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UNITED STATES

SECURITIES and EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 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)

95-2888568

(IRS Employer Identification No.)

 

 

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

(Address of principal executive offices)

30305

(Zip Code)

 

(404) 467-1500

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 Par Value

NXGN

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No

The number of outstanding shares of the Registrant’s common stock as of July 22, 2022 was 68,018,785 shares.

 

 

 


 

 

NEXTGEN HEALTHCARE, INC.

TABLE OF CONTENTS

FORM 10-Q

FOR THE THREE MONTHS ENDED JUNE 30, 2022

 

 

 

Item

 

Page

 

 

PART I.  FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements.

 

3

 

 

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and March 31, 2022

 

3

 

 

Unaudited Condensed Consolidated Statements of Net Income and Comprehensive Income for the three months ended June 30, 2022 and 2021

 

4

 

 

Unaudited Statements of Condensed Consolidated Stockholders’ Equity for the three months ended June 30, 2022 and 2021

 

5

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2022 and 2021

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2.

 

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

 

24

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk.

 

35

Item 4.

 

Controls and Procedures.

 

35

 

 

PART II.  OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings.

 

36

Item 1A.

 

Risk Factors.

 

36

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

36

Item 3.

 

Defaults Upon Senior Securities.

 

36

Item 4.

 

Mine Safety Disclosure.

 

36

Item 5.

 

Other Information.

 

36

Item 6.

 

Exhibits.

 

37

 

 

Signatures

 

38

2


 

 

PART I.  FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

NEXTGEN HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

 

 

 

June 30, 2022

 

 

March 31, 2022

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,361

 

 

$

59,829

 

Restricted cash and cash equivalents

 

 

8,054

 

 

 

6,918

 

Accounts receivable, net

 

 

77,279

 

 

 

76,057

 

Contract assets

 

 

25,464

 

 

 

25,157

 

Income taxes receivable

 

 

7,367

 

 

 

6,507

 

Prepaid expenses and other current assets

 

 

34,011

 

 

 

37,102

 

Total current assets

 

 

192,536

 

 

 

211,570

 

Equipment and improvements, net

 

 

8,326

 

 

 

9,120

 

Capitalized software costs, net

 

 

47,602

 

 

 

43,958

 

Operating lease assets

 

 

9,707

 

 

 

11,316

 

Deferred income taxes, net

 

 

19,187

 

 

 

19,259

 

Contract assets, net of current

 

 

1,729

 

 

 

1,910

 

Intangibles, net

 

 

21,817

 

 

 

24,303

 

Goodwill

 

 

267,212

 

 

 

267,212

 

Other assets

 

 

39,879

 

 

 

39,026

 

Total assets

 

$

607,995

 

 

$

627,674

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

15,042

 

 

$

9,125

 

Contract liabilities

 

 

63,094

 

 

 

61,280

 

Accrued compensation and related benefits

 

 

25,967

 

 

 

48,736

 

Income taxes payable

 

 

363

 

 

 

99

 

Operating lease liabilities

 

 

7,946

 

 

 

8,089

 

Other current liabilities

 

 

45,187

 

 

 

53,533

 

Total current liabilities

 

 

157,599

 

 

 

180,862

 

Deferred compensation

 

 

7,181

 

 

 

7,230

 

Operating lease liabilities, net of current

 

 

9,794

 

 

 

11,934

 

Other noncurrent liabilities

 

 

4,562

 

 

 

4,570

 

Total liabilities

 

 

179,136

 

 

 

204,596

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; authorized 100,000 shares; issued and outstanding 68,064 and 67,075 shares at June 30, 2022 and March 31, 2022, respectively

 

 

704

 

 

 

692

 

Treasury stock, at cost, 2,318 shares and 2,170 shares at June 30, 2022 and March 31, 2022, respectively

 

 

(38,379

)

 

 

(35,874

)

Additional paid-in capital

 

 

337,071

 

 

 

329,917

 

Accumulated other comprehensive loss

 

 

(1,937

)

 

 

(1,909

)

Retained earnings

 

 

131,400

 

 

 

130,252

 

Total shareholders' equity

 

 

428,859

 

 

 

423,078

 

Total liabilities and shareholders' equity

 

$

607,995

 

 

$

627,674

 

 

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

3


 

NEXTGEN HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

Revenues:

 

 

 

 

 

 

 

 

Recurring

$

139,759

 

 

$

132,381

 

 

Software, hardware, and other non-recurring

 

13,543

 

 

 

13,703

 

 

Total revenues

 

153,302

 

 

 

146,084

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

Recurring

 

62,244

 

 

 

57,160

 

 

Software, hardware, and other non-recurring

 

10,676

 

 

 

7,497

 

 

Amortization of capitalized software costs and acquired intangible assets

 

7,134

 

 

 

8,084

 

 

Total cost of revenue

 

80,054

 

 

 

72,741

 

 

Gross profit

 

73,248

 

 

 

73,343

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

49,034

 

 

 

48,486

 

 

Research and development costs, net

 

21,795

 

 

 

19,321

 

 

Amortization of acquired intangible assets

 

705

 

 

 

881

 

 

Impairment of assets

 

524

 

 

 

382

 

 

Restructuring costs

 

 

 

 

539

 

 

Total operating expenses

 

72,058

 

 

 

69,609

 

 

Income from operations

 

1,190

 

 

 

3,734

 

 

Interest income

 

46

 

 

 

12

 

 

Interest expense

 

(330

)

 

 

(317

)

 

Other expense, net

 

(5

)

 

 

(22

)

 

Income before provision for (benefit of) income taxes

 

901

 

 

 

3,407

 

 

Provision for (benefit of) income taxes

 

(247

)

 

 

559

 

 

Net income

$

1,148

 

 

$

2,848

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation, net of tax

 

(28

)

 

 

(38

)

 

Comprehensive income

$

1,120

 

 

$

2,810

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

$

0.02

 

 

$

0.04

 

 

Diluted

$

0.02

 

 

$

0.04

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

67,588

 

 

 

67,175

 

 

Diluted

 

68,283

 

 

 

67,799

 

 

 

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

4


 

NEXTGEN HEALTHCARE, INC.

STATEMENTS OF CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Common Stock

 

 

Treasury

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance, March 31, 2022

 

 

67,075

 

 

$

692

 

 

$

(35,874

)

 

$

329,917

 

 

$

130,252

 

 

$

(1,909

)

 

$

423,078

 

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

 

 

1,137

 

 

 

12

 

 

 

 

 

 

(1,612

)

 

 

 

 

 

 

 

 

(1,600

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

8,766

 

 

 

 

 

 

 

 

 

8,766

 

Repurchase of common stock (1)

 

 

(148

)

 

 

 

 

 

(2,505

)

 

 

 

 

 

 

 

 

 

 

 

(2,505

)

Components of other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

 

 

(28

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,148

 

 

 

 

 

 

1,148

 

Balance, June 30, 2022

 

 

68,064

 

 

 

704

 

 

 

(38,379

)

 

 

337,071

 

 

 

131,400

 

 

 

(1,937

)

 

 

428,859

 

 

 

 

(1)

Weighted-average repurchase price (dollars per share) for the three months ended June 30, 2022 was $16.93.

 

 

 

Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Common Stock

 

 

Treasury

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance, March 31, 2021

 

 

67,069

 

 

$

671

 

 

$

-

 

 

$

304,263

 

 

$

128,634

 

 

$

(1,924

)

 

$

431,644

 

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

 

 

293

 

 

 

3

 

 

 

 

 

 

(2,301

)

 

 

 

 

 

 

 

 

(2,298

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

6,412

 

 

 

 

 

 

 

 

 

6,412

 

Components of other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

(38

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,848

 

 

 

 

 

 

2,848

 

Balance, June 30, 2021

 

 

67,362

 

 

 

674

 

 

 

 

 

 

308,374

 

 

 

131,482

 

 

 

(1,962

)

 

 

438,568

 

 

5


 

 

NEXTGEN HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,148

 

 

$

2,848

 

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

 

 

 

 

 

 

 

 

Amortization of capitalized software costs

 

 

5,354

 

 

 

5,866

 

Amortization of debt issuance costs

 

 

127

 

 

 

127

 

Amortization of other intangibles

 

 

2,486

 

 

 

3,099

 

Deferred income taxes

 

 

 

 

 

28

 

Depreciation

 

 

1,292

 

 

 

2,108

 

Excess tax benefit from share-based compensation

 

 

(411

)

 

 

(176

)

Impairment of assets

 

 

524

 

 

 

382

 

Loss on disposal of equipment and improvements

 

 

41

 

 

 

38

 

Loss on foreign currency exchange rates

 

 

6

 

 

 

 

Non-cash operating lease costs

 

 

914

 

 

 

1,628

 

Provision for bad debts

 

 

241

 

 

 

639

 

Share-based compensation

 

 

8,766

 

 

 

6,412

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,464

)

 

 

3,407

 

Contract assets

 

 

(126

)

 

 

(919

)

Accounts payable

 

 

5,829

 

 

 

(4,334

)

Contract liabilities

 

 

1,814

 

 

 

(582

)

Accrued compensation and related benefits

 

 

(22,668

)

 

 

(21,964

)

Income taxes

 

 

(191

)

 

 

464

 

Deferred compensation

 

 

(49

)

 

 

743

 

Operating lease liabilities

 

 

(2,085

)

 

 

(2,676

)

Other assets and liabilities

 

 

(6,193

)

 

 

3,175

 

Net cash provided by (used in) operating activities

 

 

(4,645

)

 

 

313

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to capitalized software costs

 

 

(8,998

)

 

 

(5,538

)

Additions to equipment and improvements

 

 

(455

)

 

 

(1,002

)

Net cash used in investing activities

 

 

(9,453

)

 

 

(6,540

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of shares under employee plans

 

 

2,068

 

 

 

671

 

Repurchase of common stock

 

 

(2,505

)

 

 

 

Payments for taxes related to net share settlement of equity awards

 

 

(3,668

)

 

 

(2,969

)

Net cash used in financing activities

 

 

(4,105

)

 

 

(2,298

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(129

)

 

 

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(18,332

)

 

 

(8,525

)

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

 

 

66,747

 

 

 

78,575

 

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

 

$

48,415

 

 

$

70,050

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

360

 

 

$

294

 

Cash refunds from income taxes

 

 

9

 

 

 

19

 

Cash paid for interest

 

 

 

 

 

 

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

 

 

2,308

 

 

 

2,964

 

Operating lease assets obtained in exchange for operating lease liabilities

 

 

 

 

 

 

Accrued purchases of equipment and improvements

 

 

96

 

 

 

169

 

 

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

6


 

NEXTGEN HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTES INDEX

 

Note

 

 

 

Page

 

 

 

 

 

Note 1

 

Summary of Significant Accounting Policies

 

8

Note 2

 

Revenue from Contracts with Customers

 

9

Note 3

 

Accounts Receivable

 

11

Note 4

 

Fair Value Measurements

 

12

Note 5

 

Leases

 

12

Note 6

 

Goodwill

 

14

Note 7

 

Intangible Assets

 

14

Note 8

 

Capitalized Software Costs

 

15

Note 9

 

Line of Credit

 

15

Note 10

 

Composition of Certain Financial Statement Captions

 

16

Note 11

 

Income Taxes

 

17

Note 12

 

Earnings Per Share

 

18

Note 13

 

Stockholders' Equity

 

18

Note 14

 

Concentration of Credit Risk

 

22

Note 15

 

Commitments, Guarantees and Contingencies

 

22

Note 16

 

Subsequent Event

 

23

7


 

 

NEXTGEN HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except shares and per share data)

(Unaudited)

1. Summary of Significant Accounting Policies

Principles of Consolidation. The condensed consolidated financial statements include the accounts of NextGen Healthcare, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). Each of the terms “we,” “us,” or “our” as used herein refers collectively to the Company, unless otherwise stated. All intercompany accounts and transactions have been eliminated.

Basis of Presentation.  The accompanying unaudited condensed consolidated financial statements as of June 30, 2022 and for the three months ended June 30, 2022 have been prepared in accordance with the requirements of Quarterly Report on Form 10-Q and Article 10 of the Securities and Exchange Commission Regulation S-X and therefore do not include all information and notes which would be presented were such condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements presented in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments which are necessary for a fair statement of the results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full year.

Certain prior period amounts have been reclassified to conform to current period presentation. References to amounts in the condensed consolidated financial statement sections are in thousands, except shares and per share data, unless otherwise specified.

Use of Estimates.  We evaluate our estimates and assumptions 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.

Recent Accounting Standards Not Yet Adopted.   Recent accounting pronouncements requiring implementation in current or future periods are discussed below or in the notes, where applicable.

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

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 condensed 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 condensed consolidated financial statements.

8


 

2. Revenue from Contracts with Customers

Revenue Recognition and Performance Obligations

We generate revenue from sales of licensing rights and subscriptions to our software solutions, hardware and third-party software products, support and maintenance, managed services, transactional 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.

The following table presents our revenues disaggregated by our major revenue categories and by occurrence:

 

 

 

Three Months Ended June 30,

 

 

 

 

2022

 

 

2021

 

 

Recurring revenues:

 

 

 

 

 

 

 

 

 

Subscription services

 

$

42,759

 

 

$

38,284

 

 

Support and maintenance

 

 

39,138

 

 

 

38,486

 

 

Managed services

 

 

30,645

 

 

 

27,908

 

 

Transactional and data services

 

 

27,217

 

 

 

27,703

 

 

Total recurring revenues

 

 

139,759

 

 

 

132,381

 

 

 

 

 

 

 

 

 

 

 

 

Software, hardware, and other non-recurring revenues:

 

 

 

 

 

 

 

 

 

Software license and hardware

 

 

6,199

 

 

 

7,214

 

 

Other non-recurring services

 

 

7,344

 

 

 

6,489

 

 

Total software, hardware and other non-recurring revenues

 

 

13,543

 

 

 

13,703

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

153,302

 

 

$

146,084

 

 

 

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

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

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

Support and maintenance. Performance obligations involving support and maintenance are satisfied over time as the customer simultaneously receives and consumes the benefits of the maintenance services provided. Our support and maintenance services may consist of separate performance obligations, such as unspecified upgrades or enhancements and technical support, which are considered stand-ready in nature and can be offered at various points during the service period. Since the efforts associated with

9


 

the combined support and maintenance services are rendered concurrently and provided evenly throughout the service period, we consider the series of support and maintenance services to be a single performance obligation. Therefore, we recognize revenue related to these services ratably over the respective noncancelable contract term.

Managed services. Managed services consist primarily of RCM and related services, but also includes our hosting services, which we refer to as managed cloud services, transcription services, and certain other recurring services. Performance obligations associated with RCM services are satisfied over time as the customer simultaneously receives and consumes the benefits of the services executed throughout the contract period. The majority of service fees under our RCM arrangements are variable consideration contingent upon collections by our clients. We estimate the variable consideration which we expect to be entitled to over the noncancelable contract term associated with our RCM service arrangements. The estimate of variable consideration included in the transaction price typically involves estimating the amounts we will ultimately collect on behalf of our clients and the relative fee we charge that is generally calculated as a percentage of those collections. Inputs to these estimates include, but are not limited to, historical service fees and collections amounts, timing of historical collections relative to the timing of when claims are submitted by our clients to their respective payers, macroeconomic trends, and anticipated changes in the number of providers. Significant judgement is required when estimating the total transaction price based on the variable consideration. We may apply certain constraints when appropriate whereby we include in the transaction price estimated variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Such estimates are assessed at the contract level. RCM and related services may not be rendered evenly over the contract period as the timing of services are based on customer collections, which may vary throughout the service period. We recognize revenue for RCM based on the amount of collections received throughout the contract term as it most closely depicts our efforts to transfer our service obligations to the customer. Our managed cloud services represent a single performance obligation to provide cloud hosting services to our customers and related revenue is recognized ratably over the respective noncancelable contract term. Performance obligations related to the transcription services and other recurring services are satisfied as the corresponding services are provided and revenue is recognized as such services are rendered.

Transactional and data services. Performance obligations related to transactional and data services, including EDI, patient pay, 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 transactional and data services are delivered and the customer receives the benefits from the services provided. Revenue is recognized as such services are rendered.

Beginning in fiscal year 2023, to align the presentation of disaggregated revenue with the manner in which management reviews such information, the presentation of disaggregated revenues by major revenue categories was revised to reclassify revenues related to patient pay services and certain other services from the managed services category into the transactional and data services category, which replaced the prior EDI and data services category. The prior period presentation of revenues disaggregated by major revenue categories and by occurrence above has been reclassified to conform with current period presentation.

Software license and hardware. Software license and hardware are considered point-in-time performance obligations as control is transferred to customers upon the delivery of the software license and hardware. Our software licenses are considered functional licenses, and revenue recognition generally occurs on the date of contract execution as the customer is provided with immediate access to the license. We generally determine the amount of consideration allocated to the software license performance obligation using the residual approach, except for certain RCM arrangements where the amount allocated to the software license performance obligation is determined based on estimated relative standalone selling prices. For hardware, we recognize revenue upon transfer of such hardware or devices to the customer.

Other non-recurring services. Performance obligations related to other non-recurring services, including implementation, training, and consulting services, are generally satisfied as the corresponding services are provided. Once the services have been provided to the customer, the transfer of control has occurred. Therefore, we recognize revenue as such services are rendered.

Transaction Price Allocated to Remaining Performance Obligations

As of June 30, 2022, the aggregate amount of transaction price related to remaining unsatisfied or partially unsatisfied performance obligations over the respective noncancelable contract term was approximately $605,700, of which we expect to recognize approximately 8% as services are rendered or goods are delivered, 52% over the next 12 months, and the remainder thereafter.

As of June 30, 2021, the aggregate amount of transaction price related to remaining unsatisfied or partially unsatisfied performance obligations over the respective noncancelable contract term was approximately $551,200, of which we expect to recognize approximately 10% as services are rendered or goods are delivered, 54% over the next 12 months, and the remainder thereafter.

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

10


 

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 condensed consolidated balance sheets based on the timing of when we expect to complete the related performance obligations and invoice the customer. Contract liabilities are classified as current on our condensed consolidated balance sheets since the revenue recognition associated with the related customer payments and invoicing is expected to occur within the next twelve months.

During the three months ended June 30, 2022 and 2021, we recognized $17,724 and $17,781, respectively, of revenues that were included in the contract liability balance or invoiced to customers since the beginning of the corresponding periods.

Our contracts with customers do not include any major financing components.

Costs to Obtain or Fulfill a Contract

We capitalize all incremental costs of obtaining a contract with a customer to the extent that such costs are directly related to a contract and expected to be recoverable. Our sales commissions and related sales incentives are considered incremental costs requiring capitalization. Capitalized contract costs are amortized to expense utilizing a method that is consistent with the transfer of the related goods or services to the customer. The amortization period ranges from less than one year up to five years, based on the period over which the related goods and services are transferred, including consideration of the expected customer renewals and the related useful lives of the products.

Capitalized commissions costs were $33,885 as of June 30, 2022, of which $11,914 is classified as current and included as prepaid expenses and other current assets and $21,971 is classified as long-term and included within other assets on our condensed consolidated balance sheets, based on the expected timing of expense recognition. During the three months ended June 30, 2022 and 2021, we recognized $3,487 and $2,926, 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 condensed consolidated statements of net income and comprehensive income.

 

3. Accounts Receivable

 

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

 

 

 

June 30, 2022

 

 

March 31, 2022

 

Accounts receivable, gross

 

$

81,216

 

 

$

79,945

 

Allowance for credit losses

 

 

(3,937

)

 

 

(3,888

)

Accounts receivable, net

 

$

77,279

 

 

$

76,057

 

 

The following table represents the changes in the allowance for credit losses, as of and for the three months ended June 30, 2022:

 

Balance as of March 31, 2022

 

$

(3,888

)

Additions charged to costs and expenses

 

 

(241

)

Deductions

 

 

192

 

Balance as of June 30, 2022

 

$

(3,937

)

 

11


 

 

4. Fair Value Measurements

The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at June 30, 2022 and March 31, 2021:

 

 

 

Balance At

 

 

Quoted Prices

in Active

Markets for

Identical Assets

 

 

Significant Other

Observable Inputs

 

 

Unobservable

Inputs

 

 

 

June 30, 2022

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

40,361

 

 

$

40,361

 

 

$

 

 

$

 

Restricted cash and cash equivalents

 

 

8,054

 

 

 

8,054

 

 

 

 

 

 

 

 

 

$

48,415

 

 

$

48,415

 

 

$

 

 

$

 

 

 

 

Balance At

 

 

Quoted Prices

in Active

Markets for

Identical Assets

 

 

Significant Other

Observable Inputs

 

 

Unobservable

Inputs

 

 

 

March 31, 2022

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

59,829

 

 

$

59,829

 

 

$

 

 

$

 

Restricted cash and cash equivalents

 

 

6,918

 

 

 

6,918

 

 

 

 

 

 

 

 

 

$

66,747

 

 

$

66,747

 

 

$

 

 

$

 

 

 

(1)

Cash equivalents consist primarily of money market funds.

There are no assets or liabilities accounted for utilizing unobservable inputs (Level 3) or measured at fair value using significant other observable inputs (Level 2), as of June 30, 2022.

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.

5. 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.

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 condensed consolidated balance sheets. Operating right-of-use lease assets are classified as operating lease assets on our condensed consolidated balance sheets. 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.

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.

12


 

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 condensed consolidated statements of net income and comprehensive income. Total operating lease costs were $942 and $1,864 for the three months ended June 30, 2022 and 2021, respectively.

Components of operating lease costs are summarized as follows:

 

 

 

Three Months Ended June 30,

 

 

 

 

2022

 

 

2021

 

 

Operating lease costs

 

$

949

 

 

$

1,833

 

 

Short-term lease costs

 

 

 

 

 

6

 

 

Variable lease costs

 

 

173

 

 

 

157

 

 

Less: Sublease income

 

 

(180

)

 

 

(132

)

 

Total operating lease costs

 

$

942

 

 

$

1,864

 

 

 

Supplemental cash flow information related to operating leases is summarized as follows:

 

 

Three Months Ended June 30,

 

 

 

 

2022

 

 

2021

 

 

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

 

$

2,308

 

 

$

2,964

 

 

Operating lease assets obtained in exchange for operating lease liabilities

 

 

 

 

 

 

 

 

We have operating lease agreements for our offices in the United States and India with lease periods expiring between 2022 and 2026. As of June 30, 2022, our operating leases had a weighted average remaining lease term of 2.5 years and a weighted average discount rate of 3.7%. Future minimum aggregate lease payments under operating leases as of June 30, 2022 are summarized as follows:

 

For the year ended March 31,

 

 

 

 

2023

 

$

6,507

 

2024

 

 

6,885

 

2025

 

 

4,387

 

2026

 

 

1,257

 

Total future lease payments

 

 

19,036

 

Less interest

 

 

(1,296

)

Total lease liabilities

 

$

17,740

 

 

During the three months ended June 30, 2022 we recorded impairments of $524 to the operating right-of-use asset and related fixed assets for our previously vacated portion of our St. Louis, MO office related to changes in projected sublease assumptions.  During the three months ended June 30, 2021, we vacated our Fairport, NY office and recorded impairments of $382 to our operating right-of-use assets and certain related fixed assets based on projected sublease rental income and the estimated sublease commencement date. These impairment analyses were performed at the asset group level and the impairment charge was 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.

13


 

6. Goodwill

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 the 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, 2022, 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 do not amortize goodwill as it has been determined to have an indefinite useful life. The carrying amount of goodwill as of June 30, 2022 and March 31, 2021 was $267,212.

7. Intangible Assets

Our definite-lived intangible assets, other than capitalized software development costs, are summarized as follows:

 

 

 

June 30, 2022

 

 

 

Customer

Relationships

 

 

Trade Names