Stock Based Compensation

12 Months Ended

Jul. 31, 2019

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Equity Incentive Plans

We adopted the Fiscal Year 2018 Equity Incentive Plan (the "2018 Plan") in fiscal 2018 and the 2007 Stock Plan (the "2007 Plan") in fiscal 2008, collectively referred to as the "Plans." Equity incentive awards which may be granted to eligible participants under the Plans include restricted stock units, restricted stock, stock options, nonstatutory stock options, stock appreciation rights, performance units and performance shares. In March 2018, in connection with our IPO, the 2007 Plan was terminated along with its remaining balance of shares of common stock available for grant. With the establishment of the 2018 Plan, we no longer grant stock-based awards under the 2007 Plan and any shares underlying stock options that expire or terminate or are forfeited or repurchased by us under the 2007 Plan are automatically transferred to the 2018 Plan.

Stock Options

Under the Plans, the exercise price of a stock option grant must be not less than 100% of the fair market value of the common stock on the date of grant. Generally, stock options vest over four years with 25% of the option shares vesting one year from the date of grant and monthly thereafter over the remaining vesting term. Stock options granted under the 2018 Plan and 2007 Plan are exercisable over a maximum term of ten years and seven years, respectively, from the date of grant. Stock options that are forfeited or canceled shall become available for future grant or sale under the 2018 Plan.

As of July 31, 2019, we have reserved a total of approximately 18,688,000 shares of common stock for the issuance of equity awards under the 2018 Plan, of which approximately 15,708,000 shares were available for grant. The number of shares

of common stock available for issuance under the 2018 Plan also includes an annual increase on the first day of each fiscal year pursuant to its automatic annual increase provision.

The stock option activity consisted of the following:

		Outstanding Stock Options	Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
	(in thousands, except per share amounts)
Balance as of July 31, 2018		16,175	$6.20	5.1	$	470,860
Stock options exercised		(6,277)	$4.76		$	300,859
Stock options canceled, forfeited or expired		(1,037)	$6.77
Balance as of July 31, 2019		8,861	$7.16	4.6	$	683,294
Exercisable and expected to vest as of July 31, 2018		5,499	$3.97	4.0	$	172,317
Exercisable and expected to vest as of July 31, 2019		3,311	$5.60	4.0	$	260,479

The aggregate intrinsic value of the options exercised represents the difference between the estimated fair value of our common stock on the date of exercise and their exercise price. The total intrinsic value of options exercised was $300.9 million, $16.7 million and $4.5 million for fiscal 2019, fiscal 2018 and fiscal 2017, respectively. From the date of our IPO through July 31, 2019, we did not grant additional stock options. The weighted-average grant-date fair value per share of awards granted was $3.77 and $2.10 for fiscal 2018 and fiscal 2017, respectively.

We estimated the fair value of stock options using the Black-Scholes option pricing model with the following assumptions:

	Year Ended July 31,
	2018	2017
Expected term (in years)	4.6 - 5.1	4.6
Expected stock price volatility	40.3% - 42.3%	41.4% - 43.3%
Risk-free interest rate	1.7% - 2.8%	1.1% - 2.0%
Dividend yield	0.0%	0.0%

Restricted Stock Units

The 2018 Plan allows for the grant of restricted stock units ("RSUs"). Generally, RSUs are subject to a four-year vesting period, with 25% of the shares vesting approximately one year from the vesting commencing date and quarterly thereafter over the remaining vesting term. We began granting RSUs in the fourth quarter of fiscal 2018.

The RSU activity consisted of the following:

	RSUs Outstanding	Weighted-Average Grant Date Fair Value per Share	Aggregate Intrinsic Value
	(in thousands, except per share data)
Balance as of July 31, 2018	209	$26.26	$	7,394
Granted	4,176	$49.13
Vested	(89)	$33.52	6,608
Canceled or forfeited	(144)	$43.52
Balance as of July 31, 2019	4,152	$48.51	$	349,872

Performance Stock Units

The 2018 Plan allows for the grant of performance stock units ("PSUs"). In October 2018, the compensation committee of our board of directors approved the grant of PSUs to certain members of our executive team corresponding to the performance periods of fiscal 2019, fiscal 2020, fiscal 2021 and fiscal 2022. Additionally, the compensation committee determined and approved the corporate performance metrics for fiscal 2019. The corporate performance conditions of performance periods beyond fiscal 2019 will be established and approved at the beginning of each related fiscal year. The right to receive such awards is subject to achievement of the defined corporate performance metrics for each fiscal year and continuous service by the employee. Any earned awards are subject to additional time-based vesting in accordance with the respective award agreement. PSUs related to the fiscal 2019 performance period, totaling approximately 464,000 shares with a weighted-average grant date fair value per share of $36.90, were forfeited effective at the end of fiscal 2019, resulting in a reversal of $3.8 million of accrued stock-based compensation expense recognized in the nine months ended April 30, 2019. Accordingly, no stock-based compensation expense was recognized for these awards for fiscal 2019.

The number of unvested PSUs outstanding consisted of the following as of July 31, 2019:

	Underlying Shares
Performance periods	(in thousands)
Fiscal 2020	464
Fiscal 2021	150
Fiscal 2022	150
Total	764

Employee Stock Purchase Plan

We adopted the Fiscal Year 2018 Employee Stock Purchase Plan ("ESPP") in the third quarter of fiscal 2018. As of July 31, 2019, a total of approximately 3,398,000 shares of common stock were reserved for issuance under the ESPP. The ESPP provides eligible employees with an opportunity to purchase shares of our common stock through payroll deductions of up to 15% of their eligible compensation. A participant may purchase a maximum of 3,000 shares of common stock during a

purchase period. Amounts deducted and accumulated by the participant are used to purchase shares of our common stock at the end of each six-month purchase period. The purchase price of the shares is 85% of the lower of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the related offering period. The ESPP provides for consecutive offering periods that will typically have a duration of approximately 24 months in length and is comprised of four purchase periods of approximately six months in length. The offering periods are scheduled to start on the first trading day on or after June 15 and December 15 of each year. Employee payroll contributions ultimately used to purchase shares will be reclassified to stockholders' equity on the purchase date. The number of shares of common stock available for issuance under ESPP also includes an annual increase on the first day of each fiscal year pursuant to its automatic annual increase provision.

Our first ESPP offering period commenced on March 16, 2018 and its first purchase period ended on December 17, 2018. During fiscal 2019, employees purchased approximately 1,131,000 shares of common stock under the ESPP at an average purchase price of $14.53 per share, resulting in total cash proceeds of $16.4 million. ESPP employee payroll contributions accrued at July 31, 2019 and 2018, totaled $2.1 million and $4.6 million, respectively, and are included within accrued compensation in the consolidated balance sheets.

The fair value of the purchase rights granted under the ESPP was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Year Ended July 31,
	2019	2018
Expected term (in years)	0.5 - 2.0	0.5 - 2.3
Expected stock price volatility	44.0% - 61.9%	30.7% - 53.2%
Risk-free interest rate	1.9% - 2.7%	2.0% - 2.6%
Dividend yield	0.0%	0.0%

Early Exercised Stock Options

The 2007 Plan allowed for the early exercise of stock options for certain individuals as determined by our board of directors. The consideration received for an early exercised stock option is considered to be a deposit of the exercise price and the related proceed is initially recorded as a liability in the consolidated balance and reclassified to additional paid-in capital as the awards vest. Upon an employee’s termination, we have the option to repurchase unvested shares at a price per share equal to the lesser of the fair market value of the shares at the time of the repurchase or the original purchase price. We reclassified to additional paid-in capital $1.0 million, $3.2 million and $3.7 million related to awards vested during fiscal 2019, fiscal 2018 and fiscal 2017, respectively. As of July 31, 2019 and 2018, the number of shares of common stock subject to repurchase was approximately 122,000 shares and 423,000 shares with an aggregate exercise price of $0.6 million and $1.6 million, respectively. The liability for early exercised stock options is included within accrued expenses and other current liabilities in the consolidated balance sheets.

Notes Receivable from Stockholders

Prior to fiscal 2017, we entered into notes receivable agreements with certain of our current and former executives and employees in connection with the exercise of their stock options. The outstanding principal amount and related accrued interest on the notes are presented as contra-equity in the consolidated balance sheets until the notes are fully settled. As of July 31, 2018, the carrying amount of the outstanding notes receivable was $2.1 million, inclusive of accrued interest of $0.1 million. During fiscal 2019, the principal amount and accrued interest of the outstanding notes were fully repaid, resulting in cash proceeds of $2.1 million.

Stock-based Compensation Expense

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

	Year Ended July 31,
	2019		2018		2017
	(in thousands)
Cost of revenue	$	2,926	$	757	$	348
Sales and marketing	23,118		5,044		2,794
Research and development	15,090		3,045		5,574
General and administrative	5,289		2,378		1,203
Total	$	46,423	$	11,224	$	9,919

As of July 31, 2019, the unrecognized stock-based compensation cost related to outstanding equity-based awards was $194.6 million, which we expect to be amortized over a weighted-average period of 3.2 years.

In fiscal 2019, we capitalized stock-based compensation associated with the development of software for internal-use of $0.5 million. Stock-based compensation related to projects capitalized in prior periods was immaterial.