Share-Based Compensation

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

The share-based compensation expense relating to the Company’s stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based restricted stock units (“PBRSUs”) for the three months ended March 31, 2020 and 2019 was $4.8 million and $4.4 million, respectively, with related tax benefits of approximately $0.7 million and $0.7 million, respectively.

The Company accounts for forfeitures as they occur. Excess tax benefits and shortfalls for share-based payments are recognized in income tax expense (benefit) and included in operating activities. The Company recognized $0.6 million and $1.9 million income tax benefit from windfalls associated with vesting and exercises of equity awards for the three months ended March 31, 2020 and 2019, respectively.

Total share-based compensation costs that have been included in the Company’s consolidated statements of operations were as follows (in millions):


	Three Months Ended March 31,
	2020		2019
Share-Based Compensation Expense Allocation Details:
Cost of services	$	1.9	$	1.3
Selling, general and administrative	2.9		3.0
Other	—		0.1
Total share-based compensation expense	$	4.8	$	4.4

The Company uses the Black-Scholes option pricing model to estimate the fair value of its service-based options as of its grant date. Monte Carlo simulations are used to estimate the fair value of its market-based PBRSUs. The market-based PBRSUs vest upon satisfaction of both time-based requirements and market targets based on share price. Expected life is based on the market condition to which the vesting is tied.

The following table sets forth the significant assumptions used in the Black-Scholes option pricing model and the Monte Carlo simulations and the calculation of share-based compensation expense for the three months ended March 31, 2020 and 2019:


	Three Months Ended March 31,
	2020	2019
Expected dividend yield	—%	—%
Risk-free interest rate	1.7%	2.4% to 2.5%
Expected volatility	43%	40% to 45%
Expected term (in years)	5.5	2.00 to 5.50

The risk-free interest rate input is based on U.S. Treasury instruments, and the expected volatility of the share price is based on review of the historical volatility levels of the Company’s common stock in conjunction with that of public companies that operate in similar industries or are similar in terms of stage of development or size and a projection of this information toward its future expected volatility. The Company used the simplified method to estimate the expected option life. The simplified method was used due to the lack of sufficient historical data available to provide a reasonable basis upon which to estimate the expected term of each stock option.

Stock options

A summary of the options activity during the three months ended March 31, 2020 is shown below:


	Options	Weighted- Average Exercise Price
Outstanding at December 31, 2019	10,680,340	$	5.59
Granted	7,602	12.69
Exercised	(553,520)	5.53
Canceled/forfeited	(61,766)	2.46
Expired	(1,176,000)	14.71
Outstanding at March 31, 2020	8,896,656	$	4.41
Outstanding, vested and exercisable at March 31, 2020	6,362,802	$	5.04
Outstanding, vested and exercisable at December 31, 2019	7,868,280	$	6.57

Restricted stock awards, restricted stock units, and performance-based restricted stock units

A summary of the RSA, RSU, and PBRSU activity during the three months ended March 31, 2020 is shown below:


							Weighted- Average Grant Date Fair Value
	RSAs		RSUs		PBRSUs			RSU		PBRSU
Outstanding and unvested at December 31, 2019	—		1,373,356		4,119,436			$	8.03	$	6.37
Granted	—		20,510		—			12.70		—
Vested	—		(1,720)		—			2.33		—
Forfeited	—		(46,367)		(111,223)			6.10		5.40
Outstanding and unvested at March 31, 2020	—		1,345,779		4,008,213			$	8.18	$	6.40

Shares surrendered for taxes for the three months ended March 31, 2020	—		545		—
Cost of shares surrendered for taxes for the three months ended March 31, 2020 (in millions)	$	—	$	—	$	—
Shares surrendered for taxes for the three months ended March 31, 2019	342,378		620		—
Cost of shares surrendered for taxes for the three months ended March 31, 2019 (in millions)	$	3.3	$	—	$	—

Outstanding PBRSUs issued prior to May 2019 vest upon satisfaction of both time-based requirements and market targets based on share price with certain awards vesting between December 31, 2020 and December 31, 2022. Depending on the percentage level at which the market-based condition is satisfied, the number of shares vesting could be between 0% and 350% of the number of PBRSUs originally granted. PBRSUs issued subsequent to April 2019 vest on December 31, 2021 upon satisfaction of both time-based and performance-based conditions. These conditions include cumulative adjusted EBITDA and end-to-end RCM agreement growth targets. Depending on the percentage level at which the performance-based conditions are satisfied, the number of shares vesting could be between 0% and 200% of the number of PBRSUs originally granted. Based on the established targets, the maximum number of shares that could vest for all PBRSUs is 9,007,166.