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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, 2023
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 27, 2023, the number of shares of registrant’s Class A common stock outstanding was 158,045,390 and the number of shares of the registrant’s Class B common stock outstanding was 7,299,891.



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 macroeconomic environment. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” “shall” and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements, although not all forward-looking statements include these identifying words. The forward-looking statements are contained principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.”
Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about:
our future financial performance, including our revenue, costs of revenue, gross profits, margins and operating expenses;
the impact of general economic, business and market conditions, including general economic downturn or recession, market volatility, and the inflation and interest rate environment;
the impact of past or future cybersecurity incidents;
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; and
the impact of recent accounting pronouncements on our financial statements.
Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond our control. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in “Risk Factors” in this Quarterly Report on Form 10-Q as well as other documents that may be filed by us from time to time with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.




PART I
Item. 1 Financial Statements

OKTA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, shares in thousands, except per share data)
October 31,
2023
January 31,
2023
(unaudited)
Assets 
Current assets: 
Cash and cash equivalents$400 $264 
Short-term investments1,730 2,316 
Accounts receivable, net of allowances of $7 and $8
418 481 
Deferred commissions104 92 
Prepaid expenses and other current assets75 76 
Total current assets2,727 3,229 
Property and equipment, net50 59 
Operating lease right-of-use assets91 122 
Deferred commissions, noncurrent220 210 
Intangible assets, net197 241 
Goodwill5,406 5,400 
Other assets49 46 
Total assets$8,740 $9,307 
Liabilities and stockholders' equity 
Current liabilities: 
Accounts payable$11 $12 
Accrued expenses and other current liabilities108 112 
Accrued compensation168 99 
Deferred revenue1,256 1,242 
Total current liabilities1,543 1,465 
Convertible senior notes, net, noncurrent1,302 2,193 
Operating lease liabilities, noncurrent119 142 
Deferred revenue, noncurrent18 18 
Other liabilities, noncurrent28 23 
Total liabilities3,010 3,841 
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, 2023 and January 31, 2023
  
Class A Common stock, par value $0.0001 per share; 1,000,000 shares authorized; 158,024 and 154,009 shares issued and outstanding as of October 31, 2023 and January 31, 2023, respectively
  
Class B Common stock, par value $0.0001 per share; 120,000 shares authorized; 7,300 shares issued and outstanding as of October 31, 2023 and January 31, 2023
  
Additional paid-in capital8,534 7,974 
Accumulated other comprehensive loss(18)(33)
Accumulated deficit(2,786)(2,475)
Total stockholders’ equity5,730 5,466 
Total liabilities and stockholders' equity$8,740 $9,307 
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,
 2023202220232022
Revenue:  
Subscription$569 $466 $1,614 $1,299 
Professional services and other15 15 44 49 
Total revenue584 481 1,658 1,348 
Cost of revenue:  
Subscription126 117 376 345 
Professional services and other19 21 60 62 
Total cost of revenue145 138 436 407 
Gross profit439 343 1,222 941 
Operating expenses:
Research and development165 148 500 466 
Sales and marketing270 290 787 807 
General and administrative111 98 340 309 
Restructuring and other charges4 14 28 14 
Total operating expenses550 550 1,655 1,596 
Operating loss(111)(207)(433)(655)
Interest expense(2)(3)(7)(9)
Interest income and other, net21 5 56 12 
Gain on early extinguishment of debt 18  91  
Interest and other, net37 2 140 3 
Loss before provision for income taxes(74)(205)(293)(652)
Provision for income taxes7 4 18 10 
Net loss$(81)$(209)$(311)$(662)
Net loss per share, basic and diluted$(0.49)$(1.32)$(1.91)$(4.21)
  
Weighted-average shares used to compute net loss per share, basic and diluted164,381 158,708 162,836 157,344 

See Notes to Condensed Consolidated Financial Statements.

5


OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in millions)
(unaudited)
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2023202220232022
Net loss$(81)$(209)$(311)$(662)
Other comprehensive income (loss):
Net change in unrealized gains or losses on available-for-sale securities 5 (8)19 (27)
Foreign currency translation adjustments(9)(7)(4)(17)
Other comprehensive income (loss)(4)(15)15 (44)
Comprehensive loss$(85)$(224)$(296)$(706)
See Notes to Condensed Consolidated Financial Statements.

6


OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2023202220232022
Common stock and additional paid-in capital:
Balance, beginning of period$8,359 $7,607 $7,974 $7,750 
Adjustments from adoption of Accounting Standards Update No. 2020-06— — — (528)
Issuance of common stock upon exercise of stock options and other activity, net3 6 40 36 
Stock-based compensation175 173 527 516 
Settlement of convertible senior notes— — — 12 
Settlement of warrants(3)— (7)— 
Balance, end of period8,534 7,786 8,534 7,786 
Accumulated deficit:
Balance, beginning of period(2,705)(2,113)(2,475)(1,816)
Adjustments from adoption of Accounting Standards Update No. 2020-06— — — 156 
Net loss(81)(209)(311)(662)
Balance, end of period(2,786)(2,322)(2,786)(2,322)
Accumulated other comprehensive loss:
Balance, beginning of period(14)(41)(33)(12)
Other comprehensive income (loss)(4)(15)15 (44)
Balance, end of period(18)(56)(18)(56)
Total stockholders’ equity$5,730 $5,408 $5,730 $5,408 

See Notes to Condensed Consolidated Financial Statements.

7


OKTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 Nine Months Ended
October 31,
 20232022
Cash flows from operating activities:
Net loss$(311)$(662)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation523 513 
Depreciation, amortization and accretion64 89 
Amortization of debt issuance costs3 4 
Amortization of deferred commissions76 61 
Deferred income taxes4 4 
Lease impairment charges25 14 
Gain on early extinguishment of debt(91) 
Net (gain) loss on strategic investments
1 (2)
Other, net5 2 
Changes in operating assets and liabilities:
Accounts receivable61 15 
Deferred commissions(102)(82)
Prepaid expenses and other assets(1)(4)
Operating lease right-of-use assets18 21 
Accounts payable(1)29 
Accrued compensation70 (30)
Accrued expenses and other liabilities9 (6)
Operating lease liabilities(29)(22)
Deferred revenue14 66 
Net cash provided by operating activities338 10 
Cash flows from investing activities:  
Capitalized software(10)(8)
Purchases of property and equipment(5)(9)
Purchases of securities available-for-sale and other(1,151)(872)
Proceeds from maturities and redemption of securities available-for-sale1,702 848 
Proceeds from sales of securities available-for-sale and other61  
Purchases of intangible assets(1)(2)
Payments for business acquisitions, net of cash acquired(22)(4)
Net cash provided by (used in) investing activities574 (47)
Cash flows from financing activities:
Payments for repurchases of convertible senior notes(803) 
Payments for warrants related to convertible senior notes(7) 
Proceeds from stock option exercises, net of repurchases10 15 
Proceeds from shares issued in connection with employee stock purchase plan26 19 
Net cash provided by (used in) financing activities(774)34 
Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash(1)(11)
Net increase (decrease) in cash, cash equivalents and restricted cash137 (14)
Cash, cash equivalents and restricted cash at beginning of period271 273 
Cash, cash equivalents and restricted cash at end of period$408 $259 
Supplementary cash flow disclosure:
Cash paid during the period for:
Operating leases34 30 
Non-cash activities:
Issuance of common stock for conversions of convertible senior notes 40 
Benefit from exercise of hedges related to convertible senior notes2 18 
Operating lease right-of-use assets exchanged for lease liabilities11 8 
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$400 $250 
Restricted cash, current included in prepaid expenses and other current assets2 2 
Restricted cash, noncurrent included in other assets6 7 
Total cash, cash equivalents and restricted cash$408 $259 

See Notes to Condensed Consolidated Financial Statements.
8

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 and Customer Identity Clouds are powered by the Company’s Identity Platform enabling 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. Developers leverage the Workforce Identity and Customer Identity Clouds to securely and efficiently embed identity into the software they build, allowing them to innovate and focus on their core missions. 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. 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, 2023, 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, 2024 or any future period.
The Company’s fiscal year ends on January 31. References to fiscal 2024, for example, refer to the fiscal year ending January 31, 2024.
Certain reclassifications of components of prior period operating expenses have been made in the condensed consolidated statements of operations to conform to the current period presentation. These reclassifications had no impact on total operating expenses as previously reported.
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 3, 2023.
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, 2023.
9

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 an Accounting Standard Update (“ASU”) which requires disclosure of incremental segment information on an annual and interim basis. This ASU 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 is currently evaluating the impact of the new standard.
3. Restructuring and Other Charges
During the third quarter of fiscal 2023, the Company announced a real estate optimization plan which provided for closing duplicative sites and decommissioning underutilized offices and floors. The Company recognized non-cash lease impairment charges of $14 million in the year ended January 31, 2023. In the nine months ended October 31, 2023, the Company recognized an additional $25 million of non-cash lease impairment charges as a result of the real estate optimization plan. The non-cash lease impairment charges represent the amount that the carrying value of the asset groups exceeded their estimated fair values. The asset groups primarily include operating lease right-of-use assets, leasehold improvements, and related property and equipment. To estimate the fair value of the asset group, the Company utilized a discounted cash flow approach using market participant assumptions of the expected cash flows and discount rate.
During the fourth quarter of fiscal 2023, the Company approved a restructuring plan (the “Restructuring Plan”) intended to reduce operating expenses and improve profitability. The Restructuring Plan involved a reduction of the Company’s workforce by approximately 300 full-time employees.
The Restructuring Plan was substantially complete by the first quarter of fiscal 2024 and the Company recognized aggregate restructuring costs of $15 million in the fourth quarter of fiscal 2023.
In the three and nine months ended October 31, 2023, the Company recognized an additional $4 million of severance and termination benefit costs related to an insignificant workforce reduction.
The following table summarizes the Company’s restructuring liability that is included in Accrued expenses and other current liabilities on the condensed consolidated balance sheet:
Severance and termination benefit costs
(dollars in millions)
Balance as of January 31, 2023$15 
Restructuring charges4 
Cash payments(15)
Balance as of October 31, 2023
$4 
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.
10

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, 2023
 
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value 
(dollars in millions)
Level 1:
Cash equivalents:    
Money market funds$287 $ $ $287 
Total cash equivalents287   287 
Level 2:
Short-term investments (Available-for-sale):
U.S. treasury securities1,672  (5)1,667 
Corporate debt securities32   32 
Certificates of deposit31   31 
Total short-term investments1,735  (5)1,730 
Total$2,022 $ $(5)$2,017 
 As of January 31, 2023
 
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value 
(dollars in millions)
Level 1:
Cash equivalents:    
Money market funds$133 $ $ $133 
Total cash equivalents133   133 
Level 2:
Short-term investments (Available-for-sale):
U.S. treasury securities2,207  (22)2,185 
Corporate debt securities133  (2)131 
Total short-term investments2,340  (24)2,316 
Total$2,473 $ $(24)$2,449 

The following table presents the contractual maturities of the Company’s short-term investments:
As of October 31, 2023
 
Amortized
Cost
Estimated
Fair Value
(dollars in millions)
Due within one year$1,369 $1,364 
Due between one to five years366 366 
 Total$1,735 $1,730 
Interest receivable of $17 million and $10 million is included in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of October 31, 2023 and January 31, 2023, respectively.
11

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table presents the fair values and unrealized losses related to the Company’s investments in available-for-sale debt securities classified by length of time that the securities have been in a continuous unrealized loss position as of October 31, 2023:

 Less Than 12 MonthsMore Than 12 MonthsTotal
 
Estimated Fair Value
Unrealized
Losses
Estimated Fair Value
Unrealized
Losses
Estimated Fair Value
Unrealized
Losses
(dollars in millions)
U.S. treasury securities$1,185 $(2)$332 $(3)$1,517 $(5)
Corporate debt securities28  4  32  
Total$1,213 $(2)$336 $(3)$1,549 $(5)
The Company had 98 and 159 short-term investments in unrealized loss positions as of October 31, 2023 and January 31, 2023, 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, 2023 and January 31, 2023.
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, 2023 and January 31, 2023, the balance of strategic investments was $28 million and $25 million, respectively.
5. Deferred Commissions
Sales commissions capitalized as contract costs totaled $37 million and $33 million in the three months ended October 31, 2023 and 2022, respectively, and $102 million and $82 million in the nine months ended October 31, 2023 and 2022, respectively.
Amortization of contract costs totaled $27 million and $21 million for the three months ended October 31, 2023 and 2022, respectively, and $76 million and $61 million for the nine months ended October 31, 2023 and 2022, 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, 2023 and 2022 that was included in the deferred revenue balances at the beginning of the respective periods was $519 million and $418 million, respectively, and $1,114 million and $858 million in the nine months ended October 31, 2023 and 2022, respectively. Professional services and other revenue recognized during the three months ended October 31, 2023 and 2022 that was included in the deferred revenue balances at the beginning of the respective periods was $5 million and $6 million, respectively, and $9 million and $13 million in the nine months ended October 31, 2023 and 2022, 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.
12

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Total remaining non-cancelable performance obligations under subscription contracts with customers was approximately $3,073 million as of October 31, 2023. Of this amount, the Company expects to recognize revenue of approximately $1,826 million, or 59%, 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, 2023 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.
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 an aggregate gain on early extinguishment of debt of $91 million.
The net carrying amount of the Notes consisted of the following:
As of October 31, 2023As of January 31, 2023
(dollars in millions)
2025 Notes:
Principal$552 $1,060 
Less: unamortized debt issuance costs(3)(8)
Net carrying amount$549 $1,052 
2026 Notes:
Principal$758 $1,150 
Less: unamortized debt issuance costs(5)(9)
Net carrying amount$753 $1,141 
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, 2023
 Principal Amount
Estimated Fair Value 
(dollars in millions)
2025 Notes$552 $491 
2026 Notes$758 $650 
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.
Warrants
In February 2018, the Company sold net-share-settled (or, at the Company’s election subject to certain conditions, cash-settled) warrants (the “Warrants”) to acquire shares of the Company’s Class A common stock at an initial exercise price of approximately $68.06 per share. The Warrants were exercisable over 80 scheduled trading days beginning on May 15, 2023. The Company elected to cash settle the Warrants.
13

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
During the nine months ended October 31, 2023, the Company settled Warrants corresponding to approximately 1.0 million shares for total cash payments of $7 million. As of October 31, 2023, no Warrants remained outstanding.
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 and $6 million were issued and outstanding as of October 31, 2023 and January 31, 2023, respectively. No draws have been made under such letters of credit.
Legal Matters
From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings.
On May 20, 2022, a purported shareholder filed a putative class action lawsuit in the United States District Court for the Northern District of California against the Company and certain of its executive officers, captioned In re Okta, Inc. Securities Litigation, No. 3:22-cv-02990. The lawsuit asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that the defendants made false or misleading statements or omissions concerning the Company’s cybersecurity controls, vulnerability to data breaches, and the Company’s integration of Auth0, Inc. (“Auth0”). The lawsuit seeks an order certifying the lawsuit as a class action and unspecified damages. 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 November 1, 2023, the plaintiffs filed a motion for class certification and the court has scheduled a hearing on that motion for March 29, 2024. The court has not issued a scheduling order beyond class certification, and discovery is proceeding.
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.
The Company is defending these lawsuits vigorously. At this time, 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.
14

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 restricted stock units with market-based vesting conditions to certain executives. In addition, the Company offers an Employee Stock Purchase Plan (“ESPP”) to eligible employees.
Stock-based compensation expense was recorded in the following cost and expense categories in the Company’s condensed consolidated statements of operations:
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2023202220232022
(dollars in millions)
Cost of revenue    
Subscription$20 $17 $57 $52 
Professional services and other3 4 11 11 
Research and development70 69 212 209 
Sales and marketing40 41 119 119 
General and administrative39 41 124 122 
Total$172 $172 $523 $513 
The following table presents total unrecognized stock-based compensation expense related to outstanding equity awards as of October 31, 2023:
 Unrecognized Stock-based Compensation Expense
(in millions)
Weighted-average remaining period
(in years)
Unvested RSUs$1,053 2.5 years
Unvested RSAs56 0.5 years
Unvested stock options26 1.0 year
ESPP4 0.3 years
Total$1,139 
Market-based Restricted Stock Units
In March 2023, the Company granted market-based RSUs to certain members of management. The target number of market-based RSUs granted was 192,843. One-third of these market-based RSUs vest over each of a one-, two- and three-year performance period, each starting on February 1, 2023. 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 $149.78 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, 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 U.S. deferred tax assets, the tax effect of foreign operations, U.S. federal and state taxes, and shortfalls from stock-based compensation.
15

OKTA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 utilized federal and state tax attributes and incurred cash taxes and tax expense.
For the three and nine months ended October 31, 2022, the Company recorded a tax provision of $4 million and $10 million on pretax losses of $205 million and $652 million, respectively. The effective tax rate for the three and nine months ended October 31, 2022 was approximately (1.8)% and (1.5)%, respectively. The effective tax rate differs from the statutory rate primarily as a result of a full valuation allowance against U.S. deferred tax assets, the tax effect of foreign operations, U.S. state taxes, and stock-based compensation shortfalls in the United Kingdom.
11. Net Loss Per Share
The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities. The following table presents the calculation of basic and diluted net loss per share:
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2023202220232022
 Class A Class BClass A Class BClass A Class BClass A Class B
(dollars in millions, shares in thousands, except per share data)
Numerator: 
Net loss$(77)$(4)$(200)$(9)$(297)$(14)$(632)$(30)
Denominator:
Weighted-average shares outstanding, basic and diluted157,081 7,300 151,535 7,173 155,536 7,300 150,296 7,048 
Net loss per share, basic and diluted$(0.49)$(0.49)$(1.32)$(1.32)$(1.91)$(1.91)$(4.21)$(4.21)
As the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
As of October 31,
 20232022
(shares in thousands)
Issued and outstanding stock options5,423 6,630 
Unvested RSUs issued and outstanding10,164 9,120 
Unvested market-based RSUs issued and outstanding435 116 
Unvested RSAs issued and outstanding308 743 
Shares committed under the ESPP401 597 
Shares related to the 2023 Notes 108 
Shares subject to warrants related to the issuance of the 2023 Notes 1,048 
Shares related to the 2025 Notes2,925 5,617 
Shares related to the 2026 Notes3,177 4,820 
 22,833 28,799 

16

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 in this Quarterly Report on Form 10-Q and Part I, Item 1A in our Annual Report on Form 10-K. Our fiscal year ends January 31.
Overview
Okta is the leading independent identity partner. Our Workforce Identity and Customer Identity Clouds are powered by our category-defining Okta Identity Platform that enables our customers to securely connect the right people to the right technologies and services at the right time. Every day, thousands of organizations and millions of people use Okta to securely access a wide range of cloud, mobile, 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. Developers leverage our Customer Identity and Workforce Identity Clouds 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 workforces, identity is becoming the most critical layer of an organization’s security. As workforces have transitioned to fully remote and hybrid work models, Zero Trust has become an increasingly important security model and identity an increasingly critical service. 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, 2023, more than 18,800 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, 2023, 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 their spending with us through expanding the number of users who access our Workforce Identity and Customer Identity Clouds and up-selling additional products. We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners, including resellers, system integrators and other distribution partners. Our subscription fees include the use of our service and our technical support and management of our platform. We base subscription fees primarily on the products used and the number of users on our platform. We typically invoice customers in advance in annual installments for subscriptions to our platform.
Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 97% of total revenue for the nine months ended October 31, 2023. 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 and RPO growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis.
17

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. All professional services revenue is recognized as the services are performed.
Overhead Allocation and Employee Compensation Costs
We allocate shared costs, such as facilities costs (including rent, utilities and depreciation on assets shared by all departments), certain information technology costs and recruiting costs to all departments based on headcount. As such, allocated shared costs are reflected in each of the cost of revenue and operating expense categories. Employee compensation costs reflected in each of the cost of revenue and operating expense categories include salaries, bonuses, compensation related taxes, benefits and stock-based compensation. Additionally included in 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 and our customer support organization, third-party hosting fees, software and maintenance costs, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired developed technology and allocated overhead.
We intend to continue to invest additional resources in our platform infrastructure and our platform support organizations. 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.
18

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, our continued efforts to build platform support and professional services teams, increased stock-based compensation expenses, as well as the amortization of costs associated with capitalized internal-use software and acquired intangible assets.
Operating Expenses
Research and Development.    Research and development expenses consist primarily of employee compensation costs and allocated overhead. We believe that continued investment in our platform is important for our growth.
Sales and Marketing.    Sales and marketing expenses consist primarily of employee compensation costs, costs of general marketing and promotional activities, travel-related expenses, amortization expense associated with acquired customer relationships (including unbilled and unrecognized contracts yet to be fulfilled) and trade names and allocated overhead. Commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a contract with a customer are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally five years.
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.
19

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,
2023202220232022
(dollars in millions)
Revenue:
Subscription$569 $466 $1,614 $1,299 
Professional services and other15 15 44 49 
Total revenue584 481 1,658 1,348 
Cost of revenue:
Subscription(1)
126 117 376 345 
Professional services and other(1)
19 21 60 62 
Total cost of revenue145 138 436 407 
Gross profit439 343 1,222 941 
Operating expenses:
Research and development(1)
165 148 500 466 
Sales and marketing(1)
270 290 787 807 
General and administrative(1)
111 98 340 309 
Restructuring and other charges14 28 14 
Total operating expenses550 550 1,655 1,596 
Operating loss(111)(207)(433)(655)
Interest expense(2)(3)(7)(9)
Interest income and other, net21 56 12 
Gain on early extinguishment of debt 18 — 91 — 
Interest and other, net37 140 
Loss before provision for income taxes(74)(205)(293)(652)
Provision for income taxes18 10 
Net loss$(81)$(209)$(311)$(662)
(1)     Includes stock-based compensation expense as follows:
 Three Months Ended
October 31,
Nine Months Ended
October 31,
 2023202220232022
 (dollars in millions)
Cost of subscription revenue$20 $17 $57 $52 
Cost of professional services and other revenue11 11 
Research and development70 69 212 209 
Sales and marketing40 41 119 119 
General and administrative39 41 124 122 
Total stock-based compensation expense$172 $172 $523 $513 

20

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,
 2023202220232022
Revenue  
Subscription97 %97 %97 %96 %
Professional services and other
Total revenue100 100 100 100 
Cost of revenue
Subscription22 25 23 26 
Professional services and other
Total cost of revenue25 29 26 30 
Gross profit75 71 74 70 
Operating expenses
Research and development28 31 30 35 
Sales and marketing46 60 47 60 
General and administrative19 20 20 23 
Restructuring and other charges
Total operating expenses94 114 100 119 
Operating loss(19)(43)(26)(49)
Interest expense— (1)— (1)
Interest income and other, net
Gain on early extinguishment of debt — — 
Interest and other, net— 
Loss before provision for income taxes(13)(43)(18)(48)
Provision for income taxes— 
Net loss(14)%(43)%(19)%(49)%

21

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Comparison of the Three and Nine Months Ended October 31, 2023 and 2022
Revenue
 Three Months Ended
October 31,
 20232022$ Change% Change
 (dollars in millions)
Revenue:   
Subscription$569 $466 $103 22 %
Professional services and other15 15 — 
Total revenue$584 $481 $103 21 
Percentage of revenue:   
Subscription97 %97 %  
Professional services and other  
Total100 %100 %  
Nine Months Ended
October 31,
20232022$ Change% Change
(dollars in millions)
Revenue:
Subscription$1,614 $1,299 $315 24 %
Professional services and other44 49 (5)(9)
Total revenue$1,658 $1,348 $310 23 
Percentage of revenue:
Subscription97 %96 %
Professional services and other
Total100 %100 %
Three and nine months ended
For the three and nine months ended October 31, 2023, the increase in subscription revenue was primarily due to the addition of new customers, an increase in users and sales of additional products to existing customers. The increase in revenue was attributable to a 10% increase in total customers, from over 17,050 as of October 31, 2022 to over 18,800 as of October 31, 2023, and revenue from existing customers as reflected in our Dollar-Based Net Retention Rate of 115% as of October 31, 2023.
For the three months ended October 31, 2023, professional services and other revenue was relatively flat. The decrease in professional services and other revenue for the nine months ended October 31, 2023 was due to lower bookings associated with professional services.
22

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Cost of Revenue, Gross Profit and Gross Margin
 Three Months Ended
October 31,
 20232022$ Change% Change
 (dollars in millions)
Cost of revenue:   
Subscription$126 $117 $%
Professional services and other19 21 (2)(5)
Total cost of revenue$145 $138 $
Gross profit$439 $343 $96 28 
Gross margin:   
Subscription78 %75 %  
Professional services and other(25)(34)  
Total gross margin75 71   
Nine Months Ended
October 31,
20232022$ Change% Change
(dollars in millions)
Cost of revenue:
Subscription$376 $345 $31 %
Professional services and other60 62 (2)(3)
Total cost of revenue$436 $407 $29 
Gross profit$1,222 $941 $281 30 
Gross margin:
Subscription77 %73 %
Professional services and other(37)(28)
Total gross margin74 70 
Three months ended
For the three months ended October 31, 2023, cost of subscription revenue increased primarily due to an increase of $7 million in employee compensation costs.
Our gross margin for subscription revenue improved to 78% from 75% for the three months ended October 31, 2023 compared to the three months ended October 31, 2022. The increase was primarily driven by improved spend efficiency resulting in lower relative cost of subscription revenue. While our gross margin for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.
For the three months ended October 31, 2023, cost of professional services and other revenue decreased slightly and as a result our gross margin for professional services and other revenue improved to (25)% from (34)% for the three months ended October 31, 2023 compared to the three months ended October 31, 2022.
Nine months ended
For the nine months ended October 31, 2023, cost of subscription revenue increased primarily due to an increase of $21 million in employee compensation costs and an increase of $6 million in third-party hosting costs as we expanded capacity to support our growth.
Our gross margin for subscription revenue improved to 77% from 73% for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022. The increase was primarily driven by improved spend efficiency resulting in lower relative cost of subscription revenue.
23

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
For the nine months ended October 31, 2023, cost of professional services and other revenue decreased slightly. Our gross margin for professional services and other revenue decreased to (37)% from (28)% for the nine months ended October 31, 2023 compared to the nine months ended October 31, 2022 primarily due to a decrease in professional services and other revenue.
Operating Expenses
Research and Development Expenses
 Three Months Ended
October 31,
 20232022$ Change% Change
 (dollars in millions)
Research and development$165 $148 $17 11 %
Percentage of revenue28 %31 %  
Nine Months Ended
October 31,
20232022$ Change% Change
(dollars in millions)
Research and development$500 $466 $34 %
Percentage of revenue30 %35 %
Three and nine months ended
For the three and nine months ended October 31, 2023, research and development expenses increased primarily due to increases of $15 million and $36 million, respectively, in employee compensation costs. We expect our research and development expenses will increase in absolute dollars as our business grows.
Sales and Marketing Expenses
 Three Months Ended
October 31,
 20232022$ Change% Change
 (dollars in millions)
Sales and marketing$270 $290 $(20)(7)%
Percentage of revenue46 %60 %  
Nine Months Ended
October 31,
20232022$ Change% Change
(dollars in millions)
Sales and marketing$787 $807 $(20)(2)%
Percentage of revenue47 %60 %
Three months ended
For the three months ended October 31, 2023, sales and marketing expenses decreased primarily due to a decrease in employee compensation costs of $28 million, partially offset by an increase in marketing costs of $11 million. The decrease in sales and marketing as a percentage of total revenue was primarily driven by improved spend efficiency. We expect our sales and marketing expenses will continue to be our largest operating expense category for the foreseeable future. In the short-term, our sales and marketing expenses may increase as a percentage of our total revenue, however, over time, we expect this percentage to decrease as our total revenue grows.
24

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Nine months ended
For the nine months ended October 31, 2023, sales and marketing expenses decreased primarily due to a decrease in amortization expense of $6 million for acquired customer relationships and trade names and a decrease in marketing costs of $6 million. The decrease in sales and marketing as a percentage of total revenue was primarily driven by improved spend efficiency.
General and Administrative Expenses
 Three Months Ended
October 31,
 20232022$ Change% Change
 (dollars in millions)
General and administrative$111 $98 $13 14 %
Percentage of revenue19 %20 %  
Nine Months Ended
October 31,
20232022$ Change% Change
(dollars in millions)
General and administrative$340 $309 $31 10 %
Percentage of revenue20 %23 %
Three and nine months ended
For the three and nine months ended October 31, 2023, general and administrative expenses increased primarily due to increases of $10 million and $27 million, respectively, in employee compensation costs. We expect our general and administrative expenses will increase in absolute dollars as our business grows.
Restructuring and Other Charges
Three Months Ended
October 31,
20232022$ Change
% Change  
(dollars in millions)
Restructuring and other charges$$14 $(10)(68)%
Percentage of revenue%%
Nine Months Ended
October 31,
20232022$ Change% Change  
(dollars in millions)
Restructuring and other charges$28 $14 $14 98 %
Percentage of revenue%%

Three months ended
For the three months ended October 31, 2023, restructuring and other charges decreased primarily due to the lease impairment charges incurred in the same period last year.
Nine months ended
For the nine months ended October 31, 2023, restructuring and other charges increased primarily due to lease impairment charges. We may incur additional charges as a result of our ongoing real estate optimization plan
25

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
and the evolving corporate real estate market conditions. See Note 3 to our condensed consolidated financial statements "Restructuring and Other Charges" for additional information.
Interest and Other, Net
 Three Months Ended
October 31,
 20232022$ Change% Change
 (dollars in millions)
Interest expense$(2)$(3)$(34)%
Interest income and other, net21 16 393 
Gain on early extinguishment of debt18 — 18 — 
Interest and other, net$37 $$35 2,438 
Nine Months Ended
October 31,
20232022$ Change% Change
(dollars in millions)
Interest expense$(7)$(9)$(20)%
Interest income and other, net56 12 44 420 
Gain on early extinguishment of debt91 — 91 — 
Interest and other, net$140 $$137 6,622 
Three and nine months ended
For the three and nine months ended October 31, 2023, the change in interest and other, net was primarily due to the gain on early extinguishment of debt related to repurchases of the Notes and an increase in interest income from our short-term investments. We expect interest income from our short-term investments to continue to increase in the short term as a result of increasing interest rates.
Provision for Income Taxes
Three Months Ended
October 31,
20232022$ Change
% Change  
(dollars in millions)
Provision for income taxes$$$79 %
Nine Months Ended
October 31,
20232022$ Change
% Change  
(dollars in millions)
Provision for income taxes$18 $10 $79 %
Three and nine months ended
For the three and nine months ended October 31, 2023, income tax expense resulted primarily from income from profitable foreign jurisdictions, U.S. federal and state taxes, and the tax impact of shortfalls from stock-based compensation.
26

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Key Business Metrics
We review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
As of October 31,
20232022
(dollars in millions)
Number of customers18,800 17,050 
Customers with annual contract value ("ACV") above $100,0004,365 3,740 
Dollar-based net retention rate for the trailing 12 months ended115 %122 %
Current remaining performance obligations$1,826 $1,579 
Remaining performance obligations$3,073 $2,853 
Total Customers and Number of Customers with Annual Contract Value Above $100,000
As of October 31, 2023, we had over 18,800 customers on our platform. We believe that our ability to increase the number of customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities. Increasing awareness of our platform and capabilities, coupled with the mainstream adoption of cloud technology, has expanded the diversity of our customer base to include organizations of all sizes across all industries. The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 4,365 and 3,740 as of October 31, 2023 and 2022, respectively. We expect this trend to continue as larger enterprises recognize the value of our platform and replace their legacy identity access management infrastructure. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract with us or one of our partners to access our platform. For purposes of determining our customer count, we do not include customers that use our platform under self-service arrangements only.
Dollar-Based Net Retention Rate
Part of our ability to generate revenue is dependent upon our ability to maintain our relationships with our customers and to increase their utilization of our platform. We believe we can achieve these goals by focusing on delivering value and functionality that enables us to both retain our existing customers and expand the number of users and products used within an existing customer. We assess our performance in this area by measuring our Dollar-Based Net Retention Rate. Our Dollar-Based Net Retention Rate measures our ability to increase revenue across our existing customer base through expansion of users and products associated with a customer as offset by churn and contraction in the number of users and/or products associated with a customer.
Our Dollar-Based Net Retention Rate is based upon our ACV which is calculated based on the terms of that customer’s contract and represents the total contracted annual subscription amount as of that period end. We calculate our Dollar-Based Net Retention Rate as of a period end by starting with the ACV from all customers as of twelve months prior to such period end (“Prior Period ACV”). We then calculate the ACV from these same customers as of the current period end (“Current Period ACV”). Current Period ACV includes any upsells and is net of contraction or churn over the trailing twelve months but excludes ACV from new customers in the current period. We then divide the Current Period ACV by the Prior Period ACV to arrive at our Dollar-Based Net Retention Rate. Our Dollar-Based Net Retention Rate is inclusive of ACV from self-service customers.
Our strong Dollar-Based Net Retention Rate is primarily attributable to gross retention, an expansion of users and upselling additional products within our existing customers. Larger enterprises often implement a limited initial deployment of our platform before increasing their deployment on a broader scale. The decrease in our Dollar-Based Net Retention Rate as of October 31, 2023, compared to October 31, 2022, was primarily a result of the macroeconomic environment, with ACV from existing customers increasing at a slower rate in the current period.
27

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Remaining Performance Obligations (“RPO”)
RPO represent all future, non-cancelable, contracted revenue under our subscription contracts with customers that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods. Current RPO represents the portion of RPO expected to be recognized during the next 12 months. RPO fluctuates due to a number of factors, including the timing, duration and dollar amount of customer contracts and fluctuations in foreign currency exchange rates.
Liquidity and Capital Resources
As of October 31, 2023, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,130 million, which were held for working capital and general corporate purposes, including potential future acquisition activity. Our cash equivalents and investments consisted primarily of U.S. treasury securities, money market funds, corporate debt securities and certificates of deposit. Historically, we have generated significant operating losses and both positive and negative cash flows from operations as reflected in our accumulated deficit and condensed consolidated statements of cash flows. We expect to continue to incur operating losses and cash flows from operations that may fluctuate between positive and negative amounts for the foreseeable future.
Recent macroeconomic events, including rising interest rates, global inflation and bank failures, have led to further economic uncertainty in the global economy. To mitigate risk, our cash and cash equivalents are distributed across large financial institutions. In addition, we have policy restrictions in place on the types of securities that can be purchased as part of our available-for-sale securities portfolio. These restrictions take credit quality, liquidity and diversification into consideration among other criteria. We continue to monitor the impacts of this situation; however, there can be no assurances that conditions in the banking sector and in global financial markets will not worsen and/or adversely affect us.
In September 2019, we completed our private offering of the 2025 Notes due on September 1, 2025 and received aggregate gross proceeds of $1,060 million. The interest rate on the 2025 Notes is fixed at 0.125% per annum and is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. In connection with the 2025 Notes, we used a portion of the proceeds to enter into capped call transactions ("2025 Capped Calls") with respect to our Class A common stock.
In June 2020, we completed our private offering of the 2026 Notes due on June 15, 2026 and received aggregate gross proceeds of $1,150 million. The interest rate on the 2026 Notes is fixed at 0.375% per year and is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. In connection with the 2026 Notes, we used a portion of the proceeds to enter into capped call transactions ("2026 Capped Calls") with respect to our Class A common stock.
In the ordinary course of our business, we may, at any time and from time to time, seek to extinguish our outstanding Notes through cash purchases and/or exchanges for equity, in open-market purchases, privately negotiated transactions or otherwise. Such extinguishments, if any, will be conducted on such terms and at such prices as we may determine, and will depend on our evaluation of the prevailing market conditions, trading price of the Notes, our liquidity requirements, legal and contractual restrictions and other factors. During the nine months ended October 31, 2023, we 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, which resulted in an aggregate gain on early extinguishment of debt of $91 million. See Note 7 to our condensed consolidated financial statements “Convertible Senior Notes, Net” for additional information. The 2025 Capped Calls and 2026 Capped Calls remain outstanding notwithstanding such repurchase.
On August 2, 2021, we completed the acquisition of Townsend Street Labs, Inc. (“atSpoke”), providing total cash consideration, net of cash acquired of $79 million. Of this amount, $13 million of consideration was held back as partial security for any adjustments and indemnification obligations and was paid during the nine months ended October 31, 2023.
We believe our existing cash and cash equivalents, our investments and cash provided by sales of our products and services will be sufficient to meet our short-term and long-term projected working capital and capital
28

OKTA, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
expenditure needs for the foreseeable future. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the expansion of our international operations, the introduction of new and enhanced product offerings and the continuing market adoption of our platform. We continue to assess our capital structure and evaluate the merits of deploying available cash. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies this could reduce our ability to compete successfully and harm our results of operations.

A significant majority of our customers pay in advance for annual subscriptions. Therefore, a substantial source of our cash is from our deferred revenue, which is included on our condensed consolidated balance sheet as a liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recognized as revenue in accordance with our revenue recognition policy. As of October 31, 2023, we had deferred revenue of $1,274 million, of which $1,256 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
 Nine Months Ended
October 31,
20232022
 (dollars in millions)
Net cash provided by operating activities$338 $10 
Net cash provided by (used in) investing activities574 (47)
Net cash provided by (used in) financing activities(774)34 
Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash(1)(11)
Net increase (decrease) in cash, cash equivalents and restricted cash$137 $(14)
Operating Activities
Our largest source of operating cash is cash collections from our customers for subscription and professional services. Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs. In recent periods, we have supplemented working capital requirements through net proceeds from the issuance of the 2025