SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2019

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

10.  SHARE-BASED COMPENSATION

Stock Options

A summary of the Company’s stock option activity as of and for the nine months ended September 30, 2019 is as follows:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number	Exercise		Contractual	Intrinsic
	of Options	Price		Life	Value
				(Years)
Outstanding at January 1, 2019	5,186,025	$	18.42	8.0	$	2,910
Granted	453,808		5.19
Exercised	(131,966)		4.54
Expired/cancelled	(1,732,525)		17.40
Outstanding at September 30, 2019	3,775,342	$	17.57	7.6	$	26
Exercisable at September 30, 2019	1,670,724	$	21.25	7.1	$	0

The Company recorded share-based compensation expense associated with stock options of $946 and $2,073 for the three months ended September 30, 2019 and 2018, respectively and $3,588 and $6,225 for the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019, the total compensation cost related to nonvested options not yet recognized was $7,985 which will be recognized over a weighted average period of 1.8 years, assuming all employees complete their respective service periods for vesting of the options.

The Company granted annual awards of 366,330 options under its 2014 Omnibus Incentive Plan (the “2014 Plan”) and an inducement award of 87,478 options to purchase common stock to key employees during the nine months ended September 30, 2019, which options become exercisable in installments of 33.3 percent, per year, beginning on the first anniversary of the grant date. These options have a maximum term of ten years.

Options to purchase 453,808 shares of common stock were granted during the nine months ended September 30, 2019 and have a weighted average grant date fair value of $2.53 per option. The grant date fair values of these stock option awards

were estimated using the Black Scholes-Merton option pricing model using the assumptions set forth in the following table:

Exercise price	$4.81 - $5.94
Expected volatility	49.12% - 49.47%
Expected dividend yield	0%
Risk-free rate for expected term	1.95% - 2.38%
Expected life (in years)	6.00

Estimating grant date fair values for employee stock options requires management to make assumptions regarding expected volatility of the value of those underlying shares, the risk-free rate over the expected life of the stock options and the date on which share-based payments will be settled. Expected volatility is based on a weighted average of the Company’s historic volatility and an implied volatility for a group of industry-relevant healthcare companies as of the measurement date. Risk-free rate is determined based upon U.S. Treasury rates over the estimated expected option lives. Expected dividend yield is zero as the Company does not anticipate that any dividends will be declared during the expected term of the options. The expected term of options granted is calculated using the simplified method (the midpoint between the end of the vesting period and the end of the maximum term). Forfeitures are accounted for when they occur.

Restricted Stock Units (“RSU” or “RSUs”)

A summary of the Company’s RSU activity as of and for the nine months ended September 30, 2019 is as follows:

		Weighted
		Average
	Number	Grant Date
	of RSUs	Fair Value
Nonvested at January 1,2019	1,869,029	$	21.67
Granted	5,908,924		5.30
Vested and issued	(349,849)		20.17
Cancelled /expired	(1,124,650)		19.13
Nonvested at September 30, 2019	6,303,454	$	6.78

Performance Based RSUs (shares reflected at maximum earn-out potential)

The Company granted an award of 1,498,500 performance-based RSUs as a sign-on inducement award to an executive during the second quarter of 2018. The award will be earned or forfeited based upon the Company’s performance relative to specified cumulative Adjusted EBITDA and revenue goals for the years ending December 31, 2018 and 2019 and the executive’s completion of the service condition. In January 2019, the performance goals were measurable and determinable, therefore, a grant date for accounting purposes was established. During the second quarter of 2019, these performance-based RSUs were modified by (1) adjusting the performance goals so that earning or forfeiture will be based upon the Company’s actual 2018 performance and projected 2019 performance, and (2) including a new performance goal that provides for full vesting at the maximum amount in the event the Company’s stock price increases by a specified percentage over a specified period of time during the 2019 fiscal year as a result of corporate actions taken during the 2019 performance year. The Company accounted for this modification pursuant to ASC Topic 718, “Compensation – Stock Compensation”, as a Type III (Improbable to Probable) modification and changed its estimate of the number of shares that will be earned from 0 percent to 30 percent.

During the second quarter of 2019, the Company granted annual awards of 1,835,000 performance-based RSUs under the 2014 Plan and 172,838 performance-based RSUs as an inducement award to key employees. These awards will be earned or forfeited based upon the Company’s performance relative to specified cumulative Adjusted EBITDA and revenue goals, as applicable, for the years ending December 31, 2019 and/or 2020, as applicable, and the completion of the service condition. The Company is currently accounting for these performance-based RSUs under the current estimate that 28.7 percent of the award shares will be earned. The Company recorded share-based compensation expense associated with

performance-based RSUs of $1,080 and $1,034 for the three months ended September 30, 2019 and 2018, respectively, and $2,154 and $1,886 for the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019, the total compensation expense related to nonvested performance-based RSUs not yet recognized, assuming 29.8 percent of the shares will be earned, was $2,947, which will be recognized over a weighted average remaining term of 1.2 years, assuming all employees also complete their respective service periods for vesting of the RSUs.

Service Based RSUs

The Company granted 2,159,377 service-based RSUs under its 2014 Plan and 243,209 service-based RSUs as inducement awards to key employees during the nine months ended September 30, 2019. The value of an RSU is determined by the market value of the Company’s common stock at the date of grant. This value is recorded as compensation expense on a straight-line basis over the vesting period, which ranges from one year to three years from grant date.

The Company recorded share-based compensation expense associated with service-based RSUs of $2,460 and $2,404 for the three months ended September 30, 2019 and 2018, respectively, and $6,258 and $7,245 for the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019, the total compensation cost related to nonvested RSUs not yet recognized was $20,762, which will be recognized over a weighted average remaining term of 2.1 years, assuming all employees complete their respective service periods for vesting of the service-based RSUs.

Restricted Stock Awards (“RSA” or RSAs”)

A summary of the Company’s RSA activity as of and for the nine months ended September 30, 2019 is as follows:

	Number	Weighted
	of Shares	Average
	Subject to	Grant Date
	Restriction	Fair Value
Nonvested at January 1, 2019	43,355	$	20.91
Granted	186,969		4.51
Vested	(20,829)		22.20
Forfeited	(5,929)		21.63
Nonvested at September 30, 2019	203,566		5.69

Under the 2014 Plan, the Company issued 186,969 RSAs to non-employee directors. The value of a RSA is determined by the market value of the Company’s common stock at the date of grant. The value of a RSA is recorded as share-based compensation expense on a straight-line basis over the vesting period, which is typically one year.

The Company recorded share-based compensation expense associated with RSAs of $291 and $138 for the three months ended September 30, 2019 and 2018, respectively, and $632 and $415 for the nine months ended September 30, 2019 and 2018, respectively. At September 30, 2019, the total compensation cost related to nonvested RSAs not yet recognized was $568 which will be recognized over a weighted average remaining term of 0.7 years, assuming the non-employee directors complete their service period for vesting of the RSAs.