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UNITED STATES

SECURITIES and EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended June 30, 2019

or

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

Commission file number: 001-12537

NEXTGEN HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

 

California

(State or other jurisdiction of incorporation or organization)

 

18111 Von Karman Avenue, Suite 800, Irvine, California

(Address of principal executive offices)

95-2888568

(IRS Employer Identification No.)

 

92612

(Zip Code)

(949) 255-2600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 Par Value

NXGN

NASDAQ Global Select Market

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

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

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

 

Emerging growth company

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

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

The number of outstanding shares of the Registrant’s common stock as of July 22, 2019 was 65,381,886 shares.

 

 

 

 


 

NEXTGEN HEALTHCARE, INC.

TABLE OF CONTENTS

FORM 10-Q

FOR THE THREE MONTHS ENDED JUNE 30, 2019

 

 

 

Item

 

Page

 

 

PART I.  FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements.

 

3

 

 

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and March 31, 2019

 

3

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2019 and 2018

 

4

 

 

Unaudited Statements of Condensed Consolidated Stockholders’ Equity for the three months ended June 30, 2019 and 2018

 

5

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2019 and 2018

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

23

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk.

 

33

Item 4.

 

Controls and Procedures.

 

33

 

 

PART II.  OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings.

 

34

Item 1A.

 

Risk Factors.

 

35

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

35

Item 3.

 

Defaults Upon Senior Securities.

 

35

Item 4.

 

Mine Safety Disclosure.

 

35

Item 5.

 

Other Information.

 

35

Item 6.

 

Exhibits.

 

36

 

 

Signatures

 

37

2


 

PART I.  FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

NEXTGEN HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

 

 

 

June 30, 2019

 

 

March 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,607

 

 

$

33,079

 

Restricted cash and cash equivalents

 

 

8,183

 

 

 

1,443

 

Accounts receivable, net

 

 

81,748

 

 

 

87,459

 

Contract assets

 

 

12,039

 

 

 

13,242

 

Inventory

 

 

72

 

 

 

120

 

Income taxes receivable

 

 

2,882

 

 

 

3,682

 

Prepaid expenses and other current assets

 

 

21,985

 

 

 

20,826

 

Total current assets

 

 

155,516

 

 

 

159,851

 

Equipment and improvements, net

 

 

22,772

 

 

 

21,404

 

Capitalized software costs, net

 

 

38,465

 

 

 

37,855

 

Operating lease assets

 

 

41,992

 

 

 

 

Deferred income taxes, net

 

 

6,207

 

 

 

6,194

 

Contract assets, net of current

 

 

3,554

 

 

 

3,747

 

Intangibles, net

 

 

47,442

 

 

 

52,595

 

Goodwill

 

 

218,771

 

 

 

218,771

 

Other assets

 

 

32,606

 

 

 

32,478

 

Total assets

 

$

567,325

 

 

$

532,895

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,848

 

 

$

5,432

 

Contract liabilities

 

 

53,963

 

 

 

56,009

 

Accrued compensation and related benefits

 

 

17,226

 

 

 

25,663

 

Income taxes payable

 

 

57

 

 

 

64

 

Operating lease liabilities

 

 

9,744

 

 

 

 

Other current liabilities

 

 

41,412

 

 

 

41,064

 

Total current liabilities

 

 

128,250

 

 

 

128,232

 

Deferred compensation

 

 

6,046

 

 

 

5,905

 

Line of credit

 

 

6,000

 

 

 

11,000

 

Operating lease liabilities, net of current

 

 

44,281

 

 

 

 

Other noncurrent liabilities

 

 

1,918

 

 

 

11,812

 

Total liabilities

 

 

186,495

 

 

 

156,949

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

 

 

$0.01 par value; authorized 100,000 shares; issued and outstanding 65,383 and 64,838 shares at June 30, 2019 and March 31, 2019, respectively

 

 

654

 

 

 

648

 

Additional paid-in capital

 

 

268,488

 

 

 

264,908

 

Accumulated other comprehensive loss

 

 

(1,177

)

 

 

(1,231

)

Retained earnings

 

 

112,865

 

 

 

111,621

 

Total shareholders' equity

 

 

380,830

 

 

 

375,946

 

Total liabilities and shareholders' equity

 

$

567,325

 

 

$

532,895

 

 

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

3


 

NEXTGEN HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended June 30,

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

Recurring

$

119,447

 

 

$

120,007

 

Software, hardware, and other non-recurring

 

12,414

 

 

 

13,193

 

Total revenues

 

131,861

 

 

 

133,200

 

Cost of revenue:

 

 

 

 

 

 

 

Recurring

 

50,540

 

 

 

48,153

 

Software, hardware, and other non-recurring

 

6,278

 

 

 

7,154

 

Amortization of capitalized software costs and acquired intangible assets

 

8,413

 

 

 

6,544

 

Total cost of revenue

 

65,231

 

 

 

61,851

 

Gross profit

 

66,630

 

 

 

71,349

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

40,128

 

 

 

44,636

 

Research and development costs, net

 

22,051

 

 

 

22,128

 

Amortization of acquired intangible assets

 

865

 

 

 

1,168

 

Impairment of assets

 

489

 

 

 

 

Restructuring costs

 

1,707

 

 

 

 

Total operating expenses

 

65,240

 

 

 

67,932

 

Income from operations

 

1,390

 

 

 

3,417

 

Interest income

 

79

 

 

 

29

 

Interest expense

 

(472

)

 

 

(730

)

Other income (expense), net

 

(133

)

 

 

374

 

Income before provision for (benefit of) income taxes

 

864

 

 

 

3,090

 

Provision for (benefit of) income taxes

 

(380

)

 

 

442

 

Net income

$

1,244

 

 

$

2,648

 

Other comprehensive income:

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

54

 

 

 

(499

)

Comprehensive income

$

1,298

 

 

$

2,149

 

Net income per share:

 

 

 

 

 

 

 

Basic

$

0.02

 

 

$

0.04

 

Diluted

$

0.02

 

 

$

0.04

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

Basic

 

65,015

 

 

 

64,019

 

Diluted

 

65,353

 

 

 

64,054

 

 

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

4


 

NEXTGEN HEALTHCARE, INC.

STATEMENTS OF CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance, March 31, 2018

 

 

63,995

 

 

 

640

 

 

 

244,462

 

 

 

78,708

 

 

 

(400

)

 

 

323,410

 

Common stock issued under stock plans, net of shares withheld for taxes

 

 

225

 

 

 

2

 

 

 

(204

)

 

 

 

 

 

 

 

 

(202

)

Stock-based compensation

 

 

 

 

 

 

 

 

3,116

 

 

 

 

 

 

 

 

 

3,116

 

Cumulative effect adjustment related to the adoption of ASC 606

 

 

 

 

 

 

 

 

 

 

 

8,419

 

 

 

 

 

 

8,419

 

Components of other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(499

)

 

 

(499

)

Net income

 

 

 

 

 

 

 

 

 

 

 

2,648

 

 

 

 

 

 

2,648

 

Balance, June 30, 2018

 

 

64,220

 

 

 

642

 

 

 

247,374

 

 

 

89,775

 

 

 

(899

)

 

 

336,892

 

 

 

 

 

Three Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance, March 31, 2019

 

 

64,838

 

 

 

648

 

 

 

264,908

 

 

 

111,621

 

 

 

(1,231

)

 

 

375,946

 

Common stock issued under stock plans, net of shares withheld for taxes

 

 

545

 

 

 

6

 

 

 

(1,311

)

 

 

 

 

 

 

 

 

(1,305

)

Stock-based compensation

 

 

 

 

 

 

 

 

4,891

 

 

 

 

 

 

 

 

 

4,891

 

Components of other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

54

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

1,244

 

 

 

 

 

 

1,244

 

Balance, June 30, 2019

 

 

65,383

 

 

 

654

 

 

 

268,488

 

 

 

112,865

 

 

 

(1,177

)

 

 

380,830

 

 

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

 

5


 

NEXTGEN HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,244

 

 

$

2,648

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Amortization of capitalized software costs

 

 

4,125

 

 

 

2,257

 

Amortization of debt issuance costs

 

 

177

 

 

 

177

 

Amortization of other intangibles

 

 

5,153

 

 

 

5,455

 

Deferred income taxes

 

 

(13

)

 

 

86

 

Depreciation

 

 

2,092

 

 

 

2,393

 

Excess tax benefit from share-based compensation

 

 

(189

)

 

 

(33

)

Impairment of assets

 

 

489

 

 

 

 

Loss on disposal of equipment and improvements

 

 

41

 

 

 

106

 

Non-cash operating lease costs

 

 

1,815

 

 

 

 

Provision for bad debts

 

 

606

 

 

 

792

 

Provision for inventory obsolescence

 

 

 

 

 

10

 

Restructuring costs, net of amounts paid

 

 

1,707

 

 

 

 

Share-based compensation

 

 

4,891

 

 

 

3,116

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5,105

 

 

 

486

 

Contract assets

 

 

1,396

 

 

 

2,998

 

Inventory

 

 

48

 

 

 

9

 

Accounts payable

 

 

416

 

 

 

(1,172

)

Contract liabilities

 

 

(2,046

)

 

 

(6,057

)

Accrued compensation and related benefits

 

 

(9,994

)

 

 

(11,088

)

Income taxes

 

 

982

 

 

 

624

 

Deferred compensation

 

 

141

 

 

 

(149

)

Operating lease liabilities

 

 

(2,286

)

 

 

 

Other assets and liabilities

 

 

1,097

 

 

 

354

 

Net cash provided by operating activities

 

 

16,997

 

 

 

3,012

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to capitalized software costs

 

 

(4,735

)

 

 

(4,785

)

Additions to equipment and improvements

 

 

(3,689

)

 

 

(2,179

)

Net cash used in investing activities

 

 

(8,424

)

 

 

(6,964

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

 

 

 

20,000

 

Repayments on line of credit

 

 

(5,000

)

 

 

(13,000

)

Proceeds from issuance of shares under employee plans

 

 

1,096

 

 

 

1,352

 

Payments for taxes related to net share settlement of equity awards

 

 

(2,401

)

 

 

(1,554

)

Net cash provided by (used in) financing activities

 

 

(6,305

)

 

 

6,798

 

Net increase in cash, cash equivalents, and restricted cash

 

 

2,268

 

 

 

2,846

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

34,522

 

 

 

31,218

 

Cash, cash equivalents, and restricted cash at end of period

 

$

36,790

 

 

$

34,064

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

257

 

 

$

191

 

Cash refunds from income taxes

 

 

1,430

 

 

 

367

 

Cash paid for interest

 

 

275

 

 

 

286

 

Cash paid for amounts included in the measurement of operating lease liabilities

 

 

2,617

 

 

 

 

Operating lease assets obtained in exchange for operating lease liabilities

 

 

5,324

 

 

 

 

Accrued purchases of equipment and improvements

 

 

 

 

 

92

 

 

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

6


 

NEXTGEN HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTES INDEX

 

 

Note

 

 

 

Page

 

 

 

 

 

Note 1

 

Summary of Significant Accounting Policies

 

8

Note 2

 

Revenue from Contracts with Customers

 

9

Note 3

 

Fair Value Measurements

 

12

Note 4

 

Leases

 

13

Note 5

 

Goodwill

 

14

Note 6

 

Intangible Assets

 

14

Note 7

 

Capitalized Software Costs

 

15

Note 8

 

Line of Credit

 

15

Note 9

 

Composition of Certain Financial Statement Captions

 

16

Note 10

 

Income Taxes

 

17

Note 11

 

Earnings Per Share

 

18

Note 12

 

Share-Based Awards

 

18

Note 13

 

Concentration of Credit Risk

 

20

Note 14

 

Commitments, Guarantees and Contingencies

 

20

Note 15

 

Restructuring Plan

 

22

 

7


 

NEXTGEN HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

(Unaudited)

 

1. Summary of Significant Accounting Policies

Principles of Consolidation.  The condensed consolidated financial statements include the accounts of NextGen Healthcare, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). Each of the terms “we,” “us,” or “our” as used herein refers collectively to the Company, unless otherwise stated. All intercompany accounts and transactions have been eliminated.

Basis of Presentation.  The accompanying unaudited condensed consolidated financial statements as of June 30, 2019 and for the three months ended June 30, 2019 have been prepared in accordance with the requirements of Quarterly Report on Form 10-Q and Article 10 of the Securities and Exchange Commission Regulation S-X and therefore do not include all information and notes which would be presented were such condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements presented in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments which are necessary for a fair statement of the results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full year.

References to amounts in the condensed consolidated financial statement sections are in thousands, except shares and per share data, unless otherwise specified.

Significant Accounting Policies. We adopted Accounting Standards Update No. 2016-02, Leases (Topic 842), effective on April 1, 2019 using the cumulative-effect adjustment transition method, as described further below. There have been no other material changes to our significant accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

Share-Based Compensation. The following table summarizes total share-based compensation expense included in the condensed consolidated statements of comprehensive income for the three months ended June 30, 2019 and 2018:

 

 

Three Months Ended June 30,

 

 

2019

 

 

2018

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of revenue

$

463

 

 

$

233

 

Research and development costs

 

1,028

 

 

 

610

 

Selling, general and administrative

 

3,400

 

 

 

2,273

 

Total share-based compensation

 

4,891

 

 

 

3,116

 

Income tax benefit

 

(1,215

)

 

 

(753

)

Decrease in net income

$

3,676

 

 

$

2,363

 

 

Recently Adopted Accounting Pronouncements.  Recently adopted accounting pronouncements are discussed below or in the notes, where applicable.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which was intended to improve financial reporting about leasing transactions. The new guidance requires lessees to recognize on their balance sheets the assets and liabilities for the rights and obligations created by leases and to disclose key information about the leasing arrangements. We have implemented the necessary changes to our policies, processes, and internal controls over financial reporting to meet the requirements under the new guidance related to identifying and measuring right-of-use assets and lease liabilities, including related disclosures.

We adopted ASU 2016-02 and its subsequent amendments (together “ASC 842”) using the cumulative-effect adjustment transition method, which is the additional transition method described within ASU 2018-11, Leases (Topic 842): Targeted Improvements, issued by the FASB in July 2018, which allowed us to apply the new lease standard as of April 1, 2019, rather than the beginning of the earliest period presented. We elected the package of practical expedients that permitted us to not reassess: (1) whether any expired contracts are or contain leases; (2) the lease classification for any existing or expired leases, and (3) the initial direct costs for our existing leases.

8


 

Upon adoption of ASC 842, we recognized operating lease right-of-use assets of $38,784, operating lease liabilities of $8,873, and long-term operating lease liabilities of $42,114 on our condensed consolidated balance sheet as of April 1, 2019, and corresponding reductions to other current liabilities of $2,342 and other noncurrent liabilities of $9,861 associated with previously recognized deferred rent and remaining lease obligations. There was no cumulative-effect adjustment required to retained earnings. The adoption of ASC 842 did not have a significant effect on our condensed consolidated results of operations or cash flows. Comparative information in this Report has not been adjusted and continues to be reported under the previous lease accounting rules. Refer to Note 4 for additional details.

Recent Accounting Standards Not Yet Adopted.   Recent accounting pronouncements requiring implementation in current or future periods are discussed below or in the notes, where applicable.

In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. ASU 2018-15 is effective for us in the first quarter of fiscal 2021. We are currently in the process of evaluating the potential impact of adoption of this updated authoritative guidance on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies certain disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. ASU 2018-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. ASU 2018-13 is effective for us in the first quarter of fiscal 2021, and we currently do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of Step two of the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. ASU 2017-04 is effective prospectively for annual and interim periods beginning after December 15, 2019, and early adoption is permitted on goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 is effective for us in the first quarter of fiscal 2021, and we currently do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.

We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.

2. Revenue from Contracts with Customers

Revenue Recognition and Performance Obligations

We generate revenue from sales of licensing rights and subscriptions to our software solutions, hardware and third-party software products, support and maintenance, managed services, electronic data interchange (“EDI”) and data services, and other non-recurring services, including implementation, training, and consulting services. Our contracts with customers may include multiple performance obligations that consist of various combinations of our software solutions and related services, which are generally capable of being distinct and accounted for as separate performance obligations.

The total transaction price is allocated to each performance obligation within an arrangement based on estimated standalone selling prices. We generally determine standalone selling prices based on the prices charged to customers, except for certain software licenses that are based on the residual approach and certain maintenance customers that are based on substantive renewal rates. In instances where standalone selling price is not observable, such as software licenses included in our revenue cycle management (“RCM”) arrangements, we estimate standalone selling price utilizing an expected cost plus a margin approach. When standalone selling prices are not observable, significant judgment is required in estimating the standalone selling price for each performance obligation.

Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services.

We exclude sales tax from the measurement of the transaction price and record revenue net of taxes collected from customers and subsequently remitted to governmental authorities.

9


 

The following table presents our revenues disaggregated by our major revenue categories and by occurrence:

 

 

 

Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

Recurring revenues:

 

 

 

 

 

 

 

 

Subscription services

 

$

30,144

 

 

$

28,328

 

Support and maintenance

 

 

39,652

 

 

 

41,248

 

Managed services

 

 

25,681

 

 

 

26,270

 

Electronic data interchange and data services

 

 

23,970

 

 

 

24,161

 

Total recurring revenues

 

 

119,447

 

 

 

120,007

 

 

 

 

 

 

 

 

 

 

Software, hardware, and other non-recurring revenues:

 

 

 

 

 

 

 

 

Software license and hardware

 

 

7,095

 

 

 

7,443

 

Other non-recurring services

 

 

5,319

 

 

 

5,750

 

Total software, hardware and other non-recurring revenues

 

 

12,414

 

 

 

13,193

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

131,861

 

 

$

133,200

 

 

Recurring revenues consist of subscription services, support and maintenance, managed services, and EDI and data services. Software, hardware, and other non-recurring revenues consist of sales of software license and hardware and certain non-recurring services, such as implementation, training, and consulting performed for clients who use our products.

Generally, we recognize revenue for our most significant performance obligations as follows:

Subscription services. Performance obligations involving subscription services, which include annual licenses, are satisfied over time as the customer simultaneously receives and consumes the benefits of the services throughout the contract period. We recognize revenue related to these services ratably over the respective noncancelable contract term.

Support and maintenance. Performance obligations involving support and maintenance are satisfied over time as the customer simultaneously receives and consumes the benefits of the maintenance services provided. Our support and maintenance services may consist of separate performance obligations, such as unspecified upgrades or enhancements and technical support, which are considered stand-ready in nature and can be offered at various points during the service period. Since the efforts associated with the combined support and maintenance services are rendered concurrently and provided evenly throughout the service period, we consider the series of support and maintenance services to be a single performance obligation. Therefore, we recognize revenue related to these services ratably over the respective noncancelable contract term.

Managed services. Managed services consist primarily of RCM and related services, but also includes transcription services and certain other recurring services. Performance obligations associated with RCM services are satisfied over time as the customer simultaneously receives and consumes the benefits of the services executed throughout the contract period. The majority of service fees under our RCM arrangements are variable consideration contingent upon collections by our clients. We estimate the variable consideration which we expect to be entitled to over the noncancelable contract term associated with our RCM service arrangements. The estimate of variable consideration included in the transaction price typically involves estimating the amounts we will ultimately collect on behalf of our clients and the relative fee we charge that is generally calculated as a percentage of those collections. Inputs to these estimates include, but are not limited to, historical service fees and collections amounts, timing of historical collections relative to the timing of when claims are submitted by our clients to their respective payers, macroeconomic trends, and anticipated changes in the number of providers. Significant judgement is required when estimating the total transaction price based on the variable consideration. We may apply certain constraints, when appropriate and permitted, to our estimates around our variable consideration in order to ensure that our estimates do not pose a risk of significantly misstating our revenue in any reporting period. RCM and related services may not be rendered evenly over the contract period as the timing of services are based on customer collections, which may vary throughout the service period. We recognize revenue for RCM based on the amount of collections received throughout the contract term as it most closely depicts our efforts to transfer our service obligations to the customer. Performance obligations related to the transcription services and other recurring services are generally satisfied as the corresponding services are provided and revenue is recognized as such services are rendered.

Electronic data interchange and data services. Performance obligations related to EDI and other transaction processing services are satisfied at the point in time the services are rendered. The transfer of control occurs when the transaction processing services are delivered and the customer receives the benefits from the services provided.

10


 

Software license and hardware. Software license and hardware are considered point-in-time performance obligations as control is transferred to customers upon the delivery of the software license and hardware. Our software licenses are considered functional licenses, and revenue recognition generally occurs on the date of contract execution as the customer is provided with immediate access to the license. We generally determine the amount of consideration allocated to the software license performance obligation using the residual approach, except for certain RCM arrangements where the amount allocated to the software license performance obligation is determined based on estimated relative standalone selling prices. For hardware, we recognize revenue upon transfer of such hardware or devices to the customer.

Other non-recurring services. Performance obligations related to other non-recurring services, including implementation, training, and consulting services, are generally satisfied as the corresponding services are provided. Once the services have been provided to the customer, the transfer of control has occurred. Therefore, we recognize revenue as such services are rendered.

Transaction Price Allocated to Remaining Performance Obligations

As of June 30, 2019, the aggregate amount of transaction price related to remaining unsatisfied or partially unsatisfied performance obligations over the respective noncancelable contract term was approximately $492,100, of which we expect to recognize approximately 10% as services are rendered or goods are delivered, 50% over the next 12 months, and the remainder thereafter.

Contract Balances

Contract balances result from the timing differences between our revenue recognition, invoicing, and cash collections. Such contract balances include accounts receivables, contract assets and liabilities, and other customer deposits and liabilities balances. Accounts receivable includes invoiced amounts where the right to receive payment is unconditional and only subject to the passage of time. Contract assets include amounts where revenue recognized exceeds the amount invoiced to the customer and the right to payment is not solely subject to the passage of time. Contract assets are generally associated with our sales of software licenses, but may also be associated other performance obligations such as subscription services, support and maintenance, annual licenses, and professional services, where control has been transferred to our customers but the associated payments are based on future customer collections (in the case of our RCM service arrangements) or based on future milestone payment due dates. In such instances, the revenue recognized may exceed the amount invoiced to the customer and such balances are included in contract assets since our right to receive payment is not unconditional, but rather is conditional upon customer collections or the continued functionality of the software and our ongoing support and maintenance obligations. Contract liabilities consist mainly of fees invoiced or paid by our clients for which the associated services have not been performed and revenues have not been recognized. Contract assets and contract liabilities are reported in a net position on an individual contract basis at the end of each reporting period. Contract assets are classified as current or long-term on our condensed consolidated balance sheets based on the timing of when we expect to complete the related performance obligations and invoice the customer. Contract liabilities are classified as current on our condensed consolidated balance sheets since the revenue recognition associated to the related customer payments and invoicing is expected to occur within the next twelve months. During the three months ended June 30, 2019 and 2018, we recognized $19,960 and $20,177, respectively, of revenues that were included in the contract liability balance at the beginning of the corresponding periods.

Our contracts with customers do not include any major financing components.

Costs to Obtain or Fulfill a Contract

We capitalize all incremental costs of obtaining a contract with a customer to the extent that such costs are directly related to a contract and expected to be recoverable. Our sales commissions and related sales incentives are considered incremental costs requiring capitalization. Capitalized contract costs are amortized to expense utilizing a method that is consistent with the transfer of the related goods or services to the customer. The amortization period ranges from less than one year up to eight years, based on the period over which the related goods and services are transferred, including consideration of the expected customer renewals and the related useful lives of the products.

Capitalized commissions costs were $19,997 as of June 30, 2019, of which $5,120 is current and included as other current assets and $14,877 is long-term and included within other assets on our condensed consolidated balance sheets, based on the expected timing of expense recognition. During the three months ended June 30, 2019, we recognized $1,662 of commissions expense primarily related to the amortization of capitalized commissions costs, which is included as a selling, general and administrative expense in the condensed consolidated statement of comprehensive income.

 

11


 

3. Fair Value Measurements

The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at June 30, 2019 and March 31, 2019:

 

 

 

Balance At

 

 

Quoted Prices

in Active

Markets for

Identical Assets

 

 

Significant Other

Observable Inputs

 

 

Unobservable

Inputs

 

 

 

June 30, 2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

28,607

 

 

$

28,607

 

 

$

 

 

$

 

Restricted cash and cash equivalents

 

 

8,183

 

 

 

8,183

 

 

 

 

 

 

 

 

 

$

36,790

 

 

$

36,790

 

 

$

 

 

$

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to acquisitions

 

$

1,000

 

 

$

 

 

$

 

 

$

1,000