NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except
shares and per share data)
(Unaudited)
1. 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”). Each of the terms “we,” “us,” or “our” as used herein refers collectively to the Company, unless otherwise stated. All intercompany accounts and transactions have been eliminated.
Basis of Presentation.
The accompanying unaudited consolidated financial statements as of
June 30, 2016
and for the
three months ended
June 30, 2016
have been prepared in accordance with the requirements of Quarterly Report on Form 10-Q and Article 10 of the Securities and Exchange Commission Regulation S-X and therefore do not include all information and notes which would be presented were such consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These consolidated financial statements should be read in conjunction with the audited consolidated financial statements presented in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2016
. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments which are necessary for a fair statement of the results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full year.
References to amounts in the consolidated financial statement sections are in thousands, except shares and per share data, unless otherwise specified.
Significant Accounting Policies
.
There have been no material changes to the significant accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2016
.
Share-Based Compensation.
The following table shows total share-based compensation expense included in the consolidated statements of comprehensive income for the
three months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Costs and expenses:
|
|
|
|
|
Cost of revenue
|
$
|
149
|
|
|
$
|
97
|
|
|
Research and development costs, net
|
83
|
|
|
110
|
|
|
Selling, general and administrative
|
1,027
|
|
|
477
|
|
|
Total share-based compensation
|
1,259
|
|
|
684
|
|
|
Income tax benefit
|
(412
|
)
|
|
(200
|
)
|
|
Decrease in net income
|
$
|
847
|
|
|
$
|
484
|
|
Recent Accounting Standards.
Recent accounting pronouncements requiring implementation in future periods are discussed below or in the notes, where applicable.
In March 2016, the FASB issued Accounting Standards Update ("ASU") 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 ASU 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 July 2015, the FASB issued ASU 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 ASU 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. The adoption of this new standard did not have material impact on our consolidated financial statements.
In August 2014, the FASB issued ASU 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 ASU 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 ASU 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. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606) –Principal versus Agent Consideration
("ASU 2016-08"). In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing
("ASU 2016-10”). In May 2016, the FASB issued ASU 2016-11,
Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) – Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16
("ASU 2016-11") and ASU 2016-12,
Revenue from Contracts with Customers (Topic 606) –Narrow Scope Improvements and Practical Expedients
("ASU 2016-12"). The new ASUs do not change the core principle of the guidance in Topic 606 (as amended by ASU 2014-09), but rather help to provide further interpretive clarifications on the new guidance in ASU 2014-09. ASU 2014-09, as amended by ASU 2015-14, 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 the 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.
2. Fair Value Measurements
The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis at
June 30, 2016
and
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Unobservable Inputs (Level 3)
|
|
|
June 30,
2016
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
(1)
|
$
|
26,349
|
|
|
$
|
26,349
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Restricted cash and cash equivalents
|
4,842
|
|
|
4,842
|
|
|
—
|
|
|
—
|
|
|
|
$
|
31,191
|
|
|
$
|
31,191
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Contingent consideration related to acquisitions
|
$
|
26,417
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,417
|
|
|
|
$
|
26,417
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Unobservable Inputs (Level 3)
|
|
|
March 31,
2016
|
|
|
|
|
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
|
|
___________________________________
(1)
Cash equivalents consist of money market funds.
(2)
Marketable securities consist of available-for-sale 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 our financial assets and liabilities measured at fair value using significant unobservable inputs (Level 3), as of and for the
three months ended
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
Balance as of March 31, 2016
|
|
$
|
23,843
|
|
|
Fair value adjustments
|
|
2,574
|
|
|
Balance as of June 30, 2016
|
|
$
|
26,417
|
|
Non-Recurring Fair Value Measurements
We have certain assets, including goodwill and other intangible assets, which are measured at fair value on a non-recurring basis and are adjusted to fair value only if an impairment charge is recognized. The categorization of the framework used to measure fair value of the assets is considered Level 3 due to the subjective nature of the unobservable inputs used. There were
no
adjustments to fair value of such assets.
3. Business Combinations
HealthFusion Acquisition
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 7), 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.
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
|
|
4.
Goodwill
We test goodwill for impairment annually during our first fiscal quarter, referred to as the annual test date. We will also test for impairment between annual test dates if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed at a reporting-unit level, which is defined as an operating segment or one level below an operating segment (referred to as a component). 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.
During the quarter ended
June 30, 2016
, we elected to bypass the optional qualitative step of the goodwill impairment assessment, as permitted by the authoritative guidance, and proceed directly with the quantitative step, under which we compared the estimated fair value of each reporting unit with goodwill to its net carrying amount. An impairment loss, if any, is recognized when the carrying amount of the reporting unit's net assets exceeds the estimated fair value of the reporting unit. We determined the fair value of our reporting units by considering two valuation methods, consisting of the income approach (based upon estimates of future discounted cash flows for each reporting unit) and a market comparable approach (based upon valuation multiples of companies that operate in similar industries with similar operating characteristics). The net cash flows used to determine fair value under the income approach represent our best estimate of projected operating results and assumed terminal growth rates, which are dependent on a number of significant assumptions, including historical experience, expectations of future performance, and expected changes to the macroeconomic variables and industry in which the Company operates, and are subject to changes given the inherent uncertainty in predicting future results. We also considered the Company's stock price and market capitalization as a corroborative step in assessing the reasonableness of the fair values estimated for the reporting units as part of the goodwill impairment assessment. The results of the goodwill impairment assessment established that the fair value for each reporting unit with goodwill significantly exceeded its respective net carrying amount, indicating that no goodwill impairment existed as of the annual test date.
We do not amortize goodwill as it has been determined to have an indefinite useful life.
Goodwill by reporting unit consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
NextGen Division
|
$
|
149,258
|
|
|
$
|
149,258
|
|
|
RCM Services Division
|
32,290
|
|
|
32,290
|
|
|
QSI Dental Division
(1)
|
7,289
|
|
|
7,289
|
|
|
Total goodwill
|
$
|
188,837
|
|
|
$
|
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 our annual assessment of goodwill for impairment 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.
5.
Intangible Assets
Our definite-lived intangible assets, other than capitalized software development costs, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
Customer Relationships
|
|
Trade Name and Contracts
|
|
Software Technology
|
|
Total
|
|
Gross carrying amount
|
$
|
50,550
|
|
|
$
|
7,368
|
|
|
$
|
67,810
|
|
|
$
|
125,728
|
|
|
Accumulated amortization
|
(22,043
|
)
|
|
(3,174
|
)
|
|
(14,568
|
)
|
|
(39,785
|
)
|
|
Net intangible assets
|
$
|
28,507
|
|
|
$
|
4,194
|
|
|
$
|
53,242
|
|
|
$
|
85,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
Customer Relationships
|
|
Trade Name and Contracts
|
|
Software Technology
|
|
Total
|
|
Gross carrying amount
|
$
|
50,550
|
|
|
$
|
7,370
|
|
|
$
|
67,810
|
|
|
$
|
125,730
|
|
|
Accumulated amortization
|
(19,618
|
)
|
|
(2,895
|
)
|
|
(11,542
|
)
|
|
(34,055
|
)
|
|
Net intangible assets
|
$
|
30,932
|
|
|
$
|
4,475
|
|
|
$
|
56,268
|
|
|
$
|
91,675
|
|
Amortization expense related to customer relationships and trade name and contracts recorded as operating expenses in the consolidated statements of comprehensive income was
$2,704
and
$897
for the
three months ended
June 30, 2016
and
2015
, respectively. Amortization expense related to software technology recorded as cost of revenue was
$3,027
and
$903
for the
three months ended
June 30, 2016
and
2015
, respectively.
The following table represents the remaining estimated amortization of definite-lived intangible assets as of
June 30, 2016
:
|
|
|
|
|
|
|
|
For the year ended March 31,
|
|
|
2017 (remaining nine months)
|
$
|
16,729
|
|
|
2018
|
19,115
|
|
|
2019
|
16,703
|
|
|
2020
|
15,706
|
|
|
2021
|
10,974
|
|
|
2022 and beyond
|
6,716
|
|
|
Total
|
$
|
85,943
|
|
6. Capitalized Software Costs
Our capitalized software costs are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Gross carrying amount
|
$
|
99,648
|
|
|
$
|
96,699
|
|
|
Accumulated amortization
|
(85,821
|
)
|
|
(83,449
|
)
|
|
Net capitalized software costs
|
$
|
13,827
|
|
|
$
|
13,250
|
|
Amortization expense related to capitalized software costs was
$2,371
and
$2,439
for the
three months ended
June 30, 2016
and
2015
, respectively.
The following table presents the remaining estimated amortization of capitalized software costs as of
June 30, 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 (remaining nine months)
|
$
|
5,300
|
|
|
2018
|
3,900
|
|
|
2019
|
3,100
|
|
|
2020
|
1,527
|
|
|
2021
|
—
|
|
|
2022 and beyond
|
—
|
|
|
Total
|
$
|
13,827
|
|
7. 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 will be available for letters of credit, working capital and general corporate purposes. We were in compliance with all covenants under the Credit Agreement as of
June 30, 2016
.
As of
June 30, 2016
, we had
$88,000
in outstanding loans and
$162,000
of unused credit under the Credit Agreement. During the three months ended
June 30, 2016
, we recorded
$740
of interest expense and
$269
in amortization of deferred debt issuance costs related to the Credit Agreement.
8. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Accounts receivable, gross
|
$
|
93,266
|
|
|
$
|
104,467
|
|
|
Sales return reserve
|
(8,434
|
)
|
|
(7,541
|
)
|
|
Allowance for doubtful accounts
|
(3,037
|
)
|
|
(2,902
|
)
|
|
Accounts receivable, net
|
$
|
81,795
|
|
|
$
|
94,024
|
|
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Computer systems and components
|
$
|
430
|
|
|
$
|
555
|
|
Prepaid expenses and other current assets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Prepaid expenses
|
$
|
11,530
|
|
|
$
|
11,804
|
|
|
Other current assets
|
5,101
|
|
|
3,106
|
|
|
Prepaid expenses and other current assets
|
$
|
16,631
|
|
|
$
|
14,910
|
|
Equipment and improvements are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Computer equipment
|
$
|
32,514
|
|
|
$
|
32,213
|
|
|
Internal-use software
|
10,201
|
|
|
10,201
|
|
|
Furniture and fixtures
|
11,304
|
|
|
9,799
|
|
|
Leasehold improvements
|
12,995
|
|
|
13,408
|
|
|
|
67,014
|
|
|
65,621
|
|
|
Accumulated depreciation and amortization
|
(40,331
|
)
|
|
(39,831
|
)
|
|
Equipment and improvements, net
|
$
|
26,683
|
|
|
$
|
25,790
|
|
The current portion of deferred revenue are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Professional services
|
$
|
22,013
|
|
|
$
|
23,128
|
|
|
Software license, hardware and other
|
15,095
|
|
|
14,913
|
|
|
Support and maintenance
|
11,052
|
|
|
11,902
|
|
|
Software related subscription services
|
6,201
|
|
|
7,992
|
|
|
Deferred revenue, current
|
$
|
54,361
|
|
|
$
|
57,935
|
|
Accrued compensation and related benefits are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Vacation
|
$
|
8,585
|
|
|
$
|
8,987
|
|
|
Payroll, bonus and commission
|
5,672
|
|
|
9,683
|
|
|
Accrued compensation and related benefits
|
$
|
14,257
|
|
|
$
|
18,670
|
|
Other current and non-current liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
March 31,
2016
|
|
Contingent consideration and other liabilities related to acquisitions
|
$
|
26,417
|
|
|
$
|
24,153
|
|
|
Care services liabilities
|
4,842
|
|
|
5,339
|
|
|
Customer credit balances and deposits
|
4,801
|
|
|
4,123
|
|
|
Accrued EDI expense
|
2,405
|
|
|
2,382
|
|
|
Accrued royalties
|
2,390
|
|
|
2,341
|
|
|
Self insurance reserve
|
1,742
|
|
|
1,862
|
|
|
Accrued outsourcing costs
|
1,609
|
|
|
1,604
|
|
|
Deferred rent
|
1,308
|
|
|
828
|
|
|
Accrued consulting and outside services
|
1,197
|
|
|
3,650
|
|
|
Accrued legal expense
|
819
|
|
|
864
|
|
|
Other accrued expenses
|
5,130
|
|
|
3,092
|
|
|
Other current liabilities
|
$
|
52,660
|
|
|
$
|
50,238
|
|
|
|
|
|
|
|
Deferred rent
|
$
|
9,281
|
|
|
$
|
6,577
|
|
|
Uncertain tax position and related liabilities
|
4,084
|
|
|
4,084
|
|
|
Other noncurrent liabilities
|
$
|
13,365
|
|
|
$
|
10,661
|
|
9. Income Taxes
The benefit of income taxes for the
three months ended June 30
,
2016
was
$317
and the provision for income taxes for the
three months ended June 30
,
2015
was
$2,924
. The effective tax rates were
32.9%
and
31.5%
for the
three months ended June 30
,
2016
and
2015
, respectively. The effective rate for the
three months ended June 30
,
2016
increased compared to the prior year period primarily due to lower qualifying production activity deductions, offset by a favorable impact of the research and development credit.
The deferred tax assets and liabilities have been shown net in the accompanying consolidated balance sheets as noncurrent. We expect to receive the full benefit of the deferred tax assets recorded with the exception of certain state credits and state net operating loss carryforwards for which we have recorded a valuation allowance.
Uncertain tax positions
We had a liability of
$3,955
and
$3,955
for unrecognized tax benefits related to various federal, state and local income tax matters as of
June 30, 2016
and
March 31, 2016
, respectively. If recognized, this amount would reduce our effective tax rate.
We are no longer subject to U.S. federal income tax examinations for tax years before 2012. With few exceptions, we are no longer subject to state 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
.
10. Earnings (Loss) per Share
The dual presentation of “basic” and “diluted” earnings (loss) per share (“EPS”) is provided below. Share amounts below are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Earnings (loss) per share — Basic:
|
|
|
|
|
Net income (loss)
|
$
|
(647
|
)
|
|
$
|
6,362
|
|
|
Weighted-average shares outstanding — Basic
|
61,179
|
|
|
60,312
|
|
|
Net income (loss) per common share — Basic
|
$
|
(0.01
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
Earnings (loss) per share — Diluted:
|
|
|
|
|
Net income (loss)
|
$
|
(647
|
)
|
|
$
|
6,362
|
|
|
Weighted-average shares outstanding
|
61,179
|
|
|
60,312
|
|
|
Effect of potentially dilutive securities
|
—
|
|
|
752
|
|
|
Weighted-average shares outstanding — Diluted
|
61,179
|
|
|
61,064
|
|
|
Net income (loss) per common share — Diluted
|
$
|
(0.01
|
)
|
|
$
|
0.10
|
|
The computation of diluted net income (loss) per share does not include
2,767
and
1,768
options to acquire shares of common stock for the
three months ended
June 30, 2016
and
2015
, respectively, because their inclusion would have an anti-dilutive effect on net income per share.
11. Share-Based Awards
Employee Stock Option and Incentive Plans
In October 2005, our shareholders approved a stock option and incentive plan (the “2005 Plan”) under which
4,800,000
shares of common stock were reserved for the issuance of awards, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance shares, performance units (including performance options) and other share-based awards. The 2005 Plan provides that our employees and directors may, at the discretion of the Board 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 expire no later than
10 years
from the date of grant. Awards granted pursuant to the 2005 Plan are subject to the vesting schedule or performance metrics set forth in the agreements pursuant to which they are granted. Upon a change of control of our Company, as such term is defined in the 2005 Plan, awards under the 2005 Plan will fully vest under certain circumstances. The 2005 Plan expired on May 25, 2015. As of
June 30, 2016
, there were
1,358,931
outstanding options and
25,046
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
June 30, 2016
, there were
1,856,500
outstanding options,
664,532
outstanding shares of restricted stock awards and
8,613,425
shares available for future grant under the 2015 Plan.
A summary of stock option transactions during the
three months ended
June 30, 2016
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Exercise
Price
per Share
|
|
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding, April 1, 2016
|
|
2,447,286
|
|
|
$
|
19.55
|
|
|
6.3
|
|
574
|
|
|
Granted
|
|
856,500
|
|
|
12.87
|
|
|
7.9
|
|
|
|
|
Forfeited/Canceled
|
|
(88,355
|
)
|
|
21.80
|
|
|
4.8
|
|
|
|
|
Outstanding, June 30, 2016
|
|
3,215,431
|
|
|
$
|
17.59
|
|
|
5.8
|
|
$
|
238
|
|
|
Vested and expected to vest, June 30, 2016
|
|
2,358,931
|
|
|
$
|
17.59
|
|
|
5.8
|
|
$
|
238
|
|
|
Exercisable, June 30, 2016
|
|
773,346
|
|
|
$
|
26.19
|
|
|
2.3
|
|
$
|
143
|
|
We utilize the Black-Scholes valuation model for estimating the fair value of share-based compensation with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
2015
|
|
Expected term
|
|
6.0 years
|
|
3.8 years
|
|
Expected volatility
|
|
37.4%
|
|
38.3%
|
|
Expected dividends
|
|
—%
|
|
4.1%
|
|
Risk-free rate
|
|
1.5%
|
|
1.6%
|
The weighted-average grant date fair value of stock options granted during the
three months ended
June 30, 2016
and
2015
was
$4.92
and
$3.67
per share, respectively.
During the
three months ended
June 30, 2016
, a total of
856,500
options to purchase shares of common stock were granted under the 2015 Plan at an exercise price equal to the market price of our common stock on the date of grant, as summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Grant Date
|
|
Number of Shares
|
|
Exercise Price
|
|
Vesting Terms
(1)
|
|
Expiration
|
|
May 31, 2016
|
|
100,000
|
|
|
$
|
12.71
|
|
|
Five years
|
|
May 31, 2024
|
|
May 25, 2016
|
|
216,500
|
|
|
$
|
12.78
|
|
|
Four years
|
|
May 25, 2024
|
|
May 24, 2016
|
|
540,000
|
|
|
$
|
12.93
|
|
|
Four years
|
|
May 24, 2024
|
|
Total
|
|
856,500
|
|
|
|
|
|
|
|
__________________________________
(1)
Options vest in equal annual installments on each grant anniversary date commencing one year following the date of grant.
Non-vested stock option award activity during the
three months ended
June 30, 2016
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested
Number of
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
per Share
|
|
Outstanding, April 1, 2016
|
|
1,859,750
|
|
|
$
|
4.67
|
|
|
Granted
|
|
856,500
|
|
|
4.92
|
|
|
Vested
|
|
(226,845
|
)
|
|
5.96
|
|
|
Forfeited/Canceled
|
|
(47,320
|
)
|
|
4.53
|
|
|
Outstanding, June 30, 2016
|
|
2,442,085
|
|
|
$
|
4.64
|
|
As of
June 30, 2016
,
$10,226
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 our forfeiture percentage. The total fair value of options vested during the
three months ended
June 30, 2016
and
2015
was
$1,353
and
$1,657
, respectively.
Employee Share Purchase Plan
On August 11, 2014, our shareholders approved an Employee Share Purchase Plan (the “Purchase Plan”) under which
4,000,000
shares of common stock were reserved for future grant. The Purchase Plan allows eligible employees to purchase shares through payroll deductions of up to
15%
of total base salary at a price equal to
90%
of the lower of the fair market values of the shares as of the beginning or the end of the corresponding offering period. Any shares purchased under the Purchase Plan are subject to a six-month holding period. Employees are limited to purchasing no more than
1,500
shares on any single purchase date and no more than
$25,000
in total fair market value of shares during any one calendar year. As of
June 30, 2016
, we have issued
147,464
shares under the Purchase Plan and
3,852,536
shares are available for future issuance.
Share-based compensation expense recorded for the employee share purchase plan was
$126
for the
three months ended June 30
,
2016
and
$68
for the
three months ended June 30
,
2015
.
Restricted Stock Awards
Restricted stock awards activity during the
three months ended
June 30, 2016
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
per Share
|
|
Outstanding, April 1, 2016
|
|
191,247
|
|
|
$
|
14.44
|
|
|
Granted
|
|
498,898
|
|
|
12.79
|
|
|
Vested
|
|
(567
|
)
|
|
20.20
|
|
|
Outstanding, June 30, 2016
|
|
689,578
|
|
|
$
|
13.24
|
|
Share-based compensation expense related to restricted stock awards was
$545
for the
three months ended June 30
,
2016
and
$198
for the
three months ended June 30
,
2015
.
The weighted-average grant date fair value for the restricted stock awards was estimated using the market price of the common stock on the date of grant. The fair value of the restricted stock awards is amortized on a straight-line basis over the vesting period.
As of
June 30, 2016
,
$7,928
of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of
2.6
years. This amount does not include the cost of new restricted stock awards that may be granted in future periods.
12. Concentration of Credit Risk
We had cash deposits at U.S. banks and financial institutions which exceeded federally insured limits at
June 30, 2016
. We are exposed to credit loss for amounts in excess of insured limits in the event of non-performance by the institutions; however, we do not anticipate non-performance by these institutions.
13. Commitments, Guarantees and Contingencies
Commitments and Guarantees
Our software license agreements include a performance guarantee that our software products will substantially operate as described in the applicable program documentation for a period of
365 days
after delivery. To date, we have not incurred any significant costs associated with our performance guarantee or other related warranties and do not expect to incur significant warranty costs in the future. Therefore, no accrual has been made for potential costs associated with these warranties. Certain arrangements also include performance guarantees related to response time, availability for operational use, and other performance-related guarantees. Certain arrangements also include penalties in the form of maintenance credits should the performance of the software fail to meet the performance guarantees. To date, we have not incurred any significant costs associated with these warranties and do not expect to incur significant warranty costs in the future. Therefore, no accrual has been made for potential costs associated with these warranties.
We have historically offered short-term rights of return in certain sales arrangements. If we are able to estimate returns for these types of arrangements and all other criteria for revenue recognition have been met, revenue is recognized and these arrangements are recorded in the consolidated financial statements. If we are unable to estimate returns for these types of arrangements, revenue is not recognized in the consolidated financial statements until the rights of return expire, provided also, that all other criteria of 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 we shall indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any United States patent, any copyright or other intellectual property infringement claim by any third-party with respect to our software. As we have not incurred any significant costs to defend lawsuits or settle claims related to these indemnification agreements, we believe that our estimated exposure on these agreements is currently minimal. Accordingly, we have no liabilities recorded for these indemnification obligations.
Hussein Litigation
On October 7, 2013, a complaint was filed against our Company and certain of our officers and directors in the Superior Court of the State of California for the County of Orange, captioned Ahmed D. Hussein v. Sheldon Razin, Steven Plochocki, Quality Systems, Inc. and Does 1-10, inclusive, No. 30-2013-00679600-CU-NP-CJC, by Ahmed Hussein, a former director and significant shareholder of our Company. 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 the Company, Mr. Razin and Mr. Plochocki. On June 26, 2015, we filed a motion for summary judgment, which the court granted on September 16, 2015, dismissing all 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 August 4, 2016. At this time, we are unable to estimate the probability or 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 us and certain of our officers and directors in the United States District Court for the Central District of California by one of our shareholders. 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 the plaintiffs' claims are without merit and continue to defend against them vigorously. At this time, we are unable to estimate the probability or 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 ours. 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 the plaintiff’s claims are without merit and intend to defend against them vigorously. At this time, we are unable to estimate the probability or the amount of liability, if any, related to this claim.
14. Operating Segment Information
As of
June 30, 2016
, we have
three
reportable segments that are evaluated regularly by our chief operating decision maker (consisting of our Chief Executive Officer) in deciding how to allocate resources and in assessing performance.
Operating segment data is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
2015
|
|
Revenue:
|
|
|
|
|
|
NextGen Division
|
|
$
|
95,556
|
|
|
$
|
91,615
|
|
|
RCM Services Division
|
|
22,365
|
|
|
22,462
|
|
|
QSI Dental Division
|
|
4,284
|
|
|
4,418
|
|
|
Hospital Solutions Division
(1)
|
|
—
|
|
|
3,669
|
|
|
Consolidated revenue
|
|
$
|
122,205
|
|
|
$
|
122,164
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
NextGen Division
|
|
$
|
45,649
|
|
|
$
|
44,858
|
|
|
RCM Services Division
|
|
4,458
|
|
|
4,417
|
|
|
QSI Dental Division
|
|
1,877
|
|
|
950
|
|
|
Hospital Solutions Division
(1)
|
|
—
|
|
|
955
|
|
|
Corporate and unallocated
|
|
(51,856
|
)
|
|
(42,146
|
)
|
|
Consolidated operating income
|
|
$
|
128
|
|
|
$
|
9,034
|
|
___________________________________
(1)
The former Hospital Solutions Division was divested in October 2015.
Assets by segment are not tracked or used by our chief operating decision maker 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
2015
|
|
Research and development costs, net
|
|
$
|
18,224
|
|
|
$
|
17,085
|
|
|
Amortization of capitalized software costs
|
|
2,371
|
|
|
2,439
|
|
|
Marketing expense
|
|
2,943
|
|
|
3,816
|
|
|
Restructuring costs (see Note 15)
|
|
3,753
|
|
|
—
|
|
|
Other corporate and overhead costs
(1)
|
|
24,565
|
|
|
18,806
|
|
|
Total corporate and unallocated
|
|
$
|
51,856
|
|
|
$
|
42,146
|
|
___________________________________
(1)
The net increase in other corporate and overhead costs in the three months ended June 30, 2016 is primarily related to higher amortization of acquired intangible assets and other general and administrative costs associated with the acquisition of HealthFusion, higher acquisition costs (including fair value adjustments to contingent consideration liabilities), and higher professional services costs.
The amounts classified as corporate and unallocated consist primarily of corporate general and administrative costs, acquisition and transaction-related costs, amortization of acquired intangible assets, amortization of capitalized software costs, and costs of other centrally managed overhead and shared-services functions, including accounting and finance, human resources, information services, 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 operating decision maker evaluates performance based upon stand-alone segment operating income, which excludes these corporate and unallocated amounts.
15. Restructuring Plan
In fiscal year 2016, we initiated a three-phase plan intended to better position our organization for future success. We implemented a series of actions to with the objective of achieving greater synergies and further integration of our products and services in support of our business strategies, and enabling a more efficient, integrated and client-centered delivery of the holistic solutions that we believe is required by our ambulatory care clients. We also transformed our management team with the appointment of a new chief executive officer, chief financial officer, chief technology officer, and chief client officer. In the first phase, we redesigned the organization to more effectively support the execution of our strategy. Under phase two of our reorganization, we will continue building and enhancing the capabilities to drive future revenue growth. The third phase of the plan will consist of developing the services and solutions to accelerate revenue growth.
The overall plan also includes a multi-year initiative, called NextGen 2.0, to merge our business units into a single, streamlined, functional-based organization structure and to realign our organizational structure by consolidating the sales, marketing, information services, and software development responsibilities into single, company-wide roles in order to achieve greater efficiency. As a result, our future reportable segments may change due to such changes in the organization of our business.
The first phase was completed in April 2016, when we announced a corporate restructuring plan, which was approved by our Board of Directors. Under the restructuring plan, we reduced our domestic headcount by approximately
150
employees, or approximately
six
percent of our U.S.-based workforce. During the
three months ended
June 30, 2016
, we recorded
$3,753
of restructuring costs within operating expenses in our consolidated statements of comprehensive income. The restructuring costs consist of payroll-related costs, such as severance, outplacement costs, and continuing healthcare coverage, associated with the involuntary separation of employees pursuant to a one-time benefit arrangement, which were accrued when it was probable that the benefits will be paid and the amount were reasonably estimable. As of
June 30, 2016
, we had a remaining liability of
$1,308
related to our restructuring costs, which we expect to settle in the second quarter of fiscal 2017. The restructuring plan was substantially completed as of
June 30, 2016
.