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, 2022
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)
Delaware
(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, 2021: $794,080,000 (based on the closing sales price of the Registrant’s
common stock as reported on the NASDAQ Global Select Market on that date of $14.10 per share)*
The Registrant has no non-voting common equity.
The number of outstanding shares of the Registrant’s common stock as of May 13, 2022 was 67,122,221 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.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement related to the 2022 Annual Shareholders' Meeting to be filed with the Securities and Exchange Commission within 120 days of the
registrant’s fiscal year ended March 31, 2022 are incorporated herein by reference in Part III of this Annual Report on Form 10-K where indicated.
Item
Page
NEXTGEN HEALTHCARE, INC.
TABLE OF CONTENTS
2022 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.
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
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 innovative, cloud-based, healthcare technology solutions that empower healthcare practices to manage the risk
and complexity of delivering care in the United States 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 consumerism, digitization, risk allocation, regulatory influence, and
integrated care and health equity.
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 range from some of the largest and most
progressive multi-specialty groups in the country to sole practitioners with a wide variety of business models. 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.
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, and in 2021, we changed our state of incorporation to Delaware. Our principal executive offices are located at 3525 Piedmont Rd., NE,
Building 6, Suite 700, Atlanta, Georgia. Our principal website is www.nextgen.com. We operate on a fiscal year ending on March 31.
Our Vision, Mission and Strategy
NextGen Healthcare’s vision is better healthcare outcomes for all. We strive to achieve this vision by delivering innovative solutions and insights aimed at
creating healthier communities. We focus on improving care delivered in ambulatory settings but do so recognizing that the entire healthcare ecosystem
needs to work in concert to achieve the quadruple aim… “to improved patient experience, improved provider experience, improve the health of a population,
and reduce per capita health care costs.”
Our long-term strategy is to position NextGen Healthcare as both the essential, integrated, delivery platform and the most trusted advisor for the ambulatory
practices of the future. To that end, we primarily serve organizations that provide or orchestrate care in ambulatory settings and do so across diverse
practice sizes, specialties, care modalities, and business models. These customers include conventional practices as well as new market entrants.
We plan to continue investing in our current capabilities as well as building and/or acquiring new capabilities. 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 capabilities
(i.e., patient portal, self-scheduling, and patient pay) and OTTO Health, LLC for its virtual care solutions, notably telemedicine. The integration of these
acquired technologies has made NextGen Healthcare’s solutions among the most comprehensive in the market. Further, we are also actively innovating our
business models and exploring new high-growth market domains as we extend our position as the essential, integrated, delivery platform and trusted impact
partner for the ambulatory practices of the future.
Market Opportunity, and Trends
The scale and scope of the healthcare industry continues to expand. Annual United States healthcare spend today represents nearly $4.1 trillion and ~20%
of GDP. A significant portion of this spend is directed towards the treatment of chronic conditions and administering an increasingly complex system with
diverse stakeholders. While there are several convergent market forces reshaping the healthcare industry landscape, we are focused on six trends we
believe will materially impact the markets we participate in and our customer value proposition:
1.
Regulatory Influence – Medicare and Medicaid continue to expand and represent approximately a third of covered lives. Further, the 21st
Century Cures Act (“Cures Act”) certification requirements and impending changes by Centers for Medicare & Medicaid Services (“CMS”) to
Medicare reimbursement and shared savings programs parameters (i.e., MIPS, MSSP and telehealth programs) represent continued and
escalating regulatory requirements in the healthcare industry broadly and the shape of primary healthcare. Considering these regulatory and
market-based changes, many ambulatory practices have come to place a very high value on partnering with vendors that stay ahead of these
regulatory and industry changes
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2.
3.
4.
Risk Reallocation – As healthcare shifts away from defined benefit models towards defined contribution, employers, payors, providers and
consumers are increasingly evaluating models to share and reallocate risk. In 2020, nearly 40% of all healthcare payments representing over
75% of all covered lives flowed through an alternative payment model. While Medicare Advantage related payments led the charge with over
55% of payments tied to alternative models, a plurality of commercial payors are also leveraging value-based provider arrangements to incent
care quality standards and reduce health disparities. For providers, effective participation in these models requires a full view of the patient
population’s clinical and cost data and robust financial management solutions and services to navigate multiple contract types.
Consumerism – Consumers are increasingly directing their own healthcare and are expecting greater levels of access, convenience, and
experience personalization. Beyond tailoring healthcare interactions to their needs and preferences, they also expect much greater transparency
about the costs for visits, medications, and procedures. Accompanied by a significant shift of care from inpatient to lower cost outpatient settings
and virtual modes, healthcare is poised to becomes increasingly ‘retail-like’ and will place unique demands on practices and care providers who
need comprehensive engagement platforms to attract, retain and engage patients through their complete health journey
New Modalities and Coordinated Team Based Care – Untethered from physical clinics and desktops, care is now being delivered in
“boundless” venues by multiple, coordinated care providers.
5. Meaningful Interoperability & Digitization – Greater levels of data exchange, automation, Artificial Intelligence (AI) and speech enabled
6.
workflows.
Integrated Care and Health Equity – Integrated, whole-person health continues to trend strongly as evidenced by FQHCs/CHCs receiving
Health Resources and Services Administration (“HRSA”) funding to drive integrated medical, behavioral, and oral health. Public sector and private
investment in understanding and addressing social determinants of health and improving community health are growing.
NextGen Healthcare is well positioned to play a key role in guiding our clients through short-term and long-term changes that impact healthcare in the United
States and is committed to helping them deliver better outcomes.
Our Value Proposition
NextGen Healthcare’s value proposition to our clients can be summarized by the four “I’s” as follows:
•
•
•
•
Integration – Delivering a broad and highly integrated set of solutions and end-user experiences. NextGen Healthcare, a top KLAS-ranked
platform solution provider, is driving greater levels of efficiency and experience for practices. Our clients value the full breadth of our solution
offering and seamless integration into their clinical workflows. This integration is an important determinant of our success.
Interoperability – Building seamlessly connected data and human networks across ambulatory healthcare. NextGen Healthcare’s Interoperability
solutions help create a frictionless environment where those that need important healthcare data can rapidly find and utilize it. For example,
NextGen Healthcare powers over a third of all United States Health Information Exchanges (“HIE’s”), with over 170 million patient records passing
over our network of almost 2.8 million directory addresses.
Insights – Providing intelligence at the point of care to enable better health and financial decision-making. We are helping our clients move from
being data rich to insight rich. By providing intelligence, through innovative solutions that take data out of electronic health records (“EHR”),
normalize, cleanse, and present it back as usable data pipelines, NextGen Healthcare can help optimize prescription guidance, care gap reviews,
billing quality, practice variance, etc. and insert it directly into clinician’s workflows in order to facilitate sound clinical and financial decisions when
serving patients.
Impact – Delivering and shaping outcomes in all aspects of our solutions and service. NextGen Healthcare is pivoting towards becoming a true
performance partner for our clients and is evidenced by proactively helping manage performance and outcomes for our clients.
NextGen Healthcare delivers value to our clients in several ways. Our solutions enable our clients to address current needs while preparing for the needs of
the future including expanding access to health services, enhancing the coordination and management of care, and optimizing patient outcomes while also
ensuring the sustainability of their practices. Specifically, we offer a range of solutions to allow clinicians to practice anywhere and in new and innovative
collaboration models.
NextGen Healthcare provides integrated cloud-based solutions and services that align with our client’s strategic imperatives. Ultimately, this value is reflected
in the overall insights and impact delivered to the client. The foundation for our integrated ambulatory care platform is a core of our industry-leading EHR and
practice management (“PM”) systems that support clinical, financial and patient engagement activities.
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 and voice-enabled capabilities proven to reduce physician burden. Recognizing that engaged patients
are key to positive outcomes, our patient experience platform enables our clients to create personalized care experiences that enhance trust and drive
patient loyalty. Further, we support the advances in integrated care that focuses on the whole person with solutions supporting behavioral and oral
health. Our cloud-based population health and analytics engine allows our clients to improve results in both fee-for-service and fee-for-value environments.
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In support of extensibility, we surround the core with open, web-based application programming interfaces (“APIs”) to drive the secure exchange of health
and patient data with connected health solutions. Our commitment to interoperability, defragmenting care and our experience powering many of the nation’s
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.
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. We partner with our clients to optimize their information technology (“IT”) operations, enhance revenue cycle
processes across fee-for-service and fee-for-value models, service line expansion and operations, as well as advise on long-term strategy.
Positioning NextGen Healthcare for Growth. As NextGen Healthcare applies this value proposition framework across the ambulatory care market, we
incorporate some or all our current solution offerings within three broad domains illustrated in Figure 1 below:
•
•
•
Enterprise – The Enterprise domain is both the largest and incorporates our broadest portfolio of solutions (e.g., clinical, financial, and patient
engagement solution portfolios) provided to ambulatory care practices that incorporate 10 or more healthcare providers. One of these solutions,
our practice management offering, NextGen® Enterprise PM, was recognized as the #1 Practice Management Solution (11-75 Physicians) for
four consecutive years – 2019, 2020, 2021 and 2022 Best in KLAS Report.
Office – The Office domain reflects almost all solutions (software solutions and adjacent services) provided to an ambulatory care practice that
incorporates fewer than 10 healthcare providers. Our main offering in this group is a cloud-based, multi-tenant SaaS EHR and PM solution, called
NextGen® Office, which was recognized as the #1 Small Practice Ambulatory EMR/PM (<10 Physicians) in the 2022 Best in KLAS Report.
Insights – The Insights domain incorporates solutions that address interoperability, data and analytics, and value-based care. Previously
described as population health and connected health, the Insights solutions portfolio is offered to clients across both our Enterprise and Office
domains as well as additional ambulatory healthcare stakeholders addressing connectivity or value-based care needs. NextGen is highlighting
this domain as a reflection of its overall importance and high future growth potential.
Figure 1: NextGen Healthcare Solutions Domains
Additional commentary on our collection of solutions within the three broad domains are described in further detail below.
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ENTERPRISE
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. Examples of our clinical care solutions are:
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.
Financial Solutions 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. An example of our financial management solutions is:
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.
Patient Engagement Solutions boost loyalty and improve outcomes by engaging patients in their own care. Our patient engagement tools enable patients
to better 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. An example of our patient engagement
solutions is:
NextGen Virtual Visits™ – Delivers a tightly integrated, bi-directional telehealth experience that allows patients to have a virtual visit with their
own personal doctor and 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.
OFFICE
Integrated Clinical Care and Financial Solutions provide a comprehensive set of software and services specifically targeted to improve the clinical and
financial performance of small and independent practices across a broad set of clinical specialties. An example of our solution in this space is:
NextGen® Office – A cloud-based EHR and PM solution for physicians and medical billing services designed to meet the specific needs of
smaller practices.
INSIGHTS
Interoperability Solutions (formerly Connected Health Solutions) enable different information technology systems to communicate and exchange usable
data thereby allowing caregivers to more effectively work together within and across care teams and organizational boundaries, and equipping patients to
collaborate on their own care. Our integration and interoperability offerings enable providers to leverage their current technology for better outcomes and
truly connected patient care. Example of our interoperability solutions are:
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 2.8 million providers and organizations, care quality integration to enable automated data exchange of over 250 million records to date.
Mirth® Connect – Enables patient data from disparate systems to be easily and securely shared, aggregated, and put to work, regardless of
EHR, PM, or other healthcare IT platform or location. This offering optimizes interoperability capabilities with advanced administration tools that
help drive affordable and effective health data exchange and supports client’s ability to control resources and elevate performance.
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Data and Analytics Solutions help NextGen Healthcare’s customers to unlock the value of their information assets and deliver actionable insight and
decision support at the point of care. We do this by aggregating and normalizing data assets across multiple sources of truth, enriching those data sets as
needed with proprietary and 3rd party information assets and applying sophisticated analytics to develop a broad set of clinical, operational, financial, and
experiential insights. An example of our data and analytics solutions is:
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.
Value Based Care Solutions (formerly Population Health Solutions) provide our customers the ability to enhance care quality and optimize the total cost
of delivering care to patient populations across risk strata. As the incidence of chronic conditions rises across patient populations, providers are increasingly
seeking turnkey chronic condition management, remote patient monitoring and care program adherence solutions that can improve clinical outcomes. Our
solutions also give practices the ability to share risk with payors under alternative payment models and sustainably navigate the transition from fee-for-
service to fee-for-value. An example of our value based care solutions is:
NextGen® Population Health Solutions – 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.).
SERVICES
Applicable across all three domains, NextGen Healthcare provides additional value to clients in the form of services that help clients achieve their strategic
objectives. Through these services, we enable clients to effectively address core operational and financial needs so they can focus on their primary mission
of providing efficient and high-quality patient care. Our three categories of services include:
Managed Services include 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 team of technical experts. In
addition, we offer Revenue Cycle Management (“RCM”) Services that 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 include training, project management, installation services, and application managed 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.
Client Service and Support in which 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.
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, Greenway Health, LLC, and Modernizing Medicine, Inc. Emerging smaller competitors also bring competition in specific sectors
of the market. Additionally, we face competition from technology vendors who offer verticalized data management and analytics solutions and services-only
competitors like business process outsourcers, hosting providers and transcription companies.
The EHR, PM, interoperability, and connectivity markets 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, the essential nature of
the EHR and PM clinical platforms to care delivery, 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.
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Regulatory Environment
As a participant in the healthcare industry, our business, and that of our clients, is subject to a wide array of complex and rapidly changing federal and state
laws, regulations, and industry initiatives, in the areas of information sharing, electronic health record and interoperability standards, e-prescribing, claims
processing and transmission, security and privacy of patient data, and healthcare fraud. The impact of such laws and regulations on us is direct, to the extent
we are subject to these laws and regulations, and is also indirect, in terms of government program requirements applicable to our clients for the use of our
solutions or that impact payment models. The complexity and rapidly changing nature of these laws and regulations have created both challenges as well as
significant opportunities for our business. New laws and regulations have targeted the adoption of EHRs, health data exchange and interoperability, value-
based payment, care coordination, utilization of telehealth services, migration of inpatient to outpatient care, and expansion of behavioral health services.
Many of these changes have spanned multiple Congresses and Presidential Administrations and taken years to fully implement (e.g., The Medicare Access
and CHIP Reauthorization Act of 2015 (“MACRA”) and Cures Act):
•
•
•
Cures Act – The Cures Act, which was passed in 2016 and laid the groundwork for a nationwide trusted health information exchange, includes
provisions that directly call for, or describe roles for the use of, health information technology to help providers comply with new federal
requirements under Medicare and state Medicaid programs. Sections of the law addressing interoperability also codified the concept of
information blocking, requiring a new regulatory structure to respond to concerns that actors in the healthcare industry intentionally block the
exchange of information between various stakeholders. In 2020, the Health and Human Services (“HHS”) Office of the National Coordinator for
Health Information Technology (“ONC”) released a final regulation which, among other things, calls on developers of certified EHRs to adopt
standardized APIs and to meet a list of other new certification requirements to retain approved federal government certification status. In 2022, we
announced that our NextGen® Enterprise EHR achieved the ONC-Health IT 2015 Edition Cures Update Health IT certification.
MACRA – The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), which reformed how physicians are paid under Medicare and
established Merit-based Incentive Payment Systems (“MIPS”), also includes provisions that directly call for or describe roles for the use of health
information technology to help providers comply with new federal requirements under Medicare and state Medicaid programs. In 2023, healthcare
providers will have to utilize EHR software that meets these requirements to successfully participate in the MACRA Quality Payment Program
(“QPP”) and other federal programs that require the use of certified EHRs.
HITECH – Various U.S. federal, state and non-government agencies continue to generate requirements for the use of certified health information
technology and interoperability standards. These requirements are expansions of the statutory ARRA Health Information Technology for
Economic and Clinical Health Act (“HITECH”) program that began providing incentive payments in 2011 to eligible providers and hospitals for the
"meaningful use of certified electronic health record technology ("CEHRT")." Although those incentive programs have expired, CEHRT continues
to be a requirement of participation in federal healthcare programs to receive reimbursement for health items and services provided by our clients
to Medicare and Medicaid beneficiaries.
Through annual payment policy rules from the CMS and other targeted rulemakings from the United States Department of Health and Human Services
(“HHS”), the federal government continues to implement and/or update different aspects of these laws every year, for example:
•
•
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.
2022 – NextGen Healthcare announced that its NextGen® Enterprise EHR achieved the Office of the National Coordinator for Health Information
Technology (ONC-Health IT) 2015 Edition Cures Update Health IT certification via an Authorized Certification Body (“ACB”). This made NextGen
Healthcare the first EHR developer to certify a complete EHR solution to the 2015 Edition Cures Update criteria. In 2023, healthcare providers will
have to utilize EHR software that meets these requirements to successfully participate in the MACRA law’s Quality Payment Program (“QPP”)
and other federal programs that require the use of certified EHRs.
In addition, reform of payment policies for Medicare and Medicaid continues to evolve. For example:
•
PPACA – The Patient Protection and Affordable Care Act (“PPACA”) is a comprehensive healthcare reform legislation that became law in 2010
and introduced value-based principles into federal health insurance payments systems and sought to improve healthcare quality and expanded
access to affordable health insurance. MACRA built upon the value-based policies introduced by the ACA. Notably, in the last several years,
participation in Medicare's "alternative payment models" to replace traditional "fee for service" payments with quality and risk-sharing payment
models has been conditioned on the adoption of CEHRT.
Refer also to the discussion of regulatory risks within “Item 1A. Risk Factors” for governmental regulations and policies that may affect our business.
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COVID-19
In January 2020, HHS officially declared that a public health emergency (“PHE”) existed as a result of the pandemic. Soon after, HHS issued a series of
rules and orders to offer healthcare providers flexibility or waivers from certain regulatory requirements during the PHE that are still in effect today. For
example, changes were made through waivers and other regulatory authority to increase access to telehealth services by, among other things, increasing
reimbursement, permitting the enrollment of out of state providers and eliminating prior authorization requirements. It is uncertain how long these COVID-19
related regulatory changes will remain in effect and whether they will continue beyond the PHE period. These laws include the $2.2 trillion Coronavirus Aid,
Relief, and Economic Security Act ("CARES Act”) and the $1.9 trillion American Rescue Plan Act, both of which included record federal investments in
FQHCs and behavioral health service providers.
Additional regulations that directly and/or indirectly impact our business include:
Privacy and Security Laws. There are numerous United States federal and state laws and regulations as well as foreign legislation which govern the
confidentiality of personal information, how that information may be used, and the circumstances under which such information may be released. These
regulations govern both the disclosure and use of confidential personal and patient medical record information and require the users of such information to
implement specified security and privacy measures.
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HIPAA – Health Insurance Portability and Accountability Act (“HIPAA”) and its implementing regulations contain substantial restrictions and
requirements with respect to the use and disclosure of individual’s protected health information (“PHI”) and require the implementation of
administrative, physical, and technical safeguards to ensure the confidentiality, integrity, and availability of individually identifiable health
information in electronic form. The principal effects of HIPAA are, first, to require that our systems be capable of being operated by us and our
clients in a manner that is compliant with the Transaction, Security and Privacy Standards mandated by HIPAA, and second, to comply with
HIPAA when it directly applies to us.
Patient Information, Privacy and Security – Our business is subject to rules, particularly HIPAA and HITECH, and contractual obligations
relating to the privacy and security of PHI that we and our subcontractors may have access to as part of the operation of our business. These
rules and obligations have increased the cost of compliance and could subject us to additional enforcement actions and contractual liability, which
could further increase our costs and adversely affect the way in which we do business.
Fraud and Abuse Laws. The healthcare industry is subject to laws and regulations on fraud and abuse that, among other things, prohibit the direct or
indirect payment or receipt of any remuneration for patient referrals, or for the purchase or order, or arranging for or recommending referrals or purchases, of
any item or service paid for in whole or in part by these federal or state healthcare programs. Federal enforcement personnel have substantial funding,
powers and remedies to pursue suspected or perceived fraud and abuse. Moreover, both federal and state laws forbid bribery and similar behavior.
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Anti-Kickback Laws prohibit giving anything of value to induce referrals of patients or healthcare products and services that are paid by federal
healthcare programs.
False Claims Act prohibit knowingly or intentionally including false information on a claim for payment submitted to a government payer or being
deliberately ignorant to the fact that the information is false.
Healthcare fraud and abuse laws and regulations can vary significantly from jurisdiction to jurisdiction, and the state and federal interpretation of existing
laws and regulations, and their enforcement, may change from time to time. We may also be subject to future legislation and regulations concerning the
development and marketing of healthcare software systems or requirements related to product functionality.
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. These efforts include developing new solutions as well as new features and
enhancements to our existing solutions, which we believe will create additional opportunities to connect our systems to the healthcare community.
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. 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
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campaigns; and telemarketing. Our sales cycle can vary significantly and typically ranges from six to 18 months from initial contact to contract execution.
Smaller practices on NextGen Office tend to have significantly shorter sales cycles ranging in weeks. 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, 2022, 2021 and 2020. In addition, software license sales to resellers represented less than 10% of total
revenue for each of the years ended March 31, 2022, 2021 and 2020. Substantially all our clients are located in the United States.
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.
Privacy and Security
Our business operations involve hosting, storing, processing, and transmitting confidential information, including personally identifiable information, protected
health information (“PHI”) and payment card 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 of information. Additionally, our comprehensive Information Security
Management Program (“ISMP”) is designed to help safeguard the confidentiality, integrity and availability of our clients’ data through use of testing for
assurances and outlining processes for appropriate response and reporting of security incidents.
Physical Safeguards
We utilize the industry’s most well-respected certifications starting with Health Information Trust Alliance (“HITRUST”) Common Security
Framework (“CSF”), which provides a process to standardize requirements of Health Insurance Portability and Accountability Act (“HIPAA”) and
coordinate it with other national and international data security frameworks and many state laws.
We 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”), helping to maintain compliance with Security Organization
Control 2, or SOC 2 Type II, across the domains of privacy, security, confidentiality, and availability.
These certifications and pertinent audits help with our client’s third-party assurance programs to ensure we are meeting or exceeding HIPAA and
other regulatory requirements.
Technical Safeguards
We operate both single-tenant environments and unified multi-tenant platforms that offer reliability, scalability, performance, security and privacy
for our clients and the customers and patients they serve. To create geographical redundancy, our infrastructure resides in several geographically
diverse regions across the United States.
Additionally, we have systems in place to monitor the security and confidentiality of PHI, and procedures designed to promptly initiated
investigations and mitigation efforts upon notification or identification of a security incident.
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Administrative Safeguards
We have a comprehensive training and awareness program which includes on-going awareness simulations, required training, supplemental
training, and cross-functional incident response testing. All employees are required to complete each cybersecurity training, HIPAA training, and
PCI DSS training annually. These training modules are reviewed annually to ensure compliance with the latest regulatory guidelines, laws, and
industry best practices, and include information on how our employees’ can ensure they are meeting our security requirements while working in a
remote environment.
All policies and procedures are made available to all employees through our organization’s intranet, and acknowledgement of these is required at
time of hire. Our Privacy Policy, which outlines how we collect and utilize personal data, is made available on our public facing website.
We recognize that these safeguards may not always prevent future cybersecurity incidents or breaches, especially in the current landscape of increasing
cybersecurity risks from, among other areas, the prevalence of remote work, the ability of cyber-criminals to monetize cybersecurity incidents (ransomware,
dark web, etc.), growth in digital payments, and cloud computing technology. We also recognize that regulatory scrutiny of privacy, data collection, use and
sharing of data is increasing on a global basis, and we are uncertain how current and future data privacy laws may impact our business practices and
privacy policies.
Managing Cybersecurity Risks
We conduct regular risk assessments, which are one component of our internal control environment that brings together key stakeholders to identify and
evaluate threats and critical risks (both internal and external) that may impact our overall mission and objectives of the organization. The risk assessment
process assigns certain risks identified through process to key stakeholders to monitor, manage and implement appropriate measures.
To mitigate the increasing risk of cybersecurity incidents, we review and evaluate our cybersecurity insurance coverage on an annual basis. Our evaluation is
based on industry standard, and specific needs of the organization which are identified through business and privacy impact assessments.
We use a third-party vendor to conduct, perform and validate a bona fide annual risk assessment required by the HIPAA Security Rule. The third‐party
vendor conducts interviews with key stakeholders and performs penetration testing, evidence collection and on‐site analysis. Formal rating systems
determine what, if any, remediation strategies are warranted, and are then incorporated into a remediation plan. The vendor provides a report that is
reviewed and approved by the Chief Information Security Office (“CISO”) and reported to appropriate members of executive management and Board of
Directors.
The information systems team conducts weekly meetings 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 the organizational goals regarding security and compliance. Continuity and
resiliency planning are based on National Institute of Standards and Technology (“NIST”) cybersecurity best practices and are tested no less than annually.
A comprehensive assurance program is maintained with oversight by our CISO, which is included with the organization procurement gating process.
Administrative and technical assessments are conducted prior to contract signing with any third-party. Our control consciousness is influenced significantly
by our 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 organization’s business activities.
Human Capital
Workforce Statistics
As of March 31, 2022, NextGen Healthcare had approximately 2,655 full-time employees, approximately 758 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.
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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 & Belonging
(“DEIB”) 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), NextGen United, 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 Chief Executive Officer and other C-level executives. Our BELONG (Bringing Employees to
Leadership Opportunities at NextGen) sponsorship program pairs a senior member of our organization (the sponsor) with a more junior member (the
protégé) with the goal of career clarity and potential advancement. We also provide and promote employee training on harassment prevention, cultivating a
respectful workplace and elimination of unconscious bias. Beyond the fundamental conversation about DEIB, we regularly engage with outside experts on
training and facilitated conversations about topics including cultural competency and humility and career progression through a non-dominant culture lens. To
measure the impact of the above activities, we survey our employees annually through a specific DEIB survey. 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 align our Total Rewards with the hiring landscape. 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 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.
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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, mental health services for all employees, an Employee Assistance Program, and time off plans including vacation,
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/Transition to Remote Workforce
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 most 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. As the
severity of the pandemic waned and in response to the overwhelming preference of our employees, we implemented remote work as our standard. Our
Human Resources, Organizational Development and Information Security teams keep our employees engaged with resources to work remotely, remain
productive and avoid burnout. Our business continuity health and safety team continue to 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. The following information should be read in conjunction
with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and
related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
Risks Related to COVID-19
The COVID-19 pandemic has adversely affected, and could in the future, adversely affect our business and the business of our customers and
suppliers. The COVID-19 pandemic and continuing efforts to control its spread or the resurgence thereof has had a significant, ongoing impact on our
operations (including in India) and the operations of our healthcare clients. For example, declines in patient volumes at the onset of the pandemic 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 continues to experience a severe COVID-19 resurgence and where we have 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 magnitude and duration of the disruption and resulting decline in business activity will largely depend on future developments which are highly uncertain
and cannot be predicted, 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 because 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.
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 subject to evolving technology,
solution standards and user needs. We face significant competition from various sources and 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 because of government programs and consolidation in both the IT and healthcare industries. There can be no
assurance that we will be able to compete successfully against current and future competitors or that the competitive pressures that we face will not
materially and adversely impact our business, financial condition, and operating results. Transaction induced and other competitive pressures and 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.
We may not be able to develop and market new products to respond to technological changes or evolving industry standards and our clients may
not accept our products or services. There can be no assurance that we will be successful
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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 to user needs, changing market conditions or client requirements, our
business, results of 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 continues to evolve, 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, the importance of establishing and maintaining relationships
with key industry participants increases, and competition to provide products and services like ours will become more intense. Consolidation of management
and billing services may lead integrated delivery systems to require newly acquired physician practices to replace their products with that already in use in
the larger enterprise. 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.
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 certain 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.
If we lose any of these third-party relationships or fail to establish additional relationships, or if our relationships fail to benefit us as expected, this could
materially and adversely impact our business, financial condition and operating results.
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 parties. Our remote hosting and
cloud services businesses also rely on a limited number of software and services suppliers for certain functions of these businesses. 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 development 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. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration
of new technology into our solutions, the diversion of our resources from development of our own proprietary technology and our inability to generate
revenue from licensed technology sufficient to offset associated acquisition and maintenance costs. 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 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; (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
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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, 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 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, client service 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.
If we are unable to manage our growth, including in the new markets we may enter, our business and financial results could suffer. 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. In addition, 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. We may also expand our global
sales efforts. 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, including in new markets, could have a significant negative impact on our business, financial condition and results of operations.
We may not be successful in developing or launching our new software products and services, which could have a negative impact on our
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 and to laws applicable to U.S. companies operating overseas and other
risks of global operations. 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
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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) our EHR product
and its performance, including defects that relate to patient safety or meaningful use certifications, (c) the software code used in certifying our EHR software
and information, and (d) marketing programs and payments provided for the referral of EHR business. We continue to respond to the government’s request.
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, which themselves may lead to material fines, penalties or other 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 of the outcome of this matter
or the range of reasonably possible loss, if any. However, the unfavorable resolution of this matter could have a material adverse effect on our business,
results of operations, financial condition or cash flow.
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, which themselves may lead to material fines, penalties or 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. 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 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. 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. Trial commenced on July 6, 2021. On July 29,
2021, a jury rendered a verdict in favor of the Company and Messrs. Razin and Plochocki on all counts. See Note 22, “Contingencies,” to our consolidated
financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K for additional information. The plaintiff
could appeal the verdict. Although we believe the claim to be without merit, the unfavorable resolution of this matter could have a material adverse effect on
our business, results of operations, financial condition or cash flow.
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Risks Related to Our Operations, Products and Services
We could fail to maintain and expand our business with our existing clients or effectively transition our clients to newer products. 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.
We may be subject to claims for system errors and warranties or incur substantial costs related to product and service-related liabilities. Our
products and services, or the third-party software products or services incorporated therein, may contain defects or errors, including errors in the design,
coding, implementation or configuration, which could create vulnerabilities and affect the ability of our products and services to properly function, integrate or
operate with other offerings, or achieve market acceptance. If we detect errors before we introduce new products or services or enhancements to existing
products or services, we may have to delay deployment for an extended period 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. Any of the foregoing could materially and adversely impact our reputation as well as our business,
financial condition, and operating results. In addition, our clients may use our products or services together with products or services from other companies
or those that they have developed internally. As a result, when problems occur, it may be difficult to identify the source of the problem.
We may be liable for use of content we provide. We provide content for use by healthcare providers in treating patients. Certain of the content is provided
by third-party content suppliers. In addition, certain of our solutions provide applications that relate to patient clinical information. If this content is incorrect or
incomplete, adverse consequences may occur and give rise 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.
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 and services are very complex and may contain design, coding or other errors which could
affect their ability to properly function, integrate or operate with other offerings, create vulnerabilities, and adversely affect market acceptance. This includes
third-party software products or services incorporated into our own solutions and services. 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 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 or series of claims 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.
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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.
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.
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. In addition, we
offer revenue cycle management services that includes manual and electronic processing and submission of medical claims by physicians to patients’
payers for approval and reimbursement. While we have implemented policies, procedures and certain product features designed to maximize the accuracy
and completeness of claims submissions provided that the information given to us by our clients is also accurate and complete, these policies, procedures
and features may not be sufficient to prevent inaccurate claims data from being submitted to payers by our system or through our services. 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 electronic data interchange (“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.
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.
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 train and monitor our employees, it is possible
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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.
Violations of state or federal privacy laws may result in claims against us or may limit or prevent our use of data, which could harm our business.
Certain health privacy laws, data breach notification laws and consumer protection laws may apply directly to our business and/or those of our collaborators
and may impose restrictions on our collection, use and dissemination of individuals’ health information. Patients about whom we obtain health information, as
well as the healthcare services clients who share this information with us, may have statutory or contractual rights that limit our ability to use and disclose the
information. We may be required to expend significant capital and other resources to ensure ongoing compliance with applicable privacy and data security
laws. Claims that we have violated individuals’ privacy rights, violated applicable privacy laws and regulations or breached our contractual obligations, even if
we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business. 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, financial information and other sensitive information. We also
use third-party contractors to provide certain of these services, such as the service provides that host our technology platform. Although we train and monitor
our employees and have systems in place that we believe are reasonably designed to prevent and detect security breaches, we have no guarantee that
these programs and controls will be adequate to prevent all possible security threats. it is possible that our own employees, or that of our clients and
vendors, may engage in conduct that compromises security or privacy. Unauthorized access to our computer systems or data, or to the computer systems or
data of our contractors, could result in the misappropriation or loss of assets or the disclosure of sensitive information, the corruption of data, disruption of
our business operations, damage our reputation, reduce demand for our services, require us to devote financial and other resources to mitigate these
breaches, subject us to litigation from our clients or shareholders, as well as actions by regulatory agencies, 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,
malware, programming errors, or similar disruptive problems. The effect of these security breaches and related issues could also 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 EDI services and 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.
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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 use third party 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. Moreover, unauthorized
access, use or disclosure of such sensitive information, including any resulting from the incidents described above, could result in civil or criminal liability or
regulatory action, including potential fines and penalties. 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 and we rely on bandwidth providers, data center providers, and other
third parties over which we exercise limited control. We deliver products and services that are dependent on the development and maintenance of the
infrastructure of the internet and other telecommunications services by third parties. Any failure or interruption in the services provided by these third parties
or our own systems, or any failure of or by third-party providers’ systems or our own systems to handle current or higher volume of use, could significantly
harm our business. We exercise limited control over our third-party suppliers, which increases our vulnerability to problems with services they provide. In the
event of any difficulties, outages and delays by internet service providers, we may be impeded from providing services, which could result in substantial
costs to remedy those problems or negatively impact our relationship with our clients, our business, results of operations and financial condition.
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 our business, the procurement processes
and operation of healthcare facilities and our costs to deliver products and services that enable our clients to meet their compliance requirements. As a
participant in the healthcare industry, our business, and that of our clients, is subject to a wide array of complex and rapidly changing federal and state laws,
regulations, and industry initiatives, including in the areas of information sharing, electronic health record and interoperability standards, e-prescribing, claims
processing and transmission, security and privacy of patient data, and healthcare fraud, including laws prohibiting the submission of false or fraudulent
claims which 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.
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 PPACA included provisions to control health care costs, improve health care quality, and expand access to affordable health insurance. MACRA, which
became law in 2015, repealed the sustainable growth rate 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 of a factitious legislative environment at the federal level, 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, and there can be no assurances that health care reform legislation will not adversely impact either our operational results or the way we operate
our business. Healthcare industry
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participants may respond by reducing their investments or postponing investment decisions, including investments in our solutions and services.
Regulations around electronic prescribing impose certain requirements which can be burdensome and evolve regularly and may adversely affect our
business model.
In March 2020, the U.S. Congress passed several laws in response to the coronavirus pandemic. Included in these laws are a series of rules and orders to
offer healthcare providers flexibility or waivers from certain regulatory requirements during the PHE that are still in effect today. For example, changes were
made through waivers and other regulatory authority to increase access to telehealth services by, among other things, increasing reimbursement, permitting
the enrollment of out of state providers and eliminating prior authorization requirements. It is uncertain how long these COVID-19 related regulatory changes
will remain in effect and whether they will continue beyond the PHE period.
Healthcare providers may react to these laws and any future proposals, and the uncertainty surrounding such proposals, by curtailing or deferring
investments, including those for our products and services. Cost-containment measures instituted by healthcare providers because 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 solutions and
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.
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.
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 and our third-party service providers collect, process and store
significant amounts of sensitive, confidential and proprietary information, including personally identifiable information, such as payment data and protected
health information. U.S. federal, state and local laws and foreign legislation govern the confidentiality of personal information, how that information may be
used, and the circumstances under which such information may be released. These regulations govern both the disclosure and use of confidential personal
and patient medical record information and require the users of such information to implement specified security and privacy measures.
HIPAA regulations apply national standards for some types of electronic health information transactions and the data elements used in those transactions to
ensure the integrity, security and confidentiality of health information and standards to protect the privacy 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. We and our clients are also
subject to evolving state laws regarding the privacy and security of healthcare information and personal information generally. These 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.
Data protection regulations impact how businesses, including both us and our clients, can collect and process the personal data of individuals. The costs of
compliance with, and other burdens imposed by, such laws, regulations and policies, or modifications thereto, that are applicable to us may limit the use and
adoption of our products and services and could have a material adverse impact on our business, results of operations and financial condition. Furthermore,
we incur development, resource, and capital costs in delivering, updating, and supporting products and services to enable our clients to comply with these
varying and evolving standards. U.S. federal, state, and non-U.S. governmental enforcement personnel have substantial powers and remedies, particularly
in the EU, to pursue suspected or perceived violations. If we fail to comply with any applicable laws or regulations, we could be subject to civil penalties,
sanctions and contract liability and could otherwise damage our reputation. Enforcement investigations, even if meritless, could have a negative impact on
our reputation, cause us to lose existing clients or limit our ability to attract new clients.
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Interoperability and Other Regulatory 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 Cures Act includes numerous provisions intended to encourage this nationwide interoperability. In March 2020, the ONC finalized additional regulations
under the Cures Act to enforce the Act’s policy directives relating to data sharing and interoperability. 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 must 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 Cures Act, including identifying reasonable and necessary activities that do not
constitute information blocking. Under the Cures Act, the 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” prohibitions. 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 Cures Act 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. Market forces
or governmental authorities could continue to create software interoperability or other regulatory standards that could apply to our solutions, and if our
applicable products or services are not consistent with those standards, we could be forced to incur substantial additional development costs. If our
applicable products or services are not consistent with these varying and evolving standards or do not support our clients in their efforts to meet new
certification requirements, our market position and sales could be adversely affected, which could materially and adversely impact our financial condition and
operating results.
Federal Requirements for the Use of Interoperable and Certified Health Information Technology. Various federal and state laws governing the use and
content of EHRs may affect the design of such technology. As such, our systems and services must be designed in a manner that facilitates our clients’
compliance with these laws. In 2009, the United States federal government enacted the HITECH Act, which authorized the ONC to establish the functionality
that EHR products must meet for our technologies to be considered certified. Although the incentive programs available to healthcare providers who
implemented EHRs and demonstrated meaningful use has since expired, the requirements associated with certification and privacy remain in effect. In the
last several years, participation in Medicare's "alternative payment models" to replace traditional "fee for service" payments with quality and risk-sharing
payment models has been conditioned on the adoption of certified electronic health record technology (“CEHRT”). The Cures Act has tied CEHRT to certain
of its policy goals, and participation in Medicare’s alternative payment models has also been conditioned on the adoption of CEHRT. Along with recent CMS
actions taken for Medicare and Medicaid, these regulations will also mandate adoption of updated and expanded certified capabilities of CEHRT that our
clients must adopt to remain able to participate in the federal programs mentioned earlier. In addition, the ONC has increased its surveillance activities
concerning vendor compliance relative to CEHRT.
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. If our clients do not receive or lose
expected payments from other incentive pay for value programs this could harm or delay their willingness to purchase future products or upgrades. We also
cannot predict the speed at which healthcare providers will participate in the relevant programs or whether healthcare providers will select our products and
services at all.
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 expanded CEHRT 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 CEHRT are also significant and because
the definition of CEHRT and its use requirements for clients are subject to regulatory changes. We cannot predict the content or effect of possible changes to
these laws or new federal and state laws that might govern these systems and services. Our inability to design our systems and services in a manner that
facilitates our clients’ compliance with these laws could result in a material adverse impact on our financial position or results of operations.
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
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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 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. CMS 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 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, which could result in a material adverse impact on our financial position or results of operations
We are susceptible to evolving government and industry standards and regulations. United States healthcare system reform at both the federal and
state level could increase government involvement in healthcare, reconfigure reimbursement rates and otherwise change the business environment of our
clients and the other entities with which we have a business relationship. We cannot predict whether or when future healthcare reform initiatives at the
federal or state level or other initiatives affecting our business will be proposed, enacted or implemented or what impact those initiatives may have on our
business, financial condition or operating results. Our clients and the other entities with which we have a business relationship could react to these initiatives
and the uncertainty surrounding these proposals by curtailing or deferring investments, including those for our products and services.
We may experience reduced revenues and/or be forced to reduce our prices in response to changes to the healthcare regulatory landscape. We
may be subject to pricing pressures with respect to our future sales arising from various sources, including among 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.
FDA Regulation of Software as a Medical Device. The U.S. Food and Drug Administration (“FDA”) may in the future determine that our technology
solutions are subject to the Federal Food, Drug, and Cosmetic Act. The December 2016 Cures Act clarified the definition of a medical device to exclude
certain health information technology such as EHRs; however, the legislation did leave the opportunity for that designation to be revisited if determined to be
necessary by changing industry and technological dynamics. 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.
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Capital and Credit Risks
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 and potential subsequent amendments may include 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.
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 and global financial conditions and other geopolitical factors, including as a
result of the Russian invasion of Ukraine and continuing uncertainty surrounding the effects of Covid-19. 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. In addition, our compliance with complex foreign and United States laws and regulations that apply to our global operations and sales
efforts increases our cost of doing business.
Tax, Finance and Accounting Related Risks
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.
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.
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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.
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.
General Risk Factors
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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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 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 several factors including but not limited to:
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated quarterly variations in operating results;
rumors about our performance, software solutions, or merger and acquisition activity;
changes in expectations of future financial performance or changes in estimates of securities analysts;
governmental regulatory action;
health care reform measures;
client relationship developments;
purchases or sales of company stock;
activities by one or more of our major shareholders concerning our policies and operations;
changes occurring in the markets in general;
macroeconomic conditions, both nationally and internationally; and
other factors, many of which are beyond our control.
Furthermore, the stock market in general, and the market for software, healthcare and high technology companies in particular, has experienced 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.
Our intellectual property rights may be infringed or misappropriated by others and our proprietary technology may be subject to claims for
infringement or misappropriation of intellectual property rights of others. We rely upon a combination of confidentiality practices and policies,
contractual terms and technical security measures to maintain the confidentiality and trade secrecy of our proprietary information. We also rely on trademark,
copyright, and patent laws to protect our intellectual property rights. Despite these efforts, we may not be able to adequately protect against theft, copying,
reverse engineering, misappropriation, infringement or unauthorized use or disclosure of our intellectual property, which could have an adverse effect on our
competitive position. In addition, we are occasionally involved in intellectual property infringement or misappropriation claims. These claims, even if
unmeritorious, are expensive to defend and are often incapable of prompt resolution. If we are unsuccessful in defending these claims, we could be required
to pay a substantial damage award, develop alternative technology, obtain a license or cease using, selling, offering for sale, licensing, implementing, or
supporting the applicable technology. 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. 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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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, 2022, we leased an aggregate of approximately 460,900 square feet of space with lease agreements expiring at various dates, of which
approximately 172,900 square feet of space are utilized for continuing operations and 288,000 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
Atlanta, Georgia (1)
Boulder, Colorado
Horsham, Pennsylvania
Total Primary Operating Locations
Vacated or Subleased Locations, or Portions Thereof
Horsham, Pennsylvania
Atlanta, Georgia
Bangalore, India
St. Louis, Missouri
North Canton, Ohio
Cary, North Carolina
Hunt Valley, Maryland
Fairport, New York
Brentwood, Tennessee
Total Vacated or Subleased Locations
Total Leased Properties
(1)Location of our principal executive offices
ITEM 3. LEGAL PROCEEDINGS
Square Feet
105,600
23,900
21,000
17,200
2,800
1,600
800
172,900
109,200
32,700
32,100
29,900
22,100
19,400
16,800
15,300
10,500
288,000
460,900
The information required by Item 3 is incorporated herein by reference from Note 15, “Commitments, Guarantees and Contingencies” of our notes to
consolidated financial statements in this Report.
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 13, 2022, there were approximately 613 holders of
record of our common stock.
Issuer Purchases of Equity Securities
The following is a summary of our repurchases for the three months ended March 31, 2022 (in thousands, except shares and per share data):
Total Number of Shares
Purchased (1)
Average Price Paid per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs (1)
$
$
$
—
—
—
—
—
—
—
— $
— $
— $
—
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Program
24,126
24,126
24,126
Month
January 1 - 31
February 1 - 28
March 1 - 31
Total
(1) On October 28, 2021, our Board of Directors authorized a share repurchase program under which we may repurchase up to $60.0 million of outstanding shares of
our common stock through March 2023.
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.
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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, 2022 assuming $100 was invested on March 31, 2017 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, 2017 in stock or index, including reinvestment of dividends. Fiscal year ended March 31.
ITEM 6. 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,
share repurchases, 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, 2020, including a year-to-year comparison of our financial condition and results of
operations for the years ended March 31, 2021 and March 31, 2020, 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, 2021, filed with the SEC on May 27, 2021.
Company Overview
NextGen Healthcare is a leading provider of innovative, cloud-based, healthcare technology solutions that empower healthcare practices to manage the risk
and complexity of delivering care in the United States 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 consumerism, digitization, risk allocation, regulatory influence, and
integrated care and health equity.
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 range from some of the largest and most
progressive multi-specialty groups in the country to sole practitioners with a wide variety of business models. 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.
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, and in 2021, we changed our state of incorporation to Delaware. Our principal executive offices are located at 3525 Piedmont Rd., NE,
Building 6, Suite 700, Atlanta, Georgia. Our principal website is www.nextgen.com. We operate on a fiscal year ending on March 31.
Our Vision, Mission and Strategy
NextGen Healthcare’s vision is better healthcare outcomes for all. We strive to achieve this vision by delivering innovative solutions and insights aimed at
creating healthier communities. We focus on improving care delivered in ambulatory settings but do so recognizing that the entire healthcare ecosystem
needs to work in concert to achieve the quadruple aim… “to improved patient experience, improved provider experience, improve the health of a population,
and reduce per capita health care costs.”
Our long-term strategy is to position NextGen Healthcare as both the essential, integrated, delivery platform and the most trusted advisor for the ambulatory
practices of the future. To that end, we primarily serve organizations that provide or orchestrate care in ambulatory settings and do so across diverse
practice sizes, specialties, care modalities, and business models. These customers include conventional practices as well as new market entrants.
We plan to continue investing in our current capabilities as well as building and/or acquiring new capabilities. 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 capabilities
(i.e., patient portal, self-scheduling, and patient pay) and OTTO Health, LLC for its virtual care solutions, notably telemedicine. The integration of these
acquired technologies has made NextGen Healthcare’s solutions among the most comprehensive in the market. Further, we are also actively innovating our
business models and exploring new high-growth market domains as we extend our position as the essential, integrated, delivery platform and trusted impact
partner for the ambulatory practices of the future.
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Market Opportunity, and Trends
The scale and scope of the healthcare industry continues to expand. Annual United States healthcare spend today represents nearly $4.1 trillion and ~20%
of GDP. A significant portion of this spend is directed towards the treatment of chronic conditions and administering an increasingly complex system with
diverse stakeholders. While there are several convergent market forces reshaping the healthcare industry landscape, we are focused on six trends we
believe will materially impact the markets we participate in and our customer value proposition:
1.
2.
3.
4.
Regulatory Influence – Medicare and Medicaid continue to expand and represent approximately a third of covered lives. Further, the 21st
Century Cures Act (“Cures Act”) certification requirements and impending changes by Centers for Medicare & Medicaid Services (“CMS”) to
Medicare reimbursement and shared savings programs parameters (i.e., MIPS, MSSP and telehealth programs) represent continued and
escalating regulatory requirements in the healthcare industry broadly and the shape of primary healthcare. Considering these regulatory and
market-based changes, many ambulatory practices have come to place a very high value on partnering with vendors that stay ahead of these
regulatory and industry changes
Risk Reallocation – As healthcare shifts away from defined benefit models towards defined contribution, employers, payors, providers and
consumers are increasingly evaluating models to share and reallocate risk. In 2020, nearly 40% of all healthcare payments representing over
75% of all covered lives flowed through an alternative payment model. While Medicare Advantage related payments led the charge with over
55% of payments tied to alternative models, a plurality of commercial payors are also leveraging value-based provider arrangements to incent
care quality standards and reduce health disparities. For providers, effective participation in these models requires a full view of the patient
population’s clinical and cost data and robust financial management solutions and services to navigate multiple contract types.
Consumerism – Consumers are increasingly directing their own healthcare and are expecting greater levels of access, convenience, and
experience personalization. Beyond tailoring healthcare interactions to their needs and preferences, they also expect much greater transparency
about the costs for visits, medications, and procedures. Accompanied by a significant shift of care from inpatient to lower cost outpatient settings
and virtual modes, healthcare is poised to becomes increasingly ‘retail-like’ and will place unique demands on practices and care providers who
need comprehensive engagement platforms to attract, retain and engage patients through their complete health journey
New Modalities and Coordinated Team Based Care – Untethered from physical clinics and desktops, care is now being delivered in
“boundless” venues by multiple, coordinated care providers.
5. Meaningful Interoperability & Digitization – Greater levels of data exchange, automation, Artificial Intelligence (AI) and speech enabled
6.
workflows.
Integrated Care and Health Equity – Integrated, whole-person health continues to trend strongly as evidenced by FQHCs/CHCs receiving
Health Resources and Services Administration (“HRSA”) funding to drive integrated medical, behavioral, and oral health. Public sector and private
investment in understanding and addressing social determinants of health and improving community health are growing.
NextGen Healthcare is well positioned to play a key role in guiding our clients through short-term and long-term changes that impact healthcare in the United
States and is committed to helping them deliver better outcomes.
Our Value Proposition
NextGen Healthcare’s value proposition to our clients can be summarized by the four “I’s” as follows:
•
•
•
•
Integration – Delivering a broad and highly integrated set of solutions and end-user experiences. NextGen Healthcare, a top KLAS-ranked
platform solution provider, is driving greater levels of efficiency and experience for practices. Our clients value the full breadth of our solution
offering and seamless integration into their clinical workflows. This integration is an important determinant of our success.
Interoperability – Building seamlessly connected data and human networks across ambulatory healthcare. NextGen Healthcare’s Interoperability
solutions help create a frictionless environment where those that need important healthcare data can rapidly find and utilize it. For example,
NextGen Healthcare powers over a third of all United States Health Information Exchanges (“HIE’s”), with over 170 million patient records passing
over our network of almost 2.8 million directory addresses.
Insights – Providing intelligence at the point of care to enable better health and financial decision-making. We are helping our clients move from
being data rich to insight rich. By providing intelligence, through innovative solutions that take data out of electronic health records (“EHR”),
normalize, cleanse, and present it back as usable data pipelines, NextGen Healthcare can help optimize prescription guidance, care gap reviews,
billing quality, practice variance, etc. and insert it directly into clinician’s workflows in order to facilitate sound clinical and financial decisions when
serving patients.
Impact – Delivering and shaping outcomes in all aspects of our solutions and service. NextGen Healthcare is pivoting towards becoming a true
performance partner for our clients and is evidenced by proactively helping manage performance and outcomes for our clients.
NextGen Healthcare delivers value to our clients in several ways. Our solutions enable our clients to address current needs while preparing for the needs of
the future including expanding access to health services, enhancing the coordination and
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management of care, and optimizing patient outcomes while also ensuring the sustainability of their practices. Specifically, we offer a range of solutions to
allow clinicians to practice anywhere and in new and innovative collaboration models.
NextGen Healthcare provides integrated cloud-based solutions and services that align with our client’s strategic imperatives. Ultimately, this value is reflected
in the overall insights and impact delivered to the client. The foundation for our integrated ambulatory care platform is a core of our industry-leading EHR and
practice management (“PM”) systems that support clinical, financial and patient engagement activities.
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 and voice-enabled capabilities proven to reduce physician burden. Recognizing that engaged patients
are key to positive outcomes, our patient experience platform enables our clients to create personalized care experiences that enhance trust and drive
patient loyalty. Further, we support the advances in integrated care that focuses on the whole person with solutions supporting behavioral and oral
health. 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 application programming interfaces (“APIs”) to drive the secure exchange of health
and patient data with connected health solutions. Our commitment to interoperability, defragmenting care and our experience powering many of the nation’s
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.
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. We partner with our clients to optimize their information technology (“IT”) operations, enhance revenue cycle
processes across fee-for-service and fee-for-value models, service line expansion and operations, as well as advise on long-term strategy.
Positioning NextGen Healthcare for Growth. As NextGen Healthcare applies this value proposition framework across the ambulatory care market, we
incorporate some or all our current solution offerings within three broad domains illustrated in Figure 1 below:
•
•
•
Enterprise – The Enterprise domain is both the largest and incorporates our broadest portfolio of solutions (e.g., clinical, financial, and patient
engagement solution portfolios) provided to ambulatory care practices that incorporate 10 or more healthcare providers. One of these solutions,
our practice management offering, NextGen® Enterprise PM, was recognized as the #1 Practice Management Solution (11-75 Physicians) for
four consecutive years – 2019, 2020, 2021 and 2022 Best in KLAS Report.
Office – The Office domain reflects almost all solutions (software solutions and adjacent services) provided to an ambulatory care practice that
incorporates fewer than 10 healthcare providers. Our main offering in this group is a cloud-based, multi-tenant SaaS EHR and PM solution, called
NextGen® Office, which was recognized as the #1 Small Practice Ambulatory EMR/PM (<10 Physicians) in the 2022 Best in KLAS Report.
Insights – The Insights domain incorporates solutions that address interoperability, data and analytics, and value-based care. Previously
described as population health and connected health, the Insights solutions portfolio is offered to clients across both our Enterprise and Office
domains as well as additional ambulatory healthcare stakeholders addressing connectivity or value-based care needs. NextGen is highlighting
this domain as a reflection of its overall importance and high future growth potential.
Figure 1: NextGen Healthcare Solutions Domains
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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, 2022 and 2021 (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 expense, net
Income before provision for (benefit of) income taxes
Provision for (benefit of) income taxes
Net income
Revenues
Fiscal Year Ended March 31,
2021
2022
90.5%
9.5
100.0
39.0
5.2
5.3
49.5
50.5
35.2
12.9
0.6
0.7
0.1
49.3
1.1
0.0
(0.3)
0.0
0.9
0.6
0.3%
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%
The following table presents our consolidated revenues for the years ended March 31, 2022 and 2021 (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,
2021
2022
$
162,636
155,623
116,722
104,732
539,713
31,347
25,290
56,637
148,403
152,956
103,138
98,322
502,819
28,825
25,177
54,002
Total revenues
$
596,350
$
556,821
Recurring revenues as a percentage of total revenues
90.5%
90.3%
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.
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Consolidated revenue for the year ended March 31, 2022 increased $39.5 million compared to the prior year, comprised of a $36.9 million increase in
recurring revenues and a $2.6 million increase in software, hardware and other non-recurring revenues. The increase in recurring revenues was due to
$14.2 million higher subscription services, $13.6 million higher managed services revenue, $6.4 million increase in EDI and data services, and a $2.7 million
increase in support and maintenance revenue. The increase in our subscription services revenue was primarily due to increases in subscriptions of our
mobile platform, growth in subscriptions associated with our virtual visits platforms driven by the COVID-19 pandemic, as well as higher revenues from our
NextGen Office, financial analytics, and data interoperability and analytics solutions. The increase in managed services revenue was primarily due to an
increase in RCM revenues from higher patient volumes and billings compared to the prior year, which was negatively impacted by the COVID-19 pandemic,
and higher hosting services revenue due to higher recent bookings. EDI and data services increased due to higher patient and transaction volumes
compared to the prior year, which was negatively impacted by the COVID-19 pandemic. Support and maintenance revenue increased due to higher
maintenance related to higher software bookings, our annual CPI increase, and lower sales credits.
Bookings reflect the estimated annual value of our executed contracts and are believed to provide a broad indicator of the general direction and progress of
the business. Total bookings were $152.5 million for the year ended March 31, 2022 compared to $129.4 million in the prior year, primarily reflecting higher
bookings of software and other non-recurring services, maintenance, and managed cloud services, partially offset by lower bookings associated with our
virtual visits solutions.
Cost of Revenue and Gross Profit
The following table presents our consolidated cost of revenue and gross profit for the years ended March 31, 2022 and 2021 (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 %
Fiscal Year Ended March 31,
2021
2022
$
$
$
232,481
31,034
31,889
295,404
$
$
300,946
$
50.5%
212,199
26,457
36,768
275,424
281,397
50.5%
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 8, "Intangible Assets" and Note 9, "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 $2.2 million and $2.0 million for the years ended March 31, 2022 and 2021,
respectively.
Gross profit for the year ended March 31, 2022 increased $19.5 million compared to the prior year while our gross margin percentage remained consistent at
50.5% for the year ended March 31, 2022 compared to the prior year period.
The increase in cost of revenue for the year ended March 31, 2022 compared to the prior year period was primarily due to higher costs of subscription
services, managed services and EDI and data services. The increase in subscription services costs was due to higher salaries and benefits from increased
employee headcount and higher third-party costs and hosting costs associated with delivering our software solutions. The increase in managed services
costs was due to higher hosting costs directly associated with increased bookings of managed cloud services, higher employee benefit costs, and higher
outsourced labor costs. EDI costs also increased due to processing higher transaction volumes as the prior year was negatively impacted by the COVID-19
pandemic. These increases in cost of revenue were partially offset by lower amortization of capitalized software costs and acquired intangible assets.
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Selling, General and Administrative Expense
The following table presents our consolidated selling, general and administrative expense for the years ended March 31, 2022 and 2021 (in thousands):
Selling, general and administrative
Selling, general and administrative, as a percentage of revenue
Fiscal Year Ended March 31,
2021
2022
$
209,661
$
35.2%
180,529
32.4%
Selling, general and administrative expense consists of compensation expense, including share-based compensation, for management and administrative
personnel, selling and marketing expense, facilities costs, depreciation, professional service fees, including legal and accounting services, legal settlements,
acquisition and transaction-related costs, and other general corporate and administrative expenses.
Share-based compensation expense included in selling, general and administrative expenses was $19.9 million and $16.7 million for the years ended March
31, 2022 and 2021, 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 14, "Stockholders’ Equity" of our notes to consolidated financial statements included elsewhere in this Report for
additional information on our share-based awards and related incentive plans.
Selling, general and administrative expenses increased $29.1 million for the year ended March 31, 2022 compared to the prior year primarily due to
increases in salaries and benefits from higher headcount, annual bonus expense, employee insurance and employer 401(k) match, incremental legal fees
associated with our shareholder disputes and related matters, including an $11.4 million payment related to the indemnification of certain expenses related
to the Hussein Litigation matter, approximately $9.3 million of incremental proxy contest expenses associated with our annual shareholders’ meeting, and
higher consulting and marketing costs. These increases were partially offset by decreased facilities and depreciation 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, 2022 and 2021 (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,
2021
2022
102,157
(25,500)
76,657
$
$
12.9%
25.0%
100,079
(24,578)
75,501
13.6%
24.6%
Gross research and development expenditures, including costs expensed and costs capitalized, 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.
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 that may be capitalized or expensed up front and the amount of net research and development
costs reported in our consolidated statements of net income and comprehensive income, and ultimately also affects the future amortization of our previously
capitalized software development costs. Refer to Note 9, "Capitalized Software Costs" of our notes to financial statements included elsewhere in this Report
for additional information on current period amortization of capitalized software costs and an estimate of future expected amortization.
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Share-based compensation expense included in research and development costs was $4.5 million and $4.0 million for the years ended March 31, 2022 and
2021, respectively.
Net research and development costs for the year ended March 31, 2022 increased $1.2 million compared to the prior year due to $2.1 million increase in our
gross expenditures and $0.9 million higher capitalization of software costs. 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. The increase in gross
expenditures was primarily driven by higher consulting costs and an increase in annual bonus expense, partially offset by lower salaries and benefits
associated with lower headcount, and a decrease in discretionary bonus expense.
Amortization of Acquired Intangible Assets
The following table presents our amortization of acquired intangible assets for the years ended March 31, 2022 and 2021 (in thousands):
Amortization of acquired intangible assets
Fiscal Year Ended March 31,
2021
2022
$
3,525
$
4,449
Amortization of acquired intangible assets included in operating expense consists of the amortization related to our customer relationships and trade names
intangible assets acquired as part of our business combinations. Refer to Note 8, "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, 2022 decreased $0.9 million, compared to the prior year period due to lower
amortization of the customer relationships intangible assets associated with Medfusion and HealthFusion as these assets are amortized under the
accelerated method of amortization.
Restructuring Costs and Impairment of Assets
During the year ended March 31, 2022, we recorded $0.5 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, within
operating expenses in our consolidated statements of net income and comprehensive income.
During the year ended March 31, 2021, 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 within
operating expenses in our consolidated statements of net income and comprehensive income, which was related to our decision to execute a reduction in
our workforce of less than 3% and other temporary cost reductions in response to the COVID-19 pandemic that we announced in May 2020.
During the year ended March 31, 2022, we vacated portions of certain leased locations and recorded impairments of $3.9 million to our right-of-use assets
and certain related fixed assets associated with the vacated locations, or portions thereof, in Irvine, Horsham, Atlanta, Fairport, Hunt Valley, Bangalore, and
St. Louis based on projected sublease rental income and estimated sublease commencement dates.
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 noted above 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.
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Interest and Other Income and Expense
The following table presents our interest expense for the years ended March 31, 2022 and 2021 (in thousands):
Interest income
Interest expense
Other expense, net
Fiscal Year Ended March 31,
2021
2022
$
$
101
(1,499)
(64)
38
(3,516)
(64)
Interest expense relates to our revolving credit agreement and the related amortization of deferred debt issuance costs. Refer to Note 10, “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, 2022 decreased $2.0 million compared to the prior year. The change in interest expense is primarily caused
by fluctuations in the outstanding balances under our revolving credit agreement and the related amortization of debt issuance costs. We had no additional
borrowings under our revolving credit agreement during the year ended March 31, 2022. In comparison, we had $129.0 million in outstanding borrowings at
the beginning of the prior year plus additional borrowings of $50.0 million during the prior year period, all of which was subsequently repaid. As of March 31,
2022 and 2021, we had no outstanding loans under the revolving credit agreement.
Other expense for the years ended March 31, 2022 and 2021 were both $0.1 million, which was primarily associated with fluctuations in the India foreign
exchange rates.
Provision for (Benefit of) Income Taxes
The following table presents our provision for (benefit of) income taxes for the years ended March 31, 2022 and 2021 (in thousands):
Provision for (benefit of) income taxes
Effective tax rate
Fiscal Year Ended March 31,
2021
2022
$
3,578
$
68.9%
(240)
-2.6%
The change in the effective tax rate for the year ended March 31, 2022 compared to the prior year was driven primarily by a net decrease of the foreign rate
differential benefit, decrease of the research and development credit, and higher nondeductible executive and stock compensation, partially offset with a
decrease in valuation allowance.
Liquidity and Capital Resources
The following table presents selected financial statistics and information for the years ended March 31, 2022 and 2021 (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,
2021
2022
59,829
300,000
359,829
1,618
53,545
$
$
$
$
73,295
300,000
373,295
9,515
98,518
$
$
$
$
(1) We had no outstanding borrowings under our $300.0 million revolving credit agreement as of March 31, 2022 and 2021.
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, 2022, 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. We intend to
expend some of our available funds for the development and/or acquisition 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.
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
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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.
For the period beyond the next twelve months, we believe that we will be able to meet our working capital and capital expenditure needs from our existing
cash and cash equivalents, cash flows generated from our operating activities, and, if necessary, proceeds from our revolving credit agreement. Our
assessments of the period of time through which our existing liquidity and capital resources will be adequate to support our ongoing operations and our
expected sources of capital for the future operations of our business after such period of time are forward-looking statements and involve risks and
uncertainties. Our actual results could vary as a result of, and our near- and long-term future capital requirements will depend on, many factors, including our
growth rate, the timing and extent of spending to support our infrastructure and research and development efforts, the expansion of sales and marketing
activities, the timing of new product development and enhancements, and the impact of the ongoing COVID-19 pandemic to our customers, suppliers and
partners.
We may, from time to time, enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual
property rights, and such acquisitions and investments could increase our need for additional capital. We may be required to seek additional financing from
time to time in the future. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or
at all.
Cash Flows from Operating Activities
The following table summarizes our consolidated statements of cash flows for the years ended March 31, 2022 and 2021 (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,
2021
2022
$
$
$
1,618
81,890
83,508
2,807
(431)
(32,339)
53,545
$
$
$
9,515
78,698
88,213
(9,844)
(369)
20,518
98,518
For the year ended March 31, 2022, cash provided by operating activities decreased $45.0 million compared to the prior year, consisting of $52.9 million
decrease from net changes in other assets and liabilities and $4.7 million decrease from lower net income, as adjusted for non-cash expenses, partially
offset by $12.6 million increase from net changes in accounts receivable and contract balances. The decrease in cash from net changes in other assets and
liabilities is primarily due to higher payments of cash incentive bonuses compared to the prior year due to a higher rate of bonus achievement, payments of
legal fees associated with our shareholder litigation matter, payments of our deferred payroll taxes associated with the CARES Act, payment of the 401(k)
employer match that was temporarily suspended in the prior year, payments of prior year accrued discretionary bonuses and commissions, and an increase
in income tax receivable, partially offset by current year bonus accruals and lower payments of our lease liabilities. The increase in cash associated with net
changes in contract assets and liabilities is primarily due to higher contract liabilities from higher bookings and our annual CPI increase. Non-cash expenses
increased $3.2 million primarily due to changes in our deferred income taxes and higher share-based compensation expense, partially offset by lower
amortization of other intangibles.
Cash Flows from Investing Activities
Net cash used in investing activities for the years ended March 31, 2022 and 2021 was $28.1 million and $28.5 million, respectively. The $0.4 million net
decrease in cash used in investing activities compared to the prior year is primarily due to lower additions to equipment and improvements and a decrease in
payments of acquisition related working capital adjustments, partially offset by higher additions to capitalized software.
Cash Flows from Financing Activities
Net cash used for financing activities in the year ended March 31, 2022 was $37.3 million compared to net cash used for financing activities of $131.7 million
in the prior year. The decrease in cash used for financing activities is primarily due to net principal repayments of $129.0 million on our revolving credit
agreement in the prior year period, payment of debt issuance costs related to the second amendment of our revolving line of credit in the prior year period,
and higher proceeds from the issuance of shares under our employee equity plans in the current year, partially offset by $35.9 million in share repurchases
in the current period, higher payments for taxes related to net share settlement of equity awards, and payment of the contingent consideration related to our
acquisition of Topaz in the current year period.
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Contractual Obligations and Commitments
Debt
On March 12, 2021, we entered into a $300 million second amended and restated revolving credit agreement (the “Credit Agreement”). 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.
As of March 31, 2022, we had no outstanding borrowings under the Credit Agreement. Refer to Note 10, “Line of Credit” of our notes to consolidated
financial statements included elsewhere in this Report for additional information.
Non-cancelable Operating Leases
As of March 31, 2022, the total amount of future lease payments under operating leases was $21.3 million, of which $8.8 million is short-term. Our operating
leases have a weighted average remaining lease term of 2.7 years. Included in our total future lease payments are $11.7 million of remaining lease
obligations for vacated properties, of which $5.6 million is short-term. Remaining lease obligations for vacated properties relates to certain locations,
including Cary, Brentwood, North Canton, Fairport and portions of Atlanta, Horsham, St. Louis, Hunt Valley, and Bangalore that we have vacated as part of
our reorganization efforts and are actively marketing for sublease. Refer to Note 6, “Leases” and Note 16, "Restructuring Plan" of our notes to consolidated
financial statements included elsewhere in this Report for additional information. The remaining obligations have not been reduced by projected sublease
rentals or by minimum sublease rentals of $2.4 million due in future periods under non-cancelable subleases.
Purchase Obligations
As of March 31, 2022, we had minimum purchase commitments of $29.3 million related to payments due under certain non-cancelable agreements to
purchase goods and services, of which $12.7 million is due within the next 12 months.
Share Repurchase Program
In October 2021, the Board authorized a share repurchase program under which we may repurchase up to $60.0 million of our outstanding shares of
common stock through March 2023. The timing and amount of any share repurchases under the share repurchase program will be determined by our
management at its discretion based on ongoing assessments of the capital needs of the business, the market price of our common stock and general market
conditions. The program does not obligate the Company to acquire any particular amount of our common stock, and the share repurchase program may be
suspended or discontinued at any time at our discretion.
During the year ended March 31, 2022, we repurchased 2.2 million shares of common stock for a total of $35.9 million at a weighted-average share
repurchase price of approximately $16.53. As of March 31, 2022, $24.1 million remained available for share repurchases pursuant to the Company’s share
repurchase program.
Deferred Compensation
Deferred compensation liability was $7.2 million, for which timing of future benefit payments to employees is not determinable. 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 they retire or otherwise leave the Company. The cash surrender value of the
life insurance policies for deferred compensation was $8.1 million.
Income Taxes
We have an uncertain tax position liability of $6.1 million as of March 31, 2022, for which timing of expected payments is not determinable.
Off-Balance Sheet Arrangements
During the year ended March 31, 2022, we did not have any relationships with unconsolidated organizations, financial partnerships, or special purpose
entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.
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.
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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.
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, the incremental software development costs are capitalized until general release occurs. Amortization of capitalized
software begins upon general release and 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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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
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, 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 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 based on our
projection of expected results, as needed. 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.
During the quarter ended June 30, 2021, we performed a qualitative assessment, which indicated that it was more likely than not that the fair value of
goodwill exceeded its net carrying value and, therefore, additional impairment testing was not deemed necessary. 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
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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 7, "Goodwill" of our notes to consolidated financial statements included elsewhere in this Report for additional information regarding our
goodwill policies, significant judgements, and estimates.
Intangible Assets
Intangible assets consist of trade names, customer relationships, and software technology, all of which are associated with our prior 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.
Impairment is deemed to 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, 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 equity incentive plans.
Share-based compensation expense associated with restricted stock awards is estimated using the closing share price of the common stock on the date of
grant. Share-based compensation expense associated with performance stock awards that contain market conditions is based on the grant date fair value
estimated using a Monte Carlo-based valuation model. Share-based compensation expense associated with performance stock awards that contain
performance conditions are estimated using a probability-adjusted achievement rate combined with the closing share price of the common stock on the date
of grant.
Share-based compensation expense is recognized as expense over the requisite service period in our consolidated statements of net income and
comprehensive income.
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 14, “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
reported net of an allowance for credit losses on our consolidated balance sheets.
allowances for credit losses on our accounts receivable. Accounts receivable are
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.
Allowance for credit losses are reserves 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 credit losses, we consider 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
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additional reserves or 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, 2022 and March 31, 2021, 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, 2022 and March 31, 2021, we had no outstanding borrowings under our second amended and restated revolving credit agreement (“the
Credit Agreement”). 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 10, “Line of Credit” of our notes to consolidated financial statements included elsewhere in this Report
for additional information.
As of March 31, 2022 and March 31, 2021, we had international operations that exposed us to the risk of fluctuations in foreign currency exchange rates
against the United States 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, 2022, 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, 2022. 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, 2022.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 2022 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, 2022, 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.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
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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 2022 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 2022 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 2022 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 2022 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 2022 Annual Shareholders’ Meeting to be
filed with the Securities and Exchange Commission.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this Annual Report on Form 10-K:
PART IV
(1) Index to Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets as of March 31, 2022 and 2021
Consolidated Statements of Net Income and Comprehensive Income — Years Ended March 31, 2022, 2021 and 2020
Consolidated Statements of Shareholders’ Equity — Years Ended March 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows — Years Ended March 31, 2022, 2021 and 2020
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, 2022, 2021 and 2020
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
57
59
60
61
62
64
87
50
Table of Contents
Exhibit
Number
INDEX TO EXHIBITS
Exhibit Description
Herewith
Form
Exhibit
Filing Date
Filed
Incorporated by Reference
2.1
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
4.1
10.1
10.2
Agreement and Plan of Merger, dated October 13, 2021, by and between
NextGen Healthcare, Inc., a California corporation, and NextGen
Healthcare, Inc., a Delaware corporation.
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
Third Amended and Restated Bylaws of NextGen Healthcare, Inc.,
effective June 18, 2021.
Certificate of Incorporation of NextGen Healthcare, Inc., a Delaware
corporation.
Bylaws of NextGen Healthcare, Inc., a Delaware corporation.
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.
50
8-K
2.1
19-Oct-21
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
3.1
3.1
3.2
2.1
2.1
6-Mar-06
6-Oct-11
10-Sep-18
31-Oct-08
10-Sep-18
27-Jan-21
21-Jun-21
19-Oct-21
19-Oct-21
10-Sep-18
30-Oct-15
Table of Contents
Exhibit
Number
Exhibit Description
Herewith
Form
Exhibit
Filing Date
Filed
Incorporated by Reference
10.3
10.4
10.5
10.6
10.7
10.8
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
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
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
8-K
8-K
8-K
2.1
2.1
2.1
12-Apr-17
1-Aug-17
18-Nov-19
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
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
10.2
10.1
10.1
2-Feb-10
14-Aug-15
23-Aug-17
Table of Contents
Exhibit
Number
Exhibit Description
10.18*
10.19*
10.20*
10.21*
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*
NextGen Healthcare, Inc. 2015 Equity Incentive Plan, as amended
NextGen Healthcare, Inc. Amended and Restated 2015 Equity Incentive
Plan.
NextGen Healthcare, Inc. 2021 Employment Inducement Equity Incentive
Plan
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
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.
Form of Performance Stock Award Grant Notice and Performance Stock
Award Agreement for 2015 Equity Incentive Plan, as amended
Form of Restricted Stock Award Grant Notice and Restricted Stock Award
Agreement pursuant to the NextGen Healthcare, Inc. 2021 Employment
Inducement Equity Incentive Plan
Form of Performance Share Unit Award Grant Notice and Performance
Share Unit Award Agreement pursuant to the NextGen Healthcare, Inc.
2021 Employment Inducement Equity Incentive Plan
Filed
Herewith
Incorporated by Reference
Form
8-K
Exhibit
10.2
Filing Date
16-Aug-19
8-K
S-8
8-K
8-K
8-K
8-K
8-K
8-K
8-K
10.1
19-Oct-21
10.1
21-Sep-21
10.4
10.2
10.3
10.3
10.4
10.5
10.2
14-Aug-15
14-Aug-15
14-Aug-15
16-Aug-19
16-Aug-19
16-Aug-19
3-Jan-17
8-K
10.3
3-Jan-17
10-K/A
10.38
29-Jul-21
S-8
10.2
21-Sep-21
S-8
10.3
21-Sep-21
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
8-K
8-K
10.1
10.1
4-Jun-15
23-Jan-19
52
Table of Contents
Exhibit
Number
10.35*
10.36*
10.37*
10.38*
10.39
10.40*
10.41*
10.42*
21
23.1
31.1
31.2
32.1
Exhibit Description
Herewith
Form
Exhibit
Filing Date
Filed
Incorporated by Reference
Separation Agreement, dated as of June 19, 2021, by and between
NextGen Healthcare, Inc. and John R. Frantz
10-K/A
10.37
29-Jul-21
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.
8-K
8-K
8-K
10.1
10.1
10.1
28-Jan-16
18-Feb-16
1-Dec-17
Employment Agreement, dated as of September 18, 2021, between David
Sides and NextGen Healthcare, Inc.
10-Q
10.5
29-Oct-21
8-K
8-K
10-K
10.1
10.1
10.8
18-Aug-20
28-Jan-13
30-May-13
NextGen Healthcare, Inc, FY2021 Director Compensation Plan
Form of Indemnification Agreement (Directors and Officers)
2009 Quality Systems, Inc. Amended and Restated Deferred
Compensation Plan.
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.
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
X
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, 2022, has been formatted in Inline XBRL.
53
Table of Contents
* 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.
54
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:
/s/ David Sides
David Sides
Chief Executive Officer
(Principal Executive Officer)
By:
/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 17, 2022
55
Table of Contents
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below hereby constitutes and appoints David Sides,
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/ David Sides
David Sides
/s/ James R. Arnold, Jr.
James R. Arnold, Jr.
/s/ David Ahmadzai
David Ahmadzai
/s/ George H. Bristol
George H. Bristol
/s/ Darnell Dent
Darnell Dent
/s/ Julie D. Klapstein
Julie D. Klapstein
/s/ Geraldine McGinty
Geraldine McGinty
/s/ Morris Panner
Morris Panner
/s/ Pamela Puryear
Pamela Puryear
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
Director
Director
56
May 17, 2022
May 17, 2022
May 17, 2022
May 17, 2022
May 17, 2022
May 17, 2022
May 17, 2022
May 17, 2022
May 17, 2022
May 17, 2022
May 17, 2022
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of NextGen Healthcare, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of NextGen Healthcare, Inc. and its subsidiaries (the “Company”) as of March 31, 2022
and 2021, 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, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2022 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, 2022, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
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.
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
57
Table of Contents
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 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 $596 million for the year ended March 31, 2022.
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 17, 2022
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
Operating lease liabilities, net of current
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 15)
Shareholders' equity:
NEXTGEN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31, 2022
March 31, 2021
$
$
$
$
59,829 $
6,918
76,057
25,157
6,507
37,102
211,570
9,120
43,958
11,316
19,259
1,910
24,303
267,212
39,026
627,674 $
9,125 $
61,280
48,736
99
8,089
53,533
180,862
7,230
11,934
4,570
204,596
692
(35,874)
329,917
(1,909)
130,252
423,078
627,674 $
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
Common stock, $0.01 par value; authorized 100,000 shares; 69,245 and 67,069 shares
issued at March 31, 2022 and March 31, 2021, respectively; 67,075 and 67,069 shares
outstanding at March 31, 2022 and March 31, 2021, respectively
Treasury stock, at cost, 2,170 shares at March 31, 2022
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)
2022
Fiscal Year Ended March 31,
2021
2020
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
$
$
$
$
$
539,713 $
56,637
596,350
232,481
31,034
31,889
295,404
300,946
209,661
76,657
3,525
3,906
539
294,288
6,658
101
(1,499)
(64)
5,196
3,578
1,618 $
15
1,633 $
0.02 $
0.02 $
67,370
67,788
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
The accompanying notes are an integral part of these consolidated financial statements.
60
Table of Contents
NEXTGEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
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 issued under stock plans, net of
shares withheld for taxes
Stock-based compensation
Repurchase of common stock (1)
Components of other comprehensive income:
Translation adjustments
Net income
Balance, March 31, 2022
Common Stock
Shares
Amount
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
64,838 $
648 $
- $ 264,908 $
111,621 $
(1,231) $
375,946
1,296
—
—
—
66,134
935
—
—
—
67,069
2,176
—
(2,170)
13
—
—
—
661
10
—
—
—
(1,745)
19,694
—
—
—
—
—
—
— 282,857
—
7,498
119,119
—
—
(1,304)
22,710
—
—
—
—
671
—
—
—
—
304,263
—
9,515
128,634
21
—
—
—
—
(35,874)
(898)
26,552
—
—
—
—
—
—
67,075 $
—
—
692 $
—
—
—
—
(35,874) $ 329,917 $
—
1,618
130,252 $
—
—
(912)
—
(2,143)
—
—
219
—
(1,924)
—
—
—
15
—
(1,909) $
(1,732)
19,694
(912)
7,498
400,494
(1,294)
22,710
219
9,515
431,644
(877)
26,552
(35,874)
15
1,618
423,078
(1)Weighted-average repurchase price (dollars per share) for the year ended March 31, 2022 was $16.53.
The accompanying notes are an integral part of these consolidated financial statements.
61
Table of Contents
NEXTGEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2022
Fiscal Year Ended March 31,
2021
2020
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
1,618
$
9,515 $
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
Repurchase of common stock
Payment of contingent consideration related to acquisitions
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:
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
23,016
508
12,397
7
215
6,902
643
3,906
97
5,732
1,915
26,552
(431)
(5,610)
(2,329)
8,417
(1,638)
(5,650)
610
(12,734)
(10,598)
53,545
(25,500)
(2,582)
—
—
—
(28,082)
—
—
—
5,014
(35,874)
(540)
(5,891)
(37,291)
(11,828)
78,575
66,747
$
$
8,774
125
573
13,766
1,610
76
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)
50,000
(179,000)
(1,423)
3,479
(4,773)
(131,717)
(61,744)
140,319
78,575 $
6,206 $
155
2,708
18,651
3,107
242
$
$
The accompanying notes are an integral part of these consolidated statements.
62
7,498
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)
137,000
(19,000)
—
2,409
(4,141)
116,268
105,797
34,522
140,319
2,599
2,728
1,266
11,527
8,494
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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
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
Subsequent Event
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68
71
71
73
74
74
75
75
76
77
79
80
85
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 innovative, cloud-based, healthcare technology solutions that empower healthcare practices to manage the risk
and complexity of delivering care in the United States 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 consumerism, digitization, risk allocation, regulatory influence, and
integrated care and health equity.
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 range from some of the largest and most
progressive multi-specialty groups in the country to sole practitioners with a wide variety of business models. 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.
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, and in 2021, we changed our state of incorporation to Delaware. Our principal executive offices are located at 3525 Piedmont Rd., NE,
Building 6, Suite 700, Atlanta, Georgia. 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, 2022 and 2021. 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.
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. Our estimates and assumptions consider the potential economic implications of COVID-19 on our critical and significant
accounting estimates.
Revenue Recognition. 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, 2022 and March 31, 2021, we had cash and cash equivalents of $59,829 and $73,295, respectively. We also had cash deposits held at United
States banks and financial institutions at March 31, 2022 of which $73,284 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.
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Reserves on Accounts Receivable. We maintain reserves for estimated potential sales returns and allowances for credit losses on our accounts
receivable. Accounts receivable are reported net of an allowance for credit losses 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.
Allowance for credit losses are reserves 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 credit losses, we consider 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. 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" 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 $6,902, $7,997, and $8,172 for the years ended March 31, 2022, 2021, and 2020,
respectively.
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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, the incremental software development costs are capitalized until general release occurs.
Amortization of capitalized software begins upon general release and 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.
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, 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 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 based on our projection of expected results, as needed. 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
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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 prior
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.
Impairment is deemed to 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, 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.
Income Taxes. Income taxes are estimated 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. We also evaluate our
uncertain tax positions and only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such
positions are measured based on the largest benefit that has a greater than 50 percentage likelihood of being realized upon settlement. We record a liability
for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Any change in judgment related to the
expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs.
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 $6,780, $3,902, and $6,044 for the years ended March 31, 2022, 2021, and 2020, 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
2022
Fiscal Year Ended March 31,
2021
2020
$
$
$
$
1,618
67,370
0.02
$
$
1,618
67,370
418
67,788
0.02
$
$
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
The computation of diluted net income per share does not include 194, 1,949 and 1,807 options for the years ended March 31, 2022, 2021, and 2020,
respectively, because their inclusion would have an anti-dilutive effect on net income per share.
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Recently Adopted Accounting Pronouncements. Recently adopted accounting pronouncements are discussed below or in the notes, where applicable.
In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain
exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim
period. The adoption of ASU 2019-12 on April 1, 2021 did not have a material impact on our consolidated financial statements.
Recent Accounting Standards Not Yet Adopted. Recent accounting pronouncements requiring implementation in current or future periods are discussed
below or in the notes, where applicable.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other
transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships,
and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of
reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which clarifies the
application of certain optional expedients and exceptions. Topic 848 may be applied prospectively through December 31, 2022. We are currently evaluating
the effect that ASU 2020-04 may have on our contracts that reference LIBOR, such as our amended and restated revolving credit agreement (see Note 10).
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 October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers (“ASU 2021-08”). Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business
combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted
for in accordance with ASU 2016-10, Revenue from Contracts with Customers (Topic 606), at fair value on the acquisition date. ASU 2021-08 requires
acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 is effective for
fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in ASU 2021-08 should be applied
prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an
interim period. ASU 2021-08 is effective for us in the first quarter of fiscal 2024. We are currently in the process of evaluating the potential impact of adoption
of this updated authoritative guidance on our consolidated financial statements, which will also depend on the magnitude of any potential future business
combinations.
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 data services, and other non-recurring services, including implementation, training, and consulting services. Our
contracts with customers may include multiple performance obligations that consist of various combinations of our software solutions and related services,
which are generally capable of being distinct and accounted for as separate performance obligations.
The total transaction price is allocated to each performance obligation within a contract based on estimated standalone selling prices. We generally
determine standalone selling prices based on the prices charged to customers, except for certain software licenses that are based on the residual approach
because their standalone selling prices are highly variable and certain maintenance customers that are based on substantive renewal rates. In instances
where standalone selling price is not sufficiently observable, such as RCM services and software licenses included in our RCM arrangements, we estimate
standalone selling price utilizing an expected cost plus a margin approach. When standalone selling prices are not observable, significant judgment is
required in estimating the standalone selling price for each performance obligation.
Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration that we
expect to be entitled to in exchange for those goods or services.
We exclude sales tax from the measurement of the transaction price and record revenue net of taxes collected from customers and subsequently remitted to
governmental authorities.
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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
2022
Fiscal Year Ended March 31,
2021
2020
$
162,636 $
155,623
116,722
104,732
539,713
148,403 $
152,956
103,138
98,322
502,819
31,347
25,290
56,637
28,825
25,177
54,002
127,602
158,619
104,549
98,543
489,313
27,270
23,656
50,926
Total revenues
$
596,350 $
556,821 $
540,239
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 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
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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 data services and other transaction processing services are
satisfied at the point in time the services are rendered or delivered. The transfer of control occurs when the data services and 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, 2022, the aggregate amount of transaction price related to remaining unsatisfied or partially unsatisfied performance obligations over the
respective noncancelable contract term was approximately $608,400 of which we expect to recognize approximately 10% as services are rendered or goods
are delivered, 51% over the next 12 months, and the remainder thereafter.
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.
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, 2022 and 2021, we recognized $69,062 and $74,097, 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 $33,352 as of March 31, 2022, of which $11,698 is classified as current and included as prepaid expenses and other
current assets and $21,654 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 $28,503 as of March 31, 2021, of which $9,399 was classified as current and $19,104 was
classified as long-term.
During the years ended March 31, 2022, 2021, and 2020, we recognized $12,044, $11,236, and $8,006, respectively, of commissions expense.
Commissions expense primarily relates 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
credit losses are reported as a component of accounts receivable as summarized below:
March 31, 2022
March 31, 2021
Accounts receivable, gross
Allowance for credit losses
Accounts receivable, net
$
$
79,945
$
(3,888)
$
76,057
The following table represents the changes in the allowance for credit losses, as of and for the twelve months ended March 31, 2022 and 2021:
Balance as of March 31, 2020
Additions charged to costs and expenses
Deductions
Balance as of March 31, 2021
Additions charged to costs and expenses
Deductions
Balance as of March 31, 2022
5. Fair Value Measurements
$
$
$
81,746
(4,205)
77,541
(3,549)
(2,834)
2,178
(4,205)
(1,915)
2,232
(3,888)
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, 2022 and March 31, 2021:
ASSETS
Cash and cash equivalents (1)
Restricted cash and cash equivalents
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
59,829
6,918
66,747
$
$
— $
—
— $
—
—
—
Balance At
March 31, 2022
$
$
59,829
6,918
66,747
$
$
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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 $
—
—
—
—
—
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 (“Topaz”). 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 was reflected under a Level 2 valuation hierarchy
because the fair value was determined based on other significant observable inputs.
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, 2020
Fair value adjustments
Transfer of Topaz contingent consideration to Level 2
Balance at March 31, 2021
$
$
1,900
(1,367)
(533)
—
During the year ended March 31, 2022, we recorded a fair value adjustment of $7 for the contingent consideration liability related to the acquisition of Topaz
based on actual earnout achievement. The contingent consideration liability of $540 was fully settled as of March 31, 2022.
The following table presents activity in our financial assets and liabilities measured at fair value using significant other observable inputs (Level 2) as of and
for the year ended March 31, 2022:
Balance at March 31, 2021
Fair value adjustments
Payment of Topaz contingent consideration
Balance at March 31, 2022
$
$
533
7
(540)
—
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 our 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.
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6. Leases
We have operating lease agreements for our offices in the United States and India with lease periods expiring between 2022 and 2026.
Total operating lease costs were $6,549, $9,190, and $10,309 for the years ended March 31, 2022, 2021, and 2020, 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
Twelve Months Ended March 31,
2022
2021
$
$
6,328
$
8
774
(561)
6,549
$
8,235
25
1,444
(514)
9,190
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
$
13,766
$
1,610
18,651
3,107
As of March 31, 2022, our operating leases had a weighted average remaining lease term of 2.7 years and a weighted average discount rate of 3.7%. Future
minimum aggregate lease payments under operating leases as of March 31, 2022 are summarized as follows:
Twelve Months Ended March 31,
2022
2021
For the year ended March 31,
2023
2024
2025
2026
Total future lease payments
Less interest
Total lease liabilities
$
$
8,815
6,886
4,388
1,257
21,346
(1,323)
20,023
During the year ended March 31, 2022, we vacated portions of certain leased locations and recorded impairments of $3,906 to our right-of-use assets and
certain related fixed assets associated with the vacated locations, or portions thereof, in Irvine, Horsham, Atlanta, Fairport, Hunt Valley, Bangalore, and St.
Louis based on projected sublease rental income and estimated sublease commencement dates. The impairment analyses were performed at the asset
group level and the impairment charges were estimated by comparing the fair value of each asset group based on the expected cash flows to its respective
book value. We determined the discount rate for each asset group 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 asset group and actual results could
vary from the estimates, resulting in potential future adjustments to amounts previously recorded.
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.
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.
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7. Goodwill
During the quarter ended June 30, 2021, we performed a qualitative assessment, which indicated that it was more likely than not that the fair value of
goodwill exceeded its net carrying value and, therefore, additional impairment testing was not deemed necessary. We also did not identify any events or
circumstances that would require an interim goodwill impairment test.
The carrying amount of goodwill as of March 31, 2022 and 2021 were both $267,212.
8. Intangible Assets
Our definite-lived intangible assets, other than capitalized software development costs, are summarized as follows:
March 31, 2022
Gross carrying amount
Accumulated amortization
Net intangible assets
Gross carrying amount
Accumulated amortization
Net intangible assets
Customer
Trade Names
Relationships
39,200
$
$
(29,824)
$
9,376
250 $
(116)
134 $
$
Software
Technology
Total
49,000 $
(34,207)
14,793 $
88,450
(64,147)
24,303
March 31, 2021
Customer
Trade Names
Relationships
250
39,200
$
$
$
(67)
(26,349)
$
183
$
12,851
$
Software
Technology
Total
91,500 $
(67,834)
23,666 $
130,950
(94,250)
36,700
Amortization expense related to customer relationships and trade names recorded as operating expenses in the consolidated statements of net income and
comprehensive income was $3,525, $4,449, and $4,143 for the years ended March 31, 2022, 2021 and 2020, respectively. Amortization expense related to
software technology recorded as cost of revenue was $8,872, $16,660, and $18,393 for the years ended March 31, 2022, 2021, and 2020, respectively.
The following table summarizes the remaining estimated amortization of definite-lived intangible assets as of March 31, 2022:
Estimated Remaining Amortization Expense
Cost of
Revenue
Operating
Expense
Total
For the year ended March 31,
2023
2024
2025
2026
2027
2028 and beyond
Total
$
$
2,820 $
2,279
1,846
1,377
631
557
9,510 $
5,154 $
3,573
3,573
2,251
242
—
14,793 $
7,974
5,852
5,419
3,628
873
557
24,303
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9. Capitalized Software Costs
Our capitalized software costs are summarized as follows:
Gross carrying amount
Accumulated amortization
Net capitalized software costs
March 31, 2022
March 31, 2021
$
$
110,155 $
(66,197)
43,958 $
96,908
(55,434)
41,474
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. Amortization expense related to capitalized software costs was $23,016,
$20,108, and $17,085 for the years ended March 31, 2022, 2021, and 2020, 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, 2022. 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,
2023
2024
2025
2026
Total
10. Line of Credit
$
$
24,000
12,300
5,600
2,058
43,958
On March 12, 2021, we entered into a $300,000 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 $300,000 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 provides a subfacility of up
to $10,000 for letters of credit and a subfacility of up to $10,000 for swing-line loans. The Credit Agreement also provides us with the ability to obtain up to
$150,000 in the aggregate of additional revolving credit commitments and/or term loans thereunder (i.e., in excess of $300,000) 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, 2022.
As of March 31, 2022 and 2021, we had no outstanding loans and $300,000 of unused credit under the Credit Agreement.
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During the years ended March 31, 2022, 2021, and 2020, we recorded $791, $2,541, and $1,274 of interest expense (excluding amortization of deferred
debt issuance costs), respectively. The weighted average interest rates were approximately 0.0%, 2.2%, and 2.4% for the years ended March 31, 2022,
2021, and 2020, respectively. We had no borrowings outstanding at any time during the year ended March 31, 2022.
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, 2022, total unamortized debt issuance costs were $2,006. 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. During the years ended March 31, 2022, 2021, and 2020, we recorded $508, $1,026, and
$710, respectively, in amortization of deferred debt issuance costs, including amounts written off for the year ended March 31, 2021.
11. 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
Internal-use software
Leasehold improvements
Furniture and fixtures
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
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
76
March 31, 2022
March 31, 2021
59,829
6,918
66,747
$
$
73,295
5,280
78,575
March 31, 2022
March 31, 2021
24,229
11,698
1,175
37,102
$
$
20,679
9,399
1,204
31,282
March 31, 2022
March 31, 2021
$
36,293
19,001
13,227
9,579
78,100
(68,980)
$
9,120
35,244
18,174
14,418
11,555
79,391
(64,852)
14,539
March 31, 2022
March 31, 2021
21,654 $
5,793
2,006
9,573
39,026 $
19,104
5,505
2,521
9,891
37,021
March 31, 2022
March 31, 2021
27,311
11,785
5,353
3,817
470
48,736
$
$
29,382
12,038
4,628
3,817
509
50,374
$
$
$
$
$
$
$
$
$
$
Table of Contents
Other current and noncurrent liabilities are summarized as follows:
Accrued hosting costs
Care services liabilities
Sales returns reserves and other customer liabilities
Accrued consulting and outside services
Customer credit balances and deposits
Accrued royalties
Accrued employee benefits and withholdings
Accrued outsourcing costs
Accrued self insurance expense
Accrued EDI expense
Accrued legal expense
Accrued taxes payable
Contingent consideration related to acquisitions
Other accrued expenses
Other current liabilities
Uncertain tax positions
Other liabilities
Deferred payroll taxes
Other noncurrent liabilities
12. 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
77
March 31, 2022
March 31, 2021
12,510
6,918
5,725
4,799
4,622
3,557
3,535
2,264
2,208
2,168
1,439
540
—
3,248
53,533
4,196
374
—
4,570
$
$
$
6,158
5,280
9,449
3,002
4,638
3,125
4,649
2,266
1,737
2,020
6,302
586
533
2,954
52,699
3,175
144
3,817
7,136
Fiscal Year Ended March 31,
2021
2020
2022
1,090
1,081
1,192
3,363
43
(379)
551
215
3,578
$
$
$
$
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)
$
$
$
$
$
$
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:
Executive compensation limitation
Impact of uncertain tax positions
Share-based compensation
State income taxes
Impact of foreign operations
Impact of amended returns
Impact of deferred adjustments
Impact of audit settlements
Acquisition expenses
Non-deductible expenses
Return to provision true-ups
Impact of valuation allowance
Research and development tax credits
Provision for (benefit of) income taxes
2022
Fiscal Year Ended March 31,
2021
2020
$
1,091
$
1,948
$
895
2,068
1,620
1,059
950
356
163
88
—
—
(27)
(152)
(882)
(2,756)
3,578
$
775
278
865
572
(1,203)
(9)
(251)
(56)
—
(258)
(15)
563
(3,449)
(240)
$
260
1,062
125
687
(683)
67
159
(61)
229
643
(1,868)
(49)
(4,705)
(3,239)
$
(1) Federal statutory rate was 21.0% for March 31, 2022, 2021 and 2020.
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 credit losses
Accounts receivable
Accrued legal settlement
Total deferred tax assets
Deferred tax liabilities:
Prepaid expense
Intangibles assets
Operating right-of-use assets
Capitalized software
Accelerated depreciation
Other
Accounts receivable
Total deferred tax liabilities
Valuation allowance
Deferred tax assets, net
March 31, 2022
March 31, 2021
$
$
$
17,494
9,245
7,165
6,018
3,774
1,755
1,658
511
—
47,620
(10,895)
(8,703)
(1,713)
(647)
(640)
(630)
—
(23,228)
(5,133)
19,259
$
$
$
19,541
8,325
7,706
7,652
6,204
2,306
1,819
—
905
54,458
(9,396)
(9,451)
(3,003)
(4,659)
(1,339)
(611)
(510)
(28,969)
(6,015)
19,474
The deferred tax assets and liabilities have been shown net in the accompanying consolidated balance sheets as noncurrent.
As of March 31, 2022 and 2021, we had federal net operating loss (“NOL”) carryforwards of $10,801 and $18,748, 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, 2022, we had state NOL carryforwards of approximately $3,750 (tax effected), related to the HealthFusion, Entrada,
EagleDream, and Medfusion acquisitions. 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, 2022 and 2021, the research and development tax credit carryforward available to offset future federal and state taxes was $8,155 and
$8,574, 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 foreign and state credits and state 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 $4,217 and $714,
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, 2022 and 2021.
Uncertain tax positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is recorded within other noncurrent liabilities and deferred income
taxes, net in our consolidated balance sheet, is as follows:
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
Additions for prior year tax positions
Additions for current year tax positions
Reductions for prior year tax positions
Balance as of March 31, 2022
$
$
4,192
220
635
(621)
4,426
1,184
763
(261)
6,112
During the year ended March 31, 2022, we recorded additional net liabilities of $1,686 related to various federal, foreign, 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 $6,112.
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 $286 and $88 of accrued interest related to income tax matters as of March 31, 2022 and 2021, respectively. We recognized
interest expense of $199, interest income of $85, and interest income of $35 in the years ended March 31, 2022, 2021 and 2020, 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 subject to taxation in federal, various state, Indian, and United Kingdom jurisdictions. We are no longer subject to U.S. federal income tax
examinations or other foreign tax authorities for tax years before fiscal year ended 2018. With a few exceptions, we are no longer subject to state or local
income tax examinations for tax years before fiscal year ended 2017. 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.
13. 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 $6,922, $4,625 and $4,658 were made by the Company to the 401(k) plan for the years
ended March 31, 2022, 2021, and 2020, respectively. Net contributions for the year ended March 31, 2022 reflect an additional discretionary Company
contribution made to eligible employees.
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 $7,230 and $6,620 at March 31, 2022 and 2021, 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 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 $8,098 and $8,126 at March 31,
2022 and 2021, respectively. The values of the life insurance policies and our related obligations are included on the accompanying
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consolidated balance sheets in long-term other assets and long-term deferred compensation, respectively. We made contributions of $116, $79 and $74 to
the Deferral Plan for the years ended March 31, 2022, 2021, and 2020, respectively.
14. Stockholders’ Equity
Equity 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 of Directors (“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, 2022, there were 44,200
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 Plan, to, among other items, increase the number of shares of common stock reserved for issuance thereunder by 6,000,000 shares, 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 shares. In October 2021, our shareholders approved an amendment and restatement of the Company’s 2015 Equity
Incentive Plan (the “Amended 2015 Plan”), to, among other items, increase the number of common stock reserved for issuance thereunder by an additional
1,850,000 shares. 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, 2022, there were 1,409,539 outstanding options, 2,205,149 outstanding shares of restricted stock awards, certain
outstanding performance stock unit awards as described further below, and 2,399,848 shares available for future grant under the Amended 2015 Plan.
In September 2021, the Board adopted the 2021 Employment Inducement Equity Incentive Plan (the “Inducement Plan”) and initially reserved 1,500,000
shares of common stock for issuance under the Inducement Plan. The Inducement Plan was adopted by the Board without stockholder approval pursuant to
Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the Inducement Plan may only
be made to an employee who has not previously been an employee or member of the Board or the Board of Directors or any parent or subsidiary, or
following a bona fide period of non-employment by the Company or a parent or subsidiary, if he or she is granted such award in connection with his or her
commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the
Company or such subsidiary. The terms of the Inducement Plan are substantially similar to the terms of our Amended 2015 Plan, with the exception that
incentive stock options may not be granted under the Inducement Plan. As of March 31, 2022, there were 1,037,614 outstanding shares of restricted stock
awards, 450,000 outstanding performance stock unit awards, and 12,386 shares available for future grant under the Inducement Plan.
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Stock-Based Compensation
The following table summarizes total share-based compensation expense included in the consolidated statements of net income and comprehensive income
for the fiscal years ended March 31, 2022, 2021 and 2020:
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
2022
Fiscal Year Ended March 31,
2021
2020
$
$
2,183
4,508
19,861
26,552
(6,221)
20,331
$
$
$
1,991
4,036
16,683
22,710
(5,415)
$
17,295
2,051
3,875
13,768
19,694
(4,726)
14,968
Share-based compensation expense under our equity incentive plans is based on the number awards that ultimately vest and forfeitures are accounted for
as they occur.
Stock Options
The following table summarizes the stock option transactions during the years ended March 31, 2022, 2021, and 2020:
Outstanding, March 31, 2019
Exercised
Forfeited/Canceled
Expired
Outstanding, March 31, 2020
Exercised
Forfeited/Canceled
Expired
Outstanding, March 31, 2021
Exercised
Forfeited/Canceled
Expired
Outstanding, March 31, 2022
Vested and expected to vest, March 31, 2022
Exercisable, March 31, 2022
Weighted-
Average
Exercise
Price
per Share
Weighted-
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in thousands)
Number of
Shares
3,166,525
(55,325)
(75,450)
(34,400)
3,001,350 $
(116,916)
(47,350)
(46,000)
2,791,084 $
(1,248,525)
(32,320)
(56,500)
1,453,739 $
1,445,622 $
1,403,357 $
15.36
15.87
23.38
43.04
14.83
16.21
18.58
29.17
14.47
13.76
19.51
18.85
14.80
14.79
14.72
5.5
4.3
1.5
4.7
3.3
3.7
3.7
2.7
3.0
2.9
2.9
2.8
$
$
$
$
$
$
$
$
7,040
138
—
303
10,303
2,638
8,886
8,854
8,690
Share-based compensation expense related to stock options was $1,251, $2,536, and $3,826 for the years ended March 31, 2022, 2021, and 2020,
respectively.
There were no stock options granted during the years ended March 31, 2022, 2021 and 2020.
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Non-vested stock option award activity during the years ended March 31, 2022, 2021, and 2020 is summarized as follows:
Number of
Shares
Weighted-
Average
Grant-Date
Fair Value
per Share
Outstanding, March 31, 2019
Vested
Forfeited/Canceled
Outstanding, March 31, 2020
Vested
Forfeited/Canceled
Outstanding, March 31, 2021
Vested
Forfeited/Canceled
Outstanding, March 31, 2022
1,845,855
1,091,672
$
(745,033)
(9,150)
$
(605,433)
(26,900)
459,339
$
(391,457)
(17,500)
$
50,382
5.52
5.29
6.42
5.67
5.40
6.80
5.96
5.74
7.96
6.98
As of March 31, 2022, $83 of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted-average period
of 0.2 years. This amount does not include the cost of new options that may be granted in future periods. The total fair value of options vested during the
years ended March 31, 2022, 2021, and 2020 was $2,248, $3,272, and $3,940, respectively.
Restricted Stock Awards
Restricted stock awards activity during the years ended March 31, 2022, 2021, and 2020 is summarized as follows:
Outstanding, March 31, 2019
Granted
Vested
Canceled
Outstanding, March 31, 2020
Granted
Vested
Canceled
Outstanding, March 31, 2021
Granted
Vested
Canceled
Outstanding, March 31, 2022
Weighted-
Average
Grant-Date
Fair Value
per Share
Number of
Shares
1,715,958
1,529,831
$
(764,290)
(168,719)
$
2,312,780
1,222,863
(1,053,792)
(218,282)
$
2,263,569
2,391,578
(1,109,520)
(302,864)
$
3,242,763
16.29
16.93
16.05
17.06
16.74
12.04
16.22
15.30
14.58
15.87
15.17
14.94
15.30
Share-based compensation expense related to restricted stock awards was $20,821, $16,371, and $14,706 for the years ended March 31, 2022, 2021, and
2020, 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, 2022, $35,894 of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-
average period of 2.0 years. This amount does not include the cost of new restricted stock awards that may be granted in future periods.
The total fair value of restricted stock awards vested as of the vesting dates were $18,156, $14,138 and $12,962 for the years ended March 31, 2022, 2021,
and 2020.
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Net Share Settlements
Restricted stock awards are generally net share-settled upon vesting to cover the required withholding taxes, and the remaining share amount is transferred
to the employee. The majority of restricted stock awards that vested during the years ended March 31, 2022, 2021 and 2020 were net-share settled such
that we withheld shares with value equivalent to the employees’ applicable income tax obligations for the applicable income and other employment taxes and
remitted the equivalent amount of cash to the appropriate taxing authorities. Total payments for the employees’ applicable income tax obligations are
reflected as a financing activity within the accompanying consolidated statements of cash flows. The total shares withheld during the years ended March 31,
2022, 2021 and 2020 were 356,490, 349,895 and 241,571, respectively, and were based on the value of the restricted stock awards on their vesting date as
determined by our closing stock price. These net-share settlements had the effect of share repurchases by us as they reduced the number of shares that
would have otherwise been issued at the vesting date.
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 and 102,813 shares were ultimately earned and issued during the performance period. 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 and $246 for the years ended March 31, 2021 and 2020. The total fair value of performance stock awards vested as of
the vesting dates were $422 and $368 for the years ended March 31, 2021, and 2020.
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, of which no shares are currently outstanding and no shares were ultimately earned or issued
during the performance period. Approximately 34% of the performance stock units were tied to our cumulative 3-year total shareholder return, 33% were tied
to our fiscal year 2021 revenue, and 33% were 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 was to vary between 50% and 200% of the number of performance stock units depending on
performance, and no such shares were to be issued if threshold performance was 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 tied to revenue and adjusted earnings per
share goals was not significant. Share-based compensation expense related to the performance stock unit awards tied to total shareholder return was $458
for each of the years ended March 31, 2021 and 2020, respectively. Share-based compensation expense related to the performance stock unit awards tied
to total shareholder return was a benefit of $359 for the year ended March 31, 2022 primarily due to cancellation of awards associated with the departure of
our former Chief Executive Officer.
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.
Share-based compensation expense related to the performance stock unit awards was $82 for the year ended March 31, 2022, which includes the impact of
the cancellation of awards associated with the resignation of our former Chief Executive Officer and the retirement of one our executives.
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
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compensation expense related to the performance stock unit awards was $1,418 and $1,187 for the years ended March 31, 2022 and 2021, respectively.
On September 20, 2021, the Compensation Committee of the Board approved an award of 450,000 performance stock units to be granted to our Chief
Executive Officer under the Inducement Plan. The award has a grant date of September 22, 2021 and portions of the award vest upon both the attainment of
five separate pre-determined stock price milestones during a five-year performance period and continued service over a period of three years following the
grant date. The fair value and derived service period for each share-price milestone tranche was estimated separately using a Monte-Carlo based valuation
model. The expense for each share-price milestone tranche is amortized over the longer of the derived service period or the explicit service period. The
weighted-average grant date fair value of the award was $10.52 per share. Share-based compensation expense related to the performance stock unit award
was $1,210 for the year ended March 31, 2022.
On October 26, 2021, the Compensation Committee of the Board approved 476,713 performance stock units to be granted to certain members of the
executive leadership team. The awards have a grant date of November 2, 2021 and portions of the award vest upon both the attainment of four separate
pre-determined stock price milestones through September 22, 2026 and continued service over a period of three years following the grant date. The fair
value and derived service period for each share-price milestone tranche was estimated separately using a Monte-Carlo based valuation model. The expense
for each share-price milestone tranche is amortized over the longer of the derived service period or the explicit service period. The weighted-average grant
date fair value of the award was $13.02 per share. Share-based compensation expense related to the performance stock unit award was $1,476 for the year
ended March 31, 2022.
As of March 31, 2022, $12,069 of total estimated unrecognized compensation costs related to performance stock units and awards is expected to be
recognized over a weighted-average period of 2.2 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 in total fair market value of shares during any one calendar year. As of March 31, 2022, we have issued 888,961
shares under the Purchase Plan and 3,111,039 shares are available for future issuance.
Share-based compensation expense recorded for the employee share purchase plan was $553, $519, and $484 for the years ended March 31, 2022, 2021,
and 2020, respectively.
Share Repurchase Program
In October 2021, the Board authorized a share repurchase program under which we may repurchase up to $60,000 of our outstanding shares of common
stock through March 2023. The timing and amount of any share repurchases under the share repurchase program will be determined by our management at
its discretion based on ongoing assessments of the capital needs of the business, the market price of our common stock and general market conditions.
Share repurchases under the program may be made through a variety of methods, which may include open market purchases, in block trades, accelerated
share repurchase transactions, exchange transactions, or any combination of such methods. Repurchases may also be made under Rule 10b5-1 plans,
which permit shares of common stock to be repurchased through pre-determined criteria. The program does not obligate the Company to acquire any
particular amount of our common stock, and the share repurchase program may be suspended or discontinued at any time at our discretion.
During the year ended March 31, 2022, we repurchased 2,169,896 shares of common stock for a total of $35,874 at a weighted-average share repurchase
price of approximately $16.53. As of March 31, 2022, $24,126 remained available for share repurchases pursuant to the Company’s share repurchase
program.
Of the total shares repurchased, 2,000,000 shares were purchased from a shareholder who previously owned 7.4% of our total shares of common stock for
an aggregate purchase price of approximately $33,100. The shares repurchased represented approximately 3.0% of our total shares of common stock
outstanding at March 31, 2022.
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15. 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.
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” of our notes to consolidated financial statements
included elsewhere in this Report and below for a discussion of current legal proceedings.
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 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. Trial commenced on July 6, 2021. On July 29, 2021, the jury rendered a verdict in favor of the Company and the individual defendants on
all counts. Hussein filed a Motion for New Trial, which the Court denied.
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
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damages for a second phase of the arbitration. On June 10, 2021, the arbitrator heard arguments on the quantum of indemnifiable expenses. On September
2, 2021, the arbitrator awarded Hussein indemnification for fees and costs incurred defending the cross-complaint. After trebling the fees incurred pursuant
to Hussein’s supplemental agreement with his attorneys, and adding in interest and costs, the arbitrator calculated that the Company owes Mr. Hussein
$11,370 in indemnification, which we subsequently paid on September 30, 2021.
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) our EHR product
and its performance, including defects that relate to patient safety or meaningful use certifications, (c) the software code used in certifying our EHR software
and information, and (d) marketing programs and payments provided for the referral of EHR business. We continue to respond to the government’s request.
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, which themselves may lead to material fines, penalties or other 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 of the outcome of this matter
or the range of reasonably possible loss, if any. However, the unfavorable resolution of this matter could have a material adverse effect on our business,
results of operations, financial condition or cash flow.
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.
16. Restructuring Plan
During the year ended March 31, 2022, we recorded restructuring costs of $539, 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, within operating
expenses in our consolidated statements of net income and comprehensive income. The payroll-related costs were substantially paid as of March 31, 2022.
During the year ended March, 31, 2021, 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 within
operating expenses in our consolidated statements of net income and comprehensive income, which was related to our decision to execute a reduction in
our workforce of less than 3% and other temporary cost reductions in response to the COVID-19 pandemic that we announced in May 2020. 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.
During the year ended March 31, 2020, we recorded $2,505 of restructuring costs, consisting of 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 within operating expenses in our consolidated statements of comprehensive income, which was related to a business restructuring plan we
implemented in June 2019 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. 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.
17. Subsequent Event
On May 17, 2022, we entered into an amendment to the Credit Agreement, which, among other changes, provides more favorable terms and flexibility with
regards to our ability to obtain additional revolving credit commitments and/or term loans thereunder, including amendments to the net leverage ratio and
definition of restricted payments.
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(in thousands)
For the year ended
March 31, 2022
March 31, 2021
March 31, 2020
(in thousands)
For the year ended
March 31, 2022
March 31, 2021
March 31, 2020
(in thousands)
For the year ended
March 31, 2022
March 31, 2021
March 31, 2020
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Sales Return Reserve
Balance at
Beginning
of Year
Additions
Charged
Against
Revenue
Deductions
3,593 $
4,191 $
4,759 $
5,381 $
6,595 $
7,094 $
(5,596) $
(7,193) $
(7,662) $
Balance at
End of Year
3,378
3,593
4,191
Balance at
Beginning
of Year
Allowance for Credit Losses
Additions
Charged to
Costs and
Expenses
Deductions
4,205 $
3,549 $
6,054 $
1,915 $
2,834 $
3,367 $
(2,232) $
(2,178) $
(5,872) $
Balance at
End of Year
3,888
4,205
3,549
$
$
$
$
$
$
Valuation Allowance for Deferred Taxes
Balance at
Beginning
of Year
Additions
Charged to
Costs and
Expenses
Acquisition
Related
Additions
Deductions
$
$
$
6,015 $
5,452 $
3,563 $
7 $
877 $
327 $
— $
— $
1,590 $
(889) $
(314) $
(28) $
Balance at
End of Year
5,133
6,015
5,452
87
Exhibit 4.1
Description of Capital Stock
The following is a brief description of the capital stock of NextGen Healthcare, Inc., a Delaware corporation (the “Company,”
“we,” “us,” or “our”) and is subject to and qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation (our
“charter”) and our Amended and Restated Bylaws (our “bylaws”), each of which is incorporated by reference as an exhibit to the Annual
Report on Form 10-K of which this exhibit is a part. It also summarizes some relevant provisions of the Delaware General Business
Corporation Law, which we refer to as “Delaware law” or “DGCL” and is subject to and qualified in its entirety by reference to the DGCL.
Since the terms of our certificate of incorporation, bylaws and Delaware law are more detailed than the general information provided below,
you should only rely on the actual provisions of those documents and Delaware law.
General
The Company is authorized to issue two classes of stock to be designated, respectively, “common stock” and “preferred stock.”
The total number of shares of capital stock which the Company shall have authority to issue is 110,000,000. The total number of shares of
common stock that the Company is authorized to issue is 100,000,000, having a par value of $0.01 per share, and the total number of shares
of preferred stock that the Company is authorized to issue is 10,000,000, having a par value of $0.01 per share.
Common Stock
The voting, dividend, liquidation, and other rights and powers of the common stock are subject to and qualified by the rights,
powers and preferences of any series of preferred stock as may be designated by the board of directors of the Company (the “board of
directors”) and outstanding from time to time.
Holders of shares of our common stock are entitled to one vote per share held of record on all matters on which stockholders are
entitled to vote generally, including the election or removal of directors. Except as otherwise required by law, holders of our common stock
shall not be entitled to vote on any amendment to our charter that relates solely to the rights, powers, preferences (or the qualifications,
limitations or restrictions thereof) or other terms of one or more outstanding series of preferred stock if the holders of such affected series are
entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to our charter or pursuant to
the DGCL. The holders of our common stock do not have cumulative voting rights in the election of directors.
Subject to the rights of any holders of any outstanding series of preferred stock, the number of authorized shares of common stock
may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the stock of the Company entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL.
Holders of shares of our common stock are entitled to receive dividends when and if declared by our board of directors out of
funds legally available therefor, subject to limitations under Delaware law and the preferential rights of the holders of any outstanding shares
of preferred stock.
Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs and after payment in full of all amounts
required to be paid to creditors and to the holders of our preferred stock having liquidation preferences, if any, the holders of shares of our
common stock will be entitled to receive pro rata our remaining assets available for distribution.
All shares of our common stock that are outstanding are fully paid and non-assessable.
Preferred Stock
Shares of preferred stock may be issued from time to time in one or more series, each of such series to have such terms as stated or
expressed in our charter and in the resolution or resolutions providing for the creation and issuance of such series adopted by the board of
directors. Our board of directors may determine and fix the number of shares of such series and such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or
restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation
preferences, and to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any
series as shall be stated and expressed in such resolutions, all to the fullest extent now or hereafter permitted by the DGCL. The resolution or
resolutions providing for the creation and issuance of any series of preferred stock may provide that such series shall be superior or rank
equally or be junior to any other series of preferred stock to the extent permitted by law and our charter. Except as otherwise required by law,
holders of any series of preferred stock shall be entitled only to such voting rights, if any, as shall expressly be granted by our charter.
The number of authorized shares of preferred stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the stock of the Company entitled to vote, irrespective of the
provisions of Section 242(b)(2) of the DGCL.
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
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
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 (Nos. 333-63131, 333-67115, 333-129752, 333-198181,
333-206419, 333-221145, 333-234308, 333-259675 and 333-260581) of NextGen Healthcare, Inc. of our report dated May 17, 2022 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 17, 2022
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, David Sides, 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 17, 2022
By: /s/ David Sides
David Sides
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 17, 2022
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, 2022 (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 17, 2022
Date: May 17, 2022
By: /s/ David Sides
David Sides
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.