10-Q 1 okta-20241031.htm 10-Q okta-20241031
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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, 2024
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, 2024, the number of shares of registrant’s Class A common stock outstanding was 163,604,690 and the number of shares of the registrant’s Class B common stock outstanding was 7,750,173.


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. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” “shall” and similar expressions are intended to identify these forward-looking statements. These statements 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 general economic, market and industry conditions, including geopolitical events, economic downturns or recessions, market volatility, inflation and interest rates, and foreign currency fluctuations; trends in our key business metrics; our growth strategy and ability to compete; the sufficiency of our cash and cash equivalents, investments and cash provided by sales of our products and services to meet our liquidity needs; market or other opportunities arising from business combinations; potential impacts of cybersecurity incidents to our reputation, customer relations and financial results; our ability to detect, minimize or prevent security breaches to our internal systems and platform; our ability to maintain the security and service performance of our and our third-party service providers’ systems or data, or our customers’ data; our ability to increase our number of new customers; our ability to sell additional products to and retain our existing customers; our ability to successfully expand our marketing and sales capabilities, including further specializing our sales force; our ability to effectively sustain or manage our revenue growth and profitability; our ability to expand our product sales by promoting our brand and engaging channel partners; our ability to partner with third-party software vendors and system integrators; the ability of our products to effectively integrate with third-party systems and technologies; uncertainties or issues relating to artificial intelligence that may impact our products, tools and services; our ability to adequately fund research and development and introduce new products, enhance existing products and address new use cases; our ability to expand our international business operations and product sales; our ability to maintain and protect our proprietary rights and intellectual property; our ability to comply with modified or new laws, regulations and industry standards; the attraction and retention of qualified employees and key personnel; the impact of recent accounting pronouncements on our financial statements; our ability to successfully defend litigation or other claims brought against us; our ability to successfully identify, integrate, and/or realize the benefits of strategic acquisitions or investments; and the intent of our executive officers to hold their shares of Class B common stock. These forward-looking statements are made as of the date they were first issued and are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those anticipated or implied by any forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed 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. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.


PART I
Item. 1 Financial Statements

OKTA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, shares in thousands, except per share data)
October 31,
2024		January 31,
2024
(unaudited)
Assets 
Current assets: 
Cash and cash equivalents$310 $334 
Short-term investments1,938 1,868 
Accounts receivable, net of allowances of $6 and $6, respectively
463 559 
Deferred commissions127 113 
Prepaid expenses and other current assets165 106 
Total current assets3,003 2,980 
Property and equipment, net46 48 
Operating lease right-of-use assets79 83 
Deferred commissions, noncurrent230 242 
Intangible assets, net151 182 
Goodwill5,448 5,406 
Other assets53 48 
Total assets$9,010 $8,989 
Liabilities and stockholders' equity 
Current liabilities: 
Accounts payable$12 $12 
Accrued expenses and other current liabilities151 115 
Accrued compensation147 167 
Convertible senior notes, net509 — 
Deferred revenue1,415 1,488 
Total current liabilities2,234 1,782 
Convertible senior notes, net, noncurrent349 1,154 
Operating lease liabilities, noncurrent102 112 
Deferred revenue, noncurrent25 23 
Other liabilities, noncurrent35 30 
Total liabilities2,745 3,101 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, par value $0.0001 per share; 100,000 shares authorized; no shares issued and outstanding as of October 31, 2024 and January 31, 2024
— — 
Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized; 163,602 and 159,835 shares issued and outstanding as of October 31, 2024 and January 31, 2024, respectively
— — 
Class B common stock, par value $0.0001 per share; 120,000 shares authorized; 7,750 and 7,291 shares issued and outstanding as of October 31, 2024 and January 31, 2024, respectively
— — 
Additional paid-in capital9,093 8,724 
Accumulated other comprehensive loss(3)(6)
Accumulated deficit(2,825)(2,830)
Total stockholders’ equity6,265 5,888 
Total liabilities and stockholders' equity$9,010 $8,989 
See Notes to Condensed Consolidated Financial Statements.
4

OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, shares in thousands, except per share data)
(unaudited)
 Three Months Ended
October 31,		Nine Months Ended
October 31,
 2024202320242023
Revenue:  
Subscription$651 $569 $1,886 $1,614 
Professional services and other14 15 42 44 
Total revenue665 584 1,928 1,658 
Cost of revenue:  
Subscription140 126 407 376 
Professional services and other17 19 53 60 
Total cost of revenue157 145 460 436 
Gross profit508 439 1,468 1,222 
Operating expenses:
Research and development158 165 485 500 
Sales and marketing256 270 730 787 
General and administrative110 111 335 340 
Restructuring and other charges— 4 — 28 
Total operating expenses524 550 1,550 1,655 
Operating loss(16)(111)(82)(433)
Interest expense(1)(2)(4)(7)
Interest income and other, net26 21 82 56 
Gain on early extinguishment of debt 16 18 19 91 
Interest and other, net41 37 97 140 
Income (loss) before provision for income taxes
25 (74)15 (293)
Provision for income taxes
9 7 10 18 
Net income (loss)
$16 $(81)$5 $(311)
Net income (loss) per share, basic
$0.09 $(0.49)$0.03 $(1.91)
Net income (loss) per share, diluted
$0.00 $(0.49)$(0.08)$(1.91)
  
Weighted-average shares used to compute net income (loss) per share, basic
170,217 164,381 168,775 162,836 
Weighted-average shares used to compute net income (loss) per share, diluted
170,673 164,381 169,768 162,836 

See Notes to Condensed Consolidated Financial Statements.

5

OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
 Three Months Ended
October 31,		Nine Months Ended
October 31,
 2024202320242023
Net income (loss)
$16 $(81)$5 $(311)
Other comprehensive income (loss):
Net change in unrealized gains or losses on available-for-sale securities 2 5 1 19 
Foreign currency translation adjustments2 (9)2 (4)
Other comprehensive income (loss)4 (4)3 15 
Comprehensive income (loss)
$20 $(85)$8 $(296)
See Notes to Condensed Consolidated Financial Statements.

6

OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in millions, shares in thousands)
(unaudited)

Three and Nine Months Ended October 31, 2024
 
Class A Common Stock 
Class B Common Stock 
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
Total Stockholders’ Equity
 
Shares 
Amount 
Shares 
Amount 
Balances as of January 31, 2024159,835 — 7,291 — $8,724 $(6)$(2,830)$5,888 
Issuance of common stock1,077 — — — 6 — — 6 
Taxes withheld related to net share settlement of equity awards
— — — — (42)— — (42)
Stock-based compensation— — — — 152 — — 152 
Other comprehensive loss
— — — — — (11)— (11)
Net loss— — — — — — (40)(40)
Balances as of April 30, 2024160,912 — 7,291 — 8,840 (17)(2,870)5,953 
Issuance of common stock1,470 — 172 — 31 — — 31 
Taxes withheld related to net share settlement of equity awards
— — — — (40)— — (40)
Conversion of Class B common stock to Class A common stock15 — (15)— — — — — 
Stock-based compensation— — — — 150 — — 150 
Other comprehensive income
— — — — — 10 — 10 
Net income
— — — — — — 29 29 
Balances as of July 31, 2024162,397 — 7,448 — 8,981 (7)(2,841)6,133 
Issuance of common stock1,205 — 302 — 9 — — 9 
Taxes withheld related to net share settlement of equity awards
— — — — (32)— — (32)
Stock-based compensation— — — — 135 — — 135 
Other comprehensive income
— — — — — 4 — 4 
Net income
— — — — — — 16 16 
Balances as of October 31, 2024163,602 — 7,750 — $9,093 $(3)$(2,825)$6,265 

7

Three and Nine Months Ended October 31, 2023
 
Class A Common Stock 
Class B Common Stock 
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
Total Stockholders’ Equity
 
Shares 
Amount 
Shares 
Amount 
Balances as of January 31, 2023154,009 — 7,300 — $7,974 $(33)$(2,475)$5,466 
Issuance of common stock1,068 — — — 8 — — 8 
Proceeds from hedges related to convertible senior notes(33)— — — — — — — 
Stock-based compensation— — — — 166 — — 166 
Other comprehensive income
— — — — — 13 — 13 
Net loss— — — — — — (119)(119)
Balances as of April 30, 2023155,044 — 7,300 — 8,148 (20)(2,594)5,534 
Issuance of common stock1,696 — — — 29 — — 29 
Stock-based compensation— — — — 186 — — 186 
Settlement of warrants— — — — (4)— — (4)
Other comprehensive income
— — — — — 6 — 6 
Net loss— — — — — — (111)(111)
Balances as of July 31, 2023156,740 — 7,300 — 8,359 (14)(2,705)5,640 
Issuance of common stock1,284 — — — 3 — — 3 
Stock-based compensation— — — — 175 — — 175 
Settlement of warrants— — — — (3)— — (3)
Other comprehensive loss
— — — — — (4)— (4)
Net loss— — — — — — (81)(81)
Balances as of October 31, 2023158,024 — 7,300 — $8,534 $(18)$(2,786)$5,730 
See Notes to Condensed Consolidated Financial Statements.
8

OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 Nine Months Ended
October 31,
 20242023
Cash flows from operating activities:
Net income (loss)$5 $(311)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation434 523 
Depreciation, amortization and accretion64 64 
Amortization of deferred commissions95 76 
Deferred income taxes(2)4 
Lease impairment charges— 25 
Gain on early extinguishment of debt(19)(91)
Other, net8 9 
Changes in operating assets and liabilities:
Accounts receivable94 61 
Deferred commissions(97)(102)
Prepaid expenses and other assets(60)(1)
Operating lease right-of-use assets16 18 
Accounts payable(1)(1)
Accrued compensation(21)70 
Accrued expenses and other liabilities44 9 
Operating lease liabilities(26)(29)
Deferred revenue(70)14 
Net cash provided by operating activities464 338 
Cash flows from investing activities:  
Capitalized software(11)(10)
Purchases of property and equipment(7)(5)
Purchases of securities available-for-sale and other(1,253)(1,151)
Proceeds from maturities and redemption of securities available-for-sale1,187 1,702 
Proceeds from sales of securities available-for-sale and other3 61 
Purchases of intangible assets— (1)
Payments for business acquisitions, net of cash acquired(56)(22)
Net cash provided by (used in) investing activities(137)574 
Cash flows from financing activities:
Payments for repurchases of convertible senior notes(280)(803)
Taxes paid related to net share settlement of equity awards(113)— 
Payments for warrants related to convertible senior notes— (7)
Proceeds from stock option exercises
17 10 
Proceeds from shares issued in connection with employee stock purchase plan24 26 
Net cash used in financing activities
(352)(774)
Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash1 (1)
Net increase (decrease) in cash, cash equivalents and restricted cash
(24)137 
Cash, cash equivalents and restricted cash at beginning of period342 271 
Cash, cash equivalents and restricted cash at end of period$318 $408 
Supplementary cash flow disclosure:
Cash paid during the period for:
Operating leases31 34 
Non-cash activities:
Benefit from exercise of hedges related to convertible senior notes— 2 
Operating lease right-of-use assets exchanged for lease liabilities9 11 
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$310 $400 
Restricted cash, current included in prepaid expenses and other current assets2 2 
Restricted cash, noncurrent included in other assets6 6 
Total cash, cash equivalents and restricted cash$318 $408 

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 partner. The Company’s Workforce Identity Cloud and Customer Identity Cloud, powered by Auth0, enable customers to securely connect the right people to the right technologies and services at the right time. Employees and contractors sign into the Workforce Identity Cloud to seamlessly and securely access the applications they need to do their most important work. Organizations use the Company’s Identity Platform to collaborate with their partners, and to provide their customers with more modern and secure experiences in the cloud and via mobile devices. Developers leverage the Workforce Identity Cloud and Customer Identity Cloud to securely and efficiently embed identity into the software they build, allowing them to innovate and focus on their core missions. The Company is headquartered in San Francisco, California.
Basis of Presentation and Principles of Consolidation
The accompanying 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 Company conducts business globally and is managed, operated and organized by major functional departments that operate on a consolidated basis. As a result, the Company operates in one reportable segment.
The condensed consolidated balance sheet as of January 31, 2024, 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, 2025 or any future period.
The Company’s fiscal year ends on January 31. References to fiscal 2025, for example, refer to the fiscal year ending January 31, 2025.
Certain prior period amounts have been reclassified to conform to the current period presentation.
The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 1, 2024.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates are based on historical experience and on other assumptions that management believes are reasonable under the circumstances. Actual results could vary from those estimates. The Company’s most significant estimates include the valuation of deferred income tax assets, uncertain tax positions, assets and liabilities acquired in business combinations, and loss contingencies related to litigation.
2. Accounting Standards and Significant Accounting Policies
Significant Accounting Policies
For a summary of the Company’s significant accounting policies refer to “Note 2. Summary of Significant Accounting Policies” of its Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
10
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance which requires disclosure of incremental segment information on an annual and interim basis. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company plans to adopt this guidance in fiscal 2025 and does not expect a material impact to its consolidated financial statements.
In December 2023, the FASB issued guidance to provide disaggregated income tax disclosures on the rate reconciliation and income taxes paid. This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company intends to adopt this guidance in fiscal 2026 and expects the adoption of the updated guidance to result in disclosure of additional disaggregated tax information.
In November 2024, the FASB issued guidance requiring the disclosure, in the notes to financial statements, of specified disaggregated income statement expense information. This guidance is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this guidance.
3. Restructuring and Other Charges
During the fourth quarter of fiscal 2024, the Company approved a restructuring plan (the “2024 Restructuring Plan”) intended to improve operating efficiencies and profitability. The 2024 Restructuring Plan involved a reduction of the Company’s workforce by approximately 400 full-time employees. The 2024 Restructuring Plan was substantially complete by the first quarter of fiscal 2025 and the Company recognized aggregate restructuring costs of $24 million in the fourth quarter of fiscal 2024.
The following table summarizes the Company’s restructuring liability related to the 2024 Restructuring Plan that is included in Accrued expenses and other current liabilities on the condensed consolidated balance sheets:
Severance and termination benefit costs
(dollars in millions)
Balance as of January 31, 2024
$24 
Restructuring charges— 
Cash payments(24)
Balance as of October 31, 2024
$— 
4. Cash Equivalents and Investments
Cash Equivalents and Short-term Investments
In estimating fair value, the Company uses a three-tier fair value hierarchy 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.
11
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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, 2024
 
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value 
(dollars in millions)
Cash equivalents:    
Money market funds (Level 1)
$162 $— $— $162 
Certificates of deposit (Level 2)
23 — — 23 
Total cash equivalents185 — — 185 
Level 2:
Short-term investments (Available-for-sale):
U.S. treasury securities1,646 3 (1)1,648 
Corporate debt securities254 1 — 255 
Certificates of deposit35 — — 35 
Total short-term investments1,935 4 (1)1,938 
Total$2,120 $4 $(1)$2,123 
 As of January 31, 2024
 
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value 
(dollars in millions)
Level 1:
Cash equivalents:    
Money market funds$151 $— $— $151 
Total cash equivalents151 — — 151 
Level 2:
Short-term investments (Available-for-sale):
U.S. treasury securities1,782 3 (1)1,784 
Corporate debt securities43 — — 43 
Certificates of deposit41 — — 41 
Total short-term investments1,866 3 (1)1,868 
Total$2,017 $3 $(1)$2,019 

The following table presents the contractual maturities of the Company’s short-term investments:
As of October 31, 2024
 
Amortized
Cost
Estimated
Fair Value
(dollars in millions)
Due within one year$1,422 $1,424 
Due between one to five years513 514 
 Total$1,935 $1,938 
Interest receivable of $22 million and $20 million is included in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of October 31, 2024 and January 31, 2024, respectively.
12
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company had 33 and 41 short-term investments in unrealized loss positions as of October 31, 2024 and January 31, 2024, 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. There were no material credit or non-credit related impairments for short-term investments as of October 31, 2024 and January 31, 2024.
Strategic Investments
Strategic investments primarily include equity investments in privately-held companies, which do not have a readily determinable fair value. As of October 31, 2024 and January 31, 2024, the balance of strategic investments was $31 million and $26 million, respectively.
5. Deferred Commissions
Sales commissions capitalized as contract costs totaled $37 million in each of the three months ended October 31, 2024 and 2023, and $97 million and $102 million for the nine months ended October 31, 2024 and 2023, respectively.
Amortization of contract costs totaled $33 million and $27 million for the three months ended October 31, 2024 and 2023, respectively, and $95 million and $76 million for the nine months ended October 31, 2024 and 2023, respectively.
6. 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, 2024 and 2023 that was included in the deferred revenue balances at the beginning of the respective periods was $597 million and $519 million, respectively, and $1,312 million and $1,114 million in the nine months ended October 31, 2024 and 2023, 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.
Total remaining non-cancelable performance obligations under subscription contracts with customers was approximately $3,659 million as of October 31, 2024. Of this amount, the Company expects to recognize revenue of approximately $2,062 million, or 56%, 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, 2024 were not material.
7. Convertible Senior Notes, Net
Convertible Senior Notes
The 2025 convertible senior notes (“2025 Notes”) and the 2026 convertible senior notes (“2026 Notes” and together with the 2025 Notes, the “Notes”) are recorded at face value less unamortized debt issuance costs. As of October 31, 2024, the 2025 Notes are classified as current liabilities due to their upcoming maturity on September 1, 2025.
13
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
During the three months ended October 31, 2024, the Company repurchased $42 million principal amount of the 2025 Notes for $40 million in cash, and $215 million principal amount of the 2026 Notes for $200 million in cash, resulting in a gain on early extinguishment of debt of $16 million.
During the nine months ended October 31, 2024, the Company repurchased $42 million principal amount of the 2025 Notes for $40 million in cash, and $258 million principal amount of the 2026 Notes for $240 million in cash, resulting in a gain on early extinguishment of debt of $19 million.
During the three months ended October 31, 2023, the Company repurchased $150 million principal amount of the 2026 Notes for $132 million in cash, resulting in a gain on early extinguishment of debt of $18 million.
During the nine months ended October 31, 2023, the Company repurchased $508 million principal amount of the 2025 Notes for $462 million in cash, and $392 million principal amount of the 2026 Notes for $341 million in cash, resulting in a gain on early extinguishment of debt of $91 million.
The net carrying amount of the Notes consisted of the following:
As of October 31, 2024As of January 31, 2024
(dollars in millions)
2025 Notes:
Principal$510 $552 
Less: unamortized debt issuance costs(1)(3)
Net carrying amount$509 $549 
2026 Notes:
Principal$350 $608 
Less: unamortized debt issuance costs(1)(3)
Net carrying amount$349 $605 
Fair Value Measurements
The following table presents the principal amounts and estimated fair values of the Notes, which are not recorded at fair value on the condensed consolidated balance sheets:
 As of October 31, 2024
 Principal Amount
Estimated Fair Value 
(dollars in millions)
2025 Notes$510 $486 
2026 Notes$350 $324 
The estimated fair values of the Notes, which are Level 2 financial instruments, were determined based on the quoted bid prices of the Notes in an over-the-counter market on the last trading day of the reporting period.
8. 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 $7 million were issued and outstanding as of October 31, 2024 and January 31, 2024. No draws have been made under such letters of credit.
Legal Matters
From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings.
On May 20, 2022, a purported shareholder filed a putative class action lawsuit in the United States District Court for the Northern District of California against the Company and certain of its executive officers, captioned In re
14
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Okta, Inc. Securities Litigation, No. 3:22-cv-02990. The lawsuit asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that the defendants made false or misleading statements or omissions concerning the Company’s cybersecurity controls, vulnerability to data breaches, and the Company’s integration of Auth0, Inc. (“Auth0”). The lawsuit sought an order certifying the lawsuit as a class action and unspecified damages. The defendants moved to dismiss the amended complaint. On March 31, 2023, the court issued an order granting in part and denying in part the motion to dismiss. The court dismissed in full the claims based on the plaintiff’s allegations related to the Company’s cybersecurity controls and vulnerability to data breaches, and dismissed in part and denied in part the claims based on allegations related to the Auth0 integration. On February 5, 2024, the court granted the plaintiffs’ unopposed motion for class certification. On May 28, 2024, the parties entered into a stipulation of settlement, subject to court approval (the “Stipulation”). Under the terms of the Stipulation, in exchange for the release and dismissal with prejudice of all claims against the defendants, the Company agreed to pay and/or to cause its insurance carriers to pay a total of $60 million, which is covered through a combination of the Company’s Director & Officer ("D&O") insurance and the balance of the Company’s $10 million retention on the primary D&O policy. The Stipulation does not constitute an admission of fault or wrongdoing by the Company or its executives. On July 19, 2024, the court granted preliminary approval of the Stipulation, ordered that notice be disseminated to the settlement class, and set a final settlement approval hearing for November 8, 2024. On November 19, 2024, the court granted final approval of the Stipulation. The Company recognized a liability, which is included in Accrued expenses and other current liabilities on its condensed consolidated balance sheets in the amount of $60 million which represents the Company's gross obligation to settle claims under the Stipulation. A corresponding receivable was recognized, which is included in Prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets, which represents the insurance proceeds the Company is entitled to under its D&O insurance policies that will be paid by the Company’s insurers to settle claims on its behalf.
Additionally, two purported shareholders filed derivative lawsuits on behalf of the Company in the United States District Court for the Northern District of California against certain of its current and former executive officers and directors, captioned O’Dell v. McKinnon et al., No. 3:22-cv-07480 (filed Nov. 28, 2022), and LR Trust v. McKinnon et al., No. 3:22-cv-08627 (filed Dec. 13, 2022). The lawsuits allege, among other things, that the defendants breached their fiduciary duties by making false or misleading statements or omissions concerning the Company’s cybersecurity controls, vulnerability to data breaches, and the Company’s integration of Auth0. The lawsuits seek orders permitting the plaintiffs to maintain the actions derivatively on behalf of the Company, awarding unspecified damages allegedly sustained by the Company, awarding restitution from the individual defendants, and requiring the Company to make certain reforms to its corporate governance and controls. On February 22, 2023, the court entered a stipulated order consolidating the derivative actions, appointing co-lead counsel for plaintiffs, and staying the consolidated derivative actions during the pendency of the motion to dismiss in the securities class action lawsuit. The consolidated derivative action is captioned In re Okta, Inc. Stockholder Derivative Litigation, No. 3:22-cv-07480. On May 9, 2023, the court entered a stipulated order continuing the stay through the close of discovery in the securities class action lawsuit.
On April 14, 2023, another shareholder filed a substantially similar derivative lawsuit in the United States District Court for the District of Delaware against certain of the Company’s current and former executive officers and directors, captioned Buono v. McKinnon et al., No. 1:23-cv-00413. On May 31, 2023, the court entered a stipulated order whereby the defendants agreed to accept service and stay the derivative action through the close of discovery in the securities class action lawsuit.
On January 25, 2024, another shareholder filed a substantially similar derivative lawsuit in the United States District Court for the District of Delaware against certain of the Company’s current and former executive officers and directors, captioned Nasr v. McKinnon, et al., No. 1:24-cv-00106. On March 18, 2024, the court entered a stipulated order whereby the defendants agreed to accept service and stay the derivative action through the close of discovery in the securities class action lawsuit.
On July 1, 2024, another shareholder filed a substantially similar derivative lawsuit in the Court of Chancery for the State of Delaware (the “Delaware Chancery Court”) against certain of the Company’s current and former executive officers and directors, captioned Grimaldi v. McKinnon, et al., C.A. No. 2024-0685-PAF (the “Grimaldi Action”). On July 19, 2024, the Delaware Chancery Court entered a stipulated order whereby the defendants agreed to accept service and to stay the derivative action through final approval of the settlement in the securities class action lawsuit.
15
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
On October 18, 2024, another shareholder filed a substantially similar derivative lawsuit in the Delaware Chancery Court against certain of the Company’s current and former executive officers and directors, captioned Duprat v. McKinnon, et al., C.A. No. 2024-1072-PAF (the “Duprat Action”). On November 8, 2024, the Delaware Chancery Court entered a stipulated order where the defendants agreed to accept service in the Duprat Action, the Grimaldi Action and the Duprat Action were consolidated, and the consolidated action was stayed pursuant to the terms previously entered in the Grimaldi Action.
While the Company and defendants have agreed to settle the securities class action litigation, due to the stage of the related derivative lawsuits, the Company is unable to predict the outcome or estimate the amount of loss or range of losses that could potentially result from these lawsuits.
Warranties and Indemnification
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.
9. Employee Incentive Plans
The Company’s equity incentive plans provide for granting stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”) to employees, consultants, officers and directors and RSUs with market-based vesting conditions to certain executives. In addition, the Company offers an Employee Stock Purchase 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,
 2024202320242023
(dollars in millions)
Cost of revenue    
Subscription$20 $20 $61 $57 
Professional services and other3 3 9 11 
Research and development49 70 168 212 
Sales and marketing33 40 99 119 
General and administrative30 39 97 124 
Total$135 $172 $434 $523 
The following table presents total unrecognized stock-based compensation expense related to outstanding equity awards as of October 31, 2024:
 Unrecognized Stock-based Compensation Expense
(in millions)		Weighted-average remaining period
(in years)
Unvested RSUs$813 2.0 years
Unvested RSAs16 2.4 years
Unvested stock options2 0.3 years
ESPP13 0.6 years
Total$844 
During the first quarter of fiscal 2025, the Company began funding withholding taxes due upon the vesting of employee RSUs in certain jurisdictions by net share settlement, rather than its previous approach of selling shares of the Company’s common stock. The amount of withholding taxes related to net share settlement of employee RSUs is reflected as (i) a reduction to additional paid-in-capital, and (ii) cash outflows for financing activities when
16
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
the payments are made. The shares withheld by the Company as a result of the net share settlement of RSUs are not considered issued and outstanding, and do not impact the calculation of basic net income (loss) per share attributable to the Class A and Class B common stockholders.
Market-based Restricted Stock Units
In March 2024, the Company granted market-based RSUs to certain members of management. The target number of market-based RSUs granted was 183,595. One-third of these market-based RSUs vest over each of a one-, two- and three-year performance period, each starting on February 1, 2024. 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 $182.15 average grant date fair value per target market-based RSU was determined using a Monte Carlo simulation approach. Compensation expense for awards with market conditions is recognized over the service period using the accelerated attribution method and is not reversed if the market condition is not met.
10. Income Taxes
For the three and nine months ended October 31, 2024, the Company recorded a provision for income taxes of $9 million and $10 million on pretax income of $25 million and $15 million, respectively. The effective tax rate for the three and nine months ended October 31, 2024 was approximately 40.4% and 69.6%, respectively. The effective tax rate differs from the statutory rate primarily as a result of a full valuation allowance against the U.S. deferred tax assets, the tax effect of foreign operations, the tax impacts of the Spera Cybersecurity, Inc. and its subsidiary (collectively, “Spera”) integration, and U.S. federal and state taxes.
For the three and nine months ended October 31, 2023, the Company recorded a tax provision of $7 million and $18 million on pretax losses of $74 million and $293 million, respectively. The effective tax rate for the three and nine months ended October 31, 2023 was approximately (9.0)% and (6.0)%, respectively. The effective tax rate differs from the statutory rate primarily as a result of a full valuation allowance against the U.S. deferred tax assets, the tax effect of foreign operations, U.S. federal and state taxes, and shortfalls from stock-based compensation.
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. As a result, the Company has been utilizing its federal and state tax attributes and incurring cash taxes due to this provision since fiscal 2023.
17
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. Net Income (Loss) Per Share
The Company computes net income (loss) per share of common stock in conformity with the two-class method required for participating securities. The dilutive effect of potentially dilutive common shares included in diluted earnings per share is determined in accordance with the treasury stock, if-converted, or contingently issuable accounting methods, depending on the nature of the security.
The following table presents the calculation of basic and diluted net income (loss) per share. Net income (loss) is reported in millions and rounded from amounts in thousands; as a result, net income (loss) per share may not recalculate exactly due to rounding.
 Three Months Ended
October 31,
 20242023
 Class A Class BTotalClass A Class BTotal
(dollars in millions, shares in thousands, except per share data)
Basic net income (loss) per share:
Numerator: 
Net income (loss), basic
$15 $1 $16 $(77)$(4)$(81)
Denominator:
Weighted-average shares outstanding, basic
162,681 7,536 170,217 157,081 7,300 164,381 
Net income (loss) per share, basic
$0.09 $0.09 $0.09 $(0.49)$(0.49)$(0.49)
Diluted net income (loss) per share:
Numerator:
Net income (loss)
$15 $1 $16 $(77)$(4)$(81)
Gain on extinguishment of debt, net of interest expense1
(15)(1)(16)— — $— 
Net income (loss), diluted$— $— $— $(77)$(4)$(81)
Denominator:
Number of shares used in basic calculation
162,681 7,536 170,217 157,081 7,300 164,381 
Weighted-average effect of diluted securities related to:
Convertible senior notes
456 — 456 — — — 
Number of shares used in diluted calculation
163,137 7,536 170,673 157,081 7,300 164,381 
Net income (loss) per share, diluted
$0.00 $0.00 $0.00 $(0.49)$(0.49)$(0.49)
1 Under the if-converted method, net income is adjusted to reflect the assumption that the convertible senior notes were converted at the beginning of the period.
18
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 Nine Months Ended
October 31,
 20242023
 Class A Class BTotalClass A Class BTotal
(dollars in millions, shares in thousands, except per share data)
Basic net income (loss) per share:
Numerator: 
Net income (loss), basic
$5 $— $5 $(297)$(14)$(311)
Denominator:
Weighted-average shares outstanding, basic
161,398 7,377 168,775 155,536 7,300 162,836 
Net income (loss) per share, basic
$0.03 $0.03 $0.03 $(1.91)$(1.91)$(1.91)
Diluted net income (loss) per share:
Numerator:
Net income (loss)
$5 $— $5 $(297)$(14)$(311)
Gain on extinguishment of debt, net of interest expense1
(17)(1)(18)— — $— 
Net income (loss), diluted$(12)$(1)$(13)$(297)$(14)$(311)
Denominator:
Number of shares used in basic calculation
161,398 7,377 168,775 155,536 7,300 162,836 
Weighted-average effect of diluted securities related to:
Convertible senior notes
993 — 993 — — — 
Number of shares used in diluted calculation
162,391 7,377 169,768 155,536 7,300 162,836 
Net income (loss) per share, diluted
$(0.08)$(0.08)$(0.08)$(1.91)$(1.91)$(1.91)
1 Under the if-converted method, net income is adjusted to reflect the assumption that the convertible senior notes were converted at the beginning of the period.
Potentially dilutive securities excluded because they would be anti-dilutive were as follows:
Three Months Ended
October 31,		Nine Months Ended
October 31,
 2024202320242023
(shares in thousands)
Employee share-based awards
13,444 16,731 13,444 16,731 
Convertible senior notes
4,170 6,102 4,170 6,102 
Total
17,614 22,833 17,614 22,833 
The Company entered into capped call transactions in connection with the issuance of the convertible senior notes. The effect of the capped calls was also excluded from the calculation of diluted net income per share as the effect of the capped calls would have been anti-dilutive.
12. Business Combinations
On February 1, 2024, the Company acquired all of the outstanding equity of Spera, an identity security platform provider. The acquisition of Spera is expected to broaden the Company's identity threat detection and security posture management capabilities. The Spera acquisition was accounted for as a business combination.
The acquisition date fair value of purchase consideration transferred for Spera of $58 million was paid in cash. Of this amount, $12 million of consideration was transferred to an escrow fund as partial security for any purchase price adjustments and indemnification obligations, and will be paid to the former Spera stockholders following the 18-month anniversary of the closing date (less any such adjustments or indemnification obligations).
The Company preliminarily recorded $18 million for developed technology intangible assets with an estimated useful life of 5 years and preliminarily recorded $42 million of goodwill which is primarily attributed to the assembled workforce as well as the integration of Spera’s technology and the Company’s technology. None of the goodwill is
19
OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 primarily relating to income based taxes and residual goodwill through the measurement period, no more than one year from the date of acquisition.
The Company entered into revesting agreements with Spera’s founders pursuant to which 238,795 additional shares of Okta’s Class A common stock were issued as of the closing date which vest over three years. The $20 million fair value of the unvested restricted stock award is attributable to a post-combination service condition and will be accounted for by the Company separately from the business combination as stock-based compensation expense.
Acquisition related expenses incurred were not material. This acquisition did not have a material impact on the Company’s condensed consolidated financial statements; therefore, historical and pro forma disclosures have not been presented.
20
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. Amounts reported in millions are rounded based on the amounts in thousands. As a result, the sum of the components reported in millions may not equal the total amount reported in millions due to rounding. In addition, percentages presented may not add to their respective totals or recalculate due to rounding. 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 of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K. Our fiscal year ends January 31.
Overview
Okta is the leading independent identity partner. Our Workforce Identity Cloud and Customer Identity Cloud, powered by Auth0, enable 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, web and Software-as-a-Service ("SaaS") applications, on-premises servers, application programming interfaces, IT infrastructure providers and services from a multitude of devices. Employees and contractors sign into the Workforce Identity Cloud to seamlessly and securely access the applications they need to do their most important work. Organizations use our platform to collaborate with their partners and to provide their customers with more modern and secure experiences in the cloud and via mobile devices. Developers leverage our Customer Identity Cloud and Workforce Identity Cloud to securely and efficiently embed identity into the software they build, allowing them to innovate and focus on their core missions.
Given the growth trends in the number of applications and cloud adoption and the movement to remote and hybrid workforces, identity is becoming the most critical layer of an organization’s security. As organizations shift from network-based security models to a Zero Trust security model focusing on adaptive and context-aware controls, identity has become the most reliable way to manage user access and protect digital assets. 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, 2024, more than 19,450 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, 2024, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors.
We employ a 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 the value we provide to our customers over time, and thus their spending with us through expanding the number of users who access our Workforce Identity Cloud and Customer Identity Cloud and up-selling additional product offerings. We sell our product offerings 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.
Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 98% of total revenue for the nine months ended October 31, 2024. 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 and other key metrics on a trailing basis.
21
OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Impact of Cybersecurity Incidents
In the past, we have experienced cybersecurity incidents, such as the January 2022 incident involving one of our third-party service providers and the October 2023 incident where a threat actor gained unauthorized access to and stole information from our third-party customer support system, that harmed our reputation and customer relations, adversely impacted our financial results and may create additional liabilities. While we expect the impact of these security incidents to adversely affect our future financial performance, we cannot predict the extent of such impact with certainty. Due to the nature of our business, the announcement of any security incidents, even if not significant, could have these impacts.
Impact of Current Economic Conditions
Worldwide economic uncertainties and negative trends, including financial and credit market fluctuations, uncertainty in the banking sector, rising interest rates, inflation and other impacts from the macroeconomic environment have, and could continue to, adversely affect our business operations or financial results. As we continue to monitor the direct and indirect impacts of these circumstances, the broader implications of these macroeconomic events on our business, results of operations and overall financial position remain uncertain. See the section titled “Risk Factors'' included under Part II, Item 1A below for further discussion of the possible impact of these factors and other risks on our business.
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. 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 the sales and marketing expense category are sales commissions and related taxes.
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, our security organization and 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, our platform support organizations and security posture. We will continue to invest in technology innovation and we anticipate that costs qualifying for capitalization of internal-use software costs and related amortization may fluctuate over time. 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.
22
OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 and our continued efforts to build platform support and professional services teams.
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.
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 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.
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, 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.
Restructuring and Other Charges. Restructuring and other charges consist primarily of personnel costs, such as notice period, employee severance payments and termination benefits. In addition, restructuring and other charges include certain lease impairment charges.
Interest and Other, Net
Interest and other, net consists of interest expense, which primarily includes amortization of debt issuance costs and contractual interest expense for our convertible senior notes, interest income from our investment holdings, gains on early extinguishment of debt and gains and losses from our strategic investments.
Provision for Income Taxes
Our provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions where we operate. The difference between our effective tax rate and the federal statutory rate is primarily due to a valuation allowance against U.S. deferred tax assets, the tax effect of foreign operations and state taxes. We evaluate and update our estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and enacted tax laws. The timing and mix of actual results compared to forecasted results may impact the timing of recognition of our provision for income taxes.
23
OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations
The following table sets forth our results of operations for the periods presented:
Three Months Ended
October 31,		Nine Months Ended
October 31,
2024202320242023
(dollars in millions)
Revenue:
Subscription$651 $569 $1,886 $1,614 
Professional services and other14 15 42 44 
Total revenue665 584 1,928 1,658 
Cost of revenue:
Subscription(1)
140 126 407 376 
Professional services and other(1)
17 19 53 60 
Total cost of revenue157 145 460 436 
Gross profit508 439 1,468 1,222 
Operating expenses:
Research and development(1)
158 165 485 500 
Sales and marketing(1)
256 270 730 787 
General and administrative(1)
110 111 335 340 
Restructuring and other charges— 4 — 28 
Total operating expenses524 550 1,550 1,655 
Operating loss(16)(111)(82)(433)
Interest expense(1)(2)(4)(7)
Interest income and other, net26 21 82 56 
Gain on early extinguishment of debt 16 18 19 91 
Interest and other, net41 37 97 140 
Income (loss) before provision for income taxes25 (74)15 (293)
Provision for income taxes9 7 10 18 
Net income (loss)
$16 $(81)$5 $(311)
(1)     Includes stock-based compensation expense as follows:
 Three Months Ended
October 31,		Nine Months Ended
October 31,
 2024202320242023
 (dollars in millions)
Cost of subscription revenue$20 $20 $61 $57 
Cost of professional services and other revenue3 3 9 11 
Research and development49 70 168 212 
Sales and marketing33 40 99 119 
General and administrative30 39 97 124 
Total stock-based compensation expense$135 $172 $434 $523 

24
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,
 2024202320242023
Revenue  
Subscription98 %97 %98 %97 %
Professional services and other2 3 2 3 
Total revenue100 100 100 100 
Cost of revenue
Subscription21 22 21 23 
Professional services and other3 3 3 3 
Total cost of revenue24 25 24 26 
Gross profit76 75 76 74 
Operating expenses
Research and development23 28 25 30 
Sales and marketing38 46 38 47 
General and administrative17 19 17 20 
Restructuring and other charges— 1 — 3 
Total operating expenses78 94 80 100 
Operating loss(2)(19)(4)(26)
Interest expense— — — — 
Interest income and other, net4 4 4 3 
Gain on early extinguishment of debt 2 2 1 5 
Interest and other, net6 6 5 8 
Income (loss) before provision for income taxes4 (13)1