Okta, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 64 Consolidated Balance Sheets 67 Consolidated Statements of Operations 68 Consolidated Statements of Comprehensive Income (Loss) 69 Consolidated Statements of Stockholders’ Equity 70 Consolidated Statements of Cash Flows 71 Notes to Consolidated Financial Statements 73 63 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Okta, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Okta, Inc. (the Company) as of January 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended January 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2025, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 5, 2025 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 64 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. The Company’s arrangements are generally non-cancelable and non-refundable. In addition, the arrangements do not provide customers with the right to take possession of the software and, as a result, are accounted for as service arrangements. Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancelable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer. Revenue for the Company’s professional services is recognized as services are performed in proportion to their pattern of transfer. 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 significant arrangements that involve negotiation of otherwise standard terms with the customer. 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. 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. Further, we selected a sample of significant contractual arrangements that may involve negotiation of standard terms 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. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2013. San Jose, California March 5, 2025 65 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Okta, Inc. Opinion on Internal Control Over Financial Reporting We have audited Okta, Inc.’s internal control over financial reporting as of January 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Okta, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 31, 2025, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended January 31, 2025, and the related notes and our report dated March 5, 2025 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Jose, California March 5, 2025 66 OKTA, INC. CONSOLIDATED BALANCE SHEETS (dollars in millions, shares in thousands, except per share data) As of January 31, 2025 2024 Assets Current assets: Cash and cash equivalents $ 409 $ 334 Short-term investments 2,114 1,868 Accounts receivable, net of allowances of $ 4 and $ 6 , respectively 621 559 Deferred commissions 140 113 Prepaid expenses and other current assets 132 106 Total current assets 3,416 2,980 Property and equipment, net 43 48 Operating lease right-of-use assets 74 83 Deferred commissions, noncurrent 267 242 Intangible assets, net 138 182 Goodwill 5,448 5,406 Other assets 51 48 Total assets $ 9,437 $ 8,989 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 13 $ 12 Accrued expenses and other current liabilities 103 115 Accrued compensation 207 167 Convertible senior notes, net 509 — Deferred revenue 1,691 1,488 Total current liabilities 2,523 1,782 Convertible senior notes, net, noncurrent 349 1,154 Operating lease liabilities, noncurrent 94 112 Deferred revenue, noncurrent 27 23 Other liabilities, noncurrent 39 30 Total liabilities 3,032 3,101 Commitments and contingencies (Note 10) Stockholders’ equity: Preferred stock, par value $ 0.0001 per share; 100,000 shares authorized, no shares issued and outstanding as of January 31, 2025 and 2024. — — Class A common stock, par value $ 0.0001 per share; 1,000,000 shares authorized; 165,650 and 159,835 shares issued and outstanding as of January 31, 2025 and 2024, respectively. — — Class B common stock, par value $ 0.0001 per share; 120,000 shares authorized; 7,809 and 7,291 shares issued and outstanding as of January 31, 2025 and 2024, respectively. — — Additional paid-in capital 9,219 8,724 Accumulated other comprehensive loss ( 12 ) ( 6 ) Accumulated deficit ( 2,802 ) ( 2,830 ) Total stockholders’ equity 6,405 5,888 Total liabilities and stockholders’ equity $ 9,437 $ 8,989 See Notes to Consolidated Financial Statements. 67 OKTA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in millions, shares in thousands, except per share data) Year Ended January 31, 2025 2024 2023 Revenue Subscription $ 2,556 $ 2,205 $ 1,794 Professional services and other 54 58 64 Total revenue 2,610 2,263 1,858 Cost of revenue Subscription 549 502 464 Professional services and other 69 79 82 Total cost of revenue 618 581 546 Gross profit 1,992 1,682 1,312 Operating expenses Research and development 642 656 620 Sales and marketing 965 1,036 1,066 General and administrative 448 450 409 Restructuring and other charges 11 56 29 Total operating expenses 2,066 2,198 2,124 Operating loss ( 74 ) ( 516 ) ( 812 ) Interest expense ( 5 ) ( 8 ) ( 11 ) Interest income and other, net 106 81 22 Gain on early extinguishment of debt 19 106 — Interest and other, net 120 179 11 Income (loss) before provision for income taxes 46 ( 337 ) ( 801 ) Provision for income taxes 18 18 14 Net income (loss) $ 28 $ ( 355 ) $ ( 815 ) Net income (loss) per share, basic $ 0.16 $ ( 2.17 ) $ ( 5.16 ) Net income (loss) per share, diluted $ 0.06 $ ( 2.17 ) $ ( 5.16 ) Weighted-average shares used to compute net income (loss) per share, basic 169,569 163,634 158,023 Weighted-average shares used to compute net income (loss) per share, diluted 175,086 163,634 158,023 See Notes to Consolidated Financial Statements. 68 OKTA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions) Year Ended January 31, 2025 2024 2023 Net income (loss) $ 28 $ ( 355 ) $ ( 815 ) Other comprehensive income (loss): Net change in unrealized gains or losses on available-for-sale securities — 26 ( 12 ) Foreign currency translation adjustments ( 6 ) 1 ( 9 ) Other comprehensive income (loss) ( 6 ) 27 ( 21 ) Comprehensive income (loss) $ 22 $ ( 328 ) $ ( 836 ) See Notes to Consolidated Financial Statements. 69 OKTA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (dollars in millions, shares in thousands) Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Shares Amount Balances as of January 31, 2022 149,624 $ — 6,978 $ — $ 7,750 $ ( 12 ) $ ( 1,816 ) $ 5,922 Adjustments from adoption of ASU No. 2020-06 — — — — ( 528 ) — 156 ( 372 ) Issuance of common stock, net 4,040 — 451 — 52 — — 52 Conversion of Class B common stock to Class A common stock 129 — ( 129 ) — — — — — Settlement of convertible senior notes 356 — — — 17 — — 17 Proceeds from hedges related to convertible senior notes ( 140 ) — — — — — — — Stock-based compensation — — — — 683 — — 683 Other comprehensive loss — — — — — ( 21 ) — ( 21 ) Net loss — — — — — — ( 815 ) ( 815 ) Balances as of January 31, 2023 154,009 $ — 7,300 $ — $ 7,974 $ ( 33 ) $ ( 2,475 ) $ 5,466 Issuance of common stock, net 5,850 — — — 67 — — 67 Conversion of Class B common stock to Class A common stock 9 — ( 9 ) — — — — — Proceeds from hedges related to convertible senior notes ( 33 ) — — — — — — — Stock-based compensation — — — — 690 — — 690 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 Issuance of common stock, net 5,710 — 623 — 74 — — 74 Taxes withheld related to net share settlement of equity awards — — — — ( 149 ) — — ( 149 ) Conversion of Class B common stock to Class A common stock 105 — ( 105 ) — — — — — Stock-based compensation — — — — 570 — — 570 Other comprehensive loss — — — — — ( 6 ) — ( 6 ) Net income — — — — — — 28 28 Balances as of January 31, 2025 165,650 $ — 7,809 $ — $ 9,219 $ ( 12 ) $ ( 2,802 ) $ 6,405 See Notes to Consolidated Financial Statements. 70 OKTA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended January 31, 2025 2024 2023 Cash flows from operating activities: Net income (loss) $ 28 $ ( 355 ) $ ( 815 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Stock-based compensation 565 684 677 Depreciation, amortization and accretion 88 84 114 Amortization of deferred commissions 130 104 84 Deferred income taxes 2 6 7 Lease impairment charges — 28 14 Gain on early extinguishment of debt ( 19 ) ( 106 ) — Other, net 9 13 12 Changes in operating assets and liabilities: Accounts receivable ( 63 ) ( 79 ) ( 87 ) Deferred commissions ( 186 ) ( 158 ) ( 122 ) Prepaid expenses and other assets ( 37 ) ( 32 ) ( 13 ) Operating lease right-of-use assets 20 23 27 Accounts payable 1 — ( 6 ) Accrued compensation 41 68 ( 44 ) Accrued expenses and other liabilities ( 3 ) 21 8 Operating lease liabilities ( 33 ) ( 39 ) ( 34 ) Deferred revenue 207 250 264 Net cash provided by operating activities 750 512 86 Cash flows from investing activities: Capitalized software ( 12 ) ( 15 ) ( 9 ) Purchases of property and equipment ( 8 ) ( 8 ) ( 12 ) Purchases of securities available-for-sale and other ( 1,812 ) ( 1,709 ) ( 1,411 ) Proceeds from maturities and redemption of securities available-for-sale 1,571 2,134 1,308 Proceeds from sales of securities available-for-sale and other 3 62 — Payments for business acquisitions, net of cash acquired ( 56 ) ( 22 ) ( 4 ) Purchases of intangible assets — ( 1 ) ( 2 ) Net cash provided by (used in) investing activities ( 314 ) 441 ( 130 ) Cash flows from financing activities: Payments for repurchases of convertible senior notes ( 280 ) ( 937 ) — Taxes paid related to net share settlement of equity awards ( 148 ) — — Payments for warrants related to convertible senior notes — ( 7 ) — Proceeds from stock option exercises 27 15 17 Proceeds from shares issued in connection with employee stock purchase plan 42 46 31 Net cash provided by (used in) financing activities ( 359 ) ( 883 ) 48 Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash ( 4 ) 1 ( 6 ) Net increase (decrease) in cash, cash equivalents and restricted cash 73 71 ( 2 ) Cash, cash equivalents and restricted cash at beginning of year 342 271 273 Cash, cash equivalents and restricted cash at end of year $ 415 $ 342 $ 271 71 Year Ended January 31, 2025 2024 2023 Supplementary cash flow disclosure: Cash paid during the period for: Interest $ 3 $ 5 $ 6 Income taxes 19 14 8 Non-cash investing and financing activities: Issuance of common stock for repurchases and conversions of convertible senior notes — — 47 Benefit from exercise of hedges related to convertible senior notes — 2 18 Operating lease right-of-use assets exchanged for lease liabilities 9 11 11 Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the amounts shown in the statements of cash flows above: Cash and cash equivalents $ 409 $ 334 $ 264 Restricted cash, current included in prepaid expenses and other current assets 1 2 — Restricted cash, noncurrent included in other assets 5 6 7 Total cash, cash equivalents and restricted cash $ 415 $ 342 $ 271 See Notes to Consolidated Financial Statements. 72 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Overview and Basis of Presentation Description of Business Okta, Inc. (the “Company”) is the leading independent identity partner. The Company’s Okta Platform and Auth0 Platform enable customers to securely connect the right people to the right technologies and services at the right time. Employees and contractors sign into the Okta Platform to seamlessly and securely access the applications they need to do their most important work with more modern and secure experiences in the cloud and via mobile devices. Developers leverage the Okta Platform and Auth0 Platform to securely and efficiently embed identity into the software they build, allowing them to innovate and focus on their core mission. 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 ("GAAP"). All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year ends on January 31. References to fiscal 2025, for example, refer to the fiscal year ended January 31, 2025. Certain prior period amounts have been reclassified to conform to the current period presentation. Segments The Company conducts business globally and is managed, operated and organized by major functional departments that operate on a consolidated basis. As a result, the Company operates as one reportable segment. The Company employs a SaaS business model and generates revenue primarily by selling multi-year subscriptions to its cloud-based offerings. The Company’s chief operating decision maker ("CODM") is the chief executive officer. The CODM utilizes consolidated GAAP and non-GAAP measures of profit and loss to evaluate the Company's overall performance and inform resource allocation to support strategic priorities and capital allocation needs. The profit and loss measure most consistent with GAAP used by the CODM is consolidated net income (loss). The CODM is regularly provided with budgeted expense information and consolidated expense data. Accordingly, significant segment expenses are inherently reflected in the consolidated financial statements and related notes. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates are based on historical experience and on other assumptions that management believes are reasonable under the circumstances. Actual results could vary from those estimates. The Company’s most significant estimates include the valuation of deferred income tax assets, uncertain tax positions, assets and liabilities acquired in business combinations, and loss contingencies related to litigation. Foreign Currency 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 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 2025, 2024 or 2023. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the average exchange rate during the period. 73 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Summary of Significant Accounting Policies Revenue Recognition Revenue is derived from subscription fees (which include support fees) and professional services fees. The Company sells subscriptions to its platforms through arrangements that are generally one to five years in length. The arrangements are generally non-cancellable and non-refundable. 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 platforms 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. Revenue recognition is determined through the following steps: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, the performance obligations are satisfied. The Company recognizes revenue net of any applicable value added or sales tax. Subscription Revenue Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancellable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer. Professional Services Revenue Professional services principally consist of customer-specific requests for application integrations, user interface enhancements and other customer-specific requests. Revenue for professional services is recognized as services are performed in proportion to their pattern of transfer. Contracts with Multiple Performance Obligations Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price ("SSP") basis. The Company determines SSP based on observable, if available, prices for those related services when sold separately. When such observable prices are not available, the Company determines SSP based on overarching pricing objectives and strategies, taking into consideration market conditions and other factors, including customer size, volume purchased, market and industry conditions, product-specific factors and historical sales of the deliverables. Pricing objectives, market conditions or other factors may change in the future resulting in changes to standalone selling prices that could impact the timing or amount of revenue recognition. Deferred Revenue Deferred revenue consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s subscription and support services and professional services arrangements. The Company primarily invoices its customers for its subscription services arrangements annually in advance. The Company’s payment terms generally provide that customers pay the invoiced portion of the total arrangement fee within 30 days of the invoice date. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as deferred revenue, noncurrent in the consolidated balance sheets. 74 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Deferred Commissions Sales commissions earned by the Company’s sales force are generally considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new revenue contracts, including incremental sales to existing customers, are deferred and then amortized on a straight-line basis over a period of benefit, which is determined to be generally five years . The Company determined the period of benefit by taking into consideration the terms of its customer contracts, its technology and other factors. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the contractual term. Sales commissions capitalized as contract costs totaled $ 186 million and $ 158 million in fiscal 2025 and 2024, respectively. Amortization of contract costs totaled $ 130 million, $ 104 million and $ 84 million in fiscal 2025, 2024 and 2023, respectively. Amortization expense is included in sales and marketing expenses in the accompanying consolidated statements of operations. Cost of Revenue Costs of revenue primarily consist of costs related to providing the Company’s cloud-based platforms to its customers, including third-party hosting fees, amortization of capitalized internal-use software and finite-lived purchased developed technology, customer support, other employee-related expenses for security, technical operations and professional services staff, and allocated overhead costs. Research and Development Research and development expense incurred in the normal course of business is expensed as incurred. Software Development Costs Qualifying internally-developed software development costs, including the associated stock-based compensation expenses, are capitalized during the application development stage, as long as management has authorized and committed to funding the project, it is probable the project will be completed and the software will be used to perform the function intended. Capitalization of such costs ceases once the project is substantially complete and ready for its intended use. Capitalized software development costs are included in Intangible assets, net on the consolidated balance sheets and are amortized on a straight-line basis over an expected useful life of 3 years. Advertising Expenses Advertising costs are expensed as incurred. Advertising expense was $ 68 million, $ 65 million, and $ 77 million in fiscal 2025, 2024 and 2023, respectively. Restructuring and Other Charges Restructuring generally includes significant actions involving employee-related severance charges, facilities consolidation and contract termination costs. Employee-related severance charges are largely based upon substantive severance plans, while some are mandated requirements in certain foreign jurisdictions. Severance costs generally include severance payments, outplacement services, health insurance coverage and legal costs. These charges are reflected in the period when both the actions are probable, at the balance sheet date, and the amounts are reasonably estimable. Right-of-use asset impairments are recognized on the date the premises have been vacated or the Company have ceased-use of the leased facilities. Actual results may differ from the Company's estimates and assumptions. Restructuring liabilities are classified in accrued expenses and other current liabilities in the consolidated balance sheets. Stock-Based Compensation 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 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. 75 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 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, which were last granted to employees in fiscal 2022, was determined utilizing the simplified method due to lack of historical exercise data. 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 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 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. Stock-based compensation expense for awards with market conditions is recognized over the requisite service period using the accelerated attribution method and is not reversed if the market condition is not met. The assumptions used to determine the fair value of the stock awards represent management's best estimates. These estimates involve inherent uncertainties and the application of management's judgment. Forfeitures are accounted for as they occur. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets are also recognized for operating losses and tax credit carry forwards. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Management considers all positive and negative evidence in evaluating the Company’s ability to realize its deferred tax assets, for example its historical results and forecasts of future ability to realize its deferred tax assets, including forecasts of future taxable income by jurisdiction. Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in the provision for income taxes in the period that includes the enactment date. The Company does not provide for income taxes on undistributed earnings of subsidiaries that are intended to be indefinitely reinvested. Where the Company does not intend to indefinitely reinvest subsidiary earnings, income and withholding taxes, as applicable, are provided on such undistributed earnings. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company determines if the weight of available evidence indicates that it is more likely than not that a tax position will be sustained on tax audit, assuming that all issues are audited and resolution of any related appeals or litigation processes are considered. The tax benefit is then measured as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The reserves for uncertain tax positions are adjusted as facts and circumstances change, for example on closing of a tax audit, expiration of statutes of limitation on potential assessments or refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such a determination is made. The provisions for income taxes include the impact of reserves for uncertain tax positions, along with the related interest and penalties. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less from the date of purchase. Cash equivalents generally consist of investments in money market 76 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) funds. The fair market value of cash equivalents approximated their carrying value as of January 31, 2025 and 2024. As of January 31, 2025 and 2024, the Company's restricted cash balance was $ 6 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, 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. The Company has classified and accounted for its short-term investments as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, short-term investments, including securities with stated maturities beyond twelve months, are classified within current assets in the consolidated balance sheets. Available-for-sale securities are recorded at fair value each reporting period and are periodically evaluated for impairment. For unrealized losses in securities that the Company intends to hold and will not more likely than not be required to sell before recovery, the Company further evaluates whether declines in fair value below amortized cost are due to credit or non-credit related factors. The Company considers credit related impairments to be changes in value that are driven by a change in the creditor’s ability to meet its payment obligations, and records an allowance and recognizes a corresponding loss in interest income and other, net when the impairment is incurred. Unrealized non-credit related losses and unrealized gains are reported as a separate component of accumulated other comprehensive loss in the consolidated balance sheets until realized. Realized gains and losses are determined based on the specific identification method and are reported in interest income and other, net in the consolidated statements of operations. Strategic Investments The Company's strategic investments consist primarily of equity investments in privately held companies and are included in Other assets on the consolidated balance sheets. Investments in privately held companies without readily determinable fair values in which the Company does not own a controlling interest or have significant influence over are measured using the measurement alternative. In applying the measurement alternative, the Company adjusts the carrying values of strategic investments based on observable price changes from orderly transactions for identical or similar investments of the same issuer. Additionally, the Company evaluates its strategic investments at least quarterly for impairment. Adjustments and impairments are recorded in Interest and other, net on the consolidated statements of operations. In determining the estimated fair value of its strategic investments in privately held companies, the Company uses the most recent and available data. Valuations of privately held securities are inherently complex due to the lack of readily available market data and require the use of judgment. The determination of whether an orderly transaction is for an identical or similar investment requires use of significant judgment. In its evaluation, the Company considers factors such as differences in the rights and preferences of the investments and the extent to which those differences would affect the fair values of those investments. The Company’s impairment analysis encompasses an assessment of both qualitative and quantitative factors including the investee's financial metrics, market acceptance of the investee's product or technology, general market conditions and liquidity considerations. Accounts Receivable and Allowances Accounts receivable are recorded at the invoiced amount, net of allowances. These allowances are based on the Company’s assessment of the collectibility of accounts by considering the age of each outstanding invoice, the collection history of each customer, and an evaluation of current expected risk of credit loss based on current economic conditions and reasonable and supportable forecasts of future economic conditions over the life of the receivable. The Company assesses collectibility by reviewing accounts receivable on an aggregated basis where similar characteristics exist and on an individual basis when specific customers with collectibility issues are identified. 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. 77 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Property and Equipment Property and equipment, net, is stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets. Repairs and maintenance costs are expensed as incurred. The useful lives of property and equipment are as follows: Useful lives Computers and equipment 3 years Furniture and fixtures 7 years Leasehold improvements Shorter of estimated useful life or remaining lease term Business Combinations Business combinations are accounted for under the acquisition method of accounting, which requires the acquired assets, including separately identifiable intangible assets, and assumed liabilities to be recorded as of the acquisition date at their respective estimated fair values. Any excess of the purchase price over the fair value of the assets acquired, including separately identifiable intangible assets and liabilities assumed, is recorded as goodwill. 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, 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 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. Acquisition-related expenses and post-acquisition restructuring costs are recognized separately from the business combination and are expensed as incurred. Goodwill and Other Long-Lived Assets Goodwill represents the excess of the purchase price over the estimated fair value of net assets of businesses acquired in a business combination. Goodwill amounts are not amortized. Goodwill is tested for impairment annually on the first day of the fourth quarter of each fiscal year, or whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. 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’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. 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. Recoverability of assets to be held and used is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount exceeds the undiscounted cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds its fair value. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. 78 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Operating Leases and Incremental Borrowing Rate The Company leases office space under operating leases with expiration dates through 2030. The Company determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at lease commencement. Lease liabilities are measured based on the present value of the total lease payments not yet paid, discounted based on the more readily determinable of either the rate implicit in the lease or the incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. 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. Lease liabilities due within twelve months are included within accrued expenses and other current liabilities on the consolidated balance sheet. 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. Recognition of rent expense begins when the lessor makes the underlying asset available to the Company. The Company does not assume renewals or early terminations of its leases unless it is reasonably certain to exercise these options at commencement and does not allocate consideration between lease and non-lease components. For leases with a lease term of 12 months or less ("short-term leases"), rent expense is recorded in the consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as incurred. Loss Contingencies The Company is periodically involved in various legal claims and proceedings. The Company routinely reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any matter is considered probable and the amount can be reasonably estimated, the Company records a liability for the estimated loss. If either or both of the criteria for recording the liability are not met, the Company assesses whether there is at least a reasonable possibility that a loss, or additional losses, may have been incurred. If there is a reasonable possibility that a loss may have been incurred, the Company discloses the estimate of the amount of loss or range of loss, discloses that the amount is immaterial, or discloses that an estimate of loss cannot be made, as applicable. Because of inherent uncertainties related to these legal matters, the Company bases its loss accruals on the best information available at the time. As additional information becomes available, the Company reassesses its potential liability and may review its estimates. Actual outcomes of these legal and regulatory proceedings may differ materially from the Company’s estimates. Concentrations of Risk Financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Company's short-term investments are primarily intended to facilitate liquidity and capital preservation and consist predominately of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The Company's policy is designed to limit exposure from any particular issuer or institution. Credit risk arising from accounts receivable is mitigated due to the large number of customers and their dispersion across various industries and geographies. For the periods presented, there were no customers that represented more than 10% of the Company's accounts receivable balance or total revenue. The Company serves customers and users from data center facilities located across various different physical locations, such as the U.S., Europe and Asia-Pacific, most of which are operated by a single third party. The Company has disaster recovery protocols at the third-party service providers. Even with these procedures for disaster recovery in place, access to the Company's service could be significantly interrupted, resulting in an adverse effect on its operating results and financial condition. Net Income (Loss) per Share The Company computes basic and diluted net income (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 income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. 79 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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, 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. The dilutive effect of potentially dilutive common shares included in diluted earnings per share is determined in accordance with the treasury stock, if-converted, or contingently issuable accounting methods, depending on the nature of the security. 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. Accounting Pronouncements Recently Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance which requires potential 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 adopted this guidance in fiscal 2025 with no material impact to its consolidated financial statements. Recent Accounting Pronouncements Not Yet Adopted 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 intends to adopt this guidance in fiscal 2026 and expects the adoption of the updated guidance to result in disclosure of additional disaggregated tax information. In November 2024, the FASB issued guidance requiring the disclosure, in the notes to financial statements, of specified disaggregated income statement expense information. This guidance is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this guidance. 3. Restructuring and Other Charges The following table summarizes the Company’s restructuring and other charges during fiscal 2025, 2024 and 2023 : Year Ended January 31, 2025 2024 2023 (dollars in millions) Severance and termination benefit costs $ 11 $ 28 $ 15 Lease impairment charges — 28 14 Total $ 11 $ 56 $ 29 The following table summarizes the Company’s restructuring liability related to severance and termination benefit costs 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, 2023 $ 15 Restructuring charges 28 Cash payments ( 19 ) Balance as of January 31, 2024 24 Restructuring charges 11 Cash payments ( 24 ) Balance as of January 31, 2025 $ 11 80 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2025 Restructuring Plan During fiscal 2025, the Company approved a restructuring plan (the “2025 Restructuring Plan”) intended to reallocate resources toward priorities to drive growth. The 2025 Restructuring Plan involved a reduction of the Company’s workforce by approximately 180 full-time employees. The 2025 Restructuring Plan is expected to be substantially complete by the first quarter of fiscal 2026, and the Company recognized aggregate restructuring costs of $ 11 million in fiscal 2025. 2024 Restructuring Plan During fiscal 2024, the Company approved a restructuring plan (the “2024 Restructuring Plan”) intended to improve operating efficiencies and profitability. The 2024 Restructuring Plan involved a reduction of the Company’s workforce by approximately 400 full-time employees. The 2024 Restructuring Plan was substantially complete by the first quarter of fiscal 2025 and the Company recognized aggregate restructuring costs of $ 24 million in fiscal 2024. 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. 2023 Restructuring Plan & Real Estate Optimization Plan During 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 fiscal 2023. Additionally, during fiscal 2023 the Company implemented a real estate optimization plan which provided for closing duplicative sites and decommissioning underutilized offices and floors. As result, the Company recognized non-cash lease impairment charges of $ 28 million and $ 14 million in fiscal 2024 and fiscal 2023, respectively . 4. 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. 81 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table presents the estimated fair value of cash equivalents and short-term investments: As of January 31, 2025 2024 (dollars in millions) Cash equivalents: Money market funds (Level 1) $ 225 $ 151 Certificates of deposit (Level 2) 23 — Total cash equivalents 248 151 Level 2: Short-term investments (Available-for-sale): U.S. treasury securities 1,788 1,784 Corporate debt securities 281 43 Certificates of deposit 45 41 Total short-term investments 2,114 1,868 Total $ 2,362 $ 2,019 The following table presents the contractual maturities of the Company's short-term investments: As of January 31, 2025 Estimated Fair Value (dollars in millions) Due within one year $ 1,456 Due between one to five years 658 Total $ 2,114 Interest receivable of $ 24 million and $ 20 million is included in Prepaid expenses and other current assets on the consolidated balance sheets as of January 31, 2025 and 2024, respectively. There were no material differences between the estimated fair value and amortized cost of our cash equivalents and short-term investments as of January 31, 2025 and 2024. For available-for-sale debt securities that have unrealized losses, there were no material credit or non-credit related impairments for short-term investments as of January 31, 2025 and 2024. Strategic Investments Strategic investments primarily include equity investments in privately-held companies, which do not have a readily determinable fair value. Strategic investments are classified as Level 3 in the fair value hierarchy as nonrecurring fair value measurements may include observable and unobservable inputs. As of January 31, 2025 and 2024, the balance of strategic investments was $ 30 million and $ 26 million, respectively. 5. Goodwill and Intangible Assets, net Goodwill As of January 31, 2025 and 2024, goodwill was $ 5,448 million and $ 5,406 million, respectively. No goodwill impairments were recorded during fiscal 2025, 2024 and 2023. 82 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Intangible Assets, net Intangible assets consisted of the following: As of January 31, 2025 Gross Accumulated Amortization Net (dollars in millions) Purchased developed technology $ 239 $ ( 179 ) $ 60 Customer relationships 116 ( 85 ) 31 Capitalized internal-use software costs 54 ( 19 ) 35 Trade name 21 ( 16 ) 5 Other 10 ( 3 ) 7 $ 440 $ ( 302 ) $ 138 As of January 31, 2024 Gross Accumulated Amortization Net (dollars in millions) Purchased developed technology $ 220 $ ( 134 ) $ 86 Customer relationships 116 ( 62 ) 54 Capitalized internal-use software costs 48 ( 17 ) 31 Trade name 21 ( 12 ) 9 Other 4 ( 2 ) 2 $ 409 $ ( 227 ) $ 182 The weighted-average remaining useful lives of the Company’s acquired intangible assets are as follows: Weighted-Average Remaining Useful Life As of January 31, 2025 2024 Purchased developed technology 1.9 years 2.2 years Customer relationships 1.6 years 2.5 years Trade name 1.3 years 2.3 years As of January 31, 2025, estimated remaining amortization expense for the intangible assets by fiscal year was as follows: Remaining Amortization (dollars in millions) 2026 $ 81 2027 36 2028 13 2029 6 2030 1 Thereafter 1 Total $ 138 Amortization expense of intangible assets was $ 85 million, $ 87 million and $ 93 million in fiscal 2025, 2024 and 2023, respectively. 83 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Property and Equipment, net Property and equipment consisted of the following: As of January 31, 2025 2024 (dollars in millions) Furniture and fixtures $ 15 $ 18 Leasehold improvements 84 92 Property and equipment, gross 99 110 Less accumulated depreciation ( 56 ) ( 62 ) Property and equipment, net $ 43 $ 48 Depreciation expense was $ 13 million in fiscal 2025 and $ 12 million in fiscal 2024 and 2023. 7. Deferred Revenue and Performance Obligations Deferred Revenue Deferred revenue, which is a contract liability, consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met. Subscription revenue recognized during fiscal 2025 and 2024 that was included in the deferred revenue balances at the beginning of the respective periods was $ 1,456 million and $ 1,229 million, respectively. Transaction Price Allocated to the Remaining Performance Obligations Transaction price allocated to the remaining performance obligations represents all future, non-cancelable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods. Total remaining non-cancelable performance obligations under subscription contracts with customers was approximately $ 4,215 million as of January 31, 2025. Of this amount, the Company expects to recognize revenue of approximately $ 2,248 million, or 53 %, over the next 12 months, with the balance to be recognized as revenue thereafter. Remaining performance obligations for professional services and other contracts as of January 31, 2025 were not material. 8. Convertible Senior Notes, Net Convertible Senior Notes The convertible senior notes due in 2025 (“2025 Notes”) and 2026 (“2026 Notes” and together with the 2025 Notes, the “Notes”), are recorded at face value less unamortized debt issuance costs. During fiscal 2025, the Company repurchased $ 42 million principal amount of the 2025 Notes for $ 40 million in cash, and $ 258 million principal amount of the 2026 Notes for $ 240 million in cash, resulting in a gain on early extinguishment of debt of $ 19 million. 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 a gain on early extinguishment of debt of $ 106 million. 2025 Convertible Senior Notes The 2025 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.125 % per year. Interest is payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. The 2025 Notes mature on September 1, 2025 unless earlier redeemed, repurchased or converted. 84 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The terms of the 2025 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the "2025 Indenture"). Upon conversion, the 2025 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. The 2025 Notes are convertible at an initial conversion rate of 5.2991 shares of Class A common stock per $1,000 principal amount of the 2025 Notes, which is equal to an initial conversion price of approximately $ 188.71 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2025 Indenture. Prior to the close of business on the business day immediately preceding June 1, 2025, holders of the 2025 Notes may convert all or a portion of their 2025 Notes only in multiples of $1,000 principal amount, under the following circumstances: • during any fiscal quarter commencing after the fiscal quarter ending on January 31, 2020 (and only during such fiscal quarter), if the last reported sale price of Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2025 Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2025 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate on such trading day; • if the Company calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or • upon the occurrence of specified corporate events, as described in the 2025 Indenture. On or after June 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2025 Notes regardless of the foregoing circumstances. During the three months ended January 31, 2025, the conditions allowing holders of the 2025 Notes to convert during the three months ending April 30, 2025 were not met. As of January 31, 2025, the 2025 Notes are classified as current liabilities due to their upcoming maturity on September 1, 2025. 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. The net carrying amount of the 2025 Notes consisted of the following: As of January 31, 2025 2024 (dollars in millions) Principal $ 510 $ 552 Less: unamortized debt issuance costs ( 1 ) ( 3 ) Net carrying amount $ 509 $ 549 85 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2025 Capped Calls In connection with the pricing of the 2025 Notes, the Company entered into capped call transactions with respect to its Class A common stock. The 2025 Capped Calls are purchased call options that give the Company the option to purchase approximately 6 million shares, subject to anti-dilution adjustments substantially identical to those in the 2025 Notes, of its Class A common stock for approximately $ 188.71 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2025 Notes, exercisable upon conversion of the 2025 Notes. The 2025 Capped Calls have initial cap prices of $ 255.88 per share (subject to adjustment) and will expire in 2025, if not exercised earlier. The 2025 Capped Calls are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2025 Notes under certain circumstances. The 2025 Capped Calls are separate transactions and are not part of the terms of the 2025 Notes. The 2025 Capped Calls meet the criteria for classification as equity and, as such, are not remeasured each reporting period. 2026 Convertible Senior Notes The 2026 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.375 % per year. Interest is payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The 2026 Notes mature on June 15, 2026 unless earlier redeemed, repurchased or converted. The terms of the 2026 Notes are governed by an Indenture by and between the Company and Wilmington Trust, National Association, as Trustee (the "2026 Indenture"). Upon conversion, the 2026 Notes may be settled in cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at the Company’s election. The 2026 Notes are convertible at an initial conversion rate of 4.1912 shares of Class A common stock per $1,000 principal amount of the 2026 Notes, which is equal to an initial conversion price of approximately $ 238.60 per share of Class A common stock, subject to adjustment under certain circumstances in accordance with the terms of the 2026 Indenture. Prior to the close of business on the business day immediately preceding March 15, 2026, holders of the 2026 Notes may convert all or a portion of their 2026 Notes only in multiples of $1,000 principal amount, under the following circumstances: • during any fiscal quarter commencing after the fiscal quarter ending on October 31, 2020 (and only during such fiscal quarter), if the last reported sale price of the Company's Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2026 Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of that five consecutive trading day period was less than 98 % of the product of the last reported sale price of the Company's Class A common stock and the conversion rate on such trading day; • if the Company calls the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or • upon the occurrence of specified corporate events, as described in the 2026 Indenture. On or after March 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2026 Notes regardless of the foregoing circumstances. During the three months ended January 31, 2025, the conditions allowing holders of the 2026 Notes to convert during the three months ending April 30, 2025 were not met, and as a result, the 2026 Notes were classified as noncurrent liabilities as of January 31, 2025. 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 86 OKTA, INC. 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. The net carrying amount of the 2026 Notes consisted of the following: As of January 31, 2025 2024 (dollars in millions) Principal $ 350 $ 608 Less: unamortized debt issuance costs ( 1 ) ( 3 ) Net carrying amount $ 349 $ 605 2026 Capped Calls In connection with the pricing of the 2026 Notes, the Company entered into capped call transactions with respect to its Class A common stock. The 2026 Capped Calls are purchased call options that give the Company the option to purchase approximately 5 million shares, subject to anti-dilution adjustments substantially identical to those in the 2026 Notes, of its Class A common stock for approximately $ 238.60 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2026 Notes, exercisable upon conversion of the 2026 Notes. The 2026 Capped Calls have initial cap prices of $ 360.14 per share (subject to adjustment) and will expire in 2026, if not exercised earlier. The 2026 Capped Calls are intended to offset potential dilution to the Company’s Class A common stock and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount upon any conversion of the 2026 Notes under certain circumstances. The 2026 Capped Calls are separate transactions and are not part of the terms of the 2026 Notes. The 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, 2025 Principal Amount Estimated Fair Value (dollars in millions) 2025 convertible senior notes $ 510 $ 494 2026 convertible senior notes $ 350 $ 329 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. 87 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. Leases The Company has entered into various non-cancelable office space operating leases with original lease periods expiring between 2025 and 2030. These leases do not contain material variable rent payments, residual value guarantees, financial covenants or other restrictions. The Company's corporate headquarters lease in San Francisco has a 10-year term, which expires in October 2028. The Company is entitled to two five-year options to extend this lease, subject to certain requirements. Operating lease costs were as follows: Year Ended January 31, 2025 2024 2023 (dollars in millions) Operating lease costs (1) $ 31 $ 34 $ 40 (1) Amounts are presented exclusive of sublease income and include short-term leases, which are immaterial. The weighted-average remaining term of operating leases was 3.8 years and 4.5 years as of January 31, 2025 and January 31, 2024, respectively, and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.6 % and 5.5 % as of January 31, 2025 and January 31, 2024, respectively. Maturities of operating lease liabilities, which do not include short-term leases, were as follows: As of January 31, 2025 Fiscal Year Ending January 31: (dollars in millions) 2026 $ 34 2027 36 2028 36 2029 28 2030 2 Total lease payments 136 Less imputed interest ( 15 ) Total operating lease liabilities $ 121 Cash payments made related to operating lease liabilities were $ 41 million and $ 47 million in fiscal 2025 and 2024, respectively. 10. Commitments and Contingencies Letters of Credit In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $ 6 million and $ 7 million were issued and outstanding as of January 31, 2025 and January 31, 2024, respectively. No draws have been made under such letters of credit. Legal Matters From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. On May 20, 2022, a purported shareholder filed a putative class action lawsuit in the United States District Court for the Northern District of California against the Company and certain of its executive officers, captioned In re Okta, Inc. Securities Litigation , No. 3:22-cv-02990. The lawsuit asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that the defendants made false or misleading statements or omissions concerning the Company’s cybersecurity controls, vulnerability to data breaches, and the Company’s integration of Auth0, Inc. (“Auth0”). The lawsuit sought 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 dismissed in full the claims based on the plaintiff’s allegations related to the Company’s cybersecurity controls and 88 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) vulnerability to data breaches, and dismissed in part and denied in part the claims based on allegations related to the Auth0 integration. On May 28, 2024, the parties entered into a stipulation of settlement (the “Stipulation”) where, in exchange for the release and dismissal with prejudice of all claims, the Company agreed to pay and/or to cause its insurance carriers to pay a total of $ 60 million, which is covered through a combination of the Company’s Director & Officer ("D&O") insurance and the balance of the Company’s $ 10 million retention on the primary D&O policy. The Stipulation does not constitute an admission of fault or wrongdoing by the Company or its executives. On November 19, 2024, the court granted final approval of the Stipulation and dismissed the lawsuit in its entirety, with prejudice. Additionally, two purported shareholders filed derivative lawsuits on behalf of the Company in the United States District Court for the Northern District of California against certain of its current and former executive officers and directors, captioned O’Dell v. McKinnon et al. , No. 3:22-cv-07480 (filed Nov. 28, 2022), and LR Trust v. McKinnon et al ., No. 3:22-cv-08627 (filed Dec. 13, 2022) (the "California Federal Derivative Actions"). The California Federal Derivative Actions 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 California Federal Derivative Actions 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 California Federal Derivative Actions, appointing co-lead counsel for plaintiffs, and staying the consolidated California Federal Derivative Actions during the pendency of the motion to dismiss in the securities class action lawsuit. The consolidated California Federal Derivative Actions are 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 and, on January 27, 2025, the court entered an order continuing the stay. On April 14, 2023, another shareholder filed a substantially similar derivative lawsuit in the United States District Court for the District of Delaware against certain of the Company’s current and former executive officers and directors, captioned Buono v. McKinnon et al. , No. 1:23-cv-00413 (the "Buono Action"). On May 31, 2023, the court entered a stipulated order whereby the defendants agreed to accept service and stay the Buono 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. , No. 1:24-cv-00106 (together with the Buono Action, the "Delaware Federal Derivative Actions"). On March 18, 2024, 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 July 1, 2024, another shareholder filed a substantially similar derivative lawsuit in the Court of Chancery for the State of Delaware (the “Delaware Chancery Court”) against certain of the Company’s current and former executive officers and directors, captioned Grimaldi v. McKinnon, et al. , C.A. No. 2024-0685-PAF (the “Grimaldi Action”). On July 19, 2024, the Delaware Chancery Court entered a stipulated order whereby the defendants agreed to accept service and to stay the derivative action through final approval of the settlement in the securities class action lawsuit. On October 18, 2024, another shareholder filed a substantially similar derivative lawsuit in the Delaware Chancery Court against certain of the Company’s current and former executive officers and directors, captioned Duprat v. McKinnon, et al ., C.A. No. 2024-1072-PAF (the “Duprat Action”). On November 8, 2024, the Delaware Chancery Court entered a stipulated order where the defendants agreed to accept service in the Duprat Action; the Grimaldi Action and the Duprat Action were consolidated (the "Delaware Chancery Actions"); and the Delaware Chancery Actions were stayed pursuant to the terms previously entered in the Grimaldi Action. On January 10, 2025, the Company and defendants agreed in principle to the non-monetary terms of a global resolution of the California Federal Derivative Actions, the Delaware Federal Derivative Actions, and the Delaware Chancery Actions, and executed a Memorandum of Understanding in connection therewith containing the agreed-upon material, non-monetary terms of the proposed settlement. 89 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) While the Company and defendants have agreed in principle to settle the above-referenced derivative lawsuits, the Company is unable to predict the outcome or estimate the amount of loss or range of losses that could potentially result from these lawsuits. Warranties and Indemnification 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. Furthermore, the Company may also incur liabilities if it breaches the security or confidentiality obligations in its arrangements. To date, the Company has not incurred significant costs and has not accrued any material liabilities in the accompanying consolidated financial statements as a result of these obligations. The Company has entered into service-level agreements with a majority of its customers defining levels of uptime reliability and performance and permitting certain customers to receive credits for paid amounts related to subscription services when the Company fails to meet the defined levels of uptime. In very limited instances, the Company allows customers to early terminate their agreements in the event that the Company fails to meet those levels as they may constitute a breach of contract. If the customer did terminate, they would receive a refund of prepaid unused subscription fees. To date, the Company has not experienced any significant failures to meet defined levels of uptime reliability and performance as a result of those agreements and, as a result, the Company has not incurred significant costs and has not accrued any material liabilities in the accompanying consolidated financial statements as a result of these warranties. Agreements with customers and other third parties may include indemnification or other provisions under which the Company agrees to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of intellectual property infringement, damages caused by us to property or persons, or other liabilities relating to or arising from the use of the Company’s platforms or other acts or omissions. The Company cannot reasonably estimate potential payment obligations as a result of indemnification claims because it cannot predict when and under what circumstances they may be incurred. As a result, no material liabilities have been recognized in the accompanying consolidated financial statements related to these indemnification obligations. 11. Common Stock and Stockholders' Equity Common Stock 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. Shares of Class A common stock are not convertible. As of January 31, 2025, shares of common stock reserved for future issuance were as follows: As of January 31, 2025 (shares in thousands) Options and unvested RSUs outstanding 9,998 Available for future stock option and RSU grants 36,828 Available for ESPP 8,736 Total 55,562 Awards Issued as Charitable Contributions During fiscal 2025, 2024 and 2023, the Company issued 56,250 , 75,000 and 41,250 shares, respectively, of Class A common stock as charitable contributions and recognized $ 5 million, $ 6 million and $ 4 million, respectively, as general and administrative expense in the consolidated statements of operations. 90 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. Employee Incentive Plans Equity Incentive Plans The Company has two equity incentive plans: the 2009 Stock Plan (“2009 Plan”) and the 2017 Equity Incentive Plan (“2017 Plan”). All shares that remain available for future grants are under the 2017 Plan. As of January 31, 2025, options to purchase 811,267 shares of Class A common stock and 1,387,313 shares of Class B common stock remained outstanding. The Company’s equity incentive plans provide for granting stock options, 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. Stock-based compensation expense by award type was as follows: Year Ended January 31, 2025 2024 2023 (dollars in millions) Stock options $ 14 $ 45 $ 82 RSUs 500 502 464 ESPP 17 26 19 Restricted stock awards 34 111 112 Total $ 565 $ 684 $ 677 Stock-based compensation expense was recorded in the following cost and expense categories in the consolidated statements of operations: Year Ended January 31, 2025 2024 2023 (dollars in millions) Cost of revenue: Subscription $ 82 $ 75 $ 69 Professional services and other 12 15 14 Research and development 216 277 275 Sales and marketing 131 156 159 General and administrative 124 161 160 Total $ 565 $ 684 $ 677 Stock Options Options issued under the Plan generally are exercisable for periods not to exceed ten years and generally vest over four years with 25 % vesting after one year and with the remainder vesting monthly thereafter in equal installments. Shares offered under the Plan may be: (i) authorized but unissued shares or (ii) treasury shares. 91 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 (Years) Aggregate Intrinsic Value (in millions) Outstanding as of January 31, 2024 5,038 $ 32.54 3.1 $ 320 Exercised ( 2,792 ) 9.80 Expired ( 43 ) 206.35 Forfeited ( 4 ) 47.82 Outstanding as of January 31, 2025 2,199 $ 57.98 2.8 $ 137 As of January 31, 2025 Vested and expected to vest 2,199 $ 57.98 2.8 $ 137 Vested and exercisable 2,192 $ 57.33 2.8 $ 137 No options were granted during fiscal 2025, 2024 and 2023. The total grant-date fair value of stock options vested was $ 16 million, $ 48 million and $ 104 million during fiscal 2025, 2024 and 2023, respectively. The intrinsic value of the options exercised, which represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option, was $ 213 million, $ 57 million and $ 108 million during fiscal 2025, 2024 and 2023, respectively. Windfall tax benefits realized upon exercise of stock options were $ 47 million during fiscal 2025, while no windfall tax benefits were realized in fiscal years 2024 and 2023. Restricted Stock Units A summary of RSU activity (inclusive of market-based RSUs) and related information was as follows: Number of RSUs (in thousands) Weighted-Average Grant Date Fair Value Per Share Outstanding as of January 31, 2024 9,080 $ 111.03 Granted 4,859 96.98 Vested ( 4,361 ) 114.57 Forfeited ( 1,780 ) 108.11 Outstanding as of January 31, 2025 7,798 $ 100.97 The Company granted 4,858,824 RSUs with an aggregate fair value of $ 471 million during fiscal 2025. As of January 31, 2025 and 2024, there was a total of $ 672 million and $ 898 million, respectively, of unrecognized stock-based compensation expense related to unvested RSUs, which is being recognized over a weighted-average period of 1.8 years, based on vesting under the award service conditions. The total fair value of RSUs vested during fiscal 2025, 2024 and 2023 was $ 382 million, $ 335 million and $ 229 million, respectively. During the first quarter of fiscal 2025, the Company began funding withholding taxes due upon the vesting of employee RSUs in certain jurisdictions by net share settlement, rather than its previous approach of selling shares of the Company’s common stock. The amount of withholding taxes related to net share settlement of employee RSUs is reflected as (i) a reduction to additional paid-in-capital, and (ii) cash outflows for financing activities when the payments are made. The shares withheld by the Company as a result of the net share settlement of RSUs are not considered issued and outstanding, and do not impact the calculation of basic net income (loss) per share attributable to the Class A and Class B common stockholders. Market-based Restricted Stock Units In March 2022, the Company granted market-based RSUs to certain members of management with an average grant date fair value of $ 244.73 . The target number of market-based RSUs granted was 58,150 . One-third of these market-based RSUs vest over each of a one-, two- and three-year performance period, each starting on February 1, 2022. 92 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) In March 2023, the Company granted market-based RSUs to certain members of management with an average grant date fair value of $ 149.78 . 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. In March 2024, the Company granted market-based RSUs to certain members of management with an average grant date fair value of $ 182.15 . The target number of market-based RSUs granted was 183,595 . One-third of these market-based RSUs vest over each of a one-, two- and three-year performance period, each starting on February 1, 2024. For each granted market-based RSU award, 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 average grant date fair value per target market-based RSU is 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 As of January 31, 2025, there was $ 15 million of unrecognized stock-based compensation expense related to unvested restricted stock awards, which is being recognized over a weighted-average period of 2.1 years based on vesting under the award service conditions. Employee Stock Purchase Plan (ESPP) The ESPP provides for 12-month offering periods beginning June 21 and December 21 of each year, and each offering period consists of up to two six-month purchase periods. The ESPP contains a reset provision under which the offering period resets if the fair market value of the Company’s common stock on the purchase date is less than the fair market value on the offering date. The Company estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions: Year Ended January 31, 2025 2024 2023 Expected volatility 42 % - 44 % 46 % - 74 % 63 % - 90 % Expected term (in years) 0.5 - 1.0 0.5 - 1.0 0.5 - 1.0 Risk-free interest rate 4.26 % - 5.36 % 4.84 % - 5.41 % 2.46 % - 4.67 % Expected dividend yield — — — During fiscal 2025, the Company's employees purchased 586,149 shares of its Class A common stock under the ESPP. The shares were purchased at a weighted-average purchase price of $ 71.68 per share, with proceeds of $ 42 million. During fiscal 2024, the Company's employees purchased 793,739 shares of its Class A common stock under the ESPP. The shares were purchased at a weighted-average purchase price of $ 57.84 per share, with proceeds of $ 46 million. As of January 31, 2025 and January 31, 2024, there was $ 15 million and $ 16 million, respectively, of unrecognized stock-based compensation expense related to the ESPP which is being recognized over a weighted-average vesting period of 0.6 years. Employee Defined Contribution Plan The Company has a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code covering eligible employees. A portion of employee contributions are matched up to a fixed maximum dollar amount per year per employee. During fiscal 2025, 2024 and 2023, matching contributions related to the plan were $ 18 million, $ 19 million and $ 21 million, respectively. 93 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. Income Taxes The Company is subject to taxation in the U.S. and various other state and foreign jurisdictions. The domestic and foreign components of pre-tax income (loss) for fiscal 2025, 2024 and 2023 were as follows: Year Ended January 31, 2025 2024 2023 (dollars in millions) Domestic $ 28 $ ( 360 ) $ ( 834 ) Foreign 18 23 33 Income (loss) before provision for income taxes $ 46 $ ( 337 ) $ ( 801 ) The components of the provision for income taxes for fiscal 2025, 2024 and 2023 were as follows: Year Ended January 31, 2025 2024 2023 (dollars in millions) Current: Federal $ 5 $ 2 $ — State 2 3 2 Foreign 9 6 5 Total current provision for income taxes 16 11 7 Deferred: Foreign 2 7 7 Total deferred provision for income taxes 2 7 7 Total provision for income taxes $ 18 $ 18 $ 14 For fiscal 2025, income tax expense resulted primarily from profitable foreign jurisdictions, federal and state taxes resulting from limitations on tax attribute utilization, offset by the impact of tax windfalls from stock-based compensation in the United States. For fiscal 2024, the income tax expense resulted primarily from income tax expense related to profitable foreign jurisdictions, federal and state taxes resulting from limitations on tax attribute utilization, and the tax impact of shortfalls from stock-based compensation in the United Kingdom. For fiscal 2023, 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. The Company does not provide for income taxes on undistributed earnings of subsidiaries that are intended to be indefinitely reinvested. Where the Company does not intend to indefinitely reinvest subsidiary earnings, income and withholding taxes, as applicable, are provided on such undistributed earnings and are insignificant. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for fiscal 2025, 2024 and 2023: Year Ended January 31, 2025 2024 2023 Tax at federal statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 3.7 3.8 3.6 Change in valuation allowance 27.4 ( 5.6 ) ( 9.9 ) Stock-based compensation 14.5 ( 28.4 ) ( 11.9 ) Effect of foreign operations 8.1 ( 0.7 ) ( 1.0 ) Research and development credits ( 51.7 ) 5.3 2.6 Non-deductible expenses 19.2 ( 1.5 ) ( 6.2 ) Provision to return true-up ( 7.1 ) 0.2 — Unrecognized tax benefits 7.9 — — Other, net ( 4.0 ) 0.6 0.2 Effective tax rate 39.0 % ( 5.3 ) % ( 1.6 ) % 94 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Tax Cuts and Jobs Act enacted on December 22, 2017 amended Internal Revenue Code Section 174 to require that specific research and experimental (“R&E”) expenditures be capitalized and amortized over five years (U.S. R&E) or fifteen years (non-U.S. R&E) beginning in fiscal 2023. As a result, for fiscal 2024 and 2023, the 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, 2025 and 2024 were as follows: As of January 31, 2025 2024 (dollars in millions) Deferred tax assets: Net operating loss carryforwards $ 702 $ 716 Capitalized research expenditures 335 268 Stock-based compensation 41 41 Operating lease liabilities 31 36 Other reserves and accruals 24 21 Research and development and other credits 146 125 Total deferred tax assets 1,279 1,207 Valuation allowance ( 1,144 ) ( 1,087 ) Total deferred tax assets, net 135 120 Deferred tax liabilities: Deferred commissions ( 99 ) ( 67 ) Other deferred tax liabilities ( 15 ) ( 5 ) Operating lease right-of-use assets ( 20 ) ( 21 ) Depreciation and amortization ( 14 ) ( 35 ) Total deferred tax liabilities ( 148 ) ( 128 ) Net deferred tax liabilities $ ( 13 ) $ ( 8 ) The Company has determined that it is not more likely than not that it will realize the benefits of its net deferred tax assets in the United States due to negative evidence such as a continued cumulative loss and an increase in net deferred tax assets despite attribute utilization. Therefore, the Company has recorded a valuation allowance to reduce the carrying value of the U.S. deferred tax assets, net of U.S. deferred tax liabilities. The U.S. valuation allowance increased by $ 57 million and $ 9 million during fiscal 2025 and 2024, respectively. As of January 31, 2025, the Company had approximately $ 2,683 million of federal and $ 2,025 million of state net operating loss carryforwards available to offset future taxable income. If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2036 and 2026, respectively. The federal and state net operating losses for fiscal 2025 consider the impacts of the amendments of prior-year federal and state tax returns as discussed in the effective tax rate reconciliation section. As of January 31, 2025, the Company had approximately $ 34 million of UK net operating losses which do not expire. As of January 31, 2025, the Company had federal research and development tax credit carryforwards of $ 130 million and California research and development tax credit carryforwards of $ 86 million. The federal research and development credits will start to expire in 2038 while the California research and development credits do not expire. The Company’s ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws. 95 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) A reconciliation of beginning and ending amount of unrecognized tax benefit was as follows: Year Ended January 31, 2025 2024 2023 (dollars in millions) Gross amount of unrecognized tax benefits as of the beginning of the year $ 49 $ 43 $ 37 Additions based on tax positions related to a prior year 4 — 1 Additions based on tax positions related to current year 12 7 7 Reductions based on tax positions taken in a prior year — ( 1 ) ( 2 ) Gross amount of unrecognized tax benefits as of the end of the year $ 65 $ 49 $ 43 For all periods 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. 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, 2025 for which it is reasonably possible that the positions will increase or decrease within the next twelve months. As the Company has net operating loss carryforwards for the U.S. federal and state jurisdictions, the statute of limitations is open for all years. For material foreign jurisdictions, the tax years open to examination include the tax years 2017 and forward. 96 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. Net Income (Loss) Per Share The following table presents the calculation of basic and diluted net income (loss) per share. Net income (loss) is reported in millions and rounded from amounts in thousands; as a result, net income (loss) per share may not recalculate exactly due to rounding. Year Ended January 31, 2025 2024 2023 Class A Class B Class A Class B Class A Class B (dollars in millions, shares in thousands, except per share data) Basic net income (loss) per share: Numerator: Net income (loss), basic $ 27 $ 1 $ ( 339 ) $ ( 16 ) $ ( 778 ) $ ( 37 ) Denominator: Weighted-average shares outstanding, basic 162,082 7,487 156,335 7,299 150,891 7,132 Net income (loss) per share, basic $ 0.16 $ 0.16 $ ( 2.17 ) $ ( 2.17 ) $ ( 5.16 ) $ ( 5.16 ) Diluted net income (loss) per share: Numerator: Net income (loss) $ 27 $ 1 $ ( 339 ) $ ( 16 ) $ ( 778 ) $ ( 37 ) Gain on extinguishment of debt, net of interest expense 1 ( 17 ) ( 1 ) — — — — Net income (loss), diluted $ 10 $ — $ ( 339 ) $ ( 16 ) $ ( 778 ) $ ( 37 ) Denominator: Number of shares used in basic calculation 162,082 7,487 156,335 7,299 150,891 7,132 Weighted-average effect of diluted securities related to: Employee share-based awards 1,832 2,942 — — — — Convertible senior notes 743 — — — — — Assumed conversion of Class B to Class A common shares 10,429 — — — — — Number of shares used in diluted calculation 175,086 10,429 156,335 7,299 150,891 7,132 Net income (loss) per share, diluted $ 0.06 $ 0.06 $ ( 2.17 ) $ ( 2.17 ) $ ( 5.16 ) $ ( 5.16 ) 1 Under the if-converted method, net income is adjusted to reflect the assumption that the convertible senior notes were converted at the beginning of the period. Potentially dilutive securities excluded because they would be anti-dilutive were as follows: Year Ended January 31, 2025 2024 2023 (shares in thousands) Employee share-based awards 4,503 15,179 17,334 Convertible senior notes 4,170 5,473 11,485 Total 8,673 20,652 28,819 The Company entered into capped call transactions in connection with the issuance of the convertible senior notes. The effect of the capped calls was also excluded from the calculation of diluted net income per share as the effect of the capped calls would have been anti-dilutive. 97 OKTA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 15. Geographical Information Revenue by location is determined by the billing address of the customer. The following table sets forth revenue by geographic area: Year Ended January 31, 2025 2024 2023 (dollars in millions) United States $ 2,062 $ 1,783 $ 1,456 International 548 480 402 Total $ 2,610 $ 2,263 $ 1,858 Other than the United States, no individual country exceeded 10% of total revenue for fiscal 2025, 2024 and 2023. Property and equipment by geographic location is based on the location of the legal entity that owns the asset. As of January 31, 2025 and 2024, the majority 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. 16. Business Combinations On February 1, 2024, the Company acquired all of the outstanding equity of Spera, an identity security platform provider. The acquisition of Spera is expected to broaden the Company's identity threat detection and security posture management capabilities. The Spera acquisition was accounted for as a business combination. The acquisition date fair value of purchase consideration for Spera of $ 58 million was paid in cash. Of this amount, $ 12 million of consideration was transferred to an escrow fund as partial security for any purchase price adjustments and indemnification obligations, and will be paid to the former Spera stockholders following the 18 -month anniversary of the closing date (less any such adjustments or indemnification obligations). The Company recorded $ 18 million for developed technology intangible assets with an estimated useful life of 5 years and recorded $ 42 million of goodwill which is primarily attributed to the assembled workforce as well as the integration of Spera’s technology and the Company’s technology. None of the goodwill is expected to be deductible for U.S. federal income tax purposes. The Company entered into revesting agreements with Spera’s founders pursuant to which 238,795 additional shares of Okta’s Class A common stock were issued as of the closing date which vest over three years . The $ 20 million fair value of the unvested restricted stock award is attributable to a post-combination service condition and will be accounted for by the Company separately from the business combination as stock-based compensation expense. Acquisition related expenses incurred were not material. This acquisition did not have a material impact on the Company’s consolidated financial statements; therefore, historical financial information and pro forma disclosures have not been presented. 98 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.