Equity Incentive Plans

9 Months Ended

Nov. 01, 2020

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 serves as the successor to our 2009 Plan and 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. Our equity awards generally vest over a two to four year period and expire no later than ten years from the date of grant.

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.

In conjunction with the Portworx acquisition, we assumed (i) certain options to purchase common stock outstanding under Portworx's 2014 Stock Incentive Plan and (ii) RSUs outstanding under the 2020 Portworx Equity Incentive Plan (collectively, the "Assumed Equity Awards"). The Assumed Equity Awards were converted into corresponding awards for shares of our common stock and retained substantially all of the terms and conditions under which they were granted. Approximately 3.9 million shares are reserved for issuance in connection with the Assumed Equity Awards. Refer to Note 4 for further information on the equity awards assumed resulting from the Portworx acquisition.

2015 Amended and Restated Employee Stock Purchase Plan

Under our Amended and Restated 2015 Employee Stock Purchase Plan (2015 ESPP), our board of directors (or a committee thereof) has the authority to establish the length and terms of the offering periods and purchase periods and the purchase price of the shares of common stock which may be purchased under the plan. The current offering terms allow eligible employees to purchase shares of our 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, a dollar cap of $7,500 per purchase period, or $25,000 in any calendar year (as determined under applicable tax rules). The current terms also allow for a 24-month offering period beginning March 16th and September 16th of each year, with each offering period consisting of four 6 month purchase periods, subject to a reset provision. Further, currently, on each purchase date, eligible employees may purchase our common stock at a price per share equal to 85% of the lesser of the fair market value of our common stock (1) on the first trading day of the applicable offering period or (2) the purchase date.

Under the reset provision currently authorized, 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 charge to be recognized over the new offering period. During the first quarter of fiscal 2021, there was an ESPP reset that resulted in a modification charge of $23.8 million, which is being recognized over the new offering period ending March 15, 2022.

Stock-based compensation expense related to our 2015 ESPP was $4.3 million and $6.8 million during the third quarter of fiscal 2020 and 2021, and $20.0 million and $18.8 million during the first three quarters of fiscal 2020 and 2021. At the end of the third quarter of fiscal 2021, total unrecognized stock-based compensation cost related to our 2015 ESPP was $40.9 million, which is expected to be recognized over a weighted-average period of 1.4 years.

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 (In Years)	Aggregate Intrinsic Value (in thousands)
Balance at the end of fiscal 2020	26,822,243	$	8.97	3.9	$	237,803
Options assumed in an acquisition	1,891,349	1.75
Options exercised	(4,990,458)	5.14
Options forfeited	(344,685)	16.16
Balance at the end of the third quarter of fiscal 2021	23,378,449	$	9.10	4.3	$	171,868
Vested and exercisable at the end of the third quarter of fiscal 2021	20,177,814	$	9.28	3.9	$	144,373

The aggregate intrinsic value of options vested and exercisable at the end of the third quarter of fiscal 2021 is calculated based on the difference between the exercise price and the closing price of $16.10 of our common stock on the last day of the third quarter of fiscal 2021.

The weighted-average grant date fair value of options assumed was $14.16 per share during the third quarter and first three quarters of fiscal 2021.

Stock-based compensation expense recognized related to stock options was $2.6 million and $1.6 million during the third quarter of fiscal 2020 and 2021, and $12.6 million and $5.7 million during the first three quarters of fiscal 2020 and 2021.

At the end of the third quarter of fiscal 2021, total unrecognized employee compensation cost related to outstanding options was $21.6 million, which is expected to be recognized over a weighted-average period of 2.3 years.

RSUs and PRSUs

A summary of the RSU and PRSU activity under our equity incentive plans and related information is as follows:


	Number of RSUs and PRSUs Outstanding	Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands)
Unvested balance at the end of fiscal 2020	25,434,597	$	18.72	$	452,736
Granted	16,650,722	11.73
Assumed in an acquisition	2,016,061	15.79
Vested	(8,445,201)	16.95
Forfeited	(2,308,191)	16.94

Unvested balance at the end of the third quarter of fiscal 2021	33,347,988	$	15.62	$	536,903

During the third quarter and first three quarters of fiscal 2021, we issued 179,616 and 1,631,512 shares of performance RSUs (PRSUs), at a target percentage of 100%, with both performance and service vesting conditions payable in common stock, from 0% to 125% 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.

Stock-based compensation expense recognized related to RSUs and PRSUs was $41.0 million and $50.4 million during the third quarter of fiscal 2020 and 2021, and $118.7 million and $147.4 million during the first three quarters of fiscal 2020 and 2021. At the end of the third quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested RSUs was $476.6 million, which is expected to be recognized over a weighted-average period of 2.8 years.

Restricted Stock

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 at the end of fiscal 2020	2,127,206	$	19.58	$	37,684

Vested	(1,031,540)	19.60
Forfeited/canceled	(316,965)	20.38

Unvested balance at the end of the third quarter of fiscal 2021	778,701	$	19.23	$	12,537

All unvested shares of restricted stock are subject to cancellation to the extent vesting conditions are not met. Stock-based compensation expense recognized related to restricted stock was $4.4 million and $0.8 million during the third quarter of fiscal 2020 and 2021, and $19.2 million and $7.9 million during the first three quarters of fiscal 2020 and 2021. At the end of the third quarter of fiscal 2021, total unrecognized employee compensation cost related to unvested restricted stock was $4.4 million, which is expected to be recognized over a weighted-average period of 1.2 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):


	Third Quarter of Fiscal				First Three Quarters of Fiscal
	2020		2021		2020		2021
Cost of revenue—product	$	912	$	1,027	$	2,843	$	3,013
Cost of revenue—subscription services	3,517		3,883		11,101		10,961
Research and development	27,827		29,220		85,180		87,770
Sales and marketing	16,802		14,898		51,171		48,018
General and administrative	5,171		10,581		24,495		29,993
Total stock-based compensation expense	$	54,229	$	59,609	$	174,790	$	179,755

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