Share-Based Compensation

9 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

The share-based compensation expense relating to the Company’s stock options, RSUs, and performance-based restricted stock units (“PBRSUs”) for the three months ended September 30, 2022 and 2021 was $27.8 million and $25.5 million, respectively, with related tax benefits of approximately $4.6 million and $5.1 million, respectively. The share-based compensation expense relating to the Company’s stock options, RSUs, and PBRSUs for the nine months ended September 30, 2022 and 2021 was $49.5 million and $62.0 million, respectively, with related tax benefits of approximately $8.5 million and $12.2 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 $4.3 million and $0.6 million of income tax benefit from windfalls associated with vesting and exercises of equity awards for the three months ended September 30, 2022 and 2021, respectively. The Company recognized $9.2 million and $7.2 million of income tax benefit from windfalls associated with vesting and exercises of equity awards for the nine months ended September 30, 2022 and 2021, respectively.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Share-Based Compensation Expense Allocation Details:
Cost of services	$	12.3	$	15.8	$	21.7	$	38.8
Selling, general and administrative	15.4		9.7		27.7		23.2
Other	0.1		—		0.1		—
Total share-based compensation expense	$	27.8	$	25.5	$	49.5	$	62.0

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.

Stock options

A summary of the options activity during the nine months ended September 30, 2022 is shown below:


	Options	Weighted- Average Exercise Price
Outstanding at December 31, 2021	4,386,205	$	3.37
Granted	24,344	22.19
Exercised	(1,279,460)	3.67
Canceled/forfeited	(13,408)	4.59
Expired	(7,500)	8.71
Outstanding at September 30, 2022	3,110,181	$	3.38
Outstanding, vested and exercisable at September 30, 2022	3,084,188	$	3.22
Outstanding, vested and exercisable at December 31, 2021	4,365,759	$	3.33

Restricted stock units and performance-based restricted stock units

A summary of the RSU and PBRSU activity during the nine months ended September 30, 2022 is shown below:


					Weighted- Average Grant Date Fair Value
	RSUs		PBRSUs		RSU		PBRSU
Outstanding and unvested at December 31, 2021	2,218,651		3,203,013		$	16.28	$	16.45
Granted	2,249,157		5,230,483		20.62		19.83
Performance factor adjustment	—		876,109		—		10.46
Vested	(574,564)		(1,878,328)		14.49		11.19
Forfeited	(164,414)		(201,544)		17.41		19.87
Outstanding and unvested at September 30, 2022	3,728,830		7,229,733		$	19.12	$	19.44

Shares surrendered for taxes for the nine months ended September 30, 2022	182,080		783,392
Cost of shares surrendered for taxes for the nine months ended September 30, 2022 (in millions)	$	4.1	$	20.0
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	$	—

Upon consummation of the Holding Company Reorganization, outstanding restricted units of Cloudmed were replaced by an aggregate 1,536,220 RSUs of the Company. The Company also issued an aggregate of 3,173,184 inducement RSUs and PBRSUs to certain employees of Cloudmed under Nasdaq Listing Rule 5635(c)(4) pursuant to its newly adopted 2022 Inducement Plan.

The Company’s RSU and PBRSU agreements allow employees to surrender to the Company shares of common stock upon vesting of their RSUs and PBRSUs in lieu of their payment of the required personal employment-related taxes. Shares surrendered for payment of personal employment-related taxes are held in treasury.

Outstanding 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, modular sales revenue, 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 14,412,591.

CoyCo 2, L.P. Limited Partnership Units

As part of the transactions contemplated by the Transaction Agreement, equity awards held by certain employees of Cloudmed (“Former Class P Units”) were modified, through a series of transactions, into awards (“Management Units”) of CoyCo 2. The Management Units issued by CoyCo 2 are treated as share-based compensation under ASC 718, Compensation —Stock Compensation.

The Former Class P Units were originally issued to employees of Cloudmed and its affiliates (“Participants”) in connection with and as a part of the compensation and incentive arrangements between Cloudmed and such Participants prior to the consummation of the Cloudmed Acquisition. A portion of the Former Class P Units immediately vested upon the closing of the Cloudmed Acquisition; however, certain Former Class P Units that were subject to performance-based vesting conditions did not become vested upon the closing of the Cloudmed Acquisition (“Unvested Units”). However, in connection with the Cloudmed Acquisition, Cloudmed caused the Former Class P Units, including the Unvested Units, to be converted into Management Units. At the time of the closing of the Cloudmed Acquisition, 97,875 Unvested Units were converted into 514,986 Management Units.

In general, Unvested Units vest upon the achievement of certain performance criteria, including achievement by the Sellers’ owner, New Mountain Capital, L.L.C. (“New Mountain”), of (i) specified multiples of Base Equity Value (“BEV”) (i.e., generally the aggregate equity value of New Mountain’s investment in Cloudmed as of the original grant date), or (ii) specified Multiples on Invested Capital (“MIC”) with respect to New Mountain Capital’s pre-Cloudmed Acquisition investment in Cloudmed, and subject to continued service with the Company and its affiliates, including Cloudmed through the applicable vesting date. The awards are not awards of the Company and the Participants will receive no additional shares of the Company upon satisfaction of the vesting criteria. However, GAAP requires the Company recognize the cost of share-based compensation granted by an investor (CoyCo 2) to the Company’s employees and service providers for services that benefit the Company’s operations, and a corresponding capital contribution because the costs are incurred on the Company’s behalf.

A Monte Carlo simulation was used to estimate the fair value of the Unvested Units which is being amortized over a period of 4 years on a straight-line basis.