RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our audit committee has appointed Ernst & Young LLP as our independent registered public accounting firm to perform the audit of our consolidated financial statements for the fiscal year ending December 31, 2020,2023, and we are asking you and other stockholders to ratify this appointment. During fiscal 2019,2022, Ernst & Young LLP served as our independent registered public accounting firm.
Although ratification of the appointment of Ernst & Young LLP is not required by our bylaws or otherwise, our board is submitting the appointment of Ernst & Young LLP to stockholders for ratification as a matter of good corporate governance. A majority of the votes properly cast for and against the proposal is required in order to ratify the appointment of Ernst & Young LLP. In the event that a majority of the votes properly cast do not ratify this appointment of Ernst & Young LLP, our audit committee will reconsider whether or not to retain Ernst & Young LLP. Even if the appointment is ratified, our audit committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the stockholders.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
We have adopted a policy under which our audit committee must pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting firm. As part of its review, our audit committee also considers whether the categories of pre-approved services are consistent with the rules on accountant independence of the SEC and the Public Company Accounting Oversight Board. Our audit committee has pre-approved all services performed by the independent registered public accounting firm since the pre-approval policy was adopted prior to our initial public offering.
The following table sets forth the fees billed or to be billed by Ernst & Young LLP and its affiliates for professional services rendered with respect to the fiscal years ended December 31, 20192022 and 2018,2021, inclusive of out-of-pocket expenses. All of these services were approved by our audit committee.
OUR BOARD RECOMMENDS THAT YOU VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.2023.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The information contained in this audit committee report shall not be deemed to be “soliciting material,” “filed” with the SEC, subject to Regulations 14A or 14C of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or subject to the liabilities of Section 18 of the Exchange Act. No portion of this audit committee report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, through any general statement incorporating by reference in its entirety the proxy statement in which this report appears, except to the extent that Health Catalyst specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed filed under either the Securities Act or the Exchange Act.
This report is submitted by the audit committee of the board of directors. The audit committee consists of the three directors whose names appear below. None of the members of the audit committee is an officer or employee of Health Catalyst, and the board of directors has determined that each member of the audit committee is “independent” for audit committee purposes as that term is defined under Rule 10A-3 of the Exchange Act and the applicable Nasdaq rules. Each member of the audit committee meets the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq.
The audit committee’s general role is to assist the board of directors in monitoring the company’s financial reporting process and related matters. The audit committee’s specific responsibilities are set forth in its charter.
The audit committee has reviewed the company’s consolidated financial statements for its fiscal year ended December 31, 20192022 and met with its management team, as well as with representatives of Ernst & Young LLP, the company’s independent registered public accounting firm, to discuss the consolidated financial statements.statements and management’s assessment and Ernst & Young’s evaluation of the effectiveness of the company’s internal control over financial reporting as of December 31, 2022. The audit committee also discussed with members of Ernst & Young LLP the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC.
In addition, the audit committee received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the Public Company Accounting Oversight Board and the SEC regarding the independent accountant’s communications with the audit committee concerning independence and discussed with members of Ernst & Young LLP its independence.
Based on these discussions, the financial statement review, and other matters it deemed relevant, the audit committee recommended to the board of directors that the company’s audited consolidated financial statements for its fiscal year ended December 31, 20192022 be included in its 20192022 Annual Report on Form 10-K.
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The Audit Committee |
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John A. Kane (Chairperson)(Chair) |
Duncan Gallagher |
S. Dawn Smith |
PROPOSAL THREE:
ADVISORY, NON-BINDING VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
We are asking our stockholders to vote to approve, on an advisory, non-binding basis, the compensation of our named executive officers for fiscal 2022 as disclosed in this Proxy Statement. As described in detail under the heading “Compensation Discussion and Analysis,” our executive compensation program is designed to drive and reward performance and align the compensation of our named executive officers with the long-term interests of our stockholders. Many of the compensation opportunities provided to our named executive officers are significantly dependent on our financial performance, the performance of our stock, and the named executive officer’s individual performance, which are intended to drive creation of sustainable stockholder value. We intend to continue to emphasize what we believe to be responsible compensation arrangements that attract and retain high-caliber executive officers and motivate strong performance to achieve our short- and long-term business strategies and objectives. Please read the “Compensation Discussion and Analysis” and the compensation tables and narrative disclosure that follow for information about our executive compensation program, including details of the fiscal 2022 compensation of our named executive officers.
This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation as a whole. This vote is not intended to address any specific element of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies, and practices described in this Proxy Statement. Our board and our compensation committee believe that these policies and practices are effective in implementing our compensation philosophy and achieving our compensation program goals.
Accordingly, in accordance with Section 14A of the Exchange Act, we are asking our stockholders to vote “FOR” the following non-binding resolution:
RESOLVED, that the stockholders hereby approve, on an advisory, non-binding basis, the compensation paid to Health Catalyst’s named executive officers, as disclosed in the company’s proxy statement for the 2023 Annual Meeting of Stockholders, pursuant to the compensation disclosure rules of the SEC, including in the Compensation Discussion and Analysis, the compensation tables, and the narrative discussions that accompany the compensation tables.
Vote Required
The approval of this advisory, non-binding proposal requires the affirmative vote of a majority of the votes properly cast for and against the proposal. Abstentions will not be counted as “votes cast” with respect to this proposal, and the abstention will have no effect on the proposal. Broker non-votes have no effect on the outcome of this proposal.
As an advisory vote, the outcome of the vote on this proposal is not binding. However, our management team, our board and our compensation committee, which is responsible for designing and administering our executive compensation program, value the opinions expressed by our stockholders, and will consider the outcome of this vote when making future executive compensation decisions.
Recommendation of the Board
OUR BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL, ON AN ADVISORY, NON-BINDING BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our executive officers as of March 31, 2020:
2023: | | | | | | | | | | | | | | |
Name | | Age | | Position(s) |
Daniel Burton | | 4548 | | Chief Executive Officer and Director |
J. Patrick NelliBryan Hunt | | 3336 | | Chief Financial Officer |
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Paul Horstmeier | | 5962 | | Chief Operating Officer |
Dale SandersKevin Freeman | | 6050 | | Chief TechnologyCommercial Officer |
Daniel Orenstein | | 53 | | General Counsel |
Linda Llewelyn | | 5356 | | Chief People Officer |
Daniel OrensteinJason Alger | | 5039 | | General CounselChief Accounting Officer |
Additionally, as previously disclosed, Mr. Horstmeier stepped down as our Chief Operating Officer, effective as of March 31, 2023, due to being called by the leadership of the Church of Jesus Christ of Latter-Day Saints to serve for three years as Mission President, Anne Marie Bickmore, age 60, assumed the role of Chief Operating Officer, effective April 3, 2023. Ms. Bickmore has served as our Chief Product Officer since March 2021. In connection with Mr. Orenstein stepping down as General Counsel and Corproate Secretary as of April 30, 2023, Benjamin Landry, age 41, will assume the role of General Counsel and Corporate Secretary, effective May 1, 2023.
Information Concerning Executive Officers
OurIn addition to Mr. Daniel Burton, who serves as a director, our executive officers as of March 31, 20202023 consisted of the following:
Daniel Burton. Bryan Hunt. Mr. Burton has served as our Chief Executive Officer since October 2012 and a member of our board of directors since September 2011. Mr. Burton served as our President from September 2011 to October 2012, and as an adviser from January 2011 to September 2011. Prior to that, Mr. Burton co-founded HB Ventures, LLC, a private investment firm. Mr. Burton holds a B.S. from Brigham Young University and an M.B.A. from Harvard Business School.
J. Patrick Nelli. Mr. NelliHunt has served as our Chief Financial Officer since September 2017. Since August 2013,January 2021. Previously, Mr. Nelli has held various roles with us, including,Hunt served as our Senior Vice President - Touchstone Product Line; Vice President - Corporate Analytics; and Manager -of Financial Planning and Analysis.Analysis since 2019. Mr. NelliHunt has served in a variety of leadership roles in our finance function and in our internal analytics function since joining us in April 2014. Prior to that, Mr. Hunt served as an investment banker at Deloitte Corporate Finance and Moelis & Company. Mr. Hunt holds a B.A.B.S. from Wake ForestBrigham Young University.
Paul Horstmeier. Mr. Horstmeier has served as our Chief Operating Officer since October 2018. From April 2017 to October 2018, Mr. Horstmeier served as our Chief Operating Officer from October 2018 to March 2023. From October 2011 to October 2018, Mr. Horstmeier held other various roles with us, including Chief Operating Officer – Technology Business, as ourand Senior Vice President - Marketing from May 2012 to March 2017, and as our Chief Operating Officer from October 2011 to May 2012.– Marketing. Prior to that, Mr. Horstmeier was a co-founder of HB Ventures, LLC, a private investment firm. Mr. Horstmeier holds a B.S. and M.B.A. from Brigham Young University. Mr. Horstmeier stepped down from his position as Chief Operating Officer, effective March 31, 2023, due to being called by the leadership of the Church of Jesus Christ of Latter-Day Saints to serve for three years as Mission President. After stepping down, Mr. Horstmeier has and is expected to continue to serve the company as a Senior Advisor.
Dale SandersKevin Freeman. Mr. SandersFreeman has served as our Chief TechnologyCommercial Officer since February 2019. HeJanuary 2023. Previously, Mr. Freeman served as our President of TechnologyChief Growth Officer from September 20172022 to February 2019January 2023, our Chief Revenue Officer from March 2021 to September 2022, and as our Executive Vice President - Product DevelopmentVitalware Chief Revenue Officer from September 20152020 to September 2017.March 2021. Prior to that, Mr. SandersFreeman served as the Chief Revenue Officer of Vitalware, LLC from March 2015 to August 2020. Kevin holds a B.A. in Sociology from the University of Texas at Arlington.
Daniel Orenstein. Mr. Orenstein has served as our Senior Vice President - Strategy from October 2011General Counsel since January 2016. From 2008 to September 2015.2015, Mr. SandersOrenstein served as General Counsel at athenahealth, Inc., a public healthcare company. Mr. Orenstein holds a B.S.B.A. from Ft. Lewis College.Columbia University and a J.D. from Georgetown University Law Center. As previously disclosed, Mr. Orenstein will be stepping down from his position as General Counsel and Corporate Secretary effective April 30, 2023.
Linda Llewelyn. Ms. Llewelyn has served as our Chief People Officer since February 2018. From August 2015 to February 2018, Ms. Llewelyn served as our Vice President - Human Resources. Prior to that, Ms. Llewelyn served as a Human Resources Director from January 2014 to August 2015 and as a Human Resources Manager from June 2013 to January 2014. Ms. Llewelyn holds a B.S. from the University of Utah.
Daniel OrensteinJason Alger. Mr. OrensteinAlger has served as our Chief Accounting Officer since January 2021. Mr. Alger has also served as our Senior Vice President of Finance from September 2017 to December 2020, and as Controller from April 2013 to September 2017. Prior to that, Mr. Alger served in the assurance practice of Ernst & Young LLP. Mr. Alger is a certified public accountant and holds a M.Acc. from Brigham Young University.
Anne Marie Bickmore. Ms. Bickmore has served as our Chief Operating Officer since April 3, 2023 and our Chief Product Officer since March 2021. Ms. Bickmore also served as our Senior Vice President of Company Operations from July 2019 to March 2021, and previously served in a variety of leadership roles in our product function since joining us in December 2012. Prior to that, Ms. Bickmore served as the lead Project Manager at Lantana Consulting from August 2011 to December 2012, as Director of Informatics at the Swedish American Hospital Rockford, IL from June 2010 to August 2011, and in multiple leadership roles at Intermountain Healthcare from April 1999 to May 2011. Ms. Bickmore holds a B.S in Nursing and a B.A. in Psychology from the University of Utah.
Benjamin Landry. Mr. Landry will serve as our General Counsel and Corporate Secretary effective May 1, 2023. Mr. Landry has served as our Assistant General Counsel since January 2016.July 2019. From 2008April 2015 to September 2015,July 2019, Mr. OrensteinLandry served as General Counselin a variety of legal roles at athenahealth, Inc. (ATHN), a public healthcare company.including as Associate General Counsel. Prior to that, Mr. OrensteinLandry was an associate at Nixon Peabody LLP from February 2011 to April 2015. Mr. Landry holds a B.A. in English from Columbia UniversityBoston College and a J.D. from GeorgetownNortheastern University Law Center.School of Law.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
OverviewExecutive Summary
The following Compensation Discussion and Analysis describes our executive compensation program and the decisions in fiscal 2022 regarding the compensation for: | | | | | |
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• | Daniel Burton, our Chief Executive Officer; |
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• | Bryan Hunt, our Chief Financial Officer; |
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• | Patrick Nelli, our former President(1); |
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• | Paul Horstmeier, our former Chief Operating Officer(2); |
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• | Kevin Freeman, our Chief Commercial Officer(3); and |
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• | Daniel Orenstein, our General Counsel(4). |
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(1) | Mr. Nelli and the company mutually agreed that he would step down as President effective September 30, 2022. After stepping down, Mr. Nelli continued to be employed by the company as a Senior Advisor until December 31, 2022 at which point he and the company finalized his separation agreement. |
(2) | Mr. Horstmeier stepped down from his position as our Chief Operating Officer, effective March 31, 2023, due to being called by the leadership of the Church of Jesus Christ of Latter-Day Saints to serve for three years as Mission President. |
(3) | Mr. Freeman was appointed as our Chief Growth Officer on September 7, 2022 and then our Chief Commercial Officer on January 9, 2023. Prior to being appointed as Chief Growth Officer, he served as our Chief Revenue Officer. |
(4) | Mr. Orenstein will be stepping down as General Counsel effective April 30, 2023. After stepping down, Mr. Orenstein is expected to continue to be employed by the company as a Senior Advisor in order to enable a smooth transition of his prior responsibilities. We anticipate Benjamin Landry will succeed Mr. Orenstein, effective May 1, 2023. |
We refer to these executive officers collectively in this Compensation Discussion and Analysis and the accompanying compensation tables as the named executive officers (“NEOs”).
This Compensation Discussion and Analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and each element of compensation that we provide. In addition, we explain how and why our compensation committee arrived at the specific compensation policies and decisions involving our named executive officers during fiscal 2022.
This Compensation Discussion and Analysis contains forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation plans and arrangements. The actual compensation plans and arrangements that we adopt may differ materially from currently anticipated plans and arrangements as summarized in this Compensation Discussion and Analysis.
Highlights of Fiscal 2022 Corporate Performance
Fiscal 2022 proved to be a more challenging year than anticipated as a result of the inflationary macroeconomic environment and the meaningful financial strain that our health system end market faced, primarily due to significant increases in labor and supply costs without a commensurate increase in revenue, leading to our clients realizing substantial margin pressure. While those factors resulted in challenges related to our bookings performance in the first half of fiscal 2022, our bookings performance rebounded during the second half of fiscal 2022, and, overall, we are encouraged by what we accomplished during the year, especially in light of the continued challenging macro environment. Specific financial highlights of our performance in fiscal 2022 include:
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• | Revenue: Total revenue was $276.2 million, an increase of 14% year-over-year. Technology revenue was $176.3 million, an increase of 19% year-over-year. |
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• | Net Loss: GAAP net loss was $137.4 million, compared to $153.2 million for fiscal 2021. GAAP net loss per share, basic, was $2.56, compared to $3.23 for fiscal 2021. Adjusted net loss was $14.0 million, compared to $21.5 million for fiscal 2021. Adjusted net loss per share was $0.26, compared to $0.45 in fiscal 2021. |
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• | Adjusted EBITDA: Adjusted EBITDA was $(2.5) million, an improvement of 78% year-over-year. |
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To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including Adjusted EBITDA, Adjusted net loss, and Adjusted net loss per share. For an explanation of management’s use of these measures and a reconciliation of each such measure to their most directly comparable measure in accordance with GAAP, please see Appendix A to this Proxy Statement.
Our achievements in fiscal 2022 also included: | | | | | |
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• | developing or expanding a number of technology and services solutions focused on near-term return on investment designed specifically to support our healthcare clients facing significant margin pressure, including Tech-enabled Managed Services, our Financial Empowerment technology suite, and components of our Population Health technology suite; |
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• | maintaining strong team member engagement scores, as measured by Gallup, ranked in the 97th percentile; |
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• | being recognized by Inc. Magazine as one of the Best Workplaces, by Modern Healthcare as one of the Best Places to Work in Healthcare, by Utah Business Magazine as one of the Best Places to Work For in Utah, and by the Salt Lake Tribune as a Top Workplace; |
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• | successfully acquiring and beginning the integration process for KPI Ninja, Inc. and ARMUS Corporation; |
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• | achieving a Dollar-based Retention Rate of 100% for fiscal 2022, compared to 112% for fiscal 2021. |
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• | increasing our DOS subscription clients to 98 as of December 31, 2022, compared to 90 as of December 31, 2021. |
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• | removing material annual run rate costs from operating expenses compared to our original 2022 operating plan as part of our restructuring activities such that we outperformed the mid-point of the original Adjusted EBITDA full year guidance provided at the beginning of 2022. This demonstrated continued operating leverage in our business despite lower annual revenue growth for 2022 as compared to our initial guidance for 2022; |
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• | hosting our ninth annual Healthcare Analytics Summit, welcoming over 1,100 in-person registrants representing more than 266 organizations with attendee satisfaction of 99%; and |
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• | entering into the largest revenue expansion contract in our history with Carle Health, inclusive of an all-access technology subscription, plus Tech-enabled Managed Services in the areas of analytics, data management, reporting and abstraction. This five-year contract totals approximately $80.0 million over the initial term of the contract, and is inclusive of an $11.0 million per year expansion, resulting from increased access to additional technology offerings and a significant Tech-enabled Managed Services contract. |
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Highlights of Fiscal 2022 Executive Compensation Program
Consistent with our performance and compensation objectives for fiscal 2022, our compensation committee took the following key actions relating to the compensation of our named executive officers for fiscal 2022:
Base Salaries – Base salaries for our named executive officers were reviewed in light of salary market data, local market conditions, and company and individual performance, some of which were informed by our engagement of an independent compensation consultant. There were no base salary increases for our named executive officers in fiscal 2022, other than for Mr. Freeman, who received a salary increase in connection with his promotion to Chief Growth Officer in September 2022.
Annual Performance-Based Incentives – In February 2022, our compensation committee approved the 2022 Bonus Plan that retained many of the same characteristics and metrics as the 2021 Bonus Plan, but with certain modifications, including:
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• | Up to 60% of the 2022 Bonus Plan target for all team members was payable through the issuance of performance-based restricted stock units (“PRSUs”) and up to 40% of the 2022 Bonus Plan target was payable through cash, based on selected company performance objectives, including an improvement category that consists of the lower of a client satisfaction and team member satisfaction score, the percentage of DOS clients achieving measurable improvements, and the number of measurable improvements for all clients; a growth category that consists of total GAAP revenue, net new DOS subscription client growth, and Dollar-based Retention Rate; and a scale category that consists of our Adjusted EBITDA performance. The grant date fair values of these equity awards are set forth in the “Fiscal 2022 Summary Compensation Table” and the “Fiscal 2022 Grants of Plan-Based Awards Table” below. |
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• | All eligible team members, excluding the CEO and named executive officers at the time of the 2022 Bonus Plan adoption, 2022 Bonus Plan PRSUs vested (to the extent the applicable metrics were achieved) as of March 1, 2023, subject to the team member’s continued service to us through such date. The 2022 Bonus Plan PRSUs granted to the CEO and NEOs at the time of the 2022 Bonus Plan adoption did not vest due to the GAAP revenue minimum threshold not being met. |
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• | In order to further align the long-term interests of our named executive officers with our long-term growth strategy and the interests of our stockholders, Mr. Burton and Mr. Nelli were also granted additional executive PRSUs tied to certain metrics and thresholds included in the 2022 Bonus Plan, whereby one quarter of such shares vested (to the extent the applicable metrics were achieved) on March 1, 2023, and the remainder of PRSUs actually achieved will vest in 12 approximately equal quarterly installments thereafter, so long as they remain employed with us through the applicable vesting date. These long-term PRSUs represented a larger portion of their overall target compensation in fiscal 2022 compared to the corresponding targets set for fiscal 2021. However, none of these 2022 executive PRSUs vested due to the GAAP revenue threshold not being met. |
Long-Term Incentive Compensation – We granted long-term incentive compensation in the form of service-based vesting RSUs that may be settled for shares of our common stock to align the long-term incentive opportunities of all of our team members, including our named executive officers, with the interests of our stockholders. In order to further align the long-term interests of our named executive officers with our long-term growth strategy and the interests of our stockholders, Mr. Burton and Mr. Nelli were granted a portion of their compensation in PRSUs with a one-year measurement period that tied to some of the same performance metrics, targets, and thresholds as the 2022 Bonus Plan, but will vest over four years assuming continued service, in addition to the PRSUs granted to Mr. Burton and Mr. Nelli as part of our 2022 Bonus Plan. The grant date fair values of these equity awards are set forth in the “Fiscal 2022 Summary Compensation Table” and the “Fiscal 2022 Grants of Plan-Based Awards Table” below.
Fiscal 2022 Target Compensation Mix – As shown in the graphics below, approximately 94% of the target fiscal 2022 annual compensation for our CEO and, on average, 90% of the target fiscal 2022 annual compensation for the other named executive officers was at risk (i.e., variable) based on our performance, our stock price, or a combination of the two. The percentages for the PRSUs and RSUs below are calculated based on the grant date fair value assuming target achievement of performance measures.
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2022 Target Compensation Mix |
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Annual Cash Bonus in the charts above is calculated based upon target.
Total PRSUs in the charts above includes (i) long-term incentive compensation comprised of PRSUs with a one-year measurement period for fiscal year 2022 and a four-year service-based vesting period, and (ii) annual performance-based incentives comprised of PRSUs that are granted as part of our Annual Bonus Plan with a one-year measurement period for fiscal year 2022 and a one-year service-based vesting period, all as further described below and valued based upon target and share price at the time of grant.
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2022 Actual Compensation Mix |
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Base salary and cash bonus presented in the charts above are based on the actual amounts paid out for fiscal 2022. The actual non-variable CEO compensation was a lower percentage than the initial target as a result of Mr. Burton voluntarily electing to waive his eligiblity for participation in our 2022 Bonus Plan and reduce his salary to $0 during the period from July 2022 through December 2023, with the aim of leading by example, as part of our 2022 cost reduction initiatives.
Total PRSUs presented in the charts above represent the amounts granted in 2022 that vested based on 2022 performance metrics. As described below, none of the 2022 executive PRSUs vested due to not achieving the minimum threshold for GAAP revenue, as summarized in “Elements of Our Executive Compensation Program” below, with the exception of Mr. Freeman, who was not an executive officer at the time of the 2022 PRSU grant. Therefore, a portion of his annual bonus PRSUs vested that did not have the GAAP revenue minimum threshold, consistent with the treatment of other non-NEO team members.
Results of 2022 Say-on-Pay Vote and Stockholder Engagement
Our board values the opinions of our stockholders and believes an annual advisory, non-binding vote on our named executive officers compensation (“SOP Vote”) provides stockholders with an opportunity to share views on our named executive officers compensation. Last year at our 2022 annual meeting of stockholders (“2022 Annual Meeting”), we held our SOP Vote and received the support of approximately 46% of the votes cast. As a result, we undertook robust stockholder engagement efforts to solicit input regarding our compensation program and compensation-related disclosures. Following our 2022 Annual Meeting, we contacted 30 of our largest stockholders (based upon information available to us as of November 17, 2022) and one additional stockholder, who collectively held approximately 72% of our outstanding shares as of such date. Thirteen stockholders, who included six of our top seven stockholders and collectively held approximately 37% of our outstanding shares, accepted our invitation to share feedback, including, for some meetings, directly sharing feedback with a member of our compensation committee and the Chair of our board. The balance of our stockholders either did not respond to our outreach or confirmed that a discussion was not needed at that time. After listening to our stockholders’ opinions and concerns, we took action to respond to the feedback, as detailed below. We remain open to feedback from our stockholders regarding our compensation program, related disclosures and other matters related to our business.
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Shareholder feedback | | Actions Taken |
Preference for more limited overlap of performance metrics between our Annual Bonus metrics and LTIP PRSU vesting metrics in a given year. | ☑ | There are different performance metrics for our 2023 Bonus Plan and 2023 LTIP PRSUs with no overlap of metrics. |
Increase percentage of PRSUs that comprise CEO and NEO LTIP. | ☑ | As further discussed below, our CEO, Mr. Burton, voluntarily declined any 2023 equity grants. We anticipate in 2024 that PRSUs will comprise at least 50% of our CEO’s LTIP. PRSUs comprised 33% of the LTIP for our NEOs as of February 22, 2023. |
Increase measurement period of executive LTIP PRSUs to a 2-year or 3-year measurement period. | ☑ | Our 2023 LTIP PRSUs granted to our executive officers include a 3-year measurement period. As further discussed below, our CEO, Mr. Burton, voluntarily declined any 2023 equity grants. We anticipate in 2024 that our CEO will receive LTIP PRSUs subject to a 3-year measurement period. |
Adopt stock ownership guidelines and clawback policy | ☑ | We adopted stock ownership guidelines and a clawback policy, as further discussed below. |
Our stockholders that responded to our outreach did not express any concerns regarding the total amount of our CEO’s compensation or the amount of his base salary, bonus or long-term incentive compensation. Many stockholders appreciated Mr. Burton’s purchase of shares of our common stock in the second half of 2022, valued at approximately $5,000,000 at the time of the purchases, to further align his long-term interest with our stockholders. Additionally, Mr. Burton exercised options to purchase and hold shares of our common stock with an aggregate exercise price of approximately $1,000,000 in fiscal 2022.
Our CEO’s base salary and bonus target for 2022 were both below the 25th percentile, his long-term incentive compensation was below the 50th percentile and his total compensation was below the 50th percentile, all as relative to our peer group for 2022. As described below, Mr. Burton voluntarily reduced his base salary to $0 between July 2022 and December 2023, and waived eligibility to participate in our 2022 Bonus Plan.
Our CEO’s base salary, target bonus, long-term incentive compensation and total compensation for 2023 were well below the 25th percentile, all as relative to our peer group for 2023. As noted above, Mr. Burton will voluntarily not receive any salary or equity grants in 2023 and waived eligibility to participate in our 2023 Bonus Plan. |
Looking Ahead - 2023 Compensation Update
In February 2023, our compensation committee approved the 2023 Bonus Plan that will retain some of the same characteristics as the 2022 Bonus Plan, but with important modifications, including:
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• | In order to further align the interests of our named executive officers with our long-term growth and interests of our stockholders, each named executive officer as of February 22, 2023, with the exception of Daniel Burton, was granted executive PRSUs with a three-year measurement period that includes performance targets for Total Shareholder Return (TSR) Achievement, Revenue Growth Rate Achievement, and Adjusted EBITDA Margin Achievement, as part of their typical, annual LTIP equity grants. The performance targets are each weighted equally and these PRSUs may vest in an amount up to the amount granted, subject to satisfaction of the performance targets. The number of PRSUs that will vest for the 2023, 2024, and 2025 vesting periods will be calculated as follows: (i) the performance achievement for the applicable vesting period, multiplied by (ii) approximately 33.33% of the PRSUs for each of the 2023, 2024 and 2025 vesting periods, each rounded to the nearest whole share. |
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• | Mr. Burton volunteered to reduce his salary to $0 from July 2022 through December 2023, and forego any cash bonus in fiscal 2022 and fiscal 2023 to lead by example as part of our 2022 cost reduction initiatives, and our compensation committee approved the same. Mr. Burton also elected to not receive any additional equity grants during this period. Our compensation committee believes that Mr. Burton’s existing equity ownership position, including his purchase of Health Catalyst shares on the open market in 2022, sufficiently aligns his interests with those of our stockholders, and incentivizes performance and engagement in his role. |
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• | 100% of the 2023 Bonus Plan target for all team members will be paid through cash, based on selected company performance objectives, including an improvement category that consists of the lower of a client satisfaction and team member satisfaction score, the percentage of DOS Subscription Clients achieving measurable improvements, the number of measurable improvements for all clients, and the percentage of projects delivered on time; and a growth category that consists of net new DOS Subscription Client growth, Dollar-based Retention Rate, and annual recurring revenue (“ARR”) + non-recurring revenue (“NRR”) gross bookings. The bonus pool is funded based on Adjusted EBITDA achievement thresholds, and the achievement and payout is capped. |
Other recent updates made in 2023 to our executive compensation practices and policies include the following:
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• | Our board adopted the Executive Officer and Non-Employee Director Stock Ownership Policy that will require all executive officers, including NEOs, and our non-employee directors to own shares of our common stock, as determined under the policy, that meets certain thresholds, as measured on an annual basis on December 31, beginning December 31, 2027. The CEO, non-employee directors and other executive officers will be required to hold shares with an aggregate value at least equal to: (i) the greater of $1,800,000 or six times the CEO’s base salary, (ii) the greater of $225,000 or five times his or her annual Board cash retainer, and (iii) two times his or her base salary, respectively. Outstanding stock options and PRSUs that have not yet met the performance criteria do not count toward fulfillment of the ownership guidelines. |
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• | Our board adopted a Compensation Recovery Policy (“clawback policy”) that applies to all of our executive officers. Under the clawback policy and subject to its terms, if our financial statements are required to be restated as a result of the company’s material non-compliance with the financial reporting requirements under U.S. federal securities laws or if the executive officer engaged in fraud or intentional misconduct that caused or otherwise contributed to the need for the restatement, we will seek to recover any overpayment of incentive-based compensation (including cash and equity) received by such executive officers during the three recently completed fiscal years.
We will further comply with any recoupment requirements imposed by applicable laws, rules or regulations, including in connection with the final rule issued by the SEC implementing the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the recoupment of incentive-based compensation. We will monitor the listing standards adopted by the Nasdaq stock exchange and amend our clawback policy during the required timeframe in compliance with those standards. |
Fiscal 2022 Executive Compensation Policies and Practices
Our executive compensation policies and practices reinforce our pay-for-performance philosophy and align with sound governance principles. Listed below are highlights of our fiscal 2022 compensation policies and practices.
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| What we do | | | What we do not do |
☑ | Use a pay-for-performance philosophy to align executive compensation with performance | | ☒ | No “single-trigger” cash or equity change in control benefits for executives |
☑ | Use equity-based compensation, including PRSUs, to generally deliver a majority of the total compensation of our executive officers to further align their interests with those of our stockholders | | ☒ | No tax gross-ups on severance or change in control benefits |
☑ | Require a threshold level of achievement for payout with respect to each performance measure, including a minimum Adjusted EBITDA threshold, and cap payout of bonus | | ☒ | No guaranteed bonuses or base salary increases |
☑ | Conduct an annual risk assessment of our executive and broad-based compensation programs to promote prudent risk management | | ☒ | No post-termination retirement, pension, or deferred compensation benefits |
☑ | Maintain a compensation committee consisting solely of independent directors with extensive relevant experience | | ☒ | No excessive perquisites, health, or other benefits, other than those that are generally available to our employees |
☑ | Conduct an annual review of our executive compensation strategy, competitiveness, and peer group | | ☒ | No strict benchmarking of compensation to a specific percentile of our peer group |
☑ | Retain an independent compensation consultant who reports directly to our compensation committee | | ☒ | No hedging or pledging of our securities by any employees or directors |
Enhancements to Executive Compensation Program for Fiscal 2022
For fiscal 2022, in order to further align their interests with our long-term growth and business strategy, and the interests of our stockholders, Mr. Burton and Mr. Nelli were granted additional executive PRSUs as part of their LTIP that included certain performance measures from our 2022 Bonus Plan, and provided for a vesting schedule whereby one quarter of such shares vested (to the extent the applicable metrics were achieved) on March 1, 2023, and the remainder of PRSUs actually achieved will vest in 12 approximately equal quarterly installments thereafter, so long as they remain employed with us through the applicable vesting date. These long-term PRSUs represent a larger portion of their overall target compensation in fiscal 2022 compared to the corresponding targets set for fiscal 2021 as shown below.
Say-on-Pay Advisory Stockholder Vote on Executive Compensation
At the 2023 Annual Meeting of Stockholders, we will be conducting a non-binding stockholder advisory vote on the compensation of our named executive officers (commonly known as a “Say-on-Pay” vote). See Proposal No. 3, above, in this proxy statement for more information.
We value the opinions of our stockholders, and when making compensation decisions for our named executive officers in the future, our board, and our compensation committee intend to consider the outcome of the say-on-pay advisory vote, in addition to other stockholder feedback that may be received throughout the year.
Executive Compensation Philosophy, Objectives, and Design
Our compensation philosophy is that an executive compensation program should drive and reward performance and further align the compensation of our executive officers with the long-term interests of our stockholders. To support these objectives and deliver strong execution, our compensation programs are designed to:
• attract, motivate, incentivize, and retain employees at the executive level who contribute to our long-term success;
• provide compensation packages to our executives that are competitive and reward the achievement of our business objectives and effectively align their interests with those of our stockholders; and
• effectively align our executives' | | | | | |
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• | attract, motivate, incentivize, and retain employees at the executive level who contribute to our long-term success; |
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• | provide compensation packages to our executives that are competitive and reward the achievement of our business objectives and effectively align their interests with those of our stockholders; and |
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• | effectively align our executives’ interests with those of our stockholders by focusing on long-term equity incentives that correlate with the growth of sustainable long-term value for our stockholders. |
For this purpose, we use a mix of compensation elements including base salary, annual bonus (that includes a mix of cash and PRSUs for all team members), long-term equity incentives, that correlate with the growth of sustainable long-term value forand benefits, including potential post-termination severance benefits, to attract, retain, and incentivize our stockholders.
named executive officers. As further discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 20192022 in the section titled “The Health Catalyst Flywheel,” our team member engagement, which includes our executive team members, is central to our success and the success of our customersclients and shareholders.stockholders. When team members feel connected to our mission and are listened to, cared for, and respected at an extraordinary level, they produce outstanding work, which enables our customersclients to measurably improve. As customersclients realize improvements, their trust in Health Catalystus builds, their engagement in our shared work increases, and they choose to renew and expand their relationship with us, while also referring Health Catalystus to key decision-makers at other potential customers. Customerclients. Client renewal, expansion, and referral produce growing, scalable, and predictable financial performance.
In determining the amount of each element of direct compensation awarded to the named executive officers, our compensation committee does not apply any fixed percentage of any one element in relation to the overall compensation package. Rather, our compensation committee looks at the overall compensation package and the relative amount of each element on a stand-alone basis for each individual to determine whether such amounts and mix of elements are consistent with the basic principles and objectives of our overall executive compensation program.
In general, we aim for a significant majority of the compensation opportunity for our named executive officers to be weighted towards equity (most of which vests over three or four years and some that vest based upon specific performance objectives), as opposed to cash compensation. We generally structure our executive compensation program to be weighted towards long-term equity incentives as we continue to transition the compensation of our named executive officers to levels that are more consistent with executive compensation in our compensation peer group, which we also believe correlates with the growth of sustainable long-term value for our stockholders. As discussed above, we implemented a PRSU executive compensation component in 2021 as part of this effort and a significant portion of our 2022 Bonus Plan was comprised of PRSUs for all team members, including our CEO and named executive officers.
We evaluate our executive compensation philosophy and executive compensation program, including design and competitiveness, at least annually and as circumstances require. As part of this review process, our compensation committee applies our values and the objectives outlined above.
Compensation Committee Oversight of Executive Compensation Process
Our compensation committee discharges many of the responsibilities of our board relating to the compensation of our executive officers and the non-employee members of our board (described in “Corporate Governance—Non-Employee Director Compensation” above), and regularly reports to our board on its discussions, decisions and other actions.
Our compensation committee has overall responsibility for overseeing our compensation structure, policies, and programs generally, and for overseeing and evaluating the compensation plans, policies, and practices applicable to our executive officers.
Our compensation committee has the authority to retain, and has retained, an independent compensation consultant to provide support to the committee in its review and oversight of our executive compensation program.
Our compensation committee reviews the base salary levels, short-term incentive compensation opportunities, and long-term incentive compensation opportunities of our named executive officers each fiscal year at the beginning of the year, or more frequently as warranted. Long-term incentive compensation is granted on a regularly-scheduled basis, as described in “Other Compensation Policies—Equity Award Grant Policy” below.
Compensation-Setting Process
Role of the Compensation Committee
Our compensation committee is responsible for the executive compensation programs for our executive officers and reports to our board of directors on its discussions, decisions, and other actions. Our Chief Executive Officer makes recommendations for the respective executive officers that report to him to our compensation committee and typically attends compensation committee meetings. Our Chief Executive Officer makes such recommendations (other than with respect to himself) regarding base salary, and short-term and long-term compensation, including equity incentives, for our executive officers based on our results, an executive officer's individual contribution toward these results, the executive officer's role and performance of his or her duties and his or her achievement of individual goals. Our compensation committee then reviews the recommendations and other data, including various compensation survey data and publicly-available data of our peers, and makes decisions as to the target total direct compensation for each executive officer, including our Chief Executive Officer, as well as each individual compensation element. While our Chief Executive Officer typically attends meetings of the compensation committee, the compensation committee meets outside the presence of our Chief Executive Officer when discussing his compensation and when discussing certain other matters, as well. The compensation committee may establish and delegate its authority to one or more subcommittees consisting of one or more of its members to carry out its responsibilities, but it has not done so to date.
Our compensation committee determines the target total direct compensation opportunities for our executive officers. When making these decisions, the compensation committee reviews the recommendations of our CEO and other data, including input from the independent compensation consultant, compensation survey data, and publicly-available compensation data of our peers. Our compensation committee then exercises its independent judgment to determine the target total direct compensation, and each element of compensation, for each of our executive officers.
Our compensation committee does not use a single method or measure in making its determinations, nor does it establish specific targets for the total direct compensation opportunities of our executive officers. Nonetheless, as it continues to adjust the compensation of our named executive officers to levels that are more consistent with those of our compensation peer group, our compensation committee begins its deliberations on cash and equity compensation levels with reference to the 25th, 50th, and 75th percentile levels for cash compensation and target total direct compensation as reflected in competitive market data. For more information, see “Competitive Positioning” below.
When determining the amount and approving each compensation element and the target total direct compensation opportunity for our executive officers, our compensation committee considers the following factors, among others: | | | | | |
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• | Our performance against the corporate performance objectives established by our compensation committee and our board; |
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• | our financial performance relative to our compensation peer group; |
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• | the compensation levels and practices of our compensation peer group; |
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• | each individual executive officer’s skills, experience, and qualifications relative to other similarly-situated executives at the companies in our compensation peer group; |
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• | the scope of each individual executive officer’s role compared to other similarly-situated executives at the companies in our compensation peer group; and |
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• | the performance of each individual executive officer, based on a subjective assessment of their contributions to our overall performance, ability to lead his or her function, and ability to work as part of a team. |
These items reflect our core values and compensation parity among our individual executive officers and provide the framework for compensation decision-making and final decisions regarding the compensation opportunity for each executive officer. No single factor is determinative in setting pay levels, nor was the impact of any factor on the determination of pay levels quantifiable.
Role of the CEO
In discharging its responsibilities, our compensation committee works with members of management, including our CEO. Management assists our compensation committee by providing information on corporate and individual performance, competitive market compensation data, and management’s perspective on compensation matters. Our CEO makes compensation recommendations to our compensation committee for each of our executive officers (other than with respect to himself). These recommendations cover each executive officer’s total target direct compensation, consisting of base salary, short-term incentive opportunity, and long-term equity incentives. In making these recommendations, our CEO considers a variety of factors, including our business results, the executive officer’s individual contribution toward these results, the executive officer’s role and performance of his duties, whether the executive has achieved his individual goals, and the relative compensation parity among all of our executive officers. Our compensation committee reviews the recommendation of our CEO and other data and then exercises its own independent judgment to determine the target total direct compensation, and each element thereof, for each of our executive officers, including our CEO. While our CEO typically attends meetings of our compensation committee, our compensation committee meets in executive session outside the presence of our CEO when determining his compensation and when discussing certain other matters as well.
Role of the Compensation Consultant
Our compensation committee is authorized to retain the services of one or more executive compensation advisors, as it sees fit, in connection with the establishment of our executive compensation programs and related policies. Inpolicies to assist it by providing information, analysis, and other advice relating to our executive compensation program and the decisions resulting from the committee’s annual executive compensation review. For fiscal year 2019, the2022, our compensation committee retained Aon’s Human Capital Solutions practice, a division of Aon Consulting, Inc.plc (“Aon”), a top global consulting firm, to provide it with market information, analysis, and other advice relating to executive compensation on an ongoing basis. The compensation committee utilized data from Aon was engaged to, among other things, assist in developing an appropriate group of peer companies to help us determine the appropriate level of overall compensation for our executive officers, as well as to assess each separate element of compensation, with a goal of ensuring that the compensation we offer to our executive officers, individually as well as in the aggregate, is competitive and fair. We do not believe the retention of, and the work performed by Aon creates any conflict of interest.
The compensation provided to our named executive officers for the fiscal years ended December 31, 2019 and 2018 is detailed in the 2019 Summary Compensation Table and accompanying footnotes and narrative that follow. Our named executive officers for the fiscal year ended December 31, 2019, which consists of our Chief Executive Officer and our two most highly-compensated individuals (other than our Chief Executive Officer) who were serving as executive officers on December 31, 2019 are:
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• | Daniel Burton,assist in developing a relevant group of peer companies to help our Chief Executive Officer;compensation committee determine the appropriate level of overall compensation for our executive officers; |
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• | Dale Sanders,assess each separate element of compensation, with a goal of ensuring that the compensation we offer to our Chief Technology Officer;executive officers, individually as well as in the aggregate, is competitive and fair; |
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• | Paul Horstmeier,provide market practices for equity compensation design; |
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• | develop a compensation risk assessment; |
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• | coordinate with our Chief Operating Officer.management for data collection and job matching for our executive officers; and |
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• | support other ad hoc matters throughout the year. |
The following discussion contains forward-looking statements that are basedBased on our current plans and expectations regarding our future compensation programs. The actual amount and formits consideration of compensation that we paythe factors specified in SEC rules and the Nasdaq listing standards, our compensation policiescommittee does not believe that its relationship with Aon and the work of Aon on behalf of our compensation committee and our management team has raised any conflict of interest. Our compensation committee reviews these factors on an annual basis. The compensation committee also evaluated the independence of other outside advisors to the compensation committee, including outside legal counsel, considered the same independence factors, and concluded their work for the compensation committee does not raise any conflicts of interest and concluded Aon is independent.
Competitive Positioning
For purposes of comparing our executive compensation against the competitive market, our compensation committee reviews and considers the compensation levels and practices that we adopt inof a group of peer companies.
In December 2021, with the future may differ materiallyassistance of Aon, our compensation committee reviewed our compensation peer group for fiscal 2022, which was generally developed from the currently-planned programs that are summarized in this discussion.
2019 Summary Compensation Table
The following table provides information regarding the total compensation awarded to, earned by, and paid to our named executive officers for services rendered to us in all capacities for the fiscal years ended December 31, 2019 and 2018.
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Name and Principal Position | | Year | | Salary | | Option Awards(1) | | Nonequity Incentive Plan Compensation(2) | | All Other Compensation(3) | | Total |
Daniel Burton | | 2019 | | $ | 350,000 | | | $ | 3,022,611 | | | $ | 129,733 | |
| $ | 17,378 | | | $ | 3,519,722 | |
Chief Executive Officer | | 2018 | | 314,583 | |
| 4,068,139 | | | 172,833 | | | 17,185 | | | 4,572,740 | |
Dale Sanders | | 2019 | | 350,000 | | | 2,790,103 | | | 140,544 | |
| 20,273 | | | 3,300,920 | |
Chief Technology Officer | | 2018 | | 314,583 | | | 2,624,606 | | | 210,295 | | | 18,444 | | | 3,167,928 | |
Paul Horstmeier (4)
| | 2019 | | 300,000 | | | | 2,092,577 | | | 111,200 | | | | 22,334 | | | | 2,526,110 | |
Chief Operating Officer | | | | | | | | | | | | | | | | | | | | |
publicly-traded companies with three primary characteristics: | | | | | |
(1)
| The amounts reported represent the aggregate grant date fair value of the stock options awarded to our named executive officers during 2019 and 2018, calculated in accordance with FASB ASC, Topic 718. Such grant date fair values do not take into account any estimated forfeitures. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in Note 14 of our consolidated financial statements included in our Annual Report
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• | emphasis on Form 10-K for the fiscal year ended December 31, 2019. The amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic valuesoftware/consulting companies that may be received by our named executive officers upon the exerciseserve healthcare, where possible; |
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• | market capitalization between $800 million and $8 billion (peer group includes 25th percentile, 50th percentile, and 75th percentile of the stock options or any sale of the underlying shares of common stock.approximately $1.273 billion, $1.957 billion, and $2.51 billion, respectively for market cap measured in January 2022); and |
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(2)• | Represents amounts earned by our named executive officers under our short-term incentive plan, based on our achievementrevenue between $150 million and $700 million (peer group includes 25th percentile, 50th percentile, and 75th percentile of certain corporate performance goals. |
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(3) | For the 2019 year, the amounts reported represent:approximately $204 million, $275.4 million, and $382 million, respectively, for Mr. Burton - $16,800 for matching contributions made by us under our 401(k) plan and $578 for executive life insurance premiums paid by us; for Mr. Sanders - $13,040 for matching contributions made by us under our 401(k) plan, $1,572 for executive life insurance premiums paid by us, and $5,661 for executive long term disability insurance premiums paid by us; and for Mr. Horstmeier - $16,800 for matching contributions made by us under our 401(k) plan, $1,450 for executive life insurance premiums paid by us, and $4,084 for executive long term disability insurance premiums paid by us.
For the 2018 year, the amounts reported represent: for Mr. Burton - $16,500 for matching contributions made by us under our 401(k) plan and $685 for executive life insurance premiums paid by us; for Mr. Sanders - $12,574 for matching contributions made by us under our 401(k) plan, $1,815 for executive life insurance premiums paid by us and $4,055 for executive long term disability insurance premiums paid by us.
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(4) | Mr. Horstmeier was not a named executive officer for 2018.revenue as measured in January 2022). |
Secondarily, we consider other characteristics such as revenue growth, TSR, and whether the companies are comparable in terms of attracting world-class talent. As measured in January 2022, we fell within approximately the 31st, 46th, and 41st percentiles relative to our peer group for fiscal 2021 with respect to revenue, market capitalization, and TSR, respectively. Our compensation committee reviews our compensation peer group at least annually and makes adjustments to its composition, if warranted, taking into account changes in both our business and the businesses of our peers. Our compensation committee uses data drawn from the public filings of our compensation peer group to evaluate the competitive market when determining the total direct compensation packages for our executive officers.
At the beginning of fiscal 2022, based on the foregoing, our compensation committee used the following compensation peer group to assist with the determination of compensation for our executive officers:
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Fiscal 2022 Compensation Peer Group |
Accolade | Everbridge | National Research | Schrodinger | Yext |
American Well | Evolent Health | OptimizeRx | Sharecare | Zuora |
Certara | Instructure | Phreesia | Vocera Communications | |
Domo | Model N | Premier | Workiva | |
Inovalon, Pluralsight, and Talend are no longer included in our peer group as compared to our peer group from fiscal 2021 because they were acquired and/or taken private. Benefitfocus, Tabula Rasa HealthCare, Healthstream, and Upland Software are no longer included in our peer group as compared to our peer group from fiscal 2021 because their market cap and/or revenue growth no longer align with our target ranges for our fiscal 2022 peer group. In addition, we have added American Well, Certara, Everbridge, Instructure, OptimizeRx, Premier, and Sharecare as part of our peer group for fiscal 2022 compensation decisions because each company aligns with our target peer group in terms of industry, revenue growth and market capitalization.
NarrativeElements of Our Executive Compensation Program
Our executive compensation program consists of the following primary components:
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Element | | Type of Element | | Compensation Element | | Objective |
Base Salary | | Fixed | • | Cash | | Designed to attract and retain highly talented executives by providing fixed compensation amounts that are competitive in the market and reward performance |
Annual Performance-Based Incentives | | Variable | • | PRSU awards that may be earned and settled for shares of our common stock | | Designed to motivate our executives to achieve annual business objectives contained in our annual operating plan and provide financial incentives when we meet or exceed these annual objectives |
• | Cash | |
Long-term Incentive Compensation | | Variable | • | RSU awards that may vest and be settled for shares of our common stock | | Designed to align the interests of our executives and our stockholders by motivating executives to create sustainable long-term stockholder value |
• | PRSU awards that may be earned and settled for shares of our common stock | |
Severance and change in control-related payments and benefits | | Mix | • | Cash | | Designed to attract and retain highly talented executives by providing severance and change in control-related payments and benefits that are competitive in the market |
• | Accelerated vesting of Stock Options, RSU, and/or PRSU awards |
We also provide our executive officers with comprehensive employee benefit programs, such as medical, dental, and vision insurance, a 401(k) plan, life and disability insurance, flexible spending accounts, an employee stock purchase plan, and other plans and programs made available to 2019 Summary Compensation Tableall our eligible employees.
We believe these elements provide a compensation package that attracts and retains qualified individuals, links individual performance to company performance, focuses the efforts of our named executive officers on the achievement of both our short-term and long-term objectives, and further aligns the interests of our executive officers with those of our stockholders.
Base salariesSalaries
We use base salaries to recognize the experience, skills, knowledge, and responsibilities required of all our employees, including our named executive officers. We provide base salary as a fixed source of compensation for each of our named executive officers, allowing them a degree of certainty relative to the significant majority of their compensation that is based on equity awards, the value of which varies. Our compensation committee recognizes the importance of base salaries as an element of compensation that helps to attract and retain highly qualified executive talent.
The initial base salary of each executive officer is established through arm’s-length negotiation at the time the executive officer is hired, taking into account a variety of factors, including the executive’s qualifications, experience, and compensation expectations and comparable market data. Base salaries of named executive officers are reviewed annually by the compensation committee, typically in connection with our annual performance review process, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance, and experience. For the fiscalOur compensation committee does not apply specific formulas in setting base salary levels or determining adjustments from year ended December 31, 2019, theto year. However, in completing its annual base salaries for each of Messrs. Burton, Sanders,review and Horstmeier were $350,000, $350,000, and $300,000, respectively.
Annual bonuses
During the fiscal year ended December 31, 2019,adjustment, our compensation committee targets paying our named executive officers base salaries that are competitive with current market practice (as reflected by our compensation peer group).
The base salaries of our named executive officers for fiscal 2022 and fiscal 2021 and the percentage change compared to fiscal 2021 are set forth below.
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Named Executive Officer | | Fiscal 2022 Base Salary | | Fiscal 2021 Base Salary | | Change from Fiscal 2021 |
Daniel Burton(1) | | $ | 150,000 | | | $ | 300,000 | | | (50) | % |
Bryan Hunt(2) | | 300,000 | | | 274,061 | | | 9 | |
Patrick Nelli | | 300,000 | | | 300,000 | | | — | |
Paul Horstmeier | | 300,000 | | | 300,000 | | | — | |
Kevin Freeman(3) | | 316,667 | | | 291,667 | | | 9 | |
Daniel Orenstein | | 300,000 | | | 300,000 | | | — | |
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(1) | Mr. Burton took a 100% voluntary base salary reduction effective July 1, 2022 in response to macroeconomic challenges and in an effort to lead by example our cost reduction initiatives, whereby his base salary was $300,000 for the first half of fiscal 2022 and then $0 for the second half of fiscal 2022 (resulting in a total salary received in fiscal 2022 of $150,000. |
(2) | Mr. Hunt’s base salary was increased to $300,000 effective April 1, 2021 after his promotion to CFO as of January 1, 2021. |
(3) | Mr. Freeman’s base salary increased to $350,000 effective September 1, 2022 due to his promotion to Chief Growth Officer as of September 7, 2022 (so the amount in the table above reflects his pro-rated salary actually received through 2022). |
Annual Performance-Based Incentives
We use performance-based incentives to motivate our team members, including the named executive officers, to achieve our annual financial and operational objectives, while making progress towards our longer-term strategic and growth goals. Typically, near the beginning of each fiscal year, our compensation committee adopts the performance criteria and targets for our Bonus Plan for that fiscal year and establishes the target annual incentive opportunity for each plan participant based on a percentage of each participant’s base salary, the performance measures and the associated target levels for each measure, and the potential payouts based on actual performance for the fiscal year. For our 2022 Bonus Plan, up to 60% of the 2022 Bonus Plan target for all team members was payable through the issuance of PRSUs and up to 40% of the 2022 Bonus Plan target was payable through cash, based on selected company performance objectives. In addition, our compensation committee considered the factors described in “Oversight of Executive Compensation Program—Compensation-Setting Process” above.
Overview & Structure
In February 2022, our compensation committee adopted and approved the performance criteria and targets for fiscal 2022 under our Bonus Plan, as set forth in “Corporate Performance Measures” below. The Bonus Plan provides opportunities for incentive compensation for all team members, including the named executive officers, based on our actual achievement of pre-established corporate financial objectives. The target levels for the financial objectives were eligibleset at levels determined to participatebe challenging and requiring substantial skill and effort by our named executive officers.
The 2022 Bonus Plan is designed such that participants are to receive 60% of their target bonus in the form of PRSU awards (which were determined and granted at the time our Board adopted the 2022 Bonus Plan) and 40% of their target bonus in cash, in order to align the committee’s assessment of our named executive officers’ performance to our achievement of our annual operating plan. Our compensation committee prioritizes the use of PRSUs as part of our 2022 Bonus Plan to align a portion of all of our team members’ compensation with the interests of our stockholders and to preserve cash. The PRSUs were granted to all team members in connection with our board’s adoption of the 2022 Bonus Plan. The number of PRSUs granted to each team member in early 2022 was based upon 100% achievement of the PRSU portion of the 2022 Bonus Plan. The PRSUs granted to our named executive officers as of February 2022 included a minimum threshold for GAAP revenue, which was not met in fiscal 2022, and as such none of these executive PRSUs vested (except for Mr. Freeman who was not an executive officer when he was granted these PRSUs and, instead, was granted PRSUs that were similar to all other team members that were not subject to a minimum threshold for GAAP revenue).
Target Annual Incentive Compensation Opportunities
In February 2022, in connection with its review of our executive compensation program, our compensation committee approved the target annual incentive opportunities of our named executive officers, as set forth in the table below.
Target Performance-Based Incentives for Fiscal 2022
The target annual incentive bonus opportunities for our named executive officers for fiscal 2022 were as follows:
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Named Executive Officer | | Base Salary | | Target Performance-Based Incentive as Percent of Base Salary(1) | | 2022 Target Annual Incentive Bonus Opportunity (cash portion)(2) | | 2022 Target Annual Incentive Bonus Opportunity (# of PRSUs)(3) | | 2022 Target Annual Incentive Bonus Opportunity (PRSU grant date fair value)(4) |
Daniel Burton(5) | | $ | 300,000 | | | 95 | % | | $ | 114,000 | | | 5,321 | | | $ | 144,676 | |
Bryan Hunt | | 300,000 | | | 65 | | | 78,000 | | | 3,640 | | | 98,972 | |
Patrick Nelli | | 300,000 | | | 85 | | | 102,000 | | | 4,760 | | | 129,424 | |
Paul Horstmeier | | 300,000 | | | 85 | | | 102,000 | | | 4,760 | | | 129,424 | |
Kevin Freeman(6) | | 316,667 | | | 70 | | | 102,667 | | | 3,920 | | | 106,585 | |
Daniel Orenstein | | 300,000 | | | 50 | | | 60,000 | | | 2,800 | | | 76,132 | |
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(1) | Represents the total target performance-based incentive percent of base salary effective April 1, 2022. |
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(2) | Represents the fiscal 2022 target cash bonus amount for each of our named executive officers and was calculated based on 40% of the actual base salary and actual target bonus percentage for each pay period during fiscal 2022. Refer to the “Corporate Performance Measures and Bonus Plan Funding Methodology” section below for more information about how the annual bonus is separated between cash and PRSUs. |
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(3) | Represents the number of PRSUs granted to the named executive officers on February 24, 2022, assuming target performance goals will be achieved. The target number of PRSUs was determined by dividing the dollar value of 60% of each named executive officer’s target annual incentive (based on their salary and target bonus percentage as of April 1, 2022) by the average closing price of our common stock for the 30 calendar days preceding January 31, 2022. The maximum amount of PRSUs that may ultimately vest based on actual achievement of performance goals is 110% of the target number of PRSUs. |
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(4) | Represents the grant date fair value of the target Annual PRSUs granted to the named executive officers on February 24, 2022 computed in accordance with FASB ASC Topic 718, excluding the estimate of forfeitures. Amounts reflect the fair value of each award based on the closing price of our common stock on the Nasdaq Global Select Market as of the grant date of February 24, 2022. |
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(5) | Mr. Burton voluntarily reduced his cash and equity compensation by 100% from July 2022 through December 2023. Prior to his voluntary reduction, Mr. Burton’s salary was $300,000, but due to the voluntary reduction his actual fiscal 2022 salary was reduced to $150,000. As part of his voluntary compensation reduction, he also forfeited his ability to receive the cash or PRSU portions of his annual bonus. |
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(6) | Upon Kevin Freeman’s promotion to Chief Growth Officer, his base salary increased from $300,000 to $350,000 and his target bonus percentage increased from 70% to 100% effective September 1, 2022. |
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Corporate Performance Measures and Bonus Plan Funding Methodology
To measure performance for purposes of the Annual Bonus Plan, our compensation committee selected company performance objectives as shown below:
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| | Category | | % | | 2022 Metric |
| | Improvement(1) | | 15%(1) | • | Client Satisfaction Score |
• | Team Member Engagement Score |
| | 15% | • | Percentage of DOS Clients Achieving Measurable Improvements |
• | Number of Measurable Improvements (all clients) |
| | Growth | | 30% | • | Net New / Total Number of DOS Subscription Clients |
• | Dollar-based Retention Rate |
| | • | Total Revenue(2) |
| | Profitability | | 40% | • | Adjusted EBITDA |
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(1) | Based on the lower of the client satisfaction or team member engagement scores. |
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(2) | Total Revenue performance below the minimum threshold level results in a 0% achievement for both the Improvement and Growth categories of the bonus for the PRSUs granted to named executive officers in February 2022 (except for Mr. Freeman, who was not an executive officer at the time his PRSUs were granted and, as a result, was not subject to the minimum threshold requirement, similar to all other team members). |
Below are selected definitions of our 2022 metrics:
Total revenue means total GAAP revenue as reflected in our short-termquarterly and annual financial statements.
DOS Subscription Clients means clients who directly or indirectly access our DOS platform via a technology subscription contract. Indirect access to the DOS platform may include DOS module components such as Healthcare.AI, Pop Analyzer, IDEA, and other DOS platform components.
Dollar-based Retention Rate is calculated as of a period end by starting with the sum of the technology and professional services Annual Recurring Revenue (ARR) from our DOS Subscription Clients as of the date 12 months prior to such period end (prior period ARR). We then calculate the sum of the ARR from these same clients as of the current period end (current period ARR). Current period ARR includes any upsells and also reflects contraction or attrition over the trailing twelve months but excludes revenue from new DOS Subscription Clients added in the current period. We then divide the current period ARR by the prior period ARR to arrive at our Dollar-based Retention Rate. We calculate ARR for each DOS Subscription Client as the expected monthly recurring revenue of our clients as of the last day of a period multiplied by 12. Because our primary business model is to contract for our DOS platform, analytics applications, and professional services, our Dollar-Based Retention Rate calculated above only includes our DOS Subscription Clients. Other Clients that do not meet the definition of a DOS Subscription Client, which are primarily legacy Medicity, Able Health, Healthfinch, Vitalware, Twistle, KPI Ninja, and ARMUS clients, are not included in the Dollar-based Retention Rate metrics.
Adjusted EBITDA as reflected in our quarterly and annual financial statements is a non-GAAP financial measure that we define as net loss adjusted for (i) interest and other (income) expense, net, (ii) loss on extinguishment of debt, (iii) income tax provision (benefit), (iv) depreciation and amortization, (v) stock-based compensation, (vi) acquisition-related costs, net, including the change in fair value of contingent consideration liabilities for potential earn-out payments, (vii) restructuring costs, and (viii) non-recurring lease-related charges.
Measurable improvements represent meaningful (i.e., significant enough to present to the client), favorable changes that have been quantified and approved by the client.
For a full reconciliation for each non-GAAP financial measures noted above to the most directly comparable financial measure stated in accordance with GAAP, please see Appendix A to this Proxy Statement.
The target levels required for 100% achievement for the corporate performance measures under our Bonus Plan were approved by our compensation committee and board of directors. The compensation committee set high target thresholds to ensure that incentive program, pursuantpayments would only follow significant achievement and total payouts could have been as low as 0% if minimum thresholds were not met and the total payouts were capped.
Performance in Fiscal 2022 and Payouts
In February 2023 our compensation committee assessed our performance against the composite targets established under the 2022 Annual Bonus Plan and the actual achievement compared to which eachthe target are described below. The achievement percentages displayed in the tables below are zero if the minimum bonus threshold was eligiblenot reached, 100% if the target threshold was reached, 110% if the stretch goal was reached, or the percentage achieved of the range between the threshold, target, and stretch performance amounts. The Improvement and Growth metrics are capped at 110%. The compensation committee has endeavored to earn an annualset the performance goals at definitive, rigorous, and objective levels so as to require significant effort and achievement by our executive team to be attained.
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Category | | % Weighting | | Actual Achievement of Target | | Performance Measure | | Threshold | | Target | | Stretch | | Actual Result |
Improvement | | 15% | | 0%(1) | | Client Satisfaction Score | | 4.0 | | 4.3 | | 4.5 | | 4.2 |
Team Member Engagement Score | | 4.0 | | 4.3 | | 4.5 | | 4.4 |
| 15% | | 0%(1) | | Percentage of DOS Clients Achieving Measurable Improvements | | 35% | | 45% | | 50% | | 42% |
| 0%(1) | | Number of Measurable Improvements (all clients) | | 90 | | 120 | | 130 | | 106 |
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(1) | As described in the Growth section below, Total Revenue performance, which acts as a minimum threshold for executive PRSUs (except Mr. Freeman for reasons discussed above), was below the threshold level which resulted in 0% achievement for both the Improvement and Growth categories of the bonus, despite actual results from the Improvement metrics exceeding the minimum threshold. Ignoring the Total Revenue minimum threshold, total composite achievement for the Improvement category was 93% and, accordingly, was applied to the PRSUs granted to team members, including Mr. Freeman, excluding the named executive officers as of the February 2022 grant date. |
For the Improvement category, client satisfaction score was determined based on KLAS survey results converted to a scale of 1 to 5. The actual team member engagement score was determined based on Gallup survey results converted to a scale of 1 to 5. These survey results provide us with feedback from our users and team members and provide a valuable non-financial strategic input for our leadership team in running our business. Our client satisfaction score in fiscal 2022 was 4.2 and the comparable measure of team member satisfaction score was 4.4. The improvement bonus payout for our named executive officers is based on the achievementlower of certain companythe two metrics, which was the client satisfaction score, which was above the minimum threshold of 4.0 but below the performance objectives, including customer satisfaction, team member satisfaction, platform utilization,target amount of 4.3.
Measurable improvements represent a meaningful, favorable change that has been quantified and approved by the client. Measurable improvements provide a non-financial metric for leadership that demonstrates how we are adding value to our clients and accelerates the Health Catalyst flywheel. The percentage of DOS clients achieving measurable improvements was 42%, which was above the minimum threshold of 35% but below the performance target of 45%. The number of measurable improvements revenue, Adjusted EBITDA, Adjusted Gross Margin,for all clients was 106 which was above the minimum threshold of 90 but below the performance target of 120.
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Category | | % Weighting | | Actual Achievement of Target | | Performance Measure | | Threshold | | Target | | Stretch | | Actual Result |
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Growth | | 30% | | 0%(1) | | Net New / Total Number of DOS Subscription Clients | | 17 / 107 | | 23 / 113 | | 26 / 116 | | 8 / 98 |
Dollar-based Retention Rate | | 108.5% | | 112.5% | | 113.5% | | 100.4% |
| Total Revenue (millions) | | $290.3 | | $299.7 | | $301.7 | | $276.2 |
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(1) | Total Revenue performance acts as a circuit breaker for both the Improvement and Growth categories and was below the threshold level which resulted in 0% achievement for both categories of the bonus for the executive PRSUs granted to the named executive officers as of the February 2022 grant date. |
With respect to the Growth category, actual new client growth, measured as net new and annual recurring revenue. Fortotal DOS Subscription Clients, was 8 net new and 98 total DOS Subscription Clients, which was below the minimum threshold of 17 net new and 107 total DOS Subscription Clients in fiscal years ended December 31, 2019 and 2018,2022. Actual Dollar-based Retention was 100% in fiscal 2022, which was below the target annual bonuses for Messrs. Burton, Sanders, and Horstmeier were equalminimum threshold of 109%. Total Revenue was $276.2 million in fiscal 2022, which was below the minimum threshold of $290.3 million.
Fiscal 2022 proved to 60%, 65%, and 60%, respectively,be a more challenging year than anticipated as a result of the applicableinflationary macroeconomic environment and the meaningful financial strain that our health system end market faced, primarily due to significant increases in labor and supply costs without a commensurate increase in revenue, leading to substantial margin pressure. The meaningful financial strain on our health system end market resulted in a more challenging sales environment during fiscal 2022 compared to our initial expectations, which resulted in underperformance compared to our initial growth metric targets and thresholds.
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Category | | % Weighting | | Actual Achievement of Target | | Performance Measure | | | | | | Actual Result |
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Profitability | | 40% | | 77% | | Adjusted EBITDA (millions) | | | | | | $(2.5) |
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Adjusted EBITDA for fiscal 2022 was $(2.5) million and represents achievement of 77% of the performance target. Our fiscal 2022 Adjusted EBITDA was a significant improvement compared to the $(11.2) million of Adjusted EBITDA from fiscal 2021. The Profitability metric for fiscal 2022 was capped at 200% of the target.
As a result, the total actual annual performance-based incentive compensation for our named executive officer’s annual base salary.officers under the Annual Bonus Plan in fiscal 2022 were as follows:
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Named Executive Officer | | 2022 Target Annual Performance-Based Incentive Compensation Opportunity (cash portion) | | 2022 Actual Annual Performance-Based Incentive Compensation (cash portion) | | 2022 Target Annual Incentive Compensation Opportunity (# of PRSUs) | | Fiscal 2022 Actual Annual Incentive Compensation (# of PRSUs) | | 2022 Target Annual Incentive Compensation Opportunity (PRSU grant date fair value)(1) | | Fiscal 2022 Actual Annual Incentive Compensation (PRSU grant date fair value)(1) |
Daniel Burton(2) | | $ | 114,000 | | | $ | — | | | 5,321 | | | — | | | $ | 144,676 | | | $ | — | |
Bryan Hunt(3) | | 78,000 | | | 59,681 | | | 3,640 | | | — | | | 98,972 | | | — | |
Patrick Nelli(3) | | 102,000 | | | 78,045 | | | 4,760 | | | — | | | 129,424 | | | — | |
Paul Horstmeier(3) | | 102,000 | | | 78,045 | | | 4,760 | | | — | | | 129,424 | | | — | |
Kevin Freeman(4) | | 102,667 | | | 78,555 | | | 3,920 | | | 1,819 | | | 106,585 | | | 44,957 | |
Daniel Orenstein(3) | | 60,000 | | | 45,909 | | | 2,800 | | | — | | | 76,132 | | | — | |
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(1) | The PRSU grant date fair value amounts are computed in accordance with FASB ASC Topic 718. Amounts reflect the fair value of the target and actual awards based on the closing price of our common stock on the Nasdaq Global Select Market as of the grant date of February 24, 2022. |
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(2) | Mr. Burton voluntarily elected to reduce his fiscal 2022 cash bonus by 100% in response to the challenging macroeconomic environment and to lead by example as part of our cost reduction initiatives. |
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(3) | Based on our actual achievement against the composite targets established under the 2022 Annual Bonus Plan, the resulting total composite bonus achievement percentage for these named executive officers was 31%.
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(4) | Mr. Freeman was not a named executive officer at the time of the PRSU annual bonus grant and therefore, received a non-executive PRSU grant which was not tied to the Total Revenue minimum threshold. Therefore, he received a total PRSU payout of 42% for his annual bonus in line with the other non-NEOs. |
Long-Term Equity compensationIncentives
In 2011, our Board of Directorsboard adopted the Health Catalyst, Inc. 2011 Stock Incentive Plan (the “2011 Plan”), which provided for the direct award, sale of shares, and granting of options for our common stock to our directors, team members, or consultants. In connection with our IPO,initial public offering (“IPO”), our board of directors adopted the 2019 Stock Option and Incentive Plan (the “2019 Plan”). The 2019 Plan provides flexibility to our compensation committee to use various equity-based incentive awards as compensation tools to motivate our workforce, including the grant of incentive and nonstatutory stock options, restricted and unrestricted stock, RSUs, PRSUs, and stock appreciation rights to our directors, team members, or consultants.
DuringWe view long-term incentive compensation in the form of equity awards as a critical element of our executive compensation program and our team member compensation program. The realized value of these equity awards has a direct relationship to our stock price; therefore, these awards are an incentive for our named executive officers and all of our team members to create value for our stockholders. Equity awards also help us retain qualified executive officers and team members in a competitive market.
Long-term incentive compensation opportunities in the form of equity awards are granted by our compensation committee on a regularly-scheduled basis, as described in “Other Compensation Policies—Equity Award Grant Policy” below.
For fiscal year ended December 31, 2019, we2022, our compensation committee determined that the equity awards to be granted to our executive officers should be in the form of RSUs and, in addition for Messrs. Burton and Nelli, in the form of PRSUs. These long-term PRSUs are in addition to the PRSUs granted as part of our 2022 Bonus Plan. Equity awards in the form of RSUs and PRSUs provide retention incentives for our named executive officers and reward them for long-term stock price appreciation while at the same time providing some value even if the market price of our common stock declines. The equity awards granted to our named executive officers in fiscal 2022 are set forth in the “2022 Summary Compensation Table” and the “2022 Grants of Plan-Based Awards Table” below.
RSUs
We believe RSUs provide a strong retention incentive for our named executive officers, provide a reward for long-term stock price appreciation while at the same time providing some value even if the market price of our common stock declines, and are less dilutive than stock options to purchaseour stockholders. All RSUs are granted under our 2019 Plan and are settled for shares of our common stock to each ofstock. In fiscal 2022, we granted our named executive officers RSUs that generally vest as describedto one-quarter of such shares on the first anniversary of the applicable “vesting commencement date,” and in more detail12 approximately equal quarterly installments thereafter, so long as the named executive officer continues a service relationship with us through the applicable vesting dates.
Long-term PRSUs
In order to further align their interests with our long-term growth and interests of our stockholders, Messrs. Burton and Nelli were granted long-term PRSUs tied to the 2022 Annual Bonus Plan, whereby one quarter of such shares will vest (to the extent the applicable metrics are achieved) on March 1, 2023, and the remaining PRSUs actually achieved will vest in 12 approximately equal quarterly installments thereafter, so long as they remain employed with us through the applicable vesting dates. The awards are to be earned to the extent that we achieve pre-established target metrics consistent with the thresholds established for the PRSU portion of 2022 Annual Bonus Plan discussed in the “Outstanding Equity Awards at 2019 Year-end” table.Annual Performance-Based Incentives section above.
Our compensation committee selected the following company performance objectives for these long-term PRSUs as shown below:
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| | Category | | % | | 2022 Metric |
| | Improvement(1) | | 25%(1) | • | Client Satisfaction Score |
• | Team Member Engagement Score |
| | 25% | • | Percentage of DOS Clients Achieving Measurable Improvements |
• | Number of Measurable Improvements (all clients) |
| | Growth | | 50% | • | Net New / Total Number of DOS Subscription Clients |
• | Dollar-based Retention Rate |
| | • | Total Revenue(2) |
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(1) | Based on the lower of the client satisfaction or team member engagement scores. |
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(2) | Total Revenue performance below the minimum threshold level results in a 0% achievement for both the Improvement and Growth categories of the bonus. |
Due to Total Revenue, which acts as the minimum threshold, not meeting the minimum threshold, the long-term PRSU achievement level was 0% for Messrs. Burton and Nelli. Mr. Nelli also would not have satisfied the service-based requirement for vesting due to his separation as of December 31, 2022. Refer to the discussion of these metrics and actual performance-based achievement in the Annual Performance-Based Incentives section above, as the metrics, threshold and target for these 2022 metrics for these long-term PRSUs matches the same 2022 metrics for our 2022 Annual Bonus Plan. We believe these metrics are critical to measuring our growth and other strategic goals, as a result we used these metrics in both our 2022 Bonus Plan and for our long-term PRSUs.
Employee Benefit Programs
Our named executive officers are eligible to participate in all of our employee benefit plans offered to U.S. employees, including our 401(k) plan, employee stock purchase plan, and medical, dental, life and disability insurance plans, in each case on the same basis as other U.S. employees, except our executive officers, including our named executive officers, are also eligible for certain additional company-paid executive life insurance and executive long-term disability insurance premiums.
Perquisites and Other Personal Benefits
We generally do not provide perquisites to our executives, other than company-paid executive life insurance and executive long-term disability insurance premiums, reimbursement for relocation expenses, as needed, and certain other de minimis perquisites to our executive officers, including our named executive officers. In the future, we may provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive team more efficient and effective, or for recruitment or retention purposes. All future practices with respect to perquisites or other benefits for our named executive officers will be subject to review and approval by our compensation committee.
401(k) plan
We maintain a tax-qualified retirement plan that provides eligible U.S. employees, including named executive officers, with an opportunity to save for retirement on a tax-advantaged basis. Plan participants are able to defer eligible compensation subject to applicable annual Internal Revenue Code limits. We provide a matching contribution of 100% of employee contributions up to 6%4% of compensation, which vests after two years of service.
The 401(k) plan is intended to be qualified under Section 401(a) of the Internal Revenue Code with the 401(k) plan’s related trust intended to be tax exempt under Section 501(a) of the Internal Revenue Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan.
Perquisites
We generally do not provide perquisites to our employees, other than Company-paid executive life insuranceplan, and executive long-term disability insurance premiums, reimbursement for relocation expenses, and certain other de minimis perquisites to our executive officers, including our named executive officers.all contributions are deductible by us when made.
Executive employment arrangements
We initially entered into an offer letter with each of the named executive officers in connection with his or her employment with us, which set forth the terms and conditions of his or her employment. Each named executive officer also entered into our standard employee agreement and invention and confidentiality agreement. In connection with our IPO, in 2019, we have adopted an executive severance plan (the “Executive Severance Plan”) providing for cash severance upon certain terminations of employment and “double-trigger” equity vesting acceleration in the event of certain terminations of employment in connection with or following a sale of the company. Each of our named executive officers participates in the Executive Severance Plan and the Executive Severance Plan replaces the severance provisions in such named executive officers’ offer letters, if any.
Executive Severance Plan
The Executive Severance Plan provides that upon a termination of employment by us other than for “cause” (as defined in the Executive Severance Plan), or for death or “disability” (as defined in the Executive Severance Plan) outside of the “change in control period” (i.e., the period beginning on the date of a “change in control” (as defined in the Executive Severance Plan) and ending on the one-year anniversary of the change in control), the participant will be entitled to receive, subject to the execution and delivery of a separation agreement and release containing, among other provisions, an effective release of claims in favor of the Companycompany and reaffirmation of the “restrictive covenants agreement” (as defined in the Executive Severance Plan), (i) a severance amount equal to 12 months’ “base salary” (i.e., the higher of the annual base salary in effect immediately prior to the date of termination or the annual base salary in effect for the year immediately prior to the year in which the date of termination occurs) for a “Tier 1 Executive” (as defined in the Executive Severance Plan and which means the Company’scompany’s chief executive officer, Mr. Burton), and 9 months’ base salary for a “Tier 2 Executive” (as defined in the Executive Severance Plan and which include the named executive officers other than Mr. Burton), and 6 months’ base salary for a “Tier 3 Executive” (as defined in the Executive Severance Plan), payable over 12 months 9 months, or 69 months, respectively, and (ii) monthly cash payments equal to the monthly employer contribution that we would have made to provide health insurance for the applicable participant if he or she had remained employed by us, based on the premiums as of the date of termination, for up to 12 months for a Tier 1 Executive and 9 months for a Tier 2 Executive, and 6 months for a Tier 3 Executive; provided, that the participant was participating in our group health plan immediately prior to the date of termination and timely elects COBRA health continuation.
The Executive Severance Plan also provides that upon a termination of employment by us other than for cause, death or disability or upon a resignation by an eligible participant for “good reason” (as defined in the Executive Severance Plan), in either case within the change in control period, the participant will be entitled to receive, in lieu of the payments and benefits described above and subject to the execution and delivery of a separation agreement and release containing, among other provisions, an effective release of claims in favor of the Companycompany and reaffirmation of the restrictive covenants agreement, (i) a lump sum cash severance amount equal to 150% of base salary for a Tier 1 Executive and 100% of base salary for a Tier 2 Executive, and 75% of base salary for a Tier 3 Executive, (ii) a lump sum amount equal to 150% for a Tier 1 Executive and 100% for a Tier 2 Executive, and 75% for a Tier 3 Executive, of the participant’s annual target bonus in effect immediately prior to such termination (or the participant’s annual target bonus in effect immediately prior to the change in control, if higher), (iii) a lump sum amount equal to the monthly employer contribution, based on the premiums as of the date of termination, that we would have made to provide health insurance for the participant if he or she had remained employed by us for 18 months for a Tier 1 Executive and 12 months for a Tier 2 Executive, and 9 months for a Tier 3 Executive; provided, that the participant was participating in our group health plan immediately prior to the date of termination and timely elects COBRA health continuation, and (iv) for all outstanding and unvested equity awards of the Companycompany that are subject to time-based vesting held by the participant, full accelerated vesting of such awards; provided, that the
performance conditions applicable to any outstanding and unvested equity awards subject to performance-based vesting will be deemed satisfied at the target level specified in the terms of the applicable award agreement.
The payments and benefits provided under the Executive Severance Plan in connection with a change in control may not be eligible for a federal income tax deduction by us pursuant to Section 280G of the Internal Revenue Code. These payments and benefits may also subject an eligible participant, including the named executive officers, to an excise tax under Section 4999 of the Internal Revenue Code. If the payments or benefits payable to an eligible participant in connection with a change in control would be subject to the excise tax imposed under Section 4999 of the Internal Revenue Code, then those payments or benefits will be reduced if such reduction would result in a greater net after-tax benefit to the applicable participant.
Offer letters in place during the year ended December 31, 20192022 for our named executive officers
Daniel Burton
On September 26, 2011, we entered into an offer letter with Daniel Burton, who currently serves as our Chief Executive Officer. The offer letter provides for Mr. Burton’s at-will employment and sets forth his initial annual base salary, initial target annual bonus, and his eligibility to participate in our benefit plans generally.
Dale SandersBryan Hunt
On October 24, 2011,March 27, 2014, we entered into an offer letter with Dale Sanders,Bryan Hunt, who currently serves as our Chief TechnologyFinancial Officer. The offer letter provides for Mr. Sanders’Hunt’s at-will employment and sets forth his initial annual base salary, initial target annual bonus, and an initial equity award grant (which is fully-vested), as well as his eligibility to participate in our benefit plans generally.
Patrick Nelli
On May 20, 2013, we entered into an offer letter with Patrick Nelli, who served as our President until September 30, 2022. The offer letter provides for Mr. Nelli’s at-will employment and sets forth his initial annual base salary, initial target annual bonus, and his eligibility to participate in our benefit plans generally.
Paul Horstmeier
On October 13, 2011, we entered into an offer letter with Paul Horstmeier, who currently servesserved as our Chief Operating Officer.Officer until March 31, 2023. The offer letter provides for Mr. Horstmeier’s at-will employment and sets forth his initial annual base salary, initial target annual bonus, and an initial equity award grant (which is fully-vested), as well as his eligibility to participate in our benefit plans generally.
Kevin Freeman
On August 7, 2020, we entered into an offer letter with Kevin Freeman, who currently serves as our Chief Commercial Officer. The offer letter provides for Mr. Freeman’s at-will employment and sets forth his initial annual base salary, initial target annual bonus, an initial equity grant award, and his eligibility to participate in our benefit plans generally.
Daniel Orenstein
On December 3, 2015, we entered into an offer letter with Daniel Orenstein, who currently serves as our General Counsel and who will be stepping down from his position as General Counsel effective April 30, 2023. The offer letter provides for Mr. Orenstein’s at-will employment and sets forth his initial annual base salary, initial target annual bonus, and his eligibility to participate in our benefit plans generally.
Other Compensation Policies
Equity Award Grant Policy
Our compensation committee has adopted an “Equity Award Grant Policy.” Under this policy, we generally grant equity awards on a regularly-scheduled basis to enhance the effectiveness of our internal control over our equity award grant process. Pursuant to the Equity Award Grant Policy, which was most recently amended in February 2021, our compensation committee has delegated certain limited authority to a delegated committee, made up of our CEO and Chief Financial Officer, to grant routine new hire, promotion, refresh, and certain other equity awards to employees within equity guidelines reviewed and approved from time to time by our compensation committee and subject to other limitations and requirements. The delegated committee may not grant equity awards to its members and the other four highest paid executive officers, or equity awards that would cause the aggregate grant date fair value of equity grants to an individual to exceed $1,500,000. Grants of equity awards are generally made quarterly and will be effective on the date such grant is approved by our compensation committee or delegated committee, as applicable.
Policy Prohibiting Hedging and Pledging of Company Securities
Our insider trading policies prohibit the members of our board and all employees, including our executive officers, from engaging in derivative securities transactions, including hedging, with respect to our securities, and from pledging our securities as collateral for a loan or holding company securities in a margin account. Our insider trading policies require that our named executive officers may trade in our securities only pursuant to trading plans that comply with Rule 10b5-1 under the Exchange Act. Certain other employees and our directors are subject to certain pre-clearance procedures in order to trade in our securities or may trade pursuant to trading plans that comply with Rule 10b5-1.
Tax and Accounting Considerations
Deductibility of Executive Compensation
Section 162(m) of the Code generally places a $1 million limit on the amount of compensation a public company can deduct in any one year for certain executive officers. While our compensation committee considers tax deductibility as one factor in determining executive compensation, our compensation committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program, even if the awards are not deductible by us for tax purposes. The former exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our named executive officers and certain other individuals in excess of $1 million will not be deductible unless it qualifies for the limited transition relief applicable to certain arrangements in place as of November 2, 2017.
Despite our compensation committee’s efforts to structure certain performance-based awards that were granted prior to November 2, 2017, in a manner intended to be exempt from Section 162(m) and therefore not subject to its deduction limits, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, including the uncertain scope of the transition relief under the legislation repealing the performance-based compensation exemption from the deduction limit, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) in fact will. Further, our compensation committee reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such modifications are consistent with our business needs. Our compensation committee believes that stockholder interests are best served if its discretion and flexibility in awarding compensation is not restricted, even though some compensation awards may result in non-deductible compensation expenses.
Taxation of “Parachute” Payments
Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of the company that exceed certain prescribed limits, and that the company (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We have not agreed to provide any executive officer, including any named executive officer, with a “gross-up” or other reimbursement payment for any tax liability that the executive officer might owe as a result of the application of Sections 280G or 4999 of the Code.
Section 409A of the Code
Section 409A of the Code imposes additional significant taxes in the event that an executive officer, director or service provider receives “deferred compensation” that does not satisfy the requirements of Section 409A of the Code. Although we do not maintain a traditional nonqualified deferred compensation plan for our executive officers, Section 409A of the Code does apply to certain severance arrangements, bonus arrangements, and equity awards. We have structured all such arrangements and awards in a manner to either avoid or comply with the applicable requirements of Section 409A of the Code.
Accounting for Stock-Based Compensation
We follow the Financial Accounting Standard Board’s Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”) for our stock-based compensation awards. FASB ASC Topic 718 requires us to measure the compensation expense for all share-based payment awards made to our employees and non-employee members of our board, including options to purchase shares of our common stock and other stock awards, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the executive compensation tables required by the federal securities laws, even though the recipient may never realize any value from such awards.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The information contained in this compensation committee report shall not be deemed to be “soliciting material,” “filed” with the SEC, subject to Regulations 14A or 14C of the Exchange Act, or subject to the liabilities of Section 18 of the Exchange Act. No portion of this compensation committee report shall be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, through any general statement incorporating by reference in its entirety the proxy statement in which this report appears, except to the extent that Health Catalyst specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed filed under either the Securities Act or the Exchange Act.
The compensation committee has reviewed and discussed the section captioned “Executive Compensation” with the company’s management team. Based on such review and discussions, the compensation committee recommended to the board of directors that this Compensation Discussion and Analysis be included in the Proxy Statement and be included in the Annual Report on Form 10-K we filed with the SEC for the fiscal year ended December 31, 2022.
MEMBERS OF THE COMPENSATION COMMITTEE:
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Anita V. Pramoda (Chair) |
Julie Larson-Green |
2022 Summary Compensation Table
The following table provides information regarding the total compensation awarded to, earned by, and paid to our named executive officers for services rendered to us in all capacities for the fiscal years ended December 31, 2022, 2021, and 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary | | Option Awards(1) | | Stock Awards(2) | | Nonequity Incentive Plan Compensation(3) | | All Other Compensation(4) | | Total |
Daniel Burton(5) | | 2022 | | $ | 150,000 | | | $ | — | | | $ | 4,276,117 | | | $ | — | | | $ | 8,896 | | | $ | 4,435,013 | |
Chief Executive Officer | | 2021 | | 300,000 | | | — | | | 5,514,715 | | | 136,900 | | | 9,428 | | | 5,961,043 | |
| | 2020 | | 314,583 | | | — | | | 5,116,500 | | | 43,413 | | | 10,286 | | | 5,484,782 | |
Bryan Hunt(6) | | 2022 | | 300,000 | | | — | | | 2,816,993 | | | 59,681 | | | 10,783 | | | 3,187,457 | |
Chief Financial Officer | | 2021 | | 274,061 | | | — | | | 3,095,296 | | | 85,165 | | | 8,208 | | | 3,462,730 | |
Patrick Nelli(7) | | 2022 | | 300,000 | | | — | | | 3,853,176 | | | 78,045 | | | 1,031,474 | | | 5,262,695 | |
Former President | | 2021 | | 300,000 | | | — | | | 4,004,793 | | | 124,995 | | | 11,552 | | | 4,441,340 | |
| | 2020 | | 300,000 | | | — | | | 3,411,000 | | | 41,400 | | | 12,730 | | | 3,765,130 | |
Paul Horstmeier(8) | | 2022 | | 300,000 | | | — | | | 2,847,146 | | | 78,045 | | | 16,211 | | | 3,241,402 | |
Chief Operating Officer | | 2021 | | 300,000 | | | — | | | 3,128,841 | | | 124,995 | | | 14,384 | | | 3,568,220 | |
| | 2020 | | 300,000 | | | — | | | 2,558,250 | | | 41,400 | | | 16,097 | | | 2,915,747 | |
Kevin Freeman(6), Chief Commercial Officer | | 2022 | | 316,667 | | | — | | | 2,331,437 | | | 78,555 | | | 10,675 | | | 2,737,334 | |
Daniel Orenstein(9) | | 2022 | | 300,000 | | | — | | | 1,162,971 | | | 45,909 | | | 10,652 | | | 1,519,532 | |
General Counsel | | 2021 | | 300,000 | | | — | | | 1,328,162 | | | 79,362 | | | 10,519 | | | 1,718,043 | |
| | 2020 | | 300,000 | | | — | | | 1,364,400 | | | 34,500 | | | 11,144 | | | 1,710,044 | |
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(1) | There were no stock options granted during the years presented. |
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(2) | The reported amounts represent the aggregate grant date fair value of awards of RSUs and PRSUs granted in each year presented, computed in accordance with FASB ASC Topic 718, excluding the estimate of forfeitures not related to the performance-based vesting of PRSUs. Amounts reflect the fair value of each award based on the closing price of our common stock on the Nasdaq Global Select Market on the date of grant of the award. The grant date fair value of the PRSUs is based on the probable outcome of the vesting conditions as of the grant date. For fiscal 2022, the grant date fair value of all PRSUs at maximum performance achievement, including the long-term PRSUs granted to Messrs. Burton and Nelli, are $974,843, $108,869, $958,067, $142,367, $198,813 and $83,745 for Messrs Burton, Hunt, Nelli, Horstmeier, Freeman, and Mr. Orenstein, respectively. |
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(3) | Represents the cash amounts earned by our named executive officers under our short-term incentive plan (the Bonus Plan), based on our achievement of certain corporate performance goals. For a description of the Bonus Plan, see “Compensation Discussion and Analysis – Annual Performance-Based Incentives” above. |
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(4) | For fiscal 2022, the amounts reported represent matching contributions made by us under our 401(k) plan ($8,607 for Mr. Burton, $10,500 for Mr. Hunt, $10,675 for Mr. Nelli, $10,675 for Mr. Horstmeier, $10,675 for Mr. Freeman, and $9,881 for Mr. Orenstein), equity modification value of $759,892 and cash severance of $258,740 related to Mr. Nelli’s separation from the company, executive life insurance premiums paid by us ($289 for Mr. Burton, $398 for Mr. Nelli, $1,450 for Mr. Horstmeier, and $771 for Mr. Orenstein), executive long-term disability insurance premiums paid by us ($1,769 for Mr. Nelli and $4,084 for Mr. Horstmeier), and gift cards paid by us as part of a benefit provided to all team members ($283 for Mr. Hunt and $2 for Mr. Horstmeier). |
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(5) | Mr. Burton voluntarily reduced his cash and new equity compensation by 100% from July 2022 through December 2023 in response to the challenging macroeconomic environment and to lead by example as part of our cost reduction initiatives.. Prior to his voluntary reduction, Mr. Burton’s annual salary was $300,000. As part of his compensation reduction, he also declined receiving the cash portion of his annual bonus. |
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(6) | Mr. Hunt was not a named executive officer prior to fiscal 2021 and Mr. Freeman was not a named executive officer prior to fiscal 2022. |
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(7) | Mr. Nelli and the company mutually agreed that he would step down as President in September 2022. After stepping down, Mr. Nelli continued to be employed by the company as a Senior Advisor until December 31, 2022, at which point he and the company finalized his separation agreement. |
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(8) | Mr. Horstmeier stepped down as Chief Operating Officer in March 2023. After stepping down, Mr. Horstmeier has and is expected to continue to serve the company as a Senior Advisor. |
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(9) | Mr. Orenstein will be stepping down as General Counsel effective April 30, 2023. After stepping down, Mr. Orenstein is expected to continue to serve the company as a Senior Advisor. |
2022 Grants of Plan-Based Awards Table
The following table shows information regarding grants of non-equity and equity awards that we made during fiscal 2022 to each of the named executive officers listed in the Summary Compensation Table.
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| | | | | | | | Estimated future payouts under non-equity incentive plan awards ($)(1) | | | | Estimated future payouts under equity incentive plan awards (# of PRSUs)(2) | | All Other Stock Awards (# of RSUs)(3) | | Grant Date Fair Value of Stock Awards ($)(4) |
Name | | Award Type | | Grant Date | | | | Target (100%) | | Maximum (200%) | | | | Target (100%) | | Maximum (110%) | | |
Daniel Burton | | Cash | | — | | | | $ | 114,000 | | | $ | 228,000 | | | | | — | | — | | — | | $ | — | |
| PRSU | | 2/24/22 | | | | — | | — | | | | 5,321 | | 5,853 | | — | | | 143,237 |
| Long-term PRSU | | 2/24/22 | | | | — | | | — | | | | | 27,273 | | 30,000 | | — | | 734,130 |
| RSU | | 2/24/22 | | | | — | | | — | | | | | — | | — | | 125,000 | | 3,398,750 |
Bryan Hunt | | Cash | | — | | | | 78,000 | | | 156,000 | | | | | — | | — | | — | | — |
| PRSU | | 2/24/22 | | | | — | | | — | | | | | 3,640 | | 4,004 | | — | | 97,993 |
| RSU | | 2/24/22 | | | | — | | | — | | | | | — | | — | | 100,000 | | 2,719,000 |
Patrick Nelli | | Cash | | — | | | | 102,000 | | | 204,000 | | | | | — | | — | | — | | — |
| PRSU | | 2/24/22 | | | | — | | | — | | | | | 4,760 | | | 5,236 | | | — | | | 128,146 |
| Long-term PRSU | | 2/24/22 | | | | — | | | — | | | | | 27,273 | | 30,000 | | — | | 734,130 |
| RSU | | 2/24/22 | | | | — | | | — | | | | | — | | — | | 110,000 | | 2,990,900 |
Paul Horstmeier | | Cash | | — | | | | 102,000 | | | 204,000 | | | | | — | | — | | — | | — |
| PRSU | | 2/24/22 | | | | — | | | — | | | | | 4,760 | | | 5,236 | | | — | | | 128,146 |
| RSU | | 2/24/22 | | | | — | | | — | | | | | — | | — | | 100,000 | | 2,719,000 |
Kevin Freeman | | Cash | | — | | | | 102,667 | | | 205,333 | | | | | — | | — | | — | | — |
| PRSU | | 2/24/22 | | | | — | | | — | | | | | 3,920 | | 4,312 | | — | | 105,524 |
| Long-term PRSU | | 2/24/22 | | | | — | | | — | | | | | 2,727 | | 3,000 | | — | | 73,413 |
| RSU | | 2/24/22 | | | | — | | | — | | | | | — | | — | | 30,000 | | 815,700 |
| RSU | | 9/8/22 | | | | — | | | — | | | | | — | | — | | 120,000 | | 1,336,800 |
Daniel Orenstein | | Cash | | — | | | | 60,000 | | | 120,000 | | | | | — | | — | | — | | — |
| PRSU | | 2/24/22 | | | | — | | | — | | | | | 2,800 | | | 3,080 | | | — | | | 75,371 |
| RSU | | 2/24/22 | | | | — | | | — | | | | | — | | — | | 40,000 | | 1,087,600 |
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(1) | These columns set forth the fiscal 2022 target cash bonus amount for each of our named executive officers under our Bonus Plan. “Target” refers to the amount payable if specified performance targets are reached. There is no threshold for a minimum amount payable for a certain level of performance as the actual cash bonus payment will be determined based on the level of Adjusted EBITDA outperfomance. Target bonuses were set as a percentage of each named executive officer’s base salary earned for fiscal 2022 as follows: 95%, 65%, 85%, 85%, and 50% for Messrs. Burton, Hunt, Nelli, Horstmeier, and Orenstein, respectively. Mr Freeman’s target bonus was 70% until September 1, 2022 when it prospectively changed to 100% as a result of his promotion to Chief Growth Officer. The dollar values of the actual cash bonus awards earned by the named executive officers are set forth in the Fiscal 2022 Summary Compensation Table above. Subsequent to the initial bonus targets being set, Mr. Burton voluntarily elected not to receive any bonus for fiscal years 2022 and 2023. The amounts set forth in this column do not represent either additional or actual compensation earned by the named executive officers for fiscal 2022. For a description of the Bonus Plan, see “Compensation Discussion and Analysis –Annual Performance-Based Incentives” above. |
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(2) | These columns set forth the fiscal 2022 target PRSU amounts for each of our named executive officers under our Bonus Plan, which are subject to performance goals. Both the long-term and annual PRSU grants were subject to the achievement of certain performance metrics, during the period of January 1, 2022 through December 31, 2022. The annual PRSUs granted to all named executive officers will vest (to the extent the applicable metrics are achieved and service requirements met) as of March 1, 2023 while one quarter of the long-term PRSUs granted to Messrs. Burton, Nelli, and Freeman will vest (to the extent the applicable metrics are achieved) on March 1, 2023, and the remaining long-term PRSUs actually achieved will vest in 12 approximately equal quarterly installments thereafter, so long as they remain employed with us through the applicable vesting dates.The PRSUs do not have an aggregate “Threshold” level of attainment, as the amount earned for each performance year is determined based on straight-line interpolation from 0% to 100%, depending on performance achievement, however, there is a minimum threshold level of achievement for each individual metric that is 70% of each individual metric’s “Target” level, whereby performance below that threshold results in 0% achievement for that specific metric. Additionally, the GAAP Revenue metric is considered a minimum threshold for each NEO besides Mr. Freeman (for reasons discussed above), so if the GAAP Revenue threshold is not met, 0% of the PRSUs granted to named executive officers in February 2022 (other than Mr. Freeman) will vest regardless of the other performance achievement of the other “Improvement” and “Growth” metrics. The “Maximum” level of attainment for PRSUs is 110% of the “Target” level, as a named executive officer cannot earn PRSUs in excess of the “Maximum” award. The actual amounts of executive PRSUs that vested based on performance conditions are set forth within a table in the “Performance in Fiscal 2022 and Payouts” section above. For further information regarding the terms of these awards, see “Elements of Our Executive Compensation Program” above. On March 1, 2023, 2,135 of the PRSUs vested relative to performance metrics and subject to time-based vesting as noted above. |
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(3) | Annual RSUs were granted under the 2019 Plan. Each of the annual RSU awards vested as to 25% of the shares of common stock underlying the RSU award upon the one-year anniversary of December 1, 2022 and vest as to the remainder of the shares in 12 equal quarterly installments thereafter, subject to the applicable named executive officer’s continued service through the applicable vesting dates. The one exception is Mr. Freeman’s 9/8/22 RSU grant, of which 25% will vest upon the one-year anniversary of September 1, 2023 and the remainder of the shares will vest in 12 equal quarterly installments thereafter, subject to Mr. Freeman’s continued service through the applicable vesting dates. |
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(4) | The reported amounts represent the aggregate grant date fair value of awards of RSUs and PRSUs granted computed in accordance with FASB ASC Topic 718, excluding the estimate of forfeitures not related to the performance-based vesting of PRSUs. Amounts reflect the fair value of each award based on the closing price of our common stock on the Nasdaq Global Select Market on the date of grant of the award. The grant date fair value of the PRSUs is based on the probable outcome of the vesting conditions as of the grant date. The assumptions used in calculating the grant date fair value of the stock awards reported in this column are set forth in Note 14 of our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The amounts reported in this column reflect the initially estimated accounting cost for these stock awards and do not correspond to the actual economic value that may be received by our named executive officers upon the vesting of the restricted stock unit awards or any sale of the underlying shares of common stock. |
Outstanding Equity Awards at 20192022 Year-end
The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2019:2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Option Awards(1) | | Stock Awards(1) |
Name | | Grant Date | | Vesting Commencement Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock that Have not Vested (#)(2) | | Market Value of Shares or Units of Stock that Have not Vested ($)(3) | | Equity Incentive Plan Awards: Number of Unearned Units (#) | | Equity Incentive Plan Awards: Market Value of Unearned Units ($)(3) |
Daniel Burton | | 9/27/18 | | 9/25/18 | | 80,728 | | (4) | | — | | | | $ | 10.80 | |
| 9/27/28 | | — | | | $ | — | | | — | | | | $ | — | |
| 2/5/19 | | 2/5/19 | | 94,332 | | (5) | | 13,541 | | (5) | | 15.84 | | | 2/5/29 | | — | | | — | | | — | | | | — | |
| 1/2/20 | | 12/1/19 | | — | | | | — | | | — | | | — | | 37,500 | | 398,625 | | — | | | | — | |
| 2/18/21 | | 3/1/21 | | — | | | | — | | | — | | | — | | 56,250 | | 597,938 | | — | | | | — | |
| 2/24/22 | | 12/1/21 | | — | | | | — | | | — | | | — | | 93,750 | | 996,563 | | | — | | | | — | |
| 2/18/21 | | 3/1/21 | | — | | | | — | | | — | | | — | | — | | — | | | 4,716 | | (8) | | 50,131 | |
| 2/24/22 | | 3/1/22 | | — | | | | — | | | — | | | — | | — | | — | | | 5,853 | | (6) | | 62,217 | |
| 2/24/22 | | 3/1/22 | | — | | | | — | | | — | | | — | | — | | — | | | 30,000 | | (7) | | 318,900 | |
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Bryan Hunt | | 8/4/15 | | 6/1/15 | | 261 | | (4) | | — | | | 10.04 | | | 8/4/25 | | — | | — | | | — | | | | — | |
| 10/14/16 | | 10/14/16 | | 2,188 | | (4) | | — | | | 10.60 | | | 10/14/26 | | — | | — | | | — | | | | — | |
| 5/3/18 | | 5/3/18 | | 4,150 | | (4) | | — | | | 10.78 | | | 5/3/28 | | — | | — | | | — | | | | — | |
| 9/27/18 | | 9/25/18 | | 12,500 | | (4) | | — | | | 10.80 | | | 9/27/28 | | — | | — | | | — | | | | — | |
| 8/1/19 | | 6/1/19 | | — | | | | — | | | — | | | — | | 625 | | 6,644 | | | — | | | | — | |
| 1/2/20 | | 12/1/19 | | — | | | | — | | | — | | | — | | 2,500 | | 26,575 | | | — | | | | — | |
| 2/18/21 | | 12/1/20 | | — | | | | — | | | — | | | — | | 30,000 | | 318,900 | | | — | | | | — | |
| 2/24/22 | | 12/1/21 | | | | | | | | | | | | 75,000 | | 797,250 | | | | | | |
| 2/18/21 | | 3/1/22 | | — | | | | — | | | — | | | — | | — | | — | | | 4,004 | | (6) | | 42,563 | |
Patrick Nelli(9) | | 10/26/17 | | 10/26/17 | | 14,811 | | (4) | | — | | | 10.72 | | | 3/31/24 | | — | | — | | | — | | | | — | |
| 9/27/18 | | 9/25/18 | | 61,492 | | (4) | | — | | | 10.80 | | | 3/31/24 | | — | | — | | | — | | | | — | |
Paul Horstmeier | | 7/1/13 | | 7/1/13 | | 50,000 | | (4) | | — | | | 4.42 | |
| 7/1/23 | | — | | — | | | — | | | | — | |
| 11/9/15 | | 10/28/15 | | 21,527 | | (4) | | — | | | 10.30 | |
| 11/9/25 | | — | | — | | | — | | | | — | |
| 9/27/18 | | 9/25/18 | | 18,474 | | (4) | | — | | | 10.80 | |
| 9/27/28 | | — | | — | | | — | | | | — | |
| 2/5/19 | | 2/5/19 | | 45,289 | | (5) | | 9,374 | (5) | | 15.84 | |
| 2/5/29 | | — | | — | | | — | | | | — | |
| 1/2/20 | | 12/1/19 | | — | | | | — | | | — | | | — | | 18,750 | | 199,313 | | | — | | | | — | |
| 2/18/21 | | 12/1/20 | | — | | | | — | | | — | | | — | | 30,000 | | 318,900 | | | — | | | | — | |
| 2/24/22 | | 12/1/21 | | | | | | | | | | | | 75,000 | | 797,250 | | | | | | |
| 2/24/22 | | 3/1/22 | | — | | | — | | | — | | | — | | — | | — | | | 5,236 | | (6) | | 55,659 | |
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| | | | | | Option Awards(1) | | | | | | | | | | |
Name | | Grant Date | | Vesting Commencement Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | | Option Exercise Price | | Option Expiration Date |
Daniel Burton | | 7/1/13 | | 7/1/13 | | 107,545 |
| (2) | | - |
| | | $ | 4.42 | |
| 7/1/23 |
| | 6/12/14 | | 5/13/14 | | 76,465 |
| (2) | | - |
| | | 6.24 | |
| 6/12/24 |
| | 12/17/15 | | 12/17/15 | | 300,000 |
| (2) | | - |
| | | 10.30 | |
| 12/17/25 |
| | 9/27/18 | | 9/25/18 | | 242,191 |
| (3) | | 532,809 |
| (3) | | 10.80 | |
| 9/27/28 |
| | 2/5/19 | | 2/5/19 | | - | | | | 325,000 | | (3) | | 15.84 | | | 2/5/29 |
Dale Sanders | | 1/4/12 | | 11/1/11 | | 48,850 |
| (2) | | - |
| | | 2.46 | |
| 1/4/22 |
| | 11/9/15 | | 10/28/15 | | 202,500 |
| (2) | | - |
| | | 10.30 | |
| 11/9/25 |
| | 9/27/18 | | 9/25/18 | | 156,253 |
| (3) | | 343,747 |
| (3) | | 10.80 | |
| 9/27/28 |
| | 2/5/19 | | 2/5/19 | | - | | | | 300,000 | | (3) | | 15.84 | | | 2/5/29 |
Paul Horstmeier | | 7/1/13 | | 7/1/13 | | 50,000 |
| (2) | | - |
| | | 4.42 | |
| 7/1/23 |
| | 5/13/14 | | 5/13/14 | | 37,500 |
| (2) | | - |
| | | 6.24 | |
| 5/13/24 |
| | 11/9/15 | | 10/28/15 | | 37,499 |
| (2) | | - |
| | | 10.30 | |
| 11/9/25 |
| | 9/27/18 | | 9/25/18 | | 7,813 |
| (3) | | 17,186 |
| (3) | | 10.80 | |
| 9/27/28 |
| | 2/5/19 | | 2/5/19 | | - |
| | | 225,000 |
| (3) | | 15.84 | |
| 2/5/29 |
Health Catalyst - 55
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Kevin Freeman | | 11/5/20 | | 9/1/20 | | | | | | | | | | | | 3,281 | | 34,877 | | | | | | |
| 4/21/21 | | 3/1/21 | | | | | | | | | | | | 14,062 | | 149,479 | | | | | | |
| 2/24/22 | | 12/1/21 | | | | | | | | | | | | 22,500 | | 239,175 | | | | | | |
| 9/8/22 | | 9/1/22 | | | | | | | | | | | | 120,000 | | 1,275,600 | | | | | | |
| 2/24/22 | | 3/1/22 | | | | | | | | | | | | | | | | 4,312 | | (6) | | 45,837 | |
| 2/24/22 | | 3/1/22 | | | | | | | | | | | | | | | | 3,000 | | (7) | | 31,890 | |
Daniel Orenstein | | 2/10/16 | | 12/31/15 | | 50,454 | (4) | | — | | | 10.34 | | | 2/10/26 | | — | | — | | | — | | | | — | |
| 9/27/18 | | 9/25/18 | | 24,999 | (4) | | — | | | 10.80 | | | 9/27/28 | | — | | — | | | — | | | | — | |
| 1/2/20 | | 12/1/19 | | — | | | — | | | — | | | — | | 10,000 | | 106,300 | | | — | | | | — | |
| 2/18/21 | | 12/1/20 | | — | | | — | | | — | | | — | | 12,500 | | 132,875 | | | — | | | | — | |
| 2/24/22 | | 12/1/21 | | | | | | | | | | | | 30,000 | | 318,900 | | | | | | |
| 2/24/22 | | 3/1/22 | | — | | | — | | | — | | | — | | — | | — | | | 3,080 | (6) | | 32,740 | |
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(1) |
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(1) | Each equity award prior to July 23, 2019 was granted pursuant to our 2011 Plan and are subject to the terms of our 2011 Plan, as amended from time to time. Equity awards granted on or after July 23, 2019 were and will be granted pursuant to our 2019 Plan and are subject to the terms of our 2019 Plan, as amended from time to time. Each equity award is subject to certain acceleration of vesting provisions as set forth in our Executive Severance Plan. |
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(2) | 25% of the restricted stock units vest on the first anniversary of the vesting commencement date and the remaining 75% vest in 12 equal quarterly installments thereafter, generally subject to the named executive officer’s continuous service relationship with our company through each applicable vesting date. |
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(3) | The market value of restricted stock unit awards and performance-based restricted stock units is determined by multiplying the number of shares by $10.63, the closing price of our common stock on the Nasdaq Global Select Market on December 31, 2022. |
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(4) | The stock option is fully vested. |
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(3)(5) | 25% of the shares subject to the stock option vest on the first anniversary of the vesting commencement date and the remaining 75% vest in 36 equal monthly installments thereafter, generally subject to the named executive officer’s continuous service relationship with our company through each applicable vesting date. |
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(6) | The amounts reported represent the Companynumber of annual PRSUs granted to the named executive officers on February 24, 2022, as previously described, and assumes maximum performance goals will be achieved. Due to not achieving the total GAAP revenue minimum threshold, as summarized in “Elements of Our Executive Compensation Program” above, none of the executive PRSUs vested on March 1, 2023, with the exception of Mr. Freeman, who was not a named executive officer at the time of grant. Therefore, 1,819 of his annual bonus PRSUs vested, consistent with the treatment of the PRSUs granted to non-NEO team members. |
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(7) | The amounts reported represent the number of long-term PRSUs granted to Mr. Burton and Mr. Freeman on February 24, 2022, as previously described, and assumes maximum performance goals will be achieved. Twenty-five percent of the long-term PRSUs vested on March 1, 2023 upon the achievement of certain performance metrics, during the period of January 1, 2022 through December 31, 2022, as summarized in “Elements of Our Executive Compensation Program” above. On March 1, 2023, a total of 316 long-term PRSUs vested for Mr. Freeman. The remaining 75% long-term PRSUs achieved based on performance conditions will vest in 12 equal quarterly installments thereafter, generally subject to the named executive officer’s continuous service relationship with our company through each applicable vesting date. Due to not achieving the total GAAP revenue minimum threshold, as summarized in “Elements of Our Executive Compensation Program” above, none of the long-term executive PRSUs vested for Mr. Burton since he was an NEO at the time of grant. |
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(8) | The amount reported represent the number of long-term PRSUs outstanding as of December 31, 2022. These long-term PRSUs were granted to Mr. Burton on February 18, 2021 and the performance achievement was based solely on fiscal 2021 results. Twenty-five percent of the long-term PRSUs vested on March 1, 2022 and the remaining 75% will vest in 12 equal quarterly installments thereafter, generally subject to the named executive officer’s continuous service relationship with our company through each applicable vesting date. |
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(9) | Mr. Nelli and the company mutually agreed that he would step down as President effective September 30, 2022 and continued as a Senior Advisor until December 31, 2022. As part of his separation agreement, it was agreed that his option expiration dates would be extended through March 31, 2024. Additionally, his outstanding RSUs and PRSUs were either accelerated or forfeited as of December 31, 2022. |
Insider Trading Policies
2022 Option Exercises and Rule 10b5-1 Trading PlansStock Vested
Our insider trading policies prohibitThe following table shows information regarding exercises of options to purchase our common stock and vesting of restricted stock unit awards by our named executive officers during the membersyear ended December 31, 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) |
Daniel Burton | | 89,988 | | $ | 389,648 | | | 119,705 | | $ | 2,012,129 | |
Bryan Hunt | | — | | | — | | | 46,170 | | 628,809 |
Patrick Nelli | | 14,060 | | 273,768 | | 148,929 | | 1,892,883 |
Paul Horstmeier | | 31,395 | | 499,555 | | 61,914 | | 889,924 |
Kevin Freeman | | — | | | — | | | 22,919 | | 406,916 |
Daniel Orenstein | | 5,000 | | 40,000 | | 28,111 | | 416,293 |
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(1) | Amounts shown in this column do not necessarily represent the actual value realized from the sale of the shares acquired upon exercise of the options because the shares may not be sold on exercise but continue to be held by the executive officer exercising the option. The amounts shown represent the difference between the option exercise price and the market price on the date of exercise, which is the amount that would have been realized if the shares had been sold immediately upon exercise. |
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(2) | Amounts shown in this column represent the market value of restricted stock unit awards upon vesting as determined by multiplying the number of shares by the closing price of our common stock on the Nasdaq Global Select Market the market day immediately preceding the vesting date. |
Pension Benefits
Aside from our 401(k) plan, which is described above, we do not maintain any pension plan or arrangement under which our named executive officers are entitled to participate or receive post-retirement benefits. We do not have any qualified or non-qualified defined pension benefit plans.
Nonqualified Deferred Compensation
We do not maintain any nonqualified deferred compensation plans or arrangements under which our named executive officers are entitled to participate.
Potential Payments upon Termination or Change in Control
Employment Offer Letters in Place During Fiscal 2022 for Named Executive Officers
We initially entered into an offer letter with each of the named executive officers in connection with his or her employment with us, which set forth the terms and conditions of his or her employment. Each named executive officer also entered into our standard employee agreement and invention and confidentiality agreement. Each of our boardnamed executive officers also participates in our Executive Severance Plan, as described above under the heading “Post-Employment Compensation Arrangements” and below. Each named executive officer also remains subject to our standard employment, confidential information and invention assignment agreement.
The following table presents information concerning estimated payments and benefits that would be provided pursuant to the arrangements described above for each of our named executive officers serving as of the end of fiscal 2022 (or for Mr. Nelli, the amounts he actually received in connection with his transition and separation in September 2022) and are all subject to the execution and delivery of a separation agreement and release containing, among other provisions, an effective release of claims in favor of the company and reaffirmation of the “restrictive covenants agreement” (as defined in the Executive Severance Plan). The payments and benefits set forth below are estimated assuming that the termination of employment or change in control event occurred on the last business day of fiscal 2022, December 31, 2022 (which also was the end of Mr. Nelli’s advisory transition service date), and a per share value of our common stock of $10.63, which is the closing market price per share of our common stock on December 30, 2022 (which was the last trading day for fiscal 2022). Actual payments and benefits could be different if such events were to occur on any other date or at any other price or if any other assumptions are used to estimated potential payments and benefits.
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Named Executive Officer | | Benefit | | Termination without Cause Not in Connection with a Change in Control | | Termination without Cause or resignation with Good Reason in Connection with a Change in Control |
Daniel Burton | | Cash Severance(1) | | $ | 300,000 | | | $ | 621,000 | |
| | Health Benefits(2) | | 25,620 | | | 38,430 | |
| | Equity Acceleration(3) | | — | | | 2,424,374 | |
| | Total | | $ | 325,620 | | | $ | 3,083,804 | |
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Bryan Hunt | | Cash Severance(1) | | $ | 225,000 | | | $ | 378,000 | |
| | Health Benefits(2) | | 16,335 | | | 21,780 | |
| | Equity Acceleration(3) | | — | | | 1,191,932 | |
| | Total | | $ | 241,335 | | | $ | 1,591,712 | |
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Paul Horstmeier | | Cash Severance(1) | | $ | 225,000 | | | $ | 402,000 | |
| | Health Benefits(2) | | 11,421 | | | 15,228 | |
| | Equity Acceleration(3) | | — | | | 1,371,122 | |
| | Total | | $ | 236,421 | | | $ | 1,788,350 | |
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Kevin Freeman | | Cash Severance(1) | | $ | 262,500 | | | $ | 490,000 | |
| | Health Benefits(2) | | 14,418 | | | 19,224 | |
| | Equity Acceleration(3) | | — | | | 1,776,858 | |
| | Total | | $ | 276,918 | | | $ | 2,286,082 | |
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Daniel Orenstein | | Cash Severance(1) | | $ | 225,000 | | | $ | 360,000 | |
| | Health Benefits(2) | | 15,831 | | | 21,108 | |
| | Equity Acceleration(3) | | — | | | 590,815 | |
| | Total | | $ | 240,831 | | | $ | 971,923 | |
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Patrick Nelli(4) | | Cash Severance(1) | | $ | 225,000 | | | — | |
| | Health Benefits(2) | | 33,740 | | | — | |
| | Equity Acceleration(3) | | 766,380 | | | — | |
| | Total | | $ | 1,025,120 | | | — | |
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(1) | The Executive Severance Plan provides that upon a termination of employment by us other than for cause, death, or disability outside of the change in control period (i.e., the period beginning on the date of a change in control and ending on the one-year anniversary of the change in control), the named executive officer will be entitled to receive, a severance amount equal to 12 months’ “base salary” (i.e., the higher of the annual base salary in effect immediately prior to the date of termination or the annual base salary in effect for the year immediately prior to the year in which the date of termination occurs) for Mr. Burton or 9 months’ base salary for the named executive officers other than Mr. Burton, payable over 12 months or 9 months, respectively.
The Executive Severance Plan also provides that upon a termination of employment by us other than for cause, death, or disability or upon a resignation by a named executive officer for good reason, in either case within the change in control period, the named executive officer will be entitled to receive, in lieu of the payments and benefits described above, (i) a lump sum cash severance amount equal to 150% of base salary for Mr. Burton or 100% of base salary for a Tier 2 Executive, and (ii) a lump sum cash amount equal to 150% for Mr. Burton or 100% for the named executive officers other than Mr. Burton, of the participant’s annual target cash bonus in effect immediately prior to such termination (or the participant’s annual target cash bonus in effect immediately prior to the change in control, if higher). |
(2) | The Executive Severance Plan provides that upon termination of employment by us other than for cause, death, or disability outside of the change in control period, the named executive officer will be entitled to receive monthly cash payments equal to the monthly employer contribution that we would have made to provide health insurance for the applicable participant if he or she had remained employed by us, based on the premiums as of the date of termination, for up to 12 months for Mr. Burton or 9 months for the named executive officers other than Mr. Burton; provided, that the participant was participating in our group health plan immediately prior to the date of termination and timely elects COBRA health continuation.
The Executive Severance Plan also provides that upon a termination of employment by us other than for cause, death, or disability or upon a resignation by a named executive officer for good reason, in either case within the change in control period, the named executive officer will be entitled to receive, in lieu of the payments and benefits described above, a lump sum amount equal to the monthly employer contribution, based on the premiums as of the date of termination, that we would have made to provide health insurance for the participant if he or she had remained employed by us for 18 months for Mr. Burton or 12 for the named executive officers other than Mr. Burton; provided, that the participant was participating in our group health plan immediately prior to the date of termination and timely elects COBRA health continuation. |
(3) | The Executive Severance Plan also provides that upon a termination of employment by us other than for cause, death, or disability or upon a resignation by a named executive officer for good reason, in either case within the change in control period, the named executive officer will be entitled to, for all outstanding and unvested equity awards of our company that are subject to time-based vesting held by the participant, full accelerated vesting of such awards; provided, that the performance conditions applicable to any outstanding and unvested equity awards subject to performance-based vesting will be deemed satisfied at the target level specified in the terms of the applicable award agreement. The value of stock option, RSU, and PRSU award vesting acceleration is based on the closing price of $10.63 per share of our common stock as of December 30, 2022 (the last trading day of fiscal 2022), minus, in the case of stock options, the exercise price of the unvested stock option shares subject to acceleration. If the stock option exercise price is greater than the closing stock price as of December 31, 2022, we assigned a $0 value for the respective stock options for this calculation. |
(4) | Mr. Nelli and the company mutually agreed that he would step down as President effective September 30, 2022 and continued as a Senior Advisor until December 31, 2022. As part of his separation agreement, it was agreed that (i) he would receive a cash payment equal to $225,000, which represented nine months of his salary, (ii) he would receive COBRA continuation payments for nine months, (iii) his option expiration dates would be extended through March 31, 2024, and (iv) his outstanding RSUs and PRSUs accelerated as of December 31, 2022 with respect to 72,096 shares of our common stock subject thereto (and the remainder were forfeited). The value of RSU, and PRSU award vesting acceleration is based on the closing price of $10.63 per share of our common stock as of December 30, 2022. We have not included the cash value of the senior advisor payments, which were a continuation of his salary between October 1, 2022 and December 31, 2022. All of these payments and benefits were in exchange for Mr. Nelli’s execution of a general release of claims in favor of us and our affiliates. |
CEO Pay Ratio Disclosure
As required by SEC rules, we are providing the following information about the relationship between the annual total compensation of our CEO and the annual total compensation of our median compensated employee (our “CEO pay ratio”).
For fiscal 2022, the median of the annual total compensation of all employees of our company (other than our CEO) was $139,409 and the annual total compensation of our CEO was $4,435,013. Based on this information, for fiscal 2022 the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 32 to 1. This ratio is a reasonable estimate calculated in a manner consistent with SEC rules.
To identify the median employee, we examined the compensation of all our full- and part-time employees (other than our CEO) as of December 31, 2022, the last day of our fiscal year. Our employee population consisted of individuals (other than our CEO) working at our parent company and consolidated subsidiaries both within and outside the United States. We did not include any contractors or other non-employee workers in our employee population.
We used a consistently applied compensation measure consisting of actual annual base salary, actual bonus and, commission amounts earned, matching contributions made by us under our 401(k) plan, and the grant date fair value of equity awards for the year ended December 31, 2022 to identify our median employee. For simplicity, we calculated annual base salary using a reasonable estimate of the hours worked during fiscal 2022 for hourly employees and actual salary paid for our remaining employees. We annualized compensation for any full-time and part-time employees who commenced work during fiscal 2022 to reflect a full year. Equity awards granted during the year were included using the same methodology we use for our named executive officers in our Summary Compensation Table. We did not make any cost-of-living adjustment.
Using this approach, we identified the individual at the median of our employee population who was the best representative of our employee population. The individual is a full-time employee based in the United States.
We then calculated the fiscal 2022 annual total compensation for this individual using the same methodology we use for our named executive officers as set forth in our fiscal 2022 Summary Compensation Table.
With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our 2022 Summary Compensation Table.
Because SEC rules for identifying the median of the annual total compensation of all employees allow companies to adopt a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions that reflect their employee population and compensation practices, the pay ratio reported by other companies may not be comparable to our pay ratio, as other companies have different employee populations and compensation practices and may have used different methodologies, exclusions, estimates, and assumptions in calculating their pay ratios. As explained by the SEC when it adopted these rules, the rule was not designed to facilitate comparisons of pay ratios among different companies, even companies within the same industry, but rather to allow stockholders to better understand and assess each particular company’s compensation practices and pay ratio disclosures.
Pay Versus Performance
In accordance with Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(v) of Regulation S-K, we are providing the following information about the relationships between compensation actually paid to named executive officers and company performance. In this section, we refer to “compensation actually paid” and other terms used in the applicable SEC rules. For information concerning the company’s compensation philosophy and how the company aligns executive compensation with its financial and operational performance, refer to “Executive Compensation – Compensation Discussion and Analysis” above. We refer collectively to awards of RSUs, PRSUs, and stock options as equity awards in this Pay versus Performance section.
For purposes of the tables below, our chief executive officer (“CEO”) and non-CEO named executive officers for 2020, 2021, and 2022 are the following:
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Year | CEO | Non-CEO Named Executive Officers |
2022 | Daniel Burton | Bryan Hunt, Patrick Nelli, Paul Horstmeier, Daniel Orenstein, and Kevin Freeman |
2021 | Daniel Burton | Bryan Hunt, Patrick Nelli, Paul Horstmeier, and Daniel Orenstein |
2020 | Daniel Burton | Patrick Nelli, Paul Horstmeier, Daniel Orenstein, and Linda Llewelyn |
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| | | | | Value of Initial Fixed $100 Investment Based on: | | |
Year | Summary Compensation Table (“SCT”) Total for CEO(1) | CompensationActually Paid to CEO(2) | Average SCT Total for Non-CEO NEOs | Average CompensationActually Paid to Non-CEO NEOs(2) | Total Shareholder Return(3) | Peer Group Total Shareholder Return(3)(4) | Net Loss(5) (in thousands) | Adjusted EBITDA(6) (in thousands) |
2022 | $ | 4,435,013 | | $ | (8,154,225) | | $ | 3,189,684 | | $ | (766,685) | | $ | 31 | | $ | 100 | | $ | (137,403) | | $ | (2,487) | |
2021 | 5,961,043 | | 5,615,764 | | 3,297,583 | | 2,846,251 | | 114 | 125 | (153,210) | | (11,248) | |
2020 | 5,484,782 | | 9,793,002 | | 2,382,879 | | 3,260,067 | | 125 | 130 | (115,017) | | (21,287) | |
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(1) | Represents the total compensation reported for the CEO for each corresponding year in the “Total” column of the Summary Compensation Table. |
(2) | The calculation for “Compensation Actually Paid” is presented in the table below in accordance with the requirements of Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual amount of compensation earned by or paid to the CEO and non-CEO NEOs during the applicable year. |
(3) | For Health Catalyst and our peer group, the TSR for each year reflects what the cumulative value of $100 would be, including reinvestment of dividends, if such amount were invested on December 31, 2019. |
(4) | As permitted by SEC rules, the peer group referenced for purposes of “Peer Group Total Shareholder Return” is that of the Nasdaq Health Care Index, which is the industry index reported in our annual report on Form 10-K for 2022 in accordance with Regulation S-K Item 201(e). |
(5) | The dollar amounts reported represent the amount of net loss reflected in our audited consolidated financial statements for the applicable year. |
(6) | Adjusted EBITDA is the financial measure from the tabular list of most important performance measures below, which represents the most important measure used to link compensation actually paid to our named executive officers in 2022 to the company’s performance. Adjusted EBITDA is a non-GAAP financial measure. For a full reconciliation of non-GAAP financial measures to the most directly comparable financial measure stated in accordance with GAAP, please see Appendix A attached to this Proxy Statement. |
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| 2020 | | 2021 | | 2022 |
| CEO | | Avg. Non-CEO NEOs | | CEO | | Avg. Non-CEO NEOs | | CEO | | Avg. Non-CEO NEOs |
Summary Compensation Table Total | $ | 5,484,782 | | | $ | 2,382,879 | | | $ | 5,961,043 | | | $ | 3,297,583 | | | $ | 4,435,013 | | | $ | 3,189,684 | |
- | Grant date fair value of awards granted in fiscal year | (5,116,500) | | | (2,046,600) | | | (5,514,715) | | | (2,889,273) | | | (4,276,117) | | | (2,602,345) | |
+ | Year-end fair value of outstanding and unvested awards granted in fiscal year | 4,897,125 | | | 1,958,850 | | | 4,434,325 | | | 1,785,310 | | | 996,562 | | | 692,192 | |
+ | Change in fair value of outstanding and unvested awards granted in prior fiscal years | 4,095,809 | | | 594,111 | | | (1,249,091) | | | (228,207) | | | (4,431,879) | | | (755,897) | |
+ | Change in fair value as of vesting date of awards granted in prior years that vested in fiscal year | (881,089) | | | (154,323) | | | 1,984,202 | | | 327,482 | | | (5,164,119) | | | (1,391,513) | |
+ | Fair value as of vesting date of awards granted and vested in fiscal year | 1,312,875 | | | 525,150 | | | — | | | 553,356 | | | 286,315 | | | 260,625 | |
- | Fair value as of prior fiscal year-end of awards granted in prior years that were forfeited in fiscal year | — | | | — | | | — | | | — | | | — | | | (159,431) | |
Compensation Actually Paid | $ | 9,793,002 | | | $ | 3,260,067 | | | $ | 5,615,764 | | | $ | 2,846,251 | | | $ | (8,154,225) | | | $ | (766,685) | |
The table above reconciles Summary Compensation Table pay to Compensation Actually Paid in accordance with the required methodology from Item 402(v) of Regulation S-K, meaning that outstanding awards have been valued prior to vesting based on fair values. The change in fair values of RSUs across measurement dates is attributable to the change in stock prices. The change in the fair values of stock options is measured using a Black-Scholes model and is driven by changes in stock price and the expected life of the stock options as well as the prevailing stock price volatility, risk-free rate, and dividend yield at the measurement date.
The change in the fair values of the PRSUs reflects our projected payout factors relative to the performance metric and stock price as at fiscal year-end.
Financial Performance Measures
As described in greater detail in “Compensation Discussion and Analysis,” our compensation programs are designed to drive and reward performance and further align the compensation of our executive officers from engagingwith the long-term interests of our stockholders. As required by Item 402(v) of Regulation S-K, the following is a list of performance measures, which in derivative securities transactions, including hedging, with respectour assessment represents the most important performance measures used by us to company securities and from pledging company securities as collateral or holding company securities in a margin account. Our insider trading policies require thatlink compensation actually paid to our named executive officers may tradefor 2022:
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• | Adjusted EBITDA |
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• | GAAP Revenue |
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• | Dollar-based Retention Rate |
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• | Net New / Total DOS Subscription Clients |
Description of Relationships Between Information Presented
In accordance with Item 402(v) of Regulation S-K, we are providing the following descriptions of the relationships between information presented in our securities only pursuantthe Pay versus Performance table.
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Compensation Actually Paid and Cumulative TSR |
We believe the Pay versus Performance Table shows the alignment between compensation actually paid to trading plans that comply with Rule 10b5-1 under the Exchange Act, and permits certain other employeesnamed executive officers and our directors,performance, consistent with our compensation philosophy. Specifically, a significant portion of target named executive officer pay opportunity is tied to enter into trading plansour stock performance. Accordingly, the compensation actually paid to the named executive officers for the past three fiscal years presented in the Pay versus Performance table was generally aligned with our TSR performance, increasing when our TSR performance increased and declining when our TSR performance declined.
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Compensation Actually Paid and Net Loss |
Net loss is not currently a financial performance measure that comply with Rule 10b5-1 underwe use in the Exchange Act.compensation program design for our named executive officers. Accordingly, there is not a direct relationship between the compensation actually paid to our named executive officers and net loss.
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Compensation Actually Paid and Adjusted EBITDA |
Adjusted EBITDA is an important financial performance measure that we use in the compensation program design for our named executive officers, including the main metric used in determining the fiscal year 2022 cash bonus. However, during the fiscal years presented in the Pay versus Performance Table there is minimal correlation between compensation actually paid to named executive officers and our Adjusted EBITDA performance primarily due to a significantly larger portion of the target named executive officer pay opportunity being tied to our stock performance. Looking ahead to fiscal year 2023, we expect more alignment between Adjusted EBITDA performance and the compensation actually paid to named executive officers as Adjusted EBITDA will still be a key metric in determining the cash bonus achievement for our named executive officers.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 20192022 regarding shares of common stock that may be issued under the company’sour equity compensation plans consisting of the 2011 Plan, the 2019 Plan, and the 2019 Employee Stock Purchase Plan (the “2019 ESPP”):
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| Equity Compensation Plan Information | | | | | | | | |
Plan category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants, and Rights | | | Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights | | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plan (Excluding Securities Referenced in Column (a)) | | |
| | (a) | | | (b) | | | (c) | |
Equity compensation plans approved by security holders(1): | | 8,351,577 | | (2) | | $10.67 | (3) | | 2,924,604 | | (4) |
Equity compensation plans not approved by security holders: | | N/A | | | N/A | | | N/A | |
Total | | 8,351,577 | | | | $10.67 | | | 2,924,604 | | |
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| Equity Compensation Plan Information | |
Plan category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants, and Rights | | Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plan (Excluding Securities Referenced in Column (a)) | |
| | (a) | | | (b) | | | (c) | |
Equity compensation plans approved by security holders(1): | | 5,575,629 | | (2) | | $ | 11.51 | | (3) | | 3,811,811 | | (4) |
Equity compensation plans not approved by security holders: | | N/A | | | N/A | | | N/A | |
Total | | 5,575,629 | | | | $ | 11.51 | | | | 3,811,811 | | |
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(1) | Includes the 2011 Plan, the 2019 Plan, and the 2019 ESPP. The 2019 Plan provides that the number of shares reserved and available for issuance under the 2019 Plan will automatically increase each January 1, beginning on January 1, 2020, by 5% of the outstanding number of shares of our common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation committee. The 2019 ESPP provides that the number of shares reserved and available for issuance under the 2019 ESPP will automatically increase each January 1, beginning on January 1, 2020, by the lesser of 750,000 shares of our common stock, 1% of the outstanding number of shares of our common stock on the immediately preceding December 31, or such lesser number of shares as determined by the ESPP Administrator. As of December 31, 2019,2022, a total of 2,309,3702,479,622 shares of our common stock had been reserved for issuance pursuant to the 2019 Plan, which number excludes the 1,836,5812,788,247 shares that were added to the 2019 Plan as a result of the automatic annual increase on January 1, 2020.2023. This number will be subject to adjustment in the event of a stock split, stock dividend, or other change in our capitalization. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated, other than by exercise, under the 2019 Plan and the 2011 Plan will be added back to the shares of common stock available for issuance under the 2019 Plan (provided, that any such shares of common stock will first be converted into shares of common stock). The company no longer makes grants under the 2011 Plan. As of December 31, 2019,2022, a total of 615,2341,332,189 shares of our common stock had been reserved for issuance pursuant to the 2019 ESPP, which number excludes the 367,316557,649 shares that were added to the 2019 ESPP as a result of the automatic annual increase on January 1, 2020.2023. This number will be subject to adjustment in the event of a stock split, stock dividend, or other change in our capitalization. |
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(2) | Includes 7,847,7161,748,306 shares of common stock issuable upon the exercise of outstanding options, and 503,8613,292,943 shares of common stock issuable upon the vesting and settlement of RSUs.RSUs, and 534,380 shares of common stock issuable upon the vesting and settlement of PRSUs. |
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(3) | As RSUs and PRSUs do not have any exercise price, such units are not included in the weighted average exercise price calculation. |
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(4) | As of December 31, 2019,2022, there were 2,309,3702,479,622 shares of common stock available for grant under the 2019 Plan and 615,2341,332,189 shares of common stock available for grant under the 2019 ESPP. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our capital stock as of March 31, 2020,2023, for:
•each of our named executive officers for fiscal 2019;2022;
•each of our directors;
•all of our directors and executive officers as a group; and
•each person known by us to be the beneficial owner of more than five percent of the outstanding shares of our common stock.
We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable.
We have based percentage ownership of our capital stock on 37,849,78056,257,248 shares of our common stock outstanding on March 31, 2020.2023. We have deemed shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of March 31, 20202023 to be outstanding and to be beneficially owned by the person holding the option for the purpose of computing the percentage ownership of that person, but have not treated them as outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Health Catalyst, Inc., 3165 Millrock Drive #400, Salt Lake City,10897 South River Front Parkway #300, South Jordan, Utah 84121.84095.
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| Shares Beneficially Owned | | |
| Number | | Percentage |
5% Stockholders: | | | |
Entities affiliated with Norwest(1) | 4,704,181 | | | 12.4 | % |
Entities affiliated with Sequoia(2) | 3,707,029 | | | 9.8 | % |
Directors and Named Executive Officers: | | | | |
Fraser Bullock(3) | 66,271 | | | * | |
Todd Cozzens(4) | 1,102,389 | | | 2.9 | % |
Michael Dixon(5) | 26,157 | | | * | |
Timothy G. Ferris(6) | 36,460 | | | * | |
Duncan Gallagher(7) | 46,876 | | | * | |
Promod Haque(8) | 4,704,837 | | | 12.4 | % |
John A. Kane(9) | 86,675 | | | * | |
Julie Larson-Green | — | | | * | |
Anita V. Pramoda(10) | 172,268 | | | * | |
S. Dawn Smith | — | | | * | |
Daniel Burton(11) | 915,997 | | | 2.4 | % |
Paul Horstmeier(12) | 194,988 | | | * | |
Dale Sanders(13) | 587,168 | | | 1.6 | % |
All directors and executive officers as a group (16 persons)(14) | 8,347,848 | | | 22.1 | % |
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| Shares Beneficially Owned |
| Number | | Percentage |
5% Stockholders: | | | |
Entities affiliated with The Vanguard Group(1) | 6,069,528 | | | 10.8 | % |
Entities affiliated with Blackrock(2) | 4,832,348 | | | 8.6 | % |
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Directors and Named Executive Officers: | | | |
Duncan Gallagher(3) | 71,228 | | | * |
John A. Kane(4) | 81,167 | | | * |
Julie Larson-Green(5) | 15,113 | | | * |
Anita V. Pramoda(6) | 3,285 | | | * |
S. Dawn Smith(7) | 15,113 | | | * |
Mark B. Templeton(8) | 7,641 | | | * |
Daniel Burton(9) | 890,712 | | | 1.6 | % |
Bryan Hunt(10) | 64,702 | | | * |
Paul Horstmeier(11) | 184,228 | | | * |
Kevin Freeman(12) | 23,344 | | | * |
Daniel Orenstein(13) | 122,613 | | | * |
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All directors and executive officers as a group (13 persons)(14) | 1,543,552 | | | 2.7 | % |
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* Represents beneficial ownership of less than 1%.
(1) Consists of (a) 2,352,091Based on information reported by The Vanguard Group on Schedule 13G/A filed with the SEC on February 9, 2023. Of the shares of common stock held by Norwest Venture Partners XI, LP (“NVP XI”) and (b) 2,352,090 shares of common stock held by Norwest Venture Partners XII, LP (“NVP XII”). Genesis VC Partners XI, LLC (“Genesis XI”) is the general partner of NVP XI and may be deemed to havebeneficially owned, The Vanguard Group reported that it has sole voting and dispositive power over the shares held by NVP XI. Genesis VC Partners XII, LLC
(“Genesis XII”) is the general partner of NVP XII and may be deemed to have sole voting and dispositive power over the shares held by NVP XII. NVP Associates, LLC, the managing member of Genesis XI and Genesis XII, and each of Dr. Haque, Jeffrey Crowe, and Jon E. Kossow, as Co-Chief Executive Officers of NVP Associates, LLC and members of the general partners, may be deemed to share voting and dispositive power over the shares held by NVP XI and NVP XII. Such persons and entities disclaim beneficial ownership of the shares held by NVP XI and NVP XII, except to the extent of any proportionate pecuniary interest therein. The address for these entities is 525 University Avenue, #800, Palo Alto, CA 94301.
(2) Consists of (i) 2,658,909 shares of common stock held by Sequoia Capital U.S. Growth Fund IV, LP (SC USGF IV), (ii) 110,182 shares of common stock held by Sequoia Capital USGF Principals Fund IV, LP (“SC USGF IV PF”), (iii) 848,776 shares of common stock held by Sequoia Capital U.S. Growth Fund V, LP (“SC USGF V”), and (iv) 89,162 shares of common stock held by SC US GF V Holdings, Ltd. (“SC USGF V Holdco”). SC US (TTGP), Ltd. is the general partner of SCGF IV Management, L.P., which is the general partner of SC USGF IV and SC USGF IV PF (collectively, the “SC USGF IV Funds”). As a result, SC US (TTGP), Ltd. and SCGF IV Management, L.P. may be deemed to share voting and dispositive power with respect to the5,984,378 shares, held by the SC USGF IV Funds. SC US (TTGP), Ltd. is the general partner of SCGF V Management, L.P., which is the general partner of SC USGF V and Sequoia Capital USGF Principals Fund V, L.P. (collectively “the SC USGF V Funds”), which together own 100% of the outstanding shares of SC USGF V Holdco. As a result, SC US (TTGP), Ltd. and SCGF V Management, L.P. may be deemed to share voting andshared dispositive power with respect to 85,150 shares, and shared voting power with respect to 38,056 shares. The Vanguard Group listed its address as 100 Vanguard Blvd., Malvern, PA 19355.
(2) Based on information reported by Blackrock, Inc. on Schedule 13G filed with the SEC on January 25, 2023. Of the shares held by the SC USGF V Fundsof common stock beneficially owned, Blackrock, Inc. reported that it has sole dispositive power with respect to all shares and SC USGF V Holdco. Thesole voting power with respect to 4,641,988 shares. Blackrock, Inc. listed its address for each of the Sequoia Capital entities identified in this footnote is 2800 Sand Hill Road, Suite 101, Menlo Park, CA 94025.as 55 East 52nd Street, New York, NY 10055.
(3) Consists of 66,271 shares of common stock.
(4) Consists of (a) 6,3448,728 shares of common stock held by Matoaka LLC,and (b) 943,484 shares of common stock held by Leerink Transformation Fund I, L.P., (c) 134,331 shares of common stock held by Mr. Cozzens, and (d) 18,23062,500 shares of common stock underlying options exercisable within 60 days of March 31, 2020. Mr. Cozzens holds the voting and dispositive power of Matoaka LLC. Mr. Cozzens is a co-founder and Managing Partner and holds voting and dispositive power of Leerink Transformation Fund I, L.P.2023.
(5) Consists of 26,157 shares of common stock. Does not include shares held by Sequoia Capital.
(6) Consists of 36,460 shares of common stock underlying options exercisable within 60 days of March 31, 2020.
(7) Consists of 46,876 shares of common stock underlying options exercisable within 60 days of March 31, 2020.
(8) Consists of shares held by the Norwest Entities identified in Footnote 1 and 656 shares of common stock held by Dr. Haque. Dr. Haque is a Senior Managing Partner of Norwest and jointly with other partners holds the voting and dispositive power for the Norwest Entities.
(9)(4) Consists of (a) 81,46675,958 shares of common stock and (b) 5,209 shares of common stock underlying options exercisable within 60 days of March 31, 2020.2023.
(10)(5) Consists of 15,113 shares of common stock.
(6) Consists of 3,285 shares of common stock
(7) Consists of 15,113 shares of common stock.
(8) Consists of 7,641 shares of common stock.
(9) Consists of (a) 94,348702,111 shares of common stock held by Omkara, LLC and (b) 77,920188,601 shares of common stock underlying options exercisable within 60 days of March 31, 2020. Ms. Pramoda wholly-owns and holds the voting and dispositive power of Omkara, LLC.2023.
(11)(10) Consists of (a) 7,50045,603 shares of common stock and (b) 908,49719,099 shares of common stock underlying options exercisable within 60 days of March 31, 2020.2023.
(12)(11) Consists of 194,988(a) 89,564 shares of common stock and (b) 94,664 shares of common stock underlying options exercisable within 60 days of March 31, 2020.2023.
(12) Consists of 23,344 shares of common stock.
(13) Consists of (a) 61,22847,160 shares of common stock and (b) 525,94075,453 shares of common stock underlying options exercisable within 60 days of March 31, 2020.2023.
(14) ConsistsThe directors and executive officers as a group includes the aggregate shares of common stock beneficially owned by the directors and executive officers of the company as of March 31, 2023, which consists of (a) 6,133,6911,059,510 shares of common stock and (b) 2,214,157484,042 shares of common stock underlying options exercisable within 60 days of March 31, 2020.2023.
As previously disclosed, Benjamin Landry will assume the role of General Counsel and Corporate Secretary, effective May 1, 2023, after Dan Orenstein steps down from these positions effective April 30, 2023, and Anne Marie Bickmore assumed the role of Chief Operating Officer and Chief Product Officer, effective April 3, 2023. Mr. Horstmeier also stepped down from his position as Chief Operating Officer, effective March 31, 2023, due to being called by the leadership of the Church of Jesus Christ of Latter-Day Saints to serve for three years as Mission President. In addition, as previously announced, our board has appointed Matthew Kolb to be a Class I director, effective July 1, 2023.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain Relationships and Transactions
In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements, and indemnification arrangements, discussed in the section titled “Executive Compensation,” the following is a description of each transaction since January 1, 20192022 and each currently proposed transaction in which:
•we have been or are to be a participant;
•the amount involved exceeded or exceeds $120,000; and
•any of our directors, executive officers, or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Redeemable Convertible Preferred Stock Financings
Series F Redeemable Convertible Preferred Stock Financing
In February 2019, we sold an aggregate of 437,787 shares of our Series F redeemable convertible preferred stock at a purchase price of $27.84 per share, for an aggregate purchase price of $12.2 million, pursuant to our Series F redeemable convertible preferred stock financing. The following table summarizes purchases of our Series F redeemable convertible preferred stock by related persons:
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Stockholder | Shares of Series F Redeemable Convertible Preferred Stock | | Total Purchase Price |
Entities affiliated with Sequoia Capital(1)(2) | 35,919 | | 999,998 |
Entities affiliated with Norwest(3)(4) | 71,838 | | 1,999,997 |
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(1) | Affiliates of Sequoia Capital holding our securities, whose shares are aggregated for purposes of reporting the above share ownership information, are Sequoia Capital U.S. Growth Fund IV, L.P., Sequoia Capital USGF Principals Fund IV, L.P. and Sequoia Capital U.S. Growth Fund V, L.P. Affiliates of Sequoia Capital beneficially own more than 5% of our outstanding capital stock as of December 31, 2019. |
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(2) | Michael Dixon, a member of our board of directors, is a former partner at Sequoia Capital. |
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(3) | Affiliates of Norwest holding our securities, whose shares are aggregated for purposes of reporting the above share ownership information, are Norwest Venture Partners XI, LP and Norwest Venture Partners XII, LP. Affiliates of Norwest beneficially own more than 5% of our outstanding capital stock as of December 31, 2019. |
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(4) | Promod Haque, a member of our board of directors, is a senior managing partner at Norwest. |
Investor Rights, Registration, and Stockholders Agreements
In connection with our redeemable convertible preferred stock financings, we entered into investor rights and registration agreements containing registration rights and information rights, among other things, with certain holders of our redeemable convertible preferred stock and certain holders of our common stock. Additionally, we entered into a stockholders agreement (the “Stockholders Agreement”) containing voting rights relating to the composition of the board of directors, certain transfer restrictions, certain preemptive rights, and other voting rights, with certain holders of our redeemable convertible preferred stock and certain holders of our common stock. The parties to each of these agreements include the following holders of more than 5% of our capital stock: entities affiliated with Sequoia Capital and entities affiliated with Norwest.
The parties to each of these agreements also include the following officers, directors, and/or their affiliated entities: HQC Acquisition, LLC, an entity affiliated with Fraser Bullock, Matoaka, LLC, an entity affiliated with Todd Cozzens, Leerink Transformation Fund I L.P., an entity affiliated with Todd Cozzens, Omkara LLC, an entity affiliated with Anita V. Pramoda, Todd Cozzens, and John A. Kane. The parties to the Stockholders Agreement also include the following officers, directors, and/or their affiliated entities as key holders: Dale Sanders. In addition, entities affiliated with Thomas Burton, our Senior Vice President and Chief Learning Office and the brother of Daniel Burton, our CEO, are parties to the stockholders’ agreement. These stockholder agreements terminated upon the completion of our IPO in July 2019, except for the registration rights granted under our registration agreement, as more fully described in “Description of Capital Stock—Registration Rights.”
Employment Arrangements
Thomas Burton, one of our co-founders and the brother of Daniel Burton, our CEO and one of our directors, is a non-executive employee, currently serves as Senior Vice President and Chief Learning Officer, and has served with us since July 2008. Thomas Burton’s total compensation for the fiscal year ended December 31, 2019 was $384,844. Thomas Burton did not receive any new equity grants during the fiscal year ended December 31, 2019.
Jeffrey Selander, the brother-in-law of Daniel Burton, is a non-executive employee, currently servesserving as Senior Vice President, and has served with us since September 2011. Mr. Selander’s total compensation for the fiscal year ended December 31, 20192022 was $579,590,$985,107, including stock optionRSU grants with an aggregate grant date fair value of $232,499.$543,800 and PRSUs with an aggregate grant date fair value based on the initial estimate of performance achievement of $124,655. Neither Thomas Burton nor Jeffrey Selander lives in the same household as Daniel Burton.
We have entered into employment agreements with certain of our executive officers. For more information regarding these agreements with our named executive officers, see the section titled “Executive Compensation—Narrative to Summary Compensation Table—Executive employment arrangements.”
Customer Relationships
Timothy G. Ferris, a member of our board of directors since January 2018, serves as the Senior Vice President for Population Health Management at Partners HealthCare, a non-profit hospital and physicians network. We maintain two on-going technology and professional service relationships with Partners HealthCare, including a technology access and professional services relationship, and a licensing arrangement in which we license certain technology and know-how from Partners HealthCare related to our care management offerings. In the fiscal year ended December 31, 2019, we recognized $3.0 million in revenue under these contracts.
Stock Option Grants to Directors and Executive Officers
We have granted stock options to certain of our directors and executive officers. For more information regarding the stock options and stock awards granted to our directors and named executive officers see the section titled “Management—Non-Employee Director Compensation” and “Executive Compensation.”
Other Transactions
We had an agreement with Donegal Advisory Services, LLC from January 2017 to January 2019 whereby Duncan Gallagher, a member of our board of directors and President of Donegal Advisory Services, LLC, received $7,083.33 per month in compensation as a retainer to serve as a strategic advisor.
Other than as described above, since January 1, 2019,2022, we have not entered into any transactions, nor are there any currently proposed transactions, between us and a related party where the amount involved exceeds, or would exceed, $120,000, and in which any related person had or will have a direct or indirect material interest. We believe
the terms of the transactions described above were comparable to terms we could have obtained in arms-length dealings with unrelated third parties.
Limitation of Liability and Indemnification of Directors and Officers
We have adopted an amended and restated certificate of incorporation, which contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors are not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
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• | any breach of their duty of loyalty to our company or our stockholders; |
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• | any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
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• | unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or |
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• | any transaction from which they derived an improper personal benefit. |
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law (“DGCL”) is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the DGCL.
In addition, we have adopted amended and restated bylaws, which provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise. Our bylaws provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our bylaws also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions.
Further, we have entered into or will enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the DGCL. These indemnification agreements require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit, or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
The limitation of liability and indemnification provisions that are included in our amended and restated certificate of incorporation, our bylaws, and in indemnification agreements that we have entered into or will enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Related Party Transaction Policy
Our board of directors has adopted a formal policy by which our audit committee has the primary responsibility for reviewing and approving related person transactions. A related person transaction is a transaction, arrangement, or relationship, or any series of similar transactions, arrangements or relationships, in which we and any related person are, were, or will be participants and in which the amount involved exceeds $120,000. A related person is any executive officer, director, or beneficial owner of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled by such persons.
Under the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to consummation, our management must present information regarding the related person transaction to our audit committee, or, if audit committee approval would be inappropriate, to another independent body of our board of directors, for review, consideration, and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction, and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director, executive officer, and, to the extent feasible, significant stockholder to enable us to identify any existing or potential related person transactions and to effectuate the terms of the policy.
In addition, under our Code of Conduct, our employees and directors have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest.
In considering related person transactions, our audit committee, or other independent body of our board of directors, will take into account the relevant available facts and circumstances including, but not limited to:
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• | the risks, costs, and benefits to us; |
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• | the impact on a director’s independence in the event that the related person is a director, immediate family member of a director, or an entity with which a director is affiliated; |
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• | the availability of other sources for comparable services or products; and |
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• | the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. |
The policy requires that, in determining whether to approve, ratify, or reject a related person transaction, our audit committee, or other independent body of our board of directors, must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those of our stockholders, as our audit committee, or other independent body of our board of directors, determines in the good faith exercise of its discretion.
All of the specific transactions described above were entered into prior to the adoption of the written policy, but all were approved by our board of directors considering similar factors to those described above.
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC and the Nasdaq. Such executive officers, directors and stockholders also are required by SEC rules to furnish us with copies of all Section 16(a) forms that they file.
Based solely on our review of the copies of such reports furnished to us and written representations that no other reports were required to be filed during fiscal 2022, we are not aware of any late Section 16(a) filings, except for one late report on Form 4 for Mr. Burton and two late reports on Form 4 for Ms. Llewelyn, each due to an inadvertent administrative error.
ADDITIONAL INFORMATION
Our board knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting, the persons appointed in the accompanying proxy intend to vote the shares represented thereby in accordance with their best judgment on such matters, under applicable laws.
![proxycardfront1.jpg](https://capedge.com/proxy/DEF 14A/0001636422-20-000033/proxycardfront1.jpg)
APPENDIX ANON-GAAP FINANCIAL MEASURE INFORMATION
Set forth below in this Appendix A is important information about Adjusted EBITDA, Adjusted net loss, and Adjusted net loss per share, each a non-GAAP financial measure, discussed in the Proxy Statement.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we define as net loss adjusted for (i) interest and other (income) expense, net, (ii) income tax provision (benefit), (iii) depreciation and amortization, (iv) stock-based compensation, (v) acquisition-related costs, net, including the fair change in value of contingent consideration liabilities for potential earn-out payments, (vi) restructuring costs, and (vii) non-recurring lease-related charges. We view acquisition-related expenses when applicable, such as transaction costs and changes in the fair value of contingent consideration liabilities that are directly related to business combinations as costs that are unpredictable, dependent upon factors outside of our control, and are not necessarily reflective of operational performance during a period. We believe Adjusted EBITDA provides investors with useful information on period-to-period performance as evaluated by management and a comparison with our past financial performance and is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. The following is a reconciliation of our net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA, for the three and twelve months ended December 31, 2022 and 2021:
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| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) | | (in thousands) |
Net loss | $ | (35,782) | | | $ | (48,992) | | | $ | (137,403) | | | $ | (153,210) | |
Add: | | | | | | | |
Interest and other (income) expense, net | (1,022) | | | 4,376 | | | 1,678 | | | 16,458 | |
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Income tax provision (benefit) | 59 | | | (149) | | | (4,280) | | | (6,898) | |
Depreciation and amortization | 11,664 | | | 10,924 | | | 48,297 | | | 37,528 | |
Stock-based compensation | 18,748 | | | 16,421 | | | 72,104 | | | 65,145 | |
Acquisition-related costs, net(1) | 1,706 | | | 11,142 | | | 4,894 | | | 27,929 | |
Restructuring cost(2) | 3,926 | | | — | | | 8,425 | | | — | |
Non-recurring lease-related charges(3) | 98 | | | — | | | 3,798 | | | 1,800 | |
Adjusted EBITDA | $ | (603) | | | $ | (6,278) | | | $ | (2,487) | | | $ | (11,248) | |
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(1)Acquisition-related costs, net includes third-party fees associated with due diligence, deferred retention expenses, post-acquisition restructuring costs incurred as part of business combinations, and changes in fair value of contingent consideration liabilities for potential earn-out payments.
(2)Restructuring costs include severance and other team member costs from workforce reductions, impairment of discontinued capitalized software projects, and other miscellaneous charges.
(3)Includes the lease-related impairment charge for the subleased portion of our corporate headquarters.
Adjusted Net Loss and Adjusted Net Loss Per Share
Adjusted net loss is a non-GAAP financial measure that we define as net loss adjusted for (i) stock-based compensation, (ii) amortization of acquired intangibles, (iii) acquisition-related costs, net, including the deferred tax valuation allowance release from acquisitions, (iv) restructuring costs, (v) non-recurring lease-related charges, and (vi) non-cash interest expense related to our convertible senior notes. We believe Adjusted net loss provides investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial performance and is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | (in thousands, except share and per share amounts) |
Net loss | $ | (35,782) | | | $ | (48,992) | | | $ | (137,403) | | | $ | (153,210) | |
Add: | | | | | | | |
Stock-based compensation | 18,748 | | | 16,421 | | | 72,104 | | | 65,145 | |
Amortization of acquired intangibles | 8,464 | | | 8,924 | | | 37,188 | | | 32,016 | |
| | | | | | | |
Acquisition-related costs, net(1) | 1,706 | | | 10,828 | | | 361 | | | 20,787 | |
Restructuring costs(2) | 3,926 | | | — | | | 8,425 | | | — | |
Non-recurring lease-related charges(3) | 98 | | | — | | | 3,798 | | | 1,800 | |
Non-cash interest expense related to convertible senior notes | 376 | | | 3,105 | | | 1,500 | | | 11,948 | |
Adjusted Net Loss | $ | (2,464) | | | $ | (9,714) | | | $ | (14,027) | | | $ | (21,514) | |
Denominator: | | | | | | | |
Weighted-average number of shares used in calculating net loss per share, basic and diluted | 54,496,128 | | | 52,116,604 | | | 53,721,702 | | | 47,494,768 | |
Adjusted net loss per share, basic and diluted | $ | (0.05) | | | $ | (0.19) | | | $ | (0.26) | | | $ | (0.45) | |
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(1)Acquisition-related costs, net includes third-party fees associated with due diligence, deferred retention expenses, post-acquisition restructuring costs incurred as part of business combinations, changes in fair value of contingent consideration liabilities for potential earn-out payments, and the deferred tax valuation allowance release from acquisitions.
(2)Restructuring costs include severance and other team member costs from workforce reductions, impairment of discontinued capitalized software projects, and other miscellaneous charges.
(3)Includes the lease-related impairment charge for the subleased portion of our corporate headquarters.