Acquisitions And Channel Partner Arrangements

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Acquisitions And Channel Partner Arrangements

Acquisitions and Channel Partner Arrangements

Ceridian Channel Partner Arrangement

In July 2013, the Company entered into a channel partner arrangement with Ceridian Corporation, or Ceridian, a global product and services company. Pursuant to the arrangement, Ceridian’s CDB account administration business for FSA and HRA was fully transitioned to the Company as of January 2015 with a final purchase price of $13.5 million. In conjunction with the transition, the Company also entered into a separate reseller arrangement with Ceridian.

In September 2015, the Company entered into another agreement with Ceridian to transition their COBRA and direct bill portfolio to the Company. In April 2016, the Company has completed the transition of this portfolio. The total cash consideration paid in 2015 and 2016 was $0.4 million and $21.1 million, recorded as acquired intangible assets. This relationship also allows Ceridian as a channel partner to resell the Company’s COBRA and direct bill services to their new and existing clients in addition to the full suite of healthcare and commuter products they have been selling.

CONEXIS Acquisition

On August 1, 2014, the Company entered into an Asset Purchase Agreement with CONEXIS Benefits Administrators, LP (“CONEXIS”), a Texas limited partnership and Word & Brown Insurance Administrator, Inc., a California corporation, pursuant to which the Company acquired substantially all of the assets of CONEXIS. CONEXIS is a leader in employee benefits administration and serves approximately 16,000 organizations of all sizes. This acquisition added a new base of CDBs customers and participant relationships. The purchase price was $118.0 million, adjusted for working capital adjustments, of which $108.0 million was paid at closing with the remaining balance classified in the consolidated balance sheets in the other current liabilities line item. The holdback obligation of $10.0 million was settled for $9.4 million in the third quarter of 2015 after working capital adjustments. The results of operations for CONEXIS have been included in the Company’s financial results since the acquisition.

Acquisition of the ADP CHSA/COBRA Business

On November 28, 2016, the Company completed the Asset Purchase Agreement ("APA") with Automatic Data Processing Inc. ("ADP"), a leading global provider of Human Capital Management solutions, to acquire ADP’s Consumer Health Spending Account ("CHSA"), COBRA, and direct bill businesses (together defined as the "ADP CHSA/COBRA Business") for approximately $235.0 million in cash. In connection with the APA, the Company borrowed $169.9 million against its $250.0 million revolving credit facility which had a maturity date of June 5, 2020.

Purchase Price Consideration and Allocationfor the ADP CHSA/COBRA Business

In accordance with Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), the acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total purchase consideration, assets acquired and the liabilities assumed are measured at fair value as of the date of acquisition when control is obtained. The fair value of the consideration transferred and the assets acquired and liabilities assumed was determined by the Company and in doing so relied in part upon a third-party valuation report to estimate the fair value of the identifiable intangible assets acquired. The following table summarizes the fair value of total consideration transferred for the acquisition, the total fair value of net identifiable assets acquired and the goodwill recorded (in thousands):

Goodwill represents the excess of the purchase consideration over the fair value of the underlying net assets acquired and liabilities assumed (amount in thousands):

Cash consideration	$	235,000
Less: Fair value of net identifiable assets acquired	(94,700		)
Goodwill	140,300

The estimated fair value of the identifiable assets acquired and liabilities assumed in the acquisition is based on management’s best estimates and valuation assumptions. The following table summarizes the estimated fair value of assets acquired and liabilities assumed as of November 28, 2016:

	Weighted
	Average
	Useful Life	Amount
	(in years)	(in thousands)
Cash		$	1,035
Accounts payable and accrued expenses		(1,035		)
Intangible assets subject to amortization:
Customer relationships	10	93,900
Existing technology - CHSA	2	500
Existing technology - COBRA	2	300
Total estimated fair value of net identifiable assets acquired		$	94,700

The unaudited pro forma condensed combined statement of income of the Company and ADP CHSA/COBRA Business for the year ended December 31, 2015 and for the nine months ended September 30, 2016 are presented as if the acquisition had closed on January 1, 2015. The pro forma information was prepared based on the historical financial statements and related notes of the Business and the Company, as adjusted for the pro forma impact of applying the acquisition method of accounting in accordance with U.S. GAAP. The unaudited pro forma condensed combined statements of income were prepared using the acquisition method of accounting with the Company treated as the acquiring entity.

The following unaudited pro forma condensed combined financial statements have been presented for informational purposes only. The pro forma data does not purport to represent what the combined Company’s results of operations actually would have been had the acquisition been completed as of the dates indicated, nor is it indicative of future operating results of the combined Company.

	Year Ended		Nine Months Ended
	December 31, 2015		September 30, 2016
	(In thousands, except per share data) (Unaudited)
Total revenue	$	466,278	$	358,860
Net income	$	39,610	$	24,664
Net income per share:
Basic	$	1.11	$	0.68
Diluted	$	1.08	$	0.67