Equity Incentive Plans | Note 9. Equity Incentive Plans Equity Incentive Plans We maintain two equity incentive plans: the 2009 Equity Incentive Plan (our “2009 Plan”) and the 2015 Equity Incentive Plan (our “2015 Plan”). In August 2015, our board of directors adopted, and in September 2015 our stockholders approved, the 2015 Plan, which became effective in connection with our IPO in October 2015 and serves as the successor to our 2009 Plan. We have initially reserved 27,000,000 shares of our Class A common stock for issuance under our 2015 Plan. Our 2015 Plan provides for the issuance of incentive stock options to our employees and nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of stock awards to our employees, directors and consultants. No new awards will be issued under our 2009 Plan after the effective date of our 2015 Plan. Outstanding awards granted under our 2009 Plan will remain subject to the terms of our 2009 Plan and applicable award agreements, until such outstanding awards that are stock options are exercised, terminated or expired by their terms, and until any restricted stock awards become vested or are forfeited. Our equity awards generally vest over a two to four year period and expire no later than ten years from the date of grant. As of October 31, 2015, 26,476,500 shares of our Class A common stock were reserved for future issuance under the 2015 Plan. 2015 Employee Stock Purchase Plan In August 2015, our board of directors adopted and our stockholders approved, the 2015 Employee Stock Purchase Plan (“2015 ESPP”), which became effective in connection with our IPO in October 2015. A total of 3,500,000 shares of Class A common stock was initially reserved for issuance under the 2015 ESPP. The 2015 ESPP allows eligible employees to purchase shares of our Class A common stock at a discount through payroll deductions (or other payroll contributions) of up to 30% of their eligible compensation, subject to a cap of 3,000 shares on any purchase date or $25,000 in any calendar year (as determined under applicable tax rules). Except for the initial offering period, the 2015 ESPP provides for 24 month offering periods beginning March and September of each year, and each offering period will consist of four six-month purchase periods. The initial offering period began in October 2015, and will end on September 15, 2017. On each purchase date, eligible employees will purchase our Class A common stock at a price per share equal to 85% of the lesser of the fair market value of our Class A common stock (1) on the first trading day of the applicable offering period or (2) the purchase date. For the first offering period, the fair market value of our Class A common stock on the offering date was $17.00, the price at which our Class A common stock was first sold to the public in our IPO. As of October 31, 2015, 3,500,000 shares were reserved for future issuance under the 2015 ESPP. Stock Options A summary of activity under our equity incentive plans and related information is as follows: Options Outstanding Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life (In Years) Aggregate Intrinsic Value (In Thousands) Balance as of January 31, 2015 54,284,474 $ 3.02 8.3 $ 523,654 Options granted 18,159,824 15.77 Options exercised (1,784,066 ) 2.64 Options cancelled (1,730,681 ) 7.09 Balance as of October 31, 2015 68,929,551 6.29 Vested and exercisable as of October 31, 2015 21,903,812 1.71 6.8 $ 348,767 Vested and expected to vest as of October 31, 2015 66,851,238 6.22 8.1 $ 763,519 As of October 31, 2015, total unrecognized employee compensation cost, net of estimated forfeitures, was $210.7 million, which is expected to be recognized over a weighted-average period of 3.85 years. During the three and nine months ended October 31, 2014 and 2015, we granted options to purchase 90,000, 415,000 50,000 and 133,000 shares of common stock that vest upon satisfaction of a performance condition, respectively. For all the options that vest upon satisfaction of a performance condition, management determined it is probable that the performance condition will be satisfied and, accordingly, the related stock-based compensation expense of $407,000, $1.1 million, $797,000 and $1.8 million was recognized during the three and nine months ended October 31, 2014 and 2015, respectively. 2015 ESPP During the three months ended October 31, 2015, we recognized $907,000 of stock-based compensation expense related to the 2015 ESPP. As of October 31, 2015, there was $25.9 million of unrecognized stock-based compensation expense related to our 2015 ESPP that is expected to be recognized over the remaining term of the initial offering period. Determination of Fair Value The fair value of shares to be purchased under ESPP is estimated on the grant date using the Black-Scholes option pricing model. This valuation model for stock-based compensation expense requires us to make assumptions and judgments about the variables used in the calculation including expected term, the expected volatility of the common stock, a risk-free interest rate and expected dividend yield. We estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions: Three Months Ended October 31, Nine Months Ended October 31, 2014 2015 2014 2015 Expected term (in years) — 0.4 – 1.9 — 0.4 – 1.9 Expected volatility — 49 % — 49 % Risk-free interest rate — 0.1% - 0.7 % — 0.1% - 0.7 % Dividend rate — — — — The assumptions used in the Black-Scholes option pricing model were determined as follows. Expected Term —The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions were determined based on the contractual lives of the ESPP purchase rights. Expected Volatility —Since we do not have a substantive trading history of our common stock, the expected volatility was derived from the average historical stock volatilities of several public companies within the same industry that we consider to be comparable to our business over a period equivalent to the expected term of the ESPP purchase rights. Risk-Free Interest Rate —The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the ESPP purchase rights. Dividend Rate —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. Non-Employee Stock Option Awards We granted non-employee stock options to purchase 22,500 shares of common stock during the three months ended October 31, 2015, and 7,500 and 22,500 shares of common stock during the nine months ended October 31, 2014 and 2015. No stock options were granted to non-employees during the three months ended October 31, 2014. We recognized stock-based compensation expense related to non-employee stock options of $483,000 and $93,000 for the three months ended October 31, 2014 and 2015 and $1.9 million and $975,000 for the nine months ended October 31, 2014 and 2015. Stock-Based Compensation Expense The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2014 2015 2014 2015 Cost of revenue—product $ 35 $ 43 $ 264 $ 139 Cost of revenue—support 159 657 1,057 1,511 Research and development 3,399 8,195 18,546 18,624 Sales and marketing 2,315 4,559 19,676 10,539 General and administrative 823 2,085 5,331 5,385 Total stock-based compensation expense $ 6,731 $ 15,539 $ 44,874 $ 36,198 The stock-based compensation expense for the nine months ended October 31, 2014 included $27.6 million related to the repurchase of common stock in excess of fair value in connection with a tender offer. |