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 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 will be 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. Options and restricted stock units generally vest 25% one year from the vesting commencement date and (a) in the case of options, 1/48^th per month thereafter, and (b) in the case of restricted stock units, 1/16th per quarter thereafter. As of July 31, 2016, 18,203,062 shares were reserved for future issuance under the 2015 Plan.

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. Except for the initial offering period, the 2015 ESPP provides for 24-month offering periods beginning March 16 and September 16 of each year, and each offering period will consist of four six-month purchase periods.

On each purchase date, eligible employees will 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 July 31, 2016, 3,138,536 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 Subject to Options Outstanding					Weighted-Average
				Weighted-		Remaining
				Average Exercise		Contractual Life		Aggregate
	Shares			Price		(Years)		Intrinsic Value
								(in thousands)
Balance as of January 31, 2016		15,634,518		$	6.92		7.12	$	82,541
Options granted		468,136			11.99
Option exercised		(1,676,632	)		2.51
Options forfeited/cancelled		(1,162,383	)		13.05
Balance as of July 31, 2016		13,263,639		$	7.12		6.76	$	75,120
Vested and expected to vest as of July 31, 2016		13,096,353		$	7.06		6.74	$	74,772
Exercisable as of July 31, 2016		9,529,567		$	5.40		6.25	$	67,350

The aggregate intrinsic value of options vested and expected to vest and exercisable as of July 31, 2016 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 six months ended July 31, 2016 and 2015 was $15.4 million and $11.3 million, respectively. The aggregate estimated fair value of stock options granted to employees that vested during the six months ended July 31, 2016 and 2015 was $9.6 million and $9.8 million, respectively. The weighted-average grant date fair value of options granted to employees during the six months ended July 31, 2016 and 2015 was $5.10 and $7.56 per share, respectively.

As of July 31, 2016, there was $18.7 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 2.26 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, 2016		8,204,968		$	15.54
Granted		4,644,607			12.19
Vested, net of shares withheld for employee payroll taxes		(1,012,038	)		16.37
Forfeited/cancelled, including shares withheld for employee payroll taxes		(2,166,582	)		15.38
Unvested balance - July 31, 2016		9,670,955		$	13.88

As of July 31, 2016, there was $122.3 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 2.87 years.

Restricted Stock Awards

The following table summarizes the restricted stock activity under the equity incentive plans and related information:

	Number of			Weighted-
	Restricted			Average
	Stock			Grant Date
	Outstanding			Fair Value
Unvested balance - January 31, 2016		30,607		$	11.38
Vested, net of shares withheld for employee payroll taxes		(15,920	)		11.21
Forfeited/cancelled, including shares withheld for employee payroll taxes		(2,783	)		9.77
Unvested balance - July 31, 2016		11,904		$	11.99

As of July 31, 2016, unrecognized stock-based compensation expense related to outstanding restricted stock granted to employees that is expected to be recognized over a weighted-average period of 0.80 year was immaterial.

In addition, in connection with our fiscal 2015 acquisitions, we issued 344,667 shares of restricted stock awards with a weighted-average grant date fair value of $12.96 per share. These restricted stock awards were separately authorized by our board of directors, and did not reduce the number of shares available for future issuance under our equity incentive plans.

As of July 31, 2016, there was $1.4 million of unrecognized stock-based compensation expense related to outstanding restricted stock awards granted outside of the equity incentive plans that is expected to be recognized over a weighted-average period of 1.20 years. In addition, there were 220,207 unvested shares as of July 31, 2016.

As of July 31, 2016, there was $0.5 million of unrecognized stock-based compensation related to 42,137 shares of contingently issuable and unvested common stock for certain bonus awards given in connection with our fiscal 2016 and 2015 acquisitions that is expected to be recognized over a weighted-average period of 0.92 year.

2015 ESPP and Other

As of July 31, 2016, there was $11.4 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.

Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense recognized in the consolidated statements of operations (in thousands):

	Three Months Ended				Six Months Ended
	July 31,				July 31,
	2016		2015		2016		2015
Cost of revenue	$	1,830	$	1,041	$	3,342	$	1,892
Research and development		7,348		6,303		13,872		11,566
Sales and marketing		6,416		4,742		11,646		9,025
General and administrative		3,470		2,642		6,293		4,960
Total stock-based compensation	$	19,064	$	14,728	$	35,153	$	27,443

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:

	Three Months Ended										Six Months Ended
	July 31,										July 31,
	2016					2015					2016					2015
Employee Stock Options
Expected term (in years)		5.5		-	6.0		5.5		-	6.1		5.5		-	6.0		5.5		-	6.1
Risk-free interest rate		1.3	%	-	1.5%		1.8	%	-	1.9%		1.3	%	-	1.5%		1.6	%	-	1.9%
Volatility					43%		42	%	-	43%					43%		42	%	-	44%
Dividend yield					0%					0%					0%					0%
Employee Stock Purchase Plan
Expected term (in years)		0.5		-	2.0	0.5			-	2.0		0.5		-	2.0	0.5			-	2.0
Risk-free interest rate		0.5	%	-	0.9%		0.2	%	-	0.7%		0.5	%	-	0.9%		0.2	%	-	0.7%
Volatility		46	%	-	60%		39	%	-	41%		46	%	-	60%		39	%	-	41%
Dividend yield					0%					0%					0%					0%

The assumptions used in the Black-Scholes option pricing model were determined as follows:

Fair Value of Common Stock. Prior to our IPO in January 2015, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date. These factors included, but were not limited to, (i) contemporaneous valuations of our common stock performed by unrelated third-party specialists; (ii) the prices for our redeemable convertible preferred stock sold to outside investors; (iii) the rights, preferences and privileges of our redeemable convertible preferred stock relative to our common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an IPO or a merger or acquisition, given prevailing market conditions.

Subsequent to the completion of our IPO, 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. Since we do not have sufficient trading history of our common stock, the expected volatility was derived from the historical stock volatilities of several unrelated 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 stock option grants and 2015 ESPP purchase rights.

Risk-free Interest Rate. The risk-free rate that we use is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

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.