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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, 2021

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.)

 

 

3525 Piedmont Rd., NE, Building 6, Suite 700, Atlanta, GA

(Address of principal executive offices)

30305

(Zip Code)

 

(404) 467-1500

(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 27, 2021 was 67,265,545 shares.

 

 

 


 

 

NEXTGEN HEALTHCARE, INC.

TABLE OF CONTENTS

FORM 10-Q

FOR THE THREE MONTHS ENDED JUNE 30, 2021

 

 

 

Item

 

Page

 

 

PART I.  FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements.

 

3

 

 

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021 and March 31, 2021

 

3

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2021 and 2020

 

4

 

 

Unaudited Statements of Condensed Consolidated Stockholders’ Equity for the three months ended June 30, 2021 and 2020

 

5

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2021 and 2020

 

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.

 

34

Item 4.

 

Controls and Procedures.

 

34

 

 

PART II.  OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings.

 

35

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.

 

36

Item 6.

 

Exhibits.

 

37

 

 

Signatures

 

38

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, 2021

 

 

March 31, 2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,002

 

 

$

73,295

 

Restricted cash and cash equivalents

 

 

7,048

 

 

 

5,280

 

Accounts receivable, net

 

 

73,495

 

 

 

77,541

 

Contract assets

 

 

20,446

 

 

 

19,481

 

Income taxes receivable

 

 

765

 

 

 

765

 

Prepaid expenses and other current assets

 

 

29,434

 

 

 

31,282

 

Total current assets

 

 

194,190

 

 

 

207,644

 

Equipment and improvements, net

 

 

13,476

 

 

 

14,539

 

Capitalized software costs, net

 

 

41,146

 

 

 

41,474

 

Operating lease assets

 

 

16,442

 

 

 

18,446

 

Deferred income taxes, net

 

 

19,446

 

 

 

19,474

 

Contract assets, net of current

 

 

1,930

 

 

 

1,976

 

Intangibles, net

 

 

33,601

 

 

 

36,700

 

Goodwill

 

 

267,212

 

 

 

267,212

 

Other assets

 

 

37,121

 

 

 

37,021

 

Total assets

 

$

624,564

 

 

$

644,486

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,213

 

 

$

11,378

 

Contract liabilities

 

 

52,281

 

 

 

52,863

 

Accrued compensation and related benefits

 

 

28,410

 

 

 

50,374

 

Income taxes payable

 

 

872

 

 

 

584

 

Operating lease liabilities

 

 

12,002

 

 

 

12,735

 

Other current liabilities

 

 

54,284

 

 

 

52,699

 

Total current liabilities

 

 

155,062

 

 

 

180,633

 

Deferred compensation

 

 

7,363

 

 

 

6,620

 

Operating lease liabilities, net of current

 

 

16,423

 

 

 

18,453

 

Other noncurrent liabilities

 

 

7,148

 

 

 

7,136

 

Total liabilities

 

 

185,996

 

 

 

212,842

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

 

 

$0.01 par value; authorized 100,000 shares; issued and outstanding 67,362 and 67,069 shares at June 30, 2021 and March 31, 2021, respectively

 

 

674

 

 

 

671

 

Additional paid-in capital

 

 

308,374

 

 

 

304,263

 

Accumulated other comprehensive loss

 

 

(1,962

)

 

 

(1,924

)

Retained earnings

 

 

131,482

 

 

 

128,634

 

Total shareholders' equity

 

 

438,568

 

 

 

431,644

 

Total liabilities and shareholders' equity

 

$

624,564

 

 

$

644,486

 

 

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

3


 

NEXTGEN HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

Revenues:

 

 

 

 

 

 

 

 

Recurring

$

132,381

 

 

$

119,522

 

 

Software, hardware, and other non-recurring

 

13,703

 

 

 

11,357

 

 

Total revenues

 

146,084

 

 

 

130,879

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

Recurring

 

57,160

 

 

 

50,429

 

 

Software, hardware, and other non-recurring

 

7,497

 

 

 

6,041

 

 

Amortization of capitalized software costs and acquired intangible assets

 

8,084

 

 

 

9,899

 

 

Total cost of revenue

 

72,741

 

 

 

66,369

 

 

Gross profit

 

73,343

 

 

 

64,510

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

48,486

 

 

 

40,737

 

 

Research and development costs, net

 

19,321

 

 

 

18,222

 

 

Amortization of acquired intangible assets

 

881

 

 

 

1,112

 

 

Impairment of assets

 

382

 

 

 

 

 

Restructuring costs

 

539

 

 

 

2,562

 

 

Total operating expenses

 

69,609

 

 

 

62,633

 

 

Income from operations

 

3,734

 

 

 

1,877

 

 

Interest income

 

12

 

 

 

6

 

 

Interest expense

 

(317

)

 

 

(1,107

)

 

Other income (expense), net

 

(22

)

 

 

16

 

 

Income before provision for income taxes

 

3,407

 

 

 

792

 

 

Provision for income taxes

 

559

 

 

 

1,616

 

 

Net income (loss)

$

2,848

 

 

$

(824

)

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

(38

)

 

 

(13

)

 

Comprehensive income (loss)

$

2,810

 

 

$

(837

)

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

Basic

$

0.04

 

 

$

(0.01

)

 

Diluted

$

0.04

 

 

$

(0.01

)

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

67,175

 

 

 

66,296

 

 

Diluted

 

67,799

 

 

 

66,296

 

 

 

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, 2021

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance, March 31, 2021

 

 

67,069

 

 

 

671

 

 

 

304,263

 

 

 

128,634

 

 

 

(1,924

)

 

 

431,644

 

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

 

 

293

 

 

 

3

 

 

 

(2,301

)

 

 

 

 

 

 

 

 

(2,298

)

Stock-based compensation

 

 

 

 

 

 

 

 

6,412

 

 

 

 

 

 

 

 

 

6,412

 

Components of other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

(38

)

Net income

 

 

 

 

 

 

 

 

 

 

 

2,848

 

 

 

 

 

 

2,848

 

Balance, June 30, 2021

 

 

67,362

 

 

 

674

 

 

 

308,374

 

 

 

131,482

 

 

 

(1,962

)

 

 

438,568

 

 

 

 

Three Months Ended June 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 (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

(13

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(824

)

 

 

 

 

 

(824

)

Balance, June 30, 2020

 

 

66,669

 

 

 

667

 

 

 

286,836

 

 

 

118,295

 

 

 

(2,156

)

 

 

403,642

 

 

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,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,848

 

 

$

(824

)

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

 

 

 

 

 

 

 

 

Amortization of capitalized software costs

 

 

5,866

 

 

 

4,763

 

Amortization of debt issuance costs

 

 

127

 

 

 

177

 

Amortization of other intangibles

 

 

3,099

 

 

 

6,248

 

Change in fair value of contingent consideration

 

 

 

 

 

25

 

Deferred income taxes

 

 

28

 

 

 

16

 

Depreciation

 

 

2,108

 

 

 

1,996

 

Excess tax deficiency (benefit) from share-based compensation

 

 

(176

)

 

 

867

 

Impairment of assets

 

 

382

 

 

 

 

Loss on disposal of equipment and improvements

 

 

38

 

 

 

 

Non-cash operating lease costs

 

 

1,628

 

 

 

1,683

 

Provision for bad debts

 

 

639

 

 

 

869

 

Share-based compensation

 

 

6,412

 

 

 

5,393

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,407

 

 

 

2,286

 

Contract assets

 

 

(919

)

 

 

(1,082

)

Accounts payable

 

 

(4,334

)

 

 

(1,391

)

Contract liabilities

 

 

(582

)

 

 

(5,626

)

Accrued compensation and related benefits

 

 

(21,964

)

 

 

(1,338

)

Income taxes

 

 

464

 

 

 

635

 

Deferred compensation

 

 

743

 

 

 

688

 

Operating lease liabilities

 

 

(2,676

)

 

 

(2,596

)

Other assets and liabilities

 

 

3,175

 

 

 

4,883

 

Net cash provided by operating activities

 

 

313

 

 

 

17,672

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to capitalized software costs

 

 

(5,538

)

 

 

(5,612

)

Additions to equipment and improvements

 

 

(1,002

)

 

 

(616

)

Net cash used in investing activities

 

 

(6,540

)

 

 

(6,228

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

 

 

 

50,000

 

Proceeds from issuance of shares under employee plans

 

 

671

 

 

 

426

 

Payments for taxes related to net share settlement of equity awards

 

 

(2,969

)

 

 

(1,834

)

Net cash provided by (used in) financing activities

 

 

(2,298

)

 

 

48,592

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(8,525

)

 

 

60,036

 

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

 

 

78,575

 

 

 

140,319

 

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

 

$

70,050

 

 

$

200,355

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

294

 

 

$

206

 

Cash refunds from income taxes

 

 

19

 

 

 

91

 

Cash paid for interest

 

 

 

 

 

947

 

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

 

 

2,964

 

 

 

3,133

 

Accrued purchases of equipment and improvements

 

 

169

 

 

 

69

 

 

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

 

Accounts Receivable

 

11

Note 4

 

Fair Value Measurements

 

12

Note 5

 

Leases

 

12

Note 6

 

Goodwill

 

13

Note 7

 

Intangible Assets

 

14

Note 8

 

Capitalized Software Costs

 

15

Note 9

 

Line of Credit

 

15

Note 10

 

Composition of Certain Financial Statement Captions

 

15

Note 11

 

Income Taxes

 

17

Note 12

 

Earnings Per Share

 

18

Note 13

 

Share-Based Awards

 

18

Note 14

 

Concentration of Credit Risk

 

21

Note 15

 

Commitments, Guarantees and Contingencies

 

21

Note 16

 

Restructuring Plan

 

22

Note 17

 

Subsequent Event

 

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, 2021 and for the three months ended June 30, 2021 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, 2021. 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.

 

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, 2021 and 2020:

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of revenue

$

504

 

 

$

424

 

 

Research and development costs

 

1,043

 

 

 

917

 

 

Selling, general and administrative

 

4,865

 

 

 

4,052

 

 

Total share-based compensation

 

6,412

 

 

 

5,393

 

 

Income tax benefit

 

(1,582

)

 

 

(1,264

)

 

Decrease in net income

$

4,830

 

 

$

4,129

 

 

 

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

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2019-12 on April 1, 2021 did not have a material impact on our condensed consolidated financial statements.

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 March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which clarifies the application of certain optional expedients and exceptions.  Topic 848 may be applied prospectively through December 31, 2022. We are currently evaluating the effect that ASU 2020-04 may have on our contracts that reference LIBOR, such as our amended and restated revolving credit agreement (see Note 9). We have not elected to apply any of the provisions of Topic 848, and we are currently in the process of evaluating the potential impact of adoption of this updated authoritative guidance on our condensed 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 condensed consolidated financial statements.

8


 

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, EDI, 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 a contract 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 because their standalone selling prices are highly variable and certain maintenance customers that are based on substantive renewal rates. In instances where standalone selling price is not sufficiently observable, such as RCM services and software licenses included in our 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,

 

 

 

2021

 

 

2020

 

 

Recurring revenues:

 

 

 

 

 

 

 

 

Subscription services

$

38,284

 

 

$

35,360

 

 

Support and maintenance

 

38,486

 

 

 

38,547

 

 

Managed services

 

29,431

 

 

 

22,493

 

 

Electronic data interchange and data services

 

26,180

 

 

 

23,122

 

 

Total recurring revenues

 

132,381

 

 

 

119,522

 

 

 

 

 

 

 

 

 

 

 

Software, hardware, and other non-recurring revenues:

 

 

 

 

 

 

 

 

Software license and hardware

 

7,214

 

 

 

4,740

 

 

Other non-recurring services

 

6,489

 

 

 

6,617

 

 

Total software, hardware and other non-recurring revenues

 

13,703

 

 

 

11,357

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

146,084

 

 

$

130,879

 

 

 

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

We generally recognize revenue for our most significant performance obligations as follows:

Subscription services. Performance obligations involving subscription services, which include annual libraries, are satisfied over time as the customer simultaneously receives and consumes the benefits of the services throughout the contract period. Our subscription services primarily include our software-as-a-service (“SaaS”) based offerings, such as our electronic health records and practice management, mobile, patient portal, and population health management solutions. Our SaaS-based offerings may include multiple goods and services, such as providing access to our technology-based solutions together with our managed cloud hosting services. These offerings are concurrently delivered with the same pattern of transfer to our customers and are accounted for as a single performance obligation because the technology-based solutions and other goods and services included within our overall SaaS-based offerings are each individually not capable of being distinct as the customer receives benefits based on the combined offering. Our annual libraries primarily consist of providing stand-ready access to certain content, knowledgebase, databases, and SaaS-based educational tools, which are frequently updated to meet the most current standards and requirements, to be utilized in conjunction with our core solutions. We recognize revenue related to these subscription services, including annual libraries, 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

9


 

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 our hosting services, which we refer to as managed cloud services, transcription services, patient pay 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 whereby we include in the transaction price estimated variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Such estimates are assessed at the contract level. 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. Our managed cloud services represent a single performance obligation to provide cloud hosting services to our customers and related revenue is recognized ratably over the respective noncancelable contract term. Performance obligations related to the transcription services, patient pay services, and other recurring services are 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, 2021, the aggregate amount of transaction price related to remaining unsatisfied or partially unsatisfied performance obligations over the respective noncancelable contract term was approximately $551,200, of which we expect to recognize approximately 10% as services are rendered or goods are delivered, 54% over the next 12 months, and the remainder thereafter.

As of June 30, 2020, the aggregate amount of transaction price related to remaining unsatisfied or partially unsatisfied performance obligations over the respective noncancelable contract term was approximately $505,700, of which we expect to recognize approximately 8% as services are rendered or goods are delivered, 54% 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 receivables include invoiced amounts where the right to receive payment is unconditional and only subject to the passage of time. Contract assets, consisting of unbilled receivables, 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 with other performance obligations such as subscription services, support and maintenance, annual libraries, 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

10


 

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 with the related customer payments and invoicing is expected to occur within the next twelve months. During the three months ended June 30, 2021 and 2020, we recognized $17,781 and $20,826, respectively, of revenues that were included in the contract liability balance or invoiced to customers since 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 five 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 $29,092 as of June 30, 2021, of which $9,941 is classified as current and included as prepaid expenses and other current assets and $19,151 is classified as 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, 2021 and 2020, we recognized $2,926 and $2,240, respectively, of commissions expense. Commissions expense primarily relate to the amortization of capitalized commissions costs, which is included as a selling, general and administrative expense in the condensed consolidated statements of net income and comprehensive income.

 

3. Accounts Receivable

 

Accounts receivable includes invoiced amounts where the right to receive payment is unconditional and only subject to the passage of time. Allowance for doubtful accounts are reported as a component of accounts receivable as summarized below:

 

 

 

June 30, 2021

 

 

March 31, 2021

 

Accounts receivable, gross

 

$

77,594

 

 

$

81,746

 

Allowance for doubtful accounts

 

 

(4,099

)

 

 

(4,205

)

Accounts receivable, net

 

$

73,495

 

 

$

77,541

 

 

The following table represents the changes in the allowance for doubtful accounts, as of and for the three months ended June 30, 2021:

 

Balance as of March 31, 2021

 

$

(4,205

)

Additions charged to costs and expenses

 

 

(639

)

Deductions

 

 

745

 

Balance as of June 30, 2021

 

$

(4,099

)

 

 

 

11


 

 

4. 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, 2021 and March 31, 2021:

 

 

 

Balance At

 

 

Quoted Prices

in Active

Markets for

Identical Assets

 

 

Significant Other

Observable Inputs

 

 

Unobservable

Inputs

 

 

 

June 30, 2021

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

63,002

 

 

$

63,002

 

 

$

 

 

$

 

Restricted cash and cash equivalents

 

 

7,048

 

 

 

7,048

 

 

 

 

 

 

 

 

 

$

70,050

 

 

$

70,050

 

 

$

 

 

$

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to acquisitions

 

$

533

 

 

$