10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________

FORM 10-Q

__________________________________________________________

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

For the quarterly period endedSeptember 30, 2016

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.)

໿

໿ San Mateo, California
1100 Park Place, 4th Floor San Mateo, California (Address of principal executive offices	94403 (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  ☐

Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ☒    No  ☐

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

Large accelerated filer	☒		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐

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

As ofNovember 2, 2016, therewere 36,642,414 sharesof the registrant’s common stock outstanding.

WAGEWORKS, INC.

FORM 10-Q QUARTERLY REPORT

Table of Contents

		Page No.
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of December 31, 2015 and September 30, 2016	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2016	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2016	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	26
	Signatures	28

2

PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

WAGEWORKS, INC.

Consolidated Balance Sheets

(In thousands, except per share amounts)

	December 31, 2015			September 30, 2016
	Derived from Audited Financial Statements			(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	500,918		$	666,634
Restricted cash	332			332
Accounts receivable, net	72,271			85,135
Prepaid expenses and other current assets	13,254			21,258
Total current assets	586,775			773,359
Property and equipment, net	47,955			55,451
Goodwill	157,109			157,109
Acquired intangible assets, net	82,616			86,426
Deferred tax assets	9,837			10,261
Other assets	4,447			4,497
Total assets	$	888,739		$	1,087,103
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	60,541		$	69,177
Customer obligations	400,821			549,316
Short-term contingent consideration	739			—
Other current liabilities	2,893			359
Total current liabilities	464,994			618,852
Long-term debt	78,996			78,907
Other non-current liabilities	7,780			9,626
Total liabilities	551,770			707,385
Stockholders' Equity:
Common stock, $0.001 par value (authorized 1,000,000 shares; 36,055 shares issued and 35,936 shares outstanding at December 31, 2015 and 36,981 shares issued and 36,636 shares outstanding at September 30, 2016)	36			38
Additional paid-in capital	343,166			380,741
Treasury stock at cost (119 shares at December 31, 2015 and 345 shares at September 30, 2016)	(5,003		)	(14,374		)
Retained earnings (accumulated deficit)	(1,230		)	13,313
Total stockholders’ equity	336,969			379,718
Total liabilities and stockholders’ equity	$	888,739		$	1,087,103

The accompanying notes are an integral part of the consolidated financial statements.

3

WAGEWORKS, INC.

Consolidated Statements ofIncome

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine months Ended September 30,
	2015			2016			2015			2016
Revenues:
Healthcare	$	42,204		$	48,478		$	133,307		$	146,918
Commuter	16,003			17,580			47,928			52,339
COBRA	12,229			18,670			37,112			51,955
Other	12,724			4,196			32,866			12,439
Total revenues	83,160			88,924			251,213			263,651
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	26,364			30,566			88,210			90,237
Technology and development	11,560			11,668			33,928			32,656
Sales and marketing	12,824			14,012			38,445			42,317
General and administrative	12,875			16,130			39,559			47,875
Amortization and change in contingent consideration	6,935			6,944			19,946			26,084
Employee termination and other charges	(112		)	162			1,968			475
Total operating expenses	70,446			79,482			222,056			239,644
Income from operations	12,714			9,442			29,157			24,007
Other income (expense):
Interest income	66			117			85			300
Interest expense	(339		)	(465		)	(1,523		)	(1,279		)
Other income (expense)	(8		)	22			280			24
Income before income taxes	12,433			9,116			27,999			23,052
Income tax provision	(4,835		)	(3,222		)	(11,244		)	(8,509		)
Net income	$	7,598		$	5,894		$	16,755		$	14,543
Net income per share:
Basic	$	0.21		$	0.16		$	0.47		$	0.40
Diluted	$	0.21		$	0.16		$	0.46		$	0.39
Shares used in computing net income per share:
Basic	35,880			36,605			35,733			36,312
Diluted	36,516			37,454			36,595			37,078

The accompanying notes are an integral part of the consolidated financial statements.

4

WAGEWORKS, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2015			2016
Cash flows from operating activities:
Net income	$	16,755		$	14,543
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4,810			6,202
Amortization and change in contingent consideration	19,946			25,986
Stock-based compensation expense	14,674			22,373
Loss on disposal of fixed assets	519			185
Provision for doubtful accounts	220			1,238
Deferred taxes	5,317			(424		)
Excess tax benefit related to stock-based compensation arrangements	(5,260		)	(8,824		)
Changes in operating assets and liabilities:
Accounts receivable	(7,852		)	(14,102		)
Prepaid expenses and other current assets	(512		)	919
Other assets	2,225			(50		)
Accounts payable and accrued expenses	6,953			81
Customer obligations	27,952			148,495
Other liabilities	4,088			(777		)
Net cash provided by operating activities	89,835			195,845
Cash flows from investing activities:
Purchases of property and equipment	(24,200		)	(20,529		)
Cash paid for acquisition of intangible assets	(9,445		)	(20,777		)
Net cash used in investing activities	(33,645		)	(41,306		)
Cash flows from financing activities:
Proceeds from exercise of common stock options	4,695			10,705
Proceeds from issuance of common stock under Employee Stock Purchase Plan	1,793			1,672
Payment of contingent consideration	(3,247		)	(653		)
Payment for treasury stock acquired	—			(9,371		)
Excess tax benefit related to stock-based compensation arrangements	5,260			8,824
Net cash provided by financing activities	8,501			11,177
Net increase in cash and cash equivalents	64,691			165,716
Cash and cash equivalents at beginning of period	413,301			500,918
Cash and cash equivalents at end of period	$	477,992		$	666,634
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest	$	2,079		$	1,139
Income Taxes	822			5,216
Noncash financing and investing activities:
Accrued capital expenditures	371			2,882

໿

The accompanying notes are an integral part of the consolidated financial statements.

5

(1)     Summary of Business and Significant Accounting Policies

Business

WageWorks, Inc., (together with its subsidiaries, “WageWorks” or the “Company”) was incorporated in the state of Delaware in 2000. The Company is a leader in administering Consumer-Directed Benefits (“CDBs”), which empower employees to save money on taxes while also providing corporate tax advantages for employers. The Company operates as a single reportable segment on an entity level basis.

Basis of Presentation

In the opinion of the Company’s management, the unaudited interim consolidated financial statements and condensed 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”). 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, 2016.

These unaudited interim consolidated financial statements and condensed notes should be read in conjunction with the December 31, 2015 audited financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, included in the Company’s Annual Report on Form 10-K. The December 31, 2015 consolidated balance sheet, included in this interim Quarterly Report on Form 10-Q, was derived from audited financial statements. Certain prior year amounts in the consolidated statement of cash flows have been reclassified to conform to the current year’s presentation.

There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K.

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of WageWorks, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates in these consolidated financial statements include allowances for doubtful accounts, estimates of future cash flows associated with assets, useful lives for depreciation and amortization, loss contingencies, expired and unredeemed products, deferred tax assets, reserve for income tax uncertainties, the assumptions used for stock-based compensation, the assumptions used for software and website development cost classification, and valuation and impairments of goodwill and long-lived assets. Actual results could differ from those estimates. In making its estimates, the Company considers the current economic and legislative environment and has considered those factors when reviewing the underlying assumptions of the estimates.

Fair Value of Financial Instruments

The Company’s financial assets and liabilities are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amount of financial instruments approximates fair value because of their short maturity. The carrying amount of the Company’s variable rate debt approximates fair value.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

6

• 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 contingent consideration payable related to the acquisition of Benefit Concepts, Inc. (“BCI”) was recorded at fair value on the acquisition date and is adjusted quarterly to fair value. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, it is categorized as Level 3. The final contingent consideration for BCI was paid during the first quarter of 2016.

Other financial instruments not measured at fair value on the Company’s unaudited consolidated balance sheet at September 30, 2016, but which require disclosure of their fair values include: cash and cash equivalents (including restricted cash), accounts receivable, accounts payable and accrued expenses, and debt under the revolving credit facility with certain lenders.  The estimated fair value of such instruments at September 30, 2016 approximates their carrying value as reported on the consolidated balance sheets. The fair value of all of these instruments are categorized as Level 2 of the fair value hierarchy, with the exception of cash, which is categorized as Level 1 due to its short term nature.

The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):

	Contingent Consideration BCI
Balance at December 31, 2015	$	739
Gains or losses included in earnings:
Losses on revaluation of contingent consideration	11
Payment of contingent consideration	(750		)
Balance at September 30, 2016	$	—

The Company measures contingent consideration elements each reporting period at fair value and recognizes changes in fair value in earnings each period in the amortization and change in contingent consideration line item on the consolidated statements of income, until the contingency is resolved. Losses on revaluation of contingent consideration result from accretion charges due to the passage of time and fair value adjustments due to changes in forecasted revenue levels.

The Company recorded an immaterial charge for the change in fair value of the contingent consideration for the three months ended September 30, 2015, with no charge recorded for the three months ended September 30, 2016. The Company recorded $0.1 million and an immaterial charge for the nine months ended September 30, 2015 and 2016, respectively, as a result of accretion charges due to the passage of time.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) which supersedes existing accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard allows for either a full retrospective with or without practical expedients or a retrospective with a cumulative catch upon adoption transition method. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods) in ASU 2015-14. Early adoption is permitted to the original effective date for periods beginning after December 15, 2016 (including interim reporting

7

periods within those periods). The Company is in the process of determining which transition method it will use and what impact, if any, the adoption of ASU 2014-09 will have on its consolidated financial statements and related disclosures.

Subsequent to the issuance of ASU 2014-09, the FASB has issued several ASUs such as ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, FASB Accounting Standards Codification - Consensuses of the FASB Emerging Issues Task Force, and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients among others. These ASUs do not change the core principle of the guidance stated in ASU 2014-09, instead these amendments are intended to clarify and improve operability of certain topics included within the revenue standard. These ASUs will have the same effective date and transition requirements as ASU 2014-09. The Company is currently assessing the impact, if any, the adoption of these ASUs and ASU 2014-09 will have on its consolidated financial statements and related disclosures.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software license. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer's accounting for service contracts. The Company adopted ASU 2015-05 in the first quarter of 2016. The adoption of ASU 2015-05 did not have a material impact on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases,  (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

 In March 2016, the FASB issued Accounting Standard Update No. 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products,  (“ASU 2016-04”). The new guidance creates an exception under ASC 405-20, Liabilities-Extinguishments of Liabilities, to derecognize financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB Issued Accounting Standards Update No 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting,  (“ASU 2016-09”). The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued Accounting Standards Update 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 period within those years beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

8

(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 September 30,				Nine months ended September 30,
	2015		2016		2015		2016
Numerator for basic net income per share:
Net income	$	7,598	$	5,894	$	16,755	$	14,543
Denominator for basic net income per share:
Weighted-average common shares outstanding	35,880		36,605		35,733		36,312
Basic net income per share	$	0.21	$	0.16	$	0.47	$	0.40
Numerator for diluted net income per share:
Net income	$	7,598	$	5,894	$	16,755	$	14,543
Denominator for diluted net income per share:
Weighted-average common shares outstanding	35,880		36,605		35,733		36,312
Dilutive stock options and restricted stock units	636		849		862		733
Dilutive vested performance restricted stock units	—		—		—		33
Diluted weighted-average common shares outstanding	36,516		37,454		36,595		37,078
Diluted net income per share	$	0.21	$	0.16	$	0.46	$	0.39

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. There were 1.4 million and 0.4 million anti-dilutive share equivalents for the three months ended September 30, 2015 and 2016, respectively and 0.9 million and 1.1 million anti-dilutive share equivalents for the nine months ended September 30, 2015 and 2016, respectively.

(3)     Intangible Assets

Acquired intangible assets at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015						September 30, 2016
	Gross carrying amount		Accumulated amortization		Net		Gross carrying amount		Accumulated amortization		Net
Amortizable intangible assets:
Client contracts and broker relationships	$	124,261	$	47,013	$	77,248	$	138,319	$	56,028	$	82,291
Trade names	3,880		2,405		1,475		3,880		2,916		964
Technology	13,846		11,039		2,807		13,846		11,635		2,211
Noncompete agreements	2,232		1,870		362		2,232		1,923		309
Favorable lease	1,136		412		724		1,136		485		651
Total	$	145,355	$	62,739	$	82,616	$	159,413	$	72,987	$	86,426

Included in the gross carrying amount in client contracts and broker relationships intangible assets as of September 30, 2016 is the addition related to the channel partner arrangement with Ceridian Corporation (“Ceridian”). Amortization expense of intangible assets totaled $3.9 million and $4.1 million for the three months ended September 30, 2015 and 2016, respectively. Amortization expense of intangible assets totaled $11.5 million and $17.0 million for the nine months ended September 30, 2015 and 2016, respectively. These costs are included in amortization and change in contingent consideration in the accompanying consolidated statements of income.

9

The estimated amortization expense in future periods at September 30, 2016 is as follows (in thousands):

໿

Remainder of 2016	$	4,045
2017	15,790
2018	15,164
2019	14,604
2020	12,620
Thereafter	24,203
Total	$	86,426

(4)     Accounts Receivable

Accounts receivable at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015			September 30, 2016
Trade receivables	$	37,999		$	50,599
Unpaid amounts for benefit services	35,343			36,656
	73,342			87,255
Less allowance for doubtful accounts	(1,071		)	(2,120		)
Accounts receivable, net	$	72,271		$	85,135

(5)     Property and Equipment

Property and equipment at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015			September 30, 2016
Computers and equipment	$	14,461		$	16,985
Software and software development costs	92,898			105,056
Furniture and fixtures	5,083			6,263
Leasehold improvements	13,594			18,169
	$	126,036		$	146,473
Less accumulated depreciation and amortization	(78,081		)	(91,022		)
Property and equipment, net	$	47,955		$	55,451

In the three months ended September 30, 2015 and 2016, the Company capitalized software development costs of $3.8 million and $4.0 million, respectively. In the nine months ended September 30, 2015 and 2016, the Company capitalized software development costs of $12.4 million and $11.0 million, respectively. In the three months ended September 30, 2015 and 2016 the Company amortized $3.0 million and $2.6 million of capitalized software development costs, respectively. In the nine months ended September 30, 2015 and 2016, the Company amortized $8.3 million and $8.9 million of capitalized software development costs, respectively. These costs are included in amortization and change in contingent consideration in the accompanying consolidated statements of income. At September 30, 2016, the unamortized software development costs included in property and equipment in the accompanying consolidated balance sheets were $29.2 million.  

Total depreciation expense, including amortization of capitalized software development costs, for the three months ended September 30, 2015 and 2016 was $4.7 million and $5.2 million, respectively and $13.1 million and $15.3 million for the nine months ended September 30, 2015 and 2016, respectively.

(6)     Accounts Payable and Accrued Expenses

10

Accounts payable and accrued expenses at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015		September 30, 2016
Accounts payable	$	2,542	$	2,860
Payable to benefit providers and transit agencies	23,169		26,634
Accrued payables	11,198		12,751
Accrued compensation and related benefits	18,538		20,435
Other accrued expenses	2,891		2,926
Deferred revenue	2,203		3,571
Accounts payable and accrued expenses	$	60,541	$	69,177

(7)     Long-term debt

On June 5, 2015, the Company entered into an Amended and Restated Credit Agreement ("Credit Agreement") with certain lenders, including MUFG Union Bank, N.A., as administrative agent. With a $15.0 million 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 amendment to the Credit Agreement increasing the credit limit of the revolving credit facility to $250.0 million. This amendment did not change the subfacility limit, terms, or maturity date of the credit facility which remained at June 5, 2020. The interest rate applicable to the revolving credit facility as of September 30, 2016 was 1.77%.  In connection with this amendment, the Company incurred fees of approximately $0.2 million, which are being amortized over the term of the amendment. The fees incurred are classified as a direct deduction from the long-term debt line item in the consolidated balance sheets. As of September 30, 2016, the Company had $79.6 million outstanding under the revolving credit facility. 

Amounts borrowed, outstanding letters of credit, and amounts available to borrow were as follows (in thousands):

	December 31, 2015		September 30, 2016
Amounts borrowed	$	79,600	$	79,600
Outstanding letters of credit	2,700		2,700
Amounts available to borrow (1)	67,700		167,700

(1) Amounts available to borrow at December 31, 2015 excludes $100 million increase option

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

The credit facility contains customary affirmative and negative covenants and also has financial covenants relating to a liquidity ratio, a consolidated leverage ratio, and an interest coverage ratio. The Company is obligated to pay customary commitment fees and letter of credit fees for a facility of this size and type. The Company is currently in compliance with all financial and non-financial covenants under the credit facility.

The credit facility contains customary events of default including, among others, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross-defaults to other material indebtedness, judgment defaults, a change of control default and bankruptcy, and insolvency defaults.  Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the loan agreement at a per annum rate of interest equal to 2.00%

11

above the applicable interest rate. Upon an event of default, the lenders may terminate the commitments, declare the outstanding obligations payable by the Company to be immediately due and payable, and exercise other rights and remedies provided for under the credit facility.

(8)     Organizational Efficiency Plan

During the second quarter of 2015, the Company integrated operations and consolidated certain positions resulting in employee headcount reductions. The Company continually evaluates ways to improve business processes to ensure that operations align with its strategy and vision for the future. In the three and nine months ended September 30, 2015, the Company recorded a $0.1 million credit related to unused outplacement services, and a charge of $2.0 million for employee termination costs primarily related to severance costs, respectively. In the three and nine months ended September 30, 2016, the Company recognized an immaterial charge and a charge of $0.3 million, respectively, in the employee termination and other charges expense line item, primarily due to severance and other costs associated with the closure of an office location. The Company recorded these severance costs within accrued expenses in the accompanying consolidated balance sheets. 

Changes in the Company’s accrued liabilities for workforce reduction costs in the nine months ended September 30, 2016 were as follows (in thousands):

	Amount
Beginning balance as of December 31, 2015	$	183
Employee termination and other charges	263
Cash paid	(412		)
Ending balance as of September 30, 2016	$	34

(9)     Employee Benefit Plans

Employee Stock Option Plan

The Company’s stock option program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, officers, and directors and to align stockholder and employee interests.

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

	Three Months Ended September 30,				Nine months Ended September 30,
	2015		2016		2015		2016
Stock options granted (in thousands)	413		27		464		804
Weighted-average fair value at date of grant	$	18.70	$	22.86	$	19.09	$	18.30

Stock option activity for the nine months ended September 30, 2016 was as follows (shares in thousands):

	Shares		Weighted-average exercise price		Remaining contractual term (in years)	Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2015	3,037		$	25.18	6.41	$	65,229
Granted	804		48.10
Exercised	(673	)	15.90
Forfeited	(79	)	46.24
Outstanding as of September 30, 2016	3,089		$	32.62	7.06	$	87,400
Vested and expected to vest at September 30, 2016	2,951		$	31.99	6.98	$	85,367
Exercisable at September 30, 2016	1,638		$	20.63	5.48	$	66,006

12

As of September 30, 2016, there was $23.3 million of total unrecognized compensation cost related to unvested stock options which are expected to vest. The cost is expected to be recognized over a weighted-average period of approximately 2.8 years as of September 30, 2016.  

The Company calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2016		2015		2016
Expected volatility	43.43	%	41.87	%	43.49	%	42.69	%
Risk-free interest rate	1.55	%	1.07	%	1.55	%	1.17	%
Expected term (in years)	4.74		4.87		4.74		4.87
Dividend yield	—	%	—	%	—	%	—	%

Stock-based compensation cost is measured at the grant date based on the fair value of the award. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. Expected volatility is determined using weighted-average volatility of peer publicly traded companies as well as the Company’s own historical volatility. The Company expects that it will increase weighting of its own historical data in future periods, as that history grows over time. The risk-free interest rate is determined by using published zero coupon rates on treasury notes for each grant date given the expected term on the options. The dividend yield of zero is based on the fact that the Company expects to invest cash in operations and has not paid cash dividends on its common stock. The Company estimates the expected term based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and expectations of future employee behavior such as exercises and forfeitures.

Restricted Stock Units

The Company grants restricted stock units to certain employees, officers, and directors under the 2010 Equity Incentive Plan. Restricted stock units vest upon performance-based, market-based, or service-based criteria.

Performance-based restricted stock units vest based on the satisfaction of specific performance criteria. At each vesting date, the holder of the award is issued shares of the Company’s common stock. Compensation expense from these awards is equal to the fair market value of the Company’s common stock on the date of grant and is recognized over the remaining service period based on the probable outcome of achievement of the financial metrics. Management’s estimate of the number of shares expected to vest is based on the anticipated achievement of the specified performance criteria.

Market-based performance restricted stock units are granted such that they vest upon the achievement of certain per share price targets of the Company’s common stock during a specified performance period. The fair market values of market-based performance restricted stock units are determined using the Monte Carlo simulation method. The Monte Carlo simulation method is subject to variability as several factors utilized must be estimated including the future daily stock price of the Company’s common stock over the specified performance period, the Company’s stock price volatility and risk-free interest rate. The amount of compensation expense is equal to the per share fair value calculated under the Monte Carlo simulation multiplied by the number of market-based performance restricted stock units granted, recognized over the specified performance period.

Generally, service-based restricted stock units vest over a four year period in equal annual installments commencing upon the first anniversary of the grant date.

In the first quarter of 2015 and 2016, the Company granted a total of 140,000 and 263,000, respectively, of performance-based restricted stock units to certain executive officers. Performance-based restricted stock units are typically granted such that they vest upon the achievement of certain revenue growth rates and other financial metrics during a specified performance period for which participants have the ability to receive up to 150% or 200% of the target number of shares originally granted, depending on terms of the grant agreement.  

13

The restricted stock units will be eligible to vest based on the Company’s achievement against an average annual earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margin target equal to or greater than 22% and compound revenue growth target for the specified performance period.

The following table describes the levels of revenue growth target for the specified performance period for the restricted stock units granted in 2016 to vest:

Achievement of Revenue Growth Objective	Percentage of Restricted Stock Unit Vesting
20% and Greater	200% will vest
Between 15% but less than 20%	Between 100% and 200% will vest
Between 10% but less than 15%	Between 50% and 100% will vest
Below 10%	None will vest

Stock-based compensation expense related to restricted stock units was $3.4 million and $4.8 million for the three months ended September 30, 2015 and 2016, respectively and $9.0 million and $14.8 million for the nine months ended September 30, 2015 and 2016, respectively. Total unrecorded stock-based compensation cost at September 30, 2016 associated with restricted stock units was $33.5 million, which is expected to be recognized over a weighted-average period of 1.7 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		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2015	763		$	44.83
Granted (1)	502		39.22
Vested (2)	(344	)	21.62
Forfeited	(17	)	51.57
Unvested at September 30, 2016	904		$	50.41

(1) Includes additional shares granted as specified financial metrics for the performance-based restricted stock units, granted to certain executives in 2013, during the performance period of January 1, 2013 through December 31, 2015 were met, resulting in actual shares vesting at 150% of the target number of shares originally granted.

(2) Includes 264,000 shares vested from performance-based restricted stock units granted to certain executives in 2013 representing 150% of the target number of shares originally granted.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2016		2015		2016
Cost of revenue	$	977	$	1,581	$	2,676	$	4,549
Technology and development	391		671		733		1,815
Sales and marketing	660		789		1,992		2,287
General and administrative	3,397		4,490		9,273		13,722
Total	$	5,425	$	7,531	$	14,674	$	22,373

(10)     Income Taxes 

The income tax provision for the three months ended September 30, 2015 and 2016 was $4.8 million and $3.2 million, respectively and the income tax provision for the nine months ended September 30, 2015 and 2016 was $11.2 million and $8.5 million respectively. The Company's effective tax rate was 38.9% and 35.3% for the three months ended September 30, 2015

14

and 2016 and 40.2% and 36.9% for the nine months ended September 30, 2015 and 2016, respectively.  The Company provides for income taxes using an asset and liability approach, under which deferred income taxes are provided based upon enacted tax laws and rates applicable to periods in which the taxes become payable.

The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Presently, the Company is under audit in New York State. There are no other income tax examinations ongoing in the jurisdictions where the Company operates.

As of September 30, 2016, the Company remains in a net deferred tax asset position. The realization of the Company’s deferred tax assets depends primarily on its ability to generate sufficient U.S. taxable income in future periods. The amount of deferred tax assets considered realizable may increase or decrease in subsequent quarters as management reevaluates the underlying basis for the estimates of future domestic taxable income.

(11)    Commitments and Contingencies

(a) Operating Leases

The Company leases office space and equipment under noncancelable operating leases with various expiration dates through 2023. Future minimum lease payments under noncancelable operating leases, excluding the contractual sublease income of $11.8 million, are as follows (in thousands):

	As of September 30, 2016
Remainder of 2016	$	2,054
2017	8,292
2018	7,947
2019	7,921
2020	7,717
Thereafter	13,662
Total future minimum lease payments	$	47,593

Rent expense for both the three months ended September 30, 2015 and 2016 was $1.9 million. Rent expense for the nine months ended September 30, 2015 and 2016 was $5.9 million and $5.2 million, respectively. Sublease income for the three and nine months ended September 30, 2016 was $0.3 million and there was no sublease income recognized for the same periods in 2015. As of September 30, 2016, the Company has an immaterial amount of future minimum lease payments under capital leases, not included in the table above. The Company has no future minimum lease payments under capital leases extending beyond 2016.

(b) Legal Matters

The Company is involved from time to time in claims that arise in the normal course of its business. The Company is not presently subject to any material litigation nor, to management’s knowledge, is any litigation threatened against the Company that collectively is expected to have a material adverse effect on the Company’s cash flows, financial condition, or results of operations.

(12)     Stockholders’ Equity

Share Repurchase Program

On August 6, 2015, the Company’s Board of Directors authorized a $100 million stock repurchase program which commenced immediately and does not have an expiration date. Repurchases made under this program may be made in the open market as the Company deems appropriate and market conditions allow. The Company repurchased 226,170 shares of common stock during the nine months ended September 30, 2016 for a total cost of $9.4 million, or an average price of $41.43 per share. There were no shares of common stock repurchased during the three months ended September 30, 2016. As of September 30, 2016, the Company had $85.6 million available for future purchases under the stock repurchase program.

15

(13)     Subsequent events

On November 1, 2016, the Company entered into an Asset Purchase Agreement with Automatic Data Processing Inc. (“ADP”), a leading global provider of Human Capital Management solutions, to acquire ADP’s Consumer Health Spending Account and Consolidated Omnibus Budget Reconciliation Act ("COBRA") businesses for $235.0 million in cash.

In connection with the planned acquisition, the Company has amended the Credit Agreement to increase the size of its revolving credit facility to $250.0 million. The acquisition is expected to close by the end of November 2016, subject to reasonable customary conditions.

16

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 consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. 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 of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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, expectations about seasonality, opportunity forchannel partnerships and acquisition activities and our integration thereof,use of non-GAAP financial measures,our futureoperating 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 for the year ended December 31, 2015. 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, or CDBs, which empower employees to save money on taxes and provide corporate tax advantages for employers. We are solely dedicated to administering CDBs, including pre-tax spending accounts such as Health Savings Accounts, or HSAs, health and dependent care Flexible Spending Accounts, or FSAs, Health Reimbursement Arrangements, or HRAs, as well as Commuter Benefit Services, including transit and parking programs, wellness programs, Consolidated Omnibus Budget Reconciliation Act, or COBRA, and other employee benefits. 

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.

In September 2015, we entered into our second channel partner arrangement with Ceridian Corporation, or Ceridian, to transition their COBRA and direct bill portfolio to WageWorks. This relationship also allows Ceridian to resell the Company’s COBRA and direct bill services to their new and existing clients, in addition to the full suite of healthcare and commuter products they have been selling. Pursuant to the arrangement, transition of the portfolio was completed by the second quarter of 2016.

In March, 2016, we were selected by the United States Office of Personnel Management, or OPM, to administer its Federal Flexible Spending Account Program, or FSAFEDS. This new relationship provides eligible Federal employees access to our advanced technology platform and premium service capabilities. Service to existing participants has started and transition of all

17

participants was completed during the third quarter of 2016. In addition, the United States Postal Service will join the OPM contract in the first quarter of 2017.

On November 1, 2016, we entered into an Asset Purchase Agreement with Automatic Data Processing Inc., or ADP, a leading global provider of Human Capital Management solutions, to acquire ADP’s Consumer Health Spending Account, or CHSA, and COBRA businesses for $235.0 million in cash.

In connection with the planned acquisition, we amended the Credit Agreement to increase the size of our revolving credit facility to $250.0 million. The acquisition is expected to close by the end of November 2016, subject to reasonable customary conditions.

Critical Accounting Policies and Significant Management Estimates

There have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2016, as compared to the critical accounting policies and estimates disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2015 and 2016

Revenue

	Three Months Ended September 30,				Change from		Nine Months Ended September 30,				Change from
	2015		2016		prior year		2015		2016		prior year
Revenues:	(In thousands, unaudited)						(In thousands, unaudited)
Healthcare	$	42,204	$	48,478	15	%	$	133,307	$	146,918	10	%
Commuter	16,003		17,580		10	%	47,928		52,339		9	%
COBRA	12,229		18,670		53	%	37,112		51,955		40	%
Other	12,724		4,196		(67	)%	32,866		12,439		(62	)%
Total revenues	$	83,160	$	88,924	7	%	$	251,213	$	263,651	5	%

໿

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, or POP revenue.

The $6.3 million increase in healthcare revenue for the three months ended September 30, 2016, as compared to the same period in 2015, was driven primarily by the revenue generated from administering FSAFEDS, an increase in FSA, HSA, and HRA revenue due to the addition of other new clients and growth in new employee participation in the programs, and increases in interchange fee revenue.  

The $13.6 million increase in healthcare revenue for the nine months ended September 30, 2016, as compared to the same period in 2015, was due primarily to the revenue generated from administering FSAFEDS, an increase in FSA, HSA, and HRA revenues due to the addition of other new clients and growth in new employee participation in the programs, and increases in interchange fee revenue.

Commuter Revenue

18

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.

The $1.6 million increase in commuter revenue for the three months ended September 30, 2016, as compared to the same period in 2015, was driven primarily by the increase in employee participation as a result of the maximum pre-tax monthly benefit for transit and vanpooling increase from $130 in 2015 to $255 in 2016. Other increases in commuter revenue were due to the addition of new clients, growth in employee participation in other Commuter programs, and higher vendor commission revenue from growth in our Commuter programs.

The $4.4 million increase in commuter revenue for the nine months ended September 30, 2016, as compared to the same period in 2015, was driven primarily by the increase in employee participation as a result of the increase in maximum pre-tax monthly benefit for transit and vanpooling, as mentioned above, as well as the addition of new clients and growth in employee participation in other Commuter programs. Our commuter revenue was further increased by higher interchange revenue as compared to the same period in 2015.

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.

The $6.4 million and $14.8 million increase in COBRA revenue for the three and nine months ended September 30, 2016, respectively, as compared to the same period in 2015 was due primarily to the transition of the portfolio under the channel partner arrangement with Ceridian as well as addition of new clients to the program.

Other Revenue

Other revenue includes enrollment and eligibility services, employee account administration (i.e., tuition and health club reimbursements), and project-related professional fees. We also derived other revenue from administrative services we provided to a significant customer to operate their health insurance exchange business which includes enrollment, billing, customer service, and payment processing services. In September 2015, the aforementioned customer and we mutually agreed to terminate the relationship. As a result, revenues related to administrative services provided to this individual customer are not expected to continue to be a significant portion of other revenue beyond 2015.

The $8.5 million and $20.4 million decrease in other revenue for the three and nine months ended September 30, 2016, respectively, as compared to the same period in 2015, was driven primarily by a decrease in revenue as a result of the termination of the relationship with a significant customer in the health insurance exchange business, partially offset by other increases in revenue for the three and nine months ended September 30, 2016, respectively.

Cost of Revenues

	Three Months Ended September 30,						Change from		Nine Months Ended September 30,						Change from
	2015			2016			prior year		2015			2016			prior year
	(In thousands, unaudited)								(In thousands, unaudited)
Cost of revenues (excluding amortization of internal use software)	$	26,364		$	30,566		16	%	$	88,210		$	90,237		2	%
Percent of revenue	32		%	34		%			35		%	34		%

The primary component of cost of revenues is expenses related to our claims processing, product support, and customer service personnel. Cost of revenues also includes outsourced and temporary labor costs, check/ACH payment processing services, debit card processing services, shipping and handling costs for cards and passes, and employee participant communications costs.

19

The $4.2 million increase in cost of revenues for the three months ended September 30, 2016, as compared to the same period in 2015, was due primarily to an increase in expenses related to increases in headcount, temporary help, and outsourced services in the third quarter of 2016 to administer FSAFEDS and service new clients transitioned under the channel partner arrangement with Ceridian. Cost of revenues was further increased by higher stock-based compensation expense due primarily to new grants of restricted stock units, performance-based restricted stock units, and stock options. The increases were offset by a decrease in printing and postage related to customer support, as a result of termination of the relationship with a significant customer in the health insurance exchange business.

The $2.0 million increase in cost of revenues for the nine months ended September 30, 2016, as compared to the same period in 2015, was due primarily to an increase in stock-based compensation expense as a result of new grants of restricted stock units, performance-based restricted stock units, and stock options. The increase was further driven by increase in salaries and personnel-related costs, temporary help, and consulting services expenses to support an increase in customer base from Federal agencies and Ceridian. The increases were partially offset by lowered printing and postage related to customer support as a result of the termination of the relationship with a significant customer in the health insurance exchange business.

As we grow organically and through portfolio purchases, acquisitions, and channel partner arrangements, we expect our cost of revenues to increase in dollar amount to support increased employer client and employee participant levels. We also expect these costs to increase as a percentage of revenues in the remainder of 2016, as we service open enrollment for Federal agencies as well as the majority of our existing customers. Prior to migrating to our proprietary technology platforms, new portfolios often operate with higher service delivery costs that will result in increased cost of revenues until we are able to complete the migration process, which typically occurs over the 12 to 24 months period following the closing of the portfolio purchase or acquisition.

Technology and Development

	Three Months Ended September 30,						Change from		Nine Months Ended September 30,						Change from
	2015			2016			prior year		2015			2016			prior year
	(In thousands, unaudited)								(In thousands, unaudited)
Technology and development	$	11,560		$	11,668		1	%	$	33,928		$	32,656		(4	)%
Percent of revenue	14		%	13		%			14		%	12		%

໿

Technology and development expenses include personnel and related expenses for our technology operations and development personnel as well as outsourced programming services, the costs of operating our on-demand technology infrastructure, depreciation of equipment, and software licensing expenses. During the planning and post-implementation phases of development, we expense, as incurred, all internal use software and website development expenses associated with our proprietary scalable delivery model. Expenses associated with the platform content or the repair or maintenance of the existing platforms are expensed as incurred.

The $0.1 million increase in technology and development expenses for the three months ended September 30, 2016, as compared to the same period in 2015, was due primarily to an increase in salaries and personnel-related expense to support the increase in customer base from Ceridian, and an increase in stock-based compensation expense as a result of new grants of restricted stock units, performance-based restricted stock units, and stock options. The increases were offset by decreases in temporary help and consulting services expenses, as a result of the termination of a significant customer relationship in the health insurance exchange business in the third quarter of 2015.

The $1.3 million decrease in technology and development expenses for the nine months ended September 30, 2016, as compared to the same period in 2015, was due primarily to decreases in temporary help, consulting and outsourced services expenses as a result of the termination of a significant customer relationship in the health insurance exchange business in the third quarter of 2015, offset by an increase in salaries and personnel-related expenses to support the increase in customer base from Ceridian and an increase in stock-based compensation expense as mentioned above.

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.  

20

Sales and Marketing

	Three Months Ended September 30,						Change from		Nine Months Ended September 30,						Change from
	2015			2016			prior year		2015			2016			prior year
	(In thousands, unaudited)								(In thousands, unaudited)
Sales and marketing	$	12,824		$	14,012		9	%	$	38,445		$	42,317		10	%
Percent of revenue	15		%	16		%			15		%	16		%

Sales and marketing expenses consist primarily of personnel 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.

The $1.2 million increase in sales and marketing expense for the three months ended September 30, 2016, as compared to the same period in 2015, was due primarily to salaries and personnel-related, temporary help, consulting service, printing, and advertising expenses to support the increase in our client base through our broker relationships and ongoing promotional marketing initiatives. The expense was further increased by stock-based compensation expense as a result of new grants of restricted stock units, performance-based restricted stock units, and stock options. The increases were offset by a decrease in outside commission expenses due to the termination of our relationship with certain brokers.

The $3.9 million increase in sales and marketing expense for the nine months ended September 30, 2016, as compared to the same period in 2015, was due primarily to salaries and personnel-related, temporary help, consulting service, printing, and advertising expenses to support the increase in our client base through our broker relationships and ongoing promotional marketing initiatives, and an increase in stock-based compensation expense as mentioned above. The increases were 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 September 30,						Change from		Nine Months Ended September 30,						Change from
	2015			2016			prior year		2015			2016			prior year
	(In thousands, unaudited)								(In thousands, unaudited)
General and administrative	$	12,875		$	16,130		25	%	$	39,559		$	47,875		21	%
Percent of revenue	16		%	18		%			16		%	18		%

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

The $3.3 million and $8.3 million increases in general and administrative expenses for the three and nine months ended September 30, 2016, respectively, as compared to the same periods in 2015, were due primarily to an increase of stock-based compensation expense as a result of a reassessment of performance targets for performance-based restricted stock units based on updated forecasts of revenue growth, given addition of channel partners and significant customer wins, and new grants of stock awards. The expense was further increased by salaries and personnel related, depreciation, and software related expense.

As we continue to grow, we expect our general and administrative expenses to continue to increase in absolute dollars as we expand general and administrative headcount to support our continued growth.

Amortization and Change in Contingent Consideration

	Three Months Ended September 30,				Change from		Nine Months Ended September 30,				Change from
	2015		2016		prior year		2015		2016		prior year
	(In thousands, unaudited)						(In thousands, unaudited)
Amortization and change in contingent consideration	$	6,935	$	6,944	—	%	$	19,946	$	26,084	31	%

21

Our amortization and change in contingent consideration 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 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 contingent consideration expense for the three months ended September 30, 2016 remained flat compared to the same period in 2015 as a result of an increase in amortization from additions to acquired intangible assets from the channel partner arrangement with Ceridian, offset by decrease from the termination of a significant customer relationship in the health insurance exchange business.

The $6.1 million increase in the amortization and change in contingent consideration for the nine months ended September 30, 2016, as compared to the same period in 2015, was driven primarily by a $3.8 million increase in amortization as a result of a change in the estimated useful life of intangible assets, triggered in the second quarter of 2016, related to the termination of a significant customer relationship in the health insurance exchange business. The increase was further driven by a $1.8 million increase in amortization as a result of additions to acquired intangible assets from the channel partner arrangement with Ceridian and the CONEXIS acquisition. The remainder of the increase was due to additions to internally developed software.

Employee Termination and Other Charges

	Three Months Ended September 30,					Change from		Nine months Ended September 30,				Change from
	2015			2016		prior year		2015		2016		prior year
	(In thousands, unaudited)							(In thousands, unaudited)
Employee termination and other charges	$	(112	)	$	162	(245	)%	$	1,968	$	475	(76	)%

The $0.3 million increase in employee termination and other charges for three months ended September 30, 2016, as compared to the same period in 2015, was mainly due to costs associated with the planned acquisition of ADP's CHSA and COBRA businesses, and an additional cost associated with the closure of an office location.

For the nine months ended September 30, 2015 we incurred a $2.0 million expense in employee termination and other charges due to an organizational efficiency plan. For the nine months ended September 30, 2016, we recognized charges of $0.4 million, primarily due to severance and other costs associated with the closure of an office location. We also recognized costs associated with the planned acquisition of of ADP's CHSA and COBRA businesses.

Other Income (Expense)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2016			2015			2016
	(In thousands, unaudited)						(In thousands, unaudited)
Interest income	$	66		$	117		$	85		$	300
Interest expense	(339		)	(465		)	(1,523		)	(1,279		)
Other income	(8		)	22			280			24

The $0.1 million increase in interest expense for the three months ended September 30, 2016, as compared to the same period in 2015, was due primarily to an amendment to the credit facility entered into in August 2016 resulting in a higher credit limit. The $0.2 million decrease in interest expense for the nine months ended September 30, 2016, as compared to the same period in 2015, was due primarily to a decrease in the interest rate for our revolving credit facility with MUFG Union Bank, N.A from an average of 2.12% in 2015 to 1.69% in 2016.  

Income Taxes

22

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2016			2015			2016
	(In thousands, unaudited)						(In thousands, unaudited)
Income tax provision	$	(4,835	)	$	(3,222	)	$	(11,244	)	$	(8,509	)

Our provision for income taxes decreased from $4.8 million for the third quarter of 2015 to $3.2 million for the third quarter of 2016 and $11.2 million for the nine months ended September 30, 2015 to $8.5 million for the nine months ended September 30, 2016 due primarily to decrease in income before income taxes and the effective tax rate.

Liquidity and Capital Resources

At September 30, 2016, our principal sources of liquidity were cash and cash equivalents totaling $666.6 million comprised primarily of funding by clients of amounts to be paid on behalf of employee participants as well as other cash flows from operating activities. For the nine months ended September 30, 2016 our cash flow from operating activities provided $195.8 million and at September 30, 2016, we had $167.7 million of borrowing capacity available under our revolving credit facility. 

We believe that our existing cash and cash equivalents 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 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.

MUFGUnion Bank, N.A. RevolvingCredit Facility

In the second quarter of 2015, we entered into an Amended and Restated Credit Agreement, or Credit Agreement, with certain lenders, including MUFG Union Bank, N.A, as administrative agent. The Credit Agreement provides for a $150.0 million revolving credit facility, an increase option permitting us to arrange with existing lenders and/or new lenders to provide up to an aggregate of $100.0 million in additional commitments, and a $15.0 million subfacility for the issuances of letters of credit. In addition, the credit facility provides for stock repurchases from employees of up to an aggregate of $1.0 million in any fiscal year. The Credit Agreement extended the term of the credit facility to June 5, 2020 and reduced the margin added to the London Interbank Offered Rate, or LIBOR, to a range from 125 to 175 basis points.

23

In the third quarter of 2016, the Company entered into a first amendment of the Credit Agreement increasing the credit limit of the revolving credit facility to $250.0 million. This amendment did not change the subfacility limit, terms, or maturity date of the credit facility which remained at June 5, 2020.

In connection with this amendment, the Company incurred fees of approximately $0.2 million, which are being amortized over the term of the amendment. The fees incurred are classified as a direct deduction from the long-term debt line item in the consolidated balance sheets. The interest rate applicable on the revolving credit facility as of September 30, 2016 is 1.77%. As of September 30, 2016, the Company had $79.6 million outstanding under the credit facility.

Amounts borrowed, outstanding letters of credit and amounts available to borrow, were as follows (in thousands):

	December 31, 2015		September 30, 2016
Amounts borrowed	$	79,600	$	79,600
Outstanding letters of credit	2,700		2,700
Amounts available to borrow (1)	67,700		167,700

(1) Amounts available to borrow at December 31, 2015 excludes $100 million increase option

As collateral for the revolving credit facility,  we granted MUFG Union Bank, N.A. a security interest in substantially all of our assets. All of our material existing and future subsidiaries are required to guarantee

our obligations under the revolving credit facility. Such guarantees by existing and future material subsidiaries are and will be secured by substantially all of the property of such material subsidiaries.

The revolving credit facility contains customary affirmative and negative covenants and also has financial covenants relating to a consolidated leverage ratio and an interest coverage ratio. We are obligated to pay customary commitment fees and letter of credit fees for a facility of this size and type. We are currently in compliance with all financial and non-financial covenants under the revolving credit facility.

The revolving 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 us to be immediately due and payable, and exercise other rights and remedies provided for under the revolving credit facility. 

Cash Flows

The following table presents information regarding our financial position including cash and cash equivalents:

	December 31, 2015		September 30, 2016
	(In thousands, unaudited)
Cash and cash equivalents, end of period	$	500,918	$	666,634

The following table presents information regarding our cash position:

	Nine Months Ended September 30,
	2015			2016
	(In thousands, unaudited)
Net cash provided by operating activities	$	89,835		$	195,845
Net cash used in investing activities	(33,645		)	(41,306		)
Net cash provided by financing activities	8,501			11,177
Net increase in cash and cash equivalents	$	64,691		$	165,716

24

Cash Flows from Operating Activities

໿

໿

Net cash provided by operating activities increased during the nine months ended September 30, 2016 as compared to the prior-year period by $106.0 million. Cash provided by operating activities during the nine months ended September 30, 2016 resulted from our net income of $14.5 million adjusted for the following non-cash items:  $6.2 million for depreciation, $26.0 million for amortization and change in contingent consideration, and $22.4 million for stock-based compensation expense. Cash provided by operating activities increased driven mainly by an increase in customer obligations primarily from funds received from the Federal agencies, COBRA and Commuter programs as a result of the transition of Ceridian's COBRA and direct bill portfolio to the Company, and the increase in maximum pre-tax monthly benefit as well as a larger commuter client base. Cash provided by operating activities was offset by an increase to accounts receivable due primarily to timing of collections as a result of increased sales volume and lower cash provided by accounts payable and accrued expenses due to timing of payment to transit agencies.

Cash Flows from Investing Activities

໿

Net cash used in investing activities increased during the nine months ended September 30, 2016, as compared to the prior-year period, by $7.7 million, due primarily to payments made for the acquisition of intangible assets for the transition of Ceridian’s COBRA and direct bill portfolio to the Company. This increase was offset by a decrease in capital expenditures.

Cash Flows from Financing Activities

໿

໿

Net cash provided by financing activities increased during the nine months ended September 30, 2016, as compared to the prior-year period, by $2.7 million, due primarily to an increase in proceeds from exercise of stock options, an increase in the tax benefit related to stock based compensation, and a decrease in payments related to contingent consideration, offset by payments made for share repurchase activities in 2016.

Contractual Obligations

The following table describes our contractual obligations as of September 30, 2016 (unaudited):

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt obligations (1)	$	79,600	$	—	$	—	$	79,600	$	—
Interest on long-term debt obligations (2)	5,174		1,380		2,759		1,035		—
Operating lease obligations (3)	47,593		8,347		15,919		15,266		8,061
Total	$	132,367	$	9,727	$	18,678	$	95,901	$	8,061

_______________________________________________________________________________

(1) As of September 30, 2016, maximum borrowings under the revolving credit facility are $250.0 million with a base rate determined in accordance with the 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 September 30, 2016, we had $79.6 million of outstanding principal which is recorded net of debt issuance costs on our 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 September 30, 2016 of 1.77% per annum on a $79.6 million principal amount.

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

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

25

There have been no material changes in our market risk during the nine months ended September 30, 2016.  For additional information, see Part II, Item 7A., “Quantitative and Qualitative Disclosures About Market Risk”, of our Annual Report on Form 10-K for the year ended December 31, 2015.  

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, or the SEC, 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. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2016, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s 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 disclosures.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) or the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.     OTHER INFORMATION

Item 1. Legal Proceedings

From time-to-time, we may be subject to various legal proceedings and claims that arise in the normal course of our business activities. As of the date of this Quarterly Report on Form 10-Q, we are not a party to any litigation whereby the outcome of such litigation, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations, prospects, cash flows, financial position, or brand.

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 for the year ended December 31, 2015.

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 September 30, 2016.

Item 6. Exhibits

26

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

27

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: November 9, 2016	By:	/s/ COLM M CALLAN
		Colm M  Callan
		Chief Financial Officer
		(Principal Financial Officer)
		/s/ COLM M CALLAN
		Colm M  Callan
		Chief Financial Officer
		(Principal Accounting Officer)

28

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
10.10G	First Amendment to the Second Amendment to Credit Agreement, by and among Registrant, MUFG Union Bank, N.A. (formerly Union Bank, N.A.), MHM Resources, LLC and Benefit Concepts, Inc. of Rhode Island, dated August 1, 2016.					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 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,  irrespective of any general incorporation language contained in such filing.

29

EX-10.10G

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), is dated as of August 1, 2016 (the "Effective Date"), by and among WAGEWORKS, INC., a Delaware corporation (the "Borrower"), the several financial institutions from time to time party to the Credit Agreement (as defined below) as lenders (the "Lenders"), including WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells"), and MUFG UNION BANK, N.A., as a Lender and as administrative agent for the Lenders (in such capacity, the "Agent") and as L/C Issuer.

BACKGROUND

A.Borrower, Lenders and Agent are parties to the Amended and Restated Credit Agreement, dated as of June 5, 2015, as amended, modified, supplemented, extended or restated from time to time, (collectively, the "Credit Agreement"), pursuant to which the Lenders have agreed, subject to and on the terms and conditions set forth therein, to make certain loans and other credit accommodations to or for the benefit of Borrower.

B.Borrower has requested that Agent and Lenders agree to amend the Credit Agreement as set forth herein.

C.MUFG Union Bank, N.A., as Agent and Lender, and Wells, as a Lender, are willing to amend the Credit Agreement on and subject to the terms set forth herein, and the parties desire to amend the Credit Agreement to effect such amendments in accordance with the terms, and subject to the conditions, set forth herein.

AGREEMENT

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1.Incorporation of Recitals: Definitions. Each of the above recitals is incorporated herein as true and correct and is relied upon by Agent and each Lender in agreeing to the terms of this Amendment. Any capitalized term used but not defined herein shall have the meaning ascribed thereto in the Credit Agreement.

2.Representations and Warranties. Borrower represents and warrants to, and covenants and agrees for the benefit of, Agent and each Lender that:

a.All of the representations and warranties of Borrower set forth in the Credit Agreement and each other Loan Document to which Borrower is a party were true, correct and complete as of the date originally made, and are true, correct and complete in all material respects as of the date hereof (except to the extent such representations and warranties expressly refer to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date); provided that the foregoing materiality qualifications shall not apply to any representations or warranties that are qualified by materiality in the text thereof, which representations and warranties shall be true in all respects;

b.Borrower has the power and authority to execute this Amendment, and the execution, delivery, and performance by Borrower of this Amendment and the other documents, instruments and agreements to which Borrower is a party delivered or to be delivered in connection herewith (i) are within the corporate powers of Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not require any approval or consent of any Governmental Authority or any other third party consent, except those which have been duly obtained and are in full force and effect and those the failure of which to obtain could not be reasonably expected to have a Material Adverse Effect, (iii) do not and will not conflict with or violate any applicable Law or Borrower's Organization Documents, (iv) do not result in any breach of or constitute a default under any Contractual Obligation to which Borrower is a party, and (v) do not result in or require the creation or imposition

of any Lien upon any of the assets or properties of Borrower or any of its Subsidiaries;

c.This Amendment and the other certificates, instruments, documents and agreements delivered or to be delivered by Borrower in connection herewith have been duly executed and delivered by Borrower and constitute the legal, valid, and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that (i) enforcement may be limited by Debtor Relief Law, (ii) enforcement may be subject to general principles of equity, and (iii) the availability of the remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any proceedings for such remedies may be brought;

d.No event has occurred or failed to occur, and after and as a result of giving effect to this Amendment will occur, that is, or, with notice or lapse of time or both would constitute, a Default, an Event of Default, or a breach or failure of any condition under any Loan Document;

e.As of the date hereof, (i) Borrower has no Material Subsidiaries, or Subsidiaries that are required to be designated as Material Subsidiaries under the Loan Documents; and (ii) PBS is not a 5% Subsidiary; and

f.After and as a result of giving effect to this Amendment, Borrower has no offset, defense, claim, counterclaim, dispute or disagreement of any kind or nature whatsoever with respect to Agent or any Lender or with respect to its liabilities, obligations and indebtedness arising under or in connection with the Credit Agreement or any of the other Loan Documents.

3. Amendments to Credit Agreement.

a.Section 1.01 of the Credit Agreement is hereby amended by adding or amending and restating the following defined terms to read as follows:

"Aggregate Commitments" means the Commitments of all Lenders. As of the Increase Effective Date, the Aggregate Commitments shall be Two Hundred Fifty Million Dollars ($250,000,000).

"Increase Effective Date" means August 1, 2016.

b.Schedule 2.01 to the Credit Agreement is hereby amended, restated and replaced with Schedule 2.01 attached hereto.

4. Conditions Precedent. Borrower understands that this Amendment shall not be effective and shall have no force or effect until each of the following conditions precedent has been satisfied, or waived in writing by Agent (in Agent's sole discretion):

c. Borrower shall have duly executed and delivered to Agent and each Lender this Amendment;

d. Borrower shall have executed and delivered to MUFG Union Bank, N.A. an amended and restated Note evidencing the amount of its Commitment reflected on Schedule 2.01;

e. Borrower shall have executed and delivered to Wells Fargo Bank, N.A. an amended and restated Note evidencing the amount of its Commitment reflected on Schedule 2.01;

f. Borrower shall have delivered to Agent:

(i) a certificate of Borrower, dated as of the Increase Effective Date (in

sufficient copies for each Lender), signed by a Responsible Officer of Borrower (A) certifying and attaching the resolutions adopted by Borrower approving the increase of Aggregate Commitments to $250,000,000, (B) certifying that, before and after giving effect to such increase, (A) the representations and warranties contained in Article VI of the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the Increase Effective Date, except that (x) if a qualifier relating to materiality, Material Adverse Effect or a similar concept applies, such representation and warranty shall be required to be true and correct in all respects, (y) to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and (z) for purposes of such certification, the representations and warranties contained in subsections (a) and (b) of Section 6.05 of the Credit Agreement shall be deemed to refer to the most recent statements furnished pursuant to subsections (a) and (b), respectively, of Section 7.01 of the Credit Agreement, and (C) certifying no Default exists; and

(ii)incumbency certificates and/or other certificates of Responsible Officers of Borrower as Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Amendment and the other Loan Documents to which Borrower is a party;

g. The representations and warranties of Borrower under the Credit Agreement, the other Loan Documents and this Amendment, as applicable, shall be true and correct in all material respects as of the date hereof (except to the extent such representations and warranties expressly refer to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date); provided that the foregoing materiality qualifications shall not apply to any representations or warranties that are qualified by materiality in the text thereof, which representations and warranties shall be true in all respects;

f. Agent shall have received, in immediately available funds, all out-of-pocket costs and expenses (including reasonable attorneys' fees and costs) incurred by Agent in connection with this Amendment and the transactions contemplated hereby and invoiced to Borrower prior to the date on which this Amendment is otherwise to become effective; provided that the failure to invoice any such amounts to Borrower prior to such date shall not preclude Agent from seeking reimbursement of such amounts, or excuse any Loan Party from paying or reimbursing such amounts, following the effective date of this Amendment; and

g. Agent shall have received such other documents, and completion of such other matters, as Agent may reasonably deem necessary or appropriate in connection with this Amendment.

4.Ratification and Confirmation of Loan Documents.Except as expressly set forth in Section 3 hereof, the execution, delivery, and performance of this Amendment shall not alter, modify, amend, or in any way affect any of the terms, conditions, obligations, covenants, or agreements contained in the Credit Agreement or any other Loan Document, and shall not operate as a waiver of any right, power, or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document. The Credit Agreement, all promissory notes, guaranties, security agreements, and all other instruments, documents and agreements entered into in connection with the Credit Agreement and each other Loan Document shall be and remain in full force and effect in accordance with their respective terms and hereby are ratified, reaffirmed and confirmed by Borrower in all respects.

5.No Waivers. This Amendment: (a) in no way shall be deemed to be a consent or an agreement on the part of Agent or any Lender to waive any covenant, liability or obligation of Borrower, any Guarantor or any third party or to waive any right, power, or remedy of Agent or any Lender; (b) in no way shall be deemed to imply a willingness on the part of Agent or any Lender to grant any similar or other future waivers or to agree to any future consents, amendments or modifications to any of the terms and conditions of the Credit Agreement or the other Loan Documents; (c) shall not in any way, prejudice, limit, impair or otherwise affect any rights or remedies of Agent or any Lender under the Credit Agreement or any of the other Loan Documents, including, without limitation, Agent's or any Lender's right to demand strict performance of each Loan Party's liabilities and obligations to Agent and the Lenders and the Obligations under the Loan Documents at all times; (d) in no way shall obligate Agent or any Lender to make any future amendments, waivers, consents or modifications to the Credit Agreement or any other Loan Document; and (e) is not a continuing waiver with respect to any failure to perform any Obligation. Borrower acknowledges and agrees that: (i) except as expressly set forth herein, the Credit Agreement has not been amended or modified in any way by this Amendment, except as expressly provided herein, (ii) neither Agent nor any Lender waives any failure by Borrower to perform its Obligations under the Credit Agreement or any of the other Loan Documents, and (iii) Agent and each Lender is relying upon Borrower's representations, warranties and agreements, as set forth herein and in the Loan Documents in entering into this Amendment. Nothing in this Amendment shall constitute a satisfaction of Borrower's Obligations. This Amendment shall be deemed to be one of the Loan Documents.

6.Release. Borrower hereby, for itself, its successors, heirs, executors, administrators and assigns (each a "Releasing Party" and collectively, the "Releasing Parties"), releases, acquits and forever discharges Agent and each Lender, and their respective directors, officers, employees, agents, attorneys, affiliates, successors, administrators and assigns ("Released Parties") of and from any and all claims, actions, causes of action, demands, rights, damages, costs, loss of service, expenses and compensation whatsoever which any Releasing Party might have because of anything done, omitted to be done, or allowed to be done by any of the Released Parties and in any way arising out of or connected

with the Credit Agreement or the other Loan Documents as of the date of execution of this Amendment, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, including, without limitation, any specific claim raised by any Releasing Party, (the "Released Matters"). Releasing Parties each further agrees never to commence, aid or participate in (except to the extent required by order or legal process issued by a court or governmental agency of competent jurisdiction) any legal action or other proceeding based in whole or in part upon the Released Matters. In furtherance of this general release, Releasing Parties each acknowledges and waives the benefits of California Civil Code Section 1542 (and all similar ordinances and statutory, regulatory, or judicially created laws or rules of any other jurisdiction), which provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

Releasing Parties each agree that this waiver and release is an essential and material term of this Amendment and that the agreements in this paragraph are intended to be in full satisfaction of any alleged injuries or damages in connection with the Released Matters. Each of the Releasing Parties represents and warrants that it has not purported to convey, transfer or assign any right, title or interest in any Released Matter to any other person or entity and that the foregoing constitutes a full and complete release of the Released Matters. Releasing Parties each also understands that this release shall apply to all unknown or unanticipated results of the transactions and occurrences described above, as well as those known and anticipated. Releasing Parties each has consulted with legal counsel prior to signing this release, or had an opportunity to obtain such counsel and knowingly chose not to do so, and executes such release voluntarily, with the intention of fully and finally extinguishing all Released Matters. Notwithstanding anything in this Amendment, Borrower does not waive any of Agent's or any Lender's obligations under the terms of the Agreement as amended by this Amendment.

7.Miscellaneous.Borrower acknowledges and agrees that the representations and warranties set forth

herein are material inducements to Agent and the Lenders to deliver this Amendment. This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto, and their respective permitted successors and assigns. This Amendment and the Credit Agreement shall be read together as one document. No course of dealing on the part of Agent, the Lenders or any of their respective officers, nor any failure or delay in the exercise of any right by Agent or the Lenders, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. The failure at any time to require strict performance by Borrower of any provision of the Loan Documents shall not affect any right of Agent or the Lenders thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Agent and/or the Lenders, as applicable. No other Person shall be entitled to claim any right or benefit hereunder, including, without limitation, the status of a third party beneficiary hereunder other than Secured Parties. This Amendment shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law rules. If any provision of this Amendment or any of the other Loan Documents shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed herefrom or therefrom, as applicable, and the remaining parts shall remain in full force as though the invalid, illegal or unenforceable portion had never been a part hereof or thereof, as applicable. This Amendment shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Amendment or any part hereof to be drafted. The headings used in this Amendment are for convenience only and shall be disregarded in interpreting the substantive provisions of this Amendment. This Amendment may be executed in any number of counterparts, including by

electronic or facsimile transmission, each of which when so delivered shall be deemed an original, but all such counterparts taken together shall constitute but one and the same instrument.

[Signature Page Follows]

IN WITNESS WHEREOF, Borrower, Agent and the Lenders have caused this Amendment to be executed as of the date first written above.

BORROWER:WAGEWORKS, INC.
	By:
		Name:
		Its:

[Signature Page to First Amendment Credit Agreement]

IN WITNESS WHEREOF, Borrower, Agent and the Lenders have caused this Amendment to be executed as of the date first written above.

AGENT:	MUFG UNION BANK, N.A., as Agent
		By:
		Title:

AGENT:	MUFG UNION BANK, N.A., as Agent
		By:
		Title:

AGENT:	MUFG UNION BANK, N.A., as Agent
		By:
		Title:

[Signature Page to First Amendment to Credit Agreement]

SCHEDULE 2.01

COMMITMENTS AND

APPLICABLE PERCENTAGES

AS OF INCREASE EFFECTIVE DATE

Lender	Commitment	Applicable Percentage
MUFG UNION BANK, N.A.	$150,000,000	60.000000000%
Attention: James B. Goudy 99 Almaden Blvd., Suite 200 San Jose, CA 95113 Facsimile: (408) 280-7163
WELLS FARGO BANK, N.A.	$100,000,000	40.000000000%
Attention:
Total	$250,000,000	1.000000000%

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, Joseph L. Jackson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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: November 9, 2016
/s/ Joseph L. Jackson
Name:	Joseph L. Jackson
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 20022

I, Colm Callan, certify that: 

1. I have reviewed this Quarterly Report on Form 10-Q 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: November 9, 2016
/s/ Colm Callan
Name:	Colm Callan
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), Joseph L. Jackson, Chief Executive Officer and Director (Principal Executive Officer) of WageWorks, Inc. (the “Company”), and Colm Callan, 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 for the quarter ended September 30, 2016, 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: November 9, 2016
/s/ Joseph L. Jackson
Name:	Joseph L. Jackson
Title:	Chief Executive Officer and Director (Principal Executive Officer)

/s/ Colm Callan
Name:	Colm Callan
Title:	Chief Financial Officer (Principal Financial Officer)

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 02, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
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		36,642,414

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 666,634	$ 500,918
Restricted cash	332	332
Accounts receivable, net	85,135	72,271
Prepaid expenses and other current assets	21,258	13,254
Total current assets	773,359	586,775
Property and equipment, net	55,451	47,955
Goodwill	157,109	157,109
Acquired intangible assets, net	86,426	82,616
Deferred tax assets	10,261	9,837
Other assets	4,497	4,447
Total assets	1,087,103	888,739
Current liabilities:
Accounts payable and accrued expenses	69,177	60,541
Customer obligations	549,316	400,821
Short-term contingent consideration	0	739
Other current liabilities	359	2,893
Total current liabilities	618,852	464,994
Long-term debt	78,907	78,996
Other non-current liabilities	9,626	7,780
Total liabilities	707,385	551,770
Stockholders' Equity:
Common stock, $0.001 par value (authorized 1,000,000 shares; 36,055 shares issued and 35,936 shares outstanding at December 31, 2015 and 36,981 shares issued and 36,636 shares outstanding at September 30, 2016)	38	36
Additional paid-in capital	380,741	343,166
Treasury stock at cost (119 shares at December 31, 2015 and 345 shares at September 30, 2016)	(14,374)	(5,003)
Retained earnings (accumulated deficit)	13,313	(1,230)
Total stockholders’ equity	379,718	336,969
Total liabilities and stockholders’ equity	$ 1,087,103	$ 888,739

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
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)	36,981,000	36,055,000
Common stock, outstanding (in shares)	36,636,000	35,936,000
Treasury stock, at cost (in shares)	345,000	119,000

XML

Consolidated Statements Of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Healthcare	$ 48,478	$ 42,204	$ 146,918	$ 133,307
Commuter	17,580	16,003	52,339	47,928
COBRA	18,670	12,229	51,955	37,112
Other	4,196	12,724	12,439	32,866
Total revenues	88,924	83,160	263,651	251,213
Operating expenses:
Cost of revenues (excluding amortization of internal use software)	30,566	26,364	90,237	88,210
Technology and development	11,668	11,560	32,656	33,928
Sales and marketing	14,012	12,824	42,317	38,445
General and administrative	16,130	12,875	47,875	39,559
Amortization and change in contingent consideration	6,944	6,935	26,084	19,946
Employee termination and other charges	162	(112)	475	1,968
Total operating expenses	79,482	70,446	239,644	222,056
Income from operations	9,442	12,714	24,007	29,157
Other income (expense):
Interest income	117	66	300	85
Interest expense	(465)	(339)	(1,279)	(1,523)
Other income (expense)	22	(8)	24	280
Income before income taxes	9,116	12,433	23,052	27,999
Income tax provision	(3,222)	(4,835)	(8,509)	(11,244)
Net income	$ 5,894	$ 7,598	$ 14,543	$ 16,755
Net income per share:
Basic (in dollars per share)	$ 0.16	$ 0.21	$ 0.40	$ 0.47
Diluted (in dollars per share)	$ 0.16	$ 0.21	$ 0.39	$ 0.46
Shares used in computing net income per share:
Basic (in shares)	36,605	35,880	36,312	35,733
Diluted (in shares)	37,454	36,516	37,078	36,595

XML

Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net income	$ 14,543	$ 16,755
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	6,202	4,810
Amortization and change in contingent consideration	25,986	19,946
Stock-based compensation expense	22,373	14,674
Loss on disposal of fixed assets	185	519
Provision for doubtful accounts	1,238	220
Deferred taxes	(424)	5,317
Excess tax benefit related to stock-based compensation arrangements	(8,824)	(5,260)
Changes in operating assets and liabilities:
Accounts receivable	(14,102)	(7,852)
Prepaid expenses and other current assets	919	(512)
Other assets	(50)	2,225
Accounts payable and accrued expenses	81	6,953
Customer obligations	148,495	27,952
Other liabilities	(777)	4,088
Net cash provided by operating activities	195,845	89,835
Cash flows from investing activities:
Purchases of property and equipment	(20,529)	(24,200)
Cash paid for acquisition of intangible assets	(20,777)	(9,445)
Net cash used in investing activities	(41,306)	(33,645)
Cash flows from financing activities:
Proceeds from exercise of common stock options	10,705	4,695
Proceeds from issuance of common stock under Employee Stock Option Plan	1,672	1,793
Payment of contingent consideration	(653)	(3,247)
Payment for treasury stock acquired	(9,371)	0
Excess tax benefit related to stock-based compensation arrangements	8,824	5,260
Net cash provided by financing activities	11,177	8,501
Net increase in cash and cash equivalents	165,716	64,691
Cash and cash equivalents at beginning of period	500,918	413,301
Cash and cash equivalents at end of period	666,634	477,992
Cash paid during the period for:
Interest	1,139	2,079
Income Taxes	5,216	822
Noncash financing and investing activities:
Accrued capital expenditures	$ 2,882	$ 371

XML

Summary Of Business And Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

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.

Basis of Presentation

In the opinion of the Company’s management, the unaudited interim consolidated financial statements and condensed 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”). 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, 2016.

These unaudited interim consolidated financial statements and condensed notes should be read in conjunction with the December 31, 2015 audited financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, included in the Company’s Annual Report on Form 10-K. The December 31, 2015 consolidated balance sheet, included in this interim Quarterly Report on Form 10-Q, was derived from audited financial statements. Certain prior year amounts in the consolidated statement of cash flows have been reclassified to conform to the current year’s presentation.

There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K.

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of WageWorks, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates in these consolidated financial statements include allowances for doubtful accounts, estimates of future cash flows associated with assets, useful lives for depreciation and amortization, loss contingencies, expired and unredeemed products, deferred tax assets, reserve for income tax uncertainties, the assumptions used for stock-based compensation, the assumptions used for software and website development cost classification, and valuation and impairments of goodwill and long-lived assets. Actual results could differ from those estimates. In making its estimates, the Company considers the current economic and legislative environment and has considered those factors when reviewing the underlying assumptions of the estimates.

Fair Value of Financial Instruments

The Company’s financial assets and liabilities are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amount of financial instruments approximates fair value because of their short maturity. The carrying amount of the Company’s variable rate debt approximates fair value.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The contingent consideration payable related to the acquisition of Benefit Concepts, Inc. (“BCI”) was recorded at fair value on the acquisition date and is adjusted quarterly to fair value. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, it is categorized as Level 3. The final contingent consideration for BCI was paid during the first quarter of 2016.

Other financial instruments not measured at fair value on the Company’s unaudited consolidated balance sheet at September 30, 2016, but which require disclosure of their fair values include: cash and cash equivalents (including restricted cash), accounts receivable, accounts payable and accrued expenses, and debt under the revolving credit facility with certain lenders.  The estimated fair value of such instruments at September 30, 2016 approximates their carrying value as reported on the consolidated balance sheets. The fair value of all of these instruments are categorized as Level 2 of the fair value hierarchy, with the exception of cash, which is categorized as Level 1 due to its short term nature.

The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):

	Contingent Consideration BCI
Balance at December 31, 2015	$	739
Gains or losses included in earnings:
Losses on revaluation of contingent consideration	11
Payment of contingent consideration	(750		)
Balance at September 30, 2016	$	—

The Company measures contingent consideration elements each reporting period at fair value and recognizes changes in fair value in earnings each period in the amortization and change in contingent consideration line item on the consolidated statements of income, until the contingency is resolved. Losses on revaluation of contingent consideration result from accretion charges due to the passage of time and fair value adjustments due to changes in forecasted revenue levels.

The Company recorded an immaterial charge for the change in fair value of the contingent consideration for the three months ended September 30, 2015, with no charge recorded for the three months ended September 30, 2016. The Company recorded $0.1 million and an immaterial charge for the nine months ended September 30, 2015 and 2016, respectively, as a result of accretion charges due to the passage of time.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) which supersedes existing accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard allows for either a full retrospective with or without practical expedients or a retrospective with a cumulative catch upon adoption transition method. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods) in ASU 2015-14. Early adoption is permitted to the original effective date for periods beginning after December 15, 2016 (including interim reporting periods within those periods). The Company is in the process of determining which transition method it will use and what impact, if any, the adoption of ASU 2014-09 will have on its consolidated financial statements and related disclosures.

Subsequent to the issuance of ASU 2014-09, the FASB has issued several ASUs such as ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, FASB Accounting Standards Codification - Consensuses of the FASB Emerging Issues Task Force, and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients among others. These ASUs do not change the core principle of the guidance stated in ASU 2014-09, instead these amendments are intended to clarify and improve operability of certain topics included within the revenue standard. These ASUs will have the same effective date and transition requirements as ASU 2014-09. The Company is currently assessing the impact, if any, the adoption of these ASUs and ASU 2014-09 will have on its consolidated financial statements and related disclosures.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software license. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer's accounting for service contracts. The Company adopted ASU 2015-05 in the first quarter of 2016. The adoption of ASU 2015-05 did not have a material impact on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases,  (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

 In March 2016, the FASB issued Accounting Standard Update No. 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products,  (“ASU 2016-04”). The new guidance creates an exception under ASC 405-20, Liabilities-Extinguishments of Liabilities, to derecognize financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB Issued Accounting Standards Update No 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting,  (“ASU 2016-09”). The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued Accounting Standards Update 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 period within those years beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

XML

Net Income per Share

9 Months Ended

Sep. 30, 2016

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 September 30,				Nine months ended September 30,
	2015		2016		2015		2016
Numerator for basic net income per share:
Net income	$	7,598	$	5,894	$	16,755	$	14,543
Denominator for basic net income per share:
Weighted-average common shares outstanding	35,880		36,605		35,733		36,312
Basic net income per share	$	0.21	$	0.16	$	0.47	$	0.40
Numerator for diluted net income per share:
Net income	$	7,598	$	5,894	$	16,755	$	14,543
Denominator for diluted net income per share:
Weighted-average common shares outstanding	35,880		36,605		35,733		36,312
Dilutive stock options and restricted stock units	636		849		862		733
Dilutive vested performance restricted stock units	—		—		—		33
Diluted weighted-average common shares outstanding	36,516		37,454		36,595		37,078
Diluted net income per share	$	0.21	$	0.16	$	0.46	$	0.39

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. There were 1.4 million and 0.4 million anti-dilutive share equivalents for the three months ended September 30, 2015 and 2016, respectively and 0.9 million and 1.1 million anti-dilutive share equivalents for the nine months ended September 30, 2015 and 2016, respectively.

XML

Intangible Assets

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible Assets

Acquired intangible assets at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015						September 30, 2016
	Gross carrying amount		Accumulated amortization		Net		Gross carrying amount		Accumulated amortization		Net
Amortizable intangible assets:
Client contracts and broker relationships	$	124,261	$	47,013	$	77,248	$	138,319	$	56,028	$	82,291
Trade names	3,880		2,405		1,475		3,880		2,916		964
Technology	13,846		11,039		2,807		13,846		11,635		2,211
Noncompete agreements	2,232		1,870		362		2,232		1,923		309
Favorable lease	1,136		412		724		1,136		485		651
Total	$	145,355	$	62,739	$	82,616	$	159,413	$	72,987	$	86,426

Included in the gross carrying amount in client contracts and broker relationships intangible assets as of September 30, 2016 is the addition related to the channel partner arrangement with Ceridian Corporation (“Ceridian”). Amortization expense of intangible assets totaled $3.9 million and $4.1 million for the three months ended September 30, 2015 and 2016, respectively. Amortization expense of intangible assets totaled $11.5 million and $17.0 million for the nine months ended September 30, 2015 and 2016, respectively. These costs are included in amortization and change in contingent consideration in the accompanying consolidated statements of income.

The estimated amortization expense in future periods at September 30, 2016 is as follows (in thousands):

໿

Remainder of 2016	$	4,045
2017	15,790
2018	15,164
2019	14,604
2020	12,620
Thereafter	24,203
Total	$	86,426

XML

Accounts Receivable

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

Accounts Receivable

Accounts Receivable

Accounts receivable at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015			September 30, 2016
Trade receivables	$	37,999		$	50,599
Unpaid amounts for benefit services	35,343			36,656
	73,342			87,255
Less allowance for doubtful accounts	(1,071		)	(2,120		)
Accounts receivable, net	$	72,271		$	85,135

XML

Property And Equipment

9 Months Ended

Sep. 30, 2016

Property, Plant and Equipment [Abstract]

Property And Equipment

Property and Equipment

Property and equipment at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015			September 30, 2016
Computers and equipment	$	14,461		$	16,985
Software and software development costs	92,898			105,056
Furniture and fixtures	5,083			6,263
Leasehold improvements	13,594			18,169
	$	126,036		$	146,473
Less accumulated depreciation and amortization	(78,081		)	(91,022		)
Property and equipment, net	$	47,955		$	55,451

In the three months ended September 30, 2015 and 2016, the Company capitalized software development costs of $3.8 million and $4.0 million, respectively. In the nine months ended September 30, 2015 and 2016, the Company capitalized software development costs of $12.4 million and $11.0 million, respectively. In the three months ended September 30, 2015 and 2016 the Company amortized $3.0 million and $2.6 million of capitalized software development costs, respectively. In the nine months ended September 30, 2015 and 2016, the Company amortized $8.3 million and $8.9 million of capitalized software development costs, respectively. These costs are included in amortization and change in contingent consideration in the accompanying consolidated statements of income. At September 30, 2016, the unamortized software development costs included in property and equipment in the accompanying consolidated balance sheets were $29.2 million.  

Total depreciation expense, including amortization of capitalized software development costs, for the three months ended September 30, 2015 and 2016 was $4.7 million and $5.2 million, respectively and $13.1 million and $15.3 million for the nine months ended September 30, 2015 and 2016, respectively.

XML

Accounts Payable And Accrued Expenses

9 Months Ended

Sep. 30, 2016

Payables and Accruals [Abstract]

Accounts Payable And Accrued Expenses

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015		September 30, 2016
Accounts payable	$	2,542	$	2,860
Payable to benefit providers and transit agencies	23,169		26,634
Accrued payables	11,198		12,751
Accrued compensation and related benefits	18,538		20,435
Other accrued expenses	2,891		2,926
Deferred revenue	2,203		3,571
Accounts payable and accrued expenses	$	60,541	$	69,177

XML

Long-term Debt

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Long-term Debt

Long-term debt

On June 5, 2015, the Company entered into an Amended and Restated Credit Agreement ("Credit Agreement") with certain lenders, including MUFG Union Bank, N.A., as administrative agent. With a $15.0 million 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 amendment to the Credit Agreement increasing the credit limit of the revolving credit facility to $250.0 million. This amendment did not change the subfacility limit, terms, or maturity date of the credit facility which remained at June 5, 2020. The interest rate applicable to the revolving credit facility as of September 30, 2016 was 1.77%.  In connection with this amendment, the Company incurred fees of approximately $0.2 million, which are being amortized over the term of the amendment. The fees incurred are classified as a direct deduction from the long-term debt line item in the consolidated balance sheets. As of September 30, 2016, the Company had $79.6 million outstanding under the revolving credit facility. 

Amounts borrowed, outstanding letters of credit, and amounts available to borrow were as follows (in thousands):

	December 31, 2015		September 30, 2016
Amounts borrowed	$	79,600	$	79,600
Outstanding letters of credit	2,700		2,700
Amounts available to borrow (1)	67,700		167,700

(1) Amounts available to borrow at December 31, 2015 excludes $100 million increase option

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

The credit facility contains customary affirmative and negative covenants and also has financial covenants relating to a liquidity ratio, a consolidated leverage ratio, and an interest coverage ratio. The Company is obligated to pay customary commitment fees and letter of credit fees for a facility of this size and type. The Company is currently in compliance with all financial and non-financial covenants under the credit facility.

The credit facility contains customary events of default including, among others, payment defaults, covenant defaults, inaccuracy of representations and warranties, cross-defaults to other material indebtedness, judgment defaults, a change of control default and bankruptcy, and insolvency defaults.  Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the loan agreement at a per annum rate of interest equal to 2.00% above the applicable interest rate. Upon an event of default, the lenders may terminate the commitments, declare the outstanding obligations payable by the Company to be immediately due and payable, and exercise other rights and remedies provided for under the credit facility.

XML

Organizational Efficiency Plan

9 Months Ended

Sep. 30, 2016

Restructuring and Related Activities [Abstract]

Organizational Efficiency Plan

Organizational Efficiency Plan

During the second quarter of 2015, the Company integrated operations and consolidated certain positions resulting in employee headcount reductions. The Company continually evaluates ways to improve business processes to ensure that operations align with its strategy and vision for the future. In the three and nine months ended September 30, 2015, the Company recorded a $0.1 million credit related to unused outplacement services, and a charge of $2.0 million for employee termination costs primarily related to severance costs, respectively. In the three and nine months ended September 30, 2016, the Company recognized an immaterial charge and a charge of $0.3 million, respectively, in the employee termination and other charges expense line item, primarily due to severance and other costs associated with the closure of an office location. The Company recorded these severance costs within accrued expenses in the accompanying consolidated balance sheets. 

Changes in the Company’s accrued liabilities for workforce reduction costs in the nine months ended September 30, 2016 were as follows (in thousands):

	Amount
Beginning balance as of December 31, 2015	$	183
Employee termination and other charges	263
Cash paid	(412		)
Ending balance as of September 30, 2016	$	34

XML

Employee Benefit Plans

9 Months Ended

Sep. 30, 2016

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

Employee Benefit Plans

Employee Benefit Plans

Employee Stock Option Plan

The Company’s stock option program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, officers, and directors and to align stockholder and employee interests.

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

	Three Months Ended September 30,				Nine months Ended September 30,
	2015		2016		2015		2016
Stock options granted (in thousands)	413		27		464		804
Weighted-average fair value at date of grant	$	18.70	$	22.86	$	19.09	$	18.30

Stock option activity for the nine months ended September 30, 2016 was as follows (shares in thousands):

	Shares		Weighted-average exercise price		Remaining contractual term (in years)	Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2015	3,037		$	25.18	6.41	$	65,229
Granted	804		48.10
Exercised	(673	)	15.90
Forfeited	(79	)	46.24
Outstanding as of September 30, 2016	3,089		$	32.62	7.06	$	87,400
Vested and expected to vest at September 30, 2016	2,951		$	31.99	6.98	$	85,367
Exercisable at September 30, 2016	1,638		$	20.63	5.48	$	66,006

As of September 30, 2016, there was $23.3 million of total unrecognized compensation cost related to unvested stock options which are expected to vest. The cost is expected to be recognized over a weighted-average period of approximately 2.8 years as of September 30, 2016.  

The Company calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2016		2015		2016
Expected volatility	43.43	%	41.87	%	43.49	%	42.69	%
Risk-free interest rate	1.55	%	1.07	%	1.55	%	1.17	%
Expected term (in years)	4.74		4.87		4.74		4.87
Dividend yield	—	%	—	%	—	%	—	%

Stock-based compensation cost is measured at the grant date based on the fair value of the award. The determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. Expected volatility is determined using weighted-average volatility of peer publicly traded companies as well as the Company’s own historical volatility. The Company expects that it will increase weighting of its own historical data in future periods, as that history grows over time. The risk-free interest rate is determined by using published zero coupon rates on treasury notes for each grant date given the expected term on the options. The dividend yield of zero is based on the fact that the Company expects to invest cash in operations and has not paid cash dividends on its common stock. The Company estimates the expected term based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and expectations of future employee behavior such as exercises and forfeitures.

Restricted Stock Units

The Company grants restricted stock units to certain employees, officers, and directors under the 2010 Equity Incentive Plan. Restricted stock units vest upon performance-based, market-based, or service-based criteria.

Performance-based restricted stock units vest based on the satisfaction of specific performance criteria. At each vesting date, the holder of the award is issued shares of the Company’s common stock. Compensation expense from these awards is equal to the fair market value of the Company’s common stock on the date of grant and is recognized over the remaining service period based on the probable outcome of achievement of the financial metrics. Management’s estimate of the number of shares expected to vest is based on the anticipated achievement of the specified performance criteria.

Market-based performance restricted stock units are granted such that they vest upon the achievement of certain per share price targets of the Company’s common stock during a specified performance period. The fair market values of market-based performance restricted stock units are determined using the Monte Carlo simulation method. The Monte Carlo simulation method is subject to variability as several factors utilized must be estimated including the future daily stock price of the Company’s common stock over the specified performance period, the Company’s stock price volatility and risk-free interest rate. The amount of compensation expense is equal to the per share fair value calculated under the Monte Carlo simulation multiplied by the number of market-based performance restricted stock units granted, recognized over the specified performance period.

Generally, service-based restricted stock units vest over a four year period in equal annual installments commencing upon the first anniversary of the grant date.

In the first quarter of 2015 and 2016, the Company granted a total of 140,000 and 263,000, respectively, of performance-based restricted stock units to certain executive officers. Performance-based restricted stock units are typically granted such that they vest upon the achievement of certain revenue growth rates and other financial metrics during a specified performance period for which participants have the ability to receive up to 150% or 200% of the target number of shares originally granted, depending on terms of the grant agreement.  

The restricted stock units will be eligible to vest based on the Company’s achievement against an average annual earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margin target equal to or greater than 22% and compound revenue growth target for the specified performance period.

The following table describes the levels of revenue growth target for the specified performance period for the restricted stock units granted in 2016 to vest:

Achievement of Revenue Growth Objective	Percentage of Restricted Stock Unit Vesting
20% and Greater	200% will vest
Between 15% but less than 20%	Between 100% and 200% will vest
Between 10% but less than 15%	Between 50% and 100% will vest
Below 10%	None will vest

Stock-based compensation expense related to restricted stock units was $3.4 million and $4.8 million for the three months ended September 30, 2015 and 2016, respectively and $9.0 million and $14.8 million for the nine months ended September 30, 2015 and 2016, respectively. Total unrecorded stock-based compensation cost at September 30, 2016 associated with restricted stock units was $33.5 million, which is expected to be recognized over a weighted-average period of 1.7 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		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2015	763		$	44.83
Granted (1)	502		39.22
Vested (2)	(344	)	21.62
Forfeited	(17	)	51.57
Unvested at September 30, 2016	904		$	50.41

(1) Includes additional shares granted as specified financial metrics for the performance-based restricted stock units, granted to certain executives in 2013, during the performance period of January 1, 2013 through December 31, 2015 were met, resulting in actual shares vesting at 150% of the target number of shares originally granted.

(2) Includes 264,000 shares vested from performance-based restricted stock units granted to certain executives in 2013 representing 150% of the target number of shares originally granted.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2016		2015		2016
Cost of revenue	$	977	$	1,581	$	2,676	$	4,549
Technology and development	391		671		733		1,815
Sales and marketing	660		789		1,992		2,287
General and administrative	3,397		4,490		9,273		13,722
Total	$	5,425	$	7,531	$	14,674	$	22,373

XML

Income Taxes

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes 

The income tax provision for the three months ended September 30, 2015 and 2016 was $4.8 million and $3.2 million, respectively and the income tax provision for the nine months ended September 30, 2015 and 2016 was $11.2 million and $8.5 million respectively. The Company's effective tax rate was 38.9% and 35.3% for the three months ended September 30, 2015 and 2016 and 40.2% and 36.9% for the nine months ended September 30, 2015 and 2016, respectively.  The Company provides for income taxes using an asset and liability approach, under which deferred income taxes are provided based upon enacted tax laws and rates applicable to periods in which the taxes become payable.

The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Presently, the Company is under audit in New York State. There are no other income tax examinations ongoing in the jurisdictions where the Company operates.

As of September 30, 2016, the Company remains in a net deferred tax asset position. The realization of the Company’s deferred tax assets depends primarily on its ability to generate sufficient U.S. taxable income in future periods. The amount of deferred tax assets considered realizable may increase or decrease in subsequent quarters as management reevaluates the underlying basis for the estimates of future domestic taxable income.

XML

Commitments And Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments And Contingencies

Commitments and Contingencies

(a) Operating Leases

The Company leases office space and equipment under noncancelable operating leases with various expiration dates through 2023. Future minimum lease payments under noncancelable operating leases, excluding the contractual sublease income of $11.8 million, are as follows (in thousands):

	As of September 30, 2016
Remainder of 2016	$	2,054
2017	8,292
2018	7,947
2019	7,921
2020	7,717
Thereafter	13,662
Total future minimum lease payments	$	47,593

Rent expense for both the three months ended September 30, 2015 and 2016 was $1.9 million. Rent expense for the nine months ended September 30, 2015 and 2016 was $5.9 million and $5.2 million, respectively. Sublease income for the three and nine months ended September 30, 2016 was $0.3 million and there was no sublease income recognized for the same periods in 2015. As of September 30, 2016, the Company has an immaterial amount of future minimum lease payments under capital leases, not included in the table above. The Company has no future minimum lease payments under capital leases extending beyond 2016.

(b) Legal Matters

The Company is involved from time to time in claims that arise in the normal course of its business. The Company is not presently subject to any material litigation nor, to management’s knowledge, is any litigation threatened against the Company that collectively is expected to have a material adverse effect on the Company’s cash flows, financial condition, or results of operations.

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2016

Stockholders' Equity Note [Abstract]

Stockholders' Equity

Stockholders’ Equity

Share Repurchase Program

On August 6, 2015, the Company’s Board of Directors authorized a $100 million stock repurchase program which commenced immediately and does not have an expiration date. Repurchases made under this program may be made in the open market as the Company deems appropriate and market conditions allow. The Company repurchased 226,170 shares of common stock during the nine months ended September 30, 2016 for a total cost of $9.4 million, or an average price of $41.43 per share. There were no shares of common stock repurchased during the three months ended September 30, 2016. As of September 30, 2016, the Company had $85.6 million available for future purchases under the stock repurchase program.

XML

Subsequent Events (Notes)

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

Subsequent Events

Subsequent events

On November 1, 2016, the Company entered into an Asset Purchase Agreement with Automatic Data Processing Inc. (“ADP”), a leading global provider of Human Capital Management solutions, to acquire ADP’s Consumer Health Spending Account and Consolidated Omnibus Budget Reconciliation Act ("COBRA") businesses for $235.0 million in cash.

In connection with the planned acquisition, the Company has amended the Credit Agreement to increase the size of its revolving credit facility to $250.0 million. The acquisition is expected to close by the end of November 2016, subject to reasonable customary conditions.

XML

Summary Of Business And Significant Accounting Policies (Policy)

9 Months Ended

Sep. 30, 2016

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. The Company operates as a single reportable segment on an entity level basis.

Basis Of Presentation

Basis of Presentation

In the opinion of the Company’s management, the unaudited interim consolidated financial statements and condensed 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”). 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, 2016.

These unaudited interim consolidated financial statements and condensed notes should be read in conjunction with the December 31, 2015 audited financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, included in the Company’s Annual Report on Form 10-K. The December 31, 2015 consolidated balance sheet, included in this interim Quarterly Report on Form 10-Q, was derived from audited financial statements. Certain prior year amounts in the consolidated statement of cash flows have been reclassified to conform to the current year’s presentation.

There have been no changes in the Company’s significant accounting policies from those that were disclosed in the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K.

Principles Of Consolidation

Principles of Consolidation

The unaudited 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

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates in these consolidated financial statements include allowances for doubtful accounts, estimates of future cash flows associated with assets, useful lives for depreciation and amortization, loss contingencies, expired and unredeemed products, deferred tax assets, reserve for income tax uncertainties, the assumptions used for stock-based compensation, the assumptions used for software and website development cost classification, and valuation and impairments of goodwill and long-lived assets. Actual results could differ from those estimates. In making its estimates, the Company considers the current economic and legislative environment and has considered those factors when reviewing the underlying assumptions of the estimates.

Fair Value Of Financial Instruments

Fair Value of Financial Instruments

The Company’s financial assets and liabilities are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amount of financial instruments approximates fair value because of their short maturity. The carrying amount of the Company’s variable rate debt approximates fair value.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The contingent consideration payable related to the acquisition of Benefit Concepts, Inc. (“BCI”) was recorded at fair value on the acquisition date and is adjusted quarterly to fair value. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, it is categorized as Level 3. The final contingent consideration for BCI was paid during the first quarter of 2016.

Other financial instruments not measured at fair value on the Company’s unaudited consolidated balance sheet at September 30, 2016, but which require disclosure of their fair values include: cash and cash equivalents (including restricted cash), accounts receivable, accounts payable and accrued expenses, and debt under the revolving credit facility with certain lenders.  The estimated fair value of such instruments at September 30, 2016 approximates their carrying value as reported on the consolidated balance sheets. The fair value of all of these instruments are categorized as Level 2 of the fair value hierarchy, with the exception of cash, which is categorized as Level 1 due to its short term nature.

The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):

	Contingent Consideration BCI
Balance at December 31, 2015	$	739
Gains or losses included in earnings:
Losses on revaluation of contingent consideration	11
Payment of contingent consideration	(750		)
Balance at September 30, 2016	$	—

The Company measures contingent consideration elements each reporting period at fair value and recognizes changes in fair value in earnings each period in the amortization and change in contingent consideration line item on the consolidated statements of income, until the contingency is resolved. Losses on revaluation of contingent consideration result from accretion charges due to the passage of time and fair value adjustments due to changes in forecasted revenue levels.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) which supersedes existing accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard allows for either a full retrospective with or without practical expedients or a retrospective with a cumulative catch upon adoption transition method. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods) in ASU 2015-14. Early adoption is permitted to the original effective date for periods beginning after December 15, 2016 (including interim reporting periods within those periods). The Company is in the process of determining which transition method it will use and what impact, if any, the adoption of ASU 2014-09 will have on its consolidated financial statements and related disclosures.

Subsequent to the issuance of ASU 2014-09, the FASB has issued several ASUs such as ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, FASB Accounting Standards Codification - Consensuses of the FASB Emerging Issues Task Force, and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients among others. These ASUs do not change the core principle of the guidance stated in ASU 2014-09, instead these amendments are intended to clarify and improve operability of certain topics included within the revenue standard. These ASUs will have the same effective date and transition requirements as ASU 2014-09. The Company is currently assessing the impact, if any, the adoption of these ASUs and ASU 2014-09 will have on its consolidated financial statements and related disclosures.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software license. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer's accounting for service contracts. The Company adopted ASU 2015-05 in the first quarter of 2016. The adoption of ASU 2015-05 did not have a material impact on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases,  (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

 In March 2016, the FASB issued Accounting Standard Update No. 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products,  (“ASU 2016-04”). The new guidance creates an exception under ASC 405-20, Liabilities-Extinguishments of Liabilities, to derecognize financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB Issued Accounting Standards Update No 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting,  (“ASU 2016-09”). The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing what impact, if any, the adoption of this ASU will have on its consolidated financial statements and related disclosures.

XML

Summary Of Business And Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Reconciliation Of Items Measured At Fair Value On Recurring Basis

The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):

	Contingent Consideration BCI
Balance at December 31, 2015	$	739
Gains or losses included in earnings:
Losses on revaluation of contingent consideration	11
Payment of contingent consideration	(750		)
Balance at September 30, 2016	$	—

XML

Net Income per Share (Tables)

9 Months Ended

Sep. 30, 2016

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 September 30,				Nine months ended September 30,
	2015		2016		2015		2016
Numerator for basic net income per share:
Net income	$	7,598	$	5,894	$	16,755	$	14,543
Denominator for basic net income per share:
Weighted-average common shares outstanding	35,880		36,605		35,733		36,312
Basic net income per share	$	0.21	$	0.16	$	0.47	$	0.40
Numerator for diluted net income per share:
Net income	$	7,598	$	5,894	$	16,755	$	14,543
Denominator for diluted net income per share:
Weighted-average common shares outstanding	35,880		36,605		35,733		36,312
Dilutive stock options and restricted stock units	636		849		862		733
Dilutive vested performance restricted stock units	—		—		—		33
Diluted weighted-average common shares outstanding	36,516		37,454		36,595		37,078
Diluted net income per share	$	0.21	$	0.16	$	0.46	$	0.39

XML

Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule Of Acquired Intangible Assets

Acquired intangible assets at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015						September 30, 2016
	Gross carrying amount		Accumulated amortization		Net		Gross carrying amount		Accumulated amortization		Net
Amortizable intangible assets:
Client contracts and broker relationships	$	124,261	$	47,013	$	77,248	$	138,319	$	56,028	$	82,291
Trade names	3,880		2,405		1,475		3,880		2,916		964
Technology	13,846		11,039		2,807		13,846		11,635		2,211
Noncompete agreements	2,232		1,870		362		2,232		1,923		309
Favorable lease	1,136		412		724		1,136		485		651
Total	$	145,355	$	62,739	$	82,616	$	159,413	$	72,987	$	86,426

Schedule Of Estimated Expected Amortization Expense

The estimated amortization expense in future periods at September 30, 2016 is as follows (in thousands):

໿

Remainder of 2016	$	4,045
2017	15,790
2018	15,164
2019	14,604
2020	12,620
Thereafter	24,203
Total	$	86,426

XML

Accounts Receivable (Tables)

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

Schedule Of Accounts Receivable

Accounts receivable at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015			September 30, 2016
Trade receivables	$	37,999		$	50,599
Unpaid amounts for benefit services	35,343			36,656
	73,342			87,255
Less allowance for doubtful accounts	(1,071		)	(2,120		)
Accounts receivable, net	$	72,271		$	85,135

XML

Property And Equipment (Tables)

9 Months Ended

Sep. 30, 2016

Property, Plant and Equipment [Abstract]

Schedule Of Property And Equipment

Property and equipment at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015			September 30, 2016
Computers and equipment	$	14,461		$	16,985
Software and software development costs	92,898			105,056
Furniture and fixtures	5,083			6,263
Leasehold improvements	13,594			18,169
	$	126,036		$	146,473
Less accumulated depreciation and amortization	(78,081		)	(91,022		)
Property and equipment, net	$	47,955		$	55,451

XML

Accounts Payable And Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2016

Payables and Accruals [Abstract]

Schedule Of Accounts Payable And Accrued Expenses

Accounts payable and accrued expenses at December 31, 2015 and September 30, 2016 were comprised of the following (in thousands):

	December 31, 2015		September 30, 2016
Accounts payable	$	2,542	$	2,860
Payable to benefit providers and transit agencies	23,169		26,634
Accrued payables	11,198		12,751
Accrued compensation and related benefits	18,538		20,435
Other accrued expenses	2,891		2,926
Deferred revenue	2,203		3,571
Accounts payable and accrued expenses	$	60,541	$	69,177

XML

Long-term Debt (Tables)

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Schedule Of Line Of Credit Facilities

Amounts borrowed, outstanding letters of credit, and amounts available to borrow were as follows (in thousands):

	December 31, 2015		September 30, 2016
Amounts borrowed	$	79,600	$	79,600
Outstanding letters of credit	2,700		2,700
Amounts available to borrow (1)	67,700		167,700

(1) Amounts available to borrow at December 31, 2015 excludes $100 million increase option

XML

Organizational Efficiency Plan (Tables)

9 Months Ended

Sep. 30, 2016

Restructuring and Related Activities [Abstract]

Schedule Of Accrued Liabilities For Workforce Reduction Costs

Changes in the Company’s accrued liabilities for workforce reduction costs in the nine months ended September 30, 2016 were as follows (in thousands):

	Amount
Beginning balance as of December 31, 2015	$	183
Employee termination and other charges	263
Cash paid	(412		)
Ending balance as of September 30, 2016	$	34

XML

Employee Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2016

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

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 September 30,				Nine months Ended September 30,
	2015		2016		2015		2016
Stock options granted (in thousands)	413		27		464		804
Weighted-average fair value at date of grant	$	18.70	$	22.86	$	19.09	$	18.30

Summary Of Stock Option Activity

Stock option activity for the nine months ended September 30, 2016 was as follows (shares in thousands):

	Shares		Weighted-average exercise price		Remaining contractual term (in years)	Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2015	3,037		$	25.18	6.41	$	65,229
Granted	804		48.10
Exercised	(673	)	15.90
Forfeited	(79	)	46.24
Outstanding as of September 30, 2016	3,089		$	32.62	7.06	$	87,400
Vested and expected to vest at September 30, 2016	2,951		$	31.99	6.98	$	85,367
Exercisable at September 30, 2016	1,638		$	20.63	5.48	$	66,006

Schedule Of Weighted Average Assumptions

The Company calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:  

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2016		2015		2016
Expected volatility	43.43	%	41.87	%	43.49	%	42.69	%
Risk-free interest rate	1.55	%	1.07	%	1.55	%	1.17	%
Expected term (in years)	4.74		4.87		4.74		4.87
Dividend yield	—	%	—	%	—	%	—	%

Schedule Of Revenue Growth Targets

The following table describes the levels of revenue growth target for the specified performance period for the restricted stock units granted in 2016 to vest:

Achievement of Revenue Growth Objective	Percentage of Restricted Stock Unit Vesting
20% and Greater	200% will vest
Between 15% but less than 20%	Between 100% and 200% will vest
Between 10% but less than 15%	Between 50% and 100% will vest
Below 10%	None will vest

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		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2015	763		$	44.83
Granted (1)	502		39.22
Vested (2)	(344	)	21.62
Forfeited	(17	)	51.57
Unvested at September 30, 2016	904		$	50.41

(1) Includes additional shares granted as specified financial metrics for the performance-based restricted stock units, granted to certain executives in 2013, during the performance period of January 1, 2013 through December 31, 2015 were met, resulting in actual shares vesting at 150% of the target number of shares originally granted.

(2) Includes 264,000 shares vested from performance-based restricted stock units granted to certain executives in 2013 representing 150% of the target number of shares originally granted.

Schedule Of Stock-Based Compensation Expense

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2016		2015		2016
Cost of revenue	$	977	$	1,581	$	2,676	$	4,549
Technology and development	391		671		733		1,815
Sales and marketing	660		789		1,992		2,287
General and administrative	3,397		4,490		9,273		13,722
Total	$	5,425	$	7,531	$	14,674	$	22,373

XML

Commitments And Contingencies (Tables)

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Future Minimum Lease Payments

Future minimum lease payments under noncancelable operating leases, excluding the contractual sublease income of $11.8 million, are as follows (in thousands):

	As of September 30, 2016
Remainder of 2016	$	2,054
2017	8,292
2018	7,947
2019	7,921
2020	7,717
Thereafter	13,662
Total future minimum lease payments	$	47,593

XML

Summary Of Business And Significant Accounting Policies (Reconciliation Of Items Measured At Fair Value On Recurring Basis) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Losses on revaluation of contingent consideration	$ 0	$ 0	$ 11,000
Contingent Consideration - BCI
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balances, Beginning			739,000
Payment of contingent consideration			(750,000)
Balances, Ending	$ 0		$ 0

XML

Summary Of Business And Significant Accounting Policies (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accounting Policies [Abstract]
Losses on revaluation of contingent consideration	$ 0	$ 0	$ (11,000)
Accretion Expense			$ 0	$ 100,000

XML

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		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Numerator for basic and diluted net income per share:
Net income	$ 5,894	$ 7,598	$ 14,543	$ 16,755
Denominator for basic net income per share:
Weighted-average common shares outstanding (in shares)	36,605	35,880	36,312	35,733
Basic net income per share (in dollars per share)	$ 0.16	$ 0.21	$ 0.40	$ 0.47
Denominator for diluted net income per share:
Diluted weighted-average common shares outstanding (in shares)	37,454	36,516	37,078	36,595
Diluted net income per share (in dollars per share)	$ 0.16	$ 0.21	$ 0.39	$ 0.46
Common Stock
Denominator for basic net income per share:
Weighted-average common shares outstanding (in shares)	36,605	35,880	36,312	35,733
Stock Options And Restricted Stock Units
Denominator for diluted net income per share:
Dilutive stock options and restricted stock units (in shares)	849	636	733	862
Performance-Based Restricted Stock Units
Denominator for diluted net income per share:
Dilutive stock options and restricted stock units (in shares)	0	0	33	0

XML

Net Income per Share (Narrative) (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Stock Options And Restricted Stock Units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive shares	400	1,419	1,100	904

XML

Intangible Assets (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense for acquired intangible assets	$ 4.1	$ 3.9	$ 17.0	$ 11.5

XML

Intangible Assets (Schedule Of Acquired Intangible Assets) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	$ 159,413	$ 145,355
Accumulated amortization	72,987	62,739
Net	86,426	82,616
Client contracts and broker relationships
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	138,319	124,261
Accumulated amortization	56,028	47,013
Net	82,291	77,248
Trade names
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	3,880	3,880
Accumulated amortization	2,916	2,405
Net	964	1,475
Technology
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	13,846	13,846
Accumulated amortization	11,635	11,039
Net	2,211	2,807
Noncompete agreements
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	2,232	2,232
Accumulated amortization	1,923	1,870
Net	309	362
Favorable lease
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	1,136	1,136
Accumulated amortization	485	412
Net	$ 651	$ 724

XML

Intangible Assets (Schedule Of Estimated Expected Amortization Expense) (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
Remainder of 2016	$ 4,045
2017	15,790
2018	15,164
2019	14,604
2020	12,620
Thereafter	24,203
Total	$ 86,426

XML

Accounts Receivable (Schedule Of Accounts Receivable) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, gross	$ 87,255	$ 73,342
Less allowance for doubtful accounts	(2,120)	(1,071)
Accounts receivable, net	85,135	72,271
Trade receivables
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, gross	50,599	37,999
Unpaid amounts for benefit services
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, gross	$ 36,656	$ 35,343

XML

Property And Equipment (Schedule Of Property And Equipment) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 146,473	$ 126,036
Less accumulated depreciation and amortization	(91,022)	(78,081)
Property and equipment, net	55,451	47,955
Computers and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	16,985	14,461
Software and software development costs
Property, Plant and Equipment [Line Items]
Property and equipment, gross	105,056	92,898
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	6,263	5,083
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 18,169	$ 13,594

XML

Property And Equipment (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Property, Plant and Equipment [Line Items]
Capitalized software development costs	$ 4.0	$ 3.8
Software and software development costs
Property, Plant and Equipment [Line Items]
Capitalized software development costs			$ 11.0	$ 12.4
Total depreciation expense and amortization of capitalized software development costs	2.6	3.0	8.9	8.3
Unamortized software development costs	29.2		29.2
Amortization expense	$ 5.2	$ 4.7	$ 15.3	$ 13.1

XML

Accounts Payable And Accrued Expenses (Schedule Of Accounts Payable And Accrued Expenses) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Payables and Accruals [Abstract]
Accounts payable	$ 2,860	$ 2,542
Payable to benefit providers and transit agencies	26,634	23,169
Accrued payables	12,751	11,198
Accrued compensation and related benefits	20,435	18,538
Other accrued expenses	2,926	2,891
Deferred revenue	3,571	2,203
Accounts payable and accrued expenses	$ 69,177	$ 60,541

XML

Long-term Debt (Narrative) (Details) - USD ($)		9 Months Ended
	Jun. 05, 2015	Sep. 30, 2016	Aug. 01, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Debt, maximum allowed borrowing capacity	$ 150,000,000.0		$ 250,000,000.0
Increase option	100,000,000.0
Interest rate		1.77%
Fees	200,000
Debt outstanding		$ 79,600,000		$ 79,600,000
Default interest rate above applicable interest rate		2.00%
Letter Of Credit
Debt Instrument [Line Items]
Debt, maximum allowed borrowing capacity	$ 15,000,000.0
Revolver | LIBOR Rate | Minimum
Debt Instrument [Line Items]
Debt instrument, interest rate margin	1.25%
Revolver | LIBOR Rate | Maximum
Debt Instrument [Line Items]
Debt instrument, interest rate margin	1.75%

XML

Long-term Debt (Schedule Of Line Of Credit Facilities) (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015	Jun. 05, 2015
Line of Credit Facility [Line Items]
Amounts borrowed	$ 79,600,000	$ 79,600,000
Amounts available to borrow	167,700,000	67,700,000
Increase option			$ 100,000,000.0
Letter Of Credit
Line of Credit Facility [Line Items]
Outstanding letters of credit	$ 2,700,000	$ 2,700,000

XML

Organizational Efficiency Plan (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Restructuring and Related Activities [Abstract]
Unused outplacement services		$ (100)
Severance Costs	$ 263			$ 2,000
Severance Costs and Other Restructuring Costs	$ 0		$ 300

XML

Organizational Efficiency Plan (Schedule of Accrued Liabilities For Workforce Reduction Costs) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016	Sep. 30, 2015
Restructuring Reserve [Roll Forward]
Beginning Balance		$ 183
Severance Costs	$ 263		$ 2,000
Cash paid		(412)
Ending Balance	$ 34	$ 34

XML

Employee Benefit Plans (Narrative) (Details) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended				9 Months Ended
	Sep. 30, 2016	Mar. 31, 2016	Sep. 30, 2015	Mar. 31, 2015	Sep. 30, 2016	Sep. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation cost related to unvested stock options	$ 23,300				$ 23,300
Total unrecognized compensation cost, weighted- average period of recognition					2 years 9 months 18 days
Dividend yield	0.00%		0.00%		0.00%	0.00%
Stock-based compensation expense	$ 7,531		$ 5,425		$ 22,373	$ 14,674
Service-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period					4 years
Performance-Based Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Units granted		263		140
Performance-Based Restricted Stock Units | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of performance-based restricted stock units					150.00%
Performance-Based Restricted Stock Units | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of performance-based restricted stock units					200.00%
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation cost, weighted- average period of recognition					1 year 8 months 12 days
Units granted					502
Stock-based compensation expense	4,800		$ 3,400		$ 14,800	$ 9,000
Total unrecognized compensation cost related to unvested stock	$ 33,500				$ 33,500
Vested (in shares)					344
Restricted Stock Units | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
EBITDA margin target					22.00%
Fiscal 2013 Grant | Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested (in shares)					264

XML

Employee Benefit Plans (Summary Of Weighted-Average Fair Value Of Stock Options Granted) (Details) - $ / shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock options granted (in shares)	27	413	804	464
Weighted average fair value at date of grant (in dollars per share)	$ 22.86	$ 18.70	$ 18.30	$ 19.09

XML

Employee Benefit Plans (Summary Of Stock Option Activity) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Shares
Outstanding at December 31, 2015 (in shares)			3,037
Granted (in shares)	27	413	804	464
Exercised (in shares)			(673)
Forfeited (in shares)			(79)
Outstanding as of September 30, 2016 (in shares)	3,089		3,089		3,037
Vested and expected to vest at September 30, 2016 (in shares)	2,951		2,951
Exercisable at September 30, 2016 (in shares)	1,638		1,638
Weighted average exercise price
Outstanding at December 31, 2015 (in dollars per share)			$ 25.18
Granted (in dollars per share)			48.10
Exercised (in dollars per share)			15.90
Forfeited (in dollars per share)			46.24
Outstanding as of September 30, 2016 (in dollars per share)	$ 32.62		32.62		$ 25.18
Vested and expected to vest at September 30, 2016 (in dollars per share)	31.99		31.99
Exercisable at September 30, 2016 (in dollars per share)	$ 20.63		$ 20.63
Remaining contractual term (years)
Outstanding			7 years 22 days		6 years 4 months 28 days
Vested and expected to vest at September 30, 2016			6 years 11 months 23 days
Exercisable at September 30, 2016			5 years 5 months 23 days
Aggregate intrinsic value
Outstanding	$ 87,400		$ 87,400		$ 65,229
Vested and expected to vest at September 30, 2016	85,367		85,367
Exercisable at September 30, 2016	$ 66,006		$ 66,006

XML

Employee Benefit Plans (Schedule Of Weighted Average Assumptions) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Expected volatility	41.87%	43.43%	42.69%	43.49%
Risk-free interest rate	1.07%	1.55%	1.17%	1.55%
Expected term (in years)	4 years 10 months 13 days	4 years 8 months 27 days	4 years 10 months 13 days	4 years 8 months 27 days
Dividend yield	0.00%	0.00%	0.00%	0.00%

XML

Employee Benefit Plans (Schedule Of Revenue Growth Targets) (Details) - Performance-Based Restricted Stock Units	9 Months Ended
	Sep. 30, 2016
Vesting Target One
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of RSU Vesting	200.00%
Vesting Target One | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Achievement of Revenue Growth Objective	20.00%
Vesting Target Two | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Achievement of Revenue Growth Objective	15.00%
Percentage of RSU Vesting	100.00%
Vesting Target Two | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Achievement of Revenue Growth Objective	20.00%
Percentage of RSU Vesting	200.00%
Vesting Target Three | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Achievement of Revenue Growth Objective	10.00%
Percentage of RSU Vesting	50.00%
Vesting Target Three | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Achievement of Revenue Growth Objective	15.00%
Percentage of RSU Vesting	100.00%
Vesting Target Four
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of RSU Vesting	0.00%
Vesting Target Four | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Achievement of Revenue Growth Objective	10.00%

XML

Employee Benefit Plans (Summary Of Restricted Stock Units) (Details) - Restricted Stock Units shares in Thousands	9 Months Ended
	Sep. 30, 2016 $ / shares shares
Shares
Unvested, Beginning balance (in shares)	763
Granted (in shares)	502
Vested (in shares)	(344)
Forfeited (in shares)	(17)
Unvested, Ending balance (in shares)	904
Weighted-Average Grant Date Fair Value
Unvested, Beginning balance (in dollars per share) | $ / shares	$ 44.83
Granted (in dollars per share) | $ / shares	39.22
Vested (in dollars per share) | $ / shares	21.62
Forfeitures (in dollars per share) | $ / shares	51.57
Unvested, Ending balance (in dollars per share) | $ / shares	$ 50.41
Fiscal 2013 Grant
Shares
Vested (in shares)	(264)
Weighted-Average Grant Date Fair Value
Performance vesting target achieved	150.00%

XML

Employee Benefit Plans (Schedule Of Stock-Based Compensation Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	$ 7,531	$ 5,425	$ 22,373	$ 14,674
Cost of revenue
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	1,581	977	4,549	2,676
Technology and development
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	671	391	1,815	733
Sales and marketing
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	789	660	2,287	1,992
General and administrative
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation	$ 4,490	$ 3,397	$ 13,722	$ 9,273

XML

Income Taxes (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Income tax provision	$ 3,222	$ 4,835	$ 8,509	$ 11,244
Effective tax rate	35.30%	38.90%	36.90%	40.20%

XML

Commitments And Contingencies (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Commitments and Contingencies Disclosure [Abstract]
Operating leases expiration year			2023
Contractual sublease income	$ 11,800		$ 11,800
Rent expense	1,900	$ 1,900	5,200	$ 5,900
Sublease income	$ 300	$ 0	$ 300	$ 0

XML

Commitments And Contingencies (Future Minimum Lease Payments) (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Remainder of 2016	$ 2,054
2017	8,292
2018	7,947
2019	7,921
2020	7,717
Thereafter	13,662
Total future minimum lease payments	$ 47,593

XML

Stockholders' Equity (Narrative) (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016	Aug. 06, 2015
Stockholders' Equity Note [Abstract]
Share repurchase program, authorized amount			$ 100,000,000
Shares repurchased (in shares)	0	226,170
Cost of common shares repurchased		$ 9,400,000
Share repurchase, average price per share (in dollars per share)		$ 41.43
Stock repurchase program, remaining authorized amount	$ 85,600,000	$ 85,600,000

XML

Subsequent Events (Details) - USD ($)	Nov. 01, 2016	Aug. 01, 2016	Jun. 05, 2015
Subsequent Event [Line Items]
Line of credit maximum borrowing capacity		$ 250,000,000.0	$ 150,000,000.0
Subsequent Event
Subsequent Event [Line Items]
Line of credit maximum borrowing capacity	$ 250,000,000
Subsequent Event | Forecast | ADP Businesses - Consumer Health Savings Account and COBRA
Subsequent Event [Line Items]
Payments to acquire business	$ 235,000,000