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Class A Class B Class A Class B Class A Class B Class A Class B

Class A Class B Class A Class B

Net loss $ ( 102,612 ) $ ( 6,620 ) $ ( 53,684 ) $ ( 3,978 )

3 unchanged sentences

Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands):

As of October 31,

As of April 30,

Issued and outstanding stock options 8,109 11,167

Unvested RSUs issued and outstanding 5,112 4,890

Unvested restricted stock awards issued and outstanding — 177

Unvested shares subject to repurchase — 3

6 unchanged sentences

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 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 three and nine months ended October 31, 2020, the average price per share of the Company’s Class A common stock exceeded the exercise price of the Warrants;

During the three months ended April 30, 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.

Subsequent Events

On May 3, 2021, the Company completed its acquisition of Auth0, Inc.

The Company provided total consideration, net of acquired cash and subject to final adjustments, of approximately $ 6.5 billion, including approximately 20.4 million shares of the Company's Class A common stock (the "Stock Consideration"), $ 268.7 million in cash, and equity awards convertible into shares with a fair market value of $ 700.2 million based upon our closing stock price as of April 30, 2021.

Approximately $ 325.0 million of the consideration was held back by the Company to secure the indemnification obligations of the Auth0 securityholders arising during the twelve months following the closing.

In addition, the Company established a retention pool in an aggregate amount of approximately $ 25.0 million that will be allocated to certain Auth0 employees in accordance with the terms of the Merger Agreement.

The retention awards will vest consistent with Okta’s standard RSU vesting periods and terms.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements