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Stock Based Compensation | 3 Months Ended
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Mar. 31, 2024
Share-Based Payment Arrangement [Abstract] |
Stock Based Compensation | Stock-Based Compensation The following table summarizes stock-based compensation expense recognized for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, |  |
| 2024 |  | 2023 |  |  |  |
Cost of revenue | $ | 2 |  |  | $ | — |  |  |  |  |
Research and development | 147 |  |  | 1,206 |  |  |  |  |
Sales and marketing | 2,011 |  |  | 1,904 |  |  |  |  |
General and administrative | 6,580 |  |  | 7,438 |  |  |  |  |
Total stock-based compensation expense | $ | 8,740 |  |  | $ | 10,548 |  |  |  |  |
Equity Incentive Plans 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. 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 6,465,771 shares of common stock pursuant to awards issued under the 2020 Plan, consisting of 750,000 shares which may be of Class A and/or Class B common stock, 4,597,406 shares of Class A common stock and 1,118,365 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 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 three months ended March 31, 2024 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, 2023 | 2,152,407 |  |  | 701,833 |  |  | $ | 303.73 |  |  | 6.95 |  | $ | 91 |  |  | 2,497,773 |  |  | $ | 14.93 |
Additional shares authorized | 903,395 |  |  | — |  |  | — |  |  |  |  |  |  |  |  |
Granted | (300,743) |  |  | — |  |  | — |  |  |  |  |  |  | 300,743 |  |  | 6.36 |
Exercised/Vested | — |  |  | (552) |  |  | 3.07 |  |  |  |  |  |  | (63,805) |  |  | 27.53 |
Cancelled/Forfeited/Expired | 418,532 |  |  | (4,308) |  |  | 15.32 |  |  |  |  |  |  | (414,224) |  |  | 18.25 |
Balance at March 31, 2024 | 3,173,591 |  |  | 696,973 |  |  | $ | 305.75 |  |  | 6.71 |  | $ | 94 |  |  | 2,320,487 |  |  | $ | 12.88 |
Exercisable at December 31, 2023 |  |  | 98,469 |  |  | $ | 9.52 |  |  | 4.56 |  | $ | 90 |  |  |  |  |
Exercisable at March 31, 2024 |  |  | 95,745 |  |  | 9.60 |  |  | 4.30 |  | 93 |  |  |  |  |
Unvested at December 31, 2023 |  |  | 603,364 |  |  | 351.75 |  |  | 6.95 |  | 1 |  |  |  |  |
Unvested at March 31, 2024 |  |  | 601,228 |  |  | 352.92 |  |  | 6.71 |  | 1 |  |  |  |  |
The number of RSUs granted and outstanding does not include 0.6 million performance-based RSUs which the Company issued as of March 31, 2024, as the performance-based RSUs are not deemed granted for accounting purposes because the performance-based RSUs are subjected to performance criteria established by the Company’s Board at the recommendation of its Compensation Committee. Additionally, the stock option and RSU activity presented in the table above does not include activity related to the 2022 CFO Restricted Stock Unit and Performance award, 2022 CEO Restricted Stock Unit and Performance Award, 2021 CEO Performance Award and Founders’ Option Agreements, described below. As of March 31, 2024, unrecognized stock-based compensation expense related to unvested stock options, restricted common stock, RSUs, performance-based RSUs and performance stock units was $48.0 million. Restricted stock generally vests over periods of one to eight years. The weighted-average period over which such compensation expense will be recognized is 2.6 years. The aggregate intrinsic value of options exercised was not material during the three months ended March 31, 2024 and 2023. 2022 CFO Restricted Stock Unit and Performance Award The Company granted the Company’s President and Chief Financial Officer (“CFO”) a restricted stock unit award covering shares of the Class A common stock with a grant date value equal to $15.0 million, comprised of 0.5 million restricted stock units. These grants vest 25% on the first anniversary of CFO’s start date and the remainder vest in 12 substantially equal quarterly installments, in each case subject to continuous service with the Company through each applicable vesting date, provided that the grant vests in full if the CFO is terminated without cause following a change of control of the Company. On September 30, 2022, the restricted stock unit award was re-measured based on the fair value of an underlying share of the Class A common stock, which was equal to $10.7 million, and the Company then reclassified the liability classified award to additional paid-in capital as the number of shares became fixed. During the three months ended March 31, 2024, the Company recognized $0.3 million in compensation expense related to this grant. In addition, the Company issued to the CFO a performance stock unit award covering shares of the Class A common stock with a fair value of $5.0 million as of the issuance date, comprised of 0.2 million performance stock units. Such award vests over four one-year periods, with pro-rata vesting for the first and last performance periods, in each case subject to continuous service with the Company through each applicable vesting date and the attainment of certain corporate performance goals. The Company did not award any performance stock units for the year ended December 31, 2023 as the performance goals were not achieved. On January 5, 2024 the CFO informed the Company of his decision to step down from his position. The unvested portion of the grants awarded under the 2022 CFO Restricted Stock Unit and Performance Award were all forfeited as of March 31, 2024. 2022 CEO Restricted Stock Unit and Performance Award The Company granted the Company’s Chief Executive Officer (“CEO”) a restricted stock unit award covering shares of the Class A common stock with a grant date value equal to $25.9 million, comprised of 1.4 million restricted stock units. Such grant vests 25% on the first anniversary of January 1, 2023 and the remainder vests in 12 substantially equal quarterly installments, in each case subject to continuous service with the Company through each applicable vesting date, provided that the grant vests in full if the CEO is terminated without cause following a change of control of the Company. During the three months ended March 31, 2024, the Company recognized $0.9 million in compensation expense related to this grant. As of March 31, 2024, the unrecognized stock-based compensation cost related to the non-vested CEO restricted stock unit award was $9.7 million. The Company expects this cost to be recognized over a remaining weighted-average period of approximately 3.7 years. In addition, the Company issued to the CEO a performance stock unit award covering shares of the Class A common stock with a fair value of $8.6 million as of the issuance date, comprised of 0.5 million performance stock units. Such award vests over four one-year periods, in each case subject to continuous service with the Company through each applicable vesting date and the attainment of certain corporate performance goals. As of March 31, 2024, the award was not considered granted for accounting purposes as the performance goals have not been achieved. Founders’ Option Agreements In December 2020, the Company entered into option agreements with each of the CEO and Chief Strategy Officer (“CSO”) (the “Option Agreements”) awarding them options to purchase (i) 498,000 shares of Class B common stock to the CEO and (ii) 102,000 shares of Class A common stock to the CSO with an exercise price of $353.60. 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 Class A common stock (“VWAP”) equals or exceeds 3.0x the VWAP of the shares as of the Closing Date (as defined in the Options Agreements), (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 Class A stock price and the risk-free interest rate as of the grant date, as well as the estimated volatility of the Class A common stock. For the three months ended March 31, 2024, the Company recognized $4.8 million, in compensation expense related to these grants. As of March 31, 2024, the unrecognized stock-based compensation cost related to the Option Agreements was $29.5 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.62 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 $25.0 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 three months ended March 31, 2024 and 2023 were not material.

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