10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________

FORM 10-Q/A

(Amendment No. 1)

__________________________________________________________

(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedMarch 31, 2017

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____________   to  ____________

Commission File Number: 001-35232

__________________________________________________________

WAGEWORKS, INC.

(Exact name of Registrant as specified in its charter)

__________________________________________________________

Delaware	94-3351864
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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1100 Park Place, 4th Floor

San Mateo, California 94403

(Address of principal executive offices, including zip code)

(650) 577-5200

(Registrant’s telephone number, including area code)

________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [ ]     No  [X]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   [ ]    No  [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[X]		Accelerated filer	[ ]
Non-accelerated filer	[ ]	(Do not check if a smaller reporting company)	Smaller reporting company	[ ]
			Emerging growth company	[ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [ ]    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [X]

As ofApril 18, 2019, therewere 39,852,857 sharesof the registrant’s common stock outstanding.

EXPLANATORY NOTE

In connection with our year-end financial statement close and preparation of our 2017 Form 10-K, misstatements were identified in certain of our previous financial statements. On April 5, 2018, the Board of Directors (the “Board”) of WageWorks, Inc. (the “Company”) 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 (collectively, the “Non-Reliance Periods”) 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 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 (the “Audit Committee”) of the Board as a result of the investigation described below and after consultation with the Company’s then independent auditors and management team. The investigation has included a review of certain issues, including revenue recognition related to the accounting for a government contract during fiscal 2016 and 2017 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 of revenue recognition under certain contracts and arrangements, and the impairment assessment for KP Connector, our internal use software, among other less material matters.

As described above, the restatement is the result of corrections in accounting under U.S. generally accepted accounting principles (“U.S. GAAP”) primarily related to revenue recognition for a government contract, the timing of revenue recognition under certain contracts and arrangements, and the impact of the impairment assessment for KP Connector, our internal use software, which resulted in a decrease to amortization expense in the three months ended March 31, 2017 after an impairment of the software was recorded in the restated 2016 Consolidated Financial Statements.

We are filing this Amendment No. 1 to the Quarterly Report on Form 10-Q ("Form 10-Q/A") for the quarterly period ended March 31, 2017, which was filed with the United States Securities and Exchange Commission (“SEC”) on May 4, 2017, (the "Original Filing"), to reflect restatements of the Condensed Consolidated Balance Sheet at March 31, 2017 and the Condensed Consolidated Statement of Income and Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2017, and the related notes thereto. The December 31, 2016 Condensed Consolidated Balance Sheet, included in this interim Quarterly Report on Form 10-Q/A, was derived from audited financial statements, as restated, in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016 which was filed with the SEC on April 26, 2019. The Condensed Consolidated Balance Sheet at March 31, 2017 and the Condensed Consolidated Statement of Income and Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2017, as restated, were previously included in Note 17, Selected Quarterly Financial Data, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 which was filed with the SEC on March 18, 2019.

The following sections in the Original Filing are revised in this Form 10-Q/A, solely as a result of, and to reflect, the restatement and conditions related to the restatement:

Part I - Item 1 - Financial Statements

Part I - Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part I - Item 4 - Controls and Procedures

Part II - Item 1A - Risk Factors

Part II - Item 6 - Exhibits

Pursuant to the rules of the SEC, Part II, Item 6 of the Original Filing has been amended to include the currently-dated certifications from our principal executive officer and principal financial officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the principal executive officer and principal financial officer are included in this Form 10-Q/A as Exhibits 31.1, 31.2 and 32.1.

For the convenience of the reader, this Form 10-Q/A sets forth the information in the Original Filing in its entirety, as such information is modified and superseded where necessary to reflect the restatement and related revisions. Except as provided above, and in Item 1, Note 1, this Form 10-Q/A does not reflect events occurring after the date of the Original Filing and should be read in conjunction with our filings with the SEC subsequent to the date of the Original Filing, in each case as those filings may have been superseded or amended.

WAGEWORKS, INC.

FORM 10-Q/A QUARTERLY REPORT

Table of Contents

		Page No.
	PART I
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	3
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2017 and 2016	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
	Signatures	45

2

PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

WAGEWORKS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

	March 31, 2017			December 31, 2016
	(As Restated, Note 1) (Unaudited)			Derived from Audited Financial Statements
Assets
Current assets:
Cash and cash equivalents	$	610,427		$	672,609
Restricted cash	332			332
Accounts receivable, net	154,985			93,413
Prepaid expenses and other current assets	15,403			20,258
Total current assets	781,147			786,612
Property and equipment, net	55,011			54,435
Goodwill	297,409			297,409
Acquired intangible assets, net	167,725			176,489
Deferred tax assets, net	18,779			15,690
Other assets	4,788			5,146
Total assets	$	1,324,859		$	1,335,781
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	96,132		$	72,677
Customer obligations	551,005			608,380
Other current liabilities	440			729
Total current liabilities	647,577			681,786
Long-term debt, net of financing costs	246,395			248,848
Other non-current liabilities	9,458			7,505
Total liabilities	903,430			938,139
Commitments and Contingencies (Note 12)
Stockholders' Equity:
Common stock, $0.001 par value (authorized 1,000,000 shares; 37,477 shares issued and 37,132 shares outstanding at March 31, 2017 and 37,247 shares issued and 36,902 shares outstanding at December 31, 2016)	38			37
Additional paid-in capital	401,354			397,307
Treasury stock at cost (345 shares at March 31, 2017 and December 31, 2016)	(14,374		)	(14,374		)
Retained earnings	34,411			14,672
Total stockholders’ equity	421,429			397,642
Total liabilities and stockholders’ equity	$	1,324,859		$	1,335,781

See accompanying notes to the condensed consolidated financial statements.

3

WAGEWORKS, INC.

Condensed Consolidated Statements ofIncome

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2017			2016
	(As Restated, Note 1)
Revenues:
Healthcare	$	74,674		$	50,370
Commuter	18,543			17,376
COBRA	28,550			15,406
Other	4,270			3,850
Total revenues	126,037			87,002
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	48,088			31,260
Technology and development	15,271			9,831
Sales and marketing	16,079			13,920
General and administrative	13,500			14,615
Amortization and change in contingent consideration	9,237			7,445
Employee termination and other charges	731			—
Total operating expenses	102,906			77,071
Income from operations	23,131			9,931
Other income (expense):
Interest income	67			86
Interest expense	(1,436		)	(405		)
Other income (expense), net	(221		)	(4		)
Income before income taxes	21,541			9,608
Income tax provision	(5,484		)	(3,812		)
Net income	$	16,057		$	5,796
Net income per share:
Basic	$	0.43		$	0.16
Diluted	$	0.42		$	0.16
Shares used in computing net income per share:
Basic	37,025			35,916
Diluted	38,441			36,529

See accompanying notes to the condensed consolidated financial statements.

4

WAGEWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2017			2016
	(As Restated, Note 1)
Cash flows from operating activities:
Net income	$	16,057		$	5,796
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation	2,568			1,778
Amortization and change in contingent consideration	9,236			7,348
Amortization of debt issuance costs	47			34
Stock-based compensation expense	3,780			5,991
Loss on disposal of fixed assets	72			20
Provision for doubtful accounts	346			801
Deferred taxes	593			—
Excess tax benefits related to stock-based compensation arrangements	—			(3,812		)
Changes in operating assets and liabilities:
Accounts receivable	(61,918		)	(18,113		)
Prepaid expenses and other current assets	4,854			(1,296		)
Other assets	3,017			105
Accounts payable and accrued expenses	23,194			5,346
Customer obligations	(57,375		)	73,793
Other liabilities	1,738			1,249
Net cash (used in) provided by operating activities	(53,791		)	79,040
Cash flows from investing activities:
Purchases of property and equipment	(5,576		)	(3,333		)
Purchases of intangible assets	(397		)	(7,629		)
Net cash used in investing activities	(5,973		)	(10,962		)
Cash flows from financing activities:
Proceeds from exercise of common stock options	4,071			4,697
Proceeds from issuance of common stock under Employee Stock Purchase Plan	769			511
Payments of debt principal	(2,500		)	—
Payment of contingent consideration	—			(653		)
Payment for treasury stock acquired	—			(9,371		)
Taxes paid related to net share settlement of stock-based compensation arrangements	(4,684		)	(5,551		)
Payment of capital lease obligations	(74		)	—
Excess tax benefits related to stock-based compensation arrangements	—			3,812
Net cash used in financing activities	(2,418		)	(6,555		)
Net (decrease) increase in cash and cash equivalents	(62,182		)	61,523
Cash and cash equivalents at beginning of period	672,609			500,918
Cash and cash equivalents at end of period	$	610,427		$	562,441
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest	$	1,262		$	358
Income Taxes	$	171		$	1,555
Noncash financing and investing activities:
Property and equipment accrued, but not paid	$	523		$	6,571

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See accompanying notes to the condensed consolidated financial statements.

5

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 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, and considers itself to operate under one operating and reporting segment with healthcare, transit and other employer sponsored programs representing a group of similar products lines. The Company believes that it engages in a single business activity and operates in a single economic environment.

Basis of Presentation

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” or “GAAP”). The results of the interim period presented herein are not necessarily indicative of the results of future periods or annual results for the year ending December 31, 2017.

These unaudited interim condensed consolidated financial statements and the related notes should be read in conjunction with the December 31, 2016 audited financial statements and related notes, as restated, 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 for the year ended December 31, 2017. The December 31, 2016 consolidated balance sheet, included in this interim Quarterly Report on Form 10-Q/A, was derived from audited financial statements, as restated, in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016 which was filed with the SEC on April 26, 2019. Certain prior year amounts in the condensed consolidated statements of cash flows have been reclassified to conform to the current year’s presentation as a result of the adoption of new accounting guidance ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). See "Recent Accounting Pronouncements" section below.

Other than the adoption of ASU 2016-09, 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, 2016 included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016, as restated.

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

In preparing the condensed consolidated financial statements and related disclosure in conformity with GAAP, including all adjustments as a result of the Company's restatement, and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"), the Company must make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to allocation of purchase consideration to acquired assets and liabilities from business combinations, allowances for doubtful accounts, useful lives for depreciation and amortization, loss contingencies, income taxes, the assumptions used for stock-based compensation including attainment of performance-based awards, the assumptions used for software and website development cost classification, and recoverability and impairments of goodwill and long-lived assets. Actual results may be materially different from those estimates. In making its estimates, the Company considers the current economic and legislative environment.

6

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

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 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 the Company’s then current independent auditors 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 2017, 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 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 the audit of the financial statements accounting and financial reporting errors were identified. The matters primarily resulted in corrections in accounting under U.S. generally accepted accounting principles related to revenue recognition for a government contract, the timing of revenue recognition under certain contracts and arrangements, the impairment assessment for KP Connector, the Company's internal use software, and adjustments made to the accounts receivable and customer obligations balances. Accordingly, the Company is restating its unaudited condensed consolidated financial statements for the three months ended March 31, 2017, to correct these errors, the most significant of which are described below.

Revenue Recognition Adjustments

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 revenue in 2016 and 2017 attributed to such services. In April 2018, the Company determined that it should not have recognized revenue related to these OPM professional services, and the related receivable should be reversed. Additionally, the Company identified a number of billing and revenue recognition errors. As a result, the Company has made adjustments to increase revenue by $1.0 million for the three months ended March 31, 2017.

	For the Three Months Ended March 31, 2017
	Revenue Restatement Adjustments (in thousands)
	OPM			Invoice Adjustments		Revenue Recognition Timing		Total
Healthcare	$	(110	)	$	222	$	566	$	678
Commuter	—			191		—		191
COBRA	—			(3)		256		253
Other	—			(92)		—		(92)
Total	$	(110	)	$	318	$	822	$	1,030

Internally Developed Software Impairment

In 2016, 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 required the services provided by the Company. Accordingly, the Company determined that KP

7

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

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 and a corresponding reduction of property and equipment, net, in the consolidated balance sheets. The Company also reversed previously recorded amortization expenses in the three months ended March 31, 2017 by $0.3 million.

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 months ended March 31, 2017. 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:

	Three Months Ended March 31, 2017
	As Previously Reported		Adjustments			As restated
Stock-based compensation expense related to restricted stock units (in millions)	$	5.0	$	(4.1	)	$	0.9
	At March 31, 2017
	As Previously Reported		Adjustments			As restated
Total unrecorded stock-based compensation cost associated with restricted stock units (in millions)	$	52.2	$	(25.2	)	$	27.0

Total restatement adjustments for stock-based compensation expense (in thousands):

	Three Months Ended March 31, 2017
	As Previously Reported		Adjustments			As restated
Cost of revenues	$	1,723	$	17		$	1,740
Technology and development	618		(7		)	611
Sales and marketing	774		12			786
General and administrative	4,854		(4,211		)	643
Total	$	7,969	$	(4,189	)	$	3,780

The Company recorded additional adjustments to the condensed consolidated financial statements for the three months ended March 31, 2017, primarily related to the following transactions:

• to correct for billing errors and the recognition of invoices and related invoice adjustments in the proper reporting period;

• to account for the reserve of potentially uncollectible customer obligations for pass-through employee participant reimbursements in the proper period;

• 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 CustomerObligations;

• to record interest and penalties for unreported employee participant and employer clients unclaimed property;

• to record capital lease obligations originally recognized incorrectly as operating leases;

• to record the reclassification of Customer Obligations from Accounts Receivable based on the correction of the timing of employer client billings and payments; and

• to record the reduction in certain operating expense due to over-accrual.

8

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

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 months ended March 31, 2017.

The tax impact in connection with the restatement adjustments was recorded for the three months ended March 31, 2017. See Note 11, Income Taxes, for details.

The following table presents the Company's condensed consolidated balance sheet as previously reported, restatement adjustments and the condensed consolidated balance sheet as restated as of March 31, 2017 (in thousands):

Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except per share amounts)
	March 31, 2017
	As Previously Reported			Adjustments				As Restated
Assets
Current assets:
Cash and cash equivalents	$	609,416		$	1,011		(a)	$	610,427
Restricted cash	332			—				332
Accounts receivable, net	135,459			19,526			(b)	154,985
Prepaid expenses and other current assets	16,721			(1,318		)	(c)	15,403
Total current assets	761,928			19,219				781,147
Property and equipment, net	57,258			(2,247		)	(d)	55,011
Goodwill	297,409			—				297,409
Acquired intangible assets, net	167,725			—				167,725
Deferred tax assets, net	16,539			2,240			(e)	18,779
Other assets	4,942			(154		)	(f)	4,788
Total assets	$	1,305,801		$	19,058			$	1,324,859
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	95,593		539			(g)	$	96,132
Customer obligations	525,040			25,965			(h)	551,005
Other current liabilities	196			244			(i)	440
Total current liabilities	620,829			26,748				647,577
Long-term debt, net of financing costs	246,395			—				246,395
Other non-current liabilities	10,916			(1,458		)	(j)	9,458
Total liabilities	878,140			25,290				903,430
Stockholders' Equity:
Common stock, $0.001 par value (authorized 1,000,000 shares; 37,477 shares issued and 37,132 shares outstanding at March 31, 2017 and 37,247 shares issued and 36,902 shares outstanding at December 31, 2016)	38			—				38
Additional paid-in capital	411,696			(10,342		)	(k)	401,354
Treasury stock at cost (345 shares at March 31, 2017 and December 31, 2016)	(14,374		)	—				(14,374		)
Retained earnings	30,301			4,110				34,411
Total stockholders' equity	427,661			(6,232		)		421,429
Total liabilities and stockholders' equity	$	1,305,801		$	19,058			$	1,324,859

9

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

(a) Adjustment of $1.0 million relates to an increase to cash and cash equivalents to correct timing differences associated with obligation payments from employer clients and the receipt of cash in the Company's bank accounts. The offset resulted in a net reclassification to cash and cash equivalents from accounts receivable of $3.3 million, offset by a net reclassification to customer obligations from cash and cash equivalents of $2.3 million.

(b) Adjustment relates to (i) a $26.7 million increase from the reclassification of accounts receivable to customer obligations based on the correction of the timing of customer billing and payments and an adjustment to the allowance for doubtful accounts (ii) partially offset by a $5.1 million reduction in accounts receivable from the restatement of OPM revenue, as discussed above, of which $6.3 million relates to the reduction of revenue and $1.2 million relates to the reduction of short-term and long-term deferred revenue, and (iii) a $2.1 million revenue adjustment primarily due to accruals to correct the recording of invoices, credit memos and billing adjustments in the proper period.

(c) Adjustment of $1.3 million relates to change in income tax receivable as result of the impact of the restatement on restated taxable income.

(d) Adjustment of $2.2 million relates to (i) a $3.7 million impairment charge for IDS, as discussed above, offset by the reversal of amortization expense of $0.9 million associated with IDS previously recorded in during year ended December 31, 2016 and the three months ended March 31, 2017 and (ii) $0.6 million for net assets under capital lease obligations originally recognized incorrectly as operating leases, offset by the $0.1 million of depreciation expense on equipment purchased under capital lease obligations.

(e) Adjustment relates to $2.2 million increase in deferred tax asset as result of the impact of the restatement adjustments noted in (a) through (k).

(f) Adjustment for the write-off uncollectible deposit.

(g) Adjustment primarily relates to a $0.7 million interest and penalties accrual for unreported employee participant and employer clients unclaimed property, $0.6 million related to customer cash refund related to billing errors offset partially by $0.8 million reduction in accounts payable from the restatement of OPM revenue as discussed above, and unrelated to billing errors.

(h) Adjustment relates to (i) a $26.7 million increase for the reclassification of customer obligations from accounts receivable based on the correction of the timing of employer client billings and payments, (ii) a $1.1 million increase related to OPM reclassification, and (iii) $1.7 million related to the re-valuation and write-off of customer obligations, partially offset by a $3.6 million reduction 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 customer obligations to cash and cash equivalents.

(i) Adjustment primarily relates to $0.2 million increase to record the current portion of capital lease obligations originally recognized incorrectly as operating lease obligations.

(j) Adjustment relates to $0.3 million increase to the non-current portion of capital lease obligations originally recognized incorrectly as operating lease obligations, offset by $1.8 million decrease related to OPM deferred revenue.

(k) Adjustment of $10.3 million relates to a $3.3 million reduction in stock-based compensation expense as a result of reduced target attainment percentages expected for performance-based restricted stock units and a $7.1 million tax provision adjustment related to the restatement.

The following table presents the Company's condensed consolidated statement of income as previously reported, restatement adjustments and the condensed consolidated statement of income as restated as March 31, 2017 (in thousands, except per share amounts):

10

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
	Three Months Ended March 31, 2017
	As Previously Reported			Adjustments				As Restated
Revenues:
Healthcare	$	73,996		$	678			$	74,674
Commuter	18,352			191				18,543
COBRA	28,297			253				28,550
Other	4,362			(92		)		4,270
Total revenues	125,007			1,030			(l)	126,037
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	47,204			884			(m)	48,088
Technology and development	15,339			(68		)	(n)	15,271
Sales and marketing	16,061			18			(o)	16,079
General and administrative	20,565			(7,065		)	(p)	13,500
Amortization and change in contingent consideration	9,533			(296		)	(q)	9,237
Employee termination and other charges	731			—				731
Total operating expenses	109,433			(6,527		)		102,906
Income from operations	15,574			7,557				23,131
Other income (expense):
Interest income	67			—				67
Interest expense	(1,365		)	(71		)	(r)	(1,436		)
Other income (expense), net	(216		)	(5		)	(s)	(221		)
Income before income taxes	14,060			7,481				21,541
Income tax provision	(2,962		)	(2,522		)	(t)	(5,484		)
Net income	$	11,098		$	4,959			$	16,057
Net income per share:
Basic	$	0.30		$	0.13			$	0.43
Diluted	$	0.29		$	0.13			$	0.42
Shares used in computing net income per share:
Basic	37,025			—				37,025
Diluted	38,441			—				38,441

(l) Revenue adjustment of $1.0 million for the three months ended March 31, 2017 was primarily due to (i) an increase in 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 (ii) partially offset by adjustments for OPM revenue.

(m) Adjustment of $0.9 million relates primarily to (i) a $0.6 million expense increase as a result of the adjustment of platform technology related expenses; (ii) a $0.2 million expense increase related to recognition of expenses in the proper reporting period; and (iii) a $0.1 million increase in the reserve of potentially uncollectible customer obligations for pass through employee participant reimbursement.

(n) Adjustment relates primarily to a reduction related to the over-accrual of platform technology related expenses.

(o) Adjustment relates primarily to changes in accruals for sales commissions and corporate bonus expenses.

(p) Adjustment of $7.1 million relating to (i) a $2.8 million reduction in bad debt expense related to the re-valuation of the allowance for doubtful accounts; (ii) a $4.2 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); and (iii) a $0.1 million expense reduction related to recognition of expenses in the proper reporting period.

11

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

(q) Adjustment relates primarily to the reversal of amortization expense previously recorded in connection with the Internally Developed Software related to KP Connector that was impaired by the Company in 2016.

(r) Adjustment relates primarily to interest expense on unreported employee participant and employer clients’ unclaimed property.

(s) Adjustment to accrued penalties on unreported employee participant and employer clients unclaimed property.

(t) Adjustment of $2.5 million relates to an increase in the quarterly tax provision as a result of the impact of the restatement adjustments in (l) through (s).

12

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The following table presents the Company's unaudited condensed consolidated statement of cash flows as previously reported, restatement adjustments and the unaudited condensed consolidated statement of cash flows as restated as of the three months ended March 31, 2017 (in thousands):

Footnote references below refer to footnotes (a) through (t) in the condensed consolidated balance sheet and condensed consolidated statement of income tables as at and for the three months ended March 31, 2017 above.

Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
	Three Months Ended March 31, 2017
	As Previously Reported			Adjustments				As Restated
Cash flows from operating activities:
Net income	$	11,098		$	4,959		(l) to (t)	$	16,057
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation	2,491			77			(d)	2,568
Amortization and change in contingent consideration	9,533			(297		)	(q)	9,236
Amortization of debt issuance costs	—			47			(p)	47
Stock-based compensation expense	7,969			(4,189		)	(p)	3,780
Loss on disposal of fixed assets	72			—				72
Provision for doubtful accounts	2,395			(2,049		)	(p)	346
Deferred taxes	—			593			(e)	593
Changes in operating assets and liabilities:
Accounts receivable	(44,966		)	(16,952		)	(b)	(61,918		)
Prepaid expenses and other current assets	5,360			(506		)	(c)	4,854
Other assets	358			2,659			(f)	3,017
Accounts payable and accrued expenses	22,366			828			(g)	23,194
Customer obligations	(78,802		)	21,427			(h)	(57,375		)
Other liabilities	1,559			179			(i)	1,738
Net cash used in operating activities	(60,567		)	6,776				(53,791		)
Cash flows from investing activities:
Purchases of property and equipment	(5,576		)	—				(5,576		)
Purchases of intangible assets	(397		)	—				(397		)
Net cash used in investing activities	(5,973		)	—				(5,973		)
Cash flows from financing activities:
Proceeds from exercise of common stock options	4,071			—				4,071
Proceeds from issuance of common stock under Employee Stock Purchase Plan	769			—				769
Payments of debt principal	(2,500		)	—				(2,500		)
Payments of capital lease obligations	—			(74		)	(d)	(74		)
Taxes paid related to net share settlement of stock-based compensation arrangements	(4,684		)	—				(4,684		)
Net cash used in financing activities	(2,344		)	(74		)		(2,418		)
Net decrease in cash and cash equivalents	(68,884		)	6,702				(62,182		)
Cash and cash equivalents at beginning of period	678,300			(5,691		)		672,609
Cash and cash equivalents at end of period	$	609,416		$	1,011			$	610,427

13

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 consist of cash on deposit with banks and money market funds, 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 and cash equivalents represent 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 payment of participant healthcare claims and commuter benefits), 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 which were issued to the benefit of a third party to secure a contract with the Company.

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 the three months ended March 31, 2017 and 2016 were not significant.

The Company offsets on a customer by customer basis unpaid amounts for benefit services and customer obligation balances for financial reporting presentation. 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.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining 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 and we consider counterparty credit risk in our assessment of fair value. Carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate their fair values as of the balance sheet dates because of their short maturities. The carrying value of the Company’s debt under the credit facility is estimated to approximate fair value as the interest rate approximates the market rate for debt securities with similar terms and risk characteristics.

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.

• 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.

14

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

• 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.

Property and Equipment 

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation on computer and equipment and furniture and fixtures is calculated on a straight-line basis over the estimated useful lives of those assets, ranging from three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful life or the lease term. When events or circumstances suggest an asset’s life is different than initially estimated, management reassesses the useful life of the asset and recognizes future depreciation prospectively over the revised life. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation / amortization are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in operating expenses. Maintenance and repairs are expensed as incurred. Expenditures that substantially increase an asset’s useful life are capitalized. 

Software and Website Development Costs 

Costs incurred to develop software for internal use are capitalized and amortized over the technology’s estimated useful life, generally four years. When events or circumstances suggest an asset’s life is different than initially estimated, management reassesses the useful life of the asset and recognizes future amortization prospectively over the revised life. Costs incurred related to the planning and post implementation phases of development are expensed as incurred. Costs associated with the platform content or the repair or maintenance, including transfer of data between existing platforms are expensed as incurred.

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 three months ended March 31, 2017 and 2016.

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, ranging generally from one to ten years. Amortization expense related to these intangible assets is included in amortization, impairment and change in contingent consideration 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; and

15

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

•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. If impairment is deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required.

Income Taxes 

The Company reports income taxes using an asset and liability approach. Deferred tax assets and liabilities arise from the differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under current enacted tax law. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized. 

The Company records a valuation allowance to reduce the deferred tax assets to the amount that the Company believes is more likely than not to be realized based on its judgment of all available positive and negative evidence. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified. This assessment, which is completed on a taxing jurisdiction basis, takes into account a number of types of evidence, including the following:

• The nature and history of current or cumulative financial reporting income or losses;

• Sources of future taxable income;

• The anticipated reversal or expiration dates of the deferred tax assets; and

• Tax planning strategies.

The Company takes a two-step approach to recognizing and measuring the financial statement benefit of uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement of the audit. The Company classifies interest and penalties on unrecognized tax benefits as income tax expense or benefit.

16

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Customer Obligations Liability

Many of our customer agreements include provisions whereby our customers 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. 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.

Revenue Recognition

The Company reports revenue based on the following product lines: Healthcare, Commuter, COBRA and Other revenue. Healthcare and Commuter include revenues generated from benefit service fees based on employee / participant levels and interchange and other commission revenues. Interchange and other commission revenues are subject to revenue share arrangements and are based on a percentage of total healthcare and commuter dollars transacted using cards distributed by the Company pursuant to written purchase agreements with certain vendors and banks. COBRA revenue is generated from the administration of continuation of coverage services for participants who are no longer eligible for their employer’s health benefits, such as medical, dental, vision and for the continued administration of employee participants’ HRAs, and certain healthcare Flexible Spending Accounts (“FSAs”). Other revenue includes services related to enrollment and eligibility, non-healthcare, and employee account administration (i.e., tuition and health club reimbursements) and project-related professional services. 

The Company recognizes revenue when collectability is reasonably assured, service has been performed, persuasive evidence of an arrangement exists, and there is a fixed or determinable fee. 

Benefit service fees are recognized on a monthly basis as services are rendered and earned under service arrangements where fees and commissions are fixed or determinable and collectability is reasonably assured. Benefit service fees are based on a fee for service model (e.g., monthly fee per participant) in which revenue is recognized on a monthly basis as services are rendered under price quotations or service agreements having stipulated terms and conditions, which do not require management to make any significant judgments or assumptions regarding any potential uncertainties. Fees received for initial setup of clients and renewal fees are deferred and recognized on a monthly basis as services are rendered over the agreed benefit period. Contracts with initial setup fees generally have an initial term of one year. The agreed benefit period means the length of the benefit plan year, which is one year. The initial setup fees and annual renewal fees are not considered separable from the ongoing services provided for which benefit service fees are earned. 

Vendor and bank interchange revenues are attributed to revenue sharing arrangements the Company enters into with certain banks and card associations, whereby the Company shares a portion of the transaction fees earned by these financial institutions on debit cards the Company issues to its employee participants based on a percentage of total dollars transacted as reported on third-party reports.

Other commission revenue consists of commissions the Company receives from purchasing passes on behalf of its employee participants from various transit agencies and due to the significant volume of these purchases, the Company receives commissions on these passes which the Company records on a net basis. Commission revenue is recognized on a monthly basis as transactions are placed under written purchase agreements having stipulated terms and conditions, which do not require management to make any significant judgments or assumptions regarding any potential uncertainties. 

Professional service fees are related to services provided to the Company’s employer clients to accommodate their reporting or administrative requirements. These projects are discrete contracts and are not entered into contemporaneously with any other services the Company provides. The professional services revenues are recognized upon completion of services or

17

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

projects in accordance with agreed upon terms and conditions, which do not require management to make any significant judgments or assumptions regarding any potential uncertainties and where fees are fixed or determinable and collectability is reasonably assured. Cost of revenue is presented on an aggregate basis because the Company provides for services at the client level and not by product.

Stock-based Compensation

Stock-based compensation expense is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes or Monte Carlo option pricing model or the market value of the Company's stock on the grant date and is recognized as an expense over the requisite service period, which is generally the vesting period. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the estimated volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates, estimated forfeitures, and expected dividends.

Restricted Stock Units ("RSUs"), Market-based performance RSUs, and Performance-based Stock Units ("PSUs") are measured based on the fair market values of the underlying stock on the dates of grant. The vesting of PSUs awarded is conditioned upon the attainment of performance objectives over a specified period and upon continued employment through the applicable vesting date. At the end of the performance period, shares of stock subject to PSUs vest based upon both the level of achievement of performance objectives within the performance period and continued employment through the applicable vesting date.

Stock-based compensation expense is calculated based on awards ultimately expected to vest and is reduced for estimated forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated annual forfeiture rates for stock options, RSUs, and PSUs are based on historical forfeiture experience.

The estimated fair value of stock options and RSUs are expensed on a straight-line basis over the vesting term of the grant and the estimated fair value of PSUs are expensed using an accelerated method over the term of the award once management has determined that it is probable that the performance objective will be achieved. Compensation expense is recorded over the requisite service period based on management's best estimate as to whether it is probable that the shares awarded are expected to vest. Management assesses the probability of the performance milestones being met on a continuous basis.

We estimate expected volatility based on the historical volatility of comparable companies from a representative peer-group as well as our own historical volatility. We estimate 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. We base the risk-free interest rate on zero-coupon yields implied from U.S. Treasury issues with remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future, and therefore, use an expected dividend yield of zero in the option pricing model. We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The estimated attainment of performance-based awards and related expense is based on the expectations of revenue and earnings before interest, tax and depreciation and amortization ("EBITDA") target achievement over a specified three year performance period. If we use different assumptions for estimating stock-based compensation expense in future periods, or if actual forfeitures differ materially from our estimated forfeitures, future stock-based compensation expense may differ significantly from what we have recorded in the current period and could materially affect our income from operations, net income and net income per share.

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

In March 2016, the Financial Accounting Standards Board ("FASB") Issued Accounting Standards Update ("ASU") No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when an award vests or is settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as financing activity but should be classified as operating activities. The standard also increases the amount of shares an employer can withhold for tax purposes without triggering liability accounting, clarifies that all cash payments made on employee's behalf for withheld shares should be

18

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

presented as a financing activity in the statements of cash flows, and provides an entity-wide accounting policy election to account for forfeitures as they occur.

The Company adopted this standard during the first quarter of 2017. As required by the standard, excess tax benefits recognized on stock-based compensation expense were reflected in our condensed consolidated statements of income as a component of the provision for income taxes rather than additional paid-in capital on a prospective basis. The cumulative effect of this accounting change resulted in an increase of $3.6 million to deferred tax assets and an offset to the opening retained earnings of $3.6 million in the condensed consolidated balance sheets as of January 1, 2017. For the three months ended March 31, 2017, the Company recorded excess tax benefits in the amount of $2.6 million within our provision for income taxes in the condensed consolidated statements of income.

For presentation requirements, the Company elected to prospectively apply the change in the presentation of excess tax benefits wherein excess tax benefits recognized on stock-based compensation expense were classified as operating activities on the condensed consolidated statements of cash flows. Prior period classification of cash flows related to excess tax benefits were not adjusted.

The Company elected to retrospectively apply the ASU 2016-09 presentation requirements for cash flows related to employee taxes paid for withheld shares to be presented as financing activities. Consequently, on the condensed consolidated statement of cash flows for the three months ended March 31, 2016, the Company reclassified $5.6 million to increase net cash provided by operating activities and decrease net cash used in financing activities.

Further, the Company did not elect an accounting change to record forfeitures as they occur. The Company continues to estimate forfeitures at each period.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, supersedes most current revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The FASB subsequently issued a one year deferral of the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP (ASU 2015-14, Revenue from Contracts with Customers(Topic 606): Deferral of the Effective Date). In accordance with the deferral, the guidance is effective for annual reporting periods beginning after December 15, 2017. Subsequently, the FASB issued ASU 2016-08, Revenue from Contracts with Customers(Topic 606): Principal versus Agent Considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842).

The Company will adopt the standard on January 1, 2018 and will apply the modified retrospective method of adoption to those contracts which were not completed as of that date. Upon adoption, the Company will recognize the cumulative effect of adopting this guidance as an adjustment to its opening balance of retained earnings. Prior periods will not be retrospectively adjusted.

The Company anticipates the primary impact of adopting the new standard will result in the increase in assets from the deferral of incremental commission related to the cost of obtaining subscription contracts. Under Topic 605, the Company expensed all direct and incremental commission costs to obtain a contract. Under the new standard, the Company will defer all incremental commission costs to obtain the contract. These costs are amortized to sales and marketing expense on a consistent basis that reflects the transfer of services to the customer over an estimated period of benefit that has been determined to be six years. The Company expects the impact of adopting ASC 606 to result in an approximate increase in total assets of $9.3 million and an increase in retained earnings of $6.9 million (net of tax effect) as of January 1, 2018. For tax purposes, this change in accounting policy will change the timing of the book deduction, which will result in a book/tax difference.  Since tax is deducting the commission expense before books, this will result in a taxable temporary difference and deferred tax liability. The Company expects the tax impact to increase deferred tax liability in the amount of $2.4 million with a decreasing offset to retained earnings upon adoption.

19

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

In February 2016, the FASB issued ASC No. 842, Leases, (Topic 842). The Company currently expects that its operating lease commitments will be subject to the new standard and be recognized as operating lease liabilities and right-of-use assets upon our adoption of Topic 842, which will increase the total assets and total liabilities that we report relative to such amounts prior to adoption. Refer to Note 12 for further information on our operating lease commitments. The Company plans to adopt Topic 842 using the alternative modified retrospective approach with the cumulative effect of adoption recognized to retained earnings on January 1, 2019. The Company does not believe the new standard will have a material impact on its consolidated statements of income, nor will it have a notable impact on its liquidity. The standard will also have no impact on our debt-covenant compliance under our current agreements. The Company expects the adoption of the standard to have a material impact on the balance sheet as a result of recording a right-of-use asset and lease liability associated with a number of lease arrangements.

 In March 2016, the FASB issued ASU 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 does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash flows: Classification of Certain Cash Receipts and Cash Payments, (ASU 2016-15). The update provides specific guidance on a number of cash flow classification issues including contingent consideration payments made after a business combination, proceeds from settlement of insurance claims, proceeds from settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, and separately identifiable cash flows and application of the predominance principle. The update to the standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance principally affects accounting standards for equity investments, financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for financial instruments. Upon the effective date of the new guidance, all equity investments in unconsolidated entities, other than those accounted for using the equity method of accounting, will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification and therefore, no changes in fair value will be reported in other comprehensive income (loss) for equity securities with readily determinable fair values. The new guidance on the classification and measurement will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to GAAP an impairment model (known as the "current expected credit loss model") that is based on expected losses rather than incurred losses. ASU 2016-13 is effective for annual reporting periods ending after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the timing and impact of adoption of this ASU on its consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 addresses diversity in practice from entities classifying and presenting transfers between cash and restricted cash as operating, investing or financing activities or as a combination of those activities in the statement of cash flows. The ASU requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the Statement of Cash Flows. As a result, transfers between such categories are no longer be presented in the Statement of Cash Flows. The Company will adopt this standard on January 1, 2018 using the retrospective method. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements and related disclosures.

20

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new accounting guidance clarifies the definition of a business and provides additional guidance to assist entities with evaluating whether transactions should be accounted for as asset acquisitions (or asset disposals) or business combinations (or disposals of a business). Under this new guidance, an entity first determines whether substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this criterion is met, the transaction should be accounted for as an asset acquisition as opposed to a business combination. This distinction is important because the accounting for an asset acquisition significantly differs from the accounting for a business combination. This new guidance eliminates the requirement to evaluate whether a market participant could replace missing elements (e.g. inputs or processes), narrows the definition of outputs and requires that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the timing of adoption.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new standard is expected to be effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the timing of adoption; however, it does not believe this ASU will have a material impact on the Company's consolidated financial statements.

Note 2    Net Income per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):

໿

	Three months ended March 31,
	2017		2016
	(As Restated, Note 1)
Numerator for basic net income per share:
Net income	$	16,057	$	5,796
Denominator for basic net income per share:
Weighted-average common shares outstanding	37,025		35,916
Basic net income per share	$	0.43	$	0.16
Numerator for diluted net income per share:
Net income	$	16,057	$	5,796
Denominator for diluted net income per share:
Weighted-average common shares outstanding	37,025		35,916
Dilutive stock options and restricted stock units	1,357		515
Dilutive vested performance restricted stock units	59		98
Diluted weighted-average common shares outstanding	38,441		36,529
Diluted net income per share	$	0.42	$	0.16

21

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

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. The Company excluded 0.6 million and 1.4 million anti-dilutive shares in the calculation of diluted earnings per share for the three months ended March 31, 2017 and 2016, respectively.

Note 3     Goodwill and Intangible Assets

Goodwill

There is no change in the carrying amount of goodwill for the three months ended March 31, 2017.

Intangible Assets

Acquired intangible assets at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017							December 31, 2016
	(As Restated, Note 1)
	Gross carrying amount		Accumulated amortization			Net		Gross carrying amount		Accumulated amortization			Net
Amortizable intangible assets:
Client contracts and broker relationships	$	230,299	$	(66,572	)	$	163,727	$	232,560	$	(60,569	)	$	171,991
Trade names	3,880		(3,239		)	641		3,880		(3,078		)	802
Technology	14,646		(12,162		)	2,484		14,646		(11,867		)	2,779
Noncompete agreements	2,232		(1,959		)	273		2,232		(1,941		)	291
Favorable lease arrangements	1,136		(536		)	600		1,136		(510		)	626
Total	$	252,193	$	(84,468	)	$	167,725	$	254,454	$	(77,965	)	$	176,489

22

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Amortization expense of intangible assets totaled $6.5 million and $4.3 million for the three months ended March 31, 2017 and 2016, respectively. These costs are included in amortization and change in contingent consideration in the accompanying condensed consolidated statements of income. Acquired intangible assets are amortized on a straight-line basis generally over one to ten years.

The Company accelerated amortization of 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.

The estimated amortization expense in future periods at March 31, 2017 is as follows (in thousands):

໿

Remainder of 2017	$	18,837
2018	24,579
2019	23,656
2020	21,673
2021	18,868
Thereafter	60,112
Total	$	167,725

Note 4    Accounts Receivable

Accounts receivable at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017			December 31, 2016
	(As Restated, Note 1)
Trade receivables	$	69,120		$	54,887
Unpaid amounts for benefit services	87,344			40,542
	156,464			95,429
Less: allowance for doubtful accounts	(1,479		)	(2,016		)
Accounts receivable, net	$	154,985		$	93,413

Note 5     Property and Equipment

Property and equipment at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017			December 31, 2016
	(As Restated, Note 1)
Computers and equipment	$	18,149		$	17,254
Software and software development costs	106,519			102,998
Furniture and fixtures	6,786			6,784
Leasehold improvements	19,431			19,477
	$	150,885		$	146,513
Less: accumulated depreciation and amortization	(95,874		)	(92,078		)
Property and equipment, net	$	55,011		$	54,435

During the three months ended March 31, 2017 and 2016, the Company capitalized software development costs of $4.1 million and $3.4 million, respectively. Amortization expense related to capitalized software development costs was $2.7 million and $3.1 million for the three months ended March 31, 2017 and 2016, respectively. These costs are included in amortization, impairment and change in contingent consideration in the accompanying condensed consolidated statements of income. At March 31, 2017, the unamortized software development costs included in property and equipment in the accompanying condensed consolidated balance sheets were $28.2 million.  

Total depreciation expense plus amortization of software and internally developed software for the three months ended March 31, 2017 and 2016 was $5.3 million and $4.9 million, respectively.

As a result of the Company's restatement, the Company recorded assets under capital lease obligations which were originally recognized incorrectly as operating leases. As of March 31, 2017 and December 31, 2016, property and equipment acquired under capital lease obligations was $1.7 million and was classified as computers and equipment. Accumulated depreciation for assets acquired under capital lease obligations was $0.9 million and $0.8 million, respectively, as of March 31, 2017 and December 31, 2016.

23

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 consolidated statements of income and a corresponding reduction of property and equipment, net, in the consolidated balance sheets. The Company also reversed previously recorded amortization expenses for the first quarter of 2017 by $0.3 million.

Note 6     Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

24

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

	March 31, 2017		December 31, 2016
	(As Restated, Note 1)
Accounts payable and accrued liabilities	$	27,173	$	21,830
Payable to benefit providers and transit agencies	29,570		24,528
Accrued compensation and related benefits	20,872		20,223
Other accrued expenses	4,561		3,752
Deferred revenue	13,956		2,344
Accounts payable and accrued expenses	$	96,132	$	72,677

Note 7     Long-term debt

As of March 31, 2017 and December 31, 2016, long-term debt consisted of the following (dollar in thousands):

	March 31, 2017			December 31, 2016
Revolving credit facility	$	247,500		$	250,000
Less: Outstanding letters of credit	(500		)	(500		)
Outstanding revolving credit facility	247,000			249,500
Unamortized loan origination fees	(605		)	(652		)
Long-term debt	$	246,395		$	248,848

On June 5, 2015, the Company entered into an Amended and Restated Credit Agreement ("Amended Credit Agreement") with certain lenders, including MUFG Union Bank, N.A., as administrative agent ("Agent"). With a $15.0 million subfacility 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.

On August 1, 2016, the Company entered into a First Amended and Restated Credit Agreement (the "First Amended Credit Agreement") with the Agent to increase the revolving credit facility credit limit from $150.0 million to $250.0 million. The First Amended Credit Agreement did not change the Company's $15.0 million subfacility limit or its option to increase its commitments up to $100.0 million. The credit facility's maturity date, June 5, 2020, and interest rate, London Interbank Offered Rate ("LIBOR") plus a margin ranging from 1.25% to 1.75%, also remained unchanged. Subsequent to entering into the First Amended Credit Agreement, the Company borrowed additional funds in the amount of $169.9 million from the revolving credit facility in connection with the acquisition of the ADP CHSA/COBRA Business. In connection with the First Amended Credit Agreement, the Company incurred fees of approximately $0.2 million, which are being amortized over the term of the Amended Credit Agreement.

As of March 31, 2017, the Company had $247.0 million outstanding under the revolving credit facility and $2.5 million unused revolving credit facility still available to borrow under the Amended Credit Agreement.

The Company’s obligations are secured by substantially all of the Company’s assets. All of the Company’s existing and future material subsidiaries are required to guarantee the Company’s obligations under the credit facility. The guarantees by future material subsidiaries are and will be secured by substantially all of the property of such material subsidiaries.

The credit facility contains financial and non-financial covenants including debt ratio and interest coverage ratio requirements. We are currently in compliance with all financial and non-financial covenants under the credit facility after considering the reporting extension agreement described below.

25

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

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.

On April 4, 2017, the Company entered into a Second Amended and Restated Credit Agreement (the “Second Credit Agreement”), by and among the Company, the guarantors from time to time party thereto, the lenders from time to time party thereto, and MUFG Union Bank, N.A., as administrative agent (“Agent”). The Second Amended Credit Agreement amends and restates the Company’s existing Amended and Restated Credit Agreement, dated as of June 5, 2015, by and among the Company, the guarantors from time to time party thereto, the lenders from time to time party thereto and Agent.

The Credit Agreement provides for a $400.0 million revolving credit facility, with a $15.0 million letter of credit subfacility. The Second Amended Credit Agreement contains an increase option permitting the Company, subject to certain conditions and requirements, to arrange with existing lenders and/or new lenders to provide up to an aggregate of $100.0 million in additional commitments. Loan proceeds may be used for general corporate purposes, including acquisitions permitted under the Second Amended Credit Agreement. The Company may prepay loans under the Second Amended Credit Agreement in whole or in part at any time without premium or penalty. At April 4, 2017, the Company had outstanding revolving loans in an aggregate principal amount of $247.0 million under the Credit Agreement and an undrawn letter of credit in a face amount of $500,000.

The loans bear interest, at the Company’s option, at (i) LIBOR determined in accordance with the Second Amended Credit Agreement, plus a margin of 1.25% to 2.25%, or (ii) a base rate determined in accordance with the Second Amended Credit Agreement, plus a margin of 0.25% to 1.25%, in each case with such margin determined based on the Company’s consolidated leverage ratio for the preceding four fiscal quarter period. Interest is due and payable in arrears quarterly for base rate loans and at the end of an interest period for LIBOR loans. Principal, together with all accrued and unpaid interest, is due and payable on April 4, 2022. The Company is also obligated to pay other customary closing fees, commitment fees and letter of credit fees for a facility of this size and type.

The Company’s obligations under the Second Amended Credit Agreement are secured by substantially all of the Company’s assets. All of the Company’s future material subsidiaries are required to guaranty its obligations under the Second Amended Credit Agreement. The guarantees by future material subsidiaries are and will be secured by substantially all of the assets of such subsidiaries.

The Second Amended Credit Agreement requires that the Company maintain compliance with (i) a ratio of consolidated indebtedness to consolidated adjusted EBITDA for the twelve month period ending as of the end of each fiscal quarter, calculated in accordance with the Second Amended Credit Agreement, of not greater than 3.00 to 1.00 and (ii) a ratio of consolidated adjusted EBITDA to consolidated interest expense for the twelve month period ending as of the end of each fiscal quarter, calculated in accordance with the Second Amended Credit Agreement, of not less than 1.50 to 1.00.

On April 5, 2018, our Board concluded the previously issued financial statements for (i) the quarterly periods ended September 30, June 30 and March 31, 2017, (ii) the annual period ended December 31, 2016 and (iii) the quarterly periods ended September 30 and June 30, 2016 should be restated and should no longer be relied upon. Consequently, we did not meet our obligation to provide our financial statements to the Agent by the contractual delivery date. In March 2018, we entered into a Reporting Extension Agreement (the “Extension Agreement”), by and among the Company, the lenders party thereto and MUFG Union Bank, N.A., as administrative agent to extend the time period for delivery to Agent and the lenders our delinquent financial statements to June 30, 2018. In June 2018, we entered into a Second Reporting Extension Agreement and paid the Agent $0.8 million to extend the delivery date of our delinquent financial statements to March 16, 2019. In March 2019, the Company entered into a Third Reporting Extension Agreement and paid the Agent $0.1 million to extend the delivery date of any remaining delinquent financial statements to May 10, 2019.

Note 8     Organizational Efficiency Plan

In 2015, the Company initiated the organizational efficiency plan and continued to evaluate ways to improve business processes to ensure that operations align with its strategy and vision for the future. The Company integrated operations and consolidated certain positions resulting in employee headcount reductions during the three months ended March 31, 2017 and recognized a charge of $0.7 million as employee termination and other charges. The Company recorded these costs within accrued expenses in the accompanying condensed consolidated balance sheets. 

Changes in the Company’s accrued liabilities for workforce reduction costs during the three months ended March 31, 2017 are as follows (in thousands):

	Amount
Beginning balance as of December 31, 2016	$	—
Employee termination and other charges	731
Releases	(346		)
Ending balance as of March 31, 2017	$	385

Note 9     Employee Benefit Plans

Stock-based compensation

Stock-based compensation is classified in the condensed consolidated statements of income in the same expense line items as cash compensation. Amounts recorded as expense in the condensed consolidated statements of income were as follows (in thousands):  

	Three Months Ended March 31,
	2017		2016
	(As Restated, Note 1)
Cost of revenues	$	1,740	$	1,150
Technology and development	611		485
Sales and marketing	786		707
General and administrative	643		3,649
Total	$	3,780	$	5,991

26

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Employee Stock Option Plan

In May 2010, the Company adopted the 2010 Equity Incentive Plan ("2010 Plan"). Under the 2010 Plan, the Company can grant share-based awards to all employees, including executive officers, outside consultants and non-employee directors. Options under the 2010 Plan generally have a term of 10 years and vest over 4 years with 25% vesting after one year of service and monthly vesting over the remaining period. As of March 31, 2017, the 2010 Plan has a total of 3.4 million common stock shares available for issuance.

The following table summarizes the weighted-average fair value of stock options granted:

	Three Months Ended March 31,
	2017		2016
Stock options granted (in thousands)	518		496
Weighted-average fair value at date of grant	$	26.74	$	16.62

Stock option activity for the three months ended March 31, 2017 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, 2016	2,844		$	33.74	7.00	$	110,256
Granted	518		72.69
Exercised	(118	)	34.46
Forfeited	(109	)	54.50
Outstanding as of March 31, 2017	3,135		$	39.42	7.21	$	103,234
Vested and expected to vest at March 31, 2017	3,002		$	38.71	7.14	$	100,996
Exercisable at March 31, 2017	1,593		$	23.83	5.55	$	77,215

As of March 31, 2017, there was $23.9 million of total unrecognized stock-based compensation expense associated with stock options which will be recognized over a weighted-average period of approximately three years.  Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Restricted Stock Units

The Company grants restricted stock units ("RSU") to certain employees, officers, and directors under the 2010 Plan. RSUs vest upon performance-based, market-based, or service-based criteria.

In the first quarter of 2017 and 2016, the Company granted a total of 343,000 and 263,000, respectively, of performance-based restricted stock units to certain executive officers. Performance-based RSUs are typically granted such that they vest upon the achievement of certain revenue growth rates and other financial metrics during a specified three year performance period. Participants have the ability to receive a percentage of the targeted number of shares originally granted which is up to a maximum of 200%, for 2017 and 2016.

In the first quarter of 2017, the market-based performance RSUs achieved 50% of the target attainment because the Company’s common stock achieved a certain per share price, reported on the New York Stock Exchange (“NYSE”), for 20 consecutive trading days during the 36 month performance period ended April 7, 2017.

On April 5, 2018, the Board concluded that the previously issued financial statements for (i) the quarterly periods ended September 30, June 30 and March 31, 2017, (ii) the annual period ended December 31, 2016 and (iii) the quarterly periods ended September 30 and June 30, 2016 should be restated and should no longer be relied upon. As a result, the previously issued financial statements for the aforementioned reporting periods are considered not issued. The Company updates the stock-based compensation expense based on the number of performance-based RSUs it expects to vest as of each period end. During the Non-Reliance Period, the expected achievement for performance-based RSUs granted in 2017 and 2016 was reassessed based on the restated financial statement resulting in their expected achievement percentage being reduced from 130% to 81% for 2016 grants and from 130% to 56% for 2017 grants.

27

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Stock-based compensation expense related to restricted stock units was $0.9 million and $3.8 million for the three months ended March 31, 2017 and 2016, respectively. Total unrecorded stock-based compensation expense at March 31, 2017 associated with restricted stock units was $27.0 million, which is expected to be recognized over a weighted-average period of approximately two years.

The following table summarizes information about restricted stock units issued to officers, directors and employees under the 2010 Equity Incentive Plan (shares in thousands):

	(Shares in thousands)					Weighted-average grant date fair value
	Service- based RSUs		Performance- based RSUs		Market-based RSUs	Service- based RSUs		Performance- based RSUs		Market-based RSUs
Unvested at December 31, 2016	257		491		166	$	50.49	$	51.03	$	49.38
Granted (1)	25		379		—	73.50		71.02		—
Vested (2)	(40	)	(124	)	—	34.70		57.10		—
Forfeited and cancelled	(9	)	(21	)	—	58.45		58.57		—
Unvested at March 31, 2017	233		725		166	$	55.41	$	60.21	$	49.38

(1) Performance-based RSUs include additional shares granted as specified financial metrics for the performance-based restricted stock units, granted to certain executives in 2014, during the performance period of January 1, 2014 through December 31, 2016 were met, resulting in actual shares vesting at 141% of the target number of shares originally granted. The weighted average grant date fair value of these additional shares was $57.10. In addition, there are additional shares granted as specified financial metrics for the performance-based RSUs, which were granted to certain executives in February 2017.

(2) Performance-based RSUs include approximately 123,750 shares vested from performance-based restricted stock units granted to certain executives in 2014 representing 141% of the target number of shares originally granted.

Note 10     Stockholders’ Equity

Share Repurchase Program

On August 6, 2015, the Board authorized a $100 million stock repurchase program which commenced on November 5, 2015 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. There were no shares of common stock repurchased during the three months ended March 31, 2017. During the three months ended March 31, 2016, the Company repurchased 226,170 shares of common stock for a total cost of $9.4 million, or an average price of $41.43 per share. As of March 31, 2017, the Company had $85.6 million available for future purchases under the stock repurchase program.

Note 11     Income Taxes 

The Company reports 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. The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Presently, there are no income tax examinations on-going in the jurisdictions where the Company operates.

The income tax provision for the three months ended March 31, 2017 and 2016 was $5.5 million and $3.8 million, respectively. The Company's effective tax rate was 25.5% and 39.7% for the three months ended March 31, 2017 and 2016, respectively.

As of March 31, 2017, 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.

28

Note 12    Commitments and Contingencies

(a) Capital Lease Obligations

The Company leases equipment under capital lease obligations that expire at various dates through 2020. Future minimum lease payments under capital lease obligations as of March 31, 2017 are $0.5 million. The Company recorded the current and long-term portions of capital lease obligations of $0.2 million under other current liabilities and $0.3 million under non-current liabilities, respectively, in the condensed consolidated balance sheet. 

(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 $11.5 million which is expected to be received through February 2023 are as follows (in thousands):

	As of March 31, 2017
	(As Restated, Note 1)
Remainder of 2017	$	6,704
2018	9,043
2019	9,180
2020	8,986
2021	8,591
Thereafter	6,566
Total future minimum lease payments	$	49,070

Rent expense for the three months ended March 31, 2017 and 2016 was $1.9 million and $1.6 million, respectively. Sublease income for the three months ended March 31, 2017 was $0.3 million. There was no sublease income recognized for the same period in 2016.

(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 also 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. In March 2019, the Company filed a Motion for Summary Judgement with CBCA on the December 22^nd denial by the OPM. The government has until May2019 to respond. In order to accelerate resolution of all matters before the CBCA, the Company’s appeal of the June 21^st denial by the OPM was withdrawn on April 9, 2019. The remaining claim related to the OPM’s December 22^nd denial, valued at approximately $6.2 million, is scheduled to go to trial in July 2019. 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

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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 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. In addition, in accordance with the relevant authoritative guidance, for matters which the likelihood of material loss is at least reasonable possible, the Company provides disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, the Company will provide disclosure to that effect. 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.

The Company is involved in various other litigation, governmental proceedings and claims, not described above, that arise in the normal course of business. While it is not possible to determine the ultimate outcome or the duration of such litigation, governmental proceedings or claims, the Company believes, based on current knowledge and the advice of counsel, that such litigation, proceedings and claims will not have a material impact on the Company’s financial position or results of operations.

Note 13     Subsequent Events

On April 4, 2017, the Company entered into a Second Amended and Restated Credit Agreement (the “Second Credit Agreement”), by and among the Company, the guarantors from time to time party thereto, the lenders from time to time party

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

thereto, and the Agent to increase the size of its revolving credit facility to $400.0 million with a $15.0 million letter of credit subfacility. All the material terms of the Second Amended Credit Agreement are disclosed in Note 7 Long-term debt.

At the beginning of the second quarter of 2018, and in conjunction with the Company’s announcement of its intention to restate its 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, the Company announced certain changes to its management team, effective April 5, 2018, including:

• Mr. Joseph L. Jackson resigning from his position as Chief Executive Officer and being appointed Executive Chairman of the Company.

• Mr. Edgar O. Montes being appointed President and Chief Executive Officer and being appointed to serve as a member of the Board.

• Mr. Colm M. Callan resigning from his position as Chief Financial Officer and continuing his employment with the Company to effect a seamless transition to the incoming interim chief financial officer followed by the termination of his employment on July 4, 2018.

• Ms. Kimberly L. Wilford resigning from her position as Senior Vice President, General Counsel and Corporate Secretary of the Company and continuing her employment with the Company to effect a seamless transition followed by the termination of her employment on July 4, 2018.

The transition arrangements are described in the Form 8-K filed with the U.S. Securities and Exchange Commission on April 5, 2018. 

Mr. Jackson resigned from his position as Executive Chairman of the Company effective September 6, 2018.  Mr. Jackson executed a release of claims with the Company as part of his resignation providing him with certain compensation and benefits, as described in the Form 8-K filed with the U.S. Securities and Exchange Commission on September 12, 2018.

On October 15, 2018, Mr. Ismail Dawood was appointed Chief Financial Officer of the Company after previously serving as the Interim Chief Financial Officer and principal financial officer since April 9, 2018, and on January 14, 2019, Mr. John G. Saia joined the Company as Senior Vice President, General Counsel and Corporate Secretary.

In March 2019, the Company reduced the long-term debt principal with a $60.0 million payment.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q/A. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Statements that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. Such statements include, but are not limited to, statements concerning market opportunity, our future financial and operating results, investment strategy, sales and marketing strategy, management’s plans, beliefs and objectives for future operations, technology and development, economic and industry trends or tread analysis, expectations about seasonality, opportunities for portfolio purchases, acquisitions, channel partnerships and carrier relationships, use of non-GAAP financial measures,operating expenses, anticipated income tax rates, capital expenditures, cash flows and liquidity. These statements are based on the beliefs and assumptions of our management based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other important factors that could causeactual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified in Part I, Item 1A, “Risk Factors”, of our Annual Report on Form 10-K/A for the year ended December 31, 2016. Furthermore, such forward-looking statements speakonly as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such events.

Overview

We are a leader in administering Consumer-Directed Benefits ("CDBs"), which empower employees to save money on taxes while also providing corporate tax advantages for employers. We are solely dedicated to administering CDBs, including pre-tax spending accounts such as Health Savings Accounts ("HSAs"), health and dependent care Flexible Spending Accounts ("FSAs"), Health Reimbursement Arrangements ("HRAs"), as well as Commuter Benefit Services, including transit and parking programs, wellness programs, Consolidated Omnibus Budget Reconciliation Act ("COBRA"), and other employee benefits in the United States.

We deliver our CDB programs through a highly scalable delivery model that employer clients and their employee participants may access through a standard web browser on any Internet-enabled device, including computers, smart phones, and other mobile devices such as tablet computers. Our on-demand delivery model eliminates the need for our employer clients to install and maintain hardware and software in order to support CDB programs and enables us to rapidly implement product enhancements across our entire user base.

Our CDB programs assist employees and their families in saving money by using pre-tax dollars to pay for certain portions of their healthcare, dependent care, and commuter expenses. Employers financially benefit from our programs through reduced payroll taxes, the benefits of which are realized even after factoring in our fees. Under our FSA, HSA, and commuter programs, employee participants contribute funds from their pre-tax income to pay for qualified out-of-pocket healthcare expenses, not fully covered by insurance, such as co-pays, deductibles, and over-the-counter medical products or for commuting costs.

We price our services based on the estimated number and types of claims, whether payment processing and client support activities will be provided within or outside of the United States, the estimated number of calls to our customer support center, and any specific client requirements. In addition, we derive a portion of our revenues from interchange fees that we receive when employee participants use the prepaid debit cards we provide to them for healthcare and commuter expenses.

Restatement

Management’s Discussion and Analysis of Financial Condition and Results of Operations have been updated to reflect the effects of the restatement described in Note 1 to our Condensed Consolidated Financial Statements in Part I, Item 1 included in this Quarterly Report on Form 10-Q/A.

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Critical Accounting Policies and Significant Management Estimates

Refer to Note 1 to our Condensed Consolidated Financial Statements in Part I, Item 1 included in this Quarterly Report on Form 10-Q/A,which is incorporated into this Item 2 by reference.

Results of Operations

Revenue

Revenue and changes in revenue by product for the three months ended March 31, 2017 and 2016 were:

	Three Months Ended March 31,
	2017				2016
(Dollars in thousands)	Amount		% of Revenue		Amount		% of Revenue		$ Change		% Change
	(As Restated)		(As Restated)						(As Restated)		(As Restated)
Revenues:
Healthcare	$	74,674	59	%	$	50,370	58	%	$	24,304	48	%
Commuter	18,543		15	%	17,376		20	%	1,167		7	%
COBRA	28,550		23	%	15,406		18	%	13,144		85	%
Other	4,270		3	%	3,850		4	%	420		11	%
Total revenues	$	126,037	100	%	$	87,002	100	%	$	39,035	45	%

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Healthcare Revenue

We derive our healthcare revenue from the service fees paid by our employer clients for the administration services we provide in connection with their employee participants’ FSAs, HRAs, and HSAs. We also earn interchange revenue paid by financial institutions related to transaction fees on debit cards used by employee participants in connection with all of our healthcare programs and through our wholesale card program and revenue from self-service plan kits called Premium Only Plan kits.

Healthcare revenue increased by $24.3 million, or 48% for the three months ended March 31, 2017 as compared to the same period in 2016. The increase was primarily driven by the revenue associated with the acquisition of ADP's CHSA and COBRA businesses, which includes related interchange fee revenue, and revenue generated from administering FSAFEDS. The increase in healthcare revenue was further increased by the addition of new clients and growth in new employee participation for FSA and HSA and to a lesser extent, an increase in interchange fee and other incentive revenue as a result of a contract renegotiation for our debit card usage.

Commuter Revenue

We derive our commuter revenue from monthly service fees paid by our employer clients, interchange revenue paid by financial institutions related to transaction fees on debit cards used by employee participants in connection with our commuter solutions, and commissions from the sale of transit passes used in our commuter solutions which we purchase from various transit agencies on behalf of employee participants.

Commuter revenue increased by $1.2 million, or 7% for the three months ended March 31, 2017, as compared to the same period in 2016. The increase was primarily due to the addition of new clients and growth in the number of employee participation and an increase in interchange fee revenue.

COBRARevenue

COBRA revenue is derived from administration services we provide to employer clients for continuation of coverage for participants who are no longer eligible for the employer’s health benefits, such as medical, dental, and vision, and for the continued administration of the employee participants’ HRAs and certain healthcare FSAs.

COBRA revenue increased by $13.1 million, or 85% for the three months ended March 31, 2017, as compared to the same period in 2016. The increase was primarily driven by the revenue associated with the acquisition of ADP's CHSA and COBRA

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businesses and the transition of the COBRA portfolio in connection with our channel partner agreement with Ceridian. The remainder of the COBRA revenue growth was due to an increase in participation by employer clients in our COBRA administration services.

Other Revenue

Other revenue includes enrollment and eligibility services, employee account administration (i.e., tuition and health club reimbursements), project-related professional fees and other program incentives. 

Other revenue increased by $0.4 million, or 11% for the three months ended March 31, 2017, as compared to the same period in 2016. The increase was primarily due to an increase in revenue from other program incentives.

Cost of Revenues

	Three Months Ended March 31,
(Dollars in thousands)	2017			2016			$ Change		% Change
	(As Restated)						(As Restated)		(As Restated)
Cost of revenues (excluding amortization of internal use software)	$	48,088		$	31,260		$	16,828	54	%
Percent of revenue	38		%	36		%

Cost of revenues consist of direct expenses for claims processing, product support, and customer service personnel, outsourced and temporary labor, check/ACH payment processing services, debit card processing services, shipping and handling, passes, and employee participant communications.

Cost of revenues increased by $16.8 million, or 54% for the three months ended March 31, 2017, as compared to the same period in 2016. The increase was primarily due to an increase in compensation and related benefits associated with the headcount and outsourced services to support the acquisition of ADP's CHSA and COBRA businesses, the administration of the FSAFEDS, and new clients transitioned under the channel partner arrangement with Ceridian.

As we continue to scale our operations, we expect our cost of revenues to increase in dollar amount to support increased employer client and employee participant levels. Cost of revenues will continue to be affected by our portfolio purchases, acquisitions and channel partner arrangements. Prior to migrating to our proprietary technology platforms, new portfolios often operate with higher service delivery costs that result in increased cost of revenues until we are able to complete the migration process, which typically occurs over the 12 to 24 month period following closing of the portfolio purchase or acquisition.

Operating Expenses

Technology and Development

	Three Months Ended March 31,
(Dollars in thousands)	2017		2016		$ Change		% Change
	(As Restated)				(As Restated)		(As Restated)
Technology and development	15,271		9,831		$	5,440	55	%
Percent of revenue	12	%	11	%

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Technology and development expenses consist of personnel and related expenses, outsourced programming services, on-demand technology infrastructure, and expenses associated with equipment and software development and licenses.

Technology and development expenses increased by $5.4 million, or 55% for the three months ended March 31, 2017, as compared to the same period in 2016. The increase was primarily due to an increase in compensation and related benefits, outsourced service costs, services and software related expenses to administer FSAFEDS and to support the growth from the acquisition of ADP's CHSA and COBRA businesses and the clients transitioned under the channel partner agreement with Ceridian. The increase was partially offset by a decrease in costs associated with a specific development effort.

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We intend to continue enhancing the functionality of our software platform as part of our continuous effort to improve our employer client and employee participant experience and to maintain and enhance our control and compliance environment. The timing of development and enhancement projects, including the nature of expenditures as well as the phase of the project that could require capitalization or expense treatment, will significantly affect our technology and development expense both in dollar amount and as a percentage of revenues.  

Sales and Marketing

	Three Months Ended March 31,
(Dollars in thousands)	2017		2016		$ Change		% Change
	(As Restated)				(As Restated)		(As Restated)
Sales and marketing	16,079		13,920		$	2,159	16	%
Percent of revenue	13	%	16	%

Sales and marketing expenses consist primarily of compensation and related expenses for our sales, client services, and marketing staff, including sales commissions for our direct sales force and external agent/broker commission expense, as well as communication, promotional, public relations, and other marketing expenses.

Sales and marketing expenses increased by $2.2 million, or 16% for the three months ended March 31, 2017, as compared to the same period in 2016. The increase was primarily due to an increase in compensation and related benefit costs associated with overall promotional marketing initiatives, offset by a decrease in outside commission expenses due to the termination of our relationship with certain brokers.

We continue to invest in sales, client services, and marketing by hiring additional personnel and continuing to build our broker and channel relationships. We will also promote our brand through a variety of marketing and public relations activities. As a result, we expect our sales and marketing expenses to increase in dollar amount in future periods.

General and Administrative

	Three Months Ended March 31,
(Dollars in thousands)	2017		2016		$ Change			% Change
	(As Restated)				(As Restated)			(As Restated)
General and administrative	13,500		14,615		$	(1,115	)	(8	)%
Percent of revenue	11	%	17	%

General and administrative expenses include personnel and related expenses and professional fees incurred by our executive, finance, legal, human resources, and facilities departments.

General and administrative expenses decreased by $1.1 million, or 8% for the three months ended March 31, 2017, as compared to the same period in 2016. The decrease was primarily due a reduction in stock-based compensation expense as a result of reduced target attainment percentages expected for performance-based restricted stock units and a reduction in bad debt expense related the re-valuation of the allowance for doubtful accounts, partially offset by an increase in compensation and related benefit costs and facility related expenses to support the overall growth in our business.

Amortization and Change in Contingent Consideration

	Three Months Ended March 31,
(Dollars in thousands)	2017		2016		$ Change		% Change
	(As Restated)				(As Restated)		(As Restated)
Amortization and change in contingent consideration	9,237		7,445		$	1,792	24	%
Percent of revenue	7	%	9	%

Our amortization consists of three components: amortization of internal use software, amortization of acquired intangible assets, and change in contingent consideration. We capitalize our software development costs related to the development and enhancement of our business solutions. When the technology is available for its intended use, the capitalized costs are

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amortized over the technology’s estimated useful life, which is generally four years. Acquisition-related intangible assets are also amortized over their estimated useful lives.  

Amortization and change in contingent consideration increased by $1.8 million or 24% for the three months ended March 31, 2017, as compared to the same period in 2016, primarily due to an increase in amortization resulting from the acquired intangibles from ADP's CHSA and COBRA businesses.

Employee Termination and Other Charges

	Three Months Ended March 31,
(Dollars in thousands)	2017		2016		$ Change		% Change
	(As Restated)				(As Restated)		(As Restated)
Employee termination and other charges	731		—		$	731	100	%
Percent of revenue	1	%	—	%

Employee termination and other charges increased by $0.7 million for three months ended March 31, 2017, as compared to the same period in 2016, primarily driven by our continued assessment of organizational efficiency by outsourcing our marketing initiatives which reduced our headcount.

Other Income (Expense)

	Three Months Ended March 31,
(Dollars in thousands)	2017			2016			$ Change			% Change
	(As Restated)						(As Restated)			(As Restated)
Interest income	$	67		$	86		$	(19	)	(22	)%
Interest expense	(1,436		)	(405		)	(1,031		)	(255	)%
Other income (expense), net	(221		)	(4		)	(217		)	(5,425	)%

Interest expense increased by $1.0 million or 255% for the three months ended March 31, 2017, as compared to the same period in 2016, primarily due to an increased revolving credit facility balance in connection with the acquisition of ADP's CHSA and COBRA businesses in November 2016, capital lease obligations previously recorded incorrectly as operating leases and unreported employee participant and employer clients unclaimed property.  The increase in other expense for the three months ended March 31, 2017, as compared to the same period in 2016, was primarily due to a one-time loss in our share of an equity investment.

Income Taxes

	Three Months Ended March 31,
(Dollars in thousands)	2017			2016			$ Change		% Change
	(As Restated)						(As Restated)		(As Restated)
Income before income taxes	$	21,541		$	9,608
Income tax provision	(5,484		)	(3,812		)	(1,672	)	(44	)%
Effective tax rate	25.5		%	39.7		%

Income tax provision increased by $1.7 million or 44% for the three months ended March 31, 2017 as compared to the same period in 2016, primarily due to an income tax offset related to the recognition of excess tax benefits on stock-based compensation, pursuant to the adoption of ASU 2016-09. We recorded excess tax benefits within our provision for income taxes in the amount of $2.6 million (as restated) during the three months ended March 31, 2017.

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Liquidity and Capital Resources

At March 31, 2017, our principal sources of liquidity were cash and cash equivalents totaling $610.4 million comprised primarily of funding by clients of amounts to be paid on behalf of employee participants.

We believe that our existing cash and cash equivalents, available credit from our revolving credit facility, and expected cash flow from operations will be sufficient to meet our working capital, debt, capital expenditures, and stock repurchase needs, as well as anticipated cash requirements for potential future portfolio purchases over at least the next 12 months. We have historically been able to fulfill our obligations as incurred and expect to continue to fulfill our obligations in the future. Our expectation is based on our current and anticipated client retention rates and our continuing funding model in which the vast majority of our enterprise clients provide us with prefunds as more fully described below under “Prefunds.” To the extent these current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, including any potential portfolio purchases, we may need to raise additional funds through public or private equity or debt financing. We cannot provide assurance that we will be able to raise additional funds on favorable terms, if at all.

Prefunds

Under our contracts with the vast majority of our employer clients, we receive prefunds that have been and are expected to continue to be a significant source of cash flows from operating activities. Our client contracts do not contain restrictions on our use of client prefunds and, as a result, each prefund is reflected in cash and cash equivalents on our condensed consolidated balance sheet with an equivalent customer obligation recorded as a liability as the prefund is received. Changes in these prefunds and the corresponding customer obligations are reflected in our cash flows from operating activities. The timing of when employer clients make their prefunds as well as the timing of when we make payments on behalf of employee participants can significantly affect our cash flows.

The operation of these prefunds for our employer clients throughout the year typically is as follows: at the beginning of a plan year, these employer clients 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 on a weekly basis by our FSA and HRA employer clients and on a monthly basis by our commuter employer clients, in each case, the replenishment occurs after we have advanced the funds necessary to process employee participants’ FSA and HRA claims as they are submitted to us and to pay vendors relating to our commuter programs. As a result, our cash balances can vary significantly depending upon the timing of invoicing and the date payment is received from our employer clients for reimbursement of payments we have made on behalf of employee participants. This prefunding activity covers our estimate of approximately one week of spending on behalf of the employer client’s employee participants. We do not require a prefund to administer any of our HSA programs because employee participants in these programs only have access to funds they have previously contributed. 

RevolvingCredit Facility (Credit Agreement)

In August 2016, we entered into a First Amended and Restated Credit Agreement with MUFG Union Bank, N.A. as administrative agent ("Agent"), increasing the credit limit to $250.0 million. The Amended Credit Agreement did not change our $15.0 million subfacility limit or our option to increase our commitments up to $100.0 million. The credit facility's maturity date, June 5, 2020, and interest rate, London Interbank Offered Rate ("LIBOR") plus a margin ranging from 1.25% to 1.75%, also remained unchanged. Subsequent to entering the Amended Credit Agreement, we borrowed additional funds in the amount of $169.9 million from the revolving credit facility in connection with the acquisition of the ADP CHSA/COBRA Business. As of March 31, 2017, we have $2.5 million available to borrow under the revolving credit facility.

On April 4, 2017, we entered into a Second Amended and Restated Credit Agreement with MUFG Union Bank, N.A. as administrative agent, to increase the borrowing capacity to $400.0 million, with a $15.0 million letter of credit subfacility. The Second Amended Credit Agreement contains an increase option permitting us, subject to certain conditions and requirements, to arrange with existing lenders and/or new lenders to provide up to an aggregate of $100.0 million in additional commitments. Loan proceeds may be used for general corporate purposes, including acquisitions permitted under the Second Amended Credit Agreement. We may prepay loans under the Second Amended Credit Agreement in whole or in part at any time without premium or penalty. In connection with this Second Amended Credit Agreement, we incurred fees of approximately $1.9 million, which are being amortized over the term of the Second Amended Credit Agreement. The fees incurred are presented as a direct deduction from long-term debt in the consolidated balance sheets.

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The loans bear interest, at our option, at (i) a London Interbank Offered Rate (LIBOR) determined in accordance with the Credit Agreement, plus a margin of 1.25% to 2.250%, or (ii) a base rate determined in accordance with the Credit Agreement, plus a margin of 0.250% to 1.250%, in each case with such margin determined based on our consolidated leverage ratio for the preceding four fiscal quarter period. Interest is due and payable in arrears quarterly for base rate loans and at the end of an interest period for LIBOR rate loans. Principal, together with all accrued and unpaid interest, is due and payable on April 4, 2022. Our obligations under the Credit Agreement are secured by substantially all of our assets. All of our existing and future material subsidiaries are required to guarantee our obligations under the Credit Agreement. The guarantees by future material subsidiaries are and will be secured by substantially all of the assets of such subsidiaries. We are currently in compliance with all financial and non-financial covenants under the credit facility after considering the reporting extension agreement described below.

Reporting Extension Agreements

On April 5, 2018, our Board concluded the previously issued financial statements for (i) the quarterly periods ended September 30, June 30 and March 31, 2017, (ii) the annual period ended December 31, 2016 and (iii) the quarterly periods ended September 30 and June 30, 2016 should be restated and should no longer be relied upon. Consequently, we did not meet our obligation to provide our financial statements to the Agent by the contractual delivery date. In March 2018, we entered into a Reporting Extension Agreement (the “Extension Agreement”), by and among the Company, the lenders party thereto and MUFG Union Bank, N.A., as administrative agent to extend the time period for delivery to Agent and the lenders our delinquent financial statements to June 30, 2018. In June 2018, we entered into a Second Reporting Extension Agreement and paid the Agent $0.8 million to extend the delivery date of our delinquent financial statements to March 16, 2019. In March 2019, the Company entered into a Third Reporting Extension Agreement and paid the Agent $0.1 million to extend the delivery date of any remaining delinquent financial statements to May 10, 2019.

Share Repurchase Program

On August 6, 2015, the Board authorized a $100 million stock repurchase program which commenced immediately and does not have an expiration date. For the three months ended March 31, 2017, there were no shares of common stock repurchased. As of March 31, 2017, $85.6 million remained available for future purchases under the stock repurchase program.

Cash Flows

The following table presents information regarding our cash flow activities:

	Three Months Ended March 31,
(in thousands)	2017			2016
	(As Restated)
Net cash (used in) provided by operating activities	$	(53,791	)	$	79,040
Net cash used in investing activities	(5,973		)	(10,962		)
Net cash used in financing activities	(2,418		)	(6,555		)
Net change in cash and cash equivalents	$	(62,182	)	$	61,523

Cash Flows from Operating Activities

໿

໿

Net cash used in operating activities was $53.8 million for the three months ended March 31, 2017, comprised of net income plus the net effect of non-cash items and changes in working capital. The primary working capital sources of cash were driven mainly by increases in accounts payable, accrued expenses and other liabilities to support our growth. The primary working capital uses of cash were due to an increase in accounts receivable because of timing of collections from an increase in revenue during the first quarter of 2017 and a decrease in customer obligations due to an increase in claim reimbursements related to FSAFEDS, transition of which was completed during the third quarter of 2016.

The non-cash items consisted mainly of amortization from acquired intangibles from 2016 acquisitions and stock-based compensation expense due to an increase in headcount and lower attainment of metrics from performance-based restricted stock units.

Cash Flows from Investing Activities

໿

38

Net cash used in investing activities was $6.0 million for the three months ended March 31, 2017, and consisted mainly of $5.6 million of capital expenditures.

Cash Flows from Financing Activities

໿

໿

Net cash used in financing activities was $2.4 million for the three months ended March 31, 2017, which consisted of $4.8 million in proceeds from exercises of stock options and ESPP, offset by a $2.5 million principal payment of debt and a $4.7 million of taxes paid related to net share settlement of stock-based compensation arrangements resulting from the adoption of ASU 2016-09 in the first quarter of 2017.

Contractual Obligations

The following table summarizes our significant contractual obligations as of March 31, 2017:

(in thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt obligations (1)	$	247,000	$	—	$	—	$	247,000	$	—
Interest on long-term debt obligations (2)	18,493		5,815		11,631		1,047		—
Operating lease obligations (3)	49,070		8,958		18,225		17,082		4,805
Other contractual obligations (4)	2,830		1,540		1,290		—		—
Total	$	317,393	$	16,313	$	31,146	$	265,129	$	4,805

______________________________________________________________________________

(1) As of March 31, 2017, maximum borrowings under the revolving credit facility are $250.0 million with a base rate determined in accordance with the Second Amended Credit Agreement or, at our option, LIBOR plus a spread of 1.25% to 1.75% per annum, and a maturity date of June 5, 2020. At March 31, 2017, we had $247.0 million of outstanding principal which is recorded net of debt issuance costs on our condensed consolidated balance sheets. The debt issuance costs are not included in the table above.

(2) Estimated interest payments assume the interest rate applicable as of March 31, 2017 of 2.35% per annum on a $247.0 million outstanding principal amount.

(3) We lease facilities under non-cancelable operating leases expiring at various dates through 2023.

(4) Other contractual obligations include those related to our data centers.

Future minimum lease payments under capital lease obligations are not included in the table above. As of March 31, 2017, there were $0.5 million of future capital lease obligation payments. The Company has no future minimum lease payments under capital lease obligations extending beyond 2020.

Off-Balance Sheet Arrangements

Other than outstanding letters of credit issued under our revolving credit facility, we do not have any off-balance sheet arrangements. The majority of the standby letters of credit mature in one year. However, in the ordinary course of business, we will continue to renew or modify the terms of the letters of credit to support business requirements. The letters of credit are contingent liabilities, supported by our revolving credit facility, and are not reflected on our condensed consolidated balance sheets.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our market risk during the three months ended March 31, 2017.  For additional information, see Part II, Item 7A., “Quantitative and Qualitative Disclosures About Market Risk”, of our Annual Report on Form 10-K/A for the year ended December 31, 2016.  

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Securities Exchange

39

Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q/A. The term “disclosure controls and procedures” means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2017, due to the existence of unremediated material weaknesses in the Company's internal control over financial reporting as described below, the Company's disclosure controls and procedures were not effective.

Notwithstanding the existence of the material weaknesses described below, management believes that the condensed consolidated financial statements and related financial information included in this Quarterly Report on Form 10-Q/A fairly present, in all material respects, our financial position, results of operations and cash flows as of and for the periods presented in conformity with GAAP.

Evaluation of the Effectiveness of Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and overseen by our Board of Directors (the “Board”), management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.

A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.

Based on the assessment, management determined that the Company did not maintain effective internal control over financial reporting as of March 31, 2017, as a result of material weaknesses in the following areas:

Control Environment, Risk Assessment, Control Activities and Monitoring

Based on the investigations conducted under the direction of the Audit Committee of the Board, it was concluded that there was an inadequate open flow, transparency, communication and dissemination of relevant and pertinent information from former senior management concerning a complex transaction with the federal government that contributed to an ineffective control environment driven by the tone at the top. Management’s failure to timely communicate all pertinent information resulted in an environment which led to an error in the consolidated financial statements as of the end of the period covered by this report.

In addition, we did not maintain effective internal control over financial reporting related to the following areas: control environment, risk assessment, control activities and monitoring:

• We did not have processes and controls to ensure there were adequate mechanisms and oversight to ensure accountability for the performance of internal control over financial reporting responsibilities and to ensure corrective actions were appropriately prioritized and implemented in a timely manner.

• We did not effectively execute a strategy to attract, develop and retain a sufficient complement of qualified resources with an appropriate level of knowledge, experience, and training in certain areas important to financial reporting.

• There was not an adequate assessment of changes in risks by management that could significantly impact internal control over financial reporting or an adequate determination and prioritization of how those risks should be managed.

40

• We did not have adequate management oversight of accounting and financial reporting activities in implementing certain accounting practices to conform to the Company’s policies and GAAP.

• We did not have adequate management oversight around completeness and accuracy of data material to financial reporting.

• There was a lack of robust, established and documented accounting policies and insufficiently detailed Company procedures to put these policies into effective action.

• We were not focused on a commitment to competency as it relates to creating priorities, allocating adequate resources and establishing cross functional procedures around managing complex contracts and non-routine transactions as well as managing change and attracting, developing and retaining qualified resources.

These deficiencies in our internal control over financial reporting contributed to each of the following identified material weaknesses:

A. Accounting Close and Financial Reporting

We had inadequate or ineffective process level and monitoring controls in the area of accounting close and financial reporting specifically, but not exclusively, around the review of account reconciliations, account estimates and related cut-off, and monitoring of the accounting close cycle. We also did not have effective business processes and controls to conduct an effective review of manual data feeds into journal entries for divisions which were not integrated with the main ERP system.

We did not have robust, established and documented accounting policies that were implemented effectively, which led to adjustments in areas such as, but not exclusive to Impairment of Internally Developed Software (IDS) and Unclaimed Liability. As a result of these adjustments the accounts related to Amortization of IDS, Fixed Assets, and operating expenses as they relate to interest and penalties were impacted.

We also did not have a robust process around managing change and corresponding assessment and implementation of Accounting Policies. This resulted in a reevaluation of the Accounts Receivable and Customer Obligation Offset Policy of the organization for the financial year 2017. Furthermore, it also resulted in the delayed assessment and design of controls for the timely implementation of controls around Accounting Standard 606 (ASC 606) for Revenue Recognition which is effective January 2018. These gaps resulted in several adjustments in the consolidated financial statements as of the end of the period covered by this report.

B. Contract to Cash Process

We did not have effective controls around our contract-to-cash life cycle. The root cause of these gaps were due to inadequate or ineffective process level controls around billing set-up during customer implementation, managing change to existing customer billing terms and conditions, timely termination of customers, implementing complex and/or non-standard billing arrangements which require manual intervention or manual controls for billing to customers, processing timely adjustments, lack of robust, established and documented policies to assess collectability and reserve for revenue, bad debts and accounts receivable, and availability of customer contracts.

These gaps resulted in several adjustments in Revenue, Accounts Receivable, and Accounts Receivable Reserves in the consolidated financial statements as of the end of the period covered by this report.

C. Risk Assessment and Management of Change

We did not maintain an effective risk assessment and monitoring process to manage the expansion of our existing business. Hence, there were inadequate and ineffective business and financial reporting control activities associated with change and growth in the business. Amongst other areas, the assessment of the control environment and the design of manual controls around financial system implementations, such as NetSuite, was not performed adequately in 2017.

As a result, the Company did not properly estimate, reserve and record certain transactions which resulted in errors in the consolidated financial statements as of the end of the period covered by this report.

41

D. Review of New, Unusual or Significant Transactions and Contracts

We did not have adequate risk assessment controls to continuously formally assess the financial reporting risks associated with executing new, significant or unusual transactions, contracts or business initiatives. As a result, the Company did not adequately identify and analyze changes in the business and hence implement effective process level controls and monitoring controls that were responsive to these changes and aligned with financial reporting objectives. This failure to identify and analyze changes occurred in connection with the integration of acquisitions and the monitoring and recording of certain revenues associated with a complex government contract. As a result, the Company did not properly account for certain transactions including Revenue and Customer Obligation Accounts, which resulted in errors in the consolidated financial statements as of the end of the period covered by this report.

E. Manual Reconciliations of High-Volume Standard Transactions

We did not have effective business processes and controls as well as resources with adequate training and support to conduct an effective review of manual reconciliations including the complex data feeds into the reconciliations of high-volume standard transactions. This resulted in several errors mainly to balance sheet classifications around Accounts Receivable, Customer Obligations and other related accounts in the consolidated financial statements as of the end of the period covered by this report.

In addition to the material weaknesses noted above, management identified several deficiencies and significant deficiencies. These deficiencies relate to several areas that are partially rooted in the weaknesses in the internal control environment documented above.

Remediation Plan and Status for Reported Material Weaknesses

We have been working and are currently working to remediate the material weaknesses described above, including assessing the need for additional remediation steps and implementing additional measures to remediate the underlying causes that gave rise to the material weaknesses. The Company is committed to a strong internal control environment and to ensure that a proper, consistent tone is communicated throughout the organization, including the expectation that previously existing deficiencies will be remediated through implementation of processes and controls to ensure strict compliance with GAAP and 2013 COSO framework.

To address the material weaknesses in the overall control environment, in addition to the specific remediations noted under each sub-section, the Company has and is in the process of taking the following measures:

• The Company has undergone a leadership transition, and we have a new CEO, CFO and General Counsel. Clear lines of responsibilities have been drawn in new roles to ensure effective controls.

• We are establishing regular working group meetings, with appropriate oversight by the Audit Committee and leadership of the Company, to strengthen accountability for performance of internal control over financial reporting responsibilities and prioritization of corrective actions.

• We will be enhancing our compensation practices to further incorporate risk and operational goals.

• We will be assessing and enhancing adequacy and quality of resources in areas impacting financial reporting including, but not limited to conducting additional training programs for our employees to enhance their skill sets which will complement their work.

• We are augmenting accounting staff with additional technical expertise in GAAP to assist with enhanced financial reporting procedures, controls and remediation efforts.

To address the material weakness in the Accounting Close and Financial Reporting area(Material Weakness A., noted above), the Company has taken the following measures:

• We are establishing senior level oversight and executive reporting around the accounting close and financial reporting process with an enhanced focus on improving process level controls to strengthen the existing control environment around formalizing and documenting accounting policies as well as implementing a robust accounting close process with enhanced review of financial statements.

• In addition to enhancing processes and controls over adoption of new accounting standards, we will also be enhancing GAAP expertise within the accounting department.

42

To address the material weakness in the Contract to Cash Process (Material Weakness B., noted above), the Company has taken the following measures:

• We are establishing senior level oversight and executive reporting around the contract to cash process with an enhanced focus on improving process level controls to strengthen the existing control environment around the contract to cash process and revenue recognition. This includes but is not limited to enhancing the process for record retention of contracts and agreements, assessment of collectability from customers, analysis of complex contracts as well as automation of select billing processes.

To address the material weakness in the Risk Assessment and Change Management Process (Material Weakness C., noted above), the Company has taken the following measures:

• We are developing a plan to implement a periodic risk assessment process, review of control procedures and documentation around impact of changes on accounting processes.

• We are developing a plan to enhance documentation and review around accounting estimates, and interpretations with formal approval of the detailed review.

• We are developing a plan to proactively design manual controls around implementation of new systems impacting financial reporting.

• We have reallocated Company resources to improve the oversight over operational changes across the business and business trends.

To address the material weakness in the Review of New, Unusual or Significant Transactions and Contracts (Material Weakness D., noted above), the Company is in process of strengthening its processes and controls as follows:

• We are designing and implementing enhanced internal controls surrounding identification, analysis and governance and monitoring of new, significant or unusual contracts or transactions to ensure that these contracts or transactions are recorded in accordance with Company’s policies and GAAP. This will entail enhanced documentation of analysis, as well as review and cross functional approval of company policies and interpretations.

To address the material weakness in the Manual Reconciliations of High-Volume Standard Transactions (Material Weakness E, noted above), the Company has taken the following measures:

• We are providing leadership oversight to ensure prioritization of funding and resources for the remediation efforts.

• We are strengthening the review controls and supporting documentation related to reconciliations of high-volume standard transactions. With an enhanced focus on supporting documentation review, we are implementing a comprehensive review methodology over data, inputs and reports used for the reconciliations.

The material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Additional remediation measures may be required, which may require additional implementation time. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting.

Changes in Internal Control over Financial Reporting

Except for the material weaknesses described above, no other change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter under review, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

43

PART II.     OTHER INFORMATION

Item 1. Legal Proceedings

Information with respect to this Item may be found under the heading “Legal Matters” in Note 12 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q/A, which is incorporated into this Item 1 by reference.

Item 1A. Risk Factors 

There have been no material changes in our risk factors disclosed in Part I, Item 1A, “Risk Factors”, of our Annual Report on Form 10-K/A for the year ended December 31, 2016.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Stock Repurchases

There were no repurchases of common stock by the Company during the three months ended March 31, 2017.

Item 4. Mine Safety Disclosures 

Not Applicable

Item 5. Other Information

None

Item 6. Exhibits

The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Quarterly Report.

44

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		WAGEWORKS, INC.
Date: April 26, 2019	By:	/s/ ISMAIL DAWOOD
		Ismail Dawood
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

45

Exhibit Index

		Incorporated by Reference
Exhibit No.	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
31.1	Certification of the Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification of the Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1(1)	Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Schema Linkbase Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Definition Linkbase Document
101.LAB	XBRL Taxonomy Labels Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

(1) The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q/A are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of WageWorks, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q/A, irrespective of any general incorporation language contained in such filing.

46

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

pursuant to

Exchange Act Rules 13a-14(a) and 15d-14(a),

as adopted pursuant to

Section 302 of Sarbanes-Oxley Act of 2002

I, Edgar O. Montes, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q/A of WageWorks, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 26, 2019
/s/ EDGAR O. MONTES
Name:	Edgar O. Montes
Title:	Chief Executive Officer and Director (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal FinancialOfficer

pursuant to

Exchange Act Rules 13a-14(a) and 15d-14(a),

as adopted pursuant to

Section 302 of Sarbanes-Oxley Act of 2002

I, Ismail Dawood, certify that: 

1. I have reviewed this Quarterly Report on Form 10-Q/A of WageWorks, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 26, 2019
/s/ ISMAIL DAWOOD
Name:	Ismail Dawood
Title:	Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONSOF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OFTHESARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), Edgar O. Montes, Chief Executive Officer and Director (Principal Executive Officer) of WageWorks, Inc. (the “Company”), and Ismail Dawood, Chief Financial Officer (Principal Financial Officer) of the Company, each hereby certifies that, to the best of his knowledge: 

1. Our Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2017, to which this Certification is attached as Exhibit 32.1 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 26, 2019
/s/ EDGAR O. MONTES
Name:	Edgar O. Montes
Title:	Chief Executive Officer and Director (Principal Executive Officer)

/s/ ISMAIL DAWOOD
Name:	Ismail Dawood
Title:	Chief Financial Officer (Principal Financial Officer)

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2017	Apr. 18, 2019
Document And Entity Information [Abstract]
Document Type	10-Q/A
Amendment Flag	true
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Trading Symbol	wage
Entity Registrant Name	WAGEWORKS, INC.
Entity Central Index Key	0001158863
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		39,852,857
Amendment Description	Restatement of consolidated financial statements to correct for identified financial reporting errors

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 610,427	$ 672,609	$ 562,441	$ 500,918
Restricted cash	332	332
Accounts receivable, net	154,985	93,413
Prepaid expenses and other current assets	15,403	20,258
Total current assets	781,147	786,612
Property and equipment, net	55,011	54,435
Goodwill	297,409	297,409
Acquired intangible assets, net	167,725	176,489
Deferred tax assets	18,779	15,690
Other assets	4,788	5,146
Total assets	1,324,859	1,335,781
Current liabilities:
Accounts payable and accrued expenses	96,132	72,677
Customer obligations	551,005	608,380
Other current liabilities	440	729
Total current liabilities	647,577	681,786
Long-term debt	246,395	248,848
Other non-current liabilities	9,458	7,505
Total liabilities	903,430	938,139
Stockholders' Equity:
Common stock, par value $0.001 per share (authorized 1,000,000 shares; 37,477 shares issued and 37,132 shares outstanding at March 31, 2017 and 37,247 shares issued and 36,902 shares outstanding at December 31, 2016)	38	37
Additional paid-in capital	401,354	397,307
Treasury stock at cost (345 shares at March 31, 2017 and December 31, 2016)	(14,374)	(14,374)
Retained earnings	34,411	14,672
Total stockholders’ equity	421,429	397,642
Total liabilities and stockholders’ equity	$ 1,324,859	$ 1,335,781

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	1,000,000,000	1,000,000,000
Common stock, issued (in shares)	37,477,000	37,247,000
Common stock, outstanding (in shares)	37,132,000	36,902,000
Treasury stock, at cost (in shares)	345,000	345,000

XML

Condensed Consolidated Statements Of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Revenues:
Healthcare	$ 74,674	$ 50,370
Commuter	18,543	17,376
COBRA	28,550	15,406
Other	4,270	3,850
Total revenues	126,037	87,002
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	48,088	31,260
Technology and development	15,271	9,831
Sales and marketing	16,079	13,920
General and administrative	13,500	14,615
Amortization and change in contingent consideration	9,237	7,445
Employee termination and other charges	731	0
Total operating expenses	102,906	77,071
Income from operations	23,131	9,931
Other income (expense):
Interest income	67	86
Interest expense	(1,436)	(405)
Other income (expense), net	(221)	(4)
Income before income taxes	21,541	9,608
Income tax provision	(5,484)	(3,812)
Net income	$ 16,057	$ 5,796
Net income per share:
Basic (in dollars per share)	$ 0.43	$ 0.16
Diluted (in dollars per share)	$ 0.42	$ 0.16
Shares used in computing net income per share:
Basic (in shares)	37,025	35,916
Diluted (in shares)	38,441	36,529

XML

Condensed Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net income	$ 16,057	$ 5,796
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation	2,568	1,778
Amortization and change in contingent consideration	9,236	7,348
Amortization of debt issuance costs	47	34
Stock-based compensation expense	3,780	5,991
Loss on disposal of fixed assets	72	20
Provision for doubtful accounts	346	801
Deferred taxes	(593)	0
Excess tax benefits related to stock-based compensation arrangements	0	(3,812)
Changes in operating assets and liabilities:
Accounts receivable	(61,918)	(18,113)
Prepaid expenses and other current assets	4,854	(1,296)
Other assets	3,017	105
Accounts payable and accrued expenses	23,194	5,346
Customer obligations	(57,375)	73,793
Other liabilities	1,738	1,249
Net cash (used in) provided by operating activities	(53,791)	79,040
Cash flows from investing activities:
Purchases of property and equipment	(5,576)	(3,333)
Purchases of intangible assets	(397)	(7,629)
Net cash used in investing activities	(5,973)	(10,962)
Cash flows from financing activities:
Proceeds from exercise of common stock options	4,071	4,697
Proceeds from issuance of common stock under Employee Stock Purchase Plan	769	511
Payments of debt principal	(2,500)
Payment of contingent consideration	0	(653)
Payment for treasury stock acquired	0	(9,371)
Taxes paid related to net share settlement of stock-based compensation arrangements	(4,684)	(5,551)
Payment of capital lease obligations	(74)	0
Excess tax benefits related to stock-based compensation arrangements	0	3,812
Net cash used in financing activities	(2,418)	(6,555)
Net (decrease) increase in cash and cash equivalents	(62,182)	61,523
Cash and cash equivalents at beginning of period	672,609	500,918
Cash and cash equivalents at end of period	610,427	562,441
Cash paid during the period for:
Interest	1,262	358
Income Taxes	171	1,555
Noncash financing and investing activities:
Property and equipment accrued, but not paid	$ 523	$ 6,571

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Summary Of Business And Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Summary Of Business And Significant Accounting Policies

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, and considers itself to operate under one operating and reporting segment with healthcare, transit and other employer sponsored programs representing a group of similar products lines. The Company believes that it engages in a single business activity and operates in a single economic environment.

Basis of Presentation

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” or “GAAP”). The results of the interim period presented herein are not necessarily indicative of the results of future periods or annual results for the year ending December 31, 2017.

These unaudited interim condensed consolidated financial statements and the related notes should be read in conjunction with the December 31, 2016 audited financial statements and related notes, as restated, 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 for the year ended December 31, 2017. The December 31, 2016 consolidated balance sheet, included in this interim Quarterly Report on Form 10-Q/A, was derived from audited financial statements, as restated, in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016 which was filed with the SEC on April 26, 2019. Certain prior year amounts in the condensed consolidated statements of cash flows have been reclassified to conform to the current year’s presentation as a result of the adoption of new accounting guidance ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). See "Recent Accounting Pronouncements" section below.

Other than the adoption of ASU 2016-09, 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, 2016 included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016, as restated.

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

In preparing the condensed consolidated financial statements and related disclosure in conformity with GAAP, including all adjustments as a result of the Company's restatement, and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"), the Company must make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to allocation of purchase consideration to acquired assets and liabilities from business combinations, allowances for doubtful accounts, useful lives for depreciation and amortization, loss contingencies, income taxes, the assumptions used for stock-based compensation including attainment of performance-based awards, the assumptions used for software and website development cost classification, and recoverability and impairments of goodwill and long-lived assets. Actual results may be materially different from those estimates. In making its estimates, the Company considers the current economic and legislative environment.

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 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 the Company’s then current independent auditors 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 2017, 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 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 the audit of the financial statements accounting and financial reporting errors were identified. The matters primarily resulted in corrections in accounting under U.S. generally accepted accounting principles related to revenue recognition for a government contract, the timing of revenue recognition under certain contracts and arrangements, the impairment assessment for KP Connector, the Company's internal use software, and adjustments made to the accounts receivable and customer obligations balances. Accordingly, the Company is restating its unaudited condensed consolidated financial statements for the three months ended March 31, 2017, to correct these errors, the most significant of which are described below.

Revenue Recognition Adjustments

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 revenue in 2016 and 2017 attributed to such services. In April 2018, the Company determined that it should not have recognized revenue related to these OPM professional services, and the related receivable should be reversed. Additionally, the Company identified a number of billing and revenue recognition errors. As a result, the Company has made adjustments to increase revenue by $1.0 million for the three months ended March 31, 2017.

	For the Three Months Ended March 31, 2017
	Revenue Restatement Adjustments (in thousands)
	OPM			Invoice Adjustments		Revenue Recognition Timing		Total
Healthcare	$	(110	)	$	222	$	566	$	678
Commuter	—			191		—		191
COBRA	—			(3)		256		253
Other	—			(92)		—		(92)
Total	$	(110	)	$	318	$	822	$	1,030

Internally Developed Software Impairment

In 2016, 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 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 and a corresponding reduction of property and equipment, net, in the consolidated balance sheets. The Company also reversed previously recorded amortization expenses in the three months ended March 31, 2017 by $0.3 million.

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 months ended March 31, 2017. 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:

	Three Months Ended March 31, 2017
	As Previously Reported		Adjustments			As restated
Stock-based compensation expense related to restricted stock units (in millions)	$	5.0	$	(4.1	)	$	0.9
	At March 31, 2017
	As Previously Reported		Adjustments			As restated
Total unrecorded stock-based compensation cost associated with restricted stock units (in millions)	$	52.2	$	(25.2	)	$	27.0

Total restatement adjustments for stock-based compensation expense (in thousands):

	Three Months Ended March 31, 2017
	As Previously Reported		Adjustments			As restated
Cost of revenues	$	1,723	$	17		$	1,740
Technology and development	618		(7		)	611
Sales and marketing	774		12			786
General and administrative	4,854		(4,211		)	643
Total	$	7,969	$	(4,189	)	$	3,780

The Company recorded additional adjustments to the condensed consolidated financial statements for the three months ended March 31, 2017, primarily related to the following transactions:

• to correct for billing errors and the recognition of invoices and related invoice adjustments in the proper reporting period;

• to account for the reserve of potentially uncollectible customer obligations for pass-through employee participant reimbursements in the proper period;

• 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 CustomerObligations;

• to record interest and penalties for unreported employee participant and employer clients unclaimed property;

• to record capital lease obligations originally recognized incorrectly as operating leases;

• to record the reclassification of Customer Obligations from Accounts Receivable based on the correction of the timing of employer client billings and payments; and

• 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 months ended March 31, 2017.

The tax impact in connection with the restatement adjustments was recorded for the three months ended March 31, 2017. See Note 11, Income Taxes, for details.

The following table presents the Company's condensed consolidated balance sheet as previously reported, restatement adjustments and the condensed consolidated balance sheet as restated as of March 31, 2017 (in thousands):

Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except per share amounts)
	March 31, 2017
	As Previously Reported			Adjustments				As Restated
Assets
Current assets:
Cash and cash equivalents	$	609,416		$	1,011		(a)	$	610,427
Restricted cash	332			—				332
Accounts receivable, net	135,459			19,526			(b)	154,985
Prepaid expenses and other current assets	16,721			(1,318		)	(c)	15,403
Total current assets	761,928			19,219				781,147
Property and equipment, net	57,258			(2,247		)	(d)	55,011
Goodwill	297,409			—				297,409
Acquired intangible assets, net	167,725			—				167,725
Deferred tax assets, net	16,539			2,240			(e)	18,779
Other assets	4,942			(154		)	(f)	4,788
Total assets	$	1,305,801		$	19,058			$	1,324,859
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	95,593		539			(g)	$	96,132
Customer obligations	525,040			25,965			(h)	551,005
Other current liabilities	196			244			(i)	440
Total current liabilities	620,829			26,748				647,577
Long-term debt, net of financing costs	246,395			—				246,395
Other non-current liabilities	10,916			(1,458		)	(j)	9,458
Total liabilities	878,140			25,290				903,430
Stockholders' Equity:
Common stock, $0.001 par value (authorized 1,000,000 shares; 37,477 shares issued and 37,132 shares outstanding at March 31, 2017 and 37,247 shares issued and 36,902 shares outstanding at December 31, 2016)	38			—				38
Additional paid-in capital	411,696			(10,342		)	(k)	401,354
Treasury stock at cost (345 shares at March 31, 2017 and December 31, 2016)	(14,374		)	—				(14,374		)
Retained earnings	30,301			4,110				34,411
Total stockholders' equity	427,661			(6,232		)		421,429
Total liabilities and stockholders' equity	$	1,305,801		$	19,058			$	1,324,859

(a) Adjustment of $1.0 million relates to an increase to cash and cash equivalents to correct timing differences associated with obligation payments from employer clients and the receipt of cash in the Company's bank accounts. The offset resulted in a net reclassification to cash and cash equivalents from accounts receivable of $3.3 million, offset by a net reclassification to customer obligations from cash and cash equivalents of $2.3 million.

(b) Adjustment relates to (i) a $26.7 million increase from the reclassification of accounts receivable to customer obligations based on the correction of the timing of customer billing and payments and an adjustment to the allowance for doubtful accounts (ii) partially offset by a $5.1 million reduction in accounts receivable from the restatement of OPM revenue, as discussed above, of which $6.3 million relates to the reduction of revenue and $1.2 million relates to the reduction of short-term and long-term deferred revenue, and (iii) a $2.1 million revenue adjustment primarily due to accruals to correct the recording of invoices, credit memos and billing adjustments in the proper period.

(c) Adjustment of $1.3 million relates to change in income tax receivable as result of the impact of the restatement on restated taxable income.

(d) Adjustment of $2.2 million relates to (i) a $3.7 million impairment charge for IDS, as discussed above, offset by the reversal of amortization expense of $0.9 million associated with IDS previously recorded in during year ended December 31, 2016 and the three months ended March 31, 2017 and (ii) $0.6 million for net assets under capital lease obligations originally recognized incorrectly as operating leases, offset by the $0.1 million of depreciation expense on equipment purchased under capital lease obligations.

(e) Adjustment relates to $2.2 million increase in deferred tax asset as result of the impact of the restatement adjustments noted in (a) through (k).

(f) Adjustment for the write-off uncollectible deposit.

(g) Adjustment primarily relates to a $0.7 million interest and penalties accrual for unreported employee participant and employer clients unclaimed property, $0.6 million related to customer cash refund related to billing errors offset partially by $0.8 million reduction in accounts payable from the restatement of OPM revenue as discussed above, and unrelated to billing errors.

(h) Adjustment relates to (i) a $26.7 million increase for the reclassification of customer obligations from accounts receivable based on the correction of the timing of employer client billings and payments, (ii) a $1.1 million increase related to OPM reclassification, and (iii) $1.7 million related to the re-valuation and write-off of customer obligations, partially offset by a $3.6 million reduction 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 customer obligations to cash and cash equivalents.

(i) Adjustment primarily relates to $0.2 million increase to record the current portion of capital lease obligations originally recognized incorrectly as operating lease obligations.

(j) Adjustment relates to $0.3 million increase to the non-current portion of capital lease obligations originally recognized incorrectly as operating lease obligations, offset by $1.8 million decrease related to OPM deferred revenue.

(k) Adjustment of $10.3 million relates to a $3.3 million reduction in stock-based compensation expense as a result of reduced target attainment percentages expected for performance-based restricted stock units and a $7.1 million tax provision adjustment related to the restatement.

The following table presents the Company's condensed consolidated statement of income as previously reported, restatement adjustments and the condensed consolidated statement of income as restated as March 31, 2017 (in thousands, except per share amounts):

Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
	Three Months Ended March 31, 2017
	As Previously Reported			Adjustments				As Restated
Revenues:
Healthcare	$	73,996		$	678			$	74,674
Commuter	18,352			191				18,543
COBRA	28,297			253				28,550
Other	4,362			(92		)		4,270
Total revenues	125,007			1,030			(l)	126,037
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	47,204			884			(m)	48,088
Technology and development	15,339			(68		)	(n)	15,271
Sales and marketing	16,061			18			(o)	16,079
General and administrative	20,565			(7,065		)	(p)	13,500
Amortization and change in contingent consideration	9,533			(296		)	(q)	9,237
Employee termination and other charges	731			—				731
Total operating expenses	109,433			(6,527		)		102,906
Income from operations	15,574			7,557				23,131
Other income (expense):
Interest income	67			—				67
Interest expense	(1,365		)	(71		)	(r)	(1,436		)
Other income (expense), net	(216		)	(5		)	(s)	(221		)
Income before income taxes	14,060			7,481				21,541
Income tax provision	(2,962		)	(2,522		)	(t)	(5,484		)
Net income	$	11,098		$	4,959			$	16,057
Net income per share:
Basic	$	0.30		$	0.13			$	0.43
Diluted	$	0.29		$	0.13			$	0.42
Shares used in computing net income per share:
Basic	37,025			—				37,025
Diluted	38,441			—				38,441

(l) Revenue adjustment of $1.0 million for the three months ended March 31, 2017 was primarily due to (i) an increase in 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 (ii) partially offset by adjustments for OPM revenue.

(m) Adjustment of $0.9 million relates primarily to (i) a $0.6 million expense increase as a result of the adjustment of platform technology related expenses; (ii) a $0.2 million expense increase related to recognition of expenses in the proper reporting period; and (iii) a $0.1 million increase in the reserve of potentially uncollectible customer obligations for pass through employee participant reimbursement.

(n) Adjustment relates primarily to a reduction related to the over-accrual of platform technology related expenses.

(o) Adjustment relates primarily to changes in accruals for sales commissions and corporate bonus expenses.

(p) Adjustment of $7.1 million relating to (i) a $2.8 million reduction in bad debt expense related to the re-valuation of the allowance for doubtful accounts; (ii) a $4.2 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); and (iii) a $0.1 million expense reduction related to recognition of expenses in the proper reporting period.

(q) Adjustment relates primarily to the reversal of amortization expense previously recorded in connection with the Internally Developed Software related to KP Connector that was impaired by the Company in 2016.

(r) Adjustment relates primarily to interest expense on unreported employee participant and employer clients’ unclaimed property.

(s) Adjustment to accrued penalties on unreported employee participant and employer clients unclaimed property.

(t) Adjustment of $2.5 million relates to an increase in the quarterly tax provision as a result of the impact of the restatement adjustments in (l) through (s).

The following table presents the Company's unaudited condensed consolidated statement of cash flows as previously reported, restatement adjustments and the unaudited condensed consolidated statement of cash flows as restated as of the three months ended March 31, 2017 (in thousands):

Footnote references below refer to footnotes (a) through (t) in the condensed consolidated balance sheet and condensed consolidated statement of income tables as at and for the three months ended March 31, 2017 above.

Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
	Three Months Ended March 31, 2017
	As Previously Reported			Adjustments				As Restated
Cash flows from operating activities:
Net income	$	11,098		$	4,959		(l) to (t)	$	16,057
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation	2,491			77			(d)	2,568
Amortization and change in contingent consideration	9,533			(297		)	(q)	9,236
Amortization of debt issuance costs	—			47			(p)	47
Stock-based compensation expense	7,969			(4,189		)	(p)	3,780
Loss on disposal of fixed assets	72			—				72
Provision for doubtful accounts	2,395			(2,049		)	(p)	346
Deferred taxes	—			593			(e)	593
Changes in operating assets and liabilities:
Accounts receivable	(44,966		)	(16,952		)	(b)	(61,918		)
Prepaid expenses and other current assets	5,360			(506		)	(c)	4,854
Other assets	358			2,659			(f)	3,017
Accounts payable and accrued expenses	22,366			828			(g)	23,194
Customer obligations	(78,802		)	21,427			(h)	(57,375		)
Other liabilities	1,559			179			(i)	1,738
Net cash used in operating activities	(60,567		)	6,776				(53,791		)
Cash flows from investing activities:
Purchases of property and equipment	(5,576		)	—				(5,576		)
Purchases of intangible assets	(397		)	—				(397		)
Net cash used in investing activities	(5,973		)	—				(5,973		)
Cash flows from financing activities:
Proceeds from exercise of common stock options	4,071			—				4,071
Proceeds from issuance of common stock under Employee Stock Purchase Plan	769			—				769
Payments of debt principal	(2,500		)	—				(2,500		)
Payments of capital lease obligations	—			(74		)	(d)	(74		)
Taxes paid related to net share settlement of stock-based compensation arrangements	(4,684		)	—				(4,684		)
Net cash used in financing activities	(2,344		)	(74		)		(2,418		)
Net decrease in cash and cash equivalents	(68,884		)	6,702				(62,182		)
Cash and cash equivalents at beginning of period	678,300			(5,691		)		672,609
Cash and cash equivalents at end of period	$	609,416		$	1,011			$	610,427

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 consist of cash on deposit with banks and money market funds, 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 and cash equivalents represent 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 payment of participant healthcare claims and commuter benefits), 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 which were issued to the benefit of a third party to secure a contract with the Company.

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 the three months ended March 31, 2017 and 2016 were not significant.

The Company offsets on a customer by customer basis unpaid amounts for benefit services and customer obligation balances for financial reporting presentation. 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.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining 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 and we consider counterparty credit risk in our assessment of fair value. Carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate their fair values as of the balance sheet dates because of their short maturities. The carrying value of the Company’s debt under the credit facility is estimated to approximate fair value as the interest rate approximates the market rate for debt securities with similar terms and risk characteristics.

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.

• 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.

Property and Equipment 

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation on computer and equipment and furniture and fixtures is calculated on a straight-line basis over the estimated useful lives of those assets, ranging from three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful life or the lease term. When events or circumstances suggest an asset’s life is different than initially estimated, management reassesses the useful life of the asset and recognizes future depreciation prospectively over the revised life. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation / amortization are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in operating expenses. Maintenance and repairs are expensed as incurred. Expenditures that substantially increase an asset’s useful life are capitalized. 

Software and Website Development Costs 

Costs incurred to develop software for internal use are capitalized and amortized over the technology’s estimated useful life, generally four years. When events or circumstances suggest an asset’s life is different than initially estimated, management reassesses the useful life of the asset and recognizes future amortization prospectively over the revised life. Costs incurred related to the planning and post implementation phases of development are expensed as incurred. Costs associated with the platform content or the repair or maintenance, including transfer of data between existing platforms are expensed as incurred.

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 three months ended March 31, 2017 and 2016.

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, ranging generally from one to ten years. Amortization expense related to these intangible assets is included in amortization, impairment and change in contingent consideration 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; and

•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. If impairment is deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required.

Income Taxes 

The Company reports income taxes using an asset and liability approach. Deferred tax assets and liabilities arise from the differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under current enacted tax law. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized. 

The Company records a valuation allowance to reduce the deferred tax assets to the amount that the Company believes is more likely than not to be realized based on its judgment of all available positive and negative evidence. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified. This assessment, which is completed on a taxing jurisdiction basis, takes into account a number of types of evidence, including the following:

• The nature and history of current or cumulative financial reporting income or losses;

• Sources of future taxable income;

• The anticipated reversal or expiration dates of the deferred tax assets; and

• Tax planning strategies.

The Company takes a two-step approach to recognizing and measuring the financial statement benefit of uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement of the audit. The Company classifies interest and penalties on unrecognized tax benefits as income tax expense or benefit.

Customer Obligations Liability

Many of our customer agreements include provisions whereby our customers 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. 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.

Revenue Recognition

The Company reports revenue based on the following product lines: Healthcare, Commuter, COBRA and Other revenue. Healthcare and Commuter include revenues generated from benefit service fees based on employee / participant levels and interchange and other commission revenues. Interchange and other commission revenues are subject to revenue share arrangements and are based on a percentage of total healthcare and commuter dollars transacted using cards distributed by the Company pursuant to written purchase agreements with certain vendors and banks. COBRA revenue is generated from the administration of continuation of coverage services for participants who are no longer eligible for their employer’s health benefits, such as medical, dental, vision and for the continued administration of employee participants’ HRAs, and certain healthcare Flexible Spending Accounts (“FSAs”). Other revenue includes services related to enrollment and eligibility, non-healthcare, and employee account administration (i.e., tuition and health club reimbursements) and project-related professional services. 

The Company recognizes revenue when collectability is reasonably assured, service has been performed, persuasive evidence of an arrangement exists, and there is a fixed or determinable fee. 

Benefit service fees are recognized on a monthly basis as services are rendered and earned under service arrangements where fees and commissions are fixed or determinable and collectability is reasonably assured. Benefit service fees are based on a fee for service model (e.g., monthly fee per participant) in which revenue is recognized on a monthly basis as services are rendered under price quotations or service agreements having stipulated terms and conditions, which do not require management to make any significant judgments or assumptions regarding any potential uncertainties. Fees received for initial setup of clients and renewal fees are deferred and recognized on a monthly basis as services are rendered over the agreed benefit period. Contracts with initial setup fees generally have an initial term of one year. The agreed benefit period means the length of the benefit plan year, which is one year. The initial setup fees and annual renewal fees are not considered separable from the ongoing services provided for which benefit service fees are earned. 

Vendor and bank interchange revenues are attributed to revenue sharing arrangements the Company enters into with certain banks and card associations, whereby the Company shares a portion of the transaction fees earned by these financial institutions on debit cards the Company issues to its employee participants based on a percentage of total dollars transacted as reported on third-party reports.

Other commission revenue consists of commissions the Company receives from purchasing passes on behalf of its employee participants from various transit agencies and due to the significant volume of these purchases, the Company receives commissions on these passes which the Company records on a net basis. Commission revenue is recognized on a monthly basis as transactions are placed under written purchase agreements having stipulated terms and conditions, which do not require management to make any significant judgments or assumptions regarding any potential uncertainties. 

Professional service fees are related to services provided to the Company’s employer clients to accommodate their reporting or administrative requirements. These projects are discrete contracts and are not entered into contemporaneously with any other services the Company provides. The professional services revenues are recognized upon completion of services or projects in accordance with agreed upon terms and conditions, which do not require management to make any significant judgments or assumptions regarding any potential uncertainties and where fees are fixed or determinable and collectability is reasonably assured. Cost of revenue is presented on an aggregate basis because the Company provides for services at the client level and not by product.

Stock-based Compensation

Stock-based compensation expense is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes or Monte Carlo option pricing model or the market value of the Company's stock on the grant date and is recognized as an expense over the requisite service period, which is generally the vesting period. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the estimated volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates, estimated forfeitures, and expected dividends.

Restricted Stock Units ("RSUs"), Market-based performance RSUs, and Performance-based Stock Units ("PSUs") are measured based on the fair market values of the underlying stock on the dates of grant. The vesting of PSUs awarded is conditioned upon the attainment of performance objectives over a specified period and upon continued employment through the applicable vesting date. At the end of the performance period, shares of stock subject to PSUs vest based upon both the level of achievement of performance objectives within the performance period and continued employment through the applicable vesting date.

Stock-based compensation expense is calculated based on awards ultimately expected to vest and is reduced for estimated forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated annual forfeiture rates for stock options, RSUs, and PSUs are based on historical forfeiture experience.

The estimated fair value of stock options and RSUs are expensed on a straight-line basis over the vesting term of the grant and the estimated fair value of PSUs are expensed using an accelerated method over the term of the award once management has determined that it is probable that the performance objective will be achieved. Compensation expense is recorded over the requisite service period based on management's best estimate as to whether it is probable that the shares awarded are expected to vest. Management assesses the probability of the performance milestones being met on a continuous basis.

We estimate expected volatility based on the historical volatility of comparable companies from a representative peer-group as well as our own historical volatility. We estimate 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. We base the risk-free interest rate on zero-coupon yields implied from U.S. Treasury issues with remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future, and therefore, use an expected dividend yield of zero in the option pricing model. We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The estimated attainment of performance-based awards and related expense is based on the expectations of revenue and earnings before interest, tax and depreciation and amortization ("EBITDA") target achievement over a specified three year performance period. If we use different assumptions for estimating stock-based compensation expense in future periods, or if actual forfeitures differ materially from our estimated forfeitures, future stock-based compensation expense may differ significantly from what we have recorded in the current period and could materially affect our income from operations, net income and net income per share.

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

In March 2016, the Financial Accounting Standards Board ("FASB") Issued Accounting Standards Update ("ASU") No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when an award vests or is settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as financing activity but should be classified as operating activities. The standard also increases the amount of shares an employer can withhold for tax purposes without triggering liability accounting, clarifies that all cash payments made on employee's behalf for withheld shares should be presented as a financing activity in the statements of cash flows, and provides an entity-wide accounting policy election to account for forfeitures as they occur.

The Company adopted this standard during the first quarter of 2017. As required by the standard, excess tax benefits recognized on stock-based compensation expense were reflected in our condensed consolidated statements of income as a component of the provision for income taxes rather than additional paid-in capital on a prospective basis. The cumulative effect of this accounting change resulted in an increase of $3.6 million to deferred tax assets and an offset to the opening retained earnings of $3.6 million in the condensed consolidated balance sheets as of January 1, 2017. For the three months ended March 31, 2017, the Company recorded excess tax benefits in the amount of $2.6 million within our provision for income taxes in the condensed consolidated statements of income.

For presentation requirements, the Company elected to prospectively apply the change in the presentation of excess tax benefits wherein excess tax benefits recognized on stock-based compensation expense were classified as operating activities on the condensed consolidated statements of cash flows. Prior period classification of cash flows related to excess tax benefits were not adjusted.

The Company elected to retrospectively apply the ASU 2016-09 presentation requirements for cash flows related to employee taxes paid for withheld shares to be presented as financing activities. Consequently, on the condensed consolidated statement of cash flows for the three months ended March 31, 2016, the Company reclassified $5.6 million to increase net cash provided by operating activities and decrease net cash used in financing activities.

Further, the Company did not elect an accounting change to record forfeitures as they occur. The Company continues to estimate forfeitures at each period.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, supersedes most current revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The FASB subsequently issued a one year deferral of the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP (ASU 2015-14, Revenue from Contracts with Customers(Topic 606): Deferral of the Effective Date). In accordance with the deferral, the guidance is effective for annual reporting periods beginning after December 15, 2017. Subsequently, the FASB issued ASU 2016-08, Revenue from Contracts with Customers(Topic 606): Principal versus Agent Considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842).

The Company will adopt the standard on January 1, 2018 and will apply the modified retrospective method of adoption to those contracts which were not completed as of that date. Upon adoption, the Company will recognize the cumulative effect of adopting this guidance as an adjustment to its opening balance of retained earnings. Prior periods will not be retrospectively adjusted.

The Company anticipates the primary impact of adopting the new standard will result in the increase in assets from the deferral of incremental commission related to the cost of obtaining subscription contracts. Under Topic 605, the Company expensed all direct and incremental commission costs to obtain a contract. Under the new standard, the Company will defer all incremental commission costs to obtain the contract. These costs are amortized to sales and marketing expense on a consistent basis that reflects the transfer of services to the customer over an estimated period of benefit that has been determined to be six years. The Company expects the impact of adopting ASC 606 to result in an approximate increase in total assets of $9.3 million and an increase in retained earnings of $6.9 million (net of tax effect) as of January 1, 2018. For tax purposes, this change in accounting policy will change the timing of the book deduction, which will result in a book/tax difference.  Since tax is deducting the commission expense before books, this will result in a taxable temporary difference and deferred tax liability. The Company expects the tax impact to increase deferred tax liability in the amount of $2.4 million with a decreasing offset to retained earnings upon adoption.

In February 2016, the FASB issued ASC No. 842, Leases, (Topic 842). The Company currently expects that its operating lease commitments will be subject to the new standard and be recognized as operating lease liabilities and right-of-use assets upon our adoption of Topic 842, which will increase the total assets and total liabilities that we report relative to such amounts prior to adoption. Refer to Note 12 for further information on our operating lease commitments. The Company plans to adopt Topic 842 using the alternative modified retrospective approach with the cumulative effect of adoption recognized to retained earnings on January 1, 2019. The Company does not believe the new standard will have a material impact on its consolidated statements of income, nor will it have a notable impact on its liquidity. The standard will also have no impact on our debt-covenant compliance under our current agreements. The Company expects the adoption of the standard to have a material impact on the balance sheet as a result of recording a right-of-use asset and lease liability associated with a number of lease arrangements.

 In March 2016, the FASB issued ASU 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 does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash flows: Classification of Certain Cash Receipts and Cash Payments, (ASU 2016-15). The update provides specific guidance on a number of cash flow classification issues including contingent consideration payments made after a business combination, proceeds from settlement of insurance claims, proceeds from settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, and separately identifiable cash flows and application of the predominance principle. The update to the standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance principally affects accounting standards for equity investments, financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for financial instruments. Upon the effective date of the new guidance, all equity investments in unconsolidated entities, other than those accounted for using the equity method of accounting, will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification and therefore, no changes in fair value will be reported in other comprehensive income (loss) for equity securities with readily determinable fair values. The new guidance on the classification and measurement will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to GAAP an impairment model (known as the "current expected credit loss model") that is based on expected losses rather than incurred losses. ASU 2016-13 is effective for annual reporting periods ending after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the timing and impact of adoption of this ASU on its consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 addresses diversity in practice from entities classifying and presenting transfers between cash and restricted cash as operating, investing or financing activities or as a combination of those activities in the statement of cash flows. The ASU requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the Statement of Cash Flows. As a result, transfers between such categories are no longer be presented in the Statement of Cash Flows. The Company will adopt this standard on January 1, 2018 using the retrospective method. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new accounting guidance clarifies the definition of a business and provides additional guidance to assist entities with evaluating whether transactions should be accounted for as asset acquisitions (or asset disposals) or business combinations (or disposals of a business). Under this new guidance, an entity first determines whether substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this criterion is met, the transaction should be accounted for as an asset acquisition as opposed to a business combination. This distinction is important because the accounting for an asset acquisition significantly differs from the accounting for a business combination. This new guidance eliminates the requirement to evaluate whether a market participant could replace missing elements (e.g. inputs or processes), narrows the definition of outputs and requires that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the timing of adoption.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new standard is expected to be effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the timing of adoption; however, it does not believe this ASU will have a material impact on the Company's consolidated financial statements.

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Net Income per Share

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Net Income Per Share

Net Income per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):

໿

	Three months ended March 31,
	2017		2016
	(As Restated, Note 1)
Numerator for basic net income per share:
Net income	$	16,057	$	5,796
Denominator for basic net income per share:
Weighted-average common shares outstanding	37,025		35,916
Basic net income per share	$	0.43	$	0.16
Numerator for diluted net income per share:
Net income	$	16,057	$	5,796
Denominator for diluted net income per share:
Weighted-average common shares outstanding	37,025		35,916
Dilutive stock options and restricted stock units	1,357		515
Dilutive vested performance restricted stock units	59		98
Diluted weighted-average common shares outstanding	38,441		36,529
Diluted net income per share	$	0.42	$	0.16

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. The Company excluded 0.6 million and 1.4 million anti-dilutive shares in the calculation of diluted earnings per share for the three months ended March 31, 2017 and 2016, respectively.

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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill

There is no change in the carrying amount of goodwill for the three months ended March 31, 2017.

Intangible Assets

Acquired intangible assets at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017							December 31, 2016
	(As Restated, Note 1)
	Gross carrying amount		Accumulated amortization			Net		Gross carrying amount		Accumulated amortization			Net
Amortizable intangible assets:
Client contracts and broker relationships	$	230,299	$	(66,572	)	$	163,727	$	232,560	$	(60,569	)	$	171,991
Trade names	3,880		(3,239		)	641		3,880		(3,078		)	802
Technology	14,646		(12,162		)	2,484		14,646		(11,867		)	2,779
Noncompete agreements	2,232		(1,959		)	273		2,232		(1,941		)	291
Favorable lease arrangements	1,136		(536		)	600		1,136		(510		)	626
Total	$	252,193	$	(84,468	)	$	167,725	$	254,454	$	(77,965	)	$	176,489

Amortization expense of intangible assets totaled $6.5 million and $4.3 million for the three months ended March 31, 2017 and 2016, respectively. These costs are included in amortization and change in contingent consideration in the accompanying condensed consolidated statements of income. Acquired intangible assets are amortized on a straight-line basis generally over one to ten years.

The Company accelerated amortization of 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.

The estimated amortization expense in future periods at March 31, 2017 is as follows (in thousands):

໿

Remainder of 2017	$	18,837
2018	24,579
2019	23,656
2020	21,673
2021	18,868
Thereafter	60,112
Total	$	167,725

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Accounts Receivable

3 Months Ended

Mar. 31, 2017

Receivables [Abstract]

Accounts Receivable

Accounts Receivable

Accounts receivable at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017			December 31, 2016
	(As Restated, Note 1)
Trade receivables	$	69,120		$	54,887
Unpaid amounts for benefit services	87,344			40,542
	156,464			95,429
Less: allowance for doubtful accounts	(1,479		)	(2,016		)
Accounts receivable, net	$	154,985		$	93,413

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Property And Equipment

3 Months Ended

Mar. 31, 2017

Property, Plant and Equipment [Abstract]

Property And Equipment

Property and Equipment

Property and equipment at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017			December 31, 2016
	(As Restated, Note 1)
Computers and equipment	$	18,149		$	17,254
Software and software development costs	106,519			102,998
Furniture and fixtures	6,786			6,784
Leasehold improvements	19,431			19,477
	$	150,885		$	146,513
Less: accumulated depreciation and amortization	(95,874		)	(92,078		)
Property and equipment, net	$	55,011		$	54,435

During the three months ended March 31, 2017 and 2016, the Company capitalized software development costs of $4.1 million and $3.4 million, respectively. Amortization expense related to capitalized software development costs was $2.7 million and $3.1 million for the three months ended March 31, 2017 and 2016, respectively. These costs are included in amortization, impairment and change in contingent consideration in the accompanying condensed consolidated statements of income. At March 31, 2017, the unamortized software development costs included in property and equipment in the accompanying condensed consolidated balance sheets were $28.2 million.  

Total depreciation expense plus amortization of software and internally developed software for the three months ended March 31, 2017 and 2016 was $5.3 million and $4.9 million, respectively.

As a result of the Company's restatement, the Company recorded assets under capital lease obligations which were originally recognized incorrectly as operating leases. As of March 31, 2017 and December 31, 2016, property and equipment acquired under capital lease obligations was $1.7 million and was classified as computers and equipment. Accumulated depreciation for assets acquired under capital lease obligations was $0.9 million and $0.8 million, respectively, as of March 31, 2017 and December 31, 2016.

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 consolidated statements of income and a corresponding reduction of property and equipment, net, in the consolidated balance sheets. The Company also reversed previously recorded amortization expenses for the first quarter of 2017 by $0.3 million.

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Accounts Payable and Accrued Expenses

3 Months Ended

Mar. 31, 2017

Payables and Accruals [Abstract]

Account Payable and Accrued Expenses

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017		December 31, 2016
	(As Restated, Note 1)
Accounts payable and accrued liabilities	$	27,173	$	21,830
Payable to benefit providers and transit agencies	29,570		24,528
Accrued compensation and related benefits	20,872		20,223
Other accrued expenses	4,561		3,752
Deferred revenue	13,956		2,344
Accounts payable and accrued expenses	$	96,132	$	72,677

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Long-term Debt

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Long-term Debt

Long-term debt

As of March 31, 2017 and December 31, 2016, long-term debt consisted of the following (dollar in thousands):

	March 31, 2017			December 31, 2016
Revolving credit facility	$	247,500		$	250,000
Less: Outstanding letters of credit	(500		)	(500		)
Outstanding revolving credit facility	247,000			249,500
Unamortized loan origination fees	(605		)	(652		)
Long-term debt	$	246,395		$	248,848

On June 5, 2015, the Company entered into an Amended and Restated Credit Agreement ("Amended Credit Agreement") with certain lenders, including MUFG Union Bank, N.A., as administrative agent ("Agent"). With a $15.0 million subfacility 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.

On August 1, 2016, the Company entered into a First Amended and Restated Credit Agreement (the "First Amended Credit Agreement") with the Agent to increase the revolving credit facility credit limit from $150.0 million to $250.0 million. The First Amended Credit Agreement did not change the Company's $15.0 million subfacility limit or its option to increase its commitments up to $100.0 million. The credit facility's maturity date, June 5, 2020, and interest rate, London Interbank Offered Rate ("LIBOR") plus a margin ranging from 1.25% to 1.75%, also remained unchanged. Subsequent to entering into the First Amended Credit Agreement, the Company borrowed additional funds in the amount of $169.9 million from the revolving credit facility in connection with the acquisition of the ADP CHSA/COBRA Business. In connection with the First Amended Credit Agreement, the Company incurred fees of approximately $0.2 million, which are being amortized over the term of the Amended Credit Agreement.

As of March 31, 2017, the Company had $247.0 million outstanding under the revolving credit facility and $2.5 million unused revolving credit facility still available to borrow under the Amended Credit Agreement.

The Company’s obligations are secured by substantially all of the Company’s assets. All of the Company’s existing and future material subsidiaries are required to guarantee the Company’s obligations under the credit facility. The guarantees by future material subsidiaries are and will be secured by substantially all of the property of such material subsidiaries.

The credit facility contains financial and non-financial covenants including debt ratio and interest coverage ratio requirements. We are currently in compliance with all financial and non-financial covenants under the credit facility after considering the reporting extension agreement described below.

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.

On April 4, 2017, the Company entered into a Second Amended and Restated Credit Agreement (the “Second Credit Agreement”), by and among the Company, the guarantors from time to time party thereto, the lenders from time to time party thereto, and MUFG Union Bank, N.A., as administrative agent (“Agent”). The Second Amended Credit Agreement amends and restates the Company’s existing Amended and Restated Credit Agreement, dated as of June 5, 2015, by and among the Company, the guarantors from time to time party thereto, the lenders from time to time party thereto and Agent.

The Credit Agreement provides for a $400.0 million revolving credit facility, with a $15.0 million letter of credit subfacility. The Second Amended Credit Agreement contains an increase option permitting the Company, subject to certain conditions and requirements, to arrange with existing lenders and/or new lenders to provide up to an aggregate of $100.0 million in additional commitments. Loan proceeds may be used for general corporate purposes, including acquisitions permitted under the Second Amended Credit Agreement. The Company may prepay loans under the Second Amended Credit Agreement in whole or in part at any time without premium or penalty. At April 4, 2017, the Company had outstanding revolving loans in an aggregate principal amount of $247.0 million under the Credit Agreement and an undrawn letter of credit in a face amount of $500,000.

The loans bear interest, at the Company’s option, at (i) LIBOR determined in accordance with the Second Amended Credit Agreement, plus a margin of 1.25% to 2.25%, or (ii) a base rate determined in accordance with the Second Amended Credit Agreement, plus a margin of 0.25% to 1.25%, in each case with such margin determined based on the Company’s consolidated leverage ratio for the preceding four fiscal quarter period. Interest is due and payable in arrears quarterly for base rate loans and at the end of an interest period for LIBOR loans. Principal, together with all accrued and unpaid interest, is due and payable on April 4, 2022. The Company is also obligated to pay other customary closing fees, commitment fees and letter of credit fees for a facility of this size and type.

The Company’s obligations under the Second Amended Credit Agreement are secured by substantially all of the Company’s assets. All of the Company’s future material subsidiaries are required to guaranty its obligations under the Second Amended Credit Agreement. The guarantees by future material subsidiaries are and will be secured by substantially all of the assets of such subsidiaries.

The Second Amended Credit Agreement requires that the Company maintain compliance with (i) a ratio of consolidated indebtedness to consolidated adjusted EBITDA for the twelve month period ending as of the end of each fiscal quarter, calculated in accordance with the Second Amended Credit Agreement, of not greater than 3.00 to 1.00 and (ii) a ratio of consolidated adjusted EBITDA to consolidated interest expense for the twelve month period ending as of the end of each fiscal quarter, calculated in accordance with the Second Amended Credit Agreement, of not less than 1.50 to 1.00.

On April 5, 2018, our Board concluded the previously issued financial statements for (i) the quarterly periods ended September 30, June 30 and March 31, 2017, (ii) the annual period ended December 31, 2016 and (iii) the quarterly periods ended September 30 and June 30, 2016 should be restated and should no longer be relied upon. Consequently, we did not meet our obligation to provide our financial statements to the Agent by the contractual delivery date. In March 2018, we entered into a Reporting Extension Agreement (the “Extension Agreement”), by and among the Company, the lenders party thereto and MUFG Union Bank, N.A., as administrative agent to extend the time period for delivery to Agent and the lenders our delinquent financial statements to June 30, 2018. In June 2018, we entered into a Second Reporting Extension Agreement and paid the Agent $0.8 million to extend the delivery date of our delinquent financial statements to March 16, 2019. In March 2019, the Company entered into a Third Reporting Extension Agreement and paid the Agent $0.1 million to extend the delivery date of any remaining delinquent financial statements to May 10, 2019.

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Organizational Efficiency Plan

3 Months Ended

Mar. 31, 2017

Restructuring and Related Activities [Abstract]

Organizational Efficiency Plan

Organizational Efficiency Plan

In 2015, the Company initiated the organizational efficiency plan and continued to evaluate ways to improve business processes to ensure that operations align with its strategy and vision for the future. The Company integrated operations and consolidated certain positions resulting in employee headcount reductions during the three months ended March 31, 2017 and recognized a charge of $0.7 million as employee termination and other charges. The Company recorded these costs within accrued expenses in the accompanying condensed consolidated balance sheets. 

Changes in the Company’s accrued liabilities for workforce reduction costs during the three months ended March 31, 2017 are as follows (in thousands):

	Amount
Beginning balance as of December 31, 2016	$	—
Employee termination and other charges	731
Releases	(346		)
Ending balance as of March 31, 2017	$	385

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Employee Benefit Plans

3 Months Ended

Mar. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Employee Benefit Plans

Employee Benefit Plans

Stock-based compensation

Stock-based compensation is classified in the condensed consolidated statements of income in the same expense line items as cash compensation. Amounts recorded as expense in the condensed consolidated statements of income were as follows (in thousands):  

	Three Months Ended March 31,
	2017		2016
	(As Restated, Note 1)
Cost of revenues	$	1,740	$	1,150
Technology and development	611		485
Sales and marketing	786		707
General and administrative	643		3,649
Total	$	3,780	$	5,991

Employee Stock Option Plan

In May 2010, the Company adopted the 2010 Equity Incentive Plan ("2010 Plan"). Under the 2010 Plan, the Company can grant share-based awards to all employees, including executive officers, outside consultants and non-employee directors. Options under the 2010 Plan generally have a term of 10 years and vest over 4 years with 25% vesting after one year of service and monthly vesting over the remaining period. As of March 31, 2017, the 2010 Plan has a total of 3.4 million common stock shares available for issuance.

The following table summarizes the weighted-average fair value of stock options granted:

	Three Months Ended March 31,
	2017		2016
Stock options granted (in thousands)	518		496
Weighted-average fair value at date of grant	$	26.74	$	16.62

Stock option activity for the three months ended March 31, 2017 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, 2016	2,844		$	33.74	7.00	$	110,256
Granted	518		72.69
Exercised	(118	)	34.46
Forfeited	(109	)	54.50
Outstanding as of March 31, 2017	3,135		$	39.42	7.21	$	103,234
Vested and expected to vest at March 31, 2017	3,002		$	38.71	7.14	$	100,996
Exercisable at March 31, 2017	1,593		$	23.83	5.55	$	77,215

As of March 31, 2017, there was $23.9 million of total unrecognized stock-based compensation expense associated with stock options which will be recognized over a weighted-average period of approximately three years.  Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Restricted Stock Units

The Company grants restricted stock units ("RSU") to certain employees, officers, and directors under the 2010 Plan. RSUs vest upon performance-based, market-based, or service-based criteria.

In the first quarter of 2017 and 2016, the Company granted a total of 343,000 and 263,000, respectively, of performance-based restricted stock units to certain executive officers. Performance-based RSUs are typically granted such that they vest upon the achievement of certain revenue growth rates and other financial metrics during a specified three year performance period. Participants have the ability to receive a percentage of the targeted number of shares originally granted which is up to a maximum of 200%, for 2017 and 2016.

In the first quarter of 2017, the market-based performance RSUs achieved 50% of the target attainment because the Company’s common stock achieved a certain per share price, reported on the New York Stock Exchange (“NYSE”), for 20 consecutive trading days during the 36 month performance period ended April 7, 2017.

On April 5, 2018, the Board concluded that the previously issued financial statements for (i) the quarterly periods ended September 30, June 30 and March 31, 2017, (ii) the annual period ended December 31, 2016 and (iii) the quarterly periods ended September 30 and June 30, 2016 should be restated and should no longer be relied upon. As a result, the previously issued financial statements for the aforementioned reporting periods are considered not issued. The Company updates the stock-based compensation expense based on the number of performance-based RSUs it expects to vest as of each period end. During the Non-Reliance Period, the expected achievement for performance-based RSUs granted in 2017 and 2016 was reassessed based on the restated financial statement resulting in their expected achievement percentage being reduced from 130% to 81% for 2016 grants and from 130% to 56% for 2017 grants.

Stock-based compensation expense related to restricted stock units was $0.9 million and $3.8 million for the three months ended March 31, 2017 and 2016, respectively. Total unrecorded stock-based compensation expense at March 31, 2017 associated with restricted stock units was $27.0 million, which is expected to be recognized over a weighted-average period of approximately two years.

The following table summarizes information about restricted stock units issued to officers, directors and employees under the 2010 Equity Incentive Plan (shares in thousands):

	(Shares in thousands)					Weighted-average grant date fair value
	Service- based RSUs		Performance- based RSUs		Market-based RSUs	Service- based RSUs		Performance- based RSUs		Market-based RSUs
Unvested at December 31, 2016	257		491		166	$	50.49	$	51.03	$	49.38
Granted (1)	25		379		—	73.50		71.02		—
Vested (2)	(40	)	(124	)	—	34.70		57.10		—
Forfeited and cancelled	(9	)	(21	)	—	58.45		58.57		—
Unvested at March 31, 2017	233		725		166	$	55.41	$	60.21	$	49.38

(1) Performance-based RSUs include additional shares granted as specified financial metrics for the performance-based restricted stock units, granted to certain executives in 2014, during the performance period of January 1, 2014 through December 31, 2016 were met, resulting in actual shares vesting at 141% of the target number of shares originally granted. The weighted average grant date fair value of these additional shares was $57.10. In addition, there are additional shares granted as specified financial metrics for the performance-based RSUs, which were granted to certain executives in February 2017.

(2) Performance-based RSUs include approximately 123,750 shares vested from performance-based restricted stock units granted to certain executives in 2014 representing 141% of the target number of shares originally granted.

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Stockholders' Equity (Notes)

3 Months Ended

Mar. 31, 2017

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Share Repurchase Program

On August 6, 2015, the Board authorized a $100 million stock repurchase program which commenced on November 5, 2015 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. There were no shares of common stock repurchased during the three months ended March 31, 2017. During the three months ended March 31, 2016, the Company repurchased 226,170 shares of common stock for a total cost of $9.4 million, or an average price of $41.43 per share. As of March 31, 2017, the Company had $85.6 million available for future purchases under the stock repurchase program.

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Income Taxes

3 Months Ended

Mar. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes 

The Company reports 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. The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Presently, there are no income tax examinations on-going in the jurisdictions where the Company operates.

The income tax provision for the three months ended March 31, 2017 and 2016 was $5.5 million and $3.8 million, respectively. The Company's effective tax rate was 25.5% and 39.7% for the three months ended March 31, 2017 and 2016, respectively.

As of March 31, 2017, 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.

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Commitments And Contingencies

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments And Contingencies

Commitments and Contingencies

(a) Capital Lease Obligations

The Company leases equipment under capital lease obligations that expire at various dates through 2020. Future minimum lease payments under capital lease obligations as of March 31, 2017 are $0.5 million. The Company recorded the current and long-term portions of capital lease obligations of $0.2 million under other current liabilities and $0.3 million under non-current liabilities, respectively, in the condensed consolidated balance sheet. 

(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 $11.5 million which is expected to be received through February 2023 are as follows (in thousands):

	As of March 31, 2017
	(As Restated, Note 1)
Remainder of 2017	$	6,704
2018	9,043
2019	9,180
2020	8,986
2021	8,591
Thereafter	6,566
Total future minimum lease payments	$	49,070

Rent expense for the three months ended March 31, 2017 and 2016 was $1.9 million and $1.6 million, respectively. Sublease income for the three months ended March 31, 2017 was $0.3 million. There was no sublease income recognized for the same period in 2016.

(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 also 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. In March 2019, the Company filed a Motion for Summary Judgement with CBCA on the December 22^nd denial by the OPM. The government has until May2019 to respond. In order to accelerate resolution of all matters before the CBCA, the Company’s appeal of the June 21^st denial by the OPM was withdrawn on April 9, 2019. The remaining claim related to the OPM’s December 22^nd denial, valued at approximately $6.2 million, is scheduled to go to trial in July 2019. 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 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. In addition, in accordance with the relevant authoritative guidance, for matters which the likelihood of material loss is at least reasonable possible, the Company provides disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, the Company will provide disclosure to that effect. 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.

The Company is involved in various other litigation, governmental proceedings and claims, not described above, that arise in the normal course of business. While it is not possible to determine the ultimate outcome or the duration of such litigation, governmental proceedings or claims, the Company believes, based on current knowledge and the advice of counsel, that such litigation, proceedings and claims will not have a material impact on the Company’s financial position or results of operations.

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Subsequent Event

3 Months Ended

Mar. 31, 2017

Subsequent Events [Abstract]

Subsequent Event

Subsequent Events

On April 4, 2017, the Company entered into a Second Amended and Restated Credit Agreement (the “Second Credit Agreement”), by and among the Company, the guarantors from time to time party thereto, the lenders from time to time party thereto, and the Agent to increase the size of its revolving credit facility to $400.0 million with a $15.0 million letter of credit subfacility. All the material terms of the Second Amended Credit Agreement are disclosed in Note 7 Long-term debt.

At the beginning of the second quarter of 2018, and in conjunction with the Company’s announcement of its intention to restate its 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, the Company announced certain changes to its management team, effective April 5, 2018, including:

• Mr. Joseph L. Jackson resigning from his position as Chief Executive Officer and being appointed Executive Chairman of the Company.

• Mr. Edgar O. Montes being appointed President and Chief Executive Officer and being appointed to serve as a member of the Board.

• Mr. Colm M. Callan resigning from his position as Chief Financial Officer and continuing his employment with the Company to effect a seamless transition to the incoming interim chief financial officer followed by the termination of his employment on July 4, 2018.

• Ms. Kimberly L. Wilford resigning from her position as Senior Vice President, General Counsel and Corporate Secretary of the Company and continuing her employment with the Company to effect a seamless transition followed by the termination of her employment on July 4, 2018.

The transition arrangements are described in the Form 8-K filed with the U.S. Securities and Exchange Commission on April 5, 2018. 

Mr. Jackson resigned from his position as Executive Chairman of the Company effective September 6, 2018.  Mr. Jackson executed a release of claims with the Company as part of his resignation providing him with certain compensation and benefits, as described in the Form 8-K filed with the U.S. Securities and Exchange Commission on September 12, 2018.

On October 15, 2018, Mr. Ismail Dawood was appointed Chief Financial Officer of the Company after previously serving as the Interim Chief Financial Officer and principal financial officer since April 9, 2018, and on January 14, 2019, Mr. John G. Saia joined the Company as Senior Vice President, General Counsel and Corporate Secretary.

In March 2019, the Company reduced the long-term debt principal with a $60.0 million payment.

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Summary Of Business And Significant Accounting Policies (Policy)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Business

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.

Basis Of Presentation

Basis of Presentation

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” or “GAAP”). The results of the interim period presented herein are not necessarily indicative of the results of future periods or annual results for the year ending December 31, 2017.

These unaudited interim condensed consolidated financial statements and the related notes should be read in conjunction with the December 31, 2016 audited financial statements and related notes, as restated, 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 for the year ended December 31, 2017. The December 31, 2016 consolidated balance sheet, included in this interim Quarterly Report on Form 10-Q/A, was derived from audited financial statements, as restated, in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016 which was filed with the SEC on April 26, 2019. Certain prior year amounts in the condensed consolidated statements of cash flows have been reclassified to conform to the current year’s presentation as a result of the adoption of new accounting guidance ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). See "Recent Accounting Pronouncements" section below.

Other than the adoption of ASU 2016-09, 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, 2016 included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016, as restated.

Principles Of Consolidation

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

Use of Estimates

In preparing the condensed consolidated financial statements and related disclosure in conformity with GAAP, including all adjustments as a result of the Company's restatement, and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"), the Company must make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to allocation of purchase consideration to acquired assets and liabilities from business combinations, allowances for doubtful accounts, useful lives for depreciation and amortization, loss contingencies, income taxes, the assumptions used for stock-based compensation including attainment of performance-based awards, the assumptions used for software and website development cost classification, and recoverability and impairments of goodwill and long-lived assets. Actual results may be materially different from those estimates. In making its estimates, the Company considers the current economic and legislative environment.

Fair Value Of Financial Instruments

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining 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 and we consider counterparty credit risk in our assessment of fair value. Carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate their fair values as of the balance sheet dates because of their short maturities. The carrying value of the Company’s debt under the credit facility is estimated to approximate fair value as the interest rate approximates the market rate for debt securities with similar terms and risk characteristics.

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.

• 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.

Recently Issued Accounting Pronouncements

Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

In March 2016, the Financial Accounting Standards Board ("FASB") Issued Accounting Standards Update ("ASU") No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when an award vests or is settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as financing activity but should be classified as operating activities. The standard also increases the amount of shares an employer can withhold for tax purposes without triggering liability accounting, clarifies that all cash payments made on employee's behalf for withheld shares should be presented as a financing activity in the statements of cash flows, and provides an entity-wide accounting policy election to account for forfeitures as they occur.

The Company adopted this standard during the first quarter of 2017. As required by the standard, excess tax benefits recognized on stock-based compensation expense were reflected in our condensed consolidated statements of income as a component of the provision for income taxes rather than additional paid-in capital on a prospective basis. The cumulative effect of this accounting change resulted in an increase of $3.6 million to deferred tax assets and an offset to the opening retained earnings of $3.6 million in the condensed consolidated balance sheets as of January 1, 2017. For the three months ended March 31, 2017, the Company recorded excess tax benefits in the amount of $2.6 million within our provision for income taxes in the condensed consolidated statements of income.

For presentation requirements, the Company elected to prospectively apply the change in the presentation of excess tax benefits wherein excess tax benefits recognized on stock-based compensation expense were classified as operating activities on the condensed consolidated statements of cash flows. Prior period classification of cash flows related to excess tax benefits were not adjusted.

The Company elected to retrospectively apply the ASU 2016-09 presentation requirements for cash flows related to employee taxes paid for withheld shares to be presented as financing activities. Consequently, on the condensed consolidated statement of cash flows for the three months ended March 31, 2016, the Company reclassified $5.6 million to increase net cash provided by operating activities and decrease net cash used in financing activities.

Further, the Company did not elect an accounting change to record forfeitures as they occur. The Company continues to estimate forfeitures at each period.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, supersedes most current revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The FASB subsequently issued a one year deferral of the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP (ASU 2015-14, Revenue from Contracts with Customers(Topic 606): Deferral of the Effective Date). In accordance with the deferral, the guidance is effective for annual reporting periods beginning after December 15, 2017. Subsequently, the FASB issued ASU 2016-08, Revenue from Contracts with Customers(Topic 606): Principal versus Agent Considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842).

The Company will adopt the standard on January 1, 2018 and will apply the modified retrospective method of adoption to those contracts which were not completed as of that date. Upon adoption, the Company will recognize the cumulative effect of adopting this guidance as an adjustment to its opening balance of retained earnings. Prior periods will not be retrospectively adjusted.

The Company anticipates the primary impact of adopting the new standard will result in the increase in assets from the deferral of incremental commission related to the cost of obtaining subscription contracts. Under Topic 605, the Company expensed all direct and incremental commission costs to obtain a contract. Under the new standard, the Company will defer all incremental commission costs to obtain the contract. These costs are amortized to sales and marketing expense on a consistent basis that reflects the transfer of services to the customer over an estimated period of benefit that has been determined to be six years. The Company expects the impact of adopting ASC 606 to result in an approximate increase in total assets of $9.3 million and an increase in retained earnings of $6.9 million (net of tax effect) as of January 1, 2018. For tax purposes, this change in accounting policy will change the timing of the book deduction, which will result in a book/tax difference.  Since tax is deducting the commission expense before books, this will result in a taxable temporary difference and deferred tax liability. The Company expects the tax impact to increase deferred tax liability in the amount of $2.4 million with a decreasing offset to retained earnings upon adoption.

In February 2016, the FASB issued ASC No. 842, Leases, (Topic 842). The Company currently expects that its operating lease commitments will be subject to the new standard and be recognized as operating lease liabilities and right-of-use assets upon our adoption of Topic 842, which will increase the total assets and total liabilities that we report relative to such amounts prior to adoption. Refer to Note 12 for further information on our operating lease commitments. The Company plans to adopt Topic 842 using the alternative modified retrospective approach with the cumulative effect of adoption recognized to retained earnings on January 1, 2019. The Company does not believe the new standard will have a material impact on its consolidated statements of income, nor will it have a notable impact on its liquidity. The standard will also have no impact on our debt-covenant compliance under our current agreements. The Company expects the adoption of the standard to have a material impact on the balance sheet as a result of recording a right-of-use asset and lease liability associated with a number of lease arrangements.

 In March 2016, the FASB issued ASU 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 does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash flows: Classification of Certain Cash Receipts and Cash Payments, (ASU 2016-15). The update provides specific guidance on a number of cash flow classification issues including contingent consideration payments made after a business combination, proceeds from settlement of insurance claims, proceeds from settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, and separately identifiable cash flows and application of the predominance principle. The update to the standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this ASU to have a significant impact on its condensed consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance principally affects accounting standards for equity investments, financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for financial instruments. Upon the effective date of the new guidance, all equity investments in unconsolidated entities, other than those accounted for using the equity method of accounting, will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification and therefore, no changes in fair value will be reported in other comprehensive income (loss) for equity securities with readily determinable fair values. The new guidance on the classification and measurement will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the FASB's guidance on the impairment of financial instruments. The ASU adds to GAAP an impairment model (known as the "current expected credit loss model") that is based on expected losses rather than incurred losses. ASU 2016-13 is effective for annual reporting periods ending after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the timing and impact of adoption of this ASU on its consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 addresses diversity in practice from entities classifying and presenting transfers between cash and restricted cash as operating, investing or financing activities or as a combination of those activities in the statement of cash flows. The ASU requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the Statement of Cash Flows. As a result, transfers between such categories are no longer be presented in the Statement of Cash Flows. The Company will adopt this standard on January 1, 2018 using the retrospective method. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new accounting guidance clarifies the definition of a business and provides additional guidance to assist entities with evaluating whether transactions should be accounted for as asset acquisitions (or asset disposals) or business combinations (or disposals of a business). Under this new guidance, an entity first determines whether substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this criterion is met, the transaction should be accounted for as an asset acquisition as opposed to a business combination. This distinction is important because the accounting for an asset acquisition significantly differs from the accounting for a business combination. This new guidance eliminates the requirement to evaluate whether a market participant could replace missing elements (e.g. inputs or processes), narrows the definition of outputs and requires that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the timing of adoption.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new standard is expected to be effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the timing of adoption; however, it does not believe this ASU will have a material impact on the Company's consolidated financial statements.

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Summary Of Business And Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Schedule of Error Corrections and Prior Period Adjustments

The following table presents the Company's condensed consolidated statement of income as previously reported, restatement adjustments and the condensed consolidated statement of income as restated as March 31, 2017 (in thousands, except per share amounts):

Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
	Three Months Ended March 31, 2017
	As Previously Reported			Adjustments				As Restated
Revenues:
Healthcare	$	73,996		$	678			$	74,674
Commuter	18,352			191				18,543
COBRA	28,297			253				28,550
Other	4,362			(92		)		4,270
Total revenues	125,007			1,030			(l)	126,037
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	47,204			884			(m)	48,088
Technology and development	15,339			(68		)	(n)	15,271
Sales and marketing	16,061			18			(o)	16,079
General and administrative	20,565			(7,065		)	(p)	13,500
Amortization and change in contingent consideration	9,533			(296		)	(q)	9,237
Employee termination and other charges	731			—				731
Total operating expenses	109,433			(6,527		)		102,906
Income from operations	15,574			7,557				23,131
Other income (expense):
Interest income	67			—				67
Interest expense	(1,365		)	(71		)	(r)	(1,436		)
Other income (expense), net	(216		)	(5		)	(s)	(221		)
Income before income taxes	14,060			7,481				21,541
Income tax provision	(2,962		)	(2,522		)	(t)	(5,484		)
Net income	$	11,098		$	4,959			$	16,057
Net income per share:
Basic	$	0.30		$	0.13			$	0.43
Diluted	$	0.29		$	0.13			$	0.42
Shares used in computing net income per share:
Basic	37,025			—				37,025
Diluted	38,441			—				38,441

(l) Revenue adjustment of $1.0 million for the three months ended March 31, 2017 was primarily due to (i) an increase in 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 (ii) partially offset by adjustments for OPM revenue.

(m) Adjustment of $0.9 million relates primarily to (i) a $0.6 million expense increase as a result of the adjustment of platform technology related expenses; (ii) a $0.2 million expense increase related to recognition of expenses in the proper reporting period; and (iii) a $0.1 million increase in the reserve of potentially uncollectible customer obligations for pass through employee participant reimbursement.

(n) Adjustment relates primarily to a reduction related to the over-accrual of platform technology related expenses.

(o) Adjustment relates primarily to changes in accruals for sales commissions and corporate bonus expenses.

(p) Adjustment of $7.1 million relating to (i) a $2.8 million reduction in bad debt expense related to the re-valuation of the allowance for doubtful accounts; (ii) a $4.2 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); and (iii) a $0.1 million expense reduction related to recognition of expenses in the proper reporting period.

(q) Adjustment relates primarily to the reversal of amortization expense previously recorded in connection with the Internally Developed Software related to KP Connector that was impaired by the Company in 2016.

(r) Adjustment relates primarily to interest expense on unreported employee participant and employer clients’ unclaimed property.

(s) Adjustment to accrued penalties on unreported employee participant and employer clients unclaimed property.

(t) Adjustment of $2.5 million relates to an increase in the quarterly tax provision as a result of the impact of the restatement adjustments in (l) through (s).

The following table presents the Company's unaudited condensed consolidated statement of cash flows as previously reported, restatement adjustments and the unaudited condensed consolidated statement of cash flows as restated as of the three months ended March 31, 2017 (in thousands):

Footnote references below refer to footnotes (a) through (t) in the condensed consolidated balance sheet and condensed consolidated statement of income tables as at and for the three months ended March 31, 2017 above.

Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
	Three Months Ended March 31, 2017
	As Previously Reported			Adjustments				As Restated
Cash flows from operating activities:
Net income	$	11,098		$	4,959		(l) to (t)	$	16,057
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation	2,491			77			(d)	2,568
Amortization and change in contingent consideration	9,533			(297		)	(q)	9,236
Amortization of debt issuance costs	—			47			(p)	47
Stock-based compensation expense	7,969			(4,189		)	(p)	3,780
Loss on disposal of fixed assets	72			—				72
Provision for doubtful accounts	2,395			(2,049		)	(p)	346
Deferred taxes	—			593			(e)	593
Changes in operating assets and liabilities:
Accounts receivable	(44,966		)	(16,952		)	(b)	(61,918		)
Prepaid expenses and other current assets	5,360			(506		)	(c)	4,854
Other assets	358			2,659			(f)	3,017
Accounts payable and accrued expenses	22,366			828			(g)	23,194
Customer obligations	(78,802		)	21,427			(h)	(57,375		)
Other liabilities	1,559			179			(i)	1,738
Net cash used in operating activities	(60,567		)	6,776				(53,791		)
Cash flows from investing activities:
Purchases of property and equipment	(5,576		)	—				(5,576		)
Purchases of intangible assets	(397		)	—				(397		)
Net cash used in investing activities	(5,973		)	—				(5,973		)
Cash flows from financing activities:
Proceeds from exercise of common stock options	4,071			—				4,071
Proceeds from issuance of common stock under Employee Stock Purchase Plan	769			—				769
Payments of debt principal	(2,500		)	—				(2,500		)
Payments of capital lease obligations	—			(74		)	(d)	(74		)
Taxes paid related to net share settlement of stock-based compensation arrangements	(4,684		)	—				(4,684		)
Net cash used in financing activities	(2,344		)	(74		)		(2,418		)
Net decrease in cash and cash equivalents	(68,884		)	6,702				(62,182		)
Cash and cash equivalents at beginning of period	678,300			(5,691		)		672,609
Cash and cash equivalents at end of period	$	609,416		$	1,011			$	610,427

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:

	Three Months Ended March 31, 2017
	As Previously Reported		Adjustments			As restated
Stock-based compensation expense related to restricted stock units (in millions)	$	5.0	$	(4.1	)	$	0.9
	At March 31, 2017
	As Previously Reported		Adjustments			As restated
Total unrecorded stock-based compensation cost associated with restricted stock units (in millions)	$	52.2	$	(25.2	)	$	27.0

The following table presents the Company's condensed consolidated balance sheet as previously reported, restatement adjustments and the condensed consolidated balance sheet as restated as of March 31, 2017 (in thousands):

Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except per share amounts)
	March 31, 2017
	As Previously Reported			Adjustments				As Restated
Assets
Current assets:
Cash and cash equivalents	$	609,416		$	1,011		(a)	$	610,427
Restricted cash	332			—				332
Accounts receivable, net	135,459			19,526			(b)	154,985
Prepaid expenses and other current assets	16,721			(1,318		)	(c)	15,403
Total current assets	761,928			19,219				781,147
Property and equipment, net	57,258			(2,247		)	(d)	55,011
Goodwill	297,409			—				297,409
Acquired intangible assets, net	167,725			—				167,725
Deferred tax assets, net	16,539			2,240			(e)	18,779
Other assets	4,942			(154		)	(f)	4,788
Total assets	$	1,305,801		$	19,058			$	1,324,859
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	95,593		539			(g)	$	96,132
Customer obligations	525,040			25,965			(h)	551,005
Other current liabilities	196			244			(i)	440
Total current liabilities	620,829			26,748				647,577
Long-term debt, net of financing costs	246,395			—				246,395
Other non-current liabilities	10,916			(1,458		)	(j)	9,458
Total liabilities	878,140			25,290				903,430
Stockholders' Equity:
Common stock, $0.001 par value (authorized 1,000,000 shares; 37,477 shares issued and 37,132 shares outstanding at March 31, 2017 and 37,247 shares issued and 36,902 shares outstanding at December 31, 2016)	38			—				38
Additional paid-in capital	411,696			(10,342		)	(k)	401,354
Treasury stock at cost (345 shares at March 31, 2017 and December 31, 2016)	(14,374		)	—				(14,374		)
Retained earnings	30,301			4,110				34,411
Total stockholders' equity	427,661			(6,232		)		421,429
Total liabilities and stockholders' equity	$	1,305,801		$	19,058			$	1,324,859

(a) Adjustment of $1.0 million relates to an increase to cash and cash equivalents to correct timing differences associated with obligation payments from employer clients and the receipt of cash in the Company's bank accounts. The offset resulted in a net reclassification to cash and cash equivalents from accounts receivable of $3.3 million, offset by a net reclassification to customer obligations from cash and cash equivalents of $2.3 million.

(b) Adjustment relates to (i) a $26.7 million increase from the reclassification of accounts receivable to customer obligations based on the correction of the timing of customer billing and payments and an adjustment to the allowance for doubtful accounts (ii) partially offset by a $5.1 million reduction in accounts receivable from the restatement of OPM revenue, as discussed above, of which $6.3 million relates to the reduction of revenue and $1.2 million relates to the reduction of short-term and long-term deferred revenue, and (iii) a $2.1 million revenue adjustment primarily due to accruals to correct the recording of invoices, credit memos and billing adjustments in the proper period.

(c) Adjustment of $1.3 million relates to change in income tax receivable as result of the impact of the restatement on restated taxable income.

(d) Adjustment of $2.2 million relates to (i) a $3.7 million impairment charge for IDS, as discussed above, offset by the reversal of amortization expense of $0.9 million associated with IDS previously recorded in during year ended December 31, 2016 and the three months ended March 31, 2017 and (ii) $0.6 million for net assets under capital lease obligations originally recognized incorrectly as operating leases, offset by the $0.1 million of depreciation expense on equipment purchased under capital lease obligations.

(e) Adjustment relates to $2.2 million increase in deferred tax asset as result of the impact of the restatement adjustments noted in (a) through (k).

(f) Adjustment for the write-off uncollectible deposit.

(g) Adjustment primarily relates to a $0.7 million interest and penalties accrual for unreported employee participant and employer clients unclaimed property, $0.6 million related to customer cash refund related to billing errors offset partially by $0.8 million reduction in accounts payable from the restatement of OPM revenue as discussed above, and unrelated to billing errors.

(h) Adjustment relates to (i) a $26.7 million increase for the reclassification of customer obligations from accounts receivable based on the correction of the timing of employer client billings and payments, (ii) a $1.1 million increase related to OPM reclassification, and (iii) $1.7 million related to the re-valuation and write-off of customer obligations, partially offset by a $3.6 million reduction 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 customer obligations to cash and cash equivalents.

(i) Adjustment primarily relates to $0.2 million increase to record the current portion of capital lease obligations originally recognized incorrectly as operating lease obligations.

(j) Adjustment relates to $0.3 million increase to the non-current portion of capital lease obligations originally recognized incorrectly as operating lease obligations, offset by $1.8 million decrease related to OPM deferred revenue.

(k) Adjustment of $10.3 million relates to a $3.3 million reduction in stock-based compensation expense as a result of reduced target attainment percentages expected for performance-based restricted stock units and a $7.1 million tax provision adjustment related to the restatement.

	For the Three Months Ended March 31, 2017
	Revenue Restatement Adjustments (in thousands)
	OPM			Invoice Adjustments		Revenue Recognition Timing		Total
Healthcare	$	(110	)	$	222	$	566	$	678
Commuter	—			191		—		191
COBRA	—			(3)		256		253
Other	—			(92)		—		(92)
Total	$	(110	)	$	318	$	822	$	1,030

Total restatement adjustments for stock-based compensation expense (in thousands):

	Three Months Ended March 31, 2017
	As Previously Reported		Adjustments			As restated
Cost of revenues	$	1,723	$	17		$	1,740
Technology and development	618		(7		)	611
Sales and marketing	774		12			786
General and administrative	4,854		(4,211		)	643
Total	$	7,969	$	(4,189	)	$	3,780

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Net Income per Share (Tables)

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Computation Of Basic And Diluted Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):

໿

	Three months ended March 31,
	2017		2016
	(As Restated, Note 1)
Numerator for basic net income per share:
Net income	$	16,057	$	5,796
Denominator for basic net income per share:
Weighted-average common shares outstanding	37,025		35,916
Basic net income per share	$	0.43	$	0.16
Numerator for diluted net income per share:
Net income	$	16,057	$	5,796
Denominator for diluted net income per share:
Weighted-average common shares outstanding	37,025		35,916
Dilutive stock options and restricted stock units	1,357		515
Dilutive vested performance restricted stock units	59		98
Diluted weighted-average common shares outstanding	38,441		36,529
Diluted net income per share	$	0.42	$	0.16

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule Of Acquired Intangible Assets

Acquired intangible assets at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017							December 31, 2016
	(As Restated, Note 1)
	Gross carrying amount		Accumulated amortization			Net		Gross carrying amount		Accumulated amortization			Net
Amortizable intangible assets:
Client contracts and broker relationships	$	230,299	$	(66,572	)	$	163,727	$	232,560	$	(60,569	)	$	171,991
Trade names	3,880		(3,239		)	641		3,880		(3,078		)	802
Technology	14,646		(12,162		)	2,484		14,646		(11,867		)	2,779
Noncompete agreements	2,232		(1,959		)	273		2,232		(1,941		)	291
Favorable lease arrangements	1,136		(536		)	600		1,136		(510		)	626
Total	$	252,193	$	(84,468	)	$	167,725	$	254,454	$	(77,965	)	$	176,489

Schedule Of Estimated Expected Amortization Expense

The estimated amortization expense in future periods at March 31, 2017 is as follows (in thousands):

໿

Remainder of 2017	$	18,837
2018	24,579
2019	23,656
2020	21,673
2021	18,868
Thereafter	60,112
Total	$	167,725

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Accounts Receivable (Tables)

3 Months Ended

Mar. 31, 2017

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable

Accounts receivable at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017			December 31, 2016
	(As Restated, Note 1)
Trade receivables	$	69,120		$	54,887
Unpaid amounts for benefit services	87,344			40,542
	156,464			95,429
Less: allowance for doubtful accounts	(1,479		)	(2,016		)
Accounts receivable, net	$	154,985		$	93,413

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Property And Equipment (Tables)

3 Months Ended

Mar. 31, 2017

Property, Plant and Equipment [Abstract]

Schedule Of Property And Equipment

Property and equipment at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017			December 31, 2016
	(As Restated, Note 1)
Computers and equipment	$	18,149		$	17,254
Software and software development costs	106,519			102,998
Furniture and fixtures	6,786			6,784
Leasehold improvements	19,431			19,477
	$	150,885		$	146,513
Less: accumulated depreciation and amortization	(95,874		)	(92,078		)
Property and equipment, net	$	55,011		$	54,435

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Accounts Payable and Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2017

Payables and Accruals [Abstract]

Schedule of Accounts Payable and Accrued Liabilities

Accounts payable and accrued expenses at March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):

	March 31, 2017		December 31, 2016
	(As Restated, Note 1)
Accounts payable and accrued liabilities	$	27,173	$	21,830
Payable to benefit providers and transit agencies	29,570		24,528
Accrued compensation and related benefits	20,872		20,223
Other accrued expenses	4,561		3,752
Deferred revenue	13,956		2,344
Accounts payable and accrued expenses	$	96,132	$	72,677

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Long-term Debt (Tables)

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments

As of March 31, 2017 and December 31, 2016, long-term debt consisted of the following (dollar in thousands):

	March 31, 2017			December 31, 2016
Revolving credit facility	$	247,500		$	250,000
Less: Outstanding letters of credit	(500		)	(500		)
Outstanding revolving credit facility	247,000			249,500
Unamortized loan origination fees	(605		)	(652		)
Long-term debt	$	246,395		$	248,848

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Organizational Efficiency Plan (Tables)

3 Months Ended

Mar. 31, 2017

Restructuring and Related Activities [Abstract]

Schedule Of Accrued Liabilities For Workforce Reduction Costs

Changes in the Company’s accrued liabilities for workforce reduction costs during the three months ended March 31, 2017 are as follows (in thousands):

	Amount
Beginning balance as of December 31, 2016	$	—
Employee termination and other charges	731
Releases	(346		)
Ending balance as of March 31, 2017	$	385

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Employee Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule Of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

Stock-based compensation is classified in the condensed consolidated statements of income in the same expense line items as cash compensation. Amounts recorded as expense in the condensed consolidated statements of income were as follows (in thousands):  

	Three Months Ended March 31,
	2017		2016
	(As Restated, Note 1)
Cost of revenues	$	1,740	$	1,150
Technology and development	611		485
Sales and marketing	786		707
General and administrative	643		3,649
Total	$	3,780	$	5,991

Summary Of Weighted-Average Fair Value Of Stock Options Granted

The following table summarizes the weighted-average fair value of stock options granted:

	Three Months Ended March 31,
	2017		2016
Stock options granted (in thousands)	518		496
Weighted-average fair value at date of grant	$	26.74	$	16.62

Summary Of Stock Option Activity

Stock option activity for the three months ended March 31, 2017 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, 2016	2,844		$	33.74	7.00	$	110,256
Granted	518		72.69
Exercised	(118	)	34.46
Forfeited	(109	)	54.50
Outstanding as of March 31, 2017	3,135		$	39.42	7.21	$	103,234
Vested and expected to vest at March 31, 2017	3,002		$	38.71	7.14	$	100,996
Exercisable at March 31, 2017	1,593		$	23.83	5.55	$	77,215

Summary Of Restricted Stock Units

The following table summarizes information about restricted stock units issued to officers, directors and employees under the 2010 Equity Incentive Plan (shares in thousands):

	(Shares in thousands)					Weighted-average grant date fair value
	Service- based RSUs		Performance- based RSUs		Market-based RSUs	Service- based RSUs		Performance- based RSUs		Market-based RSUs
Unvested at December 31, 2016	257		491		166	$	50.49	$	51.03	$	49.38
Granted (1)	25		379		—	73.50		71.02		—
Vested (2)	(40	)	(124	)	—	34.70		57.10		—
Forfeited and cancelled	(9	)	(21	)	—	58.45		58.57		—
Unvested at March 31, 2017	233		725		166	$	55.41	$	60.21	$	49.38

(1) Performance-based RSUs include additional shares granted as specified financial metrics for the performance-based restricted stock units, granted to certain executives in 2014, during the performance period of January 1, 2014 through December 31, 2016 were met, resulting in actual shares vesting at 141% of the target number of shares originally granted. The weighted average grant date fair value of these additional shares was $57.10. In addition, there are additional shares granted as specified financial metrics for the performance-based RSUs, which were granted to certain executives in February 2017.

(2) Performance-based RSUs include approximately 123,750 shares vested from performance-based restricted stock units granted to certain executives in 2014 representing 141% of the target number of shares originally granted.

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Commitments And Contingencies (Tables)

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Future Minimum Lease Payments

Future minimum lease payments under noncancelable operating leases, excluding the contractual sublease income of $11.5 million which is expected to be received through February 2023 are as follows (in thousands):

	As of March 31, 2017
	(As Restated, Note 1)
Remainder of 2017	$	6,704
2018	9,043
2019	9,180
2020	8,986
2021	8,591
Thereafter	6,566
Total future minimum lease payments	$	49,070

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Summary Of Business And Significant Accounting Policies (Narrative) (Details) - USD ($)	3 Months Ended			12 Months Ended
	Mar. 31, 2017	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015	Jan. 01, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Goodwill, Impairment Loss				$ 0	$ 0
Revenues	$ 126,037,000		$ 87,002,000
Income tax expense (benefit)	(5,484,000)		(3,812,000)
Accounts receivable, net	154,985,000			93,413,000
Amortization and change in contingent consideration	9,237,000		$ 7,445,000
Assets	1,324,859,000			1,335,781,000
Retained earnings	34,411,000			$ 14,672,000
Accounting Standards Update 2016-09
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Deferred Tax Assets, Net	3,600,000
Income tax expense (benefit)	2,600,000
Increase in net cash provided by operating activities	5,600,000
Accounting Standards Update 2016-09 | Retained Earnings
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative effect of new accounting pronouncement	3,600,000
Restatement Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Revenues	1,030,000
Income tax expense (benefit)	(2,522,000)
Accounts receivable, net	19,526,000
Amortization and change in contingent consideration	(296,000)	$ 3,700,000
Amortization expense related to capitalized software development	(300,000)
Assets	19,058,000
Retained earnings	$ 4,110,000
Forecast | Accounting Standards Update 2014-09 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Assets						$ 9,300,000
Retained earnings						6,900,000
Deferred Tax Liabilities, Net, Noncurrent						$ 2,400,000
Client contracts and broker relationships
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Impairment of Intangible Assets, Finite-lived		$ 3,800,000

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Summary Of Business And Significant Accounting Policies (Revenue Restatement Adjustments) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Healthcare	$ 74,674	$ 50,370
Commuter	18,543	17,376
COBRA	28,550	15,406
Other	4,270	3,850
Revenues	126,037	$ 87,002
Restatement Adjustment [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Healthcare	678
Commuter	191
COBRA	253
Other	(92)
Revenues	1,030
Restatement Adjustment [Member] | Reversal of OPM Revenue [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Healthcare	(110)
Commuter	0
COBRA	0
Other	0
Revenues	(110)
Restatement Adjustment [Member] | Invoice Adjustments [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Healthcare	222
Commuter	191
COBRA	(3)
Other	(92)
Revenues	318
Restatement Adjustment [Member] | Revenue Recognition Timing [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Healthcare	566
Commuter	0
COBRA	256
Other	0
Revenues	$ 822

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Summary Of Business And Significant Accounting Policies (Share Based Compensation Restatement Adjustments) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	$ 3,780,000	$ 5,991,000
Restricted Stock Units
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	900,000	3,800,000
Total unrecognized compensation cost related to unvested stock	27,000,000
Scenario, Previously Reported [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	7,969,000
Scenario, Previously Reported [Member] | Restricted Stock Units
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	5,000,000
Total unrecognized compensation cost related to unvested stock	52,200,000
Restatement Adjustment [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	(4,189,000)
Restatement Adjustment [Member] | Restricted Stock Units
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	(4,100,000)
Total unrecognized compensation cost related to unvested stock	(25,200,000)
Cost of revenues
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	1,740,000	1,150,000
Cost of revenues | Scenario, Previously Reported [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	1,723,000
Cost of revenues | Restatement Adjustment [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	17,000
Technology and development
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	611,000	485,000
Technology and development | Scenario, Previously Reported [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	618,000
Technology and development | Restatement Adjustment [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	(7,000)
Sales and marketing
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	786,000	707,000
Sales and marketing | Scenario, Previously Reported [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	774,000
Sales and marketing | Restatement Adjustment [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	12,000
General and administrative
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	643,000	$ 3,649,000
General and administrative | Scenario, Previously Reported [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	4,854,000
General and administrative | Restatement Adjustment [Member]
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Stock-based compensation	$ (4,211,000)

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Summary Of Business And Significant Accounting Policies (Balance Sheet Restatements) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 610,427	$ 672,609	$ 562,441	$ 500,918
Restricted cash	332	332
Accounts receivable, net	154,985	93,413
Prepaid expenses and other current assets	15,403	20,258
Total current assets	781,147	786,612
Property and equipment, net	55,011	54,435
Goodwill	297,409	297,409
Acquired intangible assets, net	167,725	176,489
Deferred tax assets	18,779	15,690
Other assets	4,788	5,146
Total assets	1,324,859	1,335,781
Current liabilities:
Accounts payable and accrued expenses	96,132	72,677
Customer obligations	551,005	608,380
Other current liabilities	440	729
Total current liabilities	647,577	681,786
Long-term debt	246,395	248,848
Other non-current liabilities	9,458	7,505
Total liabilities	903,430	938,139
Stockholders' Equity:
Common stock, par value $0.001 per share (authorized 1,000,000 shares; 37,477 shares issued and 37,132 shares outstanding at March 31, 2017 and 37,247 shares issued and 36,902 shares outstanding at December 31, 2016)	38	37
Additional paid-in capital	401,354	397,307
Treasury stock at cost (345 shares at March 31, 2017 and December 31, 2016)	(14,374)	(14,374)
Retained earnings	34,411	14,672
Total stockholders’ equity	421,429	397,642
Total liabilities and stockholders’ equity	1,324,859	1,335,781
Scenario, Previously Reported [Member]
Current assets:
Cash and cash equivalents	609,416	678,300
Restricted cash	332
Accounts receivable, net	135,459
Prepaid expenses and other current assets	16,721
Total current assets	761,928
Property and equipment, net	57,258
Goodwill	297,409
Acquired intangible assets, net	167,725
Deferred tax assets	16,539
Other assets	4,942
Total assets	1,305,801
Current liabilities:
Accounts payable and accrued expenses	95,593
Customer obligations	525,040
Other current liabilities	196
Total current liabilities	620,829
Long-term debt	246,395
Other non-current liabilities	10,916
Total liabilities	878,140
Stockholders' Equity:
Common stock, par value $0.001 per share (authorized 1,000,000 shares; 37,477 shares issued and 37,132 shares outstanding at March 31, 2017 and 37,247 shares issued and 36,902 shares outstanding at December 31, 2016)	38
Additional paid-in capital	411,696
Treasury stock at cost (345 shares at March 31, 2017 and December 31, 2016)	(14,374)
Retained earnings	30,301
Total stockholders’ equity	427,661
Total liabilities and stockholders’ equity	1,305,801
Restatement Adjustment [Member]
Current assets:
Cash and cash equivalents	1,011	$ (5,691)
Restricted cash	0
Accounts receivable, net	19,526
Prepaid expenses and other current assets	(1,318)
Total current assets	19,219
Property and equipment, net	(2,247)
Goodwill	0
Acquired intangible assets, net	0
Deferred tax assets	2,240
Other assets	(154)
Total assets	19,058
Current liabilities:
Accounts payable and accrued expenses	539
Customer obligations	25,965
Other current liabilities	244
Total current liabilities	26,748
Long-term debt	0
Other non-current liabilities	(1,458)
Total liabilities	25,290
Stockholders' Equity:
Common stock, par value $0.001 per share (authorized 1,000,000 shares; 37,477 shares issued and 37,132 shares outstanding at March 31, 2017 and 37,247 shares issued and 36,902 shares outstanding at December 31, 2016)	0
Additional paid-in capital	(10,342)
Treasury stock at cost (345 shares at March 31, 2017 and December 31, 2016)	0
Retained earnings	4,110
Total stockholders’ equity	(6,232)
Total liabilities and stockholders’ equity	19,058
Correction Of Accounts Receivable [Member] | Restatement Adjustment [Member]
Current assets:
Cash and cash equivalents	(3,300)
Reclassification Of Customer Obligations [Member] | Restatement Adjustment [Member]
Current assets:
Cash and cash equivalents	2,300
Current liabilities:
Customer obligations	1,100
Re-valuation and Write-off of Customer Obligations [Member] | Restatement Adjustment [Member]
Current liabilities:
Customer obligations	(1,700)
Customer Cash Refund Related to Billing Errors [Member] | Restatement Adjustment [Member]
Current liabilities:
Accounts payable and accrued expenses	(600)
Correction of Accounts Payable [Member] | Restatement Adjustment [Member]
Current liabilities:
Accounts payable and accrued expenses	(800)
Timing Differences Associated With Obligation Payments And Receipt Of Cash [Member] | Restatement Adjustment [Member]
Current liabilities:
Customer obligations	3,600
Timing Differences Between Obligation Payments [Member] | Restatement Adjustment [Member]
Current assets:
Accounts receivable, net	26,700
Reduction of OPM Accounts Receivable [Member] | Restatement Adjustment [Member]
Current assets:
Accounts receivable, net	(5,100)
Reversal of OPM Revenue [Member] | Restatement Adjustment [Member]
Current assets:
Accounts receivable, net	(6,300)
Reduction of Short term and Long term OPM Deferred Revenue [Member] | Restatement Adjustment [Member]
Current assets:
Accounts receivable, net	1,200
Correction of Recording of Invoices, Credit Memos and Billing Adjustments in the Proper Period [Member] | Restatement Adjustment [Member]
Current assets:
Accounts receivable, net	(2,100)
Current liabilities:
Customer obligations	26,700
Adjustment for Impairment Charge for IDS [Member] | Restatement Adjustment [Member]
Current assets:
Property and equipment, net	3,700
Reversal Of Accumulated Depreciation [Member] | Restatement Adjustment [Member]
Current assets:
Property and equipment, net	900
Recognition of Capital Leases [Member] | Restatement Adjustment [Member]
Current assets:
Property and equipment, net	600
Current liabilities:
Other non-current liabilities	300
Capital Lease Depreciation [Member] | Restatement Adjustment [Member]
Current assets:
Property and equipment, net	100
Interest and Penalties for Unreported Employee Participant and Employer Clients Unclaimed Property [Member] | Restatement Adjustment [Member]
Current liabilities:
Accounts payable and accrued expenses	700
Decrease From OPM Deferred Revenue [Member] | Restatement Adjustment [Member]
Current liabilities:
Other non-current liabilities	1,800
Adjustment for Reduced Target Attainment Percentages for Share-Based Compensation [Member] | Restatement Adjustment [Member]
Stockholders' Equity:
Additional paid-in capital	3,300
Tax Provision Reduction [Member] | Restatement Adjustment [Member]
Stockholders' Equity:
Additional paid-in capital	$ 7,100

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Summary Of Business And Significant Accounting Policies (Statements of Income Restatements) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Jun. 30, 2016	Mar. 31, 2016
Revenues:
Healthcare	$ 74,674		$ 50,370
Commuter	18,543		17,376
COBRA	28,550		15,406
Other	4,270		3,850
Total revenues	126,037		87,002
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	48,088		31,260
Technology and development	15,271		9,831
Sales and marketing	16,079		13,920
General and administrative	13,500		14,615
Amortization and change in contingent consideration	9,237		7,445
Employee termination and other charges	731		0
Total operating expenses	102,906		77,071
Income from operations	23,131		9,931
Other income (expense):
Interest income	67		86
Interest expense	(1,436)		(405)
Other income (expense), net	(221)		(4)
Income before income taxes	21,541		9,608
Income tax provision	(5,484)		(3,812)
Net income	$ 16,057		$ 5,796
Net income per share:
Basic (in dollars per share)	$ 0.43		$ 0.16
Diluted (in dollars per share)	$ 0.42		$ 0.16
Shares used in computing net income per share:
Basic (in shares)	37,025		35,916
Diluted (in shares)	38,441		36,529
Scenario, Previously Reported [Member]
Revenues:
Healthcare	$ 73,996
Commuter	18,352
COBRA	28,297
Other	4,362
Total revenues	125,007
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	47,204
Technology and development	15,339
Sales and marketing	16,061
General and administrative	20,565
Amortization and change in contingent consideration	9,533
Employee termination and other charges	731
Total operating expenses	109,433
Income from operations	15,574
Other income (expense):
Interest income	67
Interest expense	(1,365)
Other income (expense), net	(216)
Income before income taxes	14,060
Income tax provision	(2,962)
Net income	$ 11,098
Net income per share:
Basic (in dollars per share)	$ 0.30
Diluted (in dollars per share)	$ 0.29
Shares used in computing net income per share:
Basic (in shares)	37,025
Diluted (in shares)	38,441
Restatement Adjustment [Member]
Revenues:
Healthcare	$ 678
Commuter	191
COBRA	253
Other	(92)
Total revenues	1,030
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	884
Technology and development	(68)
Sales and marketing	18
General and administrative	(7,065)
Amortization and change in contingent consideration	(296)	$ 3,700
Employee termination and other charges	0
Total operating expenses	(6,527)
Income from operations	7,557
Other income (expense):
Interest income	0
Interest expense	(71)
Other income (expense), net	(5)
Income before income taxes	7,481
Income tax provision	(2,522)
Net income	$ 4,959
Net income per share:
Basic (in dollars per share)	$ 0.13
Diluted (in dollars per share)	$ 0.13
Shares used in computing net income per share:
Basic (in shares)	0
Diluted (in shares)	0
Reserve for Uncollectible Customer Obligations [Member] | Restatement Adjustment [Member]
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	$ 100
Under-accrual of Platform Technology Expenses [Member] | Restatement Adjustment [Member]
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	600
Adjustment to Record Expenses in Proper Period [Member] | Restatement Adjustment [Member]
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	200
General and administrative	100
Re-Valuation of Allowance for Bad Debt [Member] | Restatement Adjustment [Member]
Operating expenses:
General and administrative	2,800
Adjustment for Reduced Target Attainment Percentages for Share-Based Compensation [Member] | Restatement Adjustment [Member]
Operating expenses:
General and administrative	$ 4,200

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Summary Of Business And Significant Accounting Policies (Cash Flow Restatements) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net income	$ 16,057	$ 5,796
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation	2,568	1,778
Amortization and change in contingent consideration	9,236	7,348
Amortization of debt issuance costs	47	34
Stock-based compensation expense	3,780	5,991
Loss on disposal of fixed assets	72	20
Provision for doubtful accounts	346	801
Excess tax benefits related to stock-based compensation arrangements	0	(3,812)
Increase (Decrease) in Deferred Income Taxes	593	0
Changes in operating assets and liabilities:
Accounts receivable	(61,918)	(18,113)
Prepaid expenses and other current assets	4,854	(1,296)
Other assets	3,017	105
Accounts payable and accrued expenses	23,194	5,346
Customer obligations	(57,375)	73,793
Other liabilities	1,738	1,249
Net cash (used in) provided by operating activities	(53,791)	79,040
Cash flows from investing activities:
Purchases of property and equipment	(5,576)	(3,333)
Purchases of intangible assets	(397)	(7,629)
Net cash used in investing activities	(5,973)	(10,962)
Cash flows from financing activities:
Proceeds from exercise of common stock options	4,071	4,697
Proceeds from issuance of common stock under Employee Stock Purchase Plan	769	511
Payments of debt principal	(2,500)
Payment of contingent consideration	0	(653)
Payment for treasury stock acquired	0	(9,371)
Taxes paid related to net share settlement of stock-based compensation arrangements	(4,684)	(5,551)
Payment of capital lease obligations	(74)	0
Excess tax benefits related to stock-based compensation arrangements	0	3,812
Net cash used in financing activities	(2,418)	(6,555)
Net (decrease) increase in cash and cash equivalents	(62,182)	61,523
Cash and cash equivalents at beginning of period	672,609	500,918
Cash and cash equivalents at end of period	610,427	$ 562,441
Scenario, Previously Reported [Member]
Cash flows from operating activities:
Net income	11,098
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation	2,491
Amortization and change in contingent consideration	9,533
Amortization of debt issuance costs	0
Stock-based compensation expense	7,969
Loss on disposal of fixed assets	72
Provision for doubtful accounts	2,395
Increase (Decrease) in Deferred Income Taxes	0
Changes in operating assets and liabilities:
Accounts receivable	(44,966)
Prepaid expenses and other current assets	5,360
Other assets	358
Accounts payable and accrued expenses	22,366
Customer obligations	(78,802)
Other liabilities	1,559
Net cash (used in) provided by operating activities	(60,567)
Cash flows from investing activities:
Purchases of property and equipment	(5,576)
Purchases of intangible assets	(397)
Net cash used in investing activities	(5,973)
Cash flows from financing activities:
Proceeds from exercise of common stock options	4,071
Proceeds from issuance of common stock under Employee Stock Purchase Plan	769
Payments of debt principal	(2,500)
Taxes paid related to net share settlement of stock-based compensation arrangements	(4,684)
Payment of capital lease obligations	0
Net cash used in financing activities	(2,344)
Net (decrease) increase in cash and cash equivalents	(68,884)
Cash and cash equivalents at beginning of period	678,300
Cash and cash equivalents at end of period	609,416
Restatement Adjustment [Member]
Cash flows from operating activities:
Net income	4,959
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation	77
Amortization and change in contingent consideration	(297)
Amortization of debt issuance costs	47
Stock-based compensation expense	(4,189)
Loss on disposal of fixed assets	0
Provision for doubtful accounts	(2,049)
Increase (Decrease) in Deferred Income Taxes	593
Changes in operating assets and liabilities:
Accounts receivable	(16,952)
Prepaid expenses and other current assets	(506)
Other assets	2,659
Accounts payable and accrued expenses	828
Customer obligations	21,427
Other liabilities	179
Net cash (used in) provided by operating activities	6,776
Cash flows from investing activities:
Purchases of property and equipment	0
Purchases of intangible assets	0
Net cash used in investing activities	0
Cash flows from financing activities:
Proceeds from exercise of common stock options	0
Proceeds from issuance of common stock under Employee Stock Purchase Plan	0
Payments of debt principal	0
Taxes paid related to net share settlement of stock-based compensation arrangements	0
Payment of capital lease obligations	(74)
Net cash used in financing activities	(74)
Net (decrease) increase in cash and cash equivalents	6,702
Cash and cash equivalents at beginning of period	(5,691)
Cash and cash equivalents at end of period	$ 1,011

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Net Income per Share (Computation Of Basic And Diluted Net Income Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Numerator for basic and diluted net income per share:
Net income	$ 16,057	$ 5,796
Denominator for basic net income per share:
Weighted-average common shares outstanding (in shares)	37,025	35,916
Basic net income per share (in dollars per share)	$ 0.43	$ 0.16
Denominator for diluted net income per share:
Diluted weighted-average common shares outstanding (in shares)	38,441	36,529
Diluted net income per share (in dollars per share)	$ 0.42	$ 0.16
Common Stock
Denominator for basic net income per share:
Weighted-average common shares outstanding (in shares)	37,025	35,916
Stock Options And Restricted Stock Units
Denominator for diluted net income per share:
Dilutive stock options and restricted stock units (in shares)	1,357	515
Performance-Based Restricted Stock Units
Denominator for diluted net income per share:
Dilutive stock options and restricted stock units (in shares)	59	98

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Net Income per Share (Narrative) (Details) - shares shares in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Stock Options And Restricted Stock Units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive shares	0.6	1.4

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Goodwill and Intangible Assets (Schedule Of Acquired Intangible Assets) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	$ 252,193	$ 254,454
Accumulated amortization	(84,468)	(77,965)
Net	167,725	176,489
Client contracts and broker relationships
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	230,299	232,560
Accumulated amortization	(66,572)	(60,569)
Net	163,727	171,991
Trade names
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	3,880	3,880
Accumulated amortization	(3,239)	(3,078)
Net	641	802
Technology
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	14,646	14,646
Accumulated amortization	(12,162)	(11,867)
Net	2,484	2,779
Noncompete agreements
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	2,232	2,232
Accumulated amortization	(1,959)	(1,941)
Net	273	291
Favorable lease arrangements
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	1,136	1,136
Accumulated amortization	(536)	(510)
Net	$ 600	$ 626

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Goodwill and Intangible Assets (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2017	Jun. 30, 2016	Mar. 31, 2016
Finite-Lived Intangible Assets [Line Items]
Amortization expense for acquired intangible assets	$ 6.5		$ 4.3
Client contracts and broker relationships
Finite-Lived Intangible Assets [Line Items]
Impairment of Intangible Assets, Finite-lived		$ 3.8

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Goodwill and Intangible Assets (Schedule Of Estimated Expected Amortization Expense) (Details) $ in Thousands	Mar. 31, 2017 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
Remainder of 2017	$ 18,837
2018	24,579
2019	23,656
2020	21,673
2021	18,868
Thereafter	60,112
Total	$ 167,725

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Accounts Receivable (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, gross	$ 156,464	$ 95,429
Less allowance for doubtful accounts	(1,479)	(2,016)
Accounts receivable, net	154,985	93,413
Trade receivables
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, gross	69,120	54,887
Unpaid amounts for benefit services
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, gross	$ 87,344	$ 40,542

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Property And Equipment (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2016
Property, Plant and Equipment [Line Items]
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation	$ 900			$ 800
Capitalized software development costs	4,100		$ 3,400
Amortization and change in contingent consideration	9,237		7,445
Computers and equipment
Property, Plant and Equipment [Line Items]
Capital Leased Assets, Gross	1,700			$ 1,700
Software and software development costs
Property, Plant and Equipment [Line Items]
Amortization expense related to capitalized software development	2,700		3,100
Unamortized software development costs	28,200
Depreciation expense including amortization of capitalized software development costs	5,300		$ 4,900
Restatement Adjustment [Member]
Property, Plant and Equipment [Line Items]
Amortization expense related to capitalized software development	(300)
Amortization and change in contingent consideration	$ (296)	$ 3,700

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Property And Equipment (Schedule Of Property And Equipment) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 150,885	$ 146,513
Less accumulated depreciation and amortization	(95,874)	(92,078)
Property and equipment, net	55,011	54,435
Computers and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	18,149	17,254
Software and software development costs
Property, Plant and Equipment [Line Items]
Property and equipment, gross	106,519	102,998
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	6,786	6,784
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 19,431	$ 19,477

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Accounts Payable and Accrued Expenses (Schedule Of Accounts Payable And Accrued Expenses) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Payables and Accruals [Abstract]
Accounts payable and accrued liabilities	$ 27,173	$ 21,830
Payable to benefit providers and transit agencies	29,570	24,528
Accrued compensation and related benefits	20,872	20,223
Other accrued expenses	4,561	3,752
Deferred revenue	13,956	2,344
Accounts payable and accrued expenses	$ 96,132	$ 72,677

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Long-term Debt (Schedule Of Line Of Credit Facilities) (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016	Aug. 01, 2016	Jun. 05, 2015
Debt Instrument [Line Items]
Revolving credit facility			$ 250,000,000	$ 150,000,000.0
Letter Of Credit
Debt Instrument [Line Items]
Revolving credit facility			$ 15,000,000.0	$ 15,000,000.0
Less: Outstanding letters of credit	$ (500,000)	$ (500,000)
Line of Credit | Revolving Credit Facility
Debt Instrument [Line Items]
Revolving credit facility	247,500,000	250,000,000
Outstanding revolving credit facility	247,000,000	249,500,000
Unamortized loan origination fees	(605,000)	(652,000)
Long-term debt	$ 246,395,000	$ 248,848,000

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Long-term Debt (Narrative) (Details) - USD ($)			1 Months Ended		3 Months Ended	12 Months Ended
	Aug. 01, 2016	Jun. 05, 2015	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2017	Dec. 31, 2016	Apr. 04, 2017
Debt Instrument [Line Items]
Revolving credit facility	$ 250,000,000	$ 150,000,000.0
Increase option	100,000,000.0	100,000,000.0
Fees		200,000
Default interest rate above applicable interest rate					2.00%
Letter Of Credit
Debt Instrument [Line Items]
Revolving credit facility	$ 15,000,000.0	$ 15,000,000.0
Revolving credit facility
Debt Instrument [Line Items]
Remaining borrowing capacity					$ 2,500,000
Subsequent Event
Debt Instrument [Line Items]
Debt Instrument, Covenant Violation, Penalty Payment			$ 100,000	$ 800,000
Subsequent Event | Letter Of Credit
Debt Instrument [Line Items]
Revolving credit facility							$ 15,000,000.0
Subsequent Event | Revolving credit facility
Debt Instrument [Line Items]
Revolving credit facility							$ 400,000,000.0
LIBOR Rate | Minimum | Revolving credit facility
Debt Instrument [Line Items]
Basis spread on variable rate	1.25%	1.25%
LIBOR Rate | Maximum | Revolving credit facility
Debt Instrument [Line Items]
Basis spread on variable rate	1.75%	1.75%
ADP/COBRA/CHSA
Debt Instrument [Line Items]
Proceeds from lines of credit						$ 169,900,000
Line of Credit | Revolving credit facility
Debt Instrument [Line Items]
Revolving credit facility					247,500,000	250,000,000
Outstanding revolving credit facility					$ 247,000,000	$ 249,500,000

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Organizational Efficiency Plan (Narrative) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($)
Restructuring and Related Activities [Abstract]
Employee termination and other charges	$ 731

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Organizational Efficiency Plan (Schedule of Accrued Liabilities For Workforce Reduction Costs) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($)
Restructuring Reserve [Roll Forward]
Beginning Balance	$ 0
Employee termination and other charges	731
Cash paid	(346)
Ending Balance	$ 385

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Employee Benefit Plans (Schedule Of Stock-Based Compensation Expense) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	$ 3,780	$ 5,991
Cost of revenues
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	1,740	1,150
Technology and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	611	485
Sales and marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	786	707
General and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	$ 643	$ 3,649

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Employee Benefit Plans (Narrative) (Details) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		12 Months Ended
	Apr. 05, 2018	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period		4 years
Total unrecognized compensation cost related to unvested stock options		$ 23,900
Total unrecognized compensation cost, weighted- average period of recognition		3 years
Stock-based compensation expense		$ 3,780	$ 5,991
Performance-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance based restricted stock granted (in shares)		379
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation cost, weighted- average period of recognition		2 years
Stock-based compensation expense		$ 900	$ 3,800
Total unrecognized compensation cost related to unvested stock		$ 27,000
Share-based Compensation Award, Tranche One
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock vesting percentage		25.00%
Share-based Compensation Award, Tranche One | Service-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period		1 year
Equity Incentive Plan 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for issuance (in shares)		3,400
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option, expiration period		10 years
Maximum | Performance-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage Of Shares Issued Under Performance Based Restricted Stock Units Awards		200.00%	200.00%
Subsequent Event | Fiscal 2017 Grant [Member] | Performance-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage Of Shares Issued Under Performance Based Restricted Stock Units Awards	56.00%
Subsequent Event | Fiscal 2016 Grants [Member] | Performance-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage Of Shares Issued Under Performance Based Restricted Stock Units Awards	81.00%
Subsequent Event | Fiscal 2017 And 2016 Grants [Member] | Performance-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage Of Shares Issued Under Performance Based Restricted Stock Units Awards				130.00%
Executive Officer | Performance-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance based restricted stock granted (in shares)		343	263

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Employee Benefit Plans (Summary Of Weighted-Average Fair Value Of Stock Options Granted) (Details) - $ / shares shares in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock options granted (in shares)	518	496
Weighted average fair value at date of grant (in dollars per share)	$ 26.74	$ 16.62

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Employee Benefit Plans (Summary Of Stock Option Activity) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Shares
Outstanding, beginning balance (in shares)	2,844
Granted (in shares)	518	496
Exercised (in shares)	(118)
Forfeited (in shares)	(109)
Outstanding, ending balance (in shares)	3,135		2,844
Vested and expected to vest (in shares)	3,002
Exercisable (in shares)	1,593
Weighted average exercise price
Outstanding, beginning balance (in dollars per share)	$ 33.74
Granted (in dollars per share)	72.69
Exercised (in dollars per share)	34.46
Forfeited (in dollars per share)	54.50
Outstanding, ending balance (in dollars per share)	39.42		$ 33.74
Vested and expected to vest (in dollars per share)	38.71
Exercisable (in dollars per share)	$ 23.83
Remaining contractual term (years)
Outstanding	7 years 2 months 15 days		7 years
Vested and expected to vest	7 years 1 month 22 days
Exercisable	5 years 6 months 18 days
Aggregate intrinsic value
Outstanding	$ 103,234		$ 110,256
Vested and expected to vest	100,996
Exercisable	$ 77,215

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Employee Benefit Plans (Summary Of Restricted Stock Units) (Details) - $ / shares	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2014
Service-based Restricted Stock
Shares
Unvested, Beginning balance (in shares)	257,000
Granted (in shares)	25,000
Vested (in shares)	(40,000)
Forfeited (in shares)	(9,000)
Unvested, Ending balance (in shares)	233,000
Weighted-Average Grant Date Fair Value
Unvested, beginning balance (in dollars per share)	$ 50.49
Granted (in dollars per share)	73.50
Vested (in dollars per share)	34.70
Forfeitures (in dollars per share)	58.45
Unvested, ending balance (in dollars per share)	$ 55.41
Performance-Based Restricted Stock Units
Shares
Unvested, Beginning balance (in shares)	491,000
Granted (in shares)	379,000
Vested (in shares)	(124,000)
Forfeited (in shares)	(21,000)
Unvested, Ending balance (in shares)	725,000
Weighted-Average Grant Date Fair Value
Unvested, beginning balance (in dollars per share)	$ 51.03
Granted (in dollars per share)	71.02	$ 57.10
Vested (in dollars per share)	57.10
Forfeitures (in dollars per share)	58.57
Unvested, ending balance (in dollars per share)	$ 60.21
Market-based Restricted Stock Units
Shares
Unvested, Beginning balance (in shares)	166,000
Granted (in shares)	0
Vested (in shares)	0
Forfeited (in shares)	0
Unvested, Ending balance (in shares)	166,000
Weighted-Average Grant Date Fair Value
Unvested, beginning balance (in dollars per share)	$ 49.38
Granted (in dollars per share)	0.00
Vested (in dollars per share)	0.00
Forfeitures (in dollars per share)	0.00
Unvested, ending balance (in dollars per share)	$ 49.38
Fiscal 2014 Grant | Restricted Stock Units
Shares
Vested (in shares)	(123,750)
Weighted-Average Grant Date Fair Value
Performance vesting target achieved	141.00%

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Stockholders' Equity (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Aug. 06, 2015
Equity [Abstract]
Stock repurchase program, authorized amount			$ 100,000,000
Shares repurchased (in shares)	0	226,170
Cost of shares repurchased		$ 9,400,000
Treasury Stock Acquired, Average Cost Per Share		$ 41.43
Stock repurchase program, remaining authorized repurchase amount	$ 85,600,000

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Income Taxes (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Income Tax Disclosure [Abstract]
Income tax provision	$ 5,484	$ 3,812
Effective tax rate	25.50%	39.70%

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Commitments And Contingencies (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Loss Contingencies [Line Items]
Capital Leases, Future Minimum Payments Due, Next Twelve Months	$ 500,000
Capital Lease Obligations, Current	200,000
Capital Lease Obligations, Noncurrent	$ 300,000
Operating leases expiration year	2023
Contractual sublease income	$ 11,500,000
Rent expense	1,900,000	$ 1,600,000
Sublease income	$ 300,000	$ 0

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Commitments And Contingencies (Future Minimum Lease Payments) (Details) $ in Thousands	Mar. 31, 2017 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Remainder of 2017	$ 6,704
2018	9,043
2019	9,180
2020	8,986
2021	8,591
Thereafter	6,566
Total future minimum lease payments	$ 49,070

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Subsequent Event (Details) - USD ($)	1 Months Ended	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2017	Apr. 04, 2017	Aug. 01, 2016	Jun. 05, 2015
Subsequent Event [Line Items]
Revolving credit facility				$ 250,000,000	$ 150,000,000.0
Repayments of Long-term Debt		$ 2,500,000
Subsequent Event
Subsequent Event [Line Items]
Repayments of Long-term Debt	$ 60,000,000
Letter Of Credit
Subsequent Event [Line Items]
Revolving credit facility				$ 15,000,000.0	$ 15,000,000.0
Letter Of Credit | Subsequent Event
Subsequent Event [Line Items]
Revolving credit facility			$ 15,000,000.0
Revolving Credit Facility | Subsequent Event
Subsequent Event [Line Items]
Revolving credit facility			$ 400,000,000.0