Equity Incentive Plans

9 Months Ended

Oct. 31, 2019

Share-based Payment Arrangement [Abstract]

We maintain two equity incentive plans: the 2009 Equity Incentive Plan (the 2009 Plan) and the 2015 Equity Incentive Plan (the 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. The 2015 Plan provides for grants of incentive stock options to our employees and non-statutory stock options, stock appreciation rights, restricted stock, restricted stock unit awards (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 condensed consolidated statements of cash flows.

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.

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 on a prospective basis, to include an additional dollar cap of $7,500 per purchase period. The 2015 ESPP provides for a 24-month offering period beginning March 16th and September 16th of each year, and each offering period consists of four 6 months 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), resulting in a modification. 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. During the three months ended October 31, 2019, there was an ESPP reset that resulted in a modification charge of $11.4 million, which is recognized over the new offering period ending September 15, 2021.

We recognized stock-based compensation expense related to our 2015 ESPP of $11.6 million and $4.3 million during the three months ended October 31, 2018 and 2019 and $26.2 million and $20.0 million during the nine months ended October 31, 2018 and 2019. As of October 31, 2019, total unrecognized stock-based compensation cost related to 2015 ESPP was $33.1 million, which is expected to be recognized over a weighted-average period of 1.9 years.

Stock Options

A summary of 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 (In Years)	Aggregate Intrinsic Value (in thousands)
Balance as of January 31, 2019	35,465,543	$	8.34	5.4	$	339,591

Options exercised	(4,797,359)	5.42
Options forfeited/canceled	(468,544)	15.78
Balance as of October 31, 2019	30,199,640	$	8.69	3.9	$	325,184
Vested and exercisable as of October 31, 2019	25,550,655	$	7.71	4.6	$	300,257

The aggregate intrinsic value of options vested and exercisable as of October 31, 2019 is calculated based on the difference between the exercise price and the closing price of $19.46 of our Class A common stock on October 31, 2019.

As of October 31, 2019, total unrecognized employee compensation cost related to outstanding options was $15.0 million, which is expected to be recognized over a weighted-average period of 1.5 years.

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, 2019	21,917,550	$	17.94	$	392,515
Granted	10,889,807	19.35
Vested	(6,910,339)	17.21
Forfeited	(2,239,739)	18.76

Unvested balance as of October 31, 2019	23,657,279	$	18.72	$	460,371

During the three months ended October 31, 2018 and 2019, we recognized $31.2 million and $41.0 million in stock-based compensation expense relating to RSUs. During the nine months ended October 31, 2018 and 2019, we recognized $87.1 million and $118.7 million in stock-based compensation expense relating to RSUs. As of October 31, 2019, total unrecognized employee compensation cost related to unvested RSUs was $405.8 million, which is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock

In January 2019, we issued 183,902 shares of performance restricted stock, at a 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. The grant date for these shares was subsequently established when the performance condition was determined in March 2019. Any portion of shares that are not earned will be canceled.

During the nine months ended October 31, 2019, we issued 1,291,194 shares of performance restricted stock, at a 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. Any portion of shares that are not earned will be canceled. During the nine months ended

October 31, 2019, we also issued 108,494 shares of additional restricted stock earned based on the actual attainment of previously issued performance restricted stock awards.

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, 2019	2,267,569	$	18.70	$	40,612
Granted	1,399,688	20.30
Vested	(1,063,977)	19.32


Unvested balance as of October 31, 2019	2,603,280	$	19.42	$	50,660

All unvested restricted shares are subject to cancellation to the extent vesting conditions are not met. During the three months ended October 31, 2018 and 2019, we recognized $7.5 million and $4.4 million in stock-based compensation expense relating to restricted stock. During the nine months ended October 31, 2018 and 2019, we recognized $17.7 million and $19.2 million in stock-based compensation expense relating to restricted stock. As of October 31, 2019, total unrecognized employee compensation cost related to unvested restricted stock was $21.5 million, which is expected to be recognized over a weighted-average period of 2.1 years.

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,
	2018		2019		2018		2019
Cost of revenue—product	$	862	$	912	$	2,190	$	2,843
Cost of revenue—support subscription	3,327		3,517		8,940		11,101
Research and development ⁽¹⁾	24,634		27,827		67,956		85,180
Sales and marketing	18,681		16,802		49,890		51,171
General and administrative	10,825		5,171		26,962		24,495
Total stock-based compensation expense	$	58,329	$	54,229	$	155,938	$	174,790

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⁽¹⁾ Included in the three and nine months ended October 31, 2019 were $1.9 million and $4.2 million in deferred payments related to the Compuverde acquisition. See Note 4 for further details.

The tax benefit related to stock-based compensation expense for all periods presented was not material.