Note 10. 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 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. 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 per month thereafter, and (b) in the case of restricted stock units, 1/16th per quarter thereafter. As of January 31, 2018, 16,772,606 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 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 January 31, 2018, 2,202,188 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		1,018,136			13.88
Option exercised		(2,908,077	)		3.81
Options forfeited/cancelled		(1,425,777	)		13.68
Balance as of January 31, 2017		12,318,800		$	7.44		6.42	$	119,606
Options granted		1,533,056			17.46
Option exercised		(2,098,726	)		6.94
Options forfeited/cancelled		(910,010	)		15.03
Balance as of January 31, 2018		10,843,120		$	8.32		5.74	$	150,922
Vested and expected to vest as of January 31, 2018		10,750,742		$	8.26		5.71	$	150,334
Exercisable as of January 31, 2018		8,703,037		$	6.46		5.07	$	137,306

The aggregate intrinsic value of options vested and expected to vest and exercisable as of January 31, 2018 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 years ended January 31, 2018, 2017 and 2016 was $25.6 million, $26.9 million and $24.8 million, respectively. The aggregate estimated fair value of stock options granted to employees that vested during the years ended January 31, 2018, 2017 and 2016 was $9.0 million, $15.2 million and $16.7 million, respectively. The weighted-average grant date fair value of options granted to employees during the years ended January 31, 2018, 2017 and 2016 was $7.04, $5.77 and $6.72 per share, respectively.

As of January 31, 2018, there was $11.5 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 2.48 years.

In April 2017, the compensation committee of our board of directors approved and granted 475,000 performance-based stock options under the 2015 Plan to certain executive officers where vesting is subject to both the continued employment of the participant and the achievement of market-based performance goals established by the compensation committee. Subject to the achievement of the performance goals, 25% of the performance-based options vest one year from the vesting commencement date, and 1/48^th continue to vest each month thereafter. The grant date fair value of these awards was determined using a Monte Carlo valuation model. As of January 31, 2018, these market-based performance goals were not met. During the year ended January 31, 2018, 250,000 performance-based stock options were forfeited in connection with a participant’s resignation of employment.

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		9,078,555			14.15
Vested, net of shares withheld for employee payroll taxes		(1,994,363	)		15.33
Forfeited/cancelled		(3,466,844	)		14.97
Unvested balance - January 31, 2017		11,822,316		$	14.67
Granted		7,807,240			18.11
Vested, net of shares withheld for employee payroll taxes		(3,007,876	)		14.68
Forfeited/cancelled		(2,002,428	)		15.24
Unvested balance - January 31, 2018		14,619,252		$	16.42

As of January 31, 2018, there was $186.2 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 2.84 years.

2015 ESPP and Other

As of January 31, 2018, there was $6.3 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):

	Year Ended
	January 31,
	2018		2017		2016
Cost of revenue	$	10,742	$	7,882	$	4,664
Research and development		37,733		30,796		24,696
Sales and marketing		31,742		26,142		19,530
General and administrative		17,268		13,552		10,614
Total stock-based compensation	$	97,485	$	78,372	$	59,504

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:

	Year Ended
	January 31,
	2018						2017						2016
Employee Stock Options
Expected term (in years)		5.5		–		6.1		5.5		–		6.0		5.5		–		6.1
Risk-free interest rate		1.8	%	–	2.1%			1.3	%	–	2.0%			1.5	%	–	1.9%
Volatility		38	%	–	40%			40	%	–	43%			42	%	–	44%
Dividend yield					0%						0%						0%
Employee Stock Purchase Plan
Expected term (in years)		0.5		–		2.0	0.5			–		2.0	0.5			–		2.0
Risk-free interest rate		0.9	%	–	1.4%			0.5	%	–	0.9%			0.2	%	–	0.8%
Volatility		28	%	–	43%			39	%	–	60%			33	%	–	41%
Dividend yield					0%						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. Since we do not have sufficient trading history of our common stock to estimate the expected volatility of the stock option grants, we determine the expected volatility of the stock option grants based on 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. We estimated the expected volatility of 2015 ESPP purchase rights based on the historical volatility of our common stock.

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.