PLAYSTUDIOS, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

2011 and 2021 Equity Incentive Plans

Old PLAYSTUDIOS' 2011 Omnibus Stock and Incentive Plan (the “2011 Plan”) provides for the grant of incentive and non-statutory options, stock appreciation rights, restricted stock awards and restricted stock units to employees, directors and consultants of the Company, collectively referred to as “Awards.”

Each Old PLAYSTUDIOS stock option from the 2011 Plan that was outstanding immediately prior to the Mergers and held by current employees or service providers, whether vested or unvested, was converted into an option to purchase 0.233 shares of common stock (each such option, an “Exchanged Option”). Except as specifically provided in the Merger

Agreement, following the Mergers, each Exchanged Option continues to be governed by the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Old PLAYSTUDIOS option immediately prior to the consummation of the Mergers. All equity awards activity was retroactively restated to reflect the Exchanged Options.

On June 17, 2021, the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”). The aggregate number of shares of common stock reserved for future issuance under the 2021 Plan is 16.7 million. The number of shares of common stock available under the 2021 Plan will increase annually on the first day of each calendar year, beginning with the calendar year ending December 31, 2022, with such annual increase equal to the lesser of (i) 5% of the number of shares of common stock issued and outstanding on the last business day of the immediately preceding fiscal year and (ii) an amount determined by the Company's Board of Directors. The Company has not issued any awards under the 2021 Plan.

The 2021 Plan provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other stock awards, and performance awards to employees, officers, non-employee directors and independent service providers of the Company. The 2021 Plan became effective immediately upon the closing of the Merger and replaces the 2011 Plan.

Stock-Based Compensation

In connection with the Domestication and the Closing of the Business Combination, the Founder Group beneficially owned 16.1 million shares of Class B common stock, resulting in 74.8% of voting power of the Company. In addition, on the Closing Date of the Business Combination, the Founder Group was the beneficial owner of 2.2 million fully vested options underlying shares of Class B common stock, which accounted for all of Mr. Pascal's outstanding options on the Closing Date of the Business Combination. As a result of the Business Combination, the Founder Group has a controlling interest in the Company. As the Founder Group did not have control of Old PLAYSTUDIOS immediately prior to the Business Combination, and as Mr. Pascal is an employee of the Company, the incremental value resulting from the super vote premium is accounted for as incremental compensation costs. During the nine months ended September 30, 2021, the Company incurred $1.1 million of additional compensation expense related to the Founder Group's beneficial ownership interest in Class B common stock and the underlying vested options as of the Closing Date.

The following table summarizes stock-based compensation expense that the Company recorded in income (loss) from operations for the periods shown:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Selling and marketing	$	22	$	24	$	54	$	71
General and administrative	117		277		1,587		802
Research and development	694		968		2,039		1,751
Stock-based compensation expense	$	833	$	1,269	$	3,680	$	2,624
Capitalized stock-based compensation	$	184	$	73	$	502	$	375

Stock Options

All of the options granted under the 2011 Plan have time-based vesting periods vesting over a period of three to four years and a maximum term of 10 years from the grant date.

Separate from the 2011 Plan, and in connection with the acquisition of our Israeli subsidiary, a limited number of employees have been granted performance-based stock options. The Company awarded 4.2 million performance-based stock options in 2017. These options had vesting that was tied to the achievement of defined performance and profitability metrics. The performance-based stock options have a weighted-average grant-date fair value of $0.56 per share. The performance-based stock options fully vested in 2018. During the year ended December 31, 2020, the majority of performance-based stock options were exercised, resulting in 0.1 million options outstanding as of September 30, 2021.

The following is a summary of stock option activity for time-based and performance-based options for the nine months ended September 30, 2021 (in thousands, except weighted-average exercise price and remaining term):


	No. of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Term (in Years)	Aggregate Intrinsic Value
Outstanding - December 31, 2020	18,090	$	0.85
Granted	128	7.85
Exercised	(2,440)	0.85
Forfeited	(383)	1.82
Expired	(65)	1.52
Outstanding - September 30, 2021	15,330	0.88		6.6	$	17,042
Unvested - September 30, 2021	4,837	0.96		7.7	7,670
Exercisable - September 30, 2021	10,493	0.88		6.0	9,373

The following table presents the weighted-average assumptions used to estimate the fair value of the stock options granted in the Company’s consolidated financial statements:


	Nine Months Ended September 30,
	2021	2020
Expected term (in years)	5.86	5.96
Expected volatility	51.24%	59.98%
Risk-free interest rate range	0.54% – 0.60%	0.24% – 0.51%
Dividend yield	0%	0%
Grant-date fair value	$4.01	$1.40

As of September 30, 2021, there was approximately $7.3 million of total unrecognized compensation expense related to stock options to employees. As of September 30, 2021, this cost is expected to be recognized over a remaining average period of 1.9 years. The total intrinsic value of stock options exercised under the provisions of the 2011 Plan during the three months ended September 30, 2021 and 2020, was $16.1 million and $0.2 million, respectively, and during the nine months ended September 30, 2021 and 2020, was $21.9 million and $0.2 million, respectively.