Okta, Inc. 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. Amounts reported in millions are rounded based on the amounts in thousands. As a result, the sum of the components reported in millions may not equal the total amount reported in millions due to rounding. In addition, percentages presented may not add to their respective totals or recalculate due to rounding. In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q and Part I, Item 1A in our Annual Report on Form 10-K. Our fiscal year ends January 31. Overview Okta is the leading independent identity provider. Our Workforce Identity and Customer Identity Clouds are powered by our category-defining Okta Identity Platform that enables our customers to securely connect the right people to the right technologies and services at the right time. Every day, thousands of organizations and millions of people use Okta to securely access a wide range of cloud, mobile, web and Software-as-a-Service ("SaaS") applications, on-premises servers, application programming interfaces, IT infrastructure providers and services from a multitude of devices. 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 our Customer Identity and Workforce Identity Clouds to securely and efficiently embed identity into the software they build, allowing them to innovate and focus on their core missions. Given the growth trends in the number of applications and cloud adoption, and the movement to remote workforces, identity is becoming the most critical layer of an organization’s security. As workforces have transitioned to fully remote and hybrid work models, Zero Trust has become an increasingly important security model and identity an increasingly critical service. Our approach to identity allows our customers to simplify and efficiently scale their security infrastructures across internal IT systems and external customer facing applications. As of April 30, 2023, more than 18,050 customers across nearly every industry used Okta to secure and manage identities around the world. Our customers consist of leading global organizations ranging from the largest enterprises, to small and medium-sized businesses, universities, non-profits and government agencies. We also partner with leading application, IT infrastructure and security vendors through our Okta Integration Network. As of April 30, 2023, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors. We employ a SaaS business model, and generate revenue primarily by selling multi-year subscriptions to our cloud-based offerings. We focus on acquiring and retaining our customers and increasing their spending with us through expanding the number of users who access our Workforce Identity and Customer Identity Clouds and up-selling additional products. We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners, including resellers, system integrators and other distribution partners. Our subscription fees include the use of our service and our technical support and management of our platform. We base subscription fees primarily on the products used and the number of users on our platform. We typically invoice customers in advance in annual installments for subscriptions to our platform. Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 97% of total revenue for the three months ended April 30, 2023. Future growth may be impacted by longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for cash flow and RPO growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis. 17 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Components of Results of Operations Revenue Subscription Revenue. Subscription revenue primarily consists of fees for access to and usage of our cloud-based platform and related support. Subscription revenue is driven primarily by the number of customers, the number of users per customer and the products used. We typically invoice customers in advance in annual installments for subscriptions to our platform. Professional Services and Other . Professional services revenue includes fees from assisting customers in implementing and optimizing the use of our products. These services include application configuration, system integration and training services. We generally invoice customers as the work is performed for time-and-materials arrangements, and up front for fixed fee arrangements. All professional services revenue is recognized as the services are performed. Overhead Allocation and Employee Compensation Costs We allocate shared costs, such as facilities costs (including rent, utilities and depreciation on assets shared by all departments), certain information technology costs and recruiting costs to all departments based on headcount. As such, allocated shared costs are reflected in each of the cost of revenue and operating expense categories. Employee compensation costs reflected in each of the cost of revenue and operating expense categories include salaries, bonuses, compensation related taxes, benefits and stock-based compensation. Additionally included in the sales and marketing expense category are sales commissions and related taxes. Cost of Revenue and Gross Margin Cost of Subscription . Cost of subscription primarily consists of expenses related to hosting our services and providing support. These expenses include employee-related costs associated with our cloud-based infrastructure and our customer support organization, third-party hosting fees, software and maintenance costs, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired developed technology and allocated overhead. We intend to continue to invest additional resources in our platform infrastructure and our platform support organizations. We will continue to invest in technology innovation and we anticipate that costs qualifying for capitalization of internal-use software costs and related amortization may fluctuate over time. We expect our investment in technology to expand the capability of our platform enabling us to improve our gross margin over time. The level and timing of investment in these areas could affect our cost of subscription revenue in the future. Cost of Professional Services and Other . Cost of professional services consists primarily of employee-related costs for our professional services delivery team, travel-related costs, allocated overhead and costs of outside services associated with supplementing our professional services delivery team. The cost of providing professional services has historically been higher than the associated revenue we generate. Gross Margin . Gross margin is gross profit expressed as a percentage of total revenue. Our gross margin may fluctuate from period to period as a result of the timing and amount of investments to expand our hosting capacity, our continued efforts to build platform support and professional services teams, increased stock-based compensation expenses, as well as the amortization of costs associated with capitalized internal-use software and acquired intangible assets. Operating Expenses Research and Development. Research and development expenses consist primarily of employee compensation costs and allocated overhead. We believe that continued investment in our platform is important for our growth. Sales and Marketing. Sales and marketing expenses consist primarily of employee compensation costs, costs of general marketing and promotional activities, travel-related expenses, amortization expense associated with acquired customer relationships (including unbilled and unrecognized contracts yet to be fulfilled) and trade 18 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) names and allocated overhead. Commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a contract with a customer are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally five years. General and Administrative. General and administrative expenses consist primarily of employee compensation costs for finance, accounting, legal, information technology and human resources personnel. In addition, general and administrative expenses include acquisition and integration-related costs, non-personnel costs, such as legal, accounting and other professional fees, charitable contributions, and all other supporting corporate expenses, such as information technology, not allocated to other departments. Restructuring and Other Charges. Restructuring and other charges consist primarily of personnel costs, such as notice period, employee severance payments and termination benefits. In addition, restructuring and other charges include certain lease impairment charges. Interest and Other, Net Interest and other, net consists of interest expense, which primarily includes amortization of debt issuance costs and contractual interest expense for our convertible senior notes, interest income from our investment holdings, gains on early extinguishment of debt and gains and losses from our strategic investments. Provision for Income Taxes Our provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions where we operate. The primary difference between our effective tax rate and the federal statutory rate is due to a valuation allowance against U.S. deferred tax assets. 19 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Results of Operations The following table sets forth our results of operations for the periods presented: Three Months Ended April 30, 2023 2022 (dollars in millions) Revenue: Subscription $ 503 $ 398 Professional services and other 15 17 Total revenue 518 415 Cost of revenue: Subscription (1) 122 111 Professional services and other (1) 20 20 Total cost of revenue 142 131 Gross profit 376 284 Operating expenses: Research and development (1) 163 162 Sales and marketing (1) 256 252 General and administrative (1) 110 110 Restructuring and other charges 7 — Total operating expenses 536 524 Operating loss (160) (240) Interest expense (3) (3) Interest income and other, net 17 2 Gain on early extinguishment of debt 31 — Interest and other, net 45 (1) Loss before provision for income taxes (115) (241) Provision for income taxes 4 2 Net loss $ (119) $ (243) (1) Includes stock-based compensation expense as follows: Three Months Ended April 30, 2023 2022 (dollars in millions) Cost of subscription revenue $ 16 $ 17 Cost of professional services and other revenue 4 4 Research and development 68 70 Sales and marketing 38 39 General and administrative 40 41 Total stock-based compensation expense $ 166 $ 171 20 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The following table sets forth our results of operations for the periods presented as a percentage of our total revenue: Three Months Ended April 30, 2023 2022 Revenue Subscription 97 % 96 % Professional services and other 3 4 Total revenue 100 100 Cost of revenue Subscription 24 27 Professional services and other 3 5 Total cost of revenue 27 32 Gross profit 73 68 Operating expenses Research and development 32 39 Sales and marketing 50 61 General and administrative 21 26 Restructuring and other charges 1 — Total operating expenses 104 126 Operating loss (31) (58) Interest expense (1) — Interest income and other, net 3 — Gain on early extinguishment of debt 7 — Interest and other, net 9 — Loss before provision for income taxes (22) (58) Provision for income taxes 1 — Net loss (23) % (58) % 21 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of the Three Months Ended April 30, 2023 and 2022 Revenue Three Months Ended April 30, 2023 2022 $ Change % Change (dollars in millions) Revenue: Subscription $ 503 $ 398 $ 105 26 % Professional services and other 15 17 (2) (16) Total revenue $ 518 $ 415 $ 103 25 Percentage of revenue: Subscription 97 % 96 % Professional services and other 3 4 Total 100 % 100 % For the three months ended April 30, 2023, the increase in subscription revenue was primarily due to the addition of new customers, an increase in users and sales of additional products to existing customers. The increase in revenue was attributable to a 14% increase in total customers, from over 15,800 as of April 30, 2022 to over 18,050 as of April 30, 2023, and revenue from existing customers as reflected in our Dollar-Based Net Retention Rate of 117% as of April 30, 2023. For the three months ended April 30, 2023, professional services and other revenue decreased primarily due to lower bookings associated with professional services. Cost of Revenue, Gross Profit and Gross Margin Three Months Ended April 30, 2023 2022 $ Change % Change (dollars in millions) Cost of revenue: Subscription $ 122 $ 111 $ 11 10 % Professional services and other 20 20 — (3) Total cost of revenue $ 142 $ 131 $ 11 8 Gross profit $ 376 $ 284 $ 92 32 Gross margin: Subscription 76 % 72 % Professional services and other (38) (19) Total gross margin 73 68 For the three months ended April 30, 2023, cost of subscription revenue increased primarily due to an increase of $6 million in employee compensation costs related to higher headcount to support the growth in our subscription services and an increase of $3 million in third-party hosting costs as we expanded capacity to support our growth. Our gross margin for subscription revenue improved to 76% from 72% for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. The increase was primarily driven by improved spend efficiency resulting in lower relative cost of subscription revenue. While our gross margin for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale. 22 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) For the three months ended April 30, 2023, cost of professional services and other revenue remained relatively flat. Our gross margin for professional services and other revenue decreased to (38)% from (19)% for the three months ended April 30, 2023 compared to the three months ended April 30, 2022 primarily due to a decrease in professional services and other revenue. Operating Expenses Research and Development Expenses Three Months Ended April 30, 2023 2022 $ Change % Change (dollars in millions) Research and development $ 163 $ 162 $ 1 1 % Percentage of revenue 32 % 39 % For the three months ended April 30, 2023, research and development expenses remained relatively flat. We expect our research and development expenses will increase in absolute dollars as our business grows. Sales and Marketing Expenses Three Months Ended April 30, 2023 2022 $ Change % Change (dollars in millions) Sales and marketing $ 256 $ 252 $ 4 1 % Percentage of revenue 50 % 61 % For the three months ended April 30, 2023, sales and marketing expenses increased primarily due to an increase of $16 million in employee compensation costs related to higher headcount, partially offset by a decrease in marketing costs of $13 million. We expect our sales and marketing expenses will continue to be our largest operating expense category for the foreseeable future as we expand our sales and marketing efforts. In the short-term, our sales and marketing expenses may increase as a percentage of our total revenue, however, over time, we expect this percentage to decrease as our total revenue grows. General and Administrative Expenses Three Months Ended April 30, 2023 2022 $ Change % Change (dollars in millions) General and administrative $ 110 $ 110 $ — — % Percentage of revenue 21 % 26 % For the three months ended April 30, 2023, general and administrative expenses remained relatively flat primarily due to an increase of $5 million in employee compensation costs associated with headcount growth, offset by a decrease in acquisition and integration-related costs of $5 million. We expect our general and administrative expenses will increase in absolute dollars as our business grows. 23 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Restructuring and Other Charges Three Months Ended April 30, 2023 2022 $ Change % Change (dollars in millions) Restructuring and other charges $ 7 $ — $ 7 — % Percentage of revenue 1 % — % For the three months ended April 30, 2023, restructuring and other charges were primarily related to lease impairment charges. We may incur additional charges as a result of our ongoing real estate optimization plan and the evolving corporate real estate market conditions. See Note 3 to our condensed consolidated financial statements "Restructuring and Other Charges" for additional information. Interest and Other, Net Three Months Ended April 30, 2023 2022 $ Change % Change (dollars in millions) Interest expense $ (3) $ (3) $ — (3) % Interest income and other, net 17 2 15 876 Gain on early extinguishment of debt 31 — 31 — Interest and other, net $ 45 $ (1) $ 46 (3,922) For the three months ended April 30, 2023, the change in interest and other, net was primarily due to a gain on early extinguishment of debt related to repurchases of the 2025 Notes and an increase in interest income from our short-term investments. We expect interest income from our short-term investments to continue to increase in the short term as a result of increasing interest rates. Provision for Income Taxes Three Months Ended April 30, 2023 2022 $ Change % Change (dollars in millions) Provision for income taxes $ 4 $ 2 $ 2 125 % For the three months ended April 30, 2023, income tax expense resulted primarily from income from profitable foreign jurisdictions, U.S. federal and state taxes, and the tax impact of shortfalls from stock-based compensation. 24 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Key Business Metrics We review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. As of April 30, 2023 2022 (dollars in millions) Number of customers 18,050 15,800 Customers with annual contract value ("ACV") above $100,000 4,080 3,305 Dollar-based net retention rate for the trailing 12 months ended 117 % 123 % Current remaining performance obligations $ 1,701 $ 1,413 Remaining performance obligations $ 2,942 $ 2,710 Total Customers and Number of Customers with Annual Contract Value Above $100,000 As of April 30, 2023, we had over 18,050 customers on our platform. We believe that our ability to increase the number of customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities. Increasing awareness of our platform and capabilities, coupled with the mainstream adoption of cloud technology, has expanded the diversity of our customer base to include organizations of all sizes across all industries. The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 4,080 and 3,305 as of April 30, 2023 and 2022, respectively. We expect this trend to continue as larger enterprises recognize the value of our platform and replace their legacy identity access management infrastructure. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract with us or one of our partners to access our platform. For purposes of determining our customer count, we do not include customers that use our platform under self-service arrangements only. Dollar-Based Net Retention Rate Part of our ability to generate revenue is dependent upon our ability to maintain our relationships with our customers and to increase their utilization of our platform. We believe we can achieve these goals by focusing on delivering value and functionality that enables us to both retain our existing customers and expand the number of users and products used within an existing customer. We assess our performance in this area by measuring our Dollar-Based Net Retention Rate. Our Dollar-Based Net Retention Rate measures our ability to increase revenue across our existing customer base through expansion of users and products associated with a customer as offset by churn and contraction in the number of users and/or products associated with a customer. Our Dollar-Based Net Retention Rate is based upon our ACV which is calculated based on the terms of that customer’s contract and represents the total contracted annual subscription amount as of that period end. We calculate our Dollar-Based Net Retention Rate as of a period end by starting with the ACV from all customers as of twelve months prior to such period end (“Prior Period ACV”). We then calculate the ACV from these same customers as of the current period end (“Current Period ACV”). Current Period ACV includes any upsells and is net of contraction or churn over the trailing twelve months but excludes ACV from new customers in the current period. We then divide the Current Period ACV by the Prior Period ACV to arrive at our Dollar-Based Net Retention Rate. Our Dollar-Based Net Retention Rate is inclusive of ACV from self-service customers. Our strong Dollar-Based Net Retention Rate is primarily attributable to gross retention, an expansion of users and upselling additional products within our existing customers. Larger enterprises often implement a limited initial deployment of our platform before increasing their deployment on a broader scale. Remaining Performance Obligations (“RPO”) RPO represent all future, non-cancelable, contracted revenue under our subscription contracts with customers that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non- 25 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) cancelable amounts that will be invoiced and recognized as revenue in future periods. Current RPO represents the portion of RPO expected to be recognized during the next 12 months. RPO fluctuates due to a number of factors, including the timing, duration and dollar amount of customer contracts and fluctuations in foreign currency exchange rates. Liquidity and Capital Resources As of April 30, 2023, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,370 million, which were held for working capital and general corporate purposes, including potential future acquisition activity. Our cash equivalents and investments consisted primarily of U.S. treasury securities, corporate debt securities and money market funds. Historically, we have generated significant operating losses and both positive and negative cash flows from operations as reflected in our accumulated deficit and condensed consolidated statements of cash flows. We expect to continue to incur operating losses and cash flows from operations that may fluctuate between positive and negative amounts for the foreseeable future. Recent macroeconomic events, including rising interest rates, global inflation and bank failures, have led to further economic uncertainty in the global economy. To mitigate risk, our cash and cash equivalents are distributed across large financial institutions. In addition, we have policy restrictions in place on the types of securities that can be purchased as part of our available-for-sale securities portfolio. These restrictions take credit quality, liquidity and diversification into consideration among other criteria. We continue to monitor the impacts of this situation; however, there can be no assurances that conditions in the banking sector and in global financial markets will not worsen and/or adversely affect us. In September 2019, we completed our private offering of the 2025 Notes due on September 1, 2025 and received aggregate gross proceeds of $1,060 million. The interest rate on the 2025 Notes is fixed at 0.125% per annum and is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. In connection with the 2025 Notes, we used a portion of the proceeds to enter into capped call transactions ("2025 Capped Calls") with respect to our Class A common stock. In June 2020, we completed our private offering of the 2026 Notes due on June 15, 2026 and received aggregate gross proceeds of $1,150 million. The interest rate on the 2026 Notes is fixed at 0.375% per year and is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. In connection with the 2026 Notes, we used a portion of the proceeds to enter into capped call transactions ("2026 Capped Calls") with respect to our Class A common stock. In the ordinary course of our business, we may, at any time and from time to time, seek to extinguish our outstanding Notes through cash purchases and/or exchanges for equity, in open-market purchases, privately negotiated transactions or otherwise. Such extinguishments, if any, will be conducted on such terms and at such prices as we may determine, and will depend on our evaluation of the prevailing market conditions, trading price of the Notes, our liquidity requirements, legal and contractual restrictions and other factors. During the three months ended April 30, 2023, we repurchased $366 million principal amount of the 2025 Notes for $332 million in cash which resulted in a gain on early extinguishment of debt of $31 million, net of unamortized debt issuance costs. See Note 7 to our condensed consolidated financial statements “Convertible Senior Notes, Net” for additional information. The 2025 Capped Calls remain outstanding notwithstanding such repurchase. On August 2, 2021, we completed the acquisition of Townsend Street Labs, Inc. (“atSpoke”), providing total cash consideration, net of cash acquired of $79 million. Of this amount, $13 million of consideration was held back as partial security for any adjustments and indemnification obligations and was paid during the three months ended April 30, 2023. 26 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) We believe our existing cash and cash equivalents, our investments and cash provided by sales of our products and services will be sufficient to meet our short-term and long-term projected working capital and capital expenditure needs for the foreseeable future. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, warrant exercise activity, the expansion of our international operations, the introduction of new and enhanced product offerings and the continuing market adoption of our platform. We continue to assess our capital structure and evaluate the merits of deploying available cash. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies this could reduce our ability to compete successfully and harm our results of operations. A significant majority of our customers pay in advance for annual subscriptions. Therefore, a substantial source of our cash is from our deferred revenue, which is included on our condensed consolidated balance sheet as a liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recognized as revenue in accordance with our revenue recognition policy. As of April 30, 2023, we had deferred revenue of $1,187 million, of which $1,173 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met. Cash Flows The following table summarizes our cash flows for the periods indicated: Three Months Ended April 30, 2023 2022 (dollars in millions) Net cash provided by operating activities $ 129 $ 19 Net cash provided by (used in) investing activities 59 (88) 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) Net decrease in cash, cash equivalents and restricted cash $ (137) $ (69) Operating Activities Our largest source of operating cash is cash collections from our customers for subscription and professional services. Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs. In recent periods, we have supplemented working capital requirements through net proceeds from the issuance of the 2025 Notes and 2026 Notes in September 2019 and June 2020, respectively. During the three months ended April 30, 2023, cash provided by operating activities was $129 million, an increase of $110 million compared to the three months ended April 30, 2022. The increase was primarily attributable to an increase in cash received from customers, partially offset by an increase in cash paid to vendors. Investing Activities During the three months ended April 30, 2023, cash provided by investing activities was $59 million compared to cash used in investing activities of $88 million during the three months ended April 30, 2022. The change was primarily attributable to an increase in cash provided from net investment purchases, sales, and maturities, partially offset by cash paid for business acquisitions, net of cash acquired. 27 OKTA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Financing Activities During the three months ended April 30, 2023, cash used in financing activities was $326 million compared to cash provided by financing activities of $5 million during the three months ended April 30, 2022. The change was primarily attributable to payments made for repurchases of the 2025 Notes. Material Cash Requirements Except for the debt extinguishment and our election to cash settle the warrants as discussed in Note 7 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report, there were no significant changes outside the ordinary course of business to our material cash requirements disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023. Indemnification Agreements In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No material demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, or condensed consolidated statements of cash flows. Critical Accounting Estimates There have been no significant changes to our critical accounting estimates for the three months ended April 30, 2023 from those discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023. 28