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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, 2020

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 20, 2020 was 66,733,852 shares.

 

 

 


 

NEXTGEN HEALTHCARE, INC.

TABLE OF CONTENTS

FORM 10-Q

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

 

 

 

Item

 

Page

 

 

PART I.  FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements.

 

3

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and March 31, 2020

 

3

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended September 30, 2020 and 2019

 

4

 

 

Unaudited Statements of Condensed Consolidated Stockholders’ Equity for the six months ended September 30, 2020 and 2019

 

5

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2020 and 2019

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

26

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk.

 

39

Item 4.

 

Controls and Procedures.

 

39

 

 

PART II.  OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings.

 

40

Item 1A.

 

Risk Factors.

 

40

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

40

Item 3.

 

Defaults Upon Senior Securities.

 

41

Item 4.

 

Mine Safety Disclosure.

 

41

Item 5.

 

Other Information.

 

41

Item 6.

 

Exhibits.

 

42

 

 

Signatures

 

43

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, 2020

 

 

March 31, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

103,440

 

 

$

138,012

 

Restricted cash and cash equivalents

 

 

5,405

 

 

 

2,307

 

Accounts receivable, net

 

 

75,102

 

 

 

80,006

 

Contract assets

 

 

15,714

 

 

 

12,529

 

Income taxes receivable

 

 

1,900

 

 

 

856

 

Prepaid expenses and other current assets

 

 

23,361

 

 

 

26,305

 

Total current assets

 

 

224,922

 

 

 

260,015

 

Equipment and improvements, net

 

 

16,720

 

 

 

19,836

 

Capitalized software costs, net

 

 

39,234

 

 

 

37,004

 

Operating lease assets

 

 

30,804

 

 

 

31,004

 

Deferred income taxes, net

 

 

10,647

 

 

 

10,620

 

Contract assets, net of current

 

 

2,303

 

 

 

3,007

 

Intangibles, net

 

 

45,577

 

 

 

57,809

 

Goodwill

 

 

267,212

 

 

 

267,165

 

Other assets

 

 

34,993

 

 

 

33,656

 

Total assets

 

$

672,412

 

 

$

720,116

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,822

 

 

$

10,521

 

Contract liabilities

 

 

48,442

 

 

 

56,786

 

Accrued compensation and related benefits

 

 

32,140

 

 

 

23,792

 

Income taxes payable

 

 

50

 

 

 

148

 

Operating lease liabilities

 

 

11,061

 

 

 

10,619

 

Other current liabilities

 

 

38,887

 

 

 

41,352

 

Total current liabilities

 

 

137,402

 

 

 

143,218

 

Deferred compensation

 

 

6,140

 

 

 

5,300

 

Line of credit

 

 

64,000

 

 

 

129,000

 

Operating lease liabilities, net of current

 

 

36,380

 

 

 

38,823

 

Other noncurrent liabilities

 

 

8,899

 

 

 

3,281

 

Total liabilities

 

 

252,821

 

 

 

319,622

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

 

 

$0.01 par value; authorized 100,000 shares; issued and outstanding 66,734 and 66,134 shares at September 30, 2020 and March 31, 2020, respectively

 

 

667

 

 

 

661

 

Additional paid-in capital

 

 

292,228

 

 

 

282,857

 

Accumulated other comprehensive loss

 

 

(2,054

)

 

 

(2,143

)

Retained earnings

 

 

128,750

 

 

 

119,119

 

Total shareholders' equity

 

 

419,591

 

 

 

400,494

 

Total liabilities and shareholders' equity

 

$

672,412

 

 

$

720,116

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

$

125,691

 

 

$

120,589

 

 

$

245,213

 

 

$

240,036

 

 

Software, hardware, and other non-recurring

 

14,311

 

 

 

13,667

 

 

 

25,668

 

 

 

26,081

 

 

Total revenues

 

140,002

 

 

 

134,256

 

 

 

270,881

 

 

 

266,117

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

52,906

 

 

 

50,328

 

 

 

103,335

 

 

 

100,868

 

 

Software, hardware, and other non-recurring

 

6,083

 

 

 

6,563

 

 

 

12,124

 

 

 

12,841

 

 

Amortization of capitalized software costs and acquired intangible assets

 

9,961

 

 

 

8,843

 

 

 

19,860

 

 

 

17,256

 

 

Total cost of revenue

 

68,950

 

 

 

65,734

 

 

 

135,319

 

 

 

130,965

 

 

Gross profit

 

71,052

 

 

 

68,522

 

 

 

135,562

 

 

 

135,152

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

41,950

 

 

 

39,046

 

 

 

82,687

 

 

 

79,174

 

 

Research and development costs, net

 

17,692

 

 

 

19,789

 

 

 

35,914

 

 

 

41,840

 

 

Amortization of acquired intangible assets

 

1,112

 

 

 

865

 

 

 

2,224

 

 

 

1,730

 

 

Impairment of assets

 

 

 

 

1,916

 

 

 

 

 

 

2,405

 

 

Restructuring costs

 

 

 

 

175

 

 

 

2,562

 

 

 

1,882

 

 

Total operating expenses

 

60,754

 

 

 

61,791

 

 

 

123,387

 

 

 

127,031

 

 

Income from operations

 

10,298

 

 

 

6,731

 

 

 

12,175

 

 

 

8,121

 

 

Interest income

 

12

 

 

 

36

 

 

 

18

 

 

 

115

 

 

Interest expense

 

(1,135

)

 

 

(387

)

 

 

(2,242

)

 

 

(859

)

 

Other income (expense), net

 

(18

)

 

 

210

 

 

 

(2

)

 

 

77

 

 

Income before provision for (benefit of) income taxes

 

9,157

 

 

 

6,590

 

 

 

9,949

 

 

 

7,454

 

 

Provision for (benefit of) income taxes

 

(1,298

)

 

 

509

 

 

 

318

 

 

 

129

 

 

Net income

$

10,455

 

 

$

6,081

 

 

$

9,631

 

 

$

7,325

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

102

 

 

 

(143

)

 

 

89

 

 

 

(89

)

 

Comprehensive income

$

10,557

 

 

$

5,938

 

 

$

9,720

 

 

$

7,236

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.16

 

 

$

0.09

 

 

$

0.14

 

 

$

0.11

 

 

Diluted

$

0.16

 

 

$

0.09

 

 

$

0.14

 

 

$

0.11

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

66,688

 

 

 

65,401

 

 

 

66,493

 

 

 

65,209

 

 

Diluted

 

66,689

 

 

 

65,560

 

 

 

66,493

 

 

 

65,445

 

 

 

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)

 

 

 

 

Six Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance, March 31, 2020

 

 

66,134

 

 

 

661

 

 

 

282,857

 

 

 

119,119

 

 

 

(2,143

)

 

 

400,494

 

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

 

 

535

 

 

 

6

 

 

 

(1,414

)

 

 

 

 

 

 

 

 

(1,408

)

Stock-based compensation

 

 

 

 

 

 

 

 

5,393

 

 

 

 

 

 

 

 

 

5,393

 

Components of other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

(13

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(824

)

 

 

 

 

 

(824

)

Balance, June 30, 2020

 

 

66,669

 

 

 

667

 

 

 

286,836

 

 

 

118,295

 

 

 

(2,156

)

 

 

403,642

 

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

 

 

65

 

 

 

 

 

 

(45

)

 

 

 

 

 

 

 

 

 

 

(45

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

5,437

 

 

 

 

 

 

 

 

 

 

 

5,437

 

Components of other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

102

 

 

 

102

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,455

 

 

 

 

 

 

 

10,455

 

Balance, September 30, 2020

 

 

66,734

 

 

 

667

 

 

 

292,228

 

 

 

128,750

 

 

 

(2,054

)

 

 

419,591

 

 

 

 

Six Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated 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

 

 

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,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

9,631

 

 

$

7,325

 

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

 

 

 

 

 

 

 

 

Amortization of capitalized software costs

 

 

9,853

 

 

 

8,680

 

Amortization of debt issuance costs

 

 

355

 

 

 

355

 

Amortization of other intangibles

 

 

12,232

 

 

 

10,305

 

Change in fair value of contingent consideration

 

 

50

 

 

 

400

 

Deferred income taxes

 

 

(27

)

 

 

28

 

Depreciation

 

 

3,937

 

 

 

4,102

 

Excess tax deficiency (benefit) from share-based compensation

 

 

941

 

 

 

(50

)

Impairment of assets

 

 

 

 

 

2,405

 

Loss on disposal of equipment and improvements

 

 

 

 

 

41

 

Non-cash operating lease costs

 

 

3,421

 

 

 

3,842

 

Provision for bad debts

 

 

1,399

 

 

 

1,635

 

Share-based compensation

 

 

10,830

 

 

 

9,207

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,505

 

 

 

2,116

 

Contract assets

 

 

(2,481

)

 

 

1,841

 

Accounts payable

 

 

(3,756

)

 

 

(638

)

Contract liabilities

 

 

(8,344

)

 

 

(1,908

)

Accrued compensation and related benefits

 

 

8,348

 

 

 

(3,838

)

Income taxes

 

 

(2,083

)

 

 

396

 

Deferred compensation

 

 

840

 

 

 

28

 

Operating lease liabilities

 

 

(5,224

)

 

 

(4,657

)

Other assets and liabilities

 

 

4,605

 

 

 

(851

)

Net cash provided by operating activities

 

 

48,032

 

 

 

40,764

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to capitalized software costs

 

 

(12,083

)

 

 

(9,901

)

Additions to equipment and improvements

 

 

(764