Employee Incentive Plans

The Company’s equity incentive plans provide for granting stock options, restricted stock units (RSUs) and restricted stock awards to employees, consultants, officers and directors. In addition, the Company offers an Employee Stock Purchase Plan (ESPP) to eligible employees.

Stock-based compensation expense was recorded in the following cost and expense categories in the Company’s condensed consolidated statements of operations (in thousands):



	Three Months Ended October 31,				Nine Months Ended October 31,
	2018		2017		2018		2017

	(unaudited)
Cost of revenue
Subscription	$	2,383	$	1,421	$	5,813	$	3,163
Professional services and other	1,305		979		3,277		2,186
Research and development	6,291		5,174		15,776		12,913
Sales and marketing	6,228		3,894		15,852		9,290
General and administrative	5,335		2,940		13,181		7,740
Total	$	21,542	$	14,408	$	53,899	$	35,292

Stock-based compensation expense recorded to research and development in the condensed consolidated statements of operations excludes amounts that were capitalized related to internal-use software for the three and nine months ended October 31, 2018 and 2017. See Note 6 for further details.

Equity Incentive Plans

The Company has two equity incentive plans: the 2009 Stock Plan (2009 Plan) and the 2017 Equity Incentive Plan (2017 Plan). Upon the completion of the Company’s IPO in April 2017, the Company ceased granting equity under the 2009 Plan, and all shares that remained available for future issuance under the 2009 Plan at that time were transferred to the 2017 Plan. As of October 31, 2018, options to purchase 18,451,057 shares of Class B common stock and 863,277 shares of Class A common stock remain outstanding.

Shares of common stock reserved for future issuance are as follows:



	As of
	October 31, 2018
	(unaudited)
Stock options and unvested RSUs outstanding	24,250,317
Available for future stock option and RSU grants	12,651,706
Available for ESPP	3,035,697
	39,937,720

Stock Options

A summary of the Company’s stock option activity and related information is as follows:



	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of January 31, 2018	24,917,045		$	7.37	7.6	$	550,173
Granted	684,500		39.21
Exercised	(5,184,832	)	5.51
Canceled	(1,102,379	)	8.53
Outstanding as of October 31, 2018 (unaudited)	19,314,334		$	8.93	7.2	$	954,692
As of October 31, 2018
Vested and exercisable (unaudited)	9,897,397		$	6.54	6.7	$	512,889

No stock options were granted in the three months ended October 31, 2018. The weighted-average grant-date fair value of options granted was $12.27 for the three months ended October 31, 2017. The weighted-average grant-date fair value of options granted was $17.21 and $5.37 during the nine months ended October 31, 2018 and 2017, respectively. The total grant-date fair value of stock options vested was $4.8 million and $5.9 million during the three months ended October 31, 2018 and 2017, respectively, and $18.2 million and $18.9 million for the nine months ended October 31, 2018 and 2017, respectively. The intrinsic value of the options exercised, which represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option, was $70.2 million and $139.4 million for the three months ended October 31, 2018 and 2017, respectively, and $225.3 million and $158.7 million for the nine months ended October 31, 2018 and 2017, respectively.

As of October 31, 2018, there was a total of $43.4 million of unrecognized stock-based compensation expense, which is expected to be recognized over a weighted-average period of 2.1 years.

The Company used the Black-Scholes option pricing model to estimate the fair value of stock options granted with the following assumptions:



	Three Months Ended October 31,		Nine Months Ended October 31,
	2018	2017	2018	2017

	(unaudited)
Expected volatility	—	41%	40%	40% - 41%
Expected term (in years)	—	6.3	6.3	6.3 - 6.4
Risk-free interest rate	—	1.87%	2.70%	1.87% - 2.21%
Expected dividend yield	—	—	—	—

Restricted Stock Units

A summary of the Company’s RSU activity and related information is as follows:



	Number of RSUs		Weighted- Average Grant Date Fair Value Per Share

Outstanding as of January 31, 2018	2,862,929		$	24.38
Granted	3,133,189		53.27
Vested	(741,253	)	23.56
Forfeited	(318,882	)	33.28
Outstanding as of October 31, 2018 (unaudited)	4,935,983		$	42.27

As of October 31, 2018, there was $189.1 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 3.3 years based on vesting under the award service conditions.

Equity Awards Issued in Connection with Business Combination

In connection with the Stormpath transaction in February 2017, the Company issued 800,000 shares of restricted common stock to Stormpath with an aggregate fair value of $8.6 million at the time of the transaction to be recognized as post combination stock-based compensation. The restricted common stock vests ratably on the first and second anniversaries of the transaction date upon achievement of the respective performance conditions, of which 400,000 shares vested during the nine months ended October 31, 2018. As of October 31, 2018, there was $0.6 million of unrecognized compensation expense related to restricted common stock which is expected to be recognized over the remaining weighted average life of 0.3 years.

The Company separately entered into retention arrangements with certain employees of Stormpath and issued 598,500 restricted stock awards under the 2009 Plan with an aggregate fair value of $6.6 million at the time of the transaction with performance conditions. Additionally, the Company granted 518,900 service-based stock options under the 2009 Plan to certain Stormpath employees with an aggregate fair value of $2.5 million to vest ratably over the requisite four-year service period. Of the $9.1 million total aggregate fair value of the awards, $1.5 million was related to pre-combination service and was recognized as goodwill and a reduction to the post-combination compensation expense. The post-combination expenses for the restricted stock awards and stock options are $5.5 million and $2.1 million, respectively. The expense related to the restricted stock awards is being recognized over two or three years based on an accelerated attribution method. The expense for the stock options is being recognized ratably over the requisite service period.

During the nine months ended October 31, 2018, 210,850 shares of restricted stock awards vested. As of October 31, 2018, there was $1.0 million of unrecognized compensation expense related to unvested restricted stock awards, which is expected to be recognized over the remaining weighted average life of 0.8 year.

As of October 31, 2018, there was $1.2 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over the remaining weighted average life of 1.7 years. The related stock options expense and activity are included within the Stock Options section above.

Employee Stock Purchase Plan

Except for the initial offering period, the ESPP provides for 12-month offering periods beginning June 21 and December 21 of each year, and each offering period consists of up to two six-month purchase periods. The initial offering period began April 7, 2017 and ended on June 20, 2018.

The Company estimated the fair value of ESPP purchase rights using a Black-Scholes option pricing model with the following assumptions:



	Three Months Ended October 31,		Nine Months Ended October 31,
	2018	2017	2018	2017

	(unaudited)
Expected volatility	—	—	39% - 40%	32% - 37%
Expected term (in years)	—	—	0.5 -1.0	0.5 - 1.2
Risk-free interest rate	—	—	2.12% - 2.34%	0.95% - 1.22%
Expected dividend yield	—	—	—	—

During the three and nine months ended October 31, 2018, the Company’s employees purchased 434,640 shares of its Class A common stock under the ESPP. The shares were purchased at a weighted-average purchase price of $15.31 with proceeds of $6.7 million.

As of October 31, 2018, there was $3.7 million of unrecognized stock-based compensation expense related to ESPP that is expected to be recognized over an average vesting period of 0.5 years.

Awards Issued as Charitable Contributions

The Company did not grant any common stock as a charitable contribution for the three months ended October 31, 2018. During the nine months ended October 31, 2018, the Company granted 20,000 shares of Class A common stock as charitable contributions and recognized $1.0 million as general and administrative expense in the condensed consolidated statement of operations. During the three and nine months ended October 31, 2017, the Company granted 24,287 shares of Class A common stock as charitable contributions and recognized $0.7 million as general and administrative expense in the condensed consolidated statement of operations.