What changed in this filing

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Item 1. Financial Statements

2022-06-03 compared with 2021-12-02 · 227 added, 358 removed, 475 unchanged (55% of the section changed)

Financial Statements (unaudited)

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

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

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

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

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

Condensed Consolidated Balance Sheets as of April 30, 2022 and January 31, 2022

Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2022 and 2021

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2022 and 2021

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended April 30, 2022 and 2021

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2022 and 2021

Notes to Condensed Consolidated Financial Statements

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook, product development, business strategy, plans, market trends, opportunities, positioning, and the anticipated impact on our business of the COVID-19 pandemic, related public health measures and any associated economic downturn.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook, product development, business strategy, plans, market trends, opportunities, positioning, the anticipated impact on our business of the COVID-19 pandemic and related public health measures, and the macroeconomic environment.

These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management.

Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” “shall” and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements, although not all forward-looking statements include these identifying words.

The forward-looking statements are contained principally in “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and “Risk Factors.”

The forward-looking statements are contained principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.”

Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about:

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

• the impact of macroeconomic conditions, including the inflation and interest environment, and political, economic and social instability;

• trends in our key business metrics;

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(In thousands, except per share data)

October 31, 2021 January 31, 2021

April 30, 2022 January 31, 2022

Current assets:

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100,000 shares authorized;

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

no shares issued and outstanding as of April 30, 2022 and January 31, 2022

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

1,000,000 shares authorized;

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

150,751 and 149,624 shares issued and outstanding as of April 30, 2022 and January 31, 2022, respectively

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

120,000 shares authorized;

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

6,976 and 6,978 shares issued and outstanding as of April 30, 2022 and January 31, 2022, respectively

Additional paid-in capital 7,411,550 7,749,716

Accumulated other comprehensive income 404 5,390

Accumulated other comprehensive loss ( 36,148 ) ( 12,009 )

Accumulated deficit ( 1,902,724 ) ( 1,815,867 )

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Subscription $ 397,941 $ 240,058

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Interest income and other, net 1,704 4,355

Loss on early extinguishment and conversion of debt — ( 89 ) ( 179 ) ( 2,263 )

Loss on conversion of debt — ( 136 )

Interest and other, net ( 1,164 ) ( 18,541 )

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

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

Loss before provision for income taxes ( 240,853 ) ( 109,222 )

Provision for income taxes 1,860 10

Net loss $ ( 242,713 ) $ ( 109,232 )

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Net loss $ ( 242,713 ) $ ( 109,232 )

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Common stock and additional paid-in capital:

Balance, beginning of period $ 7,749,732 $ 1,656,109

Issuance of common stock and value of equity awards assumed in connection with business combination — — 5,409,344 —

Adjustments from adoption of ASU 2020-06 ( 527,444 ) —

Issuance of common stock upon exercise of stock options and other activity, net 6,767 18,214

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

Stock-based compensation 170,577 64,112

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

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

Settlement of convertible senior notes 11,934 15,420

Proceeds from hedges related to convertible senior notes — 1

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

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

Balance, end of period 7,411,566 1,753,856

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Balance, beginning of period ( 1,815,867 ) ( 967,456 )

Adjustments from adoption of ASU 2020-06 155,856 —

Net loss ( 242,713 ) ( 109,232 )

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(In thousands)

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

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Non-cash charitable contributions 1,381 2,024

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

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

Loss on conversion of debt — 136

Gain on strategic investments ( 1,380 ) ( 2,895 )

Other, net ( 648 ) ( 909 )

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Proceeds from maturities and redemption of securities available for sale 231,314 344,820

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

Purchases of intangible assets ( 1,040 ) ( 113 )

Payments for business acquisitions, net of cash acquired ( 3,970 ) —

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

Net cash provided by (used in) investing activities ( 88,342 ) 151,905

Cash flows from financing activities:

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

Payments for repurchases and conversions of convertible senior notes ( 26 ) ( 447 )

Payments for conversions of convertible senior notes ( 4 ) ( 12 )

Proceeds from hedges related to convertible senior notes — 1

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

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

Proceeds from stock option exercises 5,386 16,190

Proceeds from shares issued in connection with employee stock purchase plan 17,417 12,821

Net cash provided by financing activities 5,382 16,179

Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash ( 4,041 ) 647

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

Net increase (decrease) in cash, cash equivalents and restricted cash ( 68,170 ) 224,806

Cash, cash equivalents and restricted cash at beginning of period 272,656 448,630

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Non-cash activities:

Issuance of common stock and value of equity awards assumed in connection with business combination 5,409,344 —

Issuance of common stock for repurchases and conversions of convertible senior notes 126,144 307,910

Issuance of common stock for conversions of convertible senior notes 39,564 94,308

Benefit from exercise of hedges related to convertible senior notes 4,525 30,623

Common stock issued as charitable contribution 1,381 2,024

Operating lease right-of-use assets exchanged for lease liabilities 3,679 828

Issuance of common stock for bonus settlement — 9,818

Reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows above:

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The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the results of operations for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending January 31, 2023 or any future period.

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

See Note 3 for additional details.

The Company’s fiscal year ends on January 31.

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Actual results could vary from those estimates.

The Company’s most significant estimates include the stand alone selling price (“SSP”) for each distinct performance obligation included in customer contracts with multiple performance obligations, the determination of the period of benefit for deferred commissions, the determination of the effective interest rate of the liability components of its convertible senior notes, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation of deferred income tax assets, the valuation of goodwill and acquired intangible assets and their useful lives and the valuation of certain equity awards assumed.

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

The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the condensed consolidated financial statements for the three and nine months ended October 31, 2021 and 2020.

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

The Company’s most significant estimates include the stand-alone selling price (“SSP”) for each distinct performance obligation included in customer contracts with multiple performance obligations, the determination of the period of benefit for deferred commissions, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation of deferred income tax assets, the valuation of goodwill and acquired intangible assets and their useful lives and the valuation of certain equity awards assumed.

Accounting Standards and Significant Accounting Policies

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Financial Statements and Supplementary Data of its Form 10-K for the fiscal year ended January 31, 2022.

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

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

Business Combinations

When the Company acquires a business, the purchase price is allocated to the net tangible and identifiable intangible assets acquired based on their estimated fair values.

Any residual purchase price is recorded as goodwill.

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

These estimates can include, but are not limited to:

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

• person hours required in recreating certain acquired technologies;

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

• royalty rates applied to acquired developed technology platforms and other intangible assets;

• obsolescence curves and other useful life assumptions, such as the period of time and intended use of acquired intangible assets in the Company’s product offerings;

• discount rates;

• uncertain tax positions and tax-related valuation allowances;

• fair value of assumed equity awards.

These estimates are inherently uncertain and unpredictable, and unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

Strategic Investments

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

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

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

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

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

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

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

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

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

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

Recent Accounting Pronouncements Not Yet Adopted

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

The Company no longer considers the accounting policy for its convertible senior notes to be a significant accounting policy due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No.

2020-06 effective February 1, 2022, which simplified the accounting for convertible instruments.

There have been no other significant changes to the Company’s significant accounting policies for the three months ended April 30, 2022.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued 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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Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument.

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

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

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

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

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

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 Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium.

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 prior to the adoption of ASU 2020-06.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021.

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

The Company recognized a cumulative effect of initially applying the ASU as an adjustment to the February 1, 2022 opening balance of accumulated deficit.

Due to the elimination of the equity conversion component of the Company’s convertible senior notes outstanding as of February 1, 2022, additional paid-in capital was reduced.

The elimination of the equity conversion component had the effect of increasing the Company’s net debt balance.

The reduction of other liabilities is related to changes to the Company’s deferred tax liabilities.

The prior period condensed consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

The adoption of ASU 2020-06 resulted in the following changes to the Company’s February 1, 2022 condensed consolidated balance sheet (in thousands):

Balance at January 31, 2022 Adjustments from Adoption of ASU 2020-06 Balance at February 1, 2022

Convertible senior notes, net $ 16,194 $ 927 $ 17,121

Convertible senior notes, net, noncurrent 1,815,714 371,527 2,187,241

Other liabilities, noncurrent 31,775 ( 866 ) 30,909

Stockholders’ equity

Additional paid-in capital 7,749,716 ( 527,444 ) 7,222,272

Accumulated deficit ( 1,815,867 ) 155,856 ( 1,660,011 )

The impact of adoption on the condensed consolidated statement of operations for the three months ended April 30, 2022 was to decrease net interest expense by approximately $ 20.8 million.

This had the effect of decreasing basic and diluted net loss per share for the three months ended April 30, 2022 by $ 0.13 .

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, 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, primarily in order to align the recognition of a contract liability with the definition of a performance obligation.

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

The Company adopted this standard effective February 1, 2022 on a prospective basis.

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

In May 2021, the FASB issued ASU No.

2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

The ASU addresses the previous lack of specific guidance in the accounting standards codification related to modifications or exchanges of freestanding equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios.

The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for any periods after issuance to be applied as of the beginning of the fiscal year that includes the interim period.

The Company adopted this standard effective February 1, 2022 on a prospective basis.

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

Business Combinations

Acquisition of Auth0

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

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

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

On May 3, 2021, the Company acquired all outstanding shares of privately-held Auth0, Inc.

(“Auth0”), an Identity-as-a-Service company.

Total consideration transferred for Auth0 was $ 5,671.0 million, including approximately 19.2 million shares of common stock valued at $ 5,175.6 million, cash of $ 257.0 million, and assumed outstanding equity awards with vested fair value of $ 238.4 million.

Cash consideration of $ 3.8 million and approximately 1.1 million shares valued at $ 294.6 million were 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 cash consideration held back was paid in full during the three months ended April 30, 2022.

The Company incurred $ 29.0 million of acquisition-related costs, which were recorded as general and administrative expenses in its condensed consolidated statement of operations for the three months ended July 31, 2021.

The transaction was accounted for as a business combination.

The total purchase price of $ 5,671.0 million was allocated using information currently available to the Company.

As a result, the Company may continue to adjust the preliminary purchase price allocation after obtaining more information regarding asset valuations, liabilities assumed, and revisions of preliminary estimates.

Preliminary allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values is as follows (in thousands):

Estimated Fair Value

Cash and cash equivalents $ 107,425

Accounts receivable 28,572

Prepaid expenses and other current assets 12,748

Property and equipment, net 1,928

Operating lease right-of-use assets 6,873

Other assets 6,375

Intangible assets 334,300

Accounts payable ( 3,610 )

Accrued expenses and other current liabilities ( 10,946 )

Accrued compensation ( 19,187 )

Deferred revenue ( 65,339 )

Operating lease liabilities, noncurrent ( 5,694 )

Other liabilities, noncurrent ( 12,515 )

Net assets acquired $ 380,930

The excess of purchase consideration over the fair value of the net tangible assets and identifiable intangible assets acquired was $ 5,290.1 million and was recorded as goodwill, which is primarily attributable to expected synergies in sales opportunities across complementary products, customers and geographies, cross-selling opportunities, and improvements in the selling process.

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

federal income tax purposes.

The estimated useful lives and fair values of the identifiable intangible assets are as follows (in thousands):

Preliminary Estimate

(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 October 31, 2021 are as follows (in thousands):

Three Months Ended For the period

October 31, 2021

Revenue $ 45,985 $ 83,591

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

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

Pro Forma Consolidated Statement of Operations Data

Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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

Net loss ( 206,977 ) ( 171,405 ) ( 621,546 ) ( 517,805 )

The pro forma financial information for all periods presented above has been calculated after adjusting the results of Auth0 to reflect certain business combination and one-time accounting effects such as fair value adjustment of deferred revenue, amortization expense from acquired intangible assets, stock-based compensation expense for unvested equity awards assumed, deferred commissions, release of deferred tax asset valuation allowance and acquisition costs as though the acquisition occurred as of the beginning of the Company’s fiscal 2021.

The historical consolidated financial information has been adjusted in the pro forma combined financial results to give effect to pro forma events that are directly attributable to the business combination, reasonably estimable and factually supportable.

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

The total purchase price of $ 5,671.0 million was allocated to the tangible and identifiable intangible assets and liabilities based on their estimated fair values.

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.

Acquisition of atSpoke

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

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

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

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

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

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

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

federal income tax purposes.

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

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

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

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

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.

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, no more than one year from the date of acquisition.

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

Cash Equivalents and Investments

Cash Equivalents and Short-term Investments

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

As of October 31, 2021

The amortized cost, unrealized gain (loss) and estimated fair value of the Company’s cash equivalents and short-term investments as of April 30, 2022 and January 31, 2022 were as follows (in thousands):

As of April 30, 2022

Cash equivalents:

Money market funds $ 83,160 $ — $ — $ 83,160

Corporate debt securities 1,000 — — 1,000

Total cash equivalents 84,160 — — 84,160

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Total $ 2,405,617 $ 10 $ ( 11,747 ) $ 2,393,880

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

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

As of October 31, 2021

All short-term investments were designated as available-for-sale securities as of April 30, 2022 and January 31, 2022.

The following table presents the contractual maturities of the Company’s short-term investments as of April 30, 2022 (in thousands):

As of April 30, 2022

Due within one year $ 1,533,591 $ 1,520,617

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Total $ 2,321,841 $ 2,292,902

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

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

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

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

There were no material gross unrealized gains or losses from available-for-sale securities and no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and nine months ended October 31, 2021 or 2020.

The Company included $ 7.4 million and $ 6.0 million of interest receivable in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of April 30, 2022 and January 31, 2022, respectively.

The Company did not recognize an allowance for credit losses against interest receivable as of April 30, 2022 and January 31, 2022 because such potential losses were not material.

The following table presents the fair values and unrealized losses related to the Company’s 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 April 30, 2022 (in thousands):

Less Than 12 Months More Than 12 Months Total

Estimated Fair Value

treasury securities $ 1,981,090 $ ( 25,006 ) $ — $ — $ 1,981,090 $ ( 25,006 )

Corporate debt securities 282,345 ( 3,797 ) 10,560 ( 140 ) 292,905 ( 3,937 )

Total $ 2,263,435 $ ( 28,803 ) $ 10,560 $ ( 140 ) $ 2,273,995 $ ( 28,943 )

The Company had 202 and 193 short-term investments in unrealized loss positions as of April 30, 2022 and January 31, 2022, respectively.

There were no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three months ended April 30, 2022 or 2021.

For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) the Company has the intention to sell any of these investments, (ii) it is not more likely than not that the Company will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis and (iii) the decline in the fair value of the investment is due to credit or non-credit related factors.

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

Based on this evaluation, the Company determined that for short-term investments, there were no material credit or non-credit related impairments as of April 30, 2022 and January 31, 2022.

Strategic Investments

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

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

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

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

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

As of April 30, 2022 and January 31, 2022, the balance of strategic investments was $ 20.4 million and $ 15.3 million, respectively.

During the three months ended April 30, 2022 and 2021, the Company recorded $ 1.4 million and $ 2.9 million, respectively, of gains on strategic investments.

Gains on strategic investments consists primarily of observable price adjustments related to equity investments in privately-held companies.

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

Fair Value Measurements

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The following table presents information about the Company’s financial assets that were measured at fair value on a recurring basis using the above input categories (in thousands):

As of October 31, 2021

As of April 30, 2022

Level 1 Level 2

2 unchanged sentences

Money market funds $ 83,160 $ — $ — $ 83,160

Corporate debt securities — 1,000 — 1,000

Total cash equivalents 83,160 1,000 — 84,160

17 unchanged sentences

Fair Value Measurements of Other Financial Instruments

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

As of October 31, 2021

Net Carrying Amount (1)

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

As of April 30, 2022

Principal Amount Estimated

2023 convertible senior notes $ 5,227 $ 12,830

1 unchanged sentence

2026 convertible senior notes 1,150,000 1,033,195

(1) Before unamortized debt issuance costs.

The principal amounts of the 2023 convertible senior notes (“2023 Notes”), the 2025 convertible senior notes (“2025 Notes”), and the 2026 convertible senior notes (“2026 Notes”, and together with the 2023 Notes and 2025 Notes, the “Notes”) are $ 17.2 million, $ 1,060.0 million, and $ 1,150.0 million, respectively.

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

The estimated fair values of the Notes, which are

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

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

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

The 2023 convertible senior notes (“2023 Notes”), the 2025 convertible senior notes (“2025 Notes”), and the 2026 convertible senior notes (“2026 Notes”, and together with the 2023 Notes and 2025 Notes, the “Notes”) are recorded at face value less unamortized debt issuance costs (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 April 30, 2022, the difference between the principal amount of the Notes and their estimated fair values represented the equity conversion value premium the market assigned to the Notes.

Deferred Commissions

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

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

Sales commissions capitalized as contract costs totaled $ 21.4 million and $ 14.9 million in the three months ended April 30, 2022 and 2021, respectively.

Amortization of contract costs was $ 19.1 million and $ 11.8 million for the three months ended April 30, 2022 and 2021, respectively.

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

Goodwill and Intangible Assets, net

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

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

See Note 3 for further details.

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

As of April 30, 2022 and January 31, 2022, goodwill was $ 5,401.3 million.

No goodwill impairments were recorded during the three months ended April 30, 2022 and 2021.

Intangible Assets, net

Intangible assets consisted of the following (in thousands):

As of October 31, 2021

As of April 30, 2022

Gross Accumulated Amortization Net

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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

$ 417,835 $ ( 100,867 ) $ 316,968

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

See Note 3 for further details.

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

Weighted-Average Remaining Useful Life

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

As of April 30, 2022 As of January 31, 2022

Purchased developed technology 3.7 years 4.0 years

Customer relationships 4.2 years —

Trade name 4.5 years —

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

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

Fiscal Period:

Remaining three months of fiscal 2022 $ 19,995

Fiscal 2023 79,978

Fiscal 2024 70,491

Fiscal 2025 64,278

Fiscal 2026 59,222

Thereafter 20,172

Total amortization expense $ 314,136

Customer relationships 3.8 years 4.0 years

Trade name 4.0 years 4.3 years

Amortization expense of intangible assets for the three months ended April 30, 2022 and 2021 was $ 22.7 million and $ 2.9 million, respectively .

Deferred Revenue and Performance Obligations

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Deferred revenue, which is a contract liability, consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met.

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

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

Subscription revenue recognized during the three months ended April 30, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was $ 362.4 million and $ 202.1 million, respectively.

Professional services and other revenue recognized in the three months ended April 30, 2022 and 2021 from deferred revenue balances at the beginning of the respective periods was not material.

Transaction Price Allocated to the Remaining Performance Obligations

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

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

As of April 30, 2022, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 2,709.7 million .

Of this amount, the Company expects to recognize revenue of approximately $ 1,412.8 million, or 52 %, over the next 12 months, with the balance to be recognized as revenue thereafter.

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

Remaining performance obligations for professional services and other contracts as of April 30, 2022 were not material.

Convertible Senior Notes, Net

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The Company may not redeem the 2023 Notes prior to maturity.

The total net proceeds from the 2023 Notes, after deducting initial purchasers’ discounts and debt issuance costs, was $ 335.0 million.

In September 2019, the Company used part of the net proceeds from the issuance of the 2025 Notes to repurchase a portion of the 2023 Notes, which consisted of a repurchase of $ 224.4 million aggregate principal amount of the 2023 Notes in privately-negotiated transactions, for aggregate consideration of $ 604.8 million, consisting of approximately $ 224.4 million in cash and approximately 3.0 million shares of Class A common stock (“First Partial Repurchase of 2023 Notes”).

The $ 604.8 million in aggregate consideration was allocated between the debt and equity components in the amounts of $ 197.7 million and $ 407.1 million respectively, using an effective interest rate of 4.00 % to determine the fair value of the liability component.

As of the repurchase date, the carrying value of the notes subject to the First Partial Repurchase of 2023 Notes, net of unamortized debt discount and issuance costs, was $ 183.1 million.

The First Partial Repurchase of 2023 Notes resulted in a $ 14.6 million loss on early debt extinguishment during the year ended January 31, 2020, of which $ 3.8 million consisted of unamortized debt issuance costs.

In June 2020, the Company used part of the net proceeds from the issuance of the 2026 Notes to repurchase a portion of the 2023 Notes, which consisted of a repurchase of $ 69.9 million aggregate principal amount of the 2023 Notes in privately-negotiated transactions, for aggregate consideration of $ 260.5 million, consisting of approximately $ 0.2 million in cash and approximately 1.4 million shares of Class A common stock (“Second Partial Repurchase of 2023 Notes”, and together with the First Partial Repurchase of 2023 Notes, the “2023 Notes Partial Repurchases”).

The $ 260.5 million in aggregate consideration was allocated between the debt and equity components in the amounts of $ 61.8 million and $ 198.7 million respectively, using an effective interest rate of 4.90 % to determine the fair value of the liability component.

As of the repurchase date, the carrying value of the notes subject to the Second Partial Repurchase of 2023 Notes, net of unamortized debt discount and issuance costs, was $ 59.6 million.

The Second Partial Repurchase of 2023 Notes resulted in a $ 2.2 million loss on early debt extinguishment during the year ended January 31, 2021, of which $ 1.0 million consisted of unamortized debt issuance costs.

The interest rates used in the 2023 Notes Partial Repurchases were based on the income and market based approaches used to determine the effective interest rate of the 2025 Notes and 2026 Notes, adjusted for the remaining tenor of the 2023 Notes.

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

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

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• during any fiscal quarter commencing after the fiscal quarter ending on April 30, 2018 (and only during such fiscal quarter), if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2023 Notes on each applicable trading day;

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 2023 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate on such trading day;

• upon the occurrence of specified corporate events, as described in the 2023 Indenture.

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

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

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

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

The loss on early note conversion was not material.

For at least 20 trading days during the period of 30 consecutive trading days ended April 30, 2022, the last reported sale price of the Company’s common stock was equal to or exceeded 130 % of the conversion

price of the 2023 Notes on each applicable trading day.

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

As of April 30, 2022, $ 5.2 million of principal remained outstanding on the 2023 Notes.

During the three months ended April 30, 2022, the Company issued approximately 0.2 million shares of Class A common stock and paid an immaterial amount in cash to settle approximately $ 12.0 million principal amount of 2023 Notes.

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

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.

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

Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2023 Indenture), holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes at a price equal to 100 % of the principal amount of the 2023 Notes being repurchased, plus any accrued and unpaid interest.

In accounting for the issuance of the 2023 Notes, the Company separated the 2023 Notes into liability and equity components, using an effective interest rate of 5.68 % to determine the fair value of the liability component.

This interest rate was based on both an income and a market based approach.

For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate.

For the market approach, the Company observed the price of the Note Hedges (see below) it purchased for its 2023 Notes and also performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance.

As of April 30, 2022, the effective interest rate on the 2023 Notes was 0.85 %.

As of April 30, 2021, prior to the adoption of ASU 2020-06, the effective interest rate on the liability component of the 2023 Notes was 5.68 %.

The following table sets forth total interest expense recognized related to the 2023 Notes (in thousands):

Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Contractual interest expense $ 8 $ 20

2 unchanged sentences

Total $ 24 $ 441

Total initial issuance costs of $ 10.0 million related to the 2023 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components.

Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2023 Notes using the effective interest rate method.

The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital.

The Company initially recorded liability issuance costs of $ 7.7 million and equity issuance costs of $ 2.3 million.

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

As of October 31, 2021

(1) Not applicable subsequent to adoption of ASU 2020-06.

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

As of April 30, 2022 As of January 31, 2022

Liability component:

1 unchanged sentence

unamortized debt issuance costs and debt discount (1)

( 29 ) ( 1,034 )

Net carrying amount $ 5,198 $ 16,194

As of October 31, 2021

As of April 30, 2022 As of January 31, 2022

Equity component:

2 unchanged sentences

Carrying amount of the equity component (2)

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

(1) Subsequent to the adoption of ASU 2020-06 under the modified retrospective method, the equity component and debt discount are eliminated.

(2) Included in the January 31, 2022 condensed consolidated balance sheet within Additional paid-in capital.

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

The Note Hedges are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2023 Notes, approximately 7.1 million shares of its Class A common stock for approximately $ 48.36 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2023 Notes, exercisable upon conversion of the 2023 Notes.

The Note Hedges are purchased call options that give the Company the option to purchase shares, subject to anti-dilution adjustments substantially identical to those in the 2023 Notes, of its Class A common stock for approximately $ 48.36 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2023 Notes, exercisable upon conversion of the 2023 Notes.

The Note Hedges will expire in 2023, if not exercised earlier.

1 unchanged sentence

The Note Hedges are separate transactions and are not part of the terms of the 2023 Notes.

The Company paid an aggregate amount of $ 80.0 million for the Note Hedges.

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

In September 2019 and in June 2020, and in connection with the First Partial Repurchase of 2023 Notes and Second Partial Repurchase of 2023 Notes, the Company terminated Note Hedges corresponding to approximately 4.6 million and 1.4 million shares for cash proceeds of $ 405.9 million and $ 195.0 million, respectively.

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

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

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

In connection with the issuance of the 2023 Notes, the Company also entered into separate warrant transactions pursuant to which it sold net-share-settled (or, at the Company’s election subject to certain conditions, cash-settled) warrants (the “Warrants”) to acquire, subject to anti-dilution adjustments, up to approximately 7.1 million shares over 80 scheduled trading days beginning in May 2023 of the Company’s Class A common stock at an initial exercise price of approximately $ 68.06 per share (subject to adjustment).

During the three months ended April 30, 2022, the Company exercised and net-share-settled Note Hedges corresponding to approximately $ 2.0 million principal amount of 2023 Notes.

During the three months ended April 30, 2022, the Company exercised Note Hedges corresponding to approximately $ 10.0 million principal amount of 2023 Notes that are expected to be net-share-settled in the second quarter of fiscal 2023.

As of April 30, 2022, Note Hedges giving the Company the option to purchase approximately 0.3 million shares (subject to adjustment) remained outstanding.

In connection with the issuance of the 2023 Notes, the Company also entered into separate warrant transactions pursuant to which it sold net-share-settled (or, at the Company’s election subject to certain conditions, cash-settled) warrants (the “Warrants”) to acquire shares, subject to anti-dilution adjustments, over 80 scheduled trading days beginning in May 2023 of the Company’s Class A common stock at an initial exercise price of approximately $ 68.06 per share (subject to adjustment).

If the Warrants are not exercised on their exercise dates, they will expire.

1 unchanged sentence

The Warrants are separate transactions and are not part of the terms of the 2023 Notes or the Note Hedges.

The Company received aggregate proceeds of $ 52.4 million from the sale of the Warrants in connection with the 2023 Notes.

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

In September 2019 and in June 2020, and in connection with the First Partial Repurchase of 2023 Notes and Second Partial Repurchase of 2023 Notes, the Company terminated Warrants corresponding to approximately 4.6 million and 1.4 million shares for total cash payments of $ 358.6 million and $ 175.4 million, respectively.

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

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

As of April 30, 2022, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding.

2025 Convertible Senior Notes

2 unchanged sentences

The 2025 Notes mature on September 1, 2025 unless earlier redeemed, repurchased or converted.

The total net proceeds from the 2025 Notes, after deducting initial purchasers’ discounts and debt issuance costs, were $ 1,040.7 million.

The terms of the 2025 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the “2025 Indenture”).

7 unchanged sentences

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

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

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

During the three months ended October 31, 2021, the Company did no t redeem any of the 2025 Notes.

During the three months ended April 30, 2022, the Company did no t redeem any of the 2025 Notes.

Holders of the 2025 Notes who convert their 2025 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2025 Indenture) or in connection with the Company’s issuance of a redemption notice are, under certain circumstances, entitled to an increase in the conversion rate.

Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2025 Indenture), holders of the 2025 Notes may require the Company to repurchase all or a portion of their 2025 Notes at a price equal to 100 % of the principal amount of the 2025 Notes being repurchased, plus any accrued and unpaid interest.

In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components using an effective interest rate of 4.10 % to determine the fair value of the liability component.

This interest rate was based on both an income and a market based approach.

For the income approach, the Company used a convertible bond pricing model, which included several assumptions including volatility and the risk-free rate.

For the market approach, the Company performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance.

As of April 30, 2022, the effective interest rate on the 2025 Notes was 0.43 %.

As of April 30, 2021, prior to the adoption of ASU 2020-06, the effective interest rate on the liability component of the 2025 Notes was 4.10 %.

The following table sets forth total interest expense recognized related to the 2025 Notes (in thousands):

Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Contractual interest expense $ 331 $ 331

2 unchanged sentences

Total $ 1,138 $ 9,587

Total issuance costs of $ 19.3 million related to the 2025 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components.

Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2025 Notes using the effective interest rate method.

The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital.

The Company recorded liability issuance costs of $ 15.3 million and equity issuance costs of $ 4.0 million.

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

As of October 31, 2021

(1) Not applicable subsequent to adoption of ASU 2020-06.

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

As of April 30, 2022 As of January 31, 2022

Liability component:

1 unchanged sentence

unamortized debt issuance costs and debt discount (1)

( 10,856 ) ( 149,333 )

Net carrying amount $ 1,049,141 $ 910,664

As of April 30, 2022 As of January 31, 2022

Equity component:

2 unchanged sentences

Carrying amount of the equity component (2)

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

$ — $ 217,347

(1) Subsequent to the adoption of ASU 2020-06 under the modified retrospective method, the equity component and debt discount are eliminated.

(2) Included in the January 31, 2022 condensed consolidated balance sheet within Additional paid-in capital.

2025 Capped Calls

In connection with the pricing of the 2025 Notes, the Company entered into capped call transactions with respect to its Class A common stock (the “2025 Capped Calls”).

The 2025 Capped Calls are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2025 Notes, approximately 5.6 million shares of its Class A common stock for approximately $ 188.71 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2025 Notes, exercisable upon conversion of the 2025 Notes.

The 2025 Capped Calls are purchased call options that give the Company the option to purchase approximately 5.6 million shares, subject to anti-dilution adjustments substantially identical to those in the 2025 Notes, of its Class A common stock for approximately $ 188.71 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2025 Notes, exercisable upon conversion of the 2025 Notes.

The 2025 Capped Calls have initial cap prices of $ 255.88 per share (subject to adjustment) and will expire in 2025, if not exercised earlier.

1 unchanged sentence

The 2025 Capped Calls are separate transactions and are not part of the terms of the 2025 Notes.

The Company paid an aggregate amount of $ 74.1 million for the 2025 Capped Calls.

The amount paid for the 2025 Capped Calls was recorded as a reduction to Additional paid-in capital in the condensed consolidated balance sheets.

2026 Convertible Senior Notes

2 unchanged sentences

The 2026 Notes mature on June 15, 2026 unless earlier redeemed, repurchased or converted.

The total net proceeds from the 2026 Notes, after deducting initial purchasers’ discounts and debt issuance costs, were $ 1,134.8 million.

The terms of the 2026 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the “2026 Indenture”, and together with the 2023 Indenture and 2025 Indenture, the “Indentures”).

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.

1 unchanged sentence

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:

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 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;

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

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

During the three months ended April 30, 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 April 30, 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 three months ended October 31, 2021, the Company did no t redeem any of the 2026 Notes.

During the three months ended April 30, 2022, the Company did no t redeem any of the 2026 Notes.

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

Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indenture), holders of the 2026 Notes may require the Company to repurchase all or a portion of their 2026 Notes at a price equal to 100 % of the principal amount of the 2026 Notes being repurchased, plus any accrued and unpaid interest.

In accounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability and equity components using an effective interest rate of 5.75 % to determine the fair value of the liability component.

This interest rate was based on both an income and a market based approach.

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

For the market approach, the Company performed an evaluation of issuances of convertible debt securities by other companies with similar credit risk ratings at the time of issuance.

As of April 30, 2022, the effective interest rate on the 2026 Notes was 0.60 %.

As of April 30, 2021, prior to the adoption of ASU 2020-06, the effective interest rate on the liability component of the 2026 Notes was 5.75 %.

The following table sets forth total interest expense recognized related to the 2026 Notes (in thousands):

Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Contractual interest expense $ 1,078 $ 1,078

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Total $ 1,704 $ 12,732

Total issuance costs of $ 15.2 million related to the 2026 Notes were allocated between liability and equity in the same proportion as the allocation of the total proceeds to the liability and equity components.

Issuance costs attributable to the liability component are being amortized to interest expense over the respective term of the 2026 Notes using the effective interest rate method.

The issuance costs attributable to the equity component were netted against the respective equity component in Additional paid-in capital.

The Company recorded liability issuance costs of $ 11.1 million and equity issuance costs of $ 4.1 million.

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

As of October 31, 2021

(1) Not applicable subsequent to adoption of ASU 2020-06.

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

As of April 30, 2022 As of January 31, 2022

Liability component:

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unamortized debt issuance costs and debt discount (1)

( 10,466 ) ( 244,950 )

Net carrying amount $ 1,139,534 $ 905,050

As of April 30, 2022 As of January 31, 2022

Equity component:

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Carrying amount of the equity component (2)

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

$ — $ 306,221

(1) Subsequent to the adoption of ASU 2020-06 under the modified retrospective method, the equity component and debt discount are eliminated.

(2) Included in the January 31, 2022 condensed consolidated balance sheet within Additional paid-in capital.

2026 Capped Calls

In connection with the pricing of the 2026 Notes, the Company entered into capped call transactions with respect to its Class A common stock (the “2026 Capped Calls”).

The 2026 Capped Calls are purchased call options that give the Company the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2026 Notes, approximately 4.8 million shares of its Class A common stock for approximately $ 238.60 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2026 Notes, exercisable upon conversion of the 2026 Notes.

The 2026 Capped Calls are purchased call options that give the Company the option to purchase approximately 4.8 million shares, subject to anti-dilution adjustments substantially identical to those in the 2026 Notes, of its Class A common stock for approximately $ 238.60 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2026 Notes, exercisable upon conversion of the 2026 Notes.

The 2026 Capped Calls have initial cap prices of $ 360.14 per share (subject to adjustment) and will expire in 2026, if not exercised earlier.

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The 2026 Capped Calls are separate transactions and are not part of the terms of the 2026 Notes.

The Company paid an aggregate amount of $ 134.0 million for the 2026 Capped Calls.

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

The Company has entered into various non-cancelable office space operating leases with original lease periods expiring between 2022 and 2029.

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Operating lease cost (1)

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

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

The weighted-average remaining term of the Company’s operating leases was 5.7 years and 5.9 years as of April 30, 2022 and January 31, 2022, respectively, and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.3 % and 5.5 %, respectively.

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

As of October 31, 2021

As of April 30, 2022

2022 $ 29,769

Thereafter 53,476

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Less imputed interest ( 33,418 )

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

Total operating lease liabilities $ 192,564

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

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

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

Cash payments made related to operating lease liabilities were $ 10.8 million and $ 9.1 million for the three months ended April 30, 2022 and 2021, respectively.

As of April 30, 2022, the Company had $ 8.0 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 5.0 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 $ 10.8 million and $ 11.2 million were issued and outstanding as of October 31, 2021 and January 31, 2021, respectively.

In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $ 8.6 million were issued and outstanding as of April 30, 2022 and January 31, 2022.

No draws have been made under such letters of credit.

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

Noncurrent restricted cash of $ 6.4 million associated with these letters of credit is included in Other assets on the condensed consolidated balance sheets as of April 30, 2022 and January 31, 2022.

Legal Matters

From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings.

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

There were no such material matters as of April 30, 2022.

Warranties and Indemnification

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Employee Incentive Plans

The Company’s equity incentive plans provide for granting stock options, restricted stock units (“RSUs”) and restricted stock awards to employees, consultants, officers and directors.

The Company’s equity incentive plans provide for granting stock options, restricted stock units (“RSUs”), restricted stock awards to employees, consultants, officers and directors and restricted stock units with market-based vesting conditions to certain executives.

In addition, the Company offers an Employee Stock Purchase Plan (“ESPP”) to eligible employees.

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Cost of revenue

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The Company has two equity incentive plans:

the 2009 Stock Plan (“2009 Plan”) and the 2017 Equity Incentive Plan (“2017 Plan”).

In addition, the Company assumed Auth0, Inc.

equity incentive plans as described below.

the 2009 Stock Plan and the 2017 Equity Incentive Plan (“2017 Plan”).

In addition, the Company assumed Auth0 equity incentive plans.

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

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

As of April 30, 2022, options to purchase 2,090,663 shares of Class A common stock and 5,478,691 shares of Class B common stock remained outstanding.

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

October 31, 2021

April 30, 2022

Stock options and unvested RSUs outstanding 15,974,354

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Outstanding as of January 31, 2022 7,984,078 $ 39.59 5.2 $ 1,314,031

Granted 2,565,055 93.95

Exercised ( 309,985 ) 17.38

Canceled ( 104,739 ) 107.37

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

As of October 31, 2021

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

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

Outstanding as of April 30, 2022 7,569,354 $ 39.56 5.0 $ 708,385

As of April 30, 2022

Vested and exercisable 6,450,755 $ 20.85 4.4 $ 666,303

As of April 30, 2022, there was a total of $ 170.2 million of unrecognized stock-based compensation expense related to options, which is being recognized over a weighted-average period of 2.2 years.

Restricted Stock Units

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

A summary of the Company’s RSU activity (inclusive of market-based RSUs) and related information was as follows:

RSUs Weighted-

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Forfeited ( 429,352 ) 196.27

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

As of October 31, 2021, there was $ 921.4 million of unrecognized stock-based compensation expense related to unvested RSUs, which is being recognized over a weighted-average period of 2.7 years based on vesting under the award service conditions.

Equity Awards Issued in Connection with Business Combinations

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

2014 Equity Incentive Plan and the Auth0, Inc.

Phantom Unit Plan (together, the “Auth0 Plans”) and certain outstanding options to purchase Auth0 common stock, RSUs settleable into shares of Auth0 common stock, and phantom units under the Auth0 Plans.

Certain assumed securities were converted into options (which in certain instances were automatically net exercised) or RSUs, as applicable, for shares of the Company’s Class A common stock, subject to adjustment as set forth in the Merger Agreement.

Such assumed and converted options and RSUs will continue to be outstanding and will be governed by the provisions of the Auth0 Plans.

Activity under the Auth0 Plans is included in the summaries of stock option and RSU activity above.

Included in the Granted total in the stock options activity table above are 1,850,079 options assumed at a weighted-average exercise price per share of $ 24.21 .

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

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

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

Outstanding as of April 30, 2022 8,405,000 $ 191.71

As of April 30, 2022, there was $ 1,454.2 million of unrecognized stock-based compensation expense related to unvested RSUs, which is being recognized over a weighted-average period of 3.2 years based on vesting under the award service conditions.

Market-based Restricted Stock Units

In March 2022, the Company granted market-based RSUs (“PSUs”) to certain members of management.

The target number of PSUs granted was 58,150 .

One-third of these PSUs vest over each of a one-, two- and three-year performance period, each starting on February 1, 2022.

The number of shares that can be earned ranges from 0 % to 200 % of the target number of shares based on the relative performance of the per share price of the Company’s common stock as compared to the Nasdaq Composite Index over the respective performance periods and subject to continuous employment through the vesting dates.

The $ 244.73 grant date fair value per target PSU was determined using a Monte Carlo simulation approach.

Compensation expense for awards with market conditions is recognized over the service period using the accelerated attribution method and is not reversed if the market condition is not met.

Restricted Stock Awards Issued in Connection with Business Combinations

In fiscal year 2022, 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 April 30, 2022, there was $ 229.3 million of unrecognized stock-based compensation expense related to unvested restricted shares, which is being recognized over a weighted-average period of 2.0 years based on vesting under the award service conditions.

Employee Stock Purchase Plan

The ESPP provides for 12-month offering periods beginning June 21 and December 21 of each year, and each offering period consists of up to two six-month purchase periods.

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

Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

Expected volatility — % — % 47 % - 48 %

Expected term (in years) — — 0.5 - 1.0

Risk-free interest rate — % — % 0.06 % - 0.09 %

0.17 % - 0.18 %

Expected dividend yield — — — —

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

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

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

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

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

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

As of April 30, 2022, there was $ 10.4 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over a weighted-average vesting period of 0.5 years.

For the three months ended April 30, 2022, the Company recorded a tax provision of $ 1.9 million on a pretax loss of $ 240.9 million.

The effective tax rate for the three months ended April 30, 2022 was approximately ( 0.8 )%.

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

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

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

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

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

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

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

deferred tax assets, the tax effect of foreign operations, U.S.

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

The Tax Cuts and Jobs Act enacted on December 22, 2017 amended Internal Revenue Code Section 174 to require that specific research and experimental ("R&E") expenditures be capitalized and amortized over five years (U.S.

R&E) or fifteen years (non-U.S.

R&E) beginning in the Company's fiscal 2023.

Although Congress has considered legislation that would defer, modify or repeal the capitalization and amortization requirement, there is no assurance that the provision will be deferred, repealed or otherwise modified.

If the requirement is not modified, the Company may be required to utilize some of its federal and state tax attributes and there may be increases to cash taxes or tax expense.

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

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

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

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

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

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

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

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

Net Loss Per Share

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Three Months Ended

October 31, Nine Months Ended

2021 2020 2021 2020

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

Class A Class B Class A Class B

Net loss $ ( 231,849 ) $ ( 10,864 ) $ ( 102,612 ) $ ( 6,620 )

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

As of October 31,

As of April 30,

Issued and outstanding stock options 7,569 8,109

Unvested RSUs issued and outstanding 8,347 5,112

Unvested PSUs issued and outstanding 116 —

Unvested restricted stock awards issued and outstanding 1,269 —

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The exercise rights of the Warrants will have a dilutive impact on net income per share of common stock under the treasury-stock method when the average market price per share of the Company’s Class A common stock for a given period exceeds the conversion price of $ 68.06 per share.

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

During the three months ended April 30, 2022, the average price per share of the Company’s Class A common stock exceeded the exercise price of the Warrants;

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

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

What changed 10-Q

Item 1. Financial Statements