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Stock-based Compensation
 12 Months Ended
Dec. 31, 2023
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 (“RSUs”), performance-based restricted stock units (“PSUs”) and leveraged stock units (“LSUs”), 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 Class A common stock. As of December 31, 2023 and 2022, 4.8 million stock options and 3.8 million shares of restricted stock have been awarded, net of forfeitures, under the 2011 Plan.
The following table summarizes the Company’s additional shares authorized changes for the 2015 Plan (in thousands):

Board Approval Date Shares Added Total Additional Shares Authorized
May 1, 20156,000 6,000 
June 13, 20184,525 10,500 
April 15, 20214,910 15,400 
April 20, 20234,000 19,400 
November 2, 20238,000 27,400 

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, 2023, 2.8 million of stock options, 6.3 million RSUs, 1.9 million LSUs and 1.5 million PSUs, have been awarded, net of forfeitures, under the 2015 Plan. As of December 31, 2022, 2.8 million of stock options, 5.5 million RSUs, 1.4 million LSUs and 0.8 million PSUs, have been awarded, 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,
  202320222021
Award Type
Stock options$74 $416 $1,337 
RSUs26,718 17,327 9,606 
Performance-based RSUs13,214 14,308 2,471 
LSUs495 1,930 3,297 
Total compensation expense by award type$40,501 $33,981 $16,711 
Line Item
Cost of revenue$1,662 $4,387 $2,263 
Selling, general and administrative expenses38,839 29,594 14,448 
Total compensation expense by financial statement line item$40,501 $33,981 $16,711 

No stock-based compensation was capitalized as software development costs for the years ended December 31, 2023, 2022 and 2021.
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, 2023
Unrecognized Compensation ExpenseWeighted Average Period (years)
RSUs$42,132 1.39
PSUs17,762 1.81
Total$59,894 

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 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:

OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding as of December 31, 20221,895 $10.40 3.24$33,503 
Exercised(1,237)8.72 
Forfeited— — 
Outstanding as of December 31, 2023658 $13.23 4.99$13,032 
Vested and expected to vest after December 31, 2023658 $13.23 4.99$13,032 
Exercisable as of December 31, 2023658 $13.23 4.99$13,032 

The total fair value of options vested during the years ended December 31, 2023, 2022 and 2021, was $0.6 million, $2.6 million and $4.9 million, respectively. The total intrinsic value of options exercised during 2023, 2022 and 2021 was $26.9 million, $16.3 million and $20.8 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:

OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding as of December 31, 2022268 $10.27 4.16$5,730 
Exercised(162)10.27 
Outstanding as of December 31, 2023106 10.27 2.172,401 
Vested and expected to vest after December 31, 2023106 $10.27 2.17$2,401 

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 three or four-year graded service vesting period where 25% of the award vests after each year of service or a three-year graded service vesting period where 33% 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 RSUsWeighted Average Grant Date Fair Value
Outstanding as of December 31, 20222,268 $22.09 
Granted1,281 33.85 
Forfeited(428)27.64 
Vested(969)20.83 
Outstanding as of December 31, 20232,152 $28.55 

During the years ended December 31, 2023, 2022 and 2021, we granted RSUs with a weighted-average grant date fair value of $33.85, $28.23 and $21.10, 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, 2023, 2022 and 2021 was $20.2 million, $11.6 million and $7.3 million, respectively.

Leveraged Stock Unit Awards

During 2020 and 2019, the Company granted 0.5 million and 0.7 million LSUs, respectively, to certain employees to create incentives for continued long-term success and to more closely align executive pay with our stockholders’ interests. Information with respect to
our LSU awards (shares and aggregate intrinsic value shown in thousands, weighted-average remaining contractual term shown in years) was as follows:
Leveraged Stock UnitsWeighted Average Grant Date Fair ValueWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding as of December 31, 2022520 $9.15 7.24$9,846 
Change in achievement520 9.15 
Vested(1,040)9.15 
Outstanding as of December 31, 2023— $— 0.00$— 

Performance-based RSUs

During 2021, the Company granted 0.3 million PSUs 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 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 Tranche2nd Tranche
Weighted-average fair value per performance based stock unit granted$20.64 $20.69 
Assumptions:
Expected term2 years3 years
Expected volatility89.5 %77.7 %
Risk-free interest rate0.12 %0.25 %
Dividend yield— %— %

The fair value of PSUs are 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. 

During 2023 and 2022, the Company granted 0.5 million PSUs, respectively, to certain employees to create incentives for continued long-term success and to more closely align executive pay with our stockholders’ interests. A three-year cliff vesting was approved and began on January 1, 2022 and January 1, 2023, respectively. Shares are earned based on a sliding scale of performance above and below the performance goal. The sliding scale for both the 2023 and 2022 PSU awards is anchored by a minimum performance requirement of company value. In 2023, the Company amended its 2022 PSUs to modify the business unit performance metrics to align with the Company’s focus on a specialty-led strategy. Under the modified 2022 PSU, the Adjusted EBITDA and revenue growth performance goals for each business unit were replaced with the Adjusted EBITDA for the Company and revenue growth metrics for the remainder of the three-year performance period, with an adjustment made for expected business unit performance results for the period prior to the modification. Per the agreements, company value is calculated using a formula based on revenue growth and cumulative Adjusted EBITDA, as adjusted for any acquired business during the period. 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 250% of the targeted shares are earned. If the company value falls between tiers on the
sliding scale, the actual company value payout percentage shall be determined by linear interpolation between the percentages on a straight-line basis.

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 UnitsWeighted Average Grant Date Fair ValueWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding as of December 31, 20221,396 $24.30 8.72$5,274 
Granted542 34.07 
Change in achievement72 26.60 
Vested(343)19.54 
Forfeited(14)31.77 
Outstanding as of December 31, 20231,653 $30.53 8.42$4,131 
Vested and expected to vest after December 31, 20231,653 $30.53 8.42$4,131