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Stock Based Compensation | 12 Months Ended
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Dec. 31, 2021
Share-based Payment Arrangement [Abstract] |
Stock Based Compensation | Stock Based Compensation The following table summarizes stock-based compensation expense recognized for the years ended December 31, 2021, 2020 and 2019, as follows:
| 2021 |  | 2020 |  | 2019
Research and development | $ | 7,416 |  |  | $ | 6,110 |  |  | $ | 181 |
Sales and marketing | 8,770 |  |  | 4,505 |  |  | 111 |
General and administrative | 44,145 |  |  | 13,142 |  |  | 945 |
Total stock-based compensation expense | $ | 60,331 |  |  | $ | 23,757 |  |  | $ | 1,237 |
Equity Incentive Plans 2012, 2015, and 2017 Equity Incentive Plans Prior to the FEAC Business Combination, the Company maintained a stock based compensation plan. Old Skillz’s 2012, 2015, and 2017 Equity Incentive Plans (the “Legacy Equity Incentive Plans”) provided for the grant of stock-based awards to purchase or directly issue shares of common stock to employees, directors and consultants. Options were granted at a price per share equal to the fair market value of the underlying common stock at the date of grant. Options granted to newly hired employees typically vest 25% on the first anniversary date of hire and ratably each quarter over the ensuing 36 month period. The maximum term for stock options granted under the Legacy Equity Incentive Plans may not exceed ten years from date of grant. Each Old Skillz option from the Legacy Equity Incentive Plans that was outstanding immediately prior to the FEAC Business Combination, whether vested or unvested, was converted into an option to acquire a number of shares of Class A Common Stock (other than in the case of the Founder, who received options exercisable for Class B common stock of the Company) (each such option, an "Exchanged Option") equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Old Skillz common stock subject to such Old Skillz option immediately prior to the FEAC Business Combination and (ii) the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (A) the exercise price per share of such Old Skillz option immediately prior to the consummation of the FEAC Business Combination, divided by (B) the Exchange Ratio. Except as specifically provided in the FEAC Business Combination Agreement, following the FEAC Business Combination, each Exchanged Option will continue to be governed by the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Old Skillz option immediately prior to the consummation of the FEAC Business Combination. All stock option activity was retroactively restated to reflect the Exchanged Options. Skillz Inc. 2020 Omnibus Incentive Plan In December 2020, the Board of Directors of the Company adopted the Skillz Inc. 2020 Omnibus Incentive Plan (the “2020 Plan”). The 2020 Plan became effective upon consummation of the FEAC Business Combination and succeeds the Company’s legacy equity incentive plans. Under the 2020 Plan, the Company may grant stock-based awards to purchase or directly issue shares of common stock to employees, directors and consultants. Options are granted at a price per share equal to the fair market value of the underlying common stock at the date of grant. Options granted are exercisable over a maximum term of 10 years from the date of grant. Restricted stock units (“RSUs”) are also granted under the 2020 Plan. These awards typically have a cliff vesting period of one year and continue to vest quarterly thereafter. The 2020 Plan also permits the Company to grant stock-based awards with performance or market conditions. In connection with the closing of the FEAC Business Combination, the Company entered into certain option agreements that include vesting conditions contingent upon the attainment of volume weighted average price targets related to the Company’s Class A common stock on the NYSE. The 2020 Plan permits the Company to deliver up to 47,841,859 shares of common stock pursuant to awards issued under the 2020 Plan, consisting of 15,000,000 shares which may be of Class A and/or Class B common stock, 24,669,278 shares of Class A common stock and 8,172,581 shares of Class B common stock. The total number of shares of Class A common stock and Class B common stock that will be reserved and that may be issued under the 2020 Plan will automatically increase on the first trading day of each calendar year, beginning with calendar year 2021, by a number of shares equal to five percent 5% of the total number of shares of Class A common stock and Class B common stock, respectively, outstanding on the last day of the prior calendar year. Stock Options and Restricted Stock Units Stock option and RSU activity during the year ended December 31, 2021 is as follows (in thousands, except for share, per share, and contractual term data):
|  |  | Options Outstanding |  | Restricted Stock Units
| Number of Shares Available for Issuance Under the Plan |  | Number of Shares Outstanding Under the Plan |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value |  | Number of Plan shares outstanding |  | Weighted-Average Grant Date Fair Value per share
Balance at December 31, 2020 | 35,500,603 |  |  | 38,404,493 |  |  | $ | 5.89 |  |  | 8.27 |  | $ | 542,074 |  |  | 341,256 |  |  | $ | 17.68 |
Options and restricted stock units granted | (8,494,636) |  |  | 64,839 |  |  | 12.58 |  |  |  |  |  |  | 8,424,462 |  |  | 14.32 |
Options exercised and restricted stock units released | — |  |  | (5,850,228) |  |  | 0.66 |  |  |  |  |  |  | (117,933) |  |  | 17.40 |
Options and restricted stock units canceled | 5,939,704 |  |  | (4,892,016) |  |  | 1.17 |  |  |  |  |  |  | (1,047,688) |  |  | 23.37 |
Balance at December 31, 2021 | 32,945,671 |  |  | 27,727,088 |  |  | $ | 7.79 |  |  | 7.04 |  | $ | 113,110 |  |  | 7,600,097 |  |  | $ | 13.17 |
Exercisable at December 31, 2020 |  |  | 14,248,234 |  |  | $ | 0.18 |  |  | 6.45 |  | $ | 282,364 |  |  |  |  |
Exercisable at December 31, 2021 |  |  | 13,157,036 |  |  | $ | 0.15 |  |  | 5.17 |  | $ | 95,946 |  |  |  |  |
Unvested at December 31, 2020 |  |  | 24,156,259 |  |  | $ | 9.25 |  |  | 9.34 |  | $ | 259,710 |  |  |  |  |
Unvested at December 31, 2021 |  |  | 14,570,052 |  |  | $ | 14.69 |  |  | 8.72 |  | $ | 17,164 |  |  |  |  |
The number of unvested stock options as of December 31, 2021 and December 31, 2020 does not include 8.2 million and 13.3 million shares of restricted common stock, respectively, previously issued upon the early exercise of grants by certain executives. The number of RSUs granted does not include 0.9 million performance based RSUs which the Company issued in 2021 and 2020, as the performance-based RSUs are not deemed granted for accounting purposes. The number of RSUs granted excludes 16.1 million of performance stock units granted in September 2021 to the Chief Executive Officer. Refer to the 2021 CEO Performance Award disclosure below for further details. As of December 31, 2021, unrecognized stock-based compensation expense related to unvested stock options, restricted common stock, RSUs, performance-based RSUs and performance stock units was $245.7 million. The weighted-average period over which such compensation expense will be recognized is 3.41 years. The aggregate intrinsic value of options exercised was $69.8 million, $89.9 million and $0.5 million during the years ended December 31, 2021, 2020 and 2019, respectively. The assumptions used to estimate the fair value of stock options granted and the resulting fair values for the year ended December 31, 2021, 2020 and 2019 were as follows:
| 2021 |  | 2020 |  | 2019
Expected volatility | 48.71% |  | 45% – 50% |  | 47.17% – 55.47%
Risk-free interest rate | 0.02% |  | 0.27% – 1.44% |  | 1.57% – 2.64%
Expected term (in years) | 0.25 |  | 4.14-6.25 |  | 5.00 – 6.86
Expected dividend yield | — |  | — |  | —
Weighted average estimated fair value of stock options granted during the year | $15.63 |  | $5.06 |  | $0.21
For the year ended December 31, 2021, the above assumptions were used to estimate the fair value of certain stock options previously granted to the CFO, that were modified as part of the transition and release agreement. 2021 CEO Performance Award In September 2021, the Company granted the Company’s Chief Executive Officer (“CEO”), an award of up to 16.1 million performance stock units (the “CEO Performance Award”) under the Company’s 2020 Plan, pursuant to which the CEO may earn one share of the Company’s Class A Common Stock for each performance stock unit that vests based on the achievement of certain Market Capitalization Milestones (as defined in the award agreement for the CEO Performance Award, the “Award Agreement”). The performance stock units are divided into four tranches, with each tranche corresponding to a Market Capitalization Milestone ranging from two to five times the Company’s market capitalization baseline. Each tranche will vest if and when the Company’s market capitalization equals or exceeds the corresponding Market Capitalization Milestone at any point during the seven-year performance period following the grant date (the “Performance Period”). For purposes of determining achievement of the Market Capitalization Milestones, the Company’s market capitalization is calculated based on the trailing 60-trading day volume weighted average price per share (“VWAP”) of the Company’s Class A common stock and the average number of outstanding shares during such period. At the end of the Performance Period, a tranche may vest pro-rata using straight-line interpolation. The Company’s market capitalization baseline is calculated using the trailing 30-trading day VWAP of the Company’s Class A common stock on the grant date and the average number of outstanding shares during such period. In the event of the termination of the CEO’s service as Chief Executive Officer (or Chairman and Chief Product Officer) of the Company other than (i) by the Company for Cause (as defined in the Award Agreement) or (ii) by the CEO without Good Reason (as defined in the Award Agreement), any unvested tranche will remain outstanding until the earlier of nine months following such termination of service and the end of the Performance Period and will vest if and when the Market Capitalization Milestones are achieved. Any unvested performance stock units will be forfeited automatically upon any other termination of the CEO’s service as Chief Executive Officer (or Chairman and Chief Product Officer) of the Company. If a Change in Control occurs during the Performance Period, any unvested tranche shall vest as of the effective time of such Change in Control to the extent that the Market Capitalization Milestones are achieved, using the higher of (1) the Company’s 60-trading day VWAP prior to the effective time of the Change in Control and (2) the price per share received by the Company’s stockholders in the Change in Control. The $70.8 million grant date fair value of the CEO Performance Award was estimated using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the market condition targets may not be satisfied. During the year ended December 31, 2021, the Company recognized $5.6 million in compensation expense related to this grant. As of December 31, 2021, the unrecognized stock-based compensation cost related to non-vested CEO Performance Award was $65.1 million. The Company expects this cost to be recognized over a remaining weighted-average period of approximately 3.89 years. Employee Stock Purchase Plan In June 2021, the Company commenced its first offering period under the Skillz, Inc. Employee Stock Purchase Plan (the employee Stock Purchase Plan), which assists employees in acquiring a stock ownership interest in the Company and encourages them to remain in the employment of the Company. The Employee Stock Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code. The employee Stock Purchase Plan permits eligible employees to purchase common stock at a discount through payroll deductions during specified offering periods. No employee may purchase more than $25 thousand worth of stock in any calendar year. The price of shares purchased under the Employee Stock Purchase Plan is equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. The total Employee Stock Purchase plan expense for the year ended December 31, 2021 was immaterial. Founders’ Option Agreements In December 2020, in connection with the closing of the FEAC Business Combination, the Company entered into option agreements with each of the CEO and CRO (the “Option Agreements”) awarding options to purchase (i) 9,960,000 shares of New Skillz Class B common stock to the CEO and (ii) 2,040,000 shares of New Skillz Class A common stock to the CRO. The options will vest in three equal increments as follows (i) one-third (1/3) of the options shall vest and become exercisable as of the date, following the grant date, that the volume weighted average price on the NYSE over a ten (10) trading day period of underlying New Skillz Class A common stock (“VWAP”) equals or exceeds 3.0x the VWAP of the shares as of the Closing Date, (ii) one-third (1/3) of the options shall vest and become exercisable as of the date, following the grant date, that the VWAP of the shares equals or exceeds 4.0x the VWAP of the shares as of the Closing Date; and (iii) one-third (1/3) of the options shall vest and become exercisable as of the date, following the grant date, that the VWAP of the shares equals or exceeds 5.0x the VWAP of the shares as of the Closing Date. The $93.4 million grant date fair value of the Founders’ Options was estimated using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the market condition targets may not be satisfied. The significant inputs to the valuation included the Company’s Class A stock price and the risk-free interest rate as of the grant date, as well as the estimated volatility of the Company’s Class A common stock. For the year ended December 31, 2021, the Company recognized $19.4 million in compensation expense related to these grants. As of December 31, 2021, the unrecognized stock-based compensation cost related to non-vested Founders’ Option Agreements was $73.2 million.

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