What changed in this filing

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Item 1. Financial Statements

2022-09-01 compared with 2022-06-03 · 153 added, 120 removed, 582 unchanged (32% of the section changed)

Financial Statements (unaudited)

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

Condensed Consolidated Balance Sheets as of July 31, 2022 and January 31, 2022

Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2022 and 2021

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended July 31, 2022 and 2021

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended July 31, 2022 and 2021

Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31 , 2022 and 2021

Notes to Condensed Consolidated Financial Statements

11 unchanged sentences

• our future financial performance, including our revenue, costs of revenue, gross profits, margins and operating expenses;

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

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

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

• our ability to successfully integrate and realize the benefits of strategic acquisitions or investments, including our acquisition of Auth0, Inc.

• trends in our key business metrics;

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

• the sufficiency of our cash and cash equivalents, investments and cash provided by sales of our products and services to meet our liquidity needs;

1 unchanged sentence

• the impact of recent accounting pronouncements on our financial statements.

• our ability to successfully integrate and realize the benefits of strategic acquisitions or investments, including our acquisition of Auth0, Inc.

Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond our control.

11 unchanged sentences

(In thousands, except per share data)

April 30, 2022 January 31, 2022

2022 January 31,

Current assets:

30 unchanged sentences

100,000 shares authorized;

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

no shares issued and outstanding as of July 31, 2022 and January 31, 2022

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

1,000,000 shares authorized;

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

151,808 and 149,624 shares issued and outstanding as of July 31, 2022 and January 31, 2022, respectively

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

120,000 shares authorized;

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

7,019 and 6,978 shares issued and outstanding as of July 31, 2022 and January 31, 2022, respectively

Additional paid-in capital 7,607,382 7,749,716

7 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

Subscription $ 435,384 $ 303,121 $ 833,325 $ 543,179

16 unchanged sentences

Interest and other, net 1,806 ( 20,704 ) 642 ( 39,245 )

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

Provision for income taxes 1,860 10

Loss before provision for (benefit from) income taxes ( 206,256 ) ( 284,144 ) ( 447,109 ) ( 393,366 )

Provision for (benefit from) income taxes 4,216 ( 7,462 ) 6,076 ( 7,452 )

Net loss $ ( 210,472 ) $ ( 276,682 ) $ ( 453,185 ) $ ( 385,914 )

5 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

Net loss $ ( 210,472 ) $ ( 276,682 ) $ ( 453,185 ) $ ( 385,914 )

Other comprehensive income (loss):

Other comprehensive loss:

Net change in unrealized gains or losses on available-for-sale securities ( 1,497 ) ( 353 ) ( 18,699 ) ( 1,166 )

Foreign currency translation adjustments ( 3,541 ) ( 882 ) ( 10,478 ) 151

Other comprehensive income (loss) ( 24,139 ) 220

Other comprehensive loss ( 5,038 ) ( 1,235 ) ( 29,177 ) ( 1,015 )

Comprehensive loss $ ( 215,510 ) $ ( 277,917 ) $ ( 482,362 ) $ ( 386,929 )

3 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

Common stock and additional paid-in capital:

1 unchanged sentence

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

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

Issuance of common stock upon exercise of stock options and other activity, net 23,184 34,697 29,951 52,911

10 unchanged sentences

Balance, beginning of period ( 36,148 ) 5,610 ( 12,009 ) 5,390

Other comprehensive income (loss) ( 24,139 ) 220

Other comprehensive loss ( 5,038 ) ( 1,235 ) ( 29,177 ) ( 1,015 )

Balance, end of period ( 41,186 ) 4,375 ( 41,186 ) 4,375

3 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Net loss $ ( 453,185 ) $ ( 385,914 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Stock-based compensation 340,702 251,826

17 unchanged sentences

Deferred revenue 15,062 158,360

Net cash provided by operating activities 18,831 56,075

Net cash provided by (used in) operating activities ( 218 ) 53,467

Cash flows from investing activities:

3 unchanged sentences

Proceeds from maturities and redemption of securities available for sale 521,815 763,607

Proceeds from sales of securities available for sale and other — 906

Purchases of intangible assets ( 2,497 ) ( 113 )

Payments for business acquisitions, net of cash acquired ( 4,060 ) ( 148,042 )

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

Net cash used in investing activities ( 68,712 ) ( 311,561 )

Cash flows from financing activities:

2 unchanged sentences

Proceeds from stock option exercises 8,977 31,829

Proceeds from shares issued in connection with employee stock purchase plan 18,960 17,417

Net cash provided by financing activities 27,932 49,233

Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash ( 6,072 ) 193

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

Net decrease in cash, cash equivalents and restricted cash ( 47,070 ) ( 208,668 )

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

5 unchanged sentences

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 conversions of convertible senior notes 39,564 126,144

24 unchanged sentences

The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, 2022.

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

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

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

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

Use of Estimates

10 unchanged sentences

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.

There have been no other significant changes to the Company’s significant accounting policies for the six months ended July 31, 2022.

Recently Adopted Accounting Pronouncements

13 unchanged sentences

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

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

February 1, 2022

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

4 unchanged sentences

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 .

The impact of adoption on the condensed consolidated statements of operations for the three and six months ended July 31, 2022 was to decrease net interest expense by approximately $ 21.0 million and $ 41.8 million, respectively.

This had the effect of decreasing basic and diluted net loss per share for the three and six months ended July 31, 2022 by $ 0.13 and $ 0.27 , respectively.

In October 2021, the FASB issued ASU No.

16 unchanged sentences

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 consideration held back was paid in full during the six months ended July 31, 2022.

The transaction was accounted for as a business combination.

5 unchanged sentences

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

The Company recorded $ 18.3 million for developed technology intangible assets with an estimated useful life of 3 years and preliminarily recorded $ 63.2 million of goodwill.

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 recorded $ 18.3 million for developed technology intangible assets with an estimated useful life of 3 years and recorded $ 62.2 million of goodwill.

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.

1 unchanged sentence

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 April 30, 2022 and January 31, 2022 were as follows (in thousands):

As of April 30, 2022

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

As of July 31, 2022

Cash equivalents:

Money market funds $ 78,012 $ — $ — $ 78,012

Corporate debt securities 1,000 — — 1,000

Total cash equivalents 78,012 — — 78,012

13 unchanged sentences

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

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

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

The following table presents the contractual maturities of the Company’s short-term investments as of July 31, 2022 (in thousands):

As of July 31, 2022

Due within one year $ 1,743,049 $ 1,720,573

1 unchanged sentence

Total $ 2,291,392 $ 2,260,956

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):

The Company included $ 7.3 million and $ 6.0 million of interest receivable in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of July 31, 2022 and January 31, 2022, respectively.

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

Less Than 12 Months More Than 12 Months Total

5 unchanged sentences

Total $ 1,858,972 $ ( 25,201 ) $ 287,400 $ ( 5,320 ) $ 2,146,372 $ ( 30,521 )

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.

The Company had 195 and 193 short-term investments in unrealized loss positions as of July 31, 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 and six months ended July 31, 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 April 30, 2022 and January 31, 2022.

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

Strategic Investments

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.

As of July 31, 2022 and January 31, 2022, the balance of strategic investments was $ 21.8 million and $ 15.3 million, respectively.

During the three and six months ended July 31, 2022, the Company recorded $ 0.6 million and $ 2.0 million, respectively, of gains on strategic investments.

During the three and six months ended July 31, 2021, the Company recorded $ 2.4 million and $ 5.3 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.

9 unchanged sentences

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 April 30, 2022

As of July 31, 2022

Level 1 Level 2

2 unchanged sentences

Money market funds $ 78,012 $ — $ — $ 78,012

Corporate debt securities — 1,000 — 1,000

Total cash equivalents 78,012 — — 78,012

18 unchanged sentences

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

As of July 31, 2022

Principal Amount Estimated

3 unchanged sentences

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.

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.

Deferred Commissions

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.

Sales commissions capitalized as contract costs totaled $ 28.0 million and $ 40.0 million in the three months ended July 31, 2022 and 2021, respectively, and $ 49.4 million and $ 54.9 million in the six months ended July 31, 2022 and 2021, respectively.

Amortization of contract costs was $ 20.4 million and $ 13.3 million for the three months ended July 31, 2022 and 2021, respectively, and $ 39.5 million and $ 25.1 million for the six months ended July 31, 2022 and 2021, respectively.

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

Goodwill and Intangible Assets, net

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.

As of July 31, 2022 and January 31, 2022, goodwill was $ 5,400.3 million and $ 5,401.3 million, respectively.

No goodwill impairments were recorded during the three and six months ended July 31, 2022 and 2021.

Intangible Assets, net

Intangible assets consisted of the following (in thousands):

As of April 30, 2022

As of July 31, 2022

Gross Accumulated Amortization Net

15 unchanged sentences

Weighted-Average Remaining Useful Life

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

As of July 31, 2022 As of January 31, 2022

Purchased developed technology 3.5 years 4.0 years

1 unchanged sentence

Trade name 3.8 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 .

Amortization expense of intangible assets for the three months ended July 31, 2022 and 2021 was $ 23.2 million and $ 21.3 million, respectively, and $ 45.9 million and $ 24.2 million for the six months ended July 31, 2022 and 2021, respectively.

Deferred Revenue and Performance Obligations

1 unchanged sentence

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 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.

Subscription revenue recognized during the three months ended July 31, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was $ 389.5 million and $ 245.4 million, respectively, and $ 656.7 million and $ 359.3 million in the six months ended July 31, 2022 and 2021, respectively.

Professional services and other revenue recognized during the three months ended July 31, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was $ 6.9 million and $ 4.1 million, respectively, and $ 11.1 million and $ 5.0 million in the six months ended July 31, 2022 and 2021, respectively.

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

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

As of July 31, 2022, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 2,790.3 million .

Of this amount, the Company expects to recognize revenue of approximately $ 1,496.7 million, or 54 %, 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 April 30, 2022 were not material.

Remaining performance obligations for professional services and other contracts as of July 31, 2022 were not material.

Convertible Senior Notes, Net

12 unchanged sentences

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 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.

For at least 20 trading days during the period of 30 consecutive trading days ended July 31, 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 October 31, 2022.

The 2023 Notes were classified as current liabilities on the condensed consolidated balance sheet as of July 31, 2022.

As of July 31, 2022, $ 5.2 million of principal remained outstanding on the 2023 Notes.

During the three months ended July 31, 2022, the Company settled an immaterial principal amount of the 2023 Notes in cash and during the six months ended July 31, 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.

2 unchanged sentences

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.

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 %.

As of July 31, 2022, the effective interest rate on the 2023 Notes was 0.85 %.

As of July 31, 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

July 31, Six Months Ended

2022 2021 2022 2021

Contractual interest expense $ 3 $ 14 $ 11 $ 34

4 unchanged sentences

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

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

As of July 31, 2022 As of January 31, 2022

Liability component:

3 unchanged sentences

Net carrying amount $ 5,209 $ 16,194

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

As of July 31, 2022 As of January 31, 2022

Equity component:

9 unchanged sentences

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

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.

During the three months ended July 31, 2022, the Company net-share-settled Note Hedges corresponding to approximately $ 10.0 million principal amount of 2023 Notes and received approximately 0.1 million shares of Class A common stock and an immaterial cash payment.

During the six months ended July 31, 2022, the Company exercised and net-share-settled Note Hedges corresponding to approximately $ 12.0 million principal amount of 2023 Notes and received approximately 0.1 million shares of Class A common stock and an immaterial cash payment.

As of July 31, 2022, Note Hedges giving the Company the option to purchase approximately 0.1 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).

2 unchanged sentences

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

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

As of July 31, 2022, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding.

2025 Convertible Senior Notes

11 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 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.

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

The Company may redeem for cash all or any portion of the 2025 Notes, at its option, on or after September 6, 2022, if the last reported sale price of the Company’s Class A common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on and including the trading day preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the 2025 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

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

During the three months ended July 31, 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.

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 %.

As of July 31, 2022, the effective interest rate on the 2025 Notes was 0.43 %.

As of July 31, 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

July 31, Six Months Ended

2022 2021 2022 2021

Contractual interest expense $ 331 $ 331 $ 662 $ 662

1 unchanged sentence

Amortization of debt discount (1)

— 8,790 — 17,490

Total $ 1,139 $ 9,689 $ 2,277 $ 19,276

1 unchanged sentence

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

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

As of July 31, 2022 As of January 31, 2022

Liability component:

3 unchanged sentences

Net carrying amount $ 1,049,949 $ 910,664

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

As of July 31, 2022 As of January 31, 2022

Equity component:

24 unchanged sentences

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 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.

During the three months ended July 31, 2022, the conditions allowing holders of the 2026 Notes to convert were not met, and as a result, the 2026 Notes were classified as noncurrent liabilities as of July 31, 2022.

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

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

During the three months ended July 31, 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.

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 %.

As of July 31, 2022, the effective interest rate on the 2026 Notes was 0.60 %.

As of July 31, 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

July 31, Six Months Ended

2022 2021 2022 2021

Contractual interest expense $ 1,078 $ 1,078 $ 2,156 $ 2,156

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Amortization of debt discount (1)

— 11,474 — 22,788

Total $ 1,705 $ 12,904 $ 3,409 $ 25,636

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

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

As of July 31, 2022 As of January 31, 2022

Liability component:

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Net carrying amount $ 1,140,161 $ 905,050

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

As of July 31, 2022 As of January 31, 2022

Equity component:

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Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

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 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.

The weighted-average remaining term of the Company’s operating leases was 5.5 years and 5.9 years as of July 31, 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 April 30, 2022

2022 $ 29,769

As of July 31, 2022

Fiscal Year Ending January 31:

2023 (remaining six months) $ 22,786

Thereafter 53,726

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Total operating lease liabilities $ 192,183

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.

Cash payments made related to operating lease liabilities were $ 7.4 million and $ 10.0 million for the three months ended July 31, 2022 and 2021, respectively, and $ 18.1 million and $ 19.1 million in the six months ended July 31, 2022 and 2021, respectively.

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 $ 8.6 million were issued and outstanding as of April 30, 2022 and January 31, 2022.

In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $ 8.5 million and $ 8.6 million were issued and outstanding as of July 31, 2022 and January 31, 2022, respectively.

No draws have been made under such letters of credit.

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.

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 July 31, 2022 and January 31, 2022.

Purchase Obligations

Except as discussed below, there were no significant changes in future minimum purchase obligations as disclosed in the Company’s audited consolidated financial statements for the year ended January 31, 2022.

Effective July 2022, the Company terminated its existing agreement and entered into a new agreement with a cloud services provider with a total obligation of $ 450.0 million over a four-year period.

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 April 30, 2022.

There were no such material matters as of July 31, 2022.

Warranties and Indemnification

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Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

Cost of revenue

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

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.

As of July 31, 2022, options to purchase 1,968,404 shares of Class A common stock and 5,295,955 shares of Class B common stock remained outstanding.

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

April 30, 2022

As of July 31, 2022

Stock options and unvested RSUs outstanding 15,970,767

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Canceled ( 144,296 ) 93.18

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

As of April 30, 2022

Outstanding as of July 31, 2022 7,264,359 $ 40.42 4.7 $ 543,909

As of July 31, 2022

Vested and exercisable 6,323,025 $ 23.19 4.2 $ 519,908

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.

As of July 31, 2022, there was a total of $ 139.6 million of unrecognized stock-based compensation expense related to options, which is being recognized over a weighted-average period of 2.0 years.

Restricted Stock Units

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Forfeited ( 883,649 ) 201.08

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.

Outstanding as of July 31, 2022 8,706,408 $ 175.95

As of July 31, 2022, there was $ 1,371.4 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

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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.

In connection with the business combinations, as of July 31, 2022, there was $ 200.8 million of unrecognized stock-based compensation expense related to unvested restricted shares, which is being recognized over a weighted-average period of 1.8 years based on vesting under the award service conditions.

Employee Stock Purchase Plan

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 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 ESPP contains a reset provision under which the offering period resets if the fair market value of the Company’s common stock on the purchase date is less than the fair market value on the offering date.

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

Three and Six Months Ended July 31,

Expected volatility 63 %- 78 %

Expected term (in years) 0.5 - 1.0

Risk-free interest rate 2.46 % - 2.92 %

0.06 % - 0.09 %

Expected dividend yield — —

During the three and six months ended July 31, 2022, the Company’s employees purchased 269,814 shares of its Class A common stock under the ESPP.

The shares were purchased at a weighted-average purchase price of $ 70.27 per share, with total proceeds of $ 19.0 million.

As of July 31, 2022, there was $ 20.8 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over a weighted-average vesting period of 0.8 years.

For the three and six months ended July 31, 2022, the Company recorded a tax provision of $ 4.2 million and $ 6.1 million on pretax losses of $ 206.3 million and $ 447.1 million, respectively.

The effective tax rate for the three and six months ended July 31, 2022 was approximately ( 2.0 )% and ( 1.4 )%, respectively.

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

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

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

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.

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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.

Although Congress has considered legislation that would defer, modify or repeal the capitalization and amortization requirement, there is no assurance 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.

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

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

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

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

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

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

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

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

Net Loss Per Share

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Three Months Ended

Class A Class B Class A Class B

July 31, Six Months Ended

2022 2021 2022 2021

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

Net loss $ ( 201,124 ) $ ( 9,348 ) $ ( 263,151 ) $ ( 13,531 ) $ ( 432,980 ) $ ( 20,205 ) $ ( 364,976 ) $ ( 20,938 )

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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 April 30,

As of July 31,

Issued and outstanding stock options 7,264 9,077

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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 April 30, 2022, 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 July 31, 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