Stockholders’ Equity and Stock-Based Compensation

Stock-Based Compensation Expense

Stock-based compensation expense related to stock-based awards is included in the Company’s condensed consolidated statements of operations as follows:



	Three Months Ended October 31,
	2016			2015
	(in thousands)
Total cost of stock-based compensation	$	18,104		$	15,147
Amount capitalized in deferred cost of services revenues during the year	(227		)	—
Amount charged to income	$	17,877		$	15,147

Stock-based compensation cost charged to the following expense categories:
Cost of license revenues	$	51		$	89
Cost of maintenance revenues	413			339
Cost of services revenues	4,695			4,363
Research and development	4,467			3,672
Sales and marketing	4,223			3,430
General and administrative	4,028			3,254
Total stock-based compensation expenses	$	17,877		$	15,147

As of October 31, 2016, total unamortized stock-based compensation cost, adjusted for estimated forfeitures, was as follows:



	As of October 31, 2016
	Unrecognized Expense		Weighted Average Expected Recognition Period
	(in thousands)		(in years)
Stock options	$	2,131	1.6
Restricted stock units	152,871		2.7
	$	155,002

Restricted Stock Units

A summary of the Company’s RSU, PSU and TSR PSU activity under the Company’s equity incentive plans is as follows:



	RSUs Outstanding
	Number of RSUs Outstanding		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Balance as of July 31, 2016	2,727,724		$	50.08	$	167,673
Granted	1,128,702		$	61.90
Released	(380,696	)	$	46.29	$	23,195
Canceled	(49,192	)	$	51.50
Balance as of October 31, 2016	3,426,538		$	54.37	$	196,855
Expected to vest as of October 31, 2016	3,157,893		$	54.07	$	181,421


(1)	Aggregate intrinsic value at each period end represents the total market value of RSUs at the Company’s closing stock price of $57.45 and $61.47 on October 31, 2016 and July 31, 2016, respectively. Aggregate intrinsic value for released RSUs represents the total market value of released RSUs at date of release.

Certain executives and employees of the Company received PSUs and TSR PSUs in addition to RSUs. The PSUs included performance-based conditions and vest over a four-year period. The TSR PSUs are subject to total shareholder return rankings relative to the software companies in the S&P Software and Services Select Industry Index for a specified performance period or specified performance periods, and vest at the end of three years. In select cases, certain TSR PSUs are also subject to performance-based conditions.

Stock Options

Stock option activity under the Company’s equity incentive plans is as follows:



	Stock Options Outstanding
	Number of Stock Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value⁽¹⁾
					(in years)	(in thousands)
Balance as of July 31, 2016	1,158,572		$	15.45	4.0	$	53,316
Granted	—
Exercised	(90,352	)	$	12.30		$	4,431
Canceled	—
Balance as of October 31, 2016	1,068,220		$	15.72	3.8	$	44,579
Vested and expected to vest as of October 31, 2016	1,064,976		$	15.62	3.8	$	44,549
Exercisable as of October 31, 2016	950,706		$	11.82	3.3	$	43,384


⁽¹⁾	Aggregate intrinsic value at each period end represents the difference between the Company's closing stock prices of $57.45 and $61.47 on October 31, 2016 and July 31, 2016, respectively, and the exercise price of outstanding options. Aggregate intrinsic value for exercised options represents the difference between the Company’s stock price at date of exercise and the exercise price.

Valuation of Awards

TSR PSUs

The fair values of our TSR PSUs were estimated at the date of grant using the Monte Carlo simulation model which included the following assumptions:



	Three Months Ended October 31,
	2016	2015
Expected term (in years)	2.87 - 2.88	*
Risk-free interest rate	0.89% - 0.93%	*
Expected volatility of the Company	31.5%	*
Average expected volatility of the peer companies in the index	36.9% - 37.0%	*
Expected dividend yield	—%	*

* There were no TSR PSUs granted during the three months ended October 31, 2015.

The number of shares that may ultimately vest will vary based on the relative performance of the Company’s total shareholder return rankings relative to the software companies in the S&P Software and Services Select Industry Index for a specified performance period or specified performance periods. The Monte Carlo methodology incorporates into the valuation all possible outcomes, including that the Company’s relative performance may result in no shares vesting. As a result, stock-based compensation expense is recognized regardless of the ultimate achievement of the plan’s performance metrics. The expense will be reversed only in the event that a grantee is terminated prior to satisfying the requisite service period.

For a subset of TSR PSUs, the number of shares that may ultimately vest will vary based on the achievement of certain Company specific financial performance metrics in addition to the Company’s total shareholder return condition noted above. As a result, the expense recognized will fluctuate based on the Company’s estimated financial performance relative to the target financial performance metrics.

Stock Options

The assumptions used to estimate the grant date fair value of options and the estimated weighted average grant date fair value of options for the three months ended October 31, 2016 and 2015 were as follows:



	Three Months Ended October 31,
	2016	2015
Expected life (in years)	*	4.9
Risk-free interest rate	*	1.49%
Expected volatility	*	38.8%
Expected dividend yield	*	—%
Weighted average grant date fair value of options	*	$19.18

* There were no options granted during the three months ended October 31, 2016.

Common Stock Reserved for Issuance

As of October 31, 2016 and July 31, 2016, the Company was authorized to issue 500,000,000 shares of common stock with a par value of $0.0001 per share, and 73,510,967 and 73,039,919 shares of common stock were issued and outstanding, respectively. As of October 31, 2016 and July 31, 2016, the Company had reserved shares of common stock for future issuance as follows:



	October 31, 2016	July 31, 2016
Exercise of stock options to purchase common stock	1,068,220	1,158,572
Vesting of restricted stock units	3,426,538	2,727,724
Shares available under stock plans	15,667,244	16,746,754
Total common stock reserved for issuance	20,162,002	20,633,050