Okta, Inc. 10-Q

Item 1. Financial Statements (unaudited) 4 Condensed Consolidated Balance Sheets as of October 31, 2021 and January 31, 2021 5 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2021 and 2020 6 Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended October 31, 2021 and 2020 7 Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended October 31, 2021 and 2020 8 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2021 and 2020 9 Notes to Condensed Consolidated Financial Statements 10 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Item 3. Quantitative and Qualitative Disclosures about Market Risk 52 Item 4. Controls and Procedures 54 PART II. OTHER INFORMATION Item 1. Legal Proceedings 55 Item 1A. Risk Factors 55 Item 6. Exhibits 88 Signatures 90 FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook, product development, business strategy, plans, market trends, opportunities, positioning, and the anticipated impact on our business of the COVID-19 pandemic, related public health measures and any associated economic downturn. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” “shall” and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements, although not all forward-looking statements include these identifying words. The forward-looking statements are contained principally in “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and “Risk Factors.” Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about: • our future financial performance, including our revenue, costs of revenue, gross profits, margins and operating expenses; • the impact of the global COVID-19 pandemic on our business and operations; • trends in our key business metrics; • the sufficiency of our cash and cash equivalents, investments and cash provided by sales of our products and services to meet our liquidity needs; • market or other opportunities arising from business combinations; • the impact of recent accounting pronouncements on our financial statements; and • our ability to successfully integrate and realize the benefits of strategic acquisitions or investments, including our acquisition of Auth0, Inc. (“Auth0“). Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond our control. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in “Risk Factors” in this Quarterly Report on Form 10-Q as well as other documents that may be filed by us from time to time with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations. PART I Item. 1 Financial Statements 4 OKTA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) October 31, 2021 January 31, 2021 (unaudited) Assets Current assets: Cash and cash equivalents $ 372,372 $ 434,607 Short-term investments 2,109,687 2,121,584 Accounts receivable, net of allowances of $ 3,149 and $ 3,451 253,568 194,818 Deferred commissions 60,465 45,949 Prepaid expenses and other current assets 56,776 81,609 Total current assets 2,852,868 2,878,567 Property and equipment, net 60,751 62,783 Operating lease right-of-use assets 154,522 149,604 Deferred commissions, noncurrent 145,655 108,555 Intangible assets, net 336,354 27,009 Goodwill 5,401,343 48,023 Other assets 45,480 24,256 Total assets $ 8,996,973 $ 3,298,797 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 11,547 $ 8,557 Accrued expenses and other current liabilities 91,516 53,729 Accrued compensation 109,233 71,906 Convertible senior notes, net 15,956 908,684 Deferred revenue 759,914 502,738 Total current liabilities 988,166 1,545,614 Convertible senior notes, net, noncurrent 1,793,970 857,387 Operating lease liabilities, noncurrent 179,205 179,518 Deferred revenue, noncurrent 17,958 10,860 Other liabilities, noncurrent 33,119 11,375 Total liabilities 3,012,418 2,604,754 Commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, par value $ 0.0001 per share; 100,000 shares authorized; no shares issued and outstanding as of October 31, 2021 and January 31, 2021 — — Class A common stock, par value $ 0.0001 per share; 1,000,000 shares authorized; 148,448 and 122,824 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively 15 12 Class B common stock, par value $ 0.0001 per share; 120,000 shares authorized; 7,014 and 8,159 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively 1 1 Additional paid-in capital 7,558,816 1,656,096 Accumulated other comprehensive income 404 5,390 Accumulated deficit ( 1,574,681 ) ( 967,456 ) Total stockholders’ equity 5,984,555 694,043 Total liabilities and stockholders' equity $ 8,996,973 $ 3,298,797 See Notes to Condensed Consolidated Financial Statements. 5 OKTA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited) Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 Revenue: Subscription $ 336,702 $ 206,743 $ 879,881 $ 571,213 Professional services and other 13,978 10,636 37,305 29,471 Total revenue 350,680 217,379 917,186 600,684 Cost of revenue: Subscription 91,048 44,762 227,903 121,420 Professional services and other 18,626 12,146 49,000 35,121 Total cost of revenue 109,674 56,908 276,903 156,541 Gross profit 241,006 160,471 640,283 444,143 Operating expenses: Research and development 130,535 58,150 321,805 160,510 Sales and marketing 203,878 109,812 548,749 312,177 General and administrative 105,149 44,485 322,406 121,019 Total operating expenses 439,562 212,447 1,192,960 593,706 Operating loss ( 198,556 ) ( 51,976 ) ( 552,677 ) ( 149,563 ) Interest expense ( 23,144 ) ( 22,368 ) ( 68,776 ) ( 50,063 ) Interest income and other, net 1,056 1,878 7,622 10,737 Loss on early extinguishment and conversion of debt — ( 89 ) ( 179 ) ( 2,263 ) Interest and other, net ( 22,088 ) ( 20,579 ) ( 61,333 ) ( 41,589 ) 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 ) Net loss per share, basic and diluted $ ( 1.44 ) $ ( 0.56 ) $ ( 4.17 ) $ ( 1.51 ) Weighted-average shares used to compute net loss per share, basic and diluted 153,756 128,813 145,782 126,222 See Notes to Condensed Consolidated Financial Statements. 6 OKTA, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) (unaudited) Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 Net loss $ ( 221,311 ) $ ( 72,764 ) $ ( 607,225 ) $ ( 190,526 ) Other comprehensive income (loss): Net change in unrealized gains or losses on available-for-sale securities ( 2,998 ) ( 2,226 ) ( 4,164 ) 1,344 Foreign currency translation adjustments ( 973 ) ( 724 ) ( 822 ) 335 Other comprehensive income (loss) ( 3,971 ) ( 2,950 ) ( 4,986 ) 1,679 Comprehensive loss $ ( 225,282 ) $ ( 75,714 ) $ ( 612,211 ) $ ( 188,847 ) See Notes to Condensed Consolidated Financial Statements. 7 OKTA, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (unaudited) Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 Common stock and additional paid-in capital: Balance, beginning of period $ 7,391,185 $ 1,498,562 $ 1,656,109 $ 1,105,576 Issuance of common stock and value of equity awards assumed in connection with business combination — — 5,409,344 — Issuance of common stock upon exercise of stock options and other activity, net 11,208 8,299 64,119 51,053 Issuance of common stock for bonus settlement — — — 9,818 Stock-based compensation 156,447 54,049 408,482 140,895 Equity component of convertible senior notes, net of issuance costs — ( 12 ) — 306,220 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 Payments for warrants related to convertible senior notes — — — ( 175,399 ) Purchases of capped calls related to convertible senior notes — — — ( 133,975 ) Balance, end of period 7,558,832 1,569,727 7,558,832 1,569,727 Accumulated deficit: Balance, beginning of period ( 1,353,370 ) ( 818,886 ) ( 967,456 ) ( 701,124 ) Net loss ( 221,311 ) ( 72,764 ) ( 607,225 ) ( 190,526 ) Balance, end of period ( 1,574,681 ) ( 891,650 ) ( 1,574,681 ) ( 891,650 ) Accumulated other comprehensive income: Balance, beginning of period 4,375 5,521 5,390 892 Other comprehensive income (loss) ( 3,971 ) ( 2,950 ) ( 4,986 ) 1,679 Balance, end of period 404 2,571 404 2,571 Total stockholders’ equity $ 5,984,555 $ 680,648 $ 5,984,555 $ 680,648 See Notes to Condensed Consolidated Financial Statements. 8 OKTA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited) Nine Months Ended October 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 607,225 ) $ ( 190,526 ) Adjustments to reconcile net loss to net cash provided by operating activities: Stock-based compensation 407,611 139,774 Depreciation, amortization and accretion 76,631 23,694 Amortization of debt discount and issuance costs 64,478 47,261 Amortization of deferred commissions 40,041 28,428 Deferred income taxes ( 13,606 ) ( 2,414 ) Non-cash charitable contributions 5,649 4,662 Loss on early extinguishment and conversion of debt 179 2,263 (Gain) loss on strategic investments ( 5,665 ) 628 Other, net ( 267 ) 3,887 Changes in operating assets and liabilities: Accounts receivable ( 29,561 ) ( 10,547 ) Deferred commissions ( 92,183 ) ( 51,837 ) Prepaid expenses and other assets 5,356 ( 6,794 ) Operating lease right-of-use assets 16,564 13,979 Accounts payable ( 195 ) 1,377 Accrued compensation 19,488 37,863 Accrued expenses and other liabilities 22,537 2,442 Operating lease liabilities ( 17,280 ) ( 11,750 ) Deferred revenue 198,035 60,663 Net cash provided by operating activities 90,587 93,053 Cash flows from investing activities: Capitalization of internal-use software costs ( 2,348 ) ( 3,530 ) Purchases of property and equipment ( 5,800 ) ( 11,297 ) Purchases of securities available for sale and other ( 1,333,617 ) ( 1,845,958 ) Proceeds from maturities and redemption of securities available for sale 1,118,448 386,774 Proceeds from sales of securities available for sale and other 228,344 206,129 Payments for business acquisitions, net of cash acquired ( 215,129 ) — Net cash used in investing activities ( 210,102 ) ( 1,267,882 ) Cash flows from financing activities: Proceeds from issuance of convertible senior notes, net of issuance costs — 1,134,841 Payments for repurchases and conversions of convertible senior notes ( 26 ) ( 447 ) Proceeds from hedges related to convertible senior notes 2 195,046 Payments for warrants related to convertible senior notes — ( 175,399 ) Purchases of capped calls related to convertible senior notes — ( 133,975 ) Proceeds from stock option exercises 41,054 33,570 Proceeds from shares issued in connection with employee stock purchase plan 17,417 12,821 Net cash provided by financing activities 58,447 1,066,457 Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash ( 494 ) 121 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 Cash, cash equivalents and restricted cash at end of period $ 387,068 $ 423,702 Supplementary cash flow disclosure: Cash paid during the period for: Interest $ 3,548 $ 1,566 Income taxes 2,550 622 Non-cash activities: Issuance of common stock and value of equity awards assumed in connection with business combination 5,409,344 — Issuance of common stock for repurchases and conversions of convertible senior notes 126,144 307,910 Benefit from exercise of hedges related to convertible senior notes 92,097 — Operating lease right-of-use assets exchanged for lease liabilities 21,518 45,490 Issuance of common stock for bonus settlement — 9,818 Reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows above: Cash and cash equivalents $ 372,372 $ 409,769 Restricted cash, current included in prepaid expenses and other current assets 5,136 2,413 Restricted cash, noncurrent included in other assets 9,560 11,520 Total cash, cash equivalents and restricted cash $ 387,068 $ 423,702 See Notes to Condensed Consolidated Financial Statements. 9 OKTA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Overview and Basis of Presentation Description of Business Okta, Inc. (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. The Company was incorporated in January 2009 as Saasure Inc., a California corporation, and was later reincorporated in April 2010 under the name Okta, Inc. as a Delaware corporation. The Company is headquartered in San Francisco, California. Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of January 31, 2021, included herein, was derived from the audited financial statements as of that date. 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 acquired businesses from their acquisition dates to October 31, 2021. See Note 3 for additional details. The Company’s fiscal year ends on January 31. References to fiscal 2022, for example, refer to the fiscal year ending January 31, 2022. 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 The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. Actual results could vary from those estimates. The Company’s most significant estimates include the stand alone selling price (“SSP”) for each distinct performance obligation included in customer contracts with multiple performance obligations, the determination of the period of benefit for deferred commissions, the determination of the effective interest rate of the liability components of its convertible senior notes, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation of deferred income tax assets, the valuation of goodwill and acquired intangible assets and their useful lives and the valuation of certain equity awards assumed. 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 nine months ended October 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. 10 2. Accounting Standards and Significant Accounting Policies Significant Accounting Policies The Company’s significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data of its Form 10-K for the fiscal year ended January 31, 2021. 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 nine months ended October 31, 2021. Business Combinations When the Company acquires a business, the purchase price is allocated to the net tangible and identifiable intangible assets acquired based on their estimated fair values. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to: • 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; • royalty rates applied to acquired developed technology platforms and other intangible assets; • obsolescence curves and other useful life assumptions, such as the period of time and intended use of acquired intangible assets in the Company’s product offerings; • discount rates; • uncertain tax positions and tax-related valuation allowances; and • fair value of assumed equity awards. These estimates are inherently uncertain and unpredictable, and unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. Strategic Investments The Company holds strategic equity investments in privately held companies that are included in Other assets on the condensed consolidated balance sheets. Investments in privately held companies without readily determinable fair values in which the Company does not own a controlling interest or have significant influence over are measured using the measurement alternative. In applying the measurement alternative, the Company adjusts the carrying values of strategic investments based on observable price changes from orderly transactions for identical or similar investments of the same issuer. Additionally, the Company evaluates its strategic investments at least quarterly for impairment. Adjustments and impairments are recorded in Interest and other, net on the condensed consolidated statements of operations. In determining the estimated fair value of its strategic investments in privately held companies, the Company uses the most recent data available to the Company. Valuations of privately held securities are inherently complex due to the lack of readily available market data and require the use of judgment. The determination of whether an orderly transaction is for an identical or similar investment requires significant Company judgment. In its evaluation, the Company considers factors such as differences in the rights and preferences of the investments and the extent to which those differences would affect the fair values of those investments. The Company’s impairment analysis encompasses an assessment of both qualitative and quantitative factors including the investee's financial metrics, market acceptance of the investee's product or technology, general market conditions and liquidity considerations. 11 Recent Accounting Pronouncements Not Yet Adopted 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. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature-related balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (“EPS”), which is consistent with the Company’s accounting treatment under the current standard. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, 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 quantitative impact of this standard on its consolidated financial statements. 3. 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. The Company expects to combine Auth0’s developer-centric identity solution with the Company’s Okta Identity Cloud to drive synergies, product options and value for current and future customers. The acquisition date fair value of the consideration transferred for Auth0 was approximately $ 5,671.0 million, which consisted of the following (in thousands): Estimated Fair Value (unaudited) Cash $ 257,010 Common stock issued 5,175,623 Fair value of outstanding employee equity awards assumed 238,389 Total consideration $ 5,671,022 Cash consideration of $ 257.0 million includes $ 3.8 million held back as partial security for post-closing true-up adjustments as well as indemnification claims made within one year of the acquisition date. Approximately 19.2 million shares of common stock valued at $ 5,175.6 million were issued to selling stockholders, which includes approximately 1.1 million shares valued at $ 294.6 million held back as partial security for post-closing true-up adjustments as well as any indemnification claims made within one year of the acquisition date. The Company entered into revesting agreements with Auth0’s founders pursuant to which approximately 1.2 million additional shares of Okta’s Class A common stock issued to the founders as of the closing date will vest over three years . The $ 332.1 million fair value of the unvested restricted stock is not included as purchase consideration above, as it has a post-combination service requirement and will be accounted for separately from the business combination as stock compensation expense. 12 The Company issued replacement equity awards with a fair value of $ 655.1 million, of which $ 238.4 million was allocated to the purchase consideration as it is attributable to pre-combination services rendered and $ 416.7 million was allocated to post-combination services and will be expensed over the remaining service periods as stock-based compensation. The fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model. The Company also converted certain equity awards to unvested restricted cash awards totaling $ 13.5 million that will be expensed over the remaining service periods. 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 statements of operations for the six months ended July 31, 2021. The transaction was accounted for as a business combination. The total purchase price of $ 5,671.0 million was allocated using information currently available to the Company. As a result, 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. Preliminary allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values is as follows (in thousands): Estimated Fair Value (unaudited) Cash and cash equivalents $ 107,425 Accounts receivable 28,572 Prepaid expenses and other current assets 12,748 Property and equipment, net 1,928 Operating lease right-of-use assets 6,873 Other assets 6,375 Intangible assets 334,300 Accounts payable ( 3,610 ) Accrued expenses and other current liabilities ( 10,946 ) Accrued compensation ( 19,187 ) Deferred revenue ( 65,339 ) Operating lease liabilities, noncurrent ( 5,694 ) Other liabilities, noncurrent ( 12,515 ) Net assets acquired $ 380,930 The excess of purchase consideration over the fair value of the net tangible assets and identifiable intangible assets acquired was $ 5,290.1 million and was recorded as goodwill, which is primarily attributable to expected synergies in sales opportunities across complementary products, customers and geographies, cross-selling opportunities, and improvements in the selling process. None of the goodwill is expected to be deductible for U.S. federal income tax purposes. The estimated useful lives and fair values of the identifiable intangible assets are as follows (in thousands): Preliminary Estimate Useful Life (in years) Amount (unaudited) Developed technology 5 years $ 172,000 Customer relationships 2 - 6 years 140,900 Trade name 5 years 21,400 Total identifiable intangible assets $ 334,300 13 Developed technology represents the estimated fair value of the features underlying the Auth0 products as well as the platform supporting and providing services to Auth0 customers. Customer relationships represents the estimated fair value of the underlying relationships with Auth0 customers, including the fair value of unbilled and unrecognized contracts yet to be fulfilled. 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 October 31, 2021 are as follows (in thousands): Three Months Ended For the period October 31, 2021 May 3, 2021 to October 31, 2021 (unaudited) Revenue $ 45,985 $ 83,591 Net loss ( 119,921 ) ( 270,256 ) 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 October 31, Nine Months Ended October 31, 2021 2020 2021 2020 (unaudited) Revenue $ 354,268 $ 246,967 $ 964,563 $ 675,635 Net loss ( 206,977 ) ( 171,405 ) ( 621,546 ) ( 517,805 ) The pro forma financial information for all periods presented above has been calculated after adjusting the results of Auth0 to reflect certain business combination and one-time accounting effects such as fair value adjustment of deferred revenue, amortization expense from acquired intangible assets, stock-based compensation expense for unvested equity awards assumed, deferred commissions, release of deferred tax asset valuation allowance and acquisition costs as though the acquisition occurred as of the beginning of the Company’s fiscal 2021. The historical consolidated financial information has been adjusted in the pro forma combined financial results to give effect to pro forma events that are directly attributable to the business combination, reasonably estimable and factually supportable. 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. 14 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. 4. Cash Equivalents and Investments Cash Equivalents and Short-term Investments The amortized cost, unrealized gain (loss) and estimated fair value of the Company’s cash equivalents and short-term investments as of October 31, 2021 and January 31, 2021 were as follows (in thousands): As of October 31, 2021 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value (unaudited) Cash equivalents: Money market funds $ 241,171 $ — $ — $ 241,171 Total cash equivalents 241,171 — — 241,171 Short-term investments: U.S. treasury securities 1,804,188 159 ( 1,860 ) 1,802,487 Corporate debt securities 307,687 26 ( 513 ) 307,200 Total short-term investments 2,111,875 185 ( 2,373 ) 2,109,687 Total $ 2,353,046 $ 185 $ ( 2,373 ) $ 2,350,858 As of January 31, 2021 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash equivalents: Money market funds $ 311,257 $ — $ — $ 311,257 Total cash equivalents 311,257 — — 311,257 Short-term investments: U.S. treasury securities 1,888,882 1,571 ( 22 ) 1,890,431 Corporate debt securities 230,726 429 ( 2 ) 231,153 Total short-term investments 2,119,608 2,000 ( 24 ) 2,121,584 Total $ 2,430,865 $ 2,000 $ ( 24 ) $ 2,432,841 All short-term investments were designated as available-for-sale securities as of October 31, 2021 and January 31, 2021. 15 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 Amortized Cost Estimated Fair Value (unaudited) Due within one year $ 1,055,033 $ 1,055,124 Due between one to five years 1,056,842 1,054,563 Total $ 2,111,875 $ 2,109,687 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. There were no material gross unrealized gains or losses from available-for-sale securities and no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and nine months ended October 31, 2021 or 2020. For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) the Company has the intention to sell any of these investments, (ii) it is not more likely than not that the Company will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis and (iii) the decline in the fair value of the investment is due to credit or non-credit related factors. Based on this evaluation, the Company determined that for short-term investments, there were no material credit or non-credit related impairments as of October 31, 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 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. 5. Fair Value Measurements The Company measures its financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure as follows: Level 1—Valuations based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2—Valuations based on other inputs that are directly or indirectly observable in the marketplace. Level 3—Valuations based on unobservable inputs that are supported by little or no market activity. 16 Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents information about the Company’s financial assets that were measured at fair value on a recurring basis using the above input categories (in thousands): As of October 31, 2021 Level 1 Level 2 Level 3 Total (unaudited) Assets: Cash equivalents: Money market funds $ 241,171 $ — $ — $ 241,171 Total cash equivalents 241,171 — — 241,171 Short-term investments: U.S. treasury securities — 1,802,487 — 1,802,487 Corporate debt securities — 307,200 — 307,200 Total short-term investments — 2,109,687 — 2,109,687 Total cash equivalents and short-term investments $ 241,171 $ 2,109,687 $ — $ 2,350,858 As of January 31, 2021 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 311,257 $ — $ — $ 311,257 Total cash equivalents 311,257 — — 311,257 Short-term investments: U.S. treasury securities — 1,890,431 — 1,890,431 Corporate debt securities — 231,153 — 231,153 Total short-term investments — 2,121,584 — 2,121,584 Total cash equivalents and short-term investments $ 311,257 $ 2,121,584 $ — $ 2,432,841 The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value table above. Fair Value Measurements of Other Financial Instruments The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments that are not recorded at fair value on the condensed consolidated balance sheets (in thousands): As of October 31, 2021 Net Carrying Amount (1) Estimated Fair Value (unaudited) 2023 convertible senior notes $ 16,079 $ 86,269 2025 convertible senior notes $ 911,830 $ 1,533,879 2026 convertible senior notes $ 902,070 $ 1,437,190 (1) Before unamortized debt issuance costs. The principal amounts of the 2023 convertible senior notes (“2023 Notes”), the 2025 convertible senior notes (“2025 Notes”), and the 2026 convertible senior notes (“2026 Notes”, and together with the 2023 Notes and 2025 Notes, the “Notes”) are $ 17.2 million, $ 1,060.0 million, and $ 1,150.0 million, respectively. The difference between the principal amounts and the respective net carrying amounts, before unamortized debt issuance costs, represents the unamortized debt discount (See Note 9 for additional details). The estimated fair values of the Notes, which are 17 Level 2 financial instruments, were determined based on the quoted bid prices of the Notes in an over-the-counter market on the last trading day of the reporting period. As of October 31, 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. 6. Deferred Commissions 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. 7. Goodwill and Intangible Assets, net Goodwill 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 nine months ended October 31, 2021 and 2020. Intangible Assets, net Intangible assets consisted of the following (in thousands): As of October 31, 2021 Gross Accumulated Amortization Net (unaudited) Capitalized internal-use software costs $ 33,491 $ ( 23,103 ) $ 10,388 Purchased developed technology 219,100 ( 35,750 ) 183,350 Customer relationships 140,900 ( 17,599 ) 123,301 Trade name 21,400 ( 2,140 ) 19,260 Software licenses 239 ( 184 ) 55 $ 415,130 $ ( 78,776 ) $ 336,354 As of January 31, 2021 Gross Accumulated Amortization Net Capitalized internal-use software costs $ 30,259 $ ( 19,478 ) $ 10,781 Purchased developed technology 28,800 ( 12,694 ) 16,106 Software licenses 126 ( 4 ) 122 $ 59,185 $ ( 32,176 ) $ 27,009 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. 18 The weighted-average remaining useful lives of the Company’s acquired intangible assets are as follows: Weighted-Average Remaining Useful Life As of October 31, 2021 As of January 31, 2021 (unaudited) Purchased developed technology 4.2 years 3.1 years Customer relationships 4.2 years — Trade name 4.5 years — 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: (unaudited) Remaining three months of fiscal 2022 $ 19,995 Fiscal 2023 79,978 Fiscal 2024 70,491 Fiscal 2025 64,278 Fiscal 2026 59,222 Thereafter 20,172 Total amortization expense $ 314,136 8. Deferred Revenue and Performance Obligations Deferred Revenue Deferred revenue, which is a contract liability, consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met. Subscription revenue recognized during the 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 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 October 31, 2021 were not material. 19 9. Convertible Senior Notes, Net 2023 Convertible Senior Notes The 2023 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.25 % per year. Interest is payable in cash semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018. The 2023 Notes mature on February 15, 2023 unless earlier repurchased or converted. The Company may not redeem the 2023 Notes prior to maturity. The total net proceeds from the 2023 Notes, after deducting initial purchasers’ discounts and debt issuance costs, was $ 335.0 million. In September 2019, the Company used part of the net proceeds from the issuance of the 2025 Notes to repurchase a portion of the 2023 Notes, which consisted of a repurchase of $ 224.4 million aggregate principal amount of the 2023 Notes in privately-negotiated transactions, for aggregate consideration of $ 604.8 million, consisting of approximately $ 224.4 million in cash and approximately 3.0 million shares of Class A common stock (“First Partial Repurchase of 2023 Notes”). The $ 604.8 million in aggregate consideration was allocated between the debt and equity components in the amounts of $ 197.7 million and $ 407.1 million respectively, using an effective interest rate of 4.00 % to determine the fair value of the liability component. As of the repurchase date, the carrying value of the notes subject to the First Partial Repurchase of 2023 Notes, net of unamortized debt discount and issuance costs, was $ 183.1 million. The First Partial Repurchase of 2023 Notes resulted in a $ 14.6 million loss on early debt extinguishment during the year ended January 31, 2020, of which $ 3.8 million consisted of unamortized debt issuance costs. In June 2020, the Company used part of the net proceeds from the issuance of the 2026 Notes to repurchase a portion of the 2023 Notes, which consisted of a repurchase of $ 69.9 million aggregate principal amount of the 2023 Notes in privately-negotiated transactions, for aggregate consideration of $ 260.5 million, consisting of approximately $ 0.2 million in cash and approximately 1.4 million shares of Class A common stock (“Second Partial Repurchase of 2023 Notes”, and together with the First Partial Repurchase of 2023 Notes, the “2023 Notes Partial Repurchases”). The $ 260.5 million in aggregate consideration was allocated between the debt and equity components in the amounts of $ 61.8 million and $ 198.7 million respectively, using an effective interest rate of 4.90 % to determine the fair value of the liability component. As of the repurchase date, the carrying value of the notes subject to the Second Partial Repurchase of 2023 Notes, net of unamortized debt discount and issuance costs, was $ 59.6 million. The Second Partial Repurchase of 2023 Notes resulted in a $ 2.2 million loss on early debt extinguishment during the year ended January 31, 2021, of which $ 1.0 million consisted of unamortized debt issuance costs. The interest rates used in the 2023 Notes Partial Repurchases were based on the income and market based approaches used to determine the effective interest rate of the 2025 Notes and 2026 Notes, adjusted for the remaining tenor of the 2023 Notes. As of 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”). Upon conversion, the 2023 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. The 2023 Notes are convertible at an initial conversion rate of 20.6795 shares of Class A common stock per $1,000 principal amount of the 2023 Notes, which is equal to an initial conversion price of approximately $ 48.36 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2023 Indenture. Prior to the close of business on the business day immediately preceding October 15, 2022, holders of the 2023 Notes may convert all or a portion of their 2023 Notes only in multiples of $1,000 principal amount, under the following circumstances: • during any fiscal quarter commencing after the fiscal quarter ending on April 30, 2018 (and only during such fiscal quarter), if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2023 Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each trading day of that five consecutive trading day 20 period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate on such trading day; or • upon the occurrence of specified corporate events, as described in the 2023 Indenture. On or after October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2023 Notes regardless of the foregoing circumstances. For at least 20 trading days during the period of 30 consecutive trading days ended 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. 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 October 31, 2021. 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. No requests to convert material amounts of the 2023 Notes are currently outstanding. Holders of the 2023 Notes who convert their 2023 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2023 Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2023 Indenture), holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes at a price equal to 100 % of the principal amount of the 2023 Notes being repurchased, plus any accrued and unpaid interest. In accounting for the issuance of the 2023 Notes, the Company separated the 2023 Notes into liability and equity components, using an effective interest rate of 5.68 % to determine the fair value of the liability component. This interest rate was based on both an income and a market based approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate. For the market approach, the Company observed the price of the Note Hedges (see below) it purchased for its 2023 Notes and also performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The following table sets forth total interest expense recognized related to the 2023 Notes (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 (unaudited) Contractual interest expense $ 9 $ 27 $ 43 $ 154 Amortization of debt issuance costs 22 49 84 266 Amortization of debt discount 213 511 837 2,839 Total $ 244 $ 587 $ 964 $ 3,259 Total initial issuance costs of $ 10.0 million related to the 2023 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2023 Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital. The Company initially recorded liability issuance costs of $ 7.7 million and equity issuance costs of $ 2.3 million. 21 The 2023 Notes, net consisted of the following (in thousands): As of October 31, 2021 (unaudited) Liability component: Principal $ 17,228 Less: unamortized debt issuance costs and debt discount ( 1,272 ) Net carrying amount $ 15,956 As of October 31, 2021 (unaudited) Equity component: 2023 Notes $ 3,993 Less: issuance costs ( 116 ) Carrying amount of the equity component (1) $ 3,877 (1) Included in the condensed consolidated balance sheets within Additional paid-in capital. Note Hedges In connection with the pricing of the 2023 Notes, the Company entered into convertible note hedges with respect to its Class A common stock (the “Note Hedges”). The Note Hedges are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2023 Notes, approximately 7.1 million shares of its Class A common stock for approximately $ 48.36 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2023 Notes, exercisable upon conversion of the 2023 Notes. The Note Hedges will expire in 2023, if not exercised earlier. The Note Hedges are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2023 Notes under certain circumstances. The Note Hedges are separate transactions and are not part of the terms of the 2023 Notes. The Company paid an aggregate amount of $ 80.0 million for the Note Hedges. The amount paid for the Note Hedges was recorded as a reduction to Additional paid-in capital in the condensed consolidated balance sheets. In September 2019 and in June 2020, and in connection with the First Partial Repurchase of 2023 Notes and Second Partial Repurchase of 2023 Notes, the Company terminated Note Hedges corresponding to approximately 4.6 million and 1.4 million shares for cash proceeds of $ 405.9 million and $ 195.0 million, respectively. The proceeds were recorded as an increase to Additional paid-in capital in the condensed consolidated balance sheets. 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. 22 Warrants In connection with the issuance of the 2023 Notes, the Company also entered into separate warrant transactions pursuant to which it sold net-share-settled (or, at the Company’s election subject to certain conditions, cash-settled) warrants (the “Warrants”) to acquire, subject to anti-dilution adjustments, up to approximately 7.1 million shares over 80 scheduled trading days beginning in May 2023 of the Company’s Class A common stock at an initial exercise price of approximately $ 68.06 per share (subject to adjustment). If the Warrants are not exercised on their exercise dates, they will expire. If the market value per share of the Company’s Class A common stock exceeds the applicable exercise price of the Warrants, the Warrants could have a dilutive effect on the Company’s Class A common stock unless, subject to the terms of the Warrants, the Company elects to cash settle the Warrants. The Warrants are separate transactions and are not part of the terms of the 2023 Notes or the Note Hedges. The Company received aggregate proceeds of $ 52.4 million from the sale of the Warrants in connection with the 2023 Notes. The proceeds from the sale of the Warrants were recorded as an increase to Additional paid-in capital in the condensed consolidated balance sheets. In September 2019 and in June 2020, and in connection with the First Partial Repurchase of 2023 Notes and Second Partial Repurchase of 2023 Notes, the Company terminated Warrants corresponding to approximately 4.6 million and 1.4 million shares for total cash payments of $ 358.6 million and $ 175.4 million, respectively. The termination payments were recorded as a decrease to Additional paid-in capital in the condensed consolidated balance sheets. As of October 31, 2021, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding. 2025 Convertible Senior Notes The 2025 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.125 % per year. Interest is payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. The 2025 Notes mature on September 1, 2025 unless earlier redeemed, repurchased or converted. The total net proceeds from the 2025 Notes, after deducting initial purchasers’ discounts and debt issuance costs, were $ 1,040.7 million. The terms of the 2025 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the “2025 Indenture”). Upon conversion, the 2025 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. The 2025 Notes are convertible at an initial conversion rate of 5.2991 shares of Class A common stock per $1,000 principal amount of the 2025 Notes, which is equal to an initial conversion price of approximately $ 188.71 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2025 Indenture. Prior to the close of business on the business day immediately preceding June 1, 2025, holders of the 2025 Notes may convert all or a portion of their 2025 Notes only in multiples of $1,000 principal amount, under the following circumstances: • during any fiscal quarter commencing after the fiscal quarter ending on January 31, 2020 (and only during such fiscal quarter), if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2025 Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2025 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate on such trading day; • if the Company calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or • upon the occurrence of specified corporate events, as described in the 2025 Indenture. 23 On or after June 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2025 Notes regardless of the foregoing circumstances. During the three months ended October 31, 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 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. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2025 Indenture), holders of the 2025 Notes may require the Company to repurchase all or a portion of their 2025 Notes at a price equal to 100 % of the principal amount of the 2025 Notes being repurchased, plus any accrued and unpaid interest. In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components using an effective interest rate of 4.10 % to determine the fair value of the liability component. This interest rate was based on both an income and a market based approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate. For the market approach, the Company performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The following table sets forth total interest expense recognized related to the 2025 Notes (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 (unaudited) Contractual interest expense $ 332 $ 332 $ 994 $ 994 Amortization of debt issuance costs 581 530 1,705 1,554 Amortization of debt discount 8,878 8,526 26,368 25,320 Total $ 9,791 $ 9,388 $ 29,067 $ 27,868 Total issuance costs of $ 19.3 million related to the 2025 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2025 Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital. The Company recorded liability issuance costs of $ 15.3 million and equity issuance costs of $ 4.0 million. 24 The 2025 Notes, net consisted of the following (in thousands): As of October 31, 2021 (unaudited) Liability component: Principal $ 1,059,997 Less: unamortized debt issuance costs and debt discount ( 158,897 ) Net carrying amount $ 901,100 At Issuance Equity component: 2025 Notes $ 221,387 Less: issuance costs ( 4,040 ) Carrying amount of the equity component (1) $ 217,347 (1) Included in the condensed consolidated balance sheets within Additional paid-in capital. 2025 Capped Calls In connection with the pricing of the 2025 Notes, the Company entered into capped call transactions with respect to its Class A common stock (the “2025 Capped Calls”). The 2025 Capped Calls are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2025 Notes, approximately 5.6 million shares of its Class A common stock for approximately $ 188.71 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2025 Notes, exercisable upon conversion of the 2025 Notes. The 2025 Capped Calls have initial cap prices of $ 255.88 per share (subject to adjustment) and will expire in 2025, if not exercised earlier. The 2025 Capped Calls are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2025 Notes under certain circumstances. The 2025 Capped Calls are separate transactions and are not part of the terms of the 2025 Notes. The Company paid an aggregate amount of $ 74.1 million for the 2025 Capped Calls. The amount paid for the 2025 Capped Calls was recorded as a reduction to Additional paid-in capital in the condensed consolidated balance sheets. 2026 Convertible Senior Notes The 2026 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.375 % per year. Interest is payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The 2026 Notes mature on June 15, 2026 unless earlier redeemed, repurchased or converted. The total net proceeds from the 2026 Notes, after deducting initial purchasers’ discounts and debt issuance costs, were $ 1,134.8 million. The terms of the 2026 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the “2026 Indenture”, and together with the 2023 Indenture and 2025 Indenture, the “Indentures”). Upon conversion, the 2026 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. The 2026 Notes are convertible at an initial conversion rate of 4.1912 shares of Class A common stock per $1,000 principal amount of the 2026 Notes, which is equal to an initial conversion price of approximately $ 238.60 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the Indenture. Prior to the close of business on the business day immediately preceding March 15, 2026, holders of the 2026 Notes may convert all or a portion of their 2026 Notes only in multiples of $1,000 principal amount, under the following circumstances: • during any fiscal quarter commencing after the fiscal quarter ending on October 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and 25 including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2026 Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on such trading day; • if the Company calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or • upon the occurrence of specified corporate events, as described in the 2026 Indenture. On or after March 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2026 Notes regardless of the foregoing circumstances. During the 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 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. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indenture), holders of the 2026 Notes may require the Company to repurchase all or a portion of their 2026 Notes at a price equal to 100 % of the principal amount of the 2026 Notes being repurchased, plus any accrued and unpaid interest. In accounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability and equity components using an effective interest rate of 5.75 % to determine the fair value of the liability component. This interest rate was based on both an income and a market based approach. For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility, the risk-free rate and observable trading activity for the Company’s existing Notes. For the market approach, the Company performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance. The following table sets forth total interest expense recognized related to the 2026 Notes (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 (unaudited) Contractual interest expense $ 1,078 $ 1,078 $ 3,234 $ 1,653 Amortization of debt issuance costs 364 318 1,056 483 Amortization of debt discount 11,640 10,997 34,428 16,799 Total $ 13,082 $ 12,393 $ 38,718 $ 18,935 Total issuance costs of $ 15.2 million related to the 2026 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components. Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2026 Notes using the effective interest rate method. The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital. The Company recorded liability issuance costs of $ 11.1 million and equity issuance costs of $ 4.1 million. 26 The 2026 Notes, net consisted of the following (in thousands): As of October 31, 2021 (unaudited) Liability component: Principal $ 1,150,000 Less: unamortized debt issuance costs and debt discount ( 257,130 ) Net carrying amount $ 892,870 At Issuance Equity component: 2026 Notes $ 310,311 Less: issuance costs ( 4,090 ) Carrying amount of the equity component (1) $ 306,221 (1) Included in the condensed consolidated balance sheets within Additional paid-in capital. 2026 Capped Calls In connection with the pricing of the 2026 Notes, the Company entered into capped call transactions with respect to its Class A common stock (the “2026 Capped Calls”). The 2026 Capped Calls are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2026 Notes, approximately 4.8 million shares of its Class A common stock for approximately $ 238.60 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2026 Notes, exercisable upon conversion of the 2026 Notes. The 2026 Capped Calls have initial cap prices of $ 360.14 per share (subject to adjustment) and will expire in 2026, if not exercised earlier. The 2026 Capped Calls are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2026 Notes under certain circumstances. The 2026 Capped Calls are separate transactions and are not part of the terms of the 2026 Notes. The Company paid an aggregate amount of $ 134.0 million for the 2026 Capped Calls. The amount paid for the 2026 Capped Calls was recorded as a reduction to Additional paid-in capital in the condensed consolidated balance sheets. 10. Leases The Company has entered into various non-cancelable office space operating leases with original lease periods expiring between 2022 and 2029. These leases do not contain material variable rent payments, residual value guarantees, covenants or other restrictions. Operating lease costs were as follows (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 (unaudited) Operating lease cost (1) $ 9,677 $ 8,554 $ 28,135 $ 24,258 (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. 27 Maturities of the Company’s operating lease liabilities, which do not include short-term leases, were as follows (in thousands): As of October 31, 2021 (unaudited) 2022 $ 7,162 2023 42,631 2024 43,627 2025 40,681 2026 30,583 Thereafter 83,142 Total lease payments 247,826 Less imputed interest ( 40,489 ) Total operating lease liabilities $ 207,337 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. 11. Commitments and Contingencies Letters of Credit In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $ 10.8 million and $ 11.2 million were issued and outstanding as of October 31, 2021 and January 31, 2021, respectively. No draws have been made under such letters of credit. 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 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. 12. Employee Incentive Plans The Company’s equity incentive plans provide for granting stock options, restricted stock units (“RSUs”) and restricted stock awards to employees, consultants, officers and directors. In addition, the Company offers an Employee Stock Purchase Plan (“ESPP”) to eligible employees. 28 Stock-based compensation expense was recorded in the following cost and expense categories in the Company’s condensed consolidated statements of operations (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 (unaudited) Cost of revenue Subscription $ 13,455 $ 6,090 $ 33,843 $ 15,229 Professional services and other 3,376 2,113 8,879 5,924 Research and development 56,573 17,546 129,998 44,434 Sales and marketing 39,248 14,368 101,602 38,693 General and administrative 43,133 13,535 133,289 35,494 Total $ 155,785 $ 53,652 $ 407,611 $ 139,774 Equity Incentive Plans The Company has two equity incentive plans: the 2009 Stock Plan (“2009 Plan”) and the 2017 Equity Incentive Plan (“2017 Plan”). In addition, the Company assumed Auth0, Inc. equity incentive plans as described below. All shares that remain available for future grants are under the 2017 Plan. 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: As of October 31, 2021 (unaudited) Stock options and unvested RSUs outstanding 13,841,980 Available for future stock option and RSU grants 24,613,171 Available for ESPP 5,854,767 44,309,918 Stock Options A summary of the Company’s stock option activity and related information was as follows: Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding as of January 31, 2021 8,250,113 $ 18.93 5.6 $ 1,980,668 Granted 2,565,055 93.95 Exercised ( 1,994,500 ) 20.91 Canceled ( 199,234 ) 115.69 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 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 A summary of the Company’s RSU activity and related information was as follows: 29 Number of RSUs Weighted- Average Grant Date Fair Value Per Share Outstanding as of January 31, 2021 4,452,107 $ 122.90 Granted 3,318,761 246.04 Vested ( 1,842,519 ) 124.01 Forfeited ( 707,803 ) 156.27 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. 2014 Equity Incentive Plan and the Auth0, Inc. Phantom Unit Plan (together, the “Auth0 Plans”) and certain outstanding options to purchase Auth0 common stock, RSUs settleable into shares of Auth0 common stock, and phantom units under the Auth0 Plans. Certain assumed securities were converted into options (which in certain instances were automatically net exercised) or RSUs, as applicable, for shares of the Company’s Class A common stock, subject to adjustment as set forth in the Merger Agreement. Such assumed and converted options and RSUs will continue to be outstanding and will be governed by the provisions of the Auth0 Plans. Activity under the Auth0 Plans is included in the summaries of stock option and RSU activity above. Included in the Granted total in the stock options activity table above are 1,850,079 options assumed at a weighted-average exercise price per share of $ 24.21 . 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 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. 30 Employee Stock Purchase Plan The ESPP provides for 12-month offering periods beginning June 21 and December 21 of each year, and each offering period consists of up to two six-month purchase periods. The Company estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions: Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 (unaudited) Expected volatility — % — % 47 % - 48 % 50 % - 54 % Expected term (in years) — — 0.5 - 1.0 0.5 - 1.0 Risk-free interest rate — % — % 0.06 % - 0.09 % 0.17 % - 0.18 % Expected dividend yield — — — — 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 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. 13. Income Taxes 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 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. state taxes. 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. 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. state taxes. 31 14. Net Loss Per Share The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data): Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 Class A Class B Class A Class B Class A Class B Class A Class B (unaudited) Numerator: Net loss $ ( 211,176 ) $ ( 10,135 ) $ ( 68,146 ) $ ( 4,618 ) $ ( 576,106 ) $ ( 31,119 ) $ ( 177,887 ) $ ( 12,639 ) Denominator: Weighted-average shares outstanding, basic and diluted 146,715 7,041 120,637 8,176 138,311 7,471 117,849 8,373 Net loss per share, basic and diluted $ ( 1.44 ) $ ( 1.44 ) $ ( 0.56 ) $ ( 0.56 ) $ ( 4.17 ) $ ( 4.17 ) $ ( 1.51 ) $ ( 1.51 ) As the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands): As of October 31, 2021 2020 (unaudited) Issued and outstanding stock options 8,621 9,243 Unvested RSUs issued and outstanding 5,221 4,827 Unvested restricted stock awards issued and outstanding 1,269 — Shares committed under the ESPP 213 137 Shares related to the 2023 Notes 356 832 Shares subject to warrants related to the issuance of the 2023 Notes 1,048 1,048 Shares related to the 2025 Notes 5,617 5,617 Shares related to the 2026 Notes 4,820 4,820 27,165 26,524 The Company uses the if-converted method for calculating any potential dilutive effect of the conversion options embedded in the Notes on diluted net income per share, if applicable. The conversion options of the 2023, 2025 and 2026 Notes are dilutive in periods of net income on a weighted-average basis using an assumed conversion date equal to the later of the beginning of the reporting period and the date of issuance of the respective Notes. The exercise rights of the Warrants will have a dilutive impact on net income per share of common stock under the treasury-stock method when the average market price per share of the Company’s Class A common stock for a given period exceeds the conversion price of $ 68.06 per share. During the 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. 32