Okta, Inc. - Annual Report: 2020 (Form 10-K)

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•	our future financial performance, including our revenue, costs of revenue, gross profit or gross margin and operating expenses;

•	trends in our key business metrics;

•	our growth strategy and ability to compete;

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

•	market and other opportunities arising from business combinations;

•	our ability to maintain the security and availability of our internal networks and platform;

•	our ability to increase our number of customers;

•	our ability to sell additional products to and retain our existing customers;

•	our ability to successfully expand in our existing markets and into new markets;

•	our ability to effectively manage our growth and future expenses;

•	our ability to expand our network of channel partners;

•	our ability to form and expand partnerships with independent software vendors and system integrators;

•	our ability to introduce new products, enhance existing products and address new use cases;

•	our ability to add new integration partners;

•	our ability to grow our international business;

•	our ability to maintain, protect and enhance our intellectual property;

•	our ability to comply with modified or new laws and regulations applying to our business;

•	the attraction and retention of qualified employees and key personnel;

•	our anticipated investments in sales and marketing and research and development;

•	our ability to comply with modified or new laws and regulations applying to our business, including GDPR (as defined below), and other privacy regulations that may be implemented in the future;

•	the impact of recent accounting pronouncements on our financial statements; and

•	our ability to successfully defend litigation brought against us.

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•	Drive New Customer Growth.   To increase our market share, we intend to continue to grow our customer base using a land-and-expand sales model, with a focus on key markets by size of customers, as well as key verticals, including highly-regulated sectors.

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Deepen Relationships Within Our Existing Customer Base.   We plan to further increase revenue from our existing customers by cross-selling and up-selling additional and new products. We also believe we can expand our footprint by focusing on current customers that have deployed the Okta Identity Cloud for workforce identity, and expanding those customers’ use of our platform for customer identity, or vice versa.

•	Expand Our Channel Partner Ecosystem. We also plan to expand our indirect sales network to leverage the sales efforts of resellers, system integrators and other distribution partners, and to increase the contribution we receive from these channel partners.

•	Expand Our International Footprint.   With 16% of our revenue generated outside of the United States in fiscal 2020, comparable to 16% in fiscal 2019, we believe there is significant opportunity to grow our international business. We believe global demand for our products will continue to be a long-term opportunity as organizations

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Innovate and Extend Our Platform with New Products.   We intend to continue making significant investments in research and development, hiring top technical talent and maintaining an agile organization. In addition, we intend to selectively pursue acquisitions and strategic investments in businesses and technologies to extend our platform. By continuing to innovate, introduce new products and extend our platform to additional use cases, we believe that we can offer increasing value to our existing and potential customers.

•	Extend Our Accessible Market with New Use Cases. As technology and our customers’ needs evolve, we plan to use our platform to help our customers address new challenges, regulatory requirements and use cases.

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Expand Our Integrations.   The Okta Integration Network is an extensive partner ecosystem, which includes over 6,500 integrations with cloud, mobile and web applications and IT infrastructure providers. We plan to continue these partnerships as well as add new integration partners to enrich our user experience and expand our customer base. We view our investment in these partnerships as a force multiplier that enables us to build and promote complementary capabilities that benefit our customers.

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Leverage Our Unique Data Assets with Powerful Analytics.   Our position at the intersection of people, devices, applications and infrastructure gives us unique access to powerful data, and the opportunity to provide differentiated insights based on that data. We expect the value of our analytics to our customer base will increase as customers continue to connect more devices, applications and users to their networks and as we add more customers. We do not currently derive direct revenue from our unique data assets, but we may explore opportunities for monetization in the future.

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Universal Directory.  Universal Directory provides a centralized, cloud-based system of record to store and secure user, application and device profiles for an organization. Users and profiles stored in the directory can be used with our Single Sign-On product to manage passwords and authentication, or can be used by developers to store and authenticate the users of their applications. When used for workforce identity, Universal Directory becomes a customer’s system of record for all of its employees, contractors and partners. When used for customer identity, Universal Directory becomes a customer's system of record for all of its users.

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Single Sign-On.  When used to manage and secure identities for a customer’s workforce, Single Sign-On enables users to access all of their applications, whether in the cloud or on-premise, from any device, with a single entry of their user credentials. We combine secure access, modern protocols, flexible policies and a consumer-like user experience to permit organizations to easily allow customers or partners to sign in to their applications with their existing identity information. Single Sign-On also enables built-in reporting and analytics that provide real-time search functionalities across users, devices, applications and the associated access and usage activity.

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Adaptive Multi-Factor Authentication.  Adaptive Multi-Factor Authentication is a comprehensive, but simple-to-use, product that provides an additional layer of security for an organization’s cloud, mobile and web applications and data. We offer an intelligent approach to security, built on contextual data. Adaptive Multi-Factor Authentication includes a policy framework that is integrated with a broad set of cloud and on-premise applications and network infrastructures. It offers adaptive, risk-based authentication that leverages data intelligence from across the Okta network of thousands of organizations.

•	Lifecycle Management.  Lifecycle Management enables IT organizations or developers to manage a user's identity throughout its entire lifecycle. It automates IT processes and ensures user accounts are created and

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API Access Management.  API Access Management enables organizations to secure APIs as systems connect to each other. Access to these APIs is managed based on the user, which enables organizations to centrally maintain one set of permissions for any employee, partner or customer across every point of access. API Access Management reduces development time, boosts security and enables seamless end-user experiences by providing a unified portable service for authorizing secure and always available access to any API.

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Advanced Server Access.  Advanced Server Access offers continuous, contextual access management to secure cloud infrastructure. Organizations can continuously manage and secure access to on-premise Windows and Linux servers and across leading Infrastructure-as-a-Service vendors, including Amazon Web Services, Google Cloud Platform and Microsoft Azure. Advanced Server Access enables our customers to centralize access controls in a seamless manner to better mitigate the risk of credential theft, reuse, sprawl and abandoned administrative accounts.

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Access Gateway.  Access Gateway enables organizations to extend the Okta Identity Cloud, which is a cloud native platform, from the cloud to their existing on-premise applications, so that they can harness the benefits of Okta to manage all of their critical systems, whether cloud, on-premise or a hybrid. Extending the benefits of the Okta Identity Cloud to hybrid IT environments delivers a single point of management for our customers’ administrators and a single location from which end users can access their critical applications.

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•	Authentication providers;

•	Lifecycle Management providers;

•	Multi-factor Authentication providers;.

•	Infrastructure-as-a-service providers;

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•	Other customer identity and access management providers; and

•	Solutions developed in-house by our potential customers.

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•	price our platform effectively so that we are able to attract and retain customers without compromising our profitability;

•	attract new customers, successfully deploy and implement our platform, upsell or otherwise increase our existing customers’ use of our platform, obtain customer renewals and provide our customers with excellent customer support;

•	increase our network of channel partners, which include resellers, system integrators and other distribution partners and ISVs;

•	adequately expand our sales force, and maintain or increase our sales force’s productivity;

•	successfully identify and enter into agreements with suitable acquisition targets, integrate any acquisitions and integrate acquired technologies into our existing products or use them to develop new products;

•	successfully introduce new products, enhance existing products and address new use cases;

•	introduce our platform to new markets outside of the United States;

•	successfully compete against larger companies and new market entrants; and

•	increase awareness of our brand on a global basis.

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•	Authentication providers;

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•	Access and lifecycle management providers;

•	Multi-factor authentication providers;

•	Infrastructure-as-a-service providers;

•	Other customer identity and access management providers; and

•	Solutions developed in-house by our potential customers.

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•	the level of demand for our platform;

•	our ability to attract new customers, obtain renewals from existing customers and upsell or otherwise increase our existing customers’ use of our platform;

•	health epidemics, such as the coronavirus outbreak stemming from China (COVID-19), influenza and other highly communicable diseases or viruses;

•	the timing and success of new product introductions by us or our competitors or any other change in the competitive landscape of our market;

•	pricing pressure as a result of competition or otherwise;

•	seasonal buying patterns for IT spending;

•	the mix of revenue attributable to larger transactions as opposed to smaller transactions, and the associated volatility and timing of our transactions;

•	changes in remaining performance obligations (RPO), due to seasonality, the timing of and compounding effects of renewals, invoice duration, size and timing, new business linearity between quarters and within a quarter, average contract term or fluctuations due to foreign currency movements, all of which may impact implied growth rates;

•	errors in our forecasting of the demand for our products, which could lead to lower revenue, increased costs or both;

•	increases in and timing of sales and marketing and other operating expenses that we may incur to grow and expand our operations and to remain competitive;

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•	significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our platform and products;

•	our ability to comply with privacy laws and requirements, including the General Data Protection Regulation and California Consumer Privacy Act;

•	costs related to the acquisition of businesses, talent, technologies or intellectual property, including potentially significant amortization costs and possible write-downs;

•	credit or other difficulties confronting our channel partners;

•	adverse litigation judgments, settlements of litigation and other disputes or other litigation-related or dispute-related costs;

•	the impact of new accounting pronouncements and associated system implementations;

•	changes in the legislative or regulatory environment;

•	fluctuations in foreign currency exchange rates;

•	expenses related to real estate, including our office leases, and other fixed expenses; and

•	general economic conditions in either domestic or international markets, including geopolitical uncertainty and instability.

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•	the need to raise awareness about the uses and benefits of our platform, including our customer identity products;

•	the need to allay privacy, regulatory and security concerns;

•	the discretionary nature of purchasing and budget cycles and decisions;

•	the competitive nature of evaluation and purchasing processes;

•	announcements or planned introductions of new products, features or functionality by us or our competitors; and

•	often lengthy purchasing approval processes.

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•	delays or reductions in customer purchases for both us and the acquired business;

•	disruption of partner and customer relationships;

•	potential loss of key employees of the acquired company;

•	claims by and disputes with the acquired company’s employees, customers, stockholders or third parties;

•	unknown liabilities or risks associated with the acquired business, product or technology, such as contractual obligations, potential security vulnerabilities of the acquired company and its products and services, potential intellectual property infringement, costs arising from the acquired company’s failure to comply with legal or regulatory requirements and litigation matters;

•	acquired technologies or products may not comply with legal or regulatory requirements and may require us to make additional investments to make them compliant;

•	acquired technologies or products may not be able to provide the same support service levels that we generally offer with our other products;

•	they could be viewed unfavorably by our partners, our customers, our stockholders or securities analysts;

•	unforeseen integration or other expenses; and

•	future impairment of goodwill or other acquired intangible assets.

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•	require costly litigation to resolve and/or the payment of substantial damages, ongoing royalty payments or other amounts to settle such disputes;

•	require significant management time and attention;

•	cause us to enter into unfavorable royalty or license agreements, if such arrangements are available at all;

•	require us to discontinue the sale of some or all of our products, remove or reduce features or functionality of our products or comply with other unfavorable terms;

•	require us to indemnify our customers or third-party service providers; and/or

•	require us to expend additional development resources to redesign our products.

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•	unexpected costs and errors in the localization of our products, including translation into foreign languages and adaptation for local practices and regulatory requirements;

•	lack of familiarity and burdens of complying with foreign laws, legal standards, privacy standards, regulatory requirements, tariffs and other barriers;

•	laws and business practices favoring local competitors or commercial parties;

•	costs and liabilities related to compliance with the GDPR and disparate data privacy standards and enforcement;

•	greater risk that our foreign employees or partners will fail to comply with U.S. and foreign laws;

•	practical difficulties of enforcing intellectual property rights in countries with fluctuating laws and standards and reduced or varied protection for intellectual property rights in some countries;

•	restrictive governmental actions focusing on cross-border trade, including taxes, trade laws, tariffs, import and export restrictions or quotas, barriers, sanctions, custom duties or other trade restrictions;

•	unexpected changes in legal and regulatory requirements;

•	difficulties in managing systems integrators and technology partners;

•	differing technology standards;

•	longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

•	difficulties in managing and staffing international operations and differing employer/employee relationships and local employment laws;

•	political, economic and social instability, war, armed conflict or terrorist activities;

•	health epidemics, such as the coronavirus outbreak stemming from China (COVID-19), influenza and other highly communicable diseases or viruses;

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•	fluctuations in exchange rates that may increase the volatility of our foreign-based revenue and expense; and

•	potentially adverse tax consequences, including the complexities of foreign value added tax (or other tax) systems and restrictions on the repatriation of earnings.

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•	develop and enhance our products;

•	continue to expand our product development, sales and marketing organizations;

•	hire, train and retain employees;

•	respond to competitive pressures or unanticipated working capital requirements; or

•	pursue acquisition opportunities.

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•	overall performance of the equity markets and/or publicly-listed technology companies;

•	actual or anticipated fluctuations in our revenue or other financial or operating metrics;

•	changes in the financial projections we provide to the public or our failure to meet these projections;

•	failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates and/or recommendations by any securities analysts who follow our company;

•	our failure to meet the estimates or the expectations of securities analysts or investors;

•	recruitment or departure of key personnel;

•	significant security breaches, technical difficulties or interruptions of our service;

•	the economy as a whole and market conditions in our industry;

•	rumors and market speculation involving us or other companies in our industry;

•	announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;

•	new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

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•	lawsuits threatened or filed against us;

•	other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; and

•	sales of additional shares of our Class A common stock by us, our directors, our officers or our stockholders.

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•	provide that our board of directors is classified into three classes of directors with staggered three-year terms;

•	permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships;

•	require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws;

•	authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;

•	provide that only the Chairperson of our board of directors, our Chief Executive Officer, or a majority of our board of directors are authorized to call a special meeting of stockholders;

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provide for a dual class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;

•	prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

•	provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and

•	advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

•	any derivative action or proceeding brought on our behalf;

•	any action asserting a breach of fiduciary duty;

•	any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; or

•	or any action asserting a claim against us that is governed by the internal affairs doctrine.

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•	make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry and competitive conditions and adverse changes in government regulation;

•	limit our flexibility in planning for, or reacting to, changes in our business and our industry;

•	place us at a disadvantage compared to our competitors who have less debt;

•	limit our ability to borrow additional amounts to fund acquisitions, for working capital and for other general corporate purposes; and

•	make an acquisition of our company less attractive or more difficult.

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(1)	A reconciliation for each non-GAAP financial measure is included in the "Non-GAAP Financial Measures" section of Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K.

(2)	The summary financial data for the year ended January 31, 2016 does not reflect the adoption of ASC 606.

(3)	As of January 31, 2020 and 2019, current remaining performance obligations and remaining performance obligations, which are GAAP financial measures, reflect our adoption of ASC 606 on February 1, 2018.

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(1)	As of January 31, 2020 and 2019, current remaining performance obligations and remaining performance obligations, which are GAAP financial measures, reflect our adoption of ASC 606 on February 1, 2018.

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(1)	Includes stock-based compensation expense as follows:

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(1)	Amounts include stock-based compensation expense as follows:

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(1)	We define acquisition-related expenses as costs associated with acquisitions, including transaction costs and other non-recurring incremental costs incurred.

(1)	We define acquisition-related expenses as costs associated with acquisitions, including transaction costs and other non-recurring incremental costs incurred.

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(1)

The principal balances of the Notes are reflected in the payment periods in the table above based on their respective contractual maturities assuming no conversion. However, the conversion period for the 2023 Notes was open as of February 1, 2019, and as such the value of the 2023 Notes is included within current liabilities on our consolidated balance sheets. See Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.

(2)	Consists of future non-cancelable minimum rental payments under operating leases for our offices including operating leases that have not yet commenced. These payments have not been adjusted to reflect minimum sublease rental income of $14.2 million payable to us through 2024 pursuant to non-cancellable subleases.

(3)	Consists of future minimum payments under non-cancelable purchase commitments primarily related to data center, IT operations, and sales and marketing activities.

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•	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, we satisfy a performance obligation.

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•	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 Company satisfies a performance obligation.

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•	whether contractual arrangements that expired prior to or existed as of February 1, 2017, are or contain leases,

•	the classification of leases that expired prior to or existed as of February 1, 2017, and

•	initial direct costs for leases that existed as of February 1, 2017.

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

•	during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each trading day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate on such trading day; or

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

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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 Indenture.

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(1)	Adjusted for adoption of ASC 842. See Note 2.

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1.	Financial Statements

2.	Financial Statement Schedules

3.	Exhibits

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