NextGen Healthcare Annual Report 2016

Plain-text annual report

QUALITY SYSTEMS, INC FORM 10-K (Annual Report) Filed 05/25/16 for the Period Ending 03/31/16 Address Telephone CIK 18111 VON KARMAN AVENUE SUITE 700 IRVINE, CA 92612 949-255-2600 0000708818 Symbol QSII SIC Code Industry Sector Fiscal Year 7373 - Computer Integrated Systems Design Software & Programming Technology 03/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KþANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2016oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number: 001-12537QUALITY SYSTEMS, 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 Name of each exchange on which registeredCommon Stock, $0.01 Par Value NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þIndicate 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 preceding12 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 þNo oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted 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 submitand post such files). Yes þ No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer þ Accelerated filer o Non-accelerated filer o(Do not check if a smallerreporting company) Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þThe aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 2015 : $630,174,000 (based on the closing sales price of theRegistrant’s common stock as reported on the NASDAQ Global Select Market on that date of $12.48 per share).*The Registrant has no non-voting common equity.The number of outstanding shares of the Registrant’s common stock as of May 18, 2016 was 60,979,997 shares.* For purposes of this Annual Report on Form 10-K, in addition to those shareholders which fall within the definition of “affiliates” underRule 405 of the Securities Act of 1933, as amended, holders of ten percent or more of the Registrant’s common stock are deemed to beaffiliates for purposes of this Report.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive proxy statement related to the 2016 Annual Shareholders' Meeting to be filed with the Securities and Exchange Commission within 120days of the registrant’s fiscal year ended March 31, 2016 are incorporated herein by reference in Part III of this Annual Report on Form 10-K where indicated.QUALITY SYSTEMS, INC.TABLE OF CONTENTS2016 ANNUAL REPORT ON FORM 10-KItem PagePART I Item 1.Business 3Item 1A.Risk Factors 9Item 1B.Unresolved Staff Comments 24Item 2.Properties 24Item 3.Legal Proceedings 24Item 4.Mine and Safety Disclosures 24 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25Item 6.Selected Financial Data 27Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 28Item 7A.Quantitative and Qualitative Disclosures about Market Risks 47Item 8.Financial Statements and Supplementary Data 47Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 47Item 9A.Controls and Procedures 47Item 9B.Other Information 48 PART III Item 10.Directors, Executive Officers and Corporate Governance 49Item 11.Executive Compensation 49Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 49Item 13.Certain Relationships and Related Transactions, and Director Independence 49Item 14.Principal Accountant Fees and Services 49 PART IV Item 15.Exhibits and Financial Statement Schedules 50 Signatures 53Table of ContentsCAUTIONARY STATEMENTThis Annual Report on Form 10-K (this "Report") and certain information incorporated herein by reference contain forward-looking statements within the “safeharbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Report, other thanstatements that are purely historical, are forward-looking statements. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,”“should,” “would,” “could,” “may,” and similar expressions also identify forward-looking statements. These forward-looking statements include, without limitation,discussions of our product development plans, business strategies, future operations, financial condition and prospects, developments in and the impacts ofgovernment regulation and legislation and market factors influencing our results. Our expectations, beliefs, objectives, intentions and strategies regarding ourfuture results are not guarantees of future performance and are subject to risks and uncertainties, both foreseen and unforeseen, that could cause actual resultsto differ materially from results contemplated in our forward-looking statements. These risks and uncertainties include, but are not limited to, our ability tocontinue to develop new products and increase systems sales in markets characterized by rapid technological evolution, consolidation, and competition fromlarger, better-capitalized competitors. Many other economic, competitive, governmental and technological factors could affect our ability to achieve our goals,and interested persons are urged to review the risks factors discussed in “Item 1A. Risk Factors” of this Report, as well as in our other public disclosures andfilings with the Securities and Exchange Commission (“SEC”). Because of these risk factors, as well as other variables affecting our financial condition andresults of operations, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipateresults or trends in future periods. We assume no obligation to update any forward-looking statements. You are cautioned not to place undue reliance onforward-looking statements, which speak only as of the date of the filing of this Report. Each of the terms “we,” “us,” “our” or the “Company” as used throughoutthis Report refers collectively to Quality Systems, Inc. and its wholly-owned subsidiaries, unless otherwise indicated.PART IITEM 1. BUSINESSCompany OverviewQuality Systems, Inc., primarily through its NextGen Healthcare subsidiary, provides technology-based solutions and services to the ambulatory care market inthe United States. Our solutions provide our clients with the ability to redesign patient care and other workflow processes while improving productivity throughthe facilitation of managed access to patient information. We help promote healthy communities by empowering physician practice success and enriching thepatient care experience while lowering the cost of healthcare.We primarily derive revenue by developing and marketing software and services that automate certain aspects of practice management (“PM”) and electronichealth records (“EHR”) for medical and dental practices. Our software can be licensed on a perpetual, on-premise basis, hosted in a private cloud or, in certaininstances, as a software-as-a-service (“SaaS”) solution. We market and sell our solutions through a dedicated sales force and to a much lesser extent, throughresellers. Our clients include single and small practice physicians, networks of practices such as physician hospital organizations (“PHOs”), management serviceorganizations (“MSOs”), accountable care organizations (“ACOs”), ambulatory care centers, community health centers and medical and dental schools. We alsoprovide implementation, training, support and maintenance for software and complementary services such as revenue cycle management (“RCM”) andelectronic data interchange (“EDI”).We have a history of developing new and enhanced technologies. Over the course of a number of years, we have also made strategic acquisitions tocomplement and enhance our product portfolio in the ambulatory care, RCM, and hospital markets. In October 2015, we divested our Hospital SolutionsDivision. In January 2016, we acquired HealthFusion Holdings, Inc. ("HealthFusion").Quality Systems, Inc. was incorporated in California in 1974. Our principal offices are located at 18111 Von Karman Ave., Suite 800, Irvine, California, 92612.Our website is located at www.Nextgen.com. We operate on a fiscal year ending on March 31.Our StrategyAs a healthcare information technology and services company, we plan to continue investing in our current capabilities as well as building and/or acquiring newcapabilities as we guide our clients from fee-for-service to fee-for-value payer reimbursement models. With approximately 90,000 providers using our solutions,we are enabling care and believe we can truly transform the delivery of care through the following strategic priorities:•Focus on the ambulatory client segment. In October 2015, we sold our Hospital Solutions Division to focus on our core ambulatory clients. Further, arecent operational reorganization better allows us to serve the needs of our ambulatory clients through a simpler, more nimble, and focusedorganization. We believe it is essential to protect, build and sell new capabilities within our ambulatory platform. We are focused on our core byincreasing quality and the serviceability of our solutions. We intend to continue to enhance the capabilities of our NextGen Ambulatory flagship product.3Table of Contents•Cloud transition. Through our acquisition of HealthFusion in January 2016, we acquired a highly scalable, pure cloud-based and mobile-enabledplatform that operates under the tradename MediTouch®. We intend to expand the capability of this platform to serve the requirements of largerambulatory practices. When combined with our Mirth-branded products, we can offer our clients a full suite of cloud-based solutions that better enableour clients to focus on care delivery.•Solutions selling. We believe there is significant opportunity to extend the solutions we offer existing and new clients through value added servicessuch as RCM, EDI, interoperability solutions and professional services. This will evolve our relationships from being a seller of products and services todelivering a consistent solution suite and experience for our clients.•Population health software and services. We are migrating into applications, analytics and services that we believe will enable our clients to besuccessful in managing the health of patient populations. We are establishing strong development partners within our core client base, participating inshared-risk contracts, and working together to determine population health solutions.•More effective use of capital. From cessation of the dividend, leveraging our balance sheet for future opportunities, to managing our cost structure,we are transforming our capital strategy. Our recent reorganization was formulated to result in a more efficient, integrated and streamlined organization.Business OrganizationOur business divisions consist of the NextGen Division, the RCM Services Division, the QSI Dental Division, and the former Hospital Solutions Division that wasdivested in October 2015. Our divisions share the resources of our “corporate office,” which includes a variety of accounting, finance and other administrativefunctions.NextGen Division•The NextGen Division provides integrated clinical, financial and connectivity solutions for ambulatory and dental provider organizations. The NextGenDivision's major product categories include the NextGen® Ambulatory product suite, interoperability solutions, and cloud-based health care informationtechnology (“HCIT”) software, including MediTouch®.RCM Services Division•The RCM Services Division delivers revenue cycle management optimization services enabled by technology, and its service offerings include billingand collections, claims submissions and reconciliation, electronic remittance and payment posting, accounts receivable management, patient clientservice, advance analytics, charge entry and capture, enrollment credentialing, and software setup, hosting, and support. Our technology-basedsolutions are designed to optimize clients' revenue cycle costs and process efficiency, and improve clients’ cash flow (typically measured by thenumber of days that their accounts receivable remain uncollected).QSI Dental Division•The QSI Dental Division focuses on developing, marketing and supporting software suites sold to dental group organizations located throughout theUnited States. The QSI Dental Division sells licenses to its legacy products as existing clients expand their operations and also sells its practicemanagement and clinical software solutions to new and existing clients primarily as a cloud-based SaaS platform known as QSIDental Web®.Hospital Solutions Division•The Hospital Solutions Division provided integrated and modular clinical, financial, connectivity and related solutions for small rural, community andspecialty hospitals. In October 2015, as part of our strategy to focus on our core ambulatory clients, we divested the Hospital Solutions Division.The following table breaks down our reported segment revenue and segment revenue growth (decline) by division for the fiscal years ended March 31, 2016 ,2015 and 2014 . Additional information regarding our operating segment data is set forth in Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and in Note 15, “Operating Segment Information” of our notes to consolidated financial statements included elsewhere inthis Report. Segment Revenue BreakdownFiscal Year Ended March 31, Segment Revenue Growth (Decline)Fiscal Year Ended March 31, 2016 2015 2014 2016 2015 2014NextGen Division$375,801 $373,765 $341,120 0.5 % 9.6 % (0.9)%RCM Services Division89,831 80,005 68,093 12.3 % 17.5 % 5.6 %QSI Dental Division19,376 18,451 19,840 5.0 % (7.0)% (0.8)%Hospital Solutions Division7,469 18,004 15,614 (58.5)% 15.3 % (50.3)%Consolidated$492,477 $490,225 $444,667 0.5 % 10.2 % (3.4)%4Table of ContentsA growing number of our clients are simultaneously utilizing software or services from more than one of our divisions. To enhance our ability to cross sellproducts and services, we are further integrating our products and services to provide a more robust and comprehensive platform.We continue to evaluate the organizational structure of our company with the objective of achieving greater synergies and further integration of our products andservices, in support of our business strategies. In fiscal 2016, we initiated a three-phase plan to better position our organization for future success. In the firstphase, we redesigned the organization to more effectively support the execution of our strategy. We also transformed our management team with theappointment of a new chief executive officer, chief financial officer, chief technology officer, and chief client officer. This first phase was completed in April 2016,when we announced a corporate reorganization to enable a more efficient, integrated and client-centered delivery of the holistic solutions that we believe isrequired by our ambulatory care clients. The reorganization includes merging our business units into a single, streamlined, functional-based organizationstructure.We are now beginning phase two of the plan, which includes building and enhancing the capabilities that will drive future revenue growth. The third phase of theplan will consist of developing the services and solutions to accelerate revenue growth.Our future reportable segments may change as a result of changes to the organization of our business.Industry Background and Market OpportunityWe believe there are significant opportunities and challenges in the ambulatory healthcare market due to changes in regulations and requirements that haveoccurred over the past several years. We have seen Health Information Technology for Economic and Clinical Health portion of the American Recovery andReinvestment Act of 2009 ("HITECH Act") drive the adoption of EHRs, the Patient Protection and Affordable Care Act in 2010 (“ACA”) drive fundamentalchanges to the health insurance industry, and most recently, the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) is driving value-basedpayment reform. We believe MACRA may be the most important of the three regulations for our market because it permanently changes how ambulatoryhealthcare providers are reimbursed by Medicare. It offers certainty and a timeline for the market’s move away from volume-based, fee-for-service models tovalue-based payment models that reward the delivery of lower cost, high quality care. Because of the scope and complexity of the changes in the 962-pageproposed rule, we are focused on educating our clients and the market about these changes and ensuring that we are providing the solutions needed to thriveunder the new payment systems established by MACRA.HCIT solutions have become the catalyst for propelling healthcare into this outcomes-based era and many of our clients are paving the way. As part of thehealthcare transformation that is taking place, providers will be held accountable for proactively managing the health of entire patient populations and deliveringhigher quality care at lower costs. As such, healthcare organizations are likely to invest in healthcare technology and technology-enabled services that will helpidentify patient risk, engage patients, coordinate care, and determine when intervention is needed to improve clinical and financial outcomes. We are wellpositioned to provide the solutions providers need to reach these goals. Additionally, we believe there will be an increasing demand for revenue cyclemanagement services that are aligned and integrated with clinical technology solutions. This is another positive development for us since our RCM ServicesDivision provides revenue cycle solutions that are integrated with, and optimize, our technologies for better results. Through our Mirth products, we provide ourclients with the ability to securely share data, or interoperability, is also essential to transform the healthcare delivery system into one that provides better care,smarter spending, and healthier people.Today, our company and our clients are leaders in driving healthcare transformation. As healthcare continues to change, our focus is to help our clients adapt,thrive, and deliver the best patient care possible.Products and ServicesSoftware and SubscriptionsNextGen® Ambulatory Electronic Health Records (NextGen® Ambulatory EHR). Our EHR version 5.8 offering is ONC 2014 Edition certified as a completeEHR. It stores and maintains clinical patient information and offers a workflow module, prescription management, automatic document and letter generation,patient education, referral tracking, interfaces to billing and lab systems, physician alerts and reminders and reporting and data analysis tools. Its configurableclinical content supports all of the required critical quality measures (“CQMs”) in Quality Reporting Document Architecture (“QRDA”) format.NextGen® Ambulatory Practice Management Systems (NextGen® PM) . Our PM offering is a seamlessly integrated, scalable, multi-module solution thatincludes a master patient index, enterprise-wide appointment scheduling with referral tracking, and clinical support. NextGen® PM is a highly configurable, cost-effective, and proven solution that enables the management of both single and multi-practice settings. It is designed to drive efficiency, increase revenue, andspeed cash flow through greater practice control. It has achieved full accreditation with the Practice Management Systems Accreditation Program (“PMSAP”)from the Electronic Healthcare Network Accreditation Commission (“EHNAC”).NextGen MediTouch®. MediTouch® is a cloud-based EHR and PM solution for physicians, and medical billing services. The product expands our offering tothe ambulatory client base and enhances our cloud-based technology platform for the needs of smaller and growing practices. It will also facilitate providing abroad mix of additional NextGen Division solutions to the HealthFusion client base.5Table of ContentsNextGen® Interoperability Solutions. NextGen® interoperability, powered by Mirth technology, enables patient data from disparate systems to be easily andsecurely shared, aggregated, and put to work, regardless of EHR, PM, or other HCIT platform or location. Providers have simple access to aggregated,actionable data to better treat patients using a complete longitudinal medical record, manage transitions of care, coordinate care plans, and manage chronicconditions. NextGen® interoperability solutions facilitate improved clinical and financial outcomes across organizations . Interoperability product offeringsavailable include Mirth Connect, Mirth Results, Mirth Match, Mirth Mail, Mirth Appliance, and Mirth Care Enterprise.NextGen® Share. This interoperability solution, developed using Mirth technology, helps providers safely and securely send and manage referrals, andaccurately exchange clinical content, all without leaving their NextGen® Ambulatory EHR application. It allows easy, secure exchange of data with third-partyproviders, payers, and organizations.NextGen® HIE. This vendor-agnostic health information exchange (“HIE”) is a Mirth solution. It facilitates cross-enterprise data sharing, enabling individualphysician practices in a given community to selectively share critical data, such as demographics, referrals, medications lists, allergies, diagnoses, lab results,histories and more.NextGen® Patient Portal. NextGen® Patient Portal drives patient engagement and satisfaction with easy, intuitive, 24x7 access to payments, scheduling,personal health information, and communication. It facilitates and simplifies comprehensive information exchange, offering anytime, anywhere access from PCs,tablets, and smart phones.QSIDental Web® (“QDW”). QDW, our cloud-based, SaaS practice management and clinical software solution, is marketed primarily to the multi-location dentalgroup practice market in which the QSI Dental Division remains a dominant player. QDW is at the forefront of web-enabled dental applications and cloudcomputing and represents a significant growth opportunity for us to sell to our existing client base and new clients.NextGen® Electronic Dental Record ("EDR"). NextGen® EDR is our most fully integrated dental solution available, combining setup and user functions,while integrating alerts and communication with our ambulatory PM, and serves as a single database for reporting across EHR and EDR records. Our patientrecords management shared by dentists and physicians increase productivity and safety while reducing costs. Integration with our NextGen® ambulatorysolutions provides a comprehensive community solution for federally qualified health centers (“FQHCs”), community health centers (“CHCs”), corrections, andtribal health practices.ServicesNextGen® Revenue Cycle Management Services (NextGen® RCM Services). Our RCM services partners with private ambulatory and hospital-basedphysicians and groups to implement the NextGen® product suite using best practices and enables clients to tailor scalable RCM services that help themstreamline workflow, identify and fix revenue leaks, increase cash flow, and optimize revenue. RCM services include Billing and collections, Electronic claimssubmission and denials management, Electronic remittance and payment posting and Accounts receivable follow-up. Our dedicated account managementmodel helps make our RCM offering “1st in KLAS” in the KLAS 2014 Ambulatory RCM Services Report, their most current report.NextGen® EDI and NextGen® Clearinghouse Solutions. NextGen® EDI provides direct interfaces between our products and external third party systems, aswell as transaction-based services. They help automate paper-based or telephony-intensive manual communications between patients and/or providers and/orpayers. They also help check insurance benefits and identify patient financial responsibility. Our full-service electronic claims clearinghouse solutions helpreduce claim denials through personalized claims processing and electronic remittance advice tools. This helps providers improve claims efficiency, get paidfaster, and manage the full claims life cycle at favorable costs.NextGen® Managed Cloud Services . These new, scalable, cloud hosting services reduce the burden of information technology ("IT"). They speedimplementations, simplify upgrades, cut technology costs significantly, offer the latest technology, and provide 24/7 monitoring and support by an expandedteam of technical experts. Clients can benefit from cloud access to a secure, hosted IT infrastructure and regardless of size, can scale and enjoy the advantagesof a cloud-based environment for its EHR and PM systems, enabling them to focus more on care and the practice, not on IT.NextGen® Consulting Services. This offering delivers specialized knowledge and consultative services for providers and organizations to help them meet thedemands of an increasingly complex healthcare delivery system. It is staffed by expert physicians as well as business and technology professionals withdecades of expertise.Professional ServicesWe offer a variety of professional services to our clients. Such services include training, project management, functional and detailed specification preparation,configuration, testing, and installation services. We generally charge for professional services on a time and materials basis, but we also charge on a fixed feebasis for projects with milestone payments utilizing mutually agreed upon functional and detailed specifications. We offer NextGen® “E-learning”, an on-linelearning subscription service, which allows end-users to self-manage their learning. Our consulting services, which include physician, professional, and technicalconsulting, assist clients with optimizing their staffing and software solutions, enhancing financial and clinical outcomes, achieving regulatory requirements in thedrive to value-based care, to meet the evolving requirements of healthcare reform.6Table of ContentsClient Service and SupportOur technical services staff provide support for the dependable and timely resolution of technical inquiries from clients. Such inquiries are made via telephone,email and the Internet. We offer several levels of support, with the most comprehensive service covering 24 hours a day, seven days a week. The charge forsupport and maintenance varies, depending upon the related level of service and other factors, including the related software license fee. As a result of our largeinstalled user base, our support and maintenance revenues represent a significant portion of our total revenue. By remaining current on support andmaintenance fees, clients also receive access to future unspecified versions of the software, on a when-available basis, as part of support services.To further improve and simplify our client’s Client Service and Support experience, we recently implemented an Online Client Success Community that allowsclients to access support, knowledge articles and documentation, and interact with peers one-on-one, all in one portal.Proprietary RightsWe rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect proprietaryrights in our products and services. To protect our proprietary rights, we enter into confidentiality agreements and invention assignment agreements with ouremployees with whom such controls are relevant. In addition, we include intellectual property protective provisions in our client contracts.We rely on software that we license from third parties for certain components of our products and services. These components enhance our products andservices and help meet evolving client needs. The failure to license any necessary technology, or to maintain our existing licenses, could result in reducedfunctionality of or reduced demand for our products.Because the software industry is characterized by rapid technological change, we believe such factors as the technological and creative skills of our personnel,new product developments, frequent product enhancements, name recognition, and reliable product maintenance are more important to establishing andmaintaining a technology leadership position than the various legal protections of our technology.Although we believe our products and services, and other proprietary rights, do not infringe upon the proprietary rights of third parties, third parties may assertintellectual property infringement claims against us in the future. Any such claims may result in costly, time-consuming litigation and may require us to enter intoroyalty or cross-license arrangements.CompetitionThe markets for healthcare information systems and services are intensely competitive. The industry is highly fragmented and includes numerous competitors.Our principal existing competitors in the healthcare information systems and services market include: Allscripts Healthcare Solutions, Inc., athenahealth, Inc.,Cerner Corporation, eClinicalWorks, Epic Systems Corporation, GE Healthcare, Greenway Health, LLC, Healthcare Management Systems, Inc. (HMS),McKesson Corporation, Medical Information Technology, Inc. (MEDITECH), Practice Fusion, and other competitors.The practice management, interoperability and connectivity markets, in particular, are subject to rapid changes in technology, and we expect that competition inthese market segments could increase as new competitors enter the market. We believe our principal competitive advantages are the features and capabilitiesof our products and services, our high level of client support, and our extensive experience in the industry.The RCM market is also intensely competitive as other healthcare information systems companies, such as athenahealth, Inc., GE Healthcare, McKessonCorporation, and Allscripts Healthcare Solutions, Inc., are also in the market of selling both PM and EHR software and medical billing, collection and claimsservices.Research and DevelopmentThe healthcare information management and computer software and hardware industries are characterized by rapid technological change requiring us toengage in continuing investments to update, enhance and improve our systems. During fiscal years 2016 , 2015 and 2014 , we expended approximately $80.3million , $83.8 million and $62.3 million , respectively, on research and development activities, including capitalized software costs of $14.7 million , $14.6 millionand $20.8 million , respectively. The majority of such expenditures are currently targeted on the NextGen Division products lines. In addition, a portion of ourproduct enhancements have resulted from software development work performed under contracts with our clients.Sales and MarketingWe sell and market our products primarily through a direct sales force and to a lesser extent, through a reseller channel. Software license sales to resellersrepresented less than 10% of total revenue for the years ended March 31, 2016 , 2015 and 2014 .Our direct sales force typically makes presentations to potential clients by demonstrating the system and our capabilities on the prospective client’s premises.Sales efforts aimed at smaller practices can be performed on the prospective clients’ premises, or7Table of Contentsremotely via telephone or Internet-based presentations. Both the direct and reseller channel sales force are concentrating on more multi-product salesopportunities.Our sales and marketing employees identify prospective clients through a variety of means, including referrals from existing clients, industry consultants,contacts at professional society meetings, trade shows and web-based seminars, trade journal advertising, online advertising, public relations and social mediacampaigns, direct mail and email campaigns, and telemarketing. Resources have shifted more heavily to Web-based marketing to take advantage of buyers thatnow tend to do more Web research before contacting a vendor and other benefits of online marketing. In addition, we also focus on thought leadership andcontent marketing to highlight our industry knowledge, expertise and the successes of our client base.Our sales cycle can vary significantly and typically ranges from six to twenty-four months from initial contact to contract execution. Software licenses arenormally delivered to a client almost immediately upon receipt of an order. Implementation and training services are normally rendered based on a mutuallyagreed upon timetable. As part of the fees paid by our clients, we normally receive up-front licensing fees. Clients have the option to purchase hosting andmaintenance services which, if purchased, are invoiced on a monthly, quarterly or annual basis.We continue to concentrate our direct sales and marketing efforts on single and small practice physicians, medical and dental practices, networks of suchpractices including independent practice associations ("IPAs") and physician hospital organizations ("PHOs"), professional schools, community health centersand other ambulatory care settings. IPAs, PHOs and similar networks to which we have sold systems provide use of our software to those group and singlephysician practices associated with the organization or hospital on either a service basis or by directing us to contract with those practices for the sale of stand-alone systems.We have numerous clients and do not believe that the loss of any single client would adversely affect us. No client accounted for 10% or more of our netrevenue during the fiscal years ended March 31, 2016 , 2015 and 2014 . Substantially all of our clients are located in the United States.EmployeesAs of March 31, 2016 , we employed approximately 2,987 individuals, of which 2,967 were full-time employees. Approximately 443 of our employees werelocated in Bangalore, India with primary focus on software development activities. Aside from our Bangalore facility, substantially all of our employees andoperations are based in the United States.We believe that our future success depends in part upon recruiting and retaining qualified sales, marketing and technical personnel as well as other employees.None of our employees are covered by a collective bargaining agreement or are represented by a labor union.Available InformationOur principal websites are www.qsii.com and www.Nextgen.com. We make our periodic and current reports, together with amendments to these reports, filed orfurnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, available on our website, free of charge, as soon asreasonably practicable after such material is electronically filed with, or furnished to, the SEC. You may access such filings under the “Investor Relations” buttonon our website. Members of the public may also read and copy any materials we file with, or furnish to, the SEC at the SEC’s Public Reference Room at 100 FStreet, NE, Washington, DC 20549. To obtain information on the operation of the Public Reference Room, please call the SEC at 1-800-SEC-0330. The SECmaintains an Internet site at www.sec.gov that contains the reports, proxy statements and other information that we file electronically with the SEC. Our websiteand the information contained therein or connected thereto is not intended to be incorporated into this Report or any other report or information we file with theSEC.8Table of ContentsITEM 1A. RISK FACTORSYou should carefully consider the risks described below, as well as the other cautionary statements and risks described elsewhere and the other informationcontained in this Report and in our other filings with the SEC, including subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Weoperate in a rapidly changing environment that involves a number of risks. The risks and uncertainties described below are not the only ones we face. Additionalrisks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of these known orunknown risks actually occur, our business, financial condition or results of operations could be materially and adversely affected, in which case the trading priceof our common stock may decline and you may lose all or part of your investment.Risks Related to Our BusinessWe face significant, evolving competition which, if we fail to properly address, could adversely affect our business, results of operations, financialcondition and price of our stock. The markets for healthcare information systems are intensely competitive, and we face significant competition from anumber of different sources. Several of our competitors have substantially greater name recognition and financial, technical, product development and marketingresources than we do. There has been significant merger and acquisition activity among a number of our competitors in recent years. Some of our largercompetitors, who have greater scale than we do, have and may continue to become more active in our markets both through internal development andacquisitions. Transaction induced pressures, or other related factors may result in price erosion or other negative market dynamics that could adversely affectour business, results of operations, financial condition and price of our stock.We compete in all of our markets with other major healthcare related companies, information management companies, systems integrators and other softwaredevelopers. Competition in our markets occurs on the basis of several factors, including price, innovation, client service, product quality and reliability, scope ofservices, industry acceptance, and others. Competitive pressures and other factors, such as new product introductions by us or our competitors, may result inprice or market share erosion that could adversely affect our business, results of operations and financial condition. Also, there can be no assurance that ourapplications will achieve broad market acceptance or will successfully compete with other available software products. If we fail to distinguish our offerings fromother options available to healthcare providers, the demand for and market share of our offerings may decrease.Saturation or consolidation in the healthcare industry could result in the loss of existing clients, a reduction in our potential client base anddownward pressure on the prices for our products and services. As the healthcare information systems market evolves, saturation of this market with ourproducts or our competitors' products could limit our revenues and opportunities for growth. There has also been increasing consolidation amongst healthcareindustry participants in recent years, creating integrated healthcare delivery systems with greater market power. As provider networks and managed careorganizations consolidate, the number of market participants decreases and competition to provide products and services like ours will become more intense.The importance of establishing relationships with key industry participants will become greater and our inability to make initial sales of our systems to, ormaintain relationships with, newly formed groups and/or healthcare providers that are replacing or substantially modifying their healthcare information systemscould adversely affect our business, results of operations and financial condition. These consolidated industry participants may also try to use their increasedmarket power to negotiate price reductions for our products and services. If we were forced to reduce our prices, our business would become less profitableunless we were able to achieve corresponding reductions in our expenses.Many of our competitors have greater resources than we do. In order to compete successfully, we must keep pace with our competitors inanticipating and responding to the rapid changes involving the industry in which we operate, or our business, results of operations and financialcondition may be adversely affected. The software market generally is characterized by rapid technological change, changing client needs, frequent newproduct introductions and evolving industry standards. The introduction of products incorporating new technologies and the emergence of new industrystandards could render our existing products obsolete and unmarketable. There can be no assurance that we will be successful in developing and marketingnew products that respond to technological changes or evolving industry standards. New product development depends upon significant research anddevelopment expenditures which depend ultimately upon sales growth. Any material shortfall in revenue or research funding could impair our ability to respondto technological advances or opportunities in the marketplace and to remain competitive. If we are unable, for technological or other reasons, to develop andintroduce new products in a timely manner in response to changing market conditions or client requirements, our business, results of operations and financialcondition may be adversely affected.In response to increasing market demand, we are currently developing new generations of targeted software products. There can be no assurance that we willsuccessfully develop these new software products or that these products will operate successfully, or that any such development, even if successful, will becompleted concurrently with or prior to introduction of competing products. Any such failure or delay could adversely affect our competitive position or couldmake our current products obsolete.The ongoing uncertainty in global economic conditions may negatively impact our business, operating results or financial condition . The continuingunfavorable global economic conditions and uncertainty have caused a general tightening in the credit markets, lower levels of liquidity, increases in the rates ofdefault and bankruptcy and extreme volatility in credit, equity and fixed income markets. These macroeconomic conditions could negatively affect our business,operating results or financial condition in a number of ways. For example, current or potential clients may be unable to fund software purchases,9Table of Contentswhich could cause them to delay, decrease or cancel purchases of our products and services or to not pay us or to delay paying us for previously purchasedproducts and services. Our clients may cease business operations or conduct business on a greatly reduced basis. Finally, our investment portfolio is generallysubject to general credit, liquidity, counterparty, market and interest rate risks that may be exacerbated by these global financial conditions. If the bankingsystem or the fixed income, credit or equity markets continue to deteriorate or remain volatile, our investment portfolio may be impacted and the values andliquidity of our investments could be adversely affected as well.Our relationships with strategic partners may fail to benefit us as expected. We face risk and/or the possibility of claims from activities related tostrategic partners, which could be expensive and time-consuming, divert personnel and other resources from our business and result in adversepublicity that could harm our business . We rely on third parties to provide services for our business. For example, we use national clearinghouses in theprocessing of some insurance claims and we outsource some of our hardware services and the printing and delivery of patient statements for our clients. Thesethird parties could raise their prices and/or be acquired by our competitors, which could potentially create short and long-term disruptions to our business,negatively impacting our revenue, profit and/or stock price. We also have relationships with certain third parties where these third parties serve as saleschannels through which we generate a portion of our revenue. Due to these third party relationships, we could be subject to claims as a result of the activities,products, or services of these third party service providers even though we were not directly involved in the circumstances leading to those claims. Even if theseclaims do not result in liability to us, defending and investigating these claims could be expensive and time-consuming, divert personnel and other resourcesfrom our business and result in adverse publicity that could harm our business. In addition, our strategic partners may compete with us in some or all of themarkets in which we operate.We have acquired companies, and may engage in future acquisitions, which may be expensive, time consuming, subject to inherent risks and fromwhich we may not realize anticipated benefits. Historically, we have acquired numerous businesses, technologies, and products. We may acquire additionalbusinesses, technologies and products if we determine that these additional businesses, technologies and products are likely to serve our strategic goals.Acquisitions have inherent risks, which may have a material adverse effect on our business, financial condition, operating results or prospects, including, but notlimited to the following:•failure to achieve projected synergies and performance targets;•potentially dilutive issuances of our securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assetswith indefinite useful lives, which could adversely affect our results of operations and financial condition;•using cash as acquisition currency may adversely affect interest or investment income, which may in turn adversely affect our earnings and /or earningsper share;•unanticipated expenses or difficulty in fully or effectively integrating or retaining the acquired technologies, software products, services, businesspractices, management teams or personnel, which would prevent us from realizing the intended benefits of the acquisition;•failure to maintain uniform standard controls, policies and procedures across acquired businesses;•difficulty in predicting and responding to issues related to product transition such as development, distribution and client support;•the possible adverse effect of such acquisitions on existing relationships with third party partners and suppliers of technologies and services;•the possibility that staff or clients of the acquired company might not accept new ownership and may transition to different technologies or attempt torenegotiate contract terms or relationships, including maintenance or support agreements;•the assumption of known and unknown liabilities;•the possibility of disputes over post-closing purchase price adjustments such as performance-based earnouts;•the possibility that the due diligence process in any such acquisition may not completely identify material issues associated with product quality, productarchitecture, product development, intellectual property issues, regulatory risks, compliance risks, key personnel issues or legal and financialcontingencies, including any deficiencies in internal controls and procedures and the costs associated with remedying such deficiencies;•difficulty in entering geographic and/or business markets in which we have no or limited prior experience;•difficulty in integrating acquired operations due to geographical distance and language and cultural differences;•diversion of management's attention from other business concerns; and•the possibility that acquired assets become impaired, or that acquired assets lead us to determine that existing assets become impaired, requiring us totake a charge to earnings which could be significant.10Table of ContentsA failure to successfully integrate acquired businesses or technology could, for any of these reasons, have an adverse effect on our financial condition andresults of operations.Our failure to manage growth could harm our business, results of operations and financial condition. We have in the past experienced periods of growthwhich have placed, and may continue to place, a significant strain on our non-cash resources. We have also expanded our overall software development,marketing, sales, client management and training capacity, and may do so in the future. In the event we are unable to identify, hire, train and retain qualifiedindividuals in such capacities within a reasonable timeframe, such failure could have an adverse effect on the operation of our business. In addition, our ability tomanage future increases, if any, in the scope of our operations or personnel will depend on significant expansion of our research and development, marketingand sales, management and administrative and financial capabilities. The failure of our management to effectively manage expansion in our business couldhave an adverse effect on our business, results of operations and financial condition.We may experience reduced revenues and/or be forced to reduce our prices . We may be subject to pricing pressures with respect to our future salesarising from various sources, including amount other things, government action affecting reimbursement levels. Our clients and the other entities with which wehave business relationships are affected by changes in statutes, regulations, and limitations on government spending for Medicare, Medicaid, and otherprograms. Recent government actions and future legislative and administrative changes could limit government spending for Medicare and Medicaid programs,limit payments to healthcare providers, increase emphasis on competition, impose price controls, initiate new and expanded value-based reimbursementprograms and create other programs that potentially could have an adverse effect on our business. If we experience significant downward pricing pressure, ourrevenues may decline along with our ability to absorb overhead costs, which may leave our business less profitable.Our operations are dependent upon attracting and retaining key personnel. If such personnel were to leave unexpectedly, we may not be able toexecute our business plan. Our future performance depends in significant part upon the continued service of our key development and senior managementpersonnel and successful recruitment of new talent. These personnel have specialized knowledge and skills with respect to our business and our industry.Because we have a relatively small number of employees when compared to other leading companies in our industry, our dependence on maintaining ourrelationships with key employees and successful recruiting is particularly significant.The industry in which we operate is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. There can be no assurancethat our current employees will continue to work for us. Loss of services of key employees could have an adverse effect on our business, results of operationsand financial condition. Furthermore, we may need to grant additional equity incentives to key employees and provide other forms of incentive compensation toattract and retain such key personnel. Equity incentives may be dilutive to our per share financial performance. Failure to provide such types of incentivecompensation could jeopardize our recruitment and retention capabilities.The integration of new key executives into our management team may interfere with our operations. We have recently appointed several new keyexecutives, including our Chief Executive Officer, Chief Financial Officer, Chief Technology Officer, and Chief Client Officer, and we may hire additional keymanagement team members. These executives will be required to spend a significant amount of time on certain integration and transition efforts in addition toperforming their regular duties and responsibilities. If we fail to complete these integrations and transitions in an efficient manner, or if we fail to provide sufficientincentives to motivate and retain our key executives, our business and prospects may suffer.Our recent strategy shift and the resulting business reorganization plan we are implementing may be disruptive both internally and externally, andwe may not fully realize the anticipated benefits . We recently embarked on a new strategic plan, which we call NextGen 2.0, geared toward realigning ourbusiness structure and strategy to rapidly emerging changes in the healthcare industry. We hope NextGen 2.0 will improve our delivery of high quality productsand services to our clients through five areas of emphasis: a focus on our ambulatory client base, a transition to the cloud, effective solution delivery throughcross-selling, a move into population health software and services, and effective deployment of capital. We intend to implement the multi-year NextGen 2.0strategic plan in three phases: redesigning our organization, followed by building capabilities to drive future revenue growth, and culminating with developing theservices and solutions to accelerate our revenue growth. We recently implemented the organizational redesign phase, which included the consolidation of ourdivisional sales, marketing, information services, and software development responsibilities into single, company-wide roles. As NextGen 2.0 continues, weanticipate that it will result in continued evaluation of our organizational structure in order to achieve greater efficiency, as well as investments in new marketsolutions and changes to our culture that we hope will drive revenue growth and provide increased value to stakeholders and shareholders. There can be noassurance that our current or future strategic realignment efforts will be successful. Our ability to achieve the anticipated benefits of our strategy shift is subjectto estimates and assumptions, which may vary based on numerous factors and uncertainties, some of which are beyond our control. Reorganization programsentail a variety of known and unknown risks that may increase our costs or impair our ability to achieve operational efficiencies, such as distraction tomanagement and employees, loss of workforce capabilities, loss of continuity, accounting charges for technology-related write-offs and workforce reductioncosts, decreases in employee focus and morale, uncertainty and turbulence among our clients and vendors, higher than anticipated separation expenses,litigation, and the failure to meet financial and operational targets. If we are unable to effectively implement our strategic shift and realign our business toaddress the rapidly evolving market, we and our shareholders may not realize the anticipated financial, operational, and other benefits from these initiatives.11Table of ContentsContinuing worldwide political and economic uncertainties may adversely affect our revenue and profitability . The last several years have beenperiodically marked by concerns including but not limited to inflation, decreased consumer confidence, the lingering effects of international conflicts, energycosts and terrorist and military activities. Although certain indices and economic data have shown signs of stabilization in the United States and certain globalmarkets, there can be no assurance that these improvements will be broad-based or sustainable. This instability can make it extremely difficult for our clients,our vendors and us to accurately forecast and plan future business activities, and could cause constrained spending on our products and services, delays and alengthening of our sales cycles and/or difficulty in collection of our accounts receivable. Bankruptcies or similar insolvency events affecting our clients may causeus to incur bad debt expense at levels higher than historically experienced. Further, an ongoing economic stability in the global markets could limit our ability toaccess the capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to react to changing businessconditions or new opportunities. Accordingly, if worldwide political and economic uncertainties continue or worsen, our business, results of operations andfinancial condition could be materially and adversely affected.If we are unable to manage our growth in the new markets we may enter, our business and financial results could suffer. Our future financial results willdepend in part on our ability to profitably manage our business in new markets that we may enter. We are engaging in the strategic identification of, andcompetition for, growth and expansion opportunities in new markets or offerings, including but not limited to the areas of interoperability, patient engagements,data analytics and population health. With our acquisition of HealthFusion, we have expanded into the market for cloud-based EHR products. It remainsuncertain whether the market for cloud-based products will expand to the levels of demand and market acceptance we anticipate, and there can be noassurance that we will be able to successfully scale the HealthFusion product to meet our clients’ expectations. In addition, as clients move from fee-for-serviceto fee-for-value reimbursement strategies in conjunction with the adoption of population health business models, we may not make appropriate and timelychanges to our service offerings consistent with shifts in market demands and expectations. In order to successfully execute on our growth initiatives, we willneed to, among other things, manage changing business conditions, anticipate and react to changes in the regulatory environment, and develop expertise inareas outside of our business's traditional core competencies. Difficulties in managing future growth in new markets could have a significant negative impact onour business, financial condition and results of operations.We may not be successful in developing or launching our new software products and services, which could have a negative impact on our financialcondition and results of operations. We invest significant resources in the research and development of new and enhanced software products and services.Over the last few years we have incurred, and will continue to incur, significant internal research and development expenses, a portion of which have been andmay continue to be recorded as capitalized software costs. We cannot provide assurances that we will be successful in our efforts to plan, develop or sell newsoftware products that meet client expectations, which could result in an impairment of the value of the related capitalized software costs, an adverse effect onour financial condition and operating results and a negative impact the future of our business. Additionally, we cannot be assured that we will continue tocapitalize software development costs to the same extent as we have done to date, as the result of changes in development methodologies and other factors.To the extent that we capitalize a lower percentage of total software development costs, our earnings could be reduced.We own a captive facility located in India that subjects us to regulatory, economic, social and political uncertainties in India and to laws applicable toUS companies operating overseas. We are subject to several risks associated with having a portion of our assets and operations located in India. Many UScompanies have benefited from many policies of the Government of India and the Indian state governments in the states in which we operate, which aredesigned to promote foreign investment generally and the business process services industry in particular, including significant tax incentives, relaxation ofregulatory restrictions, liberalized import and export duties and preferential rules on foreign investment and repatriation. There is no assurance that such policieswill continue. Various factors, such as changes in the current Government of India, could trigger significant changes in India’s economic liberalization andderegulation policies and disrupt business and economic conditions in India generally and our business in particular. In addition, our financial performance andthe market price of our common stock may be adversely affected by general economic conditions and economic and fiscal policy in India, including changes inexchange rates and controls, interest rates and taxation policies, as well as social stability and political, economic or diplomatic developments affecting India inthe future. In particular, India has experienced significant economic growth over the last several years, but faces major challenges in sustaining that growth inthe years ahead. These challenges include the need for substantial infrastructure development and improving access to healthcare and education. Our ability torecruit, train and retain qualified employees, develop and operate our captive facility could be adversely affected if India does not successfully meet thesechallenges. Furthermore, local laws and customs in India may differ from those in the US. For example, it may be a local custom for businesses to engage inpractices that are prohibited by our internal policies and procedures or US laws and regulations applicable to us, such as the Foreign Corrupt Practices Act(“FCPA”). The FCPA generally prohibits US companies from giving or offering money, gifts, or anything of value to a foreign official to obtain or retain business,and requires businesses to make and keep accurate books and records and a system of internal accounting controls. We cannot guarantee that our employees,contractors, and agents will comply with all of our FCPA compliance policies and procedures. If we or our employees, contractors, or agents fail to comply withthe requirements of the FCPA or similar legislation, government authorities in the US and elsewhere could seek to impose civil or criminal fines and penaltieswhich could have a material adverse effect on our business, operating results, and financial condition.We have had to take charges due to asset impairments, and we could suffer further charges due to asset impairment that could reduce our income.We test our goodwill for impairment annually during our first fiscal quarter, and on interim dates should events or changes in circumstances indicate the carryingvalue of goodwill may not be recoverable in accordance with12Table of Contentsthe relevant accounting guidance. During the year ended March 31, 2013, we recorded a $17.4 million goodwill impairment charge relating to our HospitalSolutions Division and during the year ended March 31, 2014, we recorded a $26.0 million impairment charge relating to certain long-lived assets of our HospitalSolutions Division. Also, we announced a pre-tax non-cash charge of approximately $32.2 million recorded in the quarter ended March 31, 2016 relating to theimpairment of our previously capitalized investment in the NextGen Now cloud-based software product that was in the process of development. The impairmentcharge follows our assessment of the NextGen Now development project and the MediTouch platform that we obtained through our recent acquisition ofHealthFusion. We have determined that the MediTouch platform offers the most efficient path to providing a high-quality, robust, cloud-based solution forambulatory care. Accordingly, we have decided to cease further investment in NextGen Now and immediately discontinue all efforts to use or repurpose theNextGen Now platform. Declines in business performance or other factors could cause the fair value of any of our operating segments to be revised downward,resulting in further impairment charges. If the financial outlook for any of our operating segments warrants additional impairments of goodwill, the resulting write-downs could materially affect our reported net earnings.We face the risks and uncertainties that are associated with litigation against us, which may adversely impact our marketing, distract managementand have a negative impact upon our business, results of operations and financial condition. We face the risks associated with litigation concerning theoperation of our business. For example, companies in our industry, including many of our competitors, have been subject to litigation based on allegations ofpatent infringement or other violations of intellectual property rights. In particular, patent holding companies often engage in litigation to seek to monetize patentsthat they have obtained. As the number of competitors, patents and patent holding companies in our industry increases, the functionality of our products andservices expands, and we enter into new geographies and markets, the number of intellectual property rights-related actions against us is likely to continue toincrease. The uncertainty associated with substantial unresolved litigation may have an adverse effect on our business. In particular, such litigation could impairour relationships with existing clients and our ability to obtain new clients. Defending such litigation may result in a diversion of management's time and attentionaway from business operations, which could have an adverse effect on our business, results of operations and financial condition. Such litigation may also havethe effect of discouraging potential acquirers from bidding for us or reducing the consideration such acquirers would otherwise be willing to pay in connectionwith an acquisition.There can be no assurance that such litigation will not result in liability in excess of our insurance coverage, that our insurance will cover such claims or thatappropriate insurance will continue to be available to us in the future at commercially reasonable rates.We may be impacted by IT system failures or other disruptions. We may be subject to IT systems failures and network disruptions. These may be causedby natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, orother events or disruptions. System redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities.Such failures or disruptions could prevent access to or the delivery of certain of our products or services, compromise our data or our clients’ data, or result indelayed or cancelled orders as well as potentially expose us to third party claims. System failures and disruptions could also impede our transactions processingservices and financial reporting.Our business operations are subject to interruption by, among other, natural disasters, fire, power shortages, terrorist attacks, and other hostile acts, labordisputes, public health issues, and other issues beyond our control. Such events could decrease our demand for our products or services or make it difficult orimpossible for us to develop and deliver our products or services to our clients. A significant portion of our research and development activities, our corporateheadquarters, our IT systems, and certain of our other critical business operations are concentrated in a few geographic areas. In the event of a businessdisruption in one or more of those areas, we could incur significant losses, require substantial recovery time, and experience significant expenditures in order toresume operations, which could materially and adversely impact our business, financial condition, and operating results.We face risks related to litigation advanced by a former director and shareholder of ours, a putative class action and a shareholder derivative claim.On October 7, 2013, a complaint was filed against us and certain of our officers and directors in the Superior Court of the State of California for the County ofOrange, captioned Ahmed D. Hussein v. Sheldon Razin, Steven Plochocki, Quality Systems, Inc. and Does 1-10, inclusive, No. 30-2013-00679600-CU-NP-CJC,by Ahmed Hussein, a former director and significant shareholder of ours. We filed a demurrer to the complaint, which the court granted on April 10, 2014. Anamended complaint was filed on April 25, 2014. The amended complaint generally alleges fraud and deceit, constructive fraud, negligent misrepresentation andbreach of fiduciary duty in connection with statements made to our shareholders regarding our financial condition and projected future performance. On August28, 2014, we filed an answer and also filed a cross-complaint against the plaintiff, alleging that the plaintiff breached fiduciary duties owed to the Company, Mr.Razin and Mr. Plochocki. On June 26, 2015, we filed a motion for summary judgment, which the court granted on September 16, 2015, dismissing all claimsagainst us. On September 23, 2015, the plaintiff filed an application for reconsideration of the Court's summary judgment order, which the court denied. OnOctober 28, 2015, the plaintiff filed a motion for summary judgment, seeking to dismiss our cross-complaint, which the court denied on March 3, 2016. On May9, 2016, the plaintiff filed a motion for summary adjudication, seeking to again dismiss our cross-complaint. The hearing for the motion is set for July 28, 2016.On November 19, 2013, a complaint was filed against the Company and certain of the Company’s officers and directors in the United States District Court for theCentral District of California, captioned Deerfield Beach Police Pension Fund, individually and on behalf of all others similarly situated, v. Quality Systems, Inc.,Steven T. Plochocki, Paul A. Holt and Sheldon Razin, No. SACV13-01818-CJC-JPRx, by the Deerfield Beach Police Pension Fund, a shareholder of theCompany. The complaint is a putative class action filed on behalf of the shareholders of the Company other than the defendants. After the court appointed leadplaintiffs and lead counsel13Table of Contentsfor this action, and recaptioned the action In re Quality Systems, Inc. Securities Litigation, No. 8L13-cv-01818-CJC(JPRx), lead plaintiffs filed an amendedcomplaint on April 7, 2014. The amended complaint, which is substantially similar to the complaint filed by Mr. Hussein described above, generally alleges thatstatements made to our shareholders regarding our financial condition and projected future performance were false and misleading in violation of the ExchangeAct, and that the individual defendants are liable for such statements because they are controlling persons under Section 20(a) of the Exchange Act. We filed amotion to dismiss the amended complaint on June 20, 2014, which the court granted on October 20, 2014, dismissing the complaint with prejudice. Plaintiffsfiled a motion for reconsideration of the Court's order, which the court denied on January 5, 2015. On January 30, 2015, Plaintiffs filed a notice of appeal to theUnited States Court of Appeals for the Ninth Circuit, captioned In re Quality Systems, Inc. Securities Litigation, No. 15-55173. Plaintiffs filed their opening briefand we answered.On January 24, 2014, a complaint was filed against the Company and certain of the Company’s officers and current and former directors in the United StatesDistrict Court for the Central District of California, captioned Timothy J. Foss, derivatively on behalf of himself and all others similarly situated, vs. Craig A.Barbarosh, George H. Bristol, James C. Malone, Peter M. Neupert, Morris Panner, D. Russell Pflueger, Steven T. Plochocki, Sheldon Razin, Lance E.Rosenzweig and Quality Systems, Inc., No. SACV14-00110-DOC-JPPx, by Timothy J. Foss, a shareholder of the Company. The complaint arises from thesame allegations described above related to the complaints filed by Mr. Hussein and the Deerfield Beach Police Pension Fund and generally alleges breach offiduciary duties, abuse of control and gross mismanagement by the Company’s directors, in addition to unjust enrichment and insider selling by individualdirectors. The parties have agreed to stay this litigation until the United States Court of Appeals for the Ninth Circuit issues a ruling on the pending appeal in theQuality Systems, Inc. Securities Litigation matter descried above. Although we believe the claims to be without merit, our operating results and share price maybe negatively impacted due to the negative publicity, expenses incurred in connection with our defense, management distraction, and/or other factors related tothis litigation. In addition, litigation of this nature may negatively impact our ability to attract and retain clients and strategic partners, as well as qualified boardmembers and management personnel.We are outsourcing our internal audit function, which involves a number of risks that may adversely affect our business and results of operations.We are currently transitioning our internal audit function to a third-party provider. Although we believe that outsourcing this function will ultimately result in lowercosts and increased efficiencies, this may not be the case immediately or ever. The transition process to an outsourced internal audit function is complex andtime-consuming, which may result in a diversion of management’s time and attention away from business operations. This diversion could have an adverseeffect on our business, results of operations and financial condition. In addition, outsourcing our internal audit function means we will be relying upon a thirdparty to meet our needs. Because this third party may not be as responsive to our needs as we would be ourselves, we may increase the risk of disruption to ouroperations. If our third-party provider terminates its agreement with us and we are unable to replace it with another service provider, our operations may beinterrupted. Even a temporary disruption in services could result in significant risk of noncompliance with our duties as a public company, which could have anadverse effect on our business. Moreover, there can be no assurance that a replacement service provider will provide its services at the same or a lower costthan the service provider it replaces. Our business and results of operations may be adversely affected if we experience operating problems and/or costoverruns during the outsourcing transition process or if our outsourced internal audit function does not function as expected or give rise to the expected benefits.Our credit agreement contains restrictive and financial covenants that may limit our operational flexibility. If we fail to meet our obligations under thecredit agreement, our operations may be interrupted and our business and financial results could be adversely affected. In connection with thefinancing of our HealthFusion acquisition on January 4, 2016, we entered into a revolving credit agreement with various lenders, secured by substantially all ofour and our material domestic subsidiaries’ existing and future property. The credit agreement includes certain customary covenants that impose restrictions onour business and financing activities that could limit our operations or flexibility to take certain actions. The credit agreement also contains certain customaryaffirmative covenants requiring us to maintain specified levels of financial performance. Our ability to comply with these covenants may be affected by eventsthat could be beyond our control. A breach of these covenants could result in an event of default under the credit agreement which, if not cured or waived, couldresult in the indebtedness becoming immediately due and payable, which in turn could result in material adverse consequences that negatively impact ourbusiness, the market price for our common stock, and our ability to obtain financing in the future. In addition, our credit agreement’s covenants, consentrequirements, and other provisions may limit our flexibility to pursue or fund strategic initiatives or acquisitions that might be in the long-term interests of ourCompany and shareholders.We may not be successful in integrating and operating our HealthFusion acquisition, and in implementing our post-acquisition business strategywith respect to HealthFusion’s product. Our shift in product focus following the acquisition, which led to the abandonment of a product indevelopment and a material impairment of previously capitalized development work, may not yield the desired results . We acquired HealthFusion onJanuary 4, 2016. As a result of the acquisition, we have devoted and will continue to need to devote significant management attention and resources tointegrating HealthFusion’s business and product platform into our business. We may experience problems associated with the acquired company and itspersonnel, processes, product, technology, liabilities, commitments, and other matters. There is no assurance that we will be able to successfully integrate theHealthFusion business or realize synergies and benefits from the transaction. Furthermore, the acquisition has substantially altered our business strategy,increasing our focus on efforts to expand our client base and cloud-based solution capabilities in the ambulatory market. The acquisition caused us to evaluatethe impact of HealthFusion’s existing cloud-based product, MediTouch, on our ongoing efforts to develop and release our NextGen Now cloud-based platform.Our assessment led us to determine that MediTouch, which is already a production-ready and sellable solution, represents a more prudent investment in ourtechnical future than continuing with the NextGen Now development plans. Accordingly, we have abandoned further development of the previously capitalizedNextGen Now platform,14Table of Contentsand instead will redeploy research and development capital toward enhancing and scaling the HealthFusion MediTouch cloud-based platform. This shift resultedin a pre-tax non-cash charge of approximately $32 million relating to the impairment of a portion of our previously capitalized NextGen Now softwaredevelopment costs. If we are unable to successfully integrate HealthFusion and implement post-acquisition revisions to our business strategy and product focusaway from NextGen Now development in favor of extending and scaling the MediTouch platform, our business, financial condition, and results of operations maysuffer.Risks Related to Our Products and ServicesIf our principal products, new product developments or implementation, training and support services fail to meet the needs of our clients due tolack of client acceptance, errors, or other problems, we may fail to realize future growth, suffer reputational harm and face the risk of losing existingclients. We currently derive substantially all of our net revenue from sales of our healthcare information systems and related services. We believe that a primaryfactor in the market acceptance of our systems has been our ability to meet the needs of users of healthcare information systems. Our future financialperformance will depend in large part on our ability to continue to meet the increasingly sophisticated needs of our clients through the timely development andsuccessful introduction of new and enhanced versions of our systems and other complementary products, as well as our ability to provide high qualityimplementation, training and support services for our products. We have historically expended a significant percentage of our net revenue on productdevelopment and believe that significant continuing product development efforts will be required to retain our existing clients and sustain our growth. Continuedinvestment in our sales staff and our client implementation, training and support staffs will also be required to retain and grow our client base.There can be no assurance that we will be successful in our client satisfaction or product development efforts, that the market will continue to accept our existingproducts and services, or that new products or product enhancements will be developed and implemented in a timely manner, meet the requirements ofhealthcare providers, or achieve market acceptance. Also, it is possible that our technology may contain defects or errors, some of which may remainundetected for a period of time. If we detect errors before we introduce a solution, we may have to delay deployment for an extended period of time while weaddress the problem. If we do not discover errors until after product deployment, we may need to provide enhancements to correct such errors. Remediatingproduct defects and errors could consume our development and management resources. In addition, any failure or perceived failure to maintain high-quality andhighly-responsive client support could harm our reputation. Quality or performance issues with our products and services may result in product-related liabilities,unexpected expenses and diversion of resources to remedy errors, harm to our reputation, lost sales, delays in commercial releases, delays in or loss of marketacceptance of our solutions, license termination or renegotiations, and privacy or security vulnerabilities. If new products or product enhancements are delayedor do not achieve market acceptance, or if our implementation, training and support services do not achieve a high degree of client satisfaction, our reputation,business, results of operations and financial condition could be adversely affected. At certain times in the past, we have also experienced delays in purchases ofour products by clients anticipating our launch, or the launch of our competitors, of new products. There can be no assurance that material order deferrals inanticipation of new product introductions from ourselves or other entities will not occur.If the emerging technologies and platforms of Microsoft and others upon which we build our products do not gain or continue to maintain broadmarket acceptance, or if we fail to develop and introduce in a timely manner new products and services compatible with such emergingtechnologies, we may not be able to compete effectively and our ability to generate revenue will suffer. Our software products are built and depend uponseveral underlying and evolving relational database management system platforms such as those developed by Microsoft. To date, the standards andtechnologies upon which we have chosen to develop our products have proven to have gained industry acceptance. However, the market for our softwareproducts is subject to ongoing rapid technological developments, quickly evolving industry standards and rapid changes in client requirements, and there maybe existing or future technologies and platforms that achieve industry standard status, which are not compatible with our products .We are dependent on our license rights and other services from third parties, which may cause us to discontinue, delay or reduce productshipments. We depend upon licenses for some of the technology used in our products as well as other services from third party vendors. Most of thesearrangements can be continued/renewed only by mutual consent and may be terminated for any number of reasons. We may not be able to continue using theproducts or services made available to us under these arrangements on commercially reasonable terms or at all. As a result, we may have to discontinue, delayor reduce product shipments or services provided until we can obtain equivalent technology or services. Most of our third party licenses are non-exclusive. Ourcompetitors may obtain the right to use any of the business elements covered by these arrangements and use these elements to compete directly with us. Inaddition, if our vendors choose to discontinue providing their technology or services in the future or are unsuccessful in their continued research anddevelopment efforts, we may not be able to modify or adapt our own products.We may experience interruption at our data centers or client support facilities. We perform data center and/or hosting services for certain clients, includingthe storage of critical patient and administrative data at company-owned facilities and through third party hosting arrangements. In addition, we provide supportservices to our clients through various client support facilities. We have invested in reliability features such as multiple power feeds, multiple backup generatorsand redundant telecommunications lines, as well as technical (such as multiple overlapping security applications, access control and other countermeasures)and physical security safeguards, and structured our operations to reduce the likelihood of disruptions. However, complete failure of all local public power andbackup generators, impairment of all telecommunications lines, a15Table of Contentsconcerted denial of service cyber-attack, a significant data breach, damage, injury or impairment (environmental, accidental, intentional or pandemic) to thebuildings, the equipment inside the buildings housing our data centers, the personnel operating such facilities or the client data contained therein, or errors bythe personnel trained to operate such facilities could cause a disruption in operations and negatively impact clients who depend on us for data center andsystem support services. Any interruption in operations at our data centers and/or client support facilities could damage our reputation, cause us to lose existingclients, hurt our ability to obtain new clients, result in significant revenue loss, create potential liabilities for our clients and us and increase insurance and otheroperating costs.We face the possibility of having to adopt new pricing strategies, such as subscription pricing or bundling. In April 2009, we announced a newsubscription based software as a service delivery model which includes monthly subscription pricing. This model is designed for smaller practices to quicklyaccess the NextGen® Ambulatory EHR or NextGen® PM products at a modest monthly per provider price. We currently derive substantially all of our systemsrevenue from traditional software license, implementation and training fees, as well as the resale of computer hardware. Today, the majority of our clients pay aninitial license fee for the use of our products, in addition to a periodic maintenance fee. While the intent of the new subscription based delivery model is to furtherpenetrate the smaller practice market, there can be no assurance that this delivery model will not become increasingly popular with both small and large clients.In addition, we have experienced increasing demand for bundling our software and systems with RCM service arrangements, which has required us to modifyour standard upfront license fee pricing model and could impact software maintenance revenue streams prospectively. If the marketplace increasingly demandssubscription or bundled pricing, we may be forced to further adjust our sales, marketing and pricing strategies accordingly, by offering a higher percentage of ourproducts and services through these means. Shifting to a significantly greater degree of subscription or bundled pricing could adversely affect our financialcondition, cash flows and quarterly and annual revenue and results of operations, as our revenue would initially decrease substantially.We face the possibility of claims based upon our website content, which may cause us expense and management distraction . We could be subject tothird party claims based on the nature and content of information supplied on our website by us or third parties, including content providers or users. We couldalso be subject to liability for content that may be accessible through our website or third party websites linked from our website or through content andinformation that may be posted by users in chat rooms, bulletin boards or on websites created by professionals using our applications. Even if these claims donot result in liability to us, investigating and defending against these claims could be expensive and time consuming and could divert management’s attentionaway from our operations.If our security measures are breached or fail and unauthorized access is obtained to a client’s data, our services may be perceived as not beingsecure, clients may curtail or stop using our services, and we may incur significant liabilities. Our services involve the storage, transmission andprocessing of clients’ proprietary information and protected health information of patients. Because of the sensitivity of this information, security features of oursoftware are very important. If our security measures are breached or fail as a result of third party action, employee error, malfeasance, insufficiency, defectivedesign, or otherwise, someone may be able to obtain unauthorized access to client or patient data. As a result, our reputation could be damaged, our businessmay suffer, and we could face damages for contract breach, penalties for violation of applicable laws or regulations and significant costs for remediation andremediation efforts to prevent future occurrences. We rely upon our clients as users of our system for key activities to promote security of the system and thedata within it, such as administration of client-side access credentialing and control of client-side display of data. On occasion, our clients have failed to performthese activities. Failure of clients to perform these activities may result in claims against us that this reliance was misplaced, which could expose us to significantexpense and harm to our reputation even though our policy is to enter into business associate agreements with our clients. Although we extensively train andmonitor our employees, it is possible that our employees may, intentionally or unintentionally, breach security measures. Moreover, third parties with whom wedo not have business associate agreements may breach the privacy and security of patient information, potentially causing us reputational damage andexposing us to liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognizeduntil launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. If an actual or perceivedbreach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and clients. Inaddition, our clients may authorize or enable third parties to access their client data or the data of their patients on our systems. Because we do not control suchaccess, we cannot ensure the complete propriety of that access or integrity or security of such data in our systems.Failure by our clients to obtain proper permissions and waivers may result in claims against us or may limit or prevent our use of data, which couldharm our business. We require our clients to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of theinformation that we receive, and we require contractual assurances from them that they have done so and will do so. If they do not obtain necessarypermissions and waivers, then our use and disclosure of information that we receive from them or on their behalf may be limited or prohibited by state or federalprivacy laws or other applicable laws. This could impair our functions, processes and databases that reflect, contain, or are based upon such data and mayprevent use of such data. In addition, this could interfere with or prevent creation or use of rules and analyses or limit other data-driven activities that arebeneficial to our business. Moreover, we may be subject to claims or liability for use or disclosure of information by reason of lack of valid notice, permission orwaiver. These claims or liabilities could subject us to unexpected costs and adversely affect our operating results.We face the possibility of damages resulting from internal and external security breaches . In the course of our business operations, we store, process,compile and transmit confidential information, including patient health information, in our processing centers and other facilities. A breach of security in any ofthese facilities could damage our reputation and result in16Table of Contentsdamages being assessed against us. In addition, the other systems with which we may interface, such as the Internet and related systems may be vulnerable tosecurity breaches, viruses, programming errors, or similar disruptive problems. In addition, our clients and vendors with whom we have business associateagreements, or other parties with whom we do not have business associate agreements, may be responsible for breaching the security and compromising theprivacy of patient information located on our systems. In addition, although we extensively train and monitor our employees, it is possible that our ownemployees may engage in conduct that compromises security or privacy. The effect of these security breaches and related issues could disrupt our ability toperform certain key business functions and could potentially reduce demand for our services. Accordingly, we have expended significant resources towardestablishing and enhancing the security of our related infrastructures, although no assurance can be given that they will be entirely free from potential breach.Maintaining and enhancing our infrastructure security may require us to expend significant capital in the future.The success of our strategy to offer our electronic data interchange (“EDI”) services and software as a service (“SaaS”) solutions depends on the confidence ofour clients in our ability to securely transmit confidential information. Our EDI services and SaaS solutions rely on encryption, authentication and other securitytechnology licensed from third parties to achieve secure transmission of confidential information. We may not be able to stop unauthorized attempts to gainaccess to or disrupt the transmission of communications by our clients. Anyone who is able to circumvent our security measures could misappropriateconfidential user information or interrupt our, or our clients’, operations. In addition, our EDI and SaaS solutions may be vulnerable to viruses, physical orelectronic break-ins and similar disruptions.Any failure to provide secure infrastructure and/or electronic communication services could result in a lack of trust by our clients causing them to seek out othervendors and/or damage our reputation in the market, making it difficult to obtain new clients.Our business depends on continued and unimpeded access to the Internet by us and our clients, which is not within our control. We deliver Internet-based services and, accordingly, depend on our ability and the ability of our clients to access the Internet. This access is currently provided by third parties thathave significant market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable companies, mobilecommunications companies and government-owned service provides -- all of whom are outside of our control. In the event of any difficulties, outages and delaysby Internet service providers, we may be impeded from providing services, resulting in a loss of potential or existing clients.We may be subject to claims for system errors, warranties or product liability, which could have an adverse effect on our business, results ofoperations and financial condition. Our software solutions are intended for use in collecting, storing and displaying clinical and healthcare-related informationused in the diagnosis and treatment of patients and in related healthcare settings such as admissions and billing. Therefore, users of our software solutionshave a greater sensitivity to errors than the market for software products generally. Any failure by our products to provide accurate and timely informationconcerning patients, their medication, treatment and health status, generally, could result in claims against us which could materially and adversely impact ourfinancial performance, industry reputation and ability to market new system sales. In addition, a court or government agency may take the position that ourdelivery of health information directly, including through licensed practitioners, or delivery of information by a third party site that a consumer accesses throughour websites, exposes us to assertions of malpractice, other personal injury liability, or other liability for wrongful delivery/handling of healthcare services orerroneous health information. We maintain insurance to protect against claims associated with the use of our products as well as liability limitation language inour end-user license agreements, but there can be no assurance that our insurance coverage or contractual language would adequately cover any claimasserted against us. A successful claim brought against us in excess of or outside of our insurance coverage could have an adverse effect on our business,results of operations and financial condition. Even unsuccessful claims could result in our expenditure of funds for litigation and management time andresources.Certain healthcare professionals who use our SaaS products will directly enter health information about their patients including information that constitutes arecord under applicable law that we may store on our computer systems. Numerous federal and state laws and regulations, the common law and contractualobligations, govern collection, dissemination, use and confidentiality of patient-identifiable health information, including:•state and federal privacy and confidentiality laws;•our contracts with clients and partners;•state laws regulating healthcare professionals;•Medicaid laws;•the HIPAA and related rules proposed by CMS; and•CMS standards for Internet transmission of health data.HIPAA establishes elements including, but not limited to, federal privacy and security standards for the use and protection of Protected Health Information. Anyfailure by us or by our personnel or partners to comply with applicable requirements may result in a material liability to us.Although we have systems and policies in place for safeguarding Protected Health Information from unauthorized disclosure, these systems and policies maynot preclude claims against us for alleged violations of applicable requirements. Also, third party sites and/or links that consumers may access through our websites may not maintain adequate systems to safeguard this17Table of Contentsinformation, or may circumvent systems and policies we have put in place. In addition, future laws or changes in current laws may necessitate costly adaptationsto our policies, procedures, or systems.There can be no assurance that we will not be subject to product liability claims, that such claims will not result in liability in excess of our insurance coverage,that our insurance will cover such claims or that appropriate insurance will continue to be available to us in the future at commercially reasonable rates. Suchproduct liability claims could adversely affect our business, results of operations and financial condition.We are subject to the effect of payer and provider conduct which we cannot control and accordingly, there is no assurance that revenue for ourservices will continue at historic levels . We offer certain electronic claims submission products and services as part of our product line. While we haveimplemented certain product features designed to maximize the accuracy and completeness of claims submissions, these features may not be sufficient toprevent inaccurate claims data from being submitted to payers. Should inaccurate claims data be submitted to payers, we may be subject to liability claims.Electronic data transmission services are offered by certain payers to healthcare providers that establish a direct link between the provider and payer. Thisprocess reduces revenue to third party EDI service providers such as us. As a result of this, and other market factors, we are unable to ensure that we willcontinue to generate revenue at or in excess of prior levels for such services.A significant increase in the utilization of direct links between healthcare providers and payers could adversely affect our transaction volume and financialresults. In addition, we cannot provide assurance that we will be able to maintain our existing links to payers or develop new connections on terms that areeconomically satisfactory to us, if at all.Proprietary rights are material to our success, and the misappropriation of these rights could adversely affect our business and our financialcondition. We are heavily dependent on the maintenance and protection of our intellectual property and we rely largely on technical security measures, licenseagreements, confidentiality procedures and employee nondisclosure agreements to protect our intellectual property. The majority of our software is not patentedand existing copyright laws offer only limited practical protection.There can be no assurance that the legal protections and precautions we take will be adequate to prevent misappropriation of our technology or that competitorswill not independently develop technologies equivalent or superior to ours. Further, the laws of some foreign countries do not protect our proprietary rights to asgreat an extent as do the laws of the United States and are often not enforced as vigorously as those in the United States.We do not believe that our operations or products infringe on the intellectual property rights of others. However, there can be no assurance that others will notassert infringement or trade secret claims against us with respect to our current or future products or that any such assertion will not require us to enter into alicense agreement or royalty arrangement or other financial arrangement with the party asserting the claim. Responding to and defending any such claims maydistract the attention of our management and adversely affect our business, results of operations and financial condition. In addition, claims may be broughtagainst third parties from which we purchase software, and such claims could adversely affect our ability to access third party software for our systems.If we are deemed to infringe on the proprietary rights of third parties, we could incur unanticipated expense and be prevented from providing ourproducts and services. We have been, and may be in the future, subject to intellectual property infringement claims as the number of our competitors growsand our applications' functionality is viewed as similar or overlapping with competitive products. We do not believe that we have infringed or are infringing on anyproprietary rights of third parties. However, claims are occasionally asserted against us, and we cannot assure you that infringement claims will not be assertedagainst us in the future. Also, we cannot assure you that any such claims will be unsuccessful. We could incur substantial costs and diversion of managementresources defending any infringement claims - even if we are ultimately successful in the defense of such matters. Furthermore, a party making a claim againstus could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provideproducts or services. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for our products orservices will be available on commercially reasonable terms, or at all.We face risks related to the periodic maintenance and upgrades that need to be made to our products. As we continue to develop and improve upon ourtechnology and offerings, we need to periodically upgrade and maintain the products deployed to our clients. This process can require a significant amount ofour internal time and resources, and be complicated and time consuming for our clients. Certain upgrades may also pose the risk of system delays or failure. Ifour periodic upgrades and maintenance cause disruptions to our clients, we may lose revenue-generating transactions, our clients may elect to use othersolutions and we may also be the subject of negative publicity that may adversely affect our business and reputation.Risks Related to RegulationThere is significant uncertainty in the healthcare industry in which we operate, and the current governmental laws and regulations as well as anyfuture modifications to the regulatory environment, may adversely impact our business, financial condition and results of operations. The healthcareindustry is subject to changing political, economic and regulatory influences that may affect the procurement processes and operation of healthcare facilities.During the past several years, the healthcare industry has been subject to an increase in governmental regulation of, among other things, reimbursement ratesand certain capital expenditures.18Table of ContentsFor example, the Health Insurance Portability and Accountability Act of 1996, as modified by HITECH provisions of the ARRA (collectively, “HIPAA”), continuesto have a direct impact on the health care industry by requiring national provider identifiers and standardized transactions/code sets, operating rules andnecessary security and privacy measures in order to ensure the appropriate level of privacy of protected health information. These regulatory factors affect thepurchasing practices and operation of health care organizations.The Patient Protection and Affordable Care Act (“PPACA”), which was amended by the Health Care and Education Reconciliation Act of 2010, became law in2010. This comprehensive health care reform legislation included provisions to control health care costs, improve health care quality, and expand access toaffordable health insurance. The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), which became law in 2015, repealed the sustainablegrowth rate (“SGR”) formula and created two new value-based payment systems for Medicare physicians. Together with ongoing statutory and budgetary policydevelopments at a federal level, these health care reform laws include changes in Medicare and Medicaid payment policies and other health care deliveryadministrative reforms that could potentially negatively impact our business and the business of our clients. Because not all the administrative rulesimplementing health care reform under these laws have been finalized, and because of ongoing federal fiscal budgetary pressures yet to be resolved for federalhealth programs, the full impact of the health care reform legislation and of further statutory actions to reform healthcare payment on our business is unknown,but there can be no assurances that health care reform legislation will not adversely impact either our operational results or the manner in which we operate ourbusiness. Health care industry participants may respond by reducing their investments or postponing investment decisions, including investments in oursolutions and services.Various legislators have announced that they intend to examine further proposals to reform certain aspects of the U.S. healthcare system. Healthcare providersmay react to these proposals, and the uncertainty surrounding such proposals, by curtailing or deferring investments, including those for our systems andrelated services. Cost-containment measures instituted by healthcare providers as a result of regulatory reform or otherwise could result in a reduction in theallocation of capital funds. Such a reduction could have an adverse effect on our ability to sell our systems and related services. On the other hand, changes inthe regulatory environment have increased and may continue to increase the needs of healthcare organizations for cost-effective data management and therebyenhance the overall market for healthcare management information systems. We cannot predict what effect, if any, such proposals or healthcare reforms mighthave on our business, financial condition and results of operations.As existing regulations mature and become better defined, we anticipate that these regulations will continue to directly affect certain of our products andservices, but we cannot fully predict the effect at this time. We have taken steps to modify our products, services and internal practices as necessary to facilitateour compliance with the regulations, but there can be no assurance that we will be able to do so in a timely or complete manner. Achieving compliance withthese regulations could be costly and distract management’s attention and divert other company resources, and any noncompliance by us could result in civiland criminal penalties.Developments of additional federal and state regulations and policies have the potential to positively or negatively affect our business.Other specific risks include, but are not limited to, risks relating to:Privacy and Security of Patient Information. As part of the operation of our business, we may have access to or our clients may provide to us individually-identifiable health information related to the treatment, payment, and operations of providers’ practices. Government and industry legislation and rulemaking,especially HIPAA, HITECH and standards and requirements published by industry groups such as the Joint Commission require the use of standardtransactions, standard identifiers, security and other standards and requirements for the transmission of certain electronic health information. These standardsand requirements impose additional obligations and burdens on us, limiting the use and disclosure of individually-identifiable health information, and require usto enter into business associate agreements with our clients and vendors. Failure by us to enter into adequate business associate agreements with any client orvendor would place us in violation of applicable standards and requirements and could expose us to liability. Our business associates may interpret HIPAArequirements differently than we do, and we may not be able to adequately address the risks created by such interpretations. These new rules, and any futurechanges to privacy and security rules, may increase the cost of compliance and could subject us to additional enforcement actions, which could further increaseour costs and adversely affect the way in which we do business.ICD-10 Medical Coding Transition. The CMS mandated that all providers, payers, clearinghouses and billing services implement the use of new patient codesfor medical coding, referred to as ICD-10 codes, on or before October 1, 2015. The ICD-10 transition mandate substantially increased the number of medicalbilling codes by which providers seek reimbursement, increasing the complexity of submitting claims for reimbursement. Our efforts to provide services andsolutions that enable our clients to continue their compliance with the ICD-10 and potential subsequent mandates could be time consuming and expensive. Inaddition, due to the effort and expense of complying with the ICD-10 mandate and potential subsequent mandates, our clients may postpone or cancel decisionsto purchase our solutions and services. Either of the foregoing, or any future changes to the required ICD-10 code set, could have a material adverse effect onour business, financial condition and results of operations.Interoperability Standards. Our clients are concerned with and often require that our software solutions and health care devices be interoperable with otherthird party health care information technology suppliers. In addition, with the passing of the MACRA in 2015, the U.S. Congress declared it a national objective toachieve widespread exchange of health information through interoperable certified EHR technology nationwide by December 31, 2018. Additionalinteroperability legislation is also19Table of Contentsbeing considered by the U.S. Congress. If our software solutions, health care devices or services are not consistent with interoperability standards imposed bygovernmental/regulatory authorities or demanded by market forces, we could be forced to incur substantial additional development costs to conform.FDA Regulation. Our software may potentially be subject to regulation by the U.S. Food and Drug Administration (“FDA”) as a medical device. Such regulationcould require the registration of the applicable manufacturing facility and software and hardware products, application of detailed record-keeping andmanufacturing standards, application of the medical device excise tax, and FDA approval or clearance prior to marketing. An approval or clearance requirementcould create delays in marketing, and the FDA could require supplemental filings or object to certain of these applications, the result of which could adverselyaffect our business, financial condition and results of operations.Health Reform. The health reform laws discussed above and that may be enacted in the future contain and may contain various provisions which may impactus and our clients. Some of these provisions may have a positive impact, by expanding the use of electronic health records in certain federal programs, forexample, while others, such as reductions in reimbursement for certain types of providers, may have a negative impact due to fewer available resources.Increases in fraud and abuse penalties may also adversely affect participants in the health care sector, including us.We may not see the benefits from government funding programs initiated to accelerate the adoption and utilization of health information technology.While government programs have been implemented to improve the efficiency and quality of the healthcare sector, including expenditures to stimulate businessand accelerate the adoption and utilization of healthcare technology, we may not see the anticipated benefits of such programs. Under the ARRA, the PPACA,and the MACRA, unprecedented government financial resources are being invested in healthcare, including significant financial incentives to healthcareproviders who can demonstrate meaningful use of certified EHR technology since 2011. While we expect the ARRA, the PPACA, and the MACRA to continue tocreate sales opportunities over the next several years, we are unsure of the immediate or long-term impact of these government actions.HITECH established the Medicare and Medicaid EHR Incentive Programs to provide incentive payments for eligible professionals, hospitals, and critical accesshospitals as they adopt, implement, upgrade, or demonstrate meaningful use of certified EHR technology. HITECH, and subsequently MACRA, also authorizedCMS to apply payment adjustments, or penalties, to Medicare eligible professionals and eligible hospitals that are not meaningful users under the Medicare EHRIncentive Program.Although we believe that our service offerings will meet the requirements of HITECH and MACRA to allow our clients to qualify for financial incentives and avoidfinancial penalties for implementing and using our services, there can be no guaranty that our clients will achieve meaningful use or actually receive suchplanned financial incentives for our services. We also cannot predict the speed at which healthcare providers will adopt electronic health record systems inresponse to these government incentives, whether healthcare providers will select our products and services or whether healthcare providers will implement anelectronic health record system at all. In addition, the financial incentives associated with the meaningful use program are tied to provider participation inMedicare and Medicaid, and we cannot predict whether providers will continue to participate in these programs. Any delay in the purchase and implementationof electronic health records systems by healthcare providers in response to government programs, or the failure of healthcare providers to purchase anelectronic health record system, could have an adverse effect on our business, financial condition and results of operations. It is also possible that additionalregulations or government programs related to electronic health records, amendment or repeal of current healthcare laws and regulations or the delay inregulatory implementation could require us to undertake additional efforts to meet meaningful use standards, materially impact our ability to compete in theevolving healthcare IT market, materially impact healthcare providers' decisions to implement electronic health records systems or have other impacts thatwould be unfavorable to our business.We may be subject to false or fraudulent claim laws . There are numerous federal and state laws that forbid submission of false information or the failure todisclose information in connection with submission and payment of physician claims for reimbursement. In some cases, these laws also forbid abuse of existingsystems for such submission and payment. Any failure of our RCM services to comply with these laws and regulations could result in substantial liabilityincluding, but not limited to, criminal liability, could adversely affect demand for our services and could force us to expend significant capital, research anddevelopment and other resources to address the failure. Errors by us or our systems with respect to entry, formatting, preparation or transmission of claiminformation may be determined or alleged to be in violation of these laws and regulations. Determination by a court or regulatory agency that our services violatethese laws could subject us to civil or criminal penalties, invalidate all or portions of some of our client contracts, require us to change or terminate some portionsof our business, require us to refund portions of our services fees, cause us to be disqualified from serving clients doing business with government payers andhave an adverse effect on our business.In most cases where we are permitted to do so, we calculate charges for our RCM services based on a percentage of the collections that our clients receive as aresult of our services. To the extent that violations or liability for violations of these laws and regulations require intent, it may be alleged that this percentagecalculation provides us or our employees with incentive to commit or overlook fraud or abuse in connection with submission and payment of reimbursementclaims. The U.S. Centers for Medicare and Medicaid Services has stated that it is concerned that percentage-based billing services may encourage billingcompanies to commit or to overlook fraudulent or abusive practices.A portion of our business involves billing of Medicare claims on behalf of its clients. In an effort to combat fraudulent Medicare claims, the federal governmentoffers rewards for reporting of Medicare fraud which could encourage others to subject us to a charge of fraudulent claims, including charges that are ultimatelyproven to be without merit.20Table of ContentsIf our products fail to comply with evolving government and industry standards and regulations, we may have difficulty selling our products. We maybe subject to additional federal and state statutes and regulations in connection with offering services and products via the Internet. On an increasingly frequentbasis, federal and state legislators are proposing laws and regulations that apply to Internet commerce and communications. Areas being affected by theseregulations include user privacy, pricing, content, taxation, copyright protection, distribution, and quality of products and services. To the extent that our productsand services are subject to these laws and regulations, the sale of our products and services could be harmed.We are subject to changes in and interpretations of financial accounting matters that govern the measurement of our performance, one or more ofwhich could adversely affect our business, financial condition, cash flows, revenue, results of operations, and debt covenant compliance . Based onour reading and interpretations of relevant guidance, principles or concepts issued by, among other authorities, the American Institute of Certified PublicAccountants, the Financial Accounting Standards Board and the Commission, we believe our current business arrangements, transactions, and relatedestimates and disclosures have been properly reported. However, there continue to be issued interpretations and guidance for applying the relevant standardsto a wide range of sales and licensing contract terms and business arrangements that are prevalent in the software industry. Future interpretations or changesby the regulators of existing accounting standards or changes in our business practices could result in changes in our revenue recognition and/or otheraccounting policies and practices that could adversely affect our business, financial condition, cash flows, revenue and results of operations. In addition,changes in accounting rules could alter the application of certain terms in our credit agreement, thereby impacting our ability to comply with our debt covenants.Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on ourbusiness, and our per share price may be adversely affected. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) and the rules andregulations promulgated by the SEC to implement Section 404, we are required to include in our Form 10-K a report by our management regarding theeffectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal controlover financial reporting. The assessment must include disclosure of any material weakness in our internal control over financial reporting identified bymanagement.As part of the evaluation undertaken by management and our independent registered public accountants pursuant to Section 404, our internal control overfinancial reporting was effective as of March 31, 2016 . However, if we fail to maintain an effective system of disclosure controls or internal controls over financialreporting, we may discover material weaknesses that we would then be required to disclose. Any material weaknesses identified in our internal controls couldhave an adverse effect on our business. We may not be able to accurately or timely report on our financial results, and we might be subject to investigation byregulatory authorities. This could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which may have an adverseeffect on our stock price.No evaluation process can provide complete assurance that our internal controls will detect and correct all failures within our company to disclose materialinformation otherwise required to be reported. The effectiveness of our controls and procedures could also be limited by simple errors or faulty judgments. Inaddition, if we continue to expand, through either organic growth or through acquisitions (or both), the challenges involved in implementing appropriate controlswill increase and may require that we evolve some or all of our internal control processes.It is also possible that the overall scope of Section 404 may be revised in the future, thereby causing ourselves to review, revise or reevaluate our internalcontrol processes which may result in the expenditure of additional human and financial resources.Risks Related to Ownership of Our Common StockThe unpredictability of our quarterly operating results may cause the price of our common stock to fluctuate or decline. Our revenue may fluctuate inthe future from quarter to quarter and period to period, as a result of a number of factors including, without limitation:•the size and timing of orders from clients;•the specific mix of software, hardware and services in client orders;•the length of sales cycles and installation processes;•the ability of our clients to obtain financing for the purchase of our products;•changes in pricing policies or price reductions by us or our competitors;•the timing of new product announcements and product introductions by us or our competitors;•changes in revenue recognition or other accounting guidelines employed by us and/or established by the Financial Accounting Standards Board("FASB") or other rule-making bodies;•changes in government healthcare policies and regulations, such as the shift from fee-for-service reimbursement to value-based reimbursement;•accounting policies concerning the timing of the recognition of revenue;21Table of Contents•the availability and cost of system components;•the financial stability of clients;•market acceptance of new products, applications and product enhancements;•our ability to develop, introduce and market new products, applications and product enhancements;•our success in expanding our sales and marketing programs;•deferrals of client orders in anticipation of new products, applications, product enhancements, or public/private sector initiatives;•execution of or changes to our strategy;•personnel changes; and•general market/economic factors.Our software products are generally shipped as orders are received and accordingly, we have historically operated with a minimal backlog of license fees. As aresult, revenue in any quarter is dependent on orders booked and shipped in that quarter and is not predictable with any degree of certainty. Furthermore, oursystems can be relatively large and expensive, and individual systems sales can represent a significant portion of our revenue and profits for a quarter such thatthe loss or deferral of even one such sale can adversely affect our quarterly revenue and profitability.clients often defer systems purchases until our quarter end, so quarterly results generally cannot be predicted and frequently are not known until after thequarter has concluded.Our sales are dependent upon clients’ initial decisions to replace or substantially modify their existing information systems, and subsequently, their decisionconcerning which products and services to purchase. These are major decisions for healthcare providers and, accordingly, the sales cycle for our systems canvary significantly and typically ranges from six to twenty-four months from initial contact to contract execution/shipment.Because a significant percentage of our expenses are relatively fixed, a variation in the timing of systems sales, implementations and installations can causesignificant variations in operating results from quarter to quarter. As a result, we believe that interim period-to-period comparisons of our results of operations arenot necessarily meaningful and should not be relied upon as indications of future performance. Further, our historical operating results are not necessarilyindicative of future performance for any particular period.We currently recognize revenue in accordance with the applicable accounting guidance as defined by the FASB.There can be no assurance that application and subsequent interpretations of these pronouncements will not further modify our revenue recognition policies, orthat such modifications would not adversely affect our operating results reported in any particular quarter or year.Due to all of the foregoing factors, it is possible that our operating results may be below the expectations of public market analysts and investors. In such event,the price of our common stock would likely be adversely affected.Our common stock price has been volatile, which could result in substantial losses for investors purchasing shares of our common stock and inlitigation against us. Volatility may be caused by a number of factors including but not limited to:•actual or anticipated quarterly variations in operating results;•rumors about our performance, software solutions, or merger and acquisition activity;•changes in expectations of future financial performance or changes in estimates of securities analysts;•governmental regulatory action;•health care reform measures;•client relationship developments;•purchases or sales of company stock;•activities by one or more of our major shareholders concerning our policies and operations;•changes occurring in the markets in general;•macroeconomic conditions, both nationally and internationally; and•other factors, many of which are beyond our control.Furthermore, the stock market in general, and the market for software, healthcare and high technology companies in particular, has experienced extremevolatility that often has been unrelated to the operating performance of particular companies. These22Table of Contentsbroad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of actual operating performance.Moreover, in the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of itssecurities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention andresources.One of our current directors, and one of our former directors are each significant shareholders, which makes it possible for them to have significantinfluence over the outcome of all matters submitted to our shareholders for approval and which influence may be alleged to conflict with ourinterests and the interests of our other shareholders. One of our directors is a significant shareholder who beneficially owns approximately 16.8% of theoutstanding shares of our common stock at March 31, 2016 . In addition, a former director, who owns approximately 9.3% (based on the most recently availablepublicly filed information) of the outstanding shares of our common stock at March 31, 2016 , likely maintains a large enough ownership stake to reelect himselfto our Board of Directors under cumulative voting. California law and our Bylaws permit our shareholders to cumulate their votes, the effect of which is to provideshareholders with sufficiently large concentrations of our shares the opportunity to assure themselves one or more seats on our Board of Directors. Theamounts required to assure a seat on our Board of Directors can vary based upon the number of shares outstanding, the number of shares voting, the numberof directors to be elected, the number of “broker non-votes,” and the number of shares held by the shareholder exercising the cumulative voting rights. In theevent that cumulative voting is invoked, it is likely that these two individuals that are significant shareholders will each have sufficient votes to assure themselvesof one or more seats on our Board of Directors. With or without cumulative voting, these two significant shareholders will have substantial influence over theoutcome of all matters submitted to our shareholders for approval, including the election of our directors and other corporate actions. This influence may bealleged to conflict with our interests and the interests of our other shareholders. For example, in fiscal year 2013, the former director launched a proxy contest toelect a different slate of directors than what our Company proposed to shareholders. We spent approximately $1.3 million to defend against the proxy contestand elect the Company's slate of directors. In addition, such influence by one or both of these shareholders could have the effect of discouraging others fromattempting to acquire our Company or create actual or perceived governance instabilities that could adversely affect the price of our common stock.We have suspended our payment of dividends. Our future practice concerning the payment of dividends is uncertain, which could adversely affectthe price of our stock. Our credit agreement contains restrictions on our ability to declare and pay dividends. Accordingly, we suspended payment of dividendsfollowing our previously declared January 4, 2016 dividend payment, and we announced that we do not expect to pay dividends for at least the next twelvemonths from that time. Prior to suspending dividends, we had paid a quarterly dividend commencing with the conclusion of our first fiscal quarter of 2008(June 30, 2007), with our Board of Directors declaring a quarterly cash dividend ranging from $0.125 to its most recent level of $0.175 per share on ouroutstanding shares of common stock, each quarter thereafter. Our dividends were generally distributable on or about the fifth day of each of the months ofOctober, January, April and July. With our payment of dividends currently suspended, the payment of future dividends, if any, will be at the discretion of ourBoard of Directors after taking into account various factors, including without limitation, our credit agreement, operating cash flows, financial condition, operatingresults, and sufficiency of funds based on our then-current and anticipated cash needs and capital requirements. Unfulfilled expectations regarding futuredividends could adversely affect the price of our stock.23Table of ContentsITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESOur corporate headquarters is located in Irvine, California. We believe that our existing facilities are in good condition and adequate for our current businessrequirements. Should we continue to grow, we may be required to lease or acquire additional space. We believe that suitable additional space is available, ifneeded, at commercially reasonable market rates and terms.As of March 31, 2016 , we leased an aggregate of approximately 521,600 square feet of space with lease agreements expiring at various dates. Significantlocations are as follows: Square Feet NotesHorsham, Pennsylvania110,000(2) (6)Irvine, California71,800(1) (4) (6)St. Louis, Missouri62,400(3)Bangalore, India53,400(6)Austin, Texas43,700(5)Solana Beach, California40,000(2) (6)Atlanta, Georgia35,500(2) (6)Hunt Valley, Maryland34,000(3)Costa Mesa, California25,100(2) (6)North Canton, Ohio22,100(3)Augusta, Georgia7,300(4)South Jordan, Utah7,300(3)Other locations9,000 Total leased properties521,600 _______________________(1) Location of our corporate office(2) Primary locations of the NextGen Division(3) Primary locations of the RCM Services Division(4) Primary location of the QSI Dental Division(5) Primary location of the former Hospital Solutions Division, which was divested in October 2015(6) Locations of our research and development functionsITEM 3. LEGAL PROCEEDINGSWe have experienced legal claims by clients regarding product and contract disputes, by other third parties asserting that we have infringed their intellectualproperty rights, by current and former employees regarding certain employment matters and by certain shareholders. We believe that these claims are withoutmerit and intend to defend against them vigorously; however, we could incur substantial costs and diversion of management resources defending any suchclaim, even if we are ultimately successful in the defense of such matter. Litigation is inherently uncertain and always difficult to predict. We refer you to thediscussion of infringement and litigation risks within “Item 1A. Risk Factors" and to Note 14, "Commitments, Guarantees and Contingencies" of our notes toconsolidated financial statements included elsewhere in this Report for a discussion of current legal proceedings.ITEM 4. MINE AND SAFETY DISCLOSURESNot applicable24Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMarket Price and HoldersOur common stock is traded on the NASDAQ Global Select Market under the symbol “QSII.”The following table sets forth for the quarters indicated the high and low sales prices for each period indicated, as reported on the NASDAQ Global SelectMarket: High LowThree Months Ended June 30, 2014$18.89 $14.10September 30, 2014$16.63 $13.69December 31, 2014$15.99 $13.01March 31, 2015$18.75 $15.31June 30, 2015$17.95 $15.33September 30, 2015$17.06 $12.01December 31, 2015$16.74 $12.11March 31, 2016$17.50 $12.51At May 18, 2016 , there were approximately 133 holders of record of our common stock.DividendsOur future practice concerning the payment of dividends is uncertain. We entered into a revolving credit agreement in January 2016 (refer to Note 9, “Line ofCredit” of our notes to consolidated financial statements included elsewhere in this Report for additional information), which contains restrictions on our ability todeclare and pay dividends. Accordingly, we suspended payment of dividends following our previously declared January 4, 2016 dividend payment, and weannounced that we do not expect to pay dividends for at least the next twelve months from that time. The payment of future dividends, if any, will be at thediscretion of our Board of Directors after taking into account various factors, including without limitation, our credit agreement, operating cash flows, financialcondition, operating results, and sufficiency of funds based on our then-current and anticipated cash needs and capital requirements.Prior to suspending dividends, we had paid a quarterly dividend commencing with the conclusion of our first fiscal quarter of 2008 (June 30, 2007), with ourBoard of Directors declaring a quarterly cash dividend ranging from $0.125 to its most recent level of $0.175 per share on our outstanding shares of commonstock, each quarter thereafter. Our dividends were generally distributable on or about the fifth day of each of the months of October, January, April and July. OurBoard of Directors declared the following dividends during the last two years:Declaration Date Record Date Payment Date Per Share DividendMay 20, 2015 June 12, 2015 July 6, 2015 $0.175July 22, 2015 September 11, 2015 October 5, 2015 0.175October 21, 2015 December 11, 2015 January 4, 2016 0.175Fiscal year 2016 $0.525 May 28, 2014 June 13, 2014 July 3, 2014 $0.175July 23, 2014 September 12, 2014 October 3, 2014 0.175October 22, 2014 December 12, 2014 January 2, 2015 0.175January 21, 2015 March 13, 2015 April 3, 2015 0.175Fiscal year 2015 $0.700Securities Authorized for Issuance Under Equity Compensation PlansThe information included under Item 12 of this Report, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters," isincorporated herein by reference.25Table of ContentsPerformance GraphThe following graph compares the cumulative total returns of our common stock, the NASDAQ Composite Index and the NASDAQ Computer & Data ProcessingServices Stock Index over the five-year period ended March 31, 2016 assuming $100 was invested on March 31, 2011 with all dividends, if any, reinvested. Thisperformance graph shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the“Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Companyunder the Securities Act of 1933, as amended or the Exchange Act.COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Quality Systems, Inc., The NASDAQ Composite IndexAnd The NASDAQ Computer & Data Processing Index____________________*$100 invested on March 31, 2011 in stock or index, including reinvestment of dividends. Fiscal year ended March 31.The last trade price of our common stock on each of March 31, 2012, 2013, 2014, 2015 and 2016 was published by NASDAQ and, accordingly for the periodsended March 31, 2012, 2013, 2014, 2015 and 2016, the reported last trade price was utilized to compute the total cumulative return for our common stock forthe respective periods then ended. Shareholder returns over the indicated periods should not be considered indicative of future stock prices or shareholderreturns.26Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe following selected financial data, with respect to our consolidated statements of comprehensive income data for each of the five years in the period endedMarch 31, 2016 and the consolidated balance sheets data as of the end of each such fiscal year, are not necessarily indicative of results of future operationsand should be read in conjunction with our consolidated financial statements and the related notes thereto and Item 7, "Management’s Discussion and Analysisof Financial Condition and Results of Operations” included elsewhere in this Report.Consolidated Financial Data(In thousands, except per share data) Fiscal Year Ended March 31, 2016 2015 2014 2013 2012Statements of comprehensive income data: Revenue$492,477 $490,225 $444,667 $460,229 $429,835Cost of revenue225,615 223,164 220,163 189,652 151,223Gross profit266,862 267,061 224,504 270,577 278,612Selling, general and administrative156,234 158,172 149,214 148,353 128,846Research and development costs, net65,661 69,240 41,524 30,865 31,369Amortization of acquired intangible assets5,367 3,693 4,805 4,859 2,198Impairment of assets32,238 — 5,873 17,400 —Income from operations7,362 35,956 23,088 69,100 116,199Interest income428 111 269 76 247Interest expense(1,304) (341) — (183) —Other expense, net(166) (62) (356) (79) (139)Income before provision for income taxes6,320 35,664 23,001 68,914 116,307Provision for income taxes663 8,332 7,321 26,190 40,650Net income$5,657 $27,332 $15,680 $42,724 $75,657Basic net income per share$0.09 $0.45 $0.26 $0.72 $1.29Diluted net income per share$0.09 $0.45 $0.26 $0.72 $1.28Basic weighted average shares outstanding60,635 60,259 59,918 59,392 58,729Diluted weighted average shares outstanding61,233 60,849 60,134 59,462 59,049Dividends declared per common share$0.525 $0.70 $0.70 $0.70 $0.70 March 31, 2016 March 31, 2015 March 31, 2014 March 31, 2013 March 31, 2012Balance sheet data: Cash, cash equivalents, and marketable securities (2)$36,473 $130,585 $113,801 $118,011 $139,431Working capital (1) (2)$45,931 $100,893 $124,782 $158,156 $173,150Total assets (2)$530,790 $460,521 $451,351 $452,126 $448,838Long-term line of credit (2)$105,000 $— $— $— $—Total liabilities (2)$261,413 $176,981 $156,261 $145,077 $153,661Total shareholders’ equity$269,377 $283,540 $295,090 $307,049 $295,177_______________________(1) Working capital as of March 31, 2015, 2014, 2013, and 2012 includes reclassifications of deferred taxes related to the retrospective adoption of Accounting StandardsUpdate No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17") . Refer to Note 2, "Summary of Significant AccountingPolicies" of our notes to consolidated financial statements included elsewhere in this Report for additional details. The retrospective adoption of ASU 2015-17 resulted in thereclassification, for presentation purposes only, of current deferred tax assets to noncurrent deferred tax assets in our consolidated balance sheets as of March 31, 2015,2014, 2013, and 2012. As a result of such reclassification, working capital decreased by $24,080 , $21,531 , $23,413 , and $18,613 as of March 31, 2015, 2014, 2013, and2012, respectively.(2) During the year ended March 31, 2015, our cash, cash equivalents, and marketable securities, working capital, total assets, long-term line of credit and total liabilities wereimpacted by certain transactions, including the acquisition of HealthFusion, revolving credit agreement, and impairment of our previously capitalized software costs. Refer Note5, "Business Combinations and Disposals," Note 9, "Line of Credit," and Note 8, "Capitalized Software Costs" of our notes to consolidated financial statements includedelsewhere in this Report for additional details.27Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSExcept for the historical information contained herein, the matters discussed in this management’s discussion and analysis of financial condition and results ofoperations (“MD&A”), including discussions of our product development plans, business strategies and market factors influencing our results, may includeforward-looking statements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, bothforeseen and unforeseen, including, but not limited to, our ability to continue to develop new products and increase systems sales in markets characterized byrapid technological evolution, consolidation and competition from larger, better-capitalized competitors. Many other economic, competitive, governmental andtechnological factors could affect our ability to achieve our goals and interested persons are urged to review any risks that may be described in “Item 1A. RiskFactors” as set forth herein, as well as in our other public disclosures and filings with the Securities and Exchange Commission ("SEC").This MD&A is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K("Report") in order to enhance your understanding of our results of operations and financial condition and should be read in conjunction with, and is qualified inits entirety by, the consolidated financial statements and related notes thereto included elsewhere in this Report. Historical results of operations, percentagemargin fluctuations and any trends that may be inferred from the discussion below are not necessarily indicative of the operating results for any future period.Company OverviewQuality Systems, Inc., primarily through its NextGen Healthcare subsidiary, provides technology-based solutions and services to the ambulatory care market inthe United States. Our solutions provide our clients with the ability to redesign patient care and other workflow processes while improving productivity throughthe facilitation of managed access to patient information. We help promote healthy communities by empowering physician practice success and enriching thepatient care experience while lowering the cost of healthcare.We primarily derive revenue by developing and marketing software and services that automate certain aspects of practice management (“PM”) and electronichealth records (“EHR”) for medical and dental practices. Our software can be licensed on a perpetual, on-premise basis, hosted in a private cloud or, in certaininstances, as a software-as-a-service (“SaaS”) solution. We market and sell our solutions through a dedicated sales force and to a much lesser extent, throughresellers. Our clients include single and small practice physicians, networks of practices such as physician hospital organizations (“PHOs”), management serviceorganizations (“MSOs”), accountable care organizations (“ACOs”), ambulatory care centers, community health centers and medical and dental schools. We alsoprovide implementation, training, support and maintenance for software and complementary services such as revenue cycle management (“RCM”) andelectronic data interchange (“EDI”).We have a history of developing new and enhanced technologies. Over the course of a number of years, we have also made strategic acquisitions tocomplement and enhance our product portfolio in the ambulatory care, RCM, and hospital markets. In October 2015, we divested our Hospital SolutionsDivision.Quality Systems, Inc. was incorporated in California in 1974. Our principal offices are located at 18111 Von Karman Ave., Suite 800, Irvine, California, 92612.Our website is located at www.Nextgen.com. We operate on a fiscal year ending on March 31.Critical Accounting Policies and EstimatesThe discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these consolidatedfinancial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenue and expenses, and relateddisclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors we believe to be reasonable underthe circumstances, and we evaluate these estimates on an ongoing basis. On a regular basis, we review the accounting policies and update our assumptions,estimates, and judgments, as needed, to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. Actual resultscould differ materially from our estimates under different assumptions or conditions. To the extent that there are material differences between our estimates andactual results, our financial condition or results of operations will be affected.Our significant accounting policies, as described in Note 2, “Summary of Significant Accounting Policies” of our notes to consolidated financial statementsincluded elsewhere in this Report, should be read in conjunction with management’s discussion and analysis of financial condition and results of operations. Webelieve that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results because applicationof such policies require significant judgment regarding the effects of matters that are inherently uncertain and that affect our consolidated financial statements.Revenue RecognitionWe generate revenue from sales of licensing rights and subscriptions to our software products, hardware and third party software products, support andmaintenance services, revenue cycle management and related services ("RCM"), electronic data interchange and data services (“EDI”), and professionalservices, such as implementation, training, and consulting performed for clients who use our products.28Table of ContentsWe generally recognize revenue provided that persuasive evidence of an arrangement exists, fees are considered fixed or determinable, delivery of the productor service has occurred, and collection is considered probable. Revenue from the delivered elements (generally software licenses) are generally recognizedupon physical or electronic delivery. In certain transactions where collection is not considered probable, the revenue is deferred until collection occurs. If the feeis not fixed or determinable, then the revenue recognized in each period (subject to application of other revenue recognition criteria) will be the lesser of theaggregate amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using theresidual method. We assess whether fees are considered fixed or determinable at the inception of the arrangement and negotiated fees generally are based ona specific volume of products to be delivered and not subject to change based on variable pricing mechanisms, such as the number of units copied or distributedor the expected number of users.A typical system sale may contain multiple elements, but most often includes software licenses, maintenance and support, implementation and training.Revenue on arrangements involving multiple elements is generally allocated to each element using the residual method when evidence of fair value only existsfor the undelivered elements. The fair value of an element is based on vendor-specific objective evidence (“VSOE”), which is based on the price charged whenthe same element is sold separately. We generally establish VSOE for the related undelivered elements based on the bell-shaped curve method. VSOE isestablished on maintenance for our largest clients based on stated renewal rates only if the rate is determined to be substantive and falls within our customarypricing practices. VSOE calculations are updated and reviewed on a quarterly or annual basis, depending on the nature of the product or service.Under the residual method, we defer revenue related to the undelivered elements based on VSOE of fair value of each undelivered element and allocate theremainder of the contract price, net of all discounts, to the delivered elements. If VSOE of fair value of any undelivered element does not exist, all revenue isdeferred until VSOE of fair value of the undelivered element is established or the element has been delivered.Revenue related to arrangements that include hosting services is recognized in accordance to the revenue recognition criteria described above only if the clienthas the contractual right to take possession of the software at any time without incurring a significant penalty, and it is feasible for the client to either host thesoftware on its own equipment or through another third party. Otherwise, the arrangement is accounted for as a service contract in which the entire arrangementis deferred and recognized over the period that the hosting services are being provided.From time to time, we offer future purchase discounts on our products and services as part of our arrangements. Such discounts that are incremental to therange of discounts reflected in the pricing of the other elements of the arrangement, that are incremental to the range of discounts typically given in comparabletransactions, and that are significant, are assessed as an additional element of the arrangement. Revenue deferred related to future purchase options are notrecognized until either the client exercises the discount offer or the offer expires.Revenue from professional services, including implementation, training, and consulting services, are generally recognized as the corresponding services areperformed. Revenue from software related subscription services and support and maintenance revenue are recognized ratably over the contractual serviceperiod. Revenue from EDI and data services and other transaction processing services are recognized at the time the services are provided to clients. Revenuefrom RCM and related services is derived from services fees for ongoing billing, collections, and other related services, and are generally calculated as apercentage of total client collections. We recognize RCM and related services revenue at the time collections are made by the client as the services fees are notfixed or determinable until such time.We record revenue net of sales tax obligation in the consolidated statements of comprehensive income.The amount and timing of revenue recognized in a given period is affected by our judgment as to whether an arrangement includes multiple elements and if so,the allocation of revenue to each element. We generally apply the residual method for the revenue recognition of our multiple element arrangements andestimate the fair value of the undelivered elements based on VSOE. Establishing VSOE on our undelivered elements requires judgment. We establish VSOE foreach undelivered element as the price charged when the same element is sold separately and generally evidenced when a substantial majority of historicalstandalone transactions fall within a reasonably narrow range using the bell-shaped curve method. In our determination of VSOE, we also consider service type,client type, and other variables. Our revenue recognition is based on our ability to maintain VSOE. Although not currently expected, certain events may occur,such as modification to or lack of consistency in our selling and pricing practices that could result in changes to our determination of VSOE. VSOE calculationsare updated and reviewed on a quarterly or annual basis, depending on the nature of the product or service.We also must apply judgment in determining the appropriate timing and recognition of certain revenue deferrals. In certain transactions where collection risk ishigh, the revenue is deferred until collection occurs. If the fee is not fixed or determinable, then the revenue recognized in each period (subject to application ofother revenue recognition criteria) will be the lesser of the aggregate amounts due and payable or the amount of the arrangement fee that would have beenrecognized if the fees were being recognized using the residual method. We assess whether fees are considered fixed or determinable at the inception of thearrangement and negotiated fees generally are based on a specific volume of products to be delivered and not subject to change based on variable pricingmechanisms, such as the number of units copied or distributed or the expected number of users.Although we currently believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may beexposed to increases or decreases in revenue that could be material.29Table of ContentsReserves on Accounts ReceivableWe maintain reserves for potential sales returns and uncollectible accounts receivable. In aggregate, such reserves reduce our gross accounts receivable to itsestimated net realizable value.Our standard contracts generally do not contain provisions for clients to return products or services. However, we historically have accepted sales returns undercertain circumstances. Accordingly, we estimate sales return reserves, including reserves for returns and other credits, based upon the rate of historical returnsby revenue type in relation to the corresponding gross revenues and recognize revenue, net of an allowance for sales returns. If we are unable to estimate thereturns, revenue recognition may be delayed until the rights of return period lapses, provided also, that all other criteria for revenue recognition have been met. Ifwe experience changes in practices related to sales returns or changes in actual return rates that deviate from the historical data on which our reserves hadbeen established, our revenues may be adversely affected.Allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from our clients’ inability to make requiredpayments are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances, net of deferred revenueand specifically reserved accounts. Specific reserves are based on our estimate of the probability of collection for certain troubled accounts. Accounts are writtenoff as uncollectible only after we have expended extensive collection efforts.Our allowances for doubtful accounts are based on our assessment of the collectibility of client accounts. We regularly review the adequacy of these allowancesby considering internal factors such as historical experience, credit quality and age of the client receivable balances as well as external factors such aseconomic conditions that may affect a client’s ability to pay and review of major third-party credit-rating agencies, as needed. If a major client’s creditworthinessor financial condition were to deteriorate, if actual defaults are higher than our historical experience, or if other circumstances arise, our estimates of therecoverability of amounts due to us could be overstated, and additional allowances could be required, which could have an adverse impact on our operatingresults.Although we currently believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may beexposed to increases or decreases in required reserves that could be material.Software Development CostsSoftware development costs, consisting primarily of employee salaries and benefits, incurred in the research and development of new software products andenhancements to existing software products for external sale are expensed as incurred, and reported as net research and development costs in theconsolidated statements of comprehensive income, until technological feasibility has been established. After technological feasibility is established, anyadditional external software development costs are capitalized. Amortization of capitalized software is recorded using the greater of the ratio of current revenuesto the total of current and expected revenues of the related product or the straight-line method over the estimated economic life of the related product, which istypically three years. The total of capitalized software costs incurred in the development of products for external sale are reported as capitalized software costswithin our consolidated balance sheets.We also incur costs to develop software applications for our internal-use and costs for the development of Software as a Service ("SaaS") based products soldto our clients. The development costs of our SaaS-based products are considered internal-use for accounting purposes. Our internal-use capitalized costs arestated at cost and amortized using the straight-line method over the estimated useful lives of the assets, which is typically three to seven years. Applicationdevelopment stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs related to thepreliminaryproject stage and post-implementation activities are expensed as incurred. Costs of significant upgrades and enhancements that result in additional functionalityare also capitalized, whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized software costs fordeveloping SaaS-based products are reported as capitalized software costs within our consolidated balance sheets and capitalized software costs fordeveloping our internal-use software applications are reported as equipment and improvements within our consolidated balance sheets.We periodically reassess the estimated economic life and the recoverability of our capitalized software costs. If a determination is made that capitalized amountsare not recoverable based on the estimated net cash flows to be generated from sales of the applicable software product, the amount by which the unamortizedcapitalized costs of a software product exceed the net realizable value is written off as a charge to earnings. The net realizable value is the estimated futuregross revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performingmaintenance and client support required to satisfy our responsibility at the time of sale.For the year ended March 31, 2016 , we determined that our previously capitalized software costs related to our NextGen Now development project was notrecoverable and recorded a $32.2 million non-cash impairment charge. Refer to the "Impairment of Assets" section below for additional information.Although we currently believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may beexposed to increases or decreases in revenue that could be material.30Table of ContentsBusiness CombinationsDuring the last three fiscal years, we completed our acquisitions of HealthFusion, Gennius, and Mirth, each of which were accounted for as a purchase businesscombination using the acquisition method of accounting.In accordance with the acquisition method of accounting for business combinations, we allocate the purchase price of acquired businesses to the tangible andintangible assets acquired and liabilities assumed based on estimated fair values. Our purchase price allocation methodology contains uncertainties because itrequires us to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities, including, but not limited to, intangibleassets, goodwill, and contingent consideration liabilities. We estimate the fair value of assets and liabilities based upon quoted market prices, the carrying valueof the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses depending on the nature of theassets being sold. We estimate the fair value of the contingent consideration liabilities based on the probability of achieving certain business milestones and/ormanagement's forecast of expected results. The process for estimating fair values in many cases requires the use of significant estimates, assumptions andjudgments, including determining the timing and estimates of future cash flows and developing appropriate discount rates. Unanticipated events orcircumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and businessstrategies. Any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements of comprehensive income.We currently do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to complete thepurchase price allocation and estimate the fair value of acquired assets and liabilities. However, if actual results are not consistent with our estimates orassumptions, we may be exposed to losses or gains that could be materialGoodwillGoodwill acquired in a business combination is measured as the excess of the purchase price, or consideration transferred, over the net acquisition date fairvalues of the assets acquired and the liabilities assumed. Goodwill is not amortized as it has been determined to have an indefinite useful life.We test goodwill for impairment annually during our first fiscal quarter, referred to as the annual test date. We will also test for impairment between annual testdates if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed at areporting-unit level, which is defined as an operating segment or one level below an operating segment (referred to as a component). A component of anoperating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment managementregularly reviews the operating results of that component.As part of our annual goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reportingunit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conducta two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair values of the applicable reporting units withtheir carrying values. If the carrying amount of the reporting unit exceeds the reporting unit's fair value, we perform the second step of the goodwill impairmenttest. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value ofthat goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units,assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarilythrough the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which isdependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, anddetermination of our weighted average cost of capital.The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors.Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. We currently do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test forimpairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to future impairmentcharges that could be material.Intangible AssetsIntangible assets consist of trade names and contracts, customer relationships, and software technology, all of which arose in connection with our acquisitions.These intangible assets are recorded at fair value and are stated net of accumulated amortization. We currently amortize intangible assets using a method thatreflects the pattern in which the economic benefits of the intangible asset are consumed.31Table of ContentsAlthough currently we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may beexposed to decreases in the fair value of our intangible assets, resulting in impairment charges that could be material. We test intangible assets for impairment ifwe believe indicators of impairment exist.Share-Based CompensationWe record share-based compensation related to our employee stock options plans, employee share purchase plans, restricted stock awards, and restrictedperformance shares under our executive compensation plans. See Note 13, “Share-Based Awards,” of our notes to consolidated financial statements includedelsewhere in this Report for a complete discussion of our stock-based compensation plans.We estimate the fair value of stock options on the date of grant using the Black Scholes option-pricing model based on required inputs, including expected term,volatility, risk-free rate, and expected dividend yield. Expected term is estimated based upon the historical exercise behavior and represents the period of timethat options granted are expected to be outstanding and therefore the proportion of awards that is expected to vest. Volatility is estimated by using the weighted-average historical volatility of our common stock, which approximates expected volatility. The risk-free rate is the implied yield available on the U.S. Treasuryzero-coupon issues with remaining terms equal to the expected term. The expected dividend yield is the average dividend rate during a period equal to theexpected term of the option. The fair value vest is recognized ratably as expense over the requisite service period in our consolidated statements ofcomprehensive income.Share-based compensation expense associated with the restricted performance shares under our executive compensations plans is based on the grant date fairvalue measured at the underlying closing share price on the date of grant using a Monte Carlo-based valuation model.Share-based compensation expense associated with the options under our equity incentive plans are initially based on the number of options expected to vestafter assessing the probability that the performance criteria will be met. Cumulative adjustments are recorded quarterly to reflect subsequent changes in theestimated outcome of performance-related conditions.We currently do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine share-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-basedcompensation expense that could be material.32Table of ContentsTrends and Events in Our BusinessWe believe that the following trends and events as described below have contributed to our consolidated results of operations and may continue to impact ourfuture results.We believe healthcare is more heavily influenced by regulatory and national health projects than by the cycles of our economy. The healthcare industry hasbeen significantly impacted by the Obama Administration's broad healthcare reform efforts, including the Health Information Technology for Economic andClinical Health portion of the American Recovery and Reinvestment Act of 2009 ("HITECH Act") and the Patient Protection and Affordable Care Act ("ACA") thatprovided significant incentives to health care organizations for "Meaningful Use" adoption and interoperable electronic health record solutions.We also believe that healthcare reform, including the repeal of the sustainable growth rate (SGR) formula as part of the Medicare Access and CHIPReauthorization Act of 2015 ("MACRA"), and a movement towards a value-based, pay-for-performance model and quality initiative efforts will stimulate demandfor robust electronic health record solutions as well as new health information technology solutions from bundled billing capabilities to patient engagement andpopulation health management. We believe MACRA may be the most important of the three regulations for our market because it permanently changes howambulatory healthcare providers are reimbursed by Medicare. It offers certainty and a timeline for the market’s move away from volume-based, fee-for-servicemodels to value-based payment models that reward the delivery of lower cost, high quality care.While we expect to benefit from the increasing demands for greater efficiency as well as government support for increased adoption of electronic health records,the market for physician based electronic health records software is becoming increasingly saturated while physician group practices are rapidly beingconsolidated by hospitals, insurance payers and other entities. Hospital software providers are leveraging their position with their hospital clients to gain marketshare with hospital owned physician practices. Insurance providers and large physician groups are also consolidating physician offices creating additionalopportunity for ambulatory software providers like us. Our strategy is to focus on addressing the growing needs of accountable care organizations aroundinteroperability, patient engagements, population health, and data analytics.We believe that our core strength lies in the central role our software products and services play in the delivery of healthcare by the primary physician in anambulatory setting. We intend to remain at the forefront of upcoming new regulatory requirements and meaningful use requirements for stimulus payments. Weintend to continue the development and enhancement of our software solutions to support healthcare reform, such as the recently enacted MACRA, whichpromotes the transition from fee-for-service to value-based, pay-for-performance and patient-centric and quality initiatives such as accountable careorganizations. Key elements of our future software development will be to expand our interoperability capabilities enhancing the competitiveness of our softwareofferings, make our products more intuitive and easy to use, and to enhance the capability of our MediTouch® Platform to allow us to deliver our software overthe cloud to larger ambulatory care practices.In addition to the activities described above, mergers and acquisitions have been important to our development. In September 2013 we acquired MirthCorporation ("Mirth"), a global leader in health information technology that helps clients achieve interoperability. In April 2015, we acquired Gennius, Inc.("Gennius"), a population health analytics company which we believe enhances and leverages our acquisition of Mirth by broadening our business intelligencecapabilities in the growing population health and value based care areas.On October 22, 2015, we divested our Hospital Solutions Division in order to focus our efforts and resources on our core ambulatory business.In January 2016, we completed the acquisition of HealthFusion Holdings, Inc. ("HealthFusion"), a cloud-based healthcare information technology (“HCIT”)company providing electronic health record (“EHR”) and practice management (“PM”) software primarily to the one-to-ten physician size market. We entered intoa revolving credit agreement to fund the transaction. We believe the acquisition provided us with access to a market we were not in and provides us withtechnology that will accelerate our transition to the cloud.We continue to evaluate the organizational structure of our company with the objective of achieving greater synergies and further integration of our products andservices, in support of our business strategies. In fiscal 2016, we initiated a three-phase plan to better position our organization for future success. In the firstphase, we redesigned the organization to more effectively support the execution of our strategy. We also transformed our management team with theappointment of a new chief executive officer, chief financial officer, chief technology officer, and chief client officer. This first phase was completed in April 2016,when we announced a corporate reorganization to enable a more efficient, integrated and client-centered delivery of the holistic solutions that we believe isrequired by our ambulatory care clients. The reorganization includes merging our business units into a single, streamlined, functional-based organizationstructure.We are now beginning phase two of the plan, which includes building and enhancing the capabilities that will drive future revenue growth. The third phase of theplan will consist of developing the services and solutions to accelerate revenue growth.Under our reorganization plan, we expect to reduce our domestic headcount by approximately 150 employees, or approximately six percent of our U.S.-basedworkforce. We expect to incur approximately $4.0 million of reorganization-related charges, consisting principally of severance and other one-time terminationbenefits, during the first and second quarters of fiscal year 2017. We also expect approximately $14.0 million to $16.0 million of personnel-related savings infiscal year 2017, excluding the reorganization-related charge.33Table of ContentsWe have and intend to continue investments in our infrastructure, including but not limited to maintaining and expanding sales, marketing and productdevelopment activities to improve patient care and reduce healthcare costs, providing industry-leading, integrated clinical and administrative healthcare datasystems, services, and expertise to clinical, medical, technology, and healthcare business professionals while continuing our strong commitment of service insupport of our client satisfaction programs. These investments in our infrastructure will continue while maintaining reasonable expense discipline. We strive toadd new clients and expand our relationship with existing clients through delivery of add-on and complementary products and services and believe that ourclient base that is using our software on a daily basis is a strategic asset. We intend to leverage this strategic asset by expanding our product and serviceofferings towards this client base.Led by our vision and mission, we are resetting our strategy and structure to deliver value to our clients. To achieve a lower-cost, increased capability structure,our new management team is building what we believe is an aligned, client-focused organization, supported by a recurring revenue stream and a large anddiverse existing client base.We strive to be the trusted partner for clients of all size, integrating services, software and analytics into a consolidated solution. The opportunity to increasevalue and quality of our client experience is addressed in our five key strategic priorities, including (i) cloud transition, (ii) focus on the ambulatory client segment,(iii) solutions selling, (iv) more effective use of capital, and (v) population health software and services. Refer to “Item 1. Business” included elsewhere in thisReport for additional information on each of our key strategic priorities.As a healthcare information technology and services company, we plan to continue investing in our current capabilities as well as building and/or acquiring newcapabilities as we guide our clients from fee-for-service to fee-for-value payer reimbursement models. With approximately 90,000 providers using our solutions,we are enabling care and believe we can truly transform the delivery of care.Executive Overview of Our ResultsThe following are our key financial results for the fiscal year ended March 31, 2016. Refer to the discussion and analysis of our results in the sections below foradditional details.•Revenues were $492.5 million•Recurring services revenue, consisting of consisting of software related subscription services, support and maintenance, RCM and related services,and EDI and data services, comprised approximately 78% of consolidated revenue•Consolidated gross profit was $266.9 million , or 54.2% as a percentage of revenue•Cost of revenue was $225.6 million•Selling, general and administrative expenses were $156.2 million•Net research and development costs were $65.7 million•Amortization of acquired intangible assets were $5.4 million•Non-cash impairment charge of $32.2 million was recorded related to the write-off of capitalized software development costs•Income from operations income was $7.4 million•Effective tax rate was 10.5% , impacted by permanent items such as the federal research and development tax credit, in relation to our pre-tax netincome•Net income was $5.7 million , or $0.09 per share on both a basic and fully diluted basis•Operating cash flow was $40.8 million34Table of ContentsResults of OperationsThe following table sets forth the percentage of revenue represented by each item in our consolidated statements of comprehensive income for the years endedMarch 31, 2016 , 2015 , and 2014 (certain percentages below may not sum due to rounding): Fiscal Year Ended March 31, 2016 2015 2014Revenues: Software license and hardware14.3% 16.7% 17.8%Software related subscription services11.2 9.1 6.1Total software, hardware and related25.6 25.8 24.0Support and maintenance33.5 34.5 36.0Revenue cycle management and related services16.9 15.1 14.2Electronic data interchange and data services16.7 15.6 15.1Professional services7.3 9.0 10.7Total revenues100.0 100.0 100.0Cost of revenue: Software license and hardware5.6 5.9 11.1Software related subscription services5.4 4.2 2.8Total software, hardware and related11.0 10.1 13.9Support and maintenance6.4 5.9 5.1Revenue cycle management and related services11.7 11.1 10.4Electronic data interchange and data services10.2 9.8 9.6Professional services6.6 8.6 10.6Total cost of revenue45.8 45.5 49.5Gross profit54.2 54.5 50.5Operating expenses: Selling, general and administrative31.7 32.3 33.6Research and development costs, net13.3 14.1 9.3Amortization of acquired intangible assets1.1 0.8 1.1Impairment of assets6.5 0.0 1.3Total operating expenses52.7 47.1 45.3Income from operations1.5 7.3 5.2Interest income0.0 0.0 0.0Interest expense(0.3) (0.1) 0.0Other expense, net0.0 0.0 (0.1)Income before provision for income taxes1.3 7.3 5.2Provision for income taxes0.1 1.7 1.6Net income1.1% 5.6% 3.5%35Table of ContentsRevenuesThe following table presents our consolidated revenues for the years ended March 31, 2016 , 2015 , and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Revenues: Software license and hardware$70,523 $81,649 $79,366Software related subscription services55,403 44,592 27,335Total software, hardware and related125,926 126,241 106,701 Support and maintenance165,200 169,219 160,060Revenue cycle management and related services83,006 74,237 62,976Electronic data interchange and data services82,343 76,358 67,295Professional services36,002 44,170 47,635Total revenues$492,477 $490,225 $444,667We generate revenue from sales of licensing rights and subscriptions to our software products, hardware and third party software products, support andmaintenance services, revenue cycle management and related services ("RCM"), electronic data interchange and data services (“EDI”), and professionalservices, such as implementation, training, and consulting performed for clients who use our products.Consolidated revenue for the year ended March 31, 2016 increased $2.3 million compared to the prior year due to higher software related subscription services,RCM, and EDI revenue, offset by lower software license and hardware, professional services, and support and maintenance revenue. The acquisition ofHealthFusion in January 2016 contributed revenues of $8.8 million for the year ended March 31, 2016 . Revenue for the Hospital Solutions Division decreased$10.5 million compared to the prior year primarily due to its disposition in October 2015.The $11.1 million decline in software license and hardware revenue compared to the prior year reflects the increasingly saturated end-market for electronichealth records software and the disposition of the Hospital Solutions Division, which contributed to $1.9 million of the total decrease in software license andhardware revenue. Software related subscription services revenue increased $10.8 million compared to the prior year primarily due to additional revenues fromthe acquisition of HealthFusion, combined with growth in subscriptions related to our interoperability, patient portal, and QSIDental Web product offerings as wecontinue to expand our client base, offset by a $1.9 million decrease primarily related to the disposition of Hospital Solutions Division. Support and maintenancerevenue decreased $4.0 million , which consists of a $4.9 million decrease related to the Hospital Solutions Division, partially offset by growth in support andmaintenance related to our interoperability solutions and other ambulatory software products. RCM and EDI revenue grew by $8.8 million and $6.0 million ,respectively, compared to the prior year due to addition of new clients and further penetration of our existing client base. The acquisition of HealthFusion alsopartially contributed to the increase in EDI revenues. Professional services revenue decreased $8.2 million compared to the prior year due to the recent declinein system sales, resulting in lower client demand for our core software products and related implementation, training, and consulting services. The disposition ofthe Hospital Solutions Division also contributed to $1.7 million of the decrease in professional services revenue.Consolidated revenue for the year ended March 31, 2015 increased $45.6 million compared to the year ended March 31, 2014 due to a $17.3 million increase insoftware related subscription services revenue, a $9.2 million increase in support and maintenance, an $11.3 million increase in RCM, a $9.1 million increase inEDI, and a $2.3 million increase software license and hardware revenue, offset by a $3.5 million decline in professional services revenue. The increase insoftware related subscription services and support and maintenance is partially due to a full year contribution of revenues for the year ended March 31, 2015from Mirth, which was acquired in September 2013. Software related subscription services revenue also increased due to growth in our interoperability andpatient portal subscriptions while support and maintenance, RCM and EDI revenues benefited from both organic growth and the addition of new clients. Thegrowth in software license and hardware revenue compared to the year ended March 31, 2014 was primarily due to lower sales returns and related reserves atthe Hospital Solutions Division. Professional services decreased due to lower demand for related system sales.Recurring service revenue, consisting of software related subscription services, support and maintenance, RCM, and EDI, represents 78% , 74% , and 71% oftotal revenue for the years ended March 31, 2016 , 2015 and 2014 , respectively.We expect to benefit from the growth of a replacement market driven by an expected consolidation of electronic health records vendors. We also anticipate thecreation of new opportunities in connection with the evolution of healthcare from a fee-for-services reimbursement model to a pay-for-performance model aroundthe management of patient populations. Our acquisitions of Gennius and Mirth provided us with new products and services around population health,collaborative care management, interoperability and enterprise analytics to address these market dynamics. While it remains difficult to assess the relativeimpact or the timing of positive and negative trends affecting the aforementioned market opportunities, we believe we are well positioned to remain a leader inserving the evolving market needs for healthcare information technology.36Table of ContentsGross ProfitThe following table presents our consolidated cost of revenue and gross profit for the years ended March 31, 2016 , 2015 and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Total cost of revenue$225,615 $223,164 $220,163Gross profit266,862 267,061 224,504Gross margin %54.2% 54.5% 50.5%Cost of revenue consists primarily of compensation expense, including share-based compensation, for personnel that deliver our products and services. Cost ofrevenue also includes amortization of capitalized software costs and acquired technology, third party consultant and outsourcing costs, costs associated with ourEDI business partners and clearinghouses, hosting service costs, third party software costs and royalties, and other costs directly associated with delivering ourproducts and services. Refer to Note 8, "Capitalized Software Costs" of our notes to consolidated financial statements included elsewhere in this Report foradditional information and an estimate of future expected amortization of capitalized software costs.Share-based compensation expense included in cost of revenue was approximately $0.4 million , $0.4 million , and $0.3 million for the years ended March 31,2016 , 2015 , and 2014 , respectively, and is included in the amounts above.Gross profit decreased $0.2 million for the year ended March 31, 2016 compared to the prior year due primarily to a decline in high-margin software licensesales associated with the market saturation noted above and a decline in gross profit associated with the disposition of Hospital Solutions Division, offset byincreases in gross profit associated with higher software and related subscription services, RCM, and EDI revenues and contributions to gross profit from theacquisition of HealthFusion.Gross profit increased $42.6 million for the year ended March 31, 2015 compared to the year ended March 31, 2014 primarily reflecting a $20.1 millionimpairment charge on certain long-term assets of the Hospital Solutions Division recorded to cost of revenue in the year ended March 31, 2014 and growth inrevenues noted above.For the year ended March 31, 2016 , gross margin remained relatively consistent at 54.2% compared to 54.5% for the year ended March 31, 2015 . Grossmargin was 50.5% for the year ended March 31, 2014 , which decrease primarily as a result of the Hospital Solutions Division impairment charge that wasrecorded to cost of revenue, as noted above.Selling, General and Administrative ExpenseThe following table presents our consolidated selling, general and administrative expense for the years ended March 31, 2016 , 2015 , and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Selling, general and administrative$156,234 $158,172 $149,214Selling, general and administrative, as a percentage of revenue31.7% 32.3% 33.6%Selling, general and administrative expense consist of compensation expense, including share-based compensation, for management and administrativepersonnel, selling and marketing expense, facilities costs, depreciation, professional service fees, including legal and accounting services, acquisition andtransaction-related costs, and other general corporate and administrative expenses.Share-based compensation expense included in selling, general and administrative expenses was approximately $2.6 million , $2.7 million , and $1.8 million forthe years ended March 31, 2016 , 2015 , and 2014 , respectively, and is included in the amounts above.Selling, general and administrative expenses for the year ended March 31, 2016 decreased $1.9 million compared to the prior year primarily due to a $6.3million decrease in legal expenses associated mostly with shareholder litigation defense costs (net of insurance recoveries), a $2.1 million decrease in salescommissions related to the decline in new system sales, a $1.5 million decrease in equipment and software maintenance expense, and a $0.7 million decreasein facilities and utilities expense, offset by a $2.7 million increase in bad debt expense, a $2.7 million increase in salaries and benefits, $2.3 million highertransaction costs associated mostly with the acquisition of HealthFusion and a $1.8 million loss on the disposition of the Hospital Solutions Division (includingrelated incremental direct costs).Selling, general and administrative expenses for the year ended March 31, 2015 increased $9.0 million compared to the year ended March 31, 2014 . Theincrease is due primarily to a $4.6 million increase in salaries and benefits due to increased overall headcount and higher bonus expense, a $2.2million increase in legal expenses due mostly to higher costs for shareholder litigation defense, a $1.5 million increase in advertising costs as a result of ourincreased focus on heightened brand awareness plus added utilization of online advertising and media placement, and a $1.5 million increase in acquisitioncosts due mostly to37Table of Contentspost-acquisition fair value adjustments to contingent consideration related to Mirth, offset by a $0.6 million decrease in bad debt expense and $0.2 million netdecrease in other selling and administrative expenses.Research and Development Costs, netThe following table presents our consolidated net research and development costs, capitalized software costs, and gross expenditures prior to capitalization, forthe years ended March 31, 2016 , 2015 , and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Gross expenditures$80,336 $83,841 $62,308Capitalized software costs(14,675) (14,601) (20,784)Research and development costs, net$65,661 $69,240 $41,524 Research and development costs, net, as a percentage of revenue13.3% 14.1% 9.3%Capitalized software costs as a percentage of gross expenditures18.3% 17.4% 33.4%Gross research and development expenditures, including costs expensed and costs capitalized, consist of compensation expense, including share-basedcompensation, for research and development personnel, certain third-party consultant fees, software maintenance costs, and other costs related to new productdevelopment and enhancement to our existing products. We intend to continue to invest heavily in research and development expenses as we continue to bringadditional functionality and features to the medical community and develop a new integrated inpatient and outpatient, web-based software platform.The capitalization of software development costs results in a reduction to our reported net research and development costs. Our software capitalization rate, orcapitalized software costs as a percentage of gross expenditures, has varied historically and may continue to vary based on the nature and status of specificprojects and initiatives in progress. Although changes in software capitalization rates have no impact on our overall cash flows, it results in fluctuations in theamount of software development costs being expensed up front and the amount of net research and development costs reported in our consolidated statementof comprehensive income.Share-based compensation expense included in net research and development costs was approximately $0.3 million , $0.4 million , and $0.3 million for theyears ended March 31, 2016 , 2015 , and 2014 , respectively, and is included in the amounts above.Net research and development costs for the year ended March 31, 2016 decreased $3.6 million compared to the prior year primarily due to lower grossexpenditures related to our NextGen Now development project. Net research and development costs for the year ended March 31, 2015 increased $27.7 million compared to the year ended March 31, 2014 due to an increasein our gross expenditures as well as a decline in the software capitalization rate. Gross expenditures increased due to the inclusion of a full year impact of Mirthrelated costs and increased investment in the development of new products, enhancements to our specialty templates, and other enhancements to our existingproducts and preparation for ICD-10 requirements that were forthcoming at that time. The reduction in the software capitalization rate to 17.4% compared to33.4% in the year ended March 31, 2014 reflects a trend towards a more agile development approach that inherently shortened the time frame during whichdevelopment costs may be capitalized.Amortization of Acquired Intangible AssetsThe following table presents our amortization of acquired intangible assets for the years ended March 31, 2016 , 2015 , and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Amortization of acquired intangible assets$5,367 $3,693 $4,805Amortization of acquired intangible assets included in operating expense consist of the amortization related to our customer relationships, trade name, andcontracts intangible assets acquired as part of our business combinations. Refer to Note 7, "Intangible Assets" of our notes to consolidated financial statementsincluded elsewhere in this Report for an estimate of future expected amortization.Amortization of acquired intangible assets for the year ended March 31, 2016 increased $1.7 million compared to the prior year due to additional amortization ofthe customer relationships and trade name intangible assets related to the acquisition of HealthFusion. Amortization of acquired intangible assets for the yearended March 31, 2015 decreased $1.1 million compared to the year ended March 31, 2014 primarily due to the full impairment of acquired intangible assetsrelated to the Hospital Solutions Division recorded in year ended March 31, 2014 and resulting cessation in associated amortization. Refer to Note 5, "Business38Table of ContentsCombinations and Disposals" of our notes to consolidated financial statements included elsewhere in this Report for additional information.Impairment of AssetsThe following table presents our impairment of assets for the years ended March 31, 2016 , 2015 , and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Impairment of assets$32,238 $— $5,873During the year ended March 31, 2016 , we recorded a non-cash impairment charge of $32.2 million that is reflected within the impairment of assets caption inour consolidated statements of comprehensive income. The impairment relates to our previously capitalized investment in the NextGen Now developmentproject, which we deemed to have zero net realizable value. The impairment charge did not result in, nor is it expected to result in, any cash expenditures. Theimpairment charge follows our assessment of the NextGen Now development project and the MediTouch platform that we obtained through our recentacquisition of HealthFusion. We have determined that the MediTouch platform offers the most efficient path to providing a high-quality, robust, cloud-basedsolution for ambulatory care. Accordingly, we have decided to cease further investment in NextGen Now and immediately discontinue all efforts to use orrepurpose the NextGen Now platform. During the year ended March 31, 2014, we recorded a $26.0 million impairment charge on certain long-term assets, including goodwill, intangible assets, andcapitalized software costs, of the Hospital Solutions Division, of which $20.1 million was recorded to cost of revenue, as noted above, and the remaining $5.9million is reflected as impairment of assets in our consolidated statements of comprehensive income.Interest and Other Income and ExpenseThe following table presents our interest expense for the years ended March 31, 2016 , 2015 , and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Interest income$428 $111 $269Interest expense(1,304) (341) —Other expense, net(166) (62) (356)Interest income relates primarily to our marketable securities. Interest expense relates to our revolving credit agreement that was entered into in January 2016and the related amortization of deferred debt issuance costs. Refer to Note 9, “Line of Credit” of our notes to consolidated financial statements includedelsewhere in this Report for additional information. Other expense and income relates primarily to net realized gains and losses on our marketable securities.Interest expense for the year ended March 31, 2016 increased $1.0 million compared to the prior year. The increase is primarily related to the interest expenseassociated with our revolving credit agreement and the amortization of deferred debt issuance costs. As of March 31, 2016 , we had $105.0 million inoutstanding loans under the revolving credit agreement.All other fluctuations in interest and other income and expense are not deemed significant.Provision for Income TaxesThe following table presents our provision for income taxes for the years ended March 31, 2016 , 2015 , and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Provision for income taxes$663 $8,332 $7,321Effective tax rate10.5% 23.4% 31.8%The effective tax rate for the year ended March 31, 2016 decreased compared to the prior year primarily as a result of favorable tax benefits from the federalresearch and development tax credit and other permanent items having a more significant effective tax rate impact due to lower income before taxes for the yearended March 31, 2016 . The Internal Revenue Service statute related to research and development credits expired on December 31, 2014 and was retroactivelyreinstated and made permanent in December 2015. The research and development credits claimed for the year ended March 31, 2016 represent credits for thetwelve-month period.39Table of ContentsThe effective tax rate for the year ended March 31, 2015 decreased compared to the year ended March 31, 2014 primarily due to an increase in benefit from thefederal research and development tax credit and an increase in the qualified production activities deduction. In addition, the year ended March 31, 2014 includeda non-deductible expense related to the Hospital Solutions Division impairment charge, resulting in an incremental decrease in the effective tax rate for the yearended March 31, 2015.Refer to Note 11, “Income Tax” of our notes to consolidated financial statements included elsewhere in this Report for a reconciliation of the federal statutoryincome tax rate to our effective tax rate.Net IncomeThe following table presents our net income and net income per share and for the years ended March 31, 2016 , 2015 , and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Net income$5,657 $27,332 $15,680Net income per share: Basic$0.09 $0.45 $0.26Diluted$0.09 $0.45 $0.26As a result of the foregoing changes in revenue and expense, net income for the year ended March 31, 2016 decreased $21.7 million compared to the prioryear. The significant decrease is primarily due to the $32.2 million impairment of previously capitalized software costs, offset by a decrease in provision forincome taxes as a result of lower pre-tax net income.Net income for the year ended March 31, 2015 increased $11.7 million compared to the year ended March 31, 2014 primarily due to the $26.0 millionimpairment charge on certain long-term assets of the Hospital Solutions Division during the year ended March 31, 2014 and higher revenues during the yearended March 31, 2015, offset by an increase in selling, general, and administrative expense and net research and development costs.Operating Segment InformationOur business divisions consist of the NextGen Division, the RCM Services Division, the QSI Dental Division, and the former Hospital Solutions Division that wasdivested in October 2015. Our divisions share the resources of our “corporate office,” which includes a variety of accounting, finance and other administrativefunctions.The following table presents an overview of our operating results by segment for the years ended March 31, 2016 , 2015 , and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Revenue: NextGen Division$375,801 $373,765 $341,120RCM Services Division89,831 80,005 68,093QSI Dental Division19,376 18,451 19,840Hospital Solutions Division7,469 18,004 15,614Consolidated revenue$492,477 $490,225 $444,667 Operating income: NextGen Division$182,508 $182,320 $162,948RCM Services Division17,639 13,919 11,719QSI Dental Division6,101 5,161 6,183Hospital Solutions Division(927) (1,339) (7,237)Corporate and unallocated(197,959) (164,105) (150,525)Consolidated operating income$7,362 $35,956 $23,08840Table of ContentsNextGen DivisionNextGen Division revenue for the year ended March 31, 2016 increased $2.0 million and divisional operating income increased $0.2 million compared to theprior year. The increase in revenue was driven largely by growth in our recurring services revenue, including a $12.2 million increase in software relatedsubscription services, a $4.9 million increase in EDI revenue, and $1.2 million increase in support and maintenance, offset by a $9.2 million decrease in softwarelicense and hardware revenue and a $7.1 million decrease in professional services. The growth in software related subscription services was driven byadditional revenues from the acquisition of HealthFusion in January 2016, combined with growth in subscriptions related to our interoperability and patient portalproduct offerings as we continue to expand our client base. The increase in EDI revenue comes from the addition of new clients and further penetration of ourexisting client base, and the increase in support and maintenance is related to our interoperability solutions and other ambulatory software products. The declinein software license and hardware revenue and professional services revenue compared to the prior year reflects the increasingly saturated end-market forelectronic health records software, resulting in lower client demand for our core software products and related implementation, training, and consulting services.The increase in divisional operating income is primarily due to lower operating expenses, which was partially offset by lower divisional gross profit caused by thedecline in high-margin software license sales.NextGen Division revenue for the year ended March 31, 2015 increased $32.6 million and divisional operating income increased $19.4 million compared to theyear ended March 31, 2014 . The increase in revenue was driven largely by growth in our recurring services revenue, including a $16.1 million increase insoftware related subscription services, $9.4 million increase in support and maintenance, and an $8.9 million increase in EDI revenue, offset by a $2.2 milliondecrease in software license and hardware revenue. The increase in software related subscription services was driven by growth in subscriptions related to ourinteroperability and patient portal product offerings. The increase in support and maintenance is related to our interoperability solutions and other ambulatorysoftware products, and the increase in EDI revenue comes from the addition of new clients and further penetration of our existing client base. The decline insoftware license and hardware revenue reflects the increasingly saturated end-market for electronic health records software. The increase in divisional operatingincome is primarily the result of higher gross profit from the aforementioned increases in revenue, combined with a net decline in overall operating expenses,including decreases in sales commissions related to a the change in revenue mix towards recurring service revenue, which has a lower commissions rate thansystem sales, and a decrease in bad debt expense as a result of improved collections from greater emphasis on working capital management.Our goals for the NextGen Division include further enhancement of our existing products, including expansion of our software and service offerings that supportpay-for-performance initiatives around accountable care organizations, bringing greater ease of use and intuitiveness to our software products, enhancing ourmanaged cloud and hosting services to lower our clients' total cost of ownership, expanding our interoperability and enterprise analytics capabilities, and furtherdevelopment and enhancements of our portfolio of specialty focused templates within our electronic health records software. We intend to remain at the forefrontof upcoming new regulatory requirements, including meaningful use requirements for stimulus payments and recent healthcare reform that is driving thetransition towards pay-for-performance, value-based reimbursement models. We believe that the expanded requirements for continued eligibility for incentivepayments under meaningful use rules will result in an expanded replacement market for electronic health records software. We also intend to continue sellingadditional software and services to existing clients, expanding penetration of connectivity and other services to new and existing clients, and capitalizing ongrowth and cross selling opportunities within the RCM Services Division. Our acquisition of HealthFusion will allow us expand our client base and cloud-basedsolution capabilities in the ambulatory market and meet the needs of practices of increasing size and complexity. Our acquisitions of Mirth and Gennius improveour competitiveness in the markets and provide new clients and expanded markets for the NextGen Division and also support our strategy to focus onaccountable care organizations around interoperability, patient engagements, population health and collaborative care management, and enterprise analytics.We believe we are well-positioned within the evolving healthcare market to deliver products and services that address the growing importance of qualitycollaborative care and shift from fee-for-service to value-based, pay-for-performance care.We believe that the NextGen Division’s results are attributed to a strong brand name and reputation within the marketplace for healthcare information technologysoftware and services and investments in sales and marketing activities, including new marketing campaigns, Internet advertising investments, tradeshowattendance and other expanded advertising and marketing expenditures.RCM Services DivisionRCM Services Division revenue for the year ended March 31, 2016 increased $9.8 million and divisional operating income increased $3.7 million compared tothe prior year. The increase in RCM revenue was driven by the addition of new clients during the year, organic growth achieved through cross selling RCMservices to NextGen Division clients, and the ramping up of services provided to our existing RCM services clients. The increase in divisional operating incomeprimarily reflects the increase in revenues and improved profit margin due to a reduction in our third party outsource costs, offset by higher sales commissionsand other general and administrative compensation expense.RCM Services Division revenue for the year ended March 31, 2015 increased $11.9 million and divisional operating income increased $2.2 million compared tothe year ended March 31, 2014 . The increase in RCM revenue for the year ended March 31, 2015 was also due to the addition of new clients during the year,organic growth achieved through cross selling RCM services to NextGen Division clients, and the ramping up of services provided to our existing RCM servicesclients. The increase in41Table of Contentsdivisional operating income primarily reflects the increase in revenues. Divisional gross profit margin remained consistent in the year ended March 31, 2015compared to the year ended March 31, 2014 .We believe that a significant opportunity exists to continue cross selling RCM services to existing clients. The portion of existing NextGen clients who are usingthe RCM Services Division's services is approximately 10%. We are actively pursuing efforts to achieve faster growth from expanded efforts to leverage theexisting NextGen Division's sales force towards selling RCM services. We also believe that ongoing increases in the complexity of medical billing and collectionsprocesses, including the migration to value-based reimbursement models, will create additional opportunities for our RCM Services Division.QSI Dental DivisionQSI Dental Division revenue for the year ended March 31, 2016 increased $0.9 million and divisional operating income increased $0.9 million compared to theprior year. The increase in revenue was driven by growth in our recurring QSIDental Web subscriptions and EDI revenue and a decrease in sales returns andrelated reserves compared to the prior year. The increase in divisional operating income is attributed mostly to the increase in revenues.QSI Dental Division revenue for the year ended March 31, 2015 decreased $1.4 million and divisional operating income decreased $1.0 million compared to theyear ended March 31, 2014 . The decrease in revenue was primarily the result of lower software license sales and lower support and maintenance due totransition of sales to QSIDental Web subscriptions. Software related subscription services increased $0.1 million for the year ended March 31, 2015 comparedto the year end March 31, 2014 . The decrease in divisional operating income is attributed mostly to the decline in revenues, offset by lower sales commissionsand other operating expenses.We believe that the QSI Dental Division is well-positioned to sell to the FQHCs market and intends to continue leveraging the NextGen Division's sales force tosell its dental electronic medical records software to practices that provide both medical and dental services, such as FQHCs, which are receiving grants as partof the ARRA. Our goal for the QSI Dental Division is to continue to invest in the new cloud-based QSIDental Web platform while aggressively marketingQSIDental Web to both new and existing clients.Hospital Solutions DivisionHospital Solutions Division revenue for the year ended March 31, 2016 decreased $10.5 million and divisional operating loss decreased $0.4 million comparedto the prior year. The decrease in revenue was primarily due to the disposition of the division in October 2015 and lower demand for our hospital-relatedproducts. The reduction in divisional operating loss and improvement in operating results is due mostly to a decrease in selling, general and administrativeexpenses associated with a decline in divisional headcount.Hospital Solutions Division revenue for the year ended March 31, 2015 increased $2.4 million and divisional operating income increased $5.9 million comparedto the year ended March 31, 2014 . Revenue was positively impacted by an increase in software license and hardware revenue related to lower sales returnsand related reserves related to our significant efforts to successfully resolve certain product-related issues with our clients. The increase in divisional operatingincome is primarily related to an improvement in gross margins to 27.1% in the year ended March 31, 2015 compared to (10.1%) negative gross margins in theyear ended March 31, 2014 , which is attributed mostly reductions in professional services headcount and associated compensation expense.Corporate and unallocatedThe major components of the corporate and unallocated amounts are summarized in the table below (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Research and development costs, net$65,661 $69,240 $41,524Amortization of capitalized software costs9,891 12,817 12,338Marketing expense13,490 11,913 10,123Loss on disposition of Hospital Solutions Division1,366 — —Impairment of assets32,238 — 25,971Other corporate and overhead costs75,313 70,135 60,569Total corporate and unallocated$197,959 $164,105 $150,525The amounts classified as corporate and unallocated consist primarily of corporate general and administrative costs, non-recurring acquisition and transaction-related costs, recurring post-acquisition amortization of certain acquired intangible assets and amortization of capitalized software costs, as well as costs ofother centrally managed overhead and shared-services functions, including accounting and finance, human resources, marketing, legal, and research anddevelopment, that are not controlled by segment level leadership. Although the segments may derive direct benefits as a result of such costs, our chief42Table of Contentsdecision making group evaluates performance based upon stand-alone segment operating income, which excludes these corporate and unallocated amounts.Effective April 1, 2015, as part of our ongoing efforts to refine the measurement of our segment data to better reflect an organizational structure whereby certainexpenses managed by functional area leadership are no longer classified within the operating segments but rather as a component of corporate andunallocated, we no longer classify certain costs within the information services and credit granting and collections functional areas, such as bad debt expenseand other information services related general and administrative costs, within the operating segments. Such classification is consistent with the disaggregatedfinancial information used by our chief decision making group. We have retroactively reclassified the prior years' operating income in the table above to presentall segment information on a comparable basis.Corporate and unallocated expense for the year ended March 31, 2016 increased $33.9 million compared to the prior year. The net increase in corporate andunallocated expense is due to a $1.6 million increase in marketing expense, a $1.4 million loss on the disposition of the Hospital Solutions Division, a $32.2million impairment charge related to previously capitalized software development costs for the NextGen Now development project, and a $5.2 million increase inother corporate and overhead costs, offset by a $3.6 million decrease in net research and development costs and a $2.9 million decrease in amortization ofcapitalized software costs. The increase in marketing is due to higher cost associated with conferences and conventions and increased utilization of onlineadvertising and media placement services. The increase in other corporate and overhead costs is primarily due an increase in amortization of acquiredintangible assets and transaction costs associated with the acquisition of HealthFusion, an increase selling, general, and administrative salaries and benefits,and higher bad debt expense and corporate consulting costs, offset by a decrease in legal expenses associated mostly with shareholder litigation defense costs(net of insurance recoveries).Corporate and unallocated expense for the year ended March 31, 2015 increased $13.6 million compared to the year ended March 31, 2014 . The net increasein corporate and unallocated expense is due to a $27.7 million increase in net research and development costs, a $0.5 million increase in amortization ofcapitalized software costs, a $1.8 million increase in marketing expense, and a $9.6 million decrease in other corporate and overhead costs, offset by the $26.0million Hospital Solutions Division impairment charge recorded in the year ended March 31, 2014 . The increase in marketing is due to higher headcount andassociated compensation expense and increased utilization of online advertising and media placement services. The increase in other corporate and overheadcosts is primarily due higher in salaries and benefits, legal expense related to shareholder litigation defense, and acquisition related costs. As noted above, weexperienced a significant increase in bad debt expense for the year ended March 31, 2016 because our aggressive working capital management and improvedcollections in the prior year resulted in a significant decrease to accounts receivable, a decline in DSO, and lower bad debt expense in the prior year relative toprevious periods.Refer to the "Research and Development, net" section above for further discussion and analysis on research and development costs and amortization ofcapitalized software costs.Liquidity and Capital ResourcesThe following table presents selected financial statistics and information for the years ended March 31, 2016 , 2015 and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Cash and cash equivalents and marketable securities$36,473 $130,585 $113,801Unused portion of revolving credit agreement (1)$145,000 $— $—Total liquidity$181,473 $130,585 $113,801 Net income$5,657 $27,332 $15,680Net cash provided by operating activities$40,796 $82,758 $104,051___________________________(1) As of March 31, 2016 , we had our outstanding loans of $105.0 million under our $250.0 million revolving credit agreement.43Table of ContentsCash Flows from Operating ActivitiesThe following table summarizes our consolidated statements of cash flows for the years ended March 31, 2016 , 2015 and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014Net income$5,657 $27,332 $15,680Non-cash expenses81,013 23,546 54,791Cash from net income (as adjusted)86,670 50,878 70,471 Change in assets and liabilities(45,874) 31,880 33,580Net cash provided by operating activities$40,796 $82,758 $104,051Refer to the "Net Income" section above for additional details regarding the fluctuations in net income. Also, as noted above we recorded non-cash impairmentcharges of $32.2 million and $26.0 million in the years ended March 31, 2016 and March 31, 2014, respectively, which were the primary drivers of the changesin non-cash expenses shown in the table above.For the year ended March 31, 2016 , cash provided by operating activities declined $42.0 million compared to prior year, which was caused by a $77.8 milliondecline attributed to changes in assets and liabilities, partially offset by an increase of $35.8 million in cash flows due to higher net income, excluding non-cashexpenses. The reduction in cash flows due to changes in assets and liabilities is mostly attributed to payments of income taxes during the period and paymentsof accrued bonuses in the current fiscal year related to the fiscal 2015 incentive compensation plans.Although net cash provided by operating activities for the year ended March 31, 2016 declined compared to the prior year, cash provided by operating activitieshas historically been, and is expected to continue to be, our primary source of cash, driven by our net income and working capital management.Net cash provided by operating activities for the year ended March 31, 2015 decreased by $21.3 million as compared to the year ended March 31, 2014. Thedecrease was primarily due to a $32.8 million decline in cash attributable to changes in accounts receivable resulting from a substantial decline in accountsreceivable in the prior year due to improved collections and aggressive working capital management and a $19.6 million decline in cash attributable to netincome excluding non-cash expenses resulting mostly from the Hospital Solutions Division impairment charge recorded in the prior year period, offset bychanges in income taxes receivable and payable.Cash Flows from Investing ActivitiesNet cash used in investing activities for the years ended March 31, 2016 , 2015 and 2014 was $190.4 million , $24.5 million and $63.7 million , respectively. The$165.9 million increase in net cash used in investing activities for the year ended March 31, 2016 compared to the prior year is primarily due to the $163.8million of cash paid (net of cash acquired) for the acquisition of HealthFusion in January 2016, a $7.5 million increase in additions to equipment andimprovements, $0.1 million increase in additions to capitalized software, offset by a $3.2 million net increase in cash due to purchases, sales, and maturities ofmarketable securities and $2.3 million in cash paid for the acquisition of Gennius in the prior year.The $39.1 million decrease in net cash used in investing activities for the year ended March 31, 2015 as compared to the prior year period is primarily due to the$35.0 million of cash paid for the acquisition of Mirth in the prior year, a $6.2 million decrease in additions to capitalized software, a $3.3 million decrease inpurchases of marketable securities, partially offset by a $4.4 million decrease in proceeds from the sales and maturities of marketable securities.Cash Flows from Financing ActivitiesNet cash provided by financing activities for the year ended March 31, 2016 was $57.8 million , and cash used in financing activities for the year ended March31, 2015 and 2014 was $42.4 million and $43.2 million , respectively. The increase in cash flows from financing activities during the year ended March 31, 2016compared to the prior year is primarily related to our revolving credit agreement, in which we received proceeds of $173.5 million , made principal payments of$68.5 million , and paid $5.4 million in debt issuance and other related fees.In addition, during the year ended March 31, 2016 , we received proceeds of $1.0 million from issuance of shares under employee plans and paid $42.9 millionin dividends to shareholders. In comparison, we received proceeds of $0.4 million from issuance of shares under employee plans and paid $42.8 million individends to shareholders during the year ended March 31, 2015 compared to proceeds of $2.2 million from issuance of shares under employee plans, paymentof $42.2 million in dividends to shareholders, and payment of $3.4 million in contingent consideration during the year ended March 31, 2014.44Table of ContentsCash and Cash Equivalents and Marketable SecuritiesAs of March 31, 2016 , our combined cash, cash equivalents and marketable securities balance of $36.5 million reflects a $94.1 million decrease compared tothe $130.6 million comparable balance as of the prior year. This decrease primarily reflects: a) principal repayments on our revolving credit agreement; b)significant cash payments made in the current fiscal year related to fiscal 2015 accruals for incentive compensation plans and income taxes owing from suchyear; c) significant increases in cash used for investing activities, including cash paid for the acquisition of HealthFusion and additions to capitalized softwarecosts and equipment and improvements; and d) our dividend payments during the year.On January 4, 2016, we entered into a $250.0 million revolving credit agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as administrativeagent, U.S. Bank National Association, as syndication agent, and certain other lenders. The initial draw down on the Credit Agreement was approximately$173.5 million and primarily used for the purposes of funding our acquisition of HealthFusion that was completed on the same date. Our outstanding loans underthe Credit Agreement was $105.0 million as of March 31, 2016 , reflecting subsequent principal repayments from our cash on hand.We may continue to use a portion of our funds as well as available financing from the Credit Agreement for future acquisitions or other similar business activities,although the specific timing and amount of funds to be used is not currently determinable. Our principal sources of liquidity are our cash, cash equivalents, andmarketable securities, the Credit Agreement, as well as our cash generated from operations. We intend to expend some of our available funds for thedevelopment of products complementary to our existing product line as well as new versions of certain of our products. These developments are intended totake advantage of more powerful technologies and to increase the integration of our products.Our investment policy is determined by our Board of Directors. We currently maintain our cash in very liquid short term assets including tax exempt and taxablemoney market funds, certificates of deposit and short term municipal bonds with average maturities of 365 days or less at the time of purchase. Our Board ofDirectors continues to review alternate uses for our cash including an expansion of our investment policy and other items. Any or all of these programs couldsignificantly impact our investment income in future periods.Our future practice concerning the payment of dividends is uncertain. The Credit Agreement contains restrictions on our ability to declare and pay dividends.Accordingly, we suspended payment of dividends following our previously declared January 4, 2016 dividend payment, and we announced that we do notexpect to pay dividends for at least the next twelve months from that time. The payment of future dividends, if any, will be at the discretion of our Board ofDirectors after taking into account various factors, including without limitation, our credit agreement, operating cash flows, financial condition, operating results,and sufficiency of funds based on our then-current and anticipated cash needs and capital requirements.We believe that our cash, cash equivalents and marketable securities on hand at March 31, 2016 , together with our cash flows from operations and liquidityprovided by the Credit Agreement, will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months.Contractual ObligationsThe following table summarizes our significant contractual obligations at March 31, 2016 and the effect that such obligations are expected to have on ourliquidity and cash in future periods: For the year ended March 31, Contractual ObligationsTotal201720182019202020212022 andbeyondOperating lease obligations$70,414$8,773$9,863$8,903$7,936$7,909$27,030Line of credit obligations (1)105,000————105,000—Contingent consideration and other acquisition related liabilities(excluding share-based payments) (2)15,70015,700—————Total$191,114$23,973$10,363$8,903$7,936$112,909$27,030_______________________(1) As noted above, we entered into a $250.0 million revolving credit agreement in January 2016, which had $105 million in outstanding loans as of March 31, 2016 . Therevolving credit agreement matures on January 4, 2021 and the full balance of the revolving loans and all other obligations under the agreement must be paid at that time.Refer Note 9, "Line of Credit" of our notes to consolidated financial statements included elsewhere in this Report for additional details.(2) In connection with the acquisition of HealthFusion, additional contingent consideration up to $25.0 million in the form of a cash earnout may be paid in our fourth quarter offiscal 2017, subject to HealthFusion achieving certain revenue targets through December 31, 2016. The fair value of the contingent consideration liability as of March 31, 2016was $15.0 million , and is included in the table above.The deferred compensation liability as of March 31, 2016 was $6.4 million , which is not included in the table above as the timing of future benefit payments toemployees is not readily determinable.The uncertain tax position liability as of March 31, 2016 was $4.0 million , which is not included in the table above as the timing of expected payments is notreadily determinable.45Table of ContentsNew Accounting PronouncementsRefer to Note 2, “Summary of Significant Accounting Policies” of our notes to consolidated financial statements included elsewhere in this Report for adiscussion of new accounting standards.46Table of ContentsITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKSAs of March 31, 2016 and March 31, 2015 , we were subject to minimal market risk on our cash and investments as we maintained our balances in very liquidshort term assets, including tax exempt and taxable money market funds, certificates of deposit and short term municipal bonds with average maturities of 365days or less at the time of purchase.As of March 31, 2016 , we had $105.0 million in outstanding loans under our revolving credit agreement. The revolving loans under the agreement bear interestat our option of either, (a) a base rate based on the highest of (i) the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank,N.A., as its prime rate, (ii) the greater of (A) the federal funds effective rate and (B) the overnight bank funding rate (as determined by the Federal Reserve Bankof New York) plus 0.50% and (iii) the one-month British Bankers Association London Interbank Offered Rate ("LIBOR") plus 1.00%) plus an applicable marginbased on our leverage ratio from time to time, ranging from 0.50% to 1.50%, or (b) a LIBOR-based rate (subject to a floor of 0.00%) plus an applicable marginbased on our leverage ratio from time to time, ranging from 1.50% to 2.50%. Accordingly, we are exposed to interest rate risk, primarily changes in LIBOR, dueto our loans under the revolving credit agreement. A one hundred basis point (1.00%) change in the interest rate on our outstanding loans as of March 31, 2016would result in a corresponding change in our annual interest expense of approximately $1.1 million. Refer to Note 9, “Line of Credit” of our notes toconsolidated financial statements included elsewhere in this Report for additional information.As of March 31, 2016 and March 31, 2015 , we had foreign operations in India that exposed us to the risk of fluctuations in foreign currency exchange ratesagainst the U.S. dollar. However, the impact of foreign currency fluctuations has not been material to our financial position or operating results.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATASee our consolidated financial statements identified in the Index to Financial Statements appearing under “Item 15. Exhibits and Financial Statement Schedules”of this Report.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Security Exchange Act of 1934, as amended,the "Exchange Act") as of March 31, 2016 , the end of the period covered by this Report (the “Evaluation Date”). They have concluded that, as of the EvaluationDate, these disclosure controls and procedures were effective to ensure that material information relating to the Company and its consolidated subsidiarieswould be made known to them by others within those entities and would be disclosed on a timely basis. The Chief Executive Officer and Chief Financial Officerhave concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to bedisclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the rules andforms of the SEC. They have also concluded that the our disclosure controls and procedures are effective to ensure that information required to be disclosed inthe reports that are filed or submitted under the Exchange Act are accumulated and communicated to our management, including the Chief Executive Officerand Chief Financial Officer, to allow timely decisions regarding required disclosure.Management’s Report on Internal Control over Financial ReportingOn January 4, 2016, we completed our acquisition of HealthFusion Holdings, Inc. ("HealthFusion"), now a wholly-owned subsidiary. In conducting our evaluationof the effectiveness of our internal controls over financial reporting as of March 31, 2016, we have elected to exclude HealthFusion from our evaluation for fiscalyear 2016 as permitted under current SEC rules and regulations. HealthFusion assets and revenues not included in our evaluation represents 1.5% ofconsolidated assets and 1.8% of consolidated revenues as of and for the year ended March 31, 2016. We are currently in the process of integratingHealthFusion's historical internal controls over financial reporting with the rest of our company. The integration may lead to changes in future periods, but we donot expect these changes to materially affect our internal controls over financial reporting. We expect to complete this integration in fiscal year 2017.Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under theExchange Act. Internal control over financial reporting is a process designed by, or under the supervision and with the participation of our management,including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles.47Table of ContentsOur internal control over financial reporting is supported by written policies and procedures, that:(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of ourmanagement and directors; and(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliancewith the policies or procedures may deteriorate.Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2016 in making ourassessment of internal control over financial reporting, management used the criteria set forth in Internal Control — Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal control overfinancial reporting was effective as of March 31, 2016 .The effectiveness of the Company’s internal control over financial reporting as of March 31, 2016 has been audited by PricewaterhouseCoopers LLP, anindependent registered public accounting firm, as stated in their report contained in Item 15 of Part IV of this Report, "Exhibits and Financial StatementSchedules."Changes in Internal Control over Financial ReportingDuring the quarter ended March 31, 2016 , there were no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) under theExchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone.48Table of ContentsPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by Item 10 is incorporated herein by reference from our definitive proxy statement for our 2016 Annual Shareholders’ Meeting to befiled with the Securities and Exchange Commission.ITEM 11. EXECUTIVE COMPENSATIONThe information required by Item 11 is incorporated herein by reference from our definitive proxy statement for our 2016 Annual Shareholders’ Meeting to befiled with the Securities and Exchange Commission.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required by Item 12 is incorporated herein by reference from our definitive proxy statement for our 2016 Annual Shareholders’ Meeting to befiled with the Securities and Exchange Commission.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by Item 13 is incorporated herein by reference from our definitive proxy statement for our 2016 Annual Shareholders’ Meeting to befiled with the Securities and Exchange Commission.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by Item 14 is incorporated herein by reference from our definitive proxy statement for our 2016 Annual Shareholders’ Meeting to befiled with the Securities and Exchange Commission.49Table of ContentsPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) Documents filed as part of this Annual Report on Form 10-K: Page(1) Index to Financial Statements: Report of Independent Registered Public Accounting Firm54 Consolidated Balance Sheets as of March 31, 201 6 and 201555 Consolidated Statements of Comprehensive Income — Years Ended March 31, 201 6, 2015 and 201456 Consolidated Statements of Shareholders’ Equity — Years Ended March 31, 201 6, 2015 and 201457 Consolidated Statements of Cash Flows — Years Ended March 31, 201 6, 2015 and 201458 Notes to Consolidated Financial Statements59 (2) The following supplementary financial statement schedule of Quality Systems, Inc., required to be included in Item 15(a)(2) onForm 10-K is filed as part of this Report. Schedule II — Valuation and Qualifying Accounts85 Schedules other than that listed above have been omitted since they are either not required, not applicable, or because theinformation required is included in the Consolidated Financial Statements or the notes thereto. (3) The exhibits listed in the Index to Exhibits hereof are attached hereto or incorporated herein by reference and filed as a part of thisReport. Index to Exhibits8650Table of ContentsINDEX TO EXHIBITS Incorporated by ReferenceExhibit Number Exhibit DescriptionFiled HerewithFormExhibitFiling Date 3.1 Restated Articles of Incorporation of Quality Systems, Inc. filed with theSecretary of State of California on September 8, 1989(Registration No. 333-00161) S-13.1January 11, 19963.2 Certificate of Amendment to Articles of Incorporation of Quality Systems,Inc. filed with the Secretary of State of California effective March 4, 2005 10-K3.1.1June 14, 20053.3 Certificate of Amendment to Articles of Incorporation of Quality Systems,Inc. filed with the Secretary of State of California effective October 6, 2005 8-K3.01October 11, 20053.4 Certificate of Amendment to Articles of Incorporation of Quality Systems,Inc. filed with the Secretary of State of California effective March 3, 2006 8-K3.1March 6, 20063.5 Amended and Restated Bylaws of Quality Systems, Inc., effectiveOctober 30, 2008 8-K3.1October 31, 20083.6 Certificate of Amendment to Articles of Incorporation of Quality Systems,Inc. filed with the Secretary of State of California effective October 6, 2011 8-K3.1October 6, 201110.1*Form of Non-Qualified Stock Option Agreement for Amended and Restated1998 Stock Option Plan 10-Q10.2December 23, 200410.2*Form of Incentive Stock Option Agreement for Amended and Restated 1998Stock Option Plan 10-Q10.1December 23, 200410.3*Amended and Restated 1998 Stock Option Plan 10-K10.10.1June 14, 200510.4*Second Amended and Restated 2005 Stock Option and Incentive Plan DEF14AAppendix IJuly 1, 201110.5*Form of Nonqualified Stock Option Agreement for 2005 Stock Incentive Plan 8-K10.2June 5, 200710.6*Form of Incentive Stock Option Agreement for 2005 Stock Incentive Plan 8-K10.3June 5, 200710.7*2009 Quality Systems, Inc. Amended and Restated Deferred CompensationPlan. 10-K10.8May 30, 201310.8*Form of Outside Directors Amended and Restated Restricted StockAgreement 8-K10.2February 2, 201010.9*Form of Outside Director's Restricted Stock Unit Agreement 8-K10.1August 15, 201110.10*Employment Arrangement dated September 19, 2012 between QualitySystems, Inc., and Daniel Morefield 8-K10.1September 25, 201210.11*Form of Indemnification Agreement 8-K10.1January 28, 201310.12*Form of Executive Officer Restricted Stock Agreement 8-K10.2May 28, 201310.13*Description of 2014 Director Compensation Program 8-K10.3May 28, 201310.14*Agreement by and among Quality Systems, Inc., the Clinton Group, Inc. andcertain of its affiliates, dated as of July 17, 2013 8-K10.1July 17, 201310.15*Share Purchase Agreement by and among Quality Systems, Inc., each ofthe shareholders of Mirth Corporation identified on Annex A thereto, andJon Teichrow dated as of September 9, 2013 10-Q2.1October 31, 201310.16*Form of Performance-Based Restricted Stock Unit Agreement. 10-K10.17May 29, 201410.17*Quality Systems, Inc. 2014 Employee Share Purchase Plan DEF14AAnnex AJune 27, 201410.18*Executive Employment Agreement, dated June 3, 2015, between QualitySystems, Inc. and John R. Frantz 8-K10.1June 4, 201510.19*Separation Agreement and General Release, dated June 24, 2015, betweenQuality Systems, Inc. and Steven Plochocki 8-K10.1June 24, 201510.20*Quality Systems, Inc. 2015 Equity Incentive Plan 8-K10.1August 14, 201510.21*Form of Employee Restricted Stock Award Grant Notice and RestrictedStock Award Agreement for 2015 Equity Incentive Plan 8-K10.2August 14, 201510.22*Form of Outside Director Restricted Stock Award Grant Notice andRestricted Stock Award Agreement for 2015 Equity Incentive Plan 8-K10.3August 14, 201510.23*Form of Stock Option Grant Notice, Option Agreement and Notice ofExercise for 2015 Equity Incentive Plan 8-K10.4August 14, 201551Table of Contents10.24*Agreement and Plan of Merger, dated October 30, 2015, by and amongQuality Systems, Inc., Ivory Merger Sub, Inc., HealthFusion Holdings, Inc.and Seth Flam, Sol Lizerbram, and Jonathan Flam, as the SecurityholderRepresentative Committee. 8-K2.1October 30, 201510.25 Description of 2016 Director Compensation Program 8-K10.1December 8, 201510.26*Credit Agreement, dated as of January 4, 2016, among Quality Systems,Inc., JPMorgan Chase Bank, N.A., as administrative agent, U.S. BankNational Association, as syndication agent, and Bank of the West, KeyBankNational Association and Wells Fargo Bank, National Association, as co-documentation agents 10-Q10.1January 29, 201610.27*Employment Offer Letter, dated January 27, 2016, between David Metcalfeand Quality Systems, Inc. 8-K10.1January 28, 201610.28*Employment Offer Letter, dated February 16, 2016, between James R.Arnold and Quality Systems, Inc. 8-K10.1February 18, 2016 21 List of subsidiaries.X 23.1 Consent of Independent Registered Public Accounting Firm —PricewaterhouseCoopers LLP.X 31.1 Certification of Principal Executive Officer Required by Rule 13a-14(a) of theSecurities Exchange Act of 1934, as amended, as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.X 31.2 Certification of Principal Financial Officer Required by Rule 13a-14(a) of theSecurities Exchange Act of 1934, as amended, as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.X 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuantto 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.X 101.INS**XBRL Instance 101.SCH**XBRL Taxonomy Extension Schema 101.CAL**XBRL Taxonomy Extension Calculation 101.DEF**XBRL Taxonomy Extension Definition 101.LAB**XBRL Taxonomy Extension Label 101.PRE**XBRL Taxonomy Extension Presentation ____________________*This exhibit is a management contract or a compensatory plan or arrangement.**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities and Exchange Act of1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liabilityunder these section.52Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on itsbehalf by the undersigned, thereunto duly authorized. By: /s/ John R. Frantz John R. Frantz Chief Executive Officer (Principal Executive Officer) By: /s/ James R. Arnold James R. Arnold Chief Financial Officer (Principal Financial Officer) By: /s/ John K. Stumpf John K. Stumpf Principal Accounting OfficerDate: May 25, 2016KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below hereby constitutes and appoints John R. Frantz,James R. Arnold, and John K. Stumpf, each of them acting individually, as his attorney-in-fact, each with the full power of substitution, for him in any and allcapacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connectiontherewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform eachand every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person,hereby ratifying and confirming our signatures as they may be signed by our said attorney-in-fact and any and all amendments to this Annual Report on Form10-K.Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed by the following persons on our behalf in the capacitiesand on the dates indicated.Signature Title Date /s/ Jeffrey H. Margolis Chairman of the Board and Director May 25, 2016Jeffrey H. Margolis /s/ Craig A. Barbarosh Vice Chairman of the Board and Director May 25, 2016Craig A. Barbarosh /s/ John R. Frantz Chief Executive Officer (Principal Executive Officer) and Director May 25, 2016John R. Frantz /s/ James R. Arnold Chief Financial Officer (Principal Financial Officer) May 25, 2016James R. Arnold /s/ John K. Stumpf Principal Accounting Officer May 25, 2016John K. Stumpf /s/ George H. Bristol Director May 25, 2016George H. Bristol /s/ James C. Malone Director May 25, 2016James C. Malone /s/ Morris Panner Director May 25, 2016Morris Panner /s/ D. Russell Pflueger Director May 25, 2016D. Russell Pflueger /s/ Sheldon Razin Chairman Emeritus and Director May 25, 2016Sheldon Razin /s/ Lance E. Rosenzweig Director May 25, 2016Lance E. Rosenzweig 53Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Shareholders of Quality Systems, Inc.In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, shareholders’ equity, andcash flows present fairly, in all material respects, the financial position of Quality Systems, Inc. and its subsidiaries at March 31, 2016 and March 31, 2015, andthe results of their operations and their cash flows for each of the three years in the period ended March 31, 2016 in conformity with accounting principlesgenerally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2)presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in ouropinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company'smanagement is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting andfor its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reportingappearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company'sinternal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Ouraudits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.As discussed in Recent Accounting Standards in Note 2 to the consolidated financial statements, the Company changed the manner in which it classifiesdeferred taxes in the consolidated balance sheets due to the adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of DeferredTaxes .A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparationof financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.As described in Item 9A - Management’s Report on Internal Control over Financial Reporting, management has excluded HealthFusion Holdings, Inc.(“HealthFusion”), from its assessment of internal control over financial reporting as of March 31, 2016 because it was acquired by the Company in a purchasebusiness combination during 2016. We have also excluded HealthFusion from our audit of internal control over financial reporting. HealthFusion is a wholly-owned subsidiary whose total assets and total revenues represent 1.5% and 1.8%, respectively, of the related consolidated financial statement amounts as ofand for the year ended March 31, 2016./s/ PricewaterhouseCoopers LLPOrange County, CaliforniaMay 25, 201654Table of ContentsQUALITY SYSTEMS, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except per share data) March 31, 2016 March 31, 2015ASSETS Current assets: Cash and cash equivalents$27,176 $118,993Restricted cash and cash equivalents (Note 2)5,320 2,419Marketable securities9,297 11,592Accounts receivable, net (Note 10)94,024 107,669Inventory555 622Income taxes receivable32,709 3,147Prepaid expenses and other current assets14,910 11,535Total current assets183,991 255,977Equipment and improvements, net25,790 20,807Capitalized software costs, net13,250 40,397Deferred income taxes, net8,198 30,197Intangibles, net91,675 27,689Goodwill188,837 73,571Other assets19,049 11,883Total assets$530,790 $460,521LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable$11,126 $10,018Deferred revenue57,935 66,343Accrued compensation and related benefits18,670 24,051Income taxes payable91 10,048Dividends payable— 10,700Other current liabilities50,238 33,924Total current liabilities138,060 155,084Deferred revenue, net of current1,335 1,349Deferred compensation6,357 5,750Line of credit105,000 —Other noncurrent liabilities10,661 14,798Total liabilities261,413 176,981Commitments and contingencies (Note 14) Shareholders’ equity: Common stock $0.01 par value; authorized 100,000 shares; issued and outstanding 60,978 and 60,303 shares at March 31,2016 and 2015, respectively610 603Additional paid-in capital211,262 198,650Accumulated other comprehensive loss(481) (192)Retained earnings57,986 84,479Total shareholders’ equity269,377 283,540Total liabilities and shareholders’ equity$530,790 $460,521The accompanying notes are an integral part of these consolidated financial statements.55Table of ContentsQUALITY SYSTEMS, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands, except per share data) Fiscal Year Ended March 31, 2016 2015 2014Revenues: Software license and hardware$70,523 $81,649 $79,366Software related subscription services55,403 44,592 27,335Total software, hardware and related125,926 126,241 106,701Support and maintenance165,200 169,219 160,060Revenue cycle management and related services83,006 74,237 62,976Electronic data interchange and data services82,343 76,358 67,295Professional services36,002 44,170 47,635Total revenues492,477 490,225 444,667Cost of revenue: Software license and hardware27,506 28,803 49,272Software related subscription services26,622 20,672 12,374Total software, hardware and related54,128 49,475 61,646Support and maintenance31,329 28,866 22,590Revenue cycle management and related services57,591 54,406 46,203Electronic data interchange and data services50,153 48,244 42,567Professional services32,414 42,173 47,157Total cost of revenue225,615 223,164 220,163Gross profit266,862 267,061 224,504Operating expenses: Selling, general and administrative156,234 158,172 149,214Research and development costs, net65,661 69,240 41,524Amortization of acquired intangible assets5,367 3,693 4,805Impairment of assets32,238 — 5,873Total operating expenses259,500 231,105 201,416Income from operations7,362 35,956 23,088Interest income428 111 269Interest expense(1,304) (341) —Other expense, net(166) (62) (356)Income before provision for income taxes6,320 35,664 23,001Provision for income taxes663 8,332 7,321Net income$5,657 $27,332 $15,680Other comprehensive income: Foreign currency translation, net of tax(382)(117)(107)Unrealized gain (loss) on marketable securities, net of tax93107(64)Comprehensive income$5,368 $27,322 $15,509Net income per share: Basic$0.09 $0.45 $0.26Diluted$0.09 $0.45 $0.26Weighted-average shares outstanding: Basic60,635 60,259 59,918Diluted61,233 60,849 60,134Dividends declared per common share$0.525 $0.70 $0.70The accompanying notes are an integral part of these consolidated financial statements.56Table of ContentsQUALITY SYSTEMS, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(In thousands) Common Stock Additional Paid-inCapital Retained Earnings Accumulated OtherComprehensive Loss TotalShareholders’Equity Shares Amount Balance, March 31, 201359,543 $595 $179,743 $126,722 $(11) $307,049Common stock issued under stock plans, net of shareswithheld for employee taxes167 2 2,199 — — 2,201Common stock issued for earnout settlement62 1 1,375 — — 1,376Common stock issued for acquisitions434 4 9,269 — — 9,273Tax deficiency resulting from exercise of stock options— — (337) — — (337)Stock-based compensation— — 2,490 — — 2,490Dividends declared— — — (42,471) — (42,471)Components of other comprehensive loss: Unrealized loss on marketable securities— — — — (64) (64)Translation adjustments— — — — (107) (107)Net income— — — 15,680 — 15,680Balance, March 31, 201460,206 602 194,739 99,931 (182) 295,090Common stock issued under stock plans, net of shareswithheld for employee taxes79 1 383 — — 384Common stock issued for earnout settlement18 — 284 — — 284Tax deficiency resulting from exercise of stock options— — (228) — — (228)Stock-based compensation— — 3,472 — — 3,472Dividends declared— — — (42,784) — (42,784)Components of other comprehensive loss: Unrealized gain on marketable securities— — — — 107 107Translation adjustments— — — — (117) (117)Net income— — — 27,332 — 27,332Balance, March 31, 201560,303 603 198,650 84,479 (192) 283,540Common stock issued under stock plans, net of shareswithheld for employee taxes241 3 989 — — 992Common stock issued for settlement of contingentconsideration434 4 9,269 — — 9,273Tax deficiency resulting from exercise of stock options— — (941) — — (941)Stock-based compensation— — 3,295 — — 3,295Dividends declared— — — (32,150) — (32,150)Components of other comprehensive loss: Unrealized gain on marketable securities— — — — 93 93Translation adjustments— — — — (382) (382)Net income— — — 5,657 — 5,657Balance, March 31, 201660,978 $610 $211,262 $57,986 $(481) $269,377The accompanying notes are an integral part of these consolidated financial statements.57Table of ContentsQUALITY SYSTEMS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Fiscal Year Ended March 31, 2016 2015 2014Cash flows from operating activities: Net income$5,657 $27,332 $15,680Adjustments to reconcile net income to net cash provided by operating activities: Depreciation8,834 9,323 8,069Amortization of capitalized software costs9,891 12,817 12,338Amortization of other intangibles11,014 7,127 8,330Amortization of debt issuance costs258 — —Loss on disposal of equipment and improvements205 51 192Provision for bad debts3,573 855 1,467Provision for inventory obsolescence48 25 —Share-based compensation3,295 3,472 2,490Deferred income taxes10,030 (12,061) (3,984)Excess tax benefit from share-based compensation— — (183)Change in fair value of contingent consideration261 1,937 101Loss on disposition of Hospital Solutions Division1,366 — —Impairment of assets32,238 — 25,971Changes in assets and liabilities, net of amounts acquired: Accounts receivable9,929 4,744 37,461Inventory17 187 (81)Accounts payable(271) 1,281 (4,170)Deferred revenue(8,390) (5,610) 1,036Accrued compensation and related benefits(5,914) 8,098 4,038Income taxes(40,471) 18,178 (9,227)Deferred compensation607 941 1,000Other assets and liabilities(1,381) 4,061 3,523Net cash provided by operating activities40,796 82,758 104,051Cash flows from investing activities: Additions to capitalized software costs(14,675) (14,601) (20,784)Additions to equipment and improvements(14,013) (6,531) (7,934)Proceeds from sales and maturities of marketable securities8,795 11,077 15,475Purchases of marketable securities(6,637) (12,123) (15,386)Purchase of Mirth— — (35,033)Purchase of Gennius— (2,345) —Purchase of HealthFusion, net of cash acquired(163,843) — —Net cash used in investing activities(190,373) (24,523) (63,662)Cash flows from financing activities: Proceeds from line of credit173,509 — —Principal repayments on line of credit(68,509) — —Excess tax benefit from share-based compensation— — 183Proceeds from issuance of shares under employee plans992 383 2,200Dividends paid(42,850) (42,770) (42,203)Payment of debt issuance costs(5,382) — —Payment of contingent consideration related to acquisitions— — (3,423)Net cash provided by (used in) financing activities57,760 (42,387) (43,243)Net increase (decrease) in cash and cash equivalents(91,817) 15,848 (2,854)Cash and cash equivalents at beginning of period118,993 103,145 105,999Cash and cash equivalents at end of period$27,176 $118,993 $103,145QUALITY SYSTEMS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)(In thousands) Fiscal Year Ended March 31, 2016 2015 2014Supplemental disclosures of cash flow information: Cash paid during the period for income taxes, net of refunds$30,902 $2,523 $20,443Cash paid for interest781 — —Common stock issued for settlement of share-based contingent consideration$9,273 $— $— Non-cash investing and financing activities: Tenant improvement allowance from landlord$2,933 $— $—Dividends declared but not paid$— $10,700 $10,686Unpaid additions to equipment and improvements295 849 419 On January 4, 2016, we acquired HealthFusion in a transaction summarized as follows: Fair value of net assets acquired$198,258 $— $—Cash paid, net of cash acquired(163,843) — —Unpaid portion of purchase price(282) — —Fair value of contingent consideration(16,700) — —Liabilities assumed$17,433 $— $— On March 11, 2015, we acquired Gennius in a transaction summarized as follows: Fair value of net assets acquired$— $2,571 $—Cash paid— (2,345) —Liabilities assumed$— $226 $— On September 9, 2013, we acquired Mirth in a transaction summarized as follows: Fair value of net assets acquired$— $— $62,787Cash paid— — (35,033)Common stock issued at fair value— — (7,882)Fair value of contingent consideration— — (13,307)Liabilities assumed$— $— $6,565The accompanying notes are an integral part of these consolidated financial statements.58Table of ContentsQUALITY SYSTEMS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2016 and 2015(In thousands, except shares and per share data)1. Organization of BusinessDescription of BusinessQuality Systems, Inc., primarily through its NextGen Healthcare subsidiary, provides technology-based solutions and services to the United States basedambulatory care market. Our solutions provide our clients with the ability to redesign patient care and other workflow processes while improving productivitythrough the facilitation of managed access to patient information. We help promote healthy communities by empowering physician practice success andenriching the patient care experience while lowering the cost of healthcare.We primarily derive revenue by developing and marketing software and services that automate certain aspects of practice management (“PM”) and electronichealth records (“EHR”) for medical and dental practices. Our software can be licensed on a perpetual, on-premise basis, hosted in a private cloud or, in certaininstances, as a software-as-a-service (“SaaS”) solution. We market and sell our solutions through a dedicated sales force and to a much lesser extent, throughresellers. Our clients include networks of practices such as physician hospital organizations (“PHOs”), management service organizations (“MSOs”),accountable care organizations (“ACOs”), ambulatory care centers, community health centers and medical and dental schools. We also provide implementationand training, support and maintenance for software and complementary services such as revenue cycle management (“RCM”) and electronic data interchange(“EDI”).We have a history of developing new and enhanced technologies. Over the course of a number of years, we have also made strategic acquisitions tocomplement and enhance our product portfolio in the ambulatory care, RCM, and hospital markets. In October 2015, we divested our Hospital SolutionsDivision.Quality Systems, Inc. was incorporated in California in 1974. Our principal offices are located at 18111 Von Karman Ave., Suite 800, Irvine, California, 92612.Our website is located at www.Nextgen.com. We operate on a fiscal year ending on March 31.2. Summary of Significant Accounting PoliciesPrinciples of Consolidation. The consolidated financial statements include the accounts of Quality Systems, Inc. and its wholly-owned subsidiaries(collectively, the “Company”). All intercompany balances and transactions have been eliminated. HealthFusion is included in the accompanying consolidatedfinancial statements from the date of acquisition. Hospital Solutions Division is included in the accompanying consolidated financial statements through the dateof disposition. See Note 5 for additional details.Business Segments. The Company has prepared operating segment information based on the manner in which management disaggregates the Company’soperations for making internal operating decisions. See Note 15.Basis of Presentation. Beginning in the first quarter of fiscal 2016, we presented certain components of revenue within the consolidated statements ofcomprehensive income in a format intended to group like-kind products and services and disaggregate the other services category of revenue, which hascontinued to comprise a larger percentage of total revenue. More specifically, the primary changes to the presentation of revenue included:•Revenue from software-as-a-service (SaaS), hosting services, and other software related subscriptions are now aggregated into a new software relatedsubscription services category of revenue. Previously, revenue from software related subscriptions services was reported within the other servicescategory of revenue.•Revenue from annual software licenses that was also previously reported within the other services category of revenue is now reported within thesoftware license and hardware category of revenue.•Revenue from all other services, including implementation, training, and consulting, are now aggregated into a single professional services category ofrevenue that excludes software related subscription services and annual software licenses, as noted above.Each of the corresponding components of cost of revenue has also been revised in a manner that is consistent with the new presentation of revenue describedabove.For informational and comparability purposes, we have recast our previously reported consolidated statements of comprehensive income to provide historicalinformation on a basis consistent with the new reporting format of revenue and cost of revenue. The reclassification of revenue and cost of revenue within theconsolidated statements of comprehensive income has no impact on previously reported net income or earnings per share and no impact on the previouslyreported consolidated balance sheets, statements of stockholders' equity, and statements of cash flow.Certain prior period amounts have been reclassified to conform to current year presentation.59Table of ContentsReferences to amounts in the consolidated financial statement sections are in thousands, except shares and per share data, unless otherwise specified.Out-of-Period Adjustment. In the quarter ended March 31, 2016 , we recorded an out-of-period adjustment of $1,396 to increase software license andhardware revenue. Approximately $467 of the adjustment originated in periods prior to the beginning of fiscal 2016 and $929 of the adjustment originated in thequarterly interim periods comprising the nine months ended December 31, 2015. We believe that these adjustments were not material to any current, priorinterim, or annual periods that were affected.Use of Estimates. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in theUnited States of America (“GAAP”), which requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidatedfinancial statements and the accompanying notes. Actual results could differ materially from these estimates. We evaluate our estimates on an ongoing basis.We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assets and liabilities and recording revenue and expenses during the period.Revenue Recognition . We generate revenue from sales of licensing rights and subscriptions to our software products, hardware and third party softwareproducts, support and maintenance services, revenue cycle management and related services ("RCM"), electronic data interchange and data services (“EDI”),and professional services, such as implementation, training, and consulting performed for clients who use our products.We generally recognize revenue provided that persuasive evidence of an arrangement exists, fees are considered fixed or determinable, delivery of the productor service has occurred, and collection is considered probable. Revenue from the delivered elements (generally software licenses) are generally recognizedupon physical or electronic delivery. In certain transactions where collection is not considered probable, the revenue is deferred until collection occurs. If the feeis not fixed or determinable, then the revenue recognized in each period (subject to application of other revenue recognition criteria) will be the lesser of theaggregate amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using theresidual method. We assess whether fees are considered fixed or determinable at the inception of the arrangement and negotiated fees generally are based ona specific volume of products to be delivered and not subject to change based on variable pricing mechanisms, such as the number of units copied or distributedor the expected number of users.A typical system sale may contain multiple elements, but most often includes software licenses, maintenance and support, implementation and training.Revenue on arrangements involving multiple elements is generally allocated to each element using the residual method when evidence of fair value only existsfor the undelivered elements. The fair value of an element is based on vendor-specific objective evidence (“VSOE”), which is based on the price charged whenthe same element is sold separately. We generally establish VSOE for the related undelivered elements based on the bell-shaped curve method. VSOE isestablished on maintenance for our largest clients based on stated renewal rates only if the rate is determined to be substantive and falls within our customarypricing practices. VSOE calculations are updated and reviewed on a quarterly or annual basis, depending on the nature of the product or service.Under the residual method, we defer revenue related to the undelivered elements based on VSOE of fair value of each undelivered element and allocate theremainder of the contract price, net of all discounts, to the delivered elements. If VSOE of fair value of any undelivered element does not exist, all revenue isdeferred until VSOE of fair value of the undelivered element is established or the element has been delivered.Revenue related to arrangements that include hosting services is recognized in accordance to the revenue recognition criteria described above only if the clienthas the contractual right to take possession of the software at any time without incurring a significant penalty, and it is feasible for the client to either host thesoftware on its own equipment or through another third party. Otherwise, the arrangement is accounted for as a service contract in which the entire arrangementis deferred and recognized over the period that the hosting services are being provided.From time to time, we offer future purchase discounts on our products and services as part of our arrangements. Such discounts that are incremental to therange of discounts reflected in the pricing of the other elements of the arrangement, that are incremental to the range of discounts typically given in comparabletransactions, and that are significant, are assessed as an additional element of the arrangement. Revenue deferred related to future purchase options are notrecognized until either the client exercises the discount offer or the offer expires.Revenue from professional services, including implementation, training, and consulting services, are generally recognized as the corresponding services areperformed. Revenue from software related subscription services and support and maintenance revenue are recognized ratably over the contractual serviceperiod. Revenue from EDI and data services and other transaction processing services are recognized at the time the services are provided to clients. Revenuefrom RCM and related services is derived from services fees for ongoing billing, collections, and other related services, and are generally calculated as apercentage of total client collections. We recognize RCM and related services revenue at the time collections are made by the client as the services fees are notfixed or determinable until such time.We record revenue net of sales tax obligation in the consolidated statements of comprehensive income.60Table of ContentsCash and Cash Equivalents. Cash and cash equivalents generally consist of cash, money market funds and short-term U.S. Treasury securities with maturitiesof 90 days or less at the time of purchase. We had cash deposits held at U.S. banks and financial institutions at March 31, 2016 of which $26,017 was inexcess of the Federal Deposit Insurance Corporation insurance limit of $250 per owner. Our cash deposits are exposed to credit loss for amounts in excess ofinsured limits in the event of nonperformance by the institutions; however, we do not anticipate nonperformance by these institutions.Any money market funds in which we hold a portion of our excess cash invest in only very high grade commercial and governmental instruments, and thereforebear low market risk.Restricted Cash and Cash Equivalents. Restricted cash and cash equivalents consist of cash that is being held by the Company acting as an agent for thedisbursement of certain state social and care services programs. We record an offsetting liability when we initially receive such cash from the programs. Werelieve both restricted cash and cash equivalents and the related liability when amounts are disbursed. We earn an administrative fee based on a percentage ofthe funds disbursed on behalf of the government social and care service programs.Marketable Securities . Marketable securities are classified as available-for-sale and are recorded at fair value, based on quoted market rates when observableor valuation analysis when appropriate. Unrealized gains and losses, are included in shareholders’ equity. Realized gains and losses on investments areincluded in other income (expense).Accounts Receivable Reserves. We maintain reserves for potential sales returns and uncollectible accounts receivable. In aggregate, such reserves reduceour gross accounts receivable to estimated net realizable value.Our standard contracts generally do not contain provisions for clients to return products or services. However, we historically have accepted sales returns undercertain circumstances. Accordingly, we estimate sales return reserves, including reserves for returns and other credits, based upon the rate of historical returnsby revenue type in relation to the corresponding gross revenues and recognize revenue, net of an allowance for sales returns. If we are unable to estimate thereturns, revenue recognition may be delayed until the rights of return period lapses, provided also, that all other criteria for revenue recognition have been met. Ifwe experience changes in practices related to sales returns or changes in actual return rates that deviate from the historical data on which our reserves hadbeen established, our revenues may be adversely affected.Allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from our clients’ inability to make requiredpayments are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances, net of deferred revenueand specifically reserved accounts. Specific reserves are based on our estimate of the probability of collection for certain troubled accounts. Accounts are writtenoff as uncollectible only after we have expended extensive collection efforts.Our allowances for doubtful accounts are based on our assessment of the collectibility of client accounts. We regularly review the adequacy of these allowancesby considering internal factors such as historical experience, credit quality and age of the client receivable balances as well as external factors such aseconomic conditions that may affect a client’s ability to pay and review of major third-party credit-rating agencies, as needed.Inventory. Inventory consists of hardware for specific client orders and spare parts and are valued at lower of cost (first-in, first-out) and net realizable value.Our provision for inventory obsolescence reduces our inventory to net realizable value.Equipment and Improvements. Equipment and improvements are stated at cost less accumulated depreciation and amortization. Repair and maintenancecosts that do not improve service potential or extend economic life are expensed as incurred. Depreciation and amortization of equipment and improvements arerecorded over the estimated useful lives of the assets, or the related lease terms if shorter, by the straight-line method. Useful lives generally have the followingranges: l Computer equipment 3-5 yearsl Furniture and fixtures 3-7 yearsl Leasehold improvements lesser of lease term or estimated useful life of assetCapitalized Software Costs. Software development costs, consisting primarily of employee salaries and benefits, incurred in the research and development ofnew software products and enhancements to existing software products for external sale are expensed as incurred, and reported as net research anddevelopment costs in the consolidated statements of comprehensive income, until technological feasibility has been established. After technological feasibility isestablished, additional external-sale software development costs are capitalized. Amortization of capitalized software is recorded using the greater of the ratio ofcurrent revenues to the total of current and expected revenues of the related product or the straight-line method over the estimated economic life of the relatedproduct, which is typically three years. We perform ongoing assessments of the net realizable value of such capitalized software costs. If a determination ismade that capitalized amounts are not recoverable based on the projected undiscounted cash flows to be generated from the applicable software, any excessunamortized capitalized software costs are written off. In addition to the assessment of net realizable value, we routinely review the remaining estimated lives ofour capitalized software costs and record adjustments, if deemed necessary. The total of capitalized software costs incurred in the development of products forexternal sale are reported as capitalized software costs within our consolidated balance sheets.We also incur costs to develop software applications for our internal-use and costs for the development of Software as a Service ("SaaS") based products soldto our clients. The development costs of our SaaS-based products are considered internal-use for61Table of Contentsaccounting purposes. Our internal-use capitalized costs are stated at cost and amortized using the straight-line method over the estimated useful lives of theassets, which is typically three to seven years. Application development stage costs generally include costs associated with internal-use software configuration,coding, installation and testing. Costs related to the preliminaryproject stage and post-implementation activities are expensed as incurred. Costs of significant upgrades and enhancements that result in additional functionalityare also capitalized, whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized software costs fordeveloping SaaS-based products are reported as capitalized software costs within our consolidated balance sheets and capitalized software costs fordeveloping our internal-use software applications are reported as equipment and improvements within our consolidated balance sheets.For the year ended March 31, 2016 , we determined that our previously capitalized software costs related to our NextGen Now development project was notrecoverable and recorded a $32,238 non-cash impairment charge. Refer to Note 8 for additional information.Business Combinations. In accordance with the accounting for business combinations, we allocate the purchase price of the acquired business to the tangibleand intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair values of acquired assets andliabilities assumed represent our best estimate of fair value. The estimated fair value of the acquired tangible and intangible assets and liabilities assumed weredetermined using multiple valuation approaches depending on the type and nature of tangible or intangible asset acquired, including but not limited to theincome approach, the excess earnings method and the relief from royalty method approach. The purchase price allocation methodology contains uncertaintiesas it requires us make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities, including, but not limited to, intangibleassets, goodwill, deferred revenue, and contingent consideration liabilities. We estimate the fair value of the contingent consideration liabilities based on theprobability of achieving certain business, strategic, or financial milestones and our projection of expected results, as needed. Unanticipated events orcircumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and businessstrategies. Any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements of comprehensive income.Goodwill. Goodwill acquired in a business combination is measured as the excess of the purchase price, or consideration transferred, over the net acquisitiondate fair values of the assets acquired and the liabilities assumed. Goodwill is not amortized as it has been determined to have an indefinite useful life.We test goodwill for impairment annually during our first fiscal quarter, referred to as the annual test date. Based on our assessment, we have determined thatthere was no impairment to our goodwill as of June 30, 2015. We will also test for impairment between annual test dates if an event occurs or circumstanceschange that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed at a reporting-unit level, which is defined as anoperating segment or one level below an operating segment (referred to as a component). A component of an operating segment is a reporting unit if thecomponent constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of thatcomponent.As part of our annual goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reportingunit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conducta two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair values of the applicable reporting units withtheir carrying values. If the carrying amount of the reporting unit exceeds the reporting unit's fair value, we perform the second step of the goodwill impairmenttest. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value ofthat goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. During the years ended March 31, 2016 and March 31, 2015 , we did not identify any events or circumstances that would require an interim goodwill impairmenttest.Intangible Assets. Intangible assets consist of customer relationships, trade names and contracts, and software technology. These intangible assets arerecorded at fair value and are reported net of accumulated amortization. We currently amortize the intangible assets over periods ranging from 7 months to 10 years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed. We assess the recoverability of intangibleassets at least annually or whenever adverse events or changes in circumstances indicate that impairment may have occurred. If the future undiscounted cashflows expected to result from the use of the related assets are less than the carrying value of such assets, impairment is deemed to have occurred and a loss isrecognized to reduce the carrying value of the intangible assets to fair value, which is determined by discounting estimated future cash flows. In addition to theimpairment assessment, we routinely review the remaining estimated lives of our intangible assets and record adjustments, if deemed necessary.We determined that there was no impairment to our intangible assets as of March 31, 2016 and March 31, 2015 .Long-Lived Assets. We assess the recoverability of long-lived assets at least annually or whenever adverse events or changes in circumstances indicate thatimpairment may have occurred. If the future undiscounted cash flows expected to result from the use of the related assets are less than the carrying value ofsuch assets, impairment is deemed to have occurred and a loss is recognized to reduce the carrying value of the long-lived assets to fair value, which isdetermined by discounting estimated future cash flows. In addition to the impairment assessment, we routinely review the remaining estimated lives of our long-lived assets and record adjustments, if deemed necessary.62Table of ContentsIncome Taxes. Income taxes are provided based on current taxable income and the future tax consequences of temporary differences between the basis ofassets and liabilities for financial and tax reporting. The deferred income tax assets and liabilities represent the future state and federal tax return consequencesof those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred income taxes are alsorecognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future income taxes. At eachreporting period, we assess the realizable value of deferred tax assets based on, among other things, estimates of future taxable income and adjusts the relatedvaluation allowance as necessary. We make a number of assumptions and estimates in determining the appropriate amount of expense to record for incometaxes. The assumptions and estimates consider the taxing jurisdiction in which we operate as well as current tax regulations. Accruals are established forestimates of tax effects for certain transactions and future projected profitability based on our interpretation of existing facts and circumstances.Advertising Costs. Advertising costs are expensed as incurred. We do not have any direct-response advertising. Advertising costs, which include trade showsand conventions, were approximately $7,890 , $7,079 and $5,600 for the years ended March 31, 2016 , 2015 and 2014 , respectively, and were included inselling, general and administrative expenses in the accompanying consolidated statements of comprehensive income.Earnings per Share. We provide a dual presentation of “basic” and “diluted” earnings per share (“EPS”). Shares below are in thousands. Fiscal Year Ended March 31, 2016 2015 2014Earnings per share — Basic: Net income$5,657 $27,332 $15,680Weighted-average shares outstanding — Basic60,635 60,259 59,918Net income per common share — Basic$0.09 $0.45 $0.26 Earnings per share — Diluted: Net income$5,657 $27,332 $15,680 Weighted-average shares outstanding60,635 60,259 59,918Effect of potentially dilutive securities598 590 216Weighted-average shares outstanding — Diluted61,233 60,849 60,134Net income per common share — Diluted$0.09 $0.45 $0.26The computation of diluted net income per share does not include 1,926 , 1,656 and 1,355 options for the years ended March 31, 2016 , 2015 and 2014 ,respectively, because their inclusion would have an anti-dilutive effect on net income per share.Share-Based Compensation. We estimate the fair value of stock options on the date of grant using the Black Scholes option-pricing model based on requiredinputs, including expected term, volatility, risk-free rate, and expected dividend yield. Expected term is estimated based upon the historical exercise behaviorand represents the period of time that options granted are expected to be outstanding and therefore the proportion of awards that is expected to vest. Volatility isestimated by using the weighted-average historical volatility of our common stock, which approximates expected volatility. The risk-free rate is the implied yieldavailable on the U.S. Treasury zero-coupon issues with remaining terms equal to the expected term. The expected dividend yield is the average dividend rateduring a period equal to the expected term of the option. The fair value vest is recognized ratably as expense over the requisite service period in ourconsolidated statements of comprehensive income.Share-based compensation is adjusted on a monthly basis for changes to estimated forfeitures based on a review of historical forfeiture activity. To the extentthat actual forfeitures differ, or are expected to differ, from the estimate, share-based compensation expense is adjusted accordingly. The effect of the forfeitureadjustments for years ended March 31, 2016 , 2015 and 2014 was not significant.Share-based compensation expense associated with restricted performance shares with market conditions under our executive compensations plans is basedon the grant date fair value measured at the underlying closing share price on the date of grant using a Monte Carlo-based valuation model.See Note 13 for additional details regarding our share-based awards.63Table of ContentsThe following table shows total share-based compensation expense included in the consolidated statements of comprehensive income for years endedMarch 31, 2016 , 2015 and 2014 : Fiscal Year Ended March 31, 2016 2015 2014Costs and expenses: Cost of revenue$404 $373 $348Research and development costs318 396 323Selling, general and administrative2,573 2,703 1,819Total share-based compensation3,295 3,472 2,490Income tax benefit(1,018) (1,054) (794)Decrease in net income$2,277 $2,418 $1,696Recent Accounting Standards. Recent accounting pronouncements implemented during the current year or requiring implementation in future periods arediscussed below or in the notes, where applicable.In March 2016, the FASB issued Accounting Standards Update No. 2016-09, " Compensation - Stock Compensation (Topic 718): Improvements to EmployeeShare-Based Payment Accounting " ("ASU 2016-09"). ASU 2016-09 simplifies the accounting for and reporting on share-based payment transactions, includingthe income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effectivefor interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The amendments in this update are to be applieddifferently upon adoption with certain amendments being applied prospectively, retrospectively and under a modified retrospective transition method. We arecurrently in the process of evaluating the potential impact of adoption of this updated authoritative guidance on our consolidated financial statements.In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “ Leases (Topic 842) ” (“ASU 2016-02”), which is intended to improve financialreporting about leasing transactions. The new guidance will require entities that lease assets to recognize on their balance sheets the assets and liabilities forthe rights and obligations created by those leases and to disclose key information about the leasing arrangements. ASU 2016-02 is effective for interim andannual periods beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 is effective for us in the first quarter of fiscal 2019. We arecurrently in the process of evaluating the potential impact of adoption of this updated authoritative guidance on our consolidated financial statements.In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes("ASU 2015-17"). ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilitiesand assets into current and noncurrent amounts in the consolidated balance sheet. The amendments in the update require that all deferred tax liabilities andassets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for annual periods beginning after December15, 2016, and interim periods therein and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. We electedto early adopt this standard in the fourth quarter of fiscal 2016 on a retrospective basis. Prior periods have been retrospectively adjusted. The retrospectiveadoption of ASU 2015-17 resulted in the reclassification of our consolidated balance sheet as of March 31, 2015 , for presentation purposes only, in which$24,080 of current deferred tax assets were reclassed to noncurrent deferred tax assets.In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16") , which eliminates the requirement to restate prior period financial statements for measurement period adjustments following a business combination. Thenew guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reportingperiod in which the adjustment is identified. ASU 2015-16 is effective for interim and annual periods beginning after December 15, 2015 and early adoption ispermitted. This guidance is effective for us for the quarter ending March 31, 2016. The adoption of this new standard did not have material impact on ourconsolidated financial statements.In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory ("ASU 2015-11") , which replaces theconcept of subsequently measuring inventory at 'lower of cost or market' with that of 'lower of cost and net realizable value'. The guidance only applies toinventories for which cost is determined by methods other than last-in first-out (LIFO) and the retail inventory method (RIM). ASU 2015-11 is effective for fiscalyears beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. This guidance is effective for us for fiscalyear ending March 31, 2018. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Arrangement ("ASU 2015-05") ,which requires a customer to determine whether a cloud computing arrangement contains a software license that should be accounted for as internal-usesoftware or as a service contract. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoptionpermitted. Upon adoption, an entity has the option to apply the provisions of ASU 2015-05 either prospectively to all arrangements entered into or materially64Table of Contentsmodified, or retrospectively. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs ( "ASU 2015-03" ), whichrequires debt issuance costs to be presented as a deduction from the corresponding debt liability, which is consistent with the presentation of debt discounts orpremiums. Given that ASU 2015-03 did not provide direct, authoritative guidance related to accounting for debt issuance costs associated with line-of-creditarrangements, the FASB issued Accounting Standards Update No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associatedwith Line-of-Credit Arrangements ( "ASU 2015-15" ) in August 2015. ASU 2015-15 states that the SEC staff would not object to an entity deferring andpresenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-creditarrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The new guidance should be appliedretrospectively and is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted. Weelected to early adopt this standard in the fourth quarter of fiscal 2016 and have recorded debt issuance costs related to our revolving credit agreement withinother assets on the consolidated balance sheet as of March 31, 2016.In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a GoingConcern ( "ASU 2014-15" ), which incorporates and expands upon certain principles that currently exist in U.S. auditing standards. ASU 2014-15 providesguidance regarding management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concernand to provide related footnote disclosures. The new standard requires management to perform interim and annual evaluations and sets forth principles forconsidering the mitigating effect of management's plans. The standard mandates certain disclosures when conditions give rise to substantial doubt about acompany’s ability to continue as a going concern within one year from the financial statement issuance date. ASU 2014-15 is effective for annual reportingperiods ending after December 15, 2016, and all annual and interim periods thereafter. Early adoption is permitted. ASU 2014-15 is effective for us for fiscalyear ending March 31, 2017. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.In May 2014, the FASB, along with the International Accounting Standards Board, issued Accounting Standards Update No. 2014-09, Revenue from Contractswith Customers ("ASU 2014-09") , which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition . ASU 2014-09 providesenhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reportingusing International Financial Reporting Standards and GAAP. The core principle of this updated guidance is that an entity should recognize revenue to depictthe transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange forthose goods or services. The new standard also requires additional disclosure about revenue and provides improved guidance for multiple elementarrangements. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period,based on the July 2015 decision and issuance of Accounting Standards Update No. 2015-14, Deferral of Effective Date ("ASU 2015-14") by the FASB to delaythe effective date by one year. Companies are permitted to adopt this new guidance following either a full retrospective or modified retrospective approach. ASU2014-09 is effective for us in the first quarter of fiscal 2019. We are currently in the process of evaluating the potential impact of implementation of this updatedauthoritative guidance 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 consolidatedfinancial statements.3. Cash and Cash EquivalentsAt March 31, 2016 and March 31, 2015 , we had cash and cash equivalents of $27,176 and $118,993 , respectively. Cash and cash equivalents consist of cash,money market funds and short-term U.S. Treasury securities with original maturities of less than 90 days.65Table of Contents4. Fair Value MeasurementsThe following tables set forth by level within the fair value hierarchy the Company's financial assets and liabilities that were accounted for at fair value on arecurring basis at March 31, 2016 and March 31, 2015 : Balance at March31, 2016 Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) UnobservableInputs(Level 3)ASSETS Cash and cash equivalents (1)$27,176 $27,176 $— $—Restricted cash and cash equivalents5,320 5,320 — —Marketable securities (2)9,297 9,297 — — $41,793 $41,793 $— $—LIABILITIES Contingent consideration related to acquisitions$23,843 — $— $23,843 $23,843 $— $— $23,843 Balance at March31, 2015 Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) UnobservableInputs(Level 3)ASSETS Cash and cash equivalents (1)$118,993 $118,993 $— $—Restricted cash and cash equivalents2,419 2,419 — —Marketable securities (2)11,592 11,592 — — $133,004 $133,004 $— $—LIABILITIES Contingent consideration related to acquisitions$16,155 $— $— $16,155 $16,155 $— $— $16,155____________________(1)Cash equivalents consist of money market funds.(2)Marketable securities consist of money market instruments and fixed-income securities, including certificates of deposit, corporate bonds and notes,and municipal securities.Our contingent consideration liabilities relates primarily to the acquisitions of Mirth and HealthFusion. We assess the fair value of contingent considerationliabilities on a recurring basis and any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements ofcomprehensive income. Key assumptions include discount rates and probability-adjusted achievement estimates of certain revenue and strategic targets thatare not observable in the market. The categorization of the framework used to measure fair value of the contingent consideration liability is considered Level 3due to the subjective nature of the unobservable inputs used.The following table presents activity in the Company's financial assets and liabilities measured at fair value using significant unobservable inputs (Level 3), as ofMarch 31, 2016 : Total LiabilitiesBalance at March 31, 2014$14,913Earnout payments(695)Fair value adjustments, net1,937Balance at March 31, 2015$16,155Acquisitions (Note 5)16,700Settlement of share-based contingent consideration(9,273)Fair value adjustments, net261Balance at March 31, 2016$23,84366Table of ContentsDuring the year ended March 31, 2016 , we issued shares of common stock to settle $9,273 in contingent consideration liabilities related to Mirth. We alsorecorded net fair value adjustments to contingent consideration liabilities of $261 , consisting of $1,961 in fair value adjustments related to Mirth, offset by a$1,700 decrease in fair value related to HealthFusion.Non-Recurring Fair Value MeasurementsThe Company has certain assets, including goodwill and other intangible assets, which are measured at fair value on a non-recurring basis and are adjusted tofair value only if an impairment charge is recognized. The categorization of the framework used to measure fair value of the assets is considered Level 3 due tothe subjective nature of the unobservable inputs used. During the year ended March 31, 2016 , we recorded a $58 adjustment to Gennius goodwill based onadditional information that became available during the measurement period about certain liabilities that had existed as of the acquisition date, and recordedadditional goodwill and intangible assets in connection with the acquisition of HealthFusion (see Note 5).5. Business Combinations and DisposalsAcquisition of HealthFusionOn January 4, 2016, we completed our acquisition of HealthFusion Holdings, Inc. ("HealthFusion") pursuant to the Agreement and Plan of Merger (the “MergerAgreement"), dated October 30, 2015. HealthFusion provides Web-based, cloud computing software for physicians, medical billing service providers, andhospitals. Its flagship product, MediTouch, is a fully-integrated, cloud-based software suite consisting of clearinghouse, practice management, electronic healthrecords, and patient portals with rich functionality to enable mobility, workflow automation, and advanced reporting and analytics aimed primarily at small-to-mid-size physician practices. The acquisition of HealthFusion is part of our strategy to expand its client base and cloud-based solution capabilities in the ambulatorymarket. Over time, we plan to expand the HealthFusion platform to satisfy the needs of practices of increasing size and complexity.The preliminary purchase price totaled $183,049 , which includes preliminary working capital and other customary adjustments and the fair value of contingentconsideration related to an additional $25,000 of cash in the form of an earnout, subject to HealthFusion achieving certain revenue targets through December31, 2016. The initial estimated fair value of contingent consideration of $16,700 was estimated using a Monte Carlo-based valuation model that considered,among other assumptions and inputs, our estimate of projected HealthFusion revenues.The acquisition was initially funded by a draw against the revolving credit agreement (see Note 9), a portion of which was subsequently repaid from existingcash on hand.We accounted for the HealthFusion acquisition as a purchase business combination using the acquisition method of accounting. The preliminary purchase pricewas allocated to the tangible and intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as of the acquisition date.The preliminary fair values of acquired assets and liabilities assumed represent management’s estimate of fair value and are subject to change if additionalinformation, such as changes to deferred taxes and/or working capital, becomes available. We expect to finalize the purchase price allocation as soon aspracticable within the measurement period, but not later than one year following the acquisition date.The preliminary estimated fair value of the acquired tangible and intangible assets and liabilities assumed were determined using multiple valuation approachesdepending on the type of tangible or intangible asset acquired, including but not limited to the income approach, the excess earnings method and the relief fromroyalty method approach.The preliminary amount of goodwill represents the excess of the preliminary purchase price over the preliminary net identifiable assets acquired and liabilitiesassumed. Goodwill primarily represents, among other factors, the value of synergies expected to be realized and the assemblage of all assets that enable us tocreate new client relationships, neither of which qualify as separate amortizable intangible assets. Goodwill arising from the acquisition of HealthFusion wasdetermined as the excess of the preliminary purchase price over the net acquisition date fair values of the acquired assets and the liabilities assumed, and is notdeductible for tax purposes. HealthFusion operates under the NextGen Division.We incurred $3,217 in acquisition-related transaction costs, which are included in selling, general, and administrative expense on our consolidated statements ofcomprehensive income for the year ended March 31, 2016 .The total preliminary purchase price for the HealthFusion acquisition is summarized as follows:Initial purchase price$165,000Contingent consideration16,700Preliminary working capital and other adjustments1,349Total preliminary purchase price$183,04967Table of Contents January 4, 2016Preliminary fair value of the net tangible assets acquired and liabilities assumed: Acquired cash and cash equivalents$2,225Accounts receivable, net1,514Prepaid expenses and other current assets4,645Equipment and improvements, net767Capitalized software costs, net307Other assets700Accounts payable(1,085)Accrued compensation and related benefits(533)Deferred revenue(1,067)Deferred income taxes, net(12,027)Other liabilities(2,721)Total preliminary net tangible assets acquired and liabilities assumed(7,275)Preliminary fair value of identifiable intangible assets acquired: Software technology42,500Customer relationships28,500Trade name4,000Goodwill115,324Total preliminary identifiable intangible assets acquired190,324Total preliminary purchase price$183,049Including the effect of certain acquisition-related fair value adjustments, amortization of acquired intangible assets, and interest expense associated with therevolving credit agreement, the acquisition of HealthFusion contributed revenues of $8,781 and estimated net loss of $1,149 to our consolidated results for theyear ended March 31, 2016 .The following table presents unaudited supplemental pro forma consolidated revenue and net income as if the acquisition of HealthFusion had occurred on April1, 2014 (the beginning of the comparable prior annual reporting period). Pro formayear endedMarch 31, 2016(unaudited) Pro formayear endedMarch 31, 2015(unaudited)Combined revenues518,708 516,579Combined net income134 12,471The pro forma revenue and net income were derived by combining our historical results with HealthFusion's historical results, after applying our accountingpolicies and making adjustments related to the amortization of acquired intangible assets and interest expense associated with the revolving credit agreement.Specifically, the pro forma combined net income for the year ended March 31, 2016 includes $14,900 of estimated amortization of acquired intangible assetsand $3,600 of estimated interest expense. For the year ended March 31, 2015, the pro forma combined net income includes $15,800 of estimated amortizationof acquired intangible assets, $8,300 of estimated acquisition-related fair value adjustments, and $5,200 of estimated interest expense. Acquisition-relatedtransaction costs incurred prior to the acquisition date have been eliminated from pro forma combined net income and we also considered the estimatedinconsequential tax effects of the acquisition for the purposes of preparing the unaudited supplemental pro forma information.Hospital DispositionOn October 22, 2015, we closed an Asset Purchase Agreement (the “Purchase Agreement”) with Quadramed Affinity Corporation in which we sold andassigned substantially all assets and liabilities of the Hospital Solutions Division. We believe that the Hospital disposition will allow us to focus our efforts andresources on our core ambulatory business. The financial terms of the transaction and the amount of consideration received were not significant. Since theHospital disposition did not and is not expected to have a major effect on our operations and financial results, separate discontinued operations reporting is notprovided.We incurred a preliminary loss on the Hospital disposition of $1,366 in the year ended March 31, 2016 , which was recorded in our consolidated statements ofcomprehensive income as a component of selling, general and administrative expense. The loss68Table of Contentswas measured as the total consideration received and expected to be received less the lower of carrying value or fair value of the Hospital Solutions Division.Additionally, we incurred $387 in direct incremental costs of disposition and $335 in severance and other employee-related costs in connection with theHospital disposition during the year ended March 31, 2016 , which were recorded in our consolidated statements of comprehensive income as a component ofselling, general and administrative expense.Pursuant to the Purchase Agreement, the initial purchase price is subject to certain purchase price adjustments for changes in Net Tangible Assets (as definedin the Purchase Agreement) and future collections of the assigned accounts receivable through July 2016. Accordingly, the preliminary loss on the Hospitaldisposition may change.Acquisition of GenniusOn March 11, 2015, the Company acquired Gennius, a leading provider of healthcare data analytics. The Gennius purchase price totaled $2,345 . Weaccounted for the Gennius acquisition as a purchase business combination. The purchase price was allocated to the tangible and intangible assets acquired andliabilities assumed based on their estimated fair values as of the acquisition date. The fair values of acquired assets and liabilities assumed representmanagement’s estimate of fair value. The estimated fair value of the acquired tangible and intangible assets and liabilities assumed were determined usingmultiple valuation approaches depending on the type of tangible or intangible asset acquired, including but not limited to the income approach, the excessearnings method and the relief from royalty method approach. Goodwill arising from the acquisition of Gennius was determined as the excess of the purchaseprice over the net acquisition date fair values of the acquired assets and the liabilities assumed, and is not deductible for tax purposes. The Gennius goodwillrepresents the expected future synergies resulting from the integration of the Gennius healthcare data analytics technology, which will enhance our currententerprise analytics competencies and broaden our business intelligence capabilities for addressing new value-based care requirements. Gennius operatesunder the NextGen Division.During the year ended March 31, 2016 , we recorded a $58 adjustment to goodwill based on additional information that became available during themeasurement period about certain liabilities that had existed as of the acquisition date.The following table summarizes the purchase price allocation for the Gennius acquisition: March 11, 2015Fair value of the net tangible assets acquired and liabilities assumed: Other assets$4Deferred revenues(37)Other liabilities(131)Total net tangible assets acquired and liabilities assumed(164)Fair value of identifiable intangible assets acquired: Software technology1,800Goodwill709Total identifiable intangible assets acquired2,509Total purchase price$2,345The actual results to date and pro forma effects of the Gennius acquisition would not have been material to our results of operations and are therefore notpresented.69Table of Contents6. GoodwillWe do not amortize goodwill as it has been determined to have an indefinite useful life. Goodwill by reporting unit consists of the following: March 31, 2015 March 31, 2016NextGen Division$33,992 $149,258RCM Services Division32,290 32,290QSI Dental Division (1)7,289 7,289Total goodwill$73,571 $188,837_______________________(1) QSI Dental Division goodwill is presented on a basis consistent with that of our management reporting structures. However, for the purposes of assessinggoodwill for impairment annually and as otherwise may be required, the QSI Dental Division goodwill is allocated to the reporting units that derive cash flowsfrom the products associated with the acquired goodwill. For all periods presented in this report, the allocation resulted in substantially all of the QSI DentalDivision goodwill being ascribed to the NextGen Division.7. Intangible AssetsIn connection with the HealthFusion acquisition, we recorded $75,000 of intangible assets related to customer relationships, trade names and softwaretechnology (see Note 5 for additional information). We are amortizing the HealthFusion customer relationships over 10 years and trade names and softwaretechnology over 5 years. The weighted average amortization period for the total amount of intangible assets acquired is 6.9 years.In connection with the Gennius acquisition, we recorded $1,800 of intangible assets related to software technology (see Note 5 for additional information). Weare amortizing the Gennius software technology over 10 years. The weighted average amortization period for the total amount of intangible assets acquired is10 years .Our acquired intangible assets are summarized as follows: March 31, 2016 CustomerRelationships Trade Name andContracts SoftwareTechnology TotalGross carrying amount$50,550 $7,368 $67,810 $125,728Accumulated amortization(19,618) (2,895) (11,540) (34,053)Net intangible assets$30,932 $4,473 $56,270 $91,675 March 31, 2015 CustomerRelationships Trade Name andContracts SoftwareTechnology TotalGross carrying amount$22,050 $3,368 $25,310 $50,728Accumulated amortization(14,986) (2,159) (5,894) (23,039)Net intangible assets$7,064 $1,209 $19,416 $27,689Amortization expense related to customer relationships and trade name and contracts recorded as operating expenses in the consolidated statements ofcomprehensive income was $5,368 , $3,709 and $4,671 for the years ended March 31, 2016 , 2015 and 2014 , respectively. Amortization expense related tosoftware technology recorded as cost of revenue was $5,646 , $3,418 and $3,659 for the years ended March 31, 2016 , 2015 and 2014 , respectively.70Table of ContentsThe following table represents the remaining estimated amortization of acquired intangible assets as of March 31, 2016 :For the year ended March 31, 2017$22,462201819,115201916,703202015,706202110,9742022 and beyond$6,715Total$91,6758. Capitalized Software CostsOur capitalized software development costs are summarized as follows: March 31, 2016 March 31, 2015Gross carrying amount$96,699 $113,955Accumulated amortization(83,449) (73,558)Net capitalized software costs$13,250 $40,397Amortization expense related to capitalized software costs recorded as cost of revenue in the consolidated statements of comprehensive income was $9,891 ,$12,817 and $12,338 for the years ended March 31, 2016 , 2015 and 2014 , respectively.During the year ended March 31, 2016 , we recorded a non-cash impairment charge of $32,238 that is reflected within the impairment of assets caption in ourconsolidated statements of comprehensive income. The impairment relates to our previously capitalized investment in the NextGen Now development project,which we deemed to have zero net realizable value. The impairment charge did not result in, nor is it expected to result in, any cash expenditures. Theimpairment charge follows our assessment of the NextGen Now development project and the MediTouch platform that we obtained through our recentacquisition of HealthFusion. We have determined that the MediTouch platform offers the most efficient path to providing a high-quality, robust, cloud-basedsolution for ambulatory care. Accordingly, we have decided to cease further investment in NextGen Now and immediately discontinue all efforts to use orrepurpose the NextGen Now platform. The following table represents the remaining estimated amortization of capitalized software costs as of March 31, 2016 . The estimated amortization iscomprised of (i) amortization of released products and (ii) the expected amortization for products that are not yet available for sale based on their estimatedeconomic lives and projected general release dates.For the year ended March 31,2017$7,20020182,90020192,2002020950Total$13,2509. Line of CreditOn January 4, 2016, we entered into a $250,000 revolving credit agreement (“Credit Agreement”) with JP Morgan Chase Bank, N.A., as administrative agent,U.S. Bank National Association, as syndication agent, and certain other lenders. The credit agreement is secured by substantially all of our existing and futureproperty and material domestic subsidiaries. The Credit Agreement provides a subfacility of up to $10,000 for letters of credit and a subfacility of up to $10,000for swing-line loans. The Credit Agreement matures on January 4, 2021 and the full balance of the revolving loans and all other obligations under the agreementmust be paid at that time.The revolving loans under the Credit Agreement bear interest at our option of either, (a) a base rate based on the highest of (i) the rate of interest per annumpublicly announced from time to time by JPMorgan Chase Bank, N.A., as its prime rate, (ii) the greater of (A) the federal funds effective rate and (B) theovernight bank funding rate (as determined by the Federal Reserve Bank of New York) plus 0.50% and (iii) the one-month British Bankers Association LondonInterbank Offered Rate ("LIBOR") plus 1.00%) plus an applicable margin based on our leverage ratio from time to time, ranging from 0.50% to 1.50%, or (b) aLIBOR-based rate (subject to a floor of 0.00%) plus an applicable margin based on our leverage ratio from time to time, ranging from71Table of Contents1.50% to 2.50%. We will also pay a commitment fee of between 0.25% and 0.45%, payable quarterly in arrears, on the average daily unused amount of therevolving facility based on our leverage ratio from time to time.The revolving loans are subject to customary representations, warranties and ongoing affirmative and negative covenants and agreements. The negativecovenants include, among other things, limitations on indebtedness, liens, asset sales, mergers and acquisitions, investments, transactions with affiliates,dividends and other restricted payments, subordinated indebtedness and amendments to subordinated indebtedness documents and sale and leasebacktransactions. The Credit Agreement also requires us to maintain (1) a maximum leverage ratio of (a) 3.00 to 1.00 for any such fiscal quarter ending on or prior toSeptember 30, 2016, (b) 2.75 to 1.00 for any such fiscal quarter ending after September 30, 2016 and on or prior to September 30, 2017 and (c) 2.50 to 1.00 forany such fiscal quarter ending after September 30, 2017; and (2) a minimum fixed charge coverage ratio of 3.00 to 1.00 at the end of each fiscal quarter throughthe term of the loan. The revolving loans under the Credit Agreement will be available for letters of credit, working capital and general corporate purposes.As of March 31, 2016 , we had $105,000 in outstanding loans and $145,000 of unused credit under the Credit Agreement. Total interest expense incurred duringthe year ended March 31, 2016 was $969 . The interest rate as of March 31, 2016 was approximately 2.4% and the weighted average interest rate for the yearended March 31, 2016 was approximately 3.2% .Debt Issuance CostsDebt issuance costs and other related fees paid to legal advisors and third parties in connection with securing the Credit Agreement totaled $5,382 . Thedeferred debt issuance costs are reported as a component of other assets on the consolidated balance sheet and are being amortized to interest expense overthe term of the Credit Agreement. Total amortization of deferred debt issuance costs for the year ended March 31, 2016 was $258 .10. Composition of Certain Financial Statement CaptionsAccounts receivable include amounts invoiced but not yet rendered at each period end. Undelivered products and services are included as a component of thedeferred revenue balance on the accompanying consolidated balance sheets. March 31, 2016 March 31, 2015Accounts receivable, gross$104,467 $119,807Sales return reserve(7,541) (8,835)Allowance for doubtful accounts(2,902) (3,303)Accounts receivable, net$94,024 $107,669Inventory is summarized as follows: March 31, 2016 March 31, 2015Computer systems and components$555 $622Prepaid expenses and other current assets are summarized as follows: March 31, 2016 March 31, 2015Prepaid expenses$11,804 $9,941Other current assets3,106 1,594Prepaid expenses and other current assets$14,910 $11,53572Table of ContentsEquipment and improvements are summarized as follows: March 31, 2016 March 31, 2015Computer equipment$32,213 $35,672Internal-use software10,201 6,996Furniture and fixtures9,799 10,408Leasehold improvements13,408 9,767 65,621 62,843Accumulated depreciation and amortization(39,831) (42,036)Equipment and improvements, net$25,790 $20,807Other assets are summarized as follows: March 31, 2016 March 31, 2015Cash surrender value of life insurance policies$7,155 $6,004Deferred debt issuance costs, net5,124 —Deposits4,951 3,365Other deferred costs1,819 2,514Other assets$19,049 $11,883The current portion of deferred revenues are summarized as follows: March 31, 2016 March 31, 2015Professional services$23,128 $30,340Software license, hardware and other14,913 17,638Support and maintenance11,902 15,077Software related subscription services7,992 3,288Deferred revenue, current$57,935 $66,343Accrued compensation and related benefits are summarized as follows: March 31, 2016 March 31, 2015Payroll, bonus and commission$9,683 $13,505Vacation8,987 10,546Accrued compensation and related benefits$18,670 $24,05173Table of ContentsOther current and non-current liabilities are summarized as follows: March 31, 2016 March 31, 2015Contingent consideration and other liabilities related to acquisitions$24,153 $9,124Care services liabilities5,339 2,381Customer credit balances and deposits4,123 4,760Accrued consulting3,650 2,603Accrued EDI expense2,382 2,322Accrued royalties2,341 2,063Self insurance reserve1,862 2,290Accrued legal expense864 3,527Other accrued expenses5,524 4,854Other current liabilities$50,238 $33,924 Contingent consideration and other liabilities related to acquisitions$— $7,581Deferred rent6,577 3,122Uncertain tax position and related liabilities4,084 4,095Other noncurrent liabilities$10,661 $14,79811. Income TaxThe provision for income taxes consists of the following components: Fiscal Year Ended March 31, 2016 2015 2014Current: Federal taxes$(9,338) $18,055 $8,673State taxes(403) 1,887 2,380Foreign taxes374 262 252Total current taxes(9,367) 20,204 11,305Deferred: Federal taxes$10,474 $(9,804) $(2,894)State taxes(100) (1,771) (897)Foreign taxes(344) (297) (193)Total deferred taxes10,030 (11,872) (3,984)Provision for income taxes$663 $8,332 $7,32174Table of ContentsT he provision for income taxes differs from the amount computed at the federal statutory rate as follows: Fiscal Year Ended March 31, 2016 2015 2014Current: Federal income tax statutory rate35.0 % 35.0 % 35.0 %Increase (decrease) resulting from: State income taxes, net of Federal benefit(5.2) 2.0 4.2Research and development tax credits(23.4) (4.4) (5.3)Qualified production activities income deduction— (5.4) (4.9)Impairment of goodwill— — 5.7Stock option deduction3.7 0.6 0.7Other non-recurring adjustments for State taxes— (1.8) —Meals and entertainment3.7 0.8 1.2Acquisition expenses(3.6) — (0.3)Foreign rate differential(10.2) (1.6) (1.5)Net operating loss carryback9.1 — —Other1.4 (1.8) (3.0)Effective income tax rate10.5 % 23.4 % 31.8 %The net deferred tax assets and liabilities in the accompanying consolidated balance sheets consist of the following: March 31, 2016 March 31, 2015Deferred tax assets: Net operating losses$17,920 $512Deferred revenue10,682 11,970Accrued compensation and benefits5,868 7,744Allowance for doubtful accounts4,176 4,944Research and development credit3,611 1,988Compensatory stock option expense2,664 2,852Deferred compensation2,586 2,342State income taxes445 (730)Inventory valuation68 56Other— 3,561Total deferred tax assets48,020 35,239Deferred tax liabilities: Accelerated depreciation$(2,434) $(756)Capitalized software(9,644) (8,728)Intangible assets(22,972) 7,603Prepaid expense(1,249) (1,321)Other(972) —Total deferred tax liabilities(37,271) (3,202)Valuation allowance(2,551) (1,840)Deferred tax assets, net$8,198 $30,197The deferred tax assets and liabilities have been shown net in the accompanying consolidated balance sheets as noncurrent.As of March 31, 2016 and March 31, 2015 , we had federal net operating loss (“NOL”) carryforwards of $45,202 and $1,464 , respectively. The federal NOLcarryforwards were inherited in connection with our acquisition of HealthFusion in January 2016 and Gennius in March 2015. The NOL related to theHealthFusion acquisition was estimated based on available information as of March 31, 2016 and may change based upon the filing of the final tax returns forHealthFusion. The NOL carryforwards expire75Table of Contentsin various amounts starting in 2029 for both federal and state tax purposes. As of March 31, 2016 , we had state NOL carryforwards of approximately $30,430 ,of which $18,695 was related to our expected current year taxable NOL and the remainder was related to the HealthFusion acquisition state NOL tax attribute.We had no state NOL carryfowards as of March 31, 2015 . The utilization of the federal NOL carryforwards is subject to limitations under the rules regardingchanges in stock ownership as determined by the Internal Revenue Code.As of March 31, 2016 and March 31, 2015 , the research and development tax credit carryforward available to offset future federal and state taxes was $3,611and $1,988 respectively. The credits expire in various amounts starting in 2019.We expect to receive the full benefit of the deferred tax assets recorded with the exception of certain state credits and state NOL carryforwards for which wehave recorded a valuation allowance.Uncertain tax positionsA reconciliation of the beginning and ending amount of unrecognized tax benefits, which is recorded within other noncurrent liabilities in our consolidatedbalance sheet, is as follows:Balance at March 31, 2014$875Additions for current/prior year tax positions3,106Reductions for prior year tax positions(218)Balance at March 31, 2015$3,763Additions for prior year tax positions235Reductions for prior year tax positions(43)Balance at March 31, 2016$3,955During the year ended March 31, 2016 , we recorded additional liabilities of $235 mostly related to various state tax planning benefits recorded in the currentyear for prior year tax positions. The total amount of unrecognized tax benefit that, if recognized, would decrease the income tax provision is $3,955 .Our practice is to recognize interest related to income tax matters as interest expense in the consolidated statements of comprehensive income. We hadapproximately $129 and $332 of accrued interest related to income tax matters as of March 31, 2016 and 2015 , respectively. We recognized $57 and $309 ofinterest related to income tax matters in the consolidated statements of comprehensive income in the years ended March 31, 2016 and 2015 , respectively, andan insignificant amount in the year ended March 31, 2014. No penalties related to income tax matters were accrued or recognized in our consolidated financialstatements for all periods presented.We are no longer subject to U.S. federal income tax examinations for tax years before 2012. With a few exceptions, we are no longer subject to state or localincome tax examinations for tax years before 2011. We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement ofaudits or the expiration of statute of limitations within the next twelve months .12. Employee Benefit PlansWe provide a 401(k) plan to substantially all of our employees. Participating employees may defer up to the IRS limit per year based on the IRC. The annualcontribution is determined by a formula set by our Board of Directors and may include matching and/or discretionary contributions. The amount of the Companymatch is discretionary and subject to change. The retirement plans may be amended or discontinued at the discretion of the Board of Directors. Contributions of$1,063 , $949 and $820 were made by the Company to the 401(k) plan for the years ended March 31, 2016 , 2015 and 2014 , respectively.We have a deferred compensation plan (the “Deferral Plan”) for the benefit of those employees who qualify. Participating employees may defer up to 75% oftheir salary and 100% of their annual bonus for a Deferral Plan year. In addition, we may, but are not required to, make contributions into the Deferral Plan onbehalf of participating employees, and the amount of the Company match is discretionary and subject to change. Each employee's deferrals together withearnings thereon are accrued as part of our long-term liabilities. Investment decisions are made by each participating employee from a family of mutual funds.The deferred compensation liability was $6,357 and $5,750 at March 31, 2016 and 2015 , respectively. To offset this liability, we have purchased life insurancepolicies on some of the participants. The Company is the owner and beneficiary of the policies and the cash values are intended to produce cash needed to helpmake the benefit payments to employees when they retire or otherwise leave the Company. We intend to hold the life insurance policy until the death of the planparticipant. The cash surrender value of the life insurance policies for deferred compensation was $7,155 and $6,004 at March 31, 2016 and 2015 , respectively.The values of the life insurance policies and our related obligations are included on the accompanying consolidated balance sheets in long-term other assetsand long-term deferred compensation, respectively. We made contributions of $120 , $86 and $62 to the Deferral Plan for the years ended March 31, 2016 ,2015 and 2014 , respectively.76Table of Contents13. Share-Based AwardsEmployee Stock Option PlansIn October 2005, our shareholders approved a stock option and incentive plan (the “2005 Plan”) under which 4,800,000 shares of common stock were reservedfor the issuance of awards, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, unrestricted stock,restricted stock units, performance shares, performance units (including performance options) and other share-based awards. The 2005 Plan provides that ouremployees and directors may, at the discretion of the Board of Directors or a duly designated compensation committee, be granted certain share-based awards.In the case of option awards granted under the 2005 Plan, the exercise price of each option is determined based on the date of grant and expires no later than10 years from the date of grant. Awards granted pursuant to the 2005 Plan are subject to the vesting schedule or performance metrics set forth in theagreements pursuant to which they are granted. Upon a change of control of our Company, as such term is defined in the 2005 Plan, awards under the 2005Plan will fully vest under certain circumstances. The 2005 Plan expired on May 25, 2015. As of March 31, 2016 , there were 1,447,286 outstanding options and25,613 outstanding shares of restricted stock, restricted stock units and performance based restricted stock under the 2005 Plan.In August 2015, our shareholders approved a stock option and incentive plan (the “2015 Plan”) under which 11,500,000 shares of common stock werereserved for the issuance of awards, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock awards andrestricted stock unit awards, performance stock awards and other share-based awards. The 2015 Plan provides that our employees and directors may, at thediscretion of the Board of Directors or a duly designated compensation committee, be granted certain share-based awards. In the case of option awards grantedunder the 2015 Plan, the exercise price of each option is determined based on the date of grant and expire no later than 10 years from the date of grant.Awards granted pursuant to the 2015 Plan are subject to the vesting schedule or performance metrics set forth in the agreements pursuant to which they aregranted. Upon a change of control of our Company, as such term is defined in the 2015 Plan, awards under the 2015 Plan will fully vest under certaincircumstances. As of March 31, 2016 , there were 1,000,000 outstanding options, 165,634 outstanding shares of restricted stock awards and 10,624,005 shares available for future grant under the 2015 Plan.A summary of stock option transactions during the years ended March 31, 2016 , 2015 and 2014 is as follows: Number ofShares Weighted-AverageExercisePriceper Share Weighted-AverageRemainingContractualLife (years) AggregateIntrinsicValue(in thousands)Outstanding, March 31, 20131,159,183 $30.54 Granted469,000 18.78 Exercised(111,272) 19.78 $264Forfeited/Canceled(146,810) 30.28 Outstanding, March 31, 20141,370,101 $15.97 Granted469,650 — Forfeited/Canceled(203,575) Outstanding, March 31, 20151,636,176 $24.82 5.5 Granted1,414,000 15.51 7.6 Exercised(800) 15.99 6.2 $1Forfeited/Canceled(572,090) 24.65 4.6 Expired(30,000) 22.81 Outstanding, March 31, 20162,447,286 $19.55 6.3 $574Vested and expected to vest, March 31, 20162,223,978 $19.83 6.2 $505Exercisable, March 31, 2016587,536 $28.21 3.9 $—77Table of ContentsThe Company utilizes the Black-Scholes valuation model for estimating the fair value of stock options and related share-based compensation with the followingassumptions: Year Ended Year Ended Year Ended March 31, 2016 March 31, 2015 March 31, 2014Expected term3.8 - 3.9 years 4.8 years 4.9 yearsExpected volatility38.3% - 41.1% 36.1% - 36.6% 43.4% - 43.7%Expected dividends0.0% - 5.3% 4.3% - 4.4% 3.1% - 3.9%Risk-free rate1.1% - 1.6% 1.6% - 1.7% 1.0% - 1.5%The weighted-average grant date fair value of stock options granted during the years ended March 31, 2016 , 2015 and 2014 was $4.44 , $3.50 and $5.20 pershare, respectively.During the years ended March 31, 2016 , 2015 and 2014 , a total of 1,414,000 , 469,650 and 469,000 options, respectively, were granted under the 2005 and2015 Plans at an exercise price equal to the market price of the Company’s common stock on the date of grant. A summary of stock options granted during theyears ended March 31, 2016 , 2015 and 2014 is as follows:Option Grant Date Number of Shares Exercise Price VestingTerms (1) ExpiresMarch 1, 2016 450,000 $15.60 Four years March 1, 2024February 1, 2016 200,000 $14.20 Four years February 1, 2024January 4, 2016 200,000 $16.85 (2) January 4, 2024August 17, 2015 150,000 $12.80 (3) August 17, 2023May 22, 2015 414,000 $16.64 Five years May 22, 2023Fiscal year 2016 option grants 1,414,000 March 11, 2015 10,000 $15.84 Five years March 11, 2023September 2, 2014 20,000 $15.63 Five years September 2, 2022June 3, 2014 439,650 $15.99 Five years June 3, 2022Fiscal year 2015 option grants 469,650 August 15, 2013 85,000 $20.85 Five years August 15, 2021July 30, 2013 28,000 $22.59 Five years July 30, 2021May 29, 2013 356,000 $17.95 Five years May 29, 2021Fiscal year 2014 option grants 469,000 ____________________(1)Options vest in equal annual installments on each grant anniversary date commencing one year following the date of grant.(2)100,000 options fully vest on March 31, 2017 and the remaining 100,000 options vest on March 31, 2018.(3)Option vests in five equal annual installments beginning on July 1, 2016.Employee Share Purchase PlanOn August 11, 2014, the Company’s shareholders approved an Employee Share Purchase Plan (the “Purchase Plan”) under which 4,000,000 shares ofcommon stock were reserved for future grant. The Purchase Plan allows eligible employees to purchase shares through payroll deductions of up to 15% of totalbase salary at a price equal to 90% of the lower of the fair market values of the shares as of the beginning or the end of the corresponding offering period. Anyshares purchased under the Purchase Plan are subject to a six -month holding period. Employees are limited to purchasing no more than 1,500 shares on anysingle purchase date and no more than $25,000 in total fair market value of shares during any one calendar year. As of March 31, 2016 , the Company hasissued 114,620 shares under the Purchase Plan and 3,885,380 shares are available for future issuance.Share-based compensation expense recorded for the employee share purchase plan was $291 for the year ended March 31, 2016 and $116 for the yearended March 31, 2015 .Performance-Based AwardsOn May 14, 2015, the Compensation Committee approved our fiscal year 2016 Executive Compensation Program (the "Program") for our named executiveofficers for fiscal year 2016; on May 20, 2015, the Compensation Committee approved the Program for our former Interim Chief Financial Officer; on June 3,2015, the Compensation Committee approved the Program for our new Chief Executive Officer (effective July 1, 2015); on January 27, 2016, the CompensationCommittee approved the78Table of ContentsProgram for our new Chief Technology Officer (effective February 1, 2016); and on February 12, 2016, the Compensation Committee approved the Program forour new Chief Financial Officer (effective March 1, 2016).Under the incentive portion of the Program, the executive officers are eligible to receive cash bonuses based on meeting certain target increases in revenue andnon-GAAP earnings per share for fiscal year 2016 and certain equity incentive awards, including a potential award of up to an aggregate of 320,000 restrictedperformance shares of our common stock vesting over a three year period based on the achievement of target average daily share prices for the thirty calendarday period ending April 30th of each of the subsequent three fiscal years. In addition, under the Program, a target pool of up to 400,000 options is available fornew hires, promotions, and for certain high-performing, non-executive employees based on achievement in performance targets.Share-based compensation expense associated with the restricted performance shares with market conditions under the Program is based on the grant date fairvalue measured at the underlying closing share price on the date of grant using a Monte Carlo-based valuation model.Share-based compensation expense associated with the target pool of options under our equity incentive programs are initially based on the number of optionsexpected to vest after assessing the probability that the performance criteria will be met. Cumulative adjustments are recorded quarterly to reflect subsequentchanges in the estimated outcome of performance-related conditions. We utilize the Black-Scholes option valuation model with the assumptions in the tablebelow to calculate the share-based compensation expense related to the options. Year Ended March 31, 2016 Year Ended March 31, 2015 Year Ended March 31, 2014Expected life 3.8 - 4.0 years 4.8 years 4.9 yearsExpected volatility37.7% - 40.8% 35.9% - 36.5% 36.9% - 43.5%Expected dividends0.0% - 5.5% 4.3% - 5.0% 3.2% - 4.1%Risk-free rate1.0% - 1.6% 1.4% - 1.8% 1.4% - 1.8%Share-based compensation expense recorded for these performance-based awards was $383 , $463 and $0 for the years ended March 31, 2016 , 2015 and2014 , respectively.Non-vested stock option award activity, including employee stock options and performance-based awards, during the years ended March 31, 2016 , 2015 and2014 is summarized as follows: Non-VestedNumber ofShares Weighted-AverageGrant-DateFair Valueper ShareOutstanding, March 31, 2013804,340 $9.89Granted469,000 5.20Vested(134,970) 9.30Forfeited/Canceled(146,810) 9.33Outstanding, March 31, 2014991,560 $7.73Granted469,650 3.50Vested(269,785) 8.24Forfeited/Canceled(123,135) 6.57Outstanding, March 31, 20151,068,290 $5.81Granted1,414,000 4.44Vested(311,740) 5.44Forfeited/Canceled(310,800) 5.45Outstanding, March 31, 20161,859,750 $4.67As of March 31, 2016 , $6,959 of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted-average periodof 4.0 years. This amount does not include the cost of new options that may be granted in future periods or any changes in the Company’s forfeiturepercentage. The total fair value of options vested during the years ended March 31, 2016 , 2015 and 2014 was $1,697 , $2,224 and $1,255 , respectively.79Table of ContentsDirector AwardsOn May 20, 2015, the Board of Directors approved our 2016 Director Compensation Program, pursuant to which each non-employee director is to be grantedshares of restricted stock upon election or re-election to the Board of Directors. The shares of restricted stock were granted on August 17, 2015 following theshareholder approval and registration of our 2015 Equity Incentive Plan. The shares of restricted stock were issued according to the standard form of restrictedstock award agreement and pursuant to our 2015 Equity Incentive Plan and carry a restriction requiring that the restricted stock vest in two equal installmentsover two consecutive years with the vesting dates being the next two meeting dates of our annual shareholders’ meeting following election or re-election to theBoard of Directors.The Company recorded compensation expense related to restricted stock of approximately $940 , $877 and $629 for the years ended March 31, 2016 , 2015and 2014 , respectively. Restricted stock activity for the years ended March 31, 2016 , 2015 and 2014 is summarized as follows: Number ofShares Weighted-AverageGrant-DateFair Valueper ShareOutstanding, March 31, 201330,385 $27.09Granted57,324 20.75Vested(16,302) 30.64Canceled(6,836) 22.59Outstanding, March 31, 201464,571 $20.74Granted48,414 15.77Vested(34,780) 21.33Outstanding, March 31, 201578,205 17.94Granted165,634 14.06Vested(51,092) 20.14Canceled(1,500) 17.95Outstanding, March 31, 2016191,247 $14.44The we ighted-average grant date fair value for the restricted stock was estimated using the market price of the common stock on the date of grant. The fairvalue of the restricted stock is amortized on a straight-line basis over the vesting period.As of March 31, 2016 , $2,122 of total unrecognized compensation costs related to restricted stock is expected to be recognized over a weighted-average periodof 1.9 years. This amount does not include the cost of new restricted stock that may be granted in future periods.14. Commitments, Guarantees and ContingenciesWe lease facilities and offices under irrevocable operating lease agreements expiring at various dates with rent escalation clauses. Rent expense related tothese leases is recognized on a straight-line basis over the lease terms. Rent expense for the years ended March 31, 2016 , 2015 and 2014 was $7,309 ,$7,416 and $7,604 , respectively.The following table summarizes our significant contractual obligations at March 31, 2016 and the effect that such obligations are expected to have on ourliquidity and cash in future periods: For the year ended March 31,Contractual ObligationsTotal201720182019202020212022 andbeyondOperating lease obligations$70,414$8,773$9,863$8,903$7,936$7,909$27,030Line of credit obligations (1)105,000————105,000—Contingent consideration and other acquisition related liabilities(excluding share-based payments) (2)15,70015,700—————Total$191,114$23,973$10,363$8,903$7,936$112,909$27,030_______________________(1) As noted above, we entered into a $250.0 million revolving credit agreement in January 2016, which had $105 million in outstanding loans as of March 31, 2016 . Therevolving credit agreement matures on January 4, 2021 and the full balance of the revolving loans and all other obligations under the agreement must be paid at that time.Refer Note 9 for additional details.(2) In connection with the acquisition of HealthFusion, additional contingent consideration up to $25.0 million in the form of a cash earnout may be paid in our fourth quarter offiscal 2017, subject to HealthFusion achieving certain revenue targets through December 31, 2016. The fair value of the contingent consideration liability as of March 31, 2016was $15.0 million , and is included in the table above.80Table of ContentsThe deferred compensation liability as of March 31, 2016 was $6,357 , which is not included in the table above as the timing of future benefit payments toemployees is not readily determinable.The uncertain tax position liability as of March 31, 2016 was $3,955 , which is not included in the table above as the timing of expected payments is not readilydeterminable.Commitments and GuaranteesOur software license agreements include a performance guarantee that our software products will substantially operate as described in the applicable programdocumentation for a period of 365 days after delivery. To date, we have not incurred any significant costs associated with its performance guarantee or otherrelated warranties and does not expect to incur significant warranty costs in the future. Therefore, no accrual has been made for potential costs associated withthese warranties. Certain arrangements also include performance guarantees related to response time, availability for operational use, and other performance-related guarantees. Certain arrangements also include penalties in the form of maintenance credits should the performance of the software fail to meet theperformance guarantees. To date, we have not incurred any significant costs associated with these warranties and does not expect to incur significant warrantycosts in the future. Therefore, no accrual has been made for potential costs associated with these warranties.Our standard contracts generally do not contain provisions for clients to return products or services. However, we historically have accepted sales returns undercertain circumstances. Accordingly, we estimate sales return reserves, including reserves for returns and other credits, based upon the rate of historical returnsby revenue type in relation to the corresponding gross revenues and recognize revenue, net of an allowance for sales returns. If we are unable to estimate thereturns, revenue recognition may be delayed until the rights of return period lapses, provided also, that all other criteria for revenue recognition have been met.Certain standard sales agreements contain a money back guarantee providing for a performance guarantee that is already part of the software licenseagreement as well as training and support. The money back guarantee also warrants that the software will remain robust and flexible to allow participation in thefederal health incentive programs. The specific elements of the performance guarantee pertain to aspects of the software, which we have already tested andconfirmed to consistently meet using our existing software without any modifications or enhancements. To date, we have not incurred any costs associated withthis guarantee and do not expect to incur significant costs in the future. Therefore, no accrual has been made for potential costs associated with this guarantee.Our standard sales agreements contain an indemnification provision pursuant to which it shall indemnify, hold harmless, and reimburse the indemnified party forlosses suffered or incurred by the indemnified party in connection with any U.S. patent, any copyright or other intellectual property infringement claim by anythird party with respect to its software. As we have not incurred any significant costs to defend lawsuits or settle claims related to these indemnificationagreements, we believe that our estimated exposure on these agreements is currently minimal. Accordingly, we have no liabilities recorded for theseindemnification obligations.Hussein LitigationOn October 7, 2013, a complaint was filed against our Company and certain of our officers and directors in the Superior Court of the State of California for theCounty of Orange, captioned Ahmed D. Hussein v. Sheldon Razin, Steven Plochocki, Quality Systems, Inc. and Does 1-10, inclusive, No. 30-2013-00679600-CU-NP-CJC, by Ahmed Hussein, a former director and significant shareholder of our Company. We filed a demurrer to the complaint, which the court grantedon April 10, 2014. An amended complaint was filed on April 25, 2014. The amended complaint generally alleges fraud and deceit, constructive fraud, negligentmisrepresentation and breach of fiduciary duty in connection with statements made to our shareholders regarding our financial condition and projected futureperformance. The amended complaint seeks actual damages, exemplary and punitive damages and costs. We filed a demurrer to the amended complaint. OnJuly 29, 2014, the court sustained the demurrer with respect to the breach of fiduciary duty claim, and overruled the demurrer with respect to the fraud anddeceit claims. On August 28, 2014, we filed an answer and also filed a cross-complaint against the plaintiff, alleging that the plaintiff breached fiduciary dutiesowed to our Company, Mr. Razin and Mr. Plochocki. On June 26, 2015, we filed a motion for summary judgment, which the court granted on September 16,2015, dismissing all claims against us. On September 23, 2015, the plaintiff filed an application for reconsideration of the Court's summary judgment order,which the court denied. On October 28, 2015, the plaintiff filed a motion for summary judgment, seeking to dismiss our cross-complaint, which the court deniedon March 3, 2016. On May 9, 2016, the plaintiff filed a motion for summary adjudication, seeking to again dismiss our cross-complaint. The hearing for themotion is set for July 28, 2016. We believe that plaintiff’s claims are without merit and continues to defend against them vigorously. At this time, we are unable toestimate the amount of liability, if any, related to this claim.Federal Securities Class ActionOn November 19, 2013, a putative class action complaint was filed on behalf of the shareholders of our Company other than the defendants against ourCompany and certain our officers and directors in the United States District Court for the Central District of California by a shareholder of our Company. After thecourt appointed lead plaintiffs and lead counsel for this action, and recaptioned the action In re Quality Systems, Inc. Securities Litigation, No. 8L13-cv-01818-CJC(JPRx), lead plaintiffs filed an amended complaint on April 7, 2014. The amended complaint, which is substantially similar to the litigation described aboveunder the caption “Hussein Litigation,” generally alleges that statements made to our shareholders regarding our financial81Table of Contentscondition and projected future performance were false and misleading in violation of Section 10(b) of the Securities Exchange Act of 1934, as amended (the“Exchange Act”), and that the individual defendants are liable for such statements because they are controlling persons under Section 20(a) of the ExchangeAct. The complaint seeks compensatory damages, court costs and attorneys' fees. We filed a motion to dismiss the amended complaint on June 20, 2014,which the court granted on October 20, 2014, dismissing the complaint with prejudice. Plaintiffs filed a motion for reconsideration of the Court's order, which thecourt denied on January 5, 2015. On January 30, 2015, Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit, captioned Inre Quality Systems, Inc. Securities Litigation, No. 15-55173. Plaintiffs filed their opening brief and we answered. Oral argument is not yet scheduled. We believethat plaintiff’s claims are without merit and continues to defend against them vigorously. At this time, we are unable to estimate the amount of liability, if any,related to this claim.Shareholder Derivative LitigationOn January 24, 2014, a complaint was filed against our Company and certain of our officers and current and former directors in the United States District Courtfor the Central District of California, captioned Timothy J. Foss, derivatively on behalf of himself and all others similarly situated, vs. Craig A. Barbarosh, GeorgeH. Bristol, James C. Malone, Peter M. Neupert, Morris Panner, D. Russell Pflueger, Steven T. Plochocki, Sheldon Razin, Lance E. Rosenzweig and QualitySystems, Inc., No. SACV14-00110-DOC-JPPx, by Timothy J. Foss, a shareholder of our Company. The complaint arises from the same allegations describedabove under the captions “Hussein Litigation” and “Federal Securities Class Action” and generally alleges breach of fiduciary duties, abuse of control and grossmismanagement by our directors, in addition to unjust enrichment and insider selling by individual directors. The complaint seeks compensatory damages,restitution and disgorgement of all profits, court costs, attorneys’ fees and implementation of enhanced corporate governance procedures. The parties haveagreed to stay this litigation until the United States Court of Appeals for the Ninth Circuit issues a ruling on the pending appeal described above under thecaption “Federal Securities Class Action.” We believe that plaintiff’s claims are without merit and intends to defend against them vigorously. At this time, we areunable to estimate the amount of liability, if any, related to this claim.15. Operating Segment InformationAs of March 31, 2016 , we have three reportable segments that are evaluated regularly by our chief decision making group (consisting of our Chief ExecutiveOfficer) in deciding how to allocate resources and in assessing performance. Hospital Solutions Division operating segment data for the year end March 31,2016 are reflected through the October 22, 2015 date of its disposition.Operating segment data is as follows: Fiscal Year Ended March 31, 2016 2015 2014Revenue: NextGen Division$375,801 $373,765 $341,120RCM Services Division89,831 80,005 68,093QSI Dental Division19,376 18,451 19,840Hospital Solutions Division7,469 18,004 15,614Consolidated revenue$492,477 $490,225 $444,667 Operating income: NextGen Division$182,508 $182,320 $162,948RCM Services Division17,639 13,919 11,719QSI Dental Division6,101 5,161 6,183Hospital Solutions Division(927) (1,339) (7,237)Corporate and unallocated(197,959) (164,105) (150,525)Consolidated operating income$7,362 $35,956 $23,088Assets by segment are not tracked or used by our chief decision making group to allocate resources or to assess performance, and thus not included in thetable above.82Table of ContentsThe major components of the corporate and unallocated amounts are summarized in the table below: Fiscal Year Ended March 31, 2016 2015 2014Research and development costs, net$65,661 $69,240 $41,524Amortization of capitalized software costs9,891 12,817 12,338Marketing expense13,490 11,913 10,123Loss on disposition of Hospital Solutions Division1,366 — —Impairment of assets32,238 — 25,971Other corporate and overhead costs75,313 70,135 60,569Total corporate and unallocated$197,959 $164,105 $150,525The amounts classified as corporate and unallocated consist primarily of corporate general and administrative costs, non-recurring acquisition and transaction-related costs, recurring post-acquisition amortization of certain acquired intangible assets and amortization of capitalized software costs, as well as costs ofother centrally managed overhead and shared-services functions, including accounting and finance, human resources, marketing, legal, and research anddevelopment, that are not controlled by segment level leadership. Although the segments may derive direct benefits as a result of such costs, our chief decisionmaking group evaluates performance based upon stand-alone segment operating income, which excludes these corporate and unallocated amounts.Effective April 1, 2015, as part of our ongoing efforts to refine the measurement of our segment data to better reflect an organizational structure whereby certainexpenses managed by functional area leadership are no longer classified within the operating segments but rather as a component of corporate andunallocated, we no longer classify certain costs within the information services and credit granting and collections functional areas, such as bad debt expenseand other information services related general and administrative costs, within the operating segments. Such classification is consistent with the disaggregatedfinancial information used by our chief decision making group. We have retroactively reclassified the prior years' operating income in the table above to presentall segment information on a comparable basis.16. Subsequent EventsOn April 22, 2016, our Board of Directors approved management’s recommendations for a corporate reorganization plan. Under the reorganization plan, weexpect to reduce our domestic headcount by approximately 150 employees, or approximately six percent of our U.S.-based workforce.17. Selected Quarterly Operating ResultsThe following table presents quarterly unaudited consolidated financial information for the eight quarters preceding March 31, 2016 . Such information ispresented on the same basis as the annual information presented in the accompanying consolidated financial statements. In management’s opinion, thisinformation reflects all adjustments that are necessary for a fair statement of the results for these periods.83Table of Contents Quarter Ended(Unaudited)6/30/2014 9/30/2014 12/31/2014 3/31/2015 6/30/2015 9/30/2015 12/31/2015 3/31/2016Revenues: Software license and hardware$19,761 $19,316 $21,428 $21,144 $16,189 $19,687 $16,150 $18,497Software related subscription services9,715 9,687 11,864 13,326 12,246 12,437 11,705 19,015Total software, hardware and related29,476 29,003 33,292 34,470 28,435 32,124 27,855 37,512Support and maintenance40,805 42,135 43,045 43,234 43,713 42,176 39,519 39,792Revenue cycle management and relatedservices16,693 17,432 20,392 19,720 20,243 20,793 21,594 20,376Electronic data interchange and dataservices18,319 18,906 19,051 20,082 20,189 20,581 20,643 20,930Professional services12,601 13,043 7,644 10,882 9,584 9,695 7,421 9,302Total revenues117,894 120,519 123,424 128,388 122,164 125,369 117,032 127,912Cost of revenue: Software license and hardware7,556 7,475 7,295 6,477 7,041 6,578 6,530 7,357Software related subscription services4,451 5,384 5,194 5,643 5,958 5,963 5,533 9,168Total software, hardware and related12,007 12,859 12,489 12,120 12,999 12,541 12,063 16,525Support and maintenance6,914 6,785 7,365 7,802 7,943 8,394 7,537 7,455Revenue cycle management and relatedservices12,706 13,202 14,246 14,252 14,512 14,680 14,381 14,018Electronic data interchange and dataservices11,999 12,015 11,956 12,274 12,326 12,539 12,437 12,851Professional services12,564 11,912 8,304 9,393 8,197 8,444 7,367 8,406Total cost of revenue56,190 56,773 54,360 55,841 55,977 56,598 53,785 59,255Gross profit61,704 63,746 69,064 72,547 66,187 68,771 63,247 68,657Operating expenses: Selling, general and administrative (1)36,730 38,681 41,482 41,279 39,171 37,396 39,395 40,272Research and development costs, net16,236 16,898 18,468 17,638 17,085 17,981 14,518 16,077Amortization of acquired intangible assets983 908 904 898 897 898 897 2,675Impairment of assets (2)— — — — — — — 32,238Total operating expenses53,949 56,487 60,854 59,815 57,153 56,275 54,810 91,262Income (loss) from operations7,755 7,259 8,210 12,732 9,034 12,496 8,437 (22,605)Interest income54 70 (52) 40 302 44 55 27Interest expense— (1) (30) (311) — (3) (6) (1,295)Other income (expense), net9 (26) — (45) (50) (54) (43) (19)Income (loss) before provision for (benefit of)income taxes7,818 7,302 8,128 12,416 9,286 12,483 8,443 (23,892)Provision for (benefit of) income taxes2,655 2,552 1,452 1,673 2,924 4,168 1,141 (7,570)Net income (loss)$5,163 $4,750 $6,676 $10,743 $6,362 $8,315 $7,302 $(16,322)Net income (loss) per share: Basic (3)$0.09 $0.08 $0.11 $0.18 $0.11 $0.14 $0.12 $(0.27)Diluted (3)$0.08 $0.08 $0.11 $0.18 $0.10 $0.14 $0.12 $(0.27)Weighted-average shares outstanding: Basic60,230 60,247 60,272 60,288 60,312 60,461 60,867 60,899Diluted60,770 60,788 60,855 60,956 61,064 61,194 61,279 60,899Dividends declared per common share$0.175 $0.175 $0.175 $0.175 $0.175 $0.175 $0.175 $—____________________(1) Selling, general and administrative for the quarter ended 12/31/2015 includes the loss on the disposition of the Hospital Solutions Division (including direct incrementalcosts, severance, and other employee-related costs incurred in connection with the disposition). Refer to Note 5 for additional details.(2) Impairment of assets for the quarter ended 3/31/2016 relates to the impairment of our previously capitalized software costs of the NextGen Now development project. Referto Note 8 for additional details.(3) Quarterly net income (loss) per share may not sum to annual net income (loss) per share due to rounding84Table of ContentsSCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS Sales Return Reserve(in thousands)For the year endedBalance atBeginning of Year Additions ChargedAgainst Revenue Deductions Balance at End ofYearMarch 31, 2016$8,835 $6,737 $(8,031) $7,541March 31, 2015$10,530 $8,038 $(9,733) $8,835March 31, 2014$6,506 $17,966 $(13,942) $10,530 Allowance for Doubtful Accounts(in thousands)For the year endedBalance atBeginning of Year Additions Chargedto Costs andExpenses Deductions Balance at End ofYearMarch 31, 2016$3,303 $3,573 $(3,974) $2,902March 31, 2015$6,295 $855 $(3,847) $3,303March 31, 2014$11,823 $1,467 $(6,995) $6,295 Valuation Allowance on Deferred Tax Assets(in thousands)For the year endedBalance atBeginning of Year Additions Chargedto Costs andExpenses Acquisition-relatedAdditions Deductions Balance at End ofYearMarch 31, 2016$1,840 $112 $599 $— $2,551March 31, 2015$2,288 $— $— $(448) $1,840March 31, 2014$2,003 $285 $— $— $2,28885Table of ContentsINDEX TO EXHIBITS ATTACHED TO THIS REPORTExhibitNumber Description 21 List of subsidiaries. 23.1 Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP. 31.1 Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as AdoptedPursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as AdoptedPursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002. 101.INS* XBRL Instance 101.SCH* XBRL Taxonomy Extension Schema 101.CAL* XBRL Taxonomy Extension Calculation 101.DEF* XBRL Taxonomy Extension Definition 101.LAB* XBRL Taxonomy Extension Label 101.PRE* XBRL Taxonomy Extension Presentation____________________*XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities andExchange Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, andotherwise is not subject to liability under these section.86EXHIBIT 21QUALITY SYSTEMS, INC.LIST OF SUBSIDIARIES1.HealthFusion Holdings, Inc.2.HealthFusion Inc.3.Matrix Management Solutions, LLC4.Mirth, LLC5.Mirth Limited6.NextGen Healthcare Information Systems, LLC7.NextGen RCM Services, LLC8.QSI Management, LLC9.Quality Systems India Healthcare Pvt. Ltd.10.ViaTrack Systems, LLCEXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-63131, No. 333-67115, No. 333-129752, No. 333-198181, and No. 333-206419) of Quality Systems, Inc. of our report dated May 25, 2016 relating to the financial statements, financial statement schedules, andthe effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLPOrange County, CaliforniaMay 25, 2016 EXHIBIT 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TORULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, John R. Frantz, certify that:1.I have reviewed this Annual Report on Form 10-K of Quality Systems, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. By:/s/ John R. FrantzDate:May 25, 2016 John R. Frantz Chief Executive Officer (Principal Executive Officer)EXHIBIT 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TORULE 13A-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, James R. Arnold, certify that:1.I have reviewed this Annual Report on Form 10-K of Quality Systems, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:c.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;d.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;e.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andf.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. By:/s/ James R. ArnoldDate:May 25, 2016 James R. Arnold Chief Financial Officer (Principal Financial Officer)EXHIBIT 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Quality Systems, Inc. (the “Company”) for the year ended March 31, 2016 (the “Report”), the undersignedhereby certify in their capacities as Chief Executive Officer and Chief Financial Officer of the Company, respectively, pursuant to 18 U.S.C. section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By:/s/ John R. FrantzDate:May 25, 2016 John R. Frantz Chief Executive Officer (Principal Executive Officer) Date:May 25, 2016By:/s/ James R. Arnold James R. Arnold Chief Financial Officer (Principal Financial Officer)

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