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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Wageworks Inc | NYSE:WAGE | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 51.34 | 0 | 01:00:00 |
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(Mark One)
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
|
94-3351864
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
1100 Park Place, 4th Floor
San Mateo, California 94403
(Address of principal executive offices, including zip code)
|
|
Large accelerated filer
|
[X]
|
|
Accelerated filer
|
[ ]
|
Non-accelerated filer
|
[ ]
|
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
[ ]
|
|
|
|
Emerging growth company
|
[ ]
|
|
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Page No.
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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
|
|
|
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
|
|
|
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
|
|
|
|
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
|
|
|
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
|
|
|
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
|
|
•
|
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
Customer
Obligations;
|
•
|
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.
|
(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.
|
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.
|
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
|
|
•
|
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.
|
•
|
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.
|
|
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
|
|
|
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
|
|
Remainder of 2017
|
$
|
18,837
|
|
2018
|
24,579
|
|
|
2019
|
23,656
|
|
|
2020
|
21,673
|
|
|
2021
|
18,868
|
|
|
Thereafter
|
60,112
|
|
|
Total
|
$
|
167,725
|
|
|
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
|
|
|
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
|
|
|
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
|
|
|
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
|
|
|
Amount
|
||
Beginning balance as of December 31, 2016
|
$
|
—
|
|
Employee termination and other charges
|
731
|
|
|
Releases
|
(346
|
)
|
|
Ending balance as of March 31, 2017
|
$
|
385
|
|
|
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
|
|
|
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
|
|
|
(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.
|
|
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
|
|
•
|
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.
|
|
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
|
%
|
|
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
|
%
|
|
|
|
|
|
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
|
%
|
|
|
|
|
|
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
|
%
|
|
|
|
|
|
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
|
%
|
|
|
|
|
|
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
|
%
|
|
|
|
|
|
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
|
%
|
|
—
|
%
|
|
|
|
|
|
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
|
)%
|
|
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
|
%
|
|
|
|
|
|
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
|
|
(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.
|
•
|
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.
|
•
|
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.
|
A.
|
Accounting Close and Financial Reporting
|
B.
|
Contract to Cash Process
|
C.
|
Risk Assessment and Management of Change
|
D.
|
Review of New, Unusual or Significant Transactions and Contracts
|
E.
|
Manual Reconciliations of High-Volume Standard Transactions
|
•
|
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.
|
•
|
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.
|
•
|
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.
|
•
|
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.
|
•
|
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.
|
•
|
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.
|
|
|
WAGEWORKS, INC.
|
|
|
|
Date: April 26, 2019
|
By:
|
/s/ ISMAIL DAWOOD
|
|
|
Ismail Dawood
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
||||
Exhibit No.
|
Exhibit Description
|
Form
|
File No.
|
Exhibit
|
Filing Date
|
Filed Herewith
|
31.1
|
|
|
|
|
X
|
|
31.2
|
|
|
|
|
X
|
|
32.1(1)
|
|
|
|
|
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.
|
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