What changed in this filing

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Item 1. Financial Statements

2023-06-01 compared with 2022-12-01 · 166 added, 456 removed, 278 unchanged (69% of the section changed)

Financial Statements (unaudited)

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

Condensed Consolidated Balance Sheets as of April 30, 2023 and January 31, 2023

Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2023 and 2022

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2023 and 2022

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended April 30, 2023 and 2022

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2023 and 2022

Notes to Condensed Consolidated Financial Statements

5 unchanged sentences

FORWARD-LOOKING STATEMENTS

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

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

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

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

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

• the impact of general economic, business and market conditions, including general economic downturn or recession, market volatility, and the inflation and interest rate environment;

• trends in our key business metrics;

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

• our growth strategy and ability to compete;

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

13 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(dollars in millions, shares in thousands, except per share data)

2023 January 31,

3 unchanged sentences

Accounts receivable, net of allowances of $ 7 and $ 8

380,754 397,509

Deferred commissions 95 92

13 unchanged sentences

Accrued compensation 88 99

Convertible senior notes, net 5,217 16,194

Deferred revenue 1,173 1,242

9 unchanged sentences

100,000 shares authorized;

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

no shares issued and outstanding as of April 30, 2023 and January 31, 2023

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

1,000,000 shares authorized;

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

155,044 and 154,009 shares issued and outstanding as of April 30, 2023 and January 31, 2023, respectively

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

120,000 shares authorized;

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

7,300 shares issued and outstanding as of April 30, 2023 and January 31, 2023

Additional paid-in capital 8,148 7,974

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(dollars in millions, shares in thousands, except per share data)

Three Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

Subscription $ 503 $ 398

10 unchanged sentences

General and administrative 110 110

Restructuring and other charges 7 —

Total operating expenses 536 524

2 unchanged sentences

Interest income and other, net 17 2

Loss on conversion of debt — — — ( 179 )

Gain on early extinguishment of debt 31 —

Interest and other, net 45 ( 1 )

Loss before provision for (benefit from) income taxes ( 205,169 ) ( 220,644 ) ( 652,278 ) ( 614,010 )

Provision for (benefit from) income taxes 3,728 667 9,804 ( 6,785 )

Loss before provision for income taxes ( 115 ) ( 241 )

Provision for income taxes 4 2

Net loss $ ( 119 ) $ ( 243 )

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(in millions)

Three Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

Net loss $ ( 119 ) $ ( 243 )

Other comprehensive loss:

Other comprehensive income (loss):

Net change in unrealized gains or losses on available-for-sale securities 11 ( 17 )

Foreign currency translation adjustments 2 ( 7 )

Other comprehensive loss ( 14,878 ) ( 3,971 ) ( 44,055 ) ( 4,986 )

Other comprehensive income (loss) 13 ( 24 )

Comprehensive loss $ ( 106 ) $ ( 267 )

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(in millions)

Three Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

Common stock and additional paid-in capital:

Balance, beginning of period $ 7,974 $ 7,750

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

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

Adjustments from adoption of Accounting Standards Update No.

2020-06 — ( 528 )

Issuance of common stock upon exercise of stock options and other activity, net 8 7

1 unchanged sentence

Settlement of convertible senior notes — 12

Proceeds from hedges related to convertible senior notes — — 1 2

Balance, end of period 8,148 7,412

1 unchanged sentence

Balance, beginning of period ( 2,475 ) ( 1,816 )

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

Adjustments from adoption of Accounting Standards Update No.

2020-06 — 156

Net loss ( 119 ) ( 243 )

Balance, end of period ( 2,594 ) ( 1,903 )

Accumulated other comprehensive income:

Accumulated other comprehensive loss:

Balance, beginning of period ( 33 ) ( 12 )

Other comprehensive loss ( 14,878 ) ( 3,971 ) ( 44,055 ) ( 4,986 )

Other comprehensive income (loss) 13 ( 24 )

Balance, end of period ( 20 ) ( 36 )

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended

(in millions)

Three Months Ended

Cash flows from operating activities:

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Depreciation, amortization and accretion 25 30

Amortization of debt discount and issuance costs 4,340 64,478

Amortization of debt issuance costs 1 1

Amortization of deferred commissions 23 19

Deferred income taxes 1 —

Non-cash charitable contributions 2,469 5,649

Lease impairment charges 8 —

Loss on conversion of debt — 179

Gain on early extinguishment of debt ( 31 ) —

Net gain on strategic investments — ( 1 )

12 unchanged sentences

Cash flows from investing activities:

Capitalization of internal-use software costs ( 7,773 ) ( 2,348 )

Capitalized software ( 5 ) ( 3 )

Purchases of property and equipment — ( 5 )

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Payments for business acquisitions, net of cash acquired ( 22 ) ( 4 )

Net cash used in investing activities ( 47,223 ) ( 210,102 )

Net cash provided by (used in) investing activities 59 ( 88 )

Cash flows from financing activities:

Payments for conversions of convertible senior notes ( 6 ) ( 26 )

Proceeds from hedges related to convertible senior notes 1 2

Proceeds from stock option exercises 14,610 41,054

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

Net cash provided by financing activities 33,565 58,447

Payments for repurchases of convertible senior notes ( 332 ) —

Proceeds from stock option exercises, net of repurchases 6 5

Net cash provided by (used in) financing activities ( 326 ) 5

Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash 1 ( 5 )

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Cash paid during the period for:

Interest $ 3,509 $ 3,548

Income taxes 5,445 2,550

Operating leases 12 11

Non-cash activities:

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

Issuance of common stock for conversions of convertible senior notes — 40

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

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’s Workforce Identity and Customer Identity Clouds are powered by the Company’s Identity Platform enabling customers to securely connect the right people to the right technologies and services at the right time.

Employees and contractors sign into the Workforce Identity Cloud to seamlessly and securely access the applications they need to do their most important work.

Developers leverage the Workforce Identity and Customer Identity Clouds to securely and efficiently embed identity into the software they build, allowing them to innovate and focus on their core missions.

Organizations use the Company’s Identity Platform to collaborate with their partners, and to provide their customers with more modern and secure experiences in the cloud and via mobile devices.

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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All intercompany balances and transactions have been eliminated in consolidation.

The Company conducts business globally and is managed, operated and organized by major functional departments that operate on a consolidated basis.

As a result, the Company operates in one reportable segment.

The condensed consolidated balance sheet as of January 31, 2023, included herein, was derived from the audited financial statements as of that date.

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References to fiscal 2024, for example, refer to the fiscal year ending January 31, 2024.

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 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.

The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 3, 2023.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances.

The preparation of condensed consolidated financial statements in conformity with GAAP requires estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Estimates are based on historical experience and on other assumptions that management believes are reasonable under the circumstances.

Actual results could vary from those estimates.

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

The Company’s most significant estimates include the valuation of deferred income tax assets, uncertain tax positions, assets and liabilities acquired in business combinations, and loss contingencies related to litigation.

Accounting Standards and Significant Accounting Policies

Significant Accounting Policies

The Company’s significant accounting policies are discussed in “Note 2.

Summary of Significant Accounting Policies” in Item 8.

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

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

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Recently Adopted Accounting Pronouncements

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.

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

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

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

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

The 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

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

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

Stockholders’ equity

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

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

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 (“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

Acquisition of Auth0

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

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

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

Cash consideration of $ 3.8 million and approximately 1.1 million shares valued at $ 294.6 million were held back as partial security for post-closing true-up adjustments as well as any indemnification claims made within one year of the acquisition date.

The consideration held back was paid in full during the nine months ended October 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 nine months ended October 31, 2021.

The transaction was accounted for as a business combination.

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

The excess of purchase consideration over the fair value of the net tangible assets and identifiable intangible assets acquired was $ 5,290.1 million and was recorded as goodwill.

Acquisition of atSpoke

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

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

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

The Company recorded $ 18.3 million for developed technology intangible assets with an estimated useful life of 3 years and 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 nine months ended October 31, 2021.

For a summary of the Company’s significant accounting policies refer to “Note 2.

Summary of Significant Accounting Policies” of its Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Restructuring and Other Charges

During the third quarter of fiscal 2023, the Company announced a real estate optimization plan which provided for closing duplicative sites and decommissioning underutilized offices and floors.

The Company recognized non-cash lease impairment charges of $ 14 million in the year ended January 31, 2023.

In the three months ended April 30, 2023, the Company recognized an additional $ 8 million of non-cash lease impairment charges as a result of the real estate optimization plan.

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.

During the fourth quarter of fiscal 2023, the Company approved a restructuring plan (the “Restructuring Plan”) intended to reduce operating expenses and improve profitability.

The Restructuring Plan involved a reduction of the Company’s workforce by approximately 300 full-time employees.

The Restructuring Plan was substantially complete by the first quarter of fiscal 2024 and the Company recognized aggregate restructuring costs of $ 15 million in the fourth quarter of fiscal 2023.

The following table summarizes the Company’s restructuring liability that is included in Accrued expenses and other current liabilities on the condensed consolidated balance sheet:

Severance and termination benefit costs

(dollars in millions)

Balance as of January 31, 2023 $ 15

Cash payments ( 14 )

Balance as of April 30, 2023 $ 1

Cash Equivalents and Investments

Cash Equivalents and Short-term Investments

In estimating fair value, the Company uses a three-tier fair value hierarchy as follows:

• Level 1 — Valuations based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

• Level 2 — Valuations based on other inputs that are directly or indirectly observable in the marketplace.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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)

As of April 30, 2023

(dollars in millions)

Cash equivalents:

1 unchanged sentence

Total cash equivalents 12 — — 12

Short-term investments:

Short-term investments (Available-for-sale):

treasury securities 2,155 1 ( 12 ) 2,144

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As of January 31, 2023

(dollars in thousands)

(dollars in millions)

Cash equivalents:

1 unchanged sentence

Total cash equivalents 133 — — 133

Short-term investments:

Short-term investments (Available-for-sale):

treasury securities 2,207 — ( 22 ) 2,185

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Total $ 2,473 $ — $ ( 24 ) $ 2,449

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)

As of April 30, 2023

(dollars in millions)

Due within one year $ 1,960 $ 1,949

1 unchanged sentence

Total $ 2,257 $ 2,245

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.

Interest receivable of $ 15 million and $ 10 million is included in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of April 30, 2023 and January 31, 2023, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 October 31, 2022:

Less Than 12 Months More Than 12 Months Total

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Estimated Fair Value

(dollars in thousands)

(dollars in millions)

treasury securities $ 1,212 $ ( 4 ) $ 679 $ ( 8 ) $ 1,891 $ ( 12 )

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Total $ 1,212 $ ( 4 ) $ 762 $ ( 9 ) $ 1,974 $ ( 13 )

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

The Company had 139 and 159 short-term investments in unrealized loss positions as of April 30, 2023 and January 31, 2023, 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 October 31, 2022 and January 31, 2022.

There were no material credit or non-credit related impairments for short-term investments as of April 30, 2023 and January 31, 2023.

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

Fair Value Measurements

The Company measures its financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Three levels of inputs may be used to measure as follows:

Level 1—Valuations based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

Level 2—Valuations based on other inputs that are directly or indirectly observable in the marketplace.

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 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:

Money market funds $ 91,598 $ — $ — $ 91,598

Total cash equivalents 91,598 — — 91,598

Short-term investments:

treasury securities — 1,997,540 — 1,997,540

Corporate debt securities — 225,998 — 225,998

Total short-term investments — 2,223,538 — 2,223,538

Total cash equivalents and short-term investments $ 91,598 $ 2,223,538 $ — $ 2,315,136

As of January 31, 2022

Level 1 Level 2

Level 3 Total

(dollars in thousands)

Cash equivalents:

Money market funds $ 152,223 $ — $ — $ 152,223

Total cash equivalents 152,223 — — 152,223

Short-term investments:

treasury securities — 1,912,188 — 1,912,188

Corporate debt securities — 329,469 — 329,469

Total short-term investments — 2,241,657 — 2,241,657

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 tables 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:

As of October 31, 2022

Principal Amount Estimated

(dollars in thousands)

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

2025 convertible senior notes 1,059,997 887,747

2026 convertible senior notes 1,150,000 925,635

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

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.

Strategic investments primarily include equity investments in privately-held companies, which do not have a readily determinable fair value.

As of April 30, 2023 and January 31, 2023, the balance of strategic investments was $ 26 million and $ 25 million, respectively.

Deferred Commissions

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 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:

As of October 31, 2022

Gross Accumulated Amortization Net

(dollars in thousands)

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

Purchased developed technology 219,800 ( 81,187 ) 138,613

Customer relationships 140,900 ( 52,798 ) 88,102

Trade name 21,400 ( 6,420 ) 14,980

Software licenses 1,797 ( 1,076 ) 721

$ 431,913 $ ( 170,088 ) $ 261,825

As of January 31, 2022

Gross Accumulated Amortization Net

(dollars in thousands)

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

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

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

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

Software licenses 116 ( 3 ) 113

$ 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 October 31, 2022 As of January 31, 2022

Purchased developed technology 3.3 years 4.0 years

Customer relationships 3.5 years 4.0 years

Trade name 3.5 years 4.3 years

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.

Sales commissions capitalized as contract costs totaled $ 25 million and $ 21 million in the three months ended April 30, 2023 and 2022, respectively.

Amortization of contract costs totaled $ 23 million and $ 19 million for the three months ended April 30, 2023 and 2022, respectively.

Deferred Revenue and Performance Obligations

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

Subscription revenue recognized during the three months ended October 31, 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.

Subscription revenue recognized during the three months ended April 30, 2023 and 2022 that was included in the deferred revenue balances at the beginning of the respective periods was $ 467 million and $ 362 million, respectively.

Professional services and other revenue recognized during the three months ended April 30, 2023 and 2022 that was included in the deferred revenue balances at the beginning of the respective periods was $ 4 million and $ 6 million, 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 October 31, 2022, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $ 2,852.8 million .

Total remaining non-cancelable performance obligations under subscription contracts with customers was approximately $ 2,942 million as of April 30, 2023 .

Of this amount, the Company expects to recognize revenue of approximately $ 1,701 million, or 58 %, over the next 12 months, with the balance to be recognized as revenue thereafter.

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

Remaining performance obligations for professional services and other contracts as of April 30, 2023 were not material.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Convertible Senior Notes, Net

Convertible Senior Notes

The 2023 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.25 % per year.

Interest is payable in cash semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018.

The 2023 Notes mature on February 15, 2023 unless earlier repurchased or converted.

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

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.

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

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

Contractual interest expense $ 3 $ 9 $ 14 $ 43

Amortization of debt issuance costs 8 22 35 84

Amortization of debt discount (1)

Total $ 11 $ 244 $ 49 $ 964

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

The 2025 convertible senior notes (“2025 Notes”) and the 2026 convertible senior notes (“2026 Notes” and together with the 2025 Notes, the “Notes”) are recorded at face value less unamortized debt issuance costs.

During the three months ended April 30, 2023, the Company repurchased $ 366 million principal amount of the 2025 Notes for $ 332 million in cash resulting in a gain on early extinguishment of debt of $ 31 million, net of unamortized debt issuance costs.

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

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

(dollars in thousands)

Liability component:

As of April 30, 2023 As of January 31, 2023

(dollars in millions)

Principal $ 694 $ 1,060

unamortized debt issuance costs and debt discount (1)

( 9 ) ( 1,034 )

unamortized debt issuance costs ( 5 ) ( 8 )

Net carrying amount $ 689 $ 1,052

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

(dollars in thousands)

Equity component:

2023 Notes $ — $ 3,993

issuance costs — ( 116 )

Carrying amount of the equity component (2)

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

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

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

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

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

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

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

2025 Convertible Senior Notes

The 2025 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.125 % per year.

Interest is payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020.

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

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

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

Contractual interest expense $ 332 $ 332 $ 994 $ 994

Amortization of debt issuance costs 809 581 2,424 1,705

Amortization of debt discount (1)

— 8,878 — 26,368

Total $ 1,141 $ 9,791 $ 3,418 $ 29,067

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

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:

Principal $ 1,150 $ 1,150

unamortized debt issuance costs and debt discount (1)

( 9,239 ) ( 149,333 )

unamortized debt issuance costs ( 8 ) ( 9 )

Net carrying amount $ 1,142 $ 1,141

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

(dollars in thousands)

Equity component:

Fair Value Measurements

The following table presents the principal amounts and estimated fair values of the Notes, which are not recorded at fair value on the condensed consolidated balance sheets:

As of April 30, 2023

Principal Amount Estimated Fair Value

(dollars in millions)

2025 Notes $ 694 $ 606

issuance costs — ( 4,040 )

Carrying amount of the equity component (2)

$ — $ 217,347

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

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

2025 Capped Calls

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

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

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

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

2026 Convertible Senior Notes

The 2026 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.375 % per year.

Interest is payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020.

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

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

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

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

Amortization of debt issuance costs 628 364 1,881 1,056

Amortization of debt discount (1)

— 11,640 — 34,428

Total $ 1,706 $ 13,082 $ 5,115 $ 38,718

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

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:

Principal $ 1,150,000 $ 1,150,000

unamortized debt issuance costs and debt discount (1)

( 9,211 ) ( 244,950 )

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

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

(dollars in thousands)

Equity component:

2026 Notes $ 1,150 $ 972

issuance costs — ( 4,090 )

Carrying amount of the equity component (2)

$ — $ 306,221

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

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

2026 Capped Calls

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

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

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

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, financial covenants or other restrictions.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Operating lease costs were as follows:

Three Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

Operating lease cost (1)

$ 10,218 $ 9,677 $ 30,954 $ 28,135

(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 5.3 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:

(dollars in thousands)

2023 (remaining three months) $ 11,367

Thereafter 53,608

Total lease payments 213,295

Less imputed interest ( 27,876 )

Less tenant improvement allowances not yet recognized ( 1,979 )

Total operating lease liabilities $ 183,440

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.

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.

In February 2018, the Company sold net-share-settled (or, at the Company’s election subject to certain conditions, cash-settled) warrants (the “Warrants”) to acquire shares of the Company’s Class A common stock at an initial exercise price of approximately $ 68.06 per share.

The Warrants may be exercised over 80 scheduled trading days beginning on May 15, 2023 and will expire if they are not exercised on their respective exercise dates.

The Company has elected to cash settle the warrants.

As of April 30, 2023, Warrants to acquire up to approximately 1 million shares remained outstanding.

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 October 31, 2022 and January 31, 2022, respectively.

In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $ 6 million were issued and outstanding as of April 30, 2023 and January 31, 2023.

No draws have been made under such letters of credit.

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.

Noncurrent restricted cash of $ 6 million associated with these letters of credit is included in Other assets on the condensed consolidated balance sheets as of April 30, 2023 and January 31, 2023.

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.

Legal Matters

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

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

On May 20, 2022, a purported shareholder filed a putative class action lawsuit in the United States District Court for the Northern District of California against the Company and certain of its executive officers, captioned In re Okta, Inc.

Securities Litigation, No.

3:22-cv-02990.

The lawsuit asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that the defendants made false or misleading statements or omissions concerning the Company’s cybersecurity controls, vulnerability to data breaches, and the Company’s integration of Auth0, Inc.

The lawsuit seeks an order certifying the lawsuit as a class action and unspecified damages.

The defendants moved to dismiss the amended complaint.

On March 31, 2023, the court issued an order granting in part and denying in part the motion to dismiss.

The court dismissed in full the claims based on plaintiff’s allegations related to the Company’s cybersecurity controls and vulnerability to data breaches, and dismissed in part and denied in part the claims based on allegations related to the Auth0 integration.

Discovery will proceed with respect to the issues remaining in the case.

Additionally, two purported shareholders filed derivative lawsuits on behalf of the Company in the United States District Court for the Northern District of California against certain of its current and former executive officers and directors, captioned O’Dell v.

McKinnon et al.

3:22-cv-07480 (filed Nov.

28, 2022), and LR Trust v.

McKinnon et al ., No.

3:22-cv-08627 (filed Dec.

The lawsuits allege, among other things, that the defendants breached their fiduciary duties by making false or misleading statements or omissions concerning the Company’s cybersecurity controls, vulnerability to data breaches, and the Company’s integration of Auth0.

The lawsuits seek orders permitting the plaintiffs to maintain this action derivatively on behalf of the Company, awarding unspecified damages allegedly sustained by the Company, awarding restitution from the individual defendants, and requiring the Company to make certain reforms to its corporate governance and controls.

On February 22, 2023, the court entered a stipulated order consolidating the derivative actions, appointing co-lead counsel for plaintiffs, and staying the consolidated derivative actions during the pendency of the motion to dismiss in the securities class action lawsuit.

The consolidated derivative action is captioned In re Okta, Inc.

Stockholder Derivative Litigation , No.

3:22-cv-07480.

On May 9, 2023, the court entered a stipulated order continuing the stay.

On April 14, 2023, another shareholder filed a substantially similar derivative lawsuit in the United States District Court for the District of Delaware against certain of the Company’s current and former executive officers and directors, captioned Buono v.

McKinnon et al.

1:23-cv-00413.

No parties have been served.

The Company intends to defend these lawsuits vigorously.

At this time, the Company is unable to predict the outcome or estimate the amount of loss or range of losses that could potentially result from these lawsuits.

Warranties and Indemnification

1 unchanged sentence

Employee Incentive Plans

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

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

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

October 31, Nine Months Ended

2022 2021 2022 2021

(dollars in thousands)

(dollars in millions)

Cost of revenue

5 unchanged sentences

Total $ 166 $ 171

Equity Incentive Plans

The Company has two equity incentive plans:

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

In addition, the Company assumed Auth0 equity incentive plans.

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

As of October 31, 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

Available for future stock option and RSU grants 26,022,656

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 is as follows:

(in thousands)

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

Exercised ( 1,177,880 ) 12.41

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 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 is as follows:

RSUs Weighted-

Grant Date Fair Value Per Share

Outstanding as of January 31, 2022 6,225,747 $ 207.26

Granted 6,087,249 121.08

Vested ( 1,956,194 ) 177.54

Forfeited ( 1,178,588 ) 195.91

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.

The following table presents total unrecognized stock-based compensation expense related to outstanding equity awards as of April 30, 2023:

Unrecognized Stock-based Compensation Expense

(in millions) Weighted-average remaining period

Unvested RSUs $ 1,372 2.9 years

Unvested RSAs 113 1.0 year

Unvested stock options 66 1.6 years

ESPP 16 0.5 years

Total $ 1,567

Market-based Restricted Stock Units

3 unchanged sentences

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 market-based RSU was determined using a Monte Carlo simulation approach.

The $ 149.78 average 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 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

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

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

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

Three Months Ended

October 31, Nine Months Ended

2022 2021 2022 2021

Expected volatility — %- — %

Expected term (in years) 0 - 0

Risk-free interest rate — % - — %

2.46 % - 2.92 %

0.06 % - 0.09 %

Expected dividend yield — — — —

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 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, U.S.

state taxes, and stock-based compensation shortfalls in the United Kingdom.

For the three months ended April 30, 2023, the Company recorded a tax provision of $ 4 million on a pretax loss of $ 115 million.

The effective tax rate for the three months ended April 30, 2023 was approximately ( 3.6 )%.

The effective tax rate differs from the statutory rate primarily as a result of a full valuation allowance against U.S.

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

federal and state taxes.

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, 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 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

For the three months ended April 30, 2022, the Company recorded a tax provision of $ 2 million on a pretax loss of $ 241 million.

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

The effective tax rate differs from the statutory rate primarily as a result of a full valuation allowance against U.S.

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.

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

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

Net Loss Per Share

The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities.

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

Three 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)

Class A Class B Class A Class B

(dollars in millions, shares in thousands, except per share data)

Net loss $ ( 114 ) $ ( 5 ) $ ( 232 ) $ ( 11 )

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

As of October 31,

(in thousands)

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

As of April 30,

(shares in thousands)

Issued and outstanding stock options 5,865 7,569

1 unchanged sentence

Unvested market-based RSUs issued and outstanding 502 116

Unvested restricted stock awards issued and outstanding 743 1,269

Unvested RSAs issued and outstanding 525 1,269

Shares committed under the ESPP 864 232

4 unchanged sentences

29,642 29,126

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 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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 1. Financial Statements