What changed in this filing

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Item 1. Financial Statements

2022-12-01 compared with 2022-09-01 · 205 added, 206 removed, 529 unchanged (44% of the section changed)

Financial Statements (unaudited)

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

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

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2022 and 2021

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

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

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2022 and 2021

Notes to Condensed Consolidated Financial Statements

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100,000 shares authorized;

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

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

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

1,000,000 shares authorized;

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

152,744 and 149,624 shares issued and outstanding as of October 31, 2022 and January 31, 2022, respectively

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

120,000 shares authorized;

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

7,393 and 6,978 shares issued and outstanding as of October 31, 2022 and January 31, 2022, respectively

Additional paid-in capital 7,785,753 7,749,716

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

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Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

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(In thousands)

Six Months Ended

Nine Months Ended

Cash flows from operating activities:

Net loss $ ( 662,082 ) $ ( 607,225 )

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

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

Stock-based compensation 511,687 407,611

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Non-cash charitable contributions 2,469 5,649

Lease impairment charges 14,461 —

Loss on conversion of debt — 179

Gain on strategic investments ( 1,965 ) ( 5,271 )

Net gain on strategic investments ( 1,873 ) ( 5,665 )

Other, net 1,872 ( 267 )

9 unchanged sentences

Deferred revenue 66,233 198,035

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

Net cash provided by operating activities 9,762 90,587

Cash flows from investing activities:

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Benefit from exercise of hedges related to convertible senior notes 17,502 92,097

Common stock issued as charitable contribution 2,014 —

Operating lease right-of-use assets exchanged for lease liabilities 8,442 21,518

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(the “Company”) is the leading independent identity provider.

The Okta Identity Cloud enables the Company’s customers to securely connect the right people to the right technologies and services at the right time.

The Okta Workforce Identity and Customer Identity Clouds enable the Company’s customers to securely connect the right people to the right technologies and services at the right time.

The Company was incorporated in January 2009 as Saasure Inc., a California corporation, and was later reincorporated in April 2010 under the name Okta, Inc.

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Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Accordingly, they do not include all of the financial information and footnotes required by GAAP for complete financial statements.

All intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated balance sheet as of January 31, 2022, included herein, was derived from the audited financial statements as of that date.

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

In the opinion of the Company’s management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair statement of 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 Company’s fiscal year ends on January 31.

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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 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.

Certain reclassifications of components of prior period 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 the aggregate cash flow classifications as previously reported.

Use of Estimates

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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 six months ended July 31, 2022.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt.

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

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

The Company adopted the FASB issued ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), effective February 1, 2022, using the modified retrospective method.

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.

ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, no longer requires separately presenting in equity an embedded conversion feature for such debt.

Similarly, the embedded conversion feature is no longer amortized into income as interest expense over the life of the instrument.

Instead, the convertible debt instrument is accounted for wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative, 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.

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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):

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

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

February 1, 2022

(dollars in thousands)

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

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

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.

In addition, the adoption of ASU 2020-06 resulted in a decrease in reported net interest expense of approximately $ 21.2 million and $ 63.0 million and a decrease in basic and diluted net loss per share of $ 0.13 and $ 0.40 , for the three and nine months ended October 31, 2022, respectively.

The Company adopted 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.

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), effective February 1, 2022, on a prospective basis.

The update requires contract assets and contract liabilities acquired in a business combination be recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers.

The adoption of ASU 2021-08 did not have a material impact on the Company’s condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company adopted the FASB issued ASU No.

2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), effective February 1, 2022, on a prospective basis.

ASU 2021-04 addresses specific guidance related to modifications or exchanges of freestanding equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios.

The adoption of ASU 2021-04 did not have a material impact on the Company’s condensed consolidated financial statements.

Business Combinations

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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 consideration held back was paid in full during the six months ended July 31, 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 six months ended July 31, 2021.

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

The transaction was accounted for as a business combination.

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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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

As of July 31, 2022

The following tables present the amortized cost, unrealized gain (loss) and estimated fair value of cash equivalents and short-term investments:

As of October 31, 2022

(dollars in thousands)

Cash equivalents:

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As of January 31, 2022

(dollars in thousands)

Cash equivalents:

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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 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

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

The following table presents the contractual maturities of the Company’s short-term investments:

As of October 31, 2022

(dollars in thousands)

Due within one year $ 1,925,930 $ 1,896,477

1 unchanged sentence

Total $ 2,261,871 $ 2,223,538

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.

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 July 31, 2022 (in thousands):

Interest receivable of $ 8.9 million and $ 6.0 million is included in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of October 31, 2022 and January 31, 2022, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Less Than 12 Months More Than 12 Months Total

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Estimated Fair Value

(dollars in thousands)

treasury securities $ 1,129,711 $ ( 19,305 ) $ 867,829 $ ( 15,535 ) $ 1,997,540 $ ( 34,840 )

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Total $ 1,195,751 $ ( 20,340 ) $ 1,027,787 $ ( 17,993 ) $ 2,223,538 $ ( 38,333 )

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.

The Company had 189 and 193 short-term investments in unrealized loss positions as of October 31, 2022 and January 31, 2022, respectively.

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 July 31, 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 October 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 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.

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.

As of October 31, 2022 and January 31, 2022, the balance of strategic investments was $ 23.6 million and $ 15.3 million, respectively.

Fair Value Measurements

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Level 3—Valuations based on unobservable inputs that are supported by little or no market activity.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

As of July 31, 2022

The following tables present information about the Company’s financial assets that were measured at fair value on a recurring basis using the above input categories:

As of October 31, 2022

Level 1 Level 2

Level 3 Total

(dollars in thousands)

Cash equivalents:

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Level 3 Total

(dollars in thousands)

Cash equivalents:

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Total cash equivalents and short-term investments $ 152,223 $ 2,241,657 $ — $ 2,393,880

The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value table above.

Fair Value Measurements of Other Financial Instruments

The following table presents the 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 July 31, 2022

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:

As of October 31, 2022

Principal Amount Estimated

(dollars in thousands)

2023 convertible senior notes $ 5,226 $ 6,001

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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.

The estimated fair

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 $ 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.

Sales commissions capitalized as contract costs totaled $ 32.5 million and $ 35.7 million in the three months ended October 31, 2022 and 2021, respectively, and $ 81.9 million and $ 90.6 million in the nine months ended October 31, 2022 and 2021, respectively.

Amortization of contract costs was $ 21.3 million and $ 14.9 million for the three months ended October 31, 2022 and 2021, respectively, and $ 60.8 million and $ 40.0 million for the nine months ended October 31, 2022 and 2021, respectively.

Goodwill and Intangible Assets, net

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.

As of October 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 nine months ended October 31, 2022 and 2021.

Intangible Assets, net

Intangible assets consisted of the following (in thousands):

As of July 31, 2022

Intangible assets consisted of the following:

As of October 31, 2022

Gross Accumulated Amortization Net

(dollars in thousands)

Capitalized internal-use software costs $ 48,016 $ ( 28,607 ) $ 19,409

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Gross Accumulated Amortization Net

(dollars in thousands)

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

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Weighted-Average Remaining Useful Life

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

As of October 31, 2022 As of January 31, 2022

Purchased developed technology 3.3 years 4.0 years

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Trade name 3.5 years 4.3 years

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.

Amortization expense of intangible assets for the three months ended October 31, 2022 and 2021 was $ 23.3 million and $ 22.4 million, respectively, and $ 69.2 million and $ 46.6 million for the nine months ended October 31, 2022 and 2021, 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 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.

Subscription revenue recognized during the three months ended October 31, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was $ 417.8 million and $ 299.9 million, respectively, and $ 858.0 million and $ 459.4 million in the nine months ended October 31, 2022 and 2021, respectively.

Professional services and other revenue recognized during the three months ended October 31, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was $ 5.9 million and $ 4.5 million, respectively, and $ 12.9 million and $ 5.9 million in the nine months ended October 31, 2022 and 2021, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

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 .

As of October 31, 2022, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 2,852.8 million .

Of this amount, the Company expects to recognize revenue of approximately $ 1,579.4 million, or 55 %, 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 July 31, 2022 were not material.

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

Convertible Senior Notes, Net

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

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

Upon conversion, the 2023 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election.

The 2023 Notes are convertible at an initial conversion rate of 20.6795 shares of Class A common stock per $1,000 principal amount of the 2023 Notes, which is equal to an initial conversion price of approximately $ 48.36 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2023 Indenture.

Prior to the close of business on the business day immediately preceding October 15, 2022, holders of the 2023 Notes may convert all or a portion of their 2023 Notes only in multiples of $1,000 principal amount, under the following circumstances:

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

• during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each trading day of that five consecutive trading day 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 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.

There have been no changes to the terms of the 2023 Notes, Note Hedges (as defined below), or Warrants (as defined below) from those disclosed in the Company’s Form 10-K for the fiscal year ended January 31, 2022.

The 2023 Notes are currently convertible at the option of the holders, in whole or in part, as of October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the conversion conditions.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

During the three months ended October 31, 2022, the Company did not settle any of the 2023 Notes and during the nine months ended October 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.

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.

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):

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

As of October 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:

Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

Contractual interest expense $ 3 $ 9 $ 14 $ 43

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(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 July 31, 2022 As of January 31, 2022

The net carrying amount of the 2023 Notes consisted of the following:

As of October 31, 2022 As of January 31, 2022

(dollars in thousands)

Liability component:

3 unchanged sentences

Net carrying amount $ 5,217 $ 16,194

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

As of October 31, 2022 As of January 31, 2022

(dollars in thousands)

Equity component:

7 unchanged sentences

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

The Note Hedges are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2023 Notes under certain circumstances.

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

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).

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

If the market value per share of the Company’s Class A common stock exceeds the applicable exercise price of the Warrants, the Warrants could have a dilutive effect on the Company’s Class A common stock unless, subject to the terms of the Warrants, the Company elects to cash settle the Warrants.

During the three months ended October 31, 2022, the Company did not settle any Note Hedges and during the nine months ended October 31, 2022, the Company exercised and net-share-settled Note Hedges

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 October 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 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).

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

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

As of October 31, 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 terms of the 2025 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the “2025 Indenture”).

Upon conversion, the 2025 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election.

The 2025 Notes are convertible at an initial conversion rate of 5.2991 shares of Class A common stock per $1,000 principal amount of the 2025 Notes, which is equal to an initial conversion price of approximately $ 188.71 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2025 Indenture.

Prior to the close of business on the business day immediately preceding June 1, 2025, holders of the 2025 Notes may convert all or a portion of their 2025 Notes only in multiples of $1,000 principal amount, under the following circumstances:

• during any fiscal quarter commencing after the fiscal quarter ending on January 31, 2020 (and only during such fiscal quarter), if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2025 Notes on each applicable trading day;

• during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2025 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate on such trading day;

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

• upon the occurrence of specified corporate events, as described in the 2025 Indenture.

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 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 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 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):

There have been no changes to the terms of the 2025 Notes or 2025 Capped Calls (as defined below) from those disclosed in the Company’s Form 10-K for the fiscal year ended January 31, 2022.

As of October 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 on the condensed consolidated balance sheet.

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

As of October 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:

Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

Contractual interest expense $ 332 $ 332 $ 994 $ 994

4 unchanged sentences

(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 July 31, 2022 As of January 31, 2022

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The net carrying amount of the 2025 Notes consisted of the following:

As of October 31, 2022 As of January 31, 2022

(dollars in thousands)

Liability component:

3 unchanged sentences

Net carrying amount $ 1,050,758 $ 910,664

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

As of October 31, 2022 As of January 31, 2022

(dollars in thousands)

Equity component:

9 unchanged sentences

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

The 2025 Capped Calls are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2025 Notes under certain circumstances.

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

3 unchanged sentences

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

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

Upon conversion, the 2026 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election.

The 2026 Notes are convertible at an initial conversion rate of 4.1912 shares of Class A common stock per $1,000 principal amount of the 2026 Notes, which is equal to an initial conversion price of approximately $ 238.60 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

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

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

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

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

• upon the occurrence of specified corporate events, as described in the 2026 Indenture.

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

During the three months ended 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 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 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):

There have been no changes to the terms of the 2026 Notes or 2026 Capped Calls (as defined below) from those disclosed in the Company’s Form 10-K for the fiscal year ended January 31, 2022.

As of October 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 on the condensed consolidated balance sheet.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

As of October 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:

Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

Contractual interest expense $ 1,078 $ 1,078 $ 3,234 $ 3,234

4 unchanged sentences

(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 July 31, 2022 As of January 31, 2022

The net carrying amount of the 2026 Notes consisted of the following:

As of October 31, 2022 As of January 31, 2022

(dollars in thousands)

Liability component:

3 unchanged sentences

Net carrying amount $ 1,140,789 $ 905,050

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

As of October 31, 2022 As of January 31, 2022

(dollars in thousands)

Equity component:

9 unchanged sentences

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

The 2026 Capped Calls are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2026 Notes under certain circumstances.

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

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

These leases do not contain material variable rent payments, residual value guarantees, covenants or other restrictions.

Operating lease costs were as follows (in thousands):

These leases do not contain material variable rent payments, residual value guarantees, financial covenants or other restrictions.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Operating lease costs were as follows:

Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

Operating lease cost (1)

1 unchanged sentence

(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 5.5 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 July 31, 2022

The weighted-average remaining term of the Company’s operating leases was 5.3 years and 5.9 years as of October 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, are as follows:

As of October 31, 2022

Fiscal Year Ending January 31:

2023 (remaining six months) $ 22,786

(dollars in thousands)

2023 (remaining three months) $ 11,367

Thereafter 53,608

3 unchanged sentences

Total operating lease liabilities $ 183,440

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.

Cash payments made related to operating lease liabilities were $ 11.3 million and $ 10.3 million in the three months ended October 31, 2022 and 2021, respectively, and $ 29.5 million and $ 29.4 million in the nine months ended October 31, 2022 and 2021, respectively.

During the three months ended October 31, 2022, the Company announced a real estate optimization plan which provided for closing duplicative sites and decommissioning underutilized offices and floors.

As a result, the Company recognized $ 14.2 million of non-cash lease impairment charges included in general and administrative expenses on the condensed consolidated statement of operations for the three months ended October 31, 2022.

The non-cash lease impairment charges represent the amount that the carrying value of the asset groups exceeded their estimated fair values.

The asset groups primarily include operating lease right-of-use assets, leasehold improvements, and related property and equipment.

To estimate the fair value of the asset group, the Company utilized a discounted cash flow approach using market participant assumptions of the expected cash flows and discount rate.

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 $ 8.5 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 July 31, 2022 and January 31, 2022.

Noncurrent restricted cash of $ 6.3 million and $ 6.4 million associated with these letters of credit is included in Other assets on the condensed consolidated balance sheets as of October 31, 2022 and January 31, 2022, respectively.

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

1 unchanged sentence

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 July 31, 2022.

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

Warranties and Indemnification

3 unchanged sentences

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

Stock-based compensation expense was recorded in the following cost and expense categories in the Company’s condensed consolidated statements of operations (in thousands):

Stock-based compensation expense was recorded in the following cost and expense categories in the Company’s condensed consolidated statements of operations:

Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

Cost of revenue

10 unchanged sentences

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

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:

As of July 31, 2022

As of October 31, 2022, options to purchase 1,841,836 shares of Class A common stock and 4,787,688 shares of Class B common stock remained outstanding.

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

As of October 31, 2022

Stock options and unvested RSUs outstanding 15,807,738

1 unchanged sentence

Available for ESPP 7,053,433

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock Options

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

A summary of the Company’s stock option activity and related information is as follows:

(in thousands)

1 unchanged sentence

Exercised ( 1,177,880 ) 12.41

Canceled ( 144,296 ) 93.18

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

As of July 31, 2022

Expired ( 24,833 ) 195.71

Forfeited ( 151,841 ) 62.73

Outstanding as of October 31, 2022 6,629,524 $ 43.30 4.6 $ 249,207

As of October 31, 2022

Vested and exercisable 5,855,640 $ 27.07 4.1 $ 242,916

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.

As of October 31, 2022, there was a total of $ 112.5 million of unrecognized stock-based compensation expense related to options, which is being recognized over a weighted-average period of 1.9 years.

Restricted Stock Units

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

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

RSUs Weighted-

4 unchanged sentences

Forfeited ( 1,178,588 ) 195.91

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.

Outstanding as of October 31, 2022 9,178,214 $ 157.90

As of October 31, 2022, there was $ 1,304.0 million of unrecognized stock-based compensation expense related to unvested RSUs, which is being recognized over a weighted-average period of 3.1 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.

In March 2022, the Company granted market-based RSUs to certain members of management.

The target number of market-based RSUs granted was 58,150 .

One-third of these market-based RSUs 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.

The $ 244.73 grant date fair value per target market-based RSU 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 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.

In connection with the business combinations, as of October 31, 2022, there was $ 172.4 million of unrecognized stock-based compensation expense related to unvested restricted shares, which is being recognized over a weighted-average period of 1.5 years based on vesting under the award service conditions.

Employee Stock Purchase Plan

2 unchanged sentences

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,

Three Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

Expected volatility — %- — %

2 unchanged sentences

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.

During the nine months ended October 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.

As of October 31, 2022, there was $ 15.2 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, 2022, the Company recorded a tax provision of $ 3.7 million and $ 9.8 million on pretax losses of $ 205.2 million and $ 652.3 million, respectively.

The effective tax rate for the three and nine months ended October 31, 2022 was approximately ( 1.8 )% and ( 1.5 )%, 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, and U.S.

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

state taxes, and stock-based compensation shortfalls 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.

1 unchanged sentence

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 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 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.

Although Congress has considered legislation that would defer, modify or repeal the capitalization and amortization requirement, to date the provision has not been deferred, repealed or otherwise modified.

As a result, 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 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 pretax losses of $ 220.6 million and $ 614.0 million, respectively.

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

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

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

deferred tax assets, release of the valuation allowance in the United States in connection with the 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.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

Net Loss Per Share

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):

The following table presents the calculation of basic and diluted net loss per share:

Three Months Ended

July 31, Six Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

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

(dollars in thousands, except per share data)

Net loss $ ( 199,456 ) $ ( 9,441 ) $ ( 211,176 ) $ ( 10,135 ) $ ( 632,425 ) $ ( 29,657 ) $ ( 576,106 ) $ ( 31,119 )

2 unchanged sentences

As the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive.

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

As of July 31,

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

As of October 31,

(in thousands)

Issued and outstanding stock options 6,630 8,621

Unvested RSUs issued and outstanding 9,120 5,221

Unvested PSUs issued and outstanding 116 —

Unvested market-based RSUs issued and outstanding 116 —

Unvested restricted stock awards issued and outstanding 743 1,269

6 unchanged sentences

The Company uses the if-converted method for calculating any potential dilutive effect of the conversion options embedded in the Notes on diluted net income per share, if applicable.

The conversion options of the 2023, 2025 and 2026 Notes are dilutive in periods of net income on a weighted-average basis using an assumed conversion date equal to the later of the beginning of the reporting period and the date of issuance of the respective Notes.

The conversion options of the 2023 Notes, 2025 Notes and 2026 Notes are dilutive in periods of net income on a weighted-average basis using an assumed conversion date equal to the later of the beginning of the reporting period and the date of issuance of the respective Notes.

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

During the three months ended 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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