NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016 and 2015
(In thousands, except shares and per share data)
1. Organization of Business
Description of Business
Quality Systems, Inc., primarily through its NextGen Healthcare subsidiary, provides technology-based solutions and services to the United States based ambulatory care market. Our solutions provide our clients with the ability to redesign patient care and other workflow processes while improving productivity through the facilitation of managed access to patient information. We help promote healthy communities by empowering physician practice success and enriching the patient care experience while lowering the cost of healthcare.
We primarily derive revenue by developing and marketing software and services that automate certain aspects of practice management (“PM”) and electronic health records (“EHR”) for medical and dental practices. Our software can be licensed on a perpetual, on-premise basis, hosted in a private cloud or, in certain instances, as a software-as-a-service (“SaaS”) solution. We market and sell our solutions through a dedicated sales force and to a much lesser extent, through resellers. Our clients include networks of practices such as physician hospital organizations (“PHOs”), management service organizations (“MSOs”), accountable care organizations (“ACOs”), ambulatory care centers, community health centers and medical and dental schools. We also provide implementation and training, support and maintenance for software and complementary services such as revenue cycle management (“RCM”) and electronic data interchange (“EDI”).
We have a history of developing new and enhanced technologies. Over the course of a number of years, we have also made strategic acquisitions to complement and enhance our product portfolio in the ambulatory care, RCM, and hospital markets. In October 2015, we divested our Hospital Solutions Division.
Quality Systems, Inc. was incorporated in California in 1974. Our principal offices are located at 18111 Von Karman Ave., Suite 800, Irvine, California, 92612. Our website is located at www.Nextgen.com. We operate on a fiscal year ending on March 31.
2. Summary of Significant Accounting Policies
Principles of Consolidation.
The consolidated financial statements include the accounts of Quality Systems, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated. HealthFusion is included in the accompanying consolidated financial statements from the date of acquisition. Hospital Solutions Division is included in the accompanying consolidated financial statements through the date of disposition. See Note 5 for additional details.
Business Segments.
The Company has prepared operating segment information based on the manner in which management disaggregates the Company’s operations for making internal operating decisions. See Note 15.
Basis of Presentation.
Beginning in the first quarter of fiscal 2016, we presented certain components of revenue within the consolidated statements of comprehensive income in a format intended to group like-kind products and services and disaggregate the other services category of revenue, which has continued to comprise a larger percentage of total revenue. More specifically, the primary changes to the presentation of revenue included:
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•
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Revenue from software-as-a-service (SaaS), hosting services, and other software related subscriptions are now aggregated into a new software related subscription services category of revenue. Previously, revenue from software related subscriptions services was reported within the other services category of revenue.
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•
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Revenue from annual software licenses that was also previously reported within the other services category of revenue is now reported within the software license and hardware category of revenue.
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•
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Revenue from all other services, including implementation, training, and consulting, are now aggregated into a single professional services category of revenue that excludes software related subscription services and annual software licenses, as noted above.
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Each of the corresponding components of cost of revenue has also been revised in a manner that is consistent with the new presentation of revenue described above.
For informational and comparability purposes, we have recast our previously reported consolidated statements of comprehensive income to provide historical information on a basis consistent with the new reporting format of revenue and cost of revenue. The reclassification of revenue and cost of revenue within the consolidated statements of comprehensive income has no impact on previously reported net income or earnings per share and no impact on the previously reported consolidated balance sheets, statements of stockholders' equity, and statements of cash flow.
Certain prior period amounts have been reclassified to conform to current year presentation.
References to amounts in the consolidated financial statement sections are in thousands, except shares and per share data, unless otherwise specified.
Out-of-Period Adjustment.
In the quarter ended
March 31, 2016
, we recorded an out-of-period adjustment of
$1,396
to increase software license and hardware revenue. Approximately
$467
of the adjustment originated in periods prior to the beginning of fiscal 2016 and
$929
of the adjustment originated in the quarterly interim periods comprising the nine months ended December 31, 2015. We believe that these adjustments were not material to any current, prior interim, or annual periods that were affected.
Use of Estimates.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and recording revenue and expenses during the period.
Revenue Recognition
.
We generate revenue from sales of licensing rights and subscriptions to our software products, hardware and third party software products, support and maintenance services, revenue cycle management and related services ("RCM"), electronic data interchange and data services (“EDI”), and professional services, such as implementation, training, and consulting performed for clients who use our products.
We generally recognize revenue provided that persuasive evidence of an arrangement exists, fees are considered fixed or determinable, delivery of the product or service has occurred, and collection is considered probable. Revenue from the delivered elements (generally software licenses) are generally recognized upon physical or electronic delivery. In certain transactions where collection is not considered probable, the revenue is deferred until collection occurs. If the fee is not fixed or determinable, then the revenue recognized in each period (subject to application of other revenue recognition criteria) will be the lesser of the aggregate amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using the residual method. We assess whether fees are considered fixed or determinable at the inception of the arrangement and negotiated fees generally are based on a specific volume of products to be delivered and not subject to change based on variable pricing mechanisms, such as the number of units copied or distributed or the expected number of users.
A typical system sale may contain multiple elements, but most often includes software licenses, maintenance and support, implementation and training. Revenue on arrangements involving multiple elements is generally allocated to each element using the residual method when evidence of fair value only exists for the undelivered elements. The fair value of an element is based on vendor-specific objective evidence (“VSOE”), which is based on the price charged when the same element is sold separately. We generally establish VSOE for the related undelivered elements based on the bell-shaped curve method. VSOE is established on maintenance for our largest clients based on stated renewal rates only if the rate is determined to be substantive and falls within our customary pricing practices. VSOE calculations are updated and reviewed on a quarterly or annual basis, depending on the nature of the product or service.
Under the residual method, we defer revenue related to the undelivered elements based on VSOE of fair value of each undelivered element and allocate the remainder of the contract price, net of all discounts, to the delivered elements. If VSOE of fair value of any undelivered element does not exist, all revenue is deferred until VSOE of fair value of the undelivered element is established or the element has been delivered.
Revenue related to arrangements that include hosting services is recognized in accordance to the revenue recognition criteria described above only if the client has the contractual right to take possession of the software at any time without incurring a significant penalty, and it is feasible for the client to either host the software on its own equipment or through another third party. Otherwise, the arrangement is accounted for as a service contract in which the entire arrangement is deferred and recognized over the period that the hosting services are being provided.
From time to time, we offer future purchase discounts on our products and services as part of our arrangements. Such discounts that are incremental to the range of discounts reflected in the pricing of the other elements of the arrangement, that are incremental to the range of discounts typically given in comparable transactions, and that are significant, are assessed as an additional element of the arrangement. Revenue deferred related to future purchase options are not recognized until either the client exercises the discount offer or the offer expires.
Revenue from professional services, including implementation, training, and consulting services, are generally recognized as the corresponding services are performed. Revenue from software related subscription services and support and maintenance revenue are recognized ratably over the contractual service period. Revenue from EDI and data services and other transaction processing services are recognized at the time the services are provided to clients. Revenue from RCM and related services is derived from services fees for ongoing billing, collections, and other related services, and are generally calculated as a percentage of total client collections. We recognize RCM and related services revenue at the time collections are made by the client as the services fees are not fixed or determinable until such time.
We record revenue net of sales tax obligation in the consolidated statements of comprehensive income.
Cash and Cash Equivalents.
Cash and cash equivalents generally consist of cash, money market funds and short-term U.S. Treasury securities with maturities of
90
days or less at the time of purchase. We had cash deposits held at U.S. banks and financial institutions at
March 31, 2016
of which
$26,017
was 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.
Any money market funds in which we hold a portion of our excess cash invest in only very high grade commercial and governmental instruments, and 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.
Marketable Securities
.
Marketable securities are classified as available-for-sale and are recorded at fair value, based on quoted market rates when observable or valuation analysis when appropriate. Unrealized gains and losses, are included in shareholders’ equity. Realized gains and losses on investments are included in other income (expense).
Accounts Receivable Reserves.
We maintain reserves for potential sales returns and uncollectible accounts receivable. In aggregate, such reserves reduce our gross accounts receivable to estimated net realizable value.
Our standard contracts generally do not contain provisions for clients to return products or services. However, we historically have accepted sales returns under certain circumstances. Accordingly, we estimate sales return reserves, including reserves for returns and other credits, based upon the rate of historical returns by revenue type in relation to the corresponding gross revenues and recognize revenue, net of an allowance for sales returns. If we are unable to estimate the returns, revenue recognition may be delayed until the rights of return period lapses, provided also, that all other criteria for revenue recognition have been met. If we experience changes in practices related to sales returns or changes in actual return rates that deviate from the historical data on which our reserves had been established, our revenues may be adversely affected.
Allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from our clients’ inability to make required payments are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances, net of deferred revenue and specifically reserved accounts. Specific reserves are based on our estimate of the probability of collection for certain troubled accounts. Accounts are written off as uncollectible only after we have expended extensive collection efforts.
Our allowances for doubtful accounts are based on our assessment of the collectibility of client accounts. We regularly review the adequacy of these allowances by considering internal factors such as historical experience, credit quality and age of the client receivable balances as well as external factors such as economic conditions that may affect a client’s ability to pay and review of major third-party credit-rating agencies, as needed.
Inventory.
Inventory consists of hardware for specific client orders and spare parts and are valued at lower of cost (first-in, first-out) and net realizable value. Our provision for inventory obsolescence reduces our inventory to net realizable value.
Equipment and Improvements.
Equipment and improvements are stated at cost less accumulated depreciation and amortization. Repair and 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:
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l
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Computer equipment
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3-5 years
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l
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Furniture and fixtures
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3-7 years
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l
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Leasehold improvements
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lesser of lease term or estimated useful life of asset
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Capitalized Software Costs.
Software development costs, consisting primarily of employee salaries and benefits, incurred in the research and development of new software products and enhancements to existing software products for external sale are expensed as incurred, and reported as net research and development costs in the consolidated statements of comprehensive income, until technological feasibility has been established. After technological feasibility is established, additional external-sale software development costs are capitalized. Amortization of capitalized software is recorded using the greater of the ratio of current revenues to the total of current and expected revenues of the related product or the straight-line method over the estimated economic life of the related product, which is typically
three
years. We perform ongoing assessments of the net realizable value of such capitalized software costs. If a determination is made that capitalized amounts are not recoverable based on the projected undiscounted cash flows to be generated from the applicable software, any excess unamortized capitalized software costs are written off. In addition to the assessment of net realizable value, we routinely review the remaining estimated lives of our capitalized software costs and record adjustments, if deemed necessary. 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 to develop software applications for our internal-use and costs for the development of Software as a Service ("SaaS") based products sold to our clients. The development costs of our SaaS-based products are considered internal-use for
accounting purposes. Our internal-use capitalized costs are stated at cost and amortized using the straight-line method over the estimated useful lives of the assets, which is typically
three
to
seven
years. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs related to the 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 developing SaaS-based products are reported as capitalized software costs within our consolidated balance sheets and capitalized software costs for developing our internal-use software applications are reported as equipment and improvements within our consolidated balance sheets.
For the year ended
March 31, 2016
, we determined that our previously capitalized software costs related to our NextGen Now development project was not recoverable and recorded a
$32,238
non-cash impairment charge. Refer to Note 8 for additional information.
Business Combinations.
In accordance with the accounting for business combinations, we allocate the purchase price of the acquired business to the 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 the probability of achieving certain business, strategic, or financial milestones and 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. Any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements of comprehensive income.
Goodwill.
Goodwill acquired in a business combination is measured as the excess of the purchase price, or consideration transferred, over the net 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. Based on our assessment, we have determined that there was
no
impairment to our goodwill as of June 30, 2015. We will also test for impairment between annual test dates if an event occurs or 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). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component.
As part of our annual goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conduct a two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their carrying values. If the carrying amount of the reporting unit exceeds the reporting unit's fair value, we perform the second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss.
During the years ended
March 31, 2016
and
March 31, 2015
, we did not identify any events or circumstances that would require an interim goodwill impairment test.
Intangible Assets.
Intangible assets consist of customer relationships, trade names and contracts, and software technology. These intangible assets are recorded at fair value and are reported net of accumulated amortization. We currently amortize the intangible assets over periods ranging from
7
months to
10
years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed. We assess the recoverability of intangible assets at least annually or whenever adverse events or changes in circumstances indicate that impairment may have occurred. If the future undiscounted cash flows expected to result from the use of the related assets are less than the carrying value of such assets, impairment is deemed to have occurred and a loss is recognized to reduce the carrying value of the intangible assets to fair value, which is determined by discounting estimated future cash flows. In addition to the impairment assessment, we routinely review the remaining estimated lives of our intangible assets and record adjustments, if deemed necessary.
We determined that there was
no
impairment to our intangible assets as of
March 31, 2016
and
March 31, 2015
.
Long-Lived Assets.
We assess the recoverability of long-lived assets at least annually or whenever adverse events or changes in circumstances indicate that impairment may have occurred. If the future undiscounted cash flows expected to result from the use of the related assets are less than the carrying value of such assets, impairment is deemed to have occurred and a loss is recognized to reduce the carrying value of the long-lived 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 long-lived assets and record adjustments, if deemed necessary.
Income Taxes.
Income taxes are provided based on current taxable income and the future tax consequences of temporary differences between the basis of assets and liabilities for financial and tax reporting. The deferred income tax assets and liabilities represent the future state and federal tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred income taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future income taxes. At each reporting period, we assess the realizable value of deferred tax assets based on, among other things, estimates of future taxable income and adjusts the related valuation allowance as necessary. We make a number of assumptions and estimates in determining the appropriate amount of expense to record for income taxes. The assumptions and estimates consider the taxing jurisdiction in which we operate as well as current tax regulations. Accruals are established for estimates of tax effects for certain transactions and future projected profitability based on our interpretation of existing facts and circumstances.
Advertising Costs.
Advertising costs are expensed as incurred. We do not have any direct-response advertising. Advertising costs, which include trade shows and conventions, were approximately
$7,890
,
$7,079
and
$5,600
for the years ended
March 31, 2016
,
2015
and
2014
, respectively, and were included in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income.
Earnings per Share.
We provide a dual presentation of “basic” and “diluted” earnings per share (“EPS”). Shares below are in thousands.
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Fiscal Year Ended March 31,
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2016
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2015
|
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2014
|
Earnings per share — Basic:
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Net income
|
$
|
5,657
|
|
|
$
|
27,332
|
|
|
$
|
15,680
|
|
Weighted-average shares outstanding — Basic
|
60,635
|
|
|
60,259
|
|
|
59,918
|
|
Net income per common share — Basic
|
$
|
0.09
|
|
|
$
|
0.45
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
Earnings per share — Diluted:
|
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|
|
|
|
Net income
|
$
|
5,657
|
|
|
$
|
27,332
|
|
|
$
|
15,680
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
60,635
|
|
|
60,259
|
|
|
59,918
|
|
Effect of potentially dilutive securities
|
598
|
|
|
590
|
|
|
216
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|
Weighted-average shares outstanding — Diluted
|
61,233
|
|
|
60,849
|
|
|
60,134
|
|
Net income per common share — Diluted
|
$
|
0.09
|
|
|
$
|
0.45
|
|
|
$
|
0.26
|
|
The computation of diluted net income per share does not include
1,926
,
1,656
and
1,355
options for the years ended
March 31, 2016
,
2015
and
2014
, respectively, because their inclusion would have an anti-dilutive effect on net income per share.
Share-Based Compensation.
We estimate the fair value of stock options on the date of grant using the Black Scholes option-pricing model based on required inputs, including expected term, volatility, risk-free rate, and expected dividend yield. Expected term is estimated based upon the historical exercise behavior and represents the period of time that options granted are expected to be outstanding and therefore the proportion of awards that is expected to vest. Volatility is estimated by using the weighted-average historical volatility of our common stock, which approximates expected volatility. The risk-free rate is the implied yield available on the U.S. Treasury zero-coupon issues with remaining terms equal to the expected term. The expected dividend yield is the average dividend rate during a period equal to the expected term of the option. The fair value vest is recognized ratably as expense over the requisite service period in our consolidated statements of comprehensive income.
Share-based compensation is adjusted on a monthly basis for changes to estimated forfeitures based on a review of historical forfeiture activity. To the extent that actual forfeitures differ, or are expected to differ, from the estimate, share-based compensation expense is adjusted accordingly. The effect of the forfeiture adjustments for years ended
March 31, 2016
,
2015
and
2014
was not significant.
Share-based compensation expense associated with restricted performance shares with market conditions under our executive compensations plans is based on the grant date fair value measured at the underlying closing share price on the date of grant using a Monte Carlo-based valuation model.
See Note 13 for additional details regarding our share-based awards.
The following table shows total share-based compensation expense included in the consolidated statements of comprehensive income for years ended
March 31, 2016
,
2015
and
2014
:
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Fiscal Year Ended March 31,
|
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2016
|
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2015
|
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2014
|
Costs and expenses:
|
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Cost of revenue
|
$
|
404
|
|
|
$
|
373
|
|
|
$
|
348
|
|
Research and development costs
|
318
|
|
|
396
|
|
|
323
|
|
Selling, general and administrative
|
2,573
|
|
|
2,703
|
|
|
1,819
|
|
Total share-based compensation
|
3,295
|
|
|
3,472
|
|
|
2,490
|
|
Income tax benefit
|
(1,018
|
)
|
|
(1,054
|
)
|
|
(794
|
)
|
Decrease in net income
|
$
|
2,277
|
|
|
$
|
2,418
|
|
|
$
|
1,696
|
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Recent Accounting Standards.
Recent accounting pronouncements implemented during the current year or requiring implementation in future periods are discussed below or in the notes, where applicable.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, "
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
" ("ASU 2016-09"). ASU 2016-09 simplifies the accounting for and reporting on share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The amendments in this update are to be applied differently upon adoption with certain amendments being applied prospectively, retrospectively and under a modified retrospective transition method. We are currently in the process of evaluating the potential impact of adoption of this updated authoritative guidance on our consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “
Leases (Topic 842)
” (“ASU 2016-02”), which is intended to improve financial reporting about leasing transactions. The new guidance will require entities that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations created by those leases and to disclose key information about the leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 is effective for us in the first quarter of fiscal 2019. We are currently in the process of evaluating the potential impact of adoption of this updated authoritative guidance on our consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes ("ASU 2015-17").
ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the consolidated balance sheet. The amendments in the update require that all deferred tax liabilities and assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods therein and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. We elected to early adopt this standard in the fourth quarter of fiscal 2016 on a retrospective basis. Prior periods have been retrospectively adjusted. The retrospective adoption of ASU 2015-17 resulted in the reclassification of our consolidated balance sheet as of
March 31, 2015
, for presentation purposes only, in which
$24,080
of current deferred tax assets were reclassed to noncurrent deferred tax assets.
In September 2015, the FASB issued Accounting Standards Update No. 2015-16,
Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16")
, which eliminates the requirement to restate prior period financial statements for measurement period adjustments following a business combination. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. ASU 2015-16 is effective for interim and annual periods beginning after December 15, 2015 and early adoption is permitted. This guidance is effective for us for the quarter ending March 31, 2016. The adoption of this new standard did not have material impact on our consolidated financial statements.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11,
Simplifying the Measurement of Inventory ("ASU 2015-11")
, which replaces the concept of subsequently measuring inventory at 'lower of cost or market' with that of 'lower of cost and net realizable value'. The guidance only applies to inventories for which cost is determined by methods other than last-in first-out (LIFO) and the retail inventory method (RIM). ASU 2015-11 is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. This guidance is effective for us for fiscal year ending March 31, 2018. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update No. 2015-05,
Customer’s Accounting for Fees Paid in a Cloud Arrangement ("ASU 2015-05")
, which requires a customer to determine whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software or as a service contract. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. Upon adoption, an entity has the option to apply the provisions of ASU 2015-05 either prospectively to all arrangements entered into or materially
modified, or retrospectively. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs
(
"ASU 2015-03"
), which requires debt issuance costs to be presented as a deduction from the corresponding debt liability, which is consistent with the presentation of debt discounts or premiums. Given that ASU 2015-03 did not provide direct, authoritative guidance related to accounting for debt issuance costs associated with line-of-credit arrangements, the FASB issued Accounting Standards Update No. 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
(
"ASU 2015-15"
) in August 2015. ASU 2015-15 states that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The new guidance should be applied retrospectively and is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted. We elected to early adopt this standard in the fourth quarter of fiscal 2016 and have recorded debt issuance costs related to our revolving credit agreement within other assets on the consolidated balance sheet as of March 31, 2016.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
(
"ASU 2014-15"
), which incorporates and expands upon certain principles that currently exist in U.S. auditing standards. ASU 2014-15 provides guidance regarding management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and to provide related footnote disclosures. The new standard requires management to perform interim and annual evaluations and sets forth principles for considering the mitigating effect of management's plans. The standard mandates certain disclosures when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016, and all annual and interim periods thereafter. Early adoption is permitted. ASU 2014-15 is effective for us for fiscal year ending March 31, 2017. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements.
In May 2014, the FASB, along with the International Accounting Standards Board, issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers ("ASU 2014-09")
, which supersedes the revenue recognition requirements in ASC 605,
Revenue Recognition
. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using International Financial Reporting Standards and GAAP. The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosure about revenue and provides improved guidance for multiple element arrangements. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, based on the July 2015 decision and issuance of Accounting Standards Update No. 2015-14,
Deferral of Effective Date ("ASU 2015-14")
by the FASB to delay the effective date by one year. Companies are permitted to adopt this new guidance following either a full retrospective or modified retrospective approach. ASU 2014-09 is effective for us in the first quarter of fiscal 2019. We are currently in the process of evaluating the potential impact of implementation of this updated authoritative guidance on our consolidated financial statements.
We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.
3. Cash and Cash Equivalents
At
March 31, 2016
and
March 31, 2015
, we had cash and cash equivalents of
$27,176
and
$118,993
, respectively. Cash and cash equivalents consist of cash, money market funds and short-term U.S. Treasury securities with original maturities of less than
90
days.
4. Fair Value Measurements
The following tables set forth by level within the fair value hierarchy the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis at
March 31, 2016
and
March 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2016
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
ASSETS
|
|
|
|
|
|
|
|
Cash and cash equivalents
(1)
|
$
|
27,176
|
|
|
$
|
27,176
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash and cash equivalents
|
5,320
|
|
|
5,320
|
|
|
—
|
|
|
—
|
|
Marketable securities
(2)
|
9,297
|
|
|
9,297
|
|
|
—
|
|
|
—
|
|
|
$
|
41,793
|
|
|
$
|
41,793
|
|
|
$
|
—
|
|
|
$
|
—
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Contingent consideration related to acquisitions
|
$
|
23,843
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
23,843
|
|
|
$
|
23,843
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2015
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
ASSETS
|
|
|
|
|
|
|
|
Cash and cash equivalents
(1)
|
$
|
118,993
|
|
|
$
|
118,993
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash and cash equivalents
|
2,419
|
|
|
2,419
|
|
|
—
|
|
|
—
|
|
Marketable securities
(2)
|
11,592
|
|
|
11,592
|
|
|
—
|
|
|
—
|
|
|
$
|
133,004
|
|
|
$
|
133,004
|
|
|
$
|
—
|
|
|
$
|
—
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Contingent consideration related to acquisitions
|
$
|
16,155
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,155
|
|
|
$
|
16,155
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,155
|
|
____________________
|
|
(1)
|
Cash equivalents consist of money market funds.
|
|
|
(2)
|
Marketable securities consist of money market instruments and fixed-income securities, including certificates of deposit, corporate bonds and notes, and municipal securities.
|
Our contingent consideration liabilities relates primarily to the acquisitions of Mirth and HealthFusion. We assess the fair value of contingent consideration liabilities on a recurring basis and any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements of comprehensive income. Key assumptions include discount rates and probability-adjusted achievement estimates of certain revenue and strategic targets that are not observable in the market. The categorization of the framework used to measure fair value of the contingent consideration liability is considered Level 3 due to the subjective nature of the unobservable inputs used.
The following table presents activity in the Company's financial assets and liabilities measured at fair value using significant unobservable inputs (Level 3), as of
March 31, 2016
:
|
|
|
|
|
|
Total Liabilities
|
Balance at March 31, 2014
|
$
|
14,913
|
|
Earnout payments
|
(695
|
)
|
Fair value adjustments, net
|
1,937
|
|
Balance at March 31, 2015
|
$
|
16,155
|
|
Acquisitions (Note 5)
|
16,700
|
|
Settlement of share-based contingent consideration
|
(9,273
|
)
|
Fair value adjustments, net
|
261
|
|
Balance at March 31, 2016
|
$
|
23,843
|
|
During the year ended
March 31, 2016
, we issued shares of common stock to settle
$9,273
in contingent consideration liabilities related to Mirth. We also recorded net fair value adjustments to contingent consideration liabilities of
$261
, consisting of
$1,961
in fair value adjustments related to Mirth, offset by a
$1,700
decrease in fair value related to HealthFusion.
Non-Recurring Fair Value Measurements
The Company has 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 Level 3 due to the subjective nature of the unobservable inputs used. During the year ended
March 31, 2016
, we recorded a
$58
adjustment to Gennius goodwill based on additional information that became available during the measurement period about certain liabilities that had existed as of the acquisition date, and recorded additional goodwill and intangible assets in connection with the acquisition of HealthFusion (see Note 5).
5. Business Combinations and Disposals
Acquisition of HealthFusion
On January 4, 2016, we completed our acquisition of HealthFusion Holdings, Inc. ("HealthFusion") pursuant to the Agreement and Plan of Merger (the “Merger Agreement"), dated October 30, 2015. HealthFusion provides Web-based, cloud computing software for physicians, medical billing service providers, and hospitals. Its flagship product, MediTouch, is a fully-integrated, cloud-based software suite consisting of clearinghouse, practice management, electronic health records, and patient portals with rich functionality to enable mobility, workflow automation, and advanced reporting and analytics aimed primarily at small-to-mid-size physician practices. The acquisition of HealthFusion is part of our strategy to expand its client base and cloud-based solution capabilities in the ambulatory market. Over time, we plan to expand the HealthFusion platform to satisfy the needs of practices of increasing size and complexity.
The preliminary purchase price totaled
$183,049
, which includes preliminary working capital and other customary adjustments and the fair value of contingent consideration related to an additional
$25,000
of cash in the form of an earnout, subject to HealthFusion achieving certain revenue targets through December 31, 2016. The initial estimated fair value of contingent consideration of
$16,700
was estimated using a Monte Carlo-based valuation model that considered, among other assumptions and inputs, our estimate of projected HealthFusion revenues.
The acquisition was initially funded by a draw against the revolving credit agreement (see Note 9), a portion of which was subsequently repaid from existing cash on hand.
We accounted for the HealthFusion acquisition as a purchase business combination using the acquisition method of accounting. The preliminary purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as of the acquisition date. The preliminary fair values of acquired assets and liabilities assumed represent management’s estimate of fair value and are subject to change if additional information, such as changes to deferred taxes and/or working capital, becomes available. 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.
The preliminary estimated fair value of the acquired tangible and intangible assets and liabilities assumed were determined using multiple valuation approaches depending on the type 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 preliminary amount of goodwill represents the excess of the preliminary purchase price over the preliminary net identifiable assets acquired and liabilities assumed. Goodwill primarily represents, among other factors, the value of synergies expected to be realized and the assemblage of all assets that enable us to create new client relationships, neither of which qualify as separate amortizable intangible assets. Goodwill arising from the acquisition of HealthFusion was determined as the excess of the preliminary purchase price over the net acquisition date fair values of the acquired assets and the liabilities assumed, and is not deductible for tax purposes. HealthFusion operates under the NextGen Division.
We incurred
$3,217
in acquisition-related transaction costs, which are included in selling, general, and administrative expense on our consolidated statements of comprehensive income for the year ended
March 31, 2016
.
The total preliminary purchase price for the HealthFusion acquisition is summarized as follows:
|
|
|
|
|
Initial purchase price
|
$
|
165,000
|
|
Contingent consideration
|
16,700
|
|
Preliminary working capital and other adjustments
|
1,349
|
|
Total preliminary purchase price
|
$
|
183,049
|
|
|
|
|
|
|
|
January 4, 2016
|
Preliminary fair value of the net tangible assets acquired and liabilities assumed:
|
|
Acquired cash and cash equivalents
|
$
|
2,225
|
|
Accounts receivable, net
|
1,514
|
|
Prepaid expenses and other current assets
|
4,645
|
|
Equipment and improvements, net
|
767
|
|
Capitalized software costs, net
|
307
|
|
Other assets
|
700
|
|
Accounts payable
|
(1,085
|
)
|
Accrued compensation and related benefits
|
(533
|
)
|
Deferred revenue
|
(1,067
|
)
|
Deferred income taxes, net
|
(12,027
|
)
|
Other liabilities
|
(2,721
|
)
|
Total preliminary net tangible assets acquired and liabilities assumed
|
(7,275
|
)
|
Preliminary fair value of identifiable intangible assets acquired:
|
|
Software technology
|
42,500
|
|
Customer relationships
|
28,500
|
|
Trade name
|
4,000
|
|
Goodwill
|
115,324
|
|
Total preliminary identifiable intangible assets acquired
|
190,324
|
|
Total preliminary purchase price
|
$
|
183,049
|
|
Including the effect of certain acquisition-related fair value adjustments, amortization of acquired intangible assets, and interest expense associated with the revolving credit agreement, the acquisition of HealthFusion contributed revenues of
$8,781
and estimated net loss of
$1,149
to our consolidated results for the year ended
March 31, 2016
.
The following table presents unaudited supplemental pro forma consolidated revenue and net income as if the acquisition of HealthFusion had occurred on April 1, 2014 (the beginning of the comparable prior annual reporting period).
|
|
|
|
|
|
|
|
Pro forma
year ended
March 31, 2016
(unaudited)
|
|
Pro forma
year ended
March 31, 2015
(unaudited)
|
Combined revenues
|
518,708
|
|
|
516,579
|
|
Combined net income
|
134
|
|
|
12,471
|
|
The pro forma revenue and net income were derived by combining our historical results with HealthFusion's historical results, after applying our accounting policies and making adjustments related to the amortization of acquired intangible assets and interest expense associated with the revolving credit agreement. Specifically, the pro forma combined net income for the year ended March 31, 2016 includes
$14,900
of estimated amortization of acquired intangible assets and
$3,600
of estimated interest expense. For the year ended March 31, 2015, the pro forma combined net income includes
$15,800
of estimated amortization of acquired intangible assets,
$8,300
of estimated acquisition-related fair value adjustments, and
$5,200
of estimated interest expense. Acquisition-related transaction costs incurred prior to the acquisition date have been eliminated from pro forma combined net income and we also considered the estimated inconsequential tax effects of the acquisition for the purposes of preparing the unaudited supplemental pro forma information.
Hospital Disposition
On October 22, 2015, we closed an Asset Purchase Agreement (the “Purchase Agreement”) with Quadramed Affinity Corporation in which we sold and assigned substantially all assets and liabilities of the Hospital Solutions Division. We believe that the Hospital disposition will allow us to focus our efforts and resources on our core ambulatory business. The financial terms of the transaction and the amount of consideration received were not significant. Since the Hospital disposition did not and is not expected to have a major effect on our operations and financial results, separate discontinued operations reporting is not provided.
We incurred a preliminary loss on the Hospital disposition of
$1,366
in the year ended
March 31, 2016
, which was recorded in our consolidated statements of comprehensive income as a component of selling, general and administrative expense. The loss
was measured as the total consideration received and expected to be received less the lower of carrying value or fair value of the Hospital Solutions Division. Additionally, we incurred
$387
in direct incremental costs of disposition and
$335
in severance and other employee-related costs in connection with the Hospital disposition during the year ended
March 31, 2016
, which were recorded in our consolidated statements of comprehensive income as a component of selling, general and administrative expense.
Pursuant to the Purchase Agreement, the initial purchase price is subject to certain purchase price adjustments for changes in Net Tangible Assets (as defined in the Purchase Agreement) and future collections of the assigned accounts receivable through July 2016. Accordingly, the preliminary loss on the Hospital disposition may change.
Acquisition of Gennius
On March 11, 2015, the Company acquired Gennius, a leading provider of healthcare data analytics. The Gennius purchase price totaled
$2,345
. We accounted for the Gennius acquisition as a purchase business combination. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair values of acquired assets and liabilities assumed represent management’s 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 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. Goodwill arising from the acquisition of Gennius was determined as the excess of the purchase price over the net acquisition date fair values of the acquired assets and the liabilities assumed, and is not deductible for tax purposes. The Gennius goodwill represents the expected future synergies resulting from the integration of the Gennius healthcare data analytics technology, which will enhance our current enterprise analytics competencies and broaden our business intelligence capabilities for addressing new value-based care requirements. Gennius operates under the NextGen Division.
During the year ended
March 31, 2016
, we recorded a
$58
adjustment to goodwill based on additional information that became available during the measurement period about certain liabilities that had existed as of the acquisition date.
The following table summarizes the purchase price allocation for the Gennius acquisition:
|
|
|
|
|
|
March 11, 2015
|
Fair value of the net tangible assets acquired and liabilities assumed:
|
|
Other assets
|
$
|
4
|
|
Deferred revenues
|
(37
|
)
|
Other liabilities
|
(131
|
)
|
Total net tangible assets acquired and liabilities assumed
|
(164
|
)
|
Fair value of identifiable intangible assets acquired:
|
|
Software technology
|
1,800
|
|
Goodwill
|
709
|
|
Total identifiable intangible assets acquired
|
2,509
|
|
Total purchase price
|
$
|
2,345
|
|
The actual results to date and pro forma effects of the Gennius acquisition would not have been material to our results of operations and are therefore not presented.
6. Goodwill
We do not amortize goodwill as it has been determined to have an indefinite useful life. Goodwill by reporting unit consists of the following:
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
March 31, 2016
|
NextGen Division
|
$
|
33,992
|
|
|
$
|
149,258
|
|
RCM Services Division
|
32,290
|
|
|
32,290
|
|
QSI Dental Division
(1)
|
7,289
|
|
|
7,289
|
|
Total goodwill
|
$
|
73,571
|
|
|
$
|
188,837
|
|
_______________________
(1) QSI Dental Division goodwill is presented on a basis consistent with that of our management reporting structures. However, for the purposes of assessing goodwill for impairment annually and as otherwise may be required, the QSI Dental Division goodwill is allocated to the reporting units that derive cash flows from the products associated with the acquired goodwill. For all periods presented in this report, the allocation resulted in substantially all of the QSI Dental Division goodwill being ascribed to the NextGen Division.
7. Intangible Assets
In connection with the HealthFusion acquisition, we recorded
$75,000
of intangible assets related to customer relationships, trade names and software technology (see Note 5 for additional information). We are amortizing the HealthFusion customer relationships over
10
years and trade names and software technology over
5
years. The weighted average amortization period for the total amount of intangible assets acquired is
6.9
years.
In connection with the Gennius acquisition, we recorded
$1,800
of intangible assets related to software technology (see Note 5 for additional information). We are amortizing the Gennius software technology over
10
years. The weighted average amortization period for the total amount of intangible assets acquired is
10 years
.
Our acquired intangible assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Customer
Relationships
|
|
Trade Name and Contracts
|
|
Software
Technology
|
|
Total
|
Gross carrying amount
|
$
|
50,550
|
|
|
$
|
7,368
|
|
|
$
|
67,810
|
|
|
$
|
125,728
|
|
Accumulated amortization
|
(19,618
|
)
|
|
(2,895
|
)
|
|
(11,540
|
)
|
|
(34,053
|
)
|
Net intangible assets
|
$
|
30,932
|
|
|
$
|
4,473
|
|
|
$
|
56,270
|
|
|
$
|
91,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
Customer
Relationships
|
|
Trade Name and Contracts
|
|
Software
Technology
|
|
Total
|
Gross carrying amount
|
$
|
22,050
|
|
|
$
|
3,368
|
|
|
$
|
25,310
|
|
|
$
|
50,728
|
|
Accumulated amortization
|
(14,986
|
)
|
|
(2,159
|
)
|
|
(5,894
|
)
|
|
(23,039
|
)
|
Net intangible assets
|
$
|
7,064
|
|
|
$
|
1,209
|
|
|
$
|
19,416
|
|
|
$
|
27,689
|
|
Amortization expense related to customer relationships and trade name and contracts recorded as operating expenses in the consolidated statements of comprehensive income was
$5,368
,
$3,709
and
$4,671
for the years ended
March 31, 2016
,
2015
and
2014
, respectively. Amortization expense related to software technology recorded as cost of revenue was
$5,646
,
$3,418
and
$3,659
for the years ended
March 31, 2016
,
2015
and
2014
, respectively.
The following table represents the remaining estimated amortization of acquired intangible assets as of
March 31, 2016
:
|
|
|
|
|
For the year ended March 31,
|
|
2017
|
$
|
22,462
|
|
2018
|
19,115
|
|
2019
|
16,703
|
|
2020
|
15,706
|
|
2021
|
10,974
|
|
2022 and beyond
|
$
|
6,715
|
|
Total
|
$
|
91,675
|
|
8. Capitalized Software Costs
Our capitalized software development costs are summarized as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Gross carrying amount
|
$
|
96,699
|
|
|
$
|
113,955
|
|
Accumulated amortization
|
(83,449
|
)
|
|
(73,558
|
)
|
Net capitalized software costs
|
$
|
13,250
|
|
|
$
|
40,397
|
|
Amortization expense related to capitalized software costs recorded as cost of revenue in the consolidated statements of comprehensive income was
$9,891
,
$12,817
and
$12,338
for the years ended
March 31, 2016
,
2015
and
2014
, respectively.
During the year ended
March 31, 2016
, we recorded a non-cash impairment charge of
$32,238
that is reflected within the impairment of assets caption in our consolidated statements of comprehensive income. The impairment relates to our previously capitalized investment in the NextGen Now development project, which we deemed to have zero net realizable value. The impairment charge did not result in, nor is it expected to result in, any cash expenditures. The impairment charge follows our assessment of the NextGen Now development project and the MediTouch platform that we obtained through our recent acquisition of HealthFusion. We have determined that the MediTouch platform offers the most efficient path to providing a high-quality, robust, cloud-based solution for ambulatory care. Accordingly, we have decided to cease further investment in NextGen Now and immediately discontinue all efforts to use or repurpose the NextGen Now platform.
The following table represents the remaining estimated amortization of capitalized software costs as of
March 31, 2016
. 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,
|
|
2017
|
$
|
7,200
|
|
2018
|
2,900
|
|
2019
|
2,200
|
|
2020
|
950
|
|
Total
|
$
|
13,250
|
|
9. Line of Credit
On January 4, 2016, we entered into a
$250,000
revolving credit agreement (“Credit Agreement”) with JP Morgan Chase Bank, N.A., as administrative agent, U.S. Bank National Association, as syndication agent, and certain other lenders. The credit agreement is secured by substantially all of our existing and future property and material domestic subsidiaries. The Credit Agreement provides a subfacility of up to $10,000 for letters of credit and a subfacility of up to $10,000 for swing-line loans. The Credit Agreement matures on January 4, 2021 and the full balance of the revolving loans and all other obligations under the agreement must be paid at that time.
The revolving loans under the Credit Agreement bear interest at our option of either, (a) a base rate based on the highest of (i) the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A., as its prime rate, (ii) the greater of (A) the federal funds effective rate and (B) the overnight bank funding rate (as determined by the Federal Reserve Bank of New York) plus 0.50% and (iii) the one-month British Bankers Association London Interbank Offered Rate ("LIBOR") plus 1.00%) plus an applicable margin based on our leverage ratio from time to time, ranging from 0.50% to 1.50%, or (b) a LIBOR-based rate (subject to a floor of 0.00%) plus an applicable margin based on our leverage ratio from time to time, ranging from
1.50% to 2.50%. We will also pay a commitment fee of between 0.25% and 0.45%, payable quarterly in arrears, on the average daily unused amount of the revolving facility based on our leverage ratio from time to time.
The revolving loans are subject to customary representations, warranties and ongoing affirmative and negative covenants and agreements. The negative covenants include, among other things, limitations on indebtedness, liens, asset sales, mergers and acquisitions, investments, transactions with affiliates, dividends and other restricted payments, subordinated indebtedness and amendments to subordinated indebtedness documents and sale and leaseback transactions. The Credit Agreement also requires us to maintain (1) a maximum leverage ratio of (a) 3.00 to 1.00 for any such fiscal quarter ending on or prior to September 30, 2016, (b) 2.75 to 1.00 for any such fiscal quarter ending after September 30, 2016 and on or prior to September 30, 2017 and (c) 2.50 to 1.00 for any such fiscal quarter ending after September 30, 2017; and (2) a minimum fixed charge coverage ratio of 3.00 to 1.00 at the end of each fiscal quarter through the term of the loan. The revolving loans under the Credit Agreement will be available for letters of credit, working capital and general corporate purposes.
As of
March 31, 2016
, we had
$105,000
in outstanding loans and
$145,000
of unused credit under the Credit Agreement. Total interest expense incurred during the year ended
March 31, 2016
was
$969
. The interest rate as of
March 31, 2016
was approximately
2.4%
and the weighted average interest rate for the year ended
March 31, 2016
was approximately
3.2%
.
Debt Issuance Costs
Debt issuance costs and other related fees paid to legal advisors and third parties in connection with securing the Credit Agreement totaled
$5,382
. The deferred debt issuance costs are reported as a component of other assets on the consolidated balance sheet and are being amortized to interest expense over the term of the Credit Agreement. Total amortization of deferred debt issuance costs for the year ended
March 31, 2016
was
$258
.
10. Composition of Certain Financial Statement Captions
Accounts receivable include amounts invoiced but not yet rendered at each period end. Undelivered products and services are included as a component of the deferred revenue balance on the accompanying consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Accounts receivable, gross
|
$
|
104,467
|
|
|
$
|
119,807
|
|
Sales return reserve
|
(7,541
|
)
|
|
(8,835
|
)
|
Allowance for doubtful accounts
|
(2,902
|
)
|
|
(3,303
|
)
|
Accounts receivable, net
|
$
|
94,024
|
|
|
$
|
107,669
|
|
Inventory is summarized as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Computer systems and components
|
$
|
555
|
|
|
$
|
622
|
|
Prepaid expenses and other current assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Prepaid expenses
|
$
|
11,804
|
|
|
$
|
9,941
|
|
Other current assets
|
3,106
|
|
|
1,594
|
|
Prepaid expenses and other current assets
|
$
|
14,910
|
|
|
$
|
11,535
|
|
Equipment and improvements are summarized as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Computer equipment
|
$
|
32,213
|
|
|
$
|
35,672
|
|
Internal-use software
|
10,201
|
|
|
6,996
|
|
Furniture and fixtures
|
9,799
|
|
|
10,408
|
|
Leasehold improvements
|
13,408
|
|
|
9,767
|
|
|
65,621
|
|
|
62,843
|
|
Accumulated depreciation and amortization
|
(39,831
|
)
|
|
(42,036
|
)
|
Equipment and improvements, net
|
$
|
25,790
|
|
|
$
|
20,807
|
|
Other assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Cash surrender value of life insurance policies
|
$
|
7,155
|
|
|
$
|
6,004
|
|
Deferred debt issuance costs, net
|
5,124
|
|
|
—
|
|
Deposits
|
4,951
|
|
|
3,365
|
|
Other deferred costs
|
1,819
|
|
|
2,514
|
|
Other assets
|
$
|
19,049
|
|
|
$
|
11,883
|
|
The current portion of deferred revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Professional services
|
$
|
23,128
|
|
|
$
|
30,340
|
|
Software license, hardware and other
|
14,913
|
|
|
17,638
|
|
Support and maintenance
|
11,902
|
|
|
15,077
|
|
Software related subscription services
|
7,992
|
|
|
3,288
|
|
Deferred revenue, current
|
$
|
57,935
|
|
|
$
|
66,343
|
|
Accrued compensation and related benefits are summarized as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Payroll, bonus and commission
|
$
|
9,683
|
|
|
$
|
13,505
|
|
Vacation
|
8,987
|
|
|
10,546
|
|
Accrued compensation and related benefits
|
$
|
18,670
|
|
|
$
|
24,051
|
|
Other current and non-current liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Contingent consideration and other liabilities related to acquisitions
|
$
|
24,153
|
|
|
$
|
9,124
|
|
Care services liabilities
|
5,339
|
|
|
2,381
|
|
Customer credit balances and deposits
|
4,123
|
|
|
4,760
|
|
Accrued consulting
|
3,650
|
|
|
2,603
|
|
Accrued EDI expense
|
2,382
|
|
|
2,322
|
|
Accrued royalties
|
2,341
|
|
|
2,063
|
|
Self insurance reserve
|
1,862
|
|
|
2,290
|
|
Accrued legal expense
|
864
|
|
|
3,527
|
|
Other accrued expenses
|
5,524
|
|
|
4,854
|
|
Other current liabilities
|
$
|
50,238
|
|
|
$
|
33,924
|
|
|
|
|
|
Contingent consideration and other liabilities related to acquisitions
|
$
|
—
|
|
|
$
|
7,581
|
|
Deferred rent
|
6,577
|
|
|
3,122
|
|
Uncertain tax position and related liabilities
|
4,084
|
|
|
4,095
|
|
Other noncurrent liabilities
|
$
|
10,661
|
|
|
$
|
14,798
|
|
11. Income Tax
The provision for income taxes consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
Federal taxes
|
$
|
(9,338
|
)
|
|
$
|
18,055
|
|
|
$
|
8,673
|
|
State taxes
|
(403
|
)
|
|
1,887
|
|
|
2,380
|
|
Foreign taxes
|
374
|
|
|
262
|
|
|
252
|
|
Total current taxes
|
(9,367
|
)
|
|
20,204
|
|
|
11,305
|
|
Deferred:
|
|
|
|
|
|
Federal taxes
|
$
|
10,474
|
|
|
$
|
(9,804
|
)
|
|
$
|
(2,894
|
)
|
State taxes
|
(100
|
)
|
|
(1,771
|
)
|
|
(897
|
)
|
Foreign taxes
|
(344
|
)
|
|
(297
|
)
|
|
(193
|
)
|
Total deferred taxes
|
10,030
|
|
|
(11,872
|
)
|
|
(3,984
|
)
|
Provision for income taxes
|
$
|
663
|
|
|
$
|
8,332
|
|
|
$
|
7,321
|
|
T
he provision for income taxes differs from the amount computed at the federal statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
Federal income tax statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Increase (decrease) resulting from:
|
|
|
|
|
|
State income taxes, net of Federal benefit
|
(5.2
|
)
|
|
2.0
|
|
|
4.2
|
|
Research and development tax credits
|
(23.4
|
)
|
|
(4.4
|
)
|
|
(5.3
|
)
|
Qualified production activities income deduction
|
—
|
|
|
(5.4
|
)
|
|
(4.9
|
)
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
5.7
|
|
Stock option deduction
|
3.7
|
|
|
0.6
|
|
|
0.7
|
|
Other non-recurring adjustments for State taxes
|
—
|
|
|
(1.8
|
)
|
|
—
|
|
Meals and entertainment
|
3.7
|
|
|
0.8
|
|
|
1.2
|
|
Acquisition expenses
|
(3.6
|
)
|
|
—
|
|
|
(0.3
|
)
|
Foreign rate differential
|
(10.2
|
)
|
|
(1.6
|
)
|
|
(1.5
|
)
|
Net operating loss carryback
|
9.1
|
|
|
—
|
|
|
—
|
|
Other
|
1.4
|
|
|
(1.8
|
)
|
|
(3.0
|
)
|
Effective income tax rate
|
10.5
|
%
|
|
23.4
|
%
|
|
31.8
|
%
|
The net deferred tax assets and liabilities in the accompanying consolidated balance sheets consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
March 31,
2015
|
Deferred tax assets:
|
|
|
|
Net operating losses
|
$
|
17,920
|
|
|
$
|
512
|
|
Deferred revenue
|
10,682
|
|
|
11,970
|
|
Accrued compensation and benefits
|
5,868
|
|
|
7,744
|
|
Allowance for doubtful accounts
|
4,176
|
|
|
4,944
|
|
Research and development credit
|
3,611
|
|
|
1,988
|
|
Compensatory stock option expense
|
2,664
|
|
|
2,852
|
|
Deferred compensation
|
2,586
|
|
|
2,342
|
|
State income taxes
|
445
|
|
|
(730
|
)
|
Inventory valuation
|
68
|
|
|
56
|
|
Other
|
—
|
|
|
3,561
|
|
Total deferred tax assets
|
48,020
|
|
|
35,239
|
|
Deferred tax liabilities:
|
|
|
|
Accelerated depreciation
|
$
|
(2,434
|
)
|
|
$
|
(756
|
)
|
Capitalized software
|
(9,644
|
)
|
|
(8,728
|
)
|
Intangible assets
|
(22,972
|
)
|
|
7,603
|
|
Prepaid expense
|
(1,249
|
)
|
|
(1,321
|
)
|
Other
|
(972
|
)
|
|
—
|
|
Total deferred tax liabilities
|
(37,271
|
)
|
|
(3,202
|
)
|
Valuation allowance
|
(2,551
|
)
|
|
(1,840
|
)
|
Deferred tax assets, net
|
$
|
8,198
|
|
|
$
|
30,197
|
|
The deferred tax assets and liabilities have been shown net in the accompanying consolidated balance sheets as noncurrent.
As of
March 31, 2016
and
March 31, 2015
, we had federal net operating loss (“NOL”) carryforwards of
$45,202
and
$1,464
, respectively. The federal NOL carryforwards were inherited in connection with our acquisition of HealthFusion in January 2016 and Gennius in March 2015. The NOL related to the HealthFusion acquisition was estimated based on available information as of March 31, 2016 and may change based upon the filing of the final tax returns for HealthFusion. The NOL carryforwards expire
in various amounts starting in 2029 for both federal and state tax purposes. As of
March 31, 2016
, we had state NOL carryforwards of approximately
$30,430
, of which
$18,695
was related to our expected current year taxable NOL and the remainder was related to the HealthFusion acquisition state NOL tax attribute. We had no state NOL carryfowards as of
March 31, 2015
. The utilization of the federal NOL carryforwards is subject to limitations under the rules regarding changes in stock ownership as determined by the Internal Revenue Code.
As of
March 31, 2016
and
March 31, 2015
, the research and development tax credit carryforward available to offset future federal and state taxes was
$3,611
and
$1,988
respectively. The credits expire in various amounts starting in 2019.
We expect to receive the full benefit of the deferred tax assets recorded with the exception of certain state credits and state NOL carryforwards for which we have recorded a valuation allowance.
Uncertain tax positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is recorded within other noncurrent liabilities in our consolidated balance sheet, is as follows:
|
|
|
|
|
Balance at March 31, 2014
|
$
|
875
|
|
Additions for current/prior year tax positions
|
3,106
|
|
Reductions for prior year tax positions
|
(218
|
)
|
Balance at March 31, 2015
|
$
|
3,763
|
|
Additions for prior year tax positions
|
235
|
|
Reductions for prior year tax positions
|
(43
|
)
|
Balance at March 31, 2016
|
$
|
3,955
|
|
During the year ended
March 31, 2016
, we recorded additional liabilities of
$235
mostly related to various state tax planning benefits recorded in the current year for prior year tax positions. The total amount of unrecognized tax benefit that, if recognized, would decrease the income tax provision is
$3,955
.
Our practice is to recognize interest related to income tax matters as interest expense in the consolidated statements of comprehensive income. We had approximately
$129
and
$332
of accrued interest related to income tax matters as of
March 31, 2016
and
2015
, respectively. We recognized
$57
and
$309
of interest related to income tax matters in the consolidated statements of comprehensive income in the years ended
March 31, 2016
and
2015
, respectively, and an insignificant amount in the year ended March 31, 2014.
No
penalties related to income tax matters were accrued or recognized in our consolidated financial statements for all periods presented.
We are no longer subject to U.S. federal income tax examinations for tax years before 2012. With a few exceptions, we are no longer subject to state or local income tax examinations for tax years before 2011. 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
.
12. Employee Benefit Plans
We provide a 401(k) plan to substantially all of our employees. Participating employees may defer up to the IRS limit per year based on the IRC. The annual contribution is determined by a formula set by our Board of Directors 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 of Directors. Contributions of
$1,063
,
$949
and
$820
were made by the Company to the 401(k) plan for the years ended
March 31, 2016
,
2015
and
2014
, respectively.
We have a deferred compensation plan (the “Deferral Plan”) for the benefit of those employees who qualify. Participating employees may defer up to
75%
of their salary and
100%
of their annual bonus for a Deferral Plan year. In addition, we may, but are not required to, make contributions into the Deferral Plan on behalf of participating employees, and the amount of the Company match is discretionary and subject to change. Each employee's deferrals together with earnings thereon are accrued as part of our long-term liabilities. Investment decisions are made by each participating employee from a family of mutual funds. The deferred compensation liability was
$6,357
and
$5,750
at
March 31, 2016
and
2015
, 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
$7,155
and
$6,004
at
March 31, 2016
and
2015
, respectively. The values of the life insurance policies and our related obligations are included on the accompanying consolidated balance sheets in long-term other assets and long-term deferred compensation, respectively. We made contributions of
$120
,
$86
and
$62
to the Deferral Plan for the years ended
March 31, 2016
,
2015
and
2014
, respectively.
13. Share-Based Awards
Employee Stock Option 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 or a duly designated compensation committee, be granted certain share-based awards. In the case of option awards granted under the 2005 Plan, the exercise price of each option is determined based on the date of grant and expires no later 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, 2016
, there were
1,447,286
outstanding options and
25,613
outstanding shares of restricted stock, restricted stock units and performance based restricted stock under the 2005 Plan.
In August 2015, our shareholders approved a stock option and incentive plan (the “2015 Plan”) under which
11,500,000
shares of common stock 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. The 2015 Plan provides that our employees and directors may, at the discretion of the Board of Directors or a duly designated compensation committee, be granted certain share-based awards. In the case of option awards granted under the 2015 Plan, the exercise price of each option is determined based on the date of grant and expire no later than
10
years from the date of grant. Awards granted pursuant to the 2015 Plan are subject to the vesting schedule or performance metrics set forth in the agreements pursuant to which they are granted. Upon a change of control of our Company, as such term is defined in the 2015 Plan, awards under the 2015 Plan will fully vest under certain circumstances. As of
March 31, 2016
, there were
1,000,000
outstanding options,
165,634
outstanding shares of restricted stock awards and
10,624,005
shares available for future grant under the 2015 Plan.
A summary of stock option transactions during the years ended
March 31, 2016
,
2015
and
2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Exercise
Price
per Share
|
|
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
Outstanding, March 31, 2013
|
1,159,183
|
|
|
$
|
30.54
|
|
|
|
|
|
Granted
|
469,000
|
|
|
18.78
|
|
|
|
|
|
Exercised
|
(111,272
|
)
|
|
19.78
|
|
|
|
|
$
|
264
|
|
Forfeited/Canceled
|
(146,810
|
)
|
|
30.28
|
|
|
|
|
|
Outstanding, March 31, 2014
|
1,370,101
|
|
|
$
|
15.97
|
|
|
|
|
|
Granted
|
469,650
|
|
|
—
|
|
|
|
|
|
Forfeited/Canceled
|
(203,575
|
)
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2015
|
1,636,176
|
|
|
$
|
24.82
|
|
|
5.5
|
|
|
Granted
|
1,414,000
|
|
|
15.51
|
|
|
7.6
|
|
|
Exercised
|
(800
|
)
|
|
15.99
|
|
|
6.2
|
|
$
|
1
|
|
Forfeited/Canceled
|
(572,090
|
)
|
|
24.65
|
|
|
4.6
|
|
|
Expired
|
(30,000
|
)
|
|
22.81
|
|
|
|
|
|
Outstanding, March 31, 2016
|
2,447,286
|
|
|
$
|
19.55
|
|
|
6.3
|
|
$
|
574
|
|
Vested and expected to vest, March 31, 2016
|
2,223,978
|
|
|
$
|
19.83
|
|
|
6.2
|
|
$
|
505
|
|
Exercisable, March 31, 2016
|
587,536
|
|
|
$
|
28.21
|
|
|
3.9
|
|
$
|
—
|
|
The Company utilizes the Black-Scholes valuation model for estimating the fair value of stock options and related share-based compensation with the following assumptions:
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
March 31, 2016
|
|
March 31, 2015
|
|
March 31, 2014
|
Expected term
|
3.8 - 3.9 years
|
|
4.8 years
|
|
4.9 years
|
Expected volatility
|
38.3% - 41.1%
|
|
36.1% - 36.6%
|
|
43.4% - 43.7%
|
Expected dividends
|
0.0% - 5.3%
|
|
4.3% - 4.4%
|
|
3.1% - 3.9%
|
Risk-free rate
|
1.1% - 1.6%
|
|
1.6% - 1.7%
|
|
1.0% - 1.5%
|
The weighted-average grant date fair value of stock options granted during the years ended
March 31, 2016
,
2015
and
2014
was
$4.44
,
$3.50
and
$5.20
per share, respectively.
During the years ended
March 31, 2016
,
2015
and
2014
, a total of
1,414,000
,
469,650
and
469,000
options, respectively, were granted under the 2005 and 2015 Plans at an exercise price equal to the market price of the Company’s common stock on the date of grant. A summary of stock options granted during the years ended
March 31, 2016
,
2015
and
2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Grant Date
|
|
Number of Shares
|
|
Exercise Price
|
|
Vesting
Terms (1)
|
|
Expires
|
March 1, 2016
|
|
450,000
|
|
|
$
|
15.60
|
|
|
Four years
|
|
March 1, 2024
|
February 1, 2016
|
|
200,000
|
|
|
$
|
14.20
|
|
|
Four years
|
|
February 1, 2024
|
January 4, 2016
|
|
200,000
|
|
|
$
|
16.85
|
|
|
(2)
|
|
January 4, 2024
|
August 17, 2015
|
|
150,000
|
|
|
$
|
12.80
|
|
|
(3)
|
|
August 17, 2023
|
May 22, 2015
|
|
414,000
|
|
|
$
|
16.64
|
|
|
Five years
|
|
May 22, 2023
|
Fiscal year 2016 option grants
|
|
1,414,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 11, 2015
|
|
10,000
|
|
|
$
|
15.84
|
|
|
Five years
|
|
March 11, 2023
|
September 2, 2014
|
|
20,000
|
|
|
$
|
15.63
|
|
|
Five years
|
|
September 2, 2022
|
June 3, 2014
|
|
439,650
|
|
|
$
|
15.99
|
|
|
Five years
|
|
June 3, 2022
|
Fiscal year 2015 option grants
|
|
469,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 15, 2013
|
|
85,000
|
|
|
$
|
20.85
|
|
|
Five years
|
|
August 15, 2021
|
July 30, 2013
|
|
28,000
|
|
|
$
|
22.59
|
|
|
Five years
|
|
July 30, 2021
|
May 29, 2013
|
|
356,000
|
|
|
$
|
17.95
|
|
|
Five years
|
|
May 29, 2021
|
Fiscal year 2014 option grants
|
|
469,000
|
|
|
|
|
|
|
|
____________________
|
|
(1)
|
Options vest in equal annual installments on each grant anniversary date commencing
one
year following the date of grant.
|
|
|
(2)
|
100,000
options fully vest on March 31, 2017 and the remaining
100,000
options vest on March 31, 2018.
|
|
|
(3)
|
Option vests in
five
equal annual installments beginning on July 1, 2016.
|
Employee Share Purchase Plan
On August 11, 2014, the Company’s shareholders approved an Employee Share Purchase Plan (the “Purchase Plan”) under which
4,000,000
shares of common stock were reserved for future grant. The Purchase Plan allows eligible employees to purchase shares through payroll deductions of up to
15%
of total base salary at a price equal to
90%
of the lower of the fair market values of the shares as of the beginning or the end of the corresponding offering period. Any shares purchased under the Purchase Plan are subject to a
six
-month holding period. Employees are limited to purchasing no more than
1,500
shares on any single purchase date and no more than
$25,000
in total fair market value of shares during any one calendar year. As of
March 31, 2016
, the Company has issued
114,620
shares under the Purchase Plan and
3,885,380
shares are available for future issuance.
Share-based compensation expense recorded for the employee share purchase plan was
$291
for the year ended
March 31, 2016
and
$116
for the year ended
March 31, 2015
.
Performance-Based Awards
On May 14, 2015, the Compensation Committee approved our fiscal year 2016 Executive Compensation Program (the "Program") for our named executive officers for fiscal year 2016; on May 20, 2015, the Compensation Committee approved the Program for our former Interim Chief Financial Officer; on June 3, 2015, the Compensation Committee approved the Program for our new Chief Executive Officer (effective July 1, 2015); on January 27, 2016, the Compensation Committee approved the
Program for our new Chief Technology Officer (effective February 1, 2016); and on February 12, 2016, the Compensation Committee approved the Program for our new Chief Financial Officer (effective March 1, 2016).
Under the incentive portion of the Program, the executive officers are eligible to receive cash bonuses based on meeting certain target increases in revenue and non-GAAP earnings per share for fiscal year 2016 and certain equity incentive awards, including a potential award of up to an aggregate of
320,000
restricted performance shares of our common stock vesting over a
three
year period based on the achievement of target average daily share prices for the thirty calendar day period ending April 30th of each of the subsequent three fiscal years. In addition, under the Program, a target pool of up to
400,000
options is available for new hires, promotions, and for certain high-performing, non-executive employees based on achievement in performance targets.
Share-based compensation expense associated with the restricted performance shares with market conditions under the Program is based on the grant date fair value measured at the underlying closing share price on the date of grant using a Monte Carlo-based valuation model.
Share-based compensation expense associated with the target pool of options under our equity incentive programs are initially based on the number of options expected to vest after assessing the probability that the performance criteria will be met. Cumulative adjustments are recorded quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions. We utilize the Black-Scholes option valuation model with the assumptions in the table below to calculate the share-based compensation expense related to the options.
|
|
|
|
|
|
|
|
Year Ended
March 31, 2016
|
|
Year Ended
March 31, 2015
|
|
Year Ended
March 31, 2014
|
Expected life
|
3.8 - 4.0 years
|
|
4.8 years
|
|
4.9 years
|
Expected volatility
|
37.7% - 40.8%
|
|
35.9% - 36.5%
|
|
36.9% - 43.5%
|
Expected dividends
|
0.0% - 5.5%
|
|
4.3% - 5.0%
|
|
3.2% - 4.1%
|
Risk-free rate
|
1.0% - 1.6%
|
|
1.4% - 1.8%
|
|
1.4% - 1.8%
|
Share-based compensation expense recorded for these performance-based awards was
$383
,
$463
and
$0
for the years ended
March 31, 2016
,
2015
and
2014
, respectively.
Non-vested stock option award activity, including employee stock options and performance-based awards, during the years ended
March 31, 2016
,
2015
and
2014
is summarized as follows:
|
|
|
|
|
|
|
|
|
Non-Vested
Number of
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
per Share
|
Outstanding, March 31, 2013
|
804,340
|
|
|
$
|
9.89
|
|
Granted
|
469,000
|
|
|
5.20
|
|
Vested
|
(134,970
|
)
|
|
9.30
|
|
Forfeited/Canceled
|
(146,810
|
)
|
|
9.33
|
|
Outstanding, March 31, 2014
|
991,560
|
|
|
$
|
7.73
|
|
Granted
|
469,650
|
|
|
3.50
|
|
Vested
|
(269,785
|
)
|
|
8.24
|
|
Forfeited/Canceled
|
(123,135
|
)
|
|
6.57
|
|
Outstanding, March 31, 2015
|
1,068,290
|
|
|
$
|
5.81
|
|
Granted
|
1,414,000
|
|
|
4.44
|
|
Vested
|
(311,740
|
)
|
|
5.44
|
|
Forfeited/Canceled
|
(310,800
|
)
|
|
5.45
|
|
Outstanding, March 31, 2016
|
1,859,750
|
|
|
$
|
4.67
|
|
As of
March 31, 2016
,
$6,959
of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted-average period of
4.0
years. This amount does not include the cost of new options that may be granted in future periods or any changes in the Company’s forfeiture percentage. The total fair value of options vested during the years ended
March 31, 2016
,
2015
and
2014
was
$1,697
,
$2,224
and
$1,255
, respectively.
Director Awards
On May 20, 2015, the Board of Directors approved our 2016 Director Compensation Program, pursuant to which each non-employee director is to be granted shares of restricted stock upon election or re-election to the Board of Directors. The shares of restricted stock were granted on August 17, 2015 following the shareholder approval and registration of our 2015 Equity Incentive Plan. The shares of restricted stock were issued according to the standard form of restricted stock award agreement and pursuant to our 2015 Equity Incentive Plan and carry a restriction requiring that the restricted stock vest in two equal installments over
two
consecutive years with the vesting dates being the next two meeting dates of our annual shareholders’ meeting following election or re-election to the Board of Directors.
The Company recorded compensation expense related to restricted stock of approximately
$940
,
$877
and
$629
for the years ended
March 31, 2016
,
2015
and
2014
, respectively. Restricted stock activity for the years ended
March 31, 2016
,
2015
and
2014
is summarized as follows:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
per Share
|
Outstanding, March 31, 2013
|
30,385
|
|
|
$
|
27.09
|
|
Granted
|
57,324
|
|
|
20.75
|
|
Vested
|
(16,302
|
)
|
|
30.64
|
|
Canceled
|
(6,836
|
)
|
|
22.59
|
|
Outstanding, March 31, 2014
|
64,571
|
|
|
$
|
20.74
|
|
Granted
|
48,414
|
|
|
15.77
|
|
Vested
|
(34,780
|
)
|
|
21.33
|
|
Outstanding, March 31, 2015
|
78,205
|
|
|
17.94
|
|
Granted
|
165,634
|
|
|
14.06
|
|
Vested
|
(51,092
|
)
|
|
20.14
|
|
Canceled
|
(1,500
|
)
|
|
17.95
|
|
Outstanding, March 31, 2016
|
191,247
|
|
|
$
|
14.44
|
|
The we
ighted-average grant date fair value for the restricted stock was estimated using the market price of the common stock on the date of grant. The fair value of the restricted stock is amortized on a straight-line basis over the vesting period.
As of
March 31, 2016
,
$2,122
of total unrecognized compensation costs related to restricted stock is expected to be recognized over a weighted-average period of
1.9
years. This amount does not include the cost of new restricted stock that may be granted in future periods.
14. Commitments, Guarantees and Contingencies
We lease facilities and offices under irrevocable operating lease agreements expiring at various dates with rent escalation clauses. Rent expense related to these leases is recognized on a straight-line basis over the lease terms. Rent expense for the years ended
March 31, 2016
,
2015
and
2014
was
$7,309
,
$7,416
and
$7,604
, respectively.
The following table summarizes our significant contractual obligations at
March 31, 2016
and the effect that such obligations are expected to have on our liquidity and cash in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended March 31,
|
Contractual Obligations
|
Total
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022 and beyond
|
Operating lease obligations
|
$
|
70,414
|
|
$
|
8,773
|
|
$
|
9,863
|
|
$
|
8,903
|
|
$
|
7,936
|
|
$
|
7,909
|
|
$
|
27,030
|
|
Line of credit obligations
(1)
|
105,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
105,000
|
|
—
|
|
Contingent consideration and other acquisition related liabilities (excluding share-based payments)
(2)
|
15,700
|
|
15,700
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Total
|
$
|
191,114
|
|
$
|
23,973
|
|
$
|
10,363
|
|
$
|
8,903
|
|
$
|
7,936
|
|
$
|
112,909
|
|
$
|
27,030
|
|
_______________________
(1) As noted above, we entered into a
$250.0 million
revolving credit agreement in January 2016, which had
$105 million
in outstanding loans as of
March 31, 2016
. The revolving credit agreement matures on January 4, 2021 and the full balance of the revolving loans and all other obligations under the agreement must be paid at that time. Refer Note 9 for additional details.
(2) In connection with the acquisition of HealthFusion, additional contingent consideration up to
$25.0 million
in the form of a cash earnout may be paid in our fourth quarter of fiscal 2017, subject to HealthFusion achieving certain revenue targets through December 31, 2016. The fair value of the contingent consideration liability as of
March 31, 2016
was
$15.0 million
, and is included in the table above.
The deferred compensation liability as of
March 31, 2016
was
$6,357
, which is not included in the table above as the timing of future benefit payments to employees is not readily determinable.
The uncertain tax position liability as of
March 31, 2016
was
$3,955
, which is not included in the table above as the timing of expected payments is not readily determinable.
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 its performance guarantee or other related warranties and does 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 does not expect to incur significant warranty costs in the future. Therefore, no accrual has been made for potential costs associated with these warranties.
Our standard contracts generally do not contain provisions for clients to return products or services. However, we historically have accepted sales returns under certain circumstances. Accordingly, we estimate sales return reserves, including reserves for returns and other credits, based upon the rate of historical returns by revenue type in relation to the corresponding gross revenues and recognize revenue, net of an allowance for sales returns. If we are unable to estimate the returns, revenue recognition may be delayed until the rights of return period lapses, provided also, that all other criteria for revenue recognition have been met.
Certain standard sales agreements contain a money back guarantee providing for a performance guarantee that is already part of the software license agreement as well as training and support. The money back guarantee also warrants that the software will remain robust and flexible to allow participation in the federal health incentive programs. The specific elements of the performance guarantee pertain to aspects of the software, which we have already tested and confirmed to consistently meet using our existing software without any modifications or enhancements. To date, we have not incurred any costs associated with this guarantee and do not expect to incur significant costs in the future. Therefore, no accrual has been made for potential costs associated with this guarantee.
Our standard sales agreements contain an indemnification provision pursuant to which it shall indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any U.S. patent, any copyright or other intellectual property infringement claim by any third party with respect to its software. As we have not incurred any significant costs to defend lawsuits or settle claims related to these indemnification agreements, we believe that our estimated exposure on these agreements is currently minimal. Accordingly, we have no liabilities recorded for these indemnification obligations.
Hussein Litigation
On October 7, 2013, a complaint was filed against our Company and certain of our officers and directors in the Superior Court of the State of California for the County of Orange, captioned Ahmed D. Hussein v. Sheldon Razin, Steven Plochocki, Quality Systems, Inc. and Does 1-10, inclusive, No. 30-2013-00679600-CU-NP-CJC, by Ahmed Hussein, a former director and significant shareholder of our Company. We filed a demurrer to the complaint, which the court granted on April 10, 2014. An amended complaint was filed 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. We filed a demurrer to the amended complaint. On July 29, 2014, the court sustained the demurrer with respect to the breach of fiduciary duty claim, and overruled the demurrer with respect to the fraud and deceit claims. On August 28, 2014, we filed an answer and also filed a cross-complaint against the plaintiff, alleging that the plaintiff breached fiduciary duties owed to our Company, Mr. Razin and Mr. Plochocki. On June 26, 2015, we filed a motion for summary judgment, which the court granted on September 16, 2015, dismissing all claims against us. On September 23, 2015, the plaintiff filed an application for reconsideration of the Court's summary judgment order, which the court denied. On October 28, 2015, the plaintiff filed a motion for summary judgment, seeking to dismiss our cross-complaint, which the court denied on March 3, 2016. On May 9, 2016, the plaintiff filed a motion for summary adjudication, seeking to again dismiss our cross-complaint. The hearing for the motion is set for July 28, 2016. We believe that plaintiff’s claims are without merit and continues to defend against them vigorously. At this time, we are unable to estimate the amount of liability, if any, related to this claim.
Federal Securities Class Action
On November 19, 2013, a putative class action complaint was filed on behalf of the shareholders of our Company other than the defendants against our Company and certain our officers and directors in the United States District Court for the Central District of California by a shareholder of our Company. After the court appointed lead plaintiffs and lead counsel for this action, and recaptioned the action In re Quality Systems, Inc. Securities Litigation, No. 8L13-cv-01818-CJC(JPRx), lead plaintiffs filed an amended complaint on April 7, 2014. The amended complaint, which is substantially similar to the litigation described above under the caption “Hussein Litigation,” generally alleges that statements made to our shareholders regarding our financial
condition and projected future performance were false and misleading in violation of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the individual defendants are liable for such statements because they are controlling persons under Section 20(a) of the Exchange Act. The complaint seeks compensatory damages, court costs and attorneys' fees. We filed a motion to dismiss the amended complaint on June 20, 2014, which the court granted on October 20, 2014, dismissing the complaint with prejudice. Plaintiffs filed a motion for reconsideration of the Court's order, which the court denied on January 5, 2015. On January 30, 2015, Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit, captioned In re Quality Systems, Inc. Securities Litigation, No. 15-55173. Plaintiffs filed their opening brief and we answered. Oral argument is not yet scheduled. We believe that plaintiff’s claims are without merit and continues to defend against them vigorously. At this time, we are unable to estimate the amount of liability, if any, related to this claim.
Shareholder Derivative Litigation
On January 24, 2014, a complaint was filed against our Company and certain of our officers and current and former directors in the United States District Court for the Central District of California, captioned Timothy J. Foss, derivatively on behalf of himself and all others similarly situated, vs. Craig A. Barbarosh, George H. Bristol, James C. Malone, Peter M. Neupert, Morris Panner, D. Russell Pflueger, Steven T. Plochocki, Sheldon Razin, Lance E. Rosenzweig and Quality Systems, Inc., No. SACV14-00110-DOC-JPPx, by Timothy J. Foss, a shareholder of our Company. The complaint arises from the same allegations described above under the captions “Hussein Litigation” and “Federal Securities Class Action” and generally alleges breach of fiduciary duties, abuse of control and gross mismanagement by our directors, in addition to unjust enrichment and insider selling by individual directors. The complaint seeks compensatory damages, restitution and disgorgement of all profits, court costs, attorneys’ fees and implementation of enhanced corporate governance procedures. The parties have agreed to stay this litigation until the United States Court of Appeals for the Ninth Circuit issues a ruling on the pending appeal described above under the caption “Federal Securities Class Action.” We believe that plaintiff’s claims are without merit and intends to defend against them vigorously. At this time, we are unable to estimate the amount of liability, if any, related to this claim.
15. Operating Segment Information
As of
March 31, 2016
, we have
three
reportable segments that are evaluated regularly by our chief decision making group (consisting of our Chief Executive Officer) in deciding how to allocate resources and in assessing performance. Hospital Solutions Division operating segment data for the year end
March 31, 2016
are reflected through the October 22, 2015 date of its disposition.
Operating segment data is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
2016
|
|
2015
|
|
2014
|
Revenue:
|
|
|
|
|
|
NextGen Division
|
$
|
375,801
|
|
|
$
|
373,765
|
|
|
$
|
341,120
|
|
RCM Services Division
|
89,831
|
|
|
80,005
|
|
|
68,093
|
|
QSI Dental Division
|
19,376
|
|
|
18,451
|
|
|
19,840
|
|
Hospital Solutions Division
|
7,469
|
|
|
18,004
|
|
|
15,614
|
|
Consolidated revenue
|
$
|
492,477
|
|
|
$
|
490,225
|
|
|
$
|
444,667
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
NextGen Division
|
$
|
182,508
|
|
|
$
|
182,320
|
|
|
$
|
162,948
|
|
RCM Services Division
|
17,639
|
|
|
13,919
|
|
|
11,719
|
|
QSI Dental Division
|
6,101
|
|
|
5,161
|
|
|
6,183
|
|
Hospital Solutions Division
|
(927
|
)
|
|
(1,339
|
)
|
|
(7,237
|
)
|
Corporate and unallocated
|
(197,959
|
)
|
|
(164,105
|
)
|
|
(150,525
|
)
|
Consolidated operating income
|
$
|
7,362
|
|
|
$
|
35,956
|
|
|
$
|
23,088
|
|
Assets by segment are not tracked or used by our chief decision making group to allocate resources or to assess performance, and thus not included in the table above.
The major components of the corporate and unallocated amounts are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31,
|
|
2016
|
|
2015
|
|
2014
|
Research and development costs, net
|
$
|
65,661
|
|
|
$
|
69,240
|
|
|
$
|
41,524
|
|
Amortization of capitalized software costs
|
9,891
|
|
|
12,817
|
|
|
12,338
|
|
Marketing expense
|
13,490
|
|
|
11,913
|
|
|
10,123
|
|
Loss on disposition of Hospital Solutions Division
|
1,366
|
|
|
—
|
|
|
—
|
|
Impairment of assets
|
32,238
|
|
|
—
|
|
|
25,971
|
|
Other corporate and overhead costs
|
75,313
|
|
|
70,135
|
|
|
60,569
|
|
Total corporate and unallocated
|
$
|
197,959
|
|
|
$
|
164,105
|
|
|
$
|
150,525
|
|
The amounts classified as corporate and unallocated consist primarily of corporate general and administrative costs, non-recurring acquisition and transaction-related costs, recurring post-acquisition amortization of certain acquired intangible assets and amortization of capitalized software costs, as well as costs of other centrally managed overhead and shared-services functions, including accounting and finance, human resources, marketing, legal, and research and development, that are not controlled by segment level leadership. Although the segments may derive direct benefits as a result of such costs, our chief decision making group evaluates performance based upon stand-alone segment operating income, which excludes these corporate and unallocated amounts.
Effective April 1, 2015, as part of our ongoing efforts to refine the measurement of our segment data to better reflect an organizational structure whereby certain expenses managed by functional area leadership are no longer classified within the operating segments but rather as a component of corporate and unallocated, we no longer classify certain costs within the information services and credit granting and collections functional areas, such as bad debt expense and other information services related general and administrative costs, within the operating segments. Such classification is consistent with the disaggregated financial information used by our chief decision making group. We have retroactively reclassified the prior years' operating income in the table above to present all segment information on a comparable basis.
16. Subsequent Events
On April 22, 2016, our Board of Directors approved management’s recommendations for a corporate reorganization plan. Under the reorganization plan, we expect to reduce our domestic headcount by approximately
150
employees, or approximately
six percent
of our U.S.-based workforce.
17. Selected Quarterly Operating Results
The following table presents quarterly unaudited consolidated financial information for the eight quarters preceding
March 31, 2016
. Such information is presented on the same basis as the annual information presented in the accompanying consolidated financial statements. In management’s opinion, this information reflects all adjustments that are necessary for a fair statement of the results for these periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
(Unaudited)
|
6/30/2014
|
|
9/30/2014
|
|
12/31/2014
|
|
3/31/2015
|
|
6/30/2015
|
|
9/30/2015
|
|
12/31/2015
|
|
3/31/2016
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license and hardware
|
$
|
19,761
|
|
|
$
|
19,316
|
|
|
$
|
21,428
|
|
|
$
|
21,144
|
|
|
$
|
16,189
|
|
|
$
|
19,687
|
|
|
$
|
16,150
|
|
|
$
|
18,497
|
|
Software related subscription services
|
9,715
|
|
|
9,687
|
|
|
11,864
|
|
|
13,326
|
|
|
12,246
|
|
|
12,437
|
|
|
11,705
|
|
|
19,015
|
|
Total software, hardware and related
|
29,476
|
|
|
29,003
|
|
|
33,292
|
|
|
34,470
|
|
|
28,435
|
|
|
32,124
|
|
|
27,855
|
|
|
37,512
|
|
Support and maintenance
|
40,805
|
|
|
42,135
|
|
|
43,045
|
|
|
43,234
|
|
|
43,713
|
|
|
42,176
|
|
|
39,519
|
|
|
39,792
|
|
Revenue cycle management and related services
|
16,693
|
|
|
17,432
|
|
|
20,392
|
|
|
19,720
|
|
|
20,243
|
|
|
20,793
|
|
|
21,594
|
|
|
20,376
|
|
Electronic data interchange and data services
|
18,319
|
|
|
18,906
|
|
|
19,051
|
|
|
20,082
|
|
|
20,189
|
|
|
20,581
|
|
|
20,643
|
|
|
20,930
|
|
Professional services
|
12,601
|
|
|
13,043
|
|
|
7,644
|
|
|
10,882
|
|
|
9,584
|
|
|
9,695
|
|
|
7,421
|
|
|
9,302
|
|
Total revenues
|
117,894
|
|
|
120,519
|
|
|
123,424
|
|
|
128,388
|
|
|
122,164
|
|
|
125,369
|
|
|
117,032
|
|
|
127,912
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license and hardware
|
7,556
|
|
|
7,475
|
|
|
7,295
|
|
|
6,477
|
|
|
7,041
|
|
|
6,578
|
|
|
6,530
|
|
|
7,357
|
|
Software related subscription services
|
4,451
|
|
|
5,384
|
|
|
5,194
|
|
|
5,643
|
|
|
5,958
|
|
|
5,963
|
|
|
5,533
|
|
|
9,168
|
|
Total software, hardware and related
|
12,007
|
|
|
12,859
|
|
|
12,489
|
|
|
12,120
|
|
|
12,999
|
|
|
12,541
|
|
|
12,063
|
|
|
16,525
|
|
Support and maintenance
|
6,914
|
|
|
6,785
|
|
|
7,365
|
|
|
7,802
|
|
|
7,943
|
|
|
8,394
|
|
|
7,537
|
|
|
7,455
|
|
Revenue cycle management and related services
|
12,706
|
|
|
13,202
|
|
|
14,246
|
|
|
14,252
|
|
|
14,512
|
|
|
14,680
|
|
|
14,381
|
|
|
14,018
|
|
Electronic data interchange and data services
|
11,999
|
|
|
12,015
|
|
|
11,956
|
|
|
12,274
|
|
|
12,326
|
|
|
12,539
|
|
|
12,437
|
|
|
12,851
|
|
Professional services
|
12,564
|
|
|
11,912
|
|
|
8,304
|
|
|
9,393
|
|
|
8,197
|
|
|
8,444
|
|
|
7,367
|
|
|
8,406
|
|
Total cost of revenue
|
56,190
|
|
|
56,773
|
|
|
54,360
|
|
|
55,841
|
|
|
55,977
|
|
|
56,598
|
|
|
53,785
|
|
|
59,255
|
|
Gross profit
|
61,704
|
|
|
63,746
|
|
|
69,064
|
|
|
72,547
|
|
|
66,187
|
|
|
68,771
|
|
|
63,247
|
|
|
68,657
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
(1)
|
36,730
|
|
|
38,681
|
|
|
41,482
|
|
|
41,279
|
|
|
39,171
|
|
|
37,396
|
|
|
39,395
|
|
|
40,272
|
|
Research and development costs, net
|
16,236
|
|
|
16,898
|
|
|
18,468
|
|
|
17,638
|
|
|
17,085
|
|
|
17,981
|
|
|
14,518
|
|
|
16,077
|
|
Amortization of acquired intangible assets
|
983
|
|
|
908
|
|
|
904
|
|
|
898
|
|
|
897
|
|
|
898
|
|
|
897
|
|
|
2,675
|
|
Impairment of assets
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32,238
|
|
Total operating expenses
|
53,949
|
|
|
56,487
|
|
|
60,854
|
|
|
59,815
|
|
|
57,153
|
|
|
56,275
|
|
|
54,810
|
|
|
91,262
|
|
Income (loss) from operations
|
7,755
|
|
|
7,259
|
|
|
8,210
|
|
|
12,732
|
|
|
9,034
|
|
|
12,496
|
|
|
8,437
|
|
|
(22,605
|
)
|
Interest income
|
54
|
|
|
70
|
|
|
(52
|
)
|
|
40
|
|
|
302
|
|
|
44
|
|
|
55
|
|
|
27
|
|
Interest expense
|
—
|
|
|
(1
|
)
|
|
(30
|
)
|
|
(311
|
)
|
|
—
|
|
|
(3
|
)
|
|
(6
|
)
|
|
(1,295
|
)
|
Other income (expense), net
|
9
|
|
|
(26
|
)
|
|
—
|
|
|
(45
|
)
|
|
(50
|
)
|
|
(54
|
)
|
|
(43
|
)
|
|
(19
|
)
|
Income (loss) before provision for (benefit of) income taxes
|
7,818
|
|
|
7,302
|
|
|
8,128
|
|
|
12,416
|
|
|
9,286
|
|
|
12,483
|
|
|
8,443
|
|
|
(23,892
|
)
|
Provision for (benefit of) income taxes
|
2,655
|
|
|
2,552
|
|
|
1,452
|
|
|
1,673
|
|
|
2,924
|
|
|
4,168
|
|
|
1,141
|
|
|
(7,570
|
)
|
Net income (loss)
|
$
|
5,163
|
|
|
$
|
4,750
|
|
|
$
|
6,676
|
|
|
$
|
10,743
|
|
|
$
|
6,362
|
|
|
$
|
8,315
|
|
|
$
|
7,302
|
|
|
$
|
(16,322
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(3)
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.11
|
|
|
$
|
0.18
|
|
|
$
|
0.11
|
|
|
$
|
0.14
|
|
|
$
|
0.12
|
|
|
$
|
(0.27
|
)
|
Diluted
(3)
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.11
|
|
|
$
|
0.18
|
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
$
|
0.12
|
|
|
$
|
(0.27
|
)
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
60,230
|
|
|
60,247
|
|
|
60,272
|
|
|
60,288
|
|
|
60,312
|
|
|
60,461
|
|
|
60,867
|
|
|
60,899
|
|
Diluted
|
60,770
|
|
|
60,788
|
|
|
60,855
|
|
|
60,956
|
|
|
61,064
|
|
|
61,194
|
|
|
61,279
|
|
|
60,899
|
|
Dividends declared per common share
|
$
|
0.175
|
|
|
$
|
0.175
|
|
|
$
|
0.175
|
|
|
$
|
0.175
|
|
|
$
|
0.175
|
|
|
$
|
0.175
|
|
|
$
|
0.175
|
|
|
$
|
—
|
|
____________________
(1) Selling, general and administrative for the quarter ended 12/31/2015 includes the loss on the disposition of the Hospital Solutions Division (including direct incremental costs, severance, and other employee-related costs incurred in connection with the disposition). Refer to Note 5 for additional details.
(2) Impairment of assets for the quarter ended 3/31/2016 relates to the impairment of our previously capitalized software costs of the NextGen Now development project. Refer to Note 8 for additional details.
(3) Quarterly net income (loss) per share may not sum to annual net income (loss) per share due to rounding