Business Combinations

12 Months Ended

Jan. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisition of Auth0

On May 3, 2021, the Company acquired all outstanding shares of privately-held Auth0, an Identity-as-a-Service company. The Company expects to combine Auth0’s developer-centric identity solution with the Company’s Okta Identity Cloud to drive synergies, product options and value for current and future customers. The acquisition date fair value of the consideration transferred for Auth0 was approximately $5,671.0 million, which consisted of the following (in thousands):



	Estimated Fair Value

Cash	$	257,010
Common stock issued	5,175,623
Fair value of outstanding employee equity awards assumed	238,389
Total consideration	$	5,671,022

Cash consideration of $257.0 million includes $3.8 million held back as partial security for post-closing true-up adjustments as well as indemnification claims made within one year of the acquisition date.

Approximately 19.2 million shares of common stock valued at $5,175.6 million were issued to selling stockholders, which includes approximately 1.1 million shares valued at $294.6 million held back as partial security for post-closing true-up adjustments as well as any indemnification claims made within one year of the acquisition date.

The Company entered into revesting agreements with Auth0’s founders pursuant to which approximately 1.2 million additional shares of Okta’s Class A common stock issued to the founders as of the closing date will vest over three years. The $332.1 million fair value of the unvested restricted stock is not included as purchase consideration above, as it has a post-combination service requirement and will be accounted for separately from the business combination as stock compensation expense.

The Company issued replacement equity awards with a fair value of $655.1 million, of which $238.4 million was allocated to the purchase consideration as it is attributable to pre-combination services rendered and $416.7 million was allocated to post-combination services and will be expensed over the remaining service periods as stock-based compensation. The fair value of the stock options assumed by the Company was determined using the Black-Scholes option pricing model. The Company also converted certain equity awards to unvested restricted cash awards totaling $13.5 million that will be expensed over the remaining service periods.

See Note 13 for further discussion of amounts related to post-combination services that will be expensed over the remaining service periods as stock-based compensation.

Acquisition costs of $29.0 million related to Auth0 were expensed by the Company in general and administrative expenses in its consolidated statements of operations for the six months ended July 31, 2021.

The transaction was accounted for as a business combination. The total purchase price of $5,671.0 million was allocated using information currently available to the Company and may be subject to change as additional information is received. The primary areas that remain preliminary relate to the fair values of income and non-income-based taxes and residual goodwill. The Company expects to finalize the valuation as soon as practicable, but no later than one year from the acquisition date. Preliminary allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values is as follows (in

thousands):



	Estimated Fair Value

Cash and cash equivalents	$	107,425
Accounts receivable	28,572
Prepaid expenses and other current assets	12,748
Property and equipment, net	1,928
Operating lease right-of-use assets	6,873
Other assets	5,201
Intangible assets	334,300
Accounts payable	(3,610)
Accrued expenses and other current liabilities	(10,946)
Accrued compensation	(19,187)
Deferred revenue	(65,339)
Operating lease liabilities, noncurrent	(5,694)
Other liabilities, noncurrent	(11,341)
Net assets acquired	$	380,930

The excess of purchase consideration over the fair value of the net tangible assets and identifiable intangible assets acquired was $5,290.1 million and was recorded as goodwill, which is primarily attributable to expected synergies in sales opportunities across complementary products, customers and geographies, cross-selling opportunities, and improvements in the selling process. None of the goodwill is expected to be deductible for U.S. federal income tax purposes.

The estimated useful lives and fair values of the identifiable intangible assets are as follows (in thousands):



	Preliminary Estimated Useful Life (in years)	Amount

Developed technology	5 years	$	172,000
Customer relationships	2 - 6 years	140,900
Trade name	5 years	21,400
Total identifiable intangible assets		$	334,300

Developed technology represents the estimated fair value of the features underlying the Auth0 products as well as the platform supporting and providing services to Auth0 customers. Customer relationships represents the estimated fair value of the underlying relationships with Auth0 customers, including the fair value of unbilled and unrecognized contracts yet to be fulfilled. Trade name represents the estimated fair value of the Auth0 brand.

Revenue and earnings of Auth0 included in the Company’s consolidated income statement from the acquisition date through January 31, 2022 are as follows (in thousands):


	For the period
	May 3, 2021 to January 31, 2022

Revenue	$	139,679
Net loss	(385,302)

The unaudited pro forma consolidated revenue and earnings for the year ended January 31, 2022 and 2021, calculated as if Auth0 had been acquired as of February 1, 2020 are as follows (in thousands):


		Pro Forma Consolidated Statement of Operations Data
	Year Ended January 31,
		2022		2021

Revenue		$	1,349,779	$	944,782
Net loss		(846,694)		(690,482)

The pro forma financial information for all periods presented above has been calculated after adjusting the results of Auth0 to reflect certain business combination and one-time accounting effects such as the fair value adjustment of deferred revenue, amortization expense from acquired intangible assets, stock-based compensation expense for unvested equity awards assumed, deferred commissions, release of deferred tax asset valuation allowance and acquisition costs as though the acquisition occurred as of the beginning of the Company’s fiscal 2021. The historical consolidated financial information has been adjusted in the pro forma combined financial results to give effect to pro forma events that are directly attributable to the business combination, reasonably estimable and factually supportable. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company’s fiscal 2021.

Acquisition of atSpoke

On August 2, 2021, the Company acquired all issued and outstanding capital stock of Townsend Street Labs, Inc. (“atSpoke”), a modern workplace operations platform. The Company will incorporate atSpoke’s platform with Okta’s Identity Governance and Administration offering. The acquisition date cash consideration for atSpoke was approximately $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.

The Company recorded $18.3 million for developed technology intangible assets with an estimated useful life of 3 years and preliminarily recorded $63.2 million of goodwill which is primarily attributed to the assembled workforce as well as the integration of atSpoke’s technology and the Company’s technology. None of the goodwill is expected to be deductible for U.S. federal income tax purposes. The Company may continue to adjust the preliminary purchase price allocation after obtaining more information primarily relating to income and non-income based taxes and residual goodwill through the measurement period.

The Company incurred $0.9 million of acquisition-related costs, which were recorded as general and administrative expenses in its consolidated statements of operations in the quarter ended July 31, 2021.

This acquisition did not have a material impact on the Company’s consolidated financial statements; therefore, historical and pro forma disclosures have not been presented.