Note 11. Common Stock and Stockholders’ Equity (Deficit)

Common Stock

Each share of common stock has the right to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No dividends have been declared or paid since inception.

Preferred Stock

As of January 31, 2017, the Company had authorized 25,000,000 shares of preferred stock, par value $0.0001, of which no shares were issued and outstanding.

2016 Equity Incentive Plan

The 2016 Equity Incentive Plan, or 2016 Plan, was approved by the Company’s stockholders in September 2016. The 2016 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights and performance cash awards. Awards could be granted under the 2016 Plan beginning on the effective date of the registration statement, October 5, 2016. The 2016 Plan replaced the Company’s 2006 Stock Plan, however awards outstanding under the 2006 Stock Plan will continue to be governed by their existing terms.

The Company has reserved 4,500,000 shares of its common stock for issuance under the 2016 Plan, plus up to 13,750,000 shares subject to awards outstanding under its 2006 Plan on October 5, 2016, that subsequently expire, lapse unexercised, are forfeited or are repurchased by the Company. The number of shares reserved for issuance under the 2016 Plan will automatically increase on the first day of each fiscal year during the term of the 2016 Plan by a number of shares equal to 5% of its outstanding shares of common stock on the last day of the prior fiscal year. The number and class of shares reserved under the Company’s 2016 Plan will be adjusted in the event of a stock split, stock dividend or other changes in its capitalization.

The following table summarizes stock option activity under the Company’s 2006 Stock Plan and the 2016 Plan during the year ended January 31, 2017 (aggregate intrinsic value in thousands):

	Options Outstanding
	Outstanding Stock Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Balance, January 31, 2016		9,543,966		$	2.84		8.08	$	47,658
Option grants		5,573,721		$	9.75
Options exercised		(1,184,708	)	$	3.59
Options forfeited		(916,577	)	$	4.72
Balance, January 31, 2017		13,016,402		$	5.60		7.92	$	265,542
Vested and expected to vest at January 31, 2017		12,043,481		$	5.34		7.84	$	248,821
Exercisable at January 31, 2017		6,859,340		$	3.63		7.18	$	153,406

The options exercisable as of January 31, 2017 include options that are exercisable prior to vesting. The aggregate intrinsic value of options vested and expected to vest and exercisable as of January 31, 2017 is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of January 31, 2017. The aggregate intrinsic value of exercised options was $11.0 million, $5.5 million and $2.6 million for the years ended January 31, 2017, 2016 and 2015, respectively, and is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date.

The weighted-average grant date fair value of options granted for the years ended January 31, 2017, 2016 and 2015 was $4.65, $2.28 and $1.24 per share, respectively.

The total grant date fair value of options vested during fiscal 2017, 2016 and 2015 was $5.8 million, $2.4 million and $1.2 million, respectively.

For the years ended January 31, 2017 and 2016, 83,500 and 16,250 options were granted to non-employees, respectively.

Early Exercises of Stock Options

Certain option grants under the 2006 Stock Plan are allowed to be exercised prior to vesting. The unvested shares of common stock exercised are subject to the Company’s right to repurchase at the lower of the original exercise price or the fair market value of the share at the time the repurchase right is exercised. Early exercises of options are not deemed to be substantive exercises for accounting purposes and accordingly, amounts received for early exercises are initially recorded in accrued expenses and other current liabilities and reclassified to additional paid-in capital as the underlying shares vest. At January 31, 2017 and 2016, the Company had $2.6 million and $1.1 million, respectively, recorded in accrued expenses and other current liabilities related to early exercises of stock options, and the related number of unvested shares subject to repurchase was 255,529 and 208,008, respectively.

Restricted Stock Units (“RSUs”)

The following table summarizes the activity related to the Company’s RSUs:

	Number of RSUs Outstanding			Weighted-Average Grant Date Fair Value
Awarded and unvested at January 31, 2016		62,500		$	5.20
Awards granted		52,466		$	26.12
Awards vested		(27,343	)	$	5.36
Awards forfeited		(9,740	)	$	12.14
Awarded and unvested at January 31, 2017		77,883		$	18.38

2016 Employee Stock Purchase Plan

The board of directors adopted the 2016 Employee Stock Purchase Plan, or ESPP, in September 2016 and it has been approved by the Company’s stockholders. The ESPP allows eligible employees to purchase shares of common stock through payroll deductions and is intended to qualify under Section 423 of the Internal Revenue Code.

The Company has reserved 818,750 shares of its common stock for issuance under the ESPP. The number of shares reserved for issuance under the ESPP will automatically increase on the first day of each fiscal year during the term of the ESPP by a number of shares equal to the least of (i) 1% of its outstanding shares of common stock on the last day of the prior fiscal year, (ii) 1,250,000 shares or (iii) a lesser number of shares determined by the board of directors. The number and class of shares reserved under the ESPP will be adjusted in the event of a stock split, stock dividend or other changes in its capitalization.

Each offering period will last a number of months determined by the administrator, up to a maximum of 27 months. The initial offering period began on the effective date of IPO, October 5, 2016, and ends on September 15, 2018, and new 24 month offering periods will begin on each March 16 and September 16 thereafter. Currently each offering period consists of four consecutive purchase periods, of approximately 6 months duration, at the end of which payroll contributions are used to purchase shares of the Company’s common stock. Participants may purchase Company’s common stock through payroll deductions, up to a maximum of 15% of their eligible compensation. Participants may withdraw from the ESPP and receive a refund of their accumulated payroll contributions at any time prior to a purchase date. Unless changed by the administrator, the purchase price for each share of common stock purchased under the ESPP will be 85% of the lower of the fair market value per share on the first day of the applicable offering period (or, in the case of the initial offering period, the price at which one share of common stock is offered to the public in its IPO) or the fair market value per share on the applicable purchase date.

As of January 31, 2017, no shares of common stock were purchased under the 2016 ESPP. The Company selected the Black-Scholes option-pricing model as the method for determining the estimated fair value for the Company’s 2016 ESPP. As of January 31, 2017, total unrecognized compensation cost related to 2016 ESPP was $8.1 million, net of estimated forfeitures, which will be amortized over a weighted-average period of 1.62 years.

Market-based Options

In September 2016, the Board of Directors of the Company granted 544,127 stock options to the Chief Executive Officer (2016 CEO Grant) under the 2006 Equity Plan with an exercise price of $13.04 per share. The 2016 CEO Grant is eligible to vest based on the achievement of stock price appreciation targets after the consummation of the initial public offering, as well as continuous service over a four-year period following the grant date. The fair value of the 2016 CEO Grant was determined using a Monte Carlo simulation approach. The Company amortizes the fair value of the option award using the graded-vesting method, adjusted for estimated forfeitures. For the year ended January 31, 2017, the total stock-based compensation expense recognized was $417,000. As of January 31, 2017, one of three performance-based milestones has been achieved, resulting in 18,137 shares being vested and exercisable at January 31, 2017.

Stock-based Compensation

The Company’s total stock-based compensation expense was as follows (in thousands):

	For the year ended
	January 31,
	2017		2016		2015
Cost of revenue:
Subscription services	$	715	$	235	$	109
Professional services and other		772		1,014		110
Research and development		1,766		1,236		337
Sales and marketing		3,130		1,347		433
General and administrative		3,069		6,736		818
Total	$	9,452	$	10,568	$	1,807

Stock-based compensation capitalized in capitalized software development costs was $224,000 and $125,000 at January 31, 2017 and 2016, respectively.

Of the total stock-based compensation expenses, costs recognized for options granted to non-employees were immaterial for all periods presented.

As of January 31, 2017 there was approximately $22.7 million of total unrecognized compensation cost related to unvested stock options granted to employees and non-employee service providers under the 2006 Stock Plan and 2016 Equity Incentive Plan. This unrecognized compensation cost is expected to be recognized over an estimated weighted-average amortization period of approximately 2.66 years.

The fair values of the Company’s stock options granted during the years ended January 31, 2017, 2016 and 2015 were estimated using the following assumptions:

	For the year ended
	January 31,
	2017		2016		2015
Employee Stock Options
Expected term (years)	6.00		5.70 - 6.00		6.08
Volatility		48%		48%	48% - 52%
Weighted average volatility		48%		48%		51%
Risk-free interest rate	1.27% - 2.08%		1.62% - 1.94%		1.80% - 2.00%
Dividend yield		0%		0%		0%
Employee Stock Purchase Plan
Expected term (years)	0.41 - 1.91			—		—
Volatility		48%		—		—
Weighted average volatility		48%		—		—
Risk-free interest rate	0.48% - 0.81%			—		—
Dividend yield		0%		—		—
Market-Based Options
Expected term (years)	7.36			—		—
Volatility		48%		—		—
Weighted average volatility		48%		—		—
Risk-free interest rate		1.61%		—		—
Dividend yield		0%		—		—

These assumptions and estimates are as follows:

•

Fair Value of Common Stock. Prior to the initial public offering, the fair value of the shares of common stock underlying stock options has been established by the Company’s board of directors, which was responsible for these estimates, and had been based in part upon a valuation provided by a third-party valuation firm. Because there has been no public market for the Company’s common stock, its board of directors considered this independent valuation and other factors, including, but not limited to, revenue growth, the current status of the technical and commercial success of its operations, its financial condition, the stage of development and competition to establish the fair value of the Company’s common stock at the time of grant of the option. After the initial public offering, the Company used the publicly quoted price as reported on the Nasdaq Global Select Market as the fair value of its common stock.

•

Expected Term. The expected term represents the weighted-average period that the stock options are expected to remain outstanding. To determine the expected term, the Company generally applies the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award as the Company does not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term.

•

Risk-Free Interest Rate. The Company bases the risk-free interest rate on the yields of U.S. Treasury securities with maturities approximately equal to the term of employee stock option awards.

•

Expected Volatility. As the Company does not have an extensive trading history for its common stock, the expected volatility for its common stock has been estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option awards. Industry peers consist of several public companies in its industry which are either similar in size, stage of life cycle or financial leverage.