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Okta, Inc. - Quarter Report: 2022 October (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________ 
FORM 10-Q
_____________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-38044
_____________________________________ 
Okta, Inc.
(Exact Name of Registrant as Specified in its Charter)
_____________________________________ 
Delaware
100 First Street, Suite 600
26-4175727
(State or Other Jurisdiction of
Incorporation or Organization)
San Francisco
(I.R.S. Employer
Identification Number)
California
94105
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (888) 722-7871
___________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.0001 per share
OKTA
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer 
Non-accelerated filer Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No  ☒
As of November 28, 2022, the number of shares of registrant’s Class A common stock outstanding was 152,756,525 and the number of shares of the registrant’s Class B common stock outstanding was 7,426,641.



Okta, Inc.
Table of Contents
Page No.




FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook, product development, business strategy, plans, market trends, opportunities, positioning, the anticipated impact on our business of the COVID-19 pandemic and related public health measures, and the macroeconomic environment. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” “shall” and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements, although not all forward-looking statements include these identifying words. The forward-looking statements are contained principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.”
Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about:
our future financial performance, including our revenue, costs of revenue, gross profits, margins and operating expenses;
the impact of macroeconomic conditions, including the inflation and interest rate environment, and political, economic and social instability;
our ability to successfully integrate and realize the benefits of strategic acquisitions or investments, including our acquisition of Auth0, Inc. (“Auth0”);
trends in our key business metrics;
the impact of the global COVID-19 pandemic on our business and operations;
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 or other opportunities arising from business combinations; and
the impact of recent accounting pronouncements on our financial statements.
Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond our control. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in “Risk Factors” in this Quarterly Report on Form 10-Q as well as other documents that may be filed by us from time to time with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.




PART I
Item. 1 Financial Statements
4


OKTA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
October 31,
2022
January 31,
2022
(unaudited)
Assets 
Current assets: 
Cash and cash equivalents$249,624 $260,134 
Short-term investments2,223,538 2,241,657 
Accounts receivable, net of allowances of $7,609 and $4,359
380,754 397,509 
Deferred commissions84,454 74,728 
Prepaid expenses and other current assets68,567 66,605 
Total current assets3,006,937 3,040,633 
Property and equipment, net60,884 65,488 
Operating lease right-of-use assets125,207 147,940 
Deferred commissions, noncurrent195,146 191,029 
Intangible assets, net261,825 316,968 
Goodwill5,400,275 5,401,343 
Other assets43,462 42,294 
Total assets$9,093,736 $9,205,695 
Liabilities and stockholders' equity 
Current liabilities: 
Accounts payable$49,122 $20,203 
Accrued expenses and other current liabilities100,086 89,315 
Accrued compensation110,399 143,805 
Convertible senior notes, net5,217 16,194 
Deferred revenue1,044,622 973,289 
Total current liabilities1,309,446 1,242,806 
Convertible senior notes, net, noncurrent2,191,547 1,815,714 
Operating lease liabilities, noncurrent148,906 170,611 
Deferred revenue, noncurrent17,833 22,933 
Other liabilities, noncurrent18,392 31,775 
Total liabilities3,686,124 3,283,839 
Commitments and contingencies (Note 11)
Stockholders’ equity: 
Preferred stock, par value $0.0001 per share; 100,000 shares authorized; no shares issued and outstanding as of October 31, 2022 and January 31, 2022
— — 
Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized; 152,744 and 149,624 shares issued and outstanding as of October 31, 2022 and January 31, 2022, respectively
15 15 
Class B common stock, par value $0.0001 per share; 120,000 shares authorized; 7,393 and 6,978 shares issued and outstanding as of October 31, 2022 and January 31, 2022, respectively
Additional paid-in capital7,785,753 7,749,716 
Accumulated other comprehensive loss(56,064)(12,009)
Accumulated deficit(2,322,093)(1,815,867)
Total stockholders’ equity5,407,612 5,921,856 
Total liabilities and stockholders' equity$9,093,736 $9,205,695 
See Notes to Condensed Consolidated Financial Statements.
5



OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2022202120222021
Revenue:  
Subscription$465,856 $336,702 $1,299,181 $879,881 
Professional services and other15,186 13,978 48,611 37,305 
Total revenue481,042 350,680 1,347,792 917,186 
Cost of revenue:  
Subscription117,306 91,048 344,524 227,903 
Professional services and other20,347 18,626 61,988 49,000 
Total cost of revenue137,653 109,674 406,512 276,903 
Gross profit343,389 241,006 941,280 640,283 
Operating expenses:  
Research and development148,484 130,535 465,971 321,805 
Sales and marketing289,984 203,878 807,110 548,749 
General and administrative111,520 105,149 322,549 322,406 
Total operating expenses549,988 439,562 1,595,630 1,192,960 
Operating loss(206,599)(198,556)(654,350)(552,677)
Interest expense(2,805)(23,144)(8,588)(68,776)
Interest income and other, net4,235 1,056 10,660 7,622 
Loss on conversion of debt — — — (179)
Interest and other, net1,430 (22,088)2,072 (61,333)
Loss before provision for (benefit from) income taxes(205,169)(220,644)(652,278)(614,010)
Provision for (benefit from) income taxes3,728 667 9,804 (6,785)
Net loss$(208,897)$(221,311)$(662,082)$(607,225)
  
Net loss per share, basic and diluted$(1.32)$(1.44)$(4.21)$(4.17)
  
Weighted-average shares used to compute net loss per share, basic and diluted158,708 153,756 157,344 145,782 

See Notes to Condensed Consolidated Financial Statements.

6


OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2022202120222021
Net loss$(208,897)$(221,311)$(662,082)$(607,225)
Other comprehensive loss:
Net change in unrealized gains or losses on available-for-sale securities (7,896)(2,998)(26,595)(4,164)
Foreign currency translation adjustments(6,982)(973)(17,460)(822)
Other comprehensive loss(14,878)(3,971)(44,055)(4,986)
Comprehensive loss$(223,775)$(225,282)$(706,137)$(612,211)
See Notes to Condensed Consolidated Financial Statements.

7


OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(unaudited)
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2022202120222021
Common stock and additional paid-in capital:
Balance, beginning of period$7,607,398 $7,391,185 $7,749,732 $1,656,109 
Adjustments from adoption of ASU 2020-06— — (527,444)— 
Issuance of common stock and value of equity awards assumed in connection with business combination— — — 5,409,344 
Issuance of common stock upon exercise of stock options and other activity, net6,088 11,208 36,039 64,119 
Stock-based compensation172,283 156,447 515,507 408,482 
Settlement of convertible senior notes— (8)11,934 20,776 
Proceeds from hedges related to convertible senior notes— — 
Balance, end of period7,785,769 7,558,832 7,785,769 7,558,832 
Accumulated deficit:
Balance, beginning of period(2,113,196)(1,353,370)(1,815,867)(967,456)
Adjustments from adoption of ASU 2020-06— — 155,856 — 
Net loss(208,897)(221,311)(662,082)(607,225)
Balance, end of period(2,322,093)(1,574,681)(2,322,093)(1,574,681)
Accumulated other comprehensive income:
Balance, beginning of period(41,186)4,375 (12,009)5,390 
Other comprehensive loss(14,878)(3,971)(44,055)(4,986)
Balance, end of period(56,064)404 (56,064)404 
Total stockholders’ equity$5,407,612 $5,984,555 $5,407,612 $5,984,555 

See Notes to Condensed Consolidated Financial Statements.

8


OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 Nine Months Ended
October 31,
 20222021
Cash flows from operating activities:
Net loss$(662,082)$(607,225)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation511,687 407,611 
Depreciation, amortization and accretion87,999 76,631 
Amortization of debt discount and issuance costs4,340 64,478 
Amortization of deferred commissions60,791 40,041 
Deferred income taxes3,383 (13,606)
Non-cash charitable contributions2,469 5,649 
Lease impairment charges14,461 — 
Loss on conversion of debt— 179 
Net gain on strategic investments(1,873)(5,665)
Other, net1,872 (267)
Changes in operating assets and liabilities:
Accounts receivable14,968 (29,561)
Deferred commissions(82,589)(92,183)
Prepaid expenses and other assets(3,989)5,356 
Operating lease right-of-use assets20,659 16,564 
Accounts payable29,794 (195)
Accrued compensation(30,629)19,488 
Accrued expenses and other liabilities(5,950)22,537 
Operating lease liabilities(21,782)(17,280)
Deferred revenue66,233 198,035 
Net cash provided by operating activities9,762 90,587 
Cash flows from investing activities:  
Capitalization of internal-use software costs(7,773)(2,348)
Purchases of property and equipment(9,377)(5,800)
Purchases of securities available for sale and other(872,035)(1,333,504)
Proceeds from maturities and redemption of securities available for sale848,519 1,118,448 
Proceeds from sales of securities available for sale and other— 228,344 
Purchases of intangible assets(2,497)(113)
Payments for business acquisitions, net of cash acquired(4,060)(215,129)
Net cash used in investing activities(47,223)(210,102)
Cash flows from financing activities: 
Payments for conversions of convertible senior notes(6)(26)
Proceeds from hedges related to convertible senior notes
Proceeds from stock option exercises14,610 41,054 
Proceeds from shares issued in connection with employee stock purchase plan18,960 17,417 
Net cash provided by financing activities33,565 58,447 
Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash(9,747)(494)
Net decrease in cash, cash equivalents and restricted cash(13,643)(61,562)
Cash, cash equivalents and restricted cash at beginning of period272,656 448,630 
Cash, cash equivalents and restricted cash at end of period$259,013 $387,068 
Supplementary cash flow disclosure:
Cash paid during the period for:
Interest$3,509 $3,548 
Income taxes5,445 2,550 
Non-cash activities:
Issuance of common stock and value of equity awards assumed in connection with business combination— 5,409,344 
Issuance of common stock for conversions of convertible senior notes39,564 126,144 
Benefit from exercise of hedges related to convertible senior notes17,502 92,097 
Operating lease right-of-use assets exchanged for lease liabilities8,442 21,518 
Reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows above:
Cash and cash equivalents$249,624 $372,372 
Restricted cash, current included in prepaid expenses and other current assets2,204 5,136 
Restricted cash, noncurrent included in other assets7,185 9,560 
Total cash, cash equivalents and restricted cash$259,013 $387,068 

See Notes to Condensed Consolidated Financial Statements.
9

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Overview and Basis of Presentation
Description of Business
Okta, Inc. (the “Company”) is the leading independent identity provider. The Okta Workforce Identity and Customer Identity Clouds enable the Company’s customers to securely connect the right people to the right technologies and services at the right time. The Company was incorporated in January 2009 as Saasure Inc., a California corporation, and was later reincorporated in April 2010 under the name Okta, Inc. as a Delaware corporation. The Company is headquartered in San Francisco, California.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed 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”) for interim periods. Accordingly, they do not include all of the financial information and footnotes required by GAAP for complete financial statements. All intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of January 31, 2022, included herein, was derived from the audited financial statements as of that date. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair statement of the results of operations for the interim periods presented but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending January 31, 2023 or any future period.
The Company’s fiscal year ends on January 31. References to fiscal 2023, for example, refer to the fiscal year ending January 31, 2023.
The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, 2022.
Certain reclassifications of components of prior period investing cash flows have been made in the condensed consolidated statements of cash flows to conform to the current period presentation. These reclassifications had no impact on the aggregate cash flow classifications as previously reported.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. Actual results could vary from those estimates. The Company’s most significant estimates include the stand-alone selling price (“SSP”) for each distinct performance obligation included in customer contracts with multiple performance obligations, the determination of the period of benefit for deferred commissions, the determination of the incremental borrowing rate used for operating lease liabilities, the valuation of deferred income tax assets, the valuation of goodwill and acquired intangible assets and their useful lives and the valuation of certain equity awards assumed.
2. Accounting Standards and Significant Accounting Policies
Significant Accounting Policies
The Company’s significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in Item 8. Financial Statements and Supplementary Data of its Form 10-K for the fiscal year ended January 31, 2022. The Company no longer considers the accounting policy for its convertible senior notes to be a significant accounting policy due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2020-06 effective February 1, 2022, which simplified the accounting for convertible instruments.
10

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Recently Adopted Accounting Pronouncements
ASU No. 2020-06
The Company adopted the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), effective February 1, 2022, using the modified retrospective method. The prior period condensed consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.
ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, no longer requires separately presenting in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature is no longer amortized into income as interest expense over the life of the instrument. Instead, the convertible debt instrument is accounted for wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, which is consistent with the Company’s accounting treatment prior to the adoption of ASU 2020-06.
The Company recognized a cumulative effect of initially applying the ASU as an adjustment to the February 1, 2022 opening balance of accumulated deficit. Due to the elimination of the equity conversion component of the Company’s convertible senior notes outstanding as of February 1, 2022, additional paid-in capital was reduced. The elimination of the equity conversion component had the effect of increasing the Company’s net debt balance. The reduction of other liabilities is related to changes to the Company’s deferred tax liabilities.
The adoption of ASU 2020-06 resulted in the following changes to the Company’s condensed consolidated balance sheet as of February 1, 2022:
Balance at
January 31, 2022
Adjustments from Adoption of ASU 2020-06Balance at
February 1, 2022
(dollars in thousands)
Liabilities
Convertible senior notes, net$16,194 $927 $17,121 
Convertible senior notes, net, noncurrent1,815,714 371,527 2,187,241 
Other liabilities, noncurrent31,775 (866)30,909 
Stockholders’ equity
Additional paid-in capital7,749,716 (527,444)7,222,272 
Accumulated deficit(1,815,867)155,856 (1,660,011)
In addition, the adoption of ASU 2020-06 resulted in a decrease in reported net interest expense of approximately $21.2 million and $63.0 million and a decrease in basic and diluted net loss per share of $0.13 and $0.40, for the three and nine months ended October 31, 2022, respectively.
ASU No. 2021-08
The Company adopted the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), effective February 1, 2022, on a prospective basis. The update requires contract assets and contract liabilities acquired in a business combination be recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers. The adoption of ASU 2021-08 did not have a material impact on the Company’s condensed consolidated financial statements.
11

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
ASU No. 2021-04
The Company adopted the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), effective February 1, 2022, on a prospective basis. ASU 2021-04 addresses specific guidance related to modifications or exchanges of freestanding equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios. The adoption of ASU 2021-04 did not have a material impact on the Company’s condensed consolidated financial statements.

3. Business Combinations
Acquisition of Auth0
On May 3, 2021, the Company acquired all outstanding shares of privately-held Auth0, Inc. (“Auth0”), an Identity-as-a-Service company. Total consideration transferred for Auth0 was $5,671.0 million, including approximately 19.2 million shares of common stock valued at $5,175.6 million, cash of $257.0 million, and assumed outstanding equity awards with vested fair value of $238.4 million. Cash consideration of $3.8 million and approximately 1.1 million shares valued at $294.6 million were held back as partial security for post-closing true-up adjustments as well as any indemnification claims made within one year of the acquisition date. The consideration held back was paid in full during the nine months ended October 31, 2022. The Company incurred $29.0 million of acquisition-related costs, which were recorded as general and administrative expenses in its condensed consolidated statement of operations for the nine months ended October 31, 2021.
The transaction was accounted for as a business combination. The total purchase price of $5,671.0 million was allocated to the tangible and identifiable intangible assets and liabilities based on their estimated fair values. The excess of purchase consideration over the fair value of the net tangible assets and identifiable intangible assets acquired was $5,290.1 million and was recorded as goodwill.
Acquisition of atSpoke
On August 2, 2021, the Company acquired all issued and outstanding capital stock of privately-held Townsend Street Labs, Inc. (“atSpoke”), a modern workplace operations platform. The acquisition date cash consideration for atSpoke was approximately $79.3 million, of which $13.4 million of consideration was held back as partial security for any adjustments and indemnification obligations and will be paid within 18 months of the closing date.
The Company recorded $18.3 million for developed technology intangible assets with an estimated useful life of 3 years and recorded $62.2 million of goodwill. The Company incurred $0.9 million of acquisition-related costs, which were recorded as general and administrative expenses in its condensed consolidated statement of operations in the nine months ended October 31, 2021.

12

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. Cash Equivalents and Investments
Cash Equivalents and Short-term Investments
The following tables present the amortized cost, unrealized gain (loss) and estimated fair value of cash equivalents and short-term investments:
 As of October 31, 2022
 
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value 
(dollars in thousands)
Cash equivalents:    
Money market funds$91,598 $— $— $91,598 
Total cash equivalents91,598 — — 91,598 
Short-term investments:    
U.S. treasury securities2,032,380 — (34,840)1,997,540 
Corporate debt securities229,491 — (3,493)225,998 
Total short-term investments2,261,871 — (38,333)2,223,538 
Total$2,353,469 $— $(38,333)$2,315,136 
 As of January 31, 2022
 
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value 
(dollars in thousands)
Cash equivalents:    
Money market funds$152,223 $— $— $152,223 
Total cash equivalents152,223 — — 152,223 
Short-term investments:   
U.S. treasury securities1,922,344 10 (10,166)1,912,188 
Corporate debt securities331,050 — (1,581)329,469 
Total short-term investments2,253,394 10 (11,747)2,241,657 
Total$2,405,617 $10 $(11,747)$2,393,880 

All short-term investments were designated as available-for-sale securities as of October 31, 2022 and January 31, 2022.
The following table presents the contractual maturities of the Company’s short-term investments:
As of October 31, 2022
 
Amortized
Cost
Estimated
Fair Value
(dollars in thousands)
Due within one year$1,925,930 $1,896,477 
Due between one to five years335,941 327,061 
 Total$2,261,871 $2,223,538 
Interest receivable of $8.9 million and $6.0 million is included in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of October 31, 2022 and January 31, 2022, respectively.
13

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table presents the fair values and unrealized losses related to the Company’s investments in available-for-sale debt securities classified by length of time that the securities have been in a continuous unrealized loss position as of October 31, 2022:

 Less Than 12 MonthsMore Than 12 MonthsTotal
 
Estimated Fair Value
Unrealized
Losses
Estimated Fair Value
Unrealized
Losses
Estimated Fair Value
Unrealized
Losses
(dollars in thousands)
U.S. treasury securities$1,129,711 $(19,305)$867,829 $(15,535)$1,997,540 $(34,840)
Corporate debt securities66,040 (1,035)159,958 (2,458)225,998 (3,493)
Total$1,195,751 $(20,340)$1,027,787 $(17,993)$2,223,538 $(38,333)
The Company had 189 and 193 short-term investments in unrealized loss positions as of October 31, 2022 and January 31, 2022, respectively.
For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) the Company has the intention to sell any of these investments, (ii) it is not more likely than not that the Company will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis and (iii) the decline in the fair value of the investment is due to credit or non-credit related factors. Based on this evaluation, the Company determined that for short-term investments, there were no material credit or non-credit related impairments as of October 31, 2022 and January 31, 2022.
Strategic Investments
The Company's strategic investments primarily include equity investments in privately-held companies, which do not have a readily determinable fair value. As of October 31, 2022 and January 31, 2022, the balance of strategic investments was $23.6 million and $15.3 million, respectively.
5. Fair Value Measurements
The Company measures its financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Three levels of inputs may be used to measure as follows:
Level 1—Valuations based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2—Valuations based on other inputs that are directly or indirectly observable in the marketplace.
Level 3—Valuations based on unobservable inputs that are supported by little or no market activity.
14

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present information about the Company’s financial assets that were measured at fair value on a recurring basis using the above input categories:
 As of October 31, 2022
 Level 1
Level 2 
Level 3Total
(dollars in thousands)
Assets:    
Cash equivalents:    
Money market funds$91,598 $— $— $91,598 
Total cash equivalents91,598 — — 91,598 
Short-term investments:    
U.S. treasury securities— 1,997,540 — 1,997,540 
Corporate debt securities— 225,998 — 225,998 
Total short-term investments— 2,223,538 — 2,223,538 
Total cash equivalents and short-term investments$91,598 $2,223,538 $— $2,315,136 
 As of January 31, 2022
 Level 1
Level 2 
Level 3Total
(dollars in thousands)
Assets:    
Cash equivalents:    
Money market funds$152,223 $— $— $152,223 
Total cash equivalents152,223 — — 152,223 
Short-term investments:    
U.S. treasury securities— 1,912,188 — 1,912,188 
Corporate debt securities— 329,469 — 329,469 
Total short-term investments— 2,241,657 — 2,241,657 
Total cash equivalents and short-term investments$152,223 $2,241,657 $— $2,393,880 
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
Fair Value Measurements of Other Financial Instruments
The following table presents the principal amounts and estimated fair values of the Company’s financial instruments that are not recorded at fair value on the condensed consolidated balance sheets:
 As of October 31, 2022
 Principal Amount
Estimated
Fair Value 
(dollars in thousands)
2023 convertible senior notes$5,226 $6,001 
2025 convertible senior notes1,059,997 887,747 
2026 convertible senior notes1,150,000 925,635 

The 2023 convertible senior notes (“2023 Notes”), the 2025 convertible senior notes (“2025 Notes”), and the 2026 convertible senior notes (“2026 Notes”, and together with the 2023 Notes and 2025 Notes, the “Notes”) are recorded at face value less unamortized debt issuance costs (See Note 9 for additional details). The estimated fair
15

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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.
6. Deferred Commissions
Sales commissions capitalized as contract costs totaled $32.5 million and $35.7 million in the three months ended October 31, 2022 and 2021, respectively, and $81.9 million and $90.6 million in the nine months ended October 31, 2022 and 2021, respectively. Amortization of contract costs was $21.3 million and $14.9 million for the three months ended October 31, 2022 and 2021, respectively, and $60.8 million and $40.0 million for the nine months ended October 31, 2022 and 2021, respectively.
7. Goodwill and Intangible Assets, net
Goodwill
As of October 31, 2022 and January 31, 2022, goodwill was $5,400.3 million and $5,401.3 million, respectively. No goodwill impairments were recorded during the three and nine months ended October 31, 2022 and 2021.
Intangible Assets, net
Intangible assets consisted of the following:
 As of October 31, 2022
GrossAccumulated AmortizationNet
(dollars in thousands)
Capitalized internal-use software costs$48,016 $(28,607)$19,409 
Purchased developed technology219,800 (81,187)138,613 
Customer relationships140,900 (52,798)88,102 
Trade name21,400 (6,420)14,980 
Software licenses1,797 (1,076)721 
 $431,913 $(170,088)$261,825 
 As of January 31, 2022
GrossAccumulated AmortizationNet
(dollars in thousands)
Capitalized internal-use software costs$36,319 $(24,170)$12,149 
Purchased developed technology219,100 (47,085)172,015 
Customer relationships140,900 (26,399)114,501 
Trade name21,400 (3,210)18,190 
Software licenses116 (3)113 
 $417,835 $(100,867)$316,968 
16

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The weighted-average remaining useful lives of the Company’s acquired intangible assets are as follows:
 Weighted-Average Remaining Useful Life
As of October 31, 2022As of January 31, 2022
Purchased developed technology3.3 years4.0 years
Customer relationships3.5 years4.0 years
Trade name3.5 years4.3 years
Amortization expense of intangible assets for the three months ended October 31, 2022 and 2021 was $23.3 million and $22.4 million, respectively, and $69.2 million and $46.6 million for the nine months ended October 31, 2022 and 2021, respectively.
8. 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 the three months ended October 31, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was $417.8 million and $299.9 million, respectively, and $858.0 million and $459.4 million in the nine months ended October 31, 2022 and 2021, respectively. Professional services and other revenue recognized during the three months ended October 31, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was $5.9 million and $4.5 million, respectively, and $12.9 million and $5.9 million in the nine months ended October 31, 2022 and 2021, respectively.
Transaction Price Allocated to the Remaining Performance Obligations
Transaction price allocated to the remaining performance obligations (“RPO”) represents all future, non-cancelable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods.
As of October 31, 2022, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $2,852.8 million. Of this amount, the Company expects to recognize revenue of approximately $1,579.4 million, or 55%, over the next 12 months, with the balance to be recognized as revenue thereafter. Remaining performance obligations for professional services and other contracts as of October 31, 2022 were not material.
9. Convertible Senior Notes, Net
2023 Convertible Senior Notes
The 2023 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.25% per year. Interest is payable in cash semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018. The 2023 Notes mature on February 15, 2023 unless earlier repurchased or converted. The Company may not redeem the 2023 Notes prior to maturity.
There have been no changes to the terms of the 2023 Notes, Note Hedges (as defined below), or Warrants (as defined below) from those disclosed in the Company’s Form 10-K for the fiscal year ended January 31, 2022.
The 2023 Notes are currently convertible at the option of the holders, in whole or in part, as of October 15, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the conversion conditions. The 2023 Notes are classified as current liabilities on the condensed consolidated balance sheet as of October 31, 2022.
17

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
As of October 31, 2022, $5.2 million of principal remained outstanding on the 2023 Notes. During the three months ended October 31, 2022, the Company did not settle any of the 2023 Notes and during the nine months ended October 31, 2022, the Company issued approximately 0.2 million shares of Class A common stock and paid an immaterial amount in cash to settle approximately $12.0 million principal amount of 2023 Notes.
During the year ended January 31, 2022, the Company issued approximately 0.5 million shares of Class A common stock and paid an immaterial amount in cash to settle approximately $23.0 million principal amount of 2023 Notes.
As of October 31, 2022, the effective interest rate on the 2023 Notes was 0.85%. As of October 31, 2021, prior to the adoption of ASU 2020-06, the effective interest rate on the liability component of the 2023 Notes was 5.68%. The following table sets forth total interest expense recognized related to the 2023 Notes:
Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Contractual interest expense$$$14 $43 
Amortization of debt issuance costs22 35 84 
Amortization of debt discount(1)
— 213 — 837 
Total$11 $244 $49 $964 
(1) Not applicable subsequent to adoption of ASU 2020-06.
The net carrying amount of the 2023 Notes consisted of the following:
As of October 31, 2022As of January 31, 2022
(dollars in thousands)
Liability component:
Principal$5,226 $17,228 
Less: unamortized debt issuance costs and debt discount(1)
(9)(1,034)
Net carrying amount$5,217 $16,194 
As of October 31, 2022As of January 31, 2022
(dollars in thousands)
Equity component:(1)
2023 Notes$— $3,993 
Less: issuance costs— (116)
Carrying amount of the equity component(2)
$— $3,877 
(1) Subsequent to the adoption of ASU 2020-06 under the modified retrospective method, the equity component and debt discount are eliminated.
(2) Included in the January 31, 2022 condensed consolidated balance sheet within Additional paid-in capital.
Note Hedges
In connection with the pricing of the 2023 Notes, the Company entered into convertible note hedges with respect to its Class A common stock (the “Note Hedges”). The Note Hedges are purchased call options that give the Company the option to purchase shares, subject to anti-dilution adjustments substantially identical to those in the 2023 Notes, of its Class A common stock for approximately $48.36 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2023 Notes, exercisable upon conversion of the 2023 Notes. The Note Hedges will expire in 2023, if not exercised earlier. The Note Hedges are separate transactions and are not part of the terms of the 2023 Notes.
During the three months ended October 31, 2022, the Company did not settle any Note Hedges and during the nine months ended October 31, 2022, the Company exercised and net-share-settled Note Hedges
18

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
corresponding to approximately $12.0 million principal amount of 2023 Notes and received approximately 0.1 million shares of Class A common stock and an immaterial cash payment.
As of October 31, 2022, Note Hedges giving the Company the option to purchase approximately 0.1 million shares (subject to adjustment) remained outstanding.
Warrants
In connection with the issuance of the 2023 Notes, the Company entered into separate warrant transactions pursuant to which it sold net-share-settled (or, at the Company’s election subject to certain conditions, cash-settled) warrants (the “Warrants”) to acquire shares, subject to anti-dilution adjustments, over 80 scheduled trading days beginning in May 2023 of the Company’s Class A common stock at an initial exercise price of approximately $68.06 per share (subject to adjustment). The Warrants are separate transactions and are not part of the terms of the 2023 Notes or the Note Hedges.
As of October 31, 2022, Warrants to acquire up to approximately 1.0 million shares (subject to adjustment) remained outstanding.
2025 Convertible Senior Notes
The 2025 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.125% per year. Interest is payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. The 2025 Notes mature on September 1, 2025 unless earlier redeemed, repurchased or converted.
There have been no changes to the terms of the 2025 Notes or 2025 Capped Calls (as defined below) from those disclosed in the Company’s Form 10-K for the fiscal year ended January 31, 2022.
As of October 31, 2022, the conditions allowing holders of the 2025 Notes to convert were not met, and as a result, the 2025 Notes were classified as noncurrent liabilities on the condensed consolidated balance sheet.
As of October 31, 2022, the effective interest rate on the 2025 Notes was 0.43%. As of October 31, 2021, prior to the adoption of ASU 2020-06, the effective interest rate on the liability component of the 2025 Notes was 4.10%. The following table sets forth total interest expense recognized related to the 2025 Notes:
Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Contractual interest expense$332 $332 $994 $994 
Amortization of debt issuance costs809 581 2,424 1,705 
Amortization of debt discount(1)
— 8,878 — 26,368 
Total$1,141 $9,791 $3,418 $29,067 
(1) Not applicable subsequent to adoption of ASU 2020-06.
19

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The net carrying amount of the 2025 Notes consisted of the following:
As of October 31, 2022As of January 31, 2022
(dollars in thousands)
Liability component:
Principal$1,059,997 $1,059,997 
Less: unamortized debt issuance costs and debt discount(1)
(9,239)(149,333)
Net carrying amount$1,050,758 $910,664 
As of October 31, 2022As of January 31, 2022
(dollars in thousands)
Equity component:(1)
2025 Notes$— $221,387 
Less: issuance costs— (4,040)
Carrying amount of the equity component(2)
$— $217,347 
(1) Subsequent to the adoption of ASU 2020-06 under the modified retrospective method, the equity component and debt discount are eliminated.
(2) Included in the January 31, 2022 condensed consolidated balance sheet within Additional paid-in capital.
2025 Capped Calls
In connection with the pricing of the 2025 Notes, the Company entered into capped call transactions with respect to its Class A common stock (the “2025 Capped Calls”). The 2025 Capped Calls are purchased call options that give the Company the option to purchase approximately 5.6 million shares, subject to anti-dilution adjustments substantially identical to those in the 2025 Notes, of its Class A common stock for approximately $188.71 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2025 Notes, exercisable upon conversion of the 2025 Notes. The 2025 Capped Calls have initial cap prices of $255.88 per share (subject to adjustment) and will expire in 2025, if not exercised earlier. The 2025 Capped Calls are separate transactions and are not part of the terms of the 2025 Notes.
2026 Convertible Senior Notes
The 2026 Notes are senior, unsecured obligations of the Company, and bear interest at a fixed rate of 0.375% per year. Interest is payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The 2026 Notes mature on June 15, 2026 unless earlier redeemed, repurchased or converted.
There have been no changes to the terms of the 2026 Notes or 2026 Capped Calls (as defined below) from those disclosed in the Company’s Form 10-K for the fiscal year ended January 31, 2022.
As of October 31, 2022, the conditions allowing holders of the 2026 Notes to convert were not met, and as a result, the 2026 Notes were classified as noncurrent liabilities on the condensed consolidated balance sheet.
20

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
As of October 31, 2022, the effective interest rate on the 2026 Notes was 0.60%. As of October 31, 2021, prior to the adoption of ASU 2020-06, the effective interest rate on the liability component of the 2026 Notes was 5.75%. The following table sets forth total interest expense recognized related to the 2026 Notes:
Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Contractual interest expense$1,078 $1,078 $3,234 $3,234 
Amortization of debt issuance costs628 364 1,881 1,056 
Amortization of debt discount(1)
— 11,640 — 34,428 
Total$1,706 $13,082 $5,115 $38,718 
(1) Not applicable subsequent to adoption of ASU 2020-06.
The net carrying amount of the 2026 Notes consisted of the following:
As of October 31, 2022As of January 31, 2022
(dollars in thousands)
Liability component:
Principal$1,150,000 $1,150,000 
Less: unamortized debt issuance costs and debt discount(1)
(9,211)(244,950)
Net carrying amount$1,140,789 $905,050 
As of October 31, 2022As of January 31, 2022
(dollars in thousands)
Equity component:(1)
2026 Notes$— $310,311 
Less: issuance costs— (4,090)
Carrying amount of the equity component(2)
$— $306,221 
(1) Subsequent to the adoption of ASU 2020-06 under the modified retrospective method, the equity component and debt discount are eliminated.
(2) Included in the January 31, 2022 condensed consolidated balance sheet within Additional paid-in capital.
2026 Capped Calls
In connection with the pricing of the 2026 Notes, the Company entered into capped call transactions with respect to its Class A common stock (the “2026 Capped Calls”). The 2026 Capped Calls are purchased call options that give the Company the option to purchase approximately 4.8 million shares, subject to anti-dilution adjustments substantially identical to those in the 2026 Notes, of its Class A common stock for approximately $238.60 per share (subject to adjustment), corresponding to the approximate initial conversion price of the 2026 Notes, exercisable upon conversion of the 2026 Notes. The 2026 Capped Calls have initial cap prices of $360.14 per share (subject to adjustment) and will expire in 2026, if not exercised earlier. The 2026 Capped Calls are separate transactions and are not part of the terms of the 2026 Notes.
10. Leases
The Company has entered into various non-cancelable office space operating leases with original lease periods expiring between 2022 and 2029. These leases do not contain material variable rent payments, residual value guarantees, financial covenants or other restrictions.
21

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Operating lease costs were as follows:
Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Operating lease cost(1)
$10,218 $9,677 $30,954 $28,135 
(1) Amounts are presented exclusive of sublease income and include leases with an original term of 12 months or less (short-term leases), which are immaterial.
The weighted-average remaining term of the Company’s operating leases was 5.3 years and 5.9 years as of October 31, 2022 and January 31, 2022, respectively, and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.3% and 5.5%, respectively.
Maturities of the Company’s operating lease liabilities, which do not include short-term leases, are as follows:
As of October 31, 2022
Fiscal Year Ending January 31:(dollars in thousands)
2023 (remaining three months)$11,367 
202444,971 
202541,540 
202631,309 
202730,500 
Thereafter53,608 
Total lease payments213,295 
Less imputed interest(27,876)
Less tenant improvement allowances not yet recognized(1,979)
Total operating lease liabilities$183,440 
Cash payments made related to operating lease liabilities were $11.3 million and $10.3 million in the three months ended October 31, 2022 and 2021, respectively, and $29.5 million and $29.4 million in the nine months ended October 31, 2022 and 2021, respectively.
During the three months ended October 31, 2022, the Company announced a real estate optimization plan which provided for closing duplicative sites and decommissioning underutilized offices and floors. As a result, the Company recognized $14.2 million of non-cash lease impairment charges included in general and administrative expenses on the condensed consolidated statement of operations for the three months ended October 31, 2022. The non-cash lease impairment charges represent the amount that the carrying value of the asset groups exceeded their estimated fair values. The asset groups primarily include operating lease right-of-use assets, leasehold improvements, and related property and equipment. To estimate the fair value of the asset group, the Company utilized a discounted cash flow approach using market participant assumptions of the expected cash flows and discount rate.
11. Commitments and Contingencies
Letters of Credit
In conjunction with the execution of certain office space operating leases, letters of credit in the aggregate amount of $8.5 million and $8.6 million were issued and outstanding as of October 31, 2022 and January 31, 2022, respectively. No draws have been made under such letters of credit. Noncurrent restricted cash of $6.3 million and $6.4 million associated with these letters of credit is included in Other assets on the condensed consolidated balance sheets as of October 31, 2022 and January 31, 2022, respectively.
Purchase Obligations
Except as discussed below, there were no significant changes in future minimum purchase obligations as disclosed in the Company’s audited consolidated financial statements for the year ended January 31, 2022.
22

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Effective July 2022, the Company terminated its existing agreement and entered into a new agreement with a cloud services provider with a total obligation of $450.0 million over a four-year period.
Legal Matters
From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. There were no such material matters as of October 31, 2022.
Warranties and Indemnification
To date, the Company has not incurred significant costs and has not accrued any material liabilities in the accompanying condensed consolidated financial statements as a result of its warranty and indemnification obligations.
12. Employee Incentive Plans
The Company’s equity incentive plans provide for granting stock options, restricted stock units (“RSUs”), restricted stock awards to employees, consultants, officers and directors and restricted stock units with market-based vesting conditions to certain executives. In addition, the Company offers an Employee Stock Purchase Plan (“ESPP”) to eligible employees.
Stock-based compensation expense was recorded in the following cost and expense categories in the Company’s condensed consolidated statements of operations:
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2022202120222021
(dollars in thousands)
Cost of revenue    
Subscription$17,106 $13,455 $51,509 $33,843 
Professional services and other3,563 3,376 11,016 8,879 
Research and development69,208 56,573 208,330 129,998 
Sales and marketing41,515 39,248 120,299 101,602 
General and administrative39,593 43,133 120,533 133,289 
Total$170,985 $155,785 $511,687 $407,611 
Equity Incentive Plans
The Company has two equity incentive plans: the 2009 Stock Plan and the 2017 Equity Incentive Plan (“2017 Plan”). In addition, the Company assumed Auth0 equity incentive plans. All shares that remain available for future grants are under the 2017 Plan. As of October 31, 2022, options to purchase 1,841,836 shares of Class A common stock and 4,787,688 shares of Class B common stock remained outstanding.
Shares of common stock reserved for future issuance are as follows:
As of October 31, 2022
Stock options and unvested RSUs outstanding15,807,738 
Available for future stock option and RSU grants26,022,656 
Available for ESPP7,053,433 
 48,883,827 
23

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Stock Options
A summary of the Company’s stock option activity and related information is as follows:
Number of
Options 
Weighted-
Average
Exercise
Price 
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic 
Value
(in thousands)
Outstanding as of January 31, 20227,984,078 $39.59 5.2$1,314,031 
Granted— — 
Exercised(1,177,880)12.41 
Expired(24,833)195.71 
Forfeited(151,841)62.73 
Outstanding as of October 31, 20226,629,524 $43.30 4.6$249,207 
As of October 31, 2022
Vested and exercisable5,855,640 $27.07 4.1$242,916 
As of October 31, 2022, there was a total of $112.5 million of unrecognized stock-based compensation expense related to options, which is being recognized over a weighted-average period of 1.9 years.
Restricted Stock Units
A summary of the Company’s RSU activity (inclusive of market-based RSUs) and related information is as follows:
Number of
RSUs
Weighted-
Average
Grant Date Fair Value Per Share
Outstanding as of January 31, 20226,225,747 $207.26 
Granted6,087,249 121.08 
Vested(1,956,194)177.54 
Forfeited(1,178,588)195.91 
Outstanding as of October 31, 20229,178,214 $157.90 
As of October 31, 2022, there was $1,304.0 million of unrecognized stock-based compensation expense related to unvested RSUs, which is being recognized over a weighted-average period of 3.1 years based on vesting under the award service conditions.
Market-based Restricted Stock Units
In March 2022, the Company granted market-based RSUs to certain members of management. 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. The number of shares that can be earned ranges from 0% to 200% of the target number of shares based on the relative performance of the per share price of the Company’s common stock as compared to the Nasdaq Composite Index over the respective performance periods and subject to continuous employment through the vesting dates. The $244.73 grant date fair value per target market-based RSU was determined using a Monte Carlo simulation approach. 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.
24

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Restricted Stock Awards Issued in Connection with Business Combinations
In fiscal year 2022, the Company entered into revesting agreements with the founders of the acquired businesses pursuant to which 1,269,008 restricted shares of Okta’s Class A common stock with a weighted-average fair value per share of $268.98 issued as of the respective closing dates will vest over 3 years.

In connection with the business combinations, as of October 31, 2022, there was $172.4 million of unrecognized stock-based compensation expense related to unvested restricted shares, which is being recognized over a weighted-average period of 1.5 years based on vesting under the award service conditions.
Employee Stock Purchase Plan
The ESPP provides for 12-month offering periods beginning June 21 and December 21 of each year, and each offering period consists of up to two six-month purchase periods. The ESPP contains a reset provision under which the offering period resets if the fair market value of the Company’s common stock on the purchase date is less than the fair market value on the offering date.
The Company estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2022202120222021
Expected volatility
—%- —%
—% - —%
63% - 78%
47% - 48%
Expected term (in years)
0 - 0
0 - 0
0.5 - 1.0
0.5 - 1.0
Risk-free interest rate
—% - —%
—% - —%
2.46% - 2.92%
0.06% - 0.09%
Expected dividend yield
During the nine months ended October 31, 2022, the Company’s employees purchased 269,814 shares of its Class A common stock under the ESPP. The shares were purchased at a weighted-average purchase price of $70.27 per share, with total proceeds of $19.0 million.
As of October 31, 2022, there was $15.2 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized over a weighted-average vesting period of 0.6 years.
13. Income Taxes
For the three and nine months ended October 31, 2022, the Company recorded a tax provision of $3.7 million and $9.8 million on pretax losses of $205.2 million and $652.3 million, respectively. The effective tax rate for the three and nine months ended October 31, 2022 was approximately (1.8)% and (1.5)%, respectively. The effective tax rate differs from the statutory rate primarily as a result of not recognizing the tax benefit for U.S. losses due to a full valuation allowance against U.S. deferred tax assets, the tax effect of foreign operations, U.S. state taxes, and stock-based compensation shortfalls in the United Kingdom.
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 the Company's fiscal 2023. Although Congress has considered legislation that would defer, modify or repeal the capitalization and amortization requirement, to date the provision has not been deferred, repealed or otherwise modified. As a result, the Company may be required to utilize some of its federal and state tax attributes and there may be increases to cash taxes or tax expense.
For the three and nine months ended October 31, 2021, the Company recorded a tax provision of $0.7 million and a tax benefit of $6.8 million on pretax losses of $220.6 million and $614.0 million, respectively. The effective tax rate for the three and nine months ended October 31, 2021 was approximately (0.3)% and 1.1%, respectively. The effective tax rate differs from the statutory rate primarily as a result of not recognizing deferred tax assets for U.S. losses due to a full valuation allowance against U.S. deferred tax assets, release of the valuation allowance in the United States in connection with the acquired businesses, a remeasurement of deferred tax assets in connection with a tax rate change in the United Kingdom, and excess tax benefits from stock-based compensation in the United
25

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Kingdom. The tax benefit for the nine months ended October 31, 2021 was partially offset by income tax expense in profitable foreign jurisdictions and U.S. state taxes.
14. Net Loss Per Share
The following table presents the calculation of basic and diluted net loss per share:
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2022202120222021
 Class A Class BClass A Class BClass A Class BClass A Class B
(dollars in thousands, except per share data)
Numerator: 
Net loss$(199,456)$(9,441)$(211,176)$(10,135)$(632,425)$(29,657)$(576,106)$(31,119)
Denominator:
Weighted-average shares outstanding, basic and diluted151,535 7,173 146,715 7,041 150,296 7,048 138,311 7,471 
Net loss per share, basic and diluted$(1.32)$(1.32)$(1.44)$(1.44)$(4.21)$(4.21)$(4.17)$(4.17)
As the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that are not included in the diluted per share calculations because they would be anti-dilutive are as follows:
As of October 31,
 20222021
(in thousands)
Issued and outstanding stock options6,630 8,621 
Unvested RSUs issued and outstanding9,120 5,221 
Unvested market-based RSUs issued and outstanding116 — 
Unvested restricted stock awards issued and outstanding743 1,269 
Shares committed under the ESPP597 213 
Shares related to the 2023 Notes108 356 
Shares subject to warrants related to the issuance of the 2023 Notes1,048 1,048 
Shares related to the 2025 Notes5,617 5,617 
Shares related to the 2026 Notes4,820 4,820 
 28,799 27,165 
The Company uses the if-converted method for calculating any potential dilutive effect of the conversion options embedded in the Notes on diluted net income per share, if applicable. The conversion options of the 2023 Notes, 2025 Notes and 2026 Notes are dilutive in periods of net income on a weighted-average basis using an assumed conversion date equal to the later of the beginning of the reporting period and the date of issuance of the respective Notes. The exercise rights of the Warrants will have a dilutive impact on net income per share of common stock under the treasury-stock method when the average market price per share of the Company’s Class A common stock for a given period exceeds the conversion price of $68.06 per share.
26

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q and Part I, Item 1A in our Annual Report on Form 10-K. Our fiscal year ends January 31.
Overview
Okta is the leading independent identity provider. Our Workforce Identity and Customer Identity Clouds are powered by our category-defining platform that enables our customers to securely connect the right people to the right technologies and services at the right time. Every day, thousands of organizations and millions of people use Okta to securely access a wide range of cloud, mobile and web applications, on-premises servers, application programming interfaces (“APIs”), IT infrastructure providers and services from a multitude of devices. Developers leverage our Customer Identity Cloud to securely and efficiently embed identity into the software they build and to provide their customers with more modern and secure experiences online and via mobile devices, allowing them to focus on their core mission. Employees and contractors sign into the Workforce Identity Cloud to seamlessly and securely access the applications they need to do their most important work, and to collaborate with their partners. Given the growth trends in the number of applications and cloud adoption, and the movement to remote workforces, identity is becoming the most critical layer of an organization’s security. Our approach to identity allows our customers to simplify and efficiently scale their security infrastructures across internal IT systems and external customer facing applications.
As of October 31, 2022, more than 17,050 customers across nearly every industry used Okta to secure and manage identities around the world. Our customers consist of leading global organizations ranging from the largest enterprises, to small and medium-sized businesses, universities, non-profits and government agencies. We also partner with leading application, IT infrastructure and security vendors through our Okta Integration Network. As of October 31, 2022, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors.
We employ a Software-as-a-Service (“SaaS”) business model, and generate revenue primarily by selling multi-year subscriptions to our cloud-based offerings. We focus on acquiring and retaining our customers and increasing their spending with us through expanding the number of users who access our Workforce Identity and Customer Identity Clouds and up-selling additional products. We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners, including resellers, system integrators and other distribution partners. Our subscription fees include the use of our service and our technical support and management of our platform. We base subscription fees primarily on the products used and the number of users on our platform. We typically invoice customers in advance in annual installments for subscriptions to our platform.
Impact of COVID-19 Pandemic

The extent of the impact of COVID-19 on our future operational and financial performance remains uncertain and will depend on certain developments, including the duration and spread of COVID-19 and variants of concern, related public health measures, including vaccine mandates, the manufacture, distribution, efficacy and public acceptance of treatments and vaccines, and their impact on the macroeconomy, our current and prospective customers, employees and vendors. None of these impacts can be predicted with certainty.

Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 96% of total revenue for the nine months ended October 31, 2022. Future growth may be impacted by longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for cash flow, RPO and billings growth as well as potential future impacts on revenue growth
27

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
and other key metrics on a trailing basis. While we see risks associated with more highly impacted companies and industries, we are also seeing new interest from other organizations, driven by rapidly changing work and business environments. As workforces have transitioned to fully remote and hybrid work models, Zero Trust has become an increasingly important security model and identity an increasingly critical service.

We believe we will be able to continue to deliver our cloud-based platform and support to our customers, without compromising our employees’ safety. For most of fiscal 2021, we established mandatory work-from-home procedures for our global office locations, and our employees had the necessary tools and technology to remain connected and productive. In addition, in fiscal 2021 we shifted our customer, employee and industry events, including our annual user conference to virtual-only formats, resulting in cost savings. We further experienced cost savings driven by reductions in employee-related expenses as our sales and marketing activities shifted primarily to an online-only sales format and our employees shifted to work-from-home procedures. In fiscal 2022, as the administration of vaccines increased, we reopened our offices to partial capacity, allowing our employees to voluntarily return and resumed some in-person sales and marketing activities. In fiscal 2023, we shifted to hybrid in-person and virtual sales formats and experiences for our annual user conferences.

See the section titled “Risk Factors” for further discussion of the potential impact of COVID-19 and its related public health measures on our business.

Acquisition of Auth0

On May 3, 2021, we completed the acquisition of Auth0. The acquisition date fair value, net of acquired cash, was approximately $5,671.0 million, including shares of our Class A common stock, cash, and assumed equity awards. In addition, we issued unvested restricted stock and assumed unvested equity and restricted cash awards, which are subject to future vesting and will be recorded as expense over the period the services are provided. A portion of the total consideration was held back by us to secure the indemnification obligations of the Auth0 securityholders and was paid in full during the nine months ended October 31, 2022. See Note 3 to our audited consolidated financial statements included in our Form 10-K filed with the SEC on March 7, 2022.

Components of Results of Operations
Revenue
Subscription Revenue.    Subscription revenue primarily consists of fees for access to and usage of our cloud-based platform and related support. Subscription revenue is driven primarily by the number of customers, the number of users per customer and the products used. We typically invoice customers in advance in annual installments for subscriptions to our platform.
Professional Services and Other.    Professional services revenue includes fees from assisting customers in implementing and optimizing the use of our products. These services include application configuration, system integration and training services.
We generally invoice customers as the work is performed for time-and-materials arrangements, and up front for fixed fee arrangements. All professional services revenue is recognized as the services are performed.
Overhead Allocation and Employee Compensation Costs
We allocate shared costs, such as facilities costs (including rent, utilities and depreciation on assets shared by all departments), certain information technology costs and recruiting costs to all departments based on headcount. As such, allocated shared costs are reflected in each of the cost of revenue and operating expense categories. Employee compensation costs reflected in each of the cost of revenue and operating expense categories include salaries, bonuses, compensation related taxes, benefits and stock-based compensation. Additionally included in in the sales and marketing expense category are sales commissions and related taxes.
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OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Cost of Revenue and Gross Margin
Cost of Subscription.    Cost of subscription primarily consists of expenses related to hosting our services and providing support. These expenses include employee-related costs associated with our cloud-based infrastructure and our customer support organization, third-party hosting fees, software and maintenance costs, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired developed technology and allocated overhead.
We intend to continue to invest additional resources in our platform infrastructure and our platform support organizations. As we continue to invest in technology innovation, we anticipate that capitalized internal-use software costs and related amortization may increase. We expect our investment in technology to expand the capability of our platform enabling us to improve our gross margin over time. The level and timing of investment in these areas could affect our cost of subscription revenue in the future.
Cost of Professional Services and Other.    Cost of professional services consists primarily of employee-related costs for our professional services delivery team, travel-related costs, allocated overhead and costs of outside services associated with supplementing our professional services delivery team. The cost of providing professional services has historically been higher than the associated revenue we generate.
Gross Margin.    Gross margin is gross profit expressed as a percentage of total revenue. Our gross margin may fluctuate from period to period as a result of the timing and amount of investments to expand our hosting capacity, our continued efforts to build platform support and professional services teams, increased stock-based compensation expenses, as well as the amortization of costs associated with capitalized internal-use software and acquired intangible assets.
Operating Expenses
Research and Development.    Research and development expenses consist primarily of employee compensation costs and allocated overhead. We believe that continued investment in our platform is important for our growth. We expect our research and development expenses will increase in absolute dollars as our business grows.
Sales and Marketing.    Sales and marketing expenses consist primarily of employee compensation costs, costs of general marketing and promotional activities, travel-related expenses, amortization expense associated with acquired customer relationships (including unbilled and unrecognized contracts yet to be fulfilled) and trade names and allocated overhead. Commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a contract with a customer are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally five years. We expect our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future as we continue to invest in acquiring new customers. In the short-term, our sales and marketing expenses may increase as a percentage of our total revenue, however, over time, we expect this percentage to decrease as our total revenue grows.
General and Administrative.    General and administrative expenses consist primarily of employee compensation costs for finance, accounting, legal, information technology and human resources personnel. In addition, general and administrative expenses include acquisition and integration-related costs, lease impairment charges, non-personnel costs, such as legal, accounting and other professional fees, charitable contributions, and all other supporting corporate expenses, such as information technology, not allocated to other departments. We expect our general and administrative expenses will increase in absolute dollars as our business grows.
Interest and Other, Net
Interest and other, net consists of interest expense, which primarily includes amortization of debt discount and loss on early extinguishment and conversion of debt (in comparative periods prior to the adoption of ASU 2020-06), amortization of debt issuance costs, contractual interest expense for the Notes, interest income from our investment holdings, and gains and losses from our strategic investments.
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OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Provision for (Benefit from) Income Taxes
Our provision for (benefit from) income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions where we operate, and is determined for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items occurring in the quarter. The primary difference between our effective tax rate and the federal statutory rate relates to the net operating losses in jurisdictions with a valuation allowance against related deferred tax assets.
30

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations
The following tables set forth our results of operations for the periods presented:
Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Revenue:
Subscription$465,856 $336,702 $1,299,181 $879,881 
Professional services and other15,186 13,978 48,611 37,305 
Total revenue481,042 350,680 1,347,792 917,186 
Cost of revenue:  
Subscription(1)
117,306 91,048 344,524 227,903 
Professional services and other(1)
20,347 18,626 61,988 49,000 
Total cost of revenue137,653 109,674 406,512 276,903 
Gross profit343,389 241,006 941,280 640,283 
Operating expenses:  
Research and development(1)
148,484 130,535 465,971 321,805 
Sales and marketing(1)
289,984 203,878 807,110 548,749 
General and administrative(1)
111,520 105,149 322,549 322,406 
Total operating expenses549,988 439,562 1,595,630 1,192,960 
Operating loss(206,599)(198,556)(654,350)(552,677)
Interest expense(2,805)(23,144)(8,588)(68,776)
Interest income and other, net4,235 1,056 10,660 7,622 
Loss on conversion of debt — — — (179)
Interest and other, net1,430 (22,088)2,072 (61,333)
Loss before provision for (benefit from) income taxes(205,169)(220,644)(652,278)(614,010)
Provision for (benefit from) income taxes3,728 667 9,804 (6,785)
Net loss$(208,897)$(221,311)$(662,082)$(607,225)
(1)     Includes stock-based compensation expense as follows:
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2022202120222021
 (dollars in thousands)
Cost of subscription revenue$17,106 $13,455 $51,509 $33,843 
Cost of professional services and other revenue3,563 3,376 11,016 8,879 
Research and development69,208 56,573 208,330 129,998 
Sales and marketing41,515 39,248 120,299 101,602 
General and administrative39,593 43,133 120,533 133,289 
Total stock-based compensation expense$170,985 $155,785 $511,687 $407,611 

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OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The following table sets forth our results of operations for the periods presented as a percentage of our total revenue:
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2022202120222021
Revenue  
Subscription97 %96 %96 %96 %
Professional services and other
Total revenue100 100 100 100 
Cost of revenue
Subscription25 26 26 25 
Professional services and other
Total cost of revenue29 31 30 30 
Gross profit71 69 70 70 
Operating expenses
Research and development31 37 35 35 
Sales and marketing60 59 60 60 
General and administrative23 30 24 35 
Total operating expenses114 126 119 130 
Operating loss(43)(57)(49)(60)
Interest expense(1)(6)(1)(7)
Interest income and other, net— 
Loss on conversion of debt— — — (1)
Interest and other, net— (6)(7)
Loss before provision for (benefit from) income taxes(43)(63)(48)(67)
Provision for (benefit from) income taxes— — (1)
Net loss(43)%(63)%(49)%(66)%

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OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Comparison of the Three and Nine Months Ended October 31, 2022 and 2021
Revenue
 Three Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Revenue:   
Subscription$465,856 $336,702 $129,154 38 %
Professional services and other15,186 13,978 1,208 
Total revenue$481,042 $350,680 $130,362 37 
Percentage of revenue:   
Subscription97 %96 %  
Professional services and other  
Total100 %100 %  
 Nine Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Revenue:   
Subscription$1,299,181 $879,881 $419,300 48 %
Professional services and other48,611 37,305 11,306 30 
Total revenue$1,347,792 $917,186 $430,606 47 
Percentage of revenue:   
Subscription96 %96 %  
Professional services and other  
Total100 %100 %  
Three and nine months ended
For the three and nine months ended October 31, 2022, the increase in subscription revenue was primarily due to the addition of new customers, an increase in users and sales of additional products to existing customers. Additionally, as our acquisition of Auth0 was completed on May 3, 2021, subscription revenue during the nine months ended October 31, 2022 includes nine months of Auth0 revenue while subscription revenue during the nine months ended October 31, 2021 includes approximately six months of Auth0 revenue.
For the three and nine months ended October 31, 2022, the increase in professional services revenue was primarily related to an increase in implementation and other services associated with growth in the number of new customers purchasing our subscription services.
33

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Cost of Revenue, Gross Profit and Gross Margin
 Three Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Cost of revenue:   
Subscription$117,306 $91,048 $26,258 29 %
Professional services and other20,347 18,626 1,721 
Total cost of revenue$137,653 $109,674 $27,979 26 
Gross profit$343,389 $241,006 $102,383 42 
Gross margin:   
Subscription75 %73 %  
Professional services and other(34)(33)  
Total gross margin71 69   
 Nine Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Cost of revenue:   
Subscription$344,524 $227,903 $116,621 51 %
Professional services and other61,988 49,000 12,988 27 
Total cost of revenue$406,512 $276,903 $129,609 47 
Gross profit$941,280 $640,283 $300,997 47 
Gross margin:   
Subscription73 %74 %  
Professional services and other(28)(31)  
Total gross margin70 70   
Three months ended
For the three months ended October 31, 2022, cost of subscription revenue increased primarily due to an increase of $14.7 million in employee compensation costs related to higher headcount to support the growth in our subscription services, an increase of $6.1 million in third-party hosting costs as we expanded capacity to support our growth and an increase of $3.3 million in software license costs.
Our gross margin for subscription revenue increased to 75% from 73% for the three months ended October 31, 2022 compared to the three months ended October 31, 2021. The increase was primarily driven by improved spend efficiency resulting in lower relative cost of subscription revenue. While our gross margin for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.
For the three months ended October 31, 2022, cost of professional services and other revenue increased primarily due to an increase of $1.7 million in employee compensation costs related to increased headcount.
Our gross margin for professional services and other revenue decreased to (34)% from (33)% for the three months ended October 31, 2022 compared to the three months ended October 31, 2021.
Nine months ended
For the nine months ended October 31, 2022, cost of subscription revenue increased primarily due to an increase of $59.3 million in employee compensation costs related to higher headcount to support the growth in our subscription services, an increase of $20.8 million in third-party hosting costs as we expanded capacity to support
34

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
our growth, an increase of $13.7 million in software license costs and an increase in amortization of acquired developed technology of $11.0 million.
Our gross margin for subscription revenue decreased to 73% from 74% for the nine months ended October 31, 2022 compared to the nine months ended October 31, 2021. While our gross margins for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.
For the nine months ended October 31, 2022, cost of professional services and other revenue increased primarily due to an increase of $9.1 million in employee compensation costs related to increased headcount.
Our gross margin for professional services and other revenue improved to (28)% from (31)% for the nine months ended October 31, 2022 compared to the nine months ended October 31, 2021.
Operating Expenses
Research and Development Expenses
 Three Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Research and development$148,484 $130,535 $17,949 14 %
Percentage of revenue31 %37 %  
 Nine Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Research and development$465,971 $321,805 $144,166 45 %
Percentage of revenue35 %35 %  
Three and nine months ended
For the three and nine months ended October 31, 2022, the increase in research and development expenses is primarily due to increases of $17.4 million and $132.7 million, respectively, in employee compensation costs related to higher headcount.
Sales and Marketing Expenses
 Three Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Sales and marketing$289,984 $203,878 $86,106 42 %
Percentage of revenue60 %59 %  
 Nine Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Sales and marketing$807,110 $548,749 $258,361 47 %
Percentage of revenue60 %60 %  
35

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Three months ended
For the three months ended October 31, 2022, sales and marketing expenses increased primarily due to an increase of $73.3 million in employee compensation costs related to higher headcount and an increase in travel expenses of $4.1 million. We expect sales and marketing expenses will increase in absolute dollars in future periods as we invest in acquiring new customers.
Nine months ended
For the nine months ended October 31, 2022, sales and marketing expenses increased primarily due to an increase of $178.1 million in employee compensation costs related to headcount growth, an increase in marketing and event costs of $19.9 million primarily due to increases in demand generation programs, advertising and brand awareness efforts aimed at acquiring new customers, an increase in travel expenses of $16.8 million, an increase in amortization expense of $9.9 million for acquired customer relationships and trade names and an increase in consulting expenses of $8.5 million. We expect sales and marketing expenses will increase in absolute dollars in future periods as we invest in acquiring new customers.
General and Administrative Expenses
 Three Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
General and administrative$111,520 $105,149 $6,371 %
Percentage of revenue23 %30 %  
 Nine Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
General and administrative$322,549 $322,406 $143 — %
Percentage of revenue24 %35 %  
Three months ended
For the three months ended October 31, 2022, general and administrative expenses increased primarily due to lease impairment charges of $14.2 million related to our real estate optimization plan and the closing of duplicative sites and underutilized offices, partially offset by a decrease of $8.0 million in acquisition and integration-related costs incurred in the three months ended October 31, 2021, but not in the three months ended October 31, 2022.
Nine months ended
For the nine months ended October 31, 2022, general and administrative expenses was relatively flat, primarily due to a decrease in acquisition and integration-related costs of $37.3 million, offset by lease impairment charges of $14.2 million related to our real estate optimization plan and the closing of duplicative sites and underutilized offices, and an increase in employee compensation and related costs associated with headcount growth.
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OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Interest and Other, Net
 Three Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Interest expense$(2,805)$(23,144)$20,339 (88)%
Interest income and other, net4,235 1,056 3,179 301 
Loss on conversion of debt — — — — 
Interest and other, net$1,430 $(22,088)$23,518 (106)
 Nine Months Ended
October 31,
 20222021$ Change% Change
 (dollars in thousands)
Interest expense$(8,588)$(68,776)$60,188 (88)%
Interest income and other, net10,660 7,622 3,038 40 
Loss on conversion of debt — (179)179 (100)
Interest and other, net$2,072 $(61,333)$63,405 (103)
Three and nine months ended
For the three and nine months ended October 31, 2022, the change in interest and other, net was primarily due to a decrease in interest expense resulting from the adoption of ASU 2020-06.
Key Business Metrics
We review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
As of October 31,
20222021
(dollars in thousands)
Customers with annual contract value (“ACV”) above $100,000 3,740 2,825 
Dollar-Based Net Retention Rate for the trailing 12 months ended122 %122 %
Current remaining performance obligations$1,579,388 $1,180,150 
Remaining performance obligations$2,852,831 $2,350,207 

Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Calculated Billings$531,637 $388,679 $1,412,147 $1,115,067 
37

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Total Customers and Number of Customers with Annual Contract Value Above $100,000
As of October 31, 2022, we had over 17,050 customers on our platform. We believe that our ability to increase the number of customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities. Increasing awareness of our platform and capabilities, coupled with the mainstream adoption of cloud technology, has expanded the diversity of our customer base to include organizations of all sizes across all industries. Over time, larger customers have constituted a greater share of our total revenue, which has contributed to an increase in average revenue per customer. The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 3,740 and 2,825 as of October 31, 2022 and 2021, respectively. We expect this trend to continue as larger enterprises recognize the value of our platform and replace their legacy identity access management infrastructure. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract with us or one of our partners to access our platform. For purposes of determining our customer count, we do not include customers that use our platform under self-service arrangements only.
Dollar-Based Net Retention Rate
Part of our ability to generate revenue is dependent upon our ability to maintain our relationships with our customers and to increase their utilization of our platform. We believe we can achieve these goals by focusing on delivering value and functionality that enables us to both retain our existing customers and expand the number of users and products used within an existing customer. We assess our performance in this area by measuring our Dollar-Based Net Retention Rate. Our Dollar-Based Net Retention Rate measures our ability to increase revenue across our existing customer base through expansion of users and products associated with a customer as offset by churn and contraction in the number of users and/or products associated with a customer.
Our Dollar-Based Net Retention Rate is based upon our ACV which is calculated based on the terms of that customer’s contract and represents the total contracted annual subscription amount as of that period end. We calculate our Dollar-Based Net Retention Rate as of a period end by starting with the ACV from all customers as of twelve months prior to such period end (“Prior Period ACV”). We then calculate the ACV from these same customers as of the current period end (“Current Period ACV”). Current Period ACV includes any upsells and is net of contraction or churn over the trailing twelve months but excludes ACV from new customers in the current period. We then divide the Current Period ACV by the Prior Period ACV to arrive at our Dollar-Based Net Retention Rate. Our Dollar-Based Net Retention Rate is inclusive of ACV from self-service customers.
Our strong Dollar-Based Net Retention Rate is primarily attributable to gross retention, an expansion of users and upselling additional products within our existing customers. Larger enterprises often implement a limited initial deployment of our platform before increasing their deployment on a broader scale.
Remaining Performance Obligations (“RPO”)
RPO represent all future, non-cancelable, contracted revenue under our subscription contracts with customers that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods. Current RPO represents the portion of RPO expected to be recognized during the next 12 months. RPO fluctuates due to a number of factors, including the timing, duration and dollar amount of customer contracts and fluctuations in foreign currency exchange rates.
Calculated Billings
Calculated Billings represent our total revenue plus the change in deferred revenue, net of acquired deferred revenue, and less the change in unbilled receivables, net of acquired unbilled receivables, in the period. Calculated Billings in any particular period reflect sales to new customers plus subscription renewals and upsells to existing customers, and represent amounts invoiced for subscription, support and professional services. We typically invoice customers in advance in annual installments for subscriptions to our platform.
Calculated Billings increased 37% in the three months ended October 31, 2022 over the three months ended October 31, 2021, and increased 27% in the nine months ended October 31, 2022 over the nine months ended
38

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
October 31, 2021. As our Calculated Billings continue to grow in absolute terms, we expect our Calculated Billings growth rate to trend down over time. See the section titled “Non-GAAP Financial Measures” for additional information and a reconciliation of Calculated Billings to total revenue.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the below referenced non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively with GAAP financial measures, may be helpful to investors because it provides consistency and comparability with past financial performance, and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded in our financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by our management about which expenses are excluded or included in determining these non-GAAP financial measures. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
We periodically reassess the components of our Non-GAAP adjustments for changes in how we evaluate our performance, changes in how we make financial and operational decisions, and consider the use of these measures by our competitors and peers to ensure the adjustments remain relevant and meaningful.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define Non-GAAP gross profit and Non-GAAP gross margin as GAAP gross profit and GAAP gross margin, adjusted for stock-based compensation expense included in cost of revenue, amortization of acquired intangibles and acquisition and integration-related expenses. Acquisition and integration-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of transaction close.
Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Gross profit$343,389 $241,006 $941,280 $640,283 
Add:
Stock-based compensation expense included in cost of revenue20,669 16,831 62,525 42,722 
Amortization of acquired intangibles11,393 11,335 34,102 23,056 
Acquisition and integration-related expenses— 658 459 1,316 
Non-GAAP gross profit$375,451 $269,830 $1,038,366 $707,377 
Gross margin71 %69 %70 %70 %
Non-GAAP gross margin78 %77 %77 %77 %





39

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin
We define Non-GAAP operating income (loss) and Non-GAAP operating margin as GAAP operating loss and GAAP operating margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles, acquisition and integration-related expenses and restructuring costs related to lease impairments in connection with the closing of certain leased facilities. Acquisition and integration-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of transaction close.
Beginning in the third quarter of fiscal 2023, we updated our definition of Non-GAAP operating income (loss) and Non-GAAP operating margin to include restructuring costs as defined in the preceding paragraph.

Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Operating loss$(206,599)$(198,556)$(654,350)$(552,677)
Add:
Stock-based compensation expense170,985 155,785 511,687 407,611 
Non-cash charitable contributions455 1,986 2,469 5,649 
Amortization of acquired intangibles21,262 21,204 63,711 42,795 
Acquisition and integration-related expenses— 10,060 6,555 46,664 
Restructuring costs14,161 — 14,161 — 
Non-GAAP operating income (loss)$264 $(9,521)$(55,767)$(49,958)
Operating margin(43)%(57)%(49)%(60)%
Non-GAAP operating margin— %(3)%(4)%(5)%
Non-GAAP Net Loss, Non-GAAP Net Margin and Non-GAAP Net Loss Per Share, Basic and Diluted
We define Non-GAAP net loss and Non-GAAP net margin as GAAP net loss and GAAP net margin, adjusted for stock-based compensation expense, non-cash charitable contributions, amortization of acquired intangibles, acquisition and integration-related expenses, restructuring costs related to lease impairments in connection with the closing of certain leased facilities, amortization of debt discount, amortization of debt issuance costs and loss on early extinguishment and conversion of debt. Acquisition and integration-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of transaction close. Adjustments reflect the adoption of ASU 2020-06 under the modified retrospective method as of February 1, 2022, as applicable.
Beginning in the third quarter of fiscal 2023, we updated our definition of Non-GAAP net loss and Non-GAAP net margin to include restructuring costs as defined in the preceding paragraph.
We define Non-GAAP net loss per share, basic, as Non-GAAP net loss divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted.
40

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
We define Non-GAAP net loss per share, diluted, as Non-GAAP net loss divided by GAAP weighted-average shares used to compute net loss per share, basic and diluted adjusted for the potentially dilutive effect of (i) employee equity incentive plans, excluding the impact of unrecognized stock-based compensation expense, and (ii) convertible senior notes outstanding and related warrants. In addition, Non-GAAP net loss per share, diluted, includes the impact of our note hedge and capped call agreements on convertible senior notes outstanding, as applicable. The note hedge and capped call agreements are intended to offset potential dilution to our Class A common stock upon any conversion or settlement of the convertible senior notes under certain circumstances. Accordingly, we did not record any adjustments for the potential impact of the convertible senior notes outstanding under the if-converted method.
Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Net loss$(208,897)$(221,311)$(662,082)$(607,225)
Add:
Stock-based compensation expense170,985 155,785 511,687 407,611 
Non-cash charitable contributions455 1,986 2,469 5,649 
Amortization of acquired intangibles21,262 21,204 63,711 42,795 
Acquisition and integration-related expenses— 10,060 6,555 46,664 
Amortization of debt discount and debt issuance costs(1)
1,445 21,698 4,340 64,478 
Loss on conversion of debt(1)
— — — 179 
Restructuring costs14,161 — 14,161 — 
Non-GAAP net loss$(589)$(10,578)$(59,159)$(39,849)
Net margin(43)%(63)%(49)%(66)%
Non-GAAP net margin— %(3)%(4)%(4)%
Weighted-average shares used to compute net loss per share, basic and diluted158,708 153,756 157,344 145,782 
Non-GAAP weighted-average effect of potentially dilutive securities — — — — 
Non-GAAP weighted-average shares used to compute non-GAAP net loss per share, diluted158,708 153,756 157,344 145,782 
Net loss per share, basic and diluted$(1.32)$(1.44)$(4.21)$(4.17)
Non-GAAP net loss per share, basic and diluted$— $(0.07)$(0.38)$(0.27)
(1) Reflects the adoption of ASU 2020-06 under the modified retrospective method effective February 1, 2022.
41

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Free Cash Flow and Free Cash Flow Margin
We define Free cash flow as net cash provided by operating activities, less cash used for purchases of property and equipment, net of sales proceeds, and capitalized internal-use software costs. Free cash flow margin is calculated as Free cash flow divided by total revenue.
Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Net cash provided by operating activities$9,980 $37,120 $9,762 $90,587 
Less:
Purchases of property and equipment(1,884)(1,766)(9,377)(5,800)
Capitalization of internal-use software costs(2,377)(1,970)(7,773)(2,348)
Free cash flow$5,719 $33,384 $(7,388)$82,439 
Net cash provided by (used in) investing activities$21,489 $101,459 $(47,223)$(210,102)
Net cash provided by financing activities$5,633 $9,214 $33,565 $58,447 
Free cash flow margin%10 %(1)%%

Calculated Billings
We define Calculated Billings as total revenue plus the change in deferred revenue, net of acquired deferred revenue, and less the change in unbilled receivables, net of acquired unbilled receivables, in the period.
Three Months Ended
October 31,
Nine Months Ended
October 31,
2022202120222021
(dollars in thousands)
Total revenue$481,042 $350,680 $1,347,792 $917,186 
Add:
Deferred revenue (end of period)1,062,455 777,872 1,062,455 777,872 
Unbilled receivables (beginning of period)4,530 3,409 3,228 2,604 
Acquired unbilled receivables— — — 2,327 
Less:
Deferred revenue (beginning of period)(1,011,284)(737,297)(996,222)(513,598)
Unbilled receivables (end of period)(5,106)(5,085)(5,106)(5,085)
Acquired deferred revenue— (900)— (66,239)
Calculated Billings$531,637 $388,679 $1,412,147 $1,115,067 
42

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
As of October 31, 2022, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,473.2 million, which were held for working capital and general corporate purposes, including potential future acquisition activity. Our cash equivalents and investments consisted primarily of U.S. treasury securities, corporate debt securities and money market funds. Historically, we have generated significant operating losses and both positive and negative cash flows from operations as reflected in our accumulated deficit and condensed consolidated statements of cash flows. We expect to continue to incur operating losses and cash flows from operations that may fluctuate between positive and negative amounts for the foreseeable future.
In February 2018, we completed our private offering of the 2023 Notes due on February 15, 2023 and received aggregate gross proceeds of $345.0 million, of which approximately $339.8 million principal amount has been repurchased or converted as of October 31, 2022. The interest rate on the 2023 Notes is fixed at 0.25% per annum and is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2018. In connection with the 2023 Notes, we used a portion of the proceeds to purchase the Note Hedges. The cost of the Note Hedges was partially offset by proceeds from the sale of Warrants in connection with the issuance of the 2023 Notes.
In September 2019, we completed our private offering of the 2025 Notes due on September 1, 2025 and received aggregate gross proceeds of $1,060.0 million. The interest rate on the 2025 Notes is fixed at 0.125% per annum and is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. In connection with the 2025 Notes, we used a portion of the proceeds to purchase the 2025 Capped Calls. Concurrent with the private offering of the 2025 Notes, we repurchased a portion of the 2023 Notes and terminated a portion of our existing Note Hedges and Warrants.
In June 2020, we completed our private offering of the 2026 Notes due on June 15, 2026 and received aggregate gross proceeds of $1,150.0 million. The interest rate on the 2026 Notes is fixed at 0.375% per year and is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. In connection with the 2026 Notes, we used a portion of the proceeds to purchase the 2026 Capped Calls. Concurrent with the private offering of the 2026 Notes, we repurchased a portion of the 2023 Notes and terminated a portion of our existing Note Hedges and Warrants.
On May 3, 2021, we completed the acquisition of Auth0. In connection with this acquisition, consideration included cash of $149.6 million, net of cash acquired of $107.4 million, and approximately 19.2 million shares of our common stock with an estimated fair value of $5,175.6 million. In addition, we assumed outstanding employee equity awards with vested fair value of $238.4 million.
On August 2, 2021, we completed the acquisition of atSpoke, providing total cash consideration, net of cash acquired of $79.0 million. Of this amount, $13.4 million of consideration was held back as partial security for any adjustments and indemnification obligations and will be paid within 18 months of the closing date.

We believe our existing cash and cash equivalents, our investments and cash provided by sales of our products and services will be sufficient to meet our short-term and long-term projected working capital and capital expenditure needs for the foreseeable future. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the expansion of our international operations, the introduction of new and enhanced product offerings, the continuing market adoption of our platform, and the costs associated with integration of acquired businesses. We continue to assess our capital structure and evaluate the merits of deploying available cash. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies this could reduce our ability to compete successfully and harm our results of operations.

A significant majority of our customers pay in advance for annual subscriptions. Therefore, a substantial source of our cash is from our deferred revenue, which is included on our condensed consolidated balance sheet as a liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recognized
43

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
as revenue in accordance with our revenue recognition policy. As of October 31, 2022, we had deferred revenue of $1,062.5 million, of which $1,044.6 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
 Nine Months Ended
October 31,
20222021
 (dollars in thousands)
Net cash provided by operating activities$9,762 $90,587 
Net cash used in investing activities(47,223)(210,102)
Net cash provided by financing activities33,565 58,447 
Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash(9,747)(494)
Net decrease in cash, cash equivalents and restricted cash$(13,643)$(61,562)
Operating Activities
Our largest source of operating cash is cash collections from our customers for subscription and professional services. Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs. In recent periods, we have supplemented working capital requirements through net proceeds from the issuance of the 2023 Notes, 2025 Notes and 2026 Notes in February 2018, September 2019 and June 2020, respectively.
During the nine months ended October 31, 2022, cash provided by operating activities was $9.8 million primarily due to our net loss of $662.1 million, adjusted for non-cash charges of $685.1 million and net cash outflows of $13.3 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, depreciation, amortization, and accretion, amortization of deferred commissions and lease impairment charges. The primary drivers of the changes in operating assets and liabilities related to a $82.6 million increase in deferred commissions primarily due to increased sales and a $30.6 million decrease in accrued compensation, partially offset by a $66.2 million increase in deferred revenue, a $29.8 million increase in accounts payable, and a $15.0 million decrease in accounts receivable.
During the nine months ended October 31, 2021, cash provided by operating activities was $90.6 million primarily due to our net loss of $607.2 million, adjusted for non-cash charges of $575.1 million and net cash inflows of $122.8 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, depreciation, amortization, and accretion, amortization of debt discount and issuance costs and amortization of deferred commissions. The primary drivers of the changes in operating assets and liabilities related to a $198.0 million increase in deferred revenue, a $42.0 million increase in accrued compensation and accrued other expenses, and a $16.6 million decrease in operating lease right-of-use assets, partially offset by a $92.2 million increase in deferred commissions, a $29.6 million increase in accounts receivable and a $17.3 million decrease in operating lease liabilities.
Investing Activities
Net cash used in investing activities during the nine months ended October 31, 2022 of $47.2 million was primarily attributable to purchases of investments of $872.0 million and purchases of property and equipment of $9.4 million, partially offset by proceeds from maturities of investments of $848.5 million.
Net cash used in investing activities during the nine months ended October 31, 2021 of $210.1 million was primarily attributable to purchases of investments of $1,333.6 million and payments of $215.1 million, net of cash acquired, in connection with our Auth0 and atSpoke acquisitions, partially offset by proceeds from the sales and maturities of investments of $1,346.8 million.
44

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financing Activities
Cash provided by financing activities during the nine months ended October 31, 2022 of $33.6 million was primarily attributable to proceeds from employee purchases under our ESPP of $19.0 million, and proceeds from the exercise of stock options of $14.6 million.
Cash provided by financing activities during the nine months ended October 31, 2021 of $58.4 million was primarily attributable to proceeds from the exercise of stock options of $41.1 million, and proceeds from employee purchases under our ESPP of $17.4 million.
Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, or condensed consolidated statements of cash flows.
Off-Balance Sheet Arrangements
As of October 31, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below.
Our significant accounting policies are discussed in “Notes to Consolidated Financial Statements - Note 2. Summary of Significant Accounting Policies” in our Form 10-K. We no longer consider estimates related to our convertible senior notes to be a critical accounting policy due to the adoption of ASU 2020-06 effective February 1, 2022, which simplified the accounting for convertible instruments. There have been no other significant changes to these policies for the nine months ended October 31, 2022.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements “Accounting Standards and Significant Accounting Policies” for more information.
45


Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Risk
The functional currencies of our foreign subsidiaries are the respective local currencies. Most of our sales are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, the United Kingdom, Australia and Canada. Our condensed consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements or other derivative financial instruments, with respect to foreign currency risk. During the nine months ended October 31, 2022 and 2021, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our condensed consolidated financial statements.
Interest Rate Risk
We had cash, cash equivalents and short-term investments totaling $2,473.2 million as of October 31, 2022, of which $2,315.1 million was invested in U.S. treasury securities, corporate debt securities and money market funds. Our cash and cash equivalents are held for working capital and general corporate purposes, including potential future acquisition activity. Our short-term investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.
Our cash equivalents and our investment portfolio are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of our expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our short-term investments as “available for sale,” no gains are recognized due to changes in interest rates. As losses due to changes in interest rates are generally not considered to be credit related changes, no losses in such securities are recognized due to changes in interest rates unless we intend to sell, it is more likely than not that we will be required to sell, we sell prior to maturity, or we otherwise determine that all or a portion of the decline in fair value are due to credit related factors.
As of October 31, 2022, a hypothetical 10% relative change in interest rates would not have had a material impact on the value of our cash equivalents or investment portfolio. Fluctuations in the value of our cash equivalents and investment portfolio caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income (loss), and are realized only if we sell the underlying securities prior to maturity.
Convertible Senior Notes
In February 2018, we issued the 2023 Notes due February 15, 2023 with a principal amount of $345.0 million, of which $224.4 million and $69.9 million were repurchased in September 2019 and June 2020, respectively. Concurrently with the issuance of the 2023 Notes, we entered into separate Note Hedges and Warrant transactions, a portion of which were terminated in September 2019 and June 2020 in connection with the partial repurchases of the 2023 Notes. The Note Hedges were completed to reduce the potential dilution from the conversion of the 2023 Notes. Additionally, since issuance through October 31, 2022, we received and completed requests to convert approximately $45.4 million principal amount of 2023 Notes (not in connection with the partial repurchases of the 2023 Notes) and exercised and net-share-settled Note Hedges corresponding to approximately $45.4 million principal amount of 2023 Notes.
In September 2019, we issued the 2025 Notes due September 1, 2025 with a principal amount of $1,060.0 million. Concurrently with the issuance of the 2025 Notes, we entered into separate capped call transactions. The 2025 Capped Calls were completed to reduce the potential dilution from the conversion of the 2025 Notes.
In June 2020, we issued the 2026 Notes due June 15, 2026 with a principal amount of $1,150.0 million. Concurrently with the issuance of the 2026 Notes, we entered into separate capped call transactions. The 2026 Capped Calls were completed to reduce the potential dilution from the conversion of the 2026 Notes.
46


The 2023 Notes, 2025 Notes and 2026 Notes have a fixed annual interest rate of 0.25%, 0.125% and 0.375%, respectively; accordingly, we do not have economic interest rate exposure on the Notes. However, the fair value of the Notes is exposed to interest rate risk. Generally, the fair market value of the fixed interest rate of the Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the Notes fluctuates when the market price of our common stock fluctuates. The fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on the last trading day of the reporting period. See Note 5 to our condensed consolidated financial statements for more information. Changes in the interest rate environment upon maturity of this fixed rate debt could have an effect on our future cash flows and earnings, depending on whether the debt is replaced with other fixed rate debt, variable rate debt or equity.
47


Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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Part II. OTHER INFORMATION
Item 1. Legal 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 asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that the defendants made false or misleading statements or omissions concerning the Company’s cybersecurity controls, vulnerability to data breaches, and the Company’s integration of Auth0, Inc. (“Auth0”). The lawsuit seeks an order certifying the lawsuit as a class action and unspecified damages.
On November 28, 2022, a purported shareholder filed a derivative lawsuit 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. The lawsuit alleges, 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 lawsuit seeks an order permitting the plaintiff to maintain this action derivatively on behalf of the Company, awarding unspecified damages allegedly sustained by the Company, awarding restitution from the individual defendants, and requiring the Company to make certain reforms to its corporate governance and controls.
The Company intends to defend these lawsuits vigorously.
See Note 11 to our condensed consolidated financial statements, “Commitments and Contingencies” for information related to other legal proceedings.
Item 1A. Risk Factors
A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, as well as the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below, or of additional risks and uncertainties not presently known to us or that we currently deem immaterial, could materially and adversely affect our business, results of operations, financial condition and growth prospects. In such an event, the market price of our Class A common stock could decline and you could lose all or part of your investment.

Risk Factor Summary

This risk factor summary contains a high-level summary of risks associated with our business. It does not contain all of the information that may be important to you, and you should read this risk factor summary together with the more detailed discussion of risks and uncertainties set forth following this summary. A summary of our risks includes, but is not limited to, the following:


Adverse general economic, market and industry conditions and reductions in workforce identity and customer identity spending may reduce demand for our products, which could harm our revenue, results of operations and cash flows.
We have experienced rapid growth in recent periods, which makes it difficult to forecast our revenue and evaluate our business and future prospects.
We have experienced rapid growth in recent periods, and our prior growth rates may not be indicative of our future growth. As our costs increase, we may not be able to generate sufficient revenue to achieve and, if achieved, maintain profitability.
We have a history of losses, and we expect to incur losses for the foreseeable future.
If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges.
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The effects of the COVID-19 pandemic have affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
We face intense competition, especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position.
If we are unable to attract new customers, sell additional products to our existing customers or develop new products and enhancements to our products that achieve market acceptance, our revenue growth and profitability will be harmed.
Our business depends on our customers renewing their subscriptions and purchasing additional licenses or subscriptions from us. Any material decline in our Dollar-Based Net Retention Rate would harm our future results of operations.
Customer growth could fall below expectations.
We may experience quarterly fluctuations in our results of operations due to a number of factors that make our future results difficult to predict and could cause our results of operations to fall below analyst or investor expectations.
The ongoing integration of Auth0 may cause a disruption in our business.
We may not realize potential benefits from the acquisition of Auth0 because of difficulties related to integration, the achievement of synergies, and other challenges.
If there are interruptions or performance problems associated with our technology or infrastructure, our existing customers may experience service outages, and our new customers may experience delays in the deployment of our platform.
In the past we have experienced and in the future we may experience cybersecurity incidents that may allow unauthorized access to our systems or data or our customers’ data, disable access to our service, harm our reputation, create additional liability and adversely impact our financial results.
Any actual or perceived failure by us to comply with the privacy or security provisions of our privacy policy, our contracts and/or legal or regulatory requirements could result in proceedings, actions or penalties against us.
The stock price of our Class A common stock may be volatile or may decline.
The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of our initial public offering (“IPO”), including our directors, executive officers, and their affiliates, who held in the aggregate 41.7% of the voting power of our capital stock as of October 31, 2022. This will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.
Servicing our debt may require a significant amount of cash. We may not have sufficient cash flow from our business to pay our indebtedness.
Risks Related to Our Business and Industry
Adverse general economic, market and industry conditions and reductions in workforce identity and customer identity spending may reduce demand for our products, which could harm our revenue, results of operations and cash flows.
Our revenue, results of operations and cash flows depend on the overall demand for our products. Concerns about the inflation and interest rate environment, the COVID-19 pandemic, the systemic impact of a widespread recession (in the United States or internationally), energy costs, geopolitical issues, such as Russia’s invasion of Ukraine, or the availability and cost of credit have and could continue to lead to increased market volatility, decreased consumer confidence and diminished growth expectations in the U.S. economy and abroad, which in
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turn could result in reductions in workforce identity and customer identity spending by our existing and prospective customers. These economic conditions can occur abruptly. Prolonged economic slowdowns may result in customers requesting us to renegotiate existing contracts on less advantageous terms to us than those currently in place or defaulting on payments due on existing contracts or not renewing at the end of the contract term. For example, rising interest rates in the United States have begun to affect businesses across many industries, including ours, by increasing the costs of labor, employee healthcare and other components, which may further constrain our, our customers’ and prospective customers’ budgets. To the extent there is a sustained general economic downturn and our platforms and services are perceived by customers or potential customers as costly, or too difficult to deploy or migrate to, our revenue may be disproportionately affected by delays or reductions in spending.
Our customers may merge with other entities who use alternative identity solutions and, during weak economic times, there is an increased risk that one or more of our customers will file for bankruptcy protection, either of which may harm our revenue, profitability and results of operations. We also face risk from international customers that file for bankruptcy protection in foreign jurisdictions, particularly given that the application of foreign bankruptcy laws may be more difficult to predict. In addition, we may determine that the cost of pursuing any claim may outweigh the recovery potential of such claim. As a result, if economic growth in countries where we do business slows or if such countries experience further economic recession, it could harm our business, revenue, results of operations and cash flows.
We have experienced rapid growth in recent periods, which makes it difficult to forecast our revenue and evaluate our business and future prospects.
Much of our growth has occurred in recent periods, which makes it difficult to forecast our revenue and evaluate our business and future prospects. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, including the risks and uncertainties described in this document. Additionally, the sales cycle for the evaluation and implementation of our platform, which typically extends for multiple months for enterprise deals, may also cause us to experience a delay between increasing operating expenses and the generation of corresponding revenue, if any. Accordingly, we may be unable to prepare accurate internal financial forecasts or replace anticipated revenue that we do not receive as a result of delays arising from these factors, and our results of operations in future reporting periods may be below the expectations of investors. If we do not address these risks successfully, our results of operations could differ materially from our estimates and forecasts or the expectations of investors, causing our business to suffer and our stock price to decline.
We have experienced rapid growth in recent periods, and our prior growth rates may not be indicative of our future growth. As our costs increase, we may not be able to generate sufficient revenue to achieve and, if achieved, maintain profitability.
From fiscal 2020 to fiscal 2021, our revenue grew from $586.1 million to $835.4 million, an increase of 43%, and from fiscal 2021 to fiscal 2022, our revenue grew from $835.4 million to $1,300.2 million, an increase of 56%. In future periods, we may not be able to sustain revenue growth consistent with recent history, or at all. We believe our revenue growth depends on a number of factors, such as macroeconomic conditions including the inflation and interest rate environment, budget constraints and the economic impact of the COVID-19 pandemic, as well as, but not limited to, our ability to:
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 independent software vendors (“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;
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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.
If we are unable to accomplish any of these tasks, our revenue growth will be harmed. We also expect our operating expenses to increase in future periods, and if our revenue growth does not increase to offset these anticipated increases in our operating expenses, our business, financial position and results of operations will be harmed, and we may not be able to achieve or maintain profitability.
We have a history of losses, and we expect to incur losses for the foreseeable future.
We have incurred significant net losses in each year since our inception, including net losses of $208.9 million, $266.3 million and $848.4 million in fiscal 2020, 2021 and 2022, respectively. We expect to continue to incur net losses for the foreseeable future. Because the market for our platform is rapidly evolving and has not yet reached widespread adoption, it is difficult for us to predict our future results of operations. We expect our operating expenses to significantly increase over the next several years as a result of the Auth0 acquisition, and as we hire additional personnel, particularly in sales and marketing, expand and improve the effectiveness of our distribution channels, expand our operations and infrastructure, both domestically and internationally, pursue business combinations and continue to develop our platform. As we continue to develop as a public company, we may incur additional legal, accounting and other expenses that we did not incur historically. If our revenue does not increase to offset these increases in our operating expenses, we will not be profitable in future periods. While historically, our total revenue has grown, not all components of our total revenue have grown consistently. Further, in future periods, our revenue growth could slow or our revenue could decline for a number of reasons, including slowing demand for our software, increasing competition, any failure to gain or retain channel partners, a decrease in the growth of our overall market, or our failure, for any reason, to continue to capitalize on growth opportunities. As a result, our past financial performance should not be considered indicative of our future performance. Any failure by us to achieve or sustain profitability on a consistent basis could cause the value of our common stock to decline.
If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges.
We have experienced, and may continue to experience, rapid growth and organizational change, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. For example, our headcount has grown from 4,584 employees as of October 31, 2021 to 6,037 employees as of October 31, 2022. We have also experienced significant growth in the number of customers, users and logins and in the amount of data that our Software-as-a-Service (“SaaS”) infrastructure supports. Finally, our organizational structure is becoming more complex as we improve our operational, financial and management controls as well as our reporting systems and procedures. We will require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas without undermining our culture of rapid innovation, teamwork and attention to customer success, which has been central to our growth so far. If we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, the quality of our platform may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers and employees.
We have established international offices in the Americas, Asia-Pacific and Europe, and we plan to continue to expand our international operations in the future. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our managerial, customer operations, research and development, marketing and sales, administrative, financial and other resources. If we are unable to manage our continued growth successfully, our business and results of operations could suffer.
In addition, as we expand our business, it is important that we continue to maintain a high level of customer service and satisfaction. As our customer base continues to grow, we will need to expand our account management, customer service and other personnel, and our network of ISVs, system integrators and other channel partners, to provide personalized account management and customer service. If we are not able to continue to provide high levels of customer service, our reputation, as well as our business, results of operations and financial condition, could be harmed.
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The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
The extent of the impact of COVID-19 on our future operational and financial performance remains uncertain and will depend on certain developments, including the duration and spread of COVID-19 and variants of concern, the manufacture, distribution, efficacy and public acceptance of COVID-19 treatments and vaccines, related public health measures, including vaccine mandates, and their impact on the global economy, our customers, employees and vendors. While some governments around the world have lifted restrictions and distributed vaccines, there remains significant uncertainty around the recovery due to the challenging logistics of distributing the vaccines globally, as well as the unknown impact of emerging variants of COVID-19. This pandemic has resulted in a widespread health crisis that is adversely affecting broader economies and financial markets.
The conditions caused by the COVID-19 pandemic have and may continue to affect the rate of IT spending and have and could adversely affect our current and potential customers’ ability or willingness to purchase our offerings. It has and could continue to delay current and prospective customers’ purchasing decisions, adversely impact our ability to provide professional services to our customers, delay the provisioning of our offerings, lengthen payment terms, reduce the value or duration of our subscription contracts, or affect customer attrition rates, all of which could adversely affect our future sales, operating results and overall financial performance.
Our operations have been and may continue to be affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many cities, counties, states and countries imposed or may impose a wide range of restrictions on our employees’, partners’, customers’ and potential customers’ physical movement to limit the spread of COVID-19. If the COVID-19 pandemic has a substantial impact on our employees’, partners’, customers’ or potential customers’ attendance or productivity, our results of operations and overall financial performance may be harmed.
The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the efficacy, global availability and acceptance of COVID-19 vaccines, the severity and transmission rate of the virus and emerging variants of concern, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, partners and vendors as well as the global economy. Although global economic conditions have generally improved with the rollout of COVID-19 vaccines, business activity may not recover as quickly as anticipated, including as a result of inflationary pressures and the responses by central banking authorities to control such inflation, rising interest rates, debt and equity market fluctuations, diminished liquidity and credit availability, increased unemployment rates, decreased investor and consumer confidence, political turmoil and supply chain challenges. Despite our best efforts to manage the impact of such events effectively, our business still may be harmed.
We face intense competition, especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position.
The markets for our products are rapidly evolving, highly competitive and subject to shifting customer needs and frequent introductions of new technologies. As the markets in which we operate continue to mature and new technologies and competitors enter such markets, we expect competition to intensify. Our competitor categories include, but are not limited to:

Authentication providers;
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.
We compete with both cloud-based and on-premise enterprise application software providers. Our competitors vary in size and in the breadth and scope of the products and services offered. However, many of our competitors have substantial competitive advantages such as significantly greater financial, technical, sales and marketing, distribution, customer support or other resources, larger intellectual property portfolios, longer operating
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histories, greater resources to make strategic acquisitions and greater name recognition than we do. Our principal competitor is Microsoft.

With the continuing merger and acquisition activity in the technology industry, particularly transactions involving security or identity and access management technologies, there is a greater likelihood that we will compete with other large technology companies in the future in both the workforce identity and customer identity markets.

In addition, some of our larger competitors have substantially broader product offerings and leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our products, including through selling at zero or negative margins, product bundling or closed technology platforms. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. These larger competitors often have broader product lines and market focus and as a result are not as susceptible to downturns in a particular market. Our competitors may also seek to acquire new offerings or repurpose their existing offerings to provide identity solutions with subscription models. Conditions in our market could change rapidly and significantly as a result of technological advancements, partnering by our competitors or continuing market consolidation. New start-up companies that innovate and large competitors that are making significant investments in research and development may invent similar or superior products and technologies that compete with our products. In addition, some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships with systems integrators, third-party consulting firms or other parties. Any such consolidation, acquisition, alliance or cooperative relationship could lead to pricing pressure and our loss of market share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our ability to compete. Furthermore, organizations may be more willing to incrementally add solutions to their existing infrastructure from competitors than to replace their existing infrastructure with our products. These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, increased net losses, and loss of market share. Any failure to meet and address these factors could harm our business, results of operations and financial condition.
If we are unable to attract new customers, sell additional products to our existing customers or develop new products and enhancements to our products that achieve market acceptance, our revenue growth and profitability will be harmed.
To increase our revenue and achieve and maintain profitability, we must add new customers or sell additional products to our existing customers. Numerous factors, however, may impede our ability to add new customers and sell additional products to our existing customers, including our failure to convert new organizations into paying customers, failure to attract, effectively train, retain and motivate sales and marketing personnel, failure to develop or expand relationships with channel partners, failure to successfully deploy products for new customers and provide quality customer support or failure to ensure the effectiveness of our marketing programs. In addition, if prospective customers do not perceive our platform to be of sufficiently high value and quality, we will not be able to attract the number and types of new customers that we are seeking.

In addition, our ability to attract new customers and increase revenue from existing customers depends in large part on our ability to enhance and improve our existing products and to introduce compelling new products that reflect the changing nature of our markets. The success of any enhancement to our products depends on several factors, including timely completion and delivery, competitive pricing, adequate quality testing, integration with existing technologies and our platform and overall market acceptance. If we are unable to successfully develop new products, enhance our existing products to meet customer requirements, or otherwise gain market acceptance, our business, results of operations and financial condition would be harmed.
Further, to grow our business, we must convince developers to adopt and build their applications using our application programming interfaces (“APIs”) and products. We believe that these developer-built applications facilitate greater usage and customization of our products. If these developers stop developing on or supporting our platform, we will lose the benefit of network effects that have contributed to the growth in our number of customers, and our business (including the performance levels of our products), results of operations and financial condition could be harmed.
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Our business depends on our customers renewing their subscriptions and purchasing additional licenses or subscriptions from us. Any material decline in our Dollar-Based Net Retention Rate would harm our future results of operations.
To continue to grow our business, it is important that our customers renew their subscriptions when existing contract terms expire and that we expand our commercial relationships with our existing customers. Our customers have no obligation to renew their subscriptions, and our customers may decide not to renew their subscriptions with a similar contract period, at the same prices and terms or with the same or a greater number of users. We have experienced significant growth in the number of users of our platform, but we do not know whether we will continue to achieve similar user growth rates in the future. In the past, some of our customers have elected not to renew their agreements with us, and it is difficult to accurately predict long-term customer retention and expansion rates. Our customer retention and expansion may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our products, our product support, our prices and pricing plans, particularly in light of COVID-19-related economic conditions, the inflation and interest rate environment and increased costs, the prices of competing software products, reductions in our customers’ spending levels, user adoption of our platform, deployment success, utilization rates by our customers, new product releases and changes to the packaging of our product offerings. If our customers do not purchase additional subscriptions or renew their subscriptions, renew on less favorable terms or fail to add more users, our revenue may decline or grow less quickly than anticipated, which would harm our future results of operations. Furthermore, if our contractual subscription terms were to shorten it could lead to increased volatility of, and diminished visibility into, future recurring revenue. If our sales of new or recurring subscriptions and software-related support service contracts decline from existing customers, our revenue and revenue growth may decline, and our business will suffer.
Customer growth could fall below expectations.
We have experienced significant growth in the number of our customers in recent periods. As our customer base continues to grow and as we increase our focus on sales to the world’s largest organizations, we do not expect customer growth to continue at the same pace as it has previously. These factors could cause customer growth to fall below analyst or investor expectations. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.
We may experience quarterly fluctuations in our results of operations due to a number of factors that make our future results difficult to predict and could cause our results of operations to fall below analyst or investor expectations.
Our quarterly results of operations fluctuate from quarter to quarter as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including, but not limited to:
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 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, the inflation and interest rate environment and increased costs, COVID-19 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;
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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;
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 the inflation and interest rate environment, geopolitical uncertainty and instability.
Any one or more of the factors above may result in significant fluctuations in our results of operations. You should not rely on our past results as an indicator of our future performance.
The variability and unpredictability of our quarterly results of operations or other operating metrics could result in our failure to meet our expectations or those of analysts that cover us or investors with respect to revenue or other metrics for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our Class A common stock could fall substantially, and we could face costly lawsuits, including securities class action suits.
Our ability to introduce new products and features is dependent on adequate research and development resources and our ability to successfully complete acquisitions. If we do not adequately fund our research and development efforts or complete acquisitions successfully, we may not be able to compete effectively and our business and results of operations may be harmed.
To remain competitive, we must continue to develop new products, applications and enhancements to our existing platform. This is particularly true as we further expand and diversify our capabilities. Maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet the demands of the market is essential. If we elect not to or are unable to develop products internally, we may choose to expand into a certain market or strategy via an acquisition for which we could potentially pay too much or fail to successfully integrate into our operations. Further, many of our competitors expend a considerably greater amount of funds on their respective research and development programs, and those that do not may be acquired by larger companies that could allocate greater resources to our competitors’ research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors would give an advantage to such competitors and may harm our business, results of operations and financial condition.
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Future acquisitions, investments, partnerships or alliances could be difficult to identify and integrate, divert the attention of management personnel, disrupt our business, dilute stockholder value and harm our results of operations and financial condition.
We have in the past acquired, and we may in the future seek to acquire or invest in, businesses, products or technologies that we believe could complement or expand our current platform, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to successfully integrate and retain the acquired personnel, integrate the acquired operations and technologies, adequately test and assimilate the internal control processes of the acquired business in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), or effectively manage the combined business following the acquisition.
We may not be able to find and identify desirable acquisition targets or we may not be successful in entering into an agreement with any particular target. Acquisitions could also result in dilutive issuances of equity securities, use of our available cash or the incurrence of debt, or in adverse tax consequences or unfavorable accounting treatment, which could harm our results of operations.
In addition, from time to time we invest in private growth stage companies for strategic reasons and to support key business initiatives, and we may not realize a return on these investments. All of our venture investments are subject to a risk of partial or total loss of investment capital.
Acquisitions and strategic transactions involve numerous risks, including:
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;
acquired businesses, technologies or products 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.
In addition, if an acquired business fails to meet our expectations, our business, results of operations and financial condition could suffer. For further risks related to our acquisition of Auth0, please see below under “Risks Related to the Acquisition of Auth0.”
Because our long-term success depends, in part, on our ability to expand the sales of our products to customers located outside of the United States, our business will be susceptible to risks associated with international operations.
We currently have sales personnel outside the United States and maintain offices outside the United States in the Americas, Asia-Pacific and Europe, and we plan to continue to expand our international operations.

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Our international revenue was 16% and 20% of our total revenue in fiscal 2021 and fiscal 2022, respectively. Any international expansion efforts that we may undertake may not be successful. In addition, conducting international operations subjects us to new risks, some of which we have not generally faced in the United States. These risks include, among other things:
health epidemics, such as COVID-19, influenza and other highly communicable diseases or viruses;
macroeconomic conditions, including the inflation and interest rate environment and the economic impact of the COVID-19 pandemic;
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 numerous and ever-growing landscape of U.S. and international data privacy and cybersecurity regimes, many of which involve disparate standards and enforcement approaches, including implementation of the recently-announced agreement in principle between the European Union and United States to implement a successor framework to the EU-U.S. Privacy Shield, to address cross-border data flows;
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, terrorist activities or armed conflict, including Russia's invasion of Ukraine;
global economic uncertainty caused by global political events, including the United Kingdom's exit from the European Union, and similar geopolitical developments;
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.
Additionally, operating in international markets also requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required in establishing operations in other countries will produce desired levels of revenue or profitability.
We have not engaged in currency hedging activities to limit risk of exchange rate fluctuations. Changes in exchange rates affect our costs and earnings, and may also affect the book value of our assets located outside the United States and the amount of our stockholders’ equity.
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We have limited experience in marketing, selling and supporting our platform abroad. Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and results of operations will suffer.
If we fail to adapt to rapid technological change, our ability to remain competitive could be impaired.
The industry in which we compete is characterized by rapid technological change, frequent introductions of new products and evolving industry standards. Our ability to attract new customers and increase revenue from existing customers will depend in significant part on our ability to anticipate industry standards and trends and continue to enhance existing products or introduce or acquire new products on a timely basis to keep pace with technological developments. The success of any enhancement or new product depends on several factors, including the timely completion and market acceptance of the enhancement or new product. Any new product we develop or acquire might not be introduced in a timely or cost-effective manner and might not achieve the broad market acceptance necessary to generate significant revenue. If any of our competitors implements new technologies before we are able to implement them, those competitors may be able to provide more effective products than ours at lower prices. Any delay or failure in the introduction of new or enhanced products could harm our business, results of operations and financial condition.
Our financial results may fluctuate due to increasing variability in our sales cycles.
We plan our expenses based on certain assumptions about the length and variability of our sales cycle. These assumptions are based upon historical trends for sales cycles and conversion rates associated with our existing customers. As we continue to focus on sales to larger organizations and in light of the current COVID-19 environment, our sales cycles are lengthening in certain circumstances and becoming less predictable, which may harm our financial results. Other factors that may influence the length and variability of our sales cycle include, among other things:
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.
Our increasing focus on sales to larger organizations may further increase the variability of our financial results. If we are unable to close one or more of such expected significant transactions in a particular period, or if such an expected transaction is delayed until a subsequent period, our results of operations for that period, and for any future periods in which revenue from such transaction would otherwise have been recognized, may be harmed.
Our growth depends, in part, on the success of our strategic relationships with third parties.
To grow our business, we anticipate that we will continue to depend on relationships with third parties, such as channel partners. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in causing third parties to favor their products or services over subscriptions to our platform. In addition, acquisitions of such partners by our competitors could result in a decrease in the number of our current and potential customers, as these partners may no longer facilitate the adoption of our applications by potential customers. Further, some of our partners are or may become competitive with certain of our products and may elect to no longer integrate with our platform. If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, and our results of operations may suffer. Even if we are successful, we cannot ensure that these relationships will result in increased customer usage of our applications or increased revenue.
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Failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our products.
Our ability to increase our customer base and achieve broader market acceptance of our products will depend to a significant extent on our ability to expand our marketing and sales operations. We plan to continue expanding our direct sales force and engaging additional channel partners, both domestically and internationally. This expansion will require us to invest significant financial and other resources. Our business will be harmed if our efforts do not generate a corresponding increase in revenue. We may not achieve anticipated revenue growth from expanding our direct sales force if we are unable to hire and develop talented direct sales personnel, if our new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if we are unable to retain our existing direct sales personnel. We also may not achieve anticipated revenue growth from our channel partners if we are unable to attract and retain additional motivated channel partners, if any existing or future channel partners fail to successfully market, resell, implement or support our products for their customers, or if they represent multiple providers and devote greater resources to market, resell, implement and support the products and solutions of these other providers. For example, some of our channel partners also sell or provide integration and administration services for our competitors’ products, and if such channel partners devote greater resources to marketing, reselling and supporting competing products, this could harm our business, results of operations and financial condition.
Various factors may cause our product implementations to be delayed, inefficient or otherwise unsuccessful.
Our business depends upon the successful implementation of our products by our customers. Increasingly, we, as well as our customers, rely on our network of partners to deliver implementation services, and there may not be enough qualified implementation partners available to meet customer demand. Various factors may cause implementations to be delayed, inefficient or otherwise unsuccessful. For example, changes in the functional requirements of our customers, delays in timeline, or deviation from recommended best practices may occur during the course of an implementation project. As a result of these and other risks, we or our customers may incur significant implementation costs in connection with the purchase, implementation and enablement of our products. Some customer implementations may take longer than planned or fail to meet our customers’ expectations, which may delay our ability to sell additional products or result in customers canceling or failing to renew their subscriptions before our products have been fully implemented. Unsuccessful, lengthy, or costly customer implementation and integration projects could result in claims from customers, harm to our reputation, and opportunities for competitors to displace our products, each of which could have an adverse effect on our business and results of operations.
A portion of our revenues are generated by sales to government entities, which are subject to a number of challenges and risks.
A portion of our sales are to partners that resell our services to government agencies, and we have made, and plan to continue to make, investments to support future sales opportunities in the government sector. The sale of our services to government agencies is tied to budget cycles, and there are government requirements and authorizations that we may be required to meet. Further, we may be subject to audits and investigations regarding our role as a subcontractor in government contracts, and violations could result in penalties and sanctions, including contract termination, refunding or forfeiting payments, fines, and suspension or debarment from future government business. Selling to these entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense. Government entities often require contract terms that differ from our standard arrangements and impose additional compliance requirements, require increased attention to pricing practices, or are otherwise time consuming and expensive to satisfy. Government entities may also have statutory, contractual or other legal rights to terminate contracts with our partners for convenience, for lack of funding or due to a default, and any such termination may adversely impact our future results of operations. If we represent that we meet certain standards or requirements and do not meet them, we could be subject to increased liability from our customers, investigation by regulators or termination rights. Even if we do meet them, the additional costs associated with providing our service to government entities could harm our margins. Moreover, changes in underlying regulatory requirements could be an impediment to our ability to efficiently provide our service to government customers and to grow or maintain our customer base. Any of these risks related to contracting with government entities could adversely impact our future sales and results of operations, or make them more difficult to predict.
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If we fail to enhance our brand cost-effectively, our ability to expand our customer base will be impaired and our business, results of operations and financial condition may suffer.
We believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our existing and future products and is an important element in attracting new customers. Furthermore, we believe that the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful products at competitive prices. In the past, our efforts to build our brand have involved significant expenses. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business, results of operations and financial condition could suffer.
We may not set optimal prices for our products.
In the past, we have at times adjusted our prices either for individual customers in connection with long-term agreements or for a particular product. We expect that we may need to change our pricing in future periods and potentially in response to COVID-19 pricing pressures, the inflation and interest rate environment and increased costs. Further, as competitors introduce new products that compete with ours or reduce their prices, we may be unable to attract new customers or retain existing customers based on our historical pricing. As we expand internationally, we also must determine the appropriate price to enable us to compete effectively internationally. In addition, if our mix of products sold changes, then we may need to, or choose to, revise our pricing. As a result, we may be required or choose to reduce our prices or change our pricing model, which could harm our business, results of operations and financial condition.
Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our results of operations.
We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity or convertible debt financing, our security holders may experience significant dilution of their ownership interests. If we engage in additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things:
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.
Our inability to do any of the foregoing could reduce our ability to compete successfully and harm our business, results of operations and financial condition.
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We may be subject to liability claims if we breach our contracts and our insurance may be inadequate to cover our losses.
We are subject to numerous obligations in our contracts with our customers and partners. Despite the procedures, systems and internal controls we have implemented to comply with our contracts, we may breach these commitments, whether through a weakness in these procedures, systems and internal controls, negligence or the willful act of an employee or contractor. Our insurance policies, including our errors and omissions insurance, may be inadequate to compensate us for the potentially significant losses that may result from claims arising from breaches of our contracts, disruptions in our service, including those caused by cybersecurity incidents, failures or disruptions to our infrastructure, catastrophic events and disasters or otherwise. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention.
Risks Related to the Acquisition of Auth0
The ongoing integration of Auth0 may cause a disruption in our business.
The ongoing integration following the acquisition of Auth0 (the “Acquisition”) could cause disruptions to our business or business relationships, which could have an adverse impact on results of operations. Parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.
The ongoing integration of Auth0 may place a significant burden on our management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the integration process could adversely affect our financial results.
We have incurred and expect to continue to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the Acquisition. We may also incur unanticipated costs in the integration of Auth0’s business with our business. The substantial majority of these costs will be non-recurring expenses relating to the Acquisition. We also have been and may become subject to further litigation related to the Acquisition, as discussed in Item 1, “Legal Proceedings” above, which could result in significant costs and expenses.
We may not realize potential benefits from the Acquisition because of difficulties related to integration, the achievement of synergies, and other challenges.
Prior to the consummation of the Acquisition, we and Auth0 operated independently, and there can be no assurances that our businesses can be combined in a manner that allows for the achievement of substantial benefits. The ongoing integration process may require significant time and resources, and we may not be able to manage the process successfully as our ability to acquire and integrate larger or more complex companies, products or technologies in a successful manner is unproven. For example, our business was impacted by short-term execution challenges related to the integration of our Auth0 and Okta sales organization earlier this year. While we are refining the go-to-market strategy for the combined Auth0 and Okta sales organization, we may not achieve expected synergies and growth projections. If we are not able to successfully integrate Auth0’s businesses with ours or pursue our customer and product strategy successfully, the anticipated benefits of the Acquisition may not be realized fully or may take longer than expected to be realized. Further, it is possible that there could be a loss of our and/or Auth0’s key employees and customers, disruption of either company’s or both companies’ ongoing businesses or unexpected issues, higher than expected costs and an overall post‑completion process that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in combining Auth0’s operations with ours in order to realize the anticipated benefits of the Acquisition:
combining the companies’ corporate functions;
combining Auth0’s business with our business in a manner that permits us to achieve the synergies anticipated to result from the Acquisition, the failure of which would result in the anticipated benefits of the Acquisition not being realized in the timeframe currently anticipated or at all;
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maintaining existing agreements with customers, distributors, providers, talent and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers, talent and vendors;
determining whether and how to address possible differences in corporate cultures and management philosophies;
integrating the companies’ administrative and information technology infrastructure;
developing products and technology that allow value to be unlocked in the future; and
evaluating and forecasting the financial impact of the Acquisition transaction.
In addition, at times the attention of certain members of our management and resources may be focused on integration of the businesses of the two companies and diverted from day‑to‑day business operations, which may disrupt our ongoing business and the business of the combined company.
We may incur significant, non‑recurring costs in connection with the Acquisition and integrating the operations of Okta and Auth0, including costs to maintain employee morale and to retain key employees. Management cannot ensure that the elimination of duplicative costs or the realization of other efficiencies will offset the transaction and integration costs in the long term or at all.
Risks Related to Intellectual Property, Infrastructure Technology, Data Privacy and Security
If there are interruptions or performance problems associated with our technology or infrastructure, our existing customers may experience service outages, and our new customers may experience delays in the deployment of our platform.
Our continued growth depends, in part, on the ability of our existing and potential customers to access our platform 24 hours a day, seven days a week, without interruption or degradation of performance. We may experience disruptions, data loss, outages and other performance problems with our infrastructure due to a variety of factors, including infrastructure and functionality changes, human or software errors, capacity constraints or security-related incidents. In some instances, we may not be able to identify the cause or causes of these performance problems immediately or in short order. We may not be able to maintain the level of service uptime and performance required by our customers, especially during peak usage times and as our products become more complex and our user traffic increases. If our platform is unavailable or if our customers are unable to access our products or deploy them with