Stock-Based Compensation

6 Months Ended

Jul. 31, 2019

Stock-Based Compensation

Stock-Based Compensation

9.  Stock-Based Compensation

Stock Incentive Plan

In May 2019, the Company’s board of directors adopted, and the stockholders approved the CrowdStrike Holdings, Inc. 2019 Equity Incentive Plan (the "2019 Plan") with the purpose of granting stock-based awards to employees, directors, officers and consultants, including stock options, restricted stock awards, restricted stock units and performance-based restricted stock units. A total of 8,750,000 shares of Class A common stock were initially available for issuance under the 2019 Plan. The Company’s compensation committee administers the 2019 Plan. The number of shares of our common stock available for issuance under the 2019 Plan is subject to an annual increase on the first day of each fiscal year beginning on February 1, 2020, equal to the lesser of: (i) two percent (2%) of outstanding shares of the Company’s capital stock as of the last day of the immediately preceding fiscal year or (ii) such other amount as our board of directors may determine.

The 2011 Plan was terminated on June 10, 2019, which was the business day prior to the effectiveness of the Company's registration statement on Form S-1 used in connection with the Company's IPO, and stock-based awards are no longer granted under the 2011 Plan. Any shares underlying stock options that expire or terminate or are forfeited or repurchased under the 2011 Plan will be automatically transferred to the 2019 Plan. The maximum number of shares of common stock, that could have been issued pursuant to the 2011 Plan was 79,498,016 as of January 31, 2019.

Stock Options

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The expected term represents the period that the Company’s 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. The expected stock price volatility is based upon comparable public company data. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated option life.

The fair value of each option was estimated on the date of grant using the following assumptions during the period:

	Six Months Ended July 31,
	2019		2018
Expected term (in years)	6.05		6.05
Risk-free interest rate	2.0	%	2.9	%
Expected stock price volatility	37.7	%	38.1	%
Dividend yield	—	%	—	%

The following table is a summary of stock option activity for the six months ended July 31, 2019:

		Weighted-
		Average
	Number of	Exercise Price
	Shares	Per Share
	(in thousands)
Options outstanding at January 31, 2019	26,535	$	3.87
Granted	880	$	14.65
Exercised	(706)	$	2.14
Canceled	(509)	$	7.34
Options outstanding as of April 30, 2019	26,200	$	4.21
Granted	168	$	34.00
Exercised	(4,776)	$	3.62
Canceled	(325)	$	5.06
Options outstanding at July 31, 2019	21,267	$	4.56
Options vested and expected to vest at July 31, 2019	21,267	$	4.56
Options exercisable at July 31, 2019	10,810	$	1.97

Options exercisable include 1,107,201 options that were unvested as of July 31, 2019.

The aggregate intrinsic value of options vested and exercisable was $1,034 million and $181.1 million as of July 31, 2019 and January 31, 2019, respectively. The weighted-average remaining contractual term of options vested and exercisable was 6.5 years and 7.1 years as of July 31, 2019 and January 31, 2019, respectively.

The weighted-average grant date fair values of all options granted was $13.45 and $5.36 per share during the three months ended July 31, 2019 and July 31, 2018, respectively, and $9.51 and $5.36 per share during the six months ended July 31, 2019 and July 31, 2018, respectively. The total intrinsic value of all options exercised was $80.9 million and $6.6 million during the three months ended July 31, 2019 and July 31, 2018, respectively, and $89.7 million and $7.6 million during the six months ended July 31, 2019 and July 31, 2018, respectively.

The aggregate intrinsic value of stock options outstanding as of July 31, 2019 and January 31, 2019 was $1,797.2 million and $286.1 million, respectively, which represents the excess of the fair value of the Company’s common stock over the exercise price of the options multiplied by the number of options outstanding. The

weighted-average remaining contractual term of stock options outstanding was 7.5 years and 7.9 years as of July 31, 2019 and January 31, 2019, respectively.

Total unrecognized stock-based compensation expense related to unvested options was $44.5 million as of July 31, 2019. This expense is expected to be amortized on a straight-line basis over a weighted-average vesting period of 2.5 years. Total unrecognized stock-based compensation expense related to unvested options was $45.8 million as of January 31, 2019. This expense is expected to be amortized on a straight-line basis over a weighted-average vesting period of 3.4 years.

Early Exercise of Employee Options

The 2011 Stock Plan allows for the early exercise of stock options for certain individuals as determined by the Board of Directors. The consideration received for an early exercise of an option is a deposit of the exercise price and the related dollar amount is recorded as a liability for early exercise of unvested stock options in the condensed consolidated balance sheets. This liability is reclassified to additional paid-in capital as the awards vest. If a stock option is early exercised, the unvested shares may be repurchased by the Company in case of employment termination or for any reason, including death and disability, at the price paid by the purchaser for such shares. During both the three months ended July 31, 2019 and the six months ended July 31, 2019, the Company issued 1,037,356 shares of common stock related to early exercised stock options. As of July 31, 2019, the number of shares of common stock related to early exercised stock options subject to repurchase was 1,316,192 shares for $10.5 million. As of January 31, 2019, the number of shares of common stock related to early exercised stock options subject to repurchase was 545,941 shares for $1.2 million. Common stock purchased pursuant to an early exercise of stock options is not deemed to be outstanding for accounting purposes until those shares vest. The Company includes unvested shares subject to repurchase in the number of shares outstanding on the statement of redeemable convertible preferred stock and stockholders’ deficit.

Restricted Stock Units

Beginning in September 2018, the Company began issuing RSUs to certain employees. These RSUs include a service-based vesting condition and a performance-based vesting condition. The service-based vesting condition is generally satisfied based on one of three vesting schedules: (i) vesting of one-fourth of the RSUs on the first “Company vest date” (defined as March 20, June 20, September 20, or December 20) on or following the one-year anniversary of the vesting commencement date with the remainder of the RSUs vesting in twelve equal quarterly installments thereafter, subject to continued service, (ii) vesting in sixteen equal quarterly installments beginning on December 20, 2018, subject to continued service, or (iii) vesting in eight equal quarterly installments beginning on December 20, 2022, subject to continued service. The performance-based vesting condition is satisfied on the earlier of (i) a change in control, in which the consideration paid to holders of shares is either cash, publicly traded securities, or a combination thereof, or (ii) the first Company vest date to occur following the expiration of the lock-up period upon an IPO, subject to continued service through such change in control or lock-up expiration, as applicable. None of the RSUs vest unless the performance-based vesting condition is satisfied. Upon the completion of the IPO, the performance-based vesting condition was met and the Company recognized $17.3 million of deferred expense related to RSUs as of that date in its condensed consolidated statement of operations.

Expense for RSUs that have a service-based condition only are being amortized on a straight-line basis. Expense for RSUs that have both a service-based and a performance-based condition are being amortized under the accelerated attribution method. Total unrecognized stock‑based compensation expense related to unvested RSUs was $83.2 million as of July 31, 2019. This expense is expected to be amortized (subject to acceleration or straight-line basis) over a weighted‑average vesting period of 2.2 years. Total unrecognized stock‑based compensation expense related to unvested restricted stock units was $51.9 million as of January 31, 2019. This expense is expected to be amortized on an accelerated attribution method over a weighted‑average vesting period of 2.2 years.

The following table is a summary of RSU activity for the six months ended July 31, 2019:

		Weighted-
		Average Grant
	Number of	Date Fair Value
	Shares	Per Share
	(in thousands)
RSUs outstanding at January 31, 2019	4,059	$	12.66
Granted	853	$	18.32
Vested	—	$	—
Forfeited	(159)	$	12.62
RSUs outstanding at April 30, 2019	4,753	$	13.33
Granted	1,014	$	41.35
Vested	—	$	—
Forfeited	(38)	$	20.59
RSUs outstanding at July 31, 2019	5,729	$	18.61
RSUs expected to vest at July 31, 2019	5,729	$	18.61

Employee Stock Purchase Plan

In May 2019, the board of directors adopted, and the stockholders approved the CrowdStrike Holdings, Inc. 2019 Employee Stock Purchase Plan (“ESPP”), which became effective on June 10, 2019, which was the business day prior to the effectiveness of the Company's registration statement on Form S-1 used in connection with the Company's IPO. A total of 3,500,000 shares of Class A common stock were initially reserved for issuance under the ESPP. The Company’s compensation committee administers the ESPP. The number of shares of common stock available for issuance under the ESPP is subject to an annual increase on the first day of each fiscal year beginning on February 1, 2020, equal to the lesser of: (i) one percent (1%) of outstanding shares of our capital stock as of the last day of the immediately preceding fiscal year or (ii) such other amount as our board of directors may determine.

The ESPP provides for consecutive offering periods that will typically have a duration of approximately 24 months in length and is comprised of four purchase periods of approximately six months in length. The offering periods are scheduled to start on the first trading day on or after June 11 and December 11 of each year. The first offering period commenced on June 11, 2019 and is scheduled to end on the first trading day on or before June 10, 2021.

The ESPP provides eligible employees with an opportunity to purchase shares of the Company’s Class A common stock through payroll deductions of up to 15% of their eligible compensation. A participant may purchase a maximum of 2,500 shares of common stock during a purchase period. Amounts deducted and accumulated by the participant are used to purchase shares of common stock at the end of each six-month purchase period. The purchase price of the shares shall be 85% of the lower of the fair market value of the Class A common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the related offering period. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment.

ESPP employee payroll contributions accrued at July 31, 2019 totaled $2.5 million and are included within accrued compensation in the condensed consolidated balance sheets. Employee payroll contributions ultimately used to purchase shares will be reclassified to stockholders' equity on the purchase date. The Company recorded stock-based compensation of $2.3 million during the three and six months ended July 31, 2019 in connection with the ESPP.

The fair value of the share purchase rights granted under the ESPP during the six months ended July 31, 2019 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Six Months Ended July 31,
	2019
Expected term (in years)	0.5 - 2.0
Risk-free interest rate	1.9 - 2.2	%
Expected stock price volatility	33.0 - 35.7	%
Dividend yield	—	%

Stock-Based Compensation Expense

Stock-based compensation expense included in the condensed consolidated statements of operations is as follows:

	Three Months Ended July 31,				Six Months Ended July 31,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
Subscription cost of revenue	$	1,233	$	88	$	1,498	$	151
Professional services cost of revenue		644		57		747		103
Sales and marketing		6,638		1,031		8,156		1,804
Research and development		4,976		539		5,657		987
General and administrative		16,368		509		17,553		898
Total stock-based compensation expense	$	29,859	$	2,224	$	33,611	$	3,943