OKTA, INC. 
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. As discussed in the section titled "Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in 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 endsJanuary 31 . Overview Okta is the leading independent identity provider. The Okta Identity Cloud is powered by our category-defining platform that enables our customers to securely connect the right people to the right technologies and services at the right time. Every day, thousands of organizations and millions of people use Okta to securely access a wide range of cloud, mobile and web applications, on-premises servers, application program interfaces ("APIs"), IT infrastructure providers and services from a multitude of devices. Developers leverage our platform to securely and efficiently embed identity into the software they build, allowing them to focus on their core mission. Employees and contractors sign into the Okta 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 online and via mobile devices. Given the growth trends in the number of applications and cloud adoption, and the movement to remote workforces, identity is becoming the most critical layer of an organization's security. Our approach to identity allows our customers to simplify and efficiently scale their security infrastructures across internal IT systems and external customer facing applications. As ofOctober 31, 2021 , more than 14,000 customers across nearly every industry used the Okta Identity Cloud 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 ofOctober 31, 2021 , we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors. We employ a Software-as-a-Service ("SaaS") business model, and generate revenue primarily by selling multi-year subscriptions to our cloud-based offerings. We focus on acquiring and retaining our customers and increasing their spending with us through expanding the number of users who access the Okta Identity Cloud and up-selling additional products. We sell our products directly through our field and inside sales teams, as well as indirectly through our network of channel partners, including resellers, system integrators and other distribution partners. Our subscription fees include the use of our service and our technical support and management of our platform. We base subscription fees primarily on the products used and the number of users on our platform. We typically invoice customers in advance in annual installments for subscriptions to our platform. Impact of Coronavirus (COVID-19) Pandemic The extent of the impact of COVID-19 on our future operational and financial performance remains uncertain and will depend on certain developments, including the duration and spread of COVID-19 and variants of concern, related public health measures, including vaccine mandates, the manufacture, distribution, efficacy and public acceptance of treatments and vaccines, and their impact on the macroeconomy, our current and prospective customers, employees and vendors. None of these impacts can be predicted with certainty. Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 96% of total revenue for the nine months endedOctober 31, 2021 . 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, remaining performance obligations ("RPO") and billings growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis. While we see risks associated with more highly impacted companies and industries, we are also seeing new interest from other organizations, driven by rapidly changing work and business environments. As workforces have transitioned to fully remote and 33 --------------------------------------------------------------------------------
hybrid work models,
We believe we will be able to continue to deliver our cloud-based platform and support to our customers, without compromising our employees' safety. For most of fiscal 2021, we established mandatory work-from-home procedures for our global office locations, and our employees had the necessary tools and technology to remain connected and productive. In addition, in fiscal 2021 we shifted our customer, employee and industry events, including our annual user conference to virtual-only formats, resulting in cost savings. We further experienced cost savings driven by reductions in employee-related expenses as our sales and marketing activities shifted primarily to an online-only sales format and our employees shifted to work-from-home procedures. In fiscal 2022, as the administration of vaccines has increased, we have reopened our offices to partial capacity, allowing our employees to voluntarily return. We continue to evaluate our strategy to return to in-person sales formats and experiences for future annual user conferences, and we expect our future costs to increase.
See Risk Factors for further discussion of the potential impact of COVID-19 and its related public health measures on our business.
Acquisition of
OnMay 3, 2021 , we completed the acquisition ofAuth0 . The acquisition date fair value, net of acquired cash and subject to final adjustments, was approximately$5,671.0 million , including approximately 19.2 million shares of our Class A common stock valued at$5,175.6 million ,$257.0 million in cash, and assumed equity awards with an initial fair market value of$238.4 million . In addition, we issued unvested restricted stock valued at$332.1 million and assumed unvested equity and restricted cash awards valued at$430.2 million , which are subject to future vesting and will be recorded as expense over the period the services are provided. Approximately 5% of the total consideration was held back by us to secure the indemnification obligations of theAuth0 securityholders arising during the twelve months following the closing. The estimated transaction value of approximately$6,500.0 million , as previously announced, includes restricted stock and assumed equity and restricted cash awards subject to future vesting and was based on the fixed conversion stock price specified in the Merger Agreement. Further, the estimated transaction value excludes the impact of cash acquired and other customary closing purchase price adjustments. See Note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis of our results of operations and our liquidity and capital resources includes the results of operations forAuth0 for the period fromMay 3, 2021 throughOctober 31, 2021 . For additional information, including pro forma results of operations for the nine months endedOctober 31, 2021 and 2020 calculated as ifAuth0 had been acquired as ofFebruary 1, 2020 , see Note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 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
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headcount. As such, allocated shared costs are reflected in each cost of revenue
and operating expense category. Employee compensation costs include salaries,
bonuses, benefits and stock-based compensation for each cost of revenue and
operating expense category, sales commissions for sales and marketing and any
compensation 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. As we continue to invest
in technology innovation, we anticipate that capitalized internal-use software
costs and related amortization may increase. We expect our investment in
technology to expand the capability of our platform enabling us to improve our
gross margin over time. The level and timing of investment in these areas could
affect our cost of subscription revenue in the future.
Cost of Professional Services and Other. Cost of professional services consists
primarily of employee-related costs for our professional services delivery team,
travel-related costs, allocated overhead and costs of outside services
associated with supplementing our professional services delivery team. The cost
of providing professional services has historically been higher than the
associated revenue we generate.
Gross Margin. Gross margin is gross profit expressed as a percentage of total
revenue. Our gross margin may fluctuate from period to period as a result of the
timing and amount of investments to expand our hosting capacity, our continued
efforts to build platform support and professional services teams, increased
stock-based compensation expenses, as well as the amortization of costs
associated with capitalized internal-use software and acquired intangible
assets.
Operating Expenses
Research and Development. Research and development expenses consist primarily
of employee compensation costs and allocated overhead. We believe that continued
investment in our platform is important for our growth. We expect our research
and development expenses will increase in absolute dollars as our business
grows.
Sales and Marketing. Sales and marketing expenses consist primarily of employee
compensation costs, costs of general marketing and promotional activities,
travel-related expenses, amortization expense associated with acquired customer
relationships (including unbilled and unrecognized contracts yet to be
fulfilled) and trade names and allocated overhead. Commissions earned by our
sales force that are considered incremental and recoverable costs of obtaining a
contract with a customer are deferred and then amortized on a straight-line
basis over a period of benefit that we have determined to be generally
five years. We expect our sales and marketing expenses will increase in absolute
dollars and continue to be our largest operating expense category for the
foreseeable future as we expand our sales and marketing efforts and as we return
to in-person sales formats and experiences for future annual user conferences.
In the short-term, our sales and marketing expenses may increase as a percentage
of our total revenue, however, over time, we expect this percentage to decrease
as our total revenue grows.
General and Administrative. General and administrative expenses consist
primarily of employee compensation costs for finance, accounting, legal,
information technology and human resources personnel. In addition, general and
administrative expenses include acquisition and integration-related costs,
non-personnel costs, such as legal, accounting and other professional fees,
charitable contributions, and all other supporting corporate expenses, such as
information technology, not allocated to other departments. We expect our
general and administrative expenses will increase in absolute dollars as our
business grows.
Interest and Other, Net
Interest and other, net consists of interest expense, which primarily includes
amortization of debt discount and issuance costs and contractual interest
expense for the Notes, interest income from our investment holdings, gains and
losses from our strategic investments and loss on early extinguishment and
conversion of debt.
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Provision for (benefit from) Income Taxes
Our provision for (benefit from) income taxes consists of federal and state
income taxes in the United States and income taxes in certain foreign
jurisdictions, and is determined for interim periods using an estimate of our
annual effective tax rate, adjusted for discrete items occurring in the quarter.
The primary difference between our effective tax rate and the federal statutory
rate relates to the net operating losses in jurisdictions with a valuation
allowance against related deferred tax assets.
Results of OperationsThe following table sets forth our results of operations for the periods presented in dollars:
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
(in thousands)
Revenue:
Subscription $ 336,702 $ 206,743 $ 879,881 $ 571,213
Professional services and other 13,978 10,636 37,305 29,471
Total revenue 350,680 217,379 917,186 600,684
Cost of revenue:
Subscription(1) 91,048 44,762 227,903 121,420
Professional services and other(1) 18,626 12,146 49,000 35,121
Total cost of revenue 109,674 56,908 276,903 156,541
Gross profit 241,006 160,471 640,283 444,143
Operating expenses:
Research and development(1) 130,535 58,150 321,805 160,510
Sales and marketing(1) 203,878 109,812 548,749 312,177
General and administrative(1) 105,149 44,485 322,406 121,019
Total operating expenses 439,562 212,447 1,192,960 593,706
Operating loss (198,556) (51,976) (552,677) (149,563)
Interest expense (23,144) (22,368) (68,776) (50,063)
Interest income and other, net 1,056 1,878 7,622 10,737
Loss on early extinguishment and conversion
of debt - (89) (179) (2,263)
Interest and other, net (22,088) (20,579) (61,333) (41,589)
Loss before provision for (benefit from)
income taxes (220,644) (72,555) (614,010) (191,152)
Provision for (benefit from) income taxes 667 209 (6,785) (626)
Net loss $ (221,311) $ (72,764) $ (607,225) $ (190,526) (1) Includes stock-based compensation expense as follows:
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
(in thousands)
Cost of subscription revenue $ 13,455 $ 6,090 $ 33,843 $ 15,229
Cost of professional services and other revenue 3,376 2,113 8,879 5,924
Research and development 56,573 17,546 129,998 44,434
Sales and marketing 39,248 14,368 101,602 38,693
General and administrative 43,133 13,535 133,289 35,494
Total stock-based compensation expense $ 155,785 $ 53,652 $ 407,611 $ 139,774
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The following table sets forth our results of operations for the periods presented as a percentage of our total revenue:
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
Revenue
Subscription 96 % 95 % 96 % 95 %
Professional services and other 4 5 4 5
Total revenue 100 100 100 100
Cost of revenue
Subscription 26 20 25 20
Professional services and other 5 6 5 6
Total cost of revenue 31 26 30 26
Gross profit 69 74 70 74
Operating expenses
Research and development 37 27 35 27
Sales and marketing 59 51 60 52
General and administrative 30 20 35 20
Total operating expenses 126 98 130 99
Operating loss (57) (24) (60) (25)
Interest expense (6) (10) (7) (8)
Interest income and other, net - 1 1 1
Loss on conversion of debt - - (1) -
Interest and other, net (6) (9) (7) (7)
Loss before provision for (benefit from) income
taxes (63) (33) (67) (32)
Provision for (benefit from) income taxes - - (1) -
Net loss (63) % (33) % (66) % (32) %
Comparison of the Three Months Ended October 31, 2021 and 2020
Revenue
Three Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Revenue:
Subscription $ 336,702 $ 206,743 $ 129,959 63 %
Professional services and other 13,978 10,636 3,342 31
Total revenue $ 350,680 $ 217,379 $ 133,301 61 %
Percentage of revenue:
Subscription 96 % 95 %
Professional services and other 4 5
Total 100 % 100 %
Subscription revenue increased by $130.0 million , or 63%, for the three months
ended October 31, 2021 compared to the three months ended October 31, 2020 . The
increase was primarily due to the addition of new customers and an increase in
users and sales of additional products to existing customers, as well as the
inclusion of Auth0 revenue in the current period.
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Professional services and other revenue increased by $3.3 million , or 31%, for
the three months ended October 31, 2021 compared to the three months ended
October 31, 2020 . The increase in professional services revenue was primarily
related to an increase in implementation and other services associated with
growth in the number of new customers purchasing our subscription services, as
well as the inclusion of Auth0 revenue in the current period.
The business combination with Auth0 contributed approximately $46.0 million in
total revenue for the three months ended October 31, 2021 .
Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Cost of revenue:
Subscription $ 91,048 $ 44,762 $ 46,286 103 %
Professional services and other 18,626 12,146 6,480 53
Total cost of revenue $ 109,674 $ 56,908 $ 52,766 93 %
Gross profit $ 241,006 $ 160,471 $ 80,535 50 %
Gross margin:
Subscription 73 % 78 %
Professional services and other (33) (14)
Total gross margin 69 74
Cost of subscription revenue increased by $46.3 million , or 103%, for the three
months ended October 31, 2021 compared to the three months ended October 31,
2020 , primarily due to an increase of $20.8 million in employee compensation
costs related to higher headcount to support the growth in our subscription
services, including the Auth0 acquisition, an increase in amortization of
acquired developed technology of $9.7 million primarily in connection with the
Auth0 acquisition, an increase of $7.8 million in third-party hosting costs as
we expanded capacity to support our growth and an increase of $3.7 million in
software license costs.
Our gross margin for subscription revenue decreased to 73% for the three months
ended October 31, 2021 from 78% during the three months ended October 31, 2020
primarily due to the inclusion of Auth0 revenue, which carries a higher relative
cost and lower gross margin as well as an increase in amortization of acquired
developed technology primarily in connection with the Auth0 acquisition. 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.
Cost of professional services and other revenue increased by $6.5 million , or
53%, for the three months ended October 31, 2021 , compared to the three months
ended October 31, 2020 , primarily due to an increase of $4.8 million in employee
compensation costs related to increased headcount, including the Auth0
acquisition.
Our gross margin for professional services and other revenue decreased to (33)%
for the three months ended October 31, 2021 from (14)% during the three months
ended October 31, 2020 and includes Auth0 .
Operating Expenses
Research and Development Expenses
Three Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Research and development $ 130,535 $ 58,150 $ 72,385 124 %
Percentage of revenue 37 % 27 %
Research and development expenses increased
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increase of $65.9 million in employee compensation costs due to higher headcount
and the inclusion of Auth0 . The increase in employee compensation costs includes
$16.4 million in stock-based compensation expense primarily related to the
revesting agreements from the Auth0 acquisition.
Sales and Marketing Expenses
Three Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Sales and marketing $ 203,878 $ 109,812 $ 94,066 86 %
Percentage of revenue 59 % 51 %
Sales and marketing expenses increased $94.1 million , or 86%, for the three
months ended October 31, 2021 compared to the three months ended October 31,
2020 primarily due to an increase of $60.0 million in employee compensation
costs related to higher headcount, including the Auth0 acquisition, an increase
in marketing and event costs of $16.3 million primarily due to increases in
demand generation programs, advertising, and brand awareness efforts aimed at
acquiring new customers, offset by a decrease of $4.8 million due to a
cancellation charge related to our annual customer conference incurred in the
three months ended October 31, 2020 and an increase in amortization expense of
$9.9 million for acquired customer relationships and trade names in connection
with the Auth0 acquisition incurred in the three months ended October 31, 2021 ,
but not in the three months ended October 31, 2020 . We expect sales and
marketing expenses will increase in absolute dollars and may increase as a
percentage of total revenue in future periods as we invest in acquiring new
customers for both Okta and Auth0 products.
General and Administrative Expenses
Three Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
General and administrative $ 105,149 $ 44,485 $ 60,664 136 %
Percentage of revenue 30 % 20 %
General and administrative expenses increased $60.7 million , or 136%, for the
three months ended October 31, 2021 compared to the three months ended
October 31, 2020 primarily due to an increase of $44.0 million in employee
compensation costs primarily related to higher headcount to support our
continued growth, including the Auth0 acquisition, and an increase of $8.0
million due to acquisition and integration-related costs incurred in the three
months ended October 31, 2021 , but not in the three months ended October 31,
2020 . The increase in employee compensation costs includes $12.3 million in
stock-based compensation expense related to the revesting agreements from our
Auth0 acquisition.
Interest and Other, Net
Three Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Interest expense $ (23,144) $ (22,368) (776) 3 %
Interest income and other, net 1,056 1,878 (822) (44)
Loss on early extinguishment and conversion of
debt - (89) 89 (100)
Interest and other, net $ (22,088) $ (20,579) $ (1,509) 7 %
Interest expense increased
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Interest income and other, net decreased $0.8 million , or (44)%, for the three
months ended October 31, 2021 compared to the three months ended October 31,
2020 , primarily due to a decrease of $1.8 million in interest income, partially
offset by adjustments in the carrying value of our strategic investments.
Comparison of the Nine Months Ended October 31, 2021 and 2020
Revenue
Nine Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Revenue:
Subscription $ 879,881 $ 571,213 $ 308,668 54 %
Professional services and other 37,305 29,471 7,834 27
Total revenue $ 917,186 $ 600,684 $ 316,502 53 %
Percentage of revenue:
Subscription 96 % 95 %
Professional services and other 4 5
Total 100 % 100 %
Subscription revenue increased by $308.7 million , or 54%, for the nine months
ended October 31, 2021 compared to the nine months ended October 31, 2020 . The
increase was primarily due to the addition of new customers as well as an
increase in users and sales of additional products to existing customers, as
well as the inclusion of Auth0 revenue in the current period.
Professional services and other revenue increased by $7.8 million , or 27%, for
the nine months ended October 31, 2021 compared to the nine months ended October
31, 2020 . The increase in professional services revenue was primarily related to
an increase in implementation and other services associated with growth in the
number of new customers purchasing our subscription services, as well as the
inclusion of Auth0 revenue in the current period.
The business combination with Auth0 contributed approximately $83.6 million in
total revenue for the period from May 3, 2021 through October 31, 2021 .
Cost of Revenue, Gross Profit and Gross Margin
Nine Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Cost of revenue:
Subscription $ 227,903 $ 121,420 $ 106,483 88 %
Professional services and other 49,000 35,121 13,879 40
Total cost of revenue $ 276,903 $ 156,541 $ 120,362 77 %
Gross profit $ 640,283 $ 444,143 $ 196,140 44 %
Gross margin:
Subscription 74 % 79 %
Professional services and other (31) (19)
Total gross margin 70 74
Cost of subscription revenue increased by $106.5 million , or 88%, for the nine
months ended October 31, 2021 compared to the nine months ended October 31,
2020 , primarily due to an increase of $52.7 million in employee compensation
costs related to higher headcount to support the growth in our subscription
services, including the Auth0 acquisition, an increase in amortization of
acquired developed technology of $18.3 million
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primarily in connection with the Auth0 acquisition, an increase of $17.5 million
in third-party hosting costs as we expanded capacity to support our growth and
an increase of $8.3 million in software license costs.
Our gross margin for subscription revenue decreased to 74% from 79% during the
nine months ended October 31, 2021 compared to the nine months ended October 31,
2020 primarily due to the inclusion of Auth0 revenue, which carries a higher
relative cost and lower gross margin as well as an increase in amortization of
acquired developed technology primarily in connection with the Auth0
acquisition. While our gross margins for subscription revenue may fluctuate in
the near-term as we invest in our growth, we expect our subscription revenue
gross margin to improve over the long-term as we achieve additional economies of
scale.
Cost of professional services and other revenue increased by $13.9 million , or
40%, for the nine months ended October 31, 2021 , compared to the nine months
ended October 31, 2020 , due to an increase of $10.8 million in employee
compensation costs related to higher headcount, including the Auth0 acquisition.
Our gross margin for professional services and other revenue decreased to (31)%
during the nine months ended October 31, 2021 from (19)% during the nine months
ended October 31, 2020 and includes Auth0 .
Operating Expenses
Research and Development Expenses
Nine Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Research and development
Percentage of revenue 35 % 27 %
Research and development expenses increased $161.3 million , or 100%, for the
nine months ended October 31, 2021 compared to the nine months ended October 31,
2020 . The increase was primarily due to an increase of $143.5 million in
employee compensation costs related to higher headcount, including the Auth0
acquisition and an increase of $6.0 million in research and design expenses. The
increase in employee compensation costs includes $31.4 million in stock-based
compensation expense primarily related to the revesting agreements from our
Auth0 acquisition.
Sales and Marketing Expenses
Nine Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Sales and marketing $ 548,749 $ 312,177 $ 236,572 76 %
Percentage of revenue 60 % 52 %
Sales and marketing expenses increased $236.6 million , or 76%, for the nine
months ended October 31, 2021 , compared to the nine months ended October 31,
2020 primarily due to an increase of $148.8 million in employee compensation
costs related to headcount growth, including the Auth0 acquisition, an increase
in marketing and event costs of $48.4 million primarily due to increases in
demand generation programs, advertising and brand awareness efforts aimed at
acquiring new customers and higher production and advertising costs for our
virtual format annual customer conference, offset by a decrease of $4.8 million
due to a cancellation charge related to our annual customer conference incurred
in the nine months ended October 31, 2020 , an increase in amortization expense
of $19.7 million for acquired customer relationships and trade names in
connection with the Auth0 acquisition incurred in the nine months ended October
31, 2021 , but not in the nine months ended October 31, 2020 , an increase in
allocated costs of $11.9 million and an increase in software license costs of
$4.0 million . We expect sales and marketing expenses will increase in absolute
dollars and may increase as a percentage of total revenue in future periods as
we invest in acquiring new customers for both Okta and Auth0 products.
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Nine Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
General and administrative
Percentage of revenue 35 % 20 %
General and administrative expenses increased $201.4 million , or 166%, for the
nine months ended October 31, 2021 compared to the nine months ended October 31,
2020 . The increase was primarily due to an increase of $133.5 million in
employee compensation costs related to higher headcount to support our continued
growth, including the Auth0 acquisition, an increase of $42.8 million due to
acquisition and integration-related costs incurred in the nine months ended
October 31, 2021 , but not in the nine months ended October 31, 2020 , an increase
in software license costs of $6.1 million and an increase in consulting expenses
of $4.5 million . The increase in employee compensation costs includes $33.8
million in one-time stock-based compensation expense related to accelerated
vesting of equity awards for certain Auth0 employees at transaction close and
$24.2 million in stock-based compensation expense related to the revesting
agreements from our Auth0 acquisition in the nine months ended October 31, 2021 .
Interest and Other, Net
Nine Months Ended
October 31,
2021 2020 $ Change % Change
(dollars in thousands)
Interest expense $ (68,776) $ (50,063) $ (18,713) 37 %
Interest income and other, net 7,622 10,737 (3,115) (29)
Loss on early extinguishment and conversion of
debt (179) (2,263) 2,084 (92)
Interest and other, net $ (61,333) $ (41,589) $ (19,744) 47 %
Interest expense increased $18.7 million , or 37%, for the nine months ended
October 31, 2021 compared to the nine months ended October 31, 2020 , due
primarily to an increase of $19.8 million for the 2026 Notes that were issued in
June 2020 , partially offset by a decrease of $2.3 million for the 2023 Notes,
due to the Second Partial Repurchase of 2023 Notes and other conversion
activity.
Interest income and other, net decreased $3.1 million , or (29)%, for the nine
months ended October 31, 2021 compared to the nine months ended October 31,
2020 , primarily due to a decrease of $7.4 million in interest income resulting
from lower interest rates, partially offset by changes in net realized gains and
unrealized adjustments in the carrying value of our strategic investments
totaling $6.3 million .
Loss on early extinguishment and conversion of debt decreased $2.1 million , or
(92)%, for the nine months ended October 31, 2021 compared to the nine months
ended October 31, 2020 due to the Second Partial Repurchase of 2023 Notes which
occurred in the nine months ended October 31, 2020 but not in the nine months
ended October 31, 2021 .
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.
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As of October 31,
2021 2020
(dollars in thousands)
Customers with annual contract value ("ACV") above $100,000 2,825 1,780
Dollar-based net retention rate for the trailing 12 months ended 122 %
123 %
Current remaining performance obligations $ 1,180,150 $ 753,238
Remaining performance obligations $ 2,350,207 $ 1,581,800
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
(in thousands)
Calculated billings $ 388,679 $ 252,359 $ 1,115,067 $ 659,947
Total Customers and Number of Customers with Annual Contract Value Above
$100,000
As of October 31, 2021 , we had over 14,000 customers on our platform. We believe
that our ability to increase the number of customers on our platform is an
indicator of our market penetration, the growth of our business, and our
potential future business opportunities. Increasing awareness of our platform
and capabilities, coupled with the mainstream adoption of cloud technology, has
expanded the diversity of our customer base to include organizations of all
sizes across all industries. Over time, larger customers have constituted a
greater share of our total revenue, which has contributed to an increase in
average revenue per customer. The number of customers who have greater than
$100,000 in annual contract value ("ACV") with us was 2,825 and 1,780 as of
October 31, 2021 and 2020, respectively. We expect this trend to continue as
larger enterprises recognize the value of our platform and replace their legacy
identity access management ("IAM") 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
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.
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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.
Calculated Billings
Calculated billings represent our total revenue plus the change in deferred
revenue, net of acquired deferred revenue, and less the change in unbilled
receivables, net of acquired unbilled receivables, in the period. Calculated
billings in any particular period reflect sales to new customers plus
subscription renewals and upsells to existing customers, and represent amounts
invoiced for subscription, support and professional services. We typically
invoice customers in advance in annual installments for subscriptions to our
platform.
Calculated billings increased 54% in the three months ended October 31, 2021
over the three months ended October 31, 2020 , and increased 69% in the nine
months ended October 31, 2021 over the nine months ended October 31, 2020 . We
implemented operational changes to our billings process in the nine months ended
October 31, 2021 pursuant to which we billed customers earlier than we would
have under our historical billing practices. These changes had a favorable
effect on billings in the three and nine months ended October 31, 2021 . Absent
the impact of the billings process changes, Calculated billings would have grown
53% year-over-year in the three months ended October 31, 2021 and 55%
year-over-year in the nine months ended October 31, 2021 , respectively. As our
Calculated billings continue to grow in absolute terms, we expect our Calculated
billings growth rate to trend down over time. See the section titled "Non-GAAP
Financial Measures" for additional information and a reconciliation of
Calculated billings to total revenue.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. generally accepted
accounting principles, or GAAP, we believe the following non-GAAP measures are
useful in evaluating our operating performance. We use the below referenced
non-GAAP financial information, collectively, to evaluate our ongoing operations
and for internal planning and forecasting purposes. We believe that non-GAAP
financial information, when taken collectively with GAAP financial measures, may
be helpful to investors because it provides consistency and comparability with
past financial performance, and assists in comparisons with other companies,
some of which use similar non-GAAP financial information to supplement their
GAAP results. The non-GAAP financial information is presented for supplemental
informational purposes only, and should not be considered a substitute for
financial information presented in accordance with GAAP, and may be different
from similarly-titled non-GAAP measures used by other companies. The principal
limitation of these non-GAAP financial measures is that they exclude significant
expenses that are required by GAAP to be recorded in our financial statements.
In addition, they are subject to inherent limitations as they reflect the
exercise of judgment by our management about which expenses are excluded or
included in determining these non-GAAP financial measures. A reconciliation is
provided below for each non-GAAP financial measure to the most directly
comparable financial measure stated in accordance with GAAP. Investors are
encouraged to review the related GAAP financial measures and the reconciliation
of these non-GAAP financial measures to their most directly comparable GAAP
financial measures, and not to rely on any single financial measure to evaluate
our business.
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Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define Non-GAAP gross profit and Non-GAAP gross margin as GAAP gross profit
and GAAP gross margin, adjusted for stock-based compensation expense included in
cost of revenue, amortization of acquired intangibles and acquisition and
integration-related expenses.
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
(dollars in thousands)
Gross profit $ 241,006 $ 160,471 $ 640,283 $ 444,143
Add:
Stock-based compensation expense included in
cost of revenue 16,831 8,203 42,722 21,153
Amortization of acquired intangibles 11,335 1,593 23,056 4,780
Acquisition and integration-related expenses(1) 658 - 1,316 -
Non-GAAP gross profit $ 269,830 $ 170,267 $ 707,377 $ 470,076
Gross margin 69 % 74 % 70 % 74 %
Non-GAAP gross margin 77 % 78 % 77 % 78 %
(1) Acquisition and integration-related expenses include transaction costs and
other non-recurring incremental costs incurred through the one-year anniversary
of transaction close.
Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin
We define Non-GAAP operating income (loss) and Non-GAAP operating margin as GAAP
operating loss and GAAP operating margin, adjusted for stock-based compensation
expense, non-cash charitable contributions, amortization of acquired intangibles
and acquisition and integration-related expenses.
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
(dollars in thousands)
Operating loss $ (198,556) $ (51,976) $ (552,677) $ (149,563)
Add:
Stock-based compensation expense 155,785 53,652 407,611 139,774
Non-cash charitable contributions 1,986 2,245 5,649 4,662
Amortization of acquired intangibles 21,204 1,593 42,795 4,780
Acquisition and integration-related expenses(1) 10,060 - 46,664 -
Non-GAAP operating income (loss) $ (9,521) $ 5,514 $ (49,958) $ (347)
Operating margin (57) % (24) % (60) % (25) %
Non-GAAP operating margin (3) % 3 % (5) % - %
(1) Acquisition and integration-related expenses include transaction costs and
other non-recurring incremental costs incurred through the one-year anniversary
of transaction close.
Non-GAAP Net Income (Loss), Non-GAAP Net Margin and Non-GAAP Net Income (Loss)
Per Share, Basic and Diluted
We define Non-GAAP net income (loss) and Non-GAAP net margin as GAAP net loss
and GAAP net margin, adjusted for stock-based compensation expense, non-cash
charitable contributions, amortization of acquired intangibles, acquisition and
integration-related expenses, amortization of debt discount and debt issuance
costs and loss on early extinguishment and conversion of debt.
We define Non-GAAP net income (loss) per share, basic, as Non-GAAP net income
(loss) divided by GAAP weighted-average shares used to compute net loss per
share, basic and diluted.
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We define Non-GAAP net income (loss) per share, diluted, as Non-GAAP net income
(loss) divided by GAAP weighted-average shares used to compute net loss per
share, basic and diluted adjusted for the potentially dilutive effect of (i)
employee equity incentive plans, excluding the impact of unrecognized
stock-based compensation expense, and (ii) convertible senior notes outstanding
and related warrants. In addition, Non-GAAP net income (loss) per share,
diluted, includes the anti-dilutive impact of our note hedge and capped call
agreements on convertible senior notes outstanding. Accordingly, we did not
record any adjustments to Non-GAAP net income (loss) for the potential impact of
the convertible senior notes outstanding under the if-converted method.
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
(dollars in thousands)
Net loss $ (221,311) $ (72,764) $ (607,225) $ (190,526)
Add:
Stock-based compensation expense 155,785 53,652 407,611 139,774
Non-cash charitable contributions 1,986 2,245 5,649 4,662
Amortization of acquired intangibles 21,204 1,593 42,795 4,780
Acquisition and integration-related
expenses(1) 10,060 - 46,664 -
Amortization of debt discount and debt
issuance costs 21,698 20,931 64,478 47,261
Loss on early extinguishment and conversion of
debt - 89 179 2,263
Non-GAAP net income (loss) $ (10,578) $ 5,746 $ (39,849) $ 8,214
Net margin (63) % (33) % (66) % (32) %
Non-GAAP net margin (3) % 3 % (4) % 1 %
Weighted-average shares used to compute net
loss per share, basic and diluted 153,756 128,813 145,782 126,222
Non-GAAP weighted-average effect of
potentially dilutive securities - 14,579 - 15,714
Non-GAAP weighted-average shares used to
compute non-GAAP net income (loss) per share,
diluted 153,756 143,392 145,782 141,936
Net loss per share, basic and diluted $ (1.44) $ (0.56) $ (4.17) $ (1.51)
Non-GAAP net income (loss) per share, basic $ (0.07) $ 0.04 $ (0.27) $ 0.07
Non-GAAP net income (loss) per share, diluted $ (0.07) $ 0.04 $ (0.27) $ 0.06
(1) Acquisition and integration-related expenses include transaction costs and
other non-recurring incremental costs incurred through the one-year anniversary
of transaction close.
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Free Cash Flow and Free Cash Flow Margin
We define Free cash flow as net cash provided by operating activities, less cash
used for purchases of property and equipment, net of sales proceeds, and
capitalized internal-use software costs. Free cash flow margin is calculated as
Free cash flow divided by total revenue.
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
(dollars in thousands)
Net cash provided by operating activities $ 37,120 $ 43,426 $ 90,587 $ 93,053
Less:
Purchases of property and equipment (1,766) (628) (5,800) (11,297)
Capitalization of internal-use software
costs (1,970) (1,204) (2,348) (3,530)
Free cash flow $ 33,384 $ 41,594 $ 82,439 $ 78,226
Net cash provided by (used in) investing
activities $ 101,459 $ (595,621) $ (210,102) $ (1,267,882)
Net cash provided by financing activities $ 9,214 $ 5,210 $ 58,447 $ 1,066,457
Free cash flow margin 10 % 19 % 9 % 13 %
Calculated Billings We define Calculated billings as total revenue plus the change in deferred revenue, net of acquired deferred revenue, and less the change in unbilled receivables, net of acquired unbilled receivables, in the period.
Three Months Ended Nine Months Ended
October 31, October 31,
2021 2020 2021 2020
(in thousands)
Total revenue $ 350,680 $ 217,379 $ 917,186 $ 600,684
Add:
Deferred revenue (end of period) 777,872 432,114 777,872 432,114
Unbilled receivables (beginning of
period) 3,409 2,113 2,604 1,026
Acquired unbilled receivables - - 2,327 -
Less:
Deferred revenue (beginning of period) (737,297) (396,820)
(513,598) (371,450)
Unbilled receivables (end of period) (5,085) (2,427) (5,085) (2,427)
Acquired deferred revenue (900) - (66,239) -
Calculated billings $ 388,679 $ 252,359 $ 1,115,067 $ 659,947
Liquidity and Capital Resources
As of October 31, 2021 , our principal sources of liquidity were cash, cash
equivalents and short-term investments totaling $2,482.1 million , which were
held for working capital and general corporate purposes, including potential
future acquisition activity. Our cash equivalents and investments consisted
primarily of U.S. treasury securities, corporate debt securities and money
market funds. Historically, we have generated significant operating losses and
both positive and negative cash flows from operations as reflected in our
accumulated deficit and condensed consolidated statements of cash flows. We
expect to continue to incur operating losses and cash flows from operations that
may fluctuate between positive and negative amounts for the foreseeable future.
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In February 2018 , we completed our private offering of the 2023 Notes due on
February 15, 2023 and received aggregate proceeds of $345.0 million , before
deducting costs of issuance of $10.0 million . The interest rate on the 2023
Notes is fixed at 0.25% per annum and is payable semi-annually in arrears on
February 15 and August 15 of each year, beginning on August 15, 2018 . In
connection with the issuance of the 2023 Notes, we entered into the Note Hedges
with respect to our Class A common stock. We used an aggregate amount of $80.0
million of the net proceeds from the sale of the 2023 Notes to purchase the Note
Hedges. The cost of the Note Hedges was partially offset by proceeds of $52.4
million from the sale of Warrants in connection with the issuance of the 2023
Notes.
In September 2019 , we completed our private offering of the 2025 Notes due on
September 1, 2025 and received aggregate proceeds of $1,060.0 million , before
deducting issuance costs of approximately $19.3 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 entered into the 2025 Capped Calls. We used
an aggregate amount of $74.1 million of the net proceeds from the sale of the
2025 Notes to purchase the 2025 Capped Calls.
Concurrent with the private offering of the 2025 Notes, we repurchased $224.4
million principal amount of the 2023 Notes in privately-negotiated transactions
for aggregate consideration of $604.8 million , including approximately $224.4
million in cash and approximately 3.0 million shares of Class A common stock. We
also terminated a portion of our existing Note Hedges and Warrants in amounts
corresponding to the principal amount of the First Partial Repurchase of 2023
Notes for net proceeds of $47.2 million .
In June 2020 , we completed our private offering of the 2026 Notes due on June
15, 2026 and received aggregate proceeds of $1,150.0 million , before deducting
issuance costs of approximately $15.2 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 entered into the 2026 Capped Calls. We used
an aggregate amount of $134.0 million of the net proceeds from the sale of the
2026 Notes to purchase the 2026 Capped Calls.
Concurrent with the private offering of the 2026 Notes, we repurchased $69.9
million principal amount of the 2023 Notes in privately-negotiated transactions
for aggregate consideration of $260.5 million , including approximately 1.4
million shares of Class A common stock and $0.2 million in cash. We also
terminated a portion of our existing Note Hedges and Warrants in amounts
corresponding to the principal amount of the Second Partial Repurchase of 2023
Notes for net proceeds of $19.6 million .
Through October 31, 2021 , we converted and settled approximately $33.4 million
principal amount of 2023 Notes (not in connection with the 2023 Notes Partial
Repurchases) and exercised and net-share-settled Note Hedges corresponding to
approximately $33.4 million principal amount of 2023 Notes. In connection with
these transactions, we issued approximately 0.7 million shares of Class A common
stock and received approximately 0.5 million shares of Class A common stock,
accompanied by immaterial cash payments. No requests to convert material amounts
of 2023 Notes are currently outstanding.
On May 3, 2021 , we completed the acquisition of Auth0 . In connection with this
acquisition, consideration included cash of $257.0 million and approximately
19.2 million shares of our common stock with an estimated fair value of $5,175.6
million . In addition, we assumed outstanding employee equity awards with vested
fair value of $238.4 million . We further entered into revesting agreements with
Auth0's founders pursuant to which approximately 1.2 million additional
restricted shares of Okta's Class A common stock with a fair value of $332.1
million as of the closing date are issued and outstanding and will vest over
three years. Our condensed consolidated results of operations include the
results of operations for Auth0 for the period from May 3, 2021 through
October 31, 2021 .
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On August 2, 2021 , we completed the acquisition of atSpoke, providing total cash
consideration of $79.3 million of which $13.4 million of consideration was held
back as partial security for any adjustments and indemnification obligations and
will be paid within 18 months of the closing date.
While the potential impacts of the COVID-19 pandemic may create near-term
headwinds for cash flow caused by factors such as delays in customer payments
and delays in deals closing, we believe our existing cash and cash equivalents,
our investments and cash provided by sales of our products and services will be
sufficient to meet our short-term and long-term projected working capital and
capital expenditure needs for the foreseeable future. Our future capital
requirements will depend on many factors, including our subscription growth
rate, subscription renewal activity, billing frequency, the timing and extent of
spending to support development efforts, the expansion of sales and marketing
activities, the expansion of our international operations, the introduction of
new and enhanced product offerings, the continuing market adoption of our
platform, and the integration of acquired businesses. We continue to assess our
capital structure and evaluate the merits of deploying available cash. We may in
the future enter into arrangements to acquire or invest in complementary
businesses, services and technologies, including intellectual property rights.
We may be required to seek additional equity or debt financing. In the event
that additional financing is required from outside sources, we may not be able
to raise it on terms acceptable to us or at all. If we are unable to raise
additional capital or generate cash flows necessary to expand our operations and
invest in new technologies this could reduce our ability to compete successfully
and harm our results of operations.
A significant majority of our customers pay in advance for annual subscriptions.
Therefore, a substantial source of our cash is from our deferred revenue, which
is included on our condensed consolidated balance sheet as a liability. Deferred
revenue consists of the unearned portion of billed fees for our subscriptions,
which is recognized as revenue in accordance with our revenue recognition
policy. As of October 31, 2021 , we had deferred revenue of $777.9 million , of
which $759.9 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,
2021 2020
(in thousands)
Net cash provided by operating activities $ 90,587 $ 93,053
Net cash used in investing activities (210,102) (1,267,882)
Net cash provided by financing activities 58,447 1,066,457
Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash
(494) 121
Net decrease in cash, cash equivalents and restricted cash
Operating Activities Our largest source of operating cash is cash collections from our customers for subscription and professional services. Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs. In recent periods, we have supplemented working capital requirements through net proceeds from the issuance of the 2023, 2025 and 2026 Notes inFebruary 2018 ,September 2019 andJune 2020 , respectively, and from our initial public offering ("IPO") inApril 2017 . During the nine months endedOctober 31, 2021 , cash provided by operating activities was$90.6 million primarily due to our net loss of$607.2 million , adjusted for non-cash charges of$575.1 million and net cash inflows of$122.8 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, depreciation, amortization and accretion of property and equipment, intangible assets and short-term investments, amortization of debt discount and issuance costs and amortization of deferred commissions. The primary drivers of the changes in operating assets and liabilities related to a$198.0 million increase in deferred revenue, a$42.0 million increase in accrued compensation and accrued other expenses, and a$16.6 million decrease in operating lease right-of-use assets, partially offset by a$92.2 million increase in deferred commissions, a$29.6 million increase in accounts receivable and a$17.3 million decrease in operating lease liabilities. 49 -------------------------------------------------------------------------------- During the nine months endedOctober 31, 2020 , cash provided by operating activities was$93.1 million primarily due to our net loss of$190.5 million , adjusted for non-cash charges of$248.2 million and net cash inflows of$35.4 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of debt discount and issuance costs, amortization of deferred commissions and depreciation, amortization and accretion of property and equipment, intangible assets and short-term investments. The primary drivers of the changes in operating assets and liabilities related to a$60.7 million increase in deferred revenue, a$41.7 million increase in accounts payable, accrued compensation and accrued other expenses and a$14.0 million decrease in operating lease right-of-use assets, partially offset by a$51.8 million increase in deferred commissions, an$11.8 million decrease in operating lease liabilities, a$10.5 million increase in accounts receivable, and a$6.8 million increase in prepaid expenses and other assets. Investing Activities Net cash used in investing activities during the nine months endedOctober 31, 2021 of$210.1 million was primarily attributable to purchases of investments of$1,333.6 million and payments of$215.1 million , net of cash acquired, in connection with ourAuth0 and atSpoke acquisitions, partially offset by proceeds from the sales and maturities of investments of$1,346.8 million . Net cash used in investing activities during the nine months endedOctober 31, 2020 of$1,267.9 million was primarily attributable to purchases of investments of$1,846.0 million partially offset by proceeds from the sales and maturities of investments of$592.9 million , purchases of property and equipment of$11.3 million to support additional office space and headcount and the capitalization of internal-use software costs of$3.5 million associated with the development of additional features and functionality of our platform. Financing Activities Cash provided by financing activities during the nine months endedOctober 31, 2021 of$58.4 million was primarily attributable to proceeds from the exercise of stock options of$41.1 million , and proceeds from employee purchases under our ESPP of$17.4 million . Cash provided by financing activities during the nine months endedOctober 31, 2020 of$1,066.5 million was primarily attributable to the issuance of 2026 Notes for proceeds of$1,134.8 million , net of issuance costs and proceeds from the termination of existing Note Hedges of$195.0 million , offset by payments for the termination of existing Warrants of$175.4 million and the purchase of 2026 Capped Calls of$134.0 million . Other items impacting cash provided by financing activities include proceeds from the exercise of stock options of$33.6 million and proceeds from employee purchases under our ESPP of$12.8 million . Indemnification Agreements In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, or condensed consolidated statements of cash flows. Off-Balance Sheet Arrangements As ofOctober 31, 2021 , we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates We prepare our condensed consolidated financial statements in accordance with GAAP. In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect 50 -------------------------------------------------------------------------------- the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below. Our significant accounting policies are discussed in "Notes to Consolidated Financial Statements - Note 2. Summary of Significant Accounting Policies" in our Form 10-K. There have been no significant changes to these policies for the nine months endedOctober 31, 2021 , except as described in Note 2 to our condensed consolidated financial statements "Accounting Standards and Significant Accounting Policies". Recent Accounting Pronouncements See Note 2 to our condensed consolidated financial statements "Accounting Standards and Significant Accounting Policies" for more information. 51
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