NXGN NextGen Healthcare, Inc.

Management Discussion

• We generate revenue from sales of licensing rights and subscriptions to our software solutions, hardware and third-party software products, support and maintenance, managed services (formerly referred to as revenue cycle management and related services), electronic data interchange and data services (“EDI”), and other non-recurring services, including implementation, training, and consulting services performed for clients who use our products.
• Consolidated revenue for the year ended March 31, 2019 decreased $1.8 million compared to the prior year due to a $2.3 million decrease in recurring revenues, partially offset by a $0.4 million increase in software, hardware and other non-recurring revenues. The decrease in recurring revenues was due to $15.1 million lower managed services revenue and $3.0 million lower support and maintenance revenue, partially offset by $11.2 million higher subscriptions and $4.6 million higher EDI services revenue. A decrease of approximately $12.5 million in managed services is attributed to the adoption of ASC 606, whereby a portion of service fees associated with revenue cycle management (“RCM”) arrangements are now classified within other revenue categories, such as subscription services, support and maintenance, and software license and hardware. Managed services revenue further decreased compared to the prior year due to higher levels of client attrition experienced in recent periods. The adoption of ASC 606 resulted in $7.5 million higher subscription services revenue and $5.3 million higher support and maintenance revenue, which were partially offset by lower revenue due to higher client attrition during the year. EDI revenue increased due to higher EDI services sold with our NextGen Office cloud-based solutions and growth in EDI transaction volume due to the addition of new clients and further penetration of our existing client base as well as incremental revenues earned from the sales of certain clinical data. Total software, hardware, and other non-recurring revenue increased approximately $1.4 million due to the adoption of ASC 606, partially offset by $1.0 million lower revenue based on lower demand from our clients for our software products and related implementation services.
• Consolidated revenue for the year ended March 31, 2018 increased $21.4 million compared to the year ended March 31, 2017, due to a $27.9 million increase in recurring revenues, offset by a $6.5 million decrease in non-recurring revenues. The increase in recurring revenues was due to a $12.2 million increase in subscription services, $6.9 million increase in managed services revenue, $5.0 million increase in support and maintenance, and $3.8 million increase in EDI revenue. Subscription revenues increased due to higher sales of our NextGen Office cloud-based subscriptions, and incremental sales of our NextGen Mobile and NextGen Population Health cloud-based solutions acquired from Entrada in April 2017 and EagleDream in August 2017, respectively. Managed services revenue benefit from higher RCM services revenue from the addition of new clients and organic growth achieved through cross selling and ramping up of RCM services provided to our existing clients, which was offset by customer attrition as well as higher sales of our hosting services. The increase in support and maintenance is primarily due to lower sales credits in the current year, addition of new customers, and the impact of our annual price increases. EDI revenue increased due to higher EDI services sold with our NextGen Office cloud-based solutions and growth in EDI transaction volume due to the addition of new clients and further penetration of our existing client base. The decrease in non-recurring revenue was due to lower software license and hardware revenue, partially offset by an increase in other non-recurring services. The decline in software license and hardware reflects lower recent bookings associated with the increasingly saturated end-market for electronic health records software and our transition to a recurring subscription-based model. The increase in other non-recurring services is primarily due to an increase in consulting service and other professional services based on demand from our customers.