EQUITY AWARD PLANS

Stock Plans

In June 2010, we adopted the 2010 Stock Plan ("2010 Plan"), in December 2011, we adopted the 2011 Stock Plan ("2011 Plan"), and in December 2015, the Board adopted the 2016 Equity Incentive Plan ("2016 Plan"), which was amended in September 2016 (collectively, the "Stock Plans"). Our stockholders approved the 2016 Plan in March 2016 and it became effective in connection with our IPO. As a result, at the time of the IPO, we ceased granting additional stock awards under the 2010 Plan and 2011 Plan and both plans were terminated. Any outstanding stock awards under the 2010 Plan and 2011 Plan will remain outstanding, subject to the terms of the applicable plan and award agreements, until such shares are issued under those stock awards, by exercise of stock options or settlement of restricted stock units ("RSUs"), or until those stock awards become vested or expired by their terms.

Under the 2016 Plan, we may grant incentive stock options ("ISOs"), non-statutory stock options ("NSOs"), restricted stock, RSUs and stock appreciation rights to employees, directors and consultants. We initially reserved 22,400,000 shares of our Class A common stock for issuance under the 2016 Plan. The number of shares of Class A common stock available for issuance under the 2016 Plan will also include an annual increase on the first day of each fiscal year, beginning in fiscal 2018, equal to the lesser of: 18,000,000 shares, 5% of the outstanding shares of all classes of common stock as of the last day of our immediately preceding fiscal year, or such other amount as may be determined by the Board. Accordingly, on August 1, 2017, the number of shares of Class A common stock available for issuance under the 2016 Plan increased by 7,731,826 shares pursuant to these provisions. As of July 31, 2018, we had reserved a total of 46,133,294 shares for the issuance of equity awards under the Stock Plans, of which 11,169,061 shares were still available for grant. On August 1, 2018, the number of shares of Class A common stock available for issuance under the 2016 Plan increased by 8,642,904 shares pursuant to the automatic increase provisions.

Restricted Stock Units

Below is a summary of RSU activity under the Stock Plans:



	Fiscal Year Ended July 31,
	2017				2018
	Number of Shares		Grant Date Fair Value per Share		Number of Shares		Grant Date Fair Value per Share
Outstanding at beginning of period	12,265,369		$	13.23	17,376,090		$	18.85
Granted	12,986,597		$	21.84	14,947,403		$	39.44
Released	(6,146,169	)	$	15.63	(5,823,800	)	$	19.96
Canceled/forfeited	(1,729,707	)	$	13.57	(2,902,194	)	$	22.34
Outstanding at end of period	17,376,090		$	18.85	23,597,499		$	31.20

Performance RSUs — We grant RSUs that contain both service and performance conditions to our executives and employees ("Performance RSUs"). Vesting of Performance RSUs is subject to continuous service and the satisfaction of certain liquidity events, including the expiration of a lock-up period established in connection with the IPO and/or specified performance targets. While we recognize cumulative stock-based compensation expense for the portion of the awards for which both the service condition has been satisfied and it is probable that the performance conditions will be met, the actual vesting and settlement of Performance RSUs are subject to the performance conditions actually being met. During the first quarter of fiscal 2017, we began to recognize stock-based compensation expense related to certain Performance RSUs with liquidity event performance conditions, as the satisfaction of the performance conditions for vesting became probable.

Stock Options

The Board determines the period over which stock options become exercisable and stock options generally vest over a four-year period. Stock options generally expire 10 years from the date of grant. The term of an ISO grant to a 10% stockholder will not exceed five years from the date of the grant. The exercise price of an ISO will not be less than 100% of the estimated fair value of the shares of common stock underlying the stock option (or 110% of the estimated fair value in the case of an ISO granted to a 10% stockholder) on the date of grant. The exercise price of an NSO is determined by the Board at the time of grant and is generally not less than 100% of the estimated fair value of the shares of common stock underlying the stock option on the date of grant.

The stock option activity under the Stock Plans is as follows:



	Fiscal Year Ended July 31,
	2017								2018
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
						(in years)	(in thousands)						(in years)	(in thousands)
Outstanding at beginning of period	26,166,968		⁽¹⁾	$	4.39	7.5	$	208,101	20,334,531		$	4.59	6.4	$	338,787
Options granted	1,047,950			$	12.14				—		$	—
Options exercised	(4,786,381	)		$	3.27				(8,672,623	)	$	3.81
Options canceled/forfeited	(2,094,006	)		$	8.89				(329,354	)	$	6.63
Outstanding at end of period	20,334,531			$	4.59	6.4	$	338,787	11,332,554		$	5.12	5.6	$	496,022
Exercisable at end of period	19,645,676			$	4.43	6.3	$	330,486	11,159,045		$	5.01	5.5	$	489,682
Vested and expected to vest at end of period	20,334,531			$	4.59	6.4	$	338,787	11,332,554		$	5.12	5.6	$	496,022

(1)

Includes 455,000 stock options with both service and performance conditions with a weighted average fair value per share of $3.78 (the "Performance Stock Options"). Vesting of the Performance Stock Options was subject to continuous service with us (the "service condition") and satisfaction of certain liquidity events (the "performance condition"). We recognized cumulative stock-based compensation expense related to the Performance Stock Options in the first quarter of fiscal 2017, as the performance condition was met upon the successful completion of our IPO. The cumulative stock-based compensation expense recorded in the first quarter of fiscal 2017 was for the portion of the awards for which the relevant service condition had been satisfied and the remaining expense is being recognized over the remaining service period.

Stock options exercisable as of July 31, 2017 includes 15,241,715 vested options and 4,403,961 unvested options with an early exercise provision. Stock options exercisable as of July 31, 2018 includes 9,660,757 vested options and 1,498,288 unvested options with an early exercise provision. The weighted average grant date fair value per share of stock options granted was $6.36 and $6.41 for the fiscal years ended July 31, 2016 and 2017, respectively. There were no options granted during fiscal 2018.

The aggregate intrinsic value of stock options exercised during the fiscal years ended July 31, 2016, 2017 and 2018 was $18.3 million, $73.9 million and $289.4 million, respectively. Aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of our common stock. Cash received from option exercises was $3.5 million, $15.6 million and $33.1 million for the fiscal years ended July 31, 2016, 2017 and 2018, respectively.

The total grant date fair value of stock options vested was $23.9 million, $16.1 million and $11.5 million for the fiscal years ended July 31, 2016, 2017 and 2018, respectively. The vested and expected to vest amounts included in the table above exclude 243,148 and 47,691 shares of early exercised stock options as of July 31, 2017 and 2018, respectively.

Employee Stock Purchase Plan

In December 2015, the Board adopted the 2016 ESPP, which was subsequently amended in January 2016 and September 2016 and approved by our stockholders in March 2016. The 2016 ESPP became effective in connection with our IPO. A total of 3,800,000 shares of Class A common stock were initially reserved for issuance under the 2016 ESPP. The number of shares of Class A common stock available for sale under the 2016 ESPP also includes an annual increase on the first day of each fiscal year, beginning in fiscal 2018, equal to the lesser of: 3,800,000 shares, 1% of the outstanding shares of all classes of common stock as of the last day of our immediately preceding fiscal year, or such other amount as may be determined by the Board. Accordingly, on August 1, 2017, the number of shares of Class A common stock available for issuance under 2016 ESPP increased by 1,546,365 shares pursuant to these provisions.

The 2016 ESPP allows eligible employees to purchase shares of our Class A common stock at a discount through payroll deductions of up to 15% of eligible compensation, subject to caps of $25,000 in any calendar year and 1,000 shares on any purchase date. The 2016 ESPP provides for 12-month offering periods generally beginning in March and September of each year, and each offering period consists of two six-month purchase periods. The first offering period began in September 2016.

On each purchase date, participating employees will purchase 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 on (i) the first trading day of the applicable offering period or (ii) the last trading day of each purchase period in the applicable offering period. If the stock price of our Class A common stock on any purchase date in an offering period is lower than the stock price on the enrollment date of that offering period, the offering period will immediately reset after the purchase of shares on such purchase date and automatically roll into a new offering period.

During the fiscal year ended July 31, 2018, 2,417,850 shares of common stock were purchased under the 2016 ESPP for an aggregate amount of $39.0 million. As of July 31, 2018, 1,682,461 shares were available for future issuance under the 2016 ESPP. On August 1, 2018, the number of shares of Class A common stock available for issuance under the 2016 ESPP increased by 1,728,580 shares pursuant to the automatic increase provisions noted above.

We use the Black-Scholes option pricing model to determine the fair value of shares purchased under the 2016 ESPP with the following weighted average assumptions on the date of grant:



	Fiscal Year Ended July 31,
	2017		2018
Expected term (in years)	0.75		0.75
Risk-free interest rate	0.6	%	1.4	%
Volatility	51.0	%	49.8	%
Dividend yield	—	%	—	%

Stock-Based Compensation

Total stock-based compensation expense recognized in the consolidated statements of operations is as follows:



	Fiscal Year Ended July 31,
	2016		2017		2018
	(in thousands)
Cost of revenue:
Product	$	391	$	3,066	$	2,580
Support, entitlements and other services	968		10,411		8,945
Sales and marketing	8,006		78,117		65,060
Research and development	6,259		109,044		74,389
General and administrative	4,432		30,853		26,894
Total stock-based compensation expense	$	20,056	$	231,491	$	177,868

Stock-based compensation expense for the fiscal year ended July 31, 2017 included cumulative stock-compensation expense related to stock awards with performance conditions, for which vesting was deemed probable in the first quarter of fiscal 2017 upon the successful completion of our IPO. Prior to fiscal 2017, no expense was recognized related to these stock awards, as vesting was not deemed probable. The cumulative stock-based compensation expense recorded in the first quarter of fiscal 2017 related to the portion of the awards for which the relevant service condition had been satisfied and we have continued to recognize the expense over the remaining service period. Stock-based compensation expense related to stock awards without performance conditions is recognized on a straight-line basis over the requisite service period.

As of July 31, 2018, unrecognized stock-based compensation expense related to the outstanding stock awards was approximately $647.9 million and is expected to be recognized over a weighted average period of approximately 2.7 years.

Determination of Fair Value

The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option pricing model. Compensation expense related to options granted to nonemployees is recognized as the equity instruments vest, and such options are revalued at each reporting date. As a result, compensation expense related to unvested options granted to nonemployees fluctuates as the fair value of our common stock fluctuates.

The valuation model for stock-based compensation expense requires us to make assumptions and judgments about the variables used in the calculation, including the expected term, expected volatility of our common stock, risk-free interest rate and expected dividend yield.

The fair value of our stock options was estimated using the following weighted average assumptions:



	Fiscal Year Ended July 31,
	2016			2017
Fair value of common stock	$	14.81		$	12.14
Expected term (in years)	6.1			6.1
Risk-free interest rate	1.6		%	1.3		%
Volatility	42		%	52		%
Dividend yield	—		%	—		%

We did not grant any stock options during fiscal 2018. The fair value of each grant of stock options was determined using the Black-Scholes option pricing model and the assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.

Fair Value of Common Stock — Prior to our IPO, the fair value of the common stock underlying our stock options was determined by our Board. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The Board, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date, including but not limited to, (i) contemporaneous valuations of common stock performed by unrelated third-party specialists; (ii) recent private stock sales transactions; (iii) the prices, rights, preferences and privileges of our convertible preferred stock relative to those of our common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; (vi) the likelihood of achieving a liquidity event, such as an IPO or a merger or acquisition of our business, given prevailing market conditions; (vii) the market performance of comparable publicly traded companies; (viii) our actual operating and financial performance; (ix) U.S. and global capital market conditions; (x) the illiquidity of stock-based awards involving securities in a private company; (xi) our stage of development; and (xii) our history and the timing of the introduction of new products and services.

Subsequent to our IPO, we use the market closing price for our Class A common stock as reported on the NASDAQ Stock Market on the date of grant.

Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding. For option grants that are considered to be "plain vanilla," we determine the expected term using the simplified method as provided by the Securities and Exchange Commission. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options.

Risk-Free Interest Rate — The risk-free interest rate is based on U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term.

Expected Volatility — Since we do not have a long trading history of our common stock, the expected volatility was derived from the average historical stock volatilities of several unrelated public companies within the industry that we consider to be comparable to our business over a period equivalent to the expected term of the stock option grants.

Dividend Rate — The expected dividend was assumed to be zero, as we have never paid dividends and have no current plans to do so.