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Stock-based Compensation | 12 Months Ended
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Dec. 31, 2021
Share-based Payment Arrangement [Abstract] |
Stock-based Compensation | Stock-based Compensation 2011 and 2015 Equity Incentive Plans The Company issues awards, including stock options, performance-based stock options, restricted stock units, performance-based restricted stock units and leveraged stock units, under the Evolent Health Holdings, Inc. 2011 Equity Incentive Plan (the “2011 Plan”) and the 2015 Evolent Health, Inc. Omnibus Incentive Compensation Plan (the “2015 Plan”). We assumed the 2011 Plan in connection with the merger of Evolent Health Holdings with and into Evolent Health, Inc. The 2011 Plan allows for the grant of an array of equity-based and cash incentive awards to our directors, employees and other service providers. The 2011 Plan was amended on September 23, 2013, to increase the number of shares authorized to 9.1 million of the Company’s common stock. As of December 31, 2021 and 2020, 4.8 million stock options and 3.8 million shares of restricted stock have been issued, net of forfeitures, under the 2011 Plan. On May 1, 2015, the Board of Directors approved and authorized the 2015 Plan which provides for the issuance of up to 6.0 million shares of the Company’s Class A common stock to employees and non-employee directors of the Company and its consolidated subsidiaries. The 2015 Plan was amended on June 13, 2018 and April 15, 2021, to increase the number of shares authorized to 10.5 million and 15.4 million, respectively. Upon shareholder approval of the amended 2015 Plan in 2018, the 2011 Plan was automatically terminated and no further awards may be granted under the 2011 Plan. The 2011 Plan continues to govern awards previously granted under the 2011 Plan. As of December 31, 2021, 2.8 million of stock options, 4.5 million RSUs, 1.1 million LSUs and 0.3 million PSUs, have been issued, net of forfeitures, under the 2015 Plan. As of December 31, 2020, 2.8 million stock options, 3.5 million RSUs and 1.2 million LSUs, have been issued, net of forfeitures, under the 2015 Plan. We follow an employee model for our stock-based compensation as awards are granted in the stock of the Company to employees and non-employee directors of the Company or its consolidated subsidiaries. Following the adoption of ASU 2018-07 during 2018, we also follow the employee model for stock-based compensation for awards granted to acquire goods and services from non-employees. Stock-based Compensation Expense Total compensation expense by award type and line item in our consolidated financial statements was as follows (in thousands):
| For the Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Award Type |  |  |  |  |
Stock options | $ | 1,337 |  |  | $ | 2,927 |  |  | $ | 4,237 |
Performance-based stock options | — |  |  | 75 |  |  | 448 |
RSUs | 9,606 |  |  | 7,763 |  |  | 8,877 |
Performance-based RSUs | 2,471 |  |  | — |  |  | (388) |
LSUs | 3,297 |  |  | 3,841 |  |  | 2,444 |
Total compensation expense by award type | $ | 16,711 |  |  | $ | 14,606 |  |  | $ | 15,618 |
Line Item |  |  |  |  |
Cost of revenue | $ | 2,263 |  |  | $ | 1,811 |  |  | $ | 2,673 |
Selling, general and administrative expenses | 14,448 |  |  | 12,795 |  |  | 12,945 |
Total compensation expense by financial statement line item | $ | 16,711 |  |  | $ | 14,606 |  |  | $ | 15,618 |
No stock-based compensation was capitalized as software development costs for the years ended December 31, 2021, 2020 and 2019. Total unrecognized compensation expense (in thousands) and expected weighted-average period (in years) by award type for all of our stock-based incentive plans were as follows:
| As of December 31, 2021
| Unrecognized Compensation Expense |  | Weighted Average Period (years)
Stock options | $ | 512 |  |  | 0.57
RSUs | 26,104 |  |  | 1.69
LSUs | 2,422 |  |  | 1.19
Performance-based RSUs | $ | 4,121 |  |  | 3.17
Total | $ | 33,159 |  |  |
Stock Options Other than the performance-based stock options described below, options awarded under the incentive compensation plans are generally subject to a four-year graded service vesting period where 25% of the award vests after each year of service and have a maximum term of 10 years. Information with respect to our options is presented in the following disclosures. The option price assumptions used for our stock option awards for the year ended December 31, 2019, were as follows:
Weighted-average fair value per option granted | $ | 6.52 |
Assumptions: |
Expected term (in years) | 6.25
Expected volatility | 51.6 | %
Risk-free interest rate | 1.9% - 2.7%
Dividend yield | — | %
The fair value of options is determined using a Black-Scholes options valuation model with the assumptions disclosed in the table above. The dividend rate is based on the expected dividend rate during the expected life of the option. Expected volatility is based on the historical volatility over the most recent period commensurate with the estimated expected term of the Company’s awards due to the limited history of our own stock price. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method. Under the simplified method, the expected life of an option is presumed to be the midpoint between the vesting date and the end of the contractual term. We used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. Information with respect to our stock options (in thousands), including weighted-average remaining contractual term (in years) and aggregate intrinsic value (in thousands) was as follows:
| Options |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value
Outstanding as of December 31, 2020 | 4,070 |  |  | $ | 9.32 |  |  | 5.25 |  | $ | 12,578 |
Exercised | (1,490) |  |  | 8.92 |  |  |  |  |
Forfeited | (31) |  |  | 15.23 |  |  |  |  |
Outstanding as of December 31, 2021 | 2,549 |  |  | $ | 9.49 |  |  | 3.99 |  | $ | 46,342 |
Vested and expected to vest after December 31, 2021 | 2,549 |  |  | $ | 9.49 |  |  | 3.99 |  | $ | 46,342 |
Exercisable as of December 31, 2021 | 2,301 |  |  | $ | 9.11 |  |  | 3.71 |  | $ | 42,717 |
The total fair value of options vested during the years ended December 31, 2021, 2020 and 2019, was $4.9 million, $3.6 million and $5.9 million, respectively. The total intrinsic value of options exercised during 2021, 2020 and 2019 was $20.8 million, $2.2 million and $0.6 million, respectively. We issue new shares to satisfy option exercises. Performance-based stock option awards In March 2016, the Company granted approximately 0.3 million performance-based options to certain employees to create incentives for continued long-term success and to more closely align executive pay with our stockholders’ interests. Each of the grants is subject to market-based vesting, as follows: •one-third of the shares subject to the option award will vest in the event that the average closing price of the Company’s Class A common stock on the NYSE is at least $13.35 per share for a consecutive ninety day period; •one-third of the shares subject to the option award will vest in the event that the average closing price of the Company’s Class A common stock on the NYSE is at least $16.43 per share for a consecutive ninety day period; and •one-third of the shares subject to the option award will vest in the event that the average closing price of the Company’s Class A common stock on the NYSE is at least $19.51 per share for a consecutive ninety day period. In addition, the percentage of options per tranche that has satisfied the market-based performance hurdle is also subject to a service completion schedule. The aggregate percentage of options eligible to vest is based upon each of the service completions dates below: •50% of the shares subject to the option award vested on March 1, 2019, and •50% of the shares subject to the option award vested on March 1, 2020. We measured the fair value of the performance-based stock options using a Monte Carlo simulation approach with the following assumptions: risk-free interest rate of 1.83%, volatility of 65%, expected term of ten years and dividend yield of 0% as we do not currently pay dividends nor expect to do so during the expected option term. These inputs resulted in a weighted-average fair value per option granted of $6.68. During 2016 all of the average stock price milestones were achieved and therefore the awards are now only subject to the service completion obligations. Information with respect to our performance-based stock options (shares and aggregate intrinsic value shown in thousands, weighted-average remaining contractual term shown in years) was as follows:
| Options |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value
Outstanding as of December 31, 2020 | 268 |  |  | $ | 10.27 |  |  | 6.17 |  | $ | (326) |
Outstanding as of December 31, 2021 | 268 |  |  | 10.27 |  |  | 4.16 |  | 5,620 |
Vested and expected to vest after December 31, 2021 | 268 |  |  | $ | 10.27 |  |  | 4.16 |  | $ | 5,620 |
Restricted Stock Units Other than the performance-based RSUs described below, and other than RSUs granted to our non-employee directors which have a one year vesting period, RSUs awarded under the incentive compensation plans are generally subject to a four-year graded service vesting period where 25% of the award vests after each year of service and are issued to the participants for no consideration. During 2018, we also granted certain RSUs with a one-year vesting period in conjunction with the New Century Health transaction. Information with respect to our RSUs (not including performance-based RSUs) is presented below (in thousands, except for weighted-average grant-date fair value):
| Total RSUs |  | Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2020 | 1,737 |  |  | $ | 10.13 |
Granted | 1,276 |  |  | 21.10 |
Forfeited | (243) |  |  | 12.74 |
Vested | (683) |  |  | 10.68 |
Outstanding as of December 31, 2021 | 2,087 |  |  | $ | 16.35 |
During the years ended December 31, 2021, 2020 and 2019, we granted RSUs with a weighted-average grant date fair value of $21.10, $8.88 and $10.66, respectively, which represents the weighted-average closing price of our common stock on the grant date. The total fair value of RSUs vested during the years ended December 31, 2021, 2020 and 2019 was $7.3 million, $6.1 million and $7.3 million, respectively. Leveraged Stock Unit Awards During 2020 and 2019, the Company granted 0.5 million and 0.7 million leveraged stock units, respectively, to certain employees to create incentives for continued long-term success and to more closely align executive pay with our stockholders’ interests. Each of the grants is subject to share price-based vesting on the business day following the third anniversary of the grant date, as follows: •If the stock price has increased by 33.3%, 75% of the shares will vest •If the stock price has increased by 50%, 100% of the shares will vest •If the stock price has increased by 100%, 150% of the shares will vest •If the stock price has increased by 200%, 200% of the shares will vest (this is the maximum possible vest amount) The price assumptions used for our leveraged stock unit awards were as follows:
| For the Year Ended December 31,
| 2020 |  | 2019
Weighted-average fair value per leveraged stock unit granted | $ | 8.90 |  |  | $ | 6.52 |
Assumptions: |  |  |
Expected term | 10 years |  | 10 years
Expected volatility | 62.1 | % |  | 51.7 | %
Risk-free interest rate | 0.85% |  | 2.54%
Dividend yield | — | % |  | — | %
The fair value of leveraged stock units is determined using a Black-Scholes valuation model with the assumptions disclosed in the table above. The dividend rate is based on the expected dividend rate during the expected life of the award. Expected volatility is based on the historical volatility over the most recent period commensurate with the estimated expected term of the Company’s awards due to the limited history of our own stock price. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life represents the period of time the awards are expected to be outstanding and is based on the simplified method. Under the simplified method, the expected life of an award is presumed to be the midpoint between the vesting date and the end of the contractual term. We used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the awards. Information with respect to our leveraged stock unit awards (shares and aggregate intrinsic value shown in thousands, weighted-average remaining contractual term shown in years) was as follows:
| Leveraged Stock Units |  | Weighted Average Grant Date Fair Value |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value
Outstanding as of December 31, 2021 | 1,084 |  |  | $ | 11.07 |  |  | 7.68 |  | $ | 17,993 |
Vested and expected to vest after December 31, 2021 | 1,084 |  |  | $ | 11.07 |  |  | 7.68 |  | $ | 17,993 |
Performance-based RSUs During 2021, the Company granted 0.3 million performance-based RSUs to certain employees to create incentives for continued long-term success and to more closely align executive pay with our stockholders’ interests. A two and three-year cumulative Adjusted EBITDA goal was approved and began on January 1, 2021. Shares are earned based on a sliding scale of performance above and below the performance goal. The sliding scale is anchored by a minimum performance requirement of cumulative Adjusted EBITDA. If the minimum performance goal is not achieved, then no performance shares are earned. If 100% of the performance goal is achieved, then award is paid at target and if the maximum performance is achieved, then 200% of the targeted shares are earned. If the cumulative Adjusted EBITDA falls between tiers on the sliding scale, the actual cumulative Adjusted EBITDA payout percentage shall be determined by linear interpolation between the percentages on a straight-line basis. Shares earned by the two and three-year cumulative Adjusted EBITDA performance will be adjusted based on a respective total shareholder return ("TSR"). Shares earned will be adjusted -10% if TSR performance is in the bottom quartile and will be adjusted +10% if TSR performance is in the upper quartile. TSR represents stock price appreciation over each of the two performance periods. The price assumptions used for our performance based stock unit awards were as follows:
| 1st Tranche |  | 2nd Tranche
Weighted-average fair value per performance based stock unit granted | $ | 20.64 |  |  | $ | 20.69 |
Assumptions: |  |  |
Expected term | 2 years |  | 3 years
Expected volatility | 89.5 | % |  | 77.7 | %
Risk-free interest rate | 0.12 | % |  | 0.25 | %
Dividend yield | — | % |  | — | %
The fair value of performance based stock units is determined using a Black-Scholes valuation model with the assumptions disclosed in the table above. The dividend rate is based on the expected dividend rate during the expected life of the award. Expected volatility is based on the historical volatility over the most recent period commensurate with the estimated expected term of the Company’s awards due to the limited history of our own stock price. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life represents the period of time the awards are expected to be outstanding and is based on the simplified method. Under the simplified method, the expected life of an award is presumed to be the midpoint between the vesting date and the end of the contractual term. We used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the awards. Information with respect to our performance based restricted stock unit awards (shares and aggregate intrinsic value shown in thousands, weighted-average remaining contractual term shown in years) was as follows:
| Performance Based Stock Units |  | Weighted Average Grant Date Fair Value |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value
Outstanding as of December 31, 2021 | 319 |  |  | $ | 20.67 |  |  | 9.16 |  | $ | 2,233 |
Vested and expected to vest after December 31, 2021 | 319 |  |  | $ | 20.67 |  |  | 9.16 |  | $ | 2,233 |

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