Stock-Based Compensation

9 Months Ended

Sep. 30, 2022

Stock-Based Compensation

Stock-Based Compensation

13.     Stock-Based Compensation

In September 2016, the Company adopted the 2016 Equity Compensation Plan (“2016 Plan”). During the term of the 2016 Plan, the share reserve will automatically increase on the first trading day in January of each calendar year by an amount equal to the lesser of 5% of the total number of outstanding shares of common stock on the last trading day in December of the prior calendar year or such other number set by the Company’s Board of Directors (the “Board”). In accordance with the terms of the 2016 Plan, the share reserve increased by 1,283,321 shares on February 25, 2022. As of September 30, 2022, 1,123,371 shares were available for future grants under the 2016 Plan.

The following stock-based compensation information disclosed below includes results of both continuing and discontinued operations.

Restricted Common Stock and Restricted Stock Units

The Company issues restricted stock awards and restricted stock units pursuant to the 2016 Plan to employees and non-employee directors. Restricted stock awards and restricted stock units generally vest over a one- to four-year period and the unvested portion of these awards is forfeited if the employee or non-employee director leaves the Company before the vesting period is completed. The grant-date fair value of restricted stock awards and restricted stock units is determined using the Company’s closing stock price at grant date.

The following table summarizes the aggregate restricted stock award activity, inclusive of performance based restricted stock awards, and restricted stock unit activity under the 2016 Plan for the nine months ended September 30, 2022:

		Weighted
		average
	Number	grant-date
	of shares	fair value
Outstanding at December 31, 2021	2,196,566	$	40.19
Granted	1,935,883		4.44
Vested	(1,224,471)		34.32
Forfeited	(676,723)		16.40
Outstanding at September 30, 2022	2,231,255	$	19.61

The table above includes 14,222 restricted stock units which had vested but had not been issued as of September 30, 2022.

For the three months ended September 30, 2022 and 2021, an aggregate of $13,061 and $6,447 of expense, respectively, was recognized related to restricted stock awards and restricted stock units, excluding performance-based restricted stock awards described below.

For the nine months ended September 30, 2022 and 2021, an aggregate of $26,129 and $22,846 of expense, respectively, was recognized related to restricted stock awards and restricted stock units, excluding performance-based restricted stock awards as described below. As of September 30, 2022, there was unrecognized compensation expense of $30,976 related to unvested restricted stock awards and unvested restricted stock units, excluding performance-based restricted stock awards described below, under the 2016 Plan, which is expected to be recognized over a weighted average period of 2.4 years.

Expense related to restricted stock awards for the three and nine months ended September 30, 2022 includes $8,143 for the accelerated vesting of unvested shares of restricted stock related to separation agreements with two retired named executive officers. See Note 17 for additional information.

Performance-Based Equity Awards

On October 29, 2020, pursuant to the 2016 Plan, the Board approved grants totaling 26,400 shares of restricted stock to certain employees, of which 1,400 expired on April 30, 2021 and 12,500 expired on December 31, 2021. The remaining 12,500 shares fully vested subject to the achievement of certain milestones on December 31, 2021. The awards had a grant-date fair value of $35.95 per share based on the Company’s closing stock price on the grant date. Stock-based compensation costs associated with these grants were recognized over the service period based upon the Company’s assessment of the probability that the performance conditions would be achieved. The Company recognized $194 and $556 of stock-based compensation expense related to these grants for the three and nine months ended September 30, 2021, respectively.

On April 27, 2021, pursuant to the 2016 Plan, the Board approved awards of performance stock units to certain employees. Each award reflects a target number of shares (“Target 2021 Shares”) that may be issued to the award recipient. The awards are earned upon the Company’s achievement of certain revenue performance targets during the three-year performance period ending December 31, 2023. Depending on the results achieved during the performance period, the actual number of shares that a grant recipient may receive at the end of the performance period may range from 0% to 200% of the Target 2021 Shares granted. The performance stock unit awards have a grant-date fair value of $44.13 per share based on the Company’s closing stock price on the grant date. Stock-based compensation costs associated with these grants are recognized over the performance period based upon the Company’s assessment of the probability that the performance targets will be achieved. The Company did not recognize any stock-based compensation expense related to the performance stock units for the three and nine months ended September 30, 2022, as the achievement of the underlying performance targets was considered unlikely. During the nine months ended September 30, 2022, 47,175 performance stock units expired. As of September 30, 2022, the number of Target 2021 Shares was 45,550 shares. As of September 30, 2022, the maximum number of achievable performance stock units was 91,100 and the maximum unrecognized compensation expense was $4,020.

On August 22, 2022, pursuant to the 2016 Plan, the Board approved awards of performance stock units to certain executives. Each award reflects a target number of shares (“Target 2022 Shares”) that may be issued to the award recipient. The awards are earned upon the Company’s achievement of certain market performance targets during the three-year performance period ending December 31, 2024. Depending on the results achieved during the performance period, the actual number of shares that a grant recipient may receive at the end of the performance period may range from 0% to 200% of the Target 2022 Shares granted. The performance stock unit awards have a grant-date fair value of $4.38 per share based on the fair value of the Company’s stock price at grant date and the expected vesting units, taking into consideration the possibilities of all possible performance achievement levels. Stock-based compensation costs associated with these grants are recognized over the performance period. The Company recognized $69 of stock-based compensation expense related to the performance stock units for the three and nine months ended September 30, 2022. As of September 30, 2022, the number of Target 2022 Shares was 350,000 shares. As of September 30, 2022, the maximum number of achievable performance stock units was 700,000 and the remaining unrecognized compensation expense was $1,463.

Other Stock Awards

During the first quarter of 2021, the Board approved the grant of stock awards to certain non-employee directors and to a consultant pursuant to the 2016 Plan. The awards provided for the issuance of 1,416 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $40.85 per share. For the nine months ended September 30, 2021, the Company recorded $58 of expense related to these stock awards.

During the first quarter of 2022, the Board approved grants of stock awards to certain non-employee directors and employees pursuant to the 2016 Plan. The awards provided for the issuance of 16,471 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $5.57 per share. For the nine months ended September 30, 2022, the Company recorded $92 of expense related to these stock awards.

During the second quarter of 2022, the Board approved grants of stock awards to certain non-employee directors pursuant to the 2016 Plan. The awards provided for the issuance of 12,262 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $3.64 per share. For the nine months ended September 30, 2022, the Company recorded $45 of expense related to these stock awards.

During the third quarter of 2022, the Board approved grants of stock awards to certain employees pursuant to the 2016 Plan. The awards provided for the issuance of 615,066 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $5.01 per share. For the three and nine months ended September 30, 2022, the Company recorded $3,081 of expense related to these stock awards.

Stock Options

The Company recorded $1,025 and $1,586 of stock-based compensation expense related to employee and non-employee director stock options for the three months ended September 30, 2022 and 2021, respectively. The Company recorded $3,121 and $5,502 of stock-based compensation expense related to employee and non-employee stock options for the nine months ended September 30, 2022 and 2021, respectively. The Company records forfeitures as they occur.

No grants for employee and non-employee stock options were made during the nine months ended September 30, 2022. The table below sets forth the weighted average assumptions for employee grants during the nine months ended September 30, 2021:

	Nine Months Ended
Valuation assumptions:	September 30, 2021
Expected volatility	58.57	%
Expected term (years)	5.48
Risk-free interest rate	0.50	%
Dividend yield	—

The weighted average grant date fair value of employee options granted during the nine months ended September 30, 2021 was $28.26 per share.

The following table summarizes stock option activity under the 2016 Plan for the nine months ended September 30, 2022:

				Weighted
		Weighted		average
		average		remaining	Aggregate
	Number	exercise		contractual	intrinsic
	of shares	price		term	value
Outstanding at December 31, 2021	1,604,226	$	29.90
Exercised	(12,830)		4.96
Forfeited	(188,465)		44.18
Outstanding at September 30, 2022	1,402,931	$	28.21	3.8	$	260
Options vested and expected to vest at September 30, 2022	1,402,931	$	28.21	3.8	$	260
Exercisable at September 30, 2022	1,370,302	$	27.57	3.8	$	260

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the Company’s closing stock price or estimated fair value on the last trading day of the fiscal quarter for those stock options that had exercise prices lower than the fair value of the Company's common stock. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised during the nine months ended September, 2022 and 2021 was $109 and $11,113, respectively.

As of September 30, 2022, there was $867 of total unrecognized compensation cost related to nonvested stock options granted under the 2016 Plan, which is expected to be recognized over a weighted average period of 0.4 years.

Cash received from option exercises for the nine months ended September 30, 2022 and 2021 was $64 and $3,683, respectively.

The Company recorded total stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 in the following expense categories of its consolidated statements of operations:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Cost of revenue - product	$	331	$	256	$	778	$	852
Cost of revenue - service		793		883		2,264		2,631
Research and development		1,741		1,261		4,021		4,533
Sales and marketing		285		209		593		1,251
General and administrative		12,228		4,292		20,517		14,833
Discontinued operations		1,858		1,110		4,364		4,862
Total stock-based compensation expense	$	17,236	$	8,011	$	32,537	$	28,962

Employee Stock Purchase Plan

In February 2021, the Board, subject to stockholder approval, adopted the Tabula Rasa HealthCare, Inc. Employee Stock Purchase Plan (the “ESPP”), which allows eligible employees to purchase common shares of Company stock through payroll deductions at a 15% discount off the lower of (i) the fair market value per share of common stock on the start date of the applicable offering period or (ii) the fair market value per share of common stock on the purchase date. The ESPP was approved by the Company’s stockholders at the 2021 annual meeting of stockholders in June 2021. The number of shares of common stock reserved for issuance under the ESPP will initially be 480,097 shares, subject to adjustment as provided in the ESPP, all of which remained available as of September 30, 2022.