Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) Summary of Business and Significant Accounting Policies
Business
WageWorks, Inc., (together with its subsidiaries, “WageWorks” or the “Company”) was incorporated in the state of Delaware in 2000. The Company is a leader in administering Consumer-Directed Benefits (“CDBs”), which empower employees to save money on taxes while also providing corporate tax advantages for employers. The Company operates as a single reportable segment on an entity level basis.
Basis of Presentation
In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements and the related notes have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), including all adjustments as a result of the Company's restatement. The results of the interim period presented herein are not necessarily indicative of the results of future periods or annual results for the year ended
December 31, 2016
.
These unaudited interim condensed consolidated financial statements and the related notes should be read in conjunction with the
December 31, 2015
audited financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, included in the Company’s Annual Report on Form 10-K. The
December 31, 2015
consolidated balance sheets, included in this interim Quarterly Report on Form 10-Q/A, were derived from audited financial statements.
There have been no material changes in the Company’s significant accounting policies from those that were disclosed in the Company’s audited consolidated financial statements for the fiscal year ended
December 31, 2015
included in the Company’s Annual Report on Form 10-K, except for the impairment of long-lived assets, which is discussed below in the caption, Accounting for Impairment of Long-lived Assets.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of WageWorks, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates in these condensed consolidated financial statements include allowances for doubtful accounts, estimates of future cash flows associated with assets, useful lives for depreciation and amortization, loss contingencies, expired and unredeemed products, deferred tax assets, reserve for income tax uncertainties, the assumptions used for stock-based compensation, the assumptions used for software and website development cost classification, and valuation and impairments of goodwill and long-lived assets. Actual results could differ from those estimates. In making its estimates, the Company considers the current economic and legislative environment and has considered those factors when reviewing the underlying assumptions of the estimates.
Restatement
Restatement Background
Subsequent to the issuance of the condensed consolidated financial statements as of September 30, 2017, and as previously disclosed on April 5, 2018, the Board concluded that the Company’s financial statements for (i) the quarterly and year-to-date periods ended June 30 and September 30, 2016, (ii) the year ended December 31, 2016 and (iii) the quarterly and year-to-date periods ended March 31, June 30 and September 30, 2017 should be restated and should no longer be relied upon. Further, the Company’s disclosures related to such financial statements and related communications issued by or on behalf of the Company
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
with respect to the Non-Reliance Periods, including management’s assessment of internal control over financial reporting as of December 31, 2016, should also no longer be relied upon. The determination was made upon the recommendation of the Audit Committee as a result of the investigation described below and after consultation with KPMG LLP, the Company’s former independent registered public accounting firm and management team. The investigation included a review of certain issues, including revenue recognition, related to the accounting for a government contract during fiscal 2016 and associated issues with whether there was an open flow of information and appropriate tone at the top for an effective control environment, the timing and presentation of revenue recognition under certain contracts and arrangements, and the impairment assessment for KP connector, our internal use software, among other matters.
During the course of this investigation, and during the subsequent review of our accounting practices, accounting and financial reporting errors were identified. The matters primarily resulted in corrections in accounting under U.S. GAAP related to revenue recognition for a government contract, the timing and presentation of revenue recognition under certain contracts and arrangements, and the impairment assessment for KP connector, our internal use software. Accordingly, the Company is restating its condensed consolidated financial statements for the three and six months ended June 30, 2016 to correct these errors, the most significant of which are described below.
Revenue Recognition Adjustments
OPM
In March 2016, the Company entered into an agreement to provide Flexible Spending Accounts ("FSA") services to the United States Government Office of Personnel Management ("OPM") through 2020. Upon commencement of the agreement, the Company performed certain professional services that it believed were within the scope of the agreement and accordingly recognized
$1.1 million
in revenue in both the three and six months ended June 30, 2016. In April 2018, the Company determined that it should not have recognized revenue related to the OPM professional services, and the related receivable should be reversed. As a result, the Company has made adjustments to reduce revenue by
$1.1 million
for the three and six months ended June 30, 2016.
Revenue Recognition and Timing Presentation
Starting in the second quarter of 2016, the Company inconsistently applied its policy to net expenses against healthcare revenue which led to an accounting error that impacted healthcare revenue and cost of revenues.
Internally Developed Software Impairment
The Company re-assessed the fair value of KP Connector, which is internal use software developed by the Company based on the specifications outlined in a client agreement. In the second quarter of 2016, the client notified the Company that it no longer needed its services, making KP Connector's carrying value unrecoverable as of June 30, 2016. Accordingly, the Company recorded a
$3.7 million
impairment charge to amortization and change in contingent consideration expense in the condensed consolidated statements of income and a corresponding reduction of property and equipment, net, in the condensed consolidated balance sheets.
Stock-Based Compensation Adjustments
The Company adjusted stock-based compensation expense related to performance-based restricted stock units. These shares vest based on the satisfaction of specific performance criteria. At each vesting date, the holder of the award is issued shares of the Company’s common stock. Compensation expense from these awards is equal to the fair market value of the Company’s common stock on the date of grant and is recognized over the remaining service period based on the probable outcome of achievement of the financial metrics. The metrics included items that have changed as a result of the restatement, and therefore the Company has re-measured the stock-based compensation expense for performance-based restricted stock units as of the three and six months ended June 30, 2016. The following tables summarize the impact of the restatement on performance-based restricted stock units and on the Company's total stock-based compensation expense:
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
Performance-based restricted stock units compensation expense (in millions):
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Three Months Ended June 30, 2016
|
|
Six Months Ended June 30, 2016
|
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|
|
|
|
|
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As Previously Reported
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Adjustments
|
As restated
|
|
As Previously Reported
|
Adjustments
|
As restated
|
|
Stock-based compensation expense related to restricted stock units (in millions)
|
$
|
6.2
|
|
$
|
(1.3
|
)
|
$
|
4.9
|
|
|
$
|
10.0
|
|
$
|
(1.3
|
)
|
$
|
8.7
|
|
|
|
|
|
|
|
|
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At June 30, 2016
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As Previously Reported
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Adjustments
|
As restated
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Total unrecorded stock-based compensation cost associated with restricted stock units (in millions)
|
$
|
37.5
|
|
$
|
(12.6
|
)
|
$
|
24.9
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|
Total restatement adjustments for stock-based compensation expense (in thousands):
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Three Months Ended June 30, 2016
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Six Months Ended June 30, 2016
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As Previously Reported
|
Adjustments
|
As restated
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As Previously Reported
|
Adjustments
|
As restated
|
|
Cost of revenues
|
$
|
1,818
|
|
$
|
—
|
|
$
|
1,818
|
|
|
$
|
2,968
|
|
$
|
—
|
|
$
|
2,968
|
|
|
Technology and development
|
659
|
|
(38
|
)
|
621
|
|
|
1,144
|
|
(38
|
)
|
1,106
|
|
|
Sales and marketing
|
791
|
|
(53
|
)
|
738
|
|
|
1,498
|
|
(52
|
)
|
1,446
|
|
|
General and administrative
|
5,583
|
|
(1,227
|
)
|
4,356
|
|
|
9,232
|
|
(1,228
|
)
|
8,004
|
|
|
Total
|
$
|
8,851
|
|
$
|
(1,318
|
)
|
$
|
7,533
|
|
|
$
|
14,842
|
|
$
|
(1,318
|
)
|
$
|
13,524
|
|
The Company recorded additional adjustments to the condensed consolidated financial statements for the three and six months ended June 30, 2016, primarily related to the following transactions:
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•
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To correct billing errors and the recognition of invoices and related invoice adjustments in the proper reporting period
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•
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To account for the reserve of potentially uncollectible customer obligations for pass-through employee participant reimbursements in the proper period
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•
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To correct timing differences between the obligation payments from employer clients and the receipt of cash in the Company's bank accounts, which resulted in a reclassification from cash and cash equivalents to customer obligations
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•
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To record interest and penalties for unreported employee participant and employer clients unclaimed property
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•
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To record capital lease obligations originally recognized incorrectly as operating leases
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•
|
To record the reclassification of customer obligations from accounts receivable based on the correction of the timing of employer client billings and payments
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•
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To record the reduction in certain operating expense due to over-accrual
|
Please see the tables below for further details regarding the adjustments. In conjunction with the restatement, the Company determined that it would be appropriate, within this Form 10-Q/A, to reflect these adjustments in the three and six months ended June 30, 2016.
The tax impact in connection with the restatement adjustments was recorded for the three and six months ended June 30, 2016.
Impact of the Restatement
The following table presents the Company’s condensed consolidated statements of income (loss) as previously reported, restatement adjustments and the condensed consolidated statements of income (loss) as restated for the three and six months ended June 30, 2016 (in thousands, except per share amounts):
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
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Condensed Consolidated Statements of Income (Loss)(Unaudited)
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(In thousands, except per share amounts)
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Three Months Ended June 30, 2016
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Six Months Ended June 30, 2016
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As Previously Reported
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Adjustments
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As Restated
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As Previously Reported
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Adjustments
|
|
As Restated
|
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Revenues:
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Healthcare
|
$
|
48,070
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|
|
$
|
(2,455
|
)
|
(a)
|
$
|
45,615
|
|
|
$
|
98,440
|
|
|
$
|
(2,455
|
)
|
(a)
|
$
|
95,985
|
|
|
Commuter
|
17,383
|
|
|
83
|
|
(b)
|
17,466
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|
|
34,759
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|
|
83
|
|
(b)
|
34,842
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|
|
COBRA
|
17,879
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|
|
(672
|
)
|
(c)
|
17,207
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|
|
33,285
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|
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(672
|
)
|
(c)
|
32,613
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|
Other
|
4,393
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|
(18
|
)
|
(b)
|
4,375
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|
8,243
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|
(18
|
)
|
(b)
|
8,225
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|
Total revenues
|
87,725
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|
|
(3,062
|
)
|
|
84,663
|
|
|
174,727
|
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|
(3,062
|
)
|
|
171,665
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Operating expenses:
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Cost of revenues (excluding amortization of internal use software)
|
28,411
|
|
|
18
|
|
(d)
|
28,429
|
|
|
59,671
|
|
|
18
|
|
(d)
|
59,689
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|
|
Technology and development
|
11,157
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|
(321
|
)
|
(e)
|
10,836
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|
|
20,988
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|
(321
|
)
|
(e)
|
20,667
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Sales and marketing
|
14,385
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|
(249
|
)
|
(f)
|
14,136
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|
28,305
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|
(249
|
)
|
(f)
|
28,056
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|
General and administrative
|
17,130
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|
(1,662
|
)
|
(g)
|
15,468
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|
31,745
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|
|
(1,662
|
)
|
(g)
|
30,083
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|
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Amortization, impairment and change in contingent consideration
|
11,695
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|
|
3,669
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|
(h)
|
15,364
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|
|
19,140
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|
|
3,669
|
|
(h)
|
22,809
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|
Employee termination and other charges
|
313
|
|
|
—
|
|
|
313
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|
|
313
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|
|
—
|
|
|
313
|
|
|
Total operating expenses
|
83,091
|
|
|
1,455
|
|
|
84,546
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|
|
160,162
|
|
|
1,455
|
|
|
161,617
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|
Income (loss) from operations
|
4,634
|
|
|
(4,517
|
)
|
|
117
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|
|
14,565
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|
|
(4,517
|
)
|
|
10,048
|
|
|
Other income (expense):
|
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|
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Interest income
|
97
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|
|
—
|
|
|
97
|
|
|
183
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|
|
—
|
|
|
183
|
|
|
Interest expense
|
(409
|
)
|
|
(413
|
)
|
(i)
|
(822
|
)
|
|
(814
|
)
|
|
(413
|
)
|
(i)
|
(1,227
|
)
|
|
Other income (expense)
|
6
|
|
|
(132
|
)
|
(j)
|
(126
|
)
|
|
2
|
|
|
(132
|
)
|
(j)
|
(130
|
)
|
|
Income before income (loss) taxes
|
4,328
|
|
|
(5,062
|
)
|
|
(734
|
)
|
|
13,936
|
|
|
(5,062
|
)
|
|
8,874
|
|
|
Income tax (provision) benefit
|
(1,475
|
)
|
|
2,089
|
|
|
614
|
|
|
(5,287
|
)
|
|
2,089
|
|
|
(3,198
|
)
|
|
Net income (loss)
|
$
|
2,853
|
|
|
$
|
(2,973
|
)
|
|
$
|
(120
|
)
|
|
$
|
8,649
|
|
|
$
|
(2,973
|
)
|
|
$
|
5,676
|
|
|
Net income (loss) per share:
|
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|
|
|
|
|
|
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|
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Basic
|
$
|
0.08
|
|
|
$
|
(0.08
|
)
|
|
$
|
—
|
|
|
$
|
0.24
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.16
|
|
|
Diluted
|
$
|
0.08
|
|
|
$
|
(0.08
|
)
|
|
$
|
—
|
|
|
$
|
0.23
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.15
|
|
|
Shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
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|
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Basic
|
36,361
|
|
|
|
|
|
36,361
|
|
|
36,139
|
|
|
|
|
|
36,139
|
|
|
Diluted
|
37,195
|
|
|
|
|
|
36,361
|
|
|
36,862
|
|
|
|
|
|
36,862
|
|
|
|
|
|
(a)
|
Revenue adjustment of
$2.5 million
was primarily due to (i) a
$1.1 million
reversal of OPM revenue as discussed above, (ii)
$0.7 million
reversal of revenue as a result of the correction of billing errors and the recognition of invoices and related invoice adjustments in the proper reporting period, and (iii) a
$0.6 million
reversal of revenue due to the netting of healthcare revenue against certain cost of revenue expenses.
|
|
|
|
|
(b)
|
Revenue adjustment related to the correction of billing errors and the recognition of invoices and credit memos in the correct reporting periods.
|
|
|
|
|
(c)
|
Revenue adjustment of
$0.7 million
related to the correction of billing errors and the recognition of credit memos in the correct reporting periods.
|
|
|
|
|
(d)
|
Adjustment of
$0.6 million
primarily related to the reserve of potentially uncollectible customer obligations for pass through employee participant reimbursement, offset by a
$0.6 million
reversal related to the netting of healthcare revenue against certain cost of revenue expenses.
|
|
|
|
|
(e)
|
Reduction primarily related to the over-accrual of platform technology related expenses.
|
|
|
|
|
(f)
|
Reduction related primarily to the over-accrual of commission expenses.
|
|
|
|
|
(g)
|
Adjustments related to (i) a
$1.2 million
reduction in stock-based compensation expense as a result of reduced target attainment percentages expected for performance-based restricted stock units (see above for details), (ii) the reversal of
$0.2 million
related to the re-valuation of the allowance for bad debt and (iii) a
$0.2 million
expense reduction related to the re-valuation and write-off of customer obligations.
|
|
|
|
|
(h)
|
Adjustment related to the impairment charge of Internally Developed Software ("IDS") in connection with a joint development agreement with a customer as discussed above in the Internally Developed Software Impairment section.
|
|
|
|
|
(i)
|
Adjustment related to accrued interest expense on unreported employee participant and employer clients unclaimed property.
|
|
|
|
|
(j)
|
Adjustment related to accrued penalties on unreported employee participant and employer clients unclaimed property.
|
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
The following table presents the condensed consolidated balance sheet as previously reported, restatement adjustments and the condensed consolidated balance sheet as restated at June 30, 2016 (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
568,993
|
|
|
$
|
(323
|
)
|
(a)
|
$
|
568,670
|
|
|
Restricted cash
|
|
332
|
|
|
—
|
|
|
332
|
|
|
Accounts receivable, net
|
|
93,979
|
|
|
(7,103
|
)
|
(b)
|
86,876
|
|
|
Prepaid expenses and other current assets
|
|
18,239
|
|
|
63
|
|
(c)
|
18,302
|
|
|
Total current assets
|
|
681,543
|
|
|
(7,363
|
)
|
|
674,180
|
|
|
Property and equipment, net
|
|
48,426
|
|
|
(3,123
|
)
|
(d)
|
45,303
|
|
|
Goodwill
|
|
157,109
|
|
|
—
|
|
|
157,109
|
|
|
Acquired intangible assets, net
|
|
90,769
|
|
|
—
|
|
|
90,769
|
|
|
Deferred tax assets
|
|
9,837
|
|
|
—
|
|
|
9,837
|
|
|
Other assets
|
|
4,275
|
|
|
(1
|
)
|
|
4,274
|
|
|
Total assets
|
|
$
|
991,959
|
|
|
$
|
(10,487
|
)
|
|
$
|
981,472
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
71,399
|
|
|
$
|
(275
|
)
|
(e)
|
$
|
71,124
|
|
|
Customer obligations
|
|
468,153
|
|
|
(2,015
|
)
|
(f)
|
466,138
|
|
|
Other current liabilities
|
|
1,589
|
|
|
242
|
|
(g)
|
1,831
|
|
|
Total current liabilities
|
|
541,141
|
|
|
(2,048
|
)
|
|
539,093
|
|
|
Long-term debt
|
|
79,064
|
|
|
—
|
|
|
79,064
|
|
|
Other non-current liabilities
|
|
10,152
|
|
|
(2,060
|
)
|
(h)
|
8,092
|
|
|
Total liabilities
|
|
630,357
|
|
|
(4,108
|
)
|
|
626,249
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
Common stock
|
|
38
|
|
|
—
|
|
|
38
|
|
|
Additional paid-in capital
|
|
368,519
|
|
|
(3,406
|
)
|
(i)
|
365,113
|
|
|
Treasury stock at cost
|
|
(14,374
|
)
|
|
—
|
|
|
(14,374
|
)
|
|
Retained earnings
|
|
7,419
|
|
|
(2,973
|
)
|
|
4,446
|
|
|
Total stockholders' equity
|
|
361,602
|
|
|
(6,379
|
)
|
|
355,223
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
991,959
|
|
|
$
|
(10,487
|
)
|
|
$
|
981,472
|
|
|
|
|
|
(a)
|
Adjustment due to the timing differences between the obligation payments from employer clients and the receipt of cash in the Company's bank accounts, which resulted in a reclassification from cash and cash equivalents to customer obligations.
|
|
|
|
|
(b)
|
Adjustment relates to (i) a
$4.1 million
reduction in accounts receivable from the restatement of OPM revenue as discussed above, of which
$1.1 million
relates to the reduction of revenue and
$3.0 million
relates to the reduction of short-term and long-term deferred revenue, (ii) a
$1.8 million
reduction from the reclassification of accounts receivable to customer obligations based on the correction of the timing of customer billing and payments, and (iii) a
$1.2 million
decrease due to accruals to correct the recording of invoices, credit memos and billing adjustments in the proper period.
|
|
|
|
|
(c)
|
Adjustment primarily to record other receivables for the anticipated collection of commission over-payments.
|
|
|
|
|
(d)
|
Adjustments relates to the impairment charge for IDS of
$3.7 million
, as discussed above, partially offset by
$0.6 million
of assets under capital lease obligations originally recognized incorrectly as operating leases.
|
|
|
|
|
(e)
|
Adjustment relates to a
$0.7 million
reduction in short-term deferred revenue as result of the OPM restatement discussed above and a
$0.4 million
reduction due to the over accrual of operating expenses, partially offset by a
$0.5 million
accrual related to interest and penalties for unreported employee participant and employer clients unclaimed property, and a
$0.3 million
accrual for a customer cash refund related to billing errors.
|
|
|
|
|
(f)
|
Adjustment relates to (i) a
$1.8 million
decrease due to the reclassification of customer obligations from accounts receivable based on the correction of the timing of employer client billings and payments
,
(ii) a
$0.3 million
decrease
due to the timing differences between the obligation payments from employer clients and the receipt of cash in the Company's bank accounts, which resulted in a reclassification from cash and cash equivalents to customer obligations, (iii) a
$0.6 million
decrease related to the re-valuation and write-off of customer obligations, and (iv) an increase of
$0.7 million
to record a reserve for potentially uncollectible customer obligations for pass-through employee participant reimbursements.
|
|
|
|
|
(g)
|
Adjustment to record the current portion of capital lease obligations originally recognized incorrectly as operating leases.
|
|
|
|
|
(h)
|
Adjustment relates to the reduction of long-term deferred revenue of
$2.4 million
in connection with the Company's OPM restatement as noted above, partially offset by an increase of
$0.3 million
related to the long-term portion of capital lease obligations originally reported incorrectly as operating leases.
|
|
|
|
|
(i)
|
Adjustment relates to a tax provision reduction of
$2.1 million
for the six months ended June 30, 2016 due to the reduction in net income as a result of the misstatements and a reduction in stock compensation of
$1.3 million
as a result of reduced target attainment percentages expected for performance-based restricted stock units.
|
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
The following table presents the Company's condensed consolidated statement of cash flows as previously reported, restatement adjustments and the condensed consolidated statement of cash flows as restated for the six months ended June 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows (Unaudited)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
$
|
8,649
|
|
|
$
|
(2,973
|
)
|
|
$
|
5,676
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
3,813
|
|
|
78
|
|
|
3,891
|
|
|
Amortization, impairment and change in contingent consideration
|
19,042
|
|
|
3,835
|
|
|
22,877
|
|
|
Stock-based compensation expense
|
14,842
|
|
|
(1,318
|
)
|
|
13,524
|
|
|
Loss on disposal of fixed assets
|
199
|
|
|
—
|
|
|
199
|
|
|
Provision for doubtful accounts
|
996
|
|
|
(197
|
)
|
|
799
|
|
|
Deferred taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
Excess tax benefit related to stock-based compensation arrangements
|
(5,287
|
)
|
|
2,088
|
|
|
(3,199
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
—
|
|
|
|
|
Accounts receivable
|
(22,704
|
)
|
|
7,300
|
|
|
(15,404
|
)
|
|
Prepaid expenses and other current assets
|
302
|
|
|
(2,151
|
)
|
|
(1,849
|
)
|
|
Other assets
|
172
|
|
|
—
|
|
|
172
|
|
|
Accounts payable and accrued expenses
|
(1,848
|
)
|
|
(275
|
)
|
|
(2,123
|
)
|
|
Customer obligations
|
67,332
|
|
|
(2,015
|
)
|
|
65,317
|
|
|
Other liabilities
|
1,136
|
|
|
(2,331
|
)
|
|
(1,195
|
)
|
|
Net cash provided by operating activities
|
86,644
|
|
|
2,041
|
|
|
88,685
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Purchases of property and equipment
|
(10,430
|
)
|
|
—
|
|
|
(10,430
|
)
|
|
Cash paid for acquisition of intangible assets
|
(14,259
|
)
|
|
—
|
|
|
(14,259
|
)
|
|
Net cash used in investing activities
|
(24,689
|
)
|
|
—
|
|
|
(24,689
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from exercise of common stock options
|
9,665
|
|
|
—
|
|
|
9,665
|
|
|
Proceeds from issuance of common stock under Employee Stock Purchase Plan
|
1,192
|
|
|
—
|
|
|
1,192
|
|
|
Payment of contingent consideration
|
(653
|
)
|
|
(97
|
)
|
|
(750
|
)
|
|
Payment for treasury stock acquired
|
(9,371
|
)
|
|
—
|
|
|
(9,371
|
)
|
|
Payment of capital lease obligations
|
—
|
|
|
(179
|
)
|
|
(179
|
)
|
|
Excess tax benefit related to stock-based compensation arrangements
|
5,287
|
|
|
(2,088
|
)
|
|
3,199
|
|
|
Net cash provided by financing activities
|
6,120
|
|
|
(2,364
|
)
|
|
3,756
|
|
|
Net increase in cash and cash equivalents
|
68,075
|
|
|
(323
|
)
|
|
67,752
|
|
|
Cash and cash equivalents at beginning of the year
|
500,918
|
|
|
|
|
500,918
|
|
|
Cash and cash equivalents at end of period
|
$
|
568,993
|
|
|
$
|
(323
|
)
|
|
$
|
568,670
|
|
|
Noncash financing and investing activities:
|
|
|
|
|
|
|
Property and equipment purchased under capital lease obligations
|
$
|
—
|
|
|
$
|
626
|
|
|
$
|
626
|
|
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Cash and cash equivalents, which consist of cash on deposit with banks and money market funds, are stated at cost, as well as commercial paper with an original maturity of less than 90 days. To the extent the Company’s contracts do not provide for any restrictions on the Company’s use of cash that it receives from clients, the cash is recorded as cash and cash equivalents.
The majority of the Company’s cash represents funding and pre-funding balances received from customers for which the Company has a corresponding current obligation. In all cases where we have collected cash from a customer but not fulfilled services, the Company recognizes a related liability to its customers, classified as customer obligations in the accompanying condensed consolidated balance sheets.
Restricted cash represents cash used to collateralize standby letters of credit.
Accounts Receivable
Accounts receivable represent both amounts receivable from customers in relation to fees for the Company’s services and unpaid amounts for benefit services provided by third-party vendors, such as transit agencies and healthcare providers for which the Company records a receivable for funding and a corresponding customer obligations liability until the Company disburses the balances to the vendors. The Company provides for an allowance for doubtful accounts by specifically identifying accounts with a risk of collectability and providing an estimate of the loss exposure. The Company reviews its allowance for doubtful accounts on a quarterly basis. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Write-offs for
2017
,
2016
and
2015
were not significant.
The Company offsets on a customer by customer basis non-trade accounts receivable and customer obligation balances for financial reporting presentation on a product by product basis or otherwise contractually stated. Additionally, the Company offsets outstanding trade and non-trade receivables, including any debit or credit memos, against any prefund balances after plan year close or upon termination of services both based on the completion of a full reconciliation with the customer.
Impairment of Long-lived Assets
The Company reviews long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. An impairment of long-lived assets exists when the carrying amount of a long-lived asset group, exceeds its fair value. Such impairment arises in circumstances when such assets are assessed and determined to have no continuing or future benefit. Impairment losses are recorded when the carrying amount of the impaired asset group is not recoverable. Recoverability is determined by comparing the carrying amount of the asset or asset group to the undiscounted cash flows which are expected to be generated from its use. If the carrying amount of the asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset or asset group exceeds its fair value. The Company did not record impairment losses related to long-lived assets in the years ended December 31, 2017 and 2015.
In 2016, the Company re-assessed the fair value of KP Connector which is an internal use software developed by the Company based on the specifications outlined in a client agreement. In the second quarter of 2016, the client notified the Company that it no longer required the services provided by the Company. Accordingly, the Company determined that KP Connector's carrying value was considered unrecoverable as of June 30, 2016, and recorded a
$3.7 million
impairment charge to amortization, impairment and change in contingent consideration expense in the condensed consolidated statements of income (loss) and a corresponding reduction of property and equipment, net, in the condensed consolidated balance sheets. The Company also reversed previously recorded amortization expenses in each of the second, third and fourth quarters of 2016. In addition, the Company accelerated amortization on intangible assets for client contracts and broker relationships of
$3.8 million
, triggered in the second quarter of 2016, related to the termination of a significant customer relationship in the health insurance exchange business.
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
Acquisitions, Goodwill and Definite lived Intangible Assets
The cost of an acquisition is allocated to the tangible assets and definite lived intangible assets acquired and liabilities assumed based on their fair value at the date of acquisition. Goodwill represents the excess cost over the fair value of net assets acquired in the acquisition and is not amortized, but rather is tested for impairment.
Definite lived intangible assets, consisting of client/broker contracts and relationships, trade names, technology, noncompete agreements and favorable lease arrangements, are stated at cost less accumulated amortization. All definite lived intangible assets are amortized on a straight-line basis over their estimated remaining economic lives, generally ranging from
one
to
ten
years. Amortization expense related to these intangible assets is included in amortization expense on the condensed consolidated statements of income (loss).
The Company performs a goodwill impairment test annually on December 31
st
and more frequently if events and circumstances indicate that the asset might be impaired. The following are examples of triggering events that could indicate that the fair value of a reporting unit has fallen below the unit’s carrying amount:
|
|
|
|
•
|
A significant adverse change in legal factors or in the business climate
|
|
|
|
|
•
|
An adverse action or assessment by a regulator
|
|
|
|
|
•
|
Unanticipated competition
|
|
|
|
|
•
|
A loss of key personnel
|
|
|
|
|
•
|
A more likely than not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of
|
An impairment loss is recognized to the extent that the carrying amount exceeds the reporting unit’s fair value. When reviewing goodwill for impairment, the Company assesses whether goodwill should be allocated to operating levels lower than the Company’s single operating segment for which discrete financial information is available and reviewed for decision-making purposes. These lower levels are referred to as reporting units. The Company’s chief operating decision maker, the Chief Executive Officer, does not allocate resources or assess performance at the individual healthcare, commuter, COBRA or other revenue stream level, but rather at the operating segment level. Discrete financial information is therefore not maintained at the revenue stream level. The Company’s one reporting unit was determined to be the Company’s one operating segment.
Whenever events or circumstances change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. In assessing the qualitative factors, the Company assesses relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgments and assumptions. The judgment and assumptions include the identification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific events and share price trends and making the assessment on whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact.
The goodwill impairment analysis is a two-step process: first, the reporting unit’s estimated fair value is compared to its carrying value, including goodwill. If the Company determines that the estimated fair value of the reporting unit is less than its carrying value, the Company moves to the second step to determine the implied fair value of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill exceeds its implied fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of the reporting unit.
Fair Value of Financial Instruments
The Company’s financial assets and liabilities are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amount of financial instruments approximates fair value because of their short maturity. The carrying amount of the Company’s variable rate debt approximates fair value.
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
|
|
|
|
•
|
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
|
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
|
|
|
|
•
|
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
|
|
|
|
|
•
|
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
|
The contingent consideration payable related to the acquisition of Benefit Concepts, Inc. (“BCI”) was recorded at fair value on the acquisition date and is adjusted quarterly to fair value. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, it is categorized as Level 3. The final contingent consideration for BCI was paid during the first quarter of 2016.
Other financial instruments not measured at fair value on the Company’s unaudited condensed consolidated balance sheets at
June 30, 2016
, but which require disclosure of their fair values include: cash and cash equivalents (including restricted cash), accounts receivable, accounts payable and accrued expenses, and debt under the revolving credit facility with certain lenders. The estimated fair value of such instruments at
June 30, 2016
approximates their carrying value as reported on the condensed consolidated balance sheets. The fair value of all of these instruments are categorized as Level 2 of the fair value hierarchy, with the exception of cash, which is categorized as Level 1 due to its short-term nature.
The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
Contingent
Consideration
BCI
|
|
Balance at December 31, 2015
|
$
|
739
|
|
|
Gains or losses included in earnings:
|
|
|
Losses on revaluation of contingent consideration
|
11
|
|
|
Payment of contingent consideration
|
(750
|
)
|
|
Balance at June 30, 2016
|
$
|
—
|
|
The Company measures contingent consideration elements each reporting period at fair value and recognizes changes in fair value in earnings each period in the amortization, impairment and change in contingent consideration line item on the condensed consolidated statements of income (loss), until the contingency is resolved. Losses on revaluation of contingent consideration result from accretion charges due to the passage of time and fair value adjustments due to changes in forecasted revenue levels.
The Company recorded an
immaterial
charge for the change in fair value of the contingent consideration for the three months ended
June 30, 2015
, with
no
charge recorded for the three months ended
June 30, 2016
. The Company recorded
$0.1 million
and an
immaterial
charge for the
six
months ended
June 30, 2015
and
2016
, respectively, as a result of accretion charges due to the passage of time.
Customer Obligations Liability
Many of our customer agreements include provisions whereby our customer remit funds to us which represent prefunds of employer / client and employee participant contributions related to FSA, HRA and commuter programs. The agreements do not represent restricted cash and accordingly the amounts received are included in cash and cash equivalents on our consolidated balance sheets with a corresponding liability recorded as customer obligations. Our customers generally provide us with prefunds for their FSA and HRA programs based on a percentage of projected spending by the employee participants for the plan year and other factors. In the case of our commuter program, at the beginning of each month we receive prefunds based on the employee participants’ monthly elections. These prefunds are typically replenished throughout the year by our FSA, HRA and commuter clients as benefits are provided under these programs.
The Company offsets on a customer by customer basis non-trade accounts receivable and customer obligation balances for financial reporting presentation on a product by product basis or otherwise contractually stated. Additionally, the Company
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
offsets outstanding trade and non-trade receivables, including any debit or credit memos, against any prefund balances after plan year close or upon termination of services both based on the completion of a full reconciliation with the customer.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09”) which supersedes existing accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard allows for either a full retrospective with or without practical expedients or a retrospective with a cumulative catch-up on adoption transition method. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods) in ASU 2015-14. Early adoption is permitted to the original effective date for periods beginning after December 15, 2016 (including interim reporting periods within those periods). The Company is in the process of determining which transition method it will use and what impact, if any, the adoption of ASU 2014-09 will have on its condensed consolidated financial statements and related disclosures.
Subsequent to the issuance of ASU 2014-09, the FASB has issued several ASUs such as ASU 2016-08,
Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, ASU 2016-10,
FASB Accounting Standards Codification - Consensuses of the FASB Emerging Issues Task Force
, and ASU 2016-12,
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients
among others. These ASUs do not change the core principle of the guidance stated in ASU 2014-09; instead, these amendments are intended to clarify and improve operability of certain topics included within the revenue standard. These ASUs had the same effective date and transition requirements as ASU 2014-09, the Company is evaluating the impact this standard will have on its condensed consolidated financial statements and related disclosures.
In April 2015, the FASB issued Accounting Standards Update No. 2015-05,
Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
(“ASU 2015-05”). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software license. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change U.S. GAAP for a customer's accounting for service contracts. The Company adopted ASU 2015-05 in the first quarter of 2016. The adoption of ASU 2015-05 did not have a material impact on the condensed consolidated financial statements and related disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
, (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its condensed consolidated financial statements and related disclosures.
In March 2016, the FASB issued Accounting Standard Update No. 2016-04,
Recognition of Breakage for Certain Prepaid Stored-Value Products
, (“ASU 2016-04”). The new guidance creates an exception under ASC 405-20, Liabilities-Extinguishments of Liabilities, to derecognize financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model. The new guidance is
effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company elected to not early adopt ASU 2016-09 and will reflect the impact in the subsequent year condensed consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting
, (“ASU 2016-09”). The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. The
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
Company elected to not early adopt ASU 2016-09, and will reflect the impact in the subsequent year condensed consolidated financial statements and related disclosures.
(2) Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
|
|
|
Restated
|
|
|
|
Restated
|
|
Numerator for basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
3,518
|
|
|
$
|
(120
|
)
|
|
$
|
9,157
|
|
|
$
|
5,676
|
|
|
Denominator for basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
35,761
|
|
|
36,361
|
|
|
35,659
|
|
|
36,139
|
|
|
Basic net income (loss) per share
|
$
|
0.10
|
|
|
$
|
—
|
|
|
$
|
0.26
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
3,518
|
|
|
$
|
(120
|
)
|
|
$
|
9,157
|
|
|
$
|
5,676
|
|
|
Denominator for diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
35,761
|
|
|
36,361
|
|
|
35,659
|
|
|
36,139
|
|
|
Dilutive stock options and restricted stock units
|
835
|
|
|
—
|
|
|
975
|
|
|
674
|
|
|
Dilutive vested performance restricted stock units
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
Diluted weighted-average common shares outstanding
|
36,596
|
|
|
36,361
|
|
|
36,634
|
|
|
36,862
|
|
|
Diluted net income (loss) per share
|
$
|
0.10
|
|
|
$
|
—
|
|
|
$
|
0.25
|
|
|
$
|
0.15
|
|
Stock options and restricted stock units to purchase common stock are not included in the computation of diluted earnings per share if their effect would be anti-dilutive. As a result of our net loss for the three months ended June 30, 2016, all potentially dilutive shares were anti-dilutive and therefore excluded from the computation of diluted net loss per share. There were
1.1 million
anti-dilutive share equivalents for the three months ended
June 30, 2015
, and
0.7 million
and
1.4 million
anti-dilutive share equivalents for the
six
months ended
June 30, 2015
and
2016
, respectively.
(3) Intangible Assets
Acquired intangible assets at
December 31, 2015
and
June 30, 2016
were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
June 30, 2016
|
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Client contracts and broker relationships
|
$
|
124,261
|
|
|
$
|
47,013
|
|
|
$
|
77,248
|
|
|
$
|
138,557
|
|
|
$
|
52,328
|
|
|
$
|
86,229
|
|
|
Trade names
|
3,880
|
|
|
2,405
|
|
|
1,475
|
|
|
3,880
|
|
|
2,748
|
|
|
1,132
|
|
|
Technology
|
13,846
|
|
|
11,039
|
|
|
2,807
|
|
|
13,846
|
|
|
11,440
|
|
|
2,406
|
|
|
Noncompete agreements
|
2,232
|
|
|
1,870
|
|
|
362
|
|
|
2,232
|
|
|
1,906
|
|
|
326
|
|
|
Favorable lease
|
1,136
|
|
|
412
|
|
|
724
|
|
|
1,136
|
|
|
460
|
|
|
676
|
|
|
Total
|
$
|
145,355
|
|
|
$
|
62,739
|
|
|
$
|
82,616
|
|
|
$
|
159,651
|
|
|
$
|
68,882
|
|
|
$
|
90,769
|
|
The addition related to the channel partner arrangement with Ceridian Corporation (“Ceridian”) is included in the gross carrying amount in client contracts and broker relationships intangible assets as of June 30, 2016. An accelerated amortization expense of
$3.8 million
, triggered in the second quarter of 2016, related to the termination of a significant customer relationship in the health insurance exchange business is included in the accumulated amortization for client contracts and
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
broker relationships as of June 30, 2016. Amortization expense of intangible assets totaled
$3.8 million
and
$8.6 million
for the three months ended
June 30, 2015
and
2016
, respectively. Amortization expense of intangible assets totaled
$7.6 million
and
$12.9 million
for the
six
months ended
June 30, 2015
and
2016
, respectively. These costs are included in amortization, impairment and change in contingent consideration in the accompanying condensed consolidated statements of income (loss).
The estimated amortization expense in future periods at
June 30, 2016
is as follows (in thousands):
|
|
|
|
|
|
|
|
Remainder of 2016
|
$
|
8,149
|
|
|
2017
|
15,827
|
|
|
2018
|
15,200
|
|
|
2019
|
14,640
|
|
|
2020
|
12,657
|
|
|
Thereafter
|
24,296
|
|
|
Total
|
$
|
90,769
|
|
(4) Accounts Receivable
Accounts receivable at
December 31, 2015
and
June 30, 2016
were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
June 30,
2016
|
|
|
|
|
Restated
|
|
Trade receivables
|
$
|
37,999
|
|
|
$
|
48,870
|
|
|
Unpaid amounts for benefit services
|
35,343
|
|
|
39,670
|
|
|
|
73,342
|
|
|
88,540
|
|
|
Less allowance for doubtful accounts
|
(1,071
|
)
|
|
(1,664
|
)
|
|
Accounts receivable, net
|
$
|
72,271
|
|
|
$
|
86,876
|
|
(5) Property and Equipment
Property and equipment at
December 31, 2015
and
June 30, 2016
were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
June 30,
2016
|
|
|
|
|
Restated
|
|
Computers and equipment
|
$
|
14,461
|
|
|
$
|
15,346
|
|
|
Software and software development costs
|
92,898
|
|
|
94,799
|
|
|
Furniture and fixtures
|
5,083
|
|
|
5,035
|
|
|
Leasehold improvements
|
13,594
|
|
|
15,213
|
|
|
|
$
|
126,036
|
|
|
$
|
130,393
|
|
|
Less accumulated depreciation and amortization
|
(78,081
|
)
|
|
(85,090
|
)
|
|
Property and equipment, net
|
$
|
47,955
|
|
|
$
|
45,303
|
|
As a result of the Company's restatement, the Company recorded assets under capital lease obligations which were originally recognized incorrectly as operating leases in the amount of
$0.6 million
. As of June 30, 2016, assets under capital lease obligations were
$1.8 million
and were classified as computers and equipment. The Company had
no
material capital lease obligations as of December 30, 2015. Accumulated depreciation for assets under capital lease obligations was
$0.9 million
as of June 30, 2016.
In the
six
months ended
June 30, 2015
and
2016
, the Company capitalized software development costs of
$8.6 million
and
$7.0 million
, respectively. In the
six
months ended
June 30, 2015
and
2016
, the Company amortized
$5.3 million
and
$9.9 million
of capitalized software development costs, respectively. These costs are included in amortization, impairment and change in contingent consideration in the accompanying condensed consolidated statements of income (loss). At
June 30, 2016
, the unamortized software development costs included in property and equipment in the accompanying condensed consolidated balance sheets was
$24.5 million
.
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
Upon the Company's analysis of internally developed software, it determined that an impairment charge should have been recorded as of June 30, 2016, which would have coincided with the termination of the Company's joint development agreement with Kaiser Permanente ("KP"). As a result of this determination, the Company recorded an impairment charge of
$3.7 million
in the condensed consolidated statements of income (loss), as amortization, impairment and contingent consideration, for the three and six months ended June 30, 2016.
Total depreciation expense, including amortization of capitalized software development costs, in the three months ended
June 30, 2015
and
2016
was
$4.5 million
and
$8.9 million
, respectively and
$8.5 million
and
$13.8 million
in the six months ended
June 30, 2015
and
2016
, respectively. Depreciation expense for equipment purchased under capital lease obligations was
$0.2 million
and
$0.3 million
in the three and six months ended June 30, 2016, respectively.
(6) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at
December 31, 2015
and
June 30, 2016
were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
June 30,
2016
|
|
|
|
|
Restated
|
|
Accounts payable
|
$
|
2,542
|
|
|
$
|
2,653
|
|
|
Payable to benefit providers and transit agencies
|
23,169
|
|
|
25,112
|
|
|
Accrued payables
|
11,198
|
|
|
17,300
|
|
|
Accrued compensation and related benefits
|
18,538
|
|
|
16,513
|
|
|
Other accrued expenses
|
2,891
|
|
|
6,113
|
|
|
Deferred revenue
|
2,203
|
|
|
3,433
|
|
|
Accounts payable and accrued expenses
|
$
|
60,541
|
|
|
$
|
71,124
|
|
(7) Long-term Debt
On June 5, 2015, the Company entered into an Amended and Restated Credit Agreement ("Credit Agreement") with certain lenders, including MUFG Union Bank, N.A., as administrative agent. With a
$15.0 million
sub facility for the issuance of letters of credit, the amendment provides for a
$150.0 million
revolving credit facility, and an increase option permitting the Company to arrange with existing lenders and/or new lenders to provide up to an aggregate of
$100.0 million
in additional commitments. The amendment extended the term of the credit facility to June 5, 2020 and reduced the margin added to the London Interbank Offered Rate (“LIBOR”) to a range of 125 to 175 basis points. The interest rate applicable to the revolving credit facility as of
June 30, 2016
is
1.70%
. In connection with the Amended and Restated Credit Agreement, the Company incurred fees of approximately
$0.4 million
, which are being amortized over the term of the amendment. The fees incurred are classified as a direct deduction from the long-term debt line item in the condensed consolidated balance sheets. As of
June 30, 2016
, the Company had
$79.6 million
outstanding under the revolving credit facility.
Amounts borrowed, outstanding letters of credit, and amounts available to borrow were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
June 30,
2016
|
|
Amounts borrowed
|
$
|
79,600
|
|
|
$
|
79,600
|
|
|
Outstanding letters of credit
|
2,700
|
|
|
2,700
|
|
|
Amounts available to borrow
(1)
|
67,700
|
|
|
67,700
|
|
|
|
|
|
(1)
|
Excluding
$100 million
increase option
|
As collateral, the Company’s obligations are secured by substantially all of the Company’s assets. All of the Company’s material existing and future subsidiaries are required to guarantee the Company’s obligations under the credit facility. Such guarantees by existing and future material subsidiaries are and will be secured by substantially all of the property of such material subsidiaries.
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
The credit facility contains customary affirmative and negative covenants and also has financial covenants relating to a liquidity ratio, a consolidated leverage ratio, and an interest coverage ratio. The Company is obligated to pay customary commitment fees and letter of credit fees for a facility of this size and type. The Company is currently in compliance with all financial and non-financial covenants under the credit facility.
The credit facility contains customary events of default including, among others, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross-defaults to other material indebtedness, judgment defaults, a change of control default and bankruptcy, and insolvency defaults. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the loan agreement at a per annum rate of interest equal to
2.00%
above the applicable interest rate. Upon an event of default, the lenders may terminate the commitments, declare the outstanding obligations payable by the Company to be immediately due and payable, and exercise other rights and remedies provided for under the credit facility.
(8) Organizational Efficiency Plan
During the second quarter of 2015, the Company integrated operations and consolidated certain positions resulting in employee headcount reductions. The Company continually evaluates ways to improve business processes to ensure that operations align with its strategy and vision for the future. In the second quarter of 2015, the Company recognized charges in operating expenses of
$2.1 million
, primarily for severance costs. In the second quarter of 2016, the Company recognized charges in the employee termination and other charges expense line item of
$0.3 million
, primarily due to severance and other costs associated with the closure of an office location. All client services provided from this location have been migrated to other WageWorks locations. The Company recorded these severance costs within accrued expenses in the accompanying condensed consolidated balance sheets.
Changes in the Company’s accrued liabilities for workforce reduction costs in the
six
months ended
June 30, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Amount
|
|
Beginning balance as of December 31, 2015
|
$
|
183
|
|
|
Employee termination and other charges
|
313
|
|
|
Releases
|
(449
|
)
|
|
Ending balance as of June 30, 2016
|
$
|
47
|
|
(9) Employee Benefit Plans
Employee Stock Option Plan
The Company’s stock option program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, officers, and directors and to align stockholder and employee interests.
The following table summarizes the weighted-average fair value of stock options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
Stock options granted (in thousands)
|
14
|
|
|
281
|
|
|
51
|
|
|
777
|
|
|
Weighted-average fair value at date of grant
|
$
|
17.87
|
|
|
$
|
20.84
|
|
|
$
|
22.34
|
|
|
$
|
18.14
|
|
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
Stock option activity for the
six
months ended
June 30, 2016
was as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-average
exercise price
|
|
Remaining
contractual term
(in years)
|
|
Aggregate
intrinsic value
(in thousands)
|
|
Outstanding at December 31, 2015
|
3,037
|
|
|
$
|
25.18
|
|
|
6.41
|
|
$
|
65,229
|
|
|
Granted
|
777
|
|
|
47.64
|
|
|
|
|
|
|
Exercised
|
(637
|
)
|
|
15.17
|
|
|
|
|
|
|
Forfeited
|
(67
|
)
|
|
45.45
|
|
|
|
|
|
|
Outstanding as of June 30, 2016
|
3,110
|
|
|
$
|
32.40
|
|
|
7.29
|
|
$
|
85,303
|
|
|
Vested and expected to vest at June 30, 2016
|
2,958
|
|
|
$
|
31.72
|
|
|
7.20
|
|
$
|
83,136
|
|
|
Exercisable at June 30, 2016
|
1,502
|
|
|
$
|
18.23
|
|
|
5.45
|
|
$
|
62,492
|
|
As of
June 30, 2016
, there was
$25.4 million
of total unrecognized compensation cost related to unvested stock options which are expected to vest. The cost is expected to be recognized over a weighted-average period of approximately
3.0
years as of
June 30, 2016
.
The Company calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
Expected volatility
|
43.15
|
%
|
|
42.42
|
%
|
|
43.99
|
%
|
|
42.71
|
%
|
|
Risk-free interest rate
|
1.51
|
%
|
|
1.31
|
%
|
|
1.54
|
%
|
|
1.17
|
%
|
|
Expected term (in years)
|
4.74
|
|
|
4.87
|
|
|
4.74
|
|
|
4.87
|
|
|
Dividend yield
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation cost is measured at the grant date based on the fair value of the award. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. Expected volatility is determined using weighted-average volatility of peer publicly traded companies as well as the Company’s own historical volatility. The Company expects that it will increase weighting of its own historical data in future periods, as that history grows over time. The risk-free interest rate is determined by using published zero coupon rates on treasury notes for each grant date given the expected term on the options. The dividend yield of zero is based on the fact that the Company expects to invest cash in operations and has not paid cash dividends on its common stock. The Company estimates the expected term based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and expectations of future employee behavior such as exercises and forfeitures.
Restricted Stock Units
The Company grants restricted stock units to certain employees, officers, and directors under its 2010 Equity Incentive Plan (the "2010 Plan"). Restricted stock units vest upon performance-based, market-based, or service-based criteria.
Performance-based restricted stock units vest based on the satisfaction of specific performance criteria. At each vesting date, the holder of the award is issued shares of the Company’s common stock. Compensation expense from these awards is equal to the fair market value of the Company’s common stock on the date of grant and is recognized over the remaining service period based on the probable outcome of achievement of the financial metrics. Management’s estimate of the number of shares expected to vest is based on the anticipated achievement of the specified performance criteria.
Market-based performance restricted stock units are granted such that they vest upon the achievement of certain per share price targets of the Company’s common stock during a specified performance period. The fair market values of market-based performance restricted stock units are determined using the Monte Carlo simulation method. The Monte Carlo simulation method is subject to variability as several factors utilized must be estimated including the future daily stock price of the Company’s common stock over the specified performance period, the Company’s stock price volatility and the risk-free interest rate. The amount of compensation expense is equal to the per share fair value calculated under the Monte Carlo simulation
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
multiplied by the number of market-based performance restricted stock units granted, recognized over the specified performance period.
Generally, service-based restricted stock units vest over
four years
with
25%
of such restricted stock units vesting after
one year
and the balance vesting monthly over the remaining period.
In the first quarter of 2015 and 2016, the Company granted a total of
140,000
and
263,000
, respectively, of performance-based restricted stock units to certain executive officers. Performance-based restricted stock units are typically granted such that they vest upon the achievement of certain revenue growth rates and other financial metrics during a specified performance period for which participants have the ability to receive up to
150%
or
200%
of the target number of shares originally granted, depending on terms of the grant agreement.
The restricted stock units will be eligible to vest based on the Company’s achievement against an average annual earnings before interest, taxes, depreciation, and amortization margin target equal to or greater than
22%
and compound revenue growth target for the specified performance period.
The following table describes the levels of revenue growth target that must be met for the specified performance period for the restricted stock units granted in 2016 to vest:
|
|
|
|
|
|
Achievement of Revenue Growth Objective
|
Percentage of Restricted Stock Unit Vesting
|
|
20% and Greater
|
200% will vest
|
|
Between 15% but less than 20%
|
Between 100% and 200% will vest
|
|
Between 10% but less than 15%
|
Between 50% and 100% will vest
|
|
Below 10%
|
None will vest
|
Stock-based compensation expense related to restricted stock units was
$3.0 million
and
$4.9 million
for the three months ended
June 30, 2015
and
2016
, respectively, and
$5.6 million
and
$8.7 million
for the
six
months ended
June 30, 2015
and
2016
, respectively. Total unrecorded stock-based compensation cost at
June 30, 2016
associated with restricted stock units was
$24.9 million
, which is expected to be recognized over a weighted-average period of
1.97
years. These amounts have been restated as a result of the Company's corrected revenue and net income (loss) for the three and six months ended June 30, 2016. See Note 1 to our Condensed Consolidated Financial Statements in Part I, Item 1 included in this Quarterly Report on Form 10-Q/A for restatement details.
The following table summarizes information about restricted stock units issued to officers, directors and employees under the 2010 Plan (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Unvested at December 31, 2015
|
763
|
|
|
$
|
44.83
|
|
|
Granted
(1)
|
475
|
|
|
37.98
|
|
|
Vested
(2)
|
(328
|
)
|
|
20.55
|
|
|
Forfeited
|
(10
|
)
|
|
45.20
|
|
|
Unvested at June 30, 2016
|
900
|
|
|
$
|
50.04
|
|
|
|
|
|
(1)
|
Includes additional shares of performance-based restricted stock units, granted to certain executives in 2013 upon satisfying specified financial metrics for the performance period of January 1, 2013 through December 31, 2015, resulting in actual shares vesting at
150%
of the target number of shares originally granted.
|
|
|
|
|
(2)
|
Includes
264,000
shares vested from performance-based restricted stock units granted to certain executives in 2013 representing
150%
of the target number of shares originally granted.
|
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
Stock-based compensation is classified in the condensed consolidated statements of income (loss) in the same expense line items as cash compensation. Amounts recorded as expense in the condensed consolidated statements of income (loss) were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
|
|
|
Restated
|
|
|
|
Restated
|
|
Cost of revenues
|
$
|
898
|
|
|
$
|
1,818
|
|
|
$
|
1,699
|
|
|
$
|
2,968
|
|
|
Technology and development
|
295
|
|
|
621
|
|
|
342
|
|
|
1,106
|
|
|
Sales and marketing
|
668
|
|
|
738
|
|
|
1,332
|
|
|
1,446
|
|
|
General and administrative
|
2,952
|
|
|
4,356
|
|
|
5,876
|
|
|
8,004
|
|
|
Total
|
$
|
4,813
|
|
|
$
|
7,533
|
|
|
$
|
9,249
|
|
|
$
|
13,524
|
|
(10) Income Taxes
The Company's restatement had the following impact on its income tax allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
Six Months Ended June 30, 2016
|
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
Income tax (provision) benefit
|
$
|
(1,475
|
)
|
|
$
|
2,089
|
|
|
$
|
614
|
|
|
$
|
(5,287
|
)
|
|
$
|
2,089
|
|
|
$
|
(3,198
|
)
|
|
Effective tax rate
|
34.1
|
%
|
|
|
|
83.7
|
%
|
|
37.9
|
%
|
|
|
|
36.0
|
%
|
The income tax provision / (benefit) for the three months ended
June 30, 2015
and
2016
was
$2.9 million
and
$(0.6) million
, respectively, and the income tax provision for the
six
months ended
June 30, 2015
and
2016
was
$6.4 million
and
$3.2 million
, respectively. The Company's effective tax rate was
45.1%
and
83.7%
for the three months ended
June 30, 2015
and
2016
and
41.2%
and
36.0%
for the
six
months ended
June 30, 2015
and
2016
, respectively. The income tax provision decrease in the three and six months ended June 30, 2016, compared to the corresponding periods of 2015, was due primarily to the decrease in net income before income taxes. The Company provides for income taxes using an asset and liability approach, under which deferred income taxes are provided based upon enacted tax laws and rates applicable to periods in which the taxes become payable.
As of
June 30, 2016
, the Company remains in a net deferred tax asset position. The realization of the Company’s deferred tax assets depends primarily on its ability to generate sufficient U.S. taxable income in future periods. The amount of deferred tax assets considered realizable may increase or decrease in subsequent quarters as management reevaluates the underlying basis for the estimates of future domestic taxable income.
(11) Commitments and Contingencies
(a) Capital Lease Obligations
The Company leases equipment under capital lease obligations that expire at various dates ranging from 2016 to 2020. The weighted average effective interest rate of the Company’s capital lease obligations was
2.6%
as of June 30, 2016. Future minimum lease payments under capital lease obligations as of June 30, 2016 are
$0.6 million
. The Company recorded current and long-term portions of capital lease obligations of
$0.3 million
under other current liabilities and
$0.3 million
under non-current liabilities, respectively, in the condensed consolidated balance sheets. The Company has no future minimum lease payments under capital lease obligations extending beyond 2020.
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
(b) Operating Leases
The Company leases office space and equipment under noncancelable operating leases with various expiration dates through
2023
. Future minimum lease payments under noncancelable operating leases, excluding the contractual sublease income of
$11.8 million
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
As of
June 30, 2016
|
|
|
Restated
|
|
Remainder of 2016
|
$
|
3,402
|
|
|
2017
|
7,626
|
|
|
2018
|
7,795
|
|
|
2019
|
7,921
|
|
|
2020
|
7,717
|
|
|
Thereafter
|
13,662
|
|
|
Total future minimum lease payments
|
$
|
48,123
|
|
Rent expense for the three months ended
June 30, 2015
and
2016
was
$2.1 million
and
$1.7 million
, respectively and
$4.1 million
and
$3.3 million
for
six
months ended
June 30, 2015
and
2016
, respectively.
(c) Legal Matters
The Company is pursuing affirmative claims against the OPM to obtain payment for services provided by the Company between March 1, 2016 and August 31, 2016 pursuant to our contract with OPM for the Government’s Federal Flexible Account Program (“FSAFEDS”). The Company initially issued its invoice for these services in February 2017. On December 22, 2017, the Company received the Contracting Officer’s “final decision” refusing payment of the invoiced amount and otherwise denying the Company’s Certified Claim. As a result of this decision, and a related Certified Claim that OPM subsequently denied, on February 8, 2018, we filed an appeal to the Civilian Board of Contract Appeals (“CBCA”) against OPM for services provided by the Company between March 1, 2016 and August 31, 2016. On August 3, 2018, we filed an appeal to the CBCA of OPM’s June 21, 2018 denial of a Request for Equitable Adjustment for extra work associated with a contract modification imposing new security and other requirements not part of the original scope of FSAFED’s contract work. The aggregate amount of our claims is approximately
$9.1 million
. The cases have been consolidated and discovery is ongoing.
There have been multiple discovery motions, as well as motion to dismiss the claim we filed on August 3, 2018 which has been fully briefed and is awaiting a decision by the CBCA. The cases have been set for a hearing on the merits on April 24, 2019. However, because of the recent partial Government shutdown, it is anticipated that the hearing date will change. In connection with the Company’s claims against OPM, OPM has also claimed that an erroneous statement in a certificate signed by a former executive officer constituted a violation of the False Claims Act, and has moved to dismiss part of our claim against OPM as a result. As with all legal proceedings, no assurance can be provided as to the outcome of these matters or if we will be successful in recovering the full claimed amount.
On March 9, 2018, a putative class action - captioned Government Employees’ Retirement System of the Virgin Islands v. WageWorks, Inc., et al., No. 4:18-cv-01523-JSW - was filed in the United States District Court for the Northern District of California (the “Securities Class Action”) against the Company, our former Chief Executive Officer, and our former Chief Financial Officer. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on behalf of persons and entities that acquired WageWorks securities between May 6, 2016 and March 1, 2018, and alleges, among other things, that the defendants issued false and misleading financial statements. The plaintiffs seek unspecified damages, fees, interest, and costs. The Company believes that the claims are without merit. On August 7, 2018, the Court entered an order granting the motion of the Public Pension Group, consisting of Public Employees’ Retirement System of Mississippi, the Government Employees’ Retirement System of the Virgin Islands, and the New Mexico Public Employees Retirement Association of New Mexico, to be lead plaintiff. Under the schedule stipulated by the parties, and approved by the Court, lead plaintiff will file its consolidated amended complaint no later than forty-five (45) days following issuance of the Company’s Restatement.
On June 22, 2018 and September 6, 2018, two derivative lawsuits were filed against certain of our officers and directors and the Company (as nominal defendant) in the Superior Court of the State of California, County of San Mateo. Pursuant to
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)
the parties’ stipulation, which was approved by the Superior Court, the actions were consolidated. On July 23, 2018, a similar derivative lawsuit was filed against certain of our officers and directors and the Company (as nominal defendant) in the United States District Court for the Northern District of California (together, the “Derivative Suits”). The Derivative Suits purport to allege claims related to breaches of fiduciary duties, waste of corporate assets, and unjust enrichment. In addition, the complaint in District Court includes a claim for abuse of control, and the complaint in Superior Court includes a claim to require the Company to hold an annual shareholder meeting. The allegations in the Derivative Suits relate to substantially the same facts as those underlying the Securities Class Action described above. The plaintiffs seek unspecified damages and fees and costs. In addition, the complaint in the Superior Court seek for us to provide past operational reports and financial statements, to publish timely and accurate operational reports and financial statements going forward, to hold an annual shareholder meeting, and to take steps to improve its corporate governance and internal procedures.
Under the schedule stipulated by the parties, and approved by the Superior Court, the plaintiff in the Superior Court action will file its Consolidated Complaint within 45 days from the date we issue our Restatement. As stipulated by the parties, and approved by the District Court, the District Court action is stayed. The parties in the District Court action are to notify the District Court within 15 days of (1) the dismissal of the Securities Class Action, (2) the denial of defendants' motion(s) to dismiss, or (3) a party giving notice that they no longer consent to the voluntary stay.
From time to time, the Company may become involved in legal proceedings, claims and litigation arising in the ordinary course of business.
The Company voluntarily contacted the San Francisco office of the SEC Division of Enforcement regarding the restatement and independent investigation. The Company is providing information and documents to the SEC and will continue to cooperate with the SEC’s investigation into these matters. The U.S. Attorney’s Office for the Northern District of California also opened an investigation. The Company has provided documents and information to the U.S. Attorney’s Office and will continue to cooperate with any inquiries by the U.S. Attorney’s Office regarding the matter.
The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on currently available information, the Company does not believe that any additional liabilities relating to other unresolved matters are probable or that the amount of any resulting loss is estimable, and believes these other matters are not likely, individually and in the aggregate, to have a material adverse effect on its financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the Company's view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company's financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.
(12) Stockholders’ Equity
Share Repurchase Program
On August 6, 2015, the Board authorized a
$100 million
stock repurchase program which commenced immediately and expires on November 4, 2018. Repurchases made under this program may be made in the open market as the Company deems appropriate and market conditions allow. The Company repurchased
226,170
shares of common stock during the
six
months ended
June 30, 2016
for a total cost of
$9.4 million
, or an average price of
$41.43
per share. There were
no
shares of common stock repurchased during the three months ended
June 30, 2016
. As of June 30, 2016, the Company had
$85.6 million
available for future purchases under the stock repurchase program.
(13) Subsequent events
On November 1, 2016, the Company entered into an Asset Purchase Agreement with Automatic Data Processing Inc. ("ADP"), a leading global provider of human capital management solutions, to acquire ADP’s Consumer Health Spending Account and Consolidated Omnibus Budget Reconciliation Act ("COBRA") businesses for
$235.0 million
in cash.
In connection with the planned acquisition, the Company amended the Credit Agreement to increase the size of its revolving credit facility to
$250.0 million
. The acquisition is expected to close by the end of November 2016, subject to reasonable customary conditions.
For additional details on subsequent events, please refer to the Company's Form 10-K for the fiscal year ended December 31, 2017.
Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)