OKTA, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this 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 I, Item 1A in this Annual Report on Form 10-K. Our fiscal year endsJanuary 31 . References to fiscal 2023, for example, refer to the fiscal year endedJanuary 31, 2023 . Overview Okta is the leading independent identity provider. 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 mission. 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 ofJanuary 31, 2023 , more than 17,600 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 ofJanuary 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 fiscal 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, remaining performance obligations ("RPO") and billings growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis.
Acquisition of
OnMay 3, 2021 , we completed the acquisition ofAuth0, Inc. ("Auth0"). The acquisition date fair value, net of acquired cash, was approximately$5,671 million , including shares of our Class A common stock, cash, and assumed equity awards. In addition, we issued unvested restricted stock and assumed unvested equity and 53
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OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) restricted cash awards, which are subject to future vesting and will be recorded as expense over the period the services are provided. A portion of the total consideration was held back by us to secure the indemnification obligations of theAuth0 securityholders and was paid in full during fiscal 2023. Financial Information and Segments
We operate our business as one reportable segment. For fiscal 2023, 2022 and
2021, our revenue was
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 January 31,
2023 2022 2021
(dollars in millions)
Number of customers 17,600 15,000 10,000
Customers with annual contract value ("ACV") above
3,930 3,100 1,950
Dollar-based net retention rate for the trailing 12 months ended
120 % 124 % 121 %
Current remaining performance obligations $ 1,684 $ 1,351 $ 842
Remaining performance obligations $ 3,007 $ 2,694 $ 1,797
Calculated billings $ 2,123 $ 1,718 $ 976 Total Customers and Number of Customers with Annual Contract Value Above
As ofJanuary 31, 2023 , we had over 17,600 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 ACV with us was 3,930, 3,100 and 1,950 as ofJanuary 31, 2023 , 2022 and 2021, respectively. We expect this trend to continue as larger enterprises recognize the value of our platform and replace their legacy identity access management infrastructure. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract with us or one of our partners to access our platform. For purposes of determining our customer count, we do not include customers that use our platform under self-service arrangements only.
Dollar-Based Net Retention Rate
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.
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--------------------------------------------------------------------------------OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
We then divide the Current Period ACV by the Prior Period ACV to arrive at our Dollar-Based Net Retention Rate. Our Dollar-Based Net Retention Rate is inclusive of ACV from self-service customers.
Our strong Dollar-Based Net Retention Rate is primarily attributable to gross retention, an expansion of users and upselling additional products within our existing customers. Larger enterprises often implement a limited initial deployment of our platform before increasing their deployment on a broader scale.
Remaining Performance Obligations ("RPO")
RPO represent all future, non-cancelable, contracted revenue under our subscription contracts with customers that has not yet been recognized, inclusive of deferred revenue that has been invoiced and non-cancelable amounts that will be invoiced and recognized as revenue in future periods. Current RPO represents the portion of RPO expected to be recognized during the next 12 months. RPO fluctuates due to a number of factors, including the timing, duration and dollar amount of customer contracts and fluctuations in foreign currency exchange rates. Calculated Billings Calculated Billings represent our total revenue plus the change in deferred revenue, net of acquired deferred revenue, and less the change in unbilled receivables, net of acquired unbilled receivables, in the period. Calculated Billings in any particular period reflect sales to new customers plus subscription renewals and upsells to existing customers, and represent amounts invoiced for subscription, support and professional services. We typically invoice customers in advance in annual installments for subscriptions to our platform.
Calculated Billings increased 24% in fiscal 2023 over fiscal 2022. See the section titled "Non-GAAP Financial Measures" for additional information and a reconciliation of Calculated Billings to total revenue.
Components of Results of OperationsRevenue
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.
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--------------------------------------------------------------------------------OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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.
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 discount (in comparative periods prior to the adoption of
Accounting Standards Update ("ASU") No. 2020-06, Accounting for Convertible
Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06")),
amortization of debt issuance costs, contractual interest expense for our 2023
Notes, convertible notes due in 2025 ("2025 Notes") and convertible notes due in
2026 ("2026 Notes", together with the 2023 Notes and 2025 Notes, the "Notes"),
interest income from our investment holdings, and gains and losses from our
strategic investments.
Provision for (Benefit from) Income Taxes
Our provision for (benefit from) income taxes consists of federal and state
income taxes in
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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:
Year Ended January 31,
2023 2022 2021
(dollars in millions)
Revenue
Subscription $ 1,794 $ 1,249 $ 797
Professional services and other 64 51 38
Total revenue 1,858 1,300 835
Cost of revenue
Subscription(1) 464 329 170
Professional services and other(1) 82 67 48
Total cost of revenue 546 396 218
Gross profit 1,312 904 617
Operating expenses
Research and development(1) 620 469 223
Sales and marketing(1) 1,066 771 427
General and administrative(1) 409 432 171
Restructuring and other charges 29 - -
Total operating expenses 2,124 1,672 821
Operating loss (812) (768) (204)
Interest expense (11) (91) (73)
Interest income and other, net 22 9 13
Loss on early extinguishment and conversion of debt - - (2)
Interest and other, net 11 (82) (62)
Loss before provision for (benefit from) income taxes (801) (850) (266)
Provision for (benefit from) income taxes 14 (2) -
Net loss $ (815) $ (848) $ (266) (1) Includes stock-based compensation expense as follows:
Year Ended January 31,
2023 2022 2021
(dollars in millions)
Cost of subscription revenue $ 69 $ 49 $ 21
Cost of professional services and other revenue 14 12 9
Research and development 275 193 63
Sales and marketing 159 136 53
General and administrative 160 176 49
Total stock-based compensation expense $ 677 $ 566 $ 195
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OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The following table sets forth our results of operations for the periods presented as a percentage of our total revenue:
Year Ended January 31,
2023 2022 2021
Revenue
Subscription 97 % 96 % 95 %
Professional services and other 3 4 5
Total revenue 100 100 100
Cost of revenue
Subscription 25 25 20
Professional services and other 4 5 6
Total cost of revenue 29 30 26
Gross profit 71 70 74
Operating expenses
Research and development 33 36 27
Sales and marketing 58 59 51
General and administrative 22 34 20
Restructuring and other charges 2 - -
Total operating expenses 115 129 98
Operating loss (44) (59) (24)
Interest expense (1) (7) (9)
Interest income and other, net 2 1 1
Loss on early extinguishment and conversion of debt - - -
Interest and other, net 1 (6) (8)
Loss before provision for (benefit from) income taxes (43) (65) (32)
Provision for (benefit from) income taxes 1 - -
Net loss (44) % (65) % (32) %
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OKTA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
A discussion regarding our financial condition and results of operations for
fiscal 2023 compared to fiscal 2022 is presented below. A discussion regarding
our financial condition and results of operations for fiscal 2022 compared to
fiscal 2021 can be found under Item 7 in our Annual Report on Form 10-K for
fiscal 2022, filed with the SEC on March 7, 2022 , which is available free of
charge on the SEC's website at www.sec.gov and our Investor Relations website at
investor.okta.com.
Comparison of the Years Ended January 31, 2023 and 2022
Revenue
Year Ended January 31,
2023 2022 $ Change % Change
(dollars in millions)
Revenue:
Subscription $ 1,794 $ 1,249 $ 545 44 %
Professional services and other 64 51 13 27
Total revenue $ 1,858 $ 1,300 $ 558 43 %
Percentage of revenue:
Subscription 97 % 96 %
Professional services and other 3 4
Total 100 % 100 %
For fiscal 2023, subscription revenue increased 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 17% increase in total
customers, from over 15,000 as of January 31, 2022 , to over 17,600 as of
January 31, 2023 , and revenue from existing customers as reflected in our
Dollar-Based Net Retention Rate of 120% as of January 31, 2023 . Additionally, as
our acquisition of Auth0 was completed on May 3, 2021 , subscription revenue
during fiscal 2023 includes twelve months of Auth0 revenue while subscription
revenue during fiscal 2022 includes approximately nine months of Auth0 revenue.
For fiscal 2023, professional services revenue increased primarily due to an increase in implementation and other services associated with growth in the number of new customers purchasing our subscription services.
Cost of Revenue, Gross Profit and Gross Margin
Year Ended January 31,
2023 2022 $ Change % Change
(dollars in millions)
Cost of revenue:
Subscription $ 464 $ 329 $ 135 41 %
Professional services and other 82 67 15 22
Total cost of revenue $ 546 $ 396 $ 150 38 %
Gross profit $ 1,312 $ 904 $ 408 45 %
Gross margin:
Subscription 74 % 74 %
Professional services and other (27) (32)
Total gross margin 71 % 70 %
For fiscal 2023, cost of subscription revenue increased primarily due to an
increase of
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--------------------------------------------------------------------------------OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Our gross margin for subscription revenue remained consistent at 74% during fiscal 2023. While our gross margins for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.
For fiscal 2023, cost of professional services and other revenue increased
primarily due to an increase of
Our gross margin for professional services and other revenue improved to (27)% during fiscal 2023 from (32)% during fiscal 2022 primarily due to increases in professional services and other revenue at a faster rate than increases in associated costs.
Operating Expenses
Research and Development Expenses
Year Ended January 31,
2023 2022 $ Change % Change
(dollars in millions)
Research and development $ 620 $ 469 $ 151 32 %
Percentage of revenue 33 % 36 %
For fiscal 2023, research and development expenses increased primarily due to an
increase of
Sales and Marketing Expenses
Year Ended January 31,
2023 2022 $ Change % Change
(dollars in millions)
Sales and marketing $ 1,066 $ 771 $ 295 38 %
Percentage of revenue 58 % 59 %
For fiscal 2023, sales and marketing expenses increased primarily due to an
increase of $217 million in employee compensation costs related to headcount
growth, an increase in travel expenses of $19 million , an increase in marketing
and event costs of $16 million primarily due to increases in demand generation
programs, advertising and brand awareness efforts aimed at acquiring new
customers and an increase in amortization expense of $10 million for acquired
customer relationships and trade names. We expect our sales and marketing
expenses will continue to be our largest operating expense category for the
foreseeable future as we expand our sales and marketing efforts. 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 Expenses
Year Ended January 31,
2023 2022 $ Change % Change
(dollars in millions)
General and administrative $ 409 $ 432 $ (23) (5) %
Percentage of revenue 22 % 34 %
For fiscal 2023, general and administrative expenses decreased primarily due to
a decrease in acquisition and integration-related costs of
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Restructuring and Other Charges
Year Ended January 31,
2023 2022 $ Change % Change
(dollars in millions)
Restructuring and other charges $ 29 $ - $ 29 - %
Percentage of revenue 2 % - %
For fiscal 2023, restructuring and other charges relate to severance and
termination benefit costs of $15 million and lease impairment charges of $14
million . See Note 16 to our consolidated financial statements "Restructuring and
Other Charges" for additional information.
Interest and Other, Net
Year Ended January 31,
2023 2022 $ Change % Change
(dollars in millions)
Interest expense $ (11) $ (91) $ 80 (88) %
Interest income and other, net 22 9 13 126
Interest and other, net $ 11 $ (82)
For fiscal 2023, the change in interest and other, net was primarily due to a
decrease in interest expense resulting from the adoption of ASU 2020-06 and an
increase in interest income from our short-term investments. We expected
interest income from our short-term investments to continue to increase as a
result of increasing interest rates.
Provision for (Benefit from) Income Taxes
Year Ended January 31,
2023 2022 $ Change % Change
(dollars in millions)
Provision for (benefit from) income taxes $ 14
(1,158) %
For fiscal 2023, income tax expense resulted primarily from income from
profitable foreign jurisdictions, the tax impact of shortfalls from stock-based
compensation in the
For fiscal 2022, the income tax benefit resulted from the release of valuation allowance inthe United States in connection with acquisitions and excess tax benefits from stock-based compensation in theUnited Kingdom , offset by income tax expense related to profitable foreign jurisdictions.
Non-GAAP Financial Measures
In addition to our results determined in accordance with accounting principles generally accepted inthe United States ("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 61 --------------------------------------------------------------------------------
OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business. We periodically reassess the components of our Non-GAAP adjustments for changes in how we evaluate our performance, changes in how we make financial and operational decisions, and consider the use of these measures by our competitors and peers to ensure the adjustments remain relevant and meaningful.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define Non-GAAP gross profit and Non-GAAP gross margin as GAAP gross profit
and GAAP gross margin, adjusted for stock-based compensation expense included in
cost of revenue, amortization of acquired intangibles and acquisition and
integration-related expenses. Acquisition and integration-related expenses
include transaction costs and other non-recurring incremental costs incurred
through the one-year anniversary of the transaction close.
Year Ended January 31,
2023 2022 2021
(dollars in millions)
Gross profit $ 1,312 $ 904 $ 617
Add:
Stock-based compensation expense included in cost of
revenue 83 61 30
Amortization of acquired intangibles 46 34 7
Acquisition and integration-related expenses 1 2 -
Non-GAAP gross profit $ 1,442 $ 1,001 $ 654
Gross margin 71 % 70 % 74 %
Non-GAAP gross margin 78 % 77 % 78 %
Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin
We define Non-GAAP operating income (loss) and Non-GAAP operating margin as GAAP
operating loss and GAAP operating margin, adjusted for stock-based compensation
expense, non-cash charitable contributions, amortization of acquired
intangibles, acquisition and integration-related expenses and restructuring
costs related to severance and termination benefits and lease impairments in
connection with the closing of certain leased facilities. Acquisition and
integration-related expenses include transaction costs and other non-recurring
incremental costs incurred through the one-year anniversary of the transaction
close.
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OKTA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
In fiscal 2023, we updated our definition of Non-GAAP operating income (loss)
and Non-GAAP operating margin to include restructuring costs as defined in the
preceding paragraph.
Year Ended January 31,
2023 2022 2021
(dollars in millions)
Operating loss $ (812) $ (768) $ (204)
Add:
Stock-based compensation expense 677 566 195
Non-cash charitable contributions 4 8
9
Amortization of acquired intangibles 85 64
7
Acquisition and integration-related expenses 7 56
-
Restructuring costs 29 -
-
Non-GAAP operating income (loss)$ (10) $ (74) $ 7 Operating margin (44) % (59) % (24) % Non-GAAP operating margin (1) % (6) % 1 %
Non-GAAP Net Income (Loss), Non-GAAP
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, amortization of debt issuance costs, loss on early extinguishment and conversion of debt and restructuring costs related to severance and termination benefits and lease impairments in connection with the closing of certain leased facilities. Acquisition and integration-related expenses include transaction costs and other non-recurring incremental costs incurred through the one-year anniversary of the transaction close.
In fiscal 2023, we updated our definition of Non-GAAP net income (loss) and Non-GAAP net margin to include restructuring costs as defined in the preceding paragraph.
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.
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 impact of our note hedge and capped call agreements on
convertible senior notes outstanding, as applicable. The note hedge and capped
call agreements are intended to offset potential dilution to our Class A common
stock upon any conversion or settlement of the convertible senior notes under
certain circumstances. Accordingly, we did not record any adjustments for the
potential impact of the convertible senior notes outstanding under the
if-converted method.
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OKTA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Year Ended January 31,
2023 2022 2021
(dollars inmillions, shares in thousands, except per
share data)
Net loss $ (815) $ (848) $ (266)
Add:
Stock-based compensation expense 677 566 195
Non-cash charitable contributions 4 8 9
Amortization of acquired intangibles 85 64 7
Acquisition and integration-related expenses 7 56 -
Amortization of debt discount and debt issuance costs 6 86 69
Loss on early extinguishment and conversion of debt - - 2
Restructuring costs 29 - -
Non-GAAP net income (loss) $ (7) $ (68) $ 16
Net margin (44) % (65) % (32) %
Non-GAAP net margin - % (5) % 2 %
Weighted-average shares used to compute net loss per share, basic and diluted
158,023 148,036 127,212
Non-GAAP weighted-average effect of potentially dilutive securities
- - 15,171
Non-GAAP weighted-average shares used to compute
non-GAAP net income (loss) per share, diluted 158,023 148,036 142,383
Net loss per share, basic and diluted $ (5.16) $ (5.73) $ (2.09)
Non-GAAP net income (loss) per share, basic $ (0.04) $ (0.46) $ 0.13
Non-GAAP net income (loss) per share, diluted $ (0.04) 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.
Year Ended January 31,
2023 2022 2021
(dollars in millions)
Net cash provided by operating activities
128
Less:
Purchases of property and equipment (12) (13)
(13)
Capitalization of internal-use software costs (9) (4)
(4)
Free cash flow$ 65 $ 87 $
111
Net cash used in investing activities$ (130) $ (367) $
(1,305)
Net cash provided by financing activities
1,092
Free cash flow margin 3 % 7 % 13 %
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OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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.
Year Ended January 31,
2023 2022 2021
(dollars in millions)
Total revenue $ 1,858 $ 1,300 $ 835
Add:
Deferred revenue (end of period) 1,260 996 514
Unbilled receivables (beginning of period) 3 3
1
Acquired unbilled receivables - 2
-
Less:
Deferred revenue (beginning of period) (996) (514)
(371)
Unbilled receivables (end of period) (2) (3) (3) Acquired deferred revenue - (66) - Calculated Billings$ 2,123 $ 1,718 $ 976 Liquidity and Capital Resources As ofJanuary 31, 2023 , our principal sources of liquidity were cash, cash equivalents and short-term investments totaling$2,580 million , which were held for working capital and general corporate purposes, including potential future acquisition activity. Our cash equivalents and investments consisted primarily ofU.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 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. InFebruary 2018 , we completed our private offering of the 2023 Notes due onFebruary 15, 2023 and received aggregate proceeds of$345 million . Nearly all of the 2023 Notes have been repurchased or converted as ofJanuary 31, 2023 . The interest rate on the 2023 Notes is fixed at 0.25% per annum and is payable semi-annually in arrears onFebruary 15 andAugust 15 of each year, beginning onAugust 15, 2018 . In connection with the issuance of the 2023 Notes, we used a portion of the proceeds to enter into convertible note hedges ("Note Hedges") with respect to our Class A common stock. The cost of the Note Hedges was partially offset by proceeds from the sale of warrants to purchase shares of our Class A common stock ("Warrants") in connection with the issuance of the 2023 Notes. InSeptember 2019 , we completed our private offering of the 2025 Notes due onSeptember 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 onMarch 1 andSeptember 1 of each year, beginning onMarch 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. Concurrent with the private offering of the 2025 Notes, we repurchased a portion of the 2023 Notes and terminated a portion of our existing Note Hedges and Warrants. InJune 2020 , we completed our private offering of the 2026 Notes due onJune 15, 2026 and received aggregate 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 onJune 15 andDecember 15 of each year, beginning onDecember 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. Concurrent with the private offering of the 2026 Notes, we repurchased a portion of the 2023 Notes and terminated a portion of our existing Note Hedges and Warrants. 65
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OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) OnMay 3, 2021 , we completed the acquisition ofAuth0 . In connection with this acquisition, consideration included cash of$150 million , net of cash acquired of$107 million , and approximately 19 million shares of our common stock with an estimated fair value of$5,176 million . In addition, we assumed outstanding employee equity awards with vested fair value of$238 million . OnAugust 2, 2021 , we completed the acquisition ofTownsend 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 will be paid within 18 months of the closing date. We believe our existing cash and cash equivalents, our investments and cash provided by sales of our products and services will be sufficient to meet our short-term and long-term projected working capital and capital expenditure needs for the foreseeable future. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the expansion of our international operations, the introduction of new and enhanced product offerings, 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 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 ofJanuary 31, 2023 , we had deferred revenue of$1,260 million , of which$1,242 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:
Year Ended January 31,
2023 2022 2021
(dollars in millions)
Net cash provided by operating activities $ 86 $ 104 $ 128
Net cash used in investing activities (130) (367) (1,305)
Net cash provided by financing activities 48 89 1,092
Effects of changes in foreign currency exchange rates on cash, cash equivalents and restricted cash
(6) (2) 2
Net decrease in cash, cash equivalents and restricted
cash $ (2) $ (176) $ (83)
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 in February 2018 , September 2019 and June 2020 , respectively.
During fiscal 2023, cash provided by operating activities was $86 million ,
decreasing by $18 million compared to fiscal 2022. The decrease was primarily
attributable to an increase in cash paid to employees and vendors, partially
offset by an increase in cash received from customers.
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--------------------------------------------------------------------------------OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Investing Activities
During fiscal 2023, cash used in investing activities was$130 million , decreasing by$237 million compared to fiscal 2022. The decrease was primarily attributable to a decrease in payments for business acquisitions, net of cash acquired, and a decrease in cash used from net investment purchases, sales, and maturities. Financing Activities During fiscal 2023, cash provided by financing activities was$48 million , decreasing by$41 million compared to fiscal 2022. The decrease was primarily attributable to a decrease in proceeds from the exercise of stock options and a decrease in proceeds from employee purchases under our employee stock purchase plan ("ESPP"). Material Cash Requirements Contractual Obligations The following table represents the Company's known short-term (i.e., the next twelve months) and long-term (i.e., beyond the next twelve months) obligations as ofJanuary 31, 2023 : Short-term Long-term Total (dollars in millions) Convertible Senior Notes:(1) Principal payments $ -$ 2,210 $ 2,210 Interest payments 6 13 19 Operating leases(2) 43 160 203 Purchase obligations(3) 237 361 598 Total contractual obligations$ 286 $ 2,744 $ 3,030 (1) See Note 9 to our consolidated financial statements "Convertible Senior Notes, Net" for additional information. (2) See Note 10 to our consolidated financial statements "Leases" for additional information. (3) Purchase obligations primarily relate to data center hosting facilities, and other sales and marketing obligations. 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 material 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 consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with accounting principles generally accepted inthe United States of America . In the preparation of these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates, which we discuss below. 67 --------------------------------------------------------------------------------
OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Income Taxes
Income taxes are accounted for in accordance with the liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weighting of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character, within the carry-back or carry-forward periods available under the applicable tax law. In assessing the need for a valuation allowance, we consider available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. Our judgment regarding future estimates may change due to many factors, including future market conditions and the ability to successfully execute our business plans and tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our provision for income taxes would increase or decrease in the period in which the assessment is changed. Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. Significant judgment is required in determining the technical merits of an uncertain tax position, such as taking into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent the final tax outcome of these matters is different than the amounts recorded, such differences may impact the provision for income taxes in the period in which such determination is made.
Business Combinations
When we acquire a business, the purchase price is allocated to the acquired assets, including separately identifiable intangible assets, and assumed liabilities at their respective estimated fair values. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to:
•future expected cash flows from subscription contracts, professional services contracts, other customer contracts and acquired developed technologies;
•person hours required in recreating certain acquired technologies;
•historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
•royalty rates applied to acquired developed technology platforms and other intangible assets;
•obsolescence curves and other useful life assumptions, such as the period of time and intended use of acquired intangible assets in our product offerings;
•discount rates;
•uncertain tax positions and tax-related valuation allowances; and
•fair value of assumed equity awards.
These estimates are inherently uncertain and unpredictable, and unanticipated
events and circumstances may occur that may affect the accuracy or validity of
such assumptions, estimates or actual results. During the measurement period,
which may be up to one year from the acquisition date, adjustments to the fair
value of these tangible and intangible assets acquired and liabilities assumed
may be recorded, with the corresponding offset to
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--------------------------------------------------------------------------------OKTA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) goodwill. We continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustments to our preliminary estimates to goodwill provided that we are within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Loss Contingencies
We evaluate contingent liabilities, including threatened or pending litigation, and make provisions for such liabilities when it is both probable that a loss has been incurred and its amount can be reasonably estimated. Because of uncertainties inherent in litigation, we base our estimate and accrue the liabilities, if any, on the information available at the time of our assessment. Significant judgment is required to determine both the probability and the estimated amount of loss given such legal proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Developments in these matters could affect the amount of any liability we may accrue. As additional information becomes available, we may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our operating results and financial position. Further, until the final resolution of any such matter, there may be a loss exposure in excess of the liability recognized and such amount could be significant.
Revenue Recognition
We derive our revenues primarily from subscription fees and professional services fees. A description of our revenue recognition policies is included in Note 2 to our consolidated financial statements "Summary of Significant Accounting Policies."
Our contracts with customers often contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price of the contract is allocated to the separate performance obligations on a relative standalone selling price basis. Evaluating customer contracts with multiple performance obligations and complex terms may require significant judgment in identifying the distinct performance obligations.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements "Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements" for more information.
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