What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-09-01 compared with 2022-06-03 · 134 added, 55 removed, 371 unchanged (34% of the section changed)

12 unchanged sentences

Our approach to identity allows our customers to simplify and efficiently scale their security infrastructures across internal IT systems and external customer facing applications.

As of April 30, 2022, more than 15,800 customers across nearly every industry used the Okta Identity Cloud to secure and manage identities around the world.

As of July 31, 2022, more than 16,400 customers across nearly every industry used the Okta Identity Cloud to secure and manage identities around the world.

Our customers consist of leading global organizations ranging from the largest enterprises, to small and medium-sized businesses, universities, non-profits and government agencies.

We also partner with leading application, IT infrastructure and security vendors through our Okta Integration Network.

As of April 30, 2022, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors.

As of July 31, 2022, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors.

We employ a Software-as-a-Service (“SaaS”) business model, and generate revenue primarily by selling multi-year subscriptions to our cloud-based offerings.

7 unchanged sentences

None of these impacts can be predicted with certainty.

Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 96% of total revenue for the three months ended April 30, 2022.

Future growth may be impacted by longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for cash flow, remaining performance obligations (“RPO”) and billings growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis.

Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 96% of total revenue for the six months ended July 31, 2022.

Future growth may be impacted by longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for cash flow, RPO and billings growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis.

While we see risks associated with more highly impacted companies and industries, we are also seeing new interest from other organizations, driven by rapidly changing work and business environments.

As workforces have transitioned to fully remote and hybrid work

models, Zero Trust has become an increasingly important security model and identity an increasingly critical service.

As workforces have transitioned to fully remote and hybrid work models, Zero Trust has become an increasingly important security model and identity an increasingly critical service.

We believe we will be able to continue to deliver our cloud-based platform and support to our customers, without compromising our employees’ safety.

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A portion of the total consideration was held back by us to secure the indemnification obligations of the Auth0 securityholders arising during the twelve months following the closing.

The cash consideration held back was paid in full during the three months ended April 30, 2022.

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

See Note 3 to our audited consolidated financial statements included in our Form 10-K filed with the SEC on March 7, 2022.

16 unchanged sentences

Cost of subscription primarily consists of expenses related to hosting our services and providing support.

These expenses include employee-related costs associated with our cloud-based infrastructure

and our customer support organization, third-party hosting fees, software and maintenance costs, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired developed technology and allocated overhead.

These expenses include employee-related costs associated with our cloud-based infrastructure and our customer support organization, third-party hosting fees, software and maintenance costs, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired developed technology and allocated overhead.

We intend to continue to invest additional resources in our platform infrastructure and our platform support organizations.

16 unchanged sentences

Commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a contract with a customer are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally five years.

We expect our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future as we expand our sales and marketing efforts and as we return to in-person sales formats and experiences for future annual user conferences.

We expect our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future as we continue to invest in acquiring new customers.

In the short-term, our sales and marketing expenses may increase as a percentage of our total revenue, however, over time, we expect this percentage to decrease as our total revenue grows.

11 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

(in thousands)

22 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)

1 unchanged sentence

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

(in thousands)

7 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

Subscription 96 % 96 % 96 % 96 %

16 unchanged sentences

Interest and other, net — (7) — (6)

Loss before provision for income taxes (58) (44)

Provision for income taxes — —

Loss before provision for (benefit from) income taxes (46) (90) (52) (69)

Provision for (benefit from) income taxes 1 (2) — (1)

Net loss (47) % (88) % (52) % (68) %

Comparison of the Three Months Ended April 30, 2022 and 2021

Comparison of the Three and Six Months Ended July 31, 2022 and 2021

Three Months Ended

8 unchanged sentences

Total 100 % 100 %

Subscription revenue increased by $157.9 million, or 66%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021.

The increase in subscription revenue was primarily due to the addition of new customers and an increase in users and sales of additional products to existing customers, as well as the inclusion of Auth0 revenue in the current period.

Professional services and other revenue increased by $6.1 million, or 55%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021.

The increase in professional services revenue was primarily related to an increase in implementation and other services associated with growth in the number of new customers purchasing our subscription services, as well as the inclusion of Auth0 revenue in the current period.

Six Months Ended

2022 2021 $ Change % Change

(dollars in thousands)

Subscription $ 833,325 $ 543,179 $ 290,146 53 %

Professional services and other 33,425 23,327 10,098 43

Total revenue $ 866,750 $ 566,506 $ 300,244 53

Percentage of revenue:

Subscription 96 % 96 %

Professional services and other 4 4

Total 100 % 100 %

Three and six months ended

For the three and six months ended July 31, 2022, the increase in subscription revenue was primarily due to the addition of new customers and an increase in users and sales of additional products to existing customers.

Additionally, as our acquisition of Auth0 was completed on May 3, 2021, subscription revenue during the six months ended July 31, 2022 includes six months of Auth0 revenue while subscription revenue during the six months ended July 31, 2021 includes approximately three months of Auth0 revenue.

For the three and six months ended July 31, 2022, the increase in professional services revenue was primarily related to an increase in implementation and other services associated with growth in the number of new customers purchasing our subscription services.

Cost of Revenue, Gross Profit and Gross Margin

11 unchanged sentences

Total gross margin 70 68

Cost of subscription revenue increased by $58.5 million, or 112%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021, primarily due to an increase of $28.6 million in employee compensation costs related to higher headcount to support the growth in our subscription services, including the Auth0 acquisition, an increase of $10.1 million in third-party hosting costs as we expanded capacity to support our growth, an increase in amortization of acquired developed technology of $9.7 million primarily in connection with the Auth0 acquisition and an increase of $4.8 million in software license costs.

Our gross margin for subscription revenue decreased to 72% for the three months ended April 30, 2022 from 78% during the three months ended April 30, 2021 primarily due to the inclusion of Auth0 revenue, which carries a higher relative cost and lower gross margin, as well as an increase in amortization of acquired developed technology primarily in connection with the Auth0 acquisition.

Six Months Ended

2022 2021 $ Change % Change

(dollars in thousands)

Cost of revenue:

Subscription $ 227,218 $ 136,855 $ 90,363 66 %

Professional services and other 41,641 30,374 11,267 37

Total cost of revenue $ 268,859 $ 167,229 $ 101,630 61

Gross profit $ 597,891 $ 399,277 $ 198,614 50

Gross margin:

Subscription 73 % 75 %

Professional services and other (25) (30)

Total gross margin 69 70

Three months ended

For the three months ended July 31, 2021, cost of subscription revenue increased primarily due to an increase of $16.1 million in employee compensation costs related to higher headcount to support the growth in our subscription services, an increase of $5.6 million in software license costs and an increase of $4.6 million in third-party hosting costs as we expanded capacity to support our growth.

Our gross margin for subscription revenue increased to 73% from 72% for the three months ended July 31, 2022 compared to the three months ended July 31, 2021.

While our gross margin for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.

Cost of professional services and other revenue increased by $6.6 million, or 48%, for the three months ended April 30, 2022, compared to the three months ended April 30, 2021, primarily due to an increase of $4.5 million in employee compensation costs related to increased headcount, including the Auth0 acquisition.

Our gross margin for professional services and other revenue improved to (19)% for the three months ended April 30, 2022 from (25)% during the three months ended April 30, 2021 and includes Auth0.

For the three months ended July 31, 2021, cost of professional services and other revenue increased primarily due to an increase of $2.9 million in employee compensation costs related to increased headcount.

Our gross margin for professional services and other revenue improved to (30)% for the three months ended July 31, 2022 from (34)% for the three months ended July 31, 2021.

Six months ended

For the six months ended July 31, 2022, cost of subscription revenue increased primarily due to an increase of $44.6 million in employee compensation costs related to higher headcount to support the growth in our subscription services, an increase of $14.7 million in third-party hosting costs as we expanded capacity to support our growth, an increase in amortization of acquired developed technology of $11.0 million and an increase of $10.4 million in software license costs.

Our gross margin for subscription revenue decreased to 73% from 75% for the six months ended July 31, 2022 compared to the six months ended July 31, 2021.

The decrease is primarily due to the inclusion of Auth0 revenue, which carries a higher relative cost and lower gross margin, as well as an increase in amortization of acquired developed technology primarily in connection with the Auth0 acquisition.

While our gross margins for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.

For the six months ended July 31, 2022, cost of professional services and other revenue increased primarily due to an increase of $7.5 million in employee compensation costs related to increased headcount.

Our gross margin for professional services and other revenue improved to (25)% for the six months ended July 31, 2022 from (30)% for the six months ended July 31, 2021.

Operating Expenses

5 unchanged sentences

Percentage of revenue 34 % 39 %

Research and development expenses increased $92.8 million, or 135%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021.

The increase was primarily due to an increase of $84.5 million in employee compensation costs due to higher headcount and the inclusion of Auth0.

The increase in employee compensation costs includes $15.8 million in stock-based compensation expense primarily related to the revesting agreements from the Auth0 acquisition.

Six Months Ended

2022 2021 $ Change % Change

(dollars in thousands)

Research and development $ 317,487 $ 191,270 $ 126,217 66 %

Percentage of revenue 37 % 34 %

Three and six months ended

For the three and six months ended July 31, 2022, the increase in research and development expenses is primarily due to increases of $30.8 million and $115.3 million, respectively, in employee compensation costs related to higher headcount.

Sales and Marketing Expenses

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Percentage of revenue 59 % 63 %

Sales and marketing expenses increased $106.0 million, or 72%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021 primarily due to an increase of $65.2 million in employee compensation costs related to higher headcount, including the Auth0 acquisition, an increase in amortization expense of $9.9 million for acquired customer relationships and trade names in connection with the Auth0 acquisition incurred in the three months ended April 30, 2022, but not in the three months ended April 30, 2021, an increase in company-wide event costs of $7.1 million primarily due to an in-person sales event which was virtual during the three months ended April 30, 2021, an increase in travel expenses of $5.8 million and an increase in marketing costs of $3.7 million primarily due to increases in demand generation programs, advertising, and brand awareness efforts aimed at acquiring new customers.

We expect sales and marketing expenses will increase in absolute dollars and may increase as a percentage of total revenue in future periods as we invest in acquiring new customers.

Six Months Ended

2022 2021 $ Change % Change

(dollars in thousands)

Sales and marketing $ 517,126 $ 344,871 $ 172,255 50 %

Percentage of revenue 60 % 61 %

Three months ended

For the three months ended July 31, 2021, sales and marketing expenses increased primarily due to an increase of $39.7 million in employee compensation costs related to higher headcount, an increase in marketing and event costs of $7.6 million primarily due to increases in demand generation programs, advertising, and brand awareness efforts aimed at acquiring new customers, and an increase in travel expenses of $6.9 million.

We expect sales and marketing expenses will increase in absolute dollars in future periods as we invest in acquiring new customers.

Six months ended

For the six months ended July 31, 2022, sales and marketing expenses increased primarily due to an increase of $104.8 million in employee compensation costs related to headcount growth, an increase in marketing and event costs of $18.4 million primarily due to increases in demand generation programs, advertising and brand awareness efforts aimed at acquiring new customers, an increase in travel expenses of $12.7 million, an increase in amortization expense of $9.9 million for acquired customer relationships and trade names and an increase in consulting expenses of $7.0 million.

We expect sales and marketing expenses will increase in absolute dollars in future periods as we invest in acquiring new customers.

General and Administrative Expenses

4 unchanged sentences

Percentage of revenue 23 % 49 %

General and administrative expenses increased $49.2 million, or 82%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021 primarily due to an increase of $42.1 million in employee compensation costs primarily related to higher headcount to support our continued growth, including the Auth0 acquisition.

The increase in employee compensation costs includes $11.9 million in stock-based compensation expense related to the revesting agreements from our Auth0 acquisition.

Six Months Ended

2022 2021 $ Change % Change

(dollars in thousands)

General and administrative $ 211,029 $ 217,257 $ (6,228) (3) %

Percentage of revenue 24 % 38 %

Three months ended

For the three months ended July 31, 2021, general and administrative expenses decreased primarily due to a decrease of $31.6 million in employee compensation costs primarily related to $33.8 million in one-time stock-based compensation expense relating to accelerated vesting of equity awards for certain Auth0 employees incurred in the three months ended July 31, 2021, but not in the three months ended July 31, 2022, and a decrease of $27.7 million in acquisition and integration-related costs due to costs incurred in the three months ended July 31, 2021, but not in the three months ended July 31, 2022.

Six months ended

For the six months ended July 31, 2022, general and administrative expenses was relatively flat, decreasing by $6.2 million, primarily due to a decrease in acquisition and integration-related costs of $29.3 million, partially offset by an increase in employee compensation and related costs associated with headcount growth.

Interest and Other, Net

6 unchanged sentences

Interest and other, net $ 1,806 $ (20,704) $ 22,510 (109)

The expense related to Interest and other, net decreased $17.2 million, or 94%, for the three months ended April 30, 2022 compared to the three months ended April 30, 2021 primarily due to the adoption of ASU 2020-06.

Six Months Ended

2022 2021 $ Change % Change

(dollars in thousands)

Interest expense $ (5,783) $ (45,632) $ 39,849 (87) %

Interest income and other, net 6,425 6,566 (141) (2)

Loss on conversion of debt — (179) 179 (100)

Interest and other, net $ 642 $ (39,245) $ 39,887 (102)

Three and six months ended

For the three and six months ended July 31, 2022, the change in interest and other, net was primarily due to a decrease in interest expense resulting from the adoption of ASU 2020-06.

Key Business Metrics

We review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

As of April 30,

As of July 31,

(dollars in thousands)

4 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

(in thousands)

1 unchanged sentence

Total Customers and Number of Customers with Annual Contract Value Above $100,000

As of April 30, 2022, we had over 15,800 customers on our platform.

As of July 31, 2022, we had over 16,400 customers on our platform.

We believe that our ability to increase the number of customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities.

1 unchanged sentence

Over time, larger customers have constituted a greater share of our total revenue, which has contributed to an increase in average revenue per customer.

The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 3,305 and 2,075 as of April 30, 2022 and 2021, respectively.

The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 3,525 and 2,610 as of July 31, 2022 and 2021, respectively.

We expect this trend to continue as larger enterprises recognize the value of our platform and replace their legacy identity access management infrastructure.

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We typically invoice customers in advance in annual installments for subscriptions to our platform.

Calculated Billings increased 7% in the three months ended April 30, 2022 over the three months ended April 30, 2021.

We implemented operational changes to our billings process in the three months ended April 30, 2021 pursuant to which we billed customers earlier than we would have under our historical billing practices.

Including the full effect of the billings process improvements for the three months ended April 30, 2021, calculated billings increased 52% year-over-year when viewed on a like-for-like basis.

Calculated Billings increased 36% in the three months ended July 31, 2022 over the three months ended July 31, 2021, and increased 21% in the six months ended July 31, 2022 over the six months ended July 31, 2021.

As our Calculated Billings continue to grow in absolute terms, we expect our Calculated Billings growth rate to trend down over time.

12 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

(dollars in thousands)

3 unchanged sentences

Acquisition and integration-related expenses (1)

— 658 459 658

Non-GAAP gross profit $ 347,081 $ 241,479 $ 662,915 $ 437,547

5 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

(dollars in thousands)

4 unchanged sentences

Acquisition and integration-related expenses (1)

— 29,550 6,555 36,604

Non-GAAP operating loss $ (15,006) $ (24,539) $ (56,031) $ (40,437)

10 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

(dollars in thousands)

4 unchanged sentences

Acquisition and integration-related expenses (1)

— 29,550 6,555 36,604

Amortization of debt discount and debt issuance costs (2)

1,446 21,449 2,895 42,780

Loss on conversion of debt (2)

10 unchanged sentences

Free Cash Flow and Free Cash Flow Margin

We define Free cash flow as net cash provided by operating activities, less cash used for purchases of property and equipment, net of sales proceeds, and capitalized internal-use software costs.

We define Free cash flow as net cash provided by (used in) operating activities, less cash used for purchases of property and equipment, net of sales proceeds, and capitalized internal-use software costs.

Free cash flow margin is calculated as Free cash flow divided by total revenue.

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

(dollars in thousands)

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

Net cash provided by (used in) operating activities $ (19,049) $ (2,608) $ (218) $ 53,467

Purchases of property and equipment (2,165) (775) (7,493) (4,034)

7 unchanged sentences

Three Months Ended

July 31, Six Months Ended

2022 2021 2022 2021

(in thousands)

2 unchanged sentences

Unbilled receivables (beginning of period) 4,039 894 3,228 2,604

Acquired unbilled receivables — 2,327 — 2,327

Deferred revenue (beginning of period) (971,264) (624,912) (996,222) (513,598)

Unbilled receivables (end of period) (4,530) (3,409) (4,530) (3,409)

Acquired deferred revenue — (65,339) — (65,339)

Calculated Billings $ 491,336 $ 362,358 $ 880,510 $ 726,388

Liquidity and Capital Resources

As of April 30, 2022, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,487.1 million, which were held for working capital and general corporate purposes, including potential future acquisition activity.

As of July 31, 2022, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,477.0 million, which were held for working capital and general corporate purposes, including potential future acquisition activity.

Our cash equivalents and investments consisted primarily of U.S.

2 unchanged sentences

We expect to continue to incur operating losses and cash flows from operations that may fluctuate between positive and negative amounts for the foreseeable future.

In February 2018, we completed our private offering of the 2023 Notes due on February 15, 2023 and received aggregate gross proceeds of $345.0 million, of which approximately $339.8 million principal amount has been repurchased or converted as of April 30, 2022.

The interest rate on the 2023 Notes is fixed at 0.25% per annum and is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018.

24 unchanged sentences

Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recognized as revenue in accordance with our revenue recognition policy.

As of April 30, 2022, we had deferred revenue of $971.3 million, of which $952.2 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

As of July 31, 2022, we had deferred revenue of $1,011.3 million, of which $994.1 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

The following table summarizes our cash flows for the periods indicated:

Three Months Ended

Six Months Ended

(in thousands)

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

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

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

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

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)

Operating Activities

2 unchanged sentences

In recent periods, we have supplemented working capital requirements through net proceeds from the issuance of the 2023 Notes, 2025 Notes and 2026 Notes in February 2018, September 2019 and June 2020, respectively.

During the three months ended April 30, 2022, cash provided by operating activities was $18.8 million primarily due to our net loss of $242.7 million, adjusted for non-cash charges of $219.2 million and net cash inflows of $42.4 million provided by changes in our operating assets and liabilities.

During the six months ended July 31, 2022, cash used in operating activities was $0.2 million primarily due to our net loss of $453.2 million, adjusted for non-cash charges of $444.9 million and net cash inflows of $8.0 million provided by changes in our operating assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation, depreciation, amortization and accretion of property and equipment, intangible assets and short-term investments and amortization of deferred commissions.

The primary drivers of the changes in operating assets and liabilities related to a $139.2 million decrease in accounts receivable and a $15.2 million increase in accounts payable partially offset by a $60.3 million decrease in accrued compensation, a $25.0 million decrease in deferred revenue, a $21.9 million increase in deferred commissions and a $13.0 million increase in prepaid expenses and other current assets.

During the three months ended April 30, 2021, cash provided by operating activities was $56.1 million primarily due to our net loss of $109.2 million, adjusted for non-cash charges of $107.9 million and net cash inflows of $57.4 million provided by changes in our operating assets and liabilities.

The primary drivers of the changes in operating assets and liabilities related to a $74.0 million decrease in accounts receivable, a $24.6 million increase in accounts payable and a $15.1 million increase in deferred revenue partially offset by a $55.2 million decrease in accrued compensation, and a $50.1 million increase in deferred commissions.

During the six months ended July 31, 2021, cash provided by operating activities was $53.5 million primarily due to our net loss of $385.9 million, adjusted for non-cash charges of $351.4 million and net cash inflows of $88.0 million provided by changes in our operating assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation, amortization of debt discount and issuance costs, depreciation, amortization and accretion of property and equipment, intangible assets and short-term investments and amortization of deferred commissions.

The primary drivers of the changes in operating assets and liabilities related to a $111.3 million increase in deferred revenue and a $5.1 million decrease in operating lease right-of-use assets, partially offset by a $22.7 million increase in accounts receivable, a $14.9 million increase in deferred commissions and a $11.2 million decrease in accounts payable, accrued compensation and accrued other expenses.

The primary drivers of the changes in operating assets and liabilities related to a $158.4 million increase in deferred revenue and a $10.7 million decrease in operating lease right-of-use assets, partially offset by a $55.1 million increase in deferred commissions, a $14.8 million increase in accounts receivable and a $13.5 million decrease in operating lease liabilities.

Investing Activities

Net cash used in investing activities during the three months ended April 30, 2022 of $88.3 million was primarily attributable to purchases of investments of $306.8 million partially offset by proceeds from the sales and maturities of investments of $231.3 million.

Net cash provided by investing activities during the three months ended April 30, 2021 of $151.9 million was primarily attributable to proceeds from the sales and maturities of investments of $344.8 million, partially offset by purchases of investments of $189.5 million.

Net cash used in investing activities during the six months ended July 31, 2022 of $68.7 million was primarily attributable to purchases of investments of $571.1 million and purchases of property and equipment of $7.5 million, partially offset by proceeds from the sales and maturities of investments of $521.8 million.

Net cash used in investing activities during the six months ended July 31, 2021 of $311.6 million was primarily attributable to purchases of investments of $923.6 million, payments of $148.0 million, net of cash acquired, in connection with our acquisition of Auth0, and purchases of property and equipment of $4.0 million to support additional office space and headcount, partially offset by proceeds from the sales and maturities of investments of $764.5 million.

Financing Activities

Cash provided by financing activities during the three months ended April 30, 2022 and 2021 of $5.4 million and $16.2 million, respectively, was primarily attributable to proceeds from the exercise of stock options.

Cash provided by financing activities during the six months ended July 31, 2022 of $27.9 million was primarily attributable to proceeds from employee purchases under our ESPP of $19.0 million, and proceeds from the exercise of stock options of $9.0 million.

Cash provided by financing activities during the six months ended July 31, 2021 of $49.2 million was primarily attributable to proceeds from the exercise of stock options of $31.8 million, and proceeds from employee purchases under our ESPP of $17.4 million.

Indemnification Agreements

3 unchanged sentences

Off-Balance Sheet Arrangements

As of April 30, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of July 31, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

7 unchanged sentences

We no longer consider estimates related to our convertible senior notes to be a critical accounting policy due to the adoption of ASU 2020-06 effective February 1, 2022, which simplified the accounting for convertible instruments.

There have been no other significant changes to these policies for the three months ended April 30, 2022.

There have been no other significant changes to these policies for the six months ended July 31, 2022.

Recent Accounting Pronouncements

1 unchanged sentence

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 2. Management’s Discussion and Analysis