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NextGen Healthcare, Inc. Reports Fiscal 2019 Second Quarter Results
October 30, 2018 at 4:15 PM EDT

IRVINE, Calif.--(BUSINESS WIRE)--Oct. 30, 2018-- NextGen Healthcare, Inc. (NASDAQ: NXGN) announced today its fiscal 2019 second quarter ended September 30, 2018 operating results.

"We continued to execute on our strategic plan in the second quarter of fiscal 2019, delivering another strong quarter of bookings including signing larger, more complex, subscription oriented deals. These larger deals take longer to implement, causing a delay in revenue recognition, which combined with an uptick in attrition have resulted in a temporal shortfall in revenue. While we remain committed to our multi-year growth targets due to the strength of our bookings and pipeline along with solution enhancements coming to market, we are slightly adjusting guidance for this year,” commented Rusty Frantz, president and chief executive officer of NextGen Healthcare.

Fiscal 2019 Second Quarter Highlights

As a result of the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASC 606”), the GAAP comparisons below compare fiscal 2019 second quarter results under ASC 606 to the fiscal 2018 second quarter results under the legacy revenue guidance (“ASC 605”). A reconciliation of fiscal 2019 second quarter results from ASC 606 to ASC 605 can be found in the tables at the end of the press release.

On a GAAP basis, revenue for the fiscal 2019 second quarter of $130.3 million compared to $132.6 million a year-ago. On a pro forma basis under ASC 605, revenue for the fiscal 2019 second quarter was $129.4 million.

On a GAAP basis, net income for the fiscal 2019 second quarter was $13.1 million, compared with net income of $8.0 million in the fiscal 2018 second quarter. On a pro forma basis under ASC 605, net income for the fiscal 2019 second quarter was $10.9 million.

On a GAAP basis, fully diluted net income per share was $0.20 in the fiscal 2019 second quarter compared with earnings per share of $0.13 for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2019 second quarter was $0.24 versus $0.22 reported in the second quarter a year ago. On a pro forma non-GAAP basis, under ASC 605, fully diluted earnings per share for the fiscal 2019 second quarter was $0.21.

Fiscal 2019 Financial Outlook

The company’s updated outlook for fiscal 2019 is now as follows:

  • Revenue of between $525 million and $535 million, from the previous range of $532 million to $548 million.
  • Non-GAAP EPS of between $0.70 and $0.74, from the previous range of $0.70 to $0.78.

Conference Call Information

NextGen Healthcare will host a conference call to discuss its fiscal 2019 second quarter results on Tuesday, October 30, 2018 at 5:00 PM ET (2:00 PM PT). Shareholders and interested participants may listen to a live broadcast of the conference call by dialing 866-750-8947 or 720-405-1352 for international callers, and referencing participant code 5520719 approximately 15 minutes prior to the call. A live webcast of the conference call will be available on the investor relations section of the company’s web site and an audio file of the call will also be archived for 90 days at investor.qsii.com. After the conference call, a replay will be available until November 1, 2018 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 5520719.

About NextGen Healthcare, Inc

NextGen Healthcare, Inc. provides a range of software, services, and analytics solutions to medical and dental group practices. The company's portfolio delivers foundational capabilities to empower physician success, enrich the patient care experience, and enable the transition to value-based healthcare. Visit www.nextgen.com for additional information.

SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS

This news release may contain forward-looking statements within the meaning of the federal securities laws, including but not limited to, statements regarding future events, developments in the healthcare sector and regulatory framework, the Company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future (including, without limitation, statements concerning revenue, net income, and earnings per share). Risks and uncertainties exist that may cause the results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements and additional risks and uncertainties are set forth in Part I, Item A of our most recent Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q, including but not limited to: the volume and timing of systems sales and installations; length of sales cycles and the installation process; the possibility that products will not achieve or sustain market acceptance; seasonal patterns of sales and customer buying behavior; impact of incentive payments under The American Recovery and Reinvestment Act on sales and the ability of the Company to meet continued certification requirements; uncertainties related to the future impact of U.S. tax reform; the impact of governmental and regulatory agency investigations; the development by competitors of new or superior technologies; the timing, cost and success or failure of new product and service introductions, development and product upgrade releases; undetected errors or bugs in software; product liability; changing economic, political or regulatory influences in the health-care industry; changes in product-pricing policies; availability of third-party products and components; competitive pressures including product offerings, pricing and promotional activities; the Company's ability or inability to attract and retain qualified personnel; possible regulation of the Company's software by the U.S. Food and Drug Administration; changes of accounting estimates and assumptions used to prepare the prior periods' financial statements; disruptions caused by acquisitions of companies, products, or technologies; and general economic conditions. A significant portion of the Company's quarterly sales of software product licenses and computer hardware is concluded in the last month of a fiscal quarter, generally with a concentration of such revenues earned in the final ten business days of that month. Due to these and other factors, the Company's revenues and operating results are very difficult to forecast. A major portion of the Company's costs and expenses, such as personnel and facilities, are of a fixed nature and, accordingly, a shortfall or decline in quarterly and/or annual revenues typically results in lower profitability or losses. As a result, comparison of the Company's period-to-period financial performance is not necessarily meaningful and should not be relied upon as an indicator of future performance. These forward-looking statements speak only as of the date hereof. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

USE OF NON-GAAP FINANCIAL MEASURES

This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures, which are provided only as supplemental information. Investors should consider these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. These non-GAAP measures are not in accordance with or a substitute for U.S. GAAP. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying financial tables. Other companies may calculate non-GAAP measures differently than NextGen Healthcare, Inc., which limits comparability between companies. The Company believes that its presentation of non-GAAP diluted earnings per share provides useful supplemental information to investors and management regarding the Company's financial condition and results. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. The Company calculates non-GAAP diluted earnings per share by excluding net acquisition costs, amortization of acquired intangible assets, amortization of deferred debt issuance costs, restructuring costs, net securities litigation defense costs and settlement, share-based compensation, and other non-run-rate expenses from GAAP income before provision for income taxes. The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations.

The normalized non-GAAP tax rate applied to fiscal year 2019 was 22.0%, compared to 30.5% for fiscal year 2018, which was updated as a result of the enactment of the new tax reform legislation on December 22, 2017. The determination of this rate is based on the consideration of both historic and projected financial results. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.

The Company’s future period guidance in this release includes adjustments for items not indicative of the Company’s core operations. Such adjustments are generally expected to be of a nature similar to those adjustments applied to the Company’s historic GAAP financial results in the determination of the Company’s non-GAAP diluted earnings per share. Such adjustments, however, may be affected by changes in ongoing assumptions and judgments as to the items that are excluded in the calculation of non-GAAP adjusted net income and adjusted diluted earnings per share, as described in this release. The exact amount and probable significance of these adjustments, including net acquisition costs, net securities litigation defense costs, and other non-run-rate expenses, are not currently determinable without unreasonable efforts, but may be significant. These items cannot be reliably quantified or forecasted due to the combination of their historic and expected variability. It is therefore not practicable to reconcile this non-GAAP guidance to the most comparable GAAP measures.

 
NEXTGEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 
   

Three Months Ended
September 30,

   

Six Months Ended
September 30,

2018     2017 2018     2017
Revenues:
Recurring $ 116,317 $ 119,441 $ 236,324 $ 238,619
Software, hardware, and other non-recurring   14,004     13,166     27,197     24,910  
Total revenues 130,321 132,607 263,521 263,529
Cost of revenue:
Recurring 47,172 47,699 95,325 96,157
Software, hardware, and other non-recurring 7,022 5,947 14,176 11,987
Amortization of capitalized software costs and acquired intangible assets   6,924     5,109     13,468     9,780  
Total cost of revenue   61,118     58,755     122,969     117,924  
Gross profit 69,203 73,852 140,552 145,605
Operating expenses:
Selling, general and administrative 34,229 40,977 78,865 83,954
Research and development costs, net 18,371 19,527 40,499 39,516
Amortization of acquired intangible assets   1,121     2,012     2,289     4,059  
Total operating expenses   53,721     62,516     121,653     127,529  
Income from operations 15,482 11,336 18,899 18,076
Interest income 40 12 69 21
Interest expense (769 ) (840 ) (1,499 ) (1,517 )
Other income (expense), net   237     15     611     (7 )
Income before provision for income taxes 14,990 10,523 18,080 16,573
Provision for income taxes   1,896     2,493     2,338     4,647  
Net income $ 13,094   $ 8,030   $ 15,742   $ 11,926  
Net income per share:
Basic $ 0.20 $ 0.13 $ 0.25 $ 0.19
Diluted $ 0.20 $ 0.13 $ 0.24 $ 0.19
Weighted-average shares outstanding:
Basic 64,265 63,513 64,143 63,077
Diluted 64,857 63,530 64,362 63,089
 
 
NEXTGEN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

 
    September 30, 2018     March 31, 2018
ASSETS
Current assets:
Cash and cash equivalents $ 32,387 $ 28,845
Restricted cash and cash equivalents 7,331 2,373
Accounts receivable, net 85,548 84,962
Contract assets 10,253
Inventory 153 180
Income taxes receivable 5,976 8,122
Prepaid expenses and other current assets   16,987     17,180  
Total current assets 158,635 141,662
Equipment and improvements, net 24,815 26,795
Capitalized software costs, net 31,805 26,318
Deferred income taxes, net 6,264 9,219
Contract assets, net of current 2,942
Intangibles, net 63,227 74,091
Goodwill 218,771 218,875
Other assets   29,226     18,795  
Total assets $ 535,685   $ 515,755  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,237 $ 4,213
Contract liabilities 50,023 54,079
Accrued compensation and related benefits 18,885 27,910
Income taxes payable 18 73
Other current liabilities   43,883     48,317  
Total current liabilities 119,046 134,592
Contract liabilities, net of current 1,173
Deferred compensation 5,951 6,086
Line of credit 42,000 37,000
Other noncurrent liabilities   13,254     13,494  
Total liabilities 180,251 192,345
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 64,382 and 63,995 shares at September 30, 2018 and March 31, 2018, respectively 644 640
Additional paid-in capital 253,613 244,462
Accumulated other comprehensive loss (1,692 ) (400 )
Retained earnings (1)   102,869     78,708  
Total shareholders' equity   355,434     323,410  
Total liabilities and shareholders' equity $ 535,685   $ 515,755  

 

__________

(1)   Includes cumulative effect adjustment related to the adoption of ASC 606.
 
 
NEXTGEN HEALTHCARE, INC.
NON-GAAP FINANCIAL MEASURES

(In thousands, except per share data)

 
 

RECONCILIATION OF NON-GAAP DILUTED EARNINGS PER SHARE

               

Three Months Ended
September 30,

Six Months Ended
September 30,

2018 2017 2018 2017
Income before provision for income taxes - GAAP $ 14,990 $ 10,523 $ 18,080 $ 16,573
Non-GAAP adjustments:
Acquisition costs, net 315 633 1,949 1,182
Amortization of acquired intangible assets 5,409 5,820 10,865 11,268
Amortization of deferred debt issuance costs 178 269 355 538
Securities litigation defense costs and settlement, net of insurance (5,715 ) 118 (5,436 ) 564
Share-based compensation 4,135 3,091 7,251 5,132
Other non-run-rate expenses*   691       2,639     263
Total adjustments to GAAP income before provision for income taxes:   5,013     9,931   17,623     18,947
Income before provision for income taxes - Non-GAAP 20,003 20,454 35,703 35,520
Provision for income taxes   4,401     6,239   7,855     10,834
Net income - Non-GAAP $ 15,602   $ 14,215 $ 27,848   $ 24,686
Diluted net income per share - Non-GAAP $ 0.24 $ 0.22 $ 0.43 $ 0.39
Weighted-average shares outstanding (diluted): 64,857 63,530 64,362 63,089
 
 

RECONCILIATION OF NON-GAAP DILUTED EARNINGS PER SHARE UNDER ASC 605

 
Income before provision for income taxes - Non-GAAP 20,003 35,703
Adjustments due to adoption of ASC 606   (2,898 )   (4,089 )
Income before provision for income taxes - Non-GAAP under ASC 605 17,105 31,614
Provision for income taxes   3,763     6,955  
Net income - Non-GAAP under ASC 605 $ 13,342   $ 24,659  
Diluted net income per share - Non-GAAP under ASC 605 $ 0.21 $ 0.38
Weighted-average shares outstanding (diluted): 64,857 64,362
 
* Other non-run-rate expenses for the three and six months ended September 30, 2018 consist primarily of severance and other employee-related costs not related to core operations. Other non-run-rate expenses for the six months ended September 30, 2017 consist primarily of professional services costs not related to core operations.
 

We adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASC 606”) and all related amendments as of April 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. Results for reporting periods beginning after April 1, 2018 are presented under ASC 606, while prior period comparative information has not been adjusted and continue to be reported under the accounting standards in effect for those prior periods.

The impact of the adoption of ASC 606 on our consolidated statements of net income for the three and six months ended September 30, 2018, assuming that the previous revenue recognition guidance had been in effect, is summarized as follows:

   
Three Months Ended September 30, 2018

As reported under
ASC 606

    Adjustments due to
adoption of ASC 606
    As disclosed under
ASC 605
Revenues:
Subscription services $ 29,255 $ (2,377 ) $ 26,878
Support and maintenance 39,594 (1,471 ) 38,123
Managed services 23,527 3,067 26,594
Electronic data interchange and data services   23,941     (12 )   23,929  
Total recurring revenues 116,317 (793 ) 115,524
Software license and hardware 9,353 (276 ) 9,077
Other non-recurring services   4,651     180     4,831  

Total software, hardware, and other non-recurring revenues

  14,004     (96 )   13,908  
Total revenue 130,321 (889 ) 129,432
Total cost of revenue   61,118     52     61,170  
Gross profit 69,203 (941 ) 68,262
Operating expenses:
Selling, general and administrative 34,229 1,957 36,186
Research and development costs, net 18,371 18,371
Amortization of acquired intangibles   1,121         1,121  
Total operating expenses 53,721 1,957 55,678
Income from operations 15,482 (2,898 ) 12,584
Interest and other income, net   (492 )       (492 )
Income before provision for income taxes 14,990 (2,898 ) 12,092
Provision for income taxes   1,896     (751 )   1,145  
Net income $ 13,094   $ (2,147 ) $ 10,947  
 
   
Six Months Ended September 30, 2018
As reported under
ASC 606
    Adjustments due to
adoption of ASC 606
    As disclosed under
ASC 605
Revenues:
Subscription services $ 57,583 $ (3,952 ) $ 53,631
Support and maintenance 80,842 (2,169 ) 78,673
Managed services 49,797 6,100 55,897
Electronic data interchange and data services   48,102     (85 )   48,017  
Total recurring revenues 236,324 (106 ) 236,218
Software license and hardware 16,796 (843 ) 15,953
Other non-recurring services   10,401     106     10,507  
Total software, hardware, and other non-recurring revenues   27,197     (737 )   26,460  
Total revenue 263,521 (843 ) 262,678
Total cost of revenue   122,969     94     123,063  
Gross profit 140,552 (937 ) 139,615
Operating expenses:
Selling, general and administrative 78,865 3,152 82,017
Research and development costs, net 40,499 40,499
Amortization of acquired intangibles   2,289         2,289  
Total operating expenses 121,653 3,152 124,805
Income from operations 18,899 (4,089 ) 14,810
Interest and other income, net   (819 )       (819 )
Income before provision for income taxes 18,080 (4,089 ) 13,991
Provision for income taxes   2,338     (997 )   1,341  
Net income $ 15,742   $ (3,092 ) $ 12,650  
 

Source: NextGen Healthcare, Inc.

NextGen Healthcare, Inc.
Media Contact:
Colleen Edwards, 949-255-2600 x75618
coedwards@nextgen.com
or
Investor Contact:
Westwicke Partners
Bob East or Asher Dewhurst
443-213-0500