10-Q 1 okta-20211031.htm 10-Q okta-20211031
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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, 2021
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 29, 2021, the number of shares of registrant’s Class A common stock outstanding was 148,529,670 and the number of shares of the registrant’s Class B common stock outstanding was 7,014,137.



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, and the anticipated impact on our business of the COVID-19 pandemic, related public health measures and any associated economic downturn. 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 Result 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 the global COVID-19 pandemic on our business and operations;
trends in our key business metrics;
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;
the impact of recent accounting pronouncements on our financial statements; and
our ability to successfully integrate and realize the benefits of strategic acquisitions or investments, including our acquisition of Auth0, Inc. (“Auth0“).
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, 2021January 31, 2021
(unaudited)
Assets 
Current assets: 
Cash and cash equivalents$372,372 $434,607 
Short-term investments2,109,687 2,121,584 
Accounts receivable, net of allowances of $3,149 and $3,451
253,568 194,818 
Deferred commissions60,465 45,949 
Prepaid expenses and other current assets56,776 81,609 
Total current assets2,852,868 2,878,567 
Property and equipment, net60,751 62,783 
Operating lease right-of-use assets154,522 149,604 
Deferred commissions, noncurrent145,655 108,555 
Intangible assets, net336,354 27,009 
Goodwill5,401,343 48,023 
Other assets45,480 24,256 
Total assets$8,996,973 $3,298,797 
Liabilities and stockholders' equity 
Current liabilities: 
Accounts payable$11,547 $8,557 
Accrued expenses and other current liabilities91,516 53,729 
Accrued compensation109,233 71,906 
Convertible senior notes, net15,956 908,684 
Deferred revenue759,914 502,738 
Total current liabilities988,166 1,545,614 
Convertible senior notes, net, noncurrent1,793,970 857,387 
Operating lease liabilities, noncurrent179,205 179,518 
Deferred revenue, noncurrent17,958 10,860 
Other liabilities, noncurrent33,119 11,375 
Total liabilities3,012,418 2,604,754 
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, 2021 and January 31, 2021
  
Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized; 148,448 and 122,824 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively
15 12 
Class B common stock, par value $0.0001 per share; 120,000 shares authorized; 7,014 and 8,159 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively
1 1 
Additional paid-in capital7,558,816 1,656,096 
Accumulated other comprehensive income 404 5,390 
Accumulated deficit(1,574,681)(967,456)
Total stockholders’ equity5,984,555 694,043 
Total liabilities and stockholders' equity$8,996,973 $3,298,797 
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,
 2021202020212020
Revenue:  
Subscription$336,702 $206,743 $879,881 $571,213 
Professional services and other13,978 10,636 37,305 29,471 
Total revenue350,680 217,379 917,186 600,684 
Cost of revenue:  
Subscription91,048 44,762 227,903 121,420 
Professional services and other18,626 12,146 49,000 35,121 
Total cost of revenue109,674 56,908 276,903 156,541 
Gross profit241,006 160,471 640,283 444,143 
Operating expenses:  
Research and development130,535 58,150 321,805 160,510 
Sales and marketing203,878 109,812 548,749 312,177 
General and administrative105,149 44,485 322,406 121,019 
Total operating expenses439,562 212,447 1,192,960 593,706 
Operating loss(198,556)(51,976)(552,677)(149,563)
Interest expense(23,144)(22,368)(68,776)(50,063)
Interest income and other, net1,056 1,878 7,622 10,737 
Loss on early extinguishment and conversion of debt  (89)(179)(2,263)
Interest and other, net(22,088)(20,579)(61,333)(41,589)
Loss before provision for (benefit from) income taxes(220,644)(72,555)(614,010)(191,152)
Provision for (benefit from) income taxes667 209 (6,785)(626)
Net loss$(221,311)$(72,764)$(607,225)$(190,526)
  
Net loss per share, basic and diluted$(1.44)$(0.56)$(4.17)$(1.51)
  
Weighted-average shares used to compute net loss per share, basic and diluted153,756 128,813 145,782 126,222 

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,
 2021202020212020
Net loss$(221,311)$(72,764)$(607,225)$(190,526)
Other comprehensive income (loss):
Net change in unrealized gains or losses on available-for-sale securities (2,998)(2,226)(4,164)1,344 
Foreign currency translation adjustments(973)(724)(822)335 
Other comprehensive income (loss)(3,971)(2,950)(4,986)1,679 
Comprehensive loss$(225,282)$(75,714)$(612,211)$(188,847)
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,
 2021202020212020
Common stock and additional paid-in capital:
Balance, beginning of period$7,391,185 $1,498,562 $1,656,109 $1,105,576 
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, net11,208 8,299 64,119 51,053 
Issuance of common stock for bonus settlement— — — 9,818 
Stock-based compensation156,447 54,049 408,482 140,895 
Equity component of convertible senior notes, net of issuance costs— (12)— 306,220 
Equity component of early extinguishment and conversions of convertible senior notes(8)8,829 20,776 70,493 
Proceeds from hedges related to convertible senior notes— — 2 195,046 
Payments for warrants related to convertible senior notes— — — (175,399)
Purchases of capped calls related to convertible senior notes— — — (133,975)
Balance, end of period7,558,832 1,569,727 7,558,832 1,569,727 
Accumulated deficit:
Balance, beginning of period(1,353,370)(818,886)(967,456)(701,124)
Net loss(221,311)(72,764)(607,225)(190,526)
Balance, end of period(1,574,681)(891,650)(1,574,681)(891,650)
Accumulated other comprehensive income:
Balance, beginning of period4,375 5,521 5,390 892 
Other comprehensive income (loss)(3,971)(2,950)(4,986)1,679 
Balance, end of period404 2,571 404 2,571 
Total stockholders’ equity$5,984,555 $680,648 $5,984,555 $680,648 

See Notes to Condensed Consolidated Financial Statements.

8


OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 Nine Months Ended
October 31,
 20212020
Cash flows from operating activities:
Net loss$(607,225)$(190,526)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation407,611 139,774 
Depreciation, amortization and accretion76,631 23,694 
Amortization of debt discount and issuance costs64,478 47,261 
Amortization of deferred commissions40,041 28,428 
Deferred income taxes(13,606)(2,414)
Non-cash charitable contributions5,649 4,662 
Loss on early extinguishment and conversion of debt179 2,263 
(Gain) loss on strategic investments(5,665)628 
Other, net(267)3,887 
Changes in operating assets and liabilities:
Accounts receivable(29,561)(10,547)
Deferred commissions(92,183)(51,837)
Prepaid expenses and other assets5,356 (6,794)
Operating lease right-of-use assets16,564 13,979 
Accounts payable(195)1,377 
Accrued compensation19,488 37,863 
Accrued expenses and other liabilities22,537 2,442 
Operating lease liabilities(17,280)(11,750)
Deferred revenue198,035 60,663 
Net cash provided by operating activities90,587 93,053 
Cash flows from investing activities:  
Capitalization of internal-use software costs(2,348)(3,530)
Purchases of property and equipment(5,800)(11,297)
Purchases of securities available for sale and other(1,333,617)(1,845,958)
Proceeds from maturities and redemption of securities available for sale1,118,448 386,774 
Proceeds from sales of securities available for sale and other228,344 206,129 
Payments for business acquisitions, net of cash acquired(215,129) 
Net cash used in investing activities(210,102)(1,267,882)
Cash flows from financing activities: 
Proceeds from issuance of convertible senior notes, net of issuance costs 1,134,841 
Payments for repurchases and conversions of convertible senior notes(26)(447)
Proceeds from hedges related to convertible senior notes2 195,046 
Payments for warrants related to convertible senior notes (175,399)
Purchases of capped calls related to convertible senior notes (133,975)
Proceeds from stock option exercises41,054 33,570 
Proceeds from shares issued in connection with employee stock purchase plan17,417 12,821 
Net cash provided by financing activities58,447 1,066,457 
Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash(494)121 
Net decrease in cash, cash equivalents and restricted cash(61,562)(108,251)
Cash, cash equivalents and restricted cash at beginning of period448,630 531,953 
Cash, cash equivalents and restricted cash at end of period$387,068 $423,702 
Supplementary cash flow disclosure:
Cash paid during the period for:
Interest$3,548 $1,566 
Income taxes2,550 622 
Non-cash activities:
Issuance of common stock and value of equity awards assumed in connection with business combination5,409,344  
Issuance of common stock for repurchases and conversions of convertible senior notes126,144 307,910 
Benefit from exercise of hedges related to convertible senior notes92,097  
Operating lease right-of-use assets exchanged for lease liabilities21,518 45,490 
Issuance of common stock for bonus settlement 9,818 
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$372,372 $409,769 
Restricted cash, current included in prepaid expenses and other current assets5,136 2,413 
Restricted cash, noncurrent included in other assets9,560 11,520 
Total cash, cash equivalents and restricted cash$387,068 $423,702 

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 Identity Cloud enables 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”). All intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of January 31, 2021, included herein, was derived from the audited financial statements as of that date. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly 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, 2022 or any future period. The condensed consolidated financial statements include the results of operations for acquired businesses from their acquisition dates to October 31, 2021. See Note 3 for additional details.
The Company’s fiscal year ends on January 31. References to fiscal 2022, for example, refer to the fiscal year ending January 31, 2022.
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 4, 2021.
Certain reclassifications of components of prior period operating 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 total operating cash flows 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 effective interest rate of the liability components of its convertible senior notes, 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.
In March 2020, the World Health Organization (“WHO”) declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic, which has spread across the globe. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the condensed consolidated financial statements for the three and nine months ended October 31, 2021 and 2020. As events continue to evolve and additional information becomes available, the Company’s assumptions and estimates may change materially in future periods.
10


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, 2021. The Company has updated and further described its accounting policies for business combinations and strategic investments below. There have been no other significant changes to the Company’s significant accounting policies for the nine months ended October 31, 2021.
Business Combinations
When the Company acquires a business, the purchase price is allocated to the net tangible and identifiable intangible assets acquired based on their estimated fair values. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to:
future expected cash flows from subscription contracts, professional services contracts, other customer contracts and acquired developed technologies;
person hours required in recreating certain acquired technologies;
historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
royalty rates applied to acquired developed technology platforms and other intangible assets;
obsolescence curves and other useful life assumptions, such as the period of time and intended use of acquired intangible assets in the Company’s product offerings;
discount rates;
uncertain tax positions and tax-related valuation allowances; and
fair value of assumed equity awards.
These estimates are inherently uncertain and unpredictable, and unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Strategic Investments
The Company holds strategic equity investments in privately held companies that are included in Other assets on the condensed consolidated balance sheets. Investments in privately held companies without readily determinable fair values in which the Company does not own a controlling interest or have significant influence over are measured using the measurement alternative. In applying the measurement alternative, the Company adjusts the carrying values of strategic investments based on observable price changes from orderly transactions for identical or similar investments of the same issuer. Additionally, the Company evaluates its strategic investments at least quarterly for impairment. Adjustments and impairments are recorded in Interest and other, net on the condensed consolidated statements of operations.
In determining the estimated fair value of its strategic investments in privately held companies, the Company uses the most recent data available to the Company. Valuations of privately held securities are inherently complex due to the lack of readily available market data and require the use of judgment. The determination of whether an orderly transaction is for an identical or similar investment requires significant Company judgment. In its evaluation, the Company considers factors such as differences in the rights and preferences of the investments and the extent to which those differences would affect the fair values of those investments. The Company’s impairment analysis encompasses an assessment of both qualitative and quantitative factors including the investee's financial metrics, market acceptance of the investee's product or technology, general market conditions and liquidity considerations.
11


Recent Accounting Pronouncements Not Yet Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which 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, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change is expected to reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature-related balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (“EPS”), which is consistent with the Company’s accounting treatment under the current standard. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and the Company intends to adopt this standard using the modified retrospective method in its first quarter of fiscal 2023. The Company is currently evaluating the quantitative impact of this standard on its consolidated financial statements.

3. Business Combinations
Acquisition of Auth0
On May 3, 2021, the Company acquired all outstanding shares of privately-held Auth0, an Identity-as-a-Service company. The Company expects to combine Auth0’s developer-centric identity solution with the Company’s Okta Identity Cloud to drive synergies, product options and value for current and future customers. The acquisition date fair value of the consideration transferred for Auth0 was approximately $5,671.0 million, which consisted of the following (in thousands):
 
Estimated Fair Value
(unaudited)
Cash$257,010 
Common stock issued5,175,623 
Fair value of outstanding employee equity awards assumed238,389 
 Total consideration$5,671,022 
Cash consideration of $257.0 million includes $3.8 million held back as partial security for post-closing true-up adjustments as well as indemnification claims made within one year of the acquisition date.
Approximately 19.2 million shares of common stock valued at $5,175.6 million were issued to selling stockholders, which includes approximately 1.1 million shares valued at $294.6 million 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 Company entered into revesting agreements with Auth0’s founders pursuant to which approximately 1.2 million additional shares of Okta’s Class A common stock issued to the founders as of the closing date will vest over three years. The $332.1 million fair value of the unvested restricted stock is not included as purchase consideration above, as it has a post-combination service requirement and will be accounted for separately from the business combination as stock compensation expense.
12


The Company issued replacement equity awards with a fair value of $655.1 million, of which $238.4 million was allocated to the purchase consideration as it is attributable to pre-combination services rendered and $416.7 million was allocated to post-combination services and will be expensed over the remaining service periods as stock-based compensation. The fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model. The Company also converted certain equity awards to unvested restricted cash awards totaling $13.5 million that will be expensed over the remaining service periods.
See Note 12 for a discussion of amounts related to post-combination services that will be expensed over the remaining service periods as stock-based compensation.
Acquisition costs of $29.0 million related to Auth0 were expensed by the Company in general and administrative expenses in its condensed consolidated statements of operations for the six months ended July 31, 2021.
The transaction was accounted for as a business combination. The total purchase price of $5,671.0 million was allocated using information currently available to the Company. As a result, the Company may continue to adjust the preliminary purchase price allocation after obtaining more information regarding asset valuations, liabilities assumed, and revisions of preliminary estimates. Preliminary allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values is as follows (in thousands):
 
Estimated Fair Value
(unaudited)
Cash and cash equivalents$107,425 
Accounts receivable28,572 
Prepaid expenses and other current assets12,748 
Property and equipment, net1,928 
Operating lease right-of-use assets6,873 
Other assets6,375 
Intangible assets334,300 
Accounts payable(3,610)
Accrued expenses and other current liabilities(10,946)
Accrued compensation(19,187)
Deferred revenue(65,339)
Operating lease liabilities, noncurrent(5,694)
Other liabilities, noncurrent(12,515)
Net assets acquired$380,930 
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, which is primarily attributable to expected synergies in sales opportunities across complementary products, customers and geographies, cross-selling opportunities, and improvements in the selling process. None of the goodwill is expected to be deductible for U.S. federal income tax purposes.
The estimated useful lives and fair values of the identifiable intangible assets are as follows (in thousands):
 Preliminary Estimate
Useful Life
(in years)
Amount
(unaudited)
Developed technology
5 years
$172,000 
Customer relationships
2 - 6 years
140,900 
Trade name
5 years
21,400 
Total identifiable intangible assets$334,300 
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Developed technology represents the estimated fair value of the features underlying the Auth0 products as well as the platform supporting and providing services to Auth0 customers. Customer relationships represents the estimated fair value of the underlying relationships with Auth0 customers, including the fair value of unbilled and unrecognized contracts yet to be fulfilled. Trade name represents the estimated fair value of the Auth0 brand.
Revenue and earnings of Auth0 included in the Company’s consolidated income statement from the acquisition date through October 31, 2021 are as follows (in thousands):

Three Months EndedFor the period
 
October 31, 2021
May 3, 2021
 to
October 31, 2021
(unaudited)
Revenue$45,985 $83,591 
Net loss(119,921)(270,256)
Pro forma consolidated revenue and earnings for the three and nine months ended October 31, 2021 and 2020, calculated as if Auth0 had been acquired as of February 1, 2020 are as follows (in thousands):

Pro Forma Consolidated Statement of Operations Data
Three Months Ended
October 31,
Nine Months Ended
October 31,
 2021202020212020
(unaudited)
Revenue$354,268 $246,967 $964,563 $675,635 
Net loss(206,977)(171,405)(621,546)(517,805)
The pro forma financial information for all periods presented above has been calculated after adjusting the results of Auth0 to reflect certain business combination and one-time accounting effects such as fair value adjustment of deferred revenue, amortization expense from acquired intangible assets, stock-based compensation expense for unvested equity awards assumed, deferred commissions, release of deferred tax asset valuation allowance and acquisition costs as though the acquisition occurred as of the beginning of the Company’s fiscal 2021. The historical consolidated financial information has been adjusted in the pro forma combined financial results to give effect to pro forma events that are directly attributable to the business combination, reasonably estimable and factually supportable. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company’s fiscal 2021.

14


Acquisition of atSpoke
On August 2, 2021, the Company acquired all issued and outstanding capital stock of Townsend Street Labs, Inc. (“atSpoke”), a modern workplace operations platform. The acquisition will incorporate atSpoke’s platform with Okta’s Identity Governance and Administration offering. 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 preliminarily recorded $18.3 million for developed technology intangible assets with an estimated useful life of 3 years and preliminarily recorded $63.2 million of goodwill which is primarily attributed to the assembled workforce as well as the integration of atSpoke’s technology and the Company’s technology. None of the goodwill is expected to be deductible for U.S. federal income tax purposes. The Company may continue to adjust the preliminary purchase price allocation after obtaining more information regarding asset valuations, liabilities assumed and revisions of preliminary estimates through the measurement period.
The Company incurred $0.9 million of acquisition-related costs, which were recorded as general and administrative expenses in its condensed consolidated statements of operations in the quarter ended July 31, 2021.
This acquisition did not have a material impact on the Company’s condensed consolidated financial statements; therefore, historical and pro forma disclosures have not been presented.

4. Cash Equivalents and Investments
Cash Equivalents and Short-term Investments
The amortized cost, unrealized gain (loss) and estimated fair value of the Company’s cash equivalents and short-term investments as of October 31, 2021 and January 31, 2021 were as follows (in thousands):  
 As of October 31, 2021
 
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value 
(unaudited)
Cash equivalents:    
Money market funds$241,171 $ $ $241,171 
Total cash equivalents241,171   241,171 
Short-term investments:    
U.S. treasury securities1,804,188 159 (1,860)1,802,487 
Corporate debt securities307,687 26 (513)307,200 
Total short-term investments2,111,875 185 (2,373)2,109,687 
Total$2,353,046 $185 $(2,373)$2,350,858 
 As of January 31, 2021
 
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value 
Cash equivalents:    
Money market funds$311,257 $ $ $311,257 
Total cash equivalents311,257   311,257 
Short-term investments:   
U.S. treasury securities1,888,882 1,571 (22)1,890,431 
Corporate debt securities230,726 429 (2)231,153 
Total short-term investments2,119,608 2,000 (24)2,121,584 
Total$2,430,865 $2,000 $(24)$2,432,841 

All short-term investments were designated as available-for-sale securities as of October 31, 2021 and January 31, 2021.
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The following table presents the contractual maturities of the Company’s short-term investments as of October 31, 2021 (in thousands):
As of October 31, 2021
 
Amortized
Cost
Estimated
Fair Value
(unaudited)
Due within one year$1,055,033 $1,055,124 
Due between one to five years1,056,842 1,054,563 
 Total$2,111,875 $2,109,687 
As of October 31, 2021 and January 31, 2021, the Company included nil of unsettled purchases of short-term investments in Accrued expenses and other current liabilities on the condensed consolidated balance sheets and included nil and $31.0 million, respectively, of unsettled maturities of short-term investments in Prepaid expenses and other current assets on the condensed consolidated balance sheets.
The Company included $7.7 million and $10.5 million of interest receivable in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of October 31, 2021 and January 31, 2021, respectively. The Company did not recognize an allowance for credit losses against interest receivable as of October 31, 2021 and January 31, 2021 because such potential losses were not material.
The Company had 134 and 10 short-term investments in unrealized loss positions as of October 31, 2021 and January 31, 2021, respectively. There were no material gross unrealized gains or losses from available-for-sale securities and no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and nine months ended October 31, 2021 or 2020.
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, 2021 and January 31, 2021.
Strategic Investments
The Company's investments also include strategic equity investments in privately held companies, which do not have a readily determinable fair value. As of October 31, 2021 and January 31, 2021, the balance of such strategic investments was $13.2 million and $3.1 million, respectively.
During the three and nine months ended October 31, 2021, the Company recorded $0.4 million and $5.7 million, respectively, of realized gain and unrealized adjustments in the carrying values of strategic investments. All gains and losses on strategic investments, whether realized or unrealized, are recognized in Interest and other, net on the condensed consolidated statements of operations.
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.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents information about the Company’s financial assets that were measured at fair value on a recurring basis using the above input categories (in thousands):  
 As of October 31, 2021
 Level 1
Level 2 
Level 3Total
(unaudited)
Assets:    
Cash equivalents:    
Money market funds$241,171 $ $ $241,171 
Total cash equivalents241,171   241,171 
Short-term investments:    
U.S. treasury securities 1,802,487  1,802,487 
Corporate debt securities 307,200  307,200 
Total short-term investments 2,109,687  2,109,687 
Total cash equivalents and short-term investments$241,171 $2,109,687 $ $2,350,858 
 As of January 31, 2021
 Level 1
Level 2 
Level 3Total
Assets:    
Cash equivalents:    
Money market funds$311,257 $ $ $311,257 
Total cash equivalents311,257   311,257 
Short-term investments:    
U.S. treasury securities 1,890,431  1,890,431 
Corporate debt securities 231,153  231,153 
Total short-term investments 2,121,584  2,121,584 
Total cash equivalents and short-term investments$311,257 $2,121,584 $ $2,432,841 
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 table above.
Fair Value Measurements of Other Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments that are not recorded at fair value on the condensed consolidated balance sheets (in thousands):
 As of October 31, 2021
 
Net Carrying Amount (1)
Estimated
Fair Value 
(unaudited)
2023 convertible senior notes$16,079 $86,269 
2025 convertible senior notes$911,830 $1,533,879 
2026 convertible senior notes$902,070 $1,437,190 
(1)     Before unamortized debt issuance costs.
The principal amounts of 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 $17.2 million, $1,060.0 million, and $1,150.0 million, respectively. The difference between the principal amounts and the respective net carrying amounts, before unamortized debt issuance costs, represents the unamortized debt discount (See Note 9 for additional details). The estimated fair values of the Notes, which are
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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. As of October 31, 2021, the difference between the net carrying amount of the Notes and their estimated fair values represented the equity conversion value premium the market assigned to the Notes. Based on the closing price of the Company’s common stock of $247.18 on October 31, 2021, the if-converted values of the 2023 Notes, 2025 Notes and 2026 Notes exceeded the principal amounts of $17.2 million, $1,060.0 million and $1,150.0 million, respectively.
6. Deferred Commissions
Sales commissions capitalized as contract costs totaled $35.7 million and $21.5 million in the three months ended October 31, 2021 and 2020, respectively, and $90.6 million and $51.8 million in the nine months ended October 31, 2021 and 2020, respectively. Amortization of contract costs was $14.9 million and $10.3 million for the three months ended October 31, 2021 and 2020, respectively, and $40.0 million and $28.4 million for the nine months ended October 31, 2021 and 2020, respectively. There was no impairment loss in relation to the costs capitalized.
7. Goodwill and Intangible Assets, net
Goodwill
As of October 31, 2021 and January 31, 2021, goodwill was $5,401.3 million and $48.0 million, respectively. During the nine months ended October 31, 2021, the Company recorded goodwill of $5,290.1 million in connection with the Auth0 acquisition that was completed in May 2021 and $63.2 million in connection with the atSpoke acquisition that was completed in August 2021. See Note 3 for further details. No goodwill impairments were recorded during the three and nine months ended October 31, 2021 and 2020.
Intangible Assets, net
Intangible assets consisted of the following (in thousands):  
 As of October 31, 2021
GrossAccumulated AmortizationNet
(unaudited)
Capitalized internal-use software costs$33,491 $(23,103)$10,388 
Purchased developed technology219,100 (35,750)183,350 
Customer relationships140,900 (17,599)123,301 
Trade name21,400 (2,140)19,260 
Software licenses239 (184)55 
 $415,130 $(78,776)$336,354 

 As of January 31, 2021
GrossAccumulated AmortizationNet
Capitalized internal-use software costs$30,259 $(19,478)$10,781 
Purchased developed technology28,800 (12,694)16,106 
Software licenses126 (4)122 
 $59,185 $(32,176)$27,009 
During the nine months ended October 31, 2021, the Company recorded intangible assets of $334.3 million and $18.3 million in connection with the Auth0 and atSpoke acquisitions, respectively. See Note 3 for further details.
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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, 2021As of January 31, 2021
(unaudited)
Purchased developed technology4.2 years3.1 years
Customer relationships4.2 years— 
Trade name4.5 years— 
Amortization expense of intangible assets for the three months ended October 31, 2021 and 2020 was $22.4 million and $2.7 million, respectively, and $46.6 million and $8.2 million for the nine months ended October 31, 2021 and 2020, respectively.
The expected future amortization expense for acquired intangible assets in connection with the Auth0 and atSpoke acquisitions, as of October 31, 2021, is as follows (in thousands):
Fiscal Period: (unaudited)
Remaining three months of fiscal 2022$19,995 
Fiscal 202379,978 
Fiscal 202470,491 
Fiscal 202564,278 
Fiscal 202659,222 
Thereafter20,172 
Total amortization expense$314,136 
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, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was $299.9 million and $174.0 million, respectively, and $459.4 million and $334.2 million in the nine months ended October 31, 2021 and 2020, respectively. Professional services and other revenue recognized in the three and nine months ended October 31, 2021 and 2020 from deferred revenue balances at the beginning of the respective periods was not material.
Transaction Price Allocated to the Remaining Performance Obligations
Transaction price allocated to the remaining performance obligations represents all future, non-cancelable contracted revenue that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods.
As of October 31, 2021, total remaining non-cancelable performance obligations under the Company’s subscription contracts with customers was approximately $2,350.2 million. Of this amount, the Company expects to recognize revenue of approximately $1,180.2 million, or 50%, 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, 2021 were not material.
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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. The total net proceeds from the 2023 Notes, after deducting initial purchasers’ discounts and debt issuance costs, was $335.0 million.
In September 2019, the Company used part of the net proceeds from the issuance of the 2025 Notes to repurchase a portion of the 2023 Notes, which consisted of a repurchase of $224.4 million aggregate principal amount of the 2023 Notes in privately-negotiated transactions, for aggregate consideration of $604.8 million, consisting of approximately $