What changed in this filing

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Item 1. Financial Statements

2021-12-02 compared with 2021-09-02 · 140 added, 127 removed, 693 unchanged (28% of the section changed)

Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of July 31 , 2021 and January 31, 2021

Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2021 and 2020

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended July 31 , 2021 and 2020

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended July 31 , 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31 , 2021 and 2020

Condensed Consolidated Balance Sheets as of October 31, 2021 and January 31, 2021

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2021 and 2020

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended October 31, 2021 and 2020

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended October 31, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2021 and 2020

Notes to Condensed Consolidated Financial Statements

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(In thousands, except per share data)

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

Current assets:

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100,000 shares authorized;

no shares issued and outstanding as of July 31, 2021 and January 31, 2021

no shares issued and outstanding as of October 31, 2021 and January 31, 2021

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

1,000,000 shares authorized;

147,446 and 122,824 shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively

148,448 and 122,824 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively

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

120,000 shares authorized;

7,075 and 8,159 shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively

7,014 and 8,159 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively

Additional paid-in capital 7,558,816 1,656,096

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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Interest and other, net ( 22,088 ) ( 20,579 ) ( 61,333 ) ( 41,589 )

Loss before benefit from income taxes ( 284,144 ) ( 60,533 ) ( 393,366 ) ( 118,597 )

Benefit from income taxes ( 7,462 ) ( 433 ) ( 7,452 ) ( 835 )

Loss before provision for (benefit from) income taxes ( 220,644 ) ( 72,555 ) ( 614,010 ) ( 191,152 )

Provision for (benefit from) income taxes 667 209 ( 6,785 ) ( 626 )

Net loss $ ( 221,311 ) $ ( 72,764 ) $ ( 607,225 ) $ ( 190,526 )

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Net loss $ ( 221,311 ) $ ( 72,764 ) $ ( 607,225 ) $ ( 190,526 )

Other comprehensive income:

Other comprehensive income (loss):

Net change in unrealized gains or losses on available-for-sale securities ( 2,998 ) ( 2,226 ) ( 4,164 ) 1,344

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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

Equity component of early extinguishment and conversion of convertible senior notes 5,364 61,664 20,784 61,664

Equity component of early extinguishment and conversions of convertible senior notes ( 8 ) 8,829 20,776 70,493

Proceeds from hedges related to convertible senior notes — — 2 195,046

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(In thousands)

Six Months Ended

Nine Months Ended

Cash flows from operating activities:

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Loss on early extinguishment and conversion of debt 179 2,263

(Gain) loss on strategic investments ( 5,665 ) 628

Other, net ( 267 ) 3,887

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Proceeds from sales of securities available for sale and other 228,344 206,129

Payments for business acquisition, net of cash acquired ( 148,042 ) —

Payments for business acquisitions, net of cash acquired ( 215,129 ) —

Net cash used in investing activities ( 210,102 ) ( 1,267,882 )

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Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash ( 494 ) 121

Net increase (decrease) in cash, cash equivalents and restricted cash ( 208,668 ) 439,191

Net decrease in cash, cash equivalents and restricted cash ( 61,562 ) ( 108,251 )

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

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Operating lease right-of-use assets exchanged for lease liabilities 21,518 45,490

Property and equipment acquired through tenant improvement allowance — 3,852

Issuance of common stock for bonus settlement — 9,818

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Description of Business

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

(the “Company”) is the leading independent identity provider.

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.

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The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the results of operations for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending January 31, 2022 or any future period.

The condensed consolidated financial statements include the results of operations for Auth0, Inc.

from the acquisition date of May 3, 2021 to July 31, 2021.

The condensed consolidated financial statements include the results of operations for acquired businesses from their acquisition dates to October 31, 2021.

See Note 3 for additional details.

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The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 4, 2021.

Certain reclassifications of components of prior period operating cash flows have been made in the condensed consolidated statements of cash flows to conform to the current period presentation.

These reclassifications had no impact on total operating cash flows as previously reported.

Use of Estimates

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In March 2020, the World Health Organization (“WHO”) declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic, which has 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 six months ended July 31, 2021 and 2020.

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

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The Company has updated and further described its accounting policies for business combinations and strategic investments below.

There have been no other significant changes to the Company’s significant accounting policies for the six months ended July 31, 2021.

There have been no other significant changes to the Company’s significant accounting policies for the nine months ended October 31, 2021.

Business Combinations

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• future expected cash flows from subscription contracts, professional services contracts, other customer contracts and acquired developed technologies;

• person hours required in recreating certain acquired technologies;

• historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;

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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.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.

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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.

Business Combination

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

Business Combinations

Acquisition of Auth0

On May 3, 2021, the Company acquired all outstanding shares of privately-held Auth0, an Identity-as-a-Service company.

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See Note 12 for a discussion of amounts related to post-combination services that will be expensed over the remaining service periods as stock-based compensation.

Acquisition costs of $ 29.0 million related to Auth0 were expensed by the Company in general and administrative expenses in its condensed consolidated statement of operations for the three and six months ended July 31, 2021.

Acquisition costs of $ 29.0 million related to Auth0 were expensed by the Company in general and administrative expenses in its condensed consolidated statements of operations for the six months ended July 31, 2021.

The transaction was accounted for as a business combination.

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Trade name represents the estimated fair value of the Auth0 brand.

Revenue and earnings of Auth0 included in the Company’s consolidated income statement from the acquisition date through July 31, 2021 are as follows (in thousands):

For the period

May 3, 2021 to July 31, 2021

Revenue and earnings of Auth0 included in the Company’s consolidated income statement from the acquisition date through October 31, 2021 are as follows (in thousands):

Three Months Ended For the period

October 31, 2021

Revenue $ 45,985 $ 83,591

Net loss ( 119,921 ) ( 270,256 )

Pro forma consolidated revenue and earnings for the three and six months ended July 31, 2021 and 2020, calculated as if Auth0 had been acquired as of February 1, 2020 are as follows (in thousands):

Pro forma consolidated revenue and earnings for the three and nine months ended October 31, 2021 and 2020, calculated as if Auth0 had been acquired as of February 1, 2020 are as follows (in thousands):

Pro Forma Consolidated Statement of Operations Data

Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Revenue $ 354,268 $ 246,967 $ 964,563 $ 675,635

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The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company’s fiscal 2021.

Acquisition of atSpoke

On August 2, 2021, the Company acquired all issued and outstanding capital stock of Townsend Street Labs, Inc.

(“atSpoke”), a modern workplace operations platform.

The acquisition will incorporate atSpoke’s platform with Okta’s Identity Governance and Administration offering.

The acquisition date cash consideration for atSpoke was approximately $ 79.3 million of which $ 13.4 million of consideration was held back as partial security for any adjustments and indemnification obligations and will be paid within 18 months of the closing date.

The Company preliminarily recorded $ 18.3 million for developed technology intangible assets with an estimated useful life of 3 years and preliminarily recorded $ 63.2 million of goodwill which is primarily attributed to the assembled workforce as well as the integration of atSpoke’s technology and the Company’s technology.

None of the goodwill is expected to be deductible for U.S.

federal income tax purposes.

The Company may continue to adjust the preliminary purchase price allocation after obtaining more information regarding asset valuations, liabilities assumed and revisions of preliminary estimates through the measurement period.

The Company incurred $ 0.9 million of acquisition-related costs, which were recorded as general and administrative expenses in its condensed consolidated statements of operations in the quarter ended July 31, 2021.

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

therefore, historical and pro forma disclosures have not been presented.

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 July 31, 2021 and January 31, 2021 were as follows (in thousands):

As of July 31, 2021

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

As of October 31, 2021

Cash equivalents:

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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 July 31, 2021 and January 31, 2021.

The following table presents the contractual maturities of the Company’s short-term investments as of July 31, 2021 (in thousands):

As of July 31, 2021

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

The following table presents the contractual maturities of the Company’s short-term investments as of October 31, 2021 (in thousands):

As of October 31, 2021

Due within one year $ 1,055,033 $ 1,055,124

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Total $ 2,111,875 $ 2,109,687

As of July 31, 2021 and January 31, 2021, the Company included nil of unsettled purchases of short-term investments in Accrued expenses and other current liabilities on the condensed consolidated balance sheets and included $ 50.0 million and $ 31.0 million, respectively, of unsettled maturities of short-term investments in Prepaid expenses and other current assets on the condensed consolidated balance sheets.

The Company included $ 8.4 million and $ 10.5 million of interest receivable in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of July 31, 2021 and January 31, 2021, respectively.

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

The Company had 53 and 10 short-term investments in unrealized loss positions as of July 31, 2021 and January 31, 2021, 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 six months ended July 31, 2021 or 2020.

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

The Company included $ 7.7 million and $ 10.5 million of interest receivable in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of October 31, 2021 and January 31, 2021, respectively.

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

The Company had 134 and 10 short-term investments in unrealized loss positions as of October 31, 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 July 31, 2021 and January 31, 2021.

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, 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 July 31, 2021 and January 31, 2021, the balance of such strategic investments was $ 10.3 million and $ 3.1 million, respectively.

During the three and six months ended July 31, 2021, the Company recorded $ 2.4 million and $ 5.3 million, respectively, of realized gain and unrealized adjustments in the carrying values of strategic investments.

As of October 31, 2021 and January 31, 2021, the balance of such strategic investments was $ 13.2 million and $ 3.1 million, respectively.

During the three and nine months ended October 31, 2021, the Company recorded $ 0.4 million and $ 5.7 million, respectively, of realized gain and unrealized adjustments in the carrying values of strategic investments.

All gains and losses on strategic investments, whether realized or unrealized, are recognized in Interest and other, net on the condensed consolidated statements of operations.

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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 July 31, 2021

As of October 31, 2021

Level 1 Level 2

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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 July 31, 2021

As of October 31, 2021

Net Carrying Amount (1)

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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 July 31, 2021, the difference between the net carrying amount of the Notes and their estimated fair values represented the equity conversion value premium the market assigned to the Notes.

Based on the closing price of the Company’s common stock of $ 247.79 on July 31, 2021, the if-converted values of the 2023 Notes, 2025 Notes and 2026 Notes exceeded the principal amounts of $ 17.2 million, $ 1,060.0 million and $ 1,150.0 million, respectively.

As of October 31, 2021, the difference between the net carrying amount of the Notes and their estimated fair values represented the equity conversion value premium the market assigned to the Notes.

Based on the closing price of the Company’s common stock of $ 247.18 on October 31, 2021, the if-converted values of the 2023 Notes, 2025 Notes and 2026 Notes exceeded the principal amounts of $ 17.2 million, $ 1,060.0 million and $ 1,150.0 million, respectively.

Deferred Commissions

Sales commissions capitalized as contract costs totaled $ 40.0 million and $ 18.4 million in the three months ended July 31, 2021 and 2020, respectively, and $ 54.9 million and $ 30.3 million in the six months ended July 31, 2021 and 2020, respectively.

Amortization of contract costs was $ 13.3 million and $ 9.4 million for the three months ended July 31, 2021 and 2020, respectively, and $ 25.1 million and $ 18.1 million for the six months ended July 31, 2021 and 2020, respectively.

Sales commissions capitalized as contract costs totaled $ 35.7 million and $ 21.5 million in the three months ended October 31, 2021 and 2020, respectively, and $ 90.6 million and $ 51.8 million in the nine months ended October 31, 2021 and 2020, respectively.

Amortization of contract costs was $ 14.9 million and $ 10.3 million for the three months ended October 31, 2021 and 2020, respectively, and $ 40.0 million and $ 28.4 million for the nine months ended October 31, 2021 and 2020, respectively.

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

Goodwill and Intangible Assets, net

As of July 31, 2021 and January 31, 2021, goodwill was $ 5,338.1 million and $ 48.0 million, respectively.

During the three months ended July 31, 2021, the Company recorded $ 5,290.1 million of goodwill in connection with the Auth0 acquisition that was completed in May 2021.

As of October 31, 2021 and January 31, 2021, goodwill was $ 5,401.3 million and $ 48.0 million, respectively.

During the nine months ended October 31, 2021, the Company recorded goodwill of $ 5,290.1 million in connection with the Auth0 acquisition that was completed in May 2021 and $ 63.2 million in connection with the atSpoke acquisition that was completed in August 2021.

See Note 3 for further details.

No goodwill impairments were recorded during the three and six months ended July 31, 2021 and 2020.

No goodwill impairments were recorded during the three and nine months ended October 31, 2021 and 2020.

Intangible Assets, net

Intangible assets consisted of the following (in thousands):

As of July 31, 2021

As of October 31, 2021

Gross Accumulated Amortization Net

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$ 59,185 $ ( 32,176 ) $ 27,009

During the three months ended July 31, 2021, the Company recorded $ 334.3 million of intangible assets in connection with the Auth0 acquisition.

During the nine months ended October 31, 2021, the Company recorded intangible assets of $ 334.3 million and $ 18.3 million in connection with the Auth0 and atSpoke acquisitions, respectively.

See Note 3 for further details.

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Weighted-Average Remaining Useful Life

July 31, 2021 January 31, 2021

As of October 31, 2021 As of January 31, 2021

Purchased developed technology 4.2 years 3.1 years

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Trade name 4.5 years —

Amortization expense of intangible assets for the three months ended July 31, 2021 and 2020 was $ 21.3 million and $ 2.8 million, respectively, and $ 24.2 million and $ 5.6 million for the six months ended July 31, 2021 and 2020, respectively.

The expected future amortization expense for acquired intangible assets in connection with the Auth0 acquisition, as of July 31, 2021, is as follows (in thousands):

Amortization expense of intangible assets for the three months ended October 31, 2021 and 2020 was $ 22.4 million and $ 2.7 million, respectively, and $ 46.6 million and $ 8.2 million for the nine months ended October 31, 2021 and 2020, respectively.

The expected future amortization expense for acquired intangible assets in connection with the Auth0 and atSpoke acquisitions, as of October 31, 2021, is as follows (in thousands):

Fiscal Period:

Remaining six months of fiscal 2022 $ 36,939

Remaining three months of fiscal 2022 $ 19,995

Fiscal 2023 79,978

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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 July 31, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was $ 245.4 million and $ 165.0 million, respectively, and $ 359.3 million and $ 261.9 million in the six months ended July 31, 2021 and 2020, respectively.

Professional services and other revenue recognized in the three and six months ended July 31, 2021 and 2020 from deferred revenue balances at the beginning of the respective periods was not material.

Subscription revenue recognized during the three months ended October 31, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was $ 299.9 million and $ 174.0 million, respectively, and $ 459.4 million and $ 334.2 million in the nine months ended October 31, 2021 and 2020, respectively.

Professional services and other revenue recognized in the three and nine months ended October 31, 2021 and 2020 from deferred revenue balances at the beginning of the respective periods was not material.

Transaction Price Allocated to the Remaining Performance Obligations

Transaction price allocated to the remaining performance obligations represents all future, non-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 July 31, 2021, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 2,236.4 million .

As of October 31, 2021, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 2,350.2 million .

Of this amount, the Company expects to recognize revenue of approximately $ 1,180.2 million, or 50 %, over the next 12 months, with the balance to be recognized as revenue thereafter.

Remaining performance obligations for professional services and other contracts as of July 31, 2021 were not material.

Remaining performance obligations for professional services and other contracts as of October 31, 2021 were not material.

Convertible Senior Notes, Net

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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 July 31, 2021, $ 17.2 million of principal remained outstanding on the 2023 Notes.

As of October 31, 2021, $ 17.2 million of principal remained outstanding on the 2023 Notes.

The terms of the 2023 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the “2023 Indenture”).

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On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2023 Notes regardless of the foregoing circumstances.

For at least 20 trading days during the period of 30 consecutive trading days ended July 31, 2021, the last reported sale price of the Company’s common stock was equal to or exceeded 130 % of the conversion price of the 2023 Notes on each applicable trading day.

As a result, the 2023 Notes are convertible at the option of the holders during the fiscal quarter ending October 31, 2021 and were classified as current liabilities on the condensed consolidated balance sheet as of July 31, 2021.

During the six months ended July 31, 2021, the Company issued approximately 0.5 million shares of Class A common stock and paid an immaterial amount in cash to settle approximately $ 23.0 million principal amount of 2023 Notes.

For at least 20 trading days during the period of 30 consecutive trading days ended October 31, 2021, the last reported sale price of the Company’s common stock was equal to or exceeded 130 % of the conversion price of the 2023 Notes on each applicable trading day.

During the nine months ended October 31, 2021, the Company issued approximately 0.5 million shares of Class A common stock and paid an immaterial amount in cash to settle approximately $ 23.0 million principal amount of 2023 Notes.

The loss on early note conversion was not material.

During the three months ended July 31, 2021, the Company received additional conversion requests, and an immaterial aggregate principal amount of the 2023 Notes was settled in cash during the fiscal quarter ending October 31, 2021.

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

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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

As of July 31, 2021

As of October 31, 2021

Liability component:

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Net carrying amount $ 15,956

As of July 31, 2021

As of October 31, 2021

Equity component:

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

During the six months ended July 31, 2021, the Company exercised and net-share-settled Note Hedges corresponding to approximately $ 20.0 million principal amount of 2023 Notes and received approximately 0.3 million shares of Class A common stock and an immaterial cash payment.

As of July 31, 2021, the Company had additionally exercised Note Hedges corresponding to approximately $ 3.0 million principal amount of 2023 Notes that are expected to be net-share-settled in the three months ending October 31, 2021.

As of July 31, 2021, Note Hedges giving the Company the option to purchase approximately 0.4 million shares (subject to adjustment), which excludes the exercised portion expected to be net-share-settled in the three months ending October 31, 2021, remained outstanding.

During the nine months ended October 31, 2021, the Company exercised and net-share-settled Note Hedges corresponding to approximately $ 23.0 million principal amount of 2023 Notes and received approximately 0.4 million shares of Class A common stock and an immaterial cash payment.

As of October 31, 2021, Note Hedges giving the Company the option to purchase approximately 0.4 million shares (subject to adjustment) 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).

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

As of July 31, 2021, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding.

As of October 31, 2021, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding.

2025 Convertible Senior Notes

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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 July 31, 2021, the conditions allowing holders of the 2025 Notes to convert during the three months ending October 31, 2021 were not met, and as a result, the 2025 Notes were classified as noncurrent liabilities as of July 31, 2021.

No requests to convert material amounts of the 2025 Notes are currently outstanding.

During the three months ended October 31, 2021, the conditions allowing holders of the 2025 Notes to convert during the three months ending October 31, 2021 were not met, and as a result, the 2025 Notes were classified as noncurrent liabilities as of October 31, 2021.

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 July 31, 2021, the Company did no t redeem any of the 2025 Notes.

During the three months ended October 31, 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.

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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

As of July 31, 2021

As of October 31, 2021

Liability component:

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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 July 31, 2021, the conditions allowing holders of the 2026 Notes to convert were not met.

During the three months ended October 31, 2021, the conditions allowing holders of the 2026 Notes to convert were not met, and as a result, the 2026 Notes were classified as noncurrent liabilities as of October 31, 2021.

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 the Company provides notice of redemption, during any 30 consecutive trading day period ending on and including the trading day preceding the date on which the Company provides 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 July 31, 2021, the Company did no t redeem any of the 2026 Notes.

During the three months ended October 31, 2021, the Company did no t redeem any of the 2026 Notes.

Holders of the 2026 Notes who convert their 2026 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) or in connection with the Company’s issuance of a redemption notice are, under certain circumstances, entitled to an increase in the conversion rate.

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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

As of July 31, 2021

As of October 31, 2021

Liability component:

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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$ 9,677 $ 8,554 $ 28,135 $ 24,258

(1) Amounts are presented exclusive of sublease income and include short-term leases, which are immaterial.

The weighted-average remaining term of the Company’s operating leases was 6.3 years and 6.8 years as of July 31, 2021 and January 31, 2021, respectively, and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.5 % and 5.6 %, respectively.

(1) Amounts are presented exclusive of sublease income and include leases with an original term of 12 months or less (short-term leases), which are immaterial.

The weighted-average remaining term of the Company’s operating leases was 6.2 years and 6.8 years as of October 31, 2021 and January 31, 2021, respectively, and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.5 % and 5.6 %, respectively.

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

As of July 31, 2021

2022 $ 17,409

As of October 31, 2021

Thereafter 83,142

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Total operating lease liabilities $ 207,337

Cash payments included in the measurement of the Company’s operating lease liabilities were $ 10.0 million and $ 7.8 million for the three months ended July 31, 2021 and 2020, respectively, and $ 19.1 million and $ 15.0 million in the six months ended July 31, 2021 and 2020, respectively.

Cash payments included in the measurement of the Company’s operating lease liabilities were $ 10.3 million and $ 7.7 million for the three months ended October 31, 2021 and 2020, respectively, and $ 29.4 million and $ 22.7 million in the nine months ended October 31, 2021 and 2020, respectively.

As of October 31, 2021, the Company had $ 3.0 million of undiscounted future payments under a new operating lease arrangement that has not yet commenced, which is excluded from the table above.

This operating lease will commence in the fourth quarter of fiscal 2023 and has a lease term of 6.4 years.

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 $ 10.8 million and $ 11.2 million were issued and outstanding as of July 31, 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 July 31, 2021 and January 31, 2021.

Noncurrent restricted cash of $ 8.5 million associated with these letters of credit is included in Other assets on the condensed consolidated balance sheets as of October 31, 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 July 31, 2021 .

There were no such material matters as of October 31, 2021.

Warranties and Indemnification

To date, the Company has not incurred significant costs and has not accrued any material liabilities in the accompanying condensed consolidated financial statements as a result of its warranty and indemnification obligations.

Employee Incentive Plans

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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

As of July 31, 2021, options to purchase 2,849,312 shares of Class A common stock and 6,227,690 shares of Class B common stock remained outstanding.

As of October 31, 2021, options to purchase 2,608,801 shares of Class A common stock and 6,012,633 shares of Class B common stock remained outstanding.

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

July 31, 2021

October 31, 2021

Stock options and unvested RSUs outstanding 13,841,980

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Canceled ( 199,234 ) 115.69

Outstanding as of July 31, 2021 (unaudited) 9,077,002 $ 37.28 5.8 $ 1,928,223

As of July 31, 2021

Outstanding as of October 31, 2021 (unaudited) 8,621,434 $ 38.56 5.5 $ 1,816,560

As of October 31, 2021

Vested and exercisable (unaudited) 6,849,846 $ 12.85 4.7 $ 1,605,488

As of July 31, 2021, there was a total of $ 293.8 million of unrecognized stock-based compensation expense related to options, which is being recognized over a weighted-average period of 2.7 years.

As of October 31, 2021, there was a total of $ 249.2 million of unrecognized stock-based compensation expense related to options, which is being recognized over a weighted-average period of 2.5 years.

Restricted Stock Units

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Forfeited ( 707,803 ) 156.27

Outstanding as of July 31, 2021 (unaudited) 5,302,016 $ 182.44

As of July 31, 2021, there was $ 881.8 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.

Equity Awards Issued in Connection with Business Combination

Outstanding as of October 31, 2021 (unaudited) 5,220,546 $ 196.29

As of October 31, 2021, there was $ 921.4 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.

Equity Awards Issued in Connection with Business Combinations

In connection with the May 3, 2021 Auth0 acquisition described in Note 3, the Company assumed the Auth0, Inc.

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Included in the Granted total in the RSU activity table above are 743,718 RSUs assumed at a weighted-average grant date fair value per share of $ 269.70 .

The Company entered into revesting agreements with Auth0’s founders pursuant to which 1,231,372 restricted shares of Okta’s Class A common stock with a fair value per share of $ 269.70 issued to the founders as of the closing date will vest over three years .

As of July 31, 2021, there was $ 305.1 million of unrecognized stock-based compensation expense related to unvested restricted stock, which is being recognized over a weighted-average period of 2.8 years based on vesting under the award service conditions.

The Company entered into revesting agreements with the founders of the acquired businesses pursuant to which 1,269,008 restricted shares of Okta’s Class A common stock with a weighted-average fair value per share of $ 268.98 issued as of the respective closing dates will vest over 3 years.

In connection with the business combinations, as of October 31, 2021, there was $ 285.7 million of unrecognized stock-based compensation expense related to unvested restricted stock, which is being recognized over a weighted-average period of 2.5 years based on vesting under the award service conditions.

Employee Stock Purchase Plan

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The Company estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:

Three and Six Months Ended July 31,

Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Expected volatility — % — % 47 % - 48 %

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Expected dividend yield — — — —

During the three and six months ended July 31, 2021, the Company’s employees purchased 88,160 shares of its Class A common stock under the ESPP.

During the nine months ended October 31, 2021, the Company’s employees purchased 88,160 shares of its Class A common stock under the ESPP.

The shares were purchased at a weighted-average purchase price of $ 197.60 per share, with total proceeds of $ 17.4 million.

As of July 31, 2021, there was $ 16.5 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over an average vesting period of 0.8 years.

For the three and six months ended July 31, 2021, the Company recorded a tax benefit of $ 7.5 million and $ 7.5 million on pretax losses of $ 284.1 million and $ 393.4 million, respectively.

The effective tax rate for the three and six months ended July 31, 2021 was approximately 2.6 % and 1.9 %, respectively.

As of October 31, 2021, there was $ 11.1 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over a weighted-average vesting period of 0.6 years.

For the three and nine months ended October 31, 2021, the Company recorded a tax provision of $ 0.7 million and a tax benefit of $ 6.8 million on a pretax loss of $ 220.6 million and $ 614.0 million, respectively.

The effective tax rate for the three and nine months ended October 31, 2021 was approximately ( 0.3 )% and 1.1 %, respectively.

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 Auth0 acquisition, a remeasurement of deferred tax assets in connection with a tax rate change in the United Kingdom, and excess tax benefits from stock-based compensation in the United Kingdom.

The tax benefit was partially offset by income tax expense in profitable foreign jurisdictions and U.S.

For the three and six months ended July 31, 2020, the Company recorded a tax benefit of $ 0.4 million and $ 0.8 million on pretax losses of $ 60.5 million and $ 118.6 million, respectively.

The effective tax rate for the three and six months ended July 31, 2020 was 0.7 %.

deferred tax assets, release of the valuation allowance in the United States in connection with the acquired businesses, a remeasurement of deferred tax assets in connection with a tax rate change in the United Kingdom, and excess tax benefits from stock-based compensation in the United Kingdom.

The tax benefit for the nine months ended October 31, 2021 was partially offset by income tax expense in profitable foreign jurisdictions and U.S.

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.

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.

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

The tax benefit was partially offset by income tax expense in profitable foreign jurisdictions and 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.

Net Loss Per Share

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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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 July 31,

As of October 31,

Issued and outstanding stock options 8,621 9,243

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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 months ended July 31, 2021, 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 October 31, 2021, the average price per share of the Company’s Class A common stock exceeded the exercise price of the Warrants;

however, since the Company is in a net loss position, there was no dilutive effect during any period presented.

Subsequent Events

On August 2, 2021, the Company completed its acquisition of Townsend Street Labs, Inc.

(“atSpoke”), a modern workplace operations platform.

The Company provided total consideration, subject to final adjustments, of $ 89.0 million consisting of cash and the Company’s Class A common stock.

An agreed upon amount of consideration was held back by the Company to secure the indemnification obligations of the selling stockholders.

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