Stock-Based Compensation

12 Months Ended

Jan. 31, 2023

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

2021 Equity Incentive Plan

In May 2021, our board of directors and in June 2021, our stockholders approved our 2021 Equity Incentive Plan (2021 Plan) as a successor to our 2013 Equity Incentive Plan (2013 Plan) and 2011 Stock Incentive Plan (2011 Plan) with the purpose of granting stock-based awards to employees, directors, officers and consultants, including stock options, restricted stock awards, restricted stock units (RSUs), and performance-based restricted stock units (PSUs). A total of 35,281,596 shares of Class A common stock were initially available for issuance under the 2021 Plan. Our compensation committee administers the 2021 Plan. The number of shares of our Class A common stock available for issuance under the 2021 Plan is subject to an annual increase on the first day of each fiscal year beginning on February 1, 2022, equal to the lesser of: (i) five percent (5%) of the aggregate number of outstanding shares of all classes of our common 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 2013 Plan and 2011 Plan (together, the Prior Plans) were terminated in June 2021, in connection with the adoption of our 2021 Plan, and stock-based awards are no longer granted under the Prior Plans. However, the Prior Plans will continue to govern the terms and conditions of the outstanding awards previously granted thereunder. Any shares underlying stock options that are expired, canceled, forfeited or repurchased under the Prior Plans will be automatically transferred to the 2021 Plan and be available for issuance as Class A common stock.

Restricted Stock Units

A summary of our RSU activity is as follows:

	Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding as of January 31, 2022	1,770,304	$	52.51
Granted	14,992,931	26.28
Released	(1,303,854)	41.96
Forfeited	(1,050,215)	36.19
Outstanding as of January 31, 2023	14,409,166	$	27.37

As of January 31, 2023, we had unrecognized stock-based compensation expense related to unvested RSUs of $353.3 million that is expected to be recognized on a straight-line basis over a weighted-average period of 3.37 years.

Stock Option Information

A summary of our stock option activity is as follows:

	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of January 31, 2022	42,422,473	$	4.30	6.50	$	1,714,821
Granted	—	—
Exercised	(7,650,525)	2.26
Forfeited	(2,703,962)	4.68
Assumed options from Attivo acquisition	378,828	1.31
Outstanding as of January 31, 2023	32,446,814	$	4.71	6.52	$	337,214
Expected to vest as of January 31, 2023	32,446,814	$	4.71	6.52	$	337,214
Vested and exercisable as of January 31, 2023	19,645,571	$	3.54	5.97	$	227,200

The weighted-average grant-date fair value of options granted during fiscal 2022 and 2021 were $13.14 and $1.63 per share, respectively. There were no options granted during fiscal 2023.

The aggregate grant-date fair value of options vested during fiscal 2023, 2022 and 2021 was $61.4 million, $32.0 million and $5.1 million, respectively.

The aggregate intrinsic value is the difference between the exercise price and the estimated fair value of the underlying common stock. The aggregate intrinsic value of options exercised during fiscal 2023, 2022 and 2021 was $173.0 million, $333.7 million and $27.0 million, respectively.

As of January 31, 2023, we had unrecognized stock-based compensation expense related to unvested options of $104.3 million that is expected to be recognized on a straight-line basis over a weighted-average period of 2.14 years.

Milestone Options

In March 2021, we granted 1,404,605 options to purchase shares of common stock subject to service-based, performance-based, and market-based vesting conditions to our Chief Executive Officer and Chief Financial Officer under the 2013 Plan. These stock options will vest 100% upon the occurrence of our IPO (the performance-based vesting condition), which was completed in June 2021, and the achievement of certain share price targets (the market-based vesting conditions), subject to the executive’s continued service to us from the grant date through the milestone events. As of January 31, 2023, the share price targets have not yet been achieved, and therefore, these milestone options remain unvested. For these options, we used a Monte Carlo simulation to determine the fair value at the grant date and the implied service period.

We recorded stock-based compensation expense related to these milestone options of $3.6 million and $3.1 million during fiscal 2023 and 2022, respectively. As of January 31, 2023, we had unrecognized stock-based compensation expense related to unvested milestone options of $12.7 million, that is expected to be recognized over the remaining implied service period of 3.6 years.

Performance Share Units

In connection with the acquisition of Attivo, we granted 71,003 shares of performance share units subject to service-based and performance-based vesting conditions. These PSUs will vest 100% upon the achievement of certain financial performance and integration milestone events, subject to the employees’ continued service to us from the grant date through the milestone events or target dates.

We recorded stock-based compensation expense related to these PSUs of $0.5 million during fiscal 2023. As of January 31, 2023, we had unrecognized stock-based compensation expense related to these PSUs of $0.5 million that is expected to be recognized over the remaining vesting period of 2.3 years.

Restricted Common Stock

In connection with the Attivo acquisition, restricted common stock was issued to Attivo employees. See Note 15, Acquisitions, for more information regarding these restricted common stock. We recorded stock-based compensation expense related to restricted common stock in connection with our acquisition of Attivo of $1.0 million during fiscal 2023. As of January 31, 2023, we had unrecognized stock-based compensation expense related to this unvested restricted common stock of $1.0 million.

In connection with the Scalyr acquisition, we granted 1,315,099 shares of restricted common stock with a fair value of $14.59 per share at the time of grant, that vest over a period of two years. We recorded stock-based compensation expense related to restricted common stock in connection with our acquisition of Scalyr of $8.5 million and $10.9 million during fiscal 2023 and 2022, respectively. As of January 31, 2023, we had unrecognized stock-based compensation expense related to this unvested restricted common stock of $0.2 million that is expected to be recognized by the end of February 2023.

Employee Stock Purchase Plan (ESPP)

In May 2021, our board of directors, and in June 2021, our stockholders approved our ESPP, which became effective on the date of effectiveness of our Final Prospectus, or June 29, 2021. The ESPP initially reserved and authorized the issuance of up to a total of 7,056,319 shares of common stock to eligible employees. The number of shares reserved for issuance and sale under the ESPP will automatically increase on the first day of each fiscal year, starting on February 1, 2022 for the first ten calendar years after the first offering date, in an amount equal to (i) 1% of the aggregate number of outstanding shares of all class our common stock on the last day of the immediately preceding fiscal year, or (ii) such other amount as the administrator of the ESPP may determine. The ESPP generally provides for six-month offering periods beginning January 6 and July 6 of each year, with each offering period consisting of single six-month purchase periods, except for the initial offering period which began on July 1, 2021, and will end on July 5, 2023 and the second offering period will begin on January 6, 2022. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of our common stock as of the beginning of the offering period or (2) the fair market value of our common stock on the purchase date, as defined in the ESPP except for the initial offering period that has a 24-months look back to the IPO price of $35.

The following table summarizes assumptions used in estimating the fair value of employee stock purchase rights for the initial and subsequent offering periods under the 2021 ESPP using the Black-Scholes option pricing model:

	Year Ended January 31,
	2023		2022
Expected term (in years)	0.5 - 1.0		0.5 - 2.0
Expected volatility	71.5% - 95.8%		52.3% - 70.5%
Risk-free interest rate	2.6% - 4.8%		0.1% - 0.3%
Dividend yield	—	%	—	%

We recognized stock-based compensation expense related to ESPP of $12.7 million and $5.5 million during fiscal 2023 and 2022, respectively. As of January 31, 2023, $1.5 million amount has been withheld on behalf of employees for a future purchase under the ESPP due to the timing of payroll deductions.

1,335,183 and 381,716 shares were issued under the ESPP for $19.2 million and $11.4 million during fiscal 2023 and 2022, respectively.

During fiscal 2023, we recorded $0.4 million in expense related to modifications of our ESPP as a result of the decrease in our stock price in July 2022 and January 2023 which triggered resets of the ESPP offering periods in accordance with our plan. We expect to record the remaining $0.4 million in expense related to these modifications through the second quarter of 2024.

Attivo Acquisition

In connection with the Acquisition, we granted 539,795 shares of restricted stock units (RSUs) under our 2021 Equity Incentive Plan that will vest over a period of 3 years contingent on continued employment of certain Attivo employees, for which stock-based compensation expense will be recognized ratably over the vesting period.

Attivo Equity Incentive Plan

In connection with the Acquisition, we assumed unvested stock options that were granted under the Attivo 2011 Equity Incentive Plan (“Attivo Plan”). We do not intend to grant any additional shares under the Attivo Plan and the Attivo Plan will continue to govern the terms and conditions of the outstanding awards previously granted thereunder. Any shares underlying stock options that are expired, canceled, forfeited or repurchased under the Attivo Plan will be automatically become available for issuance as Class A common stock pursuant to our 2021 Equity Incentive Plan.

Modification

During the third quarter of fiscal 2023, certain members of our management team converted to non-employee consultants. The transition has been accounted for as a modification, under which, the exercise period of certain vested awards has been extended and a certain number of unvested awards will vest through the end of the consulting agreements.

During fiscal 2023, we recognized an incremental charge of $4.5 million related to the transition of these employees to non-employee consultants and expect to recognize an aggregate of an additional $6.2 million in expense over the requisite service period through the fourth quarter of 2024.

Stock-Based Compensation Expense

We estimate the fair value of stock options granted using the Black-Scholes option pricing model based on the following assumptions:

Expected term – We determine expected term based on the average period the options are expected to remain outstanding using the simplified method, calculated as the midpoint of the options’ vesting term and contractual expiration period, until sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior becomes available.

Expected volatility – Since there is little trading history of our common stock, expected volatility is estimated based on the historical volatilities of a group of comparable publicly traded companies.

Risk-free interest rate – The risk-free interest rate is based on U.S. Treasury yields for a period that corresponds with the expected term of the award.

Dividend yield – As we do not currently issue dividends and do not expect to issue dividends on our common stock in the foreseeable future, the expected dividend yield is zero.

Fair value of underlying common stock – Prior to the completion of our IPO, the fair value of our common stock was determined by the board of directors by considering a number of objective and subjective factors including input from management and contemporaneous third-party valuations. After the completion of our IPO, the fair value of our Class A common stock is determined by the closing price of our Class A common stock, which is traded on the New York Stock Exchange.

The following table summarizes assumptions used in estimating the fair value of stock options granted under the Black-Scholes pricing model in fiscal 2022 (no stock options were granted in fiscal 2023):

	Year Ended January 31,
	2022
Expected term (in years)	6.0
Expected volatility	62.3% - 66.0%
Risk-free interest rate	0.8% - 1.1%
Dividend yield	—	%

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

	Year Ended January 31,
	2023		2022
Cost of revenue	$	10,093	$	3,618
Research and development	51,771		35,358
Sales and marketing	40,115		15,460
General and administrative	62,487		33,453
Total	$	164,466	$	87,889