Share-Based Compensation

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

The share-based compensation expense relating to the Company’s stock options, restricted stock units (“RSUs”), and performance-based restricted stock units (“PBRSUs”) for the three months ended September 30, 2021 and 2020 was $25.5 million and $6.8 million, respectively, with related tax benefits of approximately $5.1 million and $1.2 million, respectively. The share-based compensation expense relating to the Company’s stock options, RSUs, and PBRSUs for the nine months ended September 30, 2021 and 2020 was $62.0 million and $15.9 million, respectively, with related tax benefits of approximately $12.2 million and $2.6 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 $1.2 million of income tax benefit from windfalls associated with vesting and exercises of equity awards for the three months ended September 30, 2021 and 2020, respectively. The Company recognized $7.2 million and $2.9 million of income tax benefit from windfalls associated with vesting and exercises of equity awards for the nine months ended September 30, 2021 and 2020, 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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Share-Based Compensation Expense Allocation Details:
Cost of services	$	15.8	$	2.7	$	38.8	$	6.1
Selling, general and administrative	9.7		4.1		23.2		9.8

Total share-based compensation expense	$	25.5	$	6.8	$	62.0	$	15.9

The Company uses the Black-Scholes option pricing model to estimate the fair value of its service-based options as of their grant dates. The Company assesses current performance on performance-based PBRSUs by reviewing historical performance to date, along with any adjustments which have been approved to the reported performance, and changes to the projections to determine the probable outcome of the awards. The current estimates are then compared to the scoring metrics and any necessary adjustments are reflected in the current period to update share-based compensation expense to the current performance expectations.

The following table sets forth the significant assumptions used in the Black-Scholes option pricing model and the calculation of share-based compensation expense for the nine months ended September 30, 2021 and 2020:


	Nine Months Ended September 30,
	2021	2020
Expected dividend yield	—%	—%
Risk-free interest rate	0.4% to 1.0%	0.4% to 1.7%
Expected volatility	43%	43%
Expected term (in years)	5.5	5.5

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 nine months ended September 30, 2021 is shown below:


	Options	Weighted- Average Exercise Price
Outstanding at December 31, 2020	6,220,971	$	3.68
Granted	4,775	23.60
Exercised	(1,108,632)	4.90
Canceled/forfeited	(10,888)	6.02
Expired	(7,000)	27.08
Outstanding at September 30, 2021	5,099,226	$	3.40
Outstanding, vested and exercisable at September 30, 2021	5,069,288	$	3.35
Outstanding, vested and exercisable at December 31, 2020	5,230,690	$	3.73

Restricted stock units and performance-based restricted stock units

A summary of the RSU and PBRSU activity during the nine months ended September 30, 2021 is shown below:


					Weighted- Average Grant Date Fair Value
	RSUs		PBRSUs		RSU		PBRSU
Outstanding and unvested at December 31, 2020	2,108,447		2,917,071		$	9.87	$	11.35
Granted	2,179,823		1,071,431		24.41		25.36
Performance factor adjustment	—		101,937		—		9.81
Vested	(600,905)		(305,811)		8.74		9.81
Forfeited	(325,118)		(225,019)		15.36		13.22
Outstanding and unvested at September 30, 2021	3,362,247		3,559,609		$	18.97	$	15.53

Shares surrendered for taxes for the nine months ended September 30, 2021	186,588		—
Cost of shares surrendered for taxes for the nine months ended September 30, 2021 (in millions)	$	4.8	$	—
Shares surrendered for taxes for the nine months ended September 30, 2020	133,673		—
Cost of shares surrendered for taxes for the nine months ended September 30, 2020 (in millions)	$	1.2	$	—

PBRSUs vest upon satisfaction of both time-based and performance-based conditions. Depending on the award, performance condition targets may include cumulative adjusted EBITDA, end-to-end RCM agreement growth, scored revenue growth, or other specific performance factors. 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 outstanding PBRSUs is 6,693,815.