What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-01 compared with 2023-03-03 · 235 added, 327 removed, 884 unchanged (39% of the section changed)

32 unchanged sentences

Revenue recognition – Identifying and evaluating terms and conditions in contracts

Description of the Matter As explained in Note 2 to the consolidated financial statements, the Company derives revenue from subscription fees and professional services fees.

Description of the Matter

As explained in Note 2 to the consolidated financial statements, the Company derives revenue from subscription fees and professional services fees.

The Company’s arrangements are generally non-cancelable and non-refundable.

3 unchanged sentences

Auditing the Company’s accounting for revenue recognition was challenging, specifically related to the appropriate identification and evaluation of non-standard terms and conditions.

For example, certain non-standard terms and conditions required judgment to identify the distinct performance obligations and determine the timing of revenue recognition.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s internal controls over the identification and evaluation of terms and conditions in contracts that impact revenue recognition, including the identification of performance obligations and the determination of the timing of revenue recognition.

For example, certain non-standard terms and conditions required judgment to identify the distinct performance obligations.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s internal controls over the identification and evaluation of terms and conditions in contracts that impact revenue recognition, including the identification of performance obligations.

This included testing relevant controls over the information systems that are used in the initiation, billing and recording of revenue transactions.

Among other procedures, on a sample basis, we tested the completeness and accuracy of management’s identification and evaluation of the non-standard terms and conditions in contracts.

We also tested amounts recognized pursuant to contractual terms and conditions by examining the relationship between revenue recognized and accounts receivable and related cash collections.

Further, we selected a sample of contractual arrangements to test that management had properly assessed the impact of any non-standard terms on the identified performance obligations and timing of revenue recognition.

Further, we selected a sample of contractual arrangements to test that management had properly assessed the impact of any non-standard terms on the identified performance obligations.

Additionally, to verify completeness of non-standard terms and conditions, we obtained confirmations of terms and conditions for a sample of arrangements with customers.

51 unchanged sentences

Accrued compensation 167 99

Convertible senior notes, net — 16

Deferred revenue 1,488 1,242

42 unchanged sentences

Interest income and other, net 81 22 9

Loss on early extinguishment and conversion of debt — — ( 2 )

Gain on early extinguishment of debt

Interest and other, net 179 11 ( 82 )

20 unchanged sentences

Class B Common Stock

Comprehensive

Income (Loss)

Stockholders’

Additional Paid-in Capital

Accumulated Other Comprehensive Loss

Accumulated Deficit

Total Stockholders’ Equity

Balances as of January 31, 2021 122,824 $ — 8,159 $ — $ 1,656 $ 5 $ ( 968 ) $ 693

Issuance of common stock in connection with business combinations 19,190 — — — 5,409 — — 5,409

Issuance of common stock in connection with business combinations subject to future vesting 1,269 — — — — — — —

Issuance of common stock upon exercise of stock options and other activity, net 2,552 — 2 — 54 — — 54

1 unchanged sentence

Issuance of common stock for settlement of restricted stock units 2,294 — — — — — — —

Issuance of common stock for bonus settlement 86 — — — 10 — — 10

Issuance of common stock pursuant to charitable donation 30 — — — 7 — — 7

Conversion of Class B common stock to Class A common stock 1,183 — ( 1,183 ) — — — — —

Exercise of hedges related to convertible senior notes ( 168 ) — — — — — — —

Equity component of convertible senior notes, net of issuance costs — — — — 306 — — 306

Equity component of early extinguishment and conversion of convertible senior notes 1,660 — — — 70 — — 70

Settlement of convertible senior notes 476 — — — 21 — — 21

Proceeds from hedges related to convertible senior notes ( 380 ) — — — — — — —

Payments for warrants related to convertible senior notes — — — — ( 175 ) — — ( 175 )

Purchases of capped calls related to convertible senior notes — — — — ( 134 ) — — ( 134 )

Stock-based compensation — — — — 567 — — 567

Other comprehensive income — — — — — 4 — 4

Other comprehensive loss — — — — — ( 17 ) — ( 17 )

Net loss — — — — — — ( 848 ) ( 848 )

Balances as of January 31, 2022 149,624 $ — 6,978 $ — $ 7,750 $ ( 12 ) $ ( 1,816 ) $ 5,922

Issuance of common stock in connection with business combinations 19,190 — — — 5,409 — — 5,409

Issuance of common stock in connection with business combinations subject to future vesting 1,269 — — — — — — —

Adjustments from adoption of ASU No.

— — — — ( 528 ) — 156 ( 372 )

Forfeiture of unvested common stock issued in connection with business combinations ( 14 ) — — — — — — —

Issuance of common stock upon exercise of stock options and other activity, net 965 — 451 — 17 — — 17

3 unchanged sentences

Conversion of Class B common stock to Class A common stock 129 — ( 129 ) — — — — —

Equity component of early extinguishment and conversion of convertible senior notes 476 — — — 21 — — 21

Settlement of convertible senior notes 356 — — — 17 — — 17

Proceeds from hedges related to convertible senior notes ( 140 ) — — — — — — —

5 unchanged sentences

Class B Common Stock

Comprehensive

Income (Loss)

Stockholders’

Adjustments from adoption of ASU 2020-06 — — — — ( 528 ) — 156 ( 372 )

Additional Paid-in Capital

Accumulated Other Comprehensive Loss

Accumulated Deficit

Total Stockholders’ Equity

Forfeiture of unvested common stock issued in connection with business combinations ( 5 ) — — — — — — —

4 unchanged sentences

Conversion of Class B common stock to Class A common stock 9 — ( 9 ) — — — — —

Settlement of convertible senior notes 356 — — — 17 — — 17

Proceeds from hedges related to convertible senior notes ( 33 ) — — — — — — —

Stock-based compensation — — — — 690 — — 690

Other comprehensive loss — — — — — ( 21 ) — ( 21 )

Settlement of warrants

— — — — ( 7 ) — — ( 7 )

Other comprehensive income

— — — — — 27 — 27

Net loss — — — — — — ( 355 ) ( 355 )

Balances as of January 31, 2024

159,835 — 7,291 — 8,724 ( 6 ) ( 2,830 ) 5,888

See Notes to Consolidated Financial Statements.

8 unchanged sentences

Depreciation, amortization and accretion 84 114 108

Amortization of debt discount and issuance costs 6 86 68

Amortization of debt issuance costs 3 6 86

Amortization of deferred commissions 104 84 57

Deferred income taxes 6 7 ( 6 )

Non-cash charitable contributions 4 7 9

Lease impairment charges 28 14 —

Loss on early extinguishment and conversion of debt — — 2

(Gain) loss on strategic investments ( 1 ) ( 8 ) 1

Gain on early extinguishment of debt

Net gain on strategic investments

— ( 1 ) ( 8 )

Other, net 10 7 9

11 unchanged sentences

Cash flows from investing activities:

Capitalization of internal-use software costs ( 9 ) ( 4 ) ( 4 )

Capitalized software

( 15 ) ( 9 ) ( 4 )

Purchases of property and equipment ( 8 ) ( 12 ) ( 13 )

3 unchanged sentences

Payments for business acquisitions, net of cash acquired ( 22 ) ( 4 ) ( 215 )

Purchase of intangible assets ( 2 ) — —

Net cash used in investing activities ( 130 ) ( 367 ) ( 1,305 )

Purchases of intangible assets

( 1 ) ( 2 ) —

Net cash provided by (used in) investing activities

441 ( 130 ) ( 367 )

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes, net of issuance costs — — 1,135

Proceeds from hedges related to convertible senior notes — — 195

Payments for repurchases of convertible senior notes

Payments for warrants related to convertible senior notes ( 7 ) — —

Purchases of capped calls related to convertible senior notes — — ( 134 )

Proceeds from stock option exercises, net of repurchases 17 53 45

Proceeds from stock option exercises

Proceeds from shares issued in connection with employee stock purchase plan 46 31 36

Net cash provided by financing activities 48 89 1,092

Net cash provided by (used in) financing activities

( 883 ) 48 89

Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash 1 ( 6 ) ( 2 )

Net decrease in cash, cash equivalents and restricted cash ( 2 ) ( 176 ) ( 83 )

Net increase (decrease) in cash, cash equivalents and restricted cash

71 ( 2 ) ( 176 )

Cash, cash equivalents and restricted cash at beginning of year 271 273 449

11 unchanged sentences

Operating lease right-of-use assets exchanged for lease liabilities 11 11 22

Issuance of common stock for bonus settlement — — 10

Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the amounts shown in the statements of cash flows above:

7 unchanged sentences

Description of Business

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

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, and developers to securely and efficiently embed identity into the software they build, allowing them to innovate and focus on their core mission.

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.

as a Delaware corporation.

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

The Company’s Workforce Identity Cloud and Customer Identity Cloud, powered by Auth0, enable 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.

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.

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

The Company is headquartered in San Francisco, California.

Basis of Presentation and Principles of Consolidation

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

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 result, the Company operates in one reportable segment.

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

The Company’s fiscal year ends on January 31.

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

Certain reclassifications of components of prior period operating cash flows have been made in the 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.

In fiscal 2023, the Company elected to change its presentation of dollars from thousands to millions.

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.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Use of Estimates

5 unchanged sentences

The functional currencies of the Company’s foreign subsidiaries are the respective local currencies.

Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) within the consolidated statements of stockholders’ equity.

Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss within the consolidated statements of stockholders’ equity.

Foreign currency transaction gains and losses are included in interest and other, net in the consolidated statements of operations and were not material in fiscal 2024, 2023 or 2022.

7 unchanged sentences

The arrangements are generally non-cancellable and non-refundable.

Furthermore, if a customer reduces the contracted

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

usage or service level, the customer has no right of refund.

Furthermore, if a customer reduces the contracted usage or service level, the customer has no right of refund.

The subscription arrangements do not provide customers with the right to take possession of the software supporting the platform and, as a result, are accounted for as service arrangements.

This revenue recognition policy is consistent for sales generated directly with customers and sales generated indirectly through channel partners.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenue recognition is determined through the following steps:

27 unchanged sentences

The Company determined the period of benefit by taking into consideration the terms of its customer contracts, its technology and other factors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Sales commissions for renewal contracts (which are not considered commensurate with sales commissions for new revenue contracts and incremental sales to existing customers) are deferred and then amortized on a straight-line basis over the related period of benefit, which is generally two years , as determined by considering the average contractual term for renewal contracts.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Sales commissions capitalized as contract costs totaled $ 158 million and $ 121 million in fiscal 2024 and 2023, respectively.

22 unchanged sentences

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 RSUs with market-based vesting conditions to certain executives.

In addition, the Company offers an ESPP to eligible employees.

In addition, the Company offers an employee stock purchase program ("ESPP") to eligible employees.

Stock-based compensation expense related to stock awards (including stock options, RSUs, market-based RSUs, and ESPP) is measured based on the fair value of the awards granted and recognized as an expense over the requisite service period.

The fair value of each option and ESPP awards are estimated on the grant date using the Black-Scholes option pricing model which requires the use of various assumptions, including the expected term of the award, the expected volatility of the price of the underlying common stock, risk-free interest rates, and expected dividend yield

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

of the underlying common stock.

Stock-based compensation expense is recognized following the straight-line attribution method over the requisite service period for options, and over the offering period for ESPP awards.

The expected term of the Company’s stock options granted to employees has been determined utilizing the simplified method due to lack of historical exercise data.

The expected volatility has been determined using a weighted-average of the historical volatility measures of a group of guideline companies and the Company's own historical volatility.

The risk-free interest rate used is based on the U.S.

The expected term of the Company’s stock options, which were last granted to employees in fiscal 2022, was determined utilizing the simplified method due to lack of historical exercise data.

No options were granted in fiscal

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2024 and 2023.

The expected volatility was determined using a weighted-average of the historical volatility measures of a group of guideline companies and the Company's own historical volatility.

The risk-free interest rate was based on the U.S.

Treasury yield in effect at the time of grant for a period consistent with the expected term of the award.

The expected dividend is assumed to be zero as the Company has never declared or paid any cash dividends and do not currently intend to declare dividends in the foreseeable future.

The expected dividend was assumed to be zero as the Company has never declared or paid any cash dividends and do not currently intend to declare dividends in the foreseeable future.

The fair value of each RSU award is based on the fair value of the underlying common stock as of the grant date.

Stock-based compensation expense is recognized on a straight-line basis over the requisite service period, generally four years .

Stock-based compensation expense is recognized on a straight-line basis over the requisite service period, generally three to four years .

The fair value of each market-based RSU award is measured using a Monte Carlo simulation valuation model which requires the use of various assumptions, including the stock price volatility and risk-free interest rate as of the valuation date corresponding to the length of time remaining in the performance period.

21 unchanged sentences

The fair market value of cash equivalents approximated their carrying value as of January 31, 2024 and 2023.

As of January 31, 2024 and 2023, the Company's restricted cash balance was $ 8 million and $ 7 million, respectively, primarily related to letters of credit for its facility lease agreements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of January 31, 2023 and 2022, the Company's long-term restricted cash balance was $ 7 million and $ 8 million, respectively, primarily related to letters of credit for its facility lease agreements.

Short-Term Investments

The Company’s short-term investments comprise of U.S.

treasury securities and corporate debt securities.

treasury securities, corporate debt securities and certificates of deposit.

The Company determines the appropriate classification of its short-term investments at the time of purchase and reevaluates such designation at each balance sheet date.

22 unchanged sentences

Amounts deemed uncollectible are recorded as an allowance in the consolidated balance sheets with an offsetting decrease in deferred revenue or a charge to general and administrative expense in the consolidated statements of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Property and Equipment

2 unchanged sentences

Repairs and maintenance costs are expensed as incurred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The useful lives of property and equipment are as follows:

6 unchanged sentences

The determination of the fair value of assets acquired and liabilities assumed involves assessments of factors such as the expected future cash flows associated with individual assets and liabilities and appropriate discount rates at the date of the acquisition.

Significant management inputs used in the estimation of fair value of assets acquired and liabilities assumed include, but are not limited to, expected future cash flows, future changes in technology, estimated replacement costs, discount rates and assumptions about the period of time the brand will continue to be used in the Company’s product portfolio.

Significant management inputs used in the estimation of fair value of assets acquired and liabilities assumed include, but are not limited to, expected future cash flows, future changes in technology, estimated replacement costs, person hours required in recreating certain acquired technologies, discount rates and assumptions about the period of time the brand will continue to be used in the Company’s product portfolio.

Where appropriate, external advisers are consulted to assist in the determination of fair value.

For non-observable market values, fair value has been determined using acceptable valuation methods.

The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date.

The Company’s estimates are inherently uncertain and subject to refinement.

During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.

The results of operations for businesses acquired are included in the financial statements from the acquisition date.

5 unchanged sentences

The Company operates as a single operating segment.

Management has the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the Company is less than the carrying amount, including goodwill.

If it is determined that it is more likely than not that the fair value of the Company is less than the carrying amount, a quantitative assessment is performed by comparing the fair value of a reporting unit with its carrying amount.

Management has the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the Company’s reporting unit is less than the carrying amount, including goodwill.

The Company also has the option, which the Company has elected, to bypass the qualitative assessment, and perform the quantitative assessment.

The quantitative assessment involves comparing the fair value of the reporting unit to its carrying value, including goodwill.

An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

The Company also has the option to bypass the qualitative assessment, and perform the quantitative assessment.

No goodwill impairments were recorded during the years presented.

No goodwill impairments were recorded during the years presented based on the assessments performed.

Long-lived assets, such as property and equipment and finite-lived intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

8 unchanged sentences

Lease liabilities due within twelve months are included within accrued expenses and other current liabilities on the consolidated balance sheet.

The estimation of the incremental borrowing rate is based on an estimate of the Company's unsecured borrowing rate for its Notes, adjusted for tenor and collateralized security features.

The estimation of the incremental borrowing rate is based on an estimate of the Company's unsecured borrowing rate, adjusted for tenor and collateralized security features.

Right-of-use assets are measured based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) tenant incentives received, incurred or payable under the lease.

21 unchanged sentences

Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders is computed in conformity with the two-class method required for participating securities.

Under the two-class method, basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period without consideration for potentially dilutive securities as they do not share in losses.

The diluted net loss per share attributable to common

The Company computes basic and diluted net loss per share attributable to common stockholders for Class A and Class B common stock using the two-class method required for participating securities.

Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the period.

For purposes of this calculation, options to purchase common stock, unvested RSUs, unvested common stock and restricted stock issued in connection with certain business combinations, convertible senior notes and warrants are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share attributable to common stockholders is computed by giving effect to all potential shares of common stock, including shares underlying convertible senior notes and warrants, unvested RSUs, outstanding stock options, unvested common stock and restricted stock issued in connection with certain business combinations, and ESPP obligations, to the extent they are dilutive.

As the Company has reported losses for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.

The rights of the holders of the Company's Class A and Class B common stock are identical, except with respect to voting and conversion rights.

See Note 15 for additional details.

Recently Adopted Accounting Pronouncements

The Company adopted ASU 2020-06, effective February 1, 2022, using the modified retrospective method.

The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

The new guidance 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, the guidance 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, the guidance 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 the new guidance.

The Company recognized a cumulative effect of initially applying the guidance 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 the new guidance resulted in the following changes to the Company’s 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 millions)

Convertible senior notes, net $ 16 $ 1 $ 17

Convertible senior notes, net, noncurrent 1,816 372 2,188

Other liabilities, noncurrent 31 ( 1 ) 30

Stockholders’ equity

Additional paid-in capital 7,750 ( 528 ) 7,222

Accumulated deficit ( 1,816 ) 156 ( 1,660 )

In addition, the adoption of the new guidance resulted in a decrease in reported net interest expense of approximately $ 85 million and a decrease in basic and diluted net loss per share of $ 0.54 in fiscal 2023.

The Company adopted the Financial Accounting Standards Board ("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 the latest revenue guidance.

The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

See Note 1 4 to our consolidated financial statements "Net Loss Per Share" for additional information.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance which requires disclosure of incremental segment information on an annual and interim basis.

This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements.

The Company is currently evaluating the impact of this Accounting Standards Update ("ASU"), and intends to adopt this guidance in fiscal 2025.

In December 2023, the FASB issued guidance to provide disaggregated income tax disclosures on the rate reconciliation and income taxes paid.

This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of this ASU.

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 fiscal 2023.

In fiscal 2024, the Company recognized an additional $ 28 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 “2023 Restructuring Plan”) intended to reduce operating expenses and improve profitability.

The 2023 Restructuring Plan involved a reduction of the Company’s workforce by approximately 300 full-time employees.

The 2023 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.

During the fourth quarter of fiscal 2024, the Company approved a restructuring plan (the “2024 Restructuring Plan”) intended to improve operating efficiencies and profitability.

The 2024 Restructuring Plan involves a reduction of the Company’s workforce by approximately 400 full-time employees.

The 2024 Restructuring Plan is expected to be substantially complete by the first quarter of fiscal 2025.

Aggregate restructuring costs associated with the 2024 Restructuring Plan are estimated to be approximately $ 24 million.

The charges that the Company expects to incur throughout the completion of the 2024 Restructuring Plan are subject to a number of factors and assumptions, including local law requirements in various jurisdictions, and the actual remaining expenses may differ from the original estimates.

Separate from the 2024 Restructuring Plan, the Company recognized $ 4 million of severance and termination benefit costs related to an insignificant workforce reduction in fiscal 2024.

NOTES TO 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.

The new guidance 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 the new guidance did not have a material impact on the Company’s consolidated financial statements.

Business Combinations

Acquisition of Auth0

On May 3, 2021, the Company acquired all outstanding shares of privately-held Auth0, an Identity-as-a-Service company.

Total consideration transferred for Auth0 was $ 5,671 million, including approximately 19 million shares of common stock valued at $ 5,176 million, cash of $ 257 million, and assumed outstanding equity awards with vested fair value of $ 238 million.

Cash consideration of $ 4 million and approximately 1 million shares valued at $ 295 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 fiscal 2023.

The Company incurred $ 29 million of acquisition-related costs, which were recorded as general and administrative expenses in its consolidated statement of operations in fiscal 2022.

The transaction was accounted for as a business combination.

The total purchase price of $ 5,671 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 assets acquired and liabilities assumed was $ 5,290 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 atSpoke, a modern workplace operations platform.

The acquisition date cash consideration for atSpoke was approximately $ 79 million, of which $ 13 million of consideration was held back as partial security for any adjustments and indemnification obligations and was paid within 18 months of the closing date.

The Company recorded $ 18 million for developed technology intangible assets with an estimated useful life of 3 years and recorded $ 62 million of goodwill.

The Company incurred $ 1 million of acquisition-related costs, which were recorded as general and administrative expenses in its consolidated statement of operations in fiscal 2022.

The following table summarizes the Company’s restructuring and other charges during fiscal 2024 and 2023 :

Year Ended January 31,

(dollars in millions)

Severance and termination benefit costs $ 28 $ 15

Lease impairment charges 28 14

Total $ 56 $ 29

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

Severance and termination benefit costs

(dollars in millions)

Balance as of January 31, 2022

Restructuring charges 15

Cash payments —

Balance as of January 31, 2023

Restructuring charges 28

Cash payments ( 19 )

Balance as of January 31, 2024

Cash Equivalents and Investments

Cash Equivalents and Short-term Investments

Financial assets are measured 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 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:

4 unchanged sentences

Total cash equivalents 151 — — 151

Short-term investments:

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

treasury securities 1,782 3 ( 1 ) 1,784

Corporate debt securities 43 — — 43

Certificates of deposit

Total short-term investments 1,866 3 ( 1 ) 1,868

Total $ 2,017 $ 3 $ ( 1 ) $ 2,019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of January 31, 2023

3 unchanged sentences

Total cash equivalents 133 — — 133

Short-term investments:

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

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

2 unchanged sentences

Total $ 2,473 $ — $ ( 24 ) $ 2,449

All short-term investments were designated as available-for-sale securities as of January 31, 2023 and 2022.

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

5 unchanged sentences

Interest receivable of $ 20 million and $ 10 million is included in Prepaid expenses and other current assets on the consolidated balance sheets as of January 31, 2024 and 2023, respectively.

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 January 31, 2023:

Less Than 12 Months More Than 12 Months Total

Estimated Fair Value

(dollars in millions)

treasury securities $ 1,204 $ ( 9 ) $ 846 $ ( 13 ) $ 2,050 $ ( 22 )

Corporate debt securities 13 — 114 ( 2 ) 127 ( 2 )

Total $ 1,217 $ ( 9 ) $ 960 $ ( 15 ) $ 2,177 $ ( 24 )

The Company had 41 and 159 short-term investments in unrealized loss positions as of January 31, 2024 and 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

and (iii) the decline in the fair value of the investment is due to credit or non-credit related factors.

There were no material credit or non-credit related impairments for short-term investments as of January 31, 2024 and 2023.

2 unchanged sentences

As of January 31, 2024 and 2023, the balance of strategic investments was $ 26 million and $ 25 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair Value Measurements

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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

As of January 31, 2023

Level 1 Level 2

Level 3 Total

(dollars in millions)

Cash equivalents:

Money market funds $ 133 $ — $ — $ 133

Total cash equivalents 133 — — 133

Short-term investments:

treasury securities — 2,185 — 2,185

Corporate debt securities — 131 — 131

Total short-term investments — 2,316 — 2,316

Total cash equivalents and short-term investments $ 133 $ 2,316 $ — $ 2,449

As of January 31, 2022

Level 1 Level 2

Level 3 Total

(dollars in millions)

Cash equivalents:

Money market funds $ 152 $ — $ — $ 152

Total cash equivalents 152 — — 152

Short-term investments:

treasury securities — 1,913 — 1,913

Corporate debt securities — 329 — 329

Total short-term investments — 2,242 — 2,242

Total cash equivalents and short-term investments $ 152 $ 2,242 $ — $ 2,394

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair Value Measurements of Other Financial Instruments

The following table presents the principal amounts and estimated fair values of financial instruments that are not recorded at fair value on the consolidated balance sheets:

As of January 31, 2023

Principal Amount Estimated

(dollars in millions)

2025 convertible senior notes $ 1,060 $ 933

2026 convertible senior notes $ 1,150 $ 981

The Notes are recorded at face value less unamortized debt issuance costs (See Note 9 for additional details).

The estimated fair values of the Notes, which are Level 2 financial instruments, were determined based on the quoted bid prices of the Notes in an over-the-counter market on the last trading day of the reporting period.

Goodwill and Intangible Assets, net

10 unchanged sentences

Trade name 21 ( 12 ) 9

Software licenses 1 — 1

Other 4 ( 2 ) 2

$ 409 $ ( 227 ) $ 182

7 unchanged sentences

$ 431 $ ( 190 ) $ 241

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

4 unchanged sentences

Trade name 2.3 years 3.3 years

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of January 31, 2024, estimated remaining amortization expense for the intangible assets by fiscal year was as follows:

7 unchanged sentences

(dollars in millions)

Computers and equipment $ — $ 1

Furniture and fixtures $ 18 $ 19

3 unchanged sentences

Property and equipment, net $ 48 $ 59

Depreciation expense was $ 12 million in fiscal 2023 and 2022, and $ 9 million in fiscal 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Depreciation expense was $ 12 million in fiscal 2024, 2023 and 2022.

Accrued Expenses and Other Current Liabilities

5 unchanged sentences

Operating lease liabilities 31 32

Accrued restructuring

Accrued expenses and other current liabilities $ 115 $ 112

5 unchanged sentences

Other liabilities, noncurrent $ 30 $ 23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Deferred Revenue and Performance Obligations

10 unchanged sentences

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 outstanding 2023 Notes matured on February 15, 2023.

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

Upon conversion, the 2023 Notes may be settled in

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election.

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

As of January 31, 2023, an immaterial amount of 2023 Notes remained outstanding.

During fiscal 2023, the Company issued approximately 0.4 million shares of Class A common stock and paid an immaterial amount in cash to settle approximately $ 17 million principal amount of 2023 Notes.

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

As of January 31, 2022 and 2021, prior to the adoption of ASU 2020-06, the effective interest rate on the liability component of the 2023 Notes was 5.68 %.

Interest expense recognized related to the 2023 Notes was immaterial during fiscal 2023, 2022 and 2021.

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

As of January 31, 2023 As of January 31, 2022

(dollars in millions)

Liability component:

Principal $ — $ 17

unamortized debt issuance costs and debt discount (1)

Net carrying amount $ — $ 16

Equity component:

2023 Notes $ — $ 4

issuance costs — —

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

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

The Note Hedges meet the criteria for classification as equity and, as such, are not remeasured each reporting period.

During fiscal 2023, the Company exercised and net-share-settled Note Hedges corresponding to approximately $ 12 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 January 31, 2023, Note Hedges giving the Company the option to purchase approximately 0.1 million shares (subject to adjustment) remained outstanding.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 to acquire shares, subject to anti-dilution adjustments, over 80 scheduled trading days beginning in May 2023 of the Company’s Class A common stock at an initial exercise price of approximately $ 68.06 per share (subject to adjustment).

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

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

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

The Warrants meet the criteria for classification as equity and, as such, are not remeasured each reporting period.

As of January 31, 2023, Warrants to acquire up to approximately 1 million shares (subject to adjustment) remained outstanding.

The 2025 Notes and 2026 Notes are recorded at face value less unamortized debt issuance costs.

During fiscal 2024, the Company repurchased $ 508 million principal amount of the 2025 Notes for $ 462 million in cash and $ 542 million principal amount of the 2026 Notes for $ 475 million in cash, resulting in an aggregate gain on early extinguishment of debt of $ 106 million.

2025 Convertible Senior Notes

7 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

3 unchanged sentences

During the three months ended January 31, 2024, the conditions allowing holders of the 2025 Notes to convert during the three months ending April 30, 2024 were not met, and as a result, the 2025 Notes were classified as noncurrent liabilities as of January 31, 2024.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the 2025 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

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

Holders of the 2025 Notes who convert their 2025 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2025 Indenture) or in connection with the Company’s issuance of a redemption notice are, under certain circumstances, entitled to an increase in the conversion rate.

Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2025 Indenture), holders of the 2025 Notes may require the Company to repurchase all or a portion of their 2025 Notes at a price equal to 100 % of the principal amount of the 2025 Notes being repurchased, plus any accrued and unpaid interest.

As of January 31, 2023, the effective interest rate on the 2025 Notes was 0.43 %.

As of January 31, 2022 and 2021, prior to the adoption of ASU 2020-06, the effective interest rate on the liability component of the 2025 Notes was 4.10 %.

During fiscal 2024 and 2023, the effective interest rate on the 2025 Notes was 0.43 %.

During fiscal 2022, prior to the adoption of ASU No.

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:

6 unchanged sentences

Total $ 3 $ 4 $ 39

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

(1) Not applicable subsequent to the adoption of ASU No.

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

1 unchanged sentence

(dollars in millions)

Liability component:

Principal $ 552 $ 1,060

unamortized debt issuance costs and debt discount

( 8 ) ( 149 )

Net carrying amount $ 549 $ 1,052

Equity component:

2025 Notes $ — $ 221

issuance costs — ( 4 )

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 consolidated balance sheet within Additional paid-in capital.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2025 Capped Calls

5 unchanged sentences

The 2025 Capped Calls meet the criteria for classification as equity and, as such, are not remeasured each reporting period.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2026 Convertible Senior Notes

12 unchanged sentences

During the three months ended January 31, 2024, the conditions allowing holders of the 2026 Notes to convert during the three months ending April 30, 2024 were not met, and as a result, the 2026 Notes were classified as noncurrent liabilities as of January 31, 2024.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

notice of redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

Holders of the 2026 Notes who convert their 2026 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the 2026 Indenture) or in connection with the Company’s issuance of a redemption notice are, under certain circumstances, entitled to an increase in the conversion rate.

Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the 2026 Indenture), holders of the 2026 Notes may require the Company to repurchase all or a portion of their 2026 Notes at a price equal to 100 % of the principal amount of the 2026 Notes being repurchased, plus any accrued and unpaid interest.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of January 31, 2023, the effective interest rate on the 2026 Notes was 0.60 %.

As of January 31, 2022 and 2021, prior to the adoption of ASU 2020-06, the effective interest rate on the liability component of the 2026 Notes was 5.75 %.

During fiscal 2024 and 2023, the effective interest rate on the 2026 Notes was 0.60 %.

During fiscal 2022, prior to the adoption of ASU No.

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:

6 unchanged sentences

Total $ 5 $ 7 $ 51

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

(1) Not applicable subsequent to the adoption of ASU No.

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

1 unchanged sentence

(dollars in millions)

Liability component:

Principal $ 608 $ 1,150

unamortized debt issuance costs and debt discount

( 9 ) ( 245 )

Net carrying amount $ 605 $ 1,141

Equity component:

2026 Notes $ — $ 310

issuance costs — ( 4 )

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 consolidated balance sheet within Additional paid-in capital.

2026 Capped Calls

5 unchanged sentences

The 2026 Capped Calls meet the criteria for classification as equity and, as such, are not remeasured each reporting period.

Fair Value Measurements

The following table presents the principal amounts and estimated fair values of financial instruments that are not recorded at fair value on the consolidated balance sheets:

As of January 31, 2024

Principal Amount

Estimated Fair Value

(dollars in millions)

2025 convertible senior notes $ 552 $ 514

2026 convertible senior notes $ 608 $ 541

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 were exercisable over 80 scheduled trading days beginning on May 15, 2023.

The Company elected to cash settle the Warrants.

During fiscal 2024, the Company settled Warrants corresponding to approximately 1.0 million shares for total cash payments of $ 7 million.

As of January 31, 2024, no Warrants remained outstanding.

The Company has entered into various non-cancelable office space operating leases with original lease periods expiring between 2024 and 2029.

2 unchanged sentences

The Company is entitled to two five-year options to extend this lease, subject to certain requirements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Operating lease costs were as follows:

10 unchanged sentences

(dollars in millions)

Thereafter 24

Total lease payments 161

Less imputed interest ( 19 )

Less tenant improvement allowances not yet incurred ( 2 )

Total operating lease liabilities $ 142

Cash payments made related to operating lease liabilities were $ 47 million and $ 44 million in fiscal 2024 and 2023, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Commitments and Contingencies

2 unchanged sentences

No draws have been made under such letters of credit.

Noncurrent restricted cash of $ 6 million associated with these letters of credit is included in Other assets on the consolidated balance sheets as of January 31, 2023 and January 31, 2022.

Legal Matters

3 unchanged sentences

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.

The lawsuit asserts claims under Sections 10(b) and 20(a) of the Exchange Act, 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.

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 the 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.

On November 1, 2023, the plaintiffs filed a motion for class certification, on January 17, 2024, the defendants filed a notice of non-opposition to the motion, and on February 5, 2024, the court granted the motion.

The court has not otherwise issued a scheduling order, and discovery is proceeding.

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.

4 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

The Company intends to defend these lawsuits vigorously.

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 the actions 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 through the close of discovery in the securities class action lawsuit.

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.

On May 31, 2023, the court entered a stipulated order whereby the defendants agreed to accept service and stay the derivative action through the close of discovery in the securities class action lawsuit.

On January 25, 2024, 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 Nasr v.

McKinnon, et al.

1:24-cv-00106.

The Company is defending 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.

1 unchanged sentence

The Company’s subscription services are generally warranted to perform materially in accordance with the Company’s online help documentation under normal use and circumstances.

Additionally, the Company’s arrangements generally include provisions for indemnifying customers against liabilities if its subscription services infringe a third party’s intellectual property rights.

Additionally, the Company’s arrangements generally include provisions for indemnifying customers against liabilities if its subscription services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

infringe a third party’s intellectual property rights.

Furthermore, the Company may also incur liabilities if it breaches the security or confidentiality obligations in its arrangements.

8 unchanged sentences

Common Stock and Stockholders' Equity

Holders of Class A and Class B common stock are entitled to one vote per share and 10 votes per share, respectively, and the shares of Class A common stock and Class B common stock are identical, except for voting and conversion rights.

Holders of Class A and Class B common stock are entitled to one vote per share and ten votes per share, respectively, and the shares of Class A common stock and Class B common stock are identical, except for voting and conversion rights.

Shares of Class B common stock may be converted into Class A common stock at any time at the option of the stockholder on a one -for-one basis, and are automatically converted into Class A common stock upon sale or transfer, subject to certain limited exceptions.

6 unchanged sentences

Available for ESPP 7,651

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Awards Issued as Charitable Contributions

During fiscal 2024, 2023 and 2022, the Company issued 75,000 , 41,250 and 30,000 shares, respectively, of Class A common stock as charitable contributions and recognized $ 6 million, $ 4 million and $ 7 million, respectively, as general and administrative expense in the consolidated statements of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Employee Incentive Plans

32 unchanged sentences

A summary of stock option activity and related information was as follows:

Number of Options

(in thousands)

Weighted-Average

Exercise Price

Weighted-Average Remaining

Contractual Term

Intrinsic Value

8 unchanged sentences

Vested and exercisable 4,928 $ 29.12 3.0 $ 318

No options were granted during fiscal 2023.

The weighted-average grant-date fair value of options granted was $ 211.58 and $ 63.32 during fiscal 2022 and 2021, respectively.

No options were granted during fiscal 2024 and 2023.

The weighted-average grant-date fair value of options granted was $ 211.58 during fiscal 2022.

The total grant-date fair value of stock options vested was $ 48 million, $ 104 million and $ 314 million during fiscal 2024, 2023 and 2022, respectively.

1 unchanged sentence

As of January 31, 2024 and January 31, 2023, there was a total of $ 16 million and $ 90 million, respectively, of unrecognized stock-based compensation expense related to options, which is being recognized over a weighted-average period of 0.9 years.

The Company used the Black-Scholes option pricing model to estimate the fair value of stock options granted with the following assumptions:

Year Ended January 31,

2023 2022 2021

Expected volatility — % 46 % 45 %

Expected term (in years) 0.0 6.3 6.3

Risk-free interest rate — % 1.03 %

0.37 % - 0.44 %

Expected dividend yield — — —

Restricted Stock Units

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

(in thousands) Weighted-

Number of RSUs

(in thousands)

Weighted-Average

Grant Date Fair Value Per Share

7 unchanged sentences

The total fair value of RSUs vested during fiscal 2024, 2023 and 2022 was $ 335 million, $ 229 million and $ 531 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 $ 244.73 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 CONSOLIDATED FINANCIAL STATEMENTS (continued)

In March 2023, the Company granted market-based RSUs to certain members of management.

The target number of market-based RSUs granted was 192,843 .

One-third of these market-based RSUs vest over each of a one-, two- and three-year performance period, each starting on February 1, 2023.

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.

Restricted Stock Awards Issued in Connection with Business Combinations

22 unchanged sentences

The Company began matching contributions in fiscal 2023.

Matching contributions to the plan were $ 21 million during fiscal 2023.

During fiscal 2024 and 2023, matching contributions related to the plan were $ 19 million and $ 21 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

18 unchanged sentences

Total provision for (benefit from) income taxes $ 18 $ 14 $ ( 2 )

For fiscal 2023, the income tax expense resulted primarily from income tax expense related to profitable foreign jurisdictions, the tax impact of shortfalls from stock-based compensation in the United Kingdom, and state taxes.

For fiscal 2024, income tax expense resulted primarily from income in profitable foreign jurisdictions, federal and state taxes resulting from tax attribution utilization limitations, and the tax impact of shortfalls from stock-based compensation in the United Kingdom.

For fiscal 2023, income tax expense resulted primarily from income in profitable foreign jurisdictions, the tax impact of shortfalls from stock-based compensation in the United Kingdom, and state taxes.

For fiscal 2022, the income tax benefit resulted from the release of valuation allowance in the United States in connection with acquisitions and excess tax benefits from stock-based compensation in the United Kingdom, offset by income tax expense related to profitable foreign jurisdictions.

For fiscal 2021, the income tax expense from profitable jurisdictions was partially offset by excess tax benefits from stock-based compensation in the United Kingdom.

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for fiscal 2024, 2023 and 2022:

12 unchanged sentences

R&E) beginning in fiscal 2023.

The capitalization of R&E expenditures resulted in a deferred tax asset of $ 189 million.

Additionally, the effective tax rate was impacted by ( 5.4 )% due to

As a result, for fiscal 2024 and 2023, the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

certain tax deductions being disavowed, which further resulted in the utilization of federal and state tax attributes to offset this impact.

Company disavowed certain tax deductions, which resulted in the utilization of federal and state tax attributes to offset this impact.

The tax effects of temporary differences and related deferred tax assets and liabilities as of January 31, 2024 and 2023 were as follows:

12 unchanged sentences

Deferred tax liabilities:

Convertible debt — ( 91 )

Deferred commissions ( 67 ) ( 77 )

4 unchanged sentences

Net deferred tax assets (liabilities) $ ( 8 ) $ ( 2 )

As a result of continuing losses, the Company has determined that it is not more likely than not that it will realize the benefits of the U.S.

As a result of continuing losses, the Company has determined that it is not more likely than not that it will realize the benefits of its U.S.

deferred tax assets and, therefore, the Company has recorded a valuation allowance to reduce the carrying value of the U.S.

27 unchanged sentences

For material foreign jurisdictions, the tax years open to examination include the tax years 2018 and forward.

As of January 31, 2023 and 2022, the Company has an immaterial amount of unrecognized tax benefits that if recognized would impact the effective tax rate.

As of January 31, 2021, the Company had no unrecognized tax benefits that if recognized would impact the effective tax rate.

For all years presented, the Company has an immaterial amount of unrecognized tax benefits that if recognized would impact the effective tax rate.

The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes.

As of January 31, 2023, 2022 and 2021, the Company has not accrued a material amount in interest and penalties related to unrecognized tax benefits.

For all years presented, the Company has not accrued a material amount in interest and penalties related to unrecognized tax benefits.

The Company does not have any significant uncertain tax positions as of January 31, 2024 for which it is reasonably possible that the positions will increase or decrease within the next twelve months.

18 unchanged sentences

Unvested market-based RSUs issued and outstanding 435 116 —

Unvested restricted stock awards issued and outstanding 627 1,269 —

Unvested RSAs issued and outstanding

206 627 1,269

Shares committed under the ESPP 629 921 253

4 unchanged sentences

20,652 28,819 27,573

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.

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.

As a result, the Company recognized non-cash lease impairment charges.

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 involves a reduction of the Company’s workforce by approximately 300 full-time employees.

The Restructuring Plan is expected to be substantially complete by the first quarter of fiscal 2024.

Aggregate restructuring costs associated with the Restructuring Plan are estimated to be approximately $ 15 million.

The charges that the Company expects to incur throughout the completion of its Restructuring Plan are subject to a number of assumptions, including local law requirements in various jurisdictions, and the actual remaining expenses may differ from the original estimates.

The following table summarizes the Company’s restructuring and other charges during the period:

Year Ended January 31,

(dollars in millions)

Severance and termination benefit costs $ 15

Lease impairment charges 14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Severance and termination benefit costs

(dollars in millions)

Balance as of January 31, 2022 $ —

Restructuring charges 15

Cash payments —

Balance as of January 31, 2023 $ 15

Geographical Information

9 unchanged sentences

Property and equipment by geographic location is based on the location of the legal entity that owns the asset.

As of January 31, 2023 and 2022, substantially all of the Company’s property and equipment was located in the United States.

As of January 31, 2024 and 2023, substantially all of the Company's long-lived assets, which primarily consist of property and equipment and operating lease right-of-use assets, were located in the United States.

Subsequent Events

On February 1, 2024, the Company completed its acquisition of Spera.

The acquisition of Spera, an identity security platform provider, is expected to broaden the Company's identity threat detection and security posture management capabilities.

The Company provided total net consideration, subject to final adjustments, of approximately $ 80 million consisting of cash and the Company’s Class A common stock.

An agreed upon amount of consideration was deposited into a third party escrow account to secure the indemnification obligations of the selling stockholders.

Due to the limited amount of time since closing the transaction, the preliminary allocation of the purchase price is not yet complete.

The initial, provisional purchase price allocation, subject to measurement period adjustments, will be provided within the Company's Form 10-Q for the first quarter of fiscal 2025.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data