Okta Inc

Previous wording

As of April 30, 2024, more than 19,100 customers across nearly every industry used Okta to secure and manage identities around the world. Our customers consist of leading global organizations ranging from the largest enterprises, to small and medium-sized businesses, universities, non-profits and government agencies. We also partner with leading application, IT infrastructure and security vendors through our Okta Integration Network. As of April 30, 2024, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors.

Current wording

As of July 31, 2024, more than 19,300 customers across nearly every industry used Okta to secure and manage identities around the world. Our customers consist of leading global organizations ranging from the largest enterprises, to small and medium-sized businesses, universities, non-profits and government agencies. We also partner with leading application, IT infrastructure and security vendors through our Okta Integration Network. As of July 31, 2024, we had over 7,000 integrations with these cloud, mobile and web applications and IT infrastructure and security vendors.

Previous wording

Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 98% of total revenue for the three months ended April 30, 2024. Future growth may be impacted by longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for cash flow, RPO and billings growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis.

Current wording

Our revenue is relatively predictable as a result of our subscription-based business model, which constituted approximately 98% of total revenue for the six months ended July 31, 2024. Future growth may be impacted by longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for cash flow, RPO and billings growth as well as potential future impacts on revenue growth and other key metrics on a trailing basis.

Previous wording

Our provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions where we operate. The difference between our effective tax rate and the federal statutory rate is primarily due to a valuation allowance against U.S. deferred tax assets, the tax effect of foreign operations and state taxes. We evaluate and update our estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and enacted tax laws. The timing and mix of actual results compared to forecasted results may impact the timing of recognition of our provision for income taxes.

Current wording

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 where we operate. The difference between our effective tax rate and the federal statutory rate is primarily due to a valuation allowance against U.S. deferred tax assets, the tax effect of foreign operations and state taxes. We evaluate and update our estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and enacted tax laws. The timing and mix of actual results compared to forecasted results may impact the timing of recognition of our provision for (benefit from) income taxes.

Previous wording

Comparison of the Three Months Ended April 30, 2024 and 2023

Current wording

Comparison of the Three and Six Months Ended July 31, 2024 and 2023

Previous wording

For the three months ended April 30, 2024, the increase in subscription revenue was primarily due to an increase in users and sales of additional products to existing customers and the addition of new customers. The increase in revenue was attributable to increased revenue from existing customers as reflected in our Dollar-Based Net Retention Rate of 111% as of April 30, 2024 and an increase in the number of customers as detailed in our Key Business Metrics.

Current wording

For the three and six months ended July 31, 2024, the increase in subscription revenue was primarily due to an increase in users and sales of additional products to existing customers and the addition of new customers. The increase in revenue was attributable to increased revenue from existing customers as reflected in our Dollar-Based Net Retention Rate of 110% as of July 31, 2024 and an increase in the number of customers as detailed in our Key Business Metrics.

Previous wording

For the three months ended April 30, 2024, cost of subscription revenue increased primarily due to an increase of $3 million in consulting costs, an increase of $2 million in software costs and an increase of $2 million in third-party hosting costs as we expanded capacity to support our growth.

Current wording

For the three months ended July 31, 2024, cost of subscription revenue increased primarily due to an increase of $4 million in employee compensation costs and an increase of $3 million in third-party hosting costs as we expanded capacity to support our growth.

Previous wording

Our gross margin for subscription revenue improved to 78% from 76% for the three months ended April 30, 2024 compared to the three months ended April 30, 2023. The increase was primarily driven by improved spend efficiency resulting in lower relative cost of subscription revenue.

Current wording

Our gross margin for subscription revenue improved to 78% from 77% for the three months ended July 31, 2024 compared to the three months ended July 31, 2023. The increase was primarily driven by improved spend efficiency resulting in lower relative cost of subscription revenue.

Previous wording

Our gross margin for professional services and other revenue increased to (24)% for the three months ended April 30, 2024 compared to (38)% for the three months ended April 30, 2023 primarily due to a decrease in cost of professional services and other revenue.

Current wording

Our gross margin for professional services and other revenue improved to (31)% for the three months ended July 31, 2024 compared to (49)% for the three months ended July 31, 2023 due to a decrease in cost of professional services and other revenue.

Previous wording

For the three months ended April 30, 2024, sales and marketing expenses decreased primarily due to a decrease in employee compensation costs of $16 million. The decrease in sales and marketing as a percentage of total revenue was primarily driven by improved spend efficiency. We expect our sales and marketing expenses will continue to be our largest operating expense category for the foreseeable future. We expect sales and marketing expenses as a percentage of total revenue to decrease as our total revenue grows.

Current wording

For the three and six months ended July 31, 2024, sales and marketing expenses decreased primarily due to a reduction in employee compensation costs, driven by lower stock-based compensation expense and lower headcount. The decrease in sales and marketing as a percentage of total revenue was primarily driven by improved spend efficiency. We expect our sales and marketing expenses will continue to be our largest operating expense category for the foreseeable future. We expect sales and marketing expenses as a percentage of total revenue to decrease as our total revenue grows.

Previous wording

For the three months ended April 30, 2024, general and administrative expenses increased due to an increase in legal related costs. We expect general and administrative expenses as a percentage of total revenue to decrease as our total revenue grows.

Current wording

For the three months ended July 31, 2024, general and administrative expenses decreased due to a reduction in stock-based compensation expense of $13 million. We expect general and administrative expenses as a percentage of total revenue to decrease as our total revenue grows.

Previous wording

For the three months ended April 30, 2024, we did not incur any restructuring and other charges compared to lease impairment charges incurred in the three months ended April 30, 2023.

Current wording

For the three and six months ended July 31, 2024, we did not incur any restructuring and other charges compared to lease impairment charges incurred in the six months ended July 31, 2023.

Previous wording

For the three months ended April 30, 2024, interest and other, net decreased primarily due to a decrease of $31 million in gains on early extinguishment of debt related to repurchases of the convertible senior notes offset by a $10 million increase in interest income from our short-term investments.

Current wording

For the three and six months ended July 31, 2024, interest and other, net decreased primarily due to a decrease in gains on early extinguishment of debt related to repurchases of the convertible senior notes offset by an increase in interest income from our short-term investments.

Previous wording

For the three months ended April 30, 2024 the provision for income taxes increased by $14 million. This increase is related to the proportion of pre-tax losses recognized in the three months ended April 30, 2024 relative to the forecasted pre-tax loss for the full fiscal year 2025.

Current wording

For the three and six months ended July 31, 2024, our provision for (benefit from) income taxes decreased by $24 million and $10 million, respectively. This decrease is related to the proportion of pre-tax losses recognized in the six months ended July 31, 2024 relative to the forecasted pre-tax income for the full fiscal year 2025.

Previous wording

As of April 30, 2024, we had over 19,100 customers on our platform. We believe that our ability to increase the number of customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities. Increasing awareness of our platform and capabilities, coupled with the mainstream adoption of cloud technology, has expanded the diversity of our customer base to include organizations of all sizes across all industries. The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 4,550 and 4,080 as of April 30, 2024 and 2023, 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.

Current wording

As of July 31, 2024, we had over 19,300 customers on our platform. We believe that our ability to increase the number of customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities. Increasing awareness of our platform and capabilities, coupled with the mainstream adoption of cloud technology, has expanded the diversity of our customer base to include organizations of all sizes across all industries. The number of customers who have greater than $100,000 in annual contract value (“ACV”) with us was 4,620 and 4,205 as of July 31, 2024 and 2023, 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.

Previous wording

Our strong Dollar-Based Net Retention Rate is primarily attributable to gross retention, an expansion of users and upselling additional products within our existing customers. Larger enterprises often implement a limited initial deployment of our platform before increasing their deployment on a broader scale. The decrease in our Dollar-Based Net Retention Rate as of April 30, 2024, compared to April 30, 2023, was primarily a result of the macroeconomic environment, with ACV from existing customers increasing at a slower rate in the current period.

Current wording

Our strong Dollar-Based Net Retention Rate is primarily attributable to gross retention, an expansion of users and upselling additional products within our existing customers. Larger enterprises often implement a limited initial deployment of our platform before increasing their deployment on a broader scale. The decrease in our Dollar-Based Net Retention Rate as of July 31, 2024, compared to July 31, 2023, was primarily a result of the macroeconomic environment, with overall ACV from existing customers increasing at a slower rate in the current period.

Previous wording

As of April 30, 2024, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,320 million, which were held for working capital and general corporate purposes, including potential future acquisition activity. Our cash equivalents and investments consisted primarily of U.S. treasury securities, money market funds, certificates of deposit and corporate debt securities. 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.

Current wording

As of July 31, 2024, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $2,358 million, which were held for working capital and general corporate purposes, including potential future acquisition activity. Our cash equivalents and investments consisted primarily of U.S. treasury securities, money market funds, certificates of deposit and corporate debt securities. 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.

Previous wording

In September 2019, we completed our private offering of the 2025 Notes due on September 1, 2025 and received aggregate gross proceeds of $1,060 million. The interest rate on the 2025 Notes is fixed at 0.125% per year and is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. In connection with the 2025 Notes, we used a portion of the proceeds to enter into capped call transactions ("2025 Capped Calls") with respect to our Class A common stock.

Current wording

In September 2019, we completed our private offering of the 2025 Notes due on September 1, 2025 and received aggregate gross proceeds of $1,060 million. The interest rate on the 2025 Notes is fixed at 0.125% per year and is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020. In connection with the 2025 Notes, we used a portion of the proceeds to enter into capped call transactions ("2025 Capped Calls") with respect to our Class A common stock. Our 2025 Notes will be classified as current as of the end of the third quarter of fiscal 2025.

Previous wording

In the ordinary course of our business, we may, at any time and from time to time, seek to extinguish our outstanding Notes through cash purchases and/or exchanges for equity, in open-market purchases, privately negotiated transactions or otherwise. Such extinguishments, if any, will be conducted on such terms and at such prices as we may determine, and will depend on our evaluation of the prevailing market conditions, trading price of the Notes, our liquidity requirements, legal and contractual restrictions and other factors. During fiscal 2024, we repurchased $508 million principal amount of the 2025 Notes for $462 million in cash and $542 million principal amount of the 2026 Notes for $475 million in cash, which resulted in an aggregate gain on early extinguishment of debt of $106 million. The 2025 Capped Calls and 2026 Capped Calls remained outstanding notwithstanding such repurchase. We may, however, elect to terminate the 2025 Capped Calls or 2026 Capped Calls, in full or in part. In connection with any such termination, the option counterparties or their respective affiliates are expected to modify their hedge positions, which activity could affect the market price of our Class A common stock or the trading price of the Notes that remain outstanding. See Note 7 to our condensed consolidated financial statements “Convertible Senior Notes, Net” for additional information.

Current wording

In the ordinary course of our business, we may, at any time and from time to time, seek to extinguish our outstanding Notes through cash purchases and/or exchanges for equity, in open-market purchases, privately negotiated transactions or otherwise. Such extinguishments, if any, will be conducted on such terms and at such prices as we may determine, and will depend on our evaluation of the prevailing market conditions, trading price of the Notes, our liquidity requirements, legal and contractual restrictions and other factors. During the six months ended July 31, 2024, we repurchased $43 million principal amount of the 2026 Notes for $40 million in cash, which resulted in a gain on early extinguishment of debt of $3 million. During fiscal 2024, we repurchased $508 million principal amount of the 2025 Notes for $462 million in cash and $542 million principal amount of the 2026 Notes for $475 million in cash, which resulted in an aggregate gain on early extinguishment of debt of $106 million. The 2025 Capped Calls and 2026 Capped Calls remained outstanding notwithstanding such repurchase. We may, however, elect to terminate the 2025 Capped Calls or 2026 Capped Calls, in full or in part. In connection with any such termination, the option counterparties or their respective affiliates are expected to modify their hedge positions, which activity could affect the market price of our Class A common stock or the trading price of the Notes that remain outstanding. See Note 7 to our condensed consolidated financial statements “Convertible Senior Notes, Net” for additional information.

Previous wording

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 April 30, 2024, we had deferred revenue of $1,410 million, of which $1,391 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.

Current wording

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 July 31, 2024, we had deferred revenue of $1,415 million, of which $1,394 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.

Previous wording

During the three months ended April 30, 2024, cash provided by operating activities was $219 million, an increase of $90 million compared to the three months ended April 30, 2023. The increase was primarily attributable to an increase in cash received from customers and improved spend efficiency, partially offset by an increase in cash paid to vendors.

Current wording

During the six months ended July 31, 2024, cash provided by operating activities was $305 million, an increase of $123 million compared to the six months ended July 31, 2023. The increase was primarily attributable to an increase in cash received from customers and improved spend efficiency.

Previous wording

During the three months ended April 30, 2024, cash used in investing activities was $194 million compared to cash provided by investing activities of $59 million during the three months ended April 30, 2023. The change was primarily attributable to a decrease in proceeds from maturities and sales of available-for-sale securities and an increase in payments for business acquisitions.

Current wording

During the six months ended July 31, 2024, cash used in investing activities was $38 million compared to cash provided by investing activities of $554 million during the six months ended July 31, 2023. The change was primarily attributable to a decrease in proceeds from maturities and sales of available-for-sale securities and an increase in payments for business acquisitions and purchases of securities available-for-sale and other.

Previous wording

During the three months ended April 30, 2024, cash used in financing activities was $37 million compared to cash used in financing activities of $326 million during the three months ended April 30, 2023. The change was primarily attributable to payments made for repurchases of the Notes during the three months ended April 30, 2023.

Current wording

During the six months ended July 31, 2024, cash used in financing activities was $87 million compared to cash used in financing activities of $641 million during the six months ended July 31, 2023. The change was primarily attributable to higher volume of payments made for repurchases of the Notes during the six months ended July 31, 2023.

Previous wording

There were no significant changes outside the ordinary course of business to our material cash requirements disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

Current wording

Except for the debt extinguishment discussed in Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this report, there were no significant changes outside the ordinary course of business to our material cash requirements disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

Previous wording

There have been no significant changes to our critical accounting estimates for the three months ended April 30, 2024 from those discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

Current wording

There have been no significant changes to our critical accounting estimates for the six months ended July 31, 2024 from those discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.