15.  Stock-based compensation

The Company’s equity incentive plan was adopted in order to attract and retain personnel for positions of substantial authority and to provide additional incentive to employees and directors to promote the success of the business.

The Amended and Restated 2011 Incentive Award Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, dividend equivalent rights, stock payments, deferred stock, and cash-based awards to employees, consultants, and directors. Unless provided otherwise by the administrator of the plan, options vest over four years at the rate of 25% per year from the date of grant and must be exercised within ten years. Options are granted with the exercise price equal to the fair value of the underlying stock on the date of grant. As of January 29, 2022, the plan reserves for the issuance upon grant or exercise of awards up to 2,577 shares of common stock.

The following table presents information related to stock-based compensation:

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Stock options

Stock-based compensation expense is measured on the grant date based on the fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period for awards expected to vest. The estimated grant date fair value of stock options was determined using a Black-Scholes valuation model using the following weighted-average assumptions for the periods indicated:

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The expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the United States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life represents the time the options granted are expected to be outstanding. The expected life of options granted is derived from historical data on Ulta Beauty stock option exercises. Forfeitures of stock options are estimated at the grant date based on historical rates of stock option activity and reduce the stock-based compensation expense recognized. The Company does not currently pay a regular dividend.

The following table presents information related to common stock options:

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At January 29, 2022, there was approximately $11,623 of unrecognized stock-based compensation expense related to unvested stock options. The unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of approximately two years.

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A summary of stock option activity is presented in the following table (shares in thousands):

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The following table presents information related to stock options outstanding and stock options exercisable at January 29, 2022 based on ranges of exercise prices (shares in thousands):
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The aggregate intrinsic value of outstanding and exercisable stock options as of January 29, 2022 was $62,762 and $19,793, respectively. The last reported sale price of the Company’s common stock on the NASDAQ Global Select Market on January 29, 2022 was $358.83 per share.

Restricted stock units

Restricted stock units are granted to certain employees and directors. Employee grants generally cliff vest after three years and director grants cliff vest after one year. The grant date fair value of restricted stock units is based on the closing market price of shares of the Company’s common stock on the date of grant. Restricted stock units are expensed on a straight-line basis over the requisite service period. Forfeitures of restricted stock units are estimated at the grant

date based on historical rates of stock award activity and reduce the stock-based compensation expense recognized. At January 29, 2022, unrecognized stock-based compensation expense related to restricted stock units was $22,179. The unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of approximately one and a half years.

A summary of restricted stock units activity is presented in the following table (shares in thousands):

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Performance-based restricted stock units

Performance-based restricted stock units are granted to certain employees. Units granted prior to 2021 cliff vest after three years based upon achievement of pre-established net sales and earnings before tax goals at the end of the second year of the term. The grant date fair value of these performance-based restricted stock units is based on the closing market price of shares of the Company’s common stock on the date of grant. Performance-based restricted stock units granted in 2021 cliff vest after three years based upon achievement of pre-established net sales and earnings before tax goals for each of the first two years. The performance is then capped at 100% if the total shareholder return over a three-year period is not positive. The grant date fair value of the 2021 performance-based restricted stock units are measured using a Monte Carlo simulation. Performance-based restricted stock units are expensed on a straight-line basis over the requisite service period, based on the probability of achieving the performance goal, with changes in expectations recognized as an adjustment to earnings in the period of the change. If the performance goal is not met, no stock-based compensation expense is recognized and any previously recognized stock-based compensation expense is reversed. Forfeitures of performance-based restricted stock units are estimated at the grant date based on historical rates of stock award activity and reduce the stock-based compensation expense recognized. At January 29, 2022, unrecognized stock-based compensation expense related to performance-based restricted stock units was $13,990. The unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of approximately one and a half years.

A summary of performance-based restricted stock unit activity is presented in the following table (shares in thousands):

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The number of performance-based restricted stock units granted is based on achieving the targeted performance goals as defined in the performance-based restricted stock unit agreements. As of January 29, 2022, the maximum number of units that could vest under the provisions of the agreements was 92.

Awards with market conditions are classified as liability awards and the fair value is determined using a Monte Carlo simulation. Market-based restricted stock units totaling 28 shares were granted to the former Chief Executive Officer in fiscal 2018 and settled during fiscal 2021. Compensation expense for liability awards was $7,671, $879, and $597 for the fiscal years ended January 29, 2022, January 30, 2021, and February 1, 2020, respectively.