What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-07 compared with 2021-03-04 · 288 added, 185 removed, 953 unchanged (33% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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Notes to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Okta, Inc.

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Description of the Matter As explained in Note 2 to the consolidated financial statements, the Company derives revenue from subscription fees and professional services fees.

The Company’s arrangements are generally non-cancellable and non-refundable.

The Company’s arrangements are generally non-cancelable and non-refundable.

In addition, the arrangements do not provide customers with the right to take possession of the software and, as a result, are accounted for as service arrangements.

Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancellable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer.

Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancelable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer.

Revenue for the Company’s professional services is recognized as services are performed in proportion to their pattern of transfer.

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Additionally, to verify completeness of non-standard terms and conditions, we obtained confirmations of terms and conditions for a sample of arrangements with customers.

Convertible Notes

Description of the Matter As explained in Note 9 to the consolidated financial statements, in June 2020 the Company issued $1.15 billion of convertible senior notes due June 15, 2026 (2026 Notes), which permit the Company to settle in cash or stock at its option.

Concurrent with the offering of the 2026 Notes, the Company entered into separate capped call transactions to reduce potential dilution upon conversion of the 2026 Notes.

Simultaneous with the issuance of the 2026 Notes, the Company repurchased a portion of the convertible notes issued in February 2018, due February 15, 2023 (2023 Notes) (Second Partial Repurchase of 2023 Notes), and accounted for this transaction as a debt extinguishment.

These transactions are collectively referred to as the Convertible Notes Transactions.

Auditing the Company’s accounting for the Convertible Notes Transactions was complex due to the significant judgment required in determining the liability component of the related convertible notes as well as the balance sheet classification of the elements of the 2026 Notes.

The Company accounted for the Convertible Notes Transactions as separate liability and equity components, determined the fair value of the respective liability components based on an estimate of the fair value of a similar liability without a conversion option and assigned the residual value to the equity component.

The Company estimated the fair value of the liability component of the 2026 Notes, 2025 Notes and 2023 Notes using a discounted cash flow model with a risk adjusted yield for similar debt instruments, absent any embedded conversion feature.

In estimating the risk adjusted yield, the Company used both an income and market approach.

For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility, risk-free rate, and observable trading activity for the Company’s existing Notes.

For the market approach, the Company performed an evaluation of issuances of convertible debt securities by other comparable companies.

Additionally, a detailed analysis of the terms of the 2026 Notes was required to determine existence of any derivatives that may require separate mark-to-market accounting under applicable accounting guidance.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s Convertible Notes Transactions.

For example, we tested the Company’s controls over the initial recognition and measurement of the Convertible Notes Transactions, including the recording of the associated liability and equity components.

Our testing of the Company’s initial accounting for the Convertible Notes Transactions, among other procedures, included reading the underlying agreements and evaluating the Company’s accounting analysis of the initial accounting of the Convertible Notes Transactions, including the determination of the balance sheet classification of each transaction, identification of any derivatives included in the arrangements, and determination that the Second Partial Repurchase of 2023 Notes was a debt extinguishment.

Our testing of the fair value of the liability components of the 2026 Notes and the Second Partial Repurchase of 2023 Notes, included, among other procedures, evaluating the Company's selection of the valuation methodology and significant assumptions and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

Specifically, when assessing the key assumptions, we focused on the Company’s assumptions used to determine the risk adjusted yield as well as its analysis of comparable issuances of debt securities by other companies.

In addition, we involved a valuation specialist to assist in our evaluation of the significant assumptions and methodology used by the Company.

Acquisition of Auth0 – Fair value of technology and customer-related intangible assets

Description of the Matter As explained in Note 3 to the consolidated financial statements, the Company completed the acquisition of Auth0, a privately-held, Identity-as-a-Service company during fiscal 2022 for total consideration of $5.7 billion, which was accounted for as a business combination.

Auditing the Company's accounting for its acquisition of Auth0 was complex due to the significant estimation required in determining the fair value of developed technology and customer relationship intangible assets, which were valued and recorded at $172.0 million and $140.9 million, respectively.

The Company used discounted cash flow models to determine the value of developed technology and customer relationship intangible assets.

The significant estimation was primarily due to the judgmental nature of the inputs to the valuation model and the sensitivity of the fair value to certain significant underlying assumptions, in particular, the projections of future revenue, including the impact of obsolescence curves for developed technology assets, expected customer attrition rates and anticipated growth in revenue from acquired customers.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over its accounting for acquisitions, such as controls over the recognition and measurement of developed technology and customer relationships intangible assets, including the valuation model and underlying assumptions used to develop such estimates.

To test the estimated fair value of the developed technology and customer relationship intangible assets, our audit procedures included, among others, involvement of our valuation specialists to assist us in the evaluation of the valuation methodology used by the Company and procedures to test the assumptions used in the valuation, including the completeness and accuracy of the underlying data.

We compared the revenue forecast assumptions, including the impact of technology obsolescence curves, expected customer attrition rates and anticipated growth in revenue from acquired customers, to current industry, market and economic trends, and to historical results of the acquired business and the Company.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

San Francisco, California

San Jose, California

March 7, 2022

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Okta, Inc.

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of January 31, 2022, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Auth0, Inc.

which is included in the 2022 consolidated financial statements of the Company and constituted 2% of consolidated total assets and 11% of consolidated revenue for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Auth0, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows for each of the three years in the period ended January 31, 2022, and the related notes and our report dated March 7, 2022 expressed an unqualified opinion thereon.

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/s/ Ernst & Young LLP

San Francisco, California

San Jose, California

March 7, 2022

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Issuance of common stock for settlement of RSUs 1,716,222 — — — — — — —

Issuance of common stock pursuant to charitable donation 20,000 — — — 1,008 — — 1,008

Conversion of Class B common stock to Class A common stock 22,406,009 2 ( 22,406,009 ) ( 2 ) — — — —

Equity component of convertible senior notes, net of issuance costs — — — — 77,631 — — 77,631

Issuance of warrants related to convertible senior notes — — — — 52,440 — — 52,440

Purchases of hedges related to convertible senior notes — — — — ( 80,040 ) — — ( 80,040 )

Stock-based compensation — — — — 76,867 — — 76,867

Other comprehensive loss — — — — — ( 710 ) — ( 710 )

Net loss — — — — — — ( 125,497 ) ( 125,497 )

Balances as of January 31, 2019 101,093,322 10 11,059,181 1 744,896 ( 319 ) ( 492,211 ) 252,377

Issuance of common stock upon exercise of stock options and other activity, net 5,323,410 1 100,007 — 45,731 — — 45,732

Issuance of common stock under employee stock purchase plan 322,795 — — — 18,767 — — 18,767

Issuance of common stock for settlement of RSUs 1,716,222 — — — — — — —

Issuance of common stock for bonus settlement 34,600 — — — 2,809 — — 2,809

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Balances as of January 31, 2021 122,823,967 $ 12 8,159,447 $ 1 $ 1,656,096 $ 5,390 $ ( 967,456 ) $ 694,043

Issuance of common stock in connection with business combinations 19,190,297 2 — — 5,409,342 — — 5,409,344

Issuance of common stock in connection with business combinations subject to future vesting 1,269,008 — — — — — — —

Issuance of common stock upon exercise of stock options and other activity, net 2,552,466 1 1,673 — 53,534 — — 53,535

Issuance of common stock under employee stock purchase plan, net of cancellations 185,707 — — — 35,568 — — 35,568

Issuance of common stock for settlement of RSUs 2,294,313 — — — ( 13 ) — — ( 13 )

Issuance of common stock pursuant to charitable donation 30,000 — — — 7,238 — — 7,238

Conversion of Class B common stock to Class A common stock 1,182,628 — ( 1,182,628 ) — — — — —

Equity component of early extinguishment and conversion of convertible senior notes 475,915 — — — 20,776 — — 20,776

Proceeds from hedges related to convertible senior notes ( 380,088 ) — — — 2 — — 2

Stock-based compensation — — — — 567,173 — — 567,173

Other comprehensive income — — — — — ( 17,399 ) — ( 17,399 )

Net loss — — — — — — ( 848,411 ) ( 848,411 )

Balances as of January 31, 2022 149,624,213 $ 15 6,978,492 $ 1 $ 7,749,716 $ ( 12,009 ) $ ( 1,815,867 ) $ 5,921,856

See Notes to Consolidated Financial Statements.

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Loss on early extinguishment and conversion of debt 179 2,263 14,572

(Gain) loss on strategic investments ( 7,609 ) 628 ( 130 )

Other, net 1,051 4,909 119

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Purchases of property and equipment ( 12,310 ) ( 13,083 ) ( 15,442 )

Proceeds from sales of property and equipment — — 740

Purchases of securities available for sale and other ( 1,846,709 ) ( 2,029,030 ) ( 999,387 )

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Proceeds from sales of securities available for sale and other 229,798 206,129 27,271

Payments for business acquisitions, net of cash acquired ( 215,175 ) — ( 44,283 )

Purchase of intangible assets ( 113 ) ( 126 ) ( 8,589 )

Payments for business acquisition, net of cash acquired — ( 44,283 ) ( 15,632 )

Net cash used in investing activities ( 366,812 ) ( 1,305,146 ) ( 688,041 )

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Proceeds from issuance of convertible senior notes, net of issuance costs — 1,134,841 1,040,660

Payments for repurchases of convertible senior notes ( 446 ) ( 224,414 ) —

Purchases of hedges related to convertible senior notes — — ( 80,040 )

Payments for repurchases and conversions of convertible senior notes ( 26 ) ( 446 ) ( 224,414 )

Proceeds from hedges related to convertible senior notes 2 195,046 405,851

Proceeds from issuance of warrants related to convertible senior notes — — 52,440

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

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Non-cash investing and financing 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 126,144 307,910 380,406

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Operating lease right-of-use assets exchanged for lease liabilities 21,518 45,611 16,832

Property and equipment acquired through tenant improvement allowance 4,811 304 22,236

Property and equipment and other accrued but not yet paid 974 855 7,225

Issuance of common stock for bonus settlement — 9,818 2,809

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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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All intercompany balances and transactions have been eliminated in consolidation.

The consolidated financial statements include the results of operations for acquired businesses from their acquisition dates to January 31, 2022.

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 ended January 31, 2022.

Certain reclassifications of components of prior period operating cash flows have been made in the 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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Actual results could vary from those estimates.

The Company’s most significant estimates include the SSP for each distinct performance obligation included in customer contracts with multiple performance obligations, the determination of the period of benefit for deferred commissions, the determination of the effective interest rate of the liability components of its convertible senior notes, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation of deferred income tax assets and the valuation of acquired intangible assets.

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

The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the consolidated financial statements for the year ended January 31, 2021.

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

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which has spread across the globe.

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

Foreign Currency

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The Company determined the period of benefit by taking into consideration the terms of its customer contracts, its technology and other factors.

Sales commissions for renewal contracts (which are not considered commensurate with sales commissions for new revenue contracts and incremental sales to existing customers) are deferred and then amortized on a straight-line basis over the related

period of benefit, which is generally the related contract renewal term.

Amortization expense is included in sales and marketing expenses in the accompanying consolidated statements of operations.

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Short-Term Investments

The Company’s short-term investments comprise U.S.

The Company’s short-term investments comprise of U.S.

treasury securities and corporate debt securities.

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Realized gains and losses are determined based on the specific identification method and are reported in interest income and other, net in the consolidated statements of operations.

Strategic Investments

The Company's strategic investments consist of equity investments in privately held companies and are included in Other assets on the 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 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.

Accounts Receivable and Allowances

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

As of January 31, 2021, allowances include collectibility concerns stemming from business and market disruption caused by COVID-19 and may fluctuate materially in future periods as the duration and severity of the impact of the COVID-19 pandemic remains uncertain.

Property and Equipment

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The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets.

These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital and the cost savings expected to be derived from acquiring an asset.

These estimates are inherently uncertain and unpredictable.

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;

• 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.

The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company's preliminary estimates to goodwill provided that the Company is within the measurement period.

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.

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Goodwill is tested for impairment annually on November 1 st or more frequently if certain indicators are present.

Long-lived assets, such as property and equipment and finite-lived intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable.

Recoverability of assets to be held and used is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated.

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The Company does not assume renewals or early terminations of its leases unless it is reasonably certain to exercise these options at commencement and does not allocate consideration between lease and non-lease components.

For short-term leases, the Company records rent expense in its consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as incurred.

For leases with a lease term of 12 months or less ("short-term leases"), the Company records rent expense in its consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as incurred.

Convertible Senior Notes

The Company accounts for the issuance of convertible senior notes in accordance with FASB ASC Subtopic 470-20, Debt with Conversion and Other Options.

Pursuant to ASC Subtopic 470-20, as the Notes have a net settlement feature and may be settled wholly or partially in cash upon conversion, the Company is required to separately account for the liability (debt) and equity (conversion option) components of the instrument.

The Company accounts for the issuance of convertible senior notes in accordance with FASB ASC 470-20, Debt with Conversion and Other Options.

Pursuant to ASC 470-20, as the Notes have a net settlement feature and may be settled wholly or partially in cash upon conversion, the Company is required to separately account for the liability (debt) and equity (conversion option) components of the instrument.

The carrying amount of the liability component is computed by estimating the fair value of a similar liability without the conversion option using income and market-based approaches.

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In accounting for the issuance costs related to the Notes, the allocation of issuance costs incurred between the liability and equity components were based on their relative values.

Similarly, in accordance with ASC Subtopic 470-20, transactions involving contemporaneous exchanges of cash between the same debtor and creditor in connection with the issuance of a new debt obligation and satisfaction of an existing debt obligation by the debtor should be evaluated as a modification or an exchange transaction depending on whether the exchange is determined to have substantially different terms.

Similarly, in accordance with ASC 470-20, transactions involving contemporaneous exchanges of cash between the same debtor and creditor in connection with the issuance of a new debt obligation and satisfaction of an existing debt obligation by the debtor should be evaluated as a modification or an extinguishment depending on whether the exchange is determined to have substantially different terms.

When the exchange is deemed to have substantially different terms due to a significant difference between the value of the conversion option immediately prior to and after the exchange, the transaction is accounted for as a debt extinguishment.

Pursuant to ASC Subtopic 470-20, total consideration for the satisfaction of an existing debt obligation is separated into liability and equity components by estimating the fair value of a similar liability without a conversion option and assigning the residual value to the equity component.

Pursuant to ASC 470-20, total consideration for the satisfaction of an existing debt obligation is separated into liability and equity components by estimating the fair value of a similar liability without a conversion option and assigning the residual value to the equity component.

The effective interest rate used to estimate the fair value of the liability component is based on the income and market based approaches used to determine the effective interest rate of the new debt obligation, adjusted for the remaining tenor of the extinguished debt.

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The Company records a valuation allowance to reduce its deferred tax assets to the net amount that the Company believes is more likely than not to be realized.

In assessing the need for a valuation allowance, the Company has considered its historical levels of income, expectations of future taxable income and ongoing tax planning strategies.

Because of the uncertainty of the realization of the deferred tax assets, the Company has recorded a full valuation allowance against its deferred tax assets.

In assessing the need for a valuation allowance, the Company has considered all positive and negative evidence, including its historical levels of income, expectations of future taxable income and ongoing tax planning strategies.

Because of the uncertainty of the realization of the U.S.

deferred tax assets, the Company has recorded a full valuation allowance against its U.S.

deferred tax assets.

Realization of its deferred tax assets is dependent primarily upon future U.S.

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The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes.

The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.

The second step is to measure the tax benefit as the

largest amount that is more than 50% likely to be realized upon ultimate settlement.

Significant judgment is required to evaluate uncertain tax positions.

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As of January 31, 2022 and 2021 and for each of the three years ended January 31, 2022, no single customer represented greater than 10% of accounts receivable or greater than 10% of revenue, respectively.

In order to reduce the risk of downtime of the Company’s subscription services, the Company uses data center facilities operated by a third-party located in Virginia, Oregon, Ohio, Germany, Ireland, Singapore and Sydney.

The Company has internal procedures to restore services in the event of disaster at any of its current data center facilities.

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The diluted net loss per share attributable to common stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the period.

For purposes of this calculation, options to purchase common stock, unvested restricted stock units (RSUs) purchase rights issued under the 2017 Employee Stock Purchase Plan shares subject to repurchase from early exercised options, unvested common stock and restricted stock issued in connection with certain business combinations, convertible senior notes and warrants are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

Since the Company's IPO, Class A and Class B common stock are the only outstanding equity of the Company.

For purposes of this calculation, options to purchase common stock, unvested restricted stock units ("RSUs") purchase rights issued under the 2017 Employee Stock Purchase Plan shares subject to repurchase from early exercised options, unvested common stock and restricted stock issued in connection with certain business combinations, convertible senior notes and warrants are considered

common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

Since the Company's initial public offering, Class A and Class B common stock are the only outstanding equity of the Company.

The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion rights.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, which changes the existing incurred loss impairment model for financial assets held at amortized cost.

The new model uses a forward-looking expected loss method to calculate credit loss estimates.

ASU 2016-13 also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

These changes will result in earlier recognition of credit losses.

The Company adopted the requirements of ASU 2016-13 as of February 1, 2020 on a modified retrospective basis.

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

In August 2018, the FASB issued ASU No.

2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15), which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset.

The Company adopted the requirements of ASU 2018-15 as of February 1, 2020 on a prospective basis.

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

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12), as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes.

ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation and clarifies the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

The Company early adopted ASU 2019-12 as of February 1, 2020 on a

prospective basis.

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

See Note 15 for additional details.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU No.

In August 2020, the FASB issued Accounting Standards Update (“ASU”) No.

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

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Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium.

Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature-related balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes.

Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS), which is consistent with the Company’s accounting treatment under the current standard.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either a fully retrospective or modified retrospective basis.

The Company is currently evaluating the timing, method of adoption and overall impact of this standard on its consolidated financial statements.

Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, 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.

The Company will adopt ASU 2020-06 effective February 1, 2022, using the modified retrospective method.

In the consolidated balance sheets the adoption of the new standard is estimated to result in an increase of approximately $ 372 million to the total carrying value of the Company’s convertible senior notes, a decrease of approximately $ 527 million to additional paid-in capital and a cumulative-effect adjustment of approximately $ 155 million to the beginning balance of accumulated deficit as of February 1, 2022.

In October 2021, the FASB issued ASU No.

2021-08 Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers, in order to align the recognition of a contract liability with the definition of a performance obligation.

ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022, on a prospective basis, with early adoption permitted.

The Company has elected to early adopt this standard effective February 1, 2022, with no material impact to its consolidated financial statements and related disclosures.

Business Combinations

During the year ended year ended January 31, 2020, the Company completed a business combination for a purchase price of $ 44.2 million, net of $ 1.1 million in cash acquired.

The Company recorded $ 15.7 million for developed technology intangible assets with an estimated useful life of five years and recorded $ 29.9 million of goodwill which is primarily attributed to the assembled workforce as well as the integration of the acquired technology.

The Company incurred $ 3.0 million of acquisition-related costs, which were recorded as general and administrative expense in the quarter ended April 30, 2019.

The Company also entered into deferred compensation arrangements in connection with prior acquisitions totaling $ 10.8 million, of which $ 3.0 million was recognized as compensation during the year ended January 31, 2021.

The remaining deferred compensation balance is immaterial.

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

therefore, historical and proforma disclosures have not been presented.

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

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.

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 13 for further 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 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 and may be subject to change as additional information is received.

The primary areas that remain preliminary relate to the fair values of income and non-income-based taxes and residual goodwill.

The Company expects to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.

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

Estimated Fair Value

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 5,201

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 ( 11,341 )

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 Estimated

(in years) Amount

Developed technology 5 years

Customer relationships 2 - 6 years

Trade name 5 years

Total identifiable intangible assets $ 334,300

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 January 31, 2022 are as follows (in thousands):

For the period

January 31, 2022

Revenue $ 139,679

Net loss ( 385,302 )

The unaudited pro forma consolidated revenue and earnings for the year ended January 31, 2022 and 2021, calculated as if Auth0 had been acquired as of February 1, 2020 are as follows (in thousands):

Pro Forma Consolidated Statement of Operations Data

Year Ended January 31,

Revenue $ 1,349,779 $ 944,782

Net loss ( 846,694 ) ( 690,482 )

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 the 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.

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 Company 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 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 primarily relating to income and non-income based taxes and residual goodwill through the measurement period.

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

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

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

Cash Equivalents and Investments

Cash Equivalents and Short-term Investments

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

treasury securities 19,996 — — 19,996

Total cash equivalents 311,257 — — 311,257

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Total $ 2,253,394 $ 2,241,657

As of January 31, 2021 and 2020, the Company included $ 31.0 million and nil , respectively, of unsettled maturities of short-term investments in Prepaid expenses and other current assets.

The Company included $ 10.5 million and $ 5.7 million of interest receivable in Prepaid expenses and other current assets as of January 31, 2021 and 2020, respectively.

As of January 31, 2022 and 2021, the Company included nil of unsettled purchases of short-term investments in Accrued expenses and other current liabilities on the 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 consolidated balance sheets.

The Company included $ 6.0 million and $ 10.5 million of interest receivable in Prepaid expenses and other current assets on the consolidated balance sheets as of January 31, 2022 and 2021, respectively.

The Company did not recognize an allowance for credit losses against interest receivable as of January 31, 2022 and 2021 because such potential losses were not material.

The following table presents the fair values and unrealized losses related to our investments in available-for-sale debt securities classified by length of time that the securities have been in a continuous unrealized loss position as of January 31, 2022 (in thousands):

Less Than 12 Months More Than 12 Months Total

Estimated Fair Value

treasury securities 1,801,985 ( 10,166 ) — — 1,801,985 ( 10,166 )

Corporate debt securities 319,767 ( 1,581 ) — — 319,767 ( 1,581 )

Total 2,121,752 ( 11,747 ) — — 2,121,752 ( 11,747 )

The Company had 193 and 10 short-term investments in unrealized loss positions as of January 31, 2022 and 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 years ended January 31, 2021, 2020 and 2019.

For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) the Company has the intention to sell any of these investments, (ii) it is not more likely than not that the Company will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis

and (iii) the decline in the fair value of the investment is due to credit or non-credit related factors.

There were no material unrealized gains or losses from available-for-sale securities for the year ended January 31, 2020.

There were no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income for the years ended January 31, 2022, 2021 and 2020.

Based on this evaluation, the Company determined that for short-term investments, there were no material credit or non-credit related impairments as of January 31, 2022 and 2021.

Strategic Investments

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

As of January 31, 2022 and 2021, the balances of such strategic investments were $ 15.3 million and $ 3.1 million, respectively.

During the year ended January 31, 2022, the Company recorded $ 7.6 million of realized gains and unrealized adjustments in the carrying values of strategic investments.

Realized gains and losses and unrealized adjustments recognized during the years ended January 31, 2021 and 2020 were immaterial.

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

Fair Value Measurements

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

treasury securities — 19,996 — 19,996

Total cash equivalents 311,257 — — 311,257

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Fair Value Measurements of Other Financial Instruments

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

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 consolidated balance sheets (in thousands):

As of January 31, 2022

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The principal amounts of the 2023 Notes, the 2025 Notes and the 2026 Notes are $ 17.2 million, $ 1,060.0 million and $ 1,150.0 million, respectively.

The difference between the principal amounts of the 2023 Notes, the 2025 Notes and the 2026 Notes and the respective net carrying amounts before unamortized debt issuance costs represents the unamortized debt discount (See Note 9 for additional details).

The 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 Level 2 financial instruments, were determined based on the quoted bid prices of the Notes in an over-the-counter market on the last trading day of the reporting period.

As of January 31, 2022, the difference between the net carrying amount of the Notes and their estimated fair values represented the equity conversion value premium the market assigned to the Notes.

Based on the closing price of our common stock of $ 259.01 on January 31, 2021, the if-converted value of the 2023 Notes, 2025 Notes and 2026 Notes exceeded the principal amount of $ 40.2 million, $ 1,060.0 million and $ 1,150.0 million, respectively .

Based on the closing price of the Company's common stock of $ 197.89 on January 31, 2022, the if-converted values of the 2023 Notes and 2025 Notes exceeded the principal amounts of $ 17.2 million and $ 1,060.0 million by $ 53.3 million and $ 51.6 million, respectively.

The if-converted value of the 2026 Notes was less than the principal amount of $ 1,150.0 million.

Goodwill and Intangible Assets, net

As of January 31, 2021 and 2020, goodwill was $ 48.0 million.

During the year ended January 31, 2020, the Company recorded $ 29.9 million of goodwill in connection with a business combination that was completed in March 2019.

As of January 31, 2022 and 2021, goodwill was $ 5,401.3 million and $ 48.0 million, respectively.

During the year ended January 31, 2022, 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 years ended January 31, 2022, 2021 and 2020.

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As of January 31, 2022

Gross Accumulated Amortization Write-offs Net

Gross Accumulated Amortization Net

Capitalized internal-use software costs $ 36,319 $ ( 24,170 ) $ 12,149

Purchased developed technology 219,100 ( 47,085 ) 172,015

Customer relationships 140,900 ( 26,399 ) 114,501

Trade name 21,400 ( 3,210 ) 18,190

Software licenses 116 ( 3 ) 113

1 unchanged sentence

As of January 31, 2021

Gross Accumulated Amortization Write-offs Net

Gross Accumulated Amortization Net

Capitalized internal-use software costs $ 30,259 $ ( 19,478 ) $ 10,781

2 unchanged sentences

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

The Company capitalized $ 5.5 million and $ 5.1 million of internal-use software costs during the years ended January 31, 2021 and 2020, respectively.

During the year ended January 31, 2020, the Company recorded $ 24.2 million of purchased developed technology in connection with a business combination and an asset acquisition.

The remaining weighted-average useful life of all purchased developed technology was 3.1 years and 3.9 years as of January 31, 2021, and 2020, respectively.

Amortization expense of intangible assets for the years ended January 31, 2021, 2020 and 2019 was $ 11.1 million, $ 10.6 million, and $ 5.8 million, respectively.

During the year ended January 31, 2022, 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.

The weighted-average remaining useful lives of the Company’s acquired intangible assets are as follows:

Weighted-Average Remaining Useful Life

As of January 31,

Purchased developed technology 4.0 years 3.1 years

Customer relationships 4.0 years —

Trade name 4.3 years —

As of January 31, 2022, estimated remaining amortization expense for the intangible assets by fiscal year was as follows (in thousands):

1 unchanged sentence

2023 $ 90,221

Thereafter 1,383

Total $ 316,968

Amortization expense of intangible assets for the years ended January 31, 2022, 2021 and 2020 was $ 69.0 million, $ 11.1 million, and $ 10.6 million, respectively.

Balance Sheet Components

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Transaction Price Allocated to the Remaining Performance Obligations

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

As of January 31, 2021, total remaining non-cancellable performance obligations under the Company’s subscription contracts with customers was approximately $ 1,796.9 million.

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 January 31, 2022, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 2,694.3 million.

Of this amount, the Company expects to recognize revenue of approximately $ 1,350.5 million, or 50 %, over the next 12 months, with the balance to be recognized as revenue thereafter.

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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.

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.

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.

12 unchanged sentences

As a result, the 2023 Notes are convertible at the option of the holders during the fiscal quarter ending April 30, 2022 and were classified as current liabilities on the consolidated balance sheet as of January 31, 2022.

During the year ended January 31, 2021, the Company paid approximately $ 0.3 million in cash and issued approximately 0.2 million shares of Class A common stock to settle approximately $ 10.4 million principal amount of 2023 Notes (not in connection with the Second Partial Repurchase of the 2023 Notes).

During the year ended January 31, 2022, 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 fourth quarter of fiscal 2021, the Company received additional conversion requests, and approximately $ 4.3 million aggregate principal amount of the 2023 Notes were primarily settled in shares of Class A common stock in the first quarter of fiscal 2022.

In addition, subsequent to January 31, 2021, the Company received conversion requests for approximately $ 3.2 million aggregate principal amount of the 2023 Notes.

Subsequent to January 31, 2022, the Company received conversion requests for approximately $ 2.0 million aggregate principal amount of the 2023 Notes.

Holders of the 2023 Notes who convert their 2023 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2023 Indenture) are, under certain circumstances, entitled to an increase in the conversion rate.

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The amount paid for the Note Hedges was recorded as a reduction to Additional paid-in capital in the consolidated balance sheets.

4.6 million and 1.4 million shares for cash proceeds of $ 405.9 million and $ 195.0 million, respectively.

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 consolidated balance sheets.

During the year ended January 31, 2021, the Company exercised and net-share-settled a portion of the Note Hedges, corresponding to approximately $ 10.4 million principal amount of 2023 Notes and received approximately 0.2 million shares of Class A common stock and an immaterial cash payment.

During the year ended January 31, 2022, 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 January 31, 2022, Note Hedges giving the Company the option to purchase approximately 0.4 million shares (subject to adjustment) remained outstanding.

14 unchanged sentences

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.

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.

1 unchanged sentence

• 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;

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;

• 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;

1 unchanged sentence

On or after June 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2025 Notes regardless of the foregoing circumstances.

For at least 20 trading days during the period of 30 consecutive trading days ended January 31, 2021, the last reported sale price of the Company’s common stock was equal to or exceeded 130 % of the conversion price of the 2025 Notes on each applicable trading day.

As a result, the 2025 Notes are convertible at the option of the holders during the fiscal quarter ending April 31, 2021 and were classified as current liabilities on the consolidated balance sheet as of January 31, 2021.

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

During the three months ended January 31, 2022, the conditions allowing holders of the 2025 Notes to convert during the three months ending April 30, 2022 were not met, and as a result, the 2025 Notes were classified as noncurrent liabilities as of January 31, 2022.

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.

6 unchanged sentences

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):

The following table sets forth

total interest expense recognized related to the 2025 Notes (in thousands):

Year Ended January 31,

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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 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").

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 2026 Indenture.

Prior to the close of business on the business day immediately preceding March 15, 2026, holders of the 2026 Notes may convert all or a portion of their 2026 Notes only in multiples of $1,000 principal amount, under the following circumstances:

• during any fiscal quarter commencing after the fiscal quarter ending on October 31, 2020 (and only during such fiscal quarter), if the last reported sale price of our Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2026 Notes on each applicable trading day;

• during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of our Class A common stock and the conversion rate on such trading day;

• during any fiscal quarter commencing after the fiscal quarter ending on October 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company's Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2026 Notes on each applicable trading day;

• during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of the Company's Class A common stock and the conversion rate on such trading day;

• if the Company calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date;

1 unchanged sentence

On or after March 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2026 Notes regardless of the foregoing circumstances.

During the year ended January 31, 2021, the conditions allowing holders of the 2026 Notes to convert were not met.

The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on or after June 20, 2023, if the last reported sale price of the Company’s Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on and including the trading day preceding the date on which we provide notice of redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

During the year ended January 31, 2022, 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 January 31, 2022.

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 year ended January 31, 2022, the Company did no t redeem any of the 2026 Notes.

5 unchanged sentences

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):

January 31, 2021

The following table sets forth total interest expense recognized related to the 2026

Notes (in thousands):

Year Ended January 31,

Contractual interest expense $ 4,313 $ 2,731

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

The Company has entered into various non-cancellable office space operating leases with original lease periods expiring between 2021 and 2028.

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.

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

The weighted-average remaining term of the Company’s operating leases was 6.8 and 7.9 years and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.6 % and 5.7 % as of January 31, 2021 and January 31, 2020, respectively.

Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of January 31, 2021 were as follows (in thousands):

Operating Leases

2022 $ 34,410

The weighted-average remaining term of the Company’s operating leases was 5.9 years and 6.8 years as of January 31, 2022 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 % as of January 31, 2022 and January 31, 2021, respectively.

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

As of January 31, 2022

Thereafter 53,502

1 unchanged sentence

Less imputed interest ( 37,633 )

Less tenant improvement allowances not yet incurred ( 2,454 )

Total operating lease liabilities $ 197,131

Cash payments included in the measurement of the Company’s operating lease liabilities were $ 39.6 million and $ 31.1 million for the years ended January 31, 2022 and January 31, 2021, respectively.

The Company recorded an impairment charge for operating lease right-of-use assets of $ 3.1 million and nil for the years ended January 31, 2021 and January 31, 2020, respectively.

As of January 31, 2022, the Company has $ 9.9 million of undiscounted future payments under new operating lease arrangements that have not yet commenced, which is excluded from the table above.

These operating leases will commence in fiscal 2023 and have lease terms of 1.2 to 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 $ 11.2 million and $ 11.9 million were issued and outstanding as of January 31, 2021 and 2020, respectively.

In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $ 8.6 million and $ 11.2 million were issued and outstanding as of January 31, 2022 and January 31, 2021, respectively.

No draws have been made under such letters of credit.

Noncurrent restricted cash of $ 6.4 million and

$ 8.6 million associated with these letters of credit is included in Other assets on the consolidated balance sheets as of January 31, 2022 and January 31, 2021, respectively.

Purchase Obligations

1 unchanged sentence

Purchase Obligations

2022 $ 53,992

Total contractual obligations $ 126,651

6 unchanged sentences

Furthermore, the Company may also incur liabilities if it breaches the security or confidentiality obligations in its arrangements.

To date, the Company has not incurred significant costs and has not accrued a liability in the accompanying consolidated financial statements as a result of these obligations.

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

The Company has entered into service-level agreements with a majority of its customers defining levels of uptime reliability and performance and permitting certain customers to receive credits for paid amounts related to subscription services when the Company fails to meet the defined levels of uptime.

In very limited instances, the Company allows customers to early terminate their agreements in the event that the Company fails to meet those

levels as they may constitute a breach of contract.

In very limited instances, the Company allows customers to early terminate their agreements in the event that the Company fails to meet those levels as they may constitute a breach of contract.

If the customer did terminate, they would receive a refund of prepaid unused subscription fees.

To date, the Company has not experienced any significant failures to meet defined levels of uptime reliability and performance as a result of those agreements and, as a result, the Company has not accrued any liabilities related to these agreements in the consolidated financial statements.

To date, the Company has not experienced any significant failures to meet defined levels of uptime reliability and performance as a result of those agreements and, as a result, the Company has not incurred significant costs and has not accrued any material liabilities in the accompanying consolidated financial statements as a result of these warranties.

Common Stock and Stockholders' Equity

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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.

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The intrinsic value of the options exercised, which represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option, was $ 544.8 million, $ 772.3 million and $ 558.6 million for the years ended January 31, 2022, 2021 and 2020, respectively.

As of January 31, 2021 and January 31, 2020, there was a total of $ 31.1 million and $ 28.2 million, respectively, of unrecognized stock-based compensation expense related to options, which was being recognized over a weighted-average period of 1.4 years.

As of January 31, 2022 and January 31, 2021, there was a total of $ 209.6 million and $ 31.1 million, respectively, of unrecognized stock-based compensation expense related to options, which is being recognized over a weighted-average period of 2.4 years.

The Company used the Black-Scholes option pricing model to estimate the fair value of stock options granted with the following assumptions:

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Restricted Stock Units

A summary of the Company’s RSU activities and related information is as follows:

A summary of the Company’s RSU activity and related information was as follows:

RSUs Weighted-

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The Company granted 5,110,925 RSUs with an aggregate fair value of $ 1,209.1 million for the year ended January 31, 2022.

As of January 31, 2021, there was $ 502.8 million of unrecognized stock-based compensation expense related to unvested RSUs, which is being recognized over a weighted-average period of 2.5 years based on vesting under the award service conditions.

As of January 31, 2022 and 2021, there was a total of $ 1,152.3 million and $ 502.8 million, respectively, of unrecognized stock-based compensation expense related to unvested RSUs, which is being recognized over a weighted-average period of 2.9 years, based on vesting under the award service conditions.

The total fair value of RSUs vested during fiscal 2022, 2021 and 2020 was $ 531.4 million, $ 410.4 million and $ 193.9 million, respectively.

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 January 31, 2022, there was $ 257.0 million of unrecognized stock-based compensation expense related to unvested restricted shares, which is being recognized over a weighted-average period of 2.3 years based on vesting under the award service conditions.

Employee Stock Purchase Plan

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During the year ended January 31, 2022, the Company's employees purchased 185,707 shares of its Class A common stock under the ESPP.

The shares were purchased at a weighted-average purchase price of $ 104.84 , with proceeds of $ 25.9 million.

The shares were purchased at a weighted-average purchase price of $ 191.54 per share, with proceeds of $ 35.6 million.

During the year ended January 31, 2021, the Company's employees purchased 247,142 shares of its Class A common stock under the ESPP.

The shares were purchased at a weighted-average purchase price of $ 58.14 with proceeds of $ 18.8 million.

As of January 31, 2021, there was $ 10.1 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over an average vesting period of 0.9 years.

The shares were purchased at a weighted-average purchase price of $ 104.84 per share, with proceeds of $ 25.9 million.

As of January 31, 2022 and January 31, 2021, there was $ 16.5 million and $ 10.1 million, respectively, of unrecognized stock-based compensation expense related to the ESPP which is being recognized over a weighted-average vesting period of 0.7 years.

The domestic and foreign components of pre-tax loss for the years ended January 31, 2022, 2021 and 2020 were as follows (in thousands):

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Total provision for (benefit from) income taxes $ ( 1,285 ) $ 141 $ ( 1,419 )

For the tax year ended January 31, 2021, the income tax expense from profitable jurisdictions was partially offset by the excess tax benefits from stock-based compensation in the United Kingdom.

For the tax year ended January 31, 2020 the income tax benefit resulted from the release of valuation allowance in the United States in connection with an acquisition and excess tax benefits from stock-based compensation in the United Kingdom.

For the tax year ended January 31, 2022, the income tax benefit resulted from the release of valuation allowance in the United States in connection with acquisitions and excess tax benefits from stock-based compensation in the United Kingdom, offset by income tax expense related to profitable foreign jurisdictions.

For the tax year ended January 31, 2021, the income tax expense from profitable jurisdictions was partially offset by excess tax benefits from stock-based compensation in the United Kingdom.

For the tax year ended January 31, 2020, the income tax benefit resulted from the release of valuation allowance in the United States in connection with an acquisition and excess tax benefits from stock-based compensation in the United Kingdom.

The income tax expense and benefits in the years ended January 31, 2021, 2020 and 2019 were partially offset by foreign income taxes, state taxes and tax amortization of goodwill.

These income tax benefits and expense in these years were partially offset by foreign income taxes, state taxes and tax amortization of goodwill.

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended January 31, 2022, 2021 and 2020:

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deferred tax assets, net of U.S.

deferred tax liabilities, to approximately zero.

deferred tax liabilities.

valuation allowance increased by $ 349.0 million and $ 193.6 million during the years ended January 31, 2022 and 2021, respectively.

As of January 31, 2022, the Company had approximately $ 3,783.5 million of federal and $ 2,254.3 million of state net operating loss carryforwards available to offset future taxable income.

If not used, the federal and state net operating loss carryforwards will begin to expire in 2029 and 2022, respectively.

If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2029 and 2023, respectively.

As of January 31, 2022, the Company had approximately $ 64.7 million of UK net operating losses which do not expire.

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The federal research and development credits will start to expire in 2030 while the California research and development credits do not expire.

The Company also had California Enterprise Zone credits of $ 1.0 million that begin to expire in 2023.

The Company’s ability to use the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws.

The Company attributes net revenue, costs and expenses to domestic and foreign components based on the terms of its agreements with its subsidiaries.

The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are to be reinvested offshore indefinitely.

If the Company repatriated these earnings, the resulting income tax liability would be insignificant.

The Company’s ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws.

Accounting guidance for income taxes requires a deferred tax liability to be established for the U.S.

tax impact of undistributed earnings of foreign subsidiaries unless it can be shown that these earnings will be permanently reinvested outside the U.S.

If the Company repatriated its accumulated foreign earnings, any deferred income taxes for the estimated U.S.

income tax, foreign income tax, and applicable withholding taxes on earnings of subsidiaries is insignificant.

The Company is subject to taxation in the United States and various states and foreign jurisdictions.

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits.

The Company does not expect there to be a material tax impact on its consolidated financial statements at this time, and will continue to assess the implications of the CARES Act and its continuing developments and interpretations.

The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future use of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits.

The CARES Act did not have a material impact on the consolidated financial statements.

A reconciliation of beginning and ending amount of unrecognized tax benefit was as follows (in thousands):

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For material foreign jurisdictions, the tax years open to examination include the tax years 2016 and forward.

As of January 31, 2021, 2020 and 2019, the Company had unrecognized tax benefits which would not impact the effective tax rate because of the valuation allowance.

As of January 31, 2022, the Company has an immaterial amount of unrecognized tax benefits that if recognized would impact the effective tax rate.

As of January 31, 2021 and 2020, the Company had no unrecognized tax benefits that if recognized would impact the effective tax rate.

The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes.

The Company did not have any uncertain tax positions as of January 31, 2021 for which it was reasonably possible that the positions will increase or decrease within the next twelve months.

As of January 31, 2021 and 2020, the Company had no t accrued any interest or penalties related to unrecognized tax benefits.

As of January 31, 2022, 2021 and 2020 the Company has not accrued a material amount in interest and penalties related to unrecognized tax benefits.

The Company does not have any significant uncertain tax positions as of January 31, 2022 for which it is reasonably possible that the positions will increase or decrease within the next twelve months.

Net Loss Per Share

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Unvested shares subject to repurchase — — 5

Unvested restricted common stock issued and outstanding — — 400

Shares committed under the ESPP 253 137 253

Shares related to 2023 Notes 832 2,494 7,134

Shares subject to warrants related to the issuance of 2023 Notes 1,048 2,494 —

Shares related to 2025 Notes 5,617 5,617 —

Shares related to 2026 Notes 4,820 — —

Shares related to the 2023 Notes 356 832 2,494

Shares subject to warrants related to the issuance of the 2023 Notes 1,048 1,048 2,494

Shares related to the 2025 Notes 5,617 5,617 5,617

Shares related to the 2026 Notes 4,820 4,820 —

27,573 25,156 28,292

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

Subsequent Events

On March 3, 2021, the Company entered into a definitive agreement to acquire Auth0, an identity management platform, pursuant to the Merger Agreement.

Upon consummation of the transaction contemplated by the Merger Agreement, all outstanding shares of Auth0 capital stock, options, warrants, convertible securities, phantom equity and other outstanding equity interests will be cancelled in exchange for aggregate consideration of $ 6.5 billion in the form of shares of Class A common stock of the Company and assumed awards of corresponding Company equity interests, subject to customary purchase price adjustments and certain customary cash payouts in lieu of shares of Company Class A common stock, as provided by the Merger Agreement.

The purchase price payable in shares of Class A common stock will be valued at $ 276.2147 per share (which price was calculated based on the daily volume-weighted average sales price per share of Company Class A common stock for the 20 trading days ending on February 26, 2021).

The per share price of these shares has been fixed as of the Merger Agreement signing date, and the aggregate value of these shares will fluctuate based on changes in our share price between the signing and closing dates.

The proposed transaction is expected to close during the Company’s second quarter of fiscal 2022, the quarter ending July 31, 2021.

The closing of this transaction is subject to certain customary closing conditions and approvals.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data