What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-27 compared with 2020-12-03 · 142 added, 240 removed, 302 unchanged (56% of the section changed)

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Okta is the leading independent identity management platform for the enterprise.

The Okta Identity Cloud is our category-defining platform that enables our customers to securely connect the right people to the right technologies at the right time.

Every day, millions of people use Okta to securely access a wide range of cloud, mobile and web applications, on premise servers, application program interfaces, or APIs, IT infrastructure providers and services from a multitude of devices.

The Okta Identity Cloud is powered by our category-defining platform that enables our customers to securely connect the right people to the right technologies and services at the right time.

Every day, thousands of organizations and millions of people use Okta to securely access a wide range of cloud, mobile and web applications, on-premises servers, application program interfaces (“APIs”), IT infrastructure providers and services from a multitude of devices.

Developers leverage our platform to securely and efficiently embed identity into the software they build, allowing them to focus on their core mission.

Employees and contractors sign into the Okta Identity Cloud to seamlessly and securely access the applications they need to do their most important work.

Organizations use our platform to collaborate with their partners, and to provide their customers with more modern experiences online and via mobile devices.

Developers leverage our platform to securely and efficiently embed identity into their software, allowing them to focus on their core mission.

Organizations use our platform to collaborate with their partners, and to provide their customers with more modern and secure experiences online and via mobile devices.

Given the growth trends in the number of applications and cloud adoption, and the movement to remote workforces, identity is becoming the most critical layer of an organization’s security.

Our approach to identity allows our customers to simplify and efficiently scale their security infrastructures across internal IT systems and external customer facing applications.

We have rapidly expanded the breadth and depth of the Okta Integration Network, which provides customers with integrations to cloud, mobile and web applications and IT infrastructure providers that spans the functionality of our products.

As of October 31, 2020, we had over 6,500 integrations with these cloud, mobile and web applications and IT infrastructure providers.

We employ a SaaS business model.

We focus on acquiring and retaining our customers and increasing their spending with us through expanding the number of users who access our platform and upselling additional products.

As of April 30, 2021, more than 10,650 customers across nearly every industry used the Okta Identity Cloud to secure and manage identities around the world.

Our customers consist of leading global organizations ranging from the largest enterprises, to small and medium-sized businesses, universities, non-profits and government agencies.

We also partner with leading application, IT infrastructure and security vendors through our Okta Integration Network.

As of April 30, 2021, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors.

We employ a Software-as-a-Service (“SaaS”) business model, and generate revenue primarily by selling multi-year subscriptions to our cloud-based offerings.

We focus on acquiring and retaining our customers and increasing their spending with us through expanding the number of users who access the Okta Identity Cloud and up-selling additional products.

We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners, including resellers, system integrators and other distribution partners.

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We base subscription fees primarily on the products used and the number of users on our platform.

The Okta Identity Cloud is used by our customers to manage and secure their employees, contractors and partners, which we refer to as workforce identity.

Our platform is also used to manage and secure the identities of an organization's own customers via the powerful APIs we have developed, which we refer to as customer identity.

We typically invoice customers in advance in annual installments for subscriptions to our platform.

Impact of Coronavirus (COVID-19) Pandemic

In December 2019, a novel coronavirus (COVID-19) was reported in China, in January 2020, the World Health Organization (WHO) declared it a Public Health Emergency of International Concern and in March 2020, the WHO declared it a pandemic.

In December 2019, a novel coronavirus (COVID-19) was reported in China, in January 2020, the WHO declared it a Public Health Emergency of International Concern and in March 2020, the WHO declared it a pandemic.

This contagious disease outbreak has continued to spread across the globe and is impacting worldwide economic activity and financial markets.

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None of these impacts can be predicted with certainty.

Our revenue is relatively predictable as a result of our subscription-based business model, which constituted over 95% of total revenue for the three and nine months ended October 31, 2020.

Future growth may be impacted by longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for cash flow, remaining performance obligations (RPO) and billings growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis.

Our allowance for doubtful accounts and sales reserves have increased primarily due to an increase in overall uncertainty in our forecasts of future economic conditions and concession requests.

While we see risks associated with more highly impacted

companies and industries, we are also seeing new interest from other organizations, driven by rapidly changing work and business environments.

As workforces have transitioned to working from home in a distributed model, Zero Trust has become an increasingly important and identity an increasingly critical service.

Our revenue is relatively predictable as a result of our subscription-based business model, which constituted over 96% of total revenue for the three months ended April 30, 2021.

Future growth may be impacted by longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for cash flow, remaining performance obligations (“RPO”) and billings growth as well as potential future

impacts on revenue growth and other key metrics on a trailing basis.

Our allowance for doubtful accounts and sales reserves have increased slightly from pre-pandemic levels primarily due to an increase in overall uncertainty in our forecasts of future economic conditions and risks.

While we see risks associated with more highly impacted companies and industries, we are also seeing new interest from other organizations, driven by rapidly changing work and business environments.

As workforces have transitioned to working from home in a distributed model, Zero Trust has become an increasingly important security model and identity an increasingly critical service.

We believe we will be able to continue to deliver our cloud-based platform and support to our customers, without compromising our employees’ safety.

Since March 2020, we have put in place mandatory work-from-home procedures for all of our global office locations, and our employees have the necessary tools and technology to remain connected and productive.

In addition, we shifted our annual user conference, Oktane20 Live, to a virtual-only experience, resulting in cost savings.

We have further benefited from cost savings, driven by reduced growth in employee compensation costs due to slower hiring, reductions in employee-related expenses as our sales and marketing activities shift primarily to an online-only sales format and a shift to work-from-home procedures.

Since March 2020, we have put in place mandatory work-from-home procedures for our global office locations, and our employees have the necessary tools and technology to remain connected and productive.

In addition, in fiscal 2021 we shifted our customer, employee and industry events, including our annual user conference to virtual-only formats, resulting in cost savings.

We further experienced cost savings driven by reductions in employee-related expenses as our sales and marketing activities shifted primarily to an online-only sales format and our employees shifted to work-from-home procedures.

As we anticipate returning to in-person sales formats and experiences for future annual user conferences, we expect our future costs to increase.

See Risk Factors for further discussion of the potential impact of COVID-19 and its related public health measures on our business.

Acquisition of Auth0

On May 3, 2021, we completed the acquisition of Auth0.

We 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 as 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 us to secure the indemnification obligations of the Auth0 securityholders arising during the twelve months following the closing.

In addition, we 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.

The following discussion and analysis of our results of operations and our liquidity and capital resources focuses on our existing operations exclusive of the impact of the acquisition of Auth0.

Any forward-looking statements contained herein do not take into account the impact of the acquisition.

Components of Results of Operations

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Overhead Allocation and Employee Compensation Costs

We allocate shared costs, such as facilities (including rent, utilities and depreciation on assets shared by all departments), information technology costs, and recruiting costs to all departments based on headcount.

We allocate shared costs, such as facilities costs (including rent, utilities and depreciation on assets shared by all departments), certain information technology costs, and recruiting costs to all departments based on headcount.

As such, allocated shared costs are reflected in each cost of revenue and operating expense category.

Employee compensation costs include salaries, bonuses, benefits and stock-based compensation for each operating expense category and sales commissions for sales and marketing.

Employee compensation costs include salaries, bonuses, benefits and stock-based compensation for each cost of revenue and operating expense category, sales commissions for sales and marketing and any compensation related taxes.

Cost of Revenue and Gross Margin

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Cost of subscription primarily consists of expenses related to hosting our services and providing support.

These expenses include employee-related costs associated with our cloud-based infrastructure and our customer support organization, third-party hosting fees, software and maintenance costs, outside services associated with the delivery of our subscription services, travel-related costs, amortization expense associated with capitalized internal-use software and acquired technology, and allocated overhead.

These expenses include employee-related costs associated with our cloud-based infrastructure and our customer support organization, third-party hosting fees, software and maintenance costs, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired technology, and allocated overhead.

We intend to continue to invest additional resources in our platform infrastructure and our platform support organizations.

As we continue to invest in technology innovation, we anticipate capitalized internal-use software costs and related amortization may increase.

As we continue to invest in technology innovation, we anticipate that capitalized internal-use software costs and related amortization may increase.

We expect our investment in technology to expand the capability of our platform enabling us to improve our gross margin over time.

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Cost of Professional Services and Other .

Cost of professional services consists primarily of employee-related costs for our professional services delivery team, travel-related costs, and costs of outside services associated with supplementing our professional services delivery team.

Cost of professional services consists primarily of employee-related costs for our professional services delivery team, travel-related costs, allocated overhead and costs of outside services associated with supplementing our professional services delivery team.

The cost of providing professional services has historically been higher than the associated revenue we generate.

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Gross margin is gross profit expressed as a percentage of total revenue.

Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of investments to expand our hosting capacity, our continued efforts to build platform support and professional services

teams, increased stock-based compensation expenses, as well as the amortization of costs associated with capitalized internal-use software and acquired intangible assets.

Our gross margin may fluctuate from period to period as a result of the timing and amount of investments to expand our hosting capacity, our continued efforts to build platform support and professional services teams, increased stock-based compensation expenses, as well as the amortization of costs associated with capitalized internal-use software and acquired intangible assets.

Operating Expenses

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Sales and Marketing.

Sales and marketing expenses consist primarily of employee compensation costs, costs of general marketing activities and promotional activities, travel-related expenses and allocated overhead.

Sales and marketing expenses consist primarily of employee compensation costs, costs of general marketing and promotional activities, travel-related expenses and allocated overhead.

Commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a contract with a customer are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally five years.

However, we expect our sales and marketing expenses to decrease as a percentage of our total revenue as our total revenue grows.

We expect our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future as we expand our sales and marketing efforts and as we return to in-person sales formats and experiences for future annual user conferences.

However, over time, we expect our sales and marketing expenses to decrease as a percentage of our total revenue as our total revenue grows.

General and Administrative.

General and administrative expenses consist primarily of employee compensation costs for finance, accounting, legal and human resources personnel.

In addition, general and administrative expenses include non-personnel costs, such as legal, accounting and other professional fees, charitable contributions, and all other supporting corporate expenses not allocated to other departments.

General and administrative expenses consist primarily of employee compensation costs for finance, accounting, legal, information technology and human resources personnel.

In addition, general and administrative expenses include acquisition-related costs, non-personnel costs, such as legal, accounting and other professional fees, charitable contributions, and all other supporting corporate expenses, such as information technology, not allocated to other departments.

We expect our general and administrative expenses will increase in absolute dollars as our business grows.

Interest and Other, Net

Interest and other, net consists of interest expense, which primarily includes amortization of debt discount and issuance costs and contractual interest expense for our Notes, interest income from our investment holdings and loss on early extinguishment and conversion of debt.

Interest and other, net consists of interest expense, which primarily includes amortization of debt discount and issuance costs and contractual interest expense for the Notes, interest income from our investment holdings, gains and losses from our strategic investments and loss on early extinguishment and conversion of debt.

Provision for (Benefit from) Income Taxes

Our provision for (benefit from) income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions, and is determined for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items occurring in the quarter.

The primary difference between our effective tax rate and the federal statutory rate relates to the net operating losses in jurisdictions with a valuation allowance against related deferred tax assets.

The primary difference between our

effective tax rate and the federal statutory rate relates to the net operating losses in jurisdictions with a valuation allowance against related deferred tax assets.

Results of Operations

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Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

(in thousands)

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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

(in thousands)

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Total stock-based compensation expense $ 64,112 $ 37,728

The following table sets forth our results of operations for the periods presented as a percentage of total revenue:

The following table sets forth our results of operations for the periods presented as a percentage of our total revenue:

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

Subscription 96 % 95 %

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Interest income and other, net 1 3

Loss on early extinguishment and conversion of debt — (9) — (4)

Loss on conversion of debt — —

Interest and other, net (8) (3)

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Net loss (44) % (32) %

Comparison of the Three Months Ended October 31, 2020 and 2019

Comparison of the Three Months Ended April 30, 2021 and 2020

Three Months Ended

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Total 100 % 100 %

Subscription revenue increased by $62.2 million, or 43%, for the three months ended October 31, 2020 compared to the three months ended October 31, 2019.

Subscription revenue increased by $66.3 million, or 38%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020.

The increase was primarily due to the addition of new customers as well as an increase in users and sales of additional products to existing customers.

Professional services and other revenue increased by $2.1 million, or 25%, for the three months ended October 31, 2020 compared to the three months ended October 31, 2019.

The increase in professional services revenue was primarily related to an increase in implementation and other services associated with an increase in the number of new customers purchasing our subscription services.

Professional services and other revenue increased by $1.9 million, or 21%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020.

The increase in professional services revenue

was primarily related to an increase in implementation and other services associated with growth in the number of new customers purchasing our subscription services.

Cost of Revenue, Gross Profit and Gross Margin

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Total gross margin 74 73

Cost of subscription revenue increased by $14.6 million, or 49%, for the three months ended October 31, 2020 compared to the three months ended October 31, 2019, primarily due to an increase of $9.3 million in employee compensation costs related to higher headcount to support the growth in our subscription services, an increase of $2.0 million in software license costs and an increase of $1.8 million in third-party hosting costs as we increased capacity to support our growth.

Our gross margin for subscription revenue decreased to 78% for the three months ended October 31, 2020 from 79% during the three months ended October 31, 2019.

Cost of subscription revenue increased by $15.2 million, or 41%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020, primarily due to an increase of $10.2 million in employee compensation costs related to higher headcount to support the growth in our subscription services, an increase of $2.2 million in third-party hosting costs as we expanded capacity to support our growth and $1.7 million in software license costs.

Our gross margin for subscription revenue decreased to 78% for the three months ended April 30, 2021 from 79% during the three months ended April 30, 2020.

While our gross margins for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.

Cost of professional services and other revenue increased by $1.4 million, or 14%, for the three months ended October 31, 2020, compared to the three months ended October 31, 2019, due to a number of immaterial changes.

Our gross margin for professional services and other revenue improved to (14)% during the three months ended October 31, 2020 from (26)% during the three months ended October 31, 2019, primarily due to increases in professional services and other revenue.

Cost of professional services and other revenue increased by $2.4 million, or 21%, for the three months ended April 30, 2021, compared to the three months ended April 30, 2020, due to an increase of $2.0 million in employee compensation costs due to higher headcount.

Our gross margin for professional services and other revenue remained consistent at (25)% during the three months ended April 30, 2021 and 2020.

Operating Expenses

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Percentage of revenue 28 % 26 %

Research and development expenses increased $16.3 million, or 39%, for the three months ended October 31, 2020 compared to the three months ended October 31, 2019.

Research and development expenses increased $20.4 million, or 42%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020.

The increase was primarily due to an increase of $17.1 million in employee compensation costs due to higher headcount.

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Percentage of revenue 58 % 57 %

Sales and marketing expenses increased $22.6 million, or 26%, for the three months ended October 31, 2020 compared to the three months ended October 31, 2019.

The increase was primarily due to an increase of $16.3 million in employee compensation costs related to headcount growth, partially offset by a decrease of $5.1 million in employee-related expenses primarily due to reduced travel-related expenditures resulting from our temporary shift of our sales and marketing activities to a primarily online-only format.

Marketing and event costs increased by $8.7 million primarily due to increases in demand generation programs, advertising, brand awareness efforts aimed at acquiring new customers and changes in the timing of expenses incurred for a future event.

Sales and marketing expenses increased $42.5 million, or 41%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020.

The increase was primarily due to an increase of $27.2 million in employee compensation costs related to higher headcount, partially offset by a decrease of $2.0 million in employee-related expenses primarily due to reduced travel-related expenditures resulting from our temporary shift of our sales and marketing activities to a primarily online-only format.

Marketing and event costs increased by $13.5 million primarily due to increases in demand generation programs, advertising, and brand awareness efforts aimed at acquiring new customers, as well as higher production and advertising costs for our virtual format annual customer conference.

General and Administrative Expenses

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Percentage of revenue 24 % 19 %

General and administrative expenses increased $15.6 million, or 54%, for the three months ended October 31, 2020 compared to the three months ended October 31, 2019.

The increase was primarily due to an increase of $10.4 million in employee compensation costs primarily related to higher headcount to support our continued growth.

General and administrative expenses increased $26.1 million, or 77%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020.

The increase was primarily due to an increase of $12.4 million in employee compensation costs primarily related to higher headcount to support our continued growth and an increase of $7.1 million due to acquisition-related costs incurred in the first quarter of fiscal 2022, but not in the first quarter of fiscal 2021.

Interest and Other, Net

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Interest income and other, net 4,355 4,899 (544) (11)

Loss on early extinguishment and conversion of debt (89) (14,572) 14,483 (99)

Interest and other, net $ (20,579) $ (17,416) $ (3,163) 18 %

Interest expense increased $14.5 million, or 186%, for the three months ended October 31, 2020 compared to the three months ended October 31, 2019, due to an increase of $4.3 million and $12.4 million for the 2025 Notes and 2026 Notes, respectively, partially offset by a decrease of $2.1 million for the 2023 Notes, due to the 2023 Notes Partial Repurchases.

Interest income and other, net decreased $3.1 million, or (62)%, for the three months ended October 31, 2020 compared to the three months ended October 31, 2019, primarily due to lower interest rates, resulting in lower interest income earned on higher cash and cash equivalents and short-term investment balances.

We expect interest income earned on our investments to continue to decrease in relation to our overall portfolio balance in fiscal 2021.

Loss on early extinguishment and conversion of debt decreased $14.5 million, or 99%, for the three months ended October 31, 2020 compared to the three months ended October 31, 2019 primarily due to the First Partial Repurchase of 2023 Notes in the three months ended October 31, 2019, but not in the three months ended October 31, 2020.

Comparison of the Nine Months Ended October 31, 2020 and 2019

Nine Months Ended

2020 2019 $ Change % Change

(dollars in thousands)

Subscription $ 571,213 $ 394,174 $ 177,039 45 %

Professional services and other 29,471 24,566 4,905 20

Total revenue $ 600,684 $ 418,740 $ 181,944 43 %

Percentage of revenue:

Subscription 95 % 94 %

Professional services and other 5 6

Total 100 % 100 %

Subscription revenue increased by $177.0 million, or 45%, for the nine months ended October 31, 2020 compared to the nine months ended October 31, 2019.

The increase was primarily due to the addition of new customers as well as an increase in users and sales of additional products to existing customers.

Professional services and other revenue increased by $4.9 million, or 20%, for the nine months ended October 31, 2020 compared to the nine months ended October 31, 2019.

Cost of Revenue, Gross Profit and Gross Margin

Nine Months Ended

2020 2019 $ Change % Change

(dollars in thousands)

Cost of revenue:

Subscription $ 121,420 $ 82,581 $ 38,839 47 %

Professional services and other 35,121 32,118 3,003 9

Total cost of revenue $ 156,541 $ 114,699 $ 41,842 36 %

Gross profit $ 444,143 $ 304,041 $ 140,102 46 %

Gross margin:

Subscription 79 % 79 %

Professional services and other (19) (31)

Total gross margin 74 73

Cost of subscription revenue increased by $38.8 million, or 47%, for the nine months ended October 31, 2020 compared to the nine months ended October 31, 2019, primarily due to an increase of $25.1 million in employee compensation costs related to higher headcount to support the growth in our subscription services, an increase of $4.7 million in software license costs and an increase of $4.3 million in third-party hosting costs as we increased capacity to support our growth.

Our gross margin for subscription revenue remained consistent at 79% during the nine months ended October 31, 2020 compared to the nine months ended October 31, 2019.

Cost of professional services and other revenue increased by $3.0 million, or 9%, for the nine months ended October 31, 2020, compared to the nine months ended October 31, 2019, primarily due to an increase of $2.3 million in employee compensation costs related to higher headcount.

Our gross margin for professional services and other revenue improved to (19)% during the nine months ended October 31, 2020 from (31)% during the nine months ended October 31, 2019 primarily due to increases in professional services and other revenue.

Operating Expenses

Research and Development Expenses

Nine Months Ended

2020 2019 $ Change % Change

(dollars in thousands)

Research and development $ 160,510 $ 115,909 $ 44,601 38 %

Percentage of revenue 27 % 28 %

Research and development expenses increased $44.6 million, or 38%, for the nine months ended October 31, 2020 compared to the nine months ended October 31, 2019.

The increase was primarily due to an increase of $41.5 million in employee compensation costs due to higher headcount.

Sales and Marketing Expenses

Nine Months Ended

2020 2019 $ Change % Change

(dollars in thousands)

Sales and marketing $ 312,177 $ 247,721 $ 64,456 26 %

Percentage of revenue 52 % 59 %

Sales and marketing expenses increased $64.5 million, or 26%, for the nine months ended October 31, 2020, compared to the nine months ended October 31, 2019.

The increase was primarily due to an increase of $53.5 million in employee compensation costs related to headcount growth and an increase of $3.5 million in allocated overhead costs, partially offset by a decrease of $13.6 million in employee-related expenses primarily due to reduced travel-related expenditures resulting from our temporary shift of our sales and marketing activities to a primarily online-only format.

Marketing and event costs increased by $19.7 million primarily due to increases in demand generation programs, advertising, brand awareness efforts aimed at acquiring new customers, and a change in the timing of expenses incurred for a future event, partially offset by a decrease of $4.9 million due to a change to a virtual format for our annual customer conference in the first quarter of fiscal 2021 compared to an in-person format in the first quarter of fiscal 2020.

General and Administrative Expenses

Nine Months Ended

2020 2019 $ Change % Change

(dollars in thousands)

General and administrative $ 121,019 $ 81,540 $ 39,479 48 %

Percentage of revenue 20 % 20 %

General and administrative expenses increased $39.5 million, or 48%, for the nine months ended October 31, 2020 compared to the nine months ended October 31, 2019.

The increase was primarily due to an increase of $30.4 million in employee compensation costs related to higher headcount to support our continued growth partially offset by a $3.4 million decrease in acquisition-related costs.

Interest and Other, Net

Nine Months Ended

2020 2019 $ Change % Change

(dollars in thousands)

Interest expense $ (50,063) $ (16,371) $ (33,692) 206 %

Interest income and other, net 10,737 11,346 (609) (5)

Loss on early extinguishment and conversion of debt (2,263) (14,572) 12,309 (84)

Loss on conversion of debt (136) — (136) —

Interest and other, net $ (18,541) $ (5,865) $ (12,676) 216 %

Interest expense increased $33.7 million, or 206%, for the nine months ended October 31, 2020 compared to the nine months ended October 31, 2019, primarily related to an increase of $22.8 million and $18.9 million for the 2025 Notes and 2026 Notes, respectively, partially offset by a decrease of $8.0 million for the 2023 Notes, due to the 2023 Notes Partial Repurchases.

Loss on early extinguishment and conversion of debt decreased $12.3 million or (84)% for the nine months ended October 31, 2020 compared to the nine months ended October 31, 2019 primarily due to differences in the loss on early extinguishment of debt recognized for the First Partial Repurchase of 2023 Notes in the nine months ended October 31, 2019 compared to the Second Partial Repurchase of 2023 Notes in the nine months ended October 31, 2020.

Interest expense increased $12.0 million, or 111%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020, due to an increase of $12.7 million and $0.4 million for the 2026 Notes and 2025 Notes, respectively, partially offset by a decrease of $1.1 million for the 2023 Notes, due to the Second Partial Repurchase of 2023 Notes and other conversion activity.

Interest income and other, net decreased $0.5 million, or (11)%, for the three months ended April 30, 2021 compared to the three months ended April 30, 2020, primarily due to a decrease of $3.4 million in interest income resulting from lower interest rates, despite higher cash and cash equivalents and short-term investment balances.

Key Business Metrics

We review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

As of October 31,

As of April 30,

(dollars in thousands)

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Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

(in thousands)

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Total Customers and Number of Customers with Annual Contract Value Above $100,000

As of October 31, 2020, we had over 9,400 customers on our platform.

As of April 30, 2021, we had over 10,650 customers on our platform.

We believe that our ability to increase the number of customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities.

Increasing awareness of our platform and capabilities, coupled with the mainstream adoption of cloud technology, has expanded the diversity of our customer base to include organizations of all sizes across all industries.

Over time, larger customers have constituted a greater share of our revenue, which has contributed to an increase in average revenue per customer.

The number of customers who have greater than $100,000 in annual contract value, or ACV, with us was 1,780 and 1,325 as of October 31, 2020 and 2019, respectively.

We expect this trend to continue as larger enterprises recognize the value of our platform and replace their legacy identity access management, or IAM infrastructure.

Over time, larger customers have constituted a greater share of our total revenue, which has contributed to an increase in average revenue per customer.

The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 2,075 and 1,580 as of April 30, 2021 and 2020, respectively.

We expect this trend to continue as larger enterprises recognize the value of our platform and replace their legacy identity access management (“IAM”) infrastructure.

We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract with us or one of our partners to access our platform.

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Our Dollar-Based Net Retention Rate is based upon our ACV which is calculated based on the terms of that customer’s contract and represents the total contracted annual subscription amount as of that period end.

We calculate our Dollar-Based Net Retention Rate as of a period end by starting with the ACV from all customers as of twelve months prior to such period end, or Prior Period ACV.

We then calculate the ACV from these same customers as of the current period end, or Current Period ACV.

We calculate our Dollar-Based Net Retention Rate as of a period end by starting with the ACV from all customers as of twelve months prior to such period end (“Prior Period ACV”).

We then calculate the ACV from these same customers as of the current period end (“Current Period ACV”).

Current Period ACV includes any upsells and is net of contraction or churn over the trailing twelve months but excludes ACV from new customers in the current period.

We then divide the total Current Period ACV by the total Prior Period ACV to arrive at our Dollar-Based Net Retention Rate.

Our strong Dollar-Based Net Retention Rate is primarily attributable to an expansion of users and upselling additional products within our existing customers.

We then divide the Current Period ACV by the Prior Period ACV to arrive at our Dollar-Based Net Retention Rate.

Our strong Dollar-Based Net Retention Rate is primarily attributable to gross retention, an expansion of users and upselling additional products within our existing customers.

Larger enterprises often implement a limited initial deployment of our platform before increasing their deployment on a broader scale.

Remaining Performance Obligations

Remaining performance obligations, or RPO, represent all future, noncancelable, contracted revenue under our subscription contracts with customers 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.

Remaining Performance Obligations (RPO)

RPO represent all future, non-cancelable, contracted revenue under our subscription contracts with customers 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.

Current RPO represents the portion of RPO expected to be recognized during the next 12 months.

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Calculated Billings represent our total revenue plus the change in deferred revenue and less the change in unbilled receivables in the period.

Calculated Billings in any particular period reflects sales to new customers plus subscription renewals and upsells to existing customers, and represent amounts invoiced for subscription, support and professional services.

Calculated Billings in any particular period reflect sales to new customers plus subscription renewals and upsells to existing customers, and represent amounts invoiced for subscription, support and professional services.

We typically invoice customers in advance in annual installments for subscriptions to our platform.

Calculated Billings increased 44% in the three months ended October 31, 2020 over the three months ended October 31, 2019, and increased 38% in the nine months ended October 31, 2020, over the nine months ended October 31, 2019.

Calculated Billings increased 74% in the three months ended April 30, 2021 over the three months ended April 30, 2020.

We implemented operational changes to our billings process in the three months ended April 30, 2021 pursuant to which we billed customers earlier than we would have under our historical billing practices.

These changes had a favorable effect on billings in the three months ended April 30, 2021.

Absent the impact of the billings process changes, calculated billings would have grown 40% year-over-year.

As our Calculated Billings continue to grow in absolute terms, we expect our Calculated Billings growth rate to trend down over time.

See the section titled “Non-GAAP Financial Measures” for additional information and a reconciliation of Calculated Billings to total revenue.

Non-GAAP Financial Measures

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A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP.

Investors are

encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, adjusted for stock-based compensation expense and amortization of acquired intangibles.

We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, adjusted for stock-based compensation expense included in cost of revenue and amortization of acquired intangibles.

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

(dollars in thousands)

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Non-GAAP gross margin 78 % 78 %

Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin

We define non-GAAP operating income (loss) and non-GAAP operating margin as GAAP operating loss and GAAP operating margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles and acquisition-related expenses.

Non-GAAP Operating Loss and Non-GAAP Operating Margin

We define non-GAAP operating loss and non-GAAP operating margin as GAAP operating loss and GAAP operating margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles and acquisition-related expenses.

Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

(dollars in thousands)

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Acquisition-related expenses (1)

Non-GAAP operating income (loss) $ 5,514 $ (8,138) $ (347) $ (42,929)

Non-GAAP operating loss $ (15,898) $ (12,342)

Operating margin (36) % (29) %

Non-GAAP operating margin (6) % (7) %

(1) We define acquisition-related expenses as costs associated with acquisitions, including transaction costs and other non-recurring incremental costs incurred.

Non-GAAP Net Income (Loss) and Non-GAAP Net Margin

We define non-GAAP net income (loss) and non-GAAP net margin as GAAP net loss and GAAP net margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles, acquisition-related expenses, amortization of debt discount and debt issuance costs and loss on early extinguishment and conversion of debt.

(1) Acquisition-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of transaction close.

Non-GAAP Net Loss, Non-GAAP Net Margin and Non-GAAP Net Loss Per Share, Basic and Diluted

We define non-GAAP net loss and non-GAAP net margin as GAAP net loss and GAAP net margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles, acquisition-related expenses, amortization of debt discount and debt issuance costs and loss on conversion of debt.

We define non-GAAP net loss per share, basic, as non-GAAP net loss divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted.

We define non-GAAP net loss per share, diluted, as non-GAAP net loss divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted adjusted for the potentially dilutive effect of (i) employee equity incentive plans, excluding the impact of unrecognized stock-based compensation expense, and (ii) convertible senior notes outstanding and related warrants.

In addition, non-GAAP net loss per share, diluted, includes the anti-dilutive impact of the Company’s note hedge and capped call agreements on convertible senior notes outstanding.

Accordingly, the Company did not record any adjustments to non-GAAP net loss for the potential impact of the convertible senior notes outstanding under the if-converted method.

Three Months Ended

October 31, Nine Months Ended

2021 2020 (1)

2020 2019 (1)

(dollars in thousands)

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21,331 10,357

Loss on early extinguishment and conversion of debt (4)

89 14,572 2,263 14,572

Non-GAAP net income (loss) $ 5,746 $ (3,791) $ 8,214 $ (30,016)

Loss on conversion of debt 136 —

Non-GAAP net loss $ (12,982) $ (7,448)

Net margin (44) % (32) %

Non-GAAP net margin (5) % (4) %

(1) Prior periods have been adjusted to conform to the current presentation.

See footnotes (3) and (4) for additional details.

(2) We define acquisition-related expenses as costs associated with acquisitions, including transaction costs and other non-recurring incremental costs incurred.

(3) Amortization of debt issuance costs is an adjustment to non-GAAP net income (loss), effective July 31, 2020.

Debt issuance costs included are $0.9 million and $2.3 million for the three and nine months ended October 31, 2020, respectively, and $0.5 million and $1.1 million for the three and nine months ended October 31, 2019, respectively.

(4) Loss on early extinguishment and conversion of debt is calculated inclusive of write-offs of debt issuance costs, effective July 31, 2020.

The amounts of these write-offs are $0.1 million and $1.1 million for the three and nine months ended October 31, 2020, respectively, and $3.8 million for the three and nine months ended October 31, 2019, respectively.

Non-GAAP Net Income (Loss) per share, basic and diluted

We define non-GAAP net income (loss) per share, basic, as non-GAAP net income (loss) divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted.

We define non-GAAP net income (loss) per share, diluted, as non-GAAP net income (loss) divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted adjusted for the potentially dilutive effect of (i) employee equity incentive plans, excluding the impact of unrecognized stock-based compensation expense, and (ii) convertible senior notes outstanding and related warrants.

In addition, non-GAAP net income (loss) per share, diluted, includes the anti-dilutive impact of the Company’s note hedge and capped call agreements on convertible senior notes outstanding, which fully reduced the potential dilutive effect of the convertible senior notes outstanding.

Accordingly, the Company did not record any adjustments to non-GAAP net income (loss) for the potential impact of the convertible senior notes outstanding under the if-converted method.

Three Months Ended

October 31, Nine Months Ended

2020 2019 (1)

(dollars in thousands)

Net loss $ (72,764) $ (63,495) $ (190,526) $ (158,441)

Stock-based compensation expense 53,652 35,735 139,774 89,694

Non-cash charitable contributions 2,245 510 4,662 1,162

Amortization of acquired intangibles 1,593 1,347 4,780 3,895

Acquisition-related expenses (2)

Amortization of debt discount and debt issuance costs (3)

20,931 7,540 47,261 15,653

Loss on early extinguishment and conversion of debt (4)

89 14,572 2,263 14,572

Non-GAAP net income (loss) $ 5,746 $ (3,791) $ 8,214 $ (30,016)

Weighted-average shares used to compute net loss per share, basic and diluted 131,777 123,494

Non-GAAP weighted-average effect of potentially dilutive securities — —

Non-GAAP weighted-average shares used to compute non-GAAP net income (loss) per share, diluted 143,392 118,976 141,936 115,598

Non-GAAP weighted-average shares used to compute non-GAAP net loss per share, diluted 131,777 123,494

Net loss per share, basic and diluted $ (0.83) $ (0.47)

Non-GAAP net income (loss) per share, basic (5)

$ 0.04 $ (0.03) $ 0.07 $ (0.26)

Non-GAAP net income (loss) per share, diluted (5)

Non-GAAP net loss per share, basic and diluted (4)

$ (0.10) $ (0.06)

(1) Prior periods have been adjusted to conform to the current presentation.

See footnotes (3), (4) and (5) for additional details.

(2) We define acquisition-related expenses as costs associated with acquisitions, including transaction costs and other non-recurring incremental costs incurred.

(3) Amortization of debt issuance costs is an adjustment to non-GAAP net income (loss), effective July 31, 2020.

(4) Loss on early extinguishment and conversion of debt is calculated inclusive of write-offs of debt issuance costs, effective July 31, 2020.

(5) The total impact of the adjustments noted in footnotes (3) and (4) and for the periods noted in footnote (1) above on non-GAAP net income (loss) per share, basic and diluted is $0.04 and $0.04 for the three and nine months ended October 31, 2019, respectively.

(1) Prior period has been adjusted to conform to the current presentation.

See footnote (3) and (4) for additional details.

(2) Acquisition-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of transaction close.

(3) Amortization of debt issuance costs is an adjustment to non-GAAP net loss, effective July 31, 2020.

Debt issuance costs included are $0.9 million for the three months ended April 30, 2021 and $0.6 million for the three months ended April 30, 2020.

(4) The total impact of the adjustments noted in footnote (3) for the period noted in footnote (1) above on non-GAAP net loss per share, basic and diluted is $0.01 for the three months ended April 30, 2020.

Free Cash Flow and Free Cash Flow Margin

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Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

(dollars in thousands)

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Free cash flow $ 52,806 $ 29,767

Net cash used in investing activities $ (595,621) $ 22,888 $ (1,267,882) $ (125,102)

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

Net cash provided by financing activities $ 16,179 $ 14,167

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Three Months Ended

October 31, Nine Months Ended

2020 2019 2020 2019

(in thousands)

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Liquidity and Capital Resources

As of October 31, 2020, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,495.1 million, which were held for working capital purposes.

As of April 30, 2021, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,690.1 million, which were held for working capital and general corporate purposes, including potential future acquisition activity.

Our cash equivalents and investments consisted primarily of U.S.

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We expect to continue to incur operating losses and cash flows from operations that may fluctuate between positive and negative amounts for the foreseeable future.

In February 2018, we completed our private offering of the 2023 Notes and received aggregate proceeds of $345.0 million, before deducting costs of issuance of $10.0 million.

In connection with the issuance of the 2023 Notes, we entered into convertible Note Hedges with respect to our Class A common stock.

In February 2018, we completed our private offering of the 2023 Notes due on February 15, 2023 and received aggregate proceeds of $345.0 million, before deducting costs of issuance of $10.0 million.

The interest rate on the 2023 Notes is fixed at 0.25% per annum and is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018.

In connection with the issuance of the 2023 Notes, we entered into the Note Hedges with respect to our Class A common stock.

We used an aggregate amount of $80.0 million of the net proceeds from the sale of the 2023 Notes to purchase the Note Hedges.

The cost of the Note Hedges was partially offset by proceeds of $52.4 million from the sale of warrants to purchase shares of our Class A common stock in connection with the issuance of the 2023 Notes.

In September 2019, we completed our private offering of the 2025 Notes and received aggregate proceeds of $1,060.0 million, before deducting issuance costs of approximately $19.3 million.

In connection with the 2025 Notes, we entered into Capped Call transactions with respect to our Class A common stock.

The cost of the Note Hedges was partially offset by proceeds of $52.4 million from the sale of Warrants in connection with the issuance of the 2023 Notes.

In September 2019, we completed our private offering of the 2025 Notes due on September 1, 2025 and received aggregate proceeds of $1,060.0 million, before deducting issuance costs of approximately $19.3 million.

The interest rate on the 2025 Notes is fixed at 0.125% per annum and is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020.

In connection with the 2025 Notes, we entered into the 2025 Capped Calls.

We used an aggregate amount of $74.1 million of the net proceeds from the sale of the 2025 Notes to purchase the 2025 Capped Calls.

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We also terminated a portion of our existing Note Hedges and Warrants in amounts corresponding to the principal amount of the First Partial Repurchase of 2023 Notes for net proceeds of $47.2 million.

In June 2020, we completed our private offering of the 2026 Notes and received aggregate proceeds of $1,150.0 million, before deducting issuance costs of approximately $15.2 million.

In connection with the 2026 Notes, we entered into Capped Call transactions with respect to our Class A common stock.

In June 2020, we completed our private offering of the 2026 Notes due on June 15, 2026 and received aggregate proceeds of $1,150.0 million, before deducting issuance costs of approximately $15.2 million.

The interest rate on the 2026 Notes is fixed at 0.375% per year and is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020.

In connection with the 2026 Notes, we entered into the 2026 Capped Calls.

We used an aggregate amount of $134.0 million of the net proceeds from the sale of the 2026 Notes to purchase the 2026 Capped Calls.

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We also terminated a portion of our existing Note Hedges and Warrants in amounts corresponding to the principal amount of the Second Partial Repurchase of 2023 Notes for net proceeds of $19.6 million.

Through the nine months ended October 31, 2020, we converted certain 2023 Notes (not in connection with the 2023 Notes Partial Repurchases) and exercised corresponding Note Hedges.

In connection with these transactions, we made immaterial cash payments and issued approximately 0.2 million shares of Class A common stock to settle approximately $10.4 million principal amount of 2023 Notes.

In addition, we 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.

While the potential impacts of the COVID-19 pandemic may create near-term headwinds for cash flow caused by factors such as delays in customer payments and delays in deals closing, we believe our existing cash and cash equivalents, our short-term investments and cash provided by sales of our products and services will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.

Through April 30, 2021, we converted and settled approximately $27.6 million principal amount of 2023 Notes (not in connection with the 2023 Notes Partial Repurchases) and exercised and net-share-settled Note Hedges corresponding to approximately $17.9 million principal amount of 2023 Notes.

In connection with these transactions, we issued approximately 0.6 million shares of Class A common stock and received approximately 0.3 million shares of Class A common stock, accompanied by immaterial cash payments.

During the three months ended April 30, 2021, we 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 2023 Notes or 2025 Notes are currently outstanding.

As of April 30, 2021, we exercised Note Hedges corresponding to approximately $9.6 million principal amount of 2023 Notes expected to be settled in the second quarter of fiscal 2022, and subsequent to April 30, 2021, we further exercised an immaterial amount of Note Hedges.

While the potential impacts of the COVID-19 pandemic may create near-term headwinds for cash flow caused by factors such as delays in customer payments and delays in deals closing, we believe our existing cash and cash equivalents, our investments and cash provided by sales of our products and services will be sufficient to meet our short-term and long-term projected working capital and capital expenditure needs for the foreseeable future.

Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the expansion of our international operations, the introduction of new and enhanced product offerings, and the continuing market adoption of our platform.

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Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recognized as revenue in accordance with our revenue recognition policy.

As of October 31, 2020, we had deferred revenue of $432.1 million, of which $424.8 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

As of April 30, 2021, we had deferred revenue of

$624.9 million, of which $613.2 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

On March 3, 2021, we and Auth0 entered into the Merger Agreement, pursuant to which, effective on the Closing Date, Auth0 became a direct, wholly owned subsidiary.

The effect the Acquisition had on our liquidity, financial condition and results of operations will be reflected in our financial information beginning in the second quarter of fiscal 2022.

The following table summarizes our cash flows for the periods indicated:

Nine Months Ended

Three Months Ended

(in thousands)

Net cash provided by operating activities $ 56,075 $ 38,697

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

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

Net cash provided by financing activities 16,179 14,167

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

Operating Activities

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Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs.

In recent periods, we have supplemented working capital requirements through net proceeds from the issuance of the 2023, 2025 and 2026 Notes in February 2018, September 2019 and June 2020, respectively, and from our IPO in April 2017.

During the nine months ended October 31, 2020, cash provided by operating activities was $93.1 million primarily due to our net loss of $190.5 million, adjusted for non-cash charges of $248.2 million and net cash inflows of $35.4 million provided by changes in our operating assets and liabilities.

During the three months ended April 30, 2021, cash provided by operating activities was $56.1 million primarily due to our net loss of $109.2 million, adjusted for non-cash charges of $107.9 million and net cash inflows of $57.4 million provided by changes in our operating assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation, amortization of debt discount and issuance costs, depreciation, amortization and accretion of property and equipment, intangible assets and short-term investments and amortization of deferred commissions.

The primary drivers of the changes in operating assets and liabilities related to a $111.3 million increase in deferred revenue and a $5.1 million decrease in operating lease right-of-use assets, partially offset by a $22.7 million increase in accounts receivable, a $14.9 million increase in deferred commissions, a $11.2 million decrease in accounts payable, accrued compensation and accrued other expenses, a $6.3 million decrease in operating lease liabilities and a $3.9 million increase in prepaid expenses and other assets.

During the three months ended April 30, 2020, cash provided by operating activities was $38.7 million primarily due to our net loss of $57.7 million, adjusted for non-cash charges of $62.8 million and net cash inflows of $33.6 million provided by changes in our operating assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation, amortization of debt discount and issuance costs, amortization of deferred commissions and depreciation, amortization and accretion of property and equipment, intangible assets and short-term investments.

The primary drivers of the changes in operating assets and liabilities related to a $60.7 million increase in deferred revenue, a $41.7 million increase in accounts payable, accrued compensation and accrued other expenses and a $14.0 million decrease in operating lease right-of-use assets, partially offset by a $51.8 million increase in deferred commissions, an $11.8 million decrease in operating lease liabilities, a $10.5 million increase in accounts receivable, and a $6.8 million increase in prepaid expenses and other assets.

During the nine months ended October 31, 2019, cash provided by operating activities was $30.8 million primarily due to our net loss of $158.4 million, adjusted for non-cash charges of $151.0 million and net cash inflows of $38.2 million provided by changes in our operating assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation, loss on early extinguishment and conversion of debt, amortization of deferred commissions, amortization of debt discount and issuance costs, depreciation and amortization of property and equipment and intangible assets, and non-cash charitable contributions, offset by non-cash income from deferred income taxes.

The primary drivers of the changes in operating assets and liabilities related to a $58.7 million increase in deferred revenue, a $23.3 million increase in accounts payable, accrued compensation, and accrued other expenses and a $7.9 million decrease in operating lease right-of-use assets, partially offset by a $36.6 million increase in deferred commissions, a $9.4 million increase in accounts receivable, a $4.1 million decrease in operating lease liabilities and a $1.5 million increase in prepaid expenses and other assets.

The primary drivers of the changes in operating assets and liabilities related to a $26.7 million increase in deferred revenue, a $18.3 million decrease in accounts receivable, a $6.9 million increase in accounts payable and accrued compensation, and a $4.1 million decrease in operating lease right-of-use assets, partially offset by a $11.9 million increase in deferred commissions, a $4.3 million decrease in operating lease liabilities, a $3.5 million increase in prepaid expenses and other assets and a $2.8 million decrease in accrued expenses and other liabilities.

Investing Activities

Net cash used in investing activities during the nine months ended October 31, 2020 of $1,267.9 million was primarily attributable to purchases of investments of $1,846.0 million partially offset by proceeds from the sales and maturities of investments of $592.9 million, purchases of property and equipment of $11.3 million to support additional office space and headcount and the capitalization of internal-use software costs of $3.5 million associated with the development of additional features and functionality of our platform.

Net cash used in investing activities during the nine months ended October 31, 2019 of $125.1 million was primarily attributable to the purchases of investments of $321.5 million, payment of $44.2 million, net of cash acquired, in connection with our Azuqua acquisition, payment of $8.5 million in connection with the purchase of developed technology intangible assets, purchases of property and equipment of $10.0 million to support additional office space and headcount, and the capitalization of internal-use software costs of $2.7 million associated with the

development of additional features and functionality of our platform.

These activities were offset by proceeds from the sales and maturities of investments of $261.7 million.

Net cash provided by investing activities during the three months ended April 30, 2021 of $151.9 million was primarily attributable to proceeds from the sales and maturities of investments of $344.8 million, partially offset by

purchases of investments of $189.5 million and purchases of property and equipment of $3.3 million to support additional office space and headcount.

Net cash provided by investing activities during the three months ended April 30, 2020 of $50.6 million was primarily attributable to proceeds from the sales and maturities of investments of $188.6 million, partially offset by purchases of investments of $129.1 million, purchases of property and equipment of $7.9 million to support additional office space and headcount, and the capitalization of internal-use software costs of $1.0 million associated with the development of additional features and functionality of our platform.

Financing Activities

Cash provided by financing activities during the nine months ended October 31, 2020 of $1,066.5 million was primarily attributable to the issuance of 2026 Notes for proceeds of $1,134.8 million, net of issuance costs and proceeds from the termination of existing Note Hedges of $195.0 million, offset by payments for the termination of existing Warrants of $175.4 million and the purchase of 2026 Capped Calls of $134.0 million.

Other items impacting cash provided by financing activities include proceeds from the exercise of stock options of $33.6 million and proceeds from employee purchases under our ESPP of $12.8 million.

Cash provided by financing activities during the nine months ended October 31, 2019 of $834.7 million was primarily attributable to the issuance of the 2025 Notes for proceeds of $1,040.8 million, net of issuance costs and proceeds from the termination of Note Hedges of $405.9 million, offset by cash payments for the 2023 Notes Partial Repurchase of $224.4 million, payments for the termination of Warrants of $358.6 million, and the purchase of Capped Calls for the 2025 notes of $74.1 million.

Other items impacting cash provided by financing activities include proceeds from the exercise of stock options, net of repurchases, of $36.4 million and proceeds from employee purchases under our ESPP of $9.0 million.

Cash provided by financing activities during the three months ended April 30, 2021 of $16.2 million was primarily attributable to proceeds from the exercise of stock options of $16.2 million.

Cash provided by financing activities during the three months ended April 30, 2020 of $14.2 million was primarily attributable to proceeds from the exercise of stock options.

Indemnification Agreements

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Off-Balance Sheet Arrangements

As of October 31, 2020, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of April 30, 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

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Summary of Significant Accounting Policies” in our Form 10-K.

There have been no significant changes to these policies for the nine months ended October 31, 2020, except as described in Note 2 to our condensed consolidated financial statements “Accounting Standards and Significant Accounting Policies”.

There have been no significant changes to these policies for the three months ended April 30, 2021, except as described in Note 2 to our condensed consolidated financial statements “Accounting Standards and Significant Accounting Policies”.

Recent Accounting Pronouncements

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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 2. Management’s Discussion and Analysis