UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-12537
NEXTGEN HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
3525 Piedmont Rd., NE
Building 6, Suite 700
Atlanta, GA
(Address of principal executive offices)
95-2888568
(IRS Employer Identification No.)
30305
(Zip Code)
(404) 467-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 Par Value
Trading Symbol
NXGN
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 2020: $704,935,000 (based on the closing sales price of the Registrant’s
common stock as reported on the NASDAQ Global Select Market on that date of $12.74 per share)*
The Registrant has no non-voting common equity.
The number of outstanding shares of the Registrant’s common stock as of May 24, 2021 was 67,031,182 shares.
* For purposes of this Annual Report on Form 10-K, in addition to those shareholders which fall within the definition of “affiliates” under Rule 405 of the Securities Act of 1933, as
amended, holders of ten percent or more of the Registrant’s common stock are deemed to be affiliates for purposes of this Report.
Portions of the registrant's definitive proxy statement related to the 2021 Annual Shareholders' Meeting to be filed with the Securities and Exchange Commission within 120 days of the
registrant’s fiscal year ended March 31, 2021 are incorporated herein by reference in Part III of this Annual Report on Form 10-K where indicated.
DOCUMENTS INCORPORATED BY REFERENCE
Item
Page
NEXTGEN HEALTHCARE, INC.
TABLE OF CONTENTS
2021 ANNUAL REPORT ON FORM 10-K
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine and Safety Disclosures
PART I
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risks
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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CAUTIONARY STATEMENT
This Annual Report on Form 10-K (this "Report") and certain information incorporated herein by reference contain forward-looking statements within the
“safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Report, other
than statements 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 the impact of the COVID-19 pandemic and measures taken in response thereto, as well as our product development plans,
business strategies, future operations, financial condition and prospects, developments in and the impacts of government regulation and legislation, and
market factors influencing our results. Our expectations, beliefs, objectives, intentions and strategies regarding our future results are not guarantees of future
performance and are subject to risks and uncertainties, both foreseen and unforeseen, that could cause actual results to differ materially from results
contemplated in our forward-looking statements. These risks and uncertainties include, but are not limited to, our ability to continue to develop new products
and increase systems sales in markets characterized by rapid technological evolution, consolidation, and competition from larger, 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 risk factors discussed in “Item 1A. Risk Factors” of this Report, as well as in our other public disclosures and filings with the
Securities and Exchange Commission (“SEC”). Because of these risk factors, as well as other variables affecting our financial condition and results of
operations, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or
trends in future periods. We assume no obligation to update any forward-looking statements. You are cautioned not to place undue reliance on forward-
looking statements, which speak only as of the date of the filing of this Report. Each of the terms “NextGen Healthcare,” “NextGen,” “we,” “us,” “our,” or the
“Company” as used throughout this Report refers collectively to NextGen Healthcare, Inc. and its wholly-owned subsidiaries, unless otherwise indicated.
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ITEM 1. BUSINESS
Company Overview
PART I
NextGen Healthcare is a leading provider of software and services that empower ambulatory healthcare practices to manage the risk and complexity of
delivering care in the rapidly evolving U.S. healthcare system. Our combination of technological breadth, depth and domain expertise makes us a preferred
solution provider and trusted advisor for our clients. In addition to highly configurable core clinical and financial capabilities, our portfolio includes tightly
integrated solutions that deliver on ambulatory healthcare imperatives including: population health, care management, patient outreach, telemedicine, and
nationwide clinical information exchange.
We serve clients across all 50 states. Over 100,000 providers use NextGen Healthcare solutions to deliver care in nearly every medical specialty in a wide
variety of practice models including accountable care organizations (“ACOs”), independent physician associations (“IPAs”), managed service organizations
(“MSOs”), Veterans Service Organizations (“VSOs”), and Dental Service Organizations (“DSOs”). Our clients include some of the largest and most
progressive multi-specialty groups in the country. With the addition of behavioral health to our medical and oral health capabilities, we continue to extend our
share not only in Federally Qualified Health Centers (“FQHCs”), but also in the growing integrated care market.
NextGen Healthcare has historically enhanced our offering through both organic and inorganic activities. In October 2015, we divested our former Hospital
Solutions division to focus exclusively on the ambulatory marketplace. In January 2016, we acquired HealthFusion Holdings, Inc. and its cloud-based
electronic health record and practice management solution. In April 2017, we acquired Entrada, Inc. and its cloud-based, mobile platform for clinical
documentation and collaboration. In August 2017, we acquired EagleDream Health, Inc. and its cloud-based population health analytics solution. In January
2018, we acquired Inforth Technologies for its specialty-focused clinical content. In October 2019, we acquired Topaz Information Systems, LLC for its
behavioral health solutions. In December 2019, we acquired Medfusion, Inc. for its Patient Experience Platform (i.e., patient portal, self-scheduling, and
patient pay) capabilities and OTTO Health, LLC for its integrated virtual care solutions, notably telemedicine. The integration of these acquired technologies
has made NextGen Healthcare’s solutions among the most comprehensive in the market.
Our company was incorporated in California in 1974. Previously named Quality Systems, Inc., we changed our corporate name to NextGen Healthcare, Inc.
in September 2018. Our principal executive offices are located at 3525 Piedmont Rd., NE, Building 6, Suite 700, Atlanta, Georgia, and our principal website
is www.nextgen.com. We operate on a fiscal year ending on March 31.
Industry and Regulatory Background, Market Opportunity, and Trends
Over the last decade, the ambulatory healthcare market has experienced significant regulatory change, which has driven the need for improved technology
to enable practice transformation. Recognizing it was imperative to digitize the U.S. health system to stem the escalating cost of healthcare and improve the
quality of care being delivered, Congress enacted the Health Information Technology for Economic and Clinical Health Act in 2009 (“HITECH Act”). The
legislation stimulated healthcare organizations to not only adopt electronic health records, but to use them to collect discrete data that could be used to drive
quality care. This standardization supported early pay-for-reporting and pay-for-performance programs.
In 2010, the Affordable Care Act (“ACA”) established the roadmap for shifting American healthcare from volume (fee-for-service) to a value-based care
(“VBC”) system that rewards improved outcomes at lower costs (fee-for-value). This was followed by the Medicare Access and CHIP Reauthorization Act of
2015 (“MACRA”), bipartisan legislation that further changed the way Medicare rewards clinicians for value vs. volume. Initially focused on government-
funded care, the domain of the Centers for Medicare & Medicaid Services (“CMS”), these programs are now firmly established on the commercial insurance
side of the industry as well.
Importantly, the introduction of VBC programs was only an element of the broader approach to reducing healthcare expenditure. The drive to reduce costs
initially led to consolidation in the healthcare system that was followed by a significant shift of care from the inpatient to lower cost outpatient setting. Among
other factors, consumerism is set to play a major role in driving volume increases outside of the hospital. In addition, providers continue to seek new tools
and means to connect with patients in new ways. Patients are expecting care to be personalized and tailored to their preferences and are seeking much
greater transparency about the costs for visits, medications, and procedures as well as improved convenience and access to care. Along with the continued
expansion of telehealth, there will be growth in technologies which facilitate the digital connection between patient and provider.
The need to sustain revenue has made it extremely important for practices to secure their patient market share, elevating patient loyalty to a significant
determinant of provider success. In addition to being loyal, groups participating in value-based contracts realized that patients also needed to be engaged in
their care and interested in improving their own health. The need to attract, retain and engage patients has made patient experience one of the most
important aspects of evolving care delivery in the United States. Capturing patient market share and thriving in a market driven by VBC requires both an
integrated platform and a full view of the patient population’s clinical and cost data, neither of which could be accomplished without new technologies to
collect and analyze multi-sourced patient data. Effectively implemented, these new technologies allow
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organizations to enhance financial viability while exercising the freedom to join, affiliate, integrate or interoperate in ways that maximize strategic control.
Although the HITECH Act led to the meaningful adoption of electronic health records, many in the healthcare industry were dissatisfied with the level of
exchange of health information between different providers and across different software platforms. With the passing of the MACRA law in 2015, the U.S.
Congress declared it a national objective to achieve widespread exchange of health information through interoperable certified electronic health records
(“EHR") technology. Then, in December 2016, the 21st Century Cures Act (“Cures Act”) was passed and signed into law. Among many other policies, the law
includes numerous provisions intended to encourage nationwide interoperability.
In January 2020, the U.S. Department of Health and Human Services (“HHS”) officially declared that a public health emergency (“PHE”) existed as a result
of the COVID-19 pandemic. Then, in March and April 2020, HHS issued a series of rules and orders to offer healthcare providers flexibility or waivers from
certain regulatory requirements during the PHE.
Among other changes, HHS and the Centers for Medicare and Medicaid Services (“CMS”) eliminated the patient geographic and originating site restrictions
for Medicare telehealth services that outside of the PHE restrict the services to patients in rural geographic areas who are physically present at a healthcare
facility at the time of service. Other flexibilities authorized CMS to reimburse telehealth visits at the same payment rates as in-person office visits during the
PHE. State Medicaid programs and commercial insurers instituted similar policies to promote virtual visits as an alternative to in-person care during the
pandemic.
Now, looking beyond the eventual end of the PHE, Congress is considering legislation that would make some of these temporary telehealth policies
permanent. In April 2021, bipartisan legislation was introduced in both the U.S. House of Representatives and the U.S. Senate that would permanently
expand Medicare’s telehealth services program to all geographies and allow patients to receive services from their homes.
In March 2020, the HHS Office of the National Coordinator for Health Information Technology (“ONC”) released a final regulation which implements the key
interoperability provisions included in the Cures Act. The rule calls on developers of certified EHRs to adopt standardized application programming interfaces
(“APIs”) and to meet a list of other new certification and maintenance of certification requirements in order to retain approved federal government certification
status.
The ONC rule also implements the information blocking provisions of the Cures Act, including identifying reasonable and necessary activities that do not
constitute information blocking. Under the Cures Act, HHS has the regulatory authority to investigate and assess civil monetary penalties of up to $1,000,000
against certified HIT developers found to be in violation of “information blocking.”
The $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act ("CARES Act”) was signed into law in late March 2020. While this law created the
“Paycheck Protection Program” for small businesses, which would include many physician groups, the CARES Act also increased funding for the Public
Health and Social Services Emergency Fund by $127 billion, with $100 billion of that earmarked to reimburse eligible hospitals and healthcare providers for
healthcare-related expenses or lost revenues not otherwise reimbursed that are directly attributable to COVID-19. The law also provided $1.32 billion in
supplemental funding to community health centers.
The Consolidated Appropriations Act, 2021 was passed by Congress and signed into law in December 2020. This $2.3 trillion legislative package combines
the $1.4 trillion fiscal year 2021 appropriations bills with a $900 billion coronavirus aid package. The law adds $3 billion in additional funding for HHS’s
Provider Relief Fund, which was established by the CARES Act (March 2020) and previously funded with $175 billion to reimburse providers for healthcare
related expenses and lost revenue attributable to the pandemic. The law also provides a three-year extension (federal fiscal years 2021, 2022, 2023) of
federal grant funding for community health centers and provides $4.25 billion in supplemental grant funding for substance abuse disorder, mental health, and
behavioral health programs run by HHS’s Substance Abuse and Mental Health Services Administration (“SAMHSA”). Support for telehealth services was
included through provisions that permanently remove Medicare’s patient geographic and site limitations and an appropriation of $250 million for the Federal
Communications Commission’s (“FCC’s”) COVID-19 Telehealth Program, which grants non-profit healthcare providers financial support to implement
telehealth solutions.
In March 2021, President Joe Biden signed into law the $1.9 trillion American Rescue Plan Act. This legislation includes additional coronavirus-related relief
measures and is the latest in a series of pandemic-related aid legislation enacted since March 2020. Among other provisions, this law provides $7.6 billion in
supplemental federal grant funding for FQHCs. As a comparison, the CARES Act provided $1.3 billion in supplemental federal grant funding for FQHCs. In
addition, this law provides $3.5 billion in funding for block grant programs that address mental health and substance use disorders and are administered by
HHS’s SAMHSA.
The new regulations will require significant compliance efforts for not only HIT companies, networks, and exchanges, but also for healthcare providers.
However, the Cures Act also creates opportunities for improving care delivery and outcomes through increased data exchange between providers and easier
patient access to their own health information. Key to unlocking these benefits is the introduction of new Fast Healthcare Interoperability Resources (“FHIR”)
standards, which ONC requires certified HIT companies to adopt through APIs. Meanwhile, CMS is requiring hospitals to provide electronic admission,
discharge and transfer notification to other healthcare facilities, providers and designated care team members. All healthcare providers are required to
comply with the information blocking rules as of the initial April 5, 2021 compliance date. As of December 31, 2022, providers participating in federal
programs that require the use of certified HIT will need to use the new “2015 Edition
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Cures Update” certified version of EHR software to comply with the Cures Act certification requirements. Through enhanced interoperability functionality and
standardized APIs, the Spring ‘21 release of NextGen® Enterprise will help healthcare providers meet these dual mandates included in the Cures Act.
Refer also to the discussion of regulatory risks within “Item 1A. Risk Factors” for governmental regulations and policies that may affect our business.
Through the expansion of our NextGen® Share interoperability services platform and API partner marketplace, we will address the increased demand for
moving and sharing patient data from the EHR easily, quickly and securely. Interoperability improves patient experience and care coordination, enhances
patient safety, and reduces costs. We are also expanding resources such as educational webinars, blogs and videos on interoperability to help educate and
support healthcare providers.
In recent years, there has been incremental investment to improve the delivery of behavioral healthcare. One of the central drivers of this investment has
been the opioid epidemic which claims more than 80,000 lives a year in the United States. The integrated care model prevalent in FQHCs, a model which
calls for integration of behavioral health and primary care in single care settings, has also gained momentum. Both behavioral health and the integrated care
workflows require broad, purpose built, tailored HIT capabilities, many of which are supported by the NextGen Healthcare platform. As a result of the COVID-
19 pandemic, ambulatory practices have come to appreciate the importance of business continuity, particularly in administrative business functions which
are non-core to medical care and may turn to NextGen Healthcare more often for managed services.
COVID-19 Pandemic
In late 2019, the emergence of a novel coronavirus, or COVID-19, was reported and in January 2020, the World Health Organization (“WHO”), declared it a
Public Health Emergency of International Concern. In March 2020, the WHO escalated COVID-19 as a pandemic. We proactively responded to the
pandemic by creating an executive task force to monitor the COVID-19 situation daily and immediately restricted non-essential travel and migrated to a fully
remote workforce while maintaining complete operational effectiveness.
The need to access care while still social distancing was addressed early on with the limited use of telemedicine (also known as virtual visits) and was
energized when the federal government reduced regulatory barriers and addressed payment parity between virtual and in-person visits. With these tailwinds,
telemedicine quickly became regarded as a safer way for patients and providers to engage each other while also relieving economic pressure on the medical
practice. We believe that the uptake of telemedicine will transcend COVID-19 and that virtual visits will become a permanent and important change in the
way care is delivered. Keeping patients out of the transit system, out of the waiting room and away from other sick patients is simply good medicine.
Since the mid-March 2020 timing of government orders to shelter in place and restrict non-essential medical services, the COVID-19 pandemic caused
declines in patient volume. This negatively impacted our revenue in the fourth quarter of fiscal 2020, most notably for purchases of software and hardware.
The impact of the disruption also impacted the first half of fiscal 2021, primarily in managed services and EDI, which are volume driven. During this
challenging and uncertain period, we made some important decisions, including cost reduction activities with a primary goal of preserving cash and
protecting the employee base. Most of these cost reductions were temporary as we believed that preserving our employee base, organizational momentum,
and robust capabilities was the right decision for the Company and our shareholders. As the impact of the pandemic and related restrictive measures began
to subside in the second half of fiscal 2021, patient volume has returned to close to pre-pandemic levels, and thus revenue returned to more normal levels.
At present, we are conducting business as usual with certain modifications to employee travel, employee work locations, and marketing events, among other
modifications. We continue to monitor the broader implications of the global COVID-19 pandemic and may take further actions that we determine are in the
best interests of our employees, customers, partners, suppliers, and shareholders.
Our Strategy
We empower the transformation of ambulatory care by delivering solutions that enable groups to be successful under all models of care, including emerging
value-based care models that include down-side risk. We primarily serve organizations that provide care in an ambulatory setting and do so across diverse
practice sizes, specialties, and business models. Furthermore, we support the advances in integrated care that focuses on the whole person. Our platform is
uniquely positioned to successfully enable our clients to expand access to care, enhance the coordination and management of care, and optimize patient
outcomes through an integrated medical record that extends across their medical, mental, and oral health and care needs.
Effective and frictionless interoperability is essential to all models of care. Our experience powering many of the nation’s Health Information Exchanges
(“HIE’s”) places us in a unique position to enable our clients to leverage this technology to lower the cost of care and improve the patient and provider
experience by providing an integrated community patient record.
Patient experience is directly correlated to patient engagement and an engaged patient is a key to positive outcomes. Today’s patient is also an active
consumer of their healthcare, each searching for the best experience. Our platform enables our clients to create a personalized care experience that
enhances trust and drives patient loyalty.
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Our longstanding success in the ambulatory market has enabled us to build significant expertise across many relevant disciples that are clients actively
request. We partner with our clients to operate and optimize their IT systems and operations, enhance revenue cycle processes, service line expansion and
operations, as well as advise on long-term strategy.
As one of the leading healthcare information technology players in the U.S. ambulatory marketplace, we plan to continue investing in our current capabilities
as well as building and/or acquiring new capabilities as we guide our clients through the market’s transformation. We expect to continue to empower the
transformation of care through the following strategic priorities:
•
•
•
•
•
•
•
Be a learning organization and transform ahead of the industry
Be a trusted advisor for our customers and prospects
Deliver breadth, depth and configurability to enable our clients to effectively execute their strategies
Use automation to drive unwanted variability and cost from our clients’ operations
Drive real innovation in patient experience and patient-provider interactions
Help our clients be recognized as interoperability leaders in their regions and areas of specialty
Integrate new capabilities (whether organic or inorganic) more quickly and successfully than others.
Our Solutions
NextGen Healthcare’s software and services-based solutions are aligned with our clients’ strategic imperatives (refer to top row in the image below). The
foundation for our integrated ambulatory care platform is a core of our industry-leading electronic health records (“EHR”) and practice management (“PM”)
systems that support clinical and financial activities. These can be deployed on premise or in the cloud. Our primary cloud infrastructure provider is Amazon
Web Services (“AWS”). We optimize the core with an automation and workflow layer that gives our clients control over how platform capabilities are
implemented to drive their desired outcomes. The workflow layer includes mobile capabilities proven to reduce physician burden. Our cloud-based
population health and analytics engine allows our clients to improve results in both fee-for-service and fee-for-value environments. In support of extensibility,
we surround the core with open, web-based APIs to drive the secure exchange of health and patient data with connected health solutions. Finally, to ensure
our clients get maximum value from our solutions, we have augmented our technology with key services aligned with their needs, helping to ensure they
reach their organizational goals.
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Patient Engagement Solutions boost loyalty and improve outcomes by engaging patients in their own care. Our Patient Experience Platform empowers
patients to manage their own health through direct patient-provider messaging, online scheduling, automated reminders, easy payment options, and virtual
visits. The ability of patients to handle their own scheduling and billing frees provider staff, restoring valuable time.
NextGen® PxP Portal – Drives patient engagement and satisfaction with easy, intuitive, 24/7 access to payments, scheduling, complete
personal health information, and communication. It facilitates and simplifies comprehensive information exchange, offering anytime, anywhere
access from PCs, tablets, and smart phones.
NextGen® Patient Self Scheduling – A fully-integrated self-scheduling application that empowers patients to schedule the visit that works best
for them with configurations that allow the practice to control virtually every facet of that interaction from visit-specific screening questions to
provider-specific scheduling preferences.
NextGen® Pay – Allows patients one integrated solution that delivers an integrated point of sale, credit card on file, automated payment
collection, online and mobile compatible automated phone pay and kiosk payments.
NextGen Virtual Visits™ – Delivers a tightly integrated, bi-directional telehealth experience that allows patients to have a virtual visit with their
own provider’s care team. The solution allows for screen-sharing, document passing, in-visit chat, one-touch access to interpretive services, and
a "no-login" experience for patients.
Clinical Care Solutions improve the quality and efficiency of care delivery as well as the patient and provider experience. They significantly ease the
administrative burden and enable the delivery of high quality, personalized care. Providers can automate patient intake, streamline clinical workflows, and
leverage vendor-agnostic interoperability to achieve quality measures and qualify for incentives.
NextGen® Enterprise EHR – Our electronic health records solution 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. Recognized as the #1 Electronic Medical Record (EMR) (11-75
Physicians) in the 2021 Best in KLAS Report.
NextGen® Mobile – Enables physicians and other caregivers to quickly and easily create relevant documentation within the EHR without
sacrificing productivity. A true EHR mobile experience, the platform provides a fast, easy way for caregivers to view and share real-time clinical
content and complete key tasks directly from their mobile device.
NextGen® Office – A cloud-based EHR and PM solution for physicians and medical billing services designed to meet the specific needs of
smaller practices.
NextGen® Behavioral Health Suite – This platform integrates comprehensive physical, behavioral, and oral health in one software solution. This
solution includes packet navigation, content for residential treatment programs, and electronic medication administration record (eMAR) and bed
board solutions. Supported by a team of subject matter experts, this solution also provides automation, effortless interoperability, and analytics-
driven medical and behavioral health workflows.
NextGen® Orthopedic Suite – This offering supports orthopedic providers with tools, capabilities, and comprehensive ortho-specific clinical
content that’s configurable to individual treatment preferences. The solution also includes point-and-click documentation of injury, exams, goals,
treatments, and plans with image-enabled integrated PACS.
QSIDental Web® and QSIDental PM® – Provides dental group practices with secure and scalable, cloud-based clinical and practice
management solutions. Clinical features include ePrescribing, mobile access to schedules, charts and patient demographics, template clinical
notes, perio charting and referral management. Practice management solutions offer online patient registration, electronic claims submission and
multiple-office appointment scheduling from any location.
Financial Management Solutions are comprised of software and provides key analytics that allow clients to drive healthy, predictable financial outcomes.
More than just billing and collection services, financial management involves all functions that effectively capture revenue at the lowest cost, while providing
an efficient experience for the patient. Financial management solutions help practices improve performance and correct operational inefficiencies, while
enhancing the practice’s financial outcomes throughout the revenue cycle.
NextGen® Enterprise PM – Our practice management offering is a seamlessly integrated, scalable, multi-module solution that includes a master
patient index, enterprise-wide appointment scheduling with referral tracking, and clinical support. It was recognized as the #1 Practice
Management Solution (11-75 Physicians) for three consecutive years - 2019, 2020 and 2021 Best in KLAS Report.
NextGen® Clearinghouse Solutions – Automates the exchange of electronic data among providers, payers and patients. Included in this
offering are insurance eligibility, authorizations, electronic claims, remittance, patient appointment reminders, and electronic statements.
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Population Health Solutions enable our clients’ practices to focus their clinical workforce on the patients with the greatest need. We do this by providing a
single source of truth by aggregating disparate data, including vendor-agnostic clinical data with paid claims data. Sophisticated analytics are applied to this
data to generate insights that enable practices to improve the quality of care, identify high risk patients who require enriched services, and coordinate the
care of patients with chronic conditions. Cost and utilization analytics allow practices to successfully participate in risk-bearing contracts by providing timely
insights into areas of over-utilization, under-utilization and mis-utilization of healthcare resources.
NextGen® Population Health Core – Delivers robust capabilities for core population health insights using integrated clinical and claims data to
support both broad and deep analysis for populations of interest (attribute visualization, risk stratification, gaps in care, etc.).
NextGen® Population Health Value Management – Supports proactive value-based contract management including in-network utilization
management network design (geospatial view of network), clinical variation analysis, and a wide range of resource utilization metrics.
NextGen® Population Health Patient Care Management – Enables scalable management of care and payment reform initiatives driven by
collaborative care and workflow automation. Stratifies risk and prioritizes resources. The platform provides a dynamic patient specific care plan
builder as well as a longitudinal care management record, and dedicated care management future reminder and tasking tools. A unique feature of
our offering includes analytics driven patient outreach facilitating care coordinators’ ability to automate communications with patients based on
quality initiatives and value-based contract commitments.
Connected Health Solutions enable better care by ensuring the patient and provider are making decisions based on the patient’s full medical record.
Interoperability is the ability of different information technology systems to communicate and exchange usable data. In healthcare, it enables caregivers to
more effectively work together within and across organizational boundaries, and informed patients to be better equipped to collaborate on their own care. To
provide the highest quality care at the lowest cost, organizations must capture and share information both within and across organizational boundaries
outside their networks. In addition, interoperability must be frictionless and easy to implement or the opportunity to inform patient care will be missed. Our
integrated, interoperable solutions and services enable providers to leverage their current technology for better outcomes and truly connected patient care.
NextGen® Connect Integration Engine – Enables patient data from disparate systems to be easily and securely shared, aggregated, and put to
work, regardless of EHR, PM, or other HIT platform or location.
NextGen® Share – A broad and expanding suite of plug-and-play interoperability solutions which help NextGen® Enterprise EHR users safely
and securely exchange clinical content with external providers and organizations. The platform includes support for secure direct messaging with
more than 1.2 million providers and organizations, care quality integration to enable automated data exchange on behalf of nearly 240 million
patients, and clinical data exchange interfaces with payers.
NextGen® Health Data Hub (HDH) – A fully redesigned data aggregation platform to meet the expanding market demand for robust data
sharing, aggregation, and community access. HDH was built from the ground-up to provide comprehensive, continuous access to aggregated
patient health data on a robust, reliable, platform that will enable system-wide connectivity, and support the growing enterprise data management
needs for HIEs, hospitals and large ambulatory practices.
NextGen Healthcare provides real-world solutions to our clients to help them achieve their strategic objectives. Often, but not always, those software
solutions are augmented with key services. Through these services we enable clients to perform better financially and focus on their primary mission of
providing efficient and high-quality patient care. We believe COVID-19 will increase client appetite to outsource non-core services and that NextGen
Healthcare is well-positioned to be their partner in these areas.
Managed Services
NextGen® Managed Cloud Services – Our scalable, cloud hosting services reduce the burden of information technology expertise from our
clients and speed implementations, simplify upgrades, cut technology costs significantly and provide 24/7 monitoring and support by a broad and
constantly expanding team of technical experts
NextGen® Revenue Cycle Management Services – Includes billing and collections, electronic claims submission and denials management,
electronic remittance and payment posting and accounts receivable follow-up. Our dedicated account management model helps make NextGen
Healthcare a top-performing provider of RCMS as reported in the 2020 KLAS Ambulatory RCM Services Report.
Professional Services – Services include training, project management, functional and detailed specification preparation, configuration, testing, and
installation services. Our consulting services, which include physician, professional, and technical consulting, assisting clients to optimize their staffing and
software solutions, enhance financial and clinical outcomes, achieve regulatory requirements in the drive to value-based care, and meet the evolving
requirements of healthcare reform.
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Client Service and Support – Our technical services staff provides 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.
Proprietary Rights
We rely on a combination of patents, copyrights, trademarks, service marks, trade secrets, and contractual restrictions to establish and protect proprietary
rights in our products and services. To protect our proprietary rights, we enter into confidentiality agreements and invention assignment agreements with our
employees with whom such controls are relevant. In addition, we include intellectual property protective provisions in our client and other third-party
contracts and control access to software, documentation and other proprietary information. However, 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 and maintaining a technology leadership position
than the various legal protections of our technology.
We rely on intellectual property obtained from third parties for certain components of our products and services. These components enhance our products
and services and help meet evolving client needs. The failure to license any necessary technology, or to maintain our existing licenses, could result in
reduced functionality of or reduced demand for our products.
Although we believe our products and services, and other proprietary rights, do not infringe upon the proprietary rights of third parties, third parties may
assert intellectual property infringement claims against us in the future. Any such claims may result in costly, time-consuming litigation and may require us to
enter into royalty or cross-license arrangements.
Competition
The markets for healthcare information systems and services are intensely competitive and highly fragmented. Our traditional full-suite competitors in the
healthcare information systems and services market include: Allscripts Healthcare Solutions, Inc., athenahealth, Inc., Cerner Corporation, eClinicalWorks,
Epic Systems Corporation, and Greenway Health, LLC. Emerging smaller competitors also bring competition in specific sectors of the market. Additionally,
we face competition from services-only competitors like business process outsourcers, hosting providers and transcription companies.
The EHR, PM, interoperability, and connectivity markets, in particular, are subject to rapid changes in technology. We expect that competition in these market
segments could increase as new competitors enter the market. We believe our principal competitive advantages are our ambulatory-only focus, our
comprehensive and fully-integrated solution, and our deep domain expertise, which enables our subject matter experts to serve as trusted advisors to our
clients.
Privacy and Security
Our business operations involve hosting, storing, processing and transmitting confidential information including patient health information and payment card
information. In addition to single-tenant environments, we operate unified, multi-tenant platforms that offer reliability, scalability, performance, security and
privacy for our clients. Our infrastructure resides in several geographically diverse regions across the United States. We maintain a comprehensive security
program designed to help safeguard the confidentiality, integrity and availability of our clients’ data, which includes both organizational and technical control
measures and the security and privacy of our service offerings. We also have systems in place to monitor the safety of patient information as well as
procedures designed to take immediate action in the event of a security incident.
We have the industry’s most well-respected certifications starting with Health Information Trust Alliance (“HITRUST”) Common Security Framework (“CSF”),
which provides a process to standardize Health Insurance Portability and Accountability Act (“HIPAA”) compliance and coordinate it with other national and
international data security frameworks and many state laws. We also maintain Payment Card Industry Data Security Standard (“PCI-DSS”) Level 1 Service
Provider, which allows us to minimize our clients’ PCI scope. In addition, we are a DirectTrust Health Information Service Provider (“HISP”) while maintaining
compliance with Security Organization Control 2, or SOC 2 Type II, across the domains of Privacy, Security, Confidentiality, and Availability. These audits and
certifications help with our client’s third-party assurance programs to ensure we are meeting or exceeding HIPAA and other regulatory guidelines.
While we have implemented physical, technical, and administrative safeguards designed to help protect our systems, in the event of a system interruption,
security incident, or breach, these safeguards may not prevent future cybersecurity incidents or breaches. We have a comprehensive and documented
Information Security Management Program designed to secure the data within our infrastructure and provide appropriate reporting disclosure, and response
which also includes testing for assurance. In addition, all of our associates are required to complete annual cybersecurity training, HIPAA training, and PCI
DSS training. These training modules are reviewed annually to ensure compliance with the latest regulatory guidelines, laws, and industry best practices. All
policies and procedures are made available to all employees through a Company intranet, and acknowledgement of these is required at time of hire. Our
Privacy Policy is made available for our customers on a public facing website.
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Managing Cybersecurity Risks
Our business operations involve hosting, storing, processing and transmitting confidential information including patient health information. We have
implemented physical, technical, and administrative safeguards designed to help protect our systems, in the event of a system interruption, security incident,
or breach. However, these safeguards may not prevent future cybersecurity incidents or breaches. We have a comprehensive and documented Information
Security Management Program designed to secure the data within our infrastructure and provide appropriate reporting disclosure, and response. Some
incidents require us to notify our clients, executive team, and our Board of Directors. This notification process is documented and tested.
We have a comprehensive training and awareness program which includes on-going awareness simulations, required training, supplemental training and
cross-functional incident response testing. In addition, all of our associates are required to complete annual cybersecurity training, HIPAA training, and PCI
DSS training. These training modules are reviewed annually to ensure compliance with the latest regulatory guidelines, laws, and industry best practices.
Training modules include information on how our associates can ensure they are meeting our security requirements while working in a remote environment.
Risk assessment is the component of our internal control environment that involves identifying and analyzing risks (both internal and external) relevant to
achieving business objectives. We have implemented operational processes to identify and manage risks that could affect our availability to provide reliable
services. These processes require management to identify significant risks inherent in providing services for clients and to implement appropriate measures
to monitor and manage these risks. Annually, we re-evaluate and determine appropriate amounts of cybersecurity insurance required based on business and
privacy impact assessments. A bona fide annual risk assessment, per HIPAA guidelines, is performed and validated by a third‐party company. The third‐
party assessor conducts interviews with key stakeholders and performs penetration testing, evidence collection and on‐site analysis. Formal rating systems
determine if remediation strategies are warranted, and if so, a remediation plan is enacted. This report is reviewed and approved by the Chief Information
Security Office (“CISO”) and reported to the appropriate upper management and Board of Directors. Meetings are conducted by the information systems
team weekly to review and identify risks through the change management process. Meetings are held to ensure that projects, risks, compliance, federal
regulations and personnel are in line with Company goals regarding security and compliance. Continuity and resiliency planning are based on National
Institute of Standards and Technology (“NIST”) cybersecurity best practices and tested no less than annually.
A comprehensive assurance program is maintained with oversight by our CISO, which is included with the company procurement gating
process. Administrative and technical assessments are conducted prior to contract signing with any third-party. On-going risk-based reviews are conducted
and reported to executive leadership. The Company’s control consciousness is influenced significantly by its Board of Directors and Audit Committee. While
the management of our business is delegated to the management team, the Board of Directors oversees management’s execution of the Company’s
business activities.
Research and Development
The healthcare information systems and services industry is characterized by rapid technological change, requiring us to engage in continuing investments
in our research and development to update, enhance and improve our systems. This includes expansion of our software and service offerings that support
pay-for-performance and value-based contracting initiatives around accountable care organizations, bringing greater ease of use and intuitiveness to our
software products, enhancing our managed cloud and hosting services to lower our clients' total cost of ownership, expanding our interoperability and
enterprise analytics capabilities, and furthering development and enhancements of our portfolio of specialty-focused templates within our electronic health
records software.
Sales and Marketing
We sell and market our products primarily through a direct sales force and to a significantly lesser extent, through a reseller channel. NextGen Healthcare
also provides solutions to networks of practices such as MSOs, IPAs, ACOs, ambulatory care centers (“ACCs”), and community health centers (“CHCs”).
Our direct sales force is comprised of sales executives and account executives, who seek to understand the client strategy and identify the opportunities in
their practice and build both a multistage roadmap to reach the desired end state. For large clients, we use both inside and outside sales where efforts are a
mix of on-site as well as web based. For smaller clients, efforts are all inside sales via web and phone, all of whom deliver presentations to potential clients
by demonstrating our systems and capabilities either on prospective client’s premises or through video meeting and web-based presentations. System
demonstrations for mobile workflow and analytics solutions are more web-based as these offerings tend to be targeted to larger practices. Both the direct
and reseller channel salesforces concentrate on multi-product/solution sales opportunities. Our sales and marketing employees identify prospective clients
through a variety of means, including: a healthcare data and analytics platform, search engine optimization and value exchange content on nextgen.com;
digital advertising; direct mail and email campaigns; referrals from existing clients and industry consultants; contacts at professional society meetings and
trade shows (online and in person); webinars; public relations and social media campaigns; and telemarketing. Resources have shifted more heavily to
digital marketing as we meet potential clients where they are and how they shop for services. Additionally, we focus on thought leadership and content
marketing to highlight our industry knowledge, expertise and the successes of our diverse client base. On the larger end of the range, our sales cycle can
vary significantly and typically ranges from six to 18 months from initial contact to contract
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execution. Smaller practices on NextGen Office tend to have significantly shorter sales cycles ranging in weeks. Historically, software licenses were
delivered to clients upon receipt of an order and we received up-front licensing fees. Implementation and training services are typically rendered based on a
mutually agreed upon timetable. Moving forward, we expect more of our transactions to move to subscriptions. Clients have the option to purchase hosting
and maintenance services, which are invoiced on a monthly, quarterly or annual basis. Subscriptions are delivered electronically after the agreement is
signed. They generally include implementation and are typically billed monthly after implementation or based on volume or throughput. We continue to
concentrate our direct sales and marketing efforts on the ambulatory market from large multi-specialty organizations to small-single specialty practices in
high-opportunity specialty segments.
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 net
revenue during each of the years ended March 31, 2021, 2020 and 2019. In addition, software license sales to resellers represented less than 10% of total
revenue for each of the years ended March 31, 2021, 2020 and 2019. Substantially all of our clients are located in the United States.
Human Capital
Workforce Statistics
As of March 31, 2021, NextGen Healthcare had approximately 2,564 full-time employees, approximately 714 of whom were based in Bangalore, India with
the remainder located in the United States. None of our employees are covered by a collective bargaining agreement or are represented by a labor union.
Talent Recruitment
We recognize and value our employees as unique contributors through their entire journey at NextGen Healthcare. As such, we have a thoughtful and
tailored approach to attracting, developing and retaining talent. We seek highly qualified applicants from a variety of sources with an increased focus on
recruiting diverse talent. To ensure transparency and with a desire to mitigate bias, we conduct panel and round robin interviews for hiring and promotion.
Discover NextGen, our adventure-based onboarding experience, provides a deep and broad picture of the organization with recognition that employees’ first
few weeks on the job potentially cement their commitment to the company and culture.
Talent Retention and Development
We provide a career framework for our employees enabling their career development either within a single career track or through the ability to traverse
multiple career ladders as they refine or optimize their development. Our Talent Community connects interested employees with internal functional subject
matter experts to share job information including knowledge and skills required for advancement. We are committed to developing our employees through a
culture of learning. We maintain an organizational development group focused on all aspects of employee development, including management and
leadership through our LEAD framework and skill building. We also sponsor 24/7 on-demand training for employee certifications and relevant career-based
skillsets and provide education reimbursement for continued education.
Diversity
We recognize our responsibility and strategic opportunity to champion varied viewpoints, culture and expertise. Our Diversity, Equity & Inclusion strategy
includes goals around recruiting, retaining and developing diverse employees and leaders in the Company. Our Employee Resource Groups (“ERGs”) focus
their efforts on career, culture, market and community. These ERGs include: AAPI (Asian American Pacific Islander), ABLED (Awareness Benefiting
Leadership & Employees About Disabilities), beiNG (Black Equity and Inclusion at NextGen), Cultural Diversity, Generational and Allies, LatinX. LGBTQ+,
Military/Veterans and Allies, Remote Engagement, Working Parents, and Women-In-Tech. Our ERGs communicate directly with senior leadership through
Listening Sessions with our CEO and other C-level executives. We also provide and promote employee training on harassment prevention, cultivating a
respectful workplace and elimination of unconscious bias. We regularly engage with our Board of Directors on strategies, participation, and impact of these
initiatives.
Employee Compensation
In recognition of the competitive talent landscape, we have a standing subcommittee on Total Rewards. Our comprehensive approach to compensation
includes performance-based merit and bonus rewards. Additionally, long term incentives, 401(k) plan and match, and the Employee Stock Purchase Plan
round out our reward strategy. To ensure we support pay equity, we conduct compensation analyses semi-annually in alignment with pay equity training for
managers.
Culture and Engagement
NextGen Healthcare understands the vital importance of engaged employees to create a high potential community. We closely track our engagement and
culture scores through an annual VOTE (Voice of The Employee) survey and on a monthly basis through our Employee Experience Monitor. We provide our
team members with safe and confidential channels to voice concerns and receive a response and ensure they have access to members of our executive
leadership team. Employees receive training on ethics and our code of conduct, including how to make reports on our ethics hotline. Our regularly
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scheduled Town Halls with all employees have become a vital part of our culture of community building. Our Board of Directors receive regular updates on
employee engagement and satisfaction issues.
We believe that supporting community and volunteer service among our employees builds a strong culture and caring leaders. Each year, we sponsor
NextGen Days of Caring during which our employees can volunteer for external charitable organizations. Our NextGen Cares program also allows
employees to donate vacation time to help colleagues who have experienced natural disaster or tragedy. We also encourage our employees to participate in
volunteer activities by providing the benefit of paid time off to volunteer through our Volunteer Time Off program.
Our Bangalore development center in India, under the leadership of its Corporate Social Responsibility Committee, conducts community relations activities
every quarter to advance and support women’s empowerment, improve health, support education and help fight poverty.
Health & Safety
Our health and welfare plans reflect our desire to support our employees in a holistic way. Our healthcare plans are the cornerstone of the program,
supplemented with additional insurance, an Employee Assistance Program, and time off plans including PTO, sick leave and parental leave. We also support
our employees’ well-being through an integrated online platform that offers a variety of ‘campuses’ such as Family Care, Financial, New Hire, Wellness and
Life Events. The campuses provide resources and access to certain programs/benefits relating to childcare, children of aging parents, gym membership,
health coaching and more.
COVID-19
Our immediate and most pressing concern regarding the COVID-19 pandemic was and continues to be the safety and well-being of our employees and their
families. Commencing in March 2020, we implemented immediate safety measures to protect our employees, including transitioning the vast majority of our
employees to remote work and implementing policies and procedures to protect the health and safety of our employees who have continued on-site work.
Our virtual business productivity team keeps our employees engaged with resources to help adapt to working remotely, remain productive and avoid
burnout. Our business continuity health and safety team regularly share information and guidance on all pandemic updates through our internal health and
safety communication channel.
Available Information
Our principal website is www.nextgen.com. We make our periodic and current reports, together with amendments to these reports, filed or furnished
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 as reasonably
practicable after such material is electronically filed with, or furnished to, the SEC. You may access such filings through our Investor Relations website at
http://investor.nextgen.com. The SEC maintains an internet site at www.sec.gov that contains the reports, proxy statements and other information that we file
electronically with the SEC. Our website and 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 the SEC. We also use the following social media channels as a means of disclosing information about the company,
our platform, our planned financial and other announcements and attendance at upcoming investor and industry conferences:
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NextGen Healthcare Twitter Account (https://twitter.com/NextGen?s=20)
NextGen Healthcare Company Blog (https://www.nextgen.com/blog)
NextGen Healthcare Facebook Page (https://www.facebook.com/NextGenHealthcare)
NextGen Healthcare LinkedIn Page (https://www.linkedin.com/company/nextgenhealthcareinc/)
NextGen Healthcare Instagram Page (https://www.instagram.com/nextgenhealthcare/)
NextGen Healthcare YouTube Page (https://www.youtube.com/user/nghisinc)
We encourage our investors and others to review the information we make public in these locations as such information could be deemed to be material
information. Please note that this list may be updated from time to time.
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ITEM 1A. RISK FACTORS
You should carefully consider the risks described below, as well as the other cautionary statements and risks described elsewhere and the other information
contained 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. We
operate in a rapidly changing environment that involves a number of risks. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of these
known or unknown risks actually occur, our business, financial condition or results of operations could be materially and adversely affected, in which case
the trading price of our common stock may decline and you may lose all or part of your investment.
Risks Related to COVID-19
The novel coronavirus (“COVID-19”) pandemic has adversely impacted and could continue to adversely impact the business, results of
operations, financial condition, liquidity and cash flows of us and our clients. The COVID-19 global pandemic and efforts to control its spread have
had an ongoing impact on our operations, including India where we have significant operations, as well as on the operations of our healthcare clients. For
example, commencing in March 2020, the COVID-19 pandemic caused declines in patient volumes, which negatively impacted our revenue in the fourth
quarter of fiscal 2020, most notably for purchases of software and hardware. The impact of the disruption also impacted the first half of fiscal 2021, primarily
in managed services and EDI, which are volume driven.
We may experience further negative financial impact due to a number of factors, including without limitation:
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Social, economic, and labor instability in India which is experiencing a severe COVID-19 resurgence and where we have significant operations;
A general decline in business activity including the impact of our clients’ office closures;
A disproportionate impact on the healthcare groups and other healthcare professionals with whom we contract;
Financial pressures on our clients, which may in turn result in their deferment of purchase decisions, or a delay in collections or non-payment;
Declines in new business bookings as our clients reduce or delay purchasing decisions;
Extensions of the length of sales and implementation cycles;
Disruptions to our supply chains and our third-party vendors, partners, and suppliers; and
The potential negative impact on the health or productivity of employees, especially if a significant number of them are impacted.
The extent to which the COVID-19 pandemic will continue to impact our financial condition and results of operations will depend on future developments,
which are highly uncertain and difficult to predict, including but not limited to the duration and severity of the pandemic, resurgences or additional “waves” of
outbreaks of the virus in various jurisdictions (including new strains or mutations of the virus), the impact of the pandemic on economic activity, the actions
taken by health authorities and policy makers to contain its impacts on public health and the global economy, and the effectiveness of vaccines. Even after
the COVID-19 pandemic has subsided, we may experience material adverse impacts to our business as a result of the global or U.S. economic impact and
any recession that has occurred or may occur in the future. Additionally, concerns over the economic impact of the COVID-19 pandemic have caused
extreme volatility in financial and capital markets which has and may continue to adversely impact our stock price and may adversely impact our ability to
access capital markets. The COVID-19 pandemic may also have the effect of heightening many of the other risks described below, such as those relating to
our products and services, sales cycles and implementation schedules, the retention of key employees, financial performance and debt obligations.
Risks Related to Our Business
We face significant, evolving competition which, if we fail to properly address, could adversely affect our business, results of operations,
financial condition and price of our stock. The markets for healthcare information systems are intensely competitive, and we face significant competition
from a number of different sources. Several of our competitors have substantially greater name recognition and financial, technical, product development
and marketing resources than we do. Some of our larger competitors, who have greater scale than we do, have and may continue to become more active in
our markets both through internal development and acquisitions. Moreover, we expect that competition will continue to increase as a result of potential
incentives provided by government programs and as a result of consolidation in both the IT and healthcare industries. Transaction induced pressures, or
other related factors may result in price erosion or other negative market dynamics that could adversely affect our business, results of operations, financial
condition and price of our stock.
Competitive pressures and other factors, such as new product introductions by us or our competitors, may result in price or market share erosion that could
adversely affect our business, results of operations and financial condition. There can be no assurance that we will be successful in developing and
marketing new products that respond to technological changes or evolving industry standards. If we are unable, for technological or other reasons, to
develop and introduce new products in a timely manner in response or user needs to changing market conditions or client requirements, our business,
results of
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operations and financial condition may be adversely affected. Also, there can be no assurance that our applications will achieve broad market acceptance or
will successfully compete with other available software products. If we fail to distinguish our offerings from other options available to healthcare providers, the
demand for and market share of our offerings may decrease. In response to increasing market demand, we are currently developing new generations of
targeted software products. There can be no assurance that we will successfully develop these new software products or that these products will operate
successfully, or that any such development, even if successful, will be completed concurrently with or prior to introduction of competing products. Any such
failure or delay could adversely affect our competitive position or could make our current products obsolete.
Saturation or consolidation in the healthcare industry could result in the loss of existing clients, a reduction in our potential client base and
downward pressure on the prices for our products and services. As the healthcare information systems market evolves, saturation of this market with
our products or our competitors' products could limit our revenues and opportunities for growth. There has also been increasing consolidation amongst
healthcare industry participants in recent years, creating integrated healthcare delivery systems with greater market power. As provider networks and
managed care organizations consolidate, the number of market participants decreases and competition to provide products and services like ours will
become more intense. Our inability to make initial sales of our systems to, or maintain relationships with, newly formed groups and/or healthcare providers
that are replacing or substantially modifying their healthcare information systems, or, if we were forced to reduce our prices, could adversely affect our
business, results of operations and financial condition.
Uncertainty in global economic and political conditions may negatively impact our business, operating results or financial condition. Global
economic and political uncertainty have caused in the past, and may cause in the future, unfavorable business conditions such as a general tightening in the
credit markets, lower levels of liquidity, increases in the rates of default 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. Instability can make it
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 a lengthening of our sales cycles and/or difficulty in collection of our accounts receivable. Current or potential clients may be unable
to fund software purchases, which 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 purchased products and services. Our clients may cease business operations or conduct business on a greatly reduced basis.
Bankruptcies or similar insolvency events affecting our clients may cause us to incur bad debt expense at levels higher than historically anticipated. Further,
economic instability could limit our ability to access 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 business conditions or new opportunities. Finally, our investment portfolio is generally subject to general credit, liquidity,
counterparty, market and interest rate risks that may be exacerbated by these global financial conditions. If the banking system or the fixed income, credit or
equity markets deteriorate or remain volatile, our investment portfolio may be impacted and the values and liquidity 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 to
strategic partners, which could be expensive and time-consuming, divert personnel and other resources from our business and result in adverse
publicity that could harm our business. We rely on third parties to provide services for our business. These third 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 sales channels 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 these claims do not result in liability to us,
defending and investigating these claims could be expensive and time-consuming, divert personnel and other resources from 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 the markets 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
from which we may not realize anticipated benefits. Historically, we have acquired numerous businesses, technologies, and products. We may acquire
additional businesses, 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 not limited to the following: (i) failure to achieve projected synergies and performance targets; (ii) potentially dilutive issuances of
our securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets with indefinite useful lives, which could
adversely affect our results of operations and financial condition; (iii) using cash as acquisition currency may adversely affect interest or investment income,
which may in turn adversely affect our earnings and /or earnings per share; (iv) unanticipated expenses or difficulty in fully or effectively integrating or
retaining the acquired technologies, software products, services, business practices, management teams or personnel, which would prevent us from
realizing the intended benefits of the acquisition; (v) failure to maintain uniform standard controls, policies and procedures across acquired businesses; (vi)
difficulty in predicting and responding to issues related to product transition such as development, distribution and client support; (vii) the assumption of
known and unknown liabilities; (viii) the possibility that the due diligence process in any such acquisition may not completely identify material issues
associated with product quality, product architecture, product development, intellectual property issues, regulatory risks,
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compliance risks, key personnel issues or legal and financial contingencies, including any deficiencies in internal controls and procedures and the costs
associated with remedying such deficiencies; and (ix) the possibility that acquired assets become impaired, or that acquired assets lead us to determine that
existing assets become impaired, requiring us to take a charge to earnings which could be significant. A failure to successfully integrate acquired businesses
or technology could, for any of these reasons, have an adverse effect on our financial condition and results 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
growth which 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 implementation and training capacity, and may do so in the future. In the event we are unable to
identify, hire, train and retain qualified individuals in such capacities within a reasonable timeframe, such failure could have an adverse effect on the
operation of our business. The failure of our management to effectively manage expansion in our business could have 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 sales
arising from various sources, including amount other things, government action affecting reimbursement levels. Our clients and the other entities with which
we have business relationships are affected by changes in statutes, regulations, and limitations on government spending for Medicare, Medicaid, and other
programs. 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
reimbursement programs and create other programs that potentially could have an adverse effect on our business. If we experience significant downward
pricing pressure, our revenues 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 to
execute our business plan. Our future performance depends in significant part upon the continued service of our key development and senior
management personnel and successful recruitment of new talent. These personnel have specialized knowledge and skills with respect to our business and
our industry. 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 assurance that 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 operations and financial condition. Furthermore, we may need to grant additional equity incentives to key employees and provide other forms of
incentive compensation to attract and retain such key personnel. Equity incentives may be dilutive to our per share financial performance. Failure to provide
such types of incentive compensation could jeopardize our recruitment and retention capabilities.
We may be subject to harassment or discrimination claims and legal proceedings, and our inability or failure to respond to and effectively
manage publicity related to such claims could adversely impact our business. Our Code of Business Conduct and Ethics and other employment
policies prohibit harassment and discrimination in the workplace, in sexual or in any other form. We have ongoing programs for workplace training and
compliance, and we investigate and take disciplinary action with respect to alleged violations. However, actions by our employees could violate those
policies. With the increased use of social media platforms, including blogs, chat platforms, social media websites, and other forms of Internet-based
communications that allow individuals access to a broad audience, there has been an increase in the speed and accessibility of information dissemination.
The dissemination of information via social media, including information about alleged harassment, discrimination or other claims, could harm our business,
brand, reputation, financial condition, and results of operations, regardless of the information's accuracy.
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
will depend 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, and
competition 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 several of our recent acquisitions, we have expanded into the market for cloud-based EHR
products. It remains uncertain whether the market for cloud-based products will expand to the levels of demand and market acceptance we anticipate, and
there can be no assurance that we will be able to successfully scale the acquired companies’ products to meet our clients’ expectations. In addition, as
clients move from fee-for-service to fee-for-value reimbursement strategies in conjunction with the adoption of population health business models, we may
not make appropriate and timely changes to our service offerings consistent with shifts in market demands and expectations. In order to successfully
execute on our growth initiatives, we will need to, among other things, manage changing business conditions, anticipate and react to changes in the
regulatory environment, and develop expertise in areas outside of our business's traditional core competencies. Difficulties in managing future growth in new
markets could have a significant negative impact on our business, financial condition and results of operations.
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We may not be successful in developing or launching our new software products and services, which could have a negative impact on our
financial condition 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 and may continue to be recorded as capitalized software costs. We cannot provide assurances that we will be successful in our efforts to
plan, develop, sell or implement new software products that meet client expectations, which could result in an impairment of the value of the related
capitalized software costs, an adverse effect on our financial condition and operating results and a negative impact the future of our business. Additionally,
we cannot be assured that we will continue to capitalize 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 have substantial development and other operations in India, and we use offshore third-party partners located in India and other countries that
subject us to regulatory, economic, social and political uncertainties in India and to laws applicable to U.S. companies operating overseas. We
are subject to several risks associated with having a portion of our assets and operations located in India and by using third party service providers in India
and other countries. Many U.S. companies have benefited from many policies of the Government of India and the Indian state governments in the states in
which we operate, which are designed to promote foreign investment generally and the business process services industry in particular, including significant
tax incentives, relaxation of regulatory restrictions, liberalized import and export duties and preferential rules on foreign investment and repatriation. There is
no assurance that such policies will continue. Various factors, such as changes in the current Government of India, could trigger significant changes in
India’s economic liberalization and deregulation policies and disrupt business and economic conditions in India generally and our business in particular. In
addition, our financial performance and the market price of our common stock may be adversely affected by general economic conditions and economic and
fiscal policy in India, including changes in exchange rates and controls, interest rates and taxation policies, as well as social stability and political, economic
or diplomatic developments affecting India in the future. In particular, India has experienced significant economic growth over the last several years, but
faces major challenges in sustaining that growth in the years ahead. These challenges include the need for substantial infrastructure development and
improving access to healthcare and education. Our ability to recruit, train and retain qualified employees, develop and operate our captive facility could be
adversely affected if India does not successfully meet these challenges. In addition, U.S. governing authorities may pressure us to perform work domestically
rather than using offshore resources. Furthermore, local laws and customs in India may differ from those in the U.S. For example, it may be a local custom
for businesses to engage in practices that are prohibited by our internal policies and procedures or U.S. laws and regulations applicable to us, such as the
Foreign Corrupt Practices Act (“FCPA”). The FCPA generally prohibits U.S. 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 with the requirements of the FCPA or similar legislation, government authorities in the U.S. and elsewhere could seek to
impose civil or criminal fines and penalties which could have a material adverse effect on our business, operating results, and financial condition.
We face the risks and uncertainties that are associated with litigation and investigations, which may adversely impact our marketing, distract
management and have a negative impact upon our business, results of operations and financial condition. We face the risks associated with
litigation and investigations concerning the operation of our business, including claims by clients regarding product and contract disputes, by other third
parties asserting infringement of intellectual property rights, by current and former employees regarding certain employment matters, by certain
shareholders, and by governmental and regulatory bodies for failures to comply with applicable laws. The uncertainty associated with substantial unresolved
disputes may have an adverse effect on our business. In particular, such disputes could impair our relationships with existing clients and our ability to obtain
new clients. Defending litigation and investigative matters may require substantial cost and may result in a diversion of management's time and attention
away from business operations, which could have an adverse effect on our business, results of operations and financial condition.
Commencing in April 2017, we have received requests for documents and information from the United States Attorney's Office for the District of Vermont and
other government agencies in connection with an investigation concerning the certification we obtained for our software under the United States Department
of Health and Human Services' Electronic Health Record (EHR) Incentive Program. The requests for information relate to, among other things: (a) data used
to determine objectives and measures under the Meaningful Use (“MU”) and the Physician Quality Reporting System (“PQRS”) programs, (b) EHR software
code used in certifying our software and information, and (c) payments provided for the referral of EHR business. Since 2017, we have received multiple
additional requests for documents and information involving these and related topics. We have responded to each request and continue to cooperate in this
investigation. Requests and investigations of this nature may lead to future requests for information and ultimately the assertion of claims or the
commencement of legal proceedings against us, as well as other material liabilities. In addition, our responses to these and any future requests require time
and effort, which can result in additional cost to us. Given the highly-regulated nature of our industry, we may, from time to time, be subject to subpoenas,
requests for information, or investigations from various government agencies. It is our practice to respond to such matters in a cooperative, thorough and
timely manner.
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There can be no assurance that such litigation and investigations 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. In addition, any enforcement
action by a government agency may result in fines, damage awards, regulatory consequences or other sanctions which could have a material adverse effect,
individually or collectively, on the Company’s liquidity, financial condition or results of operations.
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
caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, malware, physical or
electronic break-ins, or other 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 in delayed or cancelled orders as well as potentially expose us to third party claims. System failures and disruptions could also
impede our transactions processing services and financial reporting.
Our business operations are subject to interruption by, among other, natural disasters, fire, power shortages, terrorist attacks, and other hostile acts, labor
disputes, public health issues, and other issues beyond our control. Such events could decrease our demand for our products or services or make it difficult
or impossible for us to develop and deliver our products or services to our clients. A significant portion of our research and development activities, our
corporate headquarters, our IT systems, and certain of our other critical business operations are concentrated in a few geographic areas. In the event of a
business disruption in one or more of those areas, we could incur significant losses, require substantial recovery time, and experience significant
expenditures in order to resume operations, which could materially and adversely impact our business, financial condition, and operating results.
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 carrying value of goodwill may not be recoverable in accordance with the relevant accounting guidance. In the past, we have recorded sizeable goodwill
impairment charges, and we may need to do so in the future. 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 risks related to litigation advanced by a former director and shareholder of ours. On 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 the County 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. After the court sustained our demurrer to the initial complaint, Hussein filed an amended complaint on
April 25, 2014. The amended complaint generally alleges fraud and deceit, constructive fraud, negligent misrepresentation and breach of fiduciary duty in
connection with statements made to our shareholders regarding our financial condition and projected future performance. The amended complaint seeks
actual damages, exemplary and punitive damages and costs. Hussein’s breach of fiduciary duty claims were dismissed on demurrer, and we filed an answer
and cross-complaint against Hussein, alleging that he breached fiduciary duties owed to the Company. On September 16, 2015, the Court granted summary
judgment with respect to Hussein’s remaining claims, dismissing all claims against us. The cross-complaint against Hussein went to trial, but the Court
granted judgment in favor of Hussein on our cross-complaint. Final judgment over Hussein’s claims and our cross-claims was entered on January 9, 2018.
Hussein appealed the order granting summary judgment over his claims, and we appealed the court’s decision granting Hussein’s motion for judgment on
our cross-complaint. On October 8, 2019, the California State Court of Appeal for the Fourth Appellate District, Division Three, reversed the Superior Court’s
grant of summary judgment on Hussein’s affirmative claims and affirmed the trial court’s judgement on the Company’s breach of fiduciary duty claims against
Hussein. As a result, the case has returned to the trial court for resolution of Hussein’s claims against us. Previously scheduled trial dates have been
postponed due to the ongoing pandemic, and a new trial date has been set for July 6, 2021. Separately, Hussein has issued an arbitration demand seeking
indemnification for the fees he incurred defending against our cross-complaint. Following briefing and a hearing at the liability phase of the arbitration, the
arbitrator held that Hussein is entitled to indemnification for “expenses” (as that term is defined in Hussein’s indemnification agreement with NextGen)
incurred in defense of NextGen’s cross-complaint against him. The arbitrator reserved all other claims related to costs and damages for a second phase of
the arbitration. The parties are briefing the remaining issues in the indemnification matter and a hearing has been scheduled for June 10, 2021.
Although we believe the claim to be without merit, our operating results and share price may be negatively impacted due to the negative publicity, expenses
incurred in connection with our defense, management distraction, and/or other factors related to this litigation. In addition, litigation of this nature may
negatively impact our ability to attract and retain clients and strategic partners, as well as qualified board members and management personnel.
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Our credit agreement contains restrictive and financial covenants that may limit our operational flexibility. If we fail to meet our obligations under
the credit agreement, our operations may be interrupted and our business and financial results could be adversely affected. On March 12, 2021,
we entered into a revolving credit agreement with various lenders, secured by substantially all of our and our material domestic subsidiaries’ existing and
future property. The credit agreement includes certain customary covenants that impose restrictions on our business and financing activities that could limit
our operations or flexibility to take certain actions. The credit agreement also contains certain customary affirmative covenants requiring us to maintain
specified levels of financial performance. Our ability to comply with these covenants may be affected by events that 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, could result in the indebtedness becoming
immediately due and payable, which in turn could result in material adverse consequences that negatively impact our business, the market price for our
common stock, and our ability to obtain financing in the future. In addition, our credit agreement’s covenants, consent requirements, and other provisions
may limit our flexibility to pursue or fund strategic initiatives or acquisitions that might be in the long-term interests of our Company and shareholders.
Risks Related to Our Products and Services
If our principal products, new product developments or implementation, training and support services fail to meet the needs of our clients due to
lack of client acceptance, errors, or other problems, we may fail to realize future growth, suffer reputational harm and face the risk of losing
existing clients. We currently derive substantially all of our net revenue from sales of our healthcare information systems and related services. We believe
that a primary factor in the market acceptance of our systems has been our ability to meet the needs of users of healthcare information systems. Our future
financial performance will depend in large part on our ability to continue to meet the increasingly sophisticated needs of our clients through the timely
development and successful introduction of new and enhanced versions of our systems and other complementary products, as well as our ability to provide
high quality implementation, training and support services for our products. We have historically expended a significant percentage of our net revenue on
product development and believe that significant continuing product development efforts will be required to retain our existing clients and sustain our growth.
Continued investment 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
existing products and services, or that new products or product enhancements will be developed and implemented in a timely manner, meet the
requirements of healthcare providers, or achieve market acceptance. Also, it is possible that our technology may contain defects or errors, some of which
may remain undetected 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 we address the problem. If we do not discover errors until after product deployment, we may need to provide enhancements to correct such
errors. Remediating product defects and errors could consume our development and management resources. In addition, any failure or perceived failure to
maintain high-quality and highly-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 market acceptance of our solutions, license termination or renegotiations, and privacy or security vulnerabilities. If
new products or product enhancements are delayed or 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 of our products by clients anticipating our launch, or the launch of our competitors, of new
products. There can be no assurance that material order deferrals in anticipation of new product introductions from us 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 broad
market acceptance, or if we fail to develop and introduce in a timely manner new products and services compatible with such emerging
technologies, we may not be able to compete effectively and our ability to generate revenue will suffer. Our software products are built and depend
upon several underlying and evolving relational database management system platforms such as those developed by Microsoft. To date, the standards and
technologies upon which we have chosen to develop our products have proven to have gained industry acceptance. However, the market for our software
products is subject to ongoing rapid technological developments, quickly evolving industry standards and rapid changes in client requirements, and there
may be existing or future technologies and platforms that achieve industry standard status, which are not compatible with our products.
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We are dependent on our license rights and other services from third parties, which may cause us to discontinue, delay or reduce product
shipments. We depend upon licenses for some of the technology used in our products as well as other services from third party vendors. Most of these
arrangements 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
the products or services made available to us under these arrangements on commercially reasonable terms or at all. As a result, we may have to
discontinue, delay or reduce product shipments or services provided until we can obtain equivalent technology or services. Most of our third-party licenses
are non-exclusive. Our competitors may obtain the right to use any of the business elements covered by these arrangements and use these elements to
compete directly with us. In addition, if our vendors choose to discontinue providing their technology or services in the future or are unsuccessful in their
continued research and development 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,
including the storage of critical patient and administrative data at company-owned facilities and through third party hosting arrangements. In addition, we
provide support services to our clients through various client support facilities. We have invested in reliability features such as multiple power feeds, multiple
backup generators and 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 and backup generators, impairment of all telecommunications lines, a concerted denial of service cyber-attack, a significant data
breach, damage, injury or impairment (environmental, accidental, intentional or pandemic) to the buildings, the equipment inside the buildings housing our
data centers, the personnel operating such facilities or the client data contained therein, or errors by the personnel trained to operate such facilities could
cause a disruption in operations and negatively impact clients who depend on us for data center and system support services. Likewise, our use of a single
cloud vendor could increase our exposure to interruptions if the vendor were to experience a catastrophic event impacting its service offering. Any
interruption in operations at our data centers and/or client support facilities could damage our reputation, cause us to lose existing clients, hurt our ability to
obtain new clients, result in significant revenue loss, create potential liabilities for our clients and us and increase insurance and other operating costs.
We face the possibility of claims based upon our website content, which may cause us expense and management distraction. We could be subject
to third 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
could also be subject to liability for content that may be accessible through our website or third-party websites linked from our website or through content and
information that may be posted by users in chat rooms, bulletin boards or on websites created by professionals using our applications. Even if these claims
do not result in liability to us, investigating and defending against these claims could be expensive and time consuming and could divert management’s
attention away 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 being
secure, clients may curtail or stop using our services, and we may incur significant liabilities. Our services involve the storage, transmission and
processing of clients’ proprietary information and protected health information of patients. Because of the sensitivity of this information, security features of
our software are very important. If our security measures are breached or fail as a result of third-party action, employee error, malfeasance, insufficiency,
defective design, or otherwise, someone may be able to obtain unauthorized access to client or patient data. As a result, our reputation could be damaged,
our business may suffer, and we could face damages for contract breach, penalties for violation of applicable laws or regulations and significant costs for
remediation and remediation 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 the data 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 perform these activities. Failure of clients to perform these activities may result in claims against us that this reliance was misplaced, which
could expose us to significant expense and harm to our reputation even though our policy is to enter into business associate agreements with our clients.
Although we extensively train and monitor our employees, it is possible that our employees may, intentionally or unintentionally, breach security measures.
Moreover, third parties with whom we do not have business associate agreements may breach the privacy and security of patient information, potentially
causing us reputational damage and exposing us to liability. Because techniques used to obtain unauthorized access or to sabotage systems change
frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventive measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be
harmed and we could lose sales and clients. In addition, 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 such access, we cannot ensure the complete propriety of that access or integrity or security of such data
in our systems.
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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
could harm our business. We require our clients to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of
the information that we receive, and we require contractual assurances from them that they have done so and will do so. If they do not obtain necessary
permissions 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
federal privacy laws or other applicable laws. This could impair our functions, processes and databases that reflect, contain, or are based upon such data
and may prevent 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 are beneficial 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 or waiver. 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 of these facilities could damage our reputation and result in damages being assessed against us. In addition, the other systems with which we may
interface, such as the internet and related systems may be vulnerable to security breaches, viruses, programming errors, or similar disruptive problems. In
addition, our clients and vendors with whom we have business associate agreements, or other parties with whom we do not have business associate
agreements, may be responsible for breaching the security and compromising the privacy of patient information located on our systems. In addition, although
we extensively train and monitor our employees, it is possible that our own employees may engage in conduct that compromises security or privacy. The
effect of these security breaches and related issues could disrupt our ability to perform certain key business functions and could potentially reduce demand
for our services. Accordingly, we have expended significant resources toward establishing 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
of our clients in our ability to securely transmit confidential information. Our EDI services and SaaS solutions rely on encryption, authentication and other
security technology licensed from third parties to achieve secure transmission of confidential information. We may not be able to stop unauthorized attempts
to gain access to or disrupt the transmission of communications by our clients. Anyone who is able to circumvent our security measures could
misappropriate confidential user information or interrupt our, or our clients’, operations. In addition, our EDI and SaaS solutions may be vulnerable to viruses,
malware, physical or electronic break-ins and similar disruptions.
High-profile security breaches at other companies have increased in recent years, and security industry experts and government officials have warned about
the risks of hackers and cyber-attacks targeting information technology products and businesses. Although this is an industry-wide problem that affects other
software and hardware companies, we may be targeted by computer hackers because we are a prominent healthcare information technology company and
have high profile clients. These risks will increase as we continue to grow our cloud offerings, store and process increasingly large amounts of our clients’
confidential data, including personal health information, and host or manage parts of our clients’ businesses in cloud-based/multi-tenant information
technology environments. We may use third party public cloud providers in connection with our cloud-based offerings or third-party providers to host our own
data, in which case we may have to rely on the processes, controls and security such third parties have in place to protect the infrastructure.
The costs we would incur to address any security incidents would increase our expenses, and our efforts to resolve these problems may not be successful
and could result in interruptions, delays, cessation of service and loss of existing or potential clients that may impede our sales, development of solutions,
provision of services, or other critical functions. If a cyberattack or other security incident were to allow unauthorized access to or modification of our clients’
or suppliers’ data, our own data, or our information technology systems, or if our products or services are perceived as having security vulnerabilities, we
could suffer significant damage to our brand and reputation. This could lead to fewer clients using our products or services and make it more difficult for us to
obtain new clients, resulting in reduced revenue and earnings. These types of security incidents could also lead to lawsuits, regulatory investigations and
claims, and increased legal liability.
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 that have significant market power in the broadband and internet access marketplace, including incumbent telephone companies, cable companies,
mobile communications companies and government-owned service provides -- all of whom are outside of our control. In the event of any difficulties, outages
and delays by internet service providers, we may be impeded from providing services, resulting in a loss of potential or existing clients.
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We may be subject to claims for system errors, warranties or product liability, which could have an adverse effect on our business, results of
operations and financial condition. Our software solutions are intended for use in collecting, storing and displaying clinical and healthcare-related
information used in the diagnosis and treatment of patients and in related healthcare settings such as admissions and billing. Therefore, users of our
software solutions have a greater sensitivity to errors than the market for software products generally. Any failure by our products to provide accurate and
timely information concerning patients, their medication, treatment and health status, generally, could result in claims against us which could materially and
adversely impact our financial performance, industry reputation and ability to market new system sales. In addition, a court or government agency may take
the position that our delivery of health information directly, including through licensed practitioners, or delivery of information by a third-party site that a
consumer accesses through our websites, exposes us to assertions of malpractice, other personal injury liability, or other liability for wrongful
delivery/handling of healthcare services or erroneous health information. We maintain insurance to protect against claims associated with the use of our
products as well as liability limitation language in our end-user license agreements, but there can be no assurance that our insurance coverage or
contractual language would adequately cover any claim asserted 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 and resources.
Certain healthcare professionals who use our SaaS products will directly enter health information about their patients including information that constitutes a
record under applicable law that we may store on our computer systems. Numerous federal and state laws and regulations, the common law and contractual
obligations, govern collection, dissemination, use and confidentiality of patient-identifiable health information, including: (i) state and federal privacy and
confidentiality laws; (ii) our contracts with clients and partners; (iii) state laws regulating healthcare professionals; (iv) Medicaid laws; (v) HIPAA and related
rules proposed by CMS; (vi) CMS standards for internet transmission of health data and (vii); and The 21st Century Cures Act.
HIPAA establishes elements including, but not limited to, federal privacy and security standards for the use and protection of Protected Health Information.
Any failure 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
may not preclude claims against us for alleged violations of applicable requirements. Also, third-party sites and/or links that consumers may access through
our web sites may not maintain adequate systems to safeguard this information or may circumvent systems and policies we have put in place. In addition,
future laws or changes in current laws may necessitate costly adaptations to 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. Such product 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 our
services will continue at historic levels. We offer certain electronic claims submission products and services as part of our product line. While we have
implemented certain product features designed to maximize the accuracy and completeness of claims submissions, these features may not be sufficient to
prevent 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. This
process 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 will
continue 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 financial
results. 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 are
economically 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 financial
condition. We are heavily dependent on the maintenance and protection of our intellectual property and we rely largely on technical security measures,
license agreements, confidentiality procedures and employee nondisclosure agreements to protect our intellectual property. The majority of our software is
not patented and 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
competitors will not independently develop technologies equivalent or superior to ours. Further, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States and are often not enforced as vigorously as those in the United States.
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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
not assert 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 a license agreement or royalty arrangement or other financial arrangement with the party asserting the claim. Responding to and defending any such
claims may distract the attention of our management and adversely affect our business, results of operations and financial condition. In addition, claims may
be brought against 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 our
products and services. We have been, and may be in the future, subject to intellectual property infringement claims as the number of our competitors
grows and our applications' functionality is viewed as similar or overlapping with competitive products. We do not believe that we have infringed or are
infringing on any proprietary rights of third parties. However, claims are occasionally asserted against us, and we cannot assure you that infringement claims
will not be asserted against us in the future. Also, we cannot assure you that any such claims will be unsuccessful. We could incur substantial costs and
diversion of management resources defending any infringement claims - even if we are ultimately successful in the defense of such matters. Furthermore, a
party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively
block our ability to provide products or services. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be
required for our products or services 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
our technology and offerings, we need to periodically upgrade and maintain the products deployed to our clients. This process can require a significant
amount of our internal time and resources and can be complicated and time consuming for our clients. Certain upgrades may also pose the risk of system
delays or failure. If our periodic upgrades and maintenance cause disruptions to our clients, we may lose revenue-generating transactions, our clients may
elect to use other solutions and we may also be the subject of negative publicity that may adversely affect our business and reputation.
Risks Related to Regulation
There is significant uncertainty in the healthcare industry in which we operate, and the current governmental laws and regulations as well as any
future modifications to the regulatory environment, may adversely impact our business, financial condition and results of operations. The
healthcare industry is subject to changing political, economic, legal and regulatory influences that may affect the procurement processes and operation of
healthcare facilities. A number of federal and state laws, including laws prohibiting the submission of false or fraudulent claims, apply to healthcare providers
and others that make, offer, seek or receive referrals or payments for products or services that may be paid for through any federal or state healthcare
program and, in some instances, any private program. These laws are complex and their application to our specific services and relationships may not be
clear and may be applied to our business in ways that we do not anticipate. Federal and state regulatory and law enforcement authorities have recently
increased enforcement activities with respect to Medicare and Medicaid fraud and abuse regulations and other healthcare reimbursement laws and rules.
During the past several years, the healthcare industry has also been subject to an increase in governmental regulation of, among other things,
reimbursement rates and certain capital expenditures.
For example, the Health Insurance Portability and Accountability Act of 1996, as modified by HITECH provisions of the ARRA (collectively, “HIPAA”),
continues to have a direct impact on the health care industry by requiring national provider identifiers and standardized transactions/code sets, operating
rules and necessary security and privacy measures in order to ensure the appropriate level of privacy of protected health information. These regulatory
factors affect the purchasing 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
in 2010. This comprehensive health care reform legislation included provisions to control health care costs, improve health care quality, and expand access
to affordable health insurance. The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), which became law in 2015, repealed the
sustainable growth rate (“SGR”) formula and created two new value-based payment systems for Medicare physicians. Together with ongoing statutory and
budgetary policy developments at a federal level, these health care reform laws include changes in Medicare and Medicaid payment policies and other
health care delivery administrative reforms that could potentially negatively impact our business and the business of our clients. Because not all the
administrative rules implementing health care reform under these laws have been finalized, and because of ongoing federal fiscal budgetary pressures yet to
be resolved for federal health 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 our business. Health care industry participants may respond by reducing their investments or postponing investment decisions,
including investments in our solutions and services.
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In March 2020, the U.S. Congress passed several laws in response to the coronavirus pandemic. Included in these laws are multiple provisions that are
likely to have a significant impact on healthcare providers. Because regulations implementing these provisions have yet to be released and health care
providers are subject to future legislative changes, the industry is likely to be subject to additional coronavirus-related legislative and regulatory changes in
2020.
Healthcare providers may react to these proposals, and the uncertainty surrounding such proposals, by curtailing or deferring investments, including those
for our systems and related services. Cost-containment measures instituted by healthcare providers as a result of regulatory reform or otherwise could result
in a reduction in the allocation 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 in the regulatory environment have increased and may continue to increase the needs of healthcare organizations for cost-effective
data management and thereby enhance the overall market for healthcare management information systems. We cannot predict what effect, if any, such
proposals or healthcare reforms might have 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 and
services, 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
facilitate our 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 with these regulations could be costly and distract management’s attention and divert other company resources, and any noncompliance by us
could result in civil and 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 standard
transactions, standard identifiers, security and other standards and requirements for the transmission of certain electronic health information. These
standards and requirements impose additional obligations and burdens on us, limiting the use and disclosure of individually-identifiable health information,
and require us to enter into business associate agreements with our clients and vendors. Failure by us to enter into adequate business associate
agreements with any client or vendor would place us in violation of applicable standards and requirements and could expose us to liability. Our business
associates may interpret HIPAA requirements differently than we do, and we may not be able to adequately address the risks created by such
interpretations. These new rules, and any future changes to privacy and security rules, may increase the cost of compliance and could subject us to
additional enforcement actions, which could further increase our costs and adversely affect the way in which we do business.
Interoperability Standards. Our clients are concerned with and often require that our software solutions and health care devices be interoperable with other
third-party health care information technology suppliers. With the passing of the MACRA in 2015, the U.S. Congress declared it a national objective to
achieve widespread exchange of health information through interoperable certified EHR technology nationwide by December 31, 2018. The 21st Century
Cures Act, which was passed and signed into law in December 2016, includes numerous provisions intended to encourage this nationwide interoperability.
In February 2019, HHS’s Office of the National Coordinator for Health Information Technology (“ONC”) released a proposed rule titled, “21st Century Cures
Act: Interoperability, Information Blocking, and the ONC Health IT Certification Program.” Following an extended public comment period, in March 2020
ONC released the final rule which implements the key interoperability provisions included in the Cures Act. Specifically, it calls on developers of certified
EHRs and health IT products to adopt standardized application programming interfaces (“APIs”), which will help allow individuals to securely and easily
access structured and unstructured EHI formats using smartphones and other mobile devices. This provision and others included in the rule create a lengthy
list of new certification and maintenance of certification requirements that developers of EHRs and other health IT products have to meet in order to maintain
approved federal government certification status. Meeting and maintaining this certification status will require additional development costs.
The ONC rule also implements the information blocking provisions of the 21st Century Cures Act, including identifying reasonable and necessary activities
that do not constitute information blocking. Under the 21st Century Cures Act, the U.S. Department of Health and Human Services (“HHS”) has the
regulatory authority to investigate and assess civil monetary penalties of up to $1,000,000 against certified health IT developers found to be in violation of
“information blocking”. This new oversight and authority to investigate claims of information blocking creates significant risks for us and our clients and could
potentially create substantial new compliance costs.
Other regulatory provisions included in the ONC Cures Act final rule could create compliance costs and/or regulatory risks for the company. Because these
regulations are subject to future changes and/or significant enforcement discretion by federal agencies, the ultimate impact of these regulations is unknown.
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FDA Regulation of Software as a Medical Device. The U.S. Food and Drug Administration (“FDA”) has the statutory authority to regulate medical software
if it falls within the definition of a “device” under the Federal Food, Drug, and Cosmetic Act (“FFDCA”). However, the FDA has exercised enforcement
discretion for software said to be “low risk.” The December 2016 21st Century Cures Act clarified the FDA’s regulation of medical software by amending the
definition of “device” in the FFDCA to exclude certain software functions, including electronic health record software functionality and administrative software
functionality. In December 2017, the FDA issued draft guidance documents to clarify how it intends to interpret and enforce these provisions of the Cures
Act. In 2017, the FDA also issued a Digital Health Innovation Action Plan and launched a voluntary “Software Precertification (Pre-Cert) Pilot Program” for
software developers. Then in September 2019 the FDA issued several different digital health-focused final and draft guidance documents. Although we
believe that our products are currently not subject to FDA regulation, we continue to follow the FDA’s guidance in this area, which is subject to change and in
some critical areas only currently exists in draft form. As a result, our software may potentially be subject to regulation by the FDA as a medical device. Such
regulation could require the registration of the applicable manufacturing facility and software and hardware products, application of detailed record-keeping
and manufacturing standards, application of the medical device excise tax, and FDA approval or clearance prior to marketing. An approval or clearance
requirement could create delays in marketing, and the FDA could require supplemental filings or object to certain of these applications, the result of which
could adversely affect 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
impact us and our clients. Some of these provisions may have a positive impact, by expanding the use of electronic health records and other health
information technology solutions in certain federal programs, for example, 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 business and 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, significant government financial resources are being invested in healthcare, including financial incentives to
healthcare providers who can demonstrate meaningful use of certified EHR technology since 2011. While we expect the ARRA, the PPACA, and the
MACRA to continue to create 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
access hospitals as they adopt, implement, upgrade, or demonstrate meaningful use of certified EHR technology. HITECH, and subsequently MACRA, also
authorized CMS to apply payment adjustments, or penalties, to Medicare eligible professionals and eligible hospitals that are not meaningful users under the
Medicare EHR Incentive 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
avoid financial penalties for implementing and using our services, there can be no guaranty that our clients will achieve meaningful use (or its equivalent
under MACRA’s Merit Based Incentive Payment System, Promoting Interoperability) or actually receive such planned financial incentives for our services.
Where clients have relied on our software as being certified according to applicable HITECH Act technical standards, we may face liability related to any
incentive that the physicians received in reliance upon such certification if this certification were to be challenged. Failure to maintain this certification under
the HITECH Act could also jeopardize our relationships with customers who are relying upon us to provide certified software and will make our products and
services less attractive to customers than the offerings of other EHR vendors who maintain certification of their products.
We also cannot predict the speed at which healthcare providers will adopt electronic health record systems in response to these government incentives,
whether healthcare providers will select our products and services or whether healthcare providers will implement an electronic health record system at all.
In addition, the financial incentives associated with the meaningful use program are tied to provider participation in Medicare and Medicaid, and we cannot
predict whether providers will continue to participate in these programs. Any delay in the purchase and implementation of electronic health records systems
by healthcare providers in response to government programs, or the failure of healthcare providers to purchase an electronic health record system, could
have an adverse effect on our business, financial condition and results of operations. It is also possible that additional regulations or government programs
related to electronic health records, amendment or repeal of current healthcare laws and regulations or the delay in regulatory implementation could require
us to undertake additional efforts to meet meaningful use standards, materially impact our ability to compete in the evolving healthcare IT market, materially
impact healthcare providers' decisions to implement electronic health records systems or have other impacts that would be unfavorable to our business. The
costs of achieving and maintaining certified electronic health record technology (“CEHRT”) are also significant and because the definition of CEHRT and its
use requirements for clients are subject to regulatory changes, these programs and future regulatory changes to them could adversely impact our business.
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Several of our solutions also support Accountable Care Organizations (“ACOs”). In 2020, Medicare’s largest ACO program, the Shared Savings Program,
consisted of 517 ACOs serving 11.2 million assigned beneficiaries across the country. In December 2018, the Centers for Medicare & Medicaid Services
(“CMS”) issued a final rule that dramatically redesigns and sets a new direction for Shared Savings Program, renaming it “Pathways to Success.” Because it
is unknown how ACOs will react to CMS’s Pathways to Success program redesign and several of the redesigned program’s policies will not be fully
implemented for ACOs until 2021, we cannot predict the impact the regulatory change will have on our clients and our business, including where we are
alleged to have not appropriately complied with these regulations.
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
to disclose information in connection with submission and payment of physician claims for reimbursement. In some cases, these laws also forbid abuse of
existing systems for such submission and payment. Any failure of our revenue cycle management services to comply with these laws and regulations could
result in substantial liability including, but not limited to, criminal liability, could adversely affect demand for our services and could force us to expend
significant capital, research and development and other resources to address the failure. Errors by us or our systems with respect to entry, formatting,
preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations. Determination by a court or
regulatory agency that our services violate these 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 portions of our business, require us to refund portions of our services fees, cause us to be disqualified from serving
clients doing business with government payers and have an adverse effect on our business. Determination by a court that we have violated the False Claims
Act (“FCA”) may subject us to treble damages, plus mandatory civil penalties for each separate false claim. Even if these matters are not resolved against
us, the uncertainty and expense associated with unresolved legal proceedings could harm our business and reputation. It is possible that resolution of one or
any combination of more than one legal matter could result in a material adverse impact on our financial position or results of operations.
In most cases where we are permitted to do so, we calculate charges for our revenue cycle management services based on a percentage of the collections
that our clients receive as a result 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 percentage calculation provides us or our employees with incentive to commit or overlook fraud or abuse in connection with submission and
payment of reimbursement claims. The U.S. Centers for Medicare and Medicaid Services has stated that it is concerned that percentage-based billing
services may encourage billing companies 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
government offers rewards for reporting of Medicare fraud which could encourage others to subject us to a charge of fraudulent claims, including charges
that are ultimately proven to be without merit.
Additionally, under the False Claims Act FCA, the federal government allows private individuals to file a complaint or otherwise report actions alleging the
defrauding of the federal government by an entity. These suits, known as qui tam actions or “whistleblower” suits may be brought by, with only a few
exceptions, any private citizen who believes that he has material information of a false claim that has not been previously disclosed. If the federal
government intervenes, the individual that filed the initial complaint may share in any settlement or judgment. If the federal government does not intervene in
the action, the whistleblower plaintiff may pursue its allegation independently. Some states have adopted similar state whistleblower and false claims
provisions. Qui tam actions under the FCA and similar state laws may lead to significant fines, penalties, settlements or other sanctions, including exclusion
from Medicare or other federal or state healthcare programs.
If our products fail to comply with evolving government and industry standards and regulations, we may have difficulty selling our products. We
may be subject to additional federal and state statutes and regulations in connection with offering services and products via the internet. On an increasingly
frequent basis, federal and state legislators are proposing laws and regulations that apply to internet commerce and communications. Areas being affected
by these regulations include user privacy, pricing, content, taxation, copyright protection, distribution, and quality of products and services. To the extent that
our products and 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
of which could adversely affect our business, financial condition, cash flows, revenue, results of operations, and debt covenant compliance.
Based on our reading and interpretations of relevant guidance, principles or concepts issued by, among other authorities, the American Institute of Certified
Public Accountants, the Financial Accounting Standards Board and the Commission, we believe our current business arrangements, transactions, and
related estimates and disclosures have been properly reported. However, there continue to be issued interpretations and guidance for applying the relevant
standards to a wide range of sales and licensing contract terms and business arrangements that are prevalent in the software industry. Future interpretations
or changes by the regulators of existing accounting standards or changes in our business practices could result in changes in our revenue recognition and/or
other accounting 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.
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Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on
our business, 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 and regulations promulgated by the SEC to implement Section 404, we are required to include in our Form 10-K a report by our management regarding
the effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal
control over financial reporting. The assessment must include disclosure of any material weakness in our internal control over financial reporting identified by
management.
As part of the evaluation undertaken by management and our independent registered public accountants pursuant to Section 404, our internal control over
financial reporting was effective as of our most recent fiscal year end. However, if we fail to maintain an effective system of disclosure controls or internal
controls over financial reporting, we may discover material weaknesses that we would then be required to disclose. Any material weaknesses identified in
our internal controls could have 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 by regulatory authorities. This could result in a loss of investor confidence in the accuracy and completeness of our financial
reports, which may have an adverse effect 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 material
information otherwise required to be reported. The effectiveness of our controls and procedures could also be limited by simple errors or faulty judgments. In
addition, if we continue to expand, through either organic growth or through acquisitions (or both), the challenges involved in implementing appropriate
controls will 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 internal
control processes which may result in the expenditure of additional human and financial resources.
Risks Related to Ownership of Our Common Stock
The unpredictability of our quarterly operating results may cause the price of our common stock to fluctuate or decline. Our revenue may fluctuate
in the future from quarter to quarter and period to period, as a result of a number of factors including, without limitation:
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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;
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.
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Our software products are generally shipped as orders are received and accordingly, we have historically operated with a minimal backlog of license fees. As
a result, a portion of our revenue in any quarter is dependent on orders booked and shipped in that quarter and is not predictable with any degree of
certainty. Furthermore, our systems can be relatively large and expensive, and individual systems sales can represent a significant portion of our revenue
and profits for a quarter such that the 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 revenue from system sales generally cannot be predicted and frequently are not known until after the
quarter has concluded. Our sales are dependent upon clients’ initial decisions to replace or substantially modify their existing information systems, and
subsequently, their decision concerning which products and services to purchase. These are major decisions for healthcare providers and, accordingly, the
sales cycle for our systems can vary 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 cause
significant variations in operating results from quarter to quarter. As a result, we believe that interim period-to-period comparisons of our results of operations
are not necessarily meaningful and should not be relied upon as indications of future performance. Further, our historical operating results are not
necessarily indicative 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, or that 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 in
litigation against us. Volatility may be caused by a number of factors including but not limited to:
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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 extreme
volatility that often has been unrelated to the operating performance of particular companies. These broad 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 its
securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and
resources.
One of our current directors is a significant shareholder, which makes it possible for him to have significant influence over the outcome of all
matters submitted to our shareholders for approval and which influence may be alleged to conflict with our interests and the interests of our
other shareholders. One of our directors is a significant shareholder who beneficially owns approximately 15% of the outstanding shares of our common
stock at March 31, 2021. California law and our Bylaws permit our shareholders to cumulate their votes, the effect of which is to provide shareholders with
sufficiently large concentrations of our shares the opportunity to assure themselves one or more seats on our Board of Directors. The amounts 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 number of 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 the event that
cumulative voting is invoked, it is possible that any significant shareholders will each have sufficient votes to assure themselves of one or more seats on our
Board of Directors. With or without cumulative voting, any significant shareholders will have substantial influence over the outcome of all matters submitted
to our shareholders for approval, including the election of our directors and other corporate actions. This influence may be alleged to conflict with our
interests and the interests of our other shareholders. In addition, such influence by a significant shareholder could have the effect of discouraging others
from attempting to acquire our Company or create actual or perceived governance instabilities that could adversely affect the price of our common stock.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located in Atlanta, Georgia. We believe that our existing facilities are in good condition and adequate for our current business
requirements. Should we continue to grow, we may be required to lease or acquire additional space. We believe that suitable additional space is available, if
needed, at commercially reasonable market rates and terms.
As of March 31, 2021, we leased an aggregate of approximately 541,900 square feet of space with lease agreements expiring at various dates, of which
approximately 336,200 square feet of space are utilized for continuing operations and 205,700 square feet of space are being subleased or have been
vacated as part of our reorganization efforts, as described further in Note 6, "Leases" of our notes to consolidated financial statements included elsewhere in
this Report:
Primary Operating Locations
Bangalore, India
Irvine, California
St. Louis, Missouri
Hunt Valley, Maryland
Horsham, Pennsylvania
Atlanta, Georgia
Fairport, New York
Total Primary Operating Locations
Vacated or Subleased Locations, or Portions Thereof
Horsham, Pennsylvania
Irvine, California
North Canton, Ohio
Cary, North Carolina
Solana Beach, California
Phoenix, Arizona
Brentwood, Tennessee
St. Louis, Missouri
Atlanta, Georgia
Total Vacated or Subleased Locations
Total Leased Properties
(1)Location of our principal executive offices
(2)Primary locations of our research and development functions
ITEM 3. LEGAL PROCEEDINGS
Notes
(2)
(2)
(1) (2)
Square Feet
137,700
47,900
42,300
34,000
32,000
27,000
15,300
336,200
78,000
35,200
22,100
19,400
12,000
11,400
10,500
8,600
8,500
205,700
541,900
We have experienced legal claims by clients regarding product and contract disputes, by other third parties asserting that we have infringed their intellectual
property rights, by current and former employees regarding certain employment matters and by certain shareholders. We believe that these claims are
without merit and intend to defend against them vigorously; however, we could incur substantial costs and diversion of management resources defending
any such claim, even if we are ultimately successful in the defense of such matter. Litigation is inherently uncertain and always difficult to predict.
Additionally, we are subject to the regulation and oversight of various federal and state governmental agencies that enforce fraud and abuse programs
related to the submission of fraudulent claims for reimbursement from governmental payers. We have received, and from time to time may receive, inquiries
or subpoenas from federal and state agencies. Under the False Claims Act (“FCA”), private parties have the right to bring qui tam, or “whistleblower,” suits
against entities that submit, or cause to be submitted, fraudulent claims for reimbursement. Qui tam or whistleblower actions initiated under the FCA may be
pending but placed under seal by the court to comply with the FCA’s requirements for filing such suits. As a result, they could lead to proceedings without our
knowledge. We refer you to the discussion of regulatory and litigation risks within “Item 1A. Risk Factors” and to Note 16, “Commitments, Guarantees and
Contingencies” of our notes to consolidated financial statements included elsewhere in this Report for a discussion of current legal proceedings.
ITEM 4. MINE AND SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Price and Holders
Our common stock is traded under the symbol “NXGN” on the NASDAQ Global Select Market. At May 24, 2021, there were approximately 633 holders of
record of our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
The information included under Item 12 of this Report, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters," is incorporated herein by reference.
Performance Graph
The following graph compares the cumulative total returns of our common stock, the NASDAQ Composite Index and the NASDAQ Computer & Data
Processing Services Stock Index over the five-year period ended March 31, 2021 assuming $100 was invested on March 31, 2016 with all dividends, if any,
reinvested. The returns shown are based on historical results and are not intended to be indicative of future stock prices or future performance. This
performance 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
Company under the Securities Act of 1933, as amended or the Exchange Act.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among NextGen Healthcare, Inc., The NASDAQ Composite Index
And The NASDAQ Computer & Data Processing Index
* $100 invested on March 31, 2016 in stock or index, including reinvestment of dividends. Fiscal year ended March 31.
ITEM 6. SELECTED FINANCIAL DATA
Reserved.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters discussed in this management’s discussion and analysis of financial condition and results
of operations (“MD&A”), including discussions of our product development plans, business strategies, future operations, financial condition and prospects,
developments in and the impacts of government regulation and legislation, and market factors influencing our results, may include forward-looking
statements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, both foreseen and
unforeseen, including, but not limited to, the impact of the COVID-19 pandemic and measures taken in response thereto, as well as our ability to continue to
develop new products and increase systems sales in markets characterized by rapid technological evolution, consolidation and competition from larger,
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 risk factors discussed in “Item 1A. Risk Factors” 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
in its entirety by, the consolidated financial statements and related notes thereto included elsewhere in this Report. Historical results of operations,
percentage margin fluctuations and any trends that may be inferred from the discussion below are not necessarily indicative of the operating results for any
future period. For information regarding the year ended March 31, 2019, including a year-to-year comparison of our financial condition and results of
operations for the years ended March 31, 2020 and March 31, 2019, refer to Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of our Annual Report on Form 10-K for the year ended March 31, 2020, filed with the SEC on June 1, 2020.
Company Overview
NextGen Healthcare is a leading provider of software and services that empower ambulatory healthcare practices to manage the risk and complexity of
delivering care in the rapidly evolving U.S. healthcare system. Our combination of technological breadth, depth and domain expertise makes us a preferred
solution provider and trusted advisor for our clients. In addition to highly configurable core clinical and financial capabilities, our portfolio includes tightly
integrated solutions that deliver on ambulatory healthcare imperatives including: population health, care management, patient outreach, telemedicine, and
nationwide clinical information exchange.
We serve clients across all 50 states. Over 100,000 providers use NextGen Healthcare solutions to deliver care in nearly every medical specialty in a wide
variety of practice models including accountable care organizations (“ACOs”), independent physician associations (“IPAs”), managed service organizations
(“MSOs”), Veterans Service Organizations (“VSOs”), and Dental Service Organizations (“DSOs”). Our clients include some of the largest and most
progressive multi-specialty groups in the country. With the addition of behavioral health to our medical and oral health capabilities, we continue to extend our
share not only in Federally Qualified Health Centers (“FQHCs”), but also in the growing integrated care market.
NextGen Healthcare has historically enhanced our offering through both organic and inorganic activities. In October 2015, we divested our former Hospital
Solutions division to focus exclusively on the ambulatory marketplace. In January 2016, we acquired HealthFusion Holdings, Inc. and its cloud-based
electronic health record and practice management solution. In April 2017, we acquired Entrada, Inc. and its cloud-based, mobile platform for clinical
documentation and collaboration. In August 2017, we acquired EagleDream Health, Inc. and its cloud-based population health analytics solution. In January
2018, we acquired Inforth Technologies for its specialty-focused clinical content. In October 2019, we acquired Topaz Information Systems, LLC (“Topaz”) for
its behavioral health solutions. In December 2019, we acquired Medfusion, Inc. (“Medfusion”) for its Patient Experience Platform (i.e., patient portal, self-
scheduling, and patient pay) capabilities and OTTO Health, LLC (“OTTO”) for its integrated virtual care solutions, notably telemedicine. The integration of
these acquired technologies has made NextGen Healthcare’s solutions among the most comprehensive in the market.
Our company was incorporated in California in 1974. Previously named Quality Systems, Inc., we changed our corporate name to NextGen Healthcare, Inc.
in September 2018. Our principal executive offices are located at 3525 Piedmont Rd., NE, Building 6, Suite 700, Atlanta, Georgia, and our principal website
is www.nextgen.com. We operate on a fiscal year ending on March 31.
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Industry and Regulatory Background, Market Opportunity, and Trends
Over the last decade, the ambulatory healthcare market has experienced significant regulatory change, which has driven the need for improved technology
to enable practice transformation. Recognizing it was imperative to digitize the U.S. health system to stem the escalating cost of healthcare and improve the
quality of care being delivered, Congress enacted the Health Information Technology for Economic and Clinical Health Act in 2009 (“HITECH Act”). The
legislation stimulated healthcare organizations to not only adopt electronic health records, but to use them to collect discrete data that could be used to drive
quality care. This standardization supported early pay-for-reporting and pay-for-performance programs.
In 2010, the Affordable Care Act (“ACA”) established the roadmap for shifting American healthcare from volume (fee-for-service) to a value-based care
(“VBC”) system that rewards improved outcomes at lower costs (fee-for-value). This was followed by the Medicare Access and CHIP Reauthorization Act of
2015 (“MACRA”), bipartisan legislation that further changed the way Medicare rewards clinicians for value vs. volume. Initially focused on government-
funded care, the domain of the Centers for Medicare & Medicaid Services (“CMS”), these programs are now firmly established on the commercial insurance
side of the industry as well.
Importantly, the introduction of VBC programs was only an element of the broader approach to reducing healthcare expenditure. The drive to reduce costs
initially led to consolidation in the healthcare system that was followed by a significant shift of care from the inpatient to lower cost outpatient setting. Among
other factors, consumerism is set to play a major role in driving volume increases outside of the hospital. In addition, providers continue to seek new tools
and means to connect with patients in new ways. Patients are expecting care to be personalized and tailored to their preferences and are seeking much
greater transparency about the costs for visits, medications, and procedures as well as improved convenience and access to care. Along with the continued
expansion of telehealth, there will be growth in technologies which facilitate the digital connection between patient and provider.
The need to sustain revenue has made it extremely important for practices to secure their patient market share, elevating patient loyalty to a significant
determinant of provider success. In addition to being loyal, groups participating in value-based contracts realized that patients also needed to be engaged in
their care and interested in improving their own health. The need to attract, retain and engage patients has made patient experience one of the most
important aspects of evolving care delivery in the United States. Capturing patient market share and thriving in a market driven by VBC requires both an
integrated platform and a full view of the patient population’s clinical and cost data, neither of which could be accomplished without new technologies to
collect and analyze multi-sourced patient data. Effectively implemented, these new technologies allow organizations to enhance financial viability while
exercising the freedom to join, affiliate, integrate or interoperate in ways that maximize strategic control.
Although the HITECH Act led to the meaningful adoption of electronic health records, many in the healthcare industry were dissatisfied with the level of
exchange of health information between different providers and across different software platforms. With the passing of the MACRA law in 2015, the U.S.
Congress declared it a national objective to achieve widespread exchange of health information through interoperable certified electronic health records
(“EHR") technology. Then, in December 2016, the 21st Century Cures Act (“Cures Act”) was passed and signed into law. Among many other policies, the law
includes numerous provisions intended to encourage nationwide interoperability.
In March 2020, the HHS Office of the National Coordinator for Health Information Technology (“ONC”) released a final regulation which implements the key
interoperability provisions included in the Cures Act. The rule calls on developers of certified EHRs to adopt standardized application programming interfaces
(“APIs”) and to meet a list of other new certification and maintenance of certification requirements in order to retain approved federal government certification
status.
The ONC rule also implements the information blocking provisions of the Cures Act, including identifying reasonable and necessary activities that do not
constitute information blocking. Under the Cures Act, HHS has the regulatory authority to investigate and assess civil monetary penalties of up to $1,000,000
against certified HIT developers found to be in violation of “information blocking.”
The new regulations will require significant compliance efforts for healthcare providers, information networks, exchanges, and HIT companies. However, the
Cures Act also creates opportunities for improving care delivery and outcomes through increased data exchange between providers and easier patient
access to their own health information. Key to unlocking these benefits is the introduction of new Fast Healthcare Interoperability Resources (“FHIR”)
standards, which ONC requires certified HIT companies to adopt through APIs. Meanwhile, CMS is requiring hospitals to provide electronic admission,
discharge and transfer notification to other healthcare facilities, providers and designated care team members.
Refer also to the discussion of regulatory risks within “Item 1A. Risk Factors” for governmental regulations and policies that may affect our business.
Through the expansion of our NextGen® Share interoperability services platform and API partner marketplace, we will address the increased demand for
moving and sharing patient data from the EHR easily, quickly and securely. Interoperability improves patient experience and care coordination, enhances
patient safety, and reduces costs. We are also expanding resources such as educational webinars, blogs and videos on interoperability to help educate and
support healthcare providers.
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In recent years, there has been incremental investment to improve the delivery of behavioral healthcare. One of the central drivers of this investment has
been the opioid epidemic which claims more than 80,000 lives a year in the United States. The integrated care model prevalent in FQHCs, a model which
calls for integration of behavioral health and primary care in single care settings, has also gained momentum. Both behavioral health and the integrated care
workflows require broad, purpose built, tailored HIT capabilities, many of which are supported by the NextGen Healthcare platform. As a result of the COVID-
19 pandemic, ambulatory practices have come to appreciate the importance of business continuity, particularly in administrative business functions which
are non-core to medical care and may turn to NextGen Healthcare more often for managed services.
COVID-19 Pandemic
In late 2019, the emergence of a novel coronavirus, or COVID-19, was reported and in January 2020, the World Health Organization (“WHO”), declared it a
Public Health Emergency of International Concern. In March 2020, the WHO escalated COVID-19 as a pandemic. We proactively responded to the
pandemic by creating an executive task force to monitor the COVID-19 situation daily and immediately restricted non-essential travel and migrated to a fully
remote workforce while maintaining complete operational effectiveness.
The need to access care while still social distancing was addressed early on with the limited use of telemedicine (also known as virtual visits) and was
energized when the federal government reduced regulatory barriers and addressed payment parity between virtual and in-person visits. With these tailwinds,
telemedicine quickly became regarded as a safer way for patients and providers to engage each other while also relieving economic pressure on the medical
practice. We believe that the uptake of telemedicine will transcend COVID-19 and that virtual visits will become a permanent and important change in the
way care is delivered. Keeping patients out of the transit system, out of the waiting room and away from other sick patients is simply good medicine.
Since the mid-March 2020 timing of government orders to shelter in place and restrict non-essential medical services, the COVID-19 pandemic caused
declines in patient volume. This negatively impacted our revenue in the fourth quarter of fiscal 2020, most notably for purchases of software and hardware.
The impact of the disruption also impacted the first half of fiscal 2021, primarily in managed services and EDI, which are volume driven. During this
challenging and uncertain period, we made some important decisions, including cost reduction activities with a primary goal of preserving cash and
protecting the employee base. Most of these cost reductions were temporary as we believed that preserving our employee base, organizational momentum,
and robust capabilities was the right decision for the Company and our shareholders. As the impact of the pandemic and related restrictive measures began
to subside in the second half of fiscal 2021, patient volume has returned to close to pre-pandemic levels, and thus revenue returned to more normal levels.
At present, we are conducting business as usual with certain modifications to employee travel, employee work locations, and marketing events, among other
modifications. We continue to monitor the broader implications of the global COVID-19 pandemic and may take further actions that we determine are in the
best interests of our employees, customers, partners, suppliers, and shareholders.
We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably
available to the Company and the unknown future impacts of COVID-19 at March 31, 2021 and through the date of this Report. The accounting matters
assessed included, but were not limited to, our allowances for doubtful accounts and the carrying value of goodwill and other long-lived assets. While there
was not a material impact to our consolidated financial statements at and for the year ended March 31, 2021, our future assessment of the magnitude and
duration of COVID-19, as well as other factors could result in material impacts to our consolidated financial statements in future reporting periods.
Our Strategy
We empower the transformation of ambulatory care by delivering solutions that enable groups to be successful under all models of care, including emerging
value-based care models that include down-side risk. We primarily serve organizations that provide care in an ambulatory setting and do so across diverse
practice sizes, specialties, and business models. Furthermore, we support the advances in integrated care that focuses on the whole person. Our platform is
uniquely positioned to successfully enable our clients to expand access to care, enhance the coordination and management of care, and optimize patient
outcomes through an integrated medical record that extends across their medical, mental, and oral health and care needs.
Effective and frictionless interoperability is essential to all models of care. Our experience powering many of the nation’s Health Information Exchanges
(“HIE’s”) places us in a unique position to enable our clients to leverage this technology to lower the cost of care and improve the patient and provider
experience by providing an integrated community patient record.
Patient experience is directly correlated to patient engagement and an engaged patient is a key to positive outcomes. Today’s patient is also an active
consumer of their healthcare, each searching for the best experience. Our platform enables our clients to create a personalized care experience that
enhances trust and drives patient loyalty.
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Our longstanding success in the ambulatory market has enabled us to build significant expertise across many relevant disciples that are clients actively
request. We partner with our clients to operate and optimize their IT systems and operations, enhance revenue cycle processes, service line expansion and
operations, as well as advise on long-term strategy.
As one of the leading healthcare information technology players in the U.S. ambulatory marketplace, we plan to continue investing in our current capabilities
as well as building and/or acquiring new capabilities as we guide our clients through the market’s transformation. We expect to continue to empower the
transformation of care through the following strategic priorities:
•
•
•
•
•
•
•
Be a learning organization and transform ahead of the industry
Be a trusted advisor for our customers and prospects
Deliver breadth, depth and configurability to enable our clients to effectively execute their strategies
Use automation to drive unwanted variability and cost from our clients’ operations
Drive real innovation in patient experience and patient-provider interactions
Help our clients be recognized as interoperability leaders in their regions and areas of specialty
Integrate new capabilities (whether organic or inorganic) more quickly and successfully than others.
Results of Operations
The following table sets forth the percentage of revenue represented by each item in our consolidated statements of net income and comprehensive income
for the years ended March 31, 2021 and 2020 (certain percentages below may not sum due to rounding):
Revenues:
Recurring
Software, hardware, and other non-recurring
Total revenues
Cost of revenue:
Recurring
Software, hardware, and other non-recurring
Amortization of capitalized software costs and acquired intangible assets
Total cost of revenue
Gross profit
Operating expenses:
Selling, general and administrative
Research and development costs, net
Amortization of acquired intangible assets
Impairment of assets
Restructuring costs
Total operating expenses
Income from operations
Interest income
Interest expense
Other income (expense), net
Income before benefit of income taxes
Benefit of income taxes
Net income
34
Fiscal Year Ended March 31,
2020
2021
90.3%
9.7
100.0
38.1
4.8
6.6
49.5
50.5
32.4
13.6
0.8
1.0
0.5
48.2
2.3
0.0
(0.6)
0.0
1.7
0.0
1.7%
90.6%
9.4
100.0
38.0
5.0
6.6
49.5
50.5
30.6
15.4
0.8
2.3
0.5
49.5
0.9
0.0
(0.4)
0.2
0.8
(0.6)
1.4%
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Revenues
The following table presents our consolidated revenues for the years ended March 31, 2021 and 2020 (in thousands):
Recurring revenues:
Subscription services
Support and maintenance
Managed services
Electronic data interchange and data services
Total recurring revenues
Software, hardware, and other non-recurring revenues:
Software license and hardware
Other non-recurring services
Total software, hardware and other non-recurring revenues
$
Fiscal Year Ended March 31,
2020
2021
$
148,403
152,956
103,138
98,322
502,819
28,825
25,177
54,002
127,602
158,619
104,549
98,543
489,313
27,270
23,656
50,926
Total revenues
$
556,821
$
540,239
Recurring revenues as a percentage of total revenues
90.3%
90.6%
We generate revenue from sales of licensing rights and subscriptions to our software solutions, hardware and third-party software products, support and
maintenance, managed services, electronic data interchange (“EDI”) and data services, and other non-recurring services, including implementation, training,
and consulting services performed for clients who use our products.
Consolidated revenue for the year ended March 31, 2021 increased $16.6 million compared to the prior year due to a $13.5 million increase in recurring
revenues and a $3.1 million increase in software, hardware and other non-recurring revenues. The increase in recurring revenues was primarily due to $20.8
million higher subscription services driven by incremental revenue from our patient experience and virtual visits platforms acquired from Medfusion and
OTTO, combined with growth in subscriptions associated with our population health and analytics, mobile, connected health, core NextGen, and NextGen
Office cloud-based solutions. The increase in recurring revenues from the higher subscription services was partially offset by $5.7 million lower support and
maintenance revenue from client attrition and our transition to a subscription-based revenue model. Managed services revenue declined $1.4 million related
to declines in cash and collections and revenue cycle management (“RCM”) bookings that were largely impacted by the COVID-19 pandemic and client
attrition, partially offset by higher managed cloud services revenues and incremental patient pay services revenue acquired from Medfusion. Total software,
hardware, and other non-recurring revenues increased primarily due to $1.6 million higher software license and hardware sales from increased bookings and
$1.5 million increase in other non-recurring services related to the completion of professional services projects.
Bookings reflect the estimated annual value of our executed contracts, adjusted to include the effect of pre-acquisition bookings, and are believed to provide
a broad indicator of the general direction and progress of the business. Total bookings were $129.4 million for the year ended March 31, 2021 compared to
$130.9 million in the prior year, primarily reflecting a decline in RCM bookings, as noted above, partially offset by higher bookings of subscriptions associated
with our patient experience and virtual visits platforms.
Cost of Revenue and Gross Profit
The following table presents our consolidated cost of revenue and gross profit for the years ended March 31, 2021 and 2020 (in thousands):
Cost of revenue:
Recurring
Software, hardware, and other non-recurring
Amortization of capitalized software costs and acquired intangible assets
Total cost of revenue
Gross profit
Gross margin %
35
Fiscal Year Ended March 31,
2020
2021
$
$
$
212,199
26,457
36,768
275,424
$
$
281,397
$
50.5%
205,057
26,904
35,478
267,439
272,800
50.5%
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Cost of revenue consists primarily of compensation expense, including share-based compensation, for personnel that deliver our products and services.
Cost of revenue also includes amortization of capitalized software costs and acquired technology, third party consultant and outsourcing costs, costs
associated with our EDI business partners and clearinghouses, hosting service costs, third party software costs and royalties, and other costs directly
associated with delivering our products and services. Refer to Note 9, "Intangible Assets" and Note 10, "Capitalized Software Costs" of our notes to
consolidated financial statements included elsewhere in this Report for additional information on current period amortization of capitalized software costs and
acquired technology and an estimate of future expected amortization.
Share-based compensation expense included in cost of revenue was $2.0 million and $2.1 million for the years ended March 31, 2021 and 2020,
respectively.
Gross profit for the year ended March 31, 2021 increased $8.6 million compared to the prior year while our gross margin percentage remained consistent at
50.5% for the year ended March 31, 2021 compared to the prior year period. The increase in gross profit was primarily due to higher revenues as discussed
above, partially offset by an increase in cost of revenue associated with the higher revenues and higher amortization of previously capitalized software
development costs.
Selling, General and Administrative Expense
The following table presents our consolidated selling, general and administrative expense for the years ended March 31, 2021 and 2020 (in thousands):
Selling, general and administrative
Selling, general and administrative, as a percentage of revenue
Fiscal Year Ended March 31,
2020
2021
$
180,529
$
32.4%
165,174
30.6%
Selling, general and administrative expenses consist of compensation expense, including share-based compensation, for management and administrative
personnel, selling and marketing expense, facilities costs, depreciation, professional service fees, including legal, consulting, and accounting services,
acquisition and transaction-related costs, and other general corporate and administrative expenses.
Share-based compensation expense included in selling, general and administrative expenses was $16.7 million and $13.8 million for the years ended March
31, 2021 and 2020, respectively. The increase in share-based compensation expense is due to increased utilization of share-based awards to incentivize our
executives and employees. Refer to Note 15, "Share-Based Awards" of our notes to consolidated financial statements included elsewhere in this Report for
additional information on equity award grants.
Selling, general and administrative expenses increased $15.4 million for the year ended March 31, 2021 compared to the prior year primarily due to
increased share-based compensation expense, as noted above, higher legal fees associated with our ongoing shareholder litigation matter and increases in
discretionary and annual bonus expenses, partially offset by lower travel and conferences spend associated with the COVID-19 pandemic, lower acquisition
costs, and lower facilities and infrastructure costs.
Research and Development Costs, net
The following table presents our consolidated net research and development costs, capitalized software costs, and gross expenditures prior to capitalization,
for the years ended March 31, 2021 and 2020 (in thousands):
Gross expenditures
Capitalized software costs
Research and development costs, net
Research and development costs, as a percentage of revenue
Capitalized software costs as a percentage of gross expenditures
$
$
Fiscal Year Ended March 31,
2020
2021
100,079
(24,578)
75,501
$
$
13.6%
24.6%
102,727
(19,432)
83,295
15.4%
18.9%
Gross research and development expenditures consist of compensation expense, including share-based compensation for research and development
personnel, certain third-party consultant fees, software maintenance costs, and other costs related to new product development and enhancement to our
existing products.
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The healthcare information systems and services industry is characterized by rapid technological change, requiring us to engage in continuing investments
in our research and development to update, enhance and improve our systems. This includes expansion of our software and service offerings that support
pay-for-performance initiatives around accountable care organizations, bringing greater ease of use and intuitiveness to our software products, enhancing
our managed cloud and hosting services to lower our clients' total cost of ownership, expanding our interoperability and enterprise analytics capabilities, and
furthering development and enhancements of our portfolio of specialty-focused templates within our electronic health records software.
The capitalization of software development costs results in a reduction to our reported net research and development costs. Our software capitalization rate,
or capitalized software costs as a percentage of gross expenditures, has varied historically and may continue to vary based on the nature and status of
specific projects and initiatives in progress. Although changes in software capitalization rates have no impact on our overall cash flows, it results in
fluctuations in the amount of software development costs being expensed up front and the amount of net research and development costs reported in our
consolidated statement of net income and comprehensive income.
Share-based compensation expense included in research and development costs was $4.0 million and $3.9 million for the years ended March 31, 2021 and
2020, respectively.
Net research and development costs for the year ended March 31, 2021 decreased $7.8 million compared to the prior year due to $5.2 million higher
capitalization of software costs and a $2.6 million decrease in our gross expenditures. Our software capitalization rate fluctuates due to differences in the
nature and status of our projects and initiatives during a given year, which affects the amount of development costs that may be capitalized and ultimately
also affects the future amortization of our previously capitalized software development costs. The decrease in gross expenditures was primarily driven by
lower salaries and benefits associated with lower headcount, lower infrastructure costs, and lower travel costs associated with the COVID-19 pandemic,
partially offset by higher consulting costs.
Amortization of Acquired Intangible Assets
The following table presents our amortization of acquired intangible assets for the years ended March 31, 2021 and 2020 (in thousands):
Amortization of acquired intangible assets
Fiscal Year Ended March 31,
2020
2021
$
4,449
$
4,143
Amortization of acquired intangible assets included in operating expenses consist of the amortization related to our customer relationships and trade names
intangible assets acquired as part of our business combinations. Refer to Note 9, "Intangible Assets" of our notes to consolidated financial statements
included elsewhere in this Report for an estimate of future expected amortization.
Amortization of acquired intangible assets for the year ended March 31, 2021 increased $0.3 million, compared to the prior year period due to additional
amortization of the customer relationships and trade names intangible assets acquired from Medfusion.
Restructuring Costs and Impairment of Assets
Restructuring costs for the years ended March 31, 2021 and 2020 were $2.6 million and $2.5 million, respectively, related to the business restructuring plans
described in further detail below.
In May 2020, we announced a decision to execute a reduction in our workforce of less than 3% as well as other temporary cost reductions in response to the
COVID-19 pandemic. We recorded $2.6 million of restructuring costs, consisting of payroll-related costs, such as severance, outplacement costs, and
continuing healthcare coverage, associated with the involuntary separation of employees pursuant to a one-time benefit arrangement, for the year ended
March 31, 2021 within operating expenses in our consolidated statements of net income and comprehensive income. These amounts were accrued when it
was probable that the benefits would be paid, and the amounts were reasonably estimable. The payroll-related costs were substantially paid as of March 31,
2021.
In June 2019, we implemented a business restructuring plan as part of our continued efforts to preserve and grow the value of the Company through client-
focused innovations while reducing our cost structure. As part of the restructuring, we reduced our total workforce by approximately 4% primarily within the
research and development function and intend to expand on our research and development resources in India. We recorded $2.5 million of restructuring
costs in the year ended March 31, 2020 within operating expenses in our consolidated statements of comprehensive income. The restructuring costs
consisted primarily of payroll-related costs, such as severance, outplacement costs, and continuing healthcare coverage, associated with the involuntary
separation of employees pursuant to a one-time benefit arrangement.
Impairment of assets for the years ended March 31, 2021 and 2020 were $5.5 million and $12.6 million, respectively, related to the impairments described in
further detail below.
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During the year ended March 31, 2021, as part of our response to the COVID-19 pandemic and ongoing cost reduction efforts, we vacated our Cary office,
portions of our Irvine and Horsham offices, and the remainder of our San Diego office. We recorded impairments of $5.5 million to our operating right-of-use
assets and certain related fixed assets associated with the vacated locations based on projected sublease rental income and estimated sublease
commencement dates and the remeasurement of our operating lease liabilities associated with the modification of certain lease expiration dates. The
impairment analyses were performed by operating right-of-use asset and the impairment charges were estimated by comparing the fair value of each
operating right-of-use asset based on the expected cash flows to its respective book value. We determined the discount rate for each lease based on the
approximate interest rate on a collateralized basis with similar remaining terms and payments as of the impairment date. Significant judgment was required
to estimate the fair value of each operating right-of-use asset and actual results could vary from the estimates, resulting in potential future adjustments to
amounts previously recorded.
During the year ended March 31, 2020, we recorded impairments of $9.4 million to our operating right-of-use assets and certain related fixed assets
associated with the vacated locations, or portions thereof, in North Canton, San Diego, Horsham, St. Louis, Irvine, Atlanta, Brentwood, and Phoenix, in
connection with our restructuring plans, based on projected sublease rental income and estimated sublease commencement dates.
During the year ended March 31, 2020, we also recorded $3.2 million of impairments related to the write down of previously capitalized software
development costs for certain technology that will no longer be utilized in any future software solutions.
Interest Expense
The following table presents our interest expense for the years ended March 31, 2021 and 2020 (in thousands):
Interest income
Interest expense
Other income (expense), net
Fiscal Year Ended March 31,
2020
2021
$
$
38
(3,516)
(64)
256
(1,955)
846
Interest expense relates to our revolving credit agreement and the related amortization of deferred debt issuance costs. Refer to Note 11, “Line of Credit” of
our notes to consolidated financial statements included elsewhere in this Report for additional information.
Interest expense for the year ended March 31, 2021 increased $1.6 million compared to the prior year. The changes in interest expense is primarily caused
by fluctuations in outstanding balances under our revolving credit agreement and the related amortization of debt issuance costs. As of March 31, 2021, we
had no outstanding loans under the revolving credit agreement, compared to an outstanding balance of $129.0 million as of March 31, 2020.
Other income for the year ended March 31, 2021 decreased $0.9 million compared to the prior year, which was primarily associated with fluctuations in the
India foreign exchange rates.
Benefit of Income Taxes
The following table presents our benefit of income taxes for the years ended March 31, 2021 and 2020 (in thousands):
Benefit of income taxes
Effective tax rate
Fiscal Year Ended March 31,
2020
2021
$
$
(240)
-2.6%
(3,239)
-76.1%
The change in the effective tax rate for the year ended March 31, 2021 compared to the prior year was driven primarily by lower net benefits from certain
return to provision adjustments and a decrease of research and development credits, decrease of certain nondeductible expenses and release of uncertain
tax position reserves on prior year tax settlements, partially offset by an increase in current year valuation allowance expense related to certain deferred
taxes and increase of net nondeductible compensation related expenses.
The CARES Act and the Consolidated Appropriations Act, 2021 (“Stimulus Bill”), signed into law on March 27, 2020 and December 27, 2020, respectively,
have resulted in significant changes to the U.S. federal corporate tax law. Additionally, several state and foreign jurisdictions have enacted additional
legislation and or comply with federal changes. We have considered the applicable tax law changes and recognized the impact in our income tax provision,
as applicable.
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Net Income
The following table presents our net income (in thousands) and net income per share and for the years ended March 31, 2021 and 2020:
Net income
Net income per share:
Basic
Diluted
Fiscal Year Ended March 31,
2020
2021
$
$
$
9,515
$
0.14
0.14
$
$
7,498
0.11
0.11
As a result of the foregoing changes in revenue and expense, net income for the fiscal year ended March 31, 2021 increased $2.0 million compared to the
prior year period.
Liquidity and Capital Resources
The following table presents selected financial statistics and information for the years ended March 31, 2021 and 2020 (in thousands):
Cash and cash equivalents
Unused portion of revolving credit agreement (1)
Total liquidity
Net income
Net cash provided by operating activities
Fiscal Year Ended March 31,
2020
2021
$
$
$
$
73,295
300,000
373,295
9,515
98,518
$
$
$
$
138,012
171,000
309,012
7,498
85,601
(1) As of March 31, 2021, we had no outstanding borrowings under our $300.0 million revolving credit agreement.
We had no outstanding borrowings under our revolving credit agreement as of March 31, 2021 compared to $129.0 million as of March 31, 2020.
Our principal sources of liquidity are our cash generated from operations, driven mostly by our net income and working capital management, our cash and
cash equivalents, and our revolving credit agreement.
We believe that our cash and cash equivalents on hand at March 31, 2021, together with our cash flows from operating activities and liquidity provided by
our revolving credit agreement, will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months. During the
challenging and uncertain period brought on by the initial phases of the COVID-19 pandemic, we made some important decisions, including cost reduction
activities with a primary goal of preserving cash and protecting the employee base. Most of these cost reductions were temporary as we believed that
preserving our employee base, organizational momentum, and robust capabilities was the right decision for our Company and our shareholders. We had
proactively strengthened our cash position by increasing the outstanding borrowings under our revolving credit agreement, which was subsequently repaid
based on the reassessment of our short-term cash flow and working capital requirements, such that we have no outstanding borrowings under our revolving
credit agreement as of March 31, 2021. At present, we are conducting business as usual with certain modifications to employee travel, employee work
locations, and marketing events, among other modifications. However, the extent to which COVID-19 may continue to impact our business, financial results,
cash flows, and liquidity requirements depends on numerous evolving factors including, but not limited to, the magnitude and duration of COVID-19; the
impact on our employees; the extent to which it impacts worldwide macroeconomic conditions, including interest rates, employment rates, and health
insurance coverage; the speed of the recovery; and governmental and business reactions to the pandemic. We will continue to assess the potential effects
of the COVID-19 pandemic on our business and actively manage our response accordingly.
Cash and Cash Equivalents
As of March 31, 2021, our cash and cash equivalents balance of $73.3 million compared to $138.0 million as of March 31, 2020.
We may continue to use a portion of our funds as well as available financing from our revolving 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. We intend to expend some of our available
funds for the development of products complementary to our existing product line as well as new versions of certain of our products. These developments
are intended to take advantage of more powerful technologies and to increase the integration of our products.
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Our investment policy is determined by our Board of Directors. Excess cash, if any, may be invested in very liquid short term assets including tax exempt and
taxable money 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 of Directors continues to review alternate uses for our cash including an expansion of our investment policy and other items. Any or all of these
programs could significantly impact our investment income in future periods.
Cash Flows from Operating Activities
The following table summarizes our consolidated statements of cash flows for the years ended March 31, 2021 and 2020 (in thousands):
Net income
Non-cash expenses
Cash from net income, as adjusted
Change in contract assets and liabilities, net
Change in accounts receivable
Change in all other assets and liabilities
Net cash provided by operating activities
Fiscal Year Ended March 31,
2020
2021
9,515
78,698
88,213
(9,844)
(369)
20,518
98,518
$
$
$
7,498
85,902
93,400
1,325
4,937
(14,061)
85,601
$
$
$
For the year ended March 31, 2021, cash provided by operating activities increased $12.9 million compared to the prior year, consisting of $34.6 million
increase from net changes in other assets and liabilities, partially offset by $16.5 million decrease from net changes in accounts receivable and contract
balances, and $5.2 million decrease from lower net income, as adjusted for non-cash expenses. The increase in cash from net changes in other assets and
liabilities is primarily due to higher accruals of discretionary and annual merit bonuses, higher accrued legal expenses, the deferral of remitting payroll taxes
to the taxing authority as permitted under CARES Act to be paid in two equal amounts at the end of calendar 2021 and 2022, increase in care services
liabilities due to timing of payments and reimbursements, higher accrued hosting costs, and higher accrued employee benefits costs. These increases were
offset by a reduction in operating lease liabilities due to rental payments and the net impact on our lease liabilities from the early termination of certain facility
leases, as well as a decrease in cash from changes in accounts payable due to timing of invoice payments. The decrease in cash associated with net
changes in contract assets and liabilities is primarily due to timing differences between client invoicing and revenue recognition, lower level of maintenance
invoicing as a result of client attrition, and completion of professional service projects. Accounts receivable balances in the prior year benefited from our
significant efforts to collect and resolve aged balances, resulting in a corresponding increase in cash provided by operating activities. Non-cash expenses
decreased $7.2 million primarily due to lower asset impairment charges, changes in our deferred income taxes, lower amortization of other intangibles, and
lower non-cash operating lease costs, partially offset by higher amortization of capitalized software costs and higher share-based compensation expense.
Cash Flows from Investing Activities
Net cash used in investing activities for the years ended March 31, 2021 and 2020 was $28.5 million and $96.1 million, respectively. The $67.5 million net
decrease in cash used in investing activities compared to the prior year is primarily due to cash payments for our acquisitions of Topaz, Medfusion and
OTTO, net of cash acquired, of $71.7 million in the prior year and a $3.7 million decrease in additions to equipment and improvements, offset by $5.1 million
higher capitalization of software development costs in the current year and $2.5 million proceeds of over-funded corporate-owned life insurance policies
received in the prior year.
Cash Flows from Financing Activities
Net cash used for financing activities for the year ended March 31, 2021 was $131.7 million compared to net cash provided by financing activities of $116.3
million in the prior year. The increase in cash used for financing activities is due to $129.0 million of net repayments on our revolving credit facility, comprised
of $50.0 million of additional borrowings and $179.0 million of principal repayments, $4.8 million of payments for taxes related to net share settlement of
equity awards, and $1.4 million paid for debt issuance costs related to the second amendment of our revolving credit agreement, partially offset by $3.5
million of net proceeds from the issuance of shares under employee plans. In comparison, during the prior year, net borrowings on our revolving credit facility
were $118.0 million, consisting of $19.0 million of principal repayments and $137.0 million of additional borrowings, $2.4 million of net proceeds from the
issuance of shares under employee plans, partially offset by $4.1 million of payments for taxes related to net share settlement of equity awards.
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Contractual Obligations
As of March 31, 2021, we had minimum purchase commitments of $45.7 million related to payments due under certain non-cancelable agreements to
purchase goods and services.
The following table summarizes our other significant contractual obligations at March 31, 2021 and the effect that such obligations are expected to have on
our liquidity and cash in future periods (in thousands):
Contractual Obligations
Operating lease obligations
Remaining lease obligations for vacated
properties (1)
Total
Total
2022
For the year ended March 31,
2025
2024
2023
2026
$
21,182 $
7,985 $
5,176 $
4,300 $
2,687 $
1,034
12,082
33,264 $
5,740
13,725 $
3,044
8,220 $
1,972
6,272 $
1,103
3,790 $
223
1,257
$
(1) Remaining lease obligations for vacated properties relates to remaining lease obligations at certain locations, including Cary, Brentwood, Solana Beach, North Canton,
Phoenix and portions of Atlanta, Irvine, Horsham, and St. Louis, that we have vacated and are actively marketing the locations for sublease as part of our reorganization
efforts. Refer to Note 6, “Leases” and Note 17, "Restructuring Plan" of our notes to consolidated financial statements included elsewhere in this Report for additional
information. Total obligations have not been reduced by projected sublease rentals or by minimum sublease rentals of $1.2 million due in future periods under non-cancelable
subleases.
The deferred compensation liability as of March 31, 2021 was $6.6 million, which is not included in the table above as the timing of future benefit payments
to employees is not determinable.
The uncertain tax position liability as of March 31, 2021 was $4.4 million, which is not included in the table above as the timing of expected payments is not
determinable.
Recent Accounting Pronouncements
Refer to Note 2, “Summary of Significant Accounting Policies” of our notes to consolidated financial statements included elsewhere in this Report for a
discussion of recently issued accounting pronouncements.
Critical Accounting Policies and Estimates
The discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these
consolidated financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenue and expenses,
and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors we believe to be
reasonable under the 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 results could differ materially from our estimates under different assumptions or conditions. To the extent that there are material
differences between our estimates and actual 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 statements
included elsewhere in this Report, should be read in conjunction with management’s discussion and analysis of financial condition and results of operations.
We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results because
application of such policies require significant judgment regarding the effects of matters that are inherently uncertain and that affect our consolidated
financial statements.
Revenue Recognition
Application of the revenue recognition guidance requires a significant amount of judgments and estimates, which may impact the amount and timing of
revenue recognition and related disclosures. Refer to Note 3, "Revenue from Contracts with Customers" of our notes to consolidated financial statements
included elsewhere in this Report for additional information regarding our revenue recognition policies, significant judgements, and estimates.
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Software Development Costs
Software development costs, consisting primarily of employee salaries and benefits and certain third party costs, incurred in the development of new
software solutions and enhancements to existing software solutions for external sale are expensed as incurred, and reported as net research and
development costs in the consolidated statements of net income and comprehensive income, until technological feasibility has been established. After
technological feasibility is established, any additional software development costs are capitalized. Amortization of capitalized software is recorded on a
straight-line basis over the estimated economic life of the related product, which is typically three years. The total of capitalized software costs incurred in the
development of products for external sale are reported as capitalized software costs within our consolidated balance sheets.
We also incur costs related to the development of software applications for our internal-use and for the development of software-as-a-service ("SaaS") based
solutions sold to our clients. The development costs of our SaaS-based solutions are considered internal-use for accounting purposes. Our internal-use
capitalized development costs are stated at cost and amortized on a straight-line basis over the estimated useful lives of the assets, which is typically three
years. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing.
Costs related to the preliminary project stage and post-implementation activities are expensed as incurred. Costs of significant upgrades and enhancements
that result in additional functionality are also capitalized, whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as
incurred. Capitalized software costs for the development of SaaS-based solutions are reported as capitalized software costs within our consolidated balance
sheets and capitalized software costs for the development of 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 we determine that capitalized amounts are
not recoverable based on the expected net cash flows to be generated from sales of the applicable software solutions, the amount by which the unamortized
capitalized costs exceed the net realizable value is written off as a charge to earnings. The net realizable value is estimated as the expected future gross
revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance
and client support required to satisfy our responsibility at the time of sale. In addition to the assessment of net realizable value, we review and adjust the
remaining estimated lives of our capitalized software costs, if necessary. We also perform a periodic review of our software solutions and dispose of fully
amortized capitalized software costs after such products are determined to no longer be used by our clients.
Although we currently believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be
exposed to increases or decreases in revenue that could be material.
Business Combinations
During the year ended March 31, 2020, we completed the acquisitions of Topaz, Medfusion, and OTTO. We accounted for the acquisitions as purchase
business combinations using the acquisition method of accounting.
In accordance with the acquisition method of accounting for business combinations, we allocated the purchase price of acquired businesses to the tangible
and intangible assets acquired and liabilities assumed based on estimated fair values. Our purchase price allocation methodology contains uncertainties
because it requires us to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities, including, but not limited to,
intangible assets, goodwill, and contingent consideration liabilities. We estimate the fair value of assets and liabilities based upon the carrying value of the
acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses depending on the nature of the
assets being sold. We estimate the fair value of the contingent consideration liabilities, as needed, based on our projection of expected results and the
estimated probability of achievement. The process to develop the estimate of fair values in many cases requires the use of significant estimates,
assumptions and judgments, including determining the timing and estimates of future cash flows and developing appropriate discount rates. Unanticipated
events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors
and business strategies. We finalize the purchase price allocation as soon as practicable within the measurement period, but not later than one year
following the acquisition date. Any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements of net
income and comprehensive income.
Refer to Note 7, "Business Combinations" of our notes to consolidated financial statements included elsewhere in this Report for additional information
regarding our business combination policies, significant judgements, and estimates.
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Goodwill
Goodwill acquired in a business combination is measured as the excess of the purchase price, or consideration transferred, over the net acquisition date 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. We will also test for impairment between annual
test dates if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed
at a reporting-unit level, which is defined as an operating segment or one level below an operating segment (referred to as a component). We operate as
one segment and have a single reporting unit. The measures evaluated by our chief operating decision maker ("CODM"), consisting of our Chief Executive
Officer, to assess company performance and make decisions about the allocation of resources include consolidated revenue and consolidated operating
results.
As part of our annual goodwill impairment test, we may elect to first assess qualitative factors to determine whether it is more likely than not that the fair
value of our single reporting unit is less than its carrying amount. We assess events or changes in circumstances in totality, including macroeconomic and
industry conditions, market and competitive environment, changes in customers or customer mix, cost factors, loss of key personnel, significant changes in
legislative environment or other legal factors, changes in the use of our acquired assets, changes in our strategic direction, significant changes in projected
future results of operations, changes in the composition or carrying amount of our net assets, and changes in our stock price. Based on our assessment, if
we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then additional impairment testing is not
required. Otherwise, if we determine that a quantitative impairment test should be performed, we then evaluate goodwill for impairment by comparing the
estimated fair value of the reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to
be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then an impairment charge is
recorded for the difference between the reporting unit’s fair value and carrying amount, not to exceed the carrying amount of the goodwill.
During the quarter ended June 30, 2020, we elected to bypass the optional qualitative step of the goodwill impairment assessment and proceed directly with
the quantitative step, whereby we compared the fair value of our single reporting unit with its carrying amount. The results of the goodwill impairment
assessment indicated that the fair value of our reporting unit exceeded its net carrying amount by a significant amount, indicating that no goodwill impairment
existed as of the annual test dates ended March 31, 2021 and March 31, 2020. We also did not identify any events or circumstances that would require an
interim goodwill impairment test.
Application of the goodwill impairment test required significant judgment, including the identification of reporting units and determination of the fair value of
the reporting unit. We determined the fair value of our reporting unit utilizing the average of two valuation methods, consisting of the income approach
(based upon estimates of future discounted cash flows for the reporting unit) and a market comparable approach (based upon valuation multiples of
companies that operate in similar industries with similar operating characteristics). The cash flows used to determine fair value under the income approach
required significant judgments and represent Management's best estimates of projected operating results, terminal and long-term growth rates of our
business, useful life over which cash flows will occur, and our weighted average cost of capital, that are dependent on a number of significant assumptions
based on historical experience, expectations of future performance, and the expected macroeconomic environment, which are subject to change given the
inherent uncertainty in predicting future results. We also considered our stock price and market capitalization as a corroborative step in assessing the
reasonableness of the fair values estimated for the reporting unit as part of the goodwill impairment assessment.
The estimates used to calculate the fair value of a reporting unit changes 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 the reporting unit. We
currently also do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we used to test for
impairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to future impairment
charges that could be material.
Refer to Note 8, "Goodwill" of our notes to consolidated financial statements included elsewhere in this Report for additional information regarding our
goodwill policies, significant judgements, and estimates.
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Intangible Assets
Intangible assets consist of trade names, customer relationships, and software technology, all of which are associated with our acquisitions.
The intangible assets are recorded at fair value and are reported net of accumulated amortization. We currently amortize the intangible assets over periods
ranging from 5 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 intangible assets at least annually or whenever adverse events or changes in circumstances indicate that impairment 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 of such assets, impairment is
deemed to have occurred and a loss is recognized to reduce the carrying value of the intangible assets to fair value, which is determined by discounting
estimated future cash flows. In addition to the impairment assessment, we routinely review the remaining estimated lives of our intangible assets and record
adjustments, if deemed necessary.
Although currently we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be
exposed to decreases in the fair value of our intangible assets, resulting in impairment charges that could be material. We test intangible assets for
impairment if we believe indicators of impairment exist.
Share-Based Compensation
We record share-based compensation related to share-based awards granted under our employee stock options and incentive plans.
Share-based compensation expense associated with stock options granted under our equity incentive plans is based on the number of options that
ultimately vest and adjusted, if needed, as forfeitures occur. 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 time that 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. Treasury zero-coupon issues with remaining terms equal to the expected term. The
expected dividend yield is the average dividend rate during 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 our consolidated statements of net income and comprehensive income.
Share-based compensation expense associated with restricted stock awards is estimated using the market price of the common stock on the date of grant.
Share-based compensation expense associated with restricted performance stock awards and units are based on the grant date fair value measured at the
underlying closing share price on the date of grant using a Monte Carlo-based valuation model.
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-based compensation expense that could be material.
See Note 15, “Share-Based Awards,” of our notes to consolidated financial statements included elsewhere in this Report for a complete discussion of our
stock-based compensation plans and our accounting policies, significant judgements, and estimates.
Reserves on Accounts Receivable
We maintain reserves for estimated potential sales returns and uncollectible accounts receivable. Accounts receivable are reported net of uncollectible
accounts receivable on our consolidated balance sheets.
Our standard contracts generally do not contain provisions for clients to return products or services. However, we historically have accepted sales returns
under limited circumstances. We estimate expected sales returns and other forms of variable consideration considering our customary business practice and
contract-specific facts and circumstances, and we consider such estimated potential returns as variable consideration when allocating the transaction price
to the extent it is probable that there will not be a significant reversal of cumulative revenue recognized.
We adopted ASU 2016-13 on April 1, 2020 using the modified retrospective transition approach, which required the recognition of expected credit losses for
our accounts receivable and our contract assets, consisting of unbilled receivables. The adoption of the new guidance did not have a material impact on our
consolidated financial statements as the expected credit loss model was not significantly different from our prior policy and methodology for determining the
allowance for doubtful accounts.
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Allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from our clients’ inability to make required
payments are established based on our assessment of the collectability of client accounts, including review of our historical experience of bad debt expense
and the aging of our accounts receivable balances, net of specifically reserved accounts and amounts billed prior to revenue recognition. Specific reserves
are based on our estimate of the probability of collection for certain accounts. As part of our assessment of the adequacy of the allowance for doubtful
accounts, we considered a number of factors including, but not limited to, historical credit loss experience and adjustments for certain asset-specific risk
characteristics, such as bankruptcy filings, internal assessments of client credit quality, age of the client receivable balances, review of major third-party
credit-rating agencies, and evaluation of external factors such as economic conditions, including the potential impacts of the COVID-19 pandemic, that may
affect a client’s ability to pay, or other client-specific factors. Accounts are written off as uncollectible only after we have expended extensive collection efforts.
If a major client’s creditworthiness or financial condition were to deteriorate, if actual defaults are higher than our historical experience, or if other
circumstances arise, our estimates of the recoverability of amounts due to us could be overstated, and additional allowances could be required, which could
have an adverse impact on our operating results. Although we currently believe that our approach to estimates and judgments as described herein is
reasonable, actual results could differ and we may be exposed to increases or decreases in required reserves that could be material.
See Note 4, “Accounts Receivable,” of our notes to consolidated financial statements included elsewhere in this Report for additional information.
Leases
Our leasing arrangements are reflected on the balance sheet as right-of-use assets and liabilities pertaining to the rights and obligations created by the
leased assets. We determine whether an arrangement is a lease at inception and classify it as finance or operating. All of our existing material leases are
classified as operating leases. Our leases do not contain any residual value guarantees.
Right-of-use lease assets and corresponding lease liabilities are recognized at commencement date based on the present value of lease payments over the
expected lease term. Since the interest rate implicit in our lease arrangements is not readily determinable, we determine an incremental borrowing rate for
each lease based on the approximate interest rate on a collateralized basis with similar remaining terms and payments as of the lease commencement date
to determine the present value of future lease payments. Our lease terms may include options to extend or terminate the lease. Currently, it is not reasonably
certain that we will exercise those options and therefore, we utilize the initial, noncancelable, lease term to calculate the lease assets and corresponding
liabilities for all our leases. We have certain insignificant short-term leases with an initial term of twelve months or less that are not recorded in our
consolidated balance sheets. Operating right-of-use lease assets are classified as operating lease assets on our consolidated balance sheets.
Our lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities.
We have applied the practical expedient to combine fixed payments for non-lease components with our lease payments for all of our leases and account for
them together as a single lease component, which increases the amount of our lease assets and corresponding liabilities. Payments under our lease
arrangements are primarily fixed, however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the
operating lease assets and liabilities.
Operating lease costs are recognized on a straight-line basis over the lease term and included as a selling, general and administrative expense in the
consolidated statements of net income and comprehensive income.
Refer to Note 6, "Leases" of our notes to consolidated financial statements included elsewhere in this Report for additional information.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2021 and March 31, 2020, we were subject to minimal market risk on our cash and cash equivalents as we maintained our balances in very
liquid funds with maturities of 90 days or less at the time of purchase.
As of March 31, 2021 we had no outstanding borrowings under our second amended and restated revolving credit agreement (“the Credit Agreement”)
compared to $129.0 million in outstanding borrowings as of March 31, 2020. The revolving loans under the Credit Agreement bear interest at either, at our
option of either, (a) for base rate loans, a base rate based on the highest of (i) 1%, (ii) the “prime rate” quoted in the Wall Street Journal for the United States
of America, (iii) the overnight bank funding rate (not to be less than zero) as determined by the Federal Reserve Bank of New York plus 0.50% or (iv) the
LIBOR-based rate for one month Eurodollar deposits plus 1%, and (b) for Eurodollar loans, the LIBOR-based rate for one, two, three or six months (as
selected by the Company) Eurodollar deposits plus, in each case, an applicable margin based on our net leverage ratio from time to time, ranging from
0.50% to 1.75% for base rate loans, and from 1.50% to 2.75% for Eurodollar loans. Accordingly, we are exposed to interest rate risk, primarily changes in
LIBOR (including the transition away from LIBOR), due to our loans under the revolving credit agreement. Refer to Note 11, “Line of Credit” of our notes to
consolidated financial statements included elsewhere in this Report for additional information.
As of March 31, 2021 and March 31, 2020, we had international operations that exposed us to the risk of fluctuations in foreign currency exchange rates
against 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 DATA
See 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 DISCLOSURE
None.
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ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have evaluated the effectiveness 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, 2021, the end of the period covered by this Report (the “Evaluation Date”). They have concluded that, as of the Evaluation Date, these
disclosure controls and procedures were effective to ensure that material information relating to the Company and its consolidated subsidiaries would 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 Officer have
concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be
disclosed 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
and forms of the Securities and Exchange Commission. They have also concluded that our disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that are filed or submitted under the Exchange Act are accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the
Exchange 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, principal financial officer and principal accounting officer, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting is supported by written policies and procedures, that:
(1)
(2)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of our
management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.
(3)
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of
compliance with 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, 2021. In making our
assessment of internal control over financial reporting, management used the criteria set forth in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal control
over financial reporting was effective as of March 31, 2021.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 2021 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report contained in Item 15(a)(1) of Part IV of this Report, "Exhibits and Financial Statement
Schedules."
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2021, there were no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) under the
Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
47
Table of Contents
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by Item 10 is incorporated herein by reference from our definitive proxy statement for our 2021 Annual Shareholders’ Meeting to be
filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference from our definitive proxy statement for our 2021 Annual Shareholders’ Meeting to be
filed with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 is incorporated herein by reference from our definitive proxy statement for our 2021 Annual Shareholders’ Meeting to be
filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated herein by reference from our definitive proxy statement for our 2021 Annual Shareholders’ Meeting to be
filed with the Securities and Exchange Commission.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated herein by reference from our definitive proxy statement for our 2021 Annual Shareholders’ Meeting to be
filed with the Securities and Exchange Commission.
48
Table of Contents
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this Annual Report on Form 10-K:
(1) Index to Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2021 and 2020
Consolidated Statements of Net Income and Comprehensive Income — Years Ended March 31, 2021, 2020 and 2019
Consolidated Statements of Shareholders’ Equity — Years Ended March 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows — Years Ended March 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
(2) The following supplementary financial statement schedule of NextGen Healthcare, Inc., required to be included in Item 15(a)(2) on
Form 10-K is filed as part of this Report.
Schedule II — Valuation and Qualifying Accounts — Years Ended March 31, 2021, 2020 and 2019
Schedules other than that listed above have been omitted since they are either not required, not applicable, or because the information
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 this Report.
Index to Exhibits
ITEM 16. FORM 10-K SUMMARY
None.
49
Page
56
59
60
61
62
64
88
50
Table of Contents
Exhibit
Number
INDEX TO EXHIBITS
Exhibit Description
Herewith
Form
Exhibit
Filing Date
Filed
Incorporated by Reference
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4.1
10.1
10.2
10.3
10.4
10.5
Restated Articles of Incorporation of Quality Systems, Inc. filed with the
Secretary of State of California on September 8, 1989 (Registration
No. 333-00161)
Certificate of Amendment to Articles of Incorporation of Quality Systems,
Inc. filed with the Secretary of State of California effective March 4, 2005
Certificate of Amendment to Articles of Incorporation of Quality Systems,
Inc. filed with the Secretary of State of California effective October 6, 2005
Certificate of Amendment to Articles of Incorporation of Quality Systems,
Inc. filed with the Secretary of State of California effective March 3, 2006
Certificate of Amendment to Articles of Incorporation of Quality Systems,
Inc. filed with the Secretary of State of California effective October 6, 2011
Restated Articles of Incorporation of NextGen Healthcare, Inc., filed with
the Secretary of State of California effective September 6, 2018
Amended and Restated Bylaws of Quality Systems, Inc., effective
October 30, 2008
Amended and Restated Bylaws of NextGen Healthcare, Inc., effective
September 6, 2018
Second Amended and Restated Bylaws of NextGen Healthcare, Inc.,
effective January 26, 2021
Description of the Registrant’s Securities Registered Pursuant to Section
12 of the Securities Exchange Act of 1934
X
Agreement and Plan of Merger, dated September 6, 2018, to change the
name of Quality Systems, Inc. to NextGen Healthcare, Inc.
Agreement and Plan of Merger, dated October 30, 2015, by and among
Quality Systems, Inc., Ivory Merger Sub, Inc., HealthFusion Holdings, Inc.
and Seth Flam, Sol Lizerbram, and Jonathan Flam, as the Securityholder
Representative Committee.
Agreement and Plan of Merger, dated April 11, 2017, by and among
Quality Systems, Inc., Engage Merger Sub, Inc., Entrada, Inc. and FCA
Venture Partners V, LP, as the Company Stockholders' Representative
Agreement and Plan of Merger, dated July 31, 2017, by and among
Quality Systems, Inc., Peacock Merger Sub, Inc., EagleDream Health, Inc.
and Algimantas K. Chesonis
Agreement and Plan of Merger, dated November 12, 2019, by and among
NextGen Healthcare, Inc., Renegade Merger Sub, Inc., MedFusion, Inc.,
and Project Renegade LLC, as the Equityholders Representative
50
S-1
3.1
11-Jan-96
10-K
3.1.1
14-Jun-05
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
3.01
11-Oct-05
3.1
3.1
3.1
3.1
3.2
3.1
2.1
2.1
2.1
2.1
2.1
6-Mar-06
6-Oct-11
10-Sep-18
31-Oct-08
10-Sep-18
27-Jan-21
10-Sep-18
30-Oct-15
12-Apr-17
1-Aug-17
18-Nov-19
Table of Contents
Exhibit
Number
Exhibit Description
Herewith
Form
Exhibit
Filing Date
Filed
Incorporated by Reference
10.6
10.7
10.8
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
Credit Agreement, dated as of January 4, 2016, among Quality Systems,
Inc., JPMorgan Chase Bank, N.A., as administrative agent, U.S. Bank
National Association, as syndication agent, and Bank of the West,
KeyBank National Association and Wells Fargo Bank, National
Association, as co-documentation agents
Amended and Restated Credit Agreement, dated as of March 29, 2018,
among Quality Systems, Inc., JPMorgan Chase Bank, N.A., as
administrative agent, U.S. Bank National Association, as syndication
agent, and Bank of the West, KeyBank National Association and Wells
Fargo Bank, National Association, as co-documentation agents
Second Amended and Restated Credit Agreement, dated as of March 12,
2021, among NextGen, Inc., JPMorgan Chase Bank, N.A., as
administrative agent, U.S. Bank National Association and Bank of the
West, as co-syndication agents, and certain other agents and lenders
10-Q
10.1
29-Jan-16
8-K
10.1
4-Apr-18
8-K
10.1
16-Mar-21
Second Amended and Restated 2005 Stock Option and Incentive Plan
DEF14A Appendix I
1-Jul-11
Form of Incentive Stock Option Agreement for 2005 Stock Incentive Plan
Form of Nonqualified Stock Option Agreement for 2005 Stock Incentive
Plan
Form of Outside Director's Restricted Stock Unit Agreement under Second
Amended and Restated 2005 Stock Option and Incentive Plan
Form of Executive Officer Restricted Stock Agreement under Second
Amended and Restated 2005 Stock Option and Incentive Plan
Form of Performance-Based Restricted Stock Unit Agreement under
Second Amended and Restated 2005 Stock Option and Incentive Plan
Form of Outside Directors Amended and Restated Restricted Stock
Agreement under 2010 Outside Director Compensation Program
Quality Systems, Inc. 2015 Equity Incentive Plan
Quality Systems, Inc. Amended 2015 Equity Incentive Plan
NextGen Healthcare, Inc. 2015 Equity Incentive Plan, as amended
Form of Stock Option Grant Notice, Option Agreement and Notice of
Exercise for 2015 Equity Incentive Plan
Form of Employee Restricted Stock Award Grant Notice and Restricted
Stock Award Agreement for 2015 Equity Incentive Plan
Form of Outside Director Restricted Stock Award Grant Notice and
Restricted Stock Award Agreement for 2015 Equity Incentive Plan
51
8-K
8-K
8-K
8-K
10.3
10.2
10.1
10.2
5-Jun-07
5-Jun-07
15-Aug-11
28-May-13
10-K
10.17
29-May-14
8-K
8-K
8-K
8-K
8-K
8-K
8-K
10.2
10.1
10.1
10.2
10.4
10.2
10.3
2-Feb-10
14-Aug-15
23-Aug-17
16-Aug-19
14-Aug-15
14-Aug-15
14-Aug-15
Table of Contents
Exhibit
Number
Exhibit Description
Herewith
Form
Exhibit
Filing Date
Filed
Incorporated by Reference
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35*
10.36*
21
23.1
31.1
Form of Employee Restricted Stock Award Grant Notice and Restricted
Stock Award Agreement for 2015 Equity Incentive Plan, as amended
Form of Outside Director Restricted Stock Award Grant Notice and
Restricted Stock Award Agreement for 2015 Equity Incentive Plan, as
amended
Form of Stock Option Grant Notice, Option Agreement and Notice of
Exercise for 2015 Equity Incentive Plan, as amended.
Form of Performance Stock Award Grant Notice and
Performance/Restricted Stock Award Agreement for 2015 Equity Incentive
Plan, entered into with the Company's named executive officers effective
December 29, 2016.
Form of Restricted Stock Award Grant Notice and Performance/Restricted
Stock Award Agreement for 2015 Equity Incentive Plan, entered into with
the Company's named executive officers effective December 29, 2016.
8-K
8-K
8-K
8-K
10.3
10.4
10.5
10.2
16-Aug-19
16-Aug-19
16-Aug-19
3-Jan-17
8-K
10.3
3-Jan-17
Quality Systems, Inc. 2014 Employee Share Purchase Plan
DEF14A
Annex A
27-Jun-14
Executive Employment Agreement, dated June 3, 2015, between Quality
Systems, Inc. and John R. Frantz
Executive Employment Agreement Addendum, dated as of January 22,
2019, between NextGen Healthcare, Inc. and John R. Frantz
Employment Offer Letter, dated January 27, 2016, between David
Metcalfe and Quality Systems, Inc.
Employment Offer Letter, dated February 16, 2016, between James R.
Arnold and Quality Systems, Inc.
Employment Offer Letter, dated November 27, 2017, between Jeffrey D.
Linton and Quality Systems, Inc.
NextGen Healthcare, Inc, FY2021 Director Compensation Plan
Form of Indemnification Agreement (Directors and Officers)
2009 Quality Systems, Inc. Amended and Restated Deferred
Compensation Plan.
Agreement by and among Quality Systems, Inc., the Clinton Group, Inc.
and certain of its affiliates, dated as of July 17, 2013
List of subsidiaries.
Consent of Independent Registered Public Accounting Firm —
PricewaterhouseCoopers LLP.
Certification of Principal Executive Officer Required by Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
X
X
X
52
8-K
8-K
8-K
8-K
8-K
8-K
8-K
10-K
8-K
10.1
10.1
10.1
10.1
10.1
10.1
10.1
10.8
10.1
4-Jun-15
23-Jan-19
28-Jan-16
18-Feb-16
1-Dec-17
18-Aug-20
28-Jan-13
30-May-13
17-Jul-13
Table of Contents
Exhibit
Number
31.2
32.1
Exhibit Description
Herewith
Form
Exhibit
Filing Date
Filed
Incorporated by Reference
Certification of Principal Financial Officer Required by Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
X
X
101.INS**
Inline XBRL Instance Document – the instance document does not appear
in the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document.
101.SCH**
Inline XBRL Taxonomy Extension Schema Document
101.CAL**
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
The cover page from the Company’s Annual Report on Form 10-K for the
year ended March 31, 2021, has been formatted in Inline XBRL.
* 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 of 1933, 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 liability under these
sections.
53
Table of Contents
SIGNATURES
Pursuant 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 its
behalf by the undersigned, thereunto duly authorized.
By:
By:
/s/ John R. Frantz
John R. Frantz
Chief Executive Officer (Principal Executive Officer)
/s/ James R. Arnold, Jr.
James R. Arnold, Jr.
Chief Financial Officer (Principal Financial Officer)
By:
/s/ David Ahmadzai
David Ahmadzai
Chief Accounting Officer (Principal Accounting Officer)
Date: May 26, 2021
54
Table of Contents
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below hereby constitutes and appoints John R. Frantz,
James R. Arnold, Jr., and David Ahmadzai, each of them acting individually, as his attorney-in-fact, each with the full power of substitution, for him in any and
all capacities, 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
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do
and perform each and 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 Form 10-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 capacities
and on the dates indicated.
Signature
Title
Date
/s/ Jeffrey H. Margolis
Jeffrey H. Margolis
/s/ Craig A. Barbarosh
Craig A. Barbarosh
/s/ John R. Frantz
John R. Frantz
/s/ James R. Arnold, Jr.
James R. Arnold, Jr.
/s/ David Ahmadzai
David Ahmadzai
/s/ George H. Bristol
George H. Bristol
/s/ Julie D. Klapstein
Julie D. Klapstein
/s/ James C. Malone
James C. Malone
/s/ Morris Panner
Morris Panner
/s/ Sheldon Razin
Sheldon Razin
Chairman of the Board and Director
Vice Chairman of the Board and Director
Chief Executive Officer (Principal Executive Officer) and Director
Chief Financial Officer (Principal Financial Officer)
Chief Accounting Officer (Principal Accounting Officer)
Director
Director
Director
Director
Chairman Emeritus and Director
/s/ Lance E. Rosenzweig
Lance E. Rosenzweig
Director
55
May 26, 2021
May 26, 2021
May 26, 2021
May 26, 2021
May 26, 2021
May 26, 2021
May 26, 2021
May 26, 2021
May 26, 2021
May 26, 2021
May 26, 2021
Table of Contents
To the Board of Directors and Shareholders of NextGen Healthcare, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of NextGen Healthcare, Inc. and its subsidiaries (the “Company”) as of
March 31, 2021 and 2020, and the related consolidated statements of net income and comprehensive income, of shareholders' equity and
of cash flows for each of the three years in the period ended March 31, 2021, including the related notes and financial statement schedule
listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited
the Company's internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended
March 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2021, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal
2020 and the manner in which it accounts for revenue from contracts with customers in fiscal 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s
Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized 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 of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to
the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
57
Table of Contents
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures
to which it relates.
Revenue Recognition - Customer Contracts with Multiple Performance Obligations
As described in Note 3 to the consolidated financial statements, the Company recorded total revenues of $557 million for the year ended
March 31, 2021. The Company’s contracts with customers may include multiple performance obligations that consist of various
combinations of software solutions and related services, which are generally capable of being distinct and accounted for as separate
performance obligations. The total transaction price is allocated to each performance obligation within a contract based on estimated
standalone selling prices. Standalone selling prices are generally determined based on the prices charged to customers, except for certain
software licenses that are based on the residual approach because their standalone selling prices are highly variable and certain maintenance
customers that are based on substantive renewal rates.
The principal considerations for our determination that performing procedures relating to revenue recognition, specifically customer
contracts with multiple performance obligations, is a critical audit matter are the significant judgment by management in identifying distinct
performance obligations for each contract and in determining the amount to be allocated to each performance obligation. This in turn led to
a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to whether
management appropriately (i) identified all performance obligations and (ii) allocated the transaction price to each performance obligation
within the contract.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition
process, including controls related to management’s identification of performance obligations, determination of the estimated standalone
selling price, and allocation of transaction price. These procedures also included, among others, reviewing contracts with customers for a
sample of contracts and i) testing management’s identification of distinct performance obligations in its contracts with customers, ii) testing
management’s estimate of standalone selling prices and (iii) testing management’s allocation of transaction price to the performance
obligations.
/s/ PricewaterhouseCoopers LLP
Irvine, California
May 26, 2021
We have served as the Company’s auditor since 2009.
58
Table of Contents
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable, net
Contract assets
Income taxes receivable
Prepaid expenses and other current assets
Total current assets
Equipment and improvements, net
Capitalized software costs, net
Operating lease assets
Deferred income taxes, net
Contract assets, net of current
Intangibles, net
Goodwill
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Contract liabilities
Accrued compensation and related benefits
Income taxes payable
Operating lease liabilities
Other current liabilities
Total current liabilities
Deferred compensation
Line of credit
Operating lease liabilities, net of current
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 16)
Shareholders' equity:
Common stock
NEXTGEN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31, 2021
March 31, 2020
$
$
$
$
73,295 $
5,280
77,541
19,481
765
31,282
207,644
14,539
41,474
18,446
19,474
1,976
36,700
267,212
37,021
644,486 $
11,378 $
52,863
50,374
584
12,735
52,699
180,633
6,620
—
18,453
7,136
212,842
671
304,263
(1,924)
128,634
431,644
644,486 $
138,012
2,307
80,006
12,529
856
26,305
260,015
19,836
37,004
31,004
10,620
3,007
57,809
267,165
33,656
720,116
10,521
56,786
23,792
148
10,619
41,352
143,218
5,300
129,000
38,823
3,281
319,622
661
282,857
(2,143)
119,119
400,494
720,116
$0.01 par value; authorized 100,000 shares; issued and outstanding 67,069 and 66,134
shares at March 31, 2021 and March 31, 2020, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
59
Table of Contents
NEXTGEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
Revenues:
Recurring
Software, hardware, and other non-recurring
Total revenues
Cost of revenue:
Recurring
Software, hardware, and other non-recurring
Amortization of capitalized software costs and acquired intangible assets
Total cost of revenue
Gross profit
Operating expenses:
Selling, general and administrative
Research and development costs, net
Amortization of acquired intangible assets
Impairment of assets
Restructuring costs
Total operating expenses
Income from operations
Interest income
Interest expense
Other income (expense), net
Income before provision for (benefit of) income taxes
Provision for (benefit of) income taxes
Net income
Other comprehensive income:
Foreign currency translation, net of tax
Comprehensive income
Net income per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
$
$
$
$
$
2021
Fiscal Year Ended March 31,
2020
2019
502,819 $
54,002
556,821
212,199
26,457
36,768
275,424
281,397
180,529
75,501
4,449
5,539
2,562
268,580
12,817
38
(3,516)
(64)
9,275
(240)
9,515 $
219
9,734 $
0.14 $
0.14 $
66,739
66,885
489,313 $
50,926
540,239
205,057
26,904
35,478
267,439
272,800
165,174
83,295
4,143
12,571
2,505
267,688
5,112
256
(1,955)
846
4,259
(3,239)
7,498 $
(912)
6,586 $
0.11 $
0.11 $
65,474
65,612
473,921
55,252
529,173
191,496
26,711
28,490
246,697
282,476
164,879
80,994
4,344
—
640
250,857
31,619
216
(2,814)
267
29,288
4,794
24,494
(831)
23,663
0.38
0.38
64,417
64,600
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
NEXTGEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Balance, March 31, 2018
Common stock issued under stock plans, net of shares
withheld for taxes
Stock-based compensation
Cumulative effect adjustment related to the adoption of ASC
606
Components of other comprehensive income:
Translation adjustments
Net income
Balance, March 31, 2019
Common stock issued under stock plans, net of shares
withheld for taxes
Stock-based compensation
Components of other comprehensive income:
Translation adjustments
Net income
Balance, March 31, 2020
Common stock issued under stock plans, net of shares
withheld for taxes
Stock-based compensation
Components of other comprehensive income:
Translation adjustments
Net income
Balance, March 31, 2021
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
63,995
640
244,462
78,708
(400)
323,410
843
—
8
—
4,344
16,102
—
—
—
—
64,838
1,296
—
—
—
66,134
935
—
—
—
648
13
—
—
—
661
10
—
—
—
264,908
(1,745)
19,694
—
—
282,857
(1,304)
22,710
8,419
—
24,494
111,621
—
—
—
7,498
119,119
—
—
—
—
—
(831)
—
(1,231)
—
—
(912)
—
(2,143)
—
—
—
—
67,069 $
—
—
671 $
—
—
304,263 $
—
9,515
128,634 $
219
—
(1,924) $
4,352
16,102
8,419
(831)
24,494
375,946
(1,732)
19,694
(912)
7,498
400,494
(1,294)
22,710
219
9,515
431,644
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
NEXTGEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2021
Fiscal Year Ended March 31,
2020
2019
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
9,515 $
7,498 $
Amortization of capitalized software costs
Amortization and write-off of debt issuance costs
Amortization of other intangibles
Change in fair value of contingent consideration
Deferred income taxes
Depreciation
Excess tax deficiency (benefit) from share-based compensation
Impairment of assets
Loss on disposal of equipment and improvements
Non-cash operating lease costs
Provision for bad debts
Share-based compensation
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable
Contract assets
Accounts payable
Contract liabilities
Accrued compensation and related benefits
Income taxes
Deferred compensation
Operating lease liabilities
Other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to capitalized software costs
Additions to equipment and improvements
Acquisition related working capital adjustment payments
Payments for acquisitions, net of cash acquired
Proceeds from over-funded corporate-owned life insurance policies
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from line of credit
Repayments on line of credit
Payment of debt issuance costs
Proceeds from issuance of shares under employee plans
Payments for taxes related to net share settlement of equity awards
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Supplemental disclosures of cash flow information:
Cash paid for income taxes
Cash refunds from income taxes
Cash paid for interest
Non-cash investing and financing activities:
Non-cash additions to capitalized software
Cash paid for amounts included in the measurement of operating lease liabilities
Operating lease assets obtained in exchange for operating lease liabilities
Accrued purchases of equipment and improvements
20,108
1,026
21,109
(1,367)
(8,854)
7,997
798
5,539
12
6,786
2,834
22,710
(369)
(5,921)
615
(3,923)
26,582
1,615
1,320
(16,736)
7,122
98,518
(24,578)
(3,761)
(206)
—
—
(28,545)
17,085
710
22,536
(950)
(5,379)
8,172
(53)
12,571
41
8,108
3,367
19,694
4,937
1,458
3,330
(133)
(2,419)
2,454
(605)
(9,684)
(7,137)
85,601
(19,432)
(7,449)
—
(71,691)
2,500
(96,072)
50,000
(179,000)
(1,423)
3,479
(4,773)
(131,717)
(61,744)
140,319
78,575 $
137,000
(19,000)
—
2,409
(4,141)
116,268
105,797
34,522
140,319 $
6,206 $
155
2,708
2,599 $
2,728
1,266
— $
— $
18,651
3,107
242
11,527
8,494
173
$
$
$
The accompanying notes are an integral part of these consolidated statements.
62
24,494
11,338
710
21,496
1,000
245
10,298
(365)
—
194
—
5,644
16,102
(6,178)
(812)
1,070
(4,131)
(2,992)
4,049
(181)
—
(31,506)
50,475
(20,571)
(4,952)
—
—
—
(25,523)
26,000
(52,000)
—
7,533
(3,181)
(21,648)
3,304
31,218
34,522
1,570
675
1,819
2,304
—
—
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NEXTGEN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES INDEX
Note
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Organization of Business
Summary of Significant Accounting Policies
Revenue from Contracts with Customers
Accounts Receivable
Fair Value Measurements
Leases
Business Combinations
Goodwill
Intangible Assets
Capitalized Software Costs
Line of Credit
Composition of Certain Financial Statement Captions
Income Taxes
Employee Benefit Plans
Share-Based Awards
Commitments, Guarantees and Contingencies
Restructuring Plan
63
Page
64
64
69
72
73
74
75
77
77
78
78
79
80
82
83
86
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1. Organization of Business
Description of Business
NEXTGEN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except shares and per share data)
NextGen Healthcare is a leading provider of software and services that empower ambulatory healthcare practices to manage the risk and complexity of
delivering care in the rapidly evolving U.S. healthcare system. Our combination of technological breadth, depth and domain expertise makes us a preferred
solution provider and trusted advisor for our clients. In addition to highly configurable core clinical and financial capabilities, our portfolio includes tightly
integrated solutions that deliver on ambulatory healthcare imperatives including: population health, care management, patient outreach, telemedicine, and
nationwide clinical information exchange.
We serve clients across all 50 states. Over 100,000 providers use NextGen Healthcare solutions to deliver care in nearly every medical specialty in a wide
variety of practice models including accountable care organizations (“ACOs”), independent physician associations (“IPAs”), managed service organizations
(“MSOs”), Veterans Service Organizations (“VSOs”), and Dental Service Organizations (“DSOs”). Our clients include some of the largest and most
progressive multi-specialty groups in the country. With the addition of behavioral health to our medical and oral health capabilities, we continue to extend our
share not only in Federally Qualified Health Centers (“FQHCs”), but also in the growing integrated care market.
NextGen Healthcare has historically enhanced our offering through both organic and inorganic activities. In October 2015, we divested our former Hospital
Solutions division to focus exclusively on the ambulatory marketplace. In January 2016, we acquired HealthFusion Holdings, Inc. and its cloud-based
electronic health record and practice management solution. In April 2017, we acquired Entrada, Inc. and its cloud-based, mobile platform for clinical
documentation and collaboration. In August 2017, we acquired EagleDream Health, Inc. and its cloud-based population health analytics solution. In January
2018, we acquired Inforth Technologies for its specialty-focused clinical content. In October 2019, we acquired Topaz Information Systems, LLC for its
behavioral health solutions. In December 2019, we acquired Medfusion, Inc. for its Patient Experience Platform (i.e., patient portal, self-scheduling, and
patient pay) capabilities and OTTO Health, LLC for its integrated virtual care solutions, notably telemedicine. The integration of these acquired technologies
has made NextGen Healthcare’s solutions among the most comprehensive in the market.
Our company was incorporated in California in 1974. Previously named Quality Systems, Inc., we changed our corporate name to NextGen Healthcare, Inc.
in September 2018. Our principal executive offices are located at 3525 Piedmont Rd., NE, Building 6, Suite 700, Atlanta, Georgia, and our principal website
is www.nextgen.com. We operate on a fiscal year ending on March 31.
2. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include the accounts of NextGen Healthcare, Inc. and its wholly-owned subsidiaries
(collectively, the “Company”). Each of the terms “NextGen Healthcare,” “NextGen,” “we,” “us,” or “our” as used herein refers collectively to the Company,
unless otherwise stated. All intercompany accounts and transactions have been eliminated.
Business Segments. We operated as one segment for the years ended March 31, 2021 and 2020. The measures evaluated by our chief operating decision
maker ("CODM"), consisting of our Chief Executive Officer, to assess company performance and make decisions about the allocation of resources include
consolidated revenue and consolidated operating results.
Basis of Presentation. References to amounts in the consolidated financial statement sections are in thousands, except shares and per share data, unless
otherwise specified.
Coronavirus Pandemic. In late 2019, the emergence of a novel coronavirus, or COVID-19, was reported and in January 2020, the World Health
Organization (“WHO”), declared it a Public Health Emergency of International Concern. In March 2020, the WHO escalated COVID-19 as a pandemic. The
extent to which COVID-19 may continue to impact our business and financial results depends on numerous evolving factors including, but not limited to, the
magnitude and duration of COVID-19; the impact on our employees; the extent to which it impacts worldwide macroeconomic conditions, including interest
rates, employment rates, and health insurance coverage; the speed of the recovery; and governmental and business reactions to the pandemic. We
assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably
available to the Company and the unknown future impacts of COVID-19 at March 31, 2021, and through the date of this Annual Report on Form 10-K. The
accounting matters assessed included, but were not limited to, our allowances for doubtful accounts and the carrying value of goodwill and other long-lived
assets. While there was not a material impact to our consolidated financial statements at and for the year-ended March 31, 2021, our future assessment of
the magnitude and duration of COVID-19, as well as other factors could result in material impacts to our consolidated financial statements in future reporting
periods.
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Use of Estimates. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“GAAP”), which requires us to make estimates and assumptions that affect the amounts reported and disclosed in the
consolidated financial 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 of which 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 adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASC 606”) and
all related amendments as of April 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption and recorded
an adjustment to retained earnings as of April 1, 2018 due to the cumulative impact of adopting ASC 606. Refer to Note 3, "Revenue from Contracts with
Customers" for additional information regarding our revenue recognition policies.
Cash and Cash Equivalents. Cash and cash equivalents consist primarily of cash and money market funds with original maturities of less than 90 days. At
March 31, 2021 and March 31, 2020, we had cash and cash equivalents of $73,295 and $138,012, respectively. We also had cash deposits held at United
States banks and financial institutions at March 31, 2021 of which $86,317 was in excess of the Federal Deposit Insurance Corporation insurance limit of
$250 per owner. Our cash deposits are exposed to credit loss for amounts in excess of insured limits in the event of nonperformance by the institutions;
however, we do not anticipate nonperformance by these institutions.
Money market funds in which we hold a portion of our excess cash are invested in very high grade commercial and governmental instruments, and therefore
bear 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 the
disbursement of certain state social and care services programs. We record an offsetting liability when we initially receive such cash from the programs. We
relieve both restricted cash and cash equivalents and the related liability when amounts are disbursed. We earn an administrative fee based on a percentage
of the funds disbursed on behalf of the government social and care service programs.
Reserves on Accounts Receivable. We maintain reserves for estimated potential sales returns and uncollectible accounts receivable. Accounts receivable
are reported net of uncollectible accounts receivable on our consolidated balance sheets.
Our standard contracts generally do not contain provisions for clients to return products or services. However, we historically have accepted sales returns
under limited circumstances. We estimate expected sales returns and other forms of variable consideration considering our customary business practice and
contract-specific facts and circumstances, and we consider such estimated potential returns as variable consideration when allocating the transaction price
to the extent it is probable that there will not be a significant reversal of cumulative revenue recognized.
We adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on April 1, 2020
using the modified retrospective transition approach, which required the recognition of expected credit losses for our accounts receivable and our contract
assets, consisting of unbilled receivables. The adoption of the new guidance did not have a material impact on our consolidated financial statements as the
expected credit loss model was not significantly different from our prior policy and methodology for determining the allowance for doubtful accounts.
Allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from our clients’ inability to make required
payments are established based on our assessment of the collectability of client accounts, including review of our historical experience of bad debt expense
and the aging of our accounts receivable balances, net of specifically reserved accounts and amounts billed prior to revenue recognition. Specific reserves
are based on our estimate of the probability of collection for certain accounts. As part of our assessment of the adequacy of the allowance for doubtful
accounts, we considered a number of factors including, but not limited to, historical credit loss experience and adjustments for certain asset-specific risk
characteristics, such as bankruptcy filings, internal assessments of client credit quality, age of the client receivable balances, review of major third-party
credit-rating agencies, and evaluation of external factors such as economic conditions, including the potential impacts of the COVID-19 pandemic, that may
affect a client’s ability to pay, or other client-specific factors. Accounts are written off as uncollectible only after we have expended extensive collection efforts.
Refer to Note 4, “Accounts Receivable” for additional information.
Leases. We adopted ASU 2016-02, Leases (Topic 842), and its subsequent amendments (together “ASC 842”) using the cumulative-effect adjustment
transition method, which is the additional transition method described within ASU 2018-11, Leases (Topic 842): Targeted Improvements, issued by the FASB
in July 2018, which allowed us to apply the new lease standard as of April 1, 2019, rather than the beginning of the earliest period presented. Our leasing
arrangements are reflected on the balance sheet as right-of-use assets and liabilities pertaining to the rights and obligations created by the leased assets.
We determine whether an arrangement is a lease at inception and classify it as finance or operating. All of our existing material leases are classified as
operating leases. Our leases do not contain any residual value guarantees.
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Right-of-use lease assets and corresponding lease liabilities are recognized at commencement date based on the present value of lease payments over the
expected lease term. Since the interest rate implicit in our lease arrangements is not readily determinable, we determine an incremental borrowing rate for
each lease based on the approximate interest rate on a collateralized basis with similar remaining terms and payments as of the lease commencement date
to determine the present value of future lease payments. Our lease terms may include options to extend or terminate the lease. Currently, it is not reasonably
certain that we will exercise those options and therefore, we utilize the initial, noncancelable, lease term to calculate the lease assets and corresponding
liabilities for all our leases. We have certain insignificant short-term leases with an initial term of twelve months or less that are not recorded in our
consolidated balance sheets. Operating right-of-use lease assets are classified as operating lease assets on our consolidated balance sheets.
Our lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities.
We have applied the practical expedient to combine fixed payments for non-lease components with our lease payments for all of our leases and account for
them together as a single lease component, which increases the amount of our lease assets and corresponding liabilities. Payments under our lease
arrangements are primarily fixed, however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the
operating lease assets and liabilities.
Operating lease costs are recognized on a straight-line basis over the lease term and included as a selling, general and administrative expense in the
consolidated statements of net income and comprehensive income.
Refer to Note 6, "Leases" for additional information.
Equipment and Improvements. Equipment and improvements are stated at cost less accumulated depreciation and amortization. Repair and maintenance
costs that do not improve service potential or extend economic life are expensed as incurred. Depreciation and amortization of equipment and improvements
are recorded 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
following ranges:
•
•
•
Computer equipment and software - 3 to 5 years
Furniture and fixtures - 3 to 7 years
Leasehold improvements - lesser of lease term or estimated useful life of asset
Depreciation expense related to our equipment and improvements was $7,997, $8,172, and $10,298 for the years ended March 31, 2021, 2020, and 2019,
respectively.
Capitalized Software Costs. Software development costs, consisting primarily of employee salaries and benefits and certain third party costs, incurred in
the development of new software solutions and enhancements to existing software solutions for external sale are expensed as incurred, and reported as net
research and development costs in the consolidated statements of net income and comprehensive income, until technological feasibility has been
established. After technological feasibility is established, any additional software development costs are capitalized. Amortization of capitalized software is
recorded on a straight-line basis over the estimated economic life of the related product, which is typically three years. The total of capitalized software costs
incurred in the development of products for external sale are reported as capitalized software costs within our consolidated balance sheets.
We also incur costs related to the development of software applications for our internal-use and for the development of software-as-a-service ("SaaS") based
solutions sold to our clients. The development costs of our SaaS-based solutions are considered internal-use for accounting purposes. Our internal-use
capitalized development costs are stated at cost and amortized on a straight-line basis over the estimated useful lives of the assets, which is typically three
years. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing.
Costs related to the preliminary project stage and post-implementation activities are expensed as incurred. Costs of significant upgrades and enhancements
that result in additional functionality are also capitalized, whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as
incurred. Capitalized software costs for the development of SaaS-based solutions are reported as capitalized software costs within our consolidated balance
sheets and capitalized software costs for the development of 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 we determine that capitalized amounts are
not recoverable based on the expected net cash flows to be generated from sales of the applicable software solutions, the amount by which the unamortized
capitalized costs exceed the net realizable value is written off as a charge to earnings. The net realizable value is estimated as the expected future gross
revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance
and client support required to satisfy our responsibility at the time of sale. In addition to the assessment of net realizable value, we review and adjust the
remaining estimated lives of our capitalized software costs, if necessary. We also perform a periodic review of our software solutions and dispose of fully
amortized capitalized software costs after such products are determined to no longer be used by our clients.
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Business Combinations. In accordance with the accounting for business combinations, we allocate the purchase price of the acquired business to the
tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair values of acquired
assets and liabilities assumed represent our best estimate of fair value. The estimated fair value of the acquired tangible and intangible assets and liabilities
assumed were determined using multiple valuation approaches depending on the type and nature of tangible or intangible asset acquired or liabilities
assumed, including but not limited to the income approach, the excess earnings method and the relief from royalty method approach. The purchase price
allocation methodology contains uncertainties as it requires us to make assumptions and to apply judgment to estimate the fair value of acquired assets and
liabilities, including, but not limited to, intangible assets, goodwill, deferred revenue, and contingent consideration liabilities. We estimate the fair value of the
contingent consideration liabilities, as needed, based on our projection of expected results and the estimated probability of achievement. The process to
develop the estimate of fair values in many cases requires the use of significant estimates, assumptions and judgments, including determining the timing and
estimates of future cash flows and developing appropriate discount rates. Unanticipated events or circumstances may occur which could affect the accuracy
of our fair value estimates, including assumptions regarding industry economic factors and business strategies. We expect to finalize the purchase price
allocation as soon as practicable within the measurement period, but not later than one year following the acquisition date. Any adjustments to fair value
subsequent to the measurement period are reflected in the consolidated statements of net income and comprehensive income.
Goodwill. Goodwill acquired in a business combination is measured as the excess of the purchase price, or consideration transferred, over the net
acquisition date 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. We will also test for impairment between annual
test dates if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed
at a reporting-unit level, which is defined as an operating segment or one level below an operating segment (referred to as a component). We operate as
one segment and have a single reporting unit. The measures evaluated by our chief operating decision maker ("CODM"), consisting of our Chief Executive
Officer, to assess company performance and make decisions about the allocation of resources include consolidated revenue and consolidated operating
results.
As part of our annual goodwill impairment test, we may elect to first assess qualitative factors to determine whether it is more likely than not that the fair
value of our single reporting unit is less than its carrying amount. We assess events or changes in circumstances in totality, including macroeconomic and
industry conditions, market and competitive environment, changes in customers or customer mix, cost factors, loss of key personnel, significant changes in
legislative environment or other legal factors, changes in the use of our acquired assets, changes in our strategic direction, significant changes in projected
future results of operations, changes in the composition or carrying amount of our net assets, and changes in our stock price. Based on our assessment, if
we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then additional impairment testing is not
required. Otherwise, if we determine that a quantitative impairment test should be performed, we then evaluate goodwill for impairment by comparing the
estimated fair value of the reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to
be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then an impairment charge is
recorded for the difference between the reporting unit’s fair value and carrying amount, not to exceed the carrying amount of the goodwill.
Intangible Assets. Intangible assets consist of trade names, customer relationships, and software technology, all of which are associated with our
acquisitions.
The intangible assets are recorded at fair value and are reported net of accumulated amortization. We currently amortize the intangible assets over periods
ranging from 5 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 intangible assets at least annually or whenever adverse events or changes in circumstances indicate that impairment 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 of such assets, impairment is
deemed to have occurred and a loss is recognized to reduce the carrying value of the intangible assets to fair value, which is determined by discounting
estimated future cash flows. In addition to the impairment assessment, we routinely review the remaining estimated lives of our intangible assets and record
adjustments, if deemed necessary.
Long-Lived Assets. We assess our long-lived assets for potential impairment periodically or whenever adverse events or changes in circumstances
indicate that impairment may have occurred. If necessary, recoverability of the assets is evaluated based on the future undiscounted cash flows expected to
result from the use of the related assets compared to the carrying value of such assets. If impairment is deemed to have occurred, a loss is recognized to
reduce the carrying value of the long-lived assets to fair value, which is determined by discounting the 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.
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Income Taxes. Income taxes are provided based on current taxable income and the future tax consequences of temporary differences between the basis of
assets and liabilities for financial and tax reporting. The deferred income tax assets and liabilities represent the future state and federal tax return
consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred income taxes
are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future income taxes. At
each reporting period, we assess the realizable value of deferred tax assets based on, among other things, estimates of future taxable income and adjust the
related valuation allowance as necessary. We make a number of assumptions and estimates in determining the appropriate amount of expense to record for
income taxes. The assumptions and estimates consider the taxing jurisdiction in which we operate as well as current tax regulations. Accruals are
established for estimates 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
shows and conventions, were approximately $3,902, $6,044, and $8,226 for the years ended March 31, 2021, 2020, and 2019, respectively, and were
included in selling, general and administrative expenses in the accompanying consolidated statements of net income and comprehensive income.
Earnings per Share. We provide a dual presentation of “basic” and “diluted” earnings per share (“EPS”). Shares below are in thousands.
Earnings per share — Basic:
Net income
Weighted-average shares outstanding — Basic
Net income per common share — Basic
Earnings per share — Diluted:
Net income
Weighted-average shares outstanding
Effect of potentially dilutive securities
Weighted-average shares outstanding — Diluted
Net income per common share — Diluted
2021
Fiscal Year Ended March 31,
2020
2019
$
$
$
$
9,515
66,739
0.14
9,515
66,739
146
66,885
0.14
$
$
$
$
7,498
65,474
0.11
7,498
65,474
138
65,612
0.11
$
$
$
$
24,494
64,417
0.38
24,494
64,417
183
64,600
0.38
The computation of diluted net income per share does not include 1,949, 1,807 and 1,963 options for the years ended March 31, 2021, 2020, and 2019,
respectively, because their inclusion would have an anti-dilutive effect on net income per share.
Share-Based Compensation. The following table shows total share-based compensation expense included in the consolidated statements of net income
and comprehensive income for the fiscal year ended March 31, 2021, 2020, and 2019:
Costs and expenses:
Cost of revenue
Research and development costs
Selling, general and administrative
Total share-based compensation
Income tax benefit
Decrease in net income
Fiscal Year Ended March 31,
2020
2019
2021
$
$
1,991 $
4,036
16,683
22,710
(5,415)
17,295 $
2,051 $
3,875
13,768
19,694
(4,726)
14,968 $
1,252
2,919
11,931
16,102
(3,859)
12,243
Recently Adopted Accounting Pronouncements. Recently adopted accounting pronouncements are discussed below or in the notes, where applicable.
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU
2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software
license). ASU 2018-15 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The adoption of
ASU 2018-15 on April 1, 2020 did not have a material impact on our consolidated financial statements.
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In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Disclosure Requirements for
Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies certain disclosure requirements on fair value measurements in Topic 820, Fair Value
Measurement. ASU 2018-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The
adoption of ASU 2018-13 on April 1, 2020 did not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).
ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of Step two of the goodwill impairment
test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount
and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. ASU 2017-04 is effective
prospectively for annual and interim periods beginning after December 15, 2019, and early adoption is permitted on goodwill impairment tests performed on
testing dates after January 1, 2017. The adoption of ASU 2017-04 on April 1, 2020 did not have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). ASU 2016-13 provides new guidance regarding the measurement and recognition of credit losses for most financial assets and certain
other instruments that are not measured at fair value through net income. ASU 2016-13 is effective for annual periods, and interim periods within those
annual periods, beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2016-13 using
the modified retrospective transition approach on April 1, 2020 did not have a material impact on our consolidated financial statements. Refer to Note 4,
“Accounts Receivable” for additional details.
Recent Accounting Standards Not Yet Adopted. Recent accounting pronouncements requiring implementation in current or future periods are discussed
below or in the notes, where applicable.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other
transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships,
and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of
reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which clarifies the
application of certain optional expedients and exceptions. Topic 848 may be applied prospectively through December 31, 2022. We are currently evaluating
the effect that ASU 2020-04 may have on our contracts that reference LIBOR, such as our amended and restated revolving credit agreement (see Note 11).
We have not elected to apply any of the provisions of Topic 848, and we are currently in the process of evaluating the potential impact of adoption of this
updated authoritative guidance on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify
various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and
amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. ASU 2019-12 is effective for us in the first quarter of
fiscal 2022. We are currently in the process of evaluating the potential impact of adoption of this updated authoritative guidance on our consolidated financial
statements, but we do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.
We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, would have a material impact on our consolidated
financial statements.
3. Revenue from Contracts with Customers
Revenue Recognition and Performance Obligations
We generate revenue from sales of licensing rights and subscriptions to our software solutions, hardware and third-party software products, support and
maintenance, managed services, EDI, and other non-recurring services, including implementation, training, and consulting services. Our contracts with
customers may include multiple performance obligations that consist of various combinations of our software solutions and related services, which are
generally capable of being distinct and accounted for as separate performance obligations.
The total transaction price is allocated to each performance obligation within a contract based on estimated standalone selling prices. We generally
determine standalone selling prices based on the prices charged to customers, except for certain software licenses that are based on the residual approach
because their standalone selling prices are highly variable and certain maintenance customers that are based on substantive renewal rates. In instances
where standalone selling price is not sufficiently observable, such as RCM services and software licenses included in our RCM arrangements, we estimate
standalone selling price utilizing an expected cost plus a margin approach. When standalone selling prices are not observable, significant judgment is
required in estimating the standalone selling price for each performance obligation.
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Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration that we
expect to be entitled to in exchange for those goods or services.
We exclude sales tax from the measurement of the transaction price and record revenue net of taxes collected from customers and subsequently remitted to
governmental authorities.
The following table presents our revenues disaggregated by our major revenue categories and by occurrence:
Recurring revenues:
Subscription services
Support and maintenance
Managed services
Electronic data interchange and data services
Total recurring revenues
Software, hardware, and other non-recurring revenues:
Software license and hardware
Other non-recurring services
Total software, hardware and other non-recurring revenues
2021
Fiscal Year Ended March 31,
2020
2019
$
148,403 $
152,956
103,138
98,322
502,819
127,602 $
158,619
104,549
98,543
489,313
28,825
25,177
54,002
27,270
23,656
50,926
117,502
160,798
98,203
97,418
473,921
35,122
20,130
55,252
Total revenues
$
556,821 $
540,239 $
529,173
Recurring revenues consists of subscription services, support and maintenance, managed services, and EDI and data services. Software, hardware, and
other non-recurring revenues consists of revenue from sales of software license and hardware and certain non-recurring services, such as implementation,
training, and consulting performed for clients who use our products.
We generally recognize revenue for our most significant performance obligations as follows:
Subscription services. Performance obligations involving subscription services, which include annual libraries, are satisfied over time as the customer
simultaneously receives and consumes the benefits of the services throughout the contract period. Our subscription services primarily include our software-
as-a-service (“SaaS”) based offerings, such as our electronic health records and practice management, mobile, patient portal, and population health
management solutions. Our SaaS-based offerings may include multiple goods and services, such as providing access to our technology-based solutions
together with our managed cloud hosting services. These offerings are concurrently delivered with the same pattern of transfer to our customers and are
accounted for as a single performance obligation because the technology-based solutions and other goods and services included within our overall SaaS-
based offerings are each individually not capable of being distinct as the customer receives benefits based on the combined offering. Our annual libraries
primarily consist of providing stand-ready access to certain content, knowledgebase, databases, and SaaS-based educational tools, which are frequently
updated to meet the most current standards and requirements, to be utilized in conjunction with our core solutions. We recognize revenue related to these
subscription services, including annual libraries, ratably over the respective noncancelable contract term.
Support and maintenance. Performance obligations involving support and maintenance are satisfied over time as the customer simultaneously receives
and consumes the benefits of the maintenance services provided. Our support and maintenance services may consist of separate performance obligations,
such as unspecified upgrades or enhancements and technical support, which are considered stand-ready in nature and can be offered at various points
during the service period. Since the efforts associated with the combined support and maintenance services are rendered concurrently and provided evenly
throughout the service period, we consider the series of support and maintenance services to be a single performance obligation. Therefore, we recognize
revenue related to these services ratably over the respective noncancelable contract term.
Managed services. Managed services consist primarily of RCM and related services, but also includes our hosting services, which we refer to as managed
cloud services, transcription services, patient pay services, and certain other recurring services. Performance obligations associated with RCM services are
satisfied over time as the customer simultaneously receives and consumes the benefits of the services executed throughout the contract period. The majority
of service fees under our RCM arrangements are variable consideration contingent upon collections by our clients. We estimate the variable consideration
which we expect to be entitled to over the noncancelable contract term associated with our RCM service arrangements. The estimate of variable
consideration included in the transaction price typically involves estimating the amounts we will ultimately collect on behalf of our clients and the relative fee
we charge that is generally calculated as a percentage of those collections. Inputs to these estimates include, but are not limited to, historical service fees
and collections amounts, timing of historical collections relative to the timing of when claims are submitted by our clients to their respective payers,
macroeconomic trends, and anticipated changes in the number of providers. Significant judgement is required when estimating the total transaction price
based on the variable consideration. We may apply certain constraints when appropriate whereby we include in the transaction price estimated variable
consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is
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subsequently resolved. Such estimates are assessed at the contract level. RCM and related services may not be rendered evenly over the contract period
as the timing of services are based on customer collections, which may vary throughout the service period. We recognize revenue for RCM based on the
amount of collections received throughout the contract term as it most closely depicts our efforts to transfer our service obligations to the customer. Our
managed cloud services represent a single performance obligation to provide cloud hosting services to our customers and related revenue is recognized
ratably over the respective noncancelable contract term. Performance obligations related to the transcription services, patient pay services, and other
recurring services are satisfied as the corresponding services are provided and revenue is recognized as such services are rendered.
Electronic data interchange and data services. Performance obligations related to EDI and other transaction processing services are satisfied at the point
in time the services are rendered. The transfer of control occurs when the transaction processing services are delivered and the customer receives the
benefits from the services provided.
Software license and hardware. Software license and hardware are considered point-in-time performance obligations as control is transferred to customers
upon the delivery of the software license and hardware. Our software licenses are considered functional licenses, and revenue recognition generally occurs
on the date of contract execution as the customer is provided with immediate access to the license. We generally determine the amount of consideration
allocated to the software license performance obligation using the residual approach, except for certain RCM arrangements where the amount allocated to
the software license performance obligation is determined based on estimated relative standalone selling prices. For hardware, we recognize revenue upon
transfer of such hardware or devices to the customer.
Other non-recurring services. Performance obligations related to other non-recurring services, including implementation, training, and consulting services,
are generally satisfied as the corresponding services are provided. Once the services have been provided to the customer, the transfer of control has
occurred. Therefore, we recognize revenue as such services are rendered.
Transaction Price Allocated to Remaining Performance Obligations
As of March 31, 2021, the aggregate amount of transaction price related to remaining unsatisfied or partially unsatisfied performance obligations over the
respective noncancelable contract term was approximately $548,800 of which we expect to recognize approximately 9% as services are rendered or goods
are delivered, 53% over the next 12 months, and the remainder thereafter.
As of March 31, 2020, the aggregate amount of transaction price related to remaining unsatisfied or partially unsatisfied performance obligations over the
respective noncancelable contract term was approximately $483,200, of which we expect to recognize approximately 9% as services are rendered or goods
are delivered, 50% over the next 12 months, and the remainder thereafter.
Contract Balances
Contract balances result from the timing differences between our revenue recognition, invoicing, and cash collections. Such contract balances include
accounts receivables, contract assets and liabilities, and other customer deposits and liabilities balances. Accounts receivables include invoiced amounts
where the right to receive payment is unconditional and only subject to the passage of time. Contract assets, consisting of unbilled receivables, include
amounts where revenue recognized exceeds the amount invoiced to the customer and the right to payment is not solely subject to the passage of time.
Contract assets are generally associated with our sales of software licenses, but may also be associated with other performance obligations such as
subscription services, support and maintenance, annual libraries, and professional services, where control has been transferred to our customers but the
associated payments are based on future customer collections (in the case of our RCM service arrangements) or based on future milestone payment due
dates. In such instances, the revenue recognized may exceed the amount invoiced to the customer and such balances are included in contract assets since
our right to receive payment is not unconditional, but rather is conditional upon customer collections or the continued functionality of the software and our
ongoing support and maintenance obligations. Contract liabilities consist mainly of fees invoiced or paid by our clients for which the associated services have
not been performed and revenues have not been recognized. Contract assets and contract liabilities are reported in a net position on an individual contract
basis at the end of each reporting period. Contract assets are classified as current or long-term on our consolidated balance sheets based on the timing of
when we expect to complete the related performance obligations and invoice the customer. Contract liabilities are classified as current on our consolidated
balance sheets since the revenue recognition associated with the related customer payments and invoicing is expected to occur within the next twelve
months. During the years ended March 31, 2021 and 2020, we recognized $74,097 and $70,779, respectively, of revenues that were included in the contract
liability balance or invoiced to customers since the beginning of the corresponding periods.
Our contracts with customers do not include any major financing components.
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Costs to Obtain or Fulfill a Contract
We capitalize all incremental costs of obtaining a contract with a customer to the extent that such costs are directly related to a contract and expected to be
recoverable. Our sales commissions and related sales incentives are considered incremental costs requiring capitalization. Capitalized contract costs are
amortized to expense utilizing a method that is consistent with the transfer of the related goods or services to the customer. The amortization period ranges
from less than one year up to five years, based on the period over which the related goods and services are transferred, including consideration of the
expected customer renewals and the related useful lives of the products.
Capitalized commissions costs were $28,503 as of March 31, 2021, of which $9,399 is classified as current and included as prepaid expenses and other
current assets and $19,104 is classified as long-term and included within other assets on our consolidated balance sheets, based on the expected timing of
expense recognition. Capitalized commissions costs were $24,590 as of March 31, 2020, of which $7,053 was classified as current and $17,537 was
classified as long-term.
During the years ended March 31, 2021, 2020, and 2019, we recognized $11,236, $8,006, and $6,292, respectively, of commissions expense. Commissions
expense primarily relate to the amortization of capitalized commissions costs, which is included as a selling, general and administrative expense in the
consolidated statements of net income and comprehensive income.
4. Accounts Receivable
Accounts receivable includes invoiced amounts where the right to receive payment is unconditional and only subject to the passage of time. Allowance for
doubtful accounts are reported as a component of accounts receivable as summarized below:
Accounts receivable, gross
Allowance for doubtful accounts
Accounts receivable, net
March 31, 2021
March 31, 2020
$
$
81,746
$
(4,205)
$
77,541
83,555
(3,549)
80,006
The following table represents the changes in the allowance for doubtful accounts, as of and for the twelve months ended March 31, 2021 and 2020:
Balance as of March 31, 2019
Additions charged to costs and expenses
Deductions
Balance as of March 31, 2020
Additions charged to costs and expenses
Deductions
Balance as of March 31, 2021
72
$
$
(6,054)
(3,367)
5,872
(3,549)
(2,834)
2,178
(4,205)
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5. Fair Value Measurements
The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring
basis at March 31, 2021 and March 31, 2020:
ASSETS
Cash and cash equivalents (1)
Restricted cash and cash equivalents
LIABILITIES
Contingent consideration related to acquisitions
ASSETS
Cash and cash equivalents (1)
Restricted cash and cash equivalents
LIABILITIES
Contingent consideration related to acquisitions
(1) Cash equivalents consist primarily of money market funds.
Balance At
March 31, 2021
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
$
$
$
$
$
$
$
$
73,295
5,280
78,575
$
$
533
533
$
$
73,295
5,280
78,575
$
$
—
—
$
$
— $
—
— $
533 $
533 $
—
—
—
—
—
Balance At
March 31, 2020
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
138,012
2,307
140,319
$
$
1,900
1,900
$
$
138,012
2,307
140,319
$
$
—
—
$
$
— $
—
— $
— $
— $
—
—
—
1,900
1,900
The following table presents activity in our financial assets and liabilities measured at fair value using significant unobservable inputs (Level 3), as of and for
the year ended March 31, 2021:
Balance at March 31, 2019
Acquisition
Fair value adjustments
Balance at March 31, 2020
Fair value adjustments
Transfer of Topaz contingent consideration to Level 2
Balance at March 31, 2021
$
$
1,000
1,850
(950)
1,900
(1,367)
(533)
—
As of March 31, 2021 and March 31, 2020, the contingent consideration liability balances were $533 and $1,900, respectively, which were related to the
acquisition of Topaz Information Systems, LLC.
During the year ended March 31, 2020, we recorded a net benefit of $950 from fair value adjustments, of which a $1,000 benefit was related to the
contingent consideration liability from the acquisition of Inforth Technologies and was based on actual earnout achievement through the end of the
measurement period, resulting in zero expected earnout payments, and $50 was related to the accretion of the present value discount of the contingent
consideration liability from the acquisition of Topaz Information Systems, LLC.
During the year ended March 31, 2021, we recorded a net benefit of $1,367 from fair value adjustments, which was related to the contingent consideration
liability from the acquisition of Topaz Information Systems, LLC. As of March 31, 2021, the fair value of the contingent consideration liability was $533,
calculated based on actual earnout achievement through the end of the performance period and is reflected under a Level 2 valuation hierarchy because the
fair value was determined based on other significant observable inputs. Refer to Note 7 for additional details.
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The categorization of the framework used to measure fair value of the contingent consideration liabilities were considered to be within the Level 3 valuation
hierarchy due to the subjective nature of the unobservable inputs used. We had assessed the fair value of the contingent consideration liability on a recurring
basis and any adjustments to fair value subsequent to the measurement period were reflected in the consolidated statements of net income and
comprehensive income. Key assumptions included probability-adjusted achievement estimates of applicable bookings targets that were not observable in
the market. The fair value adjustments to contingent consideration liabilities are included as a component of selling, general and administrative expense in
the consolidated statements of net income and comprehensive income.
We believe that the fair value of other financial assets and liabilities, including accounts receivable, accounts payable, and line of credit, approximate their
respective carrying values due to their nominal credit risk.
Non-Recurring Fair Value Measurements
We have certain assets, including goodwill and other intangible assets, which are measured at fair value on a non-recurring basis and are adjusted to fair
value only if an impairment charge is recognized. The categorization of the framework used to measure fair value of the assets is considered to be within the
Level 3 valuation hierarchy due to the subjective nature of the unobservable inputs used.
6. Leases
We have operating lease agreements for our offices in the United States and India with lease periods expiring between 2021 and 2026.
Total operating lease costs were $9,190, $10,309, and $8,174 for the years ended March 31, 2021, 2020, and 2019, respectively. Components of operating
lease costs are summarized as follows:
Operating lease costs
Short-term lease costs
Variable lease costs
Less: Sublease income
Total operating lease costs
Supplemental cash flow information related to operating leases is summarized as follows:
Cash paid for amounts included in the measurement of operating lease liabilities
Operating lease assets obtained in exchange for operating lease liabilities
$
$
$
Fiscal Year Ended March 31,
2021
2020
8,235
$
25
1,444
(514)
9,190
$
9,558
102
827
(178)
10,309
Fiscal Year Ended March 31,
2021
2020
18,651
$
3,107
11,527
8,494
As of March 31, 2021, our operating leases had a weighted average remaining lease term of 3.1 years and a weighted average discount rate of 3.5%. Future
minimum aggregate lease payments under operating leases as of March 31, 2021 are summarized as follows:
For the year ended March 31,
2022
2023
2024
2025
2026
Total future lease payments
Less interest
Total lease liabilities
$
$
13,725
8,220
6,272
3,790
1,257
33,264
(2,076)
31,188
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During the year ended March 31, 2021, as part of our response to the COVID-19 pandemic and ongoing cost reduction efforts, we vacated our Cary office,
portions of our Irvine and Horsham offices, and the remainder of our San Diego office. We recorded impairments of $5,539 to our operating right-of-use
assets and certain related fixed assets associated with the vacated locations based on projected sublease rental income and estimated sublease
commencement dates and the remeasurement of our operating lease liabilities associated with the modification of certain lease expiration dates. The
impairment analyses were performed by operating right-of-use asset and the impairment charges were estimated by comparing the fair value of each
operating right-of-use asset based on the expected cash flows to its respective book value. We determined the discount rate for each lease based on the
approximate interest rate on a collateralized basis with similar remaining terms and payments as of the impairment date. Significant judgment was required
to estimate the fair value of each operating right-of-use asset and actual results could vary from the estimates, resulting in potential future adjustments to
amounts previously recorded.
During the year ended March 31, 2020, we recorded impairments of $9,373 to our operating right-of-use assets and certain related fixed assets associated
with the vacated locations, or portions thereof, in North Canton, San Diego, Horsham, St. Louis, Irvine, Atlanta, Brentwood, and Phoenix based on projected
sublease rental income and estimated sublease commencement dates.
7. Business Combinations
On October 4, 2019, we completed the acquisition of Topaz Information Systems, LLC ("Topaz") pursuant to the Membership Interest Purchase Agreement,
dated October 4, 2019. Topaz was based in Phoenix, AZ and provides healthcare solutions to behavioral health and social services organizations that utilize
the NextGen platform. Its extensive clinical content and domain expertise have been instrumental in our ability to compete and win. By combining our
companies, we are positioned to provide the platform and domain expertise to deliver integrated and collaborative care in a re-energized behavioral health
market. The final purchase price of Topaz is summarized in the table below. The acquisition of Topaz was funded by cash flows from operations.
On December 6, 2019, we completed the acquisition of Medfusion, Inc. (“Medfusion”) pursuant to the Agreement and Plan of Merger, dated November 12,
2019. Headquartered in Cary, North Carolina, Medfusion provides software application services which enable healthcare providers to better serve its patients
through enhanced communication. Services are delivered through a standard web browser and typically include features such as appointment scheduling,
patient preregistration, prescription renewal, ask a clinician, website development, patient payment, and online bill payment. Medfusion is a portal and
patient pay player with a focus on ambulatory services. The final purchase price of Medfusion is summarized in the table below. The acquisition of Medfusion
was funded by a combination of borrowings against our revolving credit agreement (see Note 11) and cash flows from operations.
On December 17, 2019, we completed the acquisition of OTTO Health, LLC (“OTTO”), pursuant to the Agreement and Plan of Merger, dated December 11,
2019. Based in Boulder, Colorado, OTTO is a telehealth platform that seamlessly integrates into EHR systems allowing providers to have video visits with
their patients as part of their normal workflows. OTTO partners closely with EHR providers to create a streamlined user experience, while maintaining the
EHR/PM system as the single source of truth. The final purchase price of OTTO is summarized in the table below. The acquisition of OTTO was funded by a
combination of borrowings against our revolving credit agreement (see Note 11) and cash flows from operations.
We accounted for the acquisitions as business combinations using the acquisition method of accounting. The purchase price allocation of the Topaz,
Medfusion, and OTTO acquisitions are deemed to be final. The purchase price was allocated to the tangible and intangible assets acquired and liabilities
assumed based on their estimated fair values as of the acquisition date. During the year ended March 31, 2021, we recorded a $47 measurement period
adjustment to Medfusion goodwill primarily related to certain working capital adjustments in the purchase price. The purchase price allocation of the Topaz,
Medfusion, and OTTO acquisitions are considered final. Goodwill represents the excess of the purchase price over the net identifiable assets acquired and
liabilities assumed. Goodwill primarily represents, among other factors, the value of synergies expected to be realized and the assemblage of all assets that
enable us to create new client relationships, neither of which qualify as separate amortizable intangible assets. Goodwill arising from the acquisitions of
OTTO and Topaz are considered deductible for tax purposes, and goodwill arising from the acquisition of Medfusion is not deductible for tax purposes.
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The final purchase price for the acquisitions of Topaz, Medfusion, and OTTO are summarized as follows:
Initial purchase price
Settlement of pre-existing net liabilities
Fair value of contingent consideration
Working capital adjustment
Total purchase price
Fair value of the net tangible assets acquired and liabilities assumed:
Acquired cash and cash equivalents
Accounts receivable
Prepaid expense and other assets
Equipment and improvements
Operating lease assets
Accounts payable
Accrued compensation and related benefits
Contract liabilities
Deferred income tax liability
Operating lease liabilities
Operating lease liabilities, net of current
Other liabilities
Total net tangible assets acquired and liabilities assumed
Fair value of identifiable intangible assets acquired:
Goodwill
Software technology
Customer relationships
Trade names
Total identifiable intangible assets acquired
Total purchase price
Topaz
Medfusion
OTTO
Purchase Price
Purchase Price
$
$
$
$
8,000 $
1,671
1,850
(344)
11,177 $
353 $
1,528
139
194
534
(224)
(155)
(370)
—
(240)
(360)
(102)
1,297
5,380
4,500
—
—
9,880
11,177 $
43,000 $
24
—
(148)
42,876 $
204 $
986
387
434
—
(1,360)
(270)
(529)
(953)
—
—
(443)
(1,544)
23,570
13,800
6,800
250
44,420
42,876 $
Purchase Price
22,000
19
—
(59)
21,960
102
51
79
—
—
(2)
(123)
(11)
—
—
—
(26)
70
19,490
2,400
—
—
21,890
21,960
Under the provisions of the Topaz acquisition, we may pay up to an additional $2,000 of cash contingent consideration in the form of an earnout, subject to
Topaz achieving certain operational targets through April 2021. The initial fair value of contingent consideration of $1,850 reflects an estimated earnout
payment of $2,000 on a present value basis and was estimated based on the weighted probability of achieving the operational targets utilizing assumptions
and inputs from Topaz management. As of March 31, 2021, the fair value of the contingent consideration liability was $533, calculated based on actual
earnout achievement through the end of the performance period. Additionally, the purchase price of Topaz included $1,671 for the settlement of pre-existing
liabilities related to pre-acquisition amounts due for products and services previously purchased from us and recognized by Topaz as accounts payable. As a
result of the acquisition, these accounts payable balances were effectively settled and accounted for as additional purchase consideration.
The software technology intangible assets acquired from Topaz will be amortized over 6 years.
In connection with the Medfusion acquisition, the acquired software technology intangible assets will be amortized over 6 years, acquired customer
relationships intangible assets will be amortized over 10 years, and acquired trade names intangible assets will be amortized over 5 years. The weighted
average amortization period for the acquired Medfusion intangible assets is 7.3 years.
The software technology intangible assets acquired from OTTO will be amortized over 7 years.
The revenues, earnings, and pro forma effects of the Topaz, Medfusion, and OTTO acquisitions are not, and would not have been, material to our results of
operations, individually and in aggregate, and the disclosure of such information is impracticable as we have already integrated certain aspects of each
acquisition within our overall operations and expect for each acquisition to be fully integrated within a short timeframe.
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8. Goodwill
During the quarter ended June 30, 2020, we elected to bypass the optional qualitative step of the goodwill impairment assessment and proceed directly with
the quantitative step, whereby we compared the fair value of our single reporting unit with its carrying amount. The results of the goodwill impairment
assessment indicated that the fair value of our reporting unit exceeded its net carrying amount by a significant amount, indicating that no goodwill impairment
existed as of the annual test dates ended March 31, 2021 and March 31, 2020. We also did not identify any events or circumstances that would require an
interim goodwill impairment test.
We determined the fair value of our reporting unit utilizing the average of two valuation methods, consisting of the income approach (based upon estimates
of future discounted cash flows for the reporting unit) and a market comparable approach (based upon valuation multiples of companies that operate in
similar industries with similar operating characteristics). The cash flows used to determine fair value under the income approach required significant
judgments and represent Management's best estimates of projected operating results, terminal and long-term growth rates of our business, useful life over
which cash flows will occur, and our weighted average cost of capital, that are dependent on a number of significant assumptions based on historical
experience, expectations of future performance, and the expected macroeconomic environment, which are subject to change given the inherent uncertainty
in predicting future results. We also considered our stock price and market capitalization as a corroborative step in assessing the reasonableness of the fair
values estimated for the reporting unit as part of the goodwill impairment assessment.
The carrying amount of goodwill as of March 31, 2021 was $267,212. The carrying amount of goodwill as of March 31, 2020 was $267,165.
9. Intangible Assets
Our definite-lived intangible assets, other than capitalized software development costs, are summarized as follows:
March 31, 2021
Gross carrying amount
Accumulated amortization
Net intangible assets
Gross carrying amount
Accumulated amortization
Net intangible assets
Customer
Trade Names
Relationships
39,200
$
$
(26,349)
$
12,851
250 $
(67)
183 $
$
Software
Technology
Total
91,500 $
(67,834)
23,666 $
130,950
(94,250)
36,700
March 31, 2020
Customer
Trade Names
Relationships
250
39,200
$
$
$
(17)
(21,951)
$
233
$
17,249
$
Software
Technology
Total
113,700 $
(73,373)
40,327 $
153,150
(95,341)
57,809
Amortization expense related to customer relationships and trade names recorded as operating expenses in the consolidated statements of net income and
comprehensive income was $4,449, $4,143, and $4,344 for the years ended March 31, 2021, 2020 and 2019, respectively. Amortization expense related to
software technology recorded as cost of revenue was $16,660, $18,393, and $17,152 for the years ended March 31, 2021, 2020, and 2019, respectively.
The following table summarizes the remaining estimated amortization of definite-lived intangible assets as of March 31, 2021:
Estimated Remaining Amortization Expense
Cost of
Revenue
Operating
Expense
Total
For the year ended March 31,
2022
2023
2024
2025
2026
2027 and beyond
Total
$
$
3,525
2,820
2,279
1,846
1,377
1,187
13,034
$
$
8,873 $
5,154
3,573
3,573
2,251
242
23,666 $
12,398
7,974
5,852
5,419
3,628
1,429
36,700
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10. Capitalized Software Costs
Our capitalized software costs are summarized as follows:
Gross carrying amount
Accumulated amortization
Net capitalized software costs
March 31, 2021
March 31, 2020
$
$
96,908 $
(55,434)
41,474 $
75,212
(38,208)
37,004
During the year ended March 31, 2020, we recorded $3,198 of impairments related to the write down of previously capitalized software development costs
for certain technology that will no longer be utilized in any future software solutions. During the year ended March 31, 2019, we retired $13,453 of fully
amortized capitalized software costs that are no longer being utilized by our client base. Amortization expense related to capitalized software costs was
$20,108, $17,085, and $11,338 for the years ended March 31, 2021, 2020, and 2019, respectively, and is recorded as cost of revenue in the consolidated
statements of net income and comprehensive income.
The following table presents the remaining estimated amortization of capitalized software costs as of March 31, 2021. The estimated amortization is
comprised of (i) amortization of released products and (ii) the expected amortization for products that are not yet available for sale based on their estimated
economic lives and projected general release dates.
For the year ended March 31,
2022
2023
2024
2025
Total
11. Line of Credit
$
$
24,200
11,800
5,400
74
41,474
On March 12, 2021, we entered into a $300 million second amended and restated revolving credit agreement (the “Credit Agreement”) with JPMorgan
Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”), U.S. Bank National Association and Bank of the West, as co-
syndication agents, and certain other agents and lenders. The Credit Agreement replaces our prior $300 million amended and restated revolving credit
agreement, originally entered into on January 4, 2016 and amended on March 29, 2018 (“Original Credit Agreement”). The Credit Agreement is secured by
substantially all of our existing and future property and our material domestic subsidiaries. The Credit Agreement provides a subfacility of up to $10 million
for letters of credit and a subfacility of up to $10 million for swing-line loans. The Credit Agreement also provides us with the ability to obtain up to $150
million in the aggregate of additional revolving credit commitments and/or term loans thereunder (i.e., in excess of $300 million) upon satisfaction of certain
conditions, including receipt of commitments from new or existing lenders to provide such additional revolving credit commitments and/or term loans.
The Credit Agreement matures on March 12, 2026 and the full balance of the revolving loans and all other obligations under the Credit Agreement must be
paid at that time. In addition, we are required to prepay the revolving loan balance if at any time the aggregate principal amount outstanding under the Credit
Agreement exceeds the aggregate commitments thereunder.
The revolving loans under the Credit Agreement bear interest at either, at our option, (a) for base rate loans, a base rate based on the highest of (i) 1%, (ii)
the “prime rate” quoted in the Wall Street Journal for the United States of America, (iii) the overnight bank funding rate (not to be less than zero) as
determined by the Federal Reserve Bank of New York plus 0.50% or (iv) the LIBOR-based rate for one month Eurodollar deposits plus 1%, and (b) for
Eurodollar loans, the LIBOR-based rate for one, two, three or six months (as selected by us) Eurodollar deposits plus, in each case, an applicable margin
based on our net leverage ratio from time to time, ranging from 0.50% to 1.75% for base rate loans, and from 1.50% to 2.75% for Eurodollar loans. The
Credit Agreement contains provisions to accommodate the replacement of the existing LIBOR-based rate with a successor Secured Overnight Financing
Rate (“SOFR”) based rate upon a triggering event. 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 the revolving facility based on our net leverage ratio from time to time.
The revolving loans are subject to customary representations, warranties and ongoing affirmative and negative covenants and agreements. The negative
covenants include, among other things, limitations on indebtedness, liens, asset sales, mergers and acquisitions, investments, transactions with affiliates,
dividends and other restricted payments, payment of subordinated indebtedness and convertible debt and amendments to subordinated indebtedness
documents and sale and leaseback transactions of ours or any of our subsidiaries. The Credit Agreement also requires us to maintain (1) a maximum net
leverage ratio of 3.75 to 1.00 and (2) a minimum interest coverage ratio of 3.50 to 1.00 at the end of each fiscal quarter through the term of the loan. The
revolving loans under the Credit Agreement will be available for letters of credit, permitted acquisitions, working capital and general corporate purposes. We
were in compliance with all financial and non-financial covenants under the Credit Agreement as of March 31, 2021.
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As of March 31, 2021, we had no outstanding loans and $300,000 of unused credit under the Credit Agreement. As of March 31, 2020, we had $129,000 in
outstanding loans and $171,000 of unused credit under the Original Credit Agreement. The interest rate as of March 31, 2020 and was approximately 2.3%.
During the years ended March 31, 2021, 2020, and 2019, we recorded $2,541, $1,274, and $2,055 of interest expense (excluding amortization of deferred
debt issuance costs), respectively, and the weighted average interest rates were approximately 2.2%, 2.4%, and 3.7% respectively.
Costs incurred in connection with securing the Credit Agreement, including fees paid to legal advisors and third parties, are deferred and amortized to
interest expense over the term of the Credit Agreement. Deferred debt issuance costs are reported as a component of other assets on the consolidated
balance sheets. As of March 31, 2021, total unamortized debt issuance costs were $2,521, which includes $1,423 of additional costs related to the Credit
Agreement, and net of $326 unamortized debt issuance costs that were written off in connection with amending the Original Credit Agreement. As of March
31, 2020, total unamortized debt issuance costs were $2,124. During the years ended March 31, 2021, 2020, and 2019, we recorded $1,026, $710, and
$710, respectively, in amortization of deferred debt issuance costs, including amounts written off in the year ended March 31, 2021.
12. Composition of Certain Financial Statement Captions
Cash, cash equivalents, and restricted cash are summarized as follows:
Cash and cash equivalents
Restricted cash and cash equivalents
Cash, cash equivalents, and restricted cash
Prepaid expenses and other current assets are summarized as follows:
Prepaid expenses
Capitalized commissions costs
Other current assets
Prepaid expenses and other current assets
Equipment and improvements are summarized as follows:
Computer equipment and software
Internal-use software
Furniture and fixtures
Leasehold improvements
Equipment and improvements, gross
Accumulated depreciation and amortization
Equipment and improvements, net
Other assets are summarized as follows:
Capitalized commission costs
Deposits
Debt issuance costs
Other noncurrent assets
Other assets
79
March 31, 2021
March 31, 2020
73,295
5,280
78,575
$
$
138,012
2,307
140,319
March 31, 2021
March 31, 2020
20,679
9,399
1,204
31,282
$
$
18,025
7,053
1,227
26,305
March 31, 2021
March 31, 2020
$
35,244
18,174
11,555
14,418
79,391
(64,852)
$
14,539
34,756
17,796
12,477
13,681
78,710
(58,874)
19,836
March 31, 2021
March 31, 2020
19,104 $
5,505
2,521
9,891
37,021 $
17,537
6,074
2,124
7,921
33,656
$
$
$
$
$
$
$
$
Table of Contents
Accrued compensation and related benefits are summarized as follows:
Accrued bonus
Accrued vacation
Accrued commissions
Deferred payroll taxes
Accrued payroll and other
Accrued compensation and related benefits
Other current and noncurrent liabilities are summarized as follows:
Sales returns reserves and other customer liabilities
Accrued legal expense
Accrued hosting costs
Care services liabilities
Accrued employee benefits and withholdings
Customer credit balances and deposits
Accrued royalties
Accrued consulting and outside services
Accrued outsourcing costs
Accrued EDI expense
Accrued self insurance expense
Accrued taxes payable
Contingent consideration related to acquisitions
Other accrued expenses
Other current liabilities
Deferred payroll taxes
Uncertain tax positions
Contingent consideration related to acquisitions
Other liabilities
Other noncurrent liabilities
13. Income Taxes
The provision for (benefit of) income taxes consists of the following components:
Current:
Federal taxes
State taxes
Foreign taxes
Total current taxes
Deferred:
Federal taxes
State taxes
Foreign taxes
Total deferred taxes
Provision for (benefit of) income taxes
80
March 31, 2021
March 31, 2020
29,382
12,038
4,628
3,817
509
50,374
$
$
10,396
10,469
2,087
—
840
23,792
March 31, 2021
March 31, 2020
9,449
6,302
6,158
5,280
4,649
4,638
3,125
3,002
2,266
2,020
1,737
586
533
2,954
52,699
3,817
3,175
—
144
7,136
$
$
$
$
6,395
2,119
4,652
2,307
3,002
4,260
3,113
2,520
2,378
3,511
2,054
1,222
—
3,819
41,352
—
1,203
1,900
178
3,281
Fiscal Year Ended March 31,
2020
2019
2021
$
6,562
1,226
826
8,614
(6,053) $
(2,068)
(733)
(8,854)
(240)
$
$
408
858
874
2,140
(3,578) $
(1,682)
(119)
(5,379)
(3,239)
$
1,159
(238)
744
1,665
3,752
(428)
(195)
3,129
4,794
$
$
$
$
$
$
$
$
$
Table of Contents
The provision for (benefit of) income taxes differs from the amount computed at the federal statutory rate as follows:
Tax expense at United States federal statutory rate (1)
Items affecting federal income tax rate:
Research and development tax credits
Impact of foreign operations
Impact of deferred adjustments
Impact of audit settlements
Return to provision true-ups
Impact of amended returns
Acquisition expenses
Foreign transition tax - Tax Reform
Revaluation of deferred tax balances - Tax Reform
Impact of uncertain tax positions
Non-deductible expenses
Impact of valuation allowance
State income taxes
Compensation
2021
Fiscal Year Ended March 31,
2020
2019
$
1,948
$
895
$
6,150
(3,449)
(1,203)
(251)
(56)
(15)
(9)
—
—
—
278
517
563
572
865
(240)
$
(4,705)
(683)
159
(61)
(1,868)
67
229
—
—
1,062
903
(49)
687
125
(3,239)
$
(4,647)
(304)
132
967
(149)
391
(2)
210
231
375
140
(33)
1,502
(169)
4,794
Provision for (benefit of) income taxes
$
(1) Federal statutory rate was 21.0% for March 31, 2021, 2020 and 2019.
The net deferred tax assets and liabilities in the accompanying consolidated balance sheets consist of the following:
Deferred tax assets:
Compensation and benefits
Deferred revenue
Research and development credit
Net operating losses
Operating lease liabilities
Foreign deferred taxes
Allowance for doubtful accounts
Accrued legal settlement
Total deferred tax assets
Deferred tax liabilities:
Intangibles assets
Prepaid expense
Capitalized software
Operating right-of-use assets
Accelerated depreciation
Other
Accounts receivable
Total deferred tax liabilities
Valuation allowance
Deferred tax assets, net
March 31, 2021
March 31, 2020
$
$
$
19,541
8,325
7,706
7,652
6,204
2,306
1,819
905
54,458
(9,451)
(9,396)
(4,659)
(3,003)
(1,339)
(611)
(510)
(28,969)
(6,015)
19,474
$
$
$
11,966
10,546
9,643
8,812
11,430
1,574
1,819
—
55,790
(12,477)
(7,842)
(9,931)
(6,667)
(1,405)
(145)
(1,251)
(39,718)
(5,452)
10,620
The deferred tax assets and liabilities have been shown net in the accompanying consolidated balance sheets as noncurrent.
As of March 31, 2021 and 2020, we had federal net operating loss (“NOL”) carryforwards of $18,748 and $24,216, respectively. The federal NOL
carryforwards were inherited in connection with our acquisitions of HealthFusion in January 2016, Gennius in March 2015, Entrada in April 2017,
EagleDream in August 2017, and Medfusion in December 2019. The NOL carryforwards expire in various amounts starting in fiscal 2030 for both federal and
state tax purposes. As of March 31, 2021, we had state NOL carryforwards of approximately $3,715 (tax effected), related to the HealthFusion, Entrada,
EagleDream, and Medfusion acquisitions state NOL tax attribute. The utilization of the federal NOL carryforwards is subject to limitations under the rules
regarding changes in stock ownership as determined by the Internal Revenue Code.
As of March 31, 2021 and 2020, the research and development tax credit carryforward available to offset future federal and state taxes was $8,574 and
$12,399, respectively. The federal credits include credits inherited in connection with our acquisition of Medfusion in December 2019. The credits expire in
various amounts starting in fiscal 2034.
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We expect to receive the full benefit of the deferred tax assets recorded with the exception of certain state credits and NOL carryforwards for which we have
recorded a valuation allowance.
Notwithstanding the U.S. taxation of the deemed repatriated foreign earnings as a result of the one-time Transition Tax, we intend to continue investing these
earnings indefinitely outside of the U.S. If we determine that all or a portion of our foreign earnings are no longer to be indefinitely reinvested, we may be
subject to additional foreign withholding taxes and state income taxes in the U.S. beyond the Tax Reform’s one-time Transition Tax. In the event that we
distribute the foreign earnings to the U.S., we will incur and record foreign withholding related taxes and U.S. state taxes of approximately $3,400 and $600,
respectively.
The Taxation Laws (Amendment) Act, 2019 was enacted on December 12, 2019 to lower corporate tax rates in India. We opted not to elect for the reduced
tax rate for various factors for the year ended March 31, 2021 and 2020.
Uncertain tax positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is recorded within other noncurrent liabilities in our consolidated
balance sheet, is as follows:
Balance as of March 31, 2019
Additions for prior year tax positions
Additions for current year tax positions
Reductions for prior year tax positions
Balance as of March 31, 2020
Additions for prior year tax positions
Additions for current year tax positions
Reductions for prior year tax positions
Balance as of March 31, 2021
$
$
2,894
1,372
781
(855)
4,192
220
635
(621)
4,426
During the year ended March 31, 2021, we recorded additional net liabilities of $234 related to various federal and state tax planning benefits recorded in the
current year for current and prior year tax positions. If recognized, the total amount of unrecognized tax benefit that would decrease the income tax provision
is $4,426.
Our practice is to recognize interest related to income tax matters as interest expense in the consolidated statements of net income and comprehensive
income. We had approximately $88 and $174 of accrued interest related to income tax matters as of March 31, 2021 and 2020, respectively. We recognized
interest income of $85, interest income of $35, and interest expense of $19 in the years ended March 31, 2021, 2020 and 2019, respectively, related to
income tax matters in the consolidated statements of net income and comprehensive income. No penalties related to income tax matters were accrued or
recognized in our consolidated financial statements for all periods presented.
We are no longer subject to U.S. federal income tax examinations for tax years before fiscal year ended 2017. With a few exceptions, we are no longer
subject to state or local income tax examinations for tax years before fiscal year ended 2016. We do not anticipate that total unrecognized tax benefits will
significantly change due to the settlement of audits or the expiration of statute of limitations within the next twelve months.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Consolidated Appropriations Act, 2021 (“Stimulus Bill”), signed into law on
March 27, 2020 and December 27, 2020, respectively, have resulted in significant changes to the U.S. federal corporate tax law. Additionally, several state
and foreign jurisdictions have enacted additional legislation and or comply with federal changes. We have considered the applicable tax law changes and
recognized the impact in our income tax provision, as applicable.
14. Employee Benefit Plans
We provide a 401(k) plan to substantially all of our employees. Participating employees may defer up to the Internal Revenue Service limit per year based on
the Internal Revenue Code. The annual contribution is determined by a formula set by our Board of Directors ("Board") and may include matching and/or
discretionary contributions. The amount of the Company match is discretionary and subject to change. The retirement plans may be amended or
discontinued at the discretion of the Board. Net contributions of $4,625, $4,658 and $5,206 were made by the Company to the 401(k) plan for the years
ended March 31, 2021, 2020, and 2019, 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% of
their 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
on behalf of participating employees, and the amount of the Company match is discretionary and subject to change. Each employee's deferrals together with
earnings 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 $6,620 and $5,300 at March 31, 2021 and 2020, respectively. To offset this liability, we have purchased life
insurance policies 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 help make the benefit payments to employees when
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Table of Contents
they retire or otherwise leave the Company. We intend to hold the life insurance policy until the death of the plan participant. The cash surrender value of the
life insurance policies for deferred compensation was $8,126 and $7,029 at March 31, 2021 and 2020, respectively. The values of the life insurance policies
and our related obligations are included on the accompanying consolidated balance sheets in long-term other assets and long-term deferred compensation,
respectively. We made contributions of $79, $74 and $71 to the Deferral Plan for the years ended March 31, 2021, 2020, and 2019, respectively.
15. Share-Based Awards
Employee Stock Option and Incentive Plans
In October 2005, our shareholders approved a stock option and incentive plan (the “2005 Plan”) under which 4,800,000 shares of common stock were
reserved for 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 our employees and directors may, at the discretion of the Board 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 expire no later
than 10 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 the
agreements 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 2005
Plan will fully vest under certain circumstances. The 2005 Plan expired on May 25, 2015. As of March 31, 2021, there were 142,220 outstanding options
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 were
reserved for the issuance of awards, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock awards and
restricted stock unit awards, performance stock awards and other share-based awards. In August 2017, our shareholders approved an amendment to the
2015 Equity, (the “Amended 2015 Plan”), to, among other items, increase the number of shares of common stock reserved for issuance thereunder by
6,000,000, which was further amended in August 2019 as approved by our shareholders, to, among other items, increase the number of shares of common
stock reserved for issuance thereunder by an additional 3,575,000. The Amended 2015 Plan provides that our employees and directors may, at the
discretion of the Board or a duly designated compensation committee, be granted certain share-based awards. In the case of option awards granted under
the Amended 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 Amended 2015 Plan are subject to the vesting schedule or performance metrics set forth in the agreements pursuant to
which they are granted. Upon a change of control of our Company, as such term is defined in the Amended 2015 Plan, awards under the Amended 2015
Plan will fully vest under certain circumstances. As of March 31, 2021, there were 2,648,864 outstanding options, 2,263,569 outstanding shares of restricted
stock awards, certain outstanding performance stock unit awards as described further below, and 1,538,544 shares available for future grant under the
Amended 2015 Plan.
The following table summarizes the stock option transactions during the years ended March 31, 2021, 2020, and 2019:
Outstanding, March 31, 2018
Granted
Exercised
Forfeited/Canceled
Expired
Outstanding, March 31, 2019
Exercised
Forfeited/Canceled
Expired
Outstanding, March 31, 2020
Exercised
Forfeited/Canceled
Expired
Outstanding, March 31, 2021
Vested and expected to vest, March 31, 2021
Exercisable, March 31, 2021
Weighted-
Average
Exercise
Price
per Share
Weighted-
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in thousands)
Number of
Shares
15.51
16.40
15.49
18.00
28.15
15.36
15.87
23.38
43.04
14.83
16.21
18.58
29.17
14.47
14.45
14.33
6.2
6.8
4.7
4.9
5.5
4.3
1.5
4.7
3.3
3.7
3.7
3.7
3.6
$
$
$
$
$
$
766
1,589
7,040
138
—
303
10,303
10,075
8,910
3,670,170 $
326,130
(375,645)
(451,730)
(2,400)
3,166,525 $
(55,325)
(75,450)
(34,400)
3,001,350 $
(116,916)
(47,350)
(46,000)
2,791,084 $
2,715,933 $
2,331,745 $
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Share-based compensation expense related to stock options was $2,536, $3,826, and $3,936 for the years ended March 31, 2021, 2020, and 2019,
respectively.
There were no stock options granted during the years ended March 31, 2021 and 2020. During the year ended March 31, 2019, we granted total stock
options of 326,130, to purchase shares of common stock under the Amended 2015 Plan at an exercise price equal to the market price of our common stock
on the date of grant, as summarized below.
Option Grant Date
May 30, 2018
August 3, 2018
November 2, 2018
Fiscal year 2019 grants
Number of
Shares
Exercise
Price
241,130 $
60,000 $
25,000 $
326,130
16.83
21.27
15.09
Vesting
Terms (1)
Four Years
Four Years
Four Years
Expiration
June 1, 2026
August 3, 2026
November 2, 2026
(1) Unless otherwise indicated, options vest in equal annual installments on each grant anniversary date commencing one year following the date of grant
We utilized the Black-Scholes valuation model for estimating the fair value of share-based compensation with the following assumptions:
Expected term
Expected volatility
Expected dividends
Risk-free rate
The weighted-average grant date fair value of stock options granted during the year ended March 31, 2019 was $7.18 per share.
Non-vested stock option award activity during the years ended March 31, 2021, 2020, and 2019 is summarized as follows:
Number of
Shares
Year Ended
March 31, 2019
6.1 - 6.3 years
34.6% - 36.8%
0.0%
2.8% - 3.1%
Weighted-
Average
Grant-Date
Fair Value
per Share
Outstanding, March 31, 2018
Granted
Vested
Forfeited/Canceled
Outstanding, March 31, 2019
Vested
Forfeited/Canceled
Outstanding, March 31, 2020
Vested
Forfeited/Canceled
Outstanding, March 31, 2021
$
1,845,855
2,657,005
326,130
(778,900)
(358,380)
$
(745,033)
(9,150)
$
(605,433)
(26,900)
$
459,339
1,091,672
5.18
7.18
5.12
5.36
5.52
5.29
6.42
5.67
5.40
6.80
5.96
As of March 31, 2021, $1,473 of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted-average
period of 0.7 years. This amount does not include the cost of new options that may be granted in future periods or any changes in our forfeiture percentage.
The total fair value of options vested during the years ended March 31, 2021, 2020, and 2019 was $3,272, $3,940, and $3,985, respectively.
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Restricted Stock Awards
Restricted stock awards activity during the years ended March 31, 2021, 2020, and 2019 is summarized as follows:
Number of
Shares
Weighted-
Average
Grant-Date
Fair Value
per Share
Outstanding, March 31, 2018
Granted
Vested
Canceled
Outstanding, March 31, 2019
Granted
Vested
Canceled
Outstanding, March 31, 2020
Granted
Vested
Canceled
Outstanding, March 31, 2021
$
1,820,910
885,845
(642,695)
(348,102)
$
1,715,958
1,529,831
(764,290)
(168,719)
$
2,312,780
1,222,863
(1,053,792)
(218,282)
$
2,263,569
14.52
18.14
14.63
14.79
16.29
16.93
16.05
17.06
16.74
12.04
16.22
15.30
14.58
Share-based compensation expense related to restricted stock awards was $16,371, $14,706, and $10,875 for the years ended March 31, 2021, 2020, and
2019, respectively.
The weighted-average grant date fair value for the restricted stock awards was estimated using the market price of the common stock on the date of grant.
The fair value of the restricted stock awards is amortized on a straight-line basis over the vesting period, which is generally between one to three years.
As of March 31, 2021, $23,277 of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-
average period of 1.8 years. This amount does not include the cost of new restricted stock awards that may be granted in future periods.
Performance Stock Units and Awards
On December 29, 2016, the Compensation Committee of the Board granted 123,082 performance stock awards to certain executive officers, of which no
shares are currently outstanding. The performance stock awards vested in four equal increments on each of the first four anniversaries of the grant date,
subject in each case to the executive officer’s continued service and achievement of certain Company performance goals, including strong stock price
performance. Share-based compensation expense related to the performance stock awards was $184 for the year ended March 31, 2021.
On October 23, 2018, the Compensation Committee of the Board approved 248,140 performance stock unit awards to be granted to certain executives and
non-executive members of the executive leadership team, which vest only in the event certain performance goals are achieved and with continuous service
through the date the goals are certified. Approximately 34% of the performance stock units are tied to our cumulative 3-year total shareholder return, 33%
are tied to our fiscal year 2021 revenue, and 33% are tied to our fiscal year 2021 adjusted earnings per share goals, each as specifically defined in the equity
award agreements. The number of shares to be issued may vary between 50% and 200% of the number of performance stock units depending on
performance, and no such shares will be issued if threshold performance is not achieved. The weighted-average grant date fair value of the awards was
$17.84 per share, which was estimated using a Monte Carlo-based valuation model for the awards based on total shareholder return and using a probability-
adjusted achievement rate combined with the market price of the common stock on the date of grant for the awards based on revenue and earnings per
share targets. Share-based compensation expense related to the performance stock unit awards was $458, $123 and $534 for the years ended March 31,
2021, 2020 and 2019, respectively.
On December 26, 2019 and January 27, 2020, the Compensation Committee of the Board approved a total of 279,587 performance stock unit awards to be
granted to certain executives and non-executive members of the executive leadership team, which vest only in the event certain performance goals are
achieved and with continuous service through the date the goals are certified. Approximately 80% of the performance stock units are tied to the Company’s
fiscal year 2021 revenue goal and 20% are tied to the Company’s fiscal year 2022 revenue goal. Performance stock unit awards funded for fiscal year 2021
and fiscal year 2022 revenue performance will be modified for cumulative 3-year total shareholder return (“TSR”) on the three-year grant anniversary, which
is also the cliff vest date. The number of shares to be issued may vary between 42.5% and 172.5% of the number of performance stock units depending on
performance, and no such shares will be issued if threshold performance is not achieved. The weighted-average grant date fair value of the awards was
$16.02 per share, which was estimated using a Monte Carlo-based valuation model for the awards based on total shareholder return and using a probability-
adjusted achievement rate combined with the market price of the common stock on the date of grant for the awards based on revenue targets. Share-based
compensation expense related to the performance stock unit awards was $ 1,455 and $309 for the years ended March 31, 2021 and 2020, respectively.
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On October 26, 2020, the Compensation Committee of the Board approved 408,861 performance stock unit awards to be granted to certain executives and
non-executive members of the executive leadership team, which vest only in the event certain performance goals are achieved and with continuous service
through the date the goals are certified. Approximately 80% of the performance stock units are tied to the Company’s fiscal year 2022 revenue goal and
20% are tied to the Company’s fiscal year 2023 revenue goal. Performance stock unit awards funded for fiscal year 2022 and fiscal year 2023 revenue
performance will be modified for cumulative 3-year TSR on the three-year grant date anniversary, which is also the cliff vest date. The number of shares to
be issued may vary between 8.5% and 199.5% of the number of target performance stock units depending on performance, and no such shares will be
issued if threshold performance is not achieved. The weighted-average grant date fair value of the awards was $16.25 per share, which was estimated using
a Monte Carlo-based valuation model for the awards based on total shareholder return and using a probability adjusted achievement rate combined with the
market price of the common stock on the date of grant for the awards based on revenue targets. Share-based compensation expense related to the
performance stock unit awards was $1,187 for the year ended March 31, 2021.
As of March 31, 2021, $9,896 of total estimated unrecognized compensation costs related to performance stock units and awards is expected to be
recognized over a weighted-average period of 2.3 years. This amount does not include the cost of new performance stock units and awards that may be
granted in future periods.
Employee Share Purchase Plan
On August 11, 2014, our shareholders approved an Employee Share Purchase Plan (the “Purchase Plan”) under which 4,000,000 shares of common stock
were reserved for future grant. The Purchase Plan allows eligible employees to purchase shares through payroll deductions of up to 15% of total base 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. Any shares
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 any single
purchase date and no more than $25,000 in total fair market value of shares during any one calendar year. As of March 31, 2021, we have issued 748,828
shares under the Purchase Plan and 3,251,172 shares are available for future issuance.
Share-based compensation expense recorded for the employee share purchase plan was $519, $484, and $481 for the years ended March 31, 2021, 2020,
and 2019, respectively.
16. Commitments, Guarantees and Contingencies
Commitments and Guarantees
Our software license agreements include a performance guarantee that our software products will substantially operate as described in the applicable
program documentation for a period of 365 days after delivery. To date, we have not incurred any significant costs associated with our performance
guarantee or other related warranties and do not expect to incur significant warranty costs in the future. Therefore, no accrual has been made for potential
costs associated with these 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 the performance guarantees. To date, we have not incurred any significant costs associated with these warranties and do not expect to
incur significant warranty costs in the future. Therefore, no accrual has been made for potential costs associated with these warranties.
We historically have accepted sales returns under limited circumstances. We estimate expected sales returns and other forms of variable consideration
considering our customary business practice and contract-specific facts and circumstances, and we consider such estimated potential returns as variable
consideration when allocating the transaction price to the extent it is probable that there will not be a significant reversal of cumulative revenue recognized.
Our standard sales agreements contain an indemnification provision pursuant to which we shall indemnify, hold harmless, and reimburse the indemnified
party for losses suffered or incurred by the indemnified party in connection with any United States patent, any copyright or other intellectual property
infringement claim by any third-party with respect to our software. As we have not incurred any significant costs to defend lawsuits or settle claims related to
these indemnification agreements, we believe that our estimated exposure on these agreements is currently minimal. Accordingly, we have no liabilities
recorded for these indemnification obligations.
Hussein Litigation
On 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
the County 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. After the court sustained our demurrer to the
initial complaint, Hussein filed an amended complaint on April 25, 2014. The amended complaint generally alleges fraud and deceit, constructive fraud,
negligent misrepresentation and breach of fiduciary duty in connection with statements made to our shareholders regarding
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our financial condition and projected future performance. The amended complaint seeks actual damages, exemplary and punitive damages and costs.
Hussein’s breach of fiduciary duty claims were dismissed on demurrer, and we filed an answer and cross-complaint against Hussein, alleging that he
breached fiduciary duties owed to the Company. On September 16, 2015, the Court granted summary judgment with respect to Hussein’s remaining claims,
dismissing all claims against us. The cross-complaint against Hussein went to trial, but the Court granted judgment in favor of Hussein on our cross-
complaint. Final judgment over Hussein’s claims and our cross-claims was entered on January 9, 2018. Hussein appealed the order granting summary
judgment over his claims, and we appealed the court’s decision granting Hussein’s motion for judgment on our cross-complaint. On October 8, 2019, the
California State Court of Appeal for the Fourth Appellate District, Division Three, reversed the Superior Court’s grant of summary judgment on Hussein’s
affirmative claims and affirmed the trial court’s judgement on the Company’s breach of fiduciary duty claims against Hussein. As a result, the case has
returned to the trial court for resolution of Hussein’s claims against us. Previously scheduled trial dates have been postponed due to the ongoing pandemic,
and a new trial date has been set for July 6, 2021. Separately, Hussein has issued an arbitration demand seeking indemnification for the fees he incurred
defending against our cross-complaint. Following briefing and a hearing at the liability phase of the arbitration, the arbitrator held that Hussein is entitled to
indemnification for “Expenses” (as that term is defined in Hussein’s indemnification agreement with NextGen) incurred in defense of NextGen’s cross-
complaint against him. The arbitrator will determine the quantum of indemnifiable Expenses at a second phase of the arbitration scheduled for June 10,
2021. At this time, we are unable to estimate the probability or the amount of liability, if any, related to this matter.
Other Regulatory Matters
Commencing in April 2017, we have received requests for documents and information from the United States Attorney's Office for the District of Vermont and
other government agencies in connection with an investigation concerning the certification we obtained for our software under the United States Department
of Health and Human Services' Electronic Health Record (EHR) Incentive Program. The requests for information relate to, among other things: (a) data used
to determine objectives and measures under the Meaningful Use (MU) and the Physician Quality Reporting System (PQRS) programs, (b) EHR software
code used in certifying our software and information, and (c) payments provided for the referral of EHR business. We continue to cooperate in this
investigation. Requests and investigations of this nature may lead to future requests for information and ultimately the assertion of claims or the
commencement of legal proceedings against us, as well as other material liabilities. In addition, our responses to these and any future requests require time
and effort, which can result in additional cost to us. At this time, we are unable to estimate the probability or the amount of liability, if any, related to this
matter. Given the highly-regulated nature of our industry, we may, from time to time, be subject to subpoenas, requests for information, or investigations
from various government agencies. It is our practice to respond to such matters in a cooperative, thorough and timely manner. At this time, we are unable to
estimate the probability or the amount of liability, if any, related to this matter.
17. Restructuring Plan
In May 2020, we announced a decision to execute a reduction in our workforce of less than 3% as well as other temporary cost reductions in response to the
COVID-19 pandemic. We recorded $2,562 of restructuring costs, consisting of payroll-related costs, such as severance, outplacement costs, and continuing
healthcare coverage, associated with the involuntary separation of employees pursuant to a one-time benefit arrangement, for the year ended March 31,
2021 within operating expenses in our consolidated statements of net income and comprehensive income. These amounts were accrued when it was
probable that the benefits would be paid, and the amounts were reasonably estimable. The payroll-related costs were substantially paid as of March 31,
2021.
In June 2019, we implemented a business restructuring plan as part of our continued efforts to preserve and grow the value of the Company through client-
focused innovations while reducing our cost structure. As part of the restructuring, we reduced our total workforce by approximately 4% primarily within the
research and development function and intend to expand on our research and development resources in India. We recorded $2,505 of restructuring costs in
the year ended March 31, 2020 within operating expenses in our consolidated statements of comprehensive income. The restructuring costs consisted
primarily of payroll-related costs, such as severance, outplacement costs, and continuing healthcare coverage, associated with the involuntary separation of
employees pursuant to a one-time benefit arrangement. These amounts were accrued when it was probable that the benefits would be paid, and the
amounts were reasonably estimable. The payroll-related costs were substantially paid as of March 31, 2020.
During the year ended March 31, 2019, we recorded $640 of restructuring costs related to adjustments to the estimated fair value of remaining lease
obligations for vacated properties associated with our prior restructuring plan. The restructuring costs were comprised of facilities-related costs associated
with accruals for the remaining lease obligations at certain locations, including Solana Beach, St. Louis, and a portion of Horsham with contractual lease
terms ending between January 2018 and September 2023. We estimated the remaining lease obligations at fair value as of the cease-use date for each
location based on the future contractual lease obligations, reduced by projected sublease rentals that could be reasonably obtained for the locations after a
period of marketing, and adjusted for the effect deferred rents that have been recognized under the lease. The effect of discounting future cash flows using a
credit-adjusted risk free rate was not significant. Sublease income and commencement dates were estimated based on data available from rental activity in
the local markets. As of March 31, 2019, the remaining lease obligation, net of estimated projected sublease rentals, was $1,762.
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(in thousands)
For the year ended
March 31, 2021
March 31, 2020
March 31, 2019
(in thousands)
For the year ended
March 31, 2021
March 31, 2020
March 31, 2019
(in thousands)
For the year ended
March 31, 2021
March 31, 2020
March 31, 2019
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Sales Return Reserve
Balance at
Beginning
of Year
Additions
Charged
Against
Revenue
Deductions
4,191 $
4,759 $
5,520 $
6,595 $
7,094 $
4,969 $
(7,193) $
(7,662) $
(5,730) $
Allowance for Doubtful Accounts
Balance at
Beginning
of Year
Additions
Charged to
Costs and
Expenses
Deductions
3,549 $
6,054 $
3,876 $
2,834 $
3,367 $
5,644 $
(2,178) $
(5,872) $
(3,466) $
$
$
$
$
$
$
Balance at
End of Year
3,593
4,191
4,759
Balance at
End of Year
4,205
3,549
6,054
Valuation Allowance for Deferred Taxes
Balance at
Beginning
of Year
Additions
Charged to
Costs and
Expenses
Acquisition
Related
Additions
Deductions
$
$
$
5,452 $
3,563 $
2,893 $
877 $
327 $
708 $
— $
1,590 $
— $
(314) $
(28) $
(38) $
Balance at
End of Year
6,015
5,452
3,563
88
DESCRIPTION OF THE REGISTRANT'S SECURITIES REGISTERED PURSUANT
TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 4.1
General
The articles of incorporation, as amended, of NextGen Healthcare, Inc. ("NextGen") authorize the issuance of up to 100,000,000 shares of common stock,
$0.01 par value per share. As of March 31, 2021, there were 67,068,810 shares of common stock issued and outstanding.
Common Stock
All outstanding shares of common stock are fully paid and nonassessable. The following summarizes the rights of holders of NextGen common stock:
•
•
•
•
•
each holder of common stock is entitled to one vote per share on all matters to be voted upon generally by NextGen's shareholders;
the holders of common stock are entitled to receive lawful dividends as may be declared by NextGen's board of directors;
upon NextGen's liquidation, dissolution or winding up, the holders of shares of common stock are entitled to receive a pro rata portion of all
assets remaining for distribution after satisfaction of all of NextGen’s liabilities;
there are no redemption or sinking fund provisions applicable to NextGen's common stock; and
there are no preemptive or conversion rights applicable to NextGen's common stock.
NEXTGEN HEALTHCARE, INC.
LIST OF SUBSIDIARIES
Exhibit 21
Name of Subsidiary
NextGen Healthcare Information Systems, LLC
NXGN Management LLC (f/k/a QSI Management LLC)
NextGen Cares Foundation, Inc.
NextGen RCM Services, LLC
Topaz Information Systems, LLC
Medfusion, Inc.
OTTO Health, LLC
NextGen Healthcare India Pvt. Ltd.
NextGen Interoperability Solutions Limited (f/k/a Mirth Ltd)
State or Other Jurisdiction of Incorporation or Organization
California
California
California
Missouri
Arizona
North Carolina
Colorado
India
United Kingdom
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-234308,333-221145, 333-63131, 333-67115,
333-129752, 333-198181, and 333-206419) of NextGen Healthcare, Inc. of our report dated May 26, 2021 relating to the financial statements and financial
statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Irvine, California
May 26, 2021
Certification of Principal Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.1
I, John R. Frantz, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of NextGen Healthcare, Inc.;
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 the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act 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 the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that 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;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: May 26, 2021
By: /s/ John R. Frantz
John R. Frantz
Chief Executive Officer
(Principal Executive Officer)
Certification of Principal Financial Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.2
I, James R. Arnold, Jr., certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of NextGen Healthcare, Inc.;
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 the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act 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 the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that 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;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: May 26, 2021
By: /s/ James R. Arnold, Jr.
James R. Arnold, Jr.
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report on Form 10-K of NextGen Healthcare, Inc. (the “Company”) for the year ended March 31, 2021 (the “Report”),
the undersigned hereby certify in their capacities as Chief Executive Officer and Chief Financial Officer of the Company, respectively, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: May 26, 2021
Date: May 26, 2021
By: /s/ John R. Frantz
John R. Frantz
Chief Executive Officer
(Principal Executive Officer)
By: /s/ James R. Arnold, Jr.
James R. Arnold, Jr.
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the
signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and
will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.