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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 September 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)

95-2888568

(IRS Employer Identification No.)

 

 

18111 Von Karman Avenue, Suite 800, Irvine, California

(Address of principal executive offices)

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 October 21, 2019 was 65,433,363 shares.

 

 

 

 


 

NEXTGEN HEALTHCARE, INC.

TABLE OF CONTENTS

FORM 10-Q

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

 

 

 

Item

 

Page

 

 

PART I.  FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements.

 

3

 

 

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

 

3

 

 

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

 

4

 

 

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

 

5

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 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)

 

 

 

September 30, 2019

 

 

March 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

42,930

 

 

$

33,079

 

Restricted cash and cash equivalents

 

 

7,501

 

 

 

1,443

 

Accounts receivable, net

 

 

83,708

 

 

 

87,459

 

Contract assets

 

 

11,973

 

 

 

13,242

 

Inventory

 

 

58

 

 

 

120

 

Income taxes receivable

 

 

3,272

 

 

 

3,682

 

Prepaid expenses and other current assets

 

 

20,612

 

 

 

20,826

 

Total current assets

 

 

170,054

 

 

 

159,851

 

Equipment and improvements, net

 

 

22,049

 

 

 

21,404

 

Capitalized software costs, net

 

 

39,076

 

 

 

37,855

 

Operating lease assets

 

 

38,230

 

 

 

 

Deferred income taxes, net

 

 

6,166

 

 

 

6,194

 

Contract assets, net of current

 

 

3,175

 

 

 

3,747

 

Intangibles, net

 

 

42,290

 

 

 

52,595

 

Goodwill

 

 

218,771

 

 

 

218,771

 

Other assets

 

 

33,017

 

 

 

32,478

 

Total assets

 

$

572,828

 

 

$

532,895

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,837

 

 

$

5,432

 

Contract liabilities

 

 

54,101

 

 

 

56,009

 

Accrued compensation and related benefits

 

 

21,825

 

 

 

25,663

 

Income taxes payable

 

 

 

 

 

64

 

Operating lease liabilities

 

 

9,947

 

 

 

 

Other current liabilities

 

 

41,545

 

 

 

41,064

 

Total current liabilities

 

 

132,255

 

 

 

128,232

 

Deferred compensation

 

 

5,933

 

 

 

5,905

 

Line of credit

 

 

 

 

 

11,000

 

Operating lease liabilities, net of current

 

 

41,622

 

 

 

 

Other noncurrent liabilities

 

 

1,890

 

 

 

11,812

 

Total liabilities

 

 

181,700

 

 

 

156,949

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

 

 

$0.01 par value; authorized 100,000 shares; issued and outstanding 65,436 and 64,838 shares at September 30, 2019 and March 31, 2019, respectively

 

 

654

 

 

 

648

 

Additional paid-in capital

 

 

272,848

 

 

 

264,908

 

Accumulated other comprehensive loss

 

 

(1,320

)

 

 

(1,231

)

Retained earnings

 

 

118,946

 

 

 

111,621

 

Total shareholders' equity

 

 

391,128

 

 

 

375,946

 

Total liabilities and shareholders' equity

 

$

572,828

 

 

$

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 September 30,

 

 

Six Months Ended September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

$

120,589

 

 

$

116,317

 

 

$

240,036

 

 

$

236,324

 

Software, hardware, and other non-recurring

 

13,667

 

 

 

14,004

 

 

 

26,081

 

 

 

27,197

 

Total revenues

 

134,256

 

 

 

130,321

 

 

 

266,117

 

 

 

263,521

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

50,328

 

 

 

47,172

 

 

 

100,868

 

 

 

95,325

 

Software, hardware, and other non-recurring

 

6,563

 

 

 

7,022

 

 

 

12,841

 

 

 

14,176

 

Amortization of capitalized software costs and acquired intangible assets

 

8,843

 

 

 

6,924

 

 

 

17,256

 

 

 

13,468

 

Total cost of revenue

 

65,734

 

 

 

61,118

 

 

 

130,965

 

 

 

122,969

 

Gross profit

 

68,522

 

 

 

69,203

 

 

 

135,152

 

 

 

140,552

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

39,046

 

 

 

34,229

 

 

 

79,174

 

 

 

78,865

 

Research and development costs, net

 

19,789

 

 

 

18,371

 

 

 

41,840

 

 

 

40,499

 

Amortization of acquired intangible assets

 

865

 

 

 

1,121

 

 

 

1,730

 

 

 

2,289

 

Impairment of assets

 

1,916

 

 

 

 

 

 

2,405

 

 

 

 

Restructuring costs

 

175

 

 

 

 

 

 

1,882

 

 

 

 

Total operating expenses

 

61,791

 

 

 

53,721

 

 

 

127,031

 

 

 

121,653

 

Income from operations

 

6,731

 

 

 

15,482

 

 

 

8,121

 

 

 

18,899

 

Interest income

 

36

 

 

 

40

 

 

 

115

 

 

 

69

 

Interest expense

 

(387

)

 

 

(769

)

 

 

(859

)

 

 

(1,499

)

Other income, net

 

210

 

 

 

237

 

 

 

77

 

 

 

611

 

Income before provision for income taxes

 

6,590

 

 

 

14,990

 

 

 

7,454

 

 

 

18,080

 

Provision for income taxes

 

509

 

 

 

1,896

 

 

 

129

 

 

 

2,338

 

Net income

$

6,081

 

 

$

13,094

 

 

$

7,325

 

 

$

15,742

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

(143

)

 

 

(793

)

 

 

(89

)

 

 

(1,292

)

Comprehensive income

$

5,938

 

 

$

12,301

 

 

$

7,236

 

 

$

14,450

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.09

 

 

$

0.20

 

 

$

0.11

 

 

$

0.25

 

Diluted

$

0.09

 

 

$

0.20

 

 

$

0.11

 

 

$

0.24

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

65,401

 

 

 

64,265

 

 

 

65,209

 

 

 

64,143

 

Diluted

 

65,560

 

 

 

64,857

 

 

 

65,445

 

 

 

64,362

 

 

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 and Six Months Ended September 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

 

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

 

 

53

 

 

 

 

 

 

44

 

 

 

 

 

 

 

 

 

44

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,316

 

 

 

 

 

 

 

 

 

4,316

 

Components of other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(143

)

 

 

(143

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

6,081

 

 

 

 

 

 

6,081

 

Balance, September 30, 2019

 

 

65,436

 

 

 

654

 

 

 

272,848

 

 

 

118,946

 

 

 

(1,320

)

 

 

391,128

 

 

 

 

Three and Six Months Ended September 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

 

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

 

 

162

 

 

 

2

 

 

 

2,104

 

 

 

 

 

 

 

 

 

2,106

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,135

 

 

 

 

 

 

 

 

 

4,135

 

Components of other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(793

)

 

 

(793

)

Net income

 

 

 

 

 

 

 

 

 

 

 

13,094

 

 

 

 

 

 

13,094

 

Balance, September 30, 2018

 

 

64,382

 

 

 

644

 

 

 

253,613

 

 

 

102,869

 

 

 

(1,692

)

 

 

355,434

 

 

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)

 

 

 

Six Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

7,325

 

 

$

15,742

 

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

 

 

 

 

 

 

 

 

Amortization of capitalized software costs

 

 

8,680

 

 

 

4,892

 

Amortization of debt issuance costs

 

 

355

 

 

 

355

 

Amortization of other intangibles

 

 

10,305

 

 

 

10,864

 

Change in fair value of contingent consideration

 

 

400

 

 

 

 

Deferred income taxes

 

 

28

 

 

 

175

 

Depreciation

 

 

4,102

 

 

 

4,996

 

Excess tax benefit from share-based compensation

 

 

(50

)

 

 

(260

)

Impairment of assets

 

 

2,405

 

 

 

 

Loss on disposal of equipment and improvements

 

 

41

 

 

 

106

 

Non-cash operating lease costs

 

 

3,842

 

 

 

 

Provision for bad debts

 

 

1,635

 

 

 

1,385

 

Provision for inventory obsolescence

 

 

6

 

 

 

11

 

Share-based compensation

 

 

9,207

 

 

 

7,251

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,116

 

 

 

409

 

Contract assets

 

 

1,841

 

 

 

2,982

 

Inventory

 

 

56

 

 

 

16

 

Accounts payable

 

 

(638

)

 

 

1,843

 

Contract liabilities

 

 

(1,908

)

 

 

(8,230

)

Accrued compensation and related benefits

 

 

(3,838

)

 

 

(9,770

)

Income taxes

 

 

396

 

 

 

2,459

 

Deferred compensation

 

 

28

 

 

 

(135

)

Operating lease liabilities

 

 

(4,657

)

 

 

 

Other assets and liabilities

 

 

(913

)

 

 

(20,175

)

Net cash provided by operating activities

 

 

40,764

 

 

 

14,916

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to capitalized software costs

 

 

(9,901

)