
	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Research and development	$	1,814	$	523	$	5,237	$	1,544
Sales and marketing	1,637		468		6,025		1,542
General and administrative	12,361		2,671		31,269		6,479
Total stock-based compensation expense	$	15,812	$	3,662	$	42,531	$	9,565

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 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 1 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 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 option and RSU activity during the nine months ended September 30, 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	(3,743,376)	64,839	12.58					3,678,537	20.28
Options exercised and restricted stock units released	—	(4,896,629)	0.65					(20,303)	17.48
Options and restricted stock units canceled	4,039,561	(3,390,960)	1.22					(648,601)	22.46
Balance at September 30, 2021	35,796,788	30,181,743	$	7.24	7.31	$	172,203	3,350,889	$	19.61

Exercisable at December 31, 2020		14,248,234	$	0.18	6.45	$	282,364
Exercisable at September 30, 2021		13,459,112	0.16		5.37	129,935
Unvested at December 31, 2020		24,156,259	9.25		9.34	259,710
Unvested at September 30, 2021		16,722,631	12.93		8.87	42,268

The number of unvested stock options as of September 30, 2021 and December 31, 2020 does not include 9.1 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 0.2 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 during September 2021 to the Chief Executive Officer. Refer to the 2021 CEO Performance Award disclosure below for further details.

As of September 30, 2021, unrecognized stock-based compensation expense related to unvested stock options, restricted common stock, RSUs, performance-based RSUs and performance stock units was $233.7 million. The weighted-average period over which such compensation expense will be recognized is 3.52 years.

On May 4, 2021, the Company entered into a transition and release agreement providing for Mr. Henry’s retirement from his position as Chief Financial Officer (“CFO”) of the Company, effective June 20, 2021. As part of the transition and release agreement, certain stock options of the CFO were modified to vest through August 10, 2021, the separation date, based on Mr. Henry’s continuous service to the Company in an executive advisor role from June 21, 2021 through the separation date. This modification resulted in $6.4 million of incremental stock-based compensation expense recorded in the condensed consolidated statement of operations through the third quarter of 2021. The Company recognized $2.7 million and $6.4 million of this expense for the three and nine months ended September 30, 2021, respectively.

The aggregate intrinsic value of options exercised was $47.8 million and $20.4 million during the three months ended September 30, 2021 and 2020, respectively, and $59.6 million and $47.8 million during the nine months ended September 30, 2021 and 2020, respectively.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021(1)	2020	2021(1)	2020
Expected volatility	48.71%	48.65% - 48.9%	48.71%	47.24% - 48.93%
Risk-free interest rate	0.02%	0.35% - 0.41%	0.02%	0.35% - 1.44%
Expected term (in years)	0.25	6.00 - 6.1	0.25	6.00 - 6.25
Expected dividend yield	—	—	—	—
Weighted average estimated fair value of stock options granted during the period	$15.63	$7.95	$15.63	$2.98

(1)For the three and nine months ended September 30, 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.

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.

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 three and nine months ended September 30, 2021, the Company recognized $0.8 million in compensation expense related to this grant. As of September 30, 2021, the unrecognized stock-based compensation cost related to non-vested CEO Performance Award was $70.0 million. The Company expects this cost to be recognized over a remaining weighted-average period of approximately 4.14 years.

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 $25,000 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 and nine months ended September 30, 2021 was $0.1 million and $0.2 million, respectively.