Business Combinations, Goodwill and Intangible Assets

Health Integrated, Inc.

On December 22, 2017, a wholly owned subsidiary of the Company entered into an Asset Purchase Agreement to acquire substantially all the assets and assumed certain liabilities of Health Integrated, Inc. (“Health Integrated”), a company based in Tampa, Florida. The initial purchase consideration consisted of $22,577 in cash including working capital adjustment. The purchase agreement allows sellers the ability to earn up to $5,000 as earn-out, based on the achievement of certain performance goals by Health Integrated during the 2018 calendar year. The earn-out has an estimated fair value of $920.

A portion of the purchase consideration otherwise payable was placed into escrow as security for the post-closing working capital adjustments and the indemnification obligations under the Asset Purchase Agreement.

Health Integrated is a Florida-based care management company that provides end-to-end analytics- and behavioral IP-enabled care management services including case management, utilization management, disease management, special needs programs, and multichronic care management on behalf of health plans. Health Integrated serves millions of lives in the Medicaid, Medicare, and dual eligible populations. It is known for its strong capabilities in improving member health status through behavioral change. Accordingly, the Company paid a premium for the acquisition, which is reflected in the goodwill recognized from the purchase price allocation. The acquisition of Health Integrated is included in the Healthcare reportable segment.

The Company has preliminary allocated the purchase price to the net tangible and intangible assets based on their fair values as set forth below:



	Amount
	(In thousands)
Tangible Assets	$	5,945
Liabilities	(7,193		)
Identifiable Intangible Assets:
Customer relationships	6,760
Developed technology	1,510
Trade names and trademarks	570
Goodwill	15,957
Total purchase price	$	23,549

The amount of goodwill recognized from the Health Integrated acquisition is deductible for tax purposes.

The customer relationships from the Health Integrated acquisition are being amortized over the weighted average useful life of 7.0 years and developed technology and trademarks are being amortized over the useful life of 1.0 year and 2.0 years, respectively.

Under ASC topic 805, "Business Combination", the preliminary allocation of the purchase price to the tangible and intangible assets and liabilities acquired may change for a period of up to one year from the date of the acquisition. The Company's purchase accounting for Health Integrated as of December 31, 2017 was incomplete and the Company expects to complete the working capital adjustment and valuation of the tangible assets, intangible assets and liabilities assumed as of the acquisition date during the first quarter of 2018. Accordingly, the Company may adjust the amounts recorded as of December 31, 2017 to reflect the final valuations of assets acquired or liabilities assumed.

During the year ended December 31, 2017, the Company recognized $795 as acquisition related costs. Such amounts are included in general and administrative expenses in the consolidated statements of income. The Company’s results of operations for the year ended December 31, 2017 includes insignificant amount of revenues and net income from its Health Integrated acquisition from December 22, 2017 through December 31, 2017.

Subsequent to December 31, 2017, the Company also issued 4,444 shares of restricted stock units with an aggregate fair value of $275 to certain key employees of Health Integrated, each of whom accepted employment positions with the Company upon consummation of the combination. The restricted stock units vest proportionally over four years and the fair value of these grants will be recognized as compensation expense on a straight-line basis over the vesting term.

Unaudited Pro Forma Financial Information

The following unaudited pro forma results of operations have been prepared using the acquisition method of accounting to give effect to the Health Integrated acquisition as though it occurred on January 1, 2016. The Company completed its acquisition of Health Integrated on December 22, 2017 and accordingly Health Integrated’s operations for the period from December 22, 2017 to December 31, 2017 are included in the Company’s consolidated statement of income. The pro forma amounts reflect certain adjustments, such as depreciation and amortization on assets acquired, interest expense related to liabilities not assumed by the Company and facility costs for certain facilities not acquired. The unaudited pro forma financial information is presented for illustrative purposes only, is based on a preliminary purchase price allocation, and is not necessarily indicative of the results of operations that would have actually been reported had the acquisitions occurred on January 1, 2016, nor is it necessarily indicative of the future results of operations of the combined company.



	Year ended December 31,
	2017		2016
Revenues	$	801,101	$	729,938
Net income	$	46,998	$	58,232
Earnings per share:
Basic	$	1.39	$	1.73
Diluted	$	1.34	$	1.68

Goodwill

The following table sets forth details of the Company’s goodwill balance as of December 31, 2017:



	Insurance			Healthcare		TT&L			F&A			All Other		Analytics		Total
Balance as at January 1, 2016	$	35,824		$	19,276	$	13,278		$	47,891		$	5,326	$	49,940	$	171,535
Acquisitions	2,510			—		—			—			—		13,598		16,108
Currency translation adjustments	(224		)	—		(295		)	(354		)	—		—		(873		)
Balance as at December 31, 2016	$	38,110		$	19,276	$	12,983		$	47,537		$	5,326	$	63,538	$	186,770
Acquisitions	—			15,957		—			—			—		—		15,957
Currency translation adjustments	223			—		696			835			—		—		1,754
Balance as at December 31, 2017	$	38,333		$	35,233	$	13,679		$	48,372		$	5,326	$	63,538	$	204,481

Based on the results of the impairment testing performed during the year ended December 31, 2017, the Company’s goodwill was not impaired. The Company makes every reasonable effort to ensure that it accurately estimates the fair value of the reporting units. However, future changes in the assumptions used to make these estimates could result in an impairment loss.

Intangible Assets

Information regarding the Company’s intangible assets is set forth below:



	As of December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	82,165	$	(43,667	)	$	38,498
Leasehold benefits	2,888		(2,596		)	292
Developed technology	15,835		(8,749		)	7,086
Non-compete agreements	2,045		(1,780		)	265
Trade names and trademarks	5,951		(4,034		)	1,917
	$	108,884	$	(60,826	)	$	48,058
Indefinite-lived intangible assets:
Trade names and trademarks	$	900	$	—		$	900
Total intangible assets	$	109,784	$	(60,826	)	$	48,958



	As of December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	75,181	$	(32,968	)	$	42,213
Leasehold benefits	2,715		(2,247		)	468
Developed technology	14,186		(6,468		)	7,718
Non-compete agreements	2,045		(1,612		)	433
Trade names and trademarks	5,360		(3,322		)	2,038
	$	99,487	$	(46,617	)	$	52,870
Indefinite-lived intangible assets:
Trade names and trademarks	$	900	$	—		$	900
Total intangible assets	$	100,387	$	(46,617	)	$	53,770

The amortization expenses is as follows:



	Year ended December 31,
	2017		2016		2015
Amortization expense	$	13,975	$	11,873	$	10,226

The remaining weighted average life of intangible assets is as follows:



	(in years)
Customer relationships	5.36
Leasehold benefits	1.41
Developed technologies	3.07
Non-compete agreements	1.69
Trade names and trademarks (Finite lived)	4.29



Estimated amortization of intangible assets during the year ending December 31:
2018	$	15,249
2019	12,508
2020	5,086
2021	4,021
2022	3,213
2023 and thereafter	7,981
Total	$	48,058