Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2017 | Aug. 01, 2017 | |
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2017 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q2 | |
Entity Registrant Name | ADVISORY BOARD CO | |
Entity Central Index Key | 1,157,377 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 40,685,446 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Jun. 30, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 144,033 | $ 91,151 |
Membership fees receivable, net | 574,442 | 605,517 |
Prepaid expenses and other current assets | 22,251 | 18,965 |
Total current assets | 740,726 | 715,633 |
Construction in progress | 97,966 | 63,368 |
Property and equipment, net | 155,020 | 171,281 |
Intangible assets, net | 244,907 | 255,053 |
Deferred incentive compensation and other charges | 59,432 | 72,178 |
Goodwill | 737,023 | 739,507 |
Equity method investments | 10,180 | 19,858 |
Total assets | 2,045,254 | 2,036,878 |
Current liabilities: | ||
Deferred revenue, current | 545,275 | 564,237 |
Accounts payable and accrued liabilities | 71,480 | 67,702 |
Accrued incentive compensation | 18,469 | 25,521 |
Debt, current | 63,764 | 49,347 |
Total current liabilities | 698,988 | 706,807 |
Deferred revenue, net of current portion | 135,628 | 170,357 |
Deferred income taxes | 88,310 | 89,013 |
Debt, net of current portion | 437,251 | 472,739 |
Financing obligation | 97,966 | 63,368 |
Other long-term liabilities | 21,038 | 17,550 |
Total liabilities | 1,479,181 | 1,519,834 |
Stockholders’ equity: | ||
Preferred stock, par value $0.01; 5,000,000 shares authorized, zero shares issued and outstanding | 0 | 0 |
Common stock, par value $0.01; 135,000,000 shares authorized, 40,650,932 and 40,192,980 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively | 406 | 402 |
Additional paid-in capital | 797,328 | 782,399 |
Accumulated deficit | (232,563) | (266,218) |
Accumulated other comprehensive income | 902 | 461 |
Total stockholders’ equity | 566,073 | 517,044 |
Total liabilities and stockholders’ equity | $ 2,045,254 | $ 2,036,878 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Jun. 30, 2017 | Dec. 31, 2016 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (shares) | 5,000,000 | 5,000,000 |
Preferred stock, shares issued (shares) | 0 | 0 |
Preferred stock, shares outstanding (shares) | 0 | 0 |
Common stock, par value (dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (shares) | 135,000,000 | 135,000,000 |
Common stock, shares issued (shares) | 40,650,932 | 40,192,980 |
Common stock, shares outstanding (shares) | 40,650,932 | 40,192,980 |
UNAUDITED CONSOLIDATED STATEMEN
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Income Statement [Abstract] | ||||
Revenue | $ 200,299 | $ 198,382 | $ 394,838 | $ 399,117 |
Costs and expenses: | ||||
Cost of services, excluding depreciation and amortization | 101,788 | 96,440 | 200,430 | 192,389 |
Member relations and marketing | 33,241 | 32,718 | 66,096 | 65,113 |
General and administrative | 44,475 | 32,219 | 83,563 | 64,047 |
Depreciation and amortization | 21,645 | 18,917 | 43,979 | 38,684 |
Operating (loss) income | (850) | 18,088 | 770 | 38,884 |
Other expense: | ||||
Interest expense | (4,730) | (4,389) | (9,230) | (9,210) |
Other (expense) income, net | (90) | (923) | 143 | (862) |
Total other expense, net | (4,820) | (5,312) | (9,087) | (10,072) |
(Loss) income before benefit (provision) for income taxes and gains (losses) from equity method investments | (5,670) | 12,776 | (8,317) | 28,812 |
Benefit (provision) for income taxes | 2,681 | (4,870) | 3,405 | (10,533) |
Gains (losses) from equity method investments | 17,736 | (411) | 39,313 | (445) |
Net income | $ 14,747 | $ 7,495 | $ 34,401 | $ 17,834 |
Earnings per share | ||||
Net income per share—basic (in dollars per share) | $ 0.36 | $ 0.19 | $ 0.85 | $ 0.44 |
Net income per share—diluted (in dollars per share) | $ 0.36 | $ 0.18 | $ 0.83 | $ 0.43 |
Weighted average number of shares outstanding: | ||||
Basic (in shares) | 40,586 | 40,365 | 40,421 | 40,928 |
Diluted (in shares) | 41,460 | 40,570 | 41,252 | 41,222 |
UNAUDITED CONSOLIDATED STATEME5
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 14,747 | $ 7,495 | $ 34,401 | $ 17,834 |
Other comprehensive (loss) income: | ||||
Net unrealized (loss) gain on cash flow hedges, net of income tax (benefit) expense of $(104) and $(392) for the three months ended June 30, 2017 and 2016, respectively; and $207 and $(1,960) for the six months ended June 30, 2017 and 2016, respectively | (126) | (433) | 441 | (2,870) |
Comprehensive income | $ 14,621 | $ 7,062 | $ 34,842 | $ 14,964 |
UNAUDITED CONSOLIDATED STATEME6
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Statement of Comprehensive Income [Abstract] | ||||
Net unrealized (loss) gain on cash flow hedges, net of income tax (benefit) expense of $(104) and $(392) for the three months ended June 30, 2017 and 2016, respectively; and $207 and $(1,960) for the six months ended June 30, 2017 and 2016, respectively | $ (104) | $ (392) | $ 207 | $ (1,960) |
UNAUDITED CONSOLIDATED STATEME7
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Cash flows from operating activities: | ||
Net income | $ 34,401 | $ 17,834 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 43,979 | 38,684 |
Amortization of debt issuance costs | 561 | 566 |
Deferred income taxes | 4,794 | (881) |
Excess tax benefit from stock-based awards | (288) | (633) |
Stock-based compensation expense | 11,325 | 14,947 |
Gain on partial sale of equity method investment | (42,312) | 0 |
Losses from equity method investments | 2,999 | 445 |
Changes in operating assets and liabilities (net of the effect of acquisitions): | ||
Membership fees receivable | 31,074 | 4,948 |
Prepaid expenses and other current assets | (3,247) | 7,370 |
Deferred incentive compensation and other charges | 13,290 | 11,408 |
Deferred revenue | (53,691) | (35,056) |
Accounts payable and accrued liabilities | (20,089) | (10,738) |
Acquisition-related earn-out payments | (196) | (1,432) |
Accrued incentive compensation | (7,053) | (24,408) |
Other long-term liabilities | 2,388 | 27 |
Net cash provided by operating activities | 17,935 | 23,081 |
Cash flows from investing activities: | ||
Purchases of property and equipment | (16,287) | (19,877) |
Capitalized external-use software development costs | (1,285) | (1,608) |
Cash paid for acquisitions | 0 | (1,900) |
Cash received from partial sale of equity method investment | 71,871 | 0 |
Net cash provided by (used in) investing activities | 54,299 | (23,385) |
Cash flows from financing activities: | ||
Proceeds from debt | 0 | 17,000 |
Pay down of debt | (21,562) | (14,375) |
Proceeds from issuance of common stock from exercise of stock options | 7,389 | 3,100 |
Withholding of shares to satisfy employee tax withholding on stock-based compensation | (5,173) | (3,432) |
Proceeds from issuance of common stock under employee stock purchase plan | 180 | 256 |
Acquisition-related earn-out payments | (186) | (3,600) |
Excess tax benefits from stock-based awards | 0 | 633 |
Purchases of treasury stock | 0 | (53,616) |
Net cash used in financing activities | (19,352) | (54,034) |
Net increase (decrease) in cash and cash equivalents | 52,882 | (54,338) |
Cash and cash equivalents, beginning of period | 91,151 | 71,825 |
Cash and cash equivalents, end of period | $ 144,033 | $ 17,487 |
Business Description and Basis
Business Description and Basis of Presentation | 6 Months Ended |
Jun. 30, 2017 | |
Accounting Policies [Abstract] | |
Business description and basis of presentation | Business description and basis of presentation The Advisory Board Company (individually and collectively with its subsidiaries, the “Company”) provides best practices research and insight, technology, data-enabled services, and consulting services through discrete programs to hospitals, health systems, independent medical groups, pharmaceutical and biotechnology companies, health care insurers, medical device companies, and colleges, universities, and other health care-focused organizations and educational institutions. Members of each subscription-based membership program are typically charged a separate fixed annual fee and have access to an integrated set of services that may include best practices research studies, executive education, proprietary content databases and online tools, daily online executive briefings, original executive inquiry services, cloud-based software applications, data-enabled services, and consulting and management services. The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The Company uses the equity method to account for equity investments in instances in which it owns common stock and has the ability to exercise significant influence, but not control, over the investee and for all investments in partnerships or limited liability companies where the investee maintains separate capital accounts for each investor. All significant intercompany transactions and balances have been eliminated. Certain items in the prior period financial statements have been reclassified for comparative purposes to conform to the current period presentation. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows as of the dates and for the periods presented have been included. The consolidated balance sheet presented as of December 31, 2016 has been derived from the financial statements that have been audited by the Company’s independent registered public accounting firm. The consolidated results of operations for the three and six months ended June 30, 2017 may not be indicative of the results that may be expected for the Company’s fiscal year ending December 31, 2017, or any other period. |
Recent Accounting Pronouncement
Recent Accounting Pronouncements | 6 Months Ended |
Jun. 30, 2017 | |
Accounting Changes and Error Corrections [Abstract] | |
Recent accounting pronouncements | Recent accounting pronouncements Recently adopted In March 2016, the Financial Accounting Standards Board ("FASB") issued accounting guidance relating to stock-based compensation. The guidance simplifies various aspects of the accounting for share-based payments. The amendments impact net income, earnings per share, and the statement of cash flows. The guidance is effective for annual reporting and interim periods beginning after December 15, 2016, with early adoption permitted. The Company adopted this standard as of January 1, 2017 using a modified retrospective approach, which requires the cumulative effect of initially applying the standard to be recorded as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application. In connection with the adoption of this guidance, the Company elected to no longer calculate an estimate of expected forfeitures and began recognizing forfeitures as they occurred, which resulted in a cumulative-effect net decrease of $0.7 million to retained earnings with an offset of $1.2 million to additional paid-in capital and an increase of $0.5 million in deferred tax assets. Upon adoption, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the consolidated statements of operations. In addition, excess tax benefits are no longer presented within cash flows from financing activities but instead are presented in cash flows from operating activities in the consolidated statements of cash flows. Prior to adoption, the excess tax benefits and tax deficiencies were recorded to additional paid-in capital and excess tax benefits were not recorded until they were able to be utilized. Recently issued In May 2014, the FASB issued accounting guidance related to revenue recognition. The new standard supersedes most of the existing revenue recognition guidance under GAAP, and requires revenue to be recognized when goods or services are transferred to a customer in an amount that reflects the consideration a company expects to receive. The new standard may require more judgment and estimates relating to the recognition of revenue, which could result in additional disclosures to the financial statements. The new standard will be effective for annual and interim reporting periods beginning after December 15, 2017, with an option that permits companies to adopt the standard as early as the original effective date of December 31, 2016. Early application prior to the original effective date is not permitted. The Company will adopt the standard on January 1, 2018 using the modified retrospective approach. While the potential impacts of the new standard are still being assessed, the Company currently believes the new standard will affect the Company's accounting for contract acquisition costs and arrangements that include variable consideration. The Company is currently evaluating the effect that the standard will have on its remaining revenue. The Company continues to update its assessment of the impact of the standard and related updates to the consolidated financial statements, and will disclose material impacts when known. In January 2016, the FASB issued accounting guidance related to the recognition and measurement of financial assets and liabilities. The guidance requires, among other things, that entities measure equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) at fair value, with changes in fair value recognized in net income. Under the new guidance, entities will no longer be able to recognize unrealized holding gains and losses on available-for-sale equity securities in other comprehensive income, and will no longer be able to use the cost method of accounting for equity securities that do not have readily determinable fair values. The guidance for classifying and measuring investments in debt securities and loans is not affected. The guidance eliminates certain disclosure requirements related to financial instruments measured at amortized cost and adds disclosures related to the measurement categories of financial assets and financial liabilities. The guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted only for certain portions of the guidance. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements. In February 2016, the FASB issued accounting guidance related to leases. The guidance requires that lessees recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than twelve months. The new guidance also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The guidance is effective for annual reporting and interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. In August 2016, the FASB issued accounting guidance relating to the statement of cash flows. The guidance clarifies how certain cash receipts and cash payments are presented in the statement of cash flows. The guidance is effective for annual reporting and interim periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. In January 2017, the FASB issued accounting guidance which clarifies the definition of a business in order to assist entities in evaluating whether transactions should be accounted for as acquisitions (or dispositions) of assets or businesses. The guidance is effective for annual reporting and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. In January 2017, the FASB issued accounting guidance simplifying the test of goodwill impairment. The guidance eliminates Step 2 of the goodwill impairment test, which calculates the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will be required to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e. Step 1). The guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements. In February 2017, the FASB issued accounting guidance related to gains and losses from the derecognition of nonfinancial assets which clarifies the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. In May 2017, the FASB issued accounting guidance related to changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in Topic 718. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements. |
Fair Value Measurements
Fair Value Measurements | 6 Months Ended |
Jun. 30, 2017 | |
Fair Value Disclosures [Abstract] | |
Fair value measurements | Fair value measurements Financial assets and liabilities The estimated fair values of financial instruments are determined based on relevant market information. These estimates involve uncertainty and cannot be determined with precision. The Company’s financial instruments consist primarily of cash, cash equivalents, and interest rate swaps. In addition, contingent earn-out liabilities resulting from business combinations are recorded at fair value. The following methods and assumptions are used to estimate the fair value of each class of financial assets or liabilities that is valued on a recurring basis. Cash and cash equivalents . This class of financial assets includes all cash and liquid investments with an original maturity of three months or less from the date acquired. The carrying amount approximates fair value because of the short maturity of these instruments. Cash equivalents also consist of money market funds with fair values based on quoted market prices. The Company’s cash and cash equivalents are held at major commercial banks. Contingent earn-out liabilities . This class of financial liabilities represents the Company’s estimated fair value of the contingent earn-out liabilities related to acquisitions based on probability assessments of certain performance achievements during the earn-out periods. The performance targets are specific to the operation of the acquired company subsequent to the acquisition. These inputs are considered key estimates made by the Company that are unobservable because there are no active markets to support them. Contingent earn-out liabilities are included in accounts payable and accrued liabilities and other long-term liabilities on the consolidated balance sheets. Interest rate swaps . The Company uses interest rate swaps to manage interest rate risk. The fair values of interest rate swaps are determined using the market standard methodology of discounting the future variable cash payments, or receipts, over the life of the agreements. The variable interest rates used in the calculation of projected receipts are based on observable market interest rate curves. See Note 7, "Debt." Measurements The following table presents information about the Company's financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities, and fair values determined by Level 2 inputs utilize quoted prices in inactive markets for identical assets or liabilities obtained from readily available pricing sources for similar instruments. The fair values determined by Level 3 inputs are unobservable values which are supported by little or no market activity, such as discounted cash flow methodologies. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. It is the Company's policy to recognize transfers between levels of the fair value hierarchy, if any, at the end of the reporting period. There have been no such transfers during any of the periods presented. The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the related classifications are as follows (in thousands): (in thousands) Fair value as of June 30, Fair value measurement as of June 30, 2017 2017 Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents (1) $ 144,033 $ 144,033 $ — $ — Interest rate swaps (2) 1,589 — 1,589 — Financial liabilities Contingent earn-out liabilities (3) 1,235 — — 1,235 Fair value as of December 31, Fair value measurement as of December 31, 2016 using fair value hierarchy 2016 Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents (1) $ 91,151 $ 91,151 $ — $ — Interest rate swaps (2) 1,044 — 1,044 — Financial liabilities Contingent earn-out liabilities (3) 1,164 — — 1,164 ————————————— (1) Fair value is based on quoted market prices. (2) Fair value is determined using market standard models with observable inputs. (3) This fair value measurement is based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value using the income approach. In developing these estimates, the Company considered certain performance projections, historical results, and general macroeconomic environment and industry trends. Contingent earn-out liabilities The Company's fair value estimate of the earn-out liability related to the Company’s acquisition of Clinovations, LLC (“Clinovations”) in November 2014 was $4.5 million as of the date of acquisition. The Clinovations earn-out liability is affected by changes in estimates regarding expected operating results through the evaluation periods, which will end on December 31, 2017 with payments extending through April 2018. As of June 30, 2017 , 62,269 shares have been issued to pay a portion of the earn-out liability under the terms of the acquisition agreement. The maximum payout of the earn-out liability is $9.5 million , while the minimum payment is $0 . Based on the results of Clinovations’ operating results, the fair value of the remaining contingent obligation for Clinovations as of June 30, 2017 was estimated at $0.9 million . The Company's fair value estimate of the earn-out liability related to the Company’s acquisition of ThoughtWright, LLC d/b/a GradesFirst (“GradesFirst”) in December 2014 was $3.6 million as of the date of acquisition. The Company paid $4.0 million during the six months ended June 30, 2016 in satisfaction of its remaining obligation. The Company entered into an earn-out agreement in connection with its acquisition of Southwind Health Partners, L.L.C. and Southwind Navigator, LLC (together, “Southwind”) in December 2009. The Company paid $1.0 million during the six months ended June 30, 2016 in satisfaction of its remaining obligation. Changes in the fair value of the contingent earn-out liabilities subsequent to the acquisition date, including changes arising from events that occurred after the acquisition date, such as changes in the Company’s estimate of performance achievements, discount rates, and stock price, are recognized in earnings in the periods during which the estimated fair value changes. The following table represents a reconciliation of the change in the contingent earn-out liabilities for the three and six months ended June 30, 2017 and 2016 (in thousands): Three Months Ended Six Months Ended 2017 2016 2017 2016 Beginning balance $ 1,185 $ 1,505 $ 1,164 $ 7,250 Addition due to acquisition — — — 357 Fair value change in Clinovations contingent earn-out liability (1) 36 1,750 275 680 Fair value change in other contingent earn-out liabilities (1) 14 25 178 25 Southwind earn-out payments — — — (1,032 ) Other earn-out payments — — (382 ) — GradesFirst earn-out payments — — — (4,000 ) Ending balance $ 1,235 $ 3,280 $ 1,235 $ 3,280 ————————————— (1) Amounts were recognized in cost of services on the consolidated statements of operations. Financial instruments not recorded at fair value on a recurring basis Equity method investments . The Company's equity method investments represent the Company's ownership interest in Evolent Health, Inc. and its subsidiary, Evolent Health LLC. The fair value of the Company's ownership interest in Evolent Health, Inc. and its subsidiary prior to any discount was $149.6 million as of June 30, 2017 based on the closing price of the Class A common stock of Evolent Health, Inc. on that date as reported on the New York Stock Exchange. For further information, see Note 6, "Equity method investments." The fair value of the Company's equity method investments is measured quarterly for disclosure purposes. The Company's equity method investments are recorded at fair value only if an impairment charge is recognized. Credit facilities . The Company estimates that the fair value of its credit facilities was $507.6 million as of June 30, 2017 . The fair value was determined based on discounting the future expected variable cash payments over the life of the loan. The variable interest rates used in the calculation are based on observable market interest rates. The credit facilities would be classified as Level 2 within the fair value hierarchy if they were measured at fair value. Non-financial assets and liabilities Certain assets and liabilities are not measured at fair value on an ongoing basis, but instead are measured at fair value on a non-recurring basis, so that such assets and liabilities are subject to fair value adjustments in certain circumstances (such as when there is evidence of impairment). During the six months ended June 30, 2017 and 2016 , no fair value adjustments or material fair value measurements were required for non-financial assets or liabilities. |
Property and Equipment
Property and Equipment | 6 Months Ended |
Jun. 30, 2017 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | Property and equipment Property and equipment consists of leasehold improvements, furniture, fixtures, equipment, capitalized internal-use software development, and acquired developed technology. Property and equipment is stated at cost, less accumulated depreciation and amortization. In certain membership programs, the Company provides software applications under a hosting arrangement where the software application resides on the Company’s or its service providers’ hardware. The members do not take delivery of the software and only receive access to the software during the term of their membership agreement. Software development costs that are incurred in the preliminary project stage are expensed as incurred. During the development stage, direct consulting costs and payroll and payroll-related costs for employees that are directly associated with each project are capitalized and amortized over the estimated useful life of the software once placed into operation. Capitalized software is amortized using the straight-line method over its estimated useful life, which is generally five years. Replacements and major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The acquired developed technology, which includes acquired software, databases, and analytics, is classified as software within property and equipment because the developed software application, database, or analytic resides on the Company’s or its service providers’ hardware. Amortization of acquired developed technology is included in depreciation and amortization on the Company’s consolidated statements of operations. Developed technology obtained through acquisitions is amortized using the straight-line method over the estimated useful life used in determining the fair value of the assets at acquisition. As of June 30, 2017 , the weighted average useful life of existing acquired developed technology was approximately eight years. The amount of acquired developed technology amortization included in depreciation and amortization for the three months ended June 30, 2017 and 2016 was approximately $2.6 million and $2.3 million , respectively. The amount of acquired developed technology amortization included in depreciation and amortization for the six months ended June 30, 2017 and 2016 was approximately $4.7 million and $4.6 million , respectively. Furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term. There are no capitalized leases included in property and equipment, net for the periods presented. The amount of depreciation expense recognized with respect to furniture, fixtures, and equipment during the three months ended June 30, 2017 and 2016 was $5.1 million and $5.4 million , respectively. The amount of depreciation expense recognized with respect to furniture, fixtures, and equipment during the six months ended June 30, 2017 and 2016 was $10.9 million and $10.8 million , respectively. Internally developed capitalized software related to the Company's hosted software is classified as software within property and equipment and has an estimated useful life of five years. As of June 30, 2017 and December 31, 2016, the carrying value of internally developed capitalized software was $74.1 million and $75.2 million , respectively. Amortization expense for internally developed capitalized software for the three months ended June 30, 2017 and 2016 recorded in depreciation and amortization on the consolidated statements of operations was approximately $7.0 million and $5.5 million , respectively. Amortization expense for internally developed capitalized software for the six months ended June 30, 2017 and 2016 recorded in depreciation and amortization on the consolidated statements of operations was approximately $13.8 million and $11.9 million , respectively. Property and equipment consists of the following (in thousands): As of June 30, 2017 December 31, 2016 Leasehold improvements $ 69,709 $ 69,465 Furniture, fixtures, and equipment 70,463 70,362 Software 244,839 231,952 Property and equipment, gross 385,011 371,779 Accumulated depreciation and amortization (229,991 ) (200,498 ) Property and equipment, net $ 155,020 $ 171,281 The Company evaluates its long-lived assets for impairment when changes in circumstances exist that suggest the carrying value of a long-lived asset may not be fully recoverable. If an indication of impairment exists, and the Company’s net book value of the related assets is not fully recoverable based upon an analysis of its estimated undiscounted future cash flows, the assets are written down to their estimated fair value. The Company recognized a $0.7 million loss on the disposal of property and equipment during the three months ended June 30, 2017 related to the announced restructuring plan. For further information regarding the restructuring plan, see Note 14, "Costs of exit or disposal." There was no material impairment loss recognized on long-lived assets during the three and six months ended June 30, 2017 and 2016 , respectively. Construction in progress . In December 2015, the Company entered into a lease for its new corporate headquarters, which is currently being constructed in Washington D.C. The lease has an anticipated start date of mid-2019, with a 16 -year initial term and $446.1 million of lease payments. The Company has concluded that it is the deemed owner of the building (for accounting purposes only) during the construction period and that the lease qualifies for build-to-suit accounting. Accordingly, the Company has recorded a construction-in-progress asset, net of $98.0 million for which there is a corresponding construction financing obligation of $98.0 million recorded in the consolidated balance sheet as of June 30, 2017 . The Company will continue to increase the construction-in-progress asset and corresponding long-term liability as additional building costs are incurred by the landlord during the construction period. Upon completion of the construction, the Company will evaluate whether this arrangement meets the criteria for sale-leaseback accounting treatment. |
Goodwill and Intangibles
Goodwill and Intangibles | 6 Months Ended |
Jun. 30, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and intangibles | Goodwill and intangibles Included in the Company’s goodwill and intangibles balances are goodwill and acquired intangibles, as well as internally developed capitalized software for sale. Goodwill is not amortized because it has an estimated indefinite life. Goodwill is reviewed for impairment at least annually as of October 1, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes that no such impairment indicators existed during the six months ended June 30, 2017 or 2016 , respectively. There was no impairment of goodwill recorded in the six months ended June 30, 2017 or 2016 , respectively. The following illustrates the change in the goodwill balance for the six months ended June 30, 2017 (in thousands): Balance as of December 31, 2016 $ 739,507 Acquisitions — Adjustment related to Royall acquisition (1) (2,484 ) Balance as of June 30, 2017 $ 737,023 ————————————— (1) Represents an immaterial adjustment to the blended state tax rate used in the purchase price allocation resulting in a reduction to deferred tax liabilities and a reduction of goodwill. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives, which range from 2 years to 17 years. As of June 30, 2017 , the weighted average remaining useful life of acquired intangibles was approximately 12.9 years. As of June 30, 2017 , the weighted average remaining useful life of internally developed intangibles was approximately 3.0 years. The gross and net carrying balances and accumulated amortization of intangibles are as follows (in thousands): As of June 30, 2017 As of December 31, 2016 Weighted average useful life Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount Intangibles Internally developed software for sale: Capitalized software 5.0 $ 21,318 $ (11,735 ) $ 9,583 $ 20,034 $ (9,998 ) $ 10,036 Acquired intangibles: Developed software 5.2 9,450 (8,825 ) 625 9,450 (8,575 ) 875 Customer relationships 16.2 277,710 (51,628 ) 226,082 277,710 (42,978 ) 234,732 Trademarks 8.6 14,900 (6,507 ) 8,393 14,900 (5,923 ) 8,977 Customer contracts 4.7 6,449 (6,225 ) 224 6,449 (6,016 ) 433 Total intangibles $ 329,827 $ (84,920 ) $ 244,907 $ 328,543 $ (73,490 ) $ 255,053 Amortization expense for intangible assets for the three months ended June 30, 2017 and 2016 , recorded in depreciation and amortization on the consolidated statements of operations, was approximately $5.7 million . Amortization expense for intangible assets for the six months ended June 30, 2017 and 2016 , recorded in depreciation and amortization on the consolidated statements of operations, was approximately $11.4 million . The following approximates the aggregate amortization expense to be recorded in depreciation and amortization on the consolidated statements of operations for the remaining six months of the fiscal year ending December 31, 2017 , for each of the following fiscal years ending December 31, 2018 through 2021, and thereafter: $11.3 million , $21.8 million , $20.2 million , $18.9 million , and $17.9 million , respectively, and $154.8 million thereafter. |
Equity Method Investments
Equity Method Investments | 6 Months Ended |
Jun. 30, 2017 | |
Equity Method Investments and Joint Ventures [Abstract] | |
Equity method investments | Equity method investments As of June 30, 2017 , the Company held a 2.6% equity interest in Evolent Health LLC (“Evolent LLC”) and a 6.3% equity ownership interest in Evolent Health, Inc. (“Evolent Inc.”), which had no material operations outside of its 96.1% ownership interest in Evolent LLC. These investments are accounted for under the equity method, with the Company’s proportionate share of the investees’ losses recognized in the consolidated statements of operations. The Company has the right to designate two individuals to Evolent Inc.'s board of directors, who were the Company’s Chief Financial Officer and an unaffiliated designee of the Company as of June 30, 2017 . Evolent Inc. During the three months ended June 30, 2017 , the Company recognized in the consolidated statements of operations its proportionate share of the losses of Evolent Inc. of $1.0 million . During the three months ended June 30, 2016, the Company's proportionate share of the losses of Evolent Inc. was $1.2 million . The Company recorded $0.3 million of these losses against the remaining carrying amount of its investment at June 30, 2016 . The remaining losses were not recorded as they exceeded the Company's investment balance. During the six months ended June 30, 2017 , the Company recognized in the consolidated statements of operations its proportionate share of the losses of Evolent Inc. of $2.3 million . During the six months ended June 30, 2016, the Company's proportionate shares of the losses of Evolent Inc. was $2.0 million , of which $1.1 million was recognized in the consolidated statements of operations, offset by a $1.1 million dilution gain. The carrying balance of the Company’s investment in Evolent Inc. was $8.0 million and $10.3 million as of June 30, 2017 and December 31, 2016, respectively. The Company had no unrecorded losses related to its investment in Evolent Inc. as of June 30, 2017 . Evolent LLC During the three and six months ended June 30, 2017 , the Company received total cash of $30.5 million and $71.9 million , respectively, from the sale in one transaction in three months ended March 31, 2017 and two transactions in the three months ended June 30, 2017 of shares of Evolent Inc. Class A common stock which the Company received in exchange, on a one-for-one basis, for Evolent LLC Class B common units and shares of Evolent Inc. Class B common stock. The transactions resulted in post-tax gains of $18.9 million and $42.3 million for the three and six months ended June 30, 2017 , respectively. The Company's proportionate share of the losses of Evolent LLC was $0.8 million during the three months ended June 30, 2017 . During the three months ended June 30, 2016 , the Company's proportionate share of the losses of Evolent LLC was $1.0 million . The Company recorded $0.2 million of these losses against the remaining carrying amount of its investment at June 30, 2016 . The remaining losses were not recorded as they exceeded the Company's investment balance. The Company's proportionate share of the losses of Evolent LLC was $2.4 million during the six months ended June 30, 2017 . During the six months ended June 30, 2016 , the Company's proportionate share of the losses of Evolent LLC was $2.5 million , of which $1.6 million was recognized in the consolidated statements of operations, offset by a $0.9 million dilution gain. The remaining losses were not recorded as they exceeded the Company's investment balance. The carrying balance of the Company’s investment in Evolent LLC was $2.2 million and $9.6 million as of June 30, 2017 and December 31, 2016, respectively. The Company had no unrecorded losses related to its investment in Evolent LLC as of June 30, 2017 . At the time of Evolent Inc.'s initial public offering and related reorganization, the Company carried over its basis in the investment, resulting in a significant difference between its basis and its proportionate share in the equity of Evolent Inc. As of June 30, 2017 , the basis difference totaled $43.0 million and will decrease over time through amortization and upon any sale or dilutive transactions. Evolent Inc. gained control of Evolent LLC in the transaction and applied purchase and push down accounting. The Company has excluded the effects of this accounting in its determination of the equity in Evolent LLC losses, thereby reducing its share of losses from Evolent LLC for the affected periods. Because of Evolent LLC's treatment as a partnership for federal income tax purposes, the losses of Evolent LLC pass through to the Company and the other members. The Company's proportionate share of the losses of Evolent LLC is recorded net of the estimated tax benefit the Company believes will be realized from the equity in loss of equity method investments on the consolidated statements of operations. Historically, the Company had provided a full valuation allowance against the deferred tax asset resulting from these benefits. In the three and six months ended June 30, 2016, tax benefits of $0.1 million and $0.3 million , respectively, were recorded for the tax effects of the current year losses received from Evolent LLC. The provision for income taxes from gains (losses) from equity method investments for the three months ended June 30, 2017 was $9.2 million , representing an effective tax rate of 34.2% . Tax expense of $9.8 million was recorded for the tax effect of the current period gain on sale of shares in Evolent LLC, offset by a $0.6 million tax benefit for the allocated share of losses from Evolent LLC and Evolent, Inc. The provision for income taxes from gains (losses) from equity method investments for the six months ended June 30, 2017 was $ 22.9 million , representing an effective tax rate of 36.8% . Tax expense of $24.6 million was recorded for the tax effect of the current period gain on sale of shares in Evolent LLC, offset by a $1.7 million tax benefit for the allocated share of losses from Evolent LLC and Evolent, Inc. The gains (losses) from equity method investments on the consolidated statement of operations for the combined Evolent entities consisted of the following (in thousands): Three Months Ended Six Months Ended 2017 2016 2017 2016 Dilution gain $ — $ — $ — $ 2,026 Gain on partial sale of investment 28,736 — 66,853 — Allocated share of losses (1,763 ) (511 ) (4,661 ) (2,732 ) Tax (expense) benefit (9,237 ) 100 (22,879 ) 261 Gains (losses) from equity method investments $ 17,736 $ (411 ) $ 39,313 $ (445 ) In connection with Evolent Inc.'s initial public offering and the related reorganization, the Company and certain investors in Evolent LLC entered into a tax receivables agreement with Evolent Inc. Under the terms of that agreement, Evolent Inc. will make cash payments to the Company and certain investors in amounts equal to 85% of Evolent Inc.'s actual tax benefit realized from various tax attributes related to activity before the initial public offering. Interest will be included on the tax savings at the applicable London interbank offered rate plus 100 basis points. The tax receivables agreement will generally apply to Evolent Inc.'s taxable years up to and including the 15 th anniversary date of the transaction. As of June 30, 2017 , the Company had not received any payments pursuant to the tax receivables agreement. As the amount the Company will receive pursuant to the tax receivables agreement is unknown, the Company will recognize payments, if any, associated with this agreement when such payments are received. The following is a summary of the financial position of Evolent LLC as of the dates presented (in thousands): As of June 30, 2017 December 31, 2016 Assets: Current assets $ 319,180 $ 154,555 Non-current assets 930,407 921,556 Total assets $ 1,249,587 $ 1,076,111 Liabilities and members’ equity: Current liabilities $ 224,432 $ 131,926 Non-current liabilities 130,960 24,654 Total liabilities 355,392 156,580 Members’ equity 894,195 919,531 Total liabilities and members’ equity $ 1,249,587 $ 1,076,111 The following is a summary of the operating results of Evolent LLC for the periods presented (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Revenue $ 107,071 $ 56,517 $ 213,309 $ 105,967 Cost of revenue (exclusive of depreciation and amortization) 67,993 32,779 135,521 61,390 Gross profit $ 39,078 $ 23,738 $ 77,788 $ 44,577 Net loss $ (20,298 ) $ (12,371 ) $ (43,016 ) $ (187,170 ) The following is a summary of the consolidated financial position of Evolent Inc. as of the dates presented (in thousands): As of June 30, 2017 December 31, 2016 Assets: Current assets $ 192,620 $ 264,966 Non-current assets 945,732 934,873 Total assets $ 1,138,352 $ 1,199,839 Liabilities and shareholders' equity: Current liabilities $ 101,760 $ 131,941 Non-current liabilities 142,143 155,784 Total liabilities 243,903 287,725 Total shareholders' equity attributable to Evolent Health, Inc. 859,769 702,526 Non-controlling interests 34,680 209,588 Total liabilities and shareholders’ equity $ 1,138,352 $ 1,199,839 The following is a summary of the consolidated operating results of Evolent Inc. for the periods presented (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Revenue $ 107,071 $ 56,518 $ 213,310 $ 105,967 Cost of revenue (exclusive of depreciation and amortization) 67,994 32,779 135,523 61,390 Gross profit $ 39,077 $ 23,739 $ 77,787 $ 44,577 Loss before income taxes and non-controlling interests $ (20,398 ) $ (12,370 ) $ (43,143 ) $ (187,169 ) Net loss $ (19,698 ) $ (11,999 ) $ (42,848 ) $ (185,810 ) Loss attributable to Evolent Health, Inc. $ (16,905 ) $ (8,387 ) $ (34,918 ) $ (131,127 ) Evolent LLC is in the early stages of its business plan and, as a result, the Company expects both Evolent Inc. and Evolent LLC to continue to incur losses. The Company’s investments are evaluated for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. As of June 30, 2017 , the Company believes that no impairment charge is necessary. For additional information on the fair value of the Company’s investment in the Evolent entities, see Note 3, “Fair value measurements.” |
Debt
Debt | 6 Months Ended |
Jun. 30, 2017 | |
Debt Disclosure [Abstract] | |
Debt | Debt The Company's credit facilities consist of (a) a five -year senior secured term loan facility in the principal amount of $475 million (“term facility”) and (b) a five -year senior secured revolving credit facility (“revolving credit facility”) under which up to $200 million principal amount of borrowings and other credit extensions may be outstanding at any time. Amounts drawn under the term facility and revolving credit facilities bear interest, payable quarterly, at an annual rate calculated, at the Company’s option, on the basis of either (a) an alternate base rate plus an initial margin of 1.25% or (b) the applicable London interbank offered rate ("LIBOR") plus an initial margin of 2.25% , subject in each case to margin reductions based on the Company’s total leverage ratio from time to time. As of June 30, 2017 , based on the Company's historical leverage ratio, the interest rate margin was 2.00% and the stated annual interest rate on outstanding borrowings was 3.23% . As of June 30, 2017 , there was $100.0 million outstanding under the revolving credit facility and $80.9 million available for future borrowings. As of June 30, 2017 , $19.1 million of standby letters of credit had been issued under the revolving credit facility. Long-term debt is summarized as follows (in thousands): As of June 30, 2017 3.23% term facility due fiscal 2020 ($403,125 face value less unamortized discount of $2,110) $ 401,015 Revolving credit facility 100,000 Less: Amounts due in next twelve months ($64,688 face value less unamortized discount of $924) (63,764 ) Total long-term debt $ 437,251 The credit agreement contains customary representations and warranties, events of default and financial and other covenants, including covenants that require the Company to maintain a maximum total leverage ratio and a minimum interest coverage ratio. The Company's compliance with the two financial covenants is measured as of the end of each fiscal quarter. The Company was in compliance with these financial covenants as of June 30, 2017 . Interest expense for the three months ended June 30, 2017 and 2016 was $4.7 million and $4.4 million , respectively, inclusive of $0.3 million and $0.3 million , respectively, of amortization of debt issuance costs, and $0.2 million and $0.6 million , respectively, of payments related to the interest rate swaps described below. Interest expense for the six months ended June 30, 2017 and 2016 was $9.2 million and $9.2 million , respectively, inclusive of $0.6 million and $0.6 million , respectively, of amortization of debt issuance costs, and $0.5 million and $1.2 million , respectively, of payments related to the interest rate swaps described below. Swap agreements Through its term facility, the Company is exposed to interest rate risk. In April 2015, to minimize the impact of changes in interest rates on its interest payments, the Company entered into three interest rate swap agreements with financial institutions to swap a portion of its variable-rate interest payments for fixed-rate interest payments. The interest rate swap derivative financial instruments are recorded on the consolidated balance sheets at fair value, which is based on observable market-based expectations of future interest rates. At hedge inception, the Company entered into interest rate swap arrangements with notional amounts totaling $287.5 million . The swap was structured to have a declining notional amount which matches the amortization schedule of the term facility. As of June 30, 2017 , the principal amount hedged was $251.6 million . The interest rate swap agreements mature in February 2020 and have periodic interest settlements, both consistent with the terms of the Company's term facility. Under this agreement, the Company is entitled to receive a floating rate based on the 1-month LIBOR and obligated to pay an average fixed rate of 1.282% on the outstanding notional amount. The Company has designated the interest rate swap as a cash flow hedge of the variability of interest payments under its term facility due to changes in the LIBOR benchmark interest rate. The difference between cash paid and received is recorded within interest expense on the consolidated statements of operations. As of June 30, 2017 and 2016 , the fair value of the interest rate swaps was an asset of $1.6 million and a liability of $4.8 million , respectively, and was recorded within prepaid expenses and other current assets and other long-term liabilities, respectively, on the Company's consolidated balance sheets. For the three months ended June 30, 2017 and 2016 , the change in fair value of the swaps, net of tax, was a decrease of $0.1 million and $0.4 million , respectively, and was reported as a component of accumulated other comprehensive income on the consolidated statement of operations. For the six months ended June 30, 2017 and 2016 , the change in fair value of the swaps, net of tax, was an increase of $0.4 million and a decrease of $2.9 million , respectively. For the three months and six months ended June 30, 2017 and 2016 , there was no material hedge ineffectiveness recorded within the consolidated statements of operations. Changes in fair value are reclassified from accumulated other comprehensive income into earnings in the same period in which the hedged item affects earnings. If, at any time, the swap is determined to be ineffective, in whole or in part, due to changes in the interest rate swap or underlying debt agreements, the fair value of the portion of the swap determined to be ineffective will be recognized as a gain or loss on the consolidated statements of operations for the applicable period. |
Stockholders' Equity
Stockholders' Equity | 6 Months Ended |
Jun. 30, 2017 | |
Equity [Abstract] | |
Stockholders' equity | Stockholders’ equity The Company is authorized to purchase up to $550 million of the Company's common stock in its cumulative share repurchase program. The Company did no t repurchase any shares of its common stock in the three and six months ended June 30, 2017 . The Company repurchased 803,217 and 1,740,247 shares of its common stock at a total cost of approximately $26.2 million and $53.6 million , respectively, in the three and six months ended June 30, 2016, respectively, pursuant to its share repurchase program. The total amount of common stock purchased from inception under the program through June 30, 2017 was 19,778,800 shares at a total cost of $513.5 million . All such repurchases have been made in the open market, and all repurchased shares have been retired as of June 30, 2017 . No minimum number of shares subject to repurchase has been fixed, and the share repurchase authorization has no expiration date. As of June 30, 2017 , the remaining authorized repurchase amount was $36.5 million . |
Stock-based Compensation
Stock-based Compensation | 6 Months Ended |
Jun. 30, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-based compensation | Stock-based compensation Stock incentive plans The Company issues awards, including stock options and restricted stock units ("RSUs"), under the Company's 2009 Stock Incentive Plan (the "2009 Plan"). On May 31, 2017, the Company's stockholders approved an amendment to the “2009 Plan” that increased the number of shares of common stock issuable under the plan by 1,000,000 shares. After giving effect to the amendment, the aggregate number of shares of the Company’s common stock available for issuance under the 2009 Plan may not e xceed 11,535,000 . As of June 30, 2017 , there were 2,358,472 shares available for issuance under the 2009 Plan. Performance-based RSU grant. On March 28, 2017, the Compensation Committee of the Board of Directors approved a grant of 106,870 RSUs under the 2009 Plan to certain executive officers of the Company. These awards are subject to performance conditions. Awards will vest based on the achievement of adjusted earnings per share targets during the performance periods, which extend through December 31, 2019, with all awards vesting if the highest performance levels are achieved. The Company has concluded that it is probable that all awards will vest at the highest level of performance. The awards are reflected in the table below. Royall inducement plan During the six months ended June 30, 2017, the first vesting tranche of the Royall Inducement awards vested in full. As of June 30, 2017 , the Company continues to expect that 70% to 99% of the remaining performance targets will be achieved based on performance of the Royall programs and services through December 31, 2017, which would result in an additional vesting of 10% of the performance-based stock options and 10% of the performance-based RSUs eligible to vest, subject to forfeitures. During the three months ended March 31, 2017, the Company determined it to be no longer probable that the January 2019 and January 2020 vesting tranches, representing 20% of the awards, would vest. As a result, $0.9 million in compensation expense related to these tranches was reversed in the six months ended June 30, 2017 . The amount of stock-based compensation expense may increase or decrease over time based upon changes in expectations regarding whether the applicable performance conditions will be met. The actual amount of expense that the Company will recognize is based upon Royall's actual results. The option and RSU award activity related to these awards is reflected in the tables and related disclosure below. Stock option activity During the six months ended June 30, 2017 and 2016 , participants exercised 288,911 and 237,158 options, respectively, for a total intrinsic value of $2.8 million and $3.5 million , respectively. Intrinsic value is calculated as the number of shares exercised times the Company’s stock price at exercise less the exercise price of the option. The following table summarizes the changes in common stock options outstanding under the Company’s stock incentive plans during the six months ended June 30, 2017 and 2016 : Number of performance-based options Weighted average exercise price Number of service-based options Weighted average exercise price Outstanding, as of December 31, 2015 2,013,325 $ 50.42 1,843,110 $ 41.73 Granted 319,900 28.20 1,005,756 28.31 Exercised — — (237,158 ) 15.29 Forfeited (215,370 ) 49.92 (22,195 ) 53.38 Expired — — (17,347 ) 51.77 Outstanding, as of June 30, 2016 2,117,855 $ 47.11 2,572,166 $ 38.75 Number of Weighted Number of Weighted Outstanding, as of December 31, 2016 2,117,855 $ 47.11 2,525,178 $ 39.28 Granted — — 200,324 46.95 Exercised (18,300 ) 49.92 (270,611 ) 35.79 Forfeited (115,044 ) 51.19 (135,320 ) 39.88 Expired — — — — Outstanding, as of June 30, 2017 1,984,511 $ 46.85 2,319,571 $ 40.31 Exercisable, as of June 30, 2017 492,092 $ 34.98 1,178,440 $ 43.86 The fair value of the service-based options granted during the six months ended June 30, 2017 was estimated at $16.80 per share on the date of grant valued using a Black-Scholes model utilizing the following weighted average assumptions: risk-free interest rate of 2.0% ; an expected term of approximately 5.0 years; expected volatility of 37.50% ; and dividend yield of 0.0% over the expected life of the option. During the six months ended June 30, 2017 , 483,520 options with market and/or performance-based conditions vested. No options with performance and/or market conditions vested during the six months ended June 30, 2016 . Restricted stock unit activity During the six months ended June 30, 2017 and 2016 , participants vested in 342,519 and 312,131 RSUs, respectively, for a total intrinsic value of $16.3 million and $10.2 million , respectively. Intrinsic value is calculated as the number of shares vested times the Company’s closing stock price on the NASDAQ Global Select Market at the vesting date. Of the RSUs vested in the six months ended June 30, 2017 and 2016 , 106,841 and 106,547 shares, respectively, were withheld to satisfy minimum employee tax withholding. The following table summarizes the changes in RSUs granted under the Company’s stock incentive plans during the six months ended June 30, 2017 and 2016 : Number of performance-based RSUs Weighted average grant date fair value Number of service-based RSUs Weighted average grant date fair value Non-vested, December 31, 2015 301,032 $ 39.10 839,613 $ 52.82 Granted 23,580 32.28 467,177 30.36 Forfeited (33,429 ) 50.77 (41,089 ) 47.73 Vested — — (312,131 ) 51.43 Non-vested, June 30, 2016 291,183 $ 37.21 953,570 $ 42.49 Number of Weighted average Number of Weighted average Non-vested, December 31, 2016 257,580 $ 35.34 968,084 $ 42.13 Granted 106,870 46.95 266,203 47.76 Forfeited (35,800 ) 51.52 (71,374 ) 44.85 Vested (14,570 ) 49.92 (327,949 ) 46.58 Non-vested, June 30, 2017 314,080 $ 36.77 834,964 $ 41.94 The Company recognized stock-based compensation expense in the following consolidated statements of operations line items for stock options and RSUs for the three and six months ended June 30, 2017 and 2016 (in thousands): Three Months Ended Six Months Ended 2017 2016 2017 2016 Stock-based compensation expense included in: Costs and expenses: Cost of services $ 1,829 $ 2,493 $ 3,087 $ 4,680 Member relations and marketing 1,134 1,387 2,280 2,501 General and administrative 2,651 4,085 5,958 7,766 Total costs and expenses $ 5,614 $ 7,965 $ 11,325 $ 14,947 There are no stock-based compensation costs capitalized as part of the cost of an asset. As of June 30, 2017 , $49.2 million of total unrecognized compensation cost related to outstanding options and non-vested RSUs was expected to be recognized over a weighted average period of 2.5 years. |
Income Taxes
Income Taxes | 6 Months Ended |
Jun. 30, 2017 | |
Income Tax Disclosure [Abstract] | |
Income taxes | Income taxes The Company's effective tax rates were 47.3% and 38.1% for the three months ended June 30, 2017 and 2016 , respectively, and 40.9% and 36.6% for the six months ended June 30, 2017 and 2016 , respectively. The increase in the 2017 period tax rates was primarily due to the Company’s tax loss position as compared to income positions in the comparative periods of 2016. The Company uses a more-likely-than-not recognition threshold based on the technical merits of the tax position taken for the financial statement recognition and measurement of a tax position. If a tax position does not meet the more-likely-than-not initial recognition threshold, no benefit is recorded in the financial statements. The Company does not expect that the total amounts of unrecognized tax benefits will significantly change within the next 12 months. The Company classifies interest and penalties on any unrecognized tax benefits as a component of the provision for income taxes. The Company recognized an immaterial amount of interest in the consolidated statements of operations in the three and six months ended June 30, 2017 and 2016 , respectively. The Company files income tax returns in U.S. federal and state and foreign jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal, state, and local tax examinations for filings in major tax jurisdictions before 2014. |
Earnings Per Share
Earnings Per Share | 6 Months Ended |
Jun. 30, 2017 | |
Earnings Per Share [Abstract] | |
Earnings per share | Earnings per share Basic earnings per share is computed by dividing net income by the number of weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the number of weighted average common shares and potentially dilutive common shares outstanding during the period. The number of potential common shares outstanding is determined in accordance with the treasury stock method. Certain potential common share equivalents were not included in the computation because their effect was anti-dilutive. A reconciliation of basic to diluted weighted average common shares outstanding is as follows (in thousands): Three Months Ended Six Months Ended 2017 2016 2017 2016 Basic weighted average common shares outstanding 40,586 40,365 40,421 40,928 Effect of dilutive outstanding stock-based awards 874 205 831 294 Diluted weighted average common shares outstanding 41,460 40,570 41,252 41,222 In the three months ended June 30, 2017 and 2016 , 0.9 million and 2.8 million shares, respectively, related to share-based compensation awards have been excluded from the calculation of the effect of dilutive outstanding stock-based awards shown above because their effect was anti-dilutive. In the six months ended June 30, 2017 and 2016 , 1.3 million and 2.6 million shares, respectively, related to share-based compensation awards have been excluded from the calculation of the effect of dilutive outstanding stock-based awards shown above because their effect was anti-dilutive. As of June 30, 2017 , the Company had 1.5 million nonqualified stock options and 0.3 million RSUs that contained either performance or market conditions, or both, and therefore were treated as contingently issuable awards. As of June 30, 2016 , the Company had 2.1 million nonqualified stock options and 0.3 million RSUs that contained either performance or market conditions and were treated as contingently issuable awards. These awards are excluded from diluted earnings per share until the reporting period in which the necessary conditions are achieved. To the extent all necessary conditions have not yet been satisfied, the number of contingently issuable shares included in diluted earnings per share will be based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period. A total of 146,525 and 128,336 incremental shares related to contingently issuable awards were included within the diluted earnings per share calculations for the three and six months ended June 30, 2017 , respectively, as the related performance goals were met as of the balance sheet date. A total of 19,971 contingently issuable shares were included within the diluted earnings per share calculations for the three and six months ended June 30, 2016 as the related performance goals were met as of June 30, 2016 . |
Supplemental Cash Flow
Supplemental Cash Flow | 6 Months Ended |
Jun. 30, 2017 | |
Supplemental Cash Flow Elements [Abstract] | |
Supplemental cash flow | Supplemental cash flow A summary of supplemental cash flow information for the three and six months ended June 30, 2017 and 2016 is presented below (in thousands): Six Months Ended 2017 2016 Cash paid (received) for: Income taxes $ 5,648 $ 2,841 Interest $ 7,629 $ 7,097 Non-cash activities: Increase in estimated cost of construction of a building under a build-to-suit lease $ 34,598 $ 12,354 |
Related Parties
Related Parties | 6 Months Ended |
Jun. 30, 2017 | |
Related Party Transactions [Abstract] | |
Related parties | Related parties In June 2009, the Company invested in the convertible preferred stock of a private company that provides technology tools and support services to health care providers, including the Company’s members, and entered into a reseller licensing agreement with that company. As disclosed in Note 2, "Summary of significant accounting policies" of the Company's consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2016 , the private company is considered to be a related party. The Company made payments to the private company under the reseller agreement of $ 1.1 million and $ 1.0 million for the three months ended June 30, 2017 and 2016 , respectively, and $2.6 million and $2.2 million for the six months ended June 30, 2017 and 2016 , respectively. The payments are included in cost of services on the consolidated statements of operations. |
Costs of Exit or Disposal
Costs of Exit or Disposal | 6 Months Ended |
Jun. 30, 2017 | |
Restructuring and Related Activities [Abstract] | |
Costs of Exit or Disposal | Costs of exit or disposal In January 2017, the Company announced a restructuring plan. In connection with the plan, the Company is reducing its workforce as a part of a broader effort to more closely align operating expenses with its long-term strategic initiatives. Additionally, the Company closed four offices and is completing a gradual wind-down process, to be completed by the end of the year ending December 31, 2017, for several products. As a result of the restructuring plan, the Company incurred one-time severance and other employee benefit costs of $2.8 million and $7.7 million during the three and six months ended June 30, 2017 , respectively. For the three and six months ended June 30, 2017 , the Company recorded $0.8 million and $0.8 million , respectively, of these amounts in cost of services, $0.1 million and $0.1 million , respectively, of these amounts in member relations and marketing expense, respectively, and $1.9 million and $6.8 million , respectively, of these amounts in general and administrative expense on the consolidated statements of operations. The Company expects to recognize approximately $2.6 million of additional one-time severance and other employee benefit costs through the remainder of the year ending December 31, 2017. Lease exit costs of $3.2 million were incurred during both the three and six months ended June 30, 2017 , respectively. Lease exit costs of up to $2.0 million are expected to be recognized during the remainder of the year ended December 31, 2017. The Company does not have any material accruals recorded on the consolidated balance sheet as of June 30, 2017 related to the restructuring plan. No exit or disposal costs were incurred in the three and six months ended June 30, 2016 . |
Subsequent Events
Subsequent Events | 6 Months Ended |
Jun. 30, 2017 | |
Subsequent Events [Abstract] | |
Subsequent events | Subsequent events On August 3, 2017, a purported class-action lawsuit was filed in the U.S. District Court for Southern District of New York naming as defendants the Company and two of its executive officers, one of whom is a director. In the complaint, the plaintiff alleges that the Company’s public statements about its business and operations between January 21, 2015 and February 23, 2016 contained material misstatements and omissions in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder which artificially inflated the Company’s stock price. In addition to compensatory damages in an unspecified amount and attorneys’ fees, the action seeks such relief as the district court deems just and proper. The Company intends to vigorously defend this action. The Company has not established reserves or ranges of possible loss related to this legal matter because, as of the date of this report, the matter does not relate to a probable loss and the amount or range of loss is not reasonably estimable. On August 7, 2017, Evolent Inc. announced a public offering of $175.0 million of its Class A common stock. If and when that transaction is consummated, the Company’s ownership percentage in Evolent Inc. and Evolent LLC will decrease. The Company is currently evaluating the effect that this dilution will have on its investment and will finalize its accounting for this transaction if and when it is consummated. |
Recent Accounting Pronounceme23
Recent Accounting Pronouncements (Policies) | 6 Months Ended |
Jun. 30, 2017 | |
Accounting Changes and Error Corrections [Abstract] | |
Consolidation | The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The Company uses the equity method to account for equity investments in instances in which it owns common stock and has the ability to exercise significant influence, but not control, over the investee and for all investments in partnerships or limited liability companies where the investee maintains separate capital accounts for each investor. All significant intercompany transactions and balances have been eliminated. |
Basis of Accounting | The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. |
Reclassification | Certain items in the prior period financial statements have been reclassified for comparative purposes to conform to the current period presentation. |
Recent Accounting Pronouncements | Recent accounting pronouncements Recently adopted In March 2016, the Financial Accounting Standards Board ("FASB") issued accounting guidance relating to stock-based compensation. The guidance simplifies various aspects of the accounting for share-based payments. The amendments impact net income, earnings per share, and the statement of cash flows. The guidance is effective for annual reporting and interim periods beginning after December 15, 2016, with early adoption permitted. The Company adopted this standard as of January 1, 2017 using a modified retrospective approach, which requires the cumulative effect of initially applying the standard to be recorded as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application. In connection with the adoption of this guidance, the Company elected to no longer calculate an estimate of expected forfeitures and began recognizing forfeitures as they occurred, which resulted in a cumulative-effect net decrease of $0.7 million to retained earnings with an offset of $1.2 million to additional paid-in capital and an increase of $0.5 million in deferred tax assets. Upon adoption, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the consolidated statements of operations. In addition, excess tax benefits are no longer presented within cash flows from financing activities but instead are presented in cash flows from operating activities in the consolidated statements of cash flows. Prior to adoption, the excess tax benefits and tax deficiencies were recorded to additional paid-in capital and excess tax benefits were not recorded until they were able to be utilized. Recently issued In May 2014, the FASB issued accounting guidance related to revenue recognition. The new standard supersedes most of the existing revenue recognition guidance under GAAP, and requires revenue to be recognized when goods or services are transferred to a customer in an amount that reflects the consideration a company expects to receive. The new standard may require more judgment and estimates relating to the recognition of revenue, which could result in additional disclosures to the financial statements. The new standard will be effective for annual and interim reporting periods beginning after December 15, 2017, with an option that permits companies to adopt the standard as early as the original effective date of December 31, 2016. Early application prior to the original effective date is not permitted. The Company will adopt the standard on January 1, 2018 using the modified retrospective approach. While the potential impacts of the new standard are still being assessed, the Company currently believes the new standard will affect the Company's accounting for contract acquisition costs and arrangements that include variable consideration. The Company is currently evaluating the effect that the standard will have on its remaining revenue. The Company continues to update its assessment of the impact of the standard and related updates to the consolidated financial statements, and will disclose material impacts when known. In January 2016, the FASB issued accounting guidance related to the recognition and measurement of financial assets and liabilities. The guidance requires, among other things, that entities measure equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) at fair value, with changes in fair value recognized in net income. Under the new guidance, entities will no longer be able to recognize unrealized holding gains and losses on available-for-sale equity securities in other comprehensive income, and will no longer be able to use the cost method of accounting for equity securities that do not have readily determinable fair values. The guidance for classifying and measuring investments in debt securities and loans is not affected. The guidance eliminates certain disclosure requirements related to financial instruments measured at amortized cost and adds disclosures related to the measurement categories of financial assets and financial liabilities. The guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted only for certain portions of the guidance. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements. In February 2016, the FASB issued accounting guidance related to leases. The guidance requires that lessees recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than twelve months. The new guidance also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The guidance is effective for annual reporting and interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. In August 2016, the FASB issued accounting guidance relating to the statement of cash flows. The guidance clarifies how certain cash receipts and cash payments are presented in the statement of cash flows. The guidance is effective for annual reporting and interim periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. In January 2017, the FASB issued accounting guidance which clarifies the definition of a business in order to assist entities in evaluating whether transactions should be accounted for as acquisitions (or dispositions) of assets or businesses. The guidance is effective for annual reporting and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. In January 2017, the FASB issued accounting guidance simplifying the test of goodwill impairment. The guidance eliminates Step 2 of the goodwill impairment test, which calculates the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will be required to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e. Step 1). The guidance is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements. In February 2017, the FASB issued accounting guidance related to gains and losses from the derecognition of nonfinancial assets which clarifies the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements. In May 2017, the FASB issued accounting guidance related to changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in Topic 718. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements. |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements of Financial Assets and Liabilities on Recurring Basis | The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the related classifications are as follows (in thousands): (in thousands) Fair value as of June 30, Fair value measurement as of June 30, 2017 2017 Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents (1) $ 144,033 $ 144,033 $ — $ — Interest rate swaps (2) 1,589 — 1,589 — Financial liabilities Contingent earn-out liabilities (3) 1,235 — — 1,235 Fair value as of December 31, Fair value measurement as of December 31, 2016 using fair value hierarchy 2016 Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents (1) $ 91,151 $ 91,151 $ — $ — Interest rate swaps (2) 1,044 — 1,044 — Financial liabilities Contingent earn-out liabilities (3) 1,164 — — 1,164 ————————————— (1) Fair value is based on quoted market prices. (2) Fair value is determined using market standard models with observable inputs. (3) This fair value measurement is based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value using the income approach. In developing these estimates, the Company considered certain performance projections, historical results, and general macroeconomic environment and industry trends. |
Reconciliation of Change in Contingent Earn-out Liabilities | The following table represents a reconciliation of the change in the contingent earn-out liabilities for the three and six months ended June 30, 2017 and 2016 (in thousands): Three Months Ended Six Months Ended 2017 2016 2017 2016 Beginning balance $ 1,185 $ 1,505 $ 1,164 $ 7,250 Addition due to acquisition — — — 357 Fair value change in Clinovations contingent earn-out liability (1) 36 1,750 275 680 Fair value change in other contingent earn-out liabilities (1) 14 25 178 25 Southwind earn-out payments — — — (1,032 ) Other earn-out payments — — (382 ) — GradesFirst earn-out payments — — — (4,000 ) Ending balance $ 1,235 $ 3,280 $ 1,235 $ 3,280 ————————————— (1) Amounts were recognized in cost of services on the consolidated statements of operations. |
Property and Equipment (Tables)
Property and Equipment (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment | Property and equipment consists of the following (in thousands): As of June 30, 2017 December 31, 2016 Leasehold improvements $ 69,709 $ 69,465 Furniture, fixtures, and equipment 70,463 70,362 Software 244,839 231,952 Property and equipment, gross 385,011 371,779 Accumulated depreciation and amortization (229,991 ) (200,498 ) Property and equipment, net $ 155,020 $ 171,281 |
Goodwill and Intangibles (Table
Goodwill and Intangibles (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Goodwill | The following illustrates the change in the goodwill balance for the six months ended June 30, 2017 (in thousands): Balance as of December 31, 2016 $ 739,507 Acquisitions — Adjustment related to Royall acquisition (1) (2,484 ) Balance as of June 30, 2017 $ 737,023 ————————————— (1) Represents an immaterial adjustment to the blended state tax rate used in the purchase price allocation resulting in a reduction to deferred tax liabilities and a reduction of goodwill. |
Gross and Net Carrying Balances and Accumulated Amortization of Intangibles | The gross and net carrying balances and accumulated amortization of intangibles are as follows (in thousands): As of June 30, 2017 As of December 31, 2016 Weighted average useful life Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount Intangibles Internally developed software for sale: Capitalized software 5.0 $ 21,318 $ (11,735 ) $ 9,583 $ 20,034 $ (9,998 ) $ 10,036 Acquired intangibles: Developed software 5.2 9,450 (8,825 ) 625 9,450 (8,575 ) 875 Customer relationships 16.2 277,710 (51,628 ) 226,082 277,710 (42,978 ) 234,732 Trademarks 8.6 14,900 (6,507 ) 8,393 14,900 (5,923 ) 8,977 Customer contracts 4.7 6,449 (6,225 ) 224 6,449 (6,016 ) 433 Total intangibles $ 329,827 $ (84,920 ) $ 244,907 $ 328,543 $ (73,490 ) $ 255,053 |
Equity Method Investments (Tabl
Equity Method Investments (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Schedule of Investments [Line Items] | |
Schedule of Gains (Losses) from Equity Method Investments | The gains (losses) from equity method investments on the consolidated statement of operations for the combined Evolent entities consisted of the following (in thousands): Three Months Ended Six Months Ended 2017 2016 2017 2016 Dilution gain $ — $ — $ — $ 2,026 Gain on partial sale of investment 28,736 — 66,853 — Allocated share of losses (1,763 ) (511 ) (4,661 ) (2,732 ) Tax (expense) benefit (9,237 ) 100 (22,879 ) 261 Gains (losses) from equity method investments $ 17,736 $ (411 ) $ 39,313 $ (445 ) |
Evolent LLC | |
Schedule of Investments [Line Items] | |
Schedule of Consolidated Financial Position of Equity Method Investments | The following is a summary of the financial position of Evolent LLC as of the dates presented (in thousands): As of June 30, 2017 December 31, 2016 Assets: Current assets $ 319,180 $ 154,555 Non-current assets 930,407 921,556 Total assets $ 1,249,587 $ 1,076,111 Liabilities and members’ equity: Current liabilities $ 224,432 $ 131,926 Non-current liabilities 130,960 24,654 Total liabilities 355,392 156,580 Members’ equity 894,195 919,531 Total liabilities and members’ equity $ 1,249,587 $ 1,076,111 |
Equity Method Investments Operating Results | The following is a summary of the operating results of Evolent LLC for the periods presented (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Revenue $ 107,071 $ 56,517 $ 213,309 $ 105,967 Cost of revenue (exclusive of depreciation and amortization) 67,993 32,779 135,521 61,390 Gross profit $ 39,078 $ 23,738 $ 77,788 $ 44,577 Net loss $ (20,298 ) $ (12,371 ) $ (43,016 ) $ (187,170 ) |
Evolent Health Inc | |
Schedule of Investments [Line Items] | |
Schedule of Consolidated Financial Position of Equity Method Investments | The following is a summary of the consolidated financial position of Evolent Inc. as of the dates presented (in thousands): As of June 30, 2017 December 31, 2016 Assets: Current assets $ 192,620 $ 264,966 Non-current assets 945,732 934,873 Total assets $ 1,138,352 $ 1,199,839 Liabilities and shareholders' equity: Current liabilities $ 101,760 $ 131,941 Non-current liabilities 142,143 155,784 Total liabilities 243,903 287,725 Total shareholders' equity attributable to Evolent Health, Inc. 859,769 702,526 Non-controlling interests 34,680 209,588 Total liabilities and shareholders’ equity $ 1,138,352 $ 1,199,839 |
Equity Method Investments Operating Results | The following is a summary of the consolidated operating results of Evolent Inc. for the periods presented (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Revenue $ 107,071 $ 56,518 $ 213,310 $ 105,967 Cost of revenue (exclusive of depreciation and amortization) 67,994 32,779 135,523 61,390 Gross profit $ 39,077 $ 23,739 $ 77,787 $ 44,577 Loss before income taxes and non-controlling interests $ (20,398 ) $ (12,370 ) $ (43,143 ) $ (187,169 ) Net loss $ (19,698 ) $ (11,999 ) $ (42,848 ) $ (185,810 ) Loss attributable to Evolent Health, Inc. $ (16,905 ) $ (8,387 ) $ (34,918 ) $ (131,127 ) |
Debt (Tables)
Debt (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Debt Disclosure [Abstract] | |
Schedule of Long-term Debt Instruments | Long-term debt is summarized as follows (in thousands): As of June 30, 2017 3.23% term facility due fiscal 2020 ($403,125 face value less unamortized discount of $2,110) $ 401,015 Revolving credit facility 100,000 Less: Amounts due in next twelve months ($64,688 face value less unamortized discount of $924) (63,764 ) Total long-term debt $ 437,251 |
Stock-based Compensation (Table
Stock-based Compensation (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Summary of Changes in Common Stock Options | The following table summarizes the changes in common stock options outstanding under the Company’s stock incentive plans during the six months ended June 30, 2017 and 2016 : Number of performance-based options Weighted average exercise price Number of service-based options Weighted average exercise price Outstanding, as of December 31, 2015 2,013,325 $ 50.42 1,843,110 $ 41.73 Granted 319,900 28.20 1,005,756 28.31 Exercised — — (237,158 ) 15.29 Forfeited (215,370 ) 49.92 (22,195 ) 53.38 Expired — — (17,347 ) 51.77 Outstanding, as of June 30, 2016 2,117,855 $ 47.11 2,572,166 $ 38.75 Number of Weighted Number of Weighted Outstanding, as of December 31, 2016 2,117,855 $ 47.11 2,525,178 $ 39.28 Granted — — 200,324 46.95 Exercised (18,300 ) 49.92 (270,611 ) 35.79 Forfeited (115,044 ) 51.19 (135,320 ) 39.88 Expired — — — — Outstanding, as of June 30, 2017 1,984,511 $ 46.85 2,319,571 $ 40.31 Exercisable, as of June 30, 2017 492,092 $ 34.98 1,178,440 $ 43.86 |
Summary of Changes in RSUs | ding. The following table summarizes the changes in RSUs granted under the Company’s stock incentive plans during the six months ended June 30, 2017 and 2016 : Number of performance-based RSUs Weighted average grant date fair value Number of service-based RSUs Weighted average grant date fair value Non-vested, December 31, 2015 301,032 $ 39.10 839,613 $ 52.82 Granted 23,580 32.28 467,177 30.36 Forfeited (33,429 ) 50.77 (41,089 ) 47.73 Vested — — (312,131 ) 51.43 Non-vested, June 30, 2016 291,183 $ 37.21 953,570 $ 42.49 Number of Weighted average Number of Weighted average Non-vested, December 31, 2016 257,580 $ 35.34 968,084 $ 42.13 Granted 106,870 46.95 266,203 47.76 Forfeited (35,800 ) 51.52 (71,374 ) 44.85 Vested (14,570 ) 49.92 (327,949 ) 46.58 Non-vested, June 30, 2017 314,080 $ 36.77 834,964 $ 41.94 |
Summary of Stock-based Compensation Expense | The Company recognized stock-based compensation expense in the following consolidated statements of operations line items for stock options and RSUs for the three and six months ended June 30, 2017 and 2016 (in thousands): Three Months Ended Six Months Ended 2017 2016 2017 2016 Stock-based compensation expense included in: Costs and expenses: Cost of services $ 1,829 $ 2,493 $ 3,087 $ 4,680 Member relations and marketing 1,134 1,387 2,280 2,501 General and administrative 2,651 4,085 5,958 7,766 Total costs and expenses $ 5,614 $ 7,965 $ 11,325 $ 14,947 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Earnings Per Share [Abstract] | |
Reconciliation of Basic to Diluted Weighted Average Common Shares Outstanding | A reconciliation of basic to diluted weighted average common shares outstanding is as follows (in thousands): Three Months Ended Six Months Ended 2017 2016 2017 2016 Basic weighted average common shares outstanding 40,586 40,365 40,421 40,928 Effect of dilutive outstanding stock-based awards 874 205 831 294 Diluted weighted average common shares outstanding 41,460 40,570 41,252 41,222 |
Supplemental Cash Flow (Tables)
Supplemental Cash Flow (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Supplemental Cash Flow Elements [Abstract] | |
Schedule of Cash Flow, Supplemental Disclosures | A summary of supplemental cash flow information for the three and six months ended June 30, 2017 and 2016 is presented below (in thousands): Six Months Ended 2017 2016 Cash paid (received) for: Income taxes $ 5,648 $ 2,841 Interest $ 7,629 $ 7,097 Non-cash activities: Increase in estimated cost of construction of a building under a build-to-suit lease $ 34,598 $ 12,354 |
Recent Accounting Pronounceme32
Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands | Jun. 30, 2017 | Jan. 01, 2017 | Dec. 31, 2016 |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Decrease to retained earnings | $ 232,563 | $ 266,218 | |
Increase to additional paid-in capital | $ 797,328 | $ 782,399 | |
Accounting Standards Update 2016-09 | Adjustments | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Decrease to retained earnings | $ 700 | ||
Increase to additional paid-in capital | 1,200 | ||
Increase to deferred tax assets | $ 500 |
Fair Value Measurements - Addit
Fair Value Measurements - Additional Information (Details) - USD ($) | 6 Months Ended | |||
Jun. 30, 2017 | Jun. 30, 2016 | Dec. 31, 2014 | Nov. 30, 2014 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Fair value adjustments | $ 0 | $ 0 | ||
Reported Value Measurement | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Variable rate debt instruments | 507,600,000 | |||
Evolent LLC | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Equity method investments, fair vale | 149,600,000 | |||
Southwind | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Final earn-out payment | 1,000,000 | |||
Clinovations LLC | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Fair value of estimated additional contingent payments | $ 900,000 | $ 4,500,000 | ||
Equity interest issued (shares) | 62,269 | |||
Maximum payment to acquire business | 9,500,000 | |||
Minimum payment to acquire business | $ 0 | |||
GradesFirst | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Fair value of estimated additional contingent payments | $ 3,600,000 | |||
Contingent payments in satisfaction of remaining obligations | $ 4,000,000 |
Fair Value Measurements - Fair
Fair Value Measurements - Fair Value Measurements of Financial Assets and Liabilities on Recurring Basis (Details) - Recurring - USD ($) $ in Thousands | Jun. 30, 2017 | Dec. 31, 2016 | |
Financial assets | |||
Cash and cash equivalents | [1] | $ 144,033 | $ 91,151 |
Financial liabilities | |||
Contingent earn-out liabilities | [2] | 1,235 | 1,164 |
Interest Rate Swap | |||
Financial assets | |||
Interest rate swaps | [3] | 1,589 | 1,044 |
Level 1 | |||
Financial assets | |||
Cash and cash equivalents | 144,033 | 91,151 | |
Financial liabilities | |||
Contingent earn-out liabilities | [2] | 0 | 0 |
Level 1 | Interest Rate Swap | |||
Financial assets | |||
Interest rate swaps | [3] | 0 | 0 |
Level 2 | |||
Financial assets | |||
Cash and cash equivalents | [1] | 0 | 0 |
Financial liabilities | |||
Contingent earn-out liabilities | [2] | 0 | 0 |
Level 2 | Interest Rate Swap | |||
Financial assets | |||
Interest rate swaps | [3] | 1,589 | 1,044 |
Level 3 | |||
Financial assets | |||
Cash and cash equivalents | [1] | 0 | 0 |
Financial liabilities | |||
Contingent earn-out liabilities | [2] | 1,235 | 1,164 |
Level 3 | Interest Rate Swap | |||
Financial assets | |||
Interest rate swaps | [3] | $ 0 | $ 0 |
[1] | Fair value is based on quoted market prices. | ||
[2] | This fair value measurement is based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value using the income approach. In developing these estimates, the Company considered certain performance projections, historical results, and general macroeconomic environment and industry trends. | ||
[3] | Fair value is determined using market standard models with observable inputs. |
Fair Value Measurements - Recon
Fair Value Measurements - Reconciliation of Change in Contingent Earn-out Liabilities (Details) - Contingent Earn-Out Liabilities - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | ||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||||
Beginning balance | $ 1,185 | $ 1,505 | $ 1,164 | $ 7,250 | |
Addition due to acquisition | 0 | 0 | 0 | 357 | |
Earn-out payments | 0 | 0 | (382) | 0 | |
Ending balance | 1,235 | 3,280 | 1,235 | 3,280 | |
Clinovations LLC | |||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||||
Adjustment made to the fair value of contingent liability | [1] | 36 | 1,750 | 275 | 680 |
Other Contingent Earn-Out Liabilities | |||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||||
Adjustment made to the fair value of contingent liability | [1] | 14 | 25 | 178 | 25 |
Southwind | |||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||||
Earn-out payments | 0 | 0 | 0 | (1,032) | |
GradesFirst | |||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||||
Earn-out payments | $ 0 | $ 0 | $ 0 | $ (4,000) | |
[1] | Amounts were recognized in cost of services on the consolidated statements of operations. |
Property and Equipment - Additi
Property and Equipment - Additional Information (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2015 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | Dec. 31, 2016 | |
Property, Plant and Equipment [Line Items] | ||||||
Depreciation and amortization | $ 21,645,000 | $ 18,917,000 | $ 43,979,000 | $ 38,684,000 | ||
Capitalized leases included in property and equipment | 0 | 0 | ||||
Property and equipment, net | 155,020,000 | 155,020,000 | $ 171,281,000 | |||
Construction in progress, subject to a build-to-suit lease | 97,966,000 | 97,966,000 | 63,368,000 | |||
Financing obligation | 97,966,000 | 97,966,000 | 63,368,000 | |||
Build-to-Suit Lease Obligation | ||||||
Property, Plant and Equipment [Line Items] | ||||||
Operating leases, term of contract (in years) | 16 years | |||||
Rent expense | $ 446,100,000 | |||||
Construction in progress, subject to a build-to-suit lease | 98,000,000 | 98,000,000 | ||||
Financing obligation | 98,000,000 | $ 98,000,000 | ||||
Restructuring Plan | ||||||
Property, Plant and Equipment [Line Items] | ||||||
Loss on disposal of property and equipment | 700,000 | |||||
Software Development | ||||||
Property, Plant and Equipment [Line Items] | ||||||
Estimated useful lives of property and equipment (years) | 5 years | |||||
Acquired Developed Technology | ||||||
Property, Plant and Equipment [Line Items] | ||||||
Estimated useful lives of property and equipment (years) | 8 years | |||||
Depreciation and amortization | 2,600,000 | 2,300,000 | $ 4,700,000 | 4,600,000 | ||
Furniture, Fixtures and Equipment | Minimum | ||||||
Property, Plant and Equipment [Line Items] | ||||||
Estimated useful lives of property and equipment (years) | 3 years | |||||
Furniture, Fixtures and Equipment | Maximum | ||||||
Property, Plant and Equipment [Line Items] | ||||||
Estimated useful lives of property and equipment (years) | 7 years | |||||
Plant, Property and Equipment | ||||||
Property, Plant and Equipment [Line Items] | ||||||
Depreciation and amortization | 5,100,000 | 5,400,000 | $ 10,900,000 | 10,800,000 | ||
Internally Developed Software | ||||||
Property, Plant and Equipment [Line Items] | ||||||
Estimated useful lives of property and equipment (years) | 5 years | |||||
Depreciation and amortization | 7,000,000 | $ 5,500,000 | $ 13,800,000 | $ 11,900,000 | ||
Property and equipment, net | $ 74,100,000 | $ 74,100,000 | $ 75,200,000 |
Property and Equipment - Schedu
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) $ in Thousands | Jun. 30, 2017 | Dec. 31, 2016 |
Property, Plant and Equipment [Abstract] | ||
Leasehold improvements | $ 69,709 | $ 69,465 |
Furniture, fixtures, and equipment | 70,463 | 70,362 |
Software | 244,839 | 231,952 |
Property and equipment, gross | 385,011 | 371,779 |
Accumulated depreciation and amortization | (229,991) | (200,498) |
Property and equipment, net | $ 155,020 | $ 171,281 |
Goodwill and Intangibles - Addi
Goodwill and Intangibles - Additional Information (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Goodwill And Intangible Assets [Line Items] | ||||
Impairment of goodwill | $ 0 | $ 0 | ||
Estimated useful lives of intangible assets | 3 years | |||
Estimated average remaining useful lives (years) | 12 years 11 months | |||
Amortization expense for intangible assets | $ 5,700,000 | $ 5,700,000 | $ 11,400,000 | $ 11,400,000 |
Future amortization expense remainder of fiscal year ending 2017 | 11,300,000 | 11,300,000 | ||
Future amortization expense to be recorded in 2018 | 21,800,000 | 21,800,000 | ||
Future amortization expense to be recorded in 2019 | 20,200,000 | 20,200,000 | ||
Future amortization expense to be recorded in 2020 | 18,900,000 | 18,900,000 | ||
Future amortization expense to be recorded in 2021 | 17,900,000 | 17,900,000 | ||
Future amortization expense to be recorded thereafter | $ 154,800,000 | $ 154,800,000 | ||
Minimum | ||||
Goodwill And Intangible Assets [Line Items] | ||||
Estimated useful lives of intangible assets | 2 years | |||
Maximum | ||||
Goodwill And Intangible Assets [Line Items] | ||||
Estimated useful lives of intangible assets | 17 years |
Goodwill and Intangibles - Chan
Goodwill and Intangibles - Changes in Carrying Amount of Goodwill (Details) $ in Thousands | 6 Months Ended | |
Jun. 30, 2017USD ($) | ||
Goodwill [Roll Forward] | ||
Balance as of December 31, 2016 | $ 739,507 | |
Acquisitions | 0 | |
Adjustment related to Royall acquisition | (2,484) | [1] |
Balance as of June 30, 2017 | $ 737,023 | |
[1] | Represents an immaterial adjustment to the blended state tax rate used in the purchase price allocation resulting in a reduction to deferred tax liabilities and a reduction of goodwill. |
Goodwill and Intangibles - Gros
Goodwill and Intangibles - Gross and Net Carrying Balances and Accumulated Amortization of Intangibles (Details) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2017 | Dec. 31, 2016 | |
Finite-Lived Intangible Assets [Line Items] | ||
Weighted average useful life | 3 years | |
Gross carrying amount | $ 329,827 | $ 328,543 |
Accumulated amortization | (84,920) | (73,490) |
Net carrying amount | $ 244,907 | 255,053 |
Internally developed software for sale | ||
Finite-Lived Intangible Assets [Line Items] | ||
Weighted average useful life | 5 years | |
Gross carrying amount | $ 21,318 | 20,034 |
Accumulated amortization | (11,735) | (9,998) |
Net carrying amount | $ 9,583 | 10,036 |
Developed software | ||
Finite-Lived Intangible Assets [Line Items] | ||
Weighted average useful life | 5 years 2 months | |
Gross carrying amount | $ 9,450 | 9,450 |
Accumulated amortization | (8,825) | (8,575) |
Net carrying amount | $ 625 | 875 |
Customer relationships | ||
Finite-Lived Intangible Assets [Line Items] | ||
Weighted average useful life | 16 years 2 months | |
Gross carrying amount | $ 277,710 | 277,710 |
Accumulated amortization | (51,628) | (42,978) |
Net carrying amount | $ 226,082 | 234,732 |
Trademarks | ||
Finite-Lived Intangible Assets [Line Items] | ||
Weighted average useful life | 8 years 7 months | |
Gross carrying amount | $ 14,900 | 14,900 |
Accumulated amortization | (6,507) | (5,923) |
Net carrying amount | $ 8,393 | 8,977 |
Customer contracts | ||
Finite-Lived Intangible Assets [Line Items] | ||
Weighted average useful life | 4 years 8 months | |
Gross carrying amount | $ 6,449 | 6,449 |
Accumulated amortization | (6,225) | (6,016) |
Net carrying amount | $ 224 | $ 433 |
Equity Method Investments - Add
Equity Method Investments - Additional Information (Details) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2017USD ($)people | Jun. 30, 2016USD ($) | Jun. 30, 2017USD ($)people | Jun. 30, 2016USD ($) | Dec. 31, 2016USD ($) | |
Schedule of Equity Method Investments [Line Items] | |||||
Proportionate shares of losses from equity method investments | $ (2,999,000) | $ (445,000) | |||
Equity method investments | $ 10,180,000 | 10,180,000 | $ 19,858,000 | ||
Cash received from partial sale of equity method investment | 71,871,000 | 0 | |||
Gain on partial sale of investment | 42,312,000 | 0 | |||
Tax benefits | $ 2,681,000 | $ (4,870,000) | $ 3,405,000 | (10,533,000) | |
Tax receivable percentage | 85.00% | 85.00% | |||
LIBOR | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Basis spread on variable rate interest on tax savings percentage | 1.00% | 1.00% | |||
Evolent LLC | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Equity interest (percent) | 96.10% | 96.10% | |||
Evolent LLC | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Equity interest (percent) | 2.60% | 2.60% | |||
Proportionate shares of losses from equity method investments | (1,000,000) | (2,500,000) | |||
Loss from equity method investments recognized | $ 800,000 | $ 2,400,000 | 1,600,000 | ||
Dilution gain from equity method investments | 900,000 | ||||
Equity method investments | 2,200,000 | 2,200,000 | 9,600,000 | ||
Cash received from partial sale of equity method investment | 30,500,000 | 71,900,000 | |||
Gain on partial sale of investment | $ 18,900,000 | 42,300,000 | |||
Losses recorded against remaining carrying amount of investment | 200,000 | ||||
Tax benefits | 100,000 | 300,000 | |||
Equity method investment, impairment charges | $ 0 | ||||
Evolent Inc | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Equity interest (percent) | 6.30% | 6.30% | |||
Number of individual designated to board of directors by company | people | 2 | 2 | |||
Proportionate shares of losses from equity method investments | $ (1,000,000) | (1,200,000) | $ (2,300,000) | (2,000,000) | |
Loss from equity method investments recognized | 300,000 | 1,100,000 | |||
Dilution gain from equity method investments | 1,100,000 | ||||
Equity method investments | 8,000,000 | 8,000,000 | $ 10,300,000 | ||
Equity method investment, discrepancy between company basis and carrying value | 43,000,000 | 43,000,000 | |||
Gain (loss) on sale, tax portion | 9,800,000 | 24,600,000 | |||
Evolent Inc and Evolent LLC | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Proportionate shares of losses from equity method investments | 17,736,000 | (411,000) | 39,313,000 | (445,000) | |
Gain on partial sale of investment | 28,736,000 | 0 | 66,853,000 | 0 | |
Provision for income tax from equity method investments | $ (9,237,000) | $ 100,000 | $ (22,879,000) | $ 261,000 | |
Effective tax rate percentage, equity method investments | 34.20% | 36.80% | |||
Gain (loss) on sale, tax portion | $ 600,000 | $ 1,700,000 |
Equity Method Investments - Gai
Equity Method Investments - Gains and (Losses) for the Combined Evolent Entities (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Schedule of Equity Method Investments [Line Items] | ||||
Gain on partial sale of investment | $ 42,312 | $ 0 | ||
Gains (losses) from equity method investments | (2,999) | (445) | ||
Evolent Inc and Evolent LLC | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Dilution gain | $ 0 | $ 0 | 0 | 2,026 |
Gain on partial sale of investment | 28,736 | 0 | 66,853 | 0 |
Allocated share of losses | (1,763) | (511) | (4,661) | (2,732) |
Tax (expense) benefit | (9,237) | 100 | (22,879) | 261 |
Gains (losses) from equity method investments | $ 17,736 | $ (411) | $ 39,313 | $ (445) |
Equity Method Investments - Sum
Equity Method Investments - Summary of Financial Position of Evolent Entities (Details) - USD ($) $ in Thousands | Jun. 30, 2017 | Dec. 31, 2016 |
Evolent LLC | ||
Schedule of Investments [Line Items] | ||
Current assets | $ 319,180 | $ 154,555 |
Non-current assets | 930,407 | 921,556 |
Total assets | 1,249,587 | 1,076,111 |
Current liabilities | 224,432 | 131,926 |
Non-current liabilities | 130,960 | 24,654 |
Total liabilities | 355,392 | 156,580 |
Members’ equity | 894,195 | 919,531 |
Total liabilities and shareholders’ equity | 1,249,587 | 1,076,111 |
Evolent Health Inc | ||
Schedule of Investments [Line Items] | ||
Current assets | 192,620 | 264,966 |
Non-current assets | 945,732 | 934,873 |
Total assets | 1,138,352 | 1,199,839 |
Current liabilities | 101,760 | 131,941 |
Non-current liabilities | 142,143 | 155,784 |
Total liabilities | 243,903 | 287,725 |
Total shareholders' equity attributable to Evolent Health, Inc. | 859,769 | 702,526 |
Non-controlling interests | 34,680 | 209,588 |
Total liabilities and shareholders’ equity | $ 1,138,352 | $ 1,199,839 |
Equity Method Investments - S44
Equity Method Investments - Summary of Operating Results of Evolent Entities (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | Dec. 31, 2016 | |
Evolent LLC | |||||
Schedule of Investments [Line Items] | |||||
Revenue | $ 107,071 | $ 56,517 | $ 213,309 | $ 105,967 | |
Cost of revenue (exclusive of depreciation and amortization) | 67,993 | 32,779 | 135,521 | 61,390 | |
Gross profit | 39,078 | 23,738 | 77,788 | 44,577 | |
Loss attributable to Evolent Health, Inc. | (20,298) | (12,371) | (43,016) | $ (187,170) | |
Evolent Health Inc | |||||
Schedule of Investments [Line Items] | |||||
Revenue | 107,071 | 56,518 | 213,310 | $ 105,967 | |
Cost of revenue (exclusive of depreciation and amortization) | 67,994 | 32,779 | 135,523 | 61,390 | |
Gross profit | 39,077 | 23,739 | 77,787 | 44,577 | |
Loss before income taxes and non-controlling interests | (20,398) | (12,370) | (43,143) | (187,169) | |
Net loss | (19,698) | (11,999) | (42,848) | (185,810) | |
Loss attributable to Evolent Health, Inc. | $ (16,905) | $ (8,387) | $ (34,918) | $ (131,127) |
Debt - Additional Information (
Debt - Additional Information (Details) | Oct. 30, 2015USD ($) | Feb. 06, 2015 | Jun. 30, 2017USD ($) | Jun. 30, 2016USD ($) | Jun. 30, 2017USD ($)covenant | Jun. 30, 2016USD ($) | Apr. 30, 2015USD ($)swap_agreement |
Line of Credit Facility [Line Items] | |||||||
Debt instrument, number of financial covenants | covenant | 2 | ||||||
Interest expense | $ (4,730,000) | $ (4,389,000) | $ (9,230,000) | $ (9,210,000) | |||
Amortization of debt issuance costs | 300,000 | 300,000 | 561,000 | 566,000 | |||
Interest Rate Swap | |||||||
Line of Credit Facility [Line Items] | |||||||
Interest expense, interest rate swaps | 200,000 | 600,000 | 500,000 | 1,200,000 | |||
Number of interest rate swap agreements entered into to swap portion of variable rate interest payments for fixed rate interest payments | swap_agreement | 3 | ||||||
Derivative notional amount | 251,600,000 | 251,600,000 | $ 287,500,000 | ||||
Effective portion of gain (loss), net of tax | (100,000) | (400,000) | 400,000 | (2,900,000) | |||
Interest Rate Swap | Other Noncurrent Assets | |||||||
Line of Credit Facility [Line Items] | |||||||
Interest rate derivative assets at fair value | $ 1,600,000 | $ 1,600,000 | |||||
Interest Rate Swap | Other Noncurrent Liabilities | |||||||
Line of Credit Facility [Line Items] | |||||||
Interest rate derivative liability at fair value | $ 4,800,000 | $ 4,800,000 | |||||
Base Rate | Interest Rate Swap | |||||||
Line of Credit Facility [Line Items] | |||||||
Average base rate paid by the Company (percent) | 1.282% | 1.282% | |||||
Credit Facilities | Term Facility | |||||||
Line of Credit Facility [Line Items] | |||||||
Debt instrument term (years) | 5 years | ||||||
Amount of revolving credit facility | $ 475,000,000 | ||||||
Stated interest rate percentage | 3.23% | 3.23% | |||||
Credit Facilities | Term Facility | Base Rate | |||||||
Line of Credit Facility [Line Items] | |||||||
Basis spread on variable rate | 1.25% | ||||||
Credit Facilities | Term Facility | LIBOR | |||||||
Line of Credit Facility [Line Items] | |||||||
Basis spread on variable rate | 2.25% | 2.00% | |||||
Credit Facilities | Revolving Credit Facility | |||||||
Line of Credit Facility [Line Items] | |||||||
Debt instrument term (years) | 5 years | ||||||
Amount of revolving credit facility | $ 200,000,000 | ||||||
Credit Facilities | Revolving Credit Facility | Line of Credit | |||||||
Line of Credit Facility [Line Items] | |||||||
Amounts outstanding on the revolving credit facility | $ 100,000,000 | $ 100,000,000 | |||||
Amounts available for borrowing | $ 80,900,000 | $ 80,900,000 | |||||
Credit Facilities | Standby Letters of Credit | |||||||
Line of Credit Facility [Line Items] | |||||||
Stated interest rate percentage | 3.23% | 3.23% | |||||
Credit Facilities | Standby Letters of Credit | Line of Credit | |||||||
Line of Credit Facility [Line Items] | |||||||
Standby letters of credit outstanding | $ 19,100,000 | $ 19,100,000 |
Debt - Schedule of Long-term De
Debt - Schedule of Long-term Debt (Details) - USD ($) $ in Thousands | Jun. 30, 2017 | Dec. 31, 2016 |
Debt Instrument [Line Items] | ||
Less: Amounts due in next twelve months ($64,688 face value less unamortized discount of $924) | $ (63,764) | $ (49,347) |
Total long-term debt | 437,251 | $ 472,739 |
Term Facility | ||
Debt Instrument [Line Items] | ||
Long-term debt | 401,015 | |
Less: Amounts due in next twelve months ($64,688 face value less unamortized discount of $924) | (63,764) | |
Total long-term debt | 437,251 | |
Long-term debt, maturities, repayments of principal in next 12 months | 64,688 | |
Original issue discount, expected to be amortized in next 12 months | $ 924 | |
Term Facility | Senior Secured Credit Facilities | ||
Debt Instrument [Line Items] | ||
Stated interest rate percentage | 3.23% | |
Debt instrument, face amount | $ 403,125 | |
Original issue discount | 2,110 | |
Revolving Credit Facility | ||
Debt Instrument [Line Items] | ||
Long-term debt | $ 100,000 |
Stockholders' Equity (Details)
Stockholders' Equity (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 20 Months Ended | |||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Nov. 30, 2015 | |
Equity [Abstract] | ||||||
Total amount authorized under repurchase program | $ 550,000,000 | |||||
Number of shares repurchased under stock repurchase program (in shares) | 0 | 803,217 | 0 | 1,740,247 | 19,778,800 | |
Total cost of treasury stocks repurchased | $ 26,200,000 | $ 53,600,000 | $ 513,500,000 | |||
Number of shares subject to repurchase (in shares) | 0 | |||||
Remaining authorized repurchase amount | $ 36,500,000 | $ 36,500,000 | $ 36,500,000 |
Stock-based Compensation - Addi
Stock-based Compensation - Additional Information (Details) - USD ($) | Jun. 09, 2015 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | Mar. 28, 2017 |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Stock-based compensation costs capitalized as part of the cost of an asset | $ 0 | |||||
Compensation cost related to stock-based compensation | $ 49,200,000 | $ 49,200,000 | ||||
Weighted average period of stock-based compensation | 2 years 6 months | |||||
Performance-Based RSUs | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Number of stock options exercised (in shares) | 18,300 | 0 | ||||
Stock options, vested (shares) | 483,520 | 0 | ||||
Number of RSUs, vested (in shares) | 14,570 | 0 | ||||
Service-Based Options | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Number of stock options exercised (in shares) | 270,611 | 237,158 | ||||
Stock option awards, fair value of service-based options (in dollars per share) | $ 16.80 | $ 16.80 | ||||
Stock option awards, risk-free interest rate (percent) | 2.00% | |||||
Stock option awards, expected term (years) | 5 years | |||||
Stock option awards, expected volatility (percent) | 37.50% | |||||
Stock option awards, dividend yield (percent) | 0.00% | |||||
Restricted Stock Units | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Number of RSUs, vested (in shares) | 342,519 | 312,131 | ||||
Aggregate intrinsic value, vested | $ 16,300,000 | $ 10,200,000 | ||||
Shares paid for tax withholding (in shares) | 106,841 | 106,547 | ||||
Performance Shares and Employee Stock Options | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Reversed compensation expense related to awards that will not vest | $ (5,614,000) | $ (7,965,000) | $ (11,325,000) | $ (14,947,000) | ||
Number of stock options exercised (in shares) | 288,911 | 237,158 | ||||
Exercises in period, intrinsic value | $ 2,800,000 | $ 3,500,000 | ||||
2009 Plan | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Number of additional shares authorized for issuance (in shares) | 1,000,000 | |||||
Number of shares authorized for issuance (in shares) | 11,535,000 | |||||
Number of shares available for issuance (in shares) | 2,358,472 | 2,358,472 | ||||
2009 Plan | Performance-Based RSUs | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Number of shares authorized for issuance (in shares) | 106,870 | |||||
Royall Inducement Plan | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Reversed compensation expense related to awards that will not vest | $ 900,000 | |||||
Royall Inducement Plan | Minimum | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Performance target (percent) | 70.00% | |||||
Royall Inducement Plan | Maximum | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Performance target (percent) | 99.00% | |||||
Royall Inducement Plan | Service-Based Options | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Award vesting rights (percentage) | 10.00% | |||||
Royall Inducement Plan | Restricted Stock Units | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Award vesting rights (percentage) | 10.00% | |||||
Awards not vesting (percentage) | 20.00% |
Stock-based Compensation - Summ
Stock-based Compensation - Summary of Changes in Common Stock Options (Details) - $ / shares | 6 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Performance-Based Options | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | ||
Number of Options, Outstanding, beginning of period (in shares) | 2,117,855 | 2,013,325 |
Number of Options, Granted (in shares) | 0 | 319,900 |
Number of Options, Exercised (in shares) | (18,300) | 0 |
Number of Options, Forfeited (in shares) | (115,044.3) | (215,370) |
Number of Options, Expired (in shares) | 0 | 0 |
Number of Options, Outstanding, end of period (in shares) | 1,984,511 | 2,117,855 |
Number of Options, Exercisable, end of period (in shares) | 492,092 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price (dollars per share) [Roll Forward] | ||
Weighted Average Exercise Price, Outstanding, beginning of period (dollars per share) | $ 47.11 | $ 50.42 |
Weighted Average Exercise Price, Granted (dollars per share) | 0 | 28.20 |
Weighted Average Exercise Price, Exercised (dollars per share) | 49.92 | 0 |
Weighted Average Exercise Price, Forfeited (dollars per share) | 51.19 | 49.92 |
Weighted Average Exercise Price, Expired (dollars per share) | 0 | 0 |
Weighted Average Exercise Price, Outstanding, end of period (dollars per share) | 46.85 | $ 47.11 |
Weighted Average Exercise Price, Exercisable, end of period (dollars per share) | $ 34.98 | |
Service-Based Options | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | ||
Number of Options, Outstanding, beginning of period (in shares) | 2,525,178 | 1,843,110 |
Number of Options, Granted (in shares) | 200,324 | 1,005,756 |
Number of Options, Exercised (in shares) | (270,611) | (237,158) |
Number of Options, Forfeited (in shares) | (135,320) | (22,195) |
Number of Options, Expired (in shares) | 0 | (17,347) |
Number of Options, Outstanding, end of period (in shares) | 2,319,571 | 2,572,166 |
Number of Options, Exercisable, end of period (in shares) | 1,178,440 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price (dollars per share) [Roll Forward] | ||
Weighted Average Exercise Price, Outstanding, beginning of period (dollars per share) | $ 39.28 | $ 41.73 |
Weighted Average Exercise Price, Granted (dollars per share) | 46.95 | 28.31 |
Weighted Average Exercise Price, Exercised (dollars per share) | 35.79 | 15.29 |
Weighted Average Exercise Price, Forfeited (dollars per share) | 39.88 | 53.38 |
Weighted Average Exercise Price, Expired (dollars per share) | 0 | 51.77 |
Weighted Average Exercise Price, Outstanding, end of period (dollars per share) | 40.31 | $ 38.75 |
Weighted Average Exercise Price, Exercisable, end of period (dollars per share) | $ 43.86 |
Stock-based Compensation - Su50
Stock-based Compensation - Summary of Changes in RSUs (Details) - $ / shares | 6 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Performance-Based RSUs | ||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | ||
Number of RSUs, Non-vested, beginning of period (in shares) | 257,580 | 301,032 |
Number of RSUs, Granted (in shares) | 106,870 | 23,580 |
Number of RSUs, Forfeited (in shares) | (35,800) | (33,429) |
Number of RSUs, vested (in shares) | (14,570) | 0 |
Number of RSUs, Non-vested, end of period (in shares) | 314,080 | 291,183 |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value (dollars per share) [Roll Forward] | ||
Weighted Average Grant Date Fair Value Non-vested, beginning of Period (dollars per share) | $ 35.34 | $ 39.10 |
Weighted Average Grant Date Fair Value, Granted (dollars per share) | 46.95 | 32.28 |
Weighted Average Grant Date Fair Value, Forfeited (dollars per share) | 51.52 | 50.77 |
Weighted Average Grant Date Fair Value, Vested (dollars per share) | 49.92 | 0 |
Weighted Average Grant Date Fair Value Non-vested, end of Period (dollars per share) | $ 36.77 | $ 37.21 |
Service-based RSUs | ||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | ||
Number of RSUs, Non-vested, beginning of period (in shares) | 968,084 | 839,613 |
Number of RSUs, Granted (in shares) | 266,203 | 467,177 |
Number of RSUs, Forfeited (in shares) | (71,374) | (41,089) |
Number of RSUs, vested (in shares) | (327,949) | (312,131) |
Number of RSUs, Non-vested, end of period (in shares) | 834,964 | 953,570 |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value (dollars per share) [Roll Forward] | ||
Weighted Average Grant Date Fair Value Non-vested, beginning of Period (dollars per share) | $ 42.13 | $ 52.82 |
Weighted Average Grant Date Fair Value, Granted (dollars per share) | 47.76 | 30.36 |
Weighted Average Grant Date Fair Value, Forfeited (dollars per share) | 44.85 | 47.73 |
Weighted Average Grant Date Fair Value, Vested (dollars per share) | 46.58 | 51.43 |
Weighted Average Grant Date Fair Value Non-vested, end of Period (dollars per share) | $ 41.94 | $ 42.49 |
Stock-based Compensation - Su51
Stock-based Compensation - Summary of Stock-based Compensation Expense (Details) - Performance Shares and Employee Stock Options - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Stock-based compensation expense included in Costs and expenses | ||||
Total costs and expenses | $ 5,614 | $ 7,965 | $ 11,325 | $ 14,947 |
Cost of services | ||||
Stock-based compensation expense included in Costs and expenses | ||||
Total costs and expenses | 1,829 | 2,493 | 3,087 | 4,680 |
Member relations and marketing | ||||
Stock-based compensation expense included in Costs and expenses | ||||
Total costs and expenses | 1,134 | 1,387 | 2,280 | 2,501 |
General and administrative | ||||
Stock-based compensation expense included in Costs and expenses | ||||
Total costs and expenses | $ 2,651 | $ 4,085 | $ 5,958 | $ 7,766 |
Income Taxes (Details)
Income Taxes (Details) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Income Tax Disclosure [Abstract] | ||||
Effective income tax rate (as a percent) | 47.30% | 38.10% | 40.90% | 36.60% |
Earnings Per Share - Reconcilia
Earnings Per Share - Reconciliation of Basic to Diluted Weighted Average Common Shares Outstanding (Details) - shares shares in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Earnings Per Share [Abstract] | ||||
Basic weighted average common shares outstanding (in shares) | 40,586 | 40,365 | 40,421 | 40,928 |
Effect of dilutive outstanding stock-based awards (in shares | 874 | 205 | 831 | 294 |
Diluted weighted average common shares outstanding (in shares) | 41,460 | 40,570 | 41,252 | 41,222 |
Earnings Per Share - Additional
Earnings Per Share - Additional Information (Details) - shares | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Incremental common shares attributable to dilutive effect of contingently issuable shares (in shares) | 146,525 | 19,971 | 128,336 | 19,971 |
Stock Compensation Plan | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Share-based compensation awards excluded from calculation of earnings per share (in shares) | 900,000 | 2,800,000 | 1,300,000 | 2,600,000 |
Non-Qualified Stock Options | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Share-based compensation awards excluded from calculation of earnings per share (in shares) | 1,500,000 | 2,100,000 | ||
Restricted Stock Units | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Share-based compensation awards excluded from calculation of earnings per share (in shares) | 300,000 | 300,000 |
Supplemental Cash Flow (Details
Supplemental Cash Flow (Details) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Cash paid (received) for: | ||
Income taxes | $ 5,648 | $ 2,841 |
Interest | 7,629 | 7,097 |
Non-cash activities: | ||
Increase in estimated cost of construction of a building under a build-to-suit lease | $ 34,598 | $ 12,354 |
Related Parties (Details)
Related Parties (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Related Party Transactions [Abstract] | ||||
Payments for interest in affiliates | $ 1.1 | $ 1 | $ 2.6 | $ 2.2 |
Costs of Exit or Disposal (Deta
Costs of Exit or Disposal (Details) - Restructuring Plan - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring costs incurred | $ 0 | $ 0 | ||
Employee Severance | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring costs incurred | $ 2,800,000 | $ 7,700,000 | ||
Restructuring, expected cost to be recognized | 2,600,000 | 2,600,000 | ||
Employee Severance | Cost of services | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring costs incurred | 800,000 | 800,000 | ||
Employee Severance | Member relations and marketing | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring costs incurred | 100,000 | 100,000 | ||
Employee Severance | General and administrative | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring costs incurred | 1,900,000 | 6,800,000 | ||
Lease Exit | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring costs incurred | 3,200,000 | 3,200,000 | ||
Restructuring, expected cost to be recognized | $ 2,000,000 | $ 2,000,000 |
Subsequent Events (Details)
Subsequent Events (Details) $ in Millions | Aug. 07, 2017USD ($) | Aug. 03, 2017claimdefendant |
Scenario, Forecast | Public Offering | Common Class A | Evolent Inc | ||
Subsequent Event [Line Items] | ||
Sale of stock, consideration received per transaction | $ | $ 175 | |
Subsequent Event | Class-Action Lawsuit | ||
Subsequent Event [Line Items] | ||
Number of claims filed | claim | 1 | |
Subsequent Event | Class-Action Lawsuit | Executive Officer | ||
Subsequent Event [Line Items] | ||
Number of defendants named | 2 | |
Subsequent Event | Class-Action Lawsuit | Director | ||
Subsequent Event [Line Items] | ||
Number of defendants named | 1 |