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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

☐	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

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.

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.

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.

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.

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

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.

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.

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.

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.

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	$	—	$