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). The 2015 Plan became effective in connection with our initial public offering (IPO) in October 2015 and serves as the successor to our 2009 Plan. Our 2015 Plan provides for grants of incentive stock options to our employees and non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance stock awards, performance cash awards, and other forms of stock awards to our employees, directors and consultants. No new awards have been 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.

Starting in December 2018, we net-share settle equity awards held by certain employees by withholding shares upon vesting to satisfy tax withholding obligations. The shares withheld to satisfy employee tax withholding obligations are returned to our 2015 Plan and will be available for future issuance. Payments for employees’ tax obligations to the tax authorities are recognized as a reduction to additional paid-in capital and reflected as a financing activity in our consolidated statements of cash flows.

We initially reserved 27,000,000 shares of our Class A common stock for issuance under our 2015 Plan. The number of shares reserved for issuance under our 2015 Plan increases automatically on the first day of February of each of 2016 through 2025, in an amount equal to 5% of the total number of shares of our capital stock outstanding as of the immediately preceding January 31.

The exercise price of stock options will generally not be less than 100% of the fair market value of our common stock on the date of grant, as determined by our board of directors. Our equity awards generally vest over a two to four year period and expire no later than ten years from the date of grant.

2015 Employee Stock Purchase Plan

Our 2015 Employee Stock Purchase Plan (2015 ESPP) became effective in connection with our IPO. A total of 3,500,000 shares of Class A common stock was initially reserved for issuance under the 2015 ESPP. The number of shares reserved for issuance under our 2015 ESPP increases automatically on the first day of February of each of 2016 through 2025, in an amount equal to the lesser of (i) 1% of the total number of shares of our capital stock outstanding as of the immediately preceding January 31, and (ii) 3,500,000 shares of Class A common stock.

The 2015 ESPP allows eligible employees to purchase shares of our Class A common stock at a discount through payroll deductions 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). In February 2019, we amended the ESPP to include, on a prospective basis, a dollar cap of $7,500 per purchase period. The 2015 ESPP provides for 24 month offering periods beginning March 16th and September 16th of each year, and each offering period consists of four six-month purchase periods, subject to a reset provision. If the closing stock price on the offering date of a new offering falls below the closing stock price on the offering date of an ongoing offering, the ongoing offering would terminate immediately following the purchase of ESPP shares on the purchase date immediately preceding the new offering and participants in the terminated ongoing offering would automatically be enrolled in the new offering (ESPP reset). 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.

Since inception, we have had two ESPP resets that have resulted in modification charges. The first ESPP reset occurred in March 2016 and resulted in a modification charge of $10.6 million. The second ESPP reset occurred in March 2017 and resulted in a modification charge of $9.0 million that is being recognized over the new offering period ending March 15, 2019.

During the years ended January 31, 2017, 2018 and 2019, we recognized $18.3 million, $18.3 million and $35.4 million, of stock-based compensation expense related to our 2015 ESPP. As of January 31, 2019, there was $18.4 million of unrecognized stock-based compensation expense related to our 2015 ESPP which is expected to be recognized over a weighted-average period of approximately 0.9 years.

Early Exercise of Stock Options

Certain employees and directors exercised options granted under the 2009 Plan prior to vesting. The unvested shares were subject to a repurchase right held by us at the original purchase price. The proceeds initially were recorded as a liability related to early exercised stock options and reclassified to additional paid-in capital as the repurchase right lapsed. No unvested stock options were exercised during the years ended January 31, 2017, 2018 and 2019. No shares were repurchased during the years ended January 31, 2017, 2018 and 2019. As of January 31, 2018, 85,262 shares held by employees were subject to repurchase, all of which vested during the year ended January 31, 2019. As of January 31, 2018, the liability balance related to early exercised stock options was $0.3 million and included in accrued expenses and other liabilities on our consolidated balance sheet.

Stock Options

A summary of the stock option 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 (Years)	Aggregate Intrinsic Value (in thousands)
Balance as of January 31, 2018	46,359,949		$	7.75	6.3	$	574,224
Options exercised	(9,397,220	)	5.08
Options forfeited/canceled	(1,497,186	)	10.55
Balance as of January 31, 2019	35,465,543		$	8.34	5.4	$	339,591
Vested and exercisable as of January 31, 2019	26,592,658		$	6.76	5.1	$	296,710

The aggregate intrinsic value of options vested and exercisable as of January 31, 2019 is calculated based on the difference between the exercise price and the closing price of $17.91 of our Class A common stock on January 31, 2019. The aggregate intrinsic value of options exercised for the years ended January 31, 2017, 2018 and 2019 was $114.2 million, $104.9 million and $165.0 million.

The weighted-average grant date fair value of options granted was $5.57 per share for each of the years ended January 31, 2017 and 2018. The total grant date fair value of options vested for the years ended January 31, 2017, 2018 and 2019 was $61.8 million, $42.5 million and $45.6 million.

As of January 31, 2019, total unamortized stock-based compensation expense related to our employee stock options was $32.3 million, which is expected to be recognized over a weighted-average period of approximately 1.8 years.

During the year ended January 31, 2016, we granted options to purchase 238,000 shares of common stock, net of cancellations, that vest upon satisfaction of performance and service conditions. For those options that management determined that the performance condition was satisfied, stock-based compensation expense of $3.3 million, $0.6 million and $0.3 million was recognized during the years ended January 31, 2017, 2018 and 2019. As of January 31, 2018 and 2019, there were no outstanding stock options subject to performance vesting conditions.

In November 2016, we modified employee stock option awards to purchase 800,000 shares of our common stock. The modification included an immediate acceleration of performance-based options to purchase 360,000 shares of common stock and an acceleration of time-based options to purchase 440,000 shares of common stock contingent on continued employment through January 31, 2017. This modification resulted in stock-based compensation expense of $5.9 million that was recognized during the year ended January 31, 2017.

Determination of Fair Value

The fair value of stock options granted to employees and 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 the fair value of the underlying common stock, expected term, the expected volatility of the common stock, a risk-free interest rate and expected dividend yield.

We estimate the fair value of employee stock options and ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:



	Year Ended January 31,
	2017		2018		2019
Employee Stock Options
Expected term (in years)	6.1		6.1		n/a
Expected volatility	44	%	47	%	n/a
Risk-free interest rate	1.3% - 1.5%		1.9	%	n/a
Dividend rate	—		—		n/a
Fair value of common stock	$10.37 - $14.52		$12.84		n/a
Employee Stock Purchase Plan
Expected term (in years)	0.5 - 2.0		0.5 - 2.0		0.5 - 2.0
Expected volatility	41	%	35% - 39%		44% - 47%
Risk-free interest rate	0.5% - 0.9%		0.9% - 1.4%		2.0% - 2.8%
Dividend rate	—		—		—
Fair value of common stock	$12.36 - $13.72		$10.39 - $14.65		$20.62 - $27.66

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 of 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 stock-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 ESPP purchase rights.

Expected Volatility—Starting in fiscal 2019, the expected volatility for ESPP purchase rights is based on the historical volatility of our Class A common stock for a period equivalent to the expected term of the ESPP purchase rights. Prior to fiscal 2019, since we have limited 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 stock option grants and 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 stock option grants and 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.

RSUs

A summary of the RSU activity under our 2015 Plan and related information is as follows:



	Number of RSUs Outstanding		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)
Unvested balance as of January 31, 2018	17,682,646		$	12.60	$	356,117
Granted	15,891,112		20.73
Vested	(8,403,422	)	13.24
Forfeited	(2,109,948	)	16.09
Converted	(1,142,838	)	11.86
Unvested balance of January 31, 2019	21,917,550		$	17.94	$	392,515

In March 2017, we granted 750,000 performance RSUs (net of approximately 77,000 canceled units), at a target percentage of 100%, with both performance and service vesting conditions payable in common shares, from 0% to 150% of the target number granted, contingent upon the degree to which the performance condition is met. In March 2018, a total of 780,000 shares was earned based on the performance condition achieved and a portion of these shares were contemporaneously converted to restricted stock— see below for further discussion. The remaining shares are subject to service conditions through the vesting periods. Stock-based compensation expense related to these units was $4.2 million and $2.2 million for the years ended January 31, 2018 and 2019.

In August 2017, we granted 464,744 performance RSUs, at a target percentage of 100%, with both performance and service vesting conditions payable in common shares, from 0% to 150% of the target number granted, contingent upon the degree to which the performance condition is met. Because the performance condition for these units was not established as of January 31, 2018, there was no grant date from an accounting perspective and no stock-based compensation expense was recognized for the year ended January 31, 2018. The grant date for these awards was subsequently established when the performance condition was determined in March 2018, and these awards were contemporaneously converted to restricted stock— see below for further discussion.

The aggregate fair value, as of the respective vesting dates, of restricted stock units that vested during the years ended January 31, 2017, 2018 and 2019 was $14.8 million, $75.5 million and $184.8 million.

There were no outstanding performance RSUs as of January 31, 2019. As of January 31, 2019, total unrecognized employee compensation cost related to unvested RSUs was $355.8 million, which is expected to be recognized over a weighted-average period of approximately 3.0 years.

Restricted Stock

In March 2018, we converted certain RSUs and performance RSUs that were previously granted into 1,375,210 shares of restricted stock for corporate tax benefit purposes. Of the 1,375,210 shares of restricted stock, 697,116 shares are performance restricted stock and 678,094 shares are subject to service vesting conditions only. The conversion did not change the fair value or vesting conditions and therefore no modification accounting was required. For the performance restricted stock, 486,501 shares were earned as of January 31, 2019 based on the performance condition achieved and these shares are subject to a service condition through the vesting period. The remaining shares were canceled.

During the year ended January 31, 2019, we granted an aggregate of 2,138,810 shares of performance restricted stock as follows:

•1,954,908 were issued at the maximum target percentage of 180%, with both performance and service vesting conditions payable in common shares, from 0% to 180% of the target number granted, contingent upon the degree to which the performance condition is met. The shares may be earned from 0% to 180%. A total of 1,172,945 shares were earned as of January 31, 2019 based on the performance condition achieved and these shares are subject to service conditions through the vesting periods. The remaining shares were canceled.

•183,902 shares were issued at the target percentage of 100%, with both performance and service vesting conditions payable in common shares, from 0% to 160% of the target number granted, contingent upon the degree to which the performance condition is met. Because the performance condition for these shares was not established as of January 31, 2019, there was no grant date from an accounting perspective and no stock-based compensation expense was recognized. Also, no grant date fair value was considered in the calculation of weighted-average grant date fair value in the table below.

A summary of the restricted stock activity under our 2015 Plan and related information is as follows:



	Number of Restricted Stock Outstanding		Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)
Unvested Balance as of January 31, 2018	—		$	—	$	—
Granted and converted	3,514,020		19.25
Vested	(145,232	)	12.84
Forfeited/canceled	(1,101,219	)	21.15
Unvested Balance as of January 31, 2019	2,267,569		$	18.70	$	40,612

All unvested shares of restricted stock are subject to cancellation to the extent vesting conditions are not met. The aggregate fair value of restricted stock that vested during the year ended January 31, 2019 was $3.6 million.

During the year ended January 31, 2019, we recognized $23.3 million in stock-based compensation expense related to restricted stock. As of January 31, 2019, total unrecognized employee compensation cost related to unvested restricted stock was $18.5 million, which is expected to be recognized over a weighted-average period of approximately 2.2 years.

Stock-Based Compensation Expense

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



	Year Ended January 31,
	2017		2018		2019
Cost of revenue—product	$	601	$	1,630	$	2,951
Cost of revenue—support subscription	5,639		9,050		12,378
Research and development	63,495		71,229		92,484
Sales and marketing	34,317		47,687		66,350
General and administrative	12,616		21,077		36,482
Total stock-based compensation expense	$	116,668	$	150,673	$	210,645