Stock-Based Compensation Expense and Shareholders’ Equity

Stock-Based Compensation Expense

Stock-based compensation expense related to options and Stock Awards is included in the Company’s condensed consolidated statements of operations as follows (in thousands):



	Three Months Ended April 30,					Nine Months Ended April 30,
	2019			2018		2019		2018
Total stock-based compensation	$	21,131		$	23,820	$	68,670	$	68,469
Net impact of deferred stock-based compensation	(81		)	19		66		25
Total stock-based compensation expense	$	21,050		$	23,839	$	68,736	$	68,494
Stock-based compensation expense was charged to the following categories:
Cost of license and subscription revenue	$	589		$	274	$	1,458	$	706
Cost of maintenance revenue	273			462		1,365		1,398
Cost of services revenue	5,720			5,310		17,879		15,982
Research and development	4,919			7,236		17,763		19,845
Sales and marketing	4,732			4,527		14,427		13,768
General and administrative	4,817			6,030		15,844		16,795
Total stock-based compensation expense	$	21,050		$	23,839	$	68,736	$	68,494

Total unrecognized stock-based compensation cost for our options and Stock Awards were as follows:



	As of April 30, 2019
	Unrecognized Expense		Weighted Average Expected Recognition Period
	(in thousands)		(in years)
Stock Options	$	3,141	1.7
Stock Awards	169,483		2.3
	$	172,624

Stock Awards

A summary of the Company’s Stock Awards activity under the Company’s equity incentive plans is as follows:



	Stock Awards Outstanding
	Number of Stock Awards Outstanding		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Balance as of July 31, 2018	2,932,155		$	69.43	$	252,752
Granted	1,080,164		$	100.54
Released	(1,114,572	)	$	69.07	$	105,304
Canceled	(334,425	)	$	75.22
Balance as of April 30, 2019	2,563,322		$	83.33	$	272,994
Expected to vest as of April 30, 2019	2,563,322		$	83.33	$	272,994


(1)	Aggregate intrinsic value at each period end represents the total market value of Stock Awards at the Company’s closing stock price of $106.50 and $86.20 on April 30, 2019 and July 31, 2018, respectively. Aggregate intrinsic value for released Stock Awards represents the total market value of released Stock Awards 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 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.

RSAs are issued and outstanding upon grant; however, vesting is based on continued employment. The weighted average grant date fair value is based on the market value of our common stock on the date of grant.

The Company recognized stock-based compensation of $2.4 million and $6.4 million related to these performance-based and market-based stock awards for the three months ended April 30, 2019 and 2018, respectively, and $9.5 million and $16.4 million for the nine months ended April 30, 2019 and 2018, respectively.

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, 2018	537,064		$	21.45	4.3	$	34,774
Granted	—
Exercised	(234,838	)	$	7.88		$	20,063
Canceled	(10,802	)
Balance as of April 30, 2019	291,424		$	32.80	5.0	$	21,478
Vested and expected to vest as of April 30, 2019	291,424		$	32.80	5.0	$	21,478
Exercisable as of April 30, 2019	244,390		$	37.05	4.5	$	16,972


⁽¹⁾	Aggregate intrinsic value at each period end represents the difference between the Company’s closing stock prices of $106.50 and $86.20 on April 30, 2019 and July 31, 2018, 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 April 30,		Nine Months Ended April 30,
	2019	2018	2019	2018
Expected term (in years)	*	*	2.88	2.88
Risk-free interest rate	*	*	2.8%	1.4%
Expected volatility of the Company	*	*	27.2%	28.0%
Average expected volatility of the peer companies in the S&P Index	*	*	33.0%	34.7%
Expected dividend yield	*	*	—%	—%

*There were no TSR PSUs granted during the three months ended April 30, 2019 and 2018.

The number of TSR PSUs 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 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.

Common Stock Reserved for Issuance and Public Equity Offering

As of April 30, 2019 and July 31, 2018, the Company was authorized to issue 500,000,000 shares of common stock with a par value of $0.0001 per share and, of these, 81,793,479 and 80,611,698 shares of common stock were issued and outstanding, respectively. Per the terms of the Company’s 2011 Stock Plan, on January first of each year, an additional number of shares equal to 5% of the number of shares of common stock issued and outstanding on the preceding December 31^st is added to the Company’s 2011 Stock Plan reserve. As of April 30, 2019 and July 31, 2018, the Company had reserved shares of common stock for future issuance as follows:



	April 30, 2019	July 31, 2018
Exercise of stock options to purchase common stock	291,424	537,064
Vesting of stock awards	2,563,322	2,932,155
Shares available under stock plans	24,877,182	21,592,494
Total common stock reserved for issuance	27,731,928	25,061,713

In March 2018, the Company completed a public offering of 2,628,571 shares of its common stock, including the sale of shares in connection with the underwriters’ exercise in full of their option to purchase additional shares of common stock from the Company. The public offering price of the shares sold in the offering was $87.50 per share. No shares were sold by the Company’s stockholders in this public offering.