Stock-Based Compensation | Note 8. Stock-Based Compensation 2015 Equity Incentive Plan In January 2015, our board of directors adopted the 2015 Equity Incentive Plan (2015 Plan), which became effective prior to the completion of our initial public offering (IPO). A total of 12,200,000 shares of Class A common stock was initially reserved for issuance pursuant to future awards under the 2015 Plan. On the first day of each fiscal year, shares available for issuance are increased based on the provisions of the 2015 Plan. Any shares subject to outstanding awards under our 2006 Equity Incentive Plan (2006 Plan) or 2011 Equity Incentive Plan (2011 Plan) that are cancelled or repurchased subsequent to the 2015 Plan’s effective date are returned to the pool of shares reserved for issuance under the 2015 Plan. Awards granted under the 2015 Plan may be (i) incentive stock options, (ii) nonstatutory stock options, (iii) restricted stock units, (iv) restricted stock awards or (v) stock appreciation rights, as determined by our board of directors at the time of grant. Generally, twenty-five percent of each grant of stock options and restricted stock units generally vest one year from the vesting commencement date and continue to vest (a) in the case of options, 1/48 th 2015 Employee Stock Purchase Plan In January 2015, our board of directors adopted the 2015 Employee Stock Purchase Plan (2015 ESPP), which became effective prior to the completion of our IPO. A total of 2,500,000 shares of Class A common stock was initially reserved for issuance under the 2015 ESPP. On the first day of each fiscal year, shares available for issuance are increased based on the provisions of the 2015 ESPP. The 2015 ESPP allows eligible employees to purchase shares of our Class A common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations. The 2015 ESPP provides for 24-month offering periods beginning March 16 and September 16 of each year, and each offering period consists of four six-month purchase periods. On each purchase date, eligible employees may purchase our stock at a price per share equal to 85% of the lesser of (1) the fair market value of our stock on the offering date or (2) the fair market value of our stock on the purchase date. In the event the price is lower on the last day of any purchase price period, in addition to using that price as the basis for that purchase period, the offering period resets and the new lower price becomes the new offering price for a new 24 month offering period. As of April 30, 2019, 2,572,061 shares were reserved for future issuance under the 2015 ESPP. Stock Options The following table summarizes the stock option activity under the equity incentive plans and related information: Shares Weighted- Average Weighted- Remaining Average Exercise Contractual Life Aggregate Shares Price (Years) Intrinsic Value (in thousands) Balance as of January 31, 2019 9,096,961 $ 9.01 4.97 $ 108,731 Options granted 500,000 20.12 Options exercised (151,529 ) 8.02 Options forfeited/cancelled (584 ) 17.54 Balance as of April 30, 2019 9,444,848 $ 9.61 5.01 $ 104,355 Vested and expected to vest as of April 30, 2019 9,365,094 $ 9.53 4.97 $ 104,250 Exercisable as of April 30, 2019 7,684,790 $ 7.35 4.11 $ 102,030 The aggregate intrinsic value of options vested and expected to vest and exercisable as of April 30, 2019 is calculated based on the difference between the exercise price and the current fair value of our common stock. The aggregate intrinsic value of exercised options for the three months ended April 30, 2019 and 2018 was $1.9 million and $9.4 million, respectively. The aggregate estimated fair value of stock options granted to employees that vested during the three months ended April 30, 2019 and 2018 was $0.9 million and $2.5 million, respectively. The weighted-average grant date fair value of options granted to employees during the three months ended April 30, 2019 and 2018 was $8.00 and $7.92 per share, respectively. As of April 30, 2019, there was $9.4 million of unrecognized stock-based compensation expense related to outstanding stock options granted to employees that is expected to be recognized over a weighted-average period of 2.94 years. Out of the total unrecognized stock-based compensation expense, as of April 30, 2019, $6.0 million related to outstanding performance-based stock options with market-based performance goals, which is expected to be recognized over a weighted-average period of 3.48 years. Stock Options with Market-Based Performance Goals To further align our stockholders’ interests with executive officers’ interests, the Compensation Committee of our board of directors approved and granted performance-based stock options with market-based performance goals under the 2015 Plan to certain executive officers , which are subject to both the achievement of the market-based performance goal established by the Compensation Committee and the continued employment of the participant. These performance-based stock options vest only to the extent that both the market-based performance goal and time-based condition are satisfied. The market-based performance goal will be satisfied if, before the four-year anniversary of the grant date, the closing price of our Class A common stock is maintained at or above a pre-determined share price for a period of 30 consecutive trading days. The time-based vesting condition will be satisfied over the following four-year schedule: Twenty-five of the option’s time-based vesting condition is satisfied one year from the vesting commencement date and the remaining 1/48th of the option’s time-based vesting condition is satisfied monthly thereafter, subject to continued employment through each such date. The total outstanding performance-based stock options granted was 1,375,000 as of April 30, 2019. The grant date fair value of these awards was determined using a Monte Carlo valuation model and the related stock-based compensation expense is recognized based on an accelerated attribution method. As of April 30, 2019, there was $6.0 million unrecognized stock-based compensation expense related to outstanding performance-based stock options with market-based performance goals, which is expected to be recognized over a weighted-average period of 3.48 years. Restricted Stock Units The following table summarizes the restricted stock unit activity under the equity incentive plans and related information: Number of Weighted- Restricted Average Stock Units Grant Date Outstanding Fair Value Unvested balance - January 31, 2019 18,098,707 $ 19.35 Granted 6,243,275 20.12 Vested, net of shares withheld for employee payroll taxes (1,205,385 ) 19.33 Forfeited/cancelled (685,903 ) 20.33 Unvested balance - April 30, 2019 22,450,694 $ 19.54 As of April 30, 2019, there was $337.6 million of unrecognized stock-based compensation expense related to outstanding restricted stock units granted to employees that is expected to be recognized over a weighted-average period of 3.02 years. Performance-Based Restricted Stock Units We use performance-based incentives for certain employees, including our named executive officers, to achieve our annual financial and operational objectives, while making progress towards our longer-term strategic and growth goals. Typically, near the beginning of each fiscal year, our Compensation Committee adopts the performance criteria and targets for the incentive compensation plan for that fiscal year, which identifies the plan participants, the performance measures and the associated target levels for each measure, and the potential payouts based on actual performance for the fiscal year. In the first quarter of fiscal year 2019, our Compensation Committee adopted and approved the performance criteria and targets for fiscal year 2019 under our omnibus Executive Incentive Plan (the “Fiscal 2019 Executive Bonus Plan”). Based on a review of our actual achievement of pre-established corporate financial objectives and additional inputs from our Compensation Committee, the Fiscal 2019 Executive Bonus Plan was determined, settled and paid out in the first quarter of fiscal year 2020 in a mixture of cash and equity compensation. In the first quarter of fiscal year 2020, our Compensation Committee adopted and approved the performance criteria and targets for fiscal year 2020 under our omnibus Executive Plan (the “Fiscal 2020 Executive Bonus Plan”). The Fiscal 2020 Executive Bonus Plan provides opportunities for 100% equity incentive compensation payouts based on our actual achievement of pre-established corporate financial objectives, subject to review and a final approval by our Compensation Committee. During the three months ended April 30, 2019, we recognized stock-based compensation expense related to the Fiscal 2020 Executive Bonus Plan in the amount of $1.9 million. The unrecognized compensation expense related to ungranted and unvested Fiscal 2020 Executive Bonus Plan is $7.9 million, based on the probable expected performance against the pre-established corporate financial objectives as of April 30, 2019, which is expected to be recognized over a weighted average period of less than 1 year. The payouts of the Fiscal 2020 Executive Bonus Plan are expected to be made in the form of fully vested restricted stock units in the first quarter of fiscal year 2021. The number of restricted stock units each participant will receive is equal to the dollar value of his or her actual award payment divided by the average closing price of a share of our Class A common stock for the 30-trading day period ending the last trading date before the grant date 2015 ESPP As of April 30, 2019, there was $21.4 million of unrecognized stock-based compensation expense related to the 2015 ESPP that is expected to be recognized over the remaining term of the respective offering periods. During the first quarter of fiscal year 2020, the fair market value of our stock on the purchase date was lower than the fair market value of our stock on certain offering dates. As a result, certain offering periods reset and the new lower price became the new offering price for a new 24 month offering period, which resulted in a change in fair value and a corresponding incremental stock-based expense totaling $7.2 million, which is expected to be recognized over the remaining term of the new offering period. Stock-Based Compensation The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands): Three Months Ended April 30, 2019 2018 Cost of revenue $ 3,611 $ 3,121 Research and development 12,975 10,148 Sales and marketing 9,400 8,061 General and administrative 6,376 5,283 Total stock-based compensation $ 32,362 $ 26,613 Determination of Fair Value We estimated the fair value of employee stock options and 2015 ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions. During the three months ended April 30, 2019 and 2018, we had no stock option grants awarded using a Black-Scholes option pricing model. Three Months Ended April 30, 2019 2018 Employee Stock Purchase Plan Expected term (in years) 0.5 - 2.0 0.5 - 2.0 Risk-free interest rate 2.4 % - 2.5% 2.0 % - 2.3% Volatility 46 % - 55% 37 % - 50% Dividend yield 0% 0% The assumptions used in the Black-Scholes option pricing model were determined as follows: Fair Value of Common Stock . We use the market closing price for our Class A common stock as reported on the New York Stock Exchange to determine the fair value of our common stock at each grant date. Expected Term . The expected term represents the period that our share-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options and 2015 ESPP purchase rights. Expected Volatility . We estimate the expected volatility of the stock option grants and 2015 ESPP purchase rights based on the historical volatility of our Class A common stock over a period equivalent to the expected term of the stock option grants and 2015 ESPP purchase rights, respectively. Risk-free Interest Rate . The risk-free rate that we use is based on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options and 2015 ESPP purchase rights. Dividend Yield . We have never declared or paid any cash dividends and do not plan to pay cash dividends in the foreseeable future, and, therefore, use an expected dividend yield of zero. |