UNITED STATES
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2016
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-12537
NEXTGEN HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
California (State or other jurisdiction of incorporation or organization) | 95-2888568 (IRS Employer Identification No.) | |
18111 Von Karman Avenue, Suite 800, Irvine, California (Address of principal executive offices) | 92612 (Zip Code) |
(949) 255-2600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $0.01 Par Value | NXGN | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YesIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YesIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No Yes☐þNoo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)submit).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” and “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☑ | Accelerated filer☐ | Non-accelerated filer☐ | Smaller reporting company☐ | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes Yes☐ No o☑Noþ
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 30, 2015: $630,174,0002018: $1,070,924,000 (based on the closing sales price of the Registrant’s common stock as reported on the NASDAQ Global Select Market on that date of $12.48$20.08 per share).*
The Registrant has no non-voting common equity.
The number of outstanding shares of the Registrant’s common stock as of May 18, 201623, 2019 was 60,979,99764,814,090 shares.
* For purposes of this Annual Report on Form 10-K, in addition to those shareholders which fall within the definition of “affiliates” under Rule 405 of the Securities Act of 1933, as amended, holders of ten percent or more of the Registrant’s common stock are deemed to be affiliates for purposes of this Report.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement related to the
2019 ANNUAL REPORT ON FORM 10-K
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This Annual Report on Form 10-K (this "Report") and certain information incorporated herein by reference contain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Report, other than statements that are purely historical, are forward-looking statements. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “should,” “would,” “could,” “may,” and similar expressions also identify forward-looking statements. These forward-looking statements include, without limitation, discussions of our product development plans, business strategies, future operations, financial condition and prospects, developments in and the impacts of government regulation and legislation and market factors influencing our results. Our expectations, beliefs, objectives, intentions and strategies regarding our future results are not guarantees of future performance and are subject to risks and uncertainties, both foreseen and unforeseen, that could cause actual results to differ materially from results contemplated in our forward-looking statements. These risks and uncertainties include, but are not limited to, our ability to continue to develop new products and increase systems sales in markets characterized by rapid technological evolution, consolidation, and competition from larger, better-capitalized competitors. Many other economic, competitive, governmental and technological factors could affect our ability to achieve our goals, and interested persons are urged to review the risks factors discussed in “Item 1A. Risk Factors” of this Report, as well as in our other public disclosures and filings with the Securities and Exchange Commission (“SEC”). Because of these risk factors, as well as other variables affecting our financial condition and results of operations, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. We assume no obligation to update any forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of the filing of this Report. Each of the terms “NextGen Healthcare,” “NextGen,” “we,” “us,” “our”“our,” or the “Company” as used throughout this Report refers collectively to Quality Systems,NextGen Healthcare, Inc. and its wholly-owned subsidiaries, unless otherwise indicated.
Company Overview
NextGen Healthcare subsidiary, providesis a leading provider of ambulatory-focused healthcare software and services solutions. In pursuit of our mission to empower the transformation of ambulatory care, we provide innovative technology-based solutions that help our clients succeed while they are managing more complexity and services toassuming greater financial risk.
Our clients span the ambulatory care market in the United States. Ourfrom small single specialty practices to larger multi-specialty organizations. We have fully integrated our solutions provideso that our clients are able to provide their patients with the abilitycomprehensive services utilizing a single platform. Our highly interoperable platform allows ambulatory practices to redesignthrive especially in complex, heterogeneous healthcare communities where frictionless clinical data exchange is required to coordinate and optimize 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.
NextGen Healthcare has historically enhanced our solutions through a dedicated sales forceboth organic and to a much lesser extent, through resellers. Our clients include single and small practice physicians, 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, training, support and maintenance for software and complementary services such as revenue cycle management (“RCM”) and electronic data interchange (“EDI”).
The Company was incorporated in California in 1974. Previously named Quality Systems, Inc., the Company changed its corporate name to NextGen Healthcare, Inc. in September 2018. Our principal offices are located at 18111 Von Karman Ave., Suite 800, Irvine, California, 92612. Our92612, and our principal website is located at www.Nextgen.com.www.nextgen.com. We operate on a fiscal year ending on March 31.
Segment Revenue Breakdown Fiscal Year Ended March 31, | Segment Revenue Growth (Decline) Fiscal Year Ended March 31, | |||||||||||||||||||
2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||
NextGen Division | $ | 375,801 | $ | 373,765 | $ | 341,120 | 0.5 | % | 9.6 | % | (0.9 | )% | ||||||||
RCM Services Division | 89,831 | 80,005 | 68,093 | 12.3 | % | 17.5 | % | 5.6 | % | |||||||||||
QSI Dental Division | 19,376 | 18,451 | 19,840 | 5.0 | % | (7.0 | )% | (0.8 | )% | |||||||||||
Hospital Solutions Division | 7,469 | 18,004 | 15,614 | (58.5 | )% | 15.3 | % | (50.3 | )% | |||||||||||
Consolidated | $ | 492,477 | $ | 490,225 | $ | 444,667 | 0.5 | % | 10.2 | % | (3.4 | )% |
Industry Background and Market Opportunity
Over the last decade, the ambulatory healthcare market duehas experienced significant regulatory change, which has driven practice transformation and technology advancements. Recognizing that it was imperative to changes in regulationsdigitize the American health system to stem the escalating cost of healthcare and requirements that have occurred overimprove the past several years. We have seenquality of care being delivered, Congress enacted the Health Information Technology for Economic and Clinical Health portion ofAct in 2009 (“HITECH Act”). The legislation stimulated healthcare organizations to not only adopt electronic health records, but to use them to collect discrete data that could be used to drive quality care. This standardization supported early pay for reporting and pay-for-performance programs.
In 2010, the American Recovery and Reinvestment Act of 2009 ("HITECH Act") drive the adoption of EHRs, the Patient Protection and Affordable Care Act in 2010 (“ACA”) drive fundamental changesestablished the roadmap for shifting American healthcare from volume (fee-for-service) to the health insurance industry, and most recently,a value-based care (“VBC”) system that rewards improved outcomes at lower costs (fee-for-value). This was followed by the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) is driving value-based payment reform. We believe MACRA may be, bipartisan legislation that further changed the most importantway Medicare rewards clinicians for value vs. volume. Initially focused on government-funded care, the domain of the three regulationsCenters for our market because it permanently changes how ambulatory healthcare providersMedicare & Medicaid Services (“CMS”), these programs are reimbursed by Medicare. It offers certainty and a timeline fornow firmly established on the market’s move away from volume-based, fee-for-service models to value-based payment models that reward the delivery of lower cost, high quality care. Becausecommercial insurance side of the scopeindustry as well.
VBC created the need for a new category of healthcare information technology (“HIT”) tools that could be used to identify and complexitytreat groups of the changes in the 962-page proposed rule, we are focusedpatients, or cohorts, based on educating our clients and the market aboutrisk. Population Health Management (“PHM”) tools support these changes and ensuring that we are providing the solutions needed to thrive under the new payment systems establishedneeds by MACRA.
Importantly, the introduction of VBC programs was only an element of the broader approach to reducing healthcare expenditure. It was also accompanied by significant reductions in Medicare spending with a projected reduction of $218 billion in payments by 2028, as reported by RevCycle Intelligence. The drive to reduce costs initially led to consolidation in the healthcare system that was followed by a significant shift of care from the inpatient to the outpatient setting as more care is being moved to this lower cost environment. Ambulatory care settings have become an essential component of comprehensive, low cost distributed care. In 2018, outpatient volumes reached over 3.5 billion encounters and are well positionedforecasted to provide the solutions providersgrow 15% by 2028, as reported by Becker’s Health IT and CIO Report. The independent physicians’ practices segment is expected to generate more revenue than non-affiliated hospitals as it accepts electronic health records integrated PHM programs for better primary and follow-up care, as reported by Frost & Sullivan. The need to reachsustain revenue has made it extremely important for practices to secure their patient market share, elevating patient loyalty to be a significant determinant of provider success. Capturing patient market share and thriving in a market driven by VBC requires both an integrated platform and a full view of the patient population’s clinical and cost data neither of which could be accomplished without new technologies to collect and analyze multi-sourced patient data. Effectively implemented, these goals. Additionally,new technologies allow organizations to enhance financial viability while exercising the freedom to join, affiliate, integrate or interoperate in ways that maximize strategic control.
In order to maintain financial success with shifting reimbursement rules and shrinking reimbursement, we believe there will be an increasing demand for managed services, including revenue cycle management services that are(“RCMS”), hosting, transcription and scribe services, aligned and integrated with clinical technology solutions. Thissolutions, will increase in the coming years.
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Based on these trends, successful clients must undertake the following imperatives: 1) ensure healthy predictable financial outcomes, 2) provide high quality care at a lower cost in a risk-bearing environment, 3) ensure engaged and loyal patients, and 4) optimize clinician productivity while deploying HIT solutions, 5) support frictionless interoperability.
Our Strategy
Our core strategy is another positive development for us sinceto become a trusted partner to our RCM Services Division provides revenue cycleclients as they embark on their value-based journey and begin to take on risk as part of value-based contracts. We understand that our clients are now faced with a more complex, rapidly changing practice environment and that the HIT solutions that support these endeavors must evolve to meet these challenging requirements. Providing our clients with a comprehensive multi-faceted platform and accompanying services to enable their success is the key to our strategy.
Based on current market trends, our strategic priorities are:
Focus on Ambulatory Care. We create for and invest in the specific needs of ambulatory care providers, giving us a distinct competitive advantage in our target market over solution providers who focus on hospitals first. While many of our competitors spread their R&D and localization investment across global regions, NextGen Healthcare maintains an exclusive focus on U.S.-only ambulatory practices.
Provide an integrated ambulatory care platform with superb scalability, flexibility and interoperability. Many healthcare challenges are integrated with,uniquely local or regional -- our platform and optimize,capabilities flex and scale to fit our technologies for better results. Throughclients’ practices and workflows, not the other way around. Our ability to interoperate is pervasive, allowing our Mirth products, weclients to exchange data seamlessly.
Enable groups to successfully take on risk. We provide our clients with cloud-based population health tools that consume multi-sourced agnostic data, including adjudicated claims and risk stratification, care management tools, cost and utilization reporting, as well as quality measurement and reporting tools. Population health insights are delivered in core clinical and financial workflows enabling care givers to better engage their patients.
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NextGen Healthcare software and services based solutions map to our clients’ strategic imperatives (refer to top row in the image below). The foundation for our integrated ambulatory care platform (blue boxes) is a core of our industry-leading electronic health records (“EHR”) and practice management (“PM”) systems that support clinical and financial activities. These can be deployed on premise or in the cloud. Our primary cloud infrastructure provider is Amazon Web Services (“AWS”). We optimize the core with an automation and workflow layer that gives our clients control over how platform capabilities are implemented to drive their desired outcomes. The workflow layer includes mobile capabilities proven to reduce physician burden. Our cloud-based population health and analytics engine allows our clients to improve results in both fee-for-service and fee-for-value environments. In support of extensibility, we surround the core with open, web-based APIs to drive the secure exchange of health and patient data with connected health solutions. Finally, our technology is augmented with services as required and is mapped to client imperatives.
Clinical Care Solutions improve the quality and efficiency of care delivery. They significantly ease the administrative burden and enable the delivery of high quality, personalized care. Providers can automate patient intake, streamline clinical workflows, and leverage vendor-agnostic interoperability to achieve quality measures and qualify for incentives.
Financial Management Solutions drive healthy, predictable financial outcomes. More than just billing and collections, financial management involves all functions that effectively capture revenue at the lowest cost. Financial management solutions help practices improve performance, correct operational inefficiencies, while enhancing the practice’s financial outcomes throughout the revenue cycle.
Patient Engagement Solutions boost loyalty and improve outcomes by engaging patients in their care. Our integrated patient engagement solutions empower patients to manage their own health through direct patient-provider messaging, online scheduling, automated reminders, easy payment options, and virtual visits. The ability of patients to handle their own scheduling and billing frees provider staff from tedious tasks, restoring valuable time.
Population Health Solutions provide a single source of truth by aggregating disparate data, including vendor-agnostic clinical data with paid claims data. Sophisticated analytics are applied to this data to generate insights that enable practices to improve the quality of care, identify high risk patients who require enriched services, and coordinate the care of patients with chronic conditions. Cost and utilization analytics allow practices to successfully participate in risk-bearing contracts by providing timely insights into areas of over-utilization, under-utilization and mis-utilization of health care resources.
Connected Health Solutions provide frictionless interoperability. Interoperability is the ability of different information technology systems to securelycommunicate and exchange usable data. In healthcare, it enables caregivers to more effectively work together within and across organizational boundaries. To provide the highest quality care at the lowest cost, organizations need to capture and share data, or interoperability, is also essentialinformation both within and outside of their networks. Our integrated, interoperable solutions and services enable providers to transform the healthcare delivery system into one thatleverage their current technology for better outcomes and truly connected patient care.
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NextGen Healthcare provides better care, smarter spending, and healthier people.
Products and Services
The Core
NextGen® Ambulatory Electronic Health Records (NextGen® Ambulatory EHR).
NextGen® Ambulatory Practice Management Systems (NextGen® PM)
NextGen® Office (formerly known as Meditouch®) from the Electronic Healthcare Network Accreditation Commission (“EHNAC”).
Automation and Workflow
NextGen® Mobile (formerly known as Entrada®) – Enables physicians and other caregivers to quickly and easily create relevant documentation within the EHR without sacrificing productivity. A true EHR mobile experience, the platform provides a broad mix of additional NextGen Division solutionsfast, easy way for caregivers to the HealthFusion client base.
NextGen® Ambulatory EHR application. It allows easy, secureElectronic Healthcare Transactions – Automates the exchange of electronic data with third-partyamong providers, payers and organizations.patients. Included in this offering are insurance eligibility, authorizations, electronic claims, remittance, patient appointment reminders, and electronic statements.
NextGen® HIE.
NextGen® Patient Portal. Payment – Allows patients one integrated solution that delivers an integrated point of sale, credit card on file, automated payment collection, online and mobile compatible automated phone pay and kiosk payments
Analytics, Population Health, and Patient Engagement
NextGen® Population Health – Delivers robust capabilities for core population health insights using integrated clinical and claims data to support both broad and deep analysis for populations of interest (attribute visualization, risk stratification, gaps in care, etc.).
NextGen® Population Health Patient Care Coordination – Enables scalable management of care and payment reform initiatives driven by collaborative care and workflow automation. Stratify risk and prioritize resources. A unique feature of our offering includes analytics driven patient outreach facilitating care coordinators’ ability to automate communications with patients based on quality initiatives and value-based contract commitments.
NextGen® Population Health Performance Management – Supports proactive value-based contract management including network management (leakage/keepage), network design (geospatial view of network), clinical variation analysis, and a wide range of resource utilization metrics.
NextGen® Patient Portal drives – Drives patient engagement and satisfaction with easy, intuitive, 24x724/7 access to payments, scheduling, personal health information, and communication. It facilitates and simplifies comprehensive information exchange, offering anytime, anywhere access from PCs, tablets, and smart phones.
Interoperability
NextGen® Connect Integration EngineQSIDental Web® (“QDW”). – Enables patient data from disparate systems to be easily and securely shared, aggregated, and put to work, regardless of EHR, PM, or other HIT platform or location.
NextGen® ShareQDW, our cloud-based, SaaS practice management – A wide variety of plug-and-play interoperability solutions which help NextGen® Enterprise EHR users safely and securely exchange clinical content with external providers and organizations. The platform includes support for secure direct messaging with more than 1.2 million providers and organizations, care quality integration to enable automated data exchange on behalf of nearly 240 million patients, and clinical software solution, is marketed primarily to the multi-location dental group practice market in which the QSI Dental Division remains a dominant player. QDW is at the forefrontdata exchange interfaces with payers.
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NextGen® Managed Cloud Services
NextGen® Financial Suite (formerly known as NextGen® RCMS) – Includes billing and collections, electronic claims submission and denials management, electronic remittance and payment posting and accounts receivable follow-up. Our dedicated account management model helps make NextGen Healthcare a top-performing provider of RCMS as reported in the KLAS Ambulatory RCM Services Report.
NextGen® Contract Audit & Recovery Service – Unlike other payment review software tools that require clients to load their own contracts and fee schedules, perform analysis reports, and appeal findings with payers themselves, we provide a secure, hosted IT infrastructureturn-key service solution that frees up valuable provider and regardlessstaff time while maximizing recovery opportunity through years of size, can scaleexperience and enjoy the advantagesthousands of a cloud-based environment for its EHR and PM systems, enabling them to focus more on care and the practice, not on IT.recovery efforts.
Professional Services
We rely on a combination of patents, copyrights, trademarks, service marks, trade secret lawssecrets, and contractual restrictions to establish and protect proprietary rights in our products and services. To protect our proprietary rights, we enter into confidentiality agreements and invention assignment agreements with our employees with whom such controls are relevant. In addition, we include intellectual property protective provisions in our client contracts.
We rely on software that we license from third parties for certain components of our products and services. These components enhance our products and services and help meet evolving client needs. The failure to license any necessary technology, or to maintain our existing licenses, could result in reduced functionality of or reduced demand for our products.
Although we believe our products and services, and other proprietary rights, do not infringe upon the proprietary rights of third parties, third parties may assert intellectual property infringement claims against us in the future. Any such claims may result in costly, time-consuming litigation and may require us to enter into royalty or cross-license arrangements.
Competition
The markets for healthcare information systems and services are intensely competitive. The industry iscompetitive and highly fragmented and includes numerous competitors.fragmented. Our principal existingtraditional full-suite competitors in the healthcare information systems and services market include: Allscripts Healthcare Solutions, Inc., athenahealth, Inc., Cerner Corporation, eClinicalWorks, Epic Systems Corporation, GE Healthcare,and Greenway Health, LLC, Healthcare Management Systems, Inc. (HMS), McKesson Corporation, Medical Information Technology, Inc. (MEDITECH), Practice Fusion,LLC. Emerging smaller competitors also bring competition in specific sectors of the market. Additionally, we face competition from services-only competitors like business process outsourcers, hosting providers and other competitors.
The practice management,EHR, PM, interoperability, and connectivity markets, in particular, are subject to rapid changes in technology, and wetechnology. We expect that competition in these market segments could increase as new competitors enter the market. We believe our principal competitive advantages are the featuresour ambulatory-only focus, our comprehensive and capabilities of our products and services, our high level of client support,fully-integrated solution, and our extensive experience in the industry.
Research and Development
The healthcare information systems companies, such as athenahealth, Inc., GE Healthcare, McKesson Corporation, and Allscripts Healthcare Solutions, Inc., are also in the market of selling both PM and EHR software and medical billing, collection and claims services.
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We sell and market our products primarily through a direct sales force and to a lesser extent, through a reseller channel. Software license sales to resellers represented less than 10% of total revenue for each of the years ended March 31, 2016, 20152019, 2018 and 20142017.
NextGen Healthcare also provides solutions to networks of practices such as managed service organizations (MSOs), independent physician associations (IPAs), accountable care organizations (ACOs), ambulatory care centers (ACCs), and community health centers (CHCs).
Our direct sales force typically makesis comprised of subject matter experts by solution, as well as engaged account managers, all of whom deliver presentations to potential clients by demonstrating the systemour systems and our capabilities on the prospective client’s premises. System demonstrations for mobile workflow and analytics solutions are more web-based as these offerings tend to be targeted to larger practices. Sales efforts aimed at smaller practices can be performed on the prospective clients’ premises, or
Our sales and marketing employees identify prospective clients through a variety of means, includingincluding: a healthcare data and analytics platform, search engine optimization of content on nextgen.com; digital advertising; direct mail and email campaigns; referrals from existing clients and industry consultants,consultants; contacts at professional society meetings and trade shows and web-based seminars,shows; webinars; trade journal advertising, online advertising,advertising; public relations and social media campaigns, direct mail and email campaigns,campaigns; and telemarketing. Resources have shifted more heavily to Web-baseddigital marketing to take advantage of buyers that now tend to do more Web research before contacting a vendoras we meet potential clients where they are and other benefits of online marketing. In addition,how they shop for services. Additionally, we also focus on thought leadership and content marketing to highlight our industry knowledge, expertise and the successes of our diverse client base.
Our sales cycle can vary significantly and typically ranges from six to twenty-four months from initial contact to contract execution. Software licenses are normally delivered to a client almost immediately upon receipt of an order.order and we normally receive up-front licensing fees. Implementation and training services are normally rendered based on a mutually agreed upon timetable. As part of the fees paid by our clients, we normally receive up-front licensing fees. Clients have the option to purchase hosting and maintenance services which, if purchased, are invoiced on a monthly, quarterly or annual basis.
We continue to concentrate our direct sales and marketing efforts on single and small practice physicians, medical and dentalthe ambulatory market from large multi-specialty organizations to small-single specialty practices networks of such practices including independent practice associations ("IPAs") and physician hospital organizations ("PHOs"), professional schools, community health centers and other ambulatory care settings. IPAs, PHOs and similar networks to which we have sold systems provide use of our software to those group and single physician practices associated with the organization or hospital on either a service basis or by directing us to contract with those practices for the sale of stand-alone systems.
We have numerous clients and do not believe that the loss of any single client would adversely affect us. No client accounted for 10% or more of our net revenue during each of the fiscal years ended March 31, 2016,
Employees
As of March 31, 2016,2019, we employedhad approximately 2,987 individuals,2,660 full-time employees, of which 2,967533 were full-time employees. Approximately 443 of our employees were locatedbased in Bangalore, India with primary focus on software development activities. Aside from our Bangalore facility,and substantially all of ourother employees and operations arewere based in the United States.
Available Information
Our principal websites are www.qsii.com and www.Nextgen.com.website is www.nextgen.com. We make our periodic and current reports, together with amendments to these reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, available on our website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. You may access such filings under the “Investor Relations” button onthrough our website. Members of the public may also read and copy any materials we file with, or furnish to, the SECInvestor Relations website at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. To obtain information on the operation of the Public Reference Room, please call the SEC at 1-800-SEC-0330.http://investor.nextgen.com. The SEC maintains an Internetinternet site at
You should carefully consider the risks described below, as well as the other cautionary statements and risks described elsewhere and the other information contained in this Report and in our other filings with the SEC, including subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. We operate in a rapidly changing environment that involves a number of risks. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of these known or unknown risks actually occur, our business, financial condition or results of operations could be materially and adversely affected, in which case the trading price of our common stock may decline and you may lose all or part of your investment.
We face significant, evolving competition which, if we fail to properly address, could adversely affect our business, results of operations, financial condition and price of our stock. The markets for healthcare information systems are intensely competitive, and we face significant competition from a number of different sources. Several of our competitors have substantially greater name recognition and financial, technical, product development and marketing resources than we do. There has been significant merger and acquisition activity among a number of our competitors in recent years. Some of our larger competitors, who have greater scale than we do, have and may continue to become more active in our markets both through internal development and acquisitions. Transaction induced pressures, or other related factors may result in price erosion or other negative market dynamics that could adversely affect our business, results of operations, financial condition and price of our stock.
We compete in all of our markets with other major healthcare related companies, information management companies, systems integrators and other software developers. Competition in our markets occurs on the basis of several factors, including price, innovation, client service, product quality and reliability, scope of services, industry acceptance, and others. Competitive pressures and other factors, such as new product introductions by us or our competitors, may result in price or market share erosion that could adversely affect our business, results of operations and financial condition. Also, there can be no assurance that our applications will achieve broad market acceptance or will successfully compete with other available software products. If we fail to distinguish our offerings from other options available to healthcare providers, the demand for and market share of our offerings may decrease.
Saturation or consolidation in the healthcare industry could result in the loss of existing clients, a reduction in our potential client base and downward pressure on the prices for our products and services.
As the healthcare information systems market evolves, saturation of this market with our products or our competitors' products could limit our revenues and opportunities for growth. There has also been increasing consolidation amongst healthcare industry participants in recent years, creating integrated healthcare delivery systems with greater market power. As provider networks and managed care organizations consolidate, the number of market participants decreases and competition to provide products and services like ours will become more intense. The importance of establishing relationships with key industry participants will become greater and our inability to make initial sales of our systems to, or maintain relationships with, newly formed groups and/or healthcare providers that are replacing or substantially modifying their healthcare information systems could adversely affect our business, results of operations and financial condition. These consolidated industry participants may also try to use their increased market power to negotiate price reductions for our products and services. If we were forced to reduce our prices, our business would become less profitable unless we were able to achieve corresponding reductions in our expenses.Many of our competitors have greater resources than we do. In order to compete successfully, we must keep pace with our competitors in anticipating and responding to the rapid changes involving the industry in which we operate, or our business, results of operations and financial condition may be adversely affected.
The software market generally is characterized by rapid technological change, changing client needs, frequent new product introductions and evolving industry standards. The introduction of products incorporating new technologies and the emergence of new industry standards could render our existing products obsolete and unmarketable. There can be no assurance that we will be successful in developing and marketing new products that respond to technological changes or evolving industry standards. New product development depends upon significant research and development expenditures which depend ultimately upon sales growth. Any material shortfall in revenue or research funding could impair our ability to respond to technological advances or opportunities in the marketplace and to remain competitive. If we are unable, for technological or other reasons, to develop and introduce new products in a timely manner in response to changing market conditions or client requirements, our business, results of operations and financial condition may be adversely affected.In response to increasing market demand, we are currently developing new generations of targeted software products. There can be no assurance that we will successfully develop these new software products or that these products will operate successfully, or that any such development, even if successful, will be completed concurrently with or prior to introduction of competing products. Any such failure or delay could adversely affect our competitive position or could make our current products obsolete.
Uncertainty in global economic and political conditions may negatively impact our business, operating results or financial condition
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rate risks that may be exacerbated by these global financial conditions. If the banking system or the fixed income, credit or equity markets continue to deteriorate or remain volatile, our investment portfolio may be impacted and the values and liquidity of our investments could be adversely affected as well.
Our relationships with strategic partners may fail to benefit us as expected. We face risk and/or the possibility of claims from activities related to strategic partners, which could be expensive and time-consuming, divert personnel and other resources from our business and result in adverse publicity that could harm our business
. We rely on third parties to provide services for our business. For example, we use national clearinghouses in the processing of some insurance claims and we outsource some of our hardware services and the printing and delivery of patient statements for our clients. These third parties could raise their prices and/or be acquired by our competitors, which could potentially create short and long-term disruptions to our business, negatively impacting our revenue, profit and/or stock price. We also have relationships with certain third parties where these third parties serve as sales channels through which we generate a portion of our revenue. Due to theseWe have acquired companies, and may engage in future acquisitions, which may be expensive, time consuming, subject to inherent risks and from which we may not realize anticipated benefits.
Historically, we have acquired numerous businesses, technologies, and products. We may acquire additional businesses, technologies and products if we determine that these additional businesses, technologies and products are likely to serve our strategic goals. Acquisitions have inherent risks, which may have a material adverse effect on our business, financial condition, operating results or prospects, including, but not limited to the following:failure to achieve projected synergies and performance targets;
potentially dilutive issuances of our securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets with indefinite useful lives, which could adversely affect our results of operations and financial condition;
using cash as acquisition currency may adversely affect interest or investment income, which may in turn adversely affect our earnings and /or earnings per share;
unanticipated expenses or difficulty in fully or effectively integrating or retaining the acquired technologies, software products, services, business practices, management teams or personnel, which would prevent us from realizing the intended benefits of the acquisition;
failure to maintain uniform standard controls, policies and procedures across acquired businesses;
difficulty in predicting and responding to issues related to product transition such as development, distribution and client support;
the possible adverse effect of such acquisitions on existing relationships with third party partners and suppliers of technologies and services;
the possibility that staff or clients of the acquired company might not accept new ownership and may transition to different technologies or attempt to renegotiate contract terms or relationships, including maintenance or support agreements;
the assumption of known and unknown liabilities;
the possibility of disputes over post-closing purchase price adjustments such as performance-based earnouts;
the possibility that the due diligence process in any such acquisition may not completely identify material issues associated with product quality, product architecture, product development, intellectual property issues, regulatory risks, compliance risks, key personnel issues or legal and financial contingencies, including any deficiencies in internal controls and procedures and the costs associated with remedying such deficiencies;
difficulty in entering geographic and/or business markets in which we have no or limited prior experience;
difficulty in integrating acquired operations due to geographical distance and language and cultural differences;
diversion of management's attention from other business concerns; and
the possibility that acquired assets become impaired, or that acquired assets lead us to determine that existing assets become impaired, requiring us to take a charge to earnings which could be significant.
A failure to successfully integrate acquired businesses or technology could, for any of these reasons, have an adverse effect on our financial condition and results of operations.
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Our failure to manage growth could harm our business, results of operations and financial condition. We have in the past experienced periods of growth which have placed, and may continue to place, a significant strain on our non-cash resources. We have also expanded our overall software development, marketing, sales, client management and training capacity, and may do so in the future. In the event we are unable to identify, hire, train and retain qualified individuals in such capacities within a reasonable timeframe, such failure could have an adverse effect on the operation of our business. In addition, our ability to manage future increases, if any, in the scope of our operations or personnel will depend on significant expansion of our research and development, marketing and sales, management and administrative and financial capabilities. The failure of our management to effectively manage expansion in our business could have an adverse effect on our business, results of operations and financial condition.
We may experience reduced revenues and/or be forced to reduce our prices
. We may be subject to pricing pressures with respect to our future sales arising from various sources, including amount other things, government action affecting reimbursement levels. Our clients and the other entities with which we have business relationships are affected by changes in statutes, regulations, and limitations on government spending for Medicare, Medicaid, and other programs. Recent government actions and future legislative and administrative changes could limit government spending for Medicare and Medicaid programs, limit payments to healthcare providers, increase emphasis on competition, impose price controls, initiate new and expanded value-based reimbursement programs and create other programs that potentially could have an adverse effect on our business. If we experience significant downward pricing pressure, our revenues may decline along with our ability to absorb overhead costs, which may leave our business less profitable.Our operations are dependent upon attracting and retaining key personnel. If such personnel were to leave unexpectedly, we may not be able to execute our business plan.
Our future performance depends in significant part upon the continued service of our key development and senior management personnel and successful recruitment of new talent. These personnel have specialized knowledge and skills with respect to our business and our industry. Because we have a relatively small number of employees when compared to other leading companies in our industry, our dependence on maintaining our relationships with key employees and successful recruiting is particularly significant.The industry in which we operate is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. There can be no assurance that our current employees will continue to work for us. Loss of services of key employees could have an adverse effect on our business, results of operations and financial condition. Furthermore, we may need to grant additional equity incentives to key employees and provide other forms of incentive compensation to attract and retain such key personnel. Equity incentives may be dilutive to our per share financial performance. Failure to provide such types of incentive compensation could jeopardize our recruitment and retention capabilities.
We may be subject to harassment or discrimination claims and legal proceedings, and our inability or failure to respond to and effectively manage publicity related to such claims could adversely impact our business.The integration Our Code of new key executives into our management team may interfere with our operations.Business Conduct and Ethics and other employment policies prohibit harassment and discrimination in the workplace, in sexual or in any other form. We have recently appointed several new key executives, including our Chief Executive Officer, Chief Financial Officer, Chief Technology Officer,ongoing programs for workplace training and Chief Client Officer,compliance, and we may hire additional key management team members. These executives will be requiredinvestigate and take disciplinary action with respect to spendalleged violations. However, actions by our employees could violate those policies. With the increased use of social media platforms, including blogs, chat platforms, social media websites, and other forms of Internet-based communications that allow individuals access to a significant amountbroad audience, there has been an increase in the speed and accessibility of time on certain integration and transition efforts in addition to performing their regular duties and responsibilities. If we fail to complete these integrations and transitions in an efficient manner,information dissemination. The dissemination of information via social media, including information about alleged harassment, discrimination or if we fail to provide sufficient incentives to motivate and retain our key executives,other claims, could harm our business, brand, reputation, financial condition, and prospects may suffer.results of operations, regardless of the information's accuracy.
Our recent strategy shift and the resulting business reorganization plan we are implementing may be disruptive both internally and externally, and we may not fully realize the anticipated benefits
. We recently embarked on a new strategic planIf we are unable to manage our growth in the new markets we may enter, our business and financial results could suffer.
Our future financial results will depend in part on our ability to profitably manage our business in new markets that we may enter. We are engaging in the strategic identification of, and competition for, growth and expansion opportunities in new markets or offerings, including but not limited to the areas of interoperability, patient engagements, data analytics and population health. With several of our12
we anticipate, and there can be no assurance that we will be able to successfully scale the HealthFusion productacquired companies’ products to meet our clients’ expectations. In addition, as clients move from fee-for-service to fee-for-value reimbursement strategies in conjunction with the adoption of population health business models, we may not make appropriate and timely changes to our service offerings consistent with shifts in market demands and expectations. In order to successfully execute on our growth initiatives, we will need to, among other things, manage changing business conditions, anticipate and react to changes in the regulatory environment, and develop expertise in areas outside of our business's traditional core competencies. Difficulties in managing future growth in new markets could have a significant negative impact on our business, financial condition and results of operations.
We may not be successful in developing or launching our new software products and services, which could have a negative impact on our financial condition and results of operations.
We invest significant resources in the research and development of new and enhanced software products and services. Over the last few years we have incurred, and will continue to incur, significant internal research and development expenses, a portion of which have been and may continue to be recorded as capitalized software costs. We cannot provide assurances that we will be successful in our efforts to plan, develop or sell new software products that meet client expectations, which could result in an impairment of the value of the related capitalized software costs, an adverse effect on our financial condition and operating results and a negative impact the future of our business. Additionally, we cannot be assured that we will continue to capitalize software development costs to the same extent as we have done to date, as the result of changes in development methodologies and other factors. To the extent that we capitalize a lower percentage of total software development costs, our earnings could be reduced.We own a captive facilityhave substantial development and other operations in India, and we use offshore third-party partners located in India and other countries that subjectssubject us to regulatory, economic, social and political uncertainties in India and to laws applicable to USU.S. companies operating overseas.
We face the risks and uncertainties that are associated with litigation against us,and investigations, which may adversely impact our marketing, distract management and have a negative impact upon our business, results of operations and financial condition.
Commencing in April 2017, we have received requests for documents and information from the effectUnited States Attorney's Office for the District of discouraging potential acquirers from bidding for us or reducing the consideration such acquirers would otherwise be willing to payVermont and other government agencies in connection with an acquisition.
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information and ultimately the assertion of claims or the commencement of legal proceedings against us, as well as other material liabilities. In addition, our responses to these and any future requests require time and effort, which can result in additional cost to us. Given the highly-regulated nature of our industry, we may, from time to time, be subject to subpoenas, requests for information, or investigations from various government agencies. It is our practice to respond to such matters in a cooperative, thorough and timely manner.
There can be no assurance that such litigation and investigations will not result in liability in excess of our insurance coverage, that our insurance will cover such claims or that appropriate insurance will continue to be available to us in the future at commercially reasonable rates.
We may be impacted by IT system failures or other disruptions.
We may be subject to IT systems failures and network disruptions. These may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, malware, physical or electronic break-ins, or other events or disruptions. System redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to or the delivery of certain of our products or services, compromise our data or our clients’ data, or result in delayed or cancelled orders as well as potentially expose us to third party claims. System failures and disruptions could also impede our transactions processing services and financial reporting.Our business operations are subject to interruption by, among other, natural disasters, fire, power shortages, terrorist attacks, and other hostile acts, labor disputes, public health issues, and other issues beyond our control. Such events could decrease our demand for our products or services or make it difficult or impossible for us to develop and deliver our products or services to our clients. A significant portion of our research and development activities, our corporate headquarters, our IT systems, and certain of our other critical business operations are concentrated in a few geographic areas. In the event of a business disruption in one or more of those areas, we could incur significant losses, require substantial recovery time, and experience significant expenditures in order to resume operations, which could materially and adversely impact our business, financial condition, and operating results.
We have had to take charges due to asset impairments, and we could suffer further charges due to asset impairment that could reduce our income. We test our goodwill for impairment annually during our first fiscal quarter, and on interim dates should events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with the relevant accounting guidance. In the past, we have recorded sizeable goodwill impairment charges, and we may need to do so in the future. Declines in business performance or other factors could cause the fair value of any of our operating segments to be revised downward, resulting in further impairment charges. If the financial outlook for any of our operating segments warrants additional impairments of goodwill, the resulting write-downs could materially affect our reported net earnings.
We face risks related to litigation advanced by a former director and shareholder of ours, a putative class action and a shareholder derivative claim. On October 7, 2013, a complaint was filed against usour 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 ours.our Company. We filed a demurrer to the complaint, which the courtCourt 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,Hussein, alleging that the plaintiffhe breached fiduciary duties owed to the Company, Mr. Razin and Mr. Plochocki. Mr. Razin and Mr. Plochocki have dismissed their claims against Hussein, leaving the Company as the sole plaintiff in the cross-complaint. On June 26, 2015, we filed a motion for summary judgment with respect to Hussein’s claims, which the courtCourt granted on September 16, 2015, dismissing all of Hussein’s claims against us. On September 23, 2015, the plaintiffHussein filed an application for reconsideration of the Court's summary judgment order, which the courtCourt denied. Hussein filed a renewed application for reconsideration of the Court’s summary judgment order on August 3, 2017. The Court again denied Hussein’s application. On October 28, 2015, the plaintiffMay 9, 2016, and August 5, 2016, Hussein filed a motion for summary judgment, motion for summary adjudication, and motion for judgment on the pleadings, respectively, seeking to dismiss our cross-complaint. The Court denied each motion. Trial on our cross-complaint whichbegan June 12, 2017. On July 26, 2017, the court denied on March 3, 2016. On May 9, 2016, the plaintiff filedCourt issued a statement of decision granting Hussein’s motion for summary adjudication, seeking to again dismissjudgment on our cross-complaint. TheFinal judgment over Hussein’s claims and our cross-claims was entered on January 9, 2018. Hussein has noticed his appeal of the order granting summary judgment over his claims, and we noticed a cross-appeal on the court’s statement of decision granting Hussein’s motion for judgment on our cross-complaint. Briefing on the cross-appeals was completed in fall 2018. A hearing foron the motion is set for Julycross-appeals has not yet been set.
On September 28, 2016. On November 19, 2013,2017, a complaint was filed against theour Company and certain of the Company’sour current and former officers and directors in the United States District Court for the Central District of California, captioned Deerfield Beach Police Pension Fund, individually and on behalf of all others similarly situated, v. Quality Systems, Inc., Steven T. Plochocki, Paul A. Holt and Sheldon Razin, No. SACV13-01818-CJC-JPRx, by the Deerfield Beach Police Pension Fund, a shareholder of the Company. The complaint is a putative class action filed on behalf of the shareholders of the Company other than the defendants. After the court appointed lead plaintiffs and lead counsel
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8:17-cv-01694, by Timothy J. Foss,Kusumam Koshy, a purported shareholder of the Company.ours. The complaint arises from the same allegations described above related to the complaints filed by Mr. Hussein and the Deerfield Beach Police Pension Fund and generally alleges breach of fiduciary duties and abuse of control, and gross mismanagement by the Company’s directors, in addition toas well as unjust enrichment and insider selling by individual directors.directors arising out of the allegations described above under the caption “Hussein Litigation”, and a related, now-settled, federal securities class action, as well as the Company’s adoption of revised indemnification agreements, and the resignation of certain officers of the Company. The parties have agreedcomplaint seeks restitution and disgorgement, court costs and attorneys’ fees, and enhanced corporate governance reforms and internal control procedures. On January 12, 2018, Defendants filed a motion to stay this litigation untildismiss the derivative complaint. Defendants’ motion is scheduled to be heard on July 23, 2018. On July 25, 2018, the Court dismissed the complaint with prejudice. On August 24, 2018, the plaintiff field a notice of appeal to the United States Court of Appeals for the Ninth Circuit, issues a rulingand filed her opening brief on January 23, 2019. We filed our response on March 25, 2019, and the pending appeal in the Quality Systems, Inc. Securities Litigation matter descried above. plaintiff’s reply is due this spring.
Although we believe the claims to be without merit, our operating results and share price may be negatively impacted due to the negative publicity, expenses incurred in connection with our defense, management distraction, and/or other factors related to this litigation. In addition, litigation of this nature may negatively impact our ability to attract and retain clients and strategic partners, as well as qualified board members and management personnel.
Our credit agreement contains restrictive and financial covenants that may limit our operational flexibility. If we fail to meet our obligations under the credit agreement, our operations may be interrupted and our business and financial results could be adversely affected.
We may not be successful in integrating and operating our HealthFusion acquisition,recent acquisitions, and in implementing our post-acquisition business strategy with respect to HealthFusion’s product.the products acquired in these transactions. Our shift in product focus following the acquisition, which led to the abandonment of a product in development and a material impairment of previously capitalized development work,acquisitions may not yield the desired results
Risks Related to Our Products and Services
If our principal products, new product developments or implementation, training and support services fail to meet the needs of our clients due to lack of client acceptance, errors, or other problems, we may fail to realize future growth, suffer reputational harm and face the risk of losing existing clients.
We currently derive substantially all of our net revenue from sales of our healthcare information systems and related services. We believe that a primary factor in the market acceptance of our systems has been our ability to meet the needs of users of healthcare information systems. Our future financial performance will depend in large part on our ability to continue to meet the increasingly sophisticated needs of our clients through the timely development and successful introduction of new and enhanced versions of our systems and other complementary products, as well as our ability to provide high quality implementation, training and support services for our products. We have historically expended a significant percentage of our net revenue on product development and believe that significant continuing product development efforts will be required to retain our existing clients and sustain our growth. Continued investment in our sales staff and our client implementation, training and support staffs will also be required to retain and grow our client base.There can be no assurance that we will be successful in our client satisfaction or product development efforts, that the market will continue to accept our existing products and services, or that new products or product enhancements will be developed and implemented in a timely manner, meet the requirements of healthcare providers, or achieve market acceptance. Also, it is possible that our technology may contain defects or errors, some of which may remain undetected for a period of time. If we detect errors before we introduce a solution, we may have to delay deployment for an extended period of time while we address the problem. If we do not discover errors until after product deployment, we may need to provide enhancements to correct such errors. Remediating product defects and errors could consume our development and management resources. In addition, any failure or perceived failure to maintain high-quality and highly-responsive client support could harm our reputation. Quality or performance issues with our products and services may result in product-related liabilities, unexpected expenses and diversion of resources to remedy errors, harm to our reputation, lost sales, delays in commercial releases,
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delays in or loss of market acceptance of our solutions, license termination or renegotiations, and privacy or security vulnerabilities. If new products or product enhancements are delayed or do not achieve market acceptance, or if our implementation, training and support services do not achieve a high degree of client satisfaction, our reputation, business, results of operations and financial condition could be adversely affected. At certain times in the past, we have also experienced delays in purchases of our products by clients anticipating our launch, or the launch of our competitors, of new products. There can be no assurance that material order deferrals in anticipation of new product introductions from ourselves or other entities will not occur.
If the emerging technologies and platforms of Microsoft and others upon which we build our products do not gain or continue to maintain broad market acceptance, or if we fail to develop and introduce in a timely manner new products and services compatible with such emerging technologies, we may not be able to compete effectively and our ability to generate revenue will suffer.
Our software products are built and depend upon several underlying and evolving relational database management system platforms such as those developed by Microsoft. To date, the standards and technologies upon which we have chosen to develop our products have proven to have gained industry acceptance. However, the market for our software products is subject to ongoing rapid technological developments, quickly evolving industry standards and rapid changes in client requirements, and there may be existing or future technologies and platforms that achieve industry standard status, which are not compatible with our products.We are dependent on our license rights and other services from third parties, which may cause us to discontinue, delay or reduce product shipments.
We depend upon licenses for some of the technology used in our products as well as other services from third party vendors. Most of these arrangements can be continued/renewed only by mutual consent and may be terminated for any number of reasons. We may not be able to continue using the products or services made available to us under these arrangements on commercially reasonable terms or at all. As a result, we may have to discontinue, delay or reduce product shipments or services provided until we can obtain equivalent technology or services. Most of our third party licenses are non-exclusive. Our competitors may obtain the right to use any of the business elements covered by these arrangements and use these elements to compete directly with us. In addition, if our vendors choose to discontinue providing their technology or services in the future or are unsuccessful in their continued research and development efforts, we may not be able to modify or adapt our own products.We may experience interruption at our data centers or client support facilities.
We perform data center and/or hosting services for certain clients, including the storage of critical patient and administrative data at company-owned facilities and through third party hosting arrangements. In addition, we provide support services to our clients through various client support facilities. We have invested in reliability features such as multiple power feeds, multiple backup generators and redundant telecommunications lines, as well as technical (such as multiple overlapping security applications, access control and other countermeasures) and physical security safeguards, and structured our operations to reduce the likelihood of disruptions. However, complete failure of all local public power and backup generators, impairment of all telecommunications lines, aWe face the possibility of having to adopt new pricing strategies, such as subscription pricing or bundling. In April 2009, we announced a new subscription based software as a service delivery model which includes monthly subscription pricing. This model is designed for smaller practices to quickly access the NextGen®NextGen Ambulatory EHR or NextGen®NextGen PM products at a modest monthly per provider price. We currently derive substantially all of our systems revenue from traditional software license, implementation and training fees, as well as the resale of computer hardware. Today, the majority of our clients pay an initial license fee for the use of our products, in addition to a periodic maintenance fee. While the intent of the new subscription based delivery model is to further penetrate the smaller practice market, there can be no assurance that this delivery model will not become increasingly popular with both small and large clients. In addition, we have experienced increasing demand for bundling our software and systems with RCM service arrangements, which has required us to modify our standard upfront license fee pricing model and could impact software maintenance revenue streams prospectively. If the marketplace increasingly demands subscription or bundled pricing, we may be forced to further adjust our sales, marketing and pricing strategies accordingly, by offering a higher percentage of our products and services through these means. Shifting to a significantly greater degree of subscription or bundled pricing could adversely affect our financial condition, cash flows and quarterly and annual revenue and results of operations, as our revenue would initially decrease substantially.
We face the possibility of claims based upon our website content, which may cause us expense and management distraction
. We could be subject to third party claims based on the nature and content of information supplied on our website by us or third parties, including content providers or users. We could also be subject to liability for content that may be accessible through our website or16
If our security measures are breached or fail and unauthorized access is obtained to a client’s data, our services may be perceived as not being secure, clients may curtail or stop using our services, and we may incur significant liabilities. Our services involve the storage, transmission and processing of clients’ proprietary information and protected health information of patients. Because of the sensitivity of this information, security features of our software are very important. If our security measures are breached or fail as a result of third party action, employee error, malfeasance, insufficiency, defective design, or otherwise, someone may be able to obtain unauthorized access to client or patient data. As a result, our reputation could be damaged, our business may suffer, and we could face damages for contract breach, penalties for violation of applicable laws or regulations and significant costs for remediation and remediation efforts to prevent future occurrences. We rely upon our clients as users of our system for key activities to promote security of the system and the data within it, such as administration of client-side access credentialing and control of client-side display of data. On occasion, our clients have failed to perform these activities. Failure of clients to perform these activities may result in claims against us that this reliance was misplaced, which could expose us to significant expense and harm to our reputation even though our policy is to enter into business associate agreements with our clients. Although we extensively train and monitor our employees, it is possible that our employees may, intentionally or unintentionally, breach security measures. Moreover, third parties with whom we do not have business associate agreements may breach the privacy and security of patient information, potentially causing us reputational damage and exposing us to liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and clients. In addition, our clients may authorize or enable third parties to access their client data or the data of their patients on our systems. Because we do not control such access, we cannot ensure the complete propriety of that access or integrity or security of such data in our systems.
Failure by our clients to obtain proper permissions and waivers may result in claims against us or may limit or prevent our use of data, which could harm our business.
We require our clients to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of the information that we receive, and we require contractual assurances from them that they have done so and will do so. If they do not obtain necessary permissions and waivers, then our use and disclosure of information that we receive from them or on their behalf may be limited or prohibited by state or federal privacy laws or other applicable laws. This could impair our functions, processes and databases that reflect, contain, or are based upon such data and may prevent use of such data. In addition, this could interfere with or prevent creation or use of rules and analyses or limit other data-driven activities that are beneficial to our business. Moreover, we may be subject to claims or liability for use or disclosure of information by reason of lack of valid notice, permission or waiver. These claims or liabilities could subject us to unexpected costs and adversely affect our operating results.We face the possibility of damages resulting from internal and external security breaches
. In the course of our business operations, we store, process, compile and transmit confidential information, including patient health information, in our processing centers and other facilities. A breach of security in any of these facilities could damage our reputation and result inThe success of our strategy to offer our electronic data interchange (“EDI”) services and software as a service (“SaaS”) solutions depends on the confidence of our clients in our ability to securely transmit confidential information. Our EDI services and SaaS solutions rely on encryption, authentication and other security technology licensed from third parties to achieve secure transmission of confidential information. We may not be able to stop unauthorized attempts to gain access to or disrupt the transmission of communications by our clients. Anyone who is able to circumvent our security measures could misappropriate confidential user information or interrupt our, or our clients’, operations. In addition, our EDI and SaaS solutions may be vulnerable to viruses, malware, physical or electronic break-ins and similar disruptions.
High-profile security breaches at other companies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting information technology products and businesses. Although this is an industry-wide problem that affects other software and hardware companies, we may be targeted by computer hackers because we are a prominent healthcare information technology company and have high profile clients. These risks will increase as we continue to provide secure infrastructure and/grow our cloud offerings, store and process increasingly large amounts of our clients’ confidential data, including personal health information, and host or electronic communication servicesmanage parts of our clients’ businesses in cloud-based/multi-tenant information technology environments. We may use third party public cloud providers in connection with our cloud-based offerings or third party providers to host our own data, in which case we may have to rely on the processes, controls and security such third parties have in place to protect the infrastructure.
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The costs we would incur to address any security incidents would increase our expenses, and our efforts to resolve these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential clients that may impede our sales, development of solutions, provision of services, or other critical functions. If a lackcyberattack or other security incident were to allow unauthorized access to or modification of trust by our clients’ or suppliers’ data, our own data, or our information technology systems, or if our products or services are perceived as having security vulnerabilities, we could suffer significant damage to our brand and reputation. This could lead to fewer clients causing them to seek out other vendors and/using our products or damage our reputation in the market, makingservices and make it more difficult for us to obtain new clients.
Our business depends on continued and unimpeded access to the Internetinternet by us and our clients, which is not within our control. We deliver Internet-basedinternet-based services and, accordingly, depend on our ability and the ability of our clients to access the Internet.internet. This access is currently provided by third parties that have significant market power in the broadband and Internetinternet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies and government-owned service provides -- all of whom are outside of our control. In the event of any difficulties, outages and delays by Internetinternet service providers, we may be impeded from providing services, resulting in a loss of potential or existing clients.
We may be subject to claims for system errors, warranties or product liability, which could have an adverse effect on our business, results of operations and financial condition.
Our software solutions are intended for use in collecting, storing and displaying clinical and healthcare-related information used in the diagnosis and treatment of patients and in related healthcare settings such as admissions and billing. Therefore, users of our software solutions have a greater sensitivity to errors than the market for software products generally. Any failure by our products to provide accurate and timely information concerning patients, their medication, treatment and health status, generally, could result in claims against us which could materially and adversely impact our financial performance, industry reputation and ability to market new system sales. In addition, a court or government agency may take the position that our delivery of health information directly, including through licensed practitioners, or delivery of information by aCertain healthcare professionals who use our SaaS products will directly enter health information about their patients including information that constitutes a record under applicable law that we may store on our computer systems. Numerous federal and state laws and regulations, the common law and contractual obligations, govern collection, dissemination, use and confidentiality of patient-identifiable health information, including:
state and federal privacy and confidentiality laws;
our contracts with clients and partners;
state laws regulating healthcare professionals;
Medicaid laws;
the HIPAA and related rules proposed by CMS; and
CMS standards for Internetinternet transmission of health data.
HIPAA establishes elements including, but not limited to, federal privacy and security standards for the use and protection of Protected Health Information. Any failure by us or by our personnel or partners to comply with applicable requirements may result in a material liability to us.
Although we have systems and policies in place for safeguarding Protected Health Information from unauthorized disclosure, these systems and policies may not preclude claims against us for alleged violations of applicable requirements. Also, third party sites and/or links that consumers may access through our web sites may not maintain adequate systems to safeguard this
There can be no assurance that we will not be subject to product liability claims, that such claims will not result in liability in excess of our insurance coverage, that our insurance will cover such claims or that appropriate insurance will continue to be available to us in the future at commercially reasonable rates. Such product liability claims could adversely affect our business, results of operations and financial condition.
We are subject to the effect of payer and provider conduct which we cannot control and accordingly, there is no assurance that revenue for our services will continue at historic levels
. We offer certain electronic claims submission products and services as part of our product line. While we have implemented certain product features designed to maximize18
the accuracy and completeness of claims submissions, these features may not be sufficient to prevent inaccurate claims data from being submitted to payers. Should inaccurate claims data be submitted to payers, we may be subject to liability claims.
Electronic data transmission services are offered by certain payers to healthcare providers that establish a direct link between the provider and payer. This process reduces revenue to third party EDI service providers such as us. As a result of this, and other market factors, we are unable to ensure that we will continue to generate revenue at or in excess of prior levels for such services.
A significant increase in the utilization of direct links between healthcare providers and payers could adversely affect our transaction volume and financial results. In addition, we cannot provide assurance that we will be able to maintain our existing links to payers or develop new connections on terms that are economically satisfactory to us, if at all.
Proprietary rights are material to our success, and the misappropriation of these rights could adversely affect our business and our financial condition.
We are heavily dependent on the maintenance and protection of our intellectual property and we rely largely on technical security measures, license agreements, confidentiality procedures and employee nondisclosure agreements to protect our intellectual property. The majority of our software is not patented and existing copyright laws offer only limited practical protection.There can be no assurance that the legal protections and precautions we take will be adequate to prevent misappropriation of our technology or that competitors will not independently develop technologies equivalent or superior to ours. Further, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States and are often not enforced as vigorously as those in the United States.
We do not believe that our operations or products infringe on the intellectual property rights of others. However, there can be no assurance that others will not assert infringement or trade secret claims against us with respect to our current or future products or that any such assertion will not require us to enter into a license agreement or royalty arrangement or other financial arrangement with the party asserting the claim. Responding to and defending any such claims may distract the attention of our management and adversely affect our business, results of operations and financial condition. In addition, claims may be brought against third parties from which we purchase software, and such claims could adversely affect our ability to access third party software for our systems.
If we are deemed to infringe on the proprietary rights of third parties, we could incur unanticipated expense and be prevented from providing our products and services.
We have been, and may be in the future, subject to intellectual property infringement claims as the number of our competitors grows and our applications' functionality is viewed as similar or overlapping with competitive products. We do not believe that we have infringed or are infringing on any proprietary rights of third parties. However, claims are occasionally asserted against us, and we cannot assure you that infringement claims will not be asserted against us in the future. Also, we cannot assure you that any such claims will be unsuccessful. We could incur substantial costs and diversion of management resources defending any infringement claims - even if we are ultimately successful in the defense of such matters. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provide products or services. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for our products or services will be available on commercially reasonable terms, or at all.We face risks related to the periodic maintenance and upgrades that need to be made to our products.
As we continue to develop and improve upon our technology and offerings, we need to periodically upgrade and maintain the products deployed to our clients. This process can require a significant amount of our internal time and resources, and be complicated and time consuming for our clients. Certain upgrades may also pose the risk of system delays or failure. If our periodic upgrades and maintenance cause disruptions to our clients, we may lose revenue-generating transactions, our clients may elect to use other solutions and we may also be the subject of negative publicity that may adversely affect our business and reputation.Risks Related to Regulation
There is significant uncertainty in the healthcare industry in which we operate, and the current governmental laws and regulations as well as any future modifications to the regulatory environment, may adversely impact our business, financial condition and results of operations.
The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement processes and operation of healthcare facilities. During the past several years, the healthcare industry has been subject to an increase in governmental regulation of, among other things, reimbursement rates and certain capital expenditures.For example, the Health Insurance Portability and Accountability Act of 1996, as modified by HITECH provisions of the ARRA (collectively, “HIPAA”), continues to have a direct impact on the health care industry by requiring national provider identifiers and standardized transactions/code sets, operating rules and necessary security and privacy measures in order to ensure the appropriate level of privacy of protected health information. These regulatory factors affect the purchasing practices and operation of health care organizations.
The Patient Protection and Affordable Care Act (“PPACA”), which was amended by the Health Care and Education Reconciliation Act of 2010, became law in 2010. This comprehensive health care reform legislation included provisions to control health care costs, improve health care quality, and expand access to affordable health insurance. The Medicare Access
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and CHIP Reauthorization Act of 2015 (“MACRA”), which became law in 2015, repealed the sustainable growth rate (“SGR”) formula and created two new value-based payment systems for Medicare physicians. Together with ongoing statutory and budgetary policy developments at a federal level, these health care reform laws include changes in Medicare and Medicaid payment policies and other health care delivery administrative reforms that could potentially negatively impact our business and the business of our clients. Because not all the administrative rules implementing health care reform under these laws have been finalized, and because of ongoing federal fiscal budgetary pressures yet to be resolved for federal health programs, the full impact of the health care reform legislation and of further statutory actions to reform healthcare payment on our business is unknown, but there can be no assurances that health care reform legislation will not adversely impact either our operational results or the manner in which we operate our business. Health care industry participants may respond by reducing their investments or postponing investment decisions, including investments in our solutions and services.
Since January 2017, the actions taken by the Trump administration to delay, cancel, and amend the healthcare regulations and initiatives implemented by the prior administration have announced that they intendcreated tremendous uncertainty surrounding the continued implementation of the PPACA, MACRA, and other healthcare legislation. The legislative efforts taken by the 115th Congress in 2017 to examine further proposalsrepeal and amend major provisions of the PPACA added to reform certain aspectsthis uncertainty. As a result of the November 2018 elections, control of the U.S. House of Representatives changed in January 2019. Because the new leadership in the House has a different set of healthcare system. legislative priorities than the prior leadership, the industry may be subject to additional legislative or regulatory changes in 2019.
Healthcare providers may react to these proposals, and the uncertainty surrounding such proposals, by curtailing or deferring investments, including those for our systems and related services. Cost-containment measures instituted by healthcare providers as a result of regulatory reform or otherwise could result in a reduction in the allocation of capital funds. Such a reduction could have an adverse effect on our ability to sell our systems and related services. On the other hand, changes in the regulatory environment have increased and may continue to increase the needs of healthcare organizations for cost-effective data management and thereby enhance the overall market for healthcare management information systems. We cannot predict what effect, if any, such proposals or healthcare reforms might have on our business, financial condition and results of operations.
As existing regulations mature and become better defined, we anticipate that these regulations will continue to directly affect certain of our products and services, but we cannot fully predict the effect at this time. We have taken steps to modify our products, services and internal practices as necessary to facilitate our compliance with the regulations, but there can be no assurance that we will be able to do so in a timely or complete manner. Achieving compliance with these regulations could be costly and distract management’s attention and divert other company resources, and any noncompliance by us could result in civil and criminal penalties.
Developments of additional federal and state regulations and policies have the potential to positively or negatively affect our business.
Other specific risks include, but are not limited to, risks relating to:
Privacy and Security of Patient Information.
As part of the operation of our business, we may have access to or our clients may provide to us individually-identifiable health information related to the treatment, payment, and operations of providers’ practices. Government and industry legislation and rulemaking, especially HIPAA, HITECH and standards and requirements published by industry groups such as the Joint Commission require the use of standard transactions, standard identifiers, security and other standards and requirements for the transmission of certain electronic health information. These standards and requirements impose additional obligations and burdens on us, limiting the use and disclosure of individually-identifiable health information, and require us to enter into business associate agreements with our clients and vendors. Failure by us to enter into adequate business associate agreements with any client or vendor would place us in violation of applicable standards and requirements and could expose us to liability. Our business associates may interpret HIPAA requirements differently than we do, and we may not be able to adequately address the risks created by such interpretations. These new rules, and any future changes to privacy and security rules, may increase the cost of compliance and could subject us to additional enforcement actions, which could further increase our costs and adversely affect the way in which we do business.Interoperability Standards.
Our clients are concerned with and often require that our software solutions and health care devices be interoperable with otherIn February 2019, HHS’s Office of the National Coordinator for Health Information Technology (“ONC”) released a proposed rule titled, “21st Century Cures Act: Interoperability, Information Blocking, and the ONC Health IT Certification Program.” The proposed rule would implement several of the key interoperability legislation isprovisions included in the 21st Century Cures Act. Specifically, it calls on developers of certified EHRs and health IT products to adopt standardized application programming interfaces (“APIs”), which will help allow individuals to securely and easily access structured and unstructured EHI formats using smartphones and other mobile devices. This provision and others included in the new rule would create a potentially lengthy list of new certification and maintenance of certification requirements that developers of EHRs and other health IT
20
products would have to meet in order to maintain approved federal government certification status. Meeting and maintaining this certification status could require additional development costs.
The ONC proposed rule also
FDA Regulation of Software as a Medical Device. The U.S. Food and Drug Administration (“FDA”) has the statutory authority to regulate medical software solutions,if it falls within the definition of a “device” under the Federal Food, Drug, and Cosmetic Act (“FFDCA”). However, the FDA has exercised enforcement discretion for software said to be “low risk.” The December 2016 21st Century Cures Act clarified the FDA’s regulation of medical software by amending the definition of “device” in the FFDCA to exclude certain software functions, including electronic health care devices or servicesrecord software functionality and administrative software functionality. In December 2017, the FDA issued draft guidance documents to clarify how it intends to interpret and enforce these provisions of the Cures Act. In 2017, the FDA also issued a Digital Health Innovation Action Plan and launched a voluntary “Software Precertification (Pre-Cert) Pilot Program” for software developers. Although we believe that our products are currently not consistent with interoperability standards imposed by governmental/regulatory authorities or demanded by market forces,subject to FDA regulation, we could be forcedcontinue to incur substantial additional development costsfollow the FDA’s guidance in this area, which is subject to conform.
Health Reform.
The health reform laws discussed above and that may be enacted in the future contain and may contain various provisions which may impact us and our clients. Some of these provisions may have a positive impact, by expanding the use of electronic health records and other health information technology solutions in certain federal programs, for example, while others, such as reductions in reimbursement for certain types of providers, may have a negative impact due to fewer available resources. Increases in fraud and abuse penalties may also adversely affect participants in the health care sector, including us.We may not see the benefits from government funding programs initiated to accelerate the adoption and utilization of health information technology.
While government programs have been implemented to improve the efficiency and quality of the healthcare sector, including expenditures to stimulate business and accelerate the adoption and utilization of healthcare technology, we may not see the anticipated benefits of such programs. Under the ARRA, the PPACA, and the MACRA,HITECH established the Medicare and Medicaid EHR Incentive Programs to provide incentive payments for eligible professionals, hospitals, and critical access hospitals as they adopt, implement, upgrade, or demonstrate meaningful use of certified EHR technology. HITECH, and subsequently MACRA, also authorized CMS to apply payment adjustments, or penalties, to Medicare eligible professionals and eligible hospitals that are not meaningful users under the Medicare EHR Incentive Program.
Although we believe that our service offerings will meet the requirements of HITECH and MACRA to allow our clients to qualify for financial incentives and avoid financial penalties for implementing and using our services, there can be no guaranty that our clients will achieve meaningful use (or its equivalent under MACRA’s Merit Based Incentive Payment System, Promoting Interoperability) or actually receive such planned financial incentives for our services. We also cannot predict the speed at which healthcare providers will adopt electronic health record systems in response to these government incentives, whether healthcare providers will select our products and services or whether healthcare providers will implement an electronic health record system at all. In addition, the financial incentives associated with the meaningful use program are tied to provider participation in Medicare and Medicaid, and we cannot predict whether providers will continue to participate in these programs. Any delay in the purchase and implementation of electronic health records systems by healthcare providers in response to government programs, or the failure of healthcare providers to purchase an electronic health record system, could have an adverse effect on our business, financial condition and results of operations. It is also possible that additional regulations or government programs related to electronic health records, amendment or repeal of current healthcare laws and regulations or the delay in regulatory implementation could require us to undertake additional efforts to meet meaningful use standards, materially impact our ability to compete in the evolving healthcare IT market, materially impact healthcare providers' decisions to implement electronic health records systems or have other impacts that would be unfavorable to our business.
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Several of our solutions also support Accountable Care Organizations (“ACOs”). In 2018, Medicare’s largest ACO program, the Shared Savings Program, consisted of 561 ACOs serving 10.5 assigned beneficiaries across the country. In December 2018, the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule that dramatically redesigns and sets a new direction for Shared Savings Program, renaming it “Pathways to Success.” Because it is unknown how ACOs will react to CMS’s Pathways to Success program redesign, we cannot predict the impact the regulatory change will have on our clients and our business.
We may be subject to false or fraudulent claim laws. There are numerous federal and state laws that forbid submission of false information or the failure to disclose information in connection with submission and payment of physician claims for reimbursement. In some cases, these laws also forbid abuse of existing systems for such submission and payment. Any failure of our RCMrevenue cycle management services to comply with these laws and regulations could result in substantial liability including, but not limited to, criminal liability, could adversely affect demand for our services and could force us to expend significant capital, research and development and other resources to address the failure. Errors by us or our systems with respect to entry, formatting, preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations. Determination by a court or regulatory agency that our services violate these laws could subject us to civil or criminal penalties, invalidate all or portions of some of our client contracts, require us to change or terminate some portions of our business, require us to refund portions of our services fees, cause us to be disqualified from serving clients doing business with government payers and have an adverse effect on our business.
In most cases where we are permitted to do so, we calculate charges for our RCMrevenue cycle management services based on a percentage of the collections that our clients receive as a result of our services. To the extent that violations or liability for violations of these laws and regulations require intent, it may be alleged that this percentage calculation provides us or our employees with incentive to commit or overlook fraud or abuse in connection with submission and payment of reimbursement claims. The U.S. Centers for Medicare and Medicaid Services has stated that it is concerned that percentage-based billing services may encourage billing companies to commit or to overlook fraudulent or abusive practices.
A portion of our business involves billing of Medicare claims on behalf of its clients. In an effort to combat fraudulent Medicare claims, the federal government offers rewards for reporting of Medicare fraud which could encourage others to subject us to a charge of fraudulent claims, including charges that are ultimately proven to be without merit.
Additionally, under the False Claims Act (“FCA”), the federal government allows private individuals to file a complaint or otherwise report actions alleging the defrauding of the federal government by an entity. These suits, known as qui tam actions or “whistleblower” suits may be brought by, with only a few exceptions, any private citizen who believes that he has material information of a false claim that has not been previously disclosed. If the federal government intervenes, the individual that filed the initial complaint may share in any settlement or judgment. If the federal government does not intervene in the action, the whistleblower plaintiff may pursue its allegation independently. Some states have adopted similar state whistleblower and false claims provisions. Qui tam actions under the FCA and similar state laws may lead to significant fines, penalties, settlements or other sanctions, including exclusion from Medicare or other federal or state healthcare programs.
If our products fail to comply with evolving government and industry standards and regulations, we may have difficulty selling our products.
We may be subject to additional federal and state statutes and regulations in connection with offering services and products via theWe are subject to changes in and interpretations of financial accounting matters that govern the measurement of our performance, one or more of which could adversely affect our business, financial condition, cash flows, revenue, results of operations, and debt covenant compliance
. Based on our reading and interpretations of relevant guidance, principles or concepts issued by, among other authorities, the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and the Commission, we believe our current business arrangements, transactions, and related estimates and disclosures have been properly reported. However, there continue to be issued interpretations and guidance for applying the relevant standards to a wide range of sales and licensing contract terms and business arrangements that are prevalent in the software industry. Future interpretations or changes by the regulators of existing accounting standards or changes in our business practices could result in changes in our revenue recognition and/or other accounting policies and practices that could adversely affect our business, financial condition, cash flows, revenue and results of operations. In addition, changes in accounting rules could alter the application of certain terms in our credit agreement, thereby impacting our ability to comply with our debt covenants.Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our business, and our per share price may be adversely affected.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) and the rules and regulations promulgated by the SEC to implement Section 404, we are required to include in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting. The assessment must include disclosure of any material weakness in our internal control over financial reporting identified by management.22
As part of the evaluation undertaken by management and our independent registered public accountants pursuant to Section 404, our internal control over financial reporting was effective as of March 31, 2016.our most recent fiscal year end. However, if we fail to maintain an effective system of disclosure controls or internal controls over financial reporting, we may discover material weaknesses that we would then be required to disclose. Any material weaknesses identified in our internal controls could have an adverse effect on our business. We may not be able to accurately or timely report on our financial results, and we might be subject to investigation by regulatory authorities. This could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which may have an adverse effect on our stock price.
No evaluation process can provide complete assurance that our internal controls will detect and correct all failures within our company to disclose material information otherwise required to be reported. The effectiveness of our controls and procedures could also be limited by simple errors or faulty judgments. In addition, if we continue to expand, through either organic growth or through acquisitions (or both), the challenges involved in implementing appropriate controls will increase and may require that we evolve some or all of our internal control processes.
It is also possible that the overall scope of Section 404 may be revised in the future, thereby causing ourselves to review, revise or reevaluate our internal control processes which may result in the expenditure of additional human and financial resources.
Risks Related to Ownership of Our Common Stock
The unpredictability of our quarterly operating results may cause the price of our common stock to fluctuate or decline.
Our revenue may fluctuate in the future from quarter to quarter and period to period, as a result of a number of factors including, without limitation:the size and timing of orders from clients;
the specific mix of software, hardware and services in client orders;
the length of sales cycles and installation processes;
the ability of our clients to obtain financing for the purchase of our products;
changes in pricing policies or price reductions by us or our competitors;
the timing of new product announcements and product introductions by us or our competitors;
changes in revenue recognition or other accounting guidelines employed by us and/or established by the Financial Accounting Standards Board ("FASB") or other rule-making bodies;
changes in government healthcare policies and regulations, such as the shift from fee-for-service reimbursement to value-based reimbursement;
accounting policies concerning the timing of the recognition of revenue;
the availability and cost of system components;
the financial stability of clients;
market acceptance of new products, applications and product enhancements;
our ability to develop, introduce and market new products, applications and product enhancements;
our success in expanding our sales and marketing programs;
deferrals of client orders in anticipation of new products, applications, product enhancements, or public/private sector initiatives;
execution of or changes to our strategy;
personnel changes; and
general market/economic factors.
Our software products are generally shipped as orders are received and accordingly, we have historically operated with a minimal backlog of license fees. As a result, a portion of our revenue in any quarter is dependent on orders booked and shipped in that quarter and is not predictable with any degree of certainty. Furthermore, our systems can be relatively large and expensive, and individual systems sales can represent a significant portion of our revenue and profits for a quarter such that the loss or deferral of even one such sale can adversely affect our quarterly revenue and profitability.
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Because a significant percentage of our expenses are relatively fixed, a variation in the timing of systems sales, implementations and installations can cause significant variations in operating results from quarter to quarter. As a result, we believe that interim period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Further, our historical operating results are not necessarily indicative of future performance for any particular period.
Our common stock price has been volatile, which could result in substantial losses for investors purchasing shares of our common stock and in litigation against us.
Volatility may be caused by a number of factors including but not limited to:actual or anticipated quarterly variations in operating results;
rumors about our performance, software solutions, or merger and acquisition activity;
changes in expectations of future financial performance or changes in estimates of securities analysts;
governmental regulatory action;
health care reform measures;
client relationship developments;
purchases or sales of company stock;
activities by one or more of our major shareholders concerning our policies and operations;
changes occurring in the markets in general;
macroeconomic conditions, both nationally and internationally; and
other factors, many of which are beyond our control.
Furthermore, the stock market in general, and the market for software, healthcare and high technology companies in particular, has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These
Moreover, in the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources.
One of our current directors, and one of our former directors are each significant shareholders, which makes it possible for them to have significant influence over the outcome of all matters submitted to our shareholders for approval and which influence may be alleged to conflict with our interests and the interests of our other shareholders.
One of our directors is a significant shareholder who beneficially owns approximately24
Our credit agreement contains restrictions on our ability to declare and pay dividends. Accordingly, we suspended payment of dividends following our previously declared January 4, 2016 dividend payment, and we announced that we do not expect to pay dividends for at least the next twelve months from that time. Prior to suspending dividends, we had paid a quarterly dividend commencing with the conclusion of our first fiscal quarter of 2008 (June 30, 2007), with our Board of Directors declaring a quarterly cash dividend ranging from $0.125 to its most recent level of $0.175 per share on our outstanding shares of common stock, each quarter thereafter. Our dividends were generally distributable on or about the fifth day of each of the months of October, January, April and July. With our payment of dividends currently suspended, the payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including without limitation, our credit agreement, operating cash flows, financial condition, operating results, and sufficiency of funds based on our then-current and anticipated cash needs and capital requirements. Unfulfilled expectations regarding future dividends could adversely affect the price of our stock.
None.
Our corporate headquarters is located in Irvine, California. We believe that our existing facilities are in good condition and adequate for our current business requirements. Should we continue to grow, we may be required to lease or acquire additional space. We believe that suitable additional space is available, if needed, at commercially reasonable market rates and terms.
As of March 31, 2016,2019, we leased an aggregate of approximately 521,600492,200 square feet of space with lease agreements expiring at various dates. Significant locationsdates, of which approximately 454,400 square feet of space are utilized for continuing operations and 37,800 square feet of space are being subleased or have been vacated as follows:
Square Feet | Notes | ||
Horsham, Pennsylvania | 110,000 | (2) (6) | |
Irvine, California | 71,800 | (1) (4) (6) | |
St. Louis, Missouri | 62,400 | (3) | |
Bangalore, India | 53,400 | (6) | |
Austin, Texas | 43,700 | (5) | |
Solana Beach, California | 40,000 | (2) (6) | |
Atlanta, Georgia | 35,500 | (2) (6) | |
Hunt Valley, Maryland | 34,000 | (3) | |
Costa Mesa, California | 25,100 | (2) (6) | |
North Canton, Ohio | 22,100 | (3) | |
Augusta, Georgia | 7,300 | (4) | |
South Jordan, Utah | 7,300 | (3) | |
Other locations | 9,000 | ||
Total leased properties | 521,600 |
|
| Square Feet |
|
| Notes | |
Primary Operating Locations |
|
|
|
|
|
|
Horsham, Pennsylvania |
|
| 92,800 |
|
| (2) |
Irvine, California |
|
| 83,100 |
|
| (1) (2) |
Bangalore, India |
|
| 73,800 |
|
| (2) |
St. Louis, Missouri |
|
| 42,300 |
|
|
|
San Diego, California |
|
| 40,000 |
|
| (2) |
Atlanta, Georgia |
|
| 35,500 |
|
| (2) |
Hunt Valley, Maryland |
|
| 34,000 |
|
|
|
North Canton, Ohio |
|
| 22,100 |
|
|
|
Fairport, New York |
|
| 15,300 |
|
|
|
Brentwood, Tennessee |
|
| 10,500 |
|
|
|
Traverse City, Michigan |
|
| 5,000 |
|
|
|
Total Primary Operating Locations |
|
| 454,400 |
|
|
|
|
|
|
|
|
|
|
Vacated or Subleased Locations |
|
|
|
|
|
|
Horsham, Pennsylvania |
|
| 17,200 |
|
|
|
Solana Beach, California |
|
| 12,000 |
|
|
|
St, Louis, Missouri |
|
| 8,600 |
|
|
|
Total Vacated or Subleased Locations |
|
| 37,800 |
|
|
|
|
|
|
|
|
|
|
Total Leased Properties |
|
| 492,200 |
|
|
|
(1) | Location of our corporate office |
(2) | Primary locations of our research and development functions |
We have experienced legal claims by clients regarding product and contract disputes, by other third parties asserting that we have infringed their intellectual property rights, by current and former employees regarding certain employment matters and by certain shareholders. We believe that these claims are without merit and intend to defend against them vigorously; however, we could incur substantial costs and diversion of management resources defending any such claim, even if we are ultimately successful in the defense of such matter. Litigation is inherently uncertain and always difficult to predict.
Additionally, we are subject to the regulation and oversight of various federal and state governmental agencies that enforce fraud and abuse programs related to the submission of fraudulent claims for reimbursement from governmental payers. We have received, and from time to time may receive, inquiries or subpoenas from federal and state agencies. Under the False Claims Act (“FCA”), private parties have the right to bring qui tam, or “whistleblower,” suits against entities that submit, or cause to be submitted, fraudulent claims for reimbursement. Qui tam or whistleblower actions initiated under the FCA may be pending but placed under seal by the court to comply with the FCA’s requirements for filing such suits. As a result, they could lead to proceedings without our knowledge. We refer you to the discussion of infringementregulatory and litigation risks within “Item 1A. Risk Factors"Factors” and to Note 14, "Commitments,“Commitments, Guarantees and Contingencies"Contingencies” of our notes to consolidated financial statements included elsewhere in this Report for a discussion of current legal proceedings.
Not applicable
Market Price and Holders
Our common stock is traded under the symbol “NXGN” on the NASDAQ Global Select Market under the symbol “QSII.”
High | Low | ||
Three Months Ended | |||
June 30, 2014 | $18.89 | $14.10 | |
September 30, 2014 | $16.63 | $13.69 | |
December 31, 2014 | $15.99 | $13.01 | |
March 31, 2015 | $18.75 | $15.31 | |
June 30, 2015 | $17.95 | $15.33 | |
September 30, 2015 | $17.06 | $12.01 | |
December 31, 2015 | $16.74 | $12.11 | |
March 31, 2016 | $17.50 | $12.51 |
At May 18, 2016,23, 2019, there were approximately 133566 holders of record of our common stock.
Declaration Date | Record Date | Payment Date | Per Share Dividend | |||||
May 20, 2015 | June 12, 2015 | July 6, 2015 | $ | 0.175 | ||||
July 22, 2015 | September 11, 2015 | October 5, 2015 | 0.175 | |||||
October 21, 2015 | December 11, 2015 | January 4, 2016 | 0.175 | |||||
Fiscal year 2016 | $ | 0.525 | ||||||
May 28, 2014 | June 13, 2014 | July 3, 2014 | $ | 0.175 | ||||
July 23, 2014 | September 12, 2014 | October 3, 2014 | 0.175 | |||||
October 22, 2014 | December 12, 2014 | January 2, 2015 | 0.175 | |||||
January 21, 2015 | March 13, 2015 | April 3, 2015 | 0.175 | |||||
Fiscal year 2015 | $ | 0.700 |
Securities Authorized for Issuance Under Equity Compensation Plans
The information included under Item 12 of this Report, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters," is incorporated herein by reference.
Performance Graph
The following graph compares the cumulative total returns of our common stock, the NASDAQ Composite Index and the NASDAQ Computer & Data Processing Services Stock Index over the five-year period ended March 31, 20162019 assuming $100 was invested on March 31, 20112014 with all dividends, if any, reinvested. The returns shown are based on historical results and are not intended to be indicative of future stock prices or future performance. This performance graph shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended or the Exchange Act.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Quality Systems,NextGen Healthcare, Inc., The NASDAQ Composite Index
And The NASDAQ Computer & Data Processing Index
* | |
$100 invested on March 31, |
26
Table of The following selected financial data, with respect to our consolidated statements of net income and comprehensive income data for each of the five years in the period ended March 31, Consolidated Financial Data (In thousands, except per share data) Fiscal Year Ended March 31, 2019 2018 2017 2016 2015 Statements of comprehensive income data: Revenue $ 529,173 $ 531,019 $ 509,624 $ 492,477 $ 490,225 Cost of revenue 246,697 241,535 223,134 225,615 223,164 Gross profit 282,476 289,484 286,490 266,862 267,061 Selling, general and administrative 164,879 193,226 163,623 156,234 158,172 Research and development costs, net 80,994 81,259 78,341 65,661 69,240 Amortization of acquired intangible assets 4,344 7,810 10,435 5,367 3,693 Impairment of assets — 3,757 — 32,238 — Restructuring costs 640 611 7,078 — — Income from operations 31,619 2,821 27,013 7,362 35,956 Interest income 216 55 14 428 111 Interest expense (2,814 ) (3,323 ) (3,156 ) (1,304 ) (341 ) Other income (expense), net 267 37 (262 ) (166 ) (62 ) Income (loss) before provision for income taxes 29,288 (410 ) 23,609 6,320 35,664 Provision for (benefit of) income taxes 4,794 (2,830 ) 5,368 663 8,332 Net income $ 24,494 $ 2,420 $ 18,241 $ 5,657 $ 27,332 Basic net income per share $ 0.38 $ 0.04 $ 0.30 $ 0.09 $ 0.45 Diluted net income per share $ 0.38 $ 0.04 $ 0.29 $ 0.09 $ 0.45 Basic weighted average shares outstanding 64,417 63,435 61,818 60,635 60,259 Diluted weighted average shares outstanding 64,600 63,440 62,010 61,233 60,849 Dividends declared per common share $ — $ — $ — $ 0.53 $ 0.70 March 31, 2019 March 31, 2018 March 31, 2017 March 31, 2016 March 31, 2015 Balance sheet data: Cash, cash equivalents, and marketable securities $ 33,079 $ 28,845 $ 37,673 $ 36,473 $ 130,585 Working capital 31,619 7,070 18,108 45,931 100,893 Total assets 532,895 515,755 473,221 530,790 460,521 Long-term line of credit 11,000 37,000 15,000 105,000 — Total liabilities 156,949 192,345 168,178 261,413 176,981 Total shareholders’ equity 375,946 323,410 305,043 269,377 283,540 27 Except for the historical information contained herein, the matters discussed in this management’s discussion and analysis of financial condition and results of operations (“MD&A”), including discussions of our product development plans, business strategies and market factors influencing our results, may include forward-looking statements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, both foreseen and unforeseen, including, but not limited to, our ability to continue to develop new products and increase systems sales in markets characterized by rapid technological evolution, consolidation and competition from larger, better-capitalized competitors. Many other economic, competitive, governmental and technological factors could affect our ability to achieve our goals and interested persons are urged to review any risks that may be described in “Item 1A. Risk Factors” as set forth herein, as well as in our other public disclosures and filings with the Securities and Exchange Commission ("SEC"). This MD&A is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K ("Report") in order to enhance your understanding of our results of operations and financial condition and should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and related notes thereto included elsewhere in this Report. Historical results of operations, percentage margin fluctuations and any trends that may be inferred from the discussion below are not necessarily indicative of the operating results for any future period. Company Overview NextGen Healthcare Our clients span the ambulatory care market NextGen Healthcare has historically enhanced our solutions through The Company was incorporated in California in 1974. Previously named Quality Systems, Inc., the Company changed its corporate name to NextGen Healthcare, Inc. in September 2018. Our principal offices are located at 18111 Von Karman Ave., Suite 800, Irvine, California, Critical Accounting Policies and Estimates The discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors we believe to be reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. On a regular basis, we review the accounting policies and update our assumptions, estimates, and judgments, as needed, to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. Actual results could differ materially from our estimates under different assumptions or conditions. To the extent that there are material differences between our estimates and actual results, our financial condition or results of operations will be affected. 28 Our significant accounting policies, as described in Note 2, “Summary of Significant Accounting Policies” of our notes to consolidated financial statements included elsewhere in this Report, should be read in conjunction with management’s discussion and analysis of financial condition and results of operations. We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results because application of such policies require significant judgment regarding the effects of matters that are inherently uncertain and that affect our consolidated financial statements. We Reserves on Accounts Receivable We maintain reserves for potential sales returns and uncollectible accounts receivable. 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 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 Although we currently believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in required reserves that could be material. Software Development Costs Software development costs, consisting primarily of employee salaries and benefits and certain third party costs, 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 net income and comprehensive income, until technological feasibility has been established. After technological feasibility is established, any additional external 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. 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 29 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. We periodically reassess the estimated economic life and the recoverability of our capitalized software costs. If a determination is made that capitalized amounts are not recoverable based on the estimated net cash flows to be generated from sales of the applicable software product, the amount by which the unamortized capitalized costs of a software product exceed the net realizable value is written off as a charge to earnings. The net realizable value is the estimated future gross revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance and client support required to satisfy our responsibility at the time of sale. Although we currently believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in revenue that could be material. Business Combinations We completed our acquisitions of In accordance with the acquisition method of accounting for business combinations, we The purchase price 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. 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. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. We test goodwill for impairment annually during our first fiscal quarter, referred to as the annual test date. Based on our qualitative assessment for the current fiscal year, we have determined that there was no impairment to our goodwill as of June 30, 2018. 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. We currently also do not believe there is a reasonable likelihood that there will 30 be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to future impairment charges that could be material. Intangible Assets Intangible assets consist of trade names and contracts, customer relationships, and software technology, all of which arose in connection with our acquisitions. These intangible assets are recorded at fair value and are stated net of accumulated amortization. We currently amortize intangible assets using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed. Although currently we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to decreases in the fair value of our intangible assets, resulting in impairment charges that could be material. We test intangible assets for impairment if we believe indicators of impairment exist. Share-Based Compensation We record share-based compensation related to our employee stock options plans, employee share purchase plans, restricted stock awards, and restricted performance Share-based compensation expense associated with the stock options under our equity incentive plans is based on the number of options that ultimately vest and adjusted, if needed, as forfeitures occur. We estimate the fair value of stock options and employee stock purchase plan rights 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 net income and comprehensive income. Share-based compensation expense associated with restricted stock awards is estimated using the market price of the common stock on the date of grant. Share-based compensation expense associated with the restricted performance stock awards and shares We currently do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine share-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-based compensation expense that could be material. We believe that the Over the last decade, the ambulatory healthcare In 2010, the VBC created the need for a new category of healthcare information technology (“HIT”) tools that could be used to identify and treat groups of patients, or cohorts, based on risk. Population Health Management (“PHM”) tools support these needs by identifying patient risk, engaging patients, coordinating care, and determining when interventions are needed to improve clinical and financial outcomes. The United States PHM market was estimated at $3.1 billion in 2018 and is expected to more than double by 2022. 31 Importantly, the introduction of VBC programs was only an element of the broader approach to reducing healthcare expenditure. It was also accompanied by significant reductions in Medicare spending with a projected reduction of $218 billion in payments by 2028, as reported by RevCycle Intelligence. The drive to reduce costs initially led to consolidation in the healthcare system that was followed by a significant shift of care from the inpatient to the outpatient setting as more care is being moved to this lower cost environment. Ambulatory care settings have become an essential component of comprehensive, low cost distributed care. In 2018, outpatient volumes reached over 3.5 billion encounters and are forecasted to grow 15% by 2028, as reported by Becker’s Health IT and CIO Report. The independent physicians’ practices segment is expected to generate more revenue than non-affiliated hospitals as it accepts electronic health records integrated PHM programs for better primary and follow-up care, as reported by Frost & Sullivan. The need to sustain revenue has made it extremely important for practices to secure their patient market share, elevating patient loyalty to be a significant determinant of provider success. Capturing patient market share and thriving in a market driven by VBC requires both an integrated platform and a In order to maintain financial success with shifting reimbursement rules and shrinking reimbursement, we believe demand for Based on these trends, successful clients must undertake the following imperatives: 1) ensure healthy predictable financial outcomes, 2) provide high quality care at a lower cost in a risk-bearing environment, 3) ensure engaged and loyal patients, and 4) optimize clinician productivity while deploying HIT solutions, 5) support frictionless interoperability. Our core strategy is to become a trusted partner to our clients as they embark on their value-based journey and begin to take on risk as part of value-based contracts. We understand that our clients are now faced with a more complex, rapidly changing practice environment and that the HIT solutions that support these endeavors must evolve to meet these challenging requirements. Providing our clients with a comprehensive multi-faceted platform and accompanying services to enable their success is the key to our strategy. Based on current market trends, our strategic priorities are: Focus on Ambulatory Care. We create for and invest in the specific needs of ambulatory care providers, giving us a distinct competitive advantage in our target market over solution providers who focus on hospitals first. While many of our competitors spread their R&D and localization investment across global regions, NextGen Healthcare maintains an exclusive focus on U.S.-only ambulatory practices. Provide an integrated ambulatory care platform with superb scalability, flexibility and interoperability. Many healthcare challenges are uniquely local or regional -- our platform and capabilities flex and scale to fit our clients’ practices and workflows, not the other way around. Our ability to interoperate is pervasive, allowing our clients to exchange data seamlessly. Enable groups to successfully take on risk. We provide our clients with cloud-based population health 32 The following table sets forth the percentage of revenue represented by each item in our consolidated statements of net income and comprehensive income for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Revenues: Recurring 89.6 % 89.7 % 88.0 % Software, hardware, and other non-recurring 10.4 10.3 12.0 Total revenues 100.0 100.0 100.0 Cost of revenue: Recurring 36.2 36.6 35.2 Software, hardware, and other non-recurring 5.0 4.7 5.1 Amortization of capitalized software costs and acquired intangible assets 5.4 4.2 3.5 Total cost of revenue 46.6 45.5 43.8 Gross profit 53.4 54.5 56.2 Operating expenses: Selling, general and administrative 31.2 36.4 32.1 Research and development costs, net 15.3 15.3 15.4 Amortization of acquired intangible assets 0.8 1.5 2.0 Impairment of assets 0.0 0.7 0.0 Restructuring costs 0.1 0.1 1.4 Total operating expenses 47.4 54.0 50.9 Income from operations 6.0 0.5 5.3 Interest income 0.0 0.0 0.0 Interest expense (0.5 ) (0.6 ) (0.6 ) Other income (loss), net 0.1 0.0 (0.1 ) Income before provision for (benefit of) income taxes 5.5 (0.1 ) 4.6 Provision for (benefit of) income taxes 0.9 (0.5 ) 1.1 Net income 4.6 % 0.5 % 3.6 % Revenues The following table presents our consolidated revenues for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Recurring revenues: Subscription services $ 117,502 $ 106,325 $ 94,118 Support and maintenance 160,798 163,805 158,802 Managed services 98,203 113,311 106,454 Electronic data interchange and data services 97,418 92,773 88,951 Total recurring revenues 473,921 476,214 448,325 Software, hardware, and other non-recurring revenues: Software license and hardware 35,122 34,017 44,145 Other non-recurring services 20,130 20,788 17,154 Total software, hardware and other non-recurring revenues 55,252 54,805 61,299 Total revenues $ 529,173 $ 531,019 $ 509,624 We generate revenue from sales of licensing rights and subscriptions to our software 33 Consolidated revenue for the year ended March 31, Consolidated revenue for the year ended March 31, Cost of The following table presents our consolidated cost of revenue and gross profit for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Cost of revenue: Recurring $ 191,496 $ 194,360 $ 179,245 Software, hardware, and other non-recurring 26,711 25,085 26,109 Amortization of capitalized software costs and acquired intangible assets 28,490 22,090 17,780 Total cost of revenue $ 246,697 $ 241,535 $ 223,134 Gross profit $ 282,476 $ 289,484 $ 286,490 Gross margin % 53.4 % 54.5 % 56.2 % Cost of revenue consists primarily of compensation expense, including share-based compensation, for personnel that deliver our products and services. Cost of revenue also includes amortization of capitalized software costs and acquired technology, third party consultant and outsourcing costs, costs associated with our EDI business partners and clearinghouses, hosting service costs, third party software costs and royalties, and other costs directly associated with delivering our products and services. Refer to Note 7, "Intangible Assets" and Note 8, "Capitalized Software Costs" of our notes to consolidated financial statements included elsewhere in this Report for additional information on current period amortization of capitalized software costs and acquired technology and an estimate of future expected Share-based compensation expense included in cost of revenue was Gross profit 34 amortization of the software technology intangible assets associated with the Gross profit for the year ended March 31, 2018 increased $3.0 million compared to the year ended March 31, Selling, General and Administrative Expense The following table presents our consolidated selling, general and administrative expense for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Selling, general and administrative $ 164,879 $ 193,226 $ 163,623 Selling, general and administrative, as a percentage of revenue 31.2 % 36.4 % 32.1 % Selling, general and administrative expense consist of compensation expense, including share-based compensation, for management and administrative personnel, selling and marketing expense, facilities costs, depreciation, professional service fees, including legal and accounting services, legal settlements, acquisition and transaction-related costs, and other general corporate and administrative expenses. Share-based compensation expense included in selling, general and administrative expenses was Selling, general and administrative expenses decreased $28.3 million for the year ended March 31, Selling, general and administrative expenses increased $29.6 million for the year ended March 31, Research and Development Costs, net 35 The following table presents our consolidated net research and development costs, capitalized software costs, and gross expenditures prior to capitalization, for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Gross expenditures $ 101,565 $ 100,124 $ 86,590 Capitalized software costs (20,571 ) (18,865 ) (8,249 ) Research and development costs, net $ 80,994 $ 81,259 $ 78,341 Research and development costs, as a percentage of revenue 15.3 % 15.3 % 15.4 % Capitalized software costs as a percentage of gross expenditures 20.3 % 18.8 % 9.5 % Gross research and development expenditures, including costs expensed and costs capitalized, consist of compensation expense, including share-based compensation for research and development personnel, certain third-party consultant fees, software maintenance costs, and other costs related to new product development and enhancement to our existing products. We intend to continue to invest heavily in research and development expenses as we continue to bring additional functionality and features to the medical community and develop a new integrated inpatient and outpatient, web-based software platform. The capitalization of software development costs results in a reduction to our reported net research and development costs. Our software capitalization rate, or capitalized software costs as a percentage of gross expenditures, has varied historically and may continue to vary based on the nature and status of specific projects and initiatives in progress. Although changes in software capitalization rates have no impact on our overall cash flows, it results in fluctuations in the amount of software development costs being expensed up front and the amount of net research and development costs reported in our consolidated statement of net income and comprehensive income. Share-based compensation expense included in Net research and development costs for the year ended March 31, Our software capitalization rate fluctuates due to differences in the nature and status of our projects and initiatives during a given year, which affects the amount of development costs that may be capitalized and ultimately also affects the future amortization of our previously capitalized software development costs. Net research and development costs for the year ended March 31, Amortization of Acquired Intangible Assets The following table presents our amortization of acquired intangible assets for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Amortization of acquired intangible assets $ 4,344 $ 7,810 $ 10,435 Amortization of acquired intangible assets included in operating expense consist of the amortization related to our customer relationships, trade name, and contracts intangible assets acquired as part of our business combinations. Refer to Note 7, "Intangible Assets" of our notes to consolidated financial statements included elsewhere in this Report for an estimate of future expected amortization. Amortization of acquired intangible assets for the year ended March 31, 36 Amortization of acquired intangible assets for the year ended March 31, Impairment of Assets During the year ended March 31, Restructuring Costs During the year ended March 31, 2017, as part of our corporate restructuring plan, we recorded $7.1 million of restructuring costs within operating expenses in our consolidated statements of net income and comprehensive income. The restructuring costs consisted primarily of payroll-related costs, such as severance, outplacement costs, and continuing healthcare coverage, associated Also included in restructuring costs were certain facilities-related costs associated with accruals for the remaining lease obligations at certain locations, including Solana Beach, Costa Mesa, and a portion of We recorded $0.6 million of restructuring costs related to adjustments to the estimated fair value of remaining lease obligations in each of the years ended March 31, Interest The following table presents our interest expense for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Interest income $ 216 $ 55 $ 14 Interest expense (2,814 ) (3,323 ) (3,156 ) Other income (expense), net 267 37 (262 ) Interest expense relates to our revolving credit agreement Interest expense for the year ended March 31, As of March 31, The following table presents our provision for (benefit of) income taxes for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Provision for (benefit of) income taxes $ 4,794 $ (2,830 ) $ 5,368 Effective tax rate 16.4 % 690.2 % 22.7 % The During the fiscal year ended March 31, 2019, we completed our analysis of the new tax reform legislation, which was enacted December 22, 2017, and recorded a net tax benefit in the tax provision. We consider the accounting for the income tax effects of the new tax reform legislation to be complete and all adjustments to the provisional estimates have been finalized. The recorded impacts of the tax reform legislation are based on our current knowledge, interpretation, and assumptions. Refer to Note 11, The change in the effective tax rate for the year ended March 31, 2018 compared to the year ended March 31, 2017 was driven primarily by a Net Income The following table presents our net income (in thousands) and net income per share and for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Net income $ 24,494 $ 2,420 $ 18,241 Net income per share: Basic $ 0.38 $ 0.04 $ 0.30 Diluted $ 0.38 $ 0.04 $ 0.29 As a result of the foregoing changes in revenue and expense, net income for the fiscal year ended March 31, As a result of The following table presents selected financial statistics and information for the years ended March 31, Fiscal Year Ended March 31, 2019 2018 2017 Cash and cash equivalents $ 33,079 $ 28,845 $ 37,673 Unused portion of revolving credit agreement (1) 289,000 263,000 235,000 Total liquidity $ 322,079 $ 291,845 $ 272,673 Net income $ 24,494 $ 2,420 $ 18,241 Net cash provided by operating activities $ 50,475 $ 74,043 $ 110,188 (1) As of March 31, 2019, we had outstanding borrowings of $11.0 million under our $300.0 million revolving credit agreement. Our principal sources of 38 As of March 31, Our outstanding borrowings under our We may continue to use a portion of our funds as well as available financing from Our investment policy is determined by our Board of Directors. We believe that our cash and cash equivalents and marketable securities on hand at March 31, Cash Flows from Operating Activities The following table summarizes our consolidated statements of cash flows for the years ended March 31, 2019, 2018, and 2017 (in thousands): Fiscal Year Ended March 31, 2019 2018 2017 Net income $ 24,494 $ 2,420 $ 18,241 Non-cash expenses 66,652 64,833 62,147 Cash from net income, as adjusted $ 91,146 $ 67,253 $ 80,388 Change in contract assets and liabilities, net (4,943 ) 847 (5,493 ) Change in accounts receivable (6,178 ) (5,409 ) 5,535 Change in other assets and liabilities (29,550 ) 11,352 29,758 Net cash provided by operating activities $ 50,475 $ 74,043 $ 110,188 For the year ended March 31, 2019, cash provided by operating activities decreased $23.6 million compared to the prior year period, which was primarily attributed to a decrease of $40.9 million from net changes in other assets and liabilities and a decrease of $6.6 million from net changes in accounts receivable and contract balances, offset by an increase of $23.9 million due to higher net income, as adjusted for non-cash expenses. The net decrease in cash from changes in other assets and liabilities was mostly related to the current year settlement of the Federal Securities Class Action complaint that was accrued in the prior year and higher capitalization of commissions costs associated with the adoption of ASC 606 (refer to Note 3, "Revenue from Contracts with Customers" of our notes to consolidated financial statements included elsewhere in this Report for additional information), which was partially offset by a net increase in cash from changes in income taxes receivable and payable. For the year ended March 31, 2018, cash provided by operating activities decreased $36.1 million compared to the year ended March 31, 2017. The decrease in cash flows was primarily due to a decrease of $18.4 million from net changes in other assets and liabilities, of which $43.3 million was associated with changes in income taxes receivable and payable, offset by an accrual of $19.0 million for a preliminary settlement of the Federal Securities Class Action complaint (refer to Note 14, “Commitments, Guarantees and Contingencies” of our notes to consolidated financial statements included elsewhere in this Report for additional information), and higher deferred rents and accruals for remaining lease obligations of our vacated properties. Net cash provided from net income, as adjusted for non-cash expenses, decreased $13.1 million primarily due to $15.8 million decrease in net income, offset by higher non-cash expenses during the year ended March 31, 2018. The increase in non-cash expenses was driven by changes in deferred taxes, higher share-based compensation, and impairment of assets recorded during the year ended March 31, 2018, offset by lower amortization of previously capitalized software costs, and lower non-cash expense associated with changes in the fair value of contingent consideration liabilities. Cash Flows from Investing Activities Net cash used in investing activities for the years ended March 31, 2019, 2018, and 2017 was $25.5 million, $91.5 million, and $11.4 million, respectively. The $66.0 million net decrease in cash used in investing activities for the year ended March 31, 2019 compared to the prior year is primarily due to $62.9 million of cash paid (net of cash acquired) for the acquisitions of Entrada, EagleDream and Inforth in the prior year and a $4.8 million decrease in additions to equipment and improvements, 39 partially offset by a $1.7 million increase in additions to capitalized software associated with the development of new products and enhancement of existing products. The $80.1 million net increase in cash used in investing activities for the year ended March 31, 2018 compared to the year March 31, 2017 is primarily due to $62.9 million of cash paid (net of cash acquired) for the acquisitions of Entrada, EagleDream and Inforth, $10.6 million increase in additions to capitalized software associated with the development of new products and enhancement of existing products, $9.3 million lower proceeds from sales of marketable securities, offset by a $2.4 million decrease in additions to equipment and improvements. Cash Flows from Financing Activities Net cash used in financing activities for the year ended March 31, 2019 was $21.6 million compared to net cash provided by financing activities of $6.1 million in the prior year. The increase in cash used by financing activities is due to $26.0 million in net repayments on our revolving credit facility, comprised of $52.0 million of principal repayments and $26.0 million of additional borrowings, which was partially offset by $4.4 million of net proceeds from the issuance of shares under employee plans. In comparison, during the prior year, we had net borrowings of $22.0 million on our revolving credit facility and $4.0 million of net proceeds from the issuance of shares under employee plans, which was partially offset by $18.8 million paid to settle the contingent consideration liability related to the acquisition of HealthFusion and $1.1 million of debt issuance costs paid related to the amendment of our revolving credit agreement. Net cash provided by financing activities for the year ended March 31, 2018 was $6.1 million compared to net cash used in financing activities of $88.7 million for the year ended March 31, 2017. The increase in cash provided by financing activities relates to $22.0 million in net cash provided by our revolving credit facility, including $50.0 million of additional borrowings and $28.0 million of principal repayments, compared to repayments of $90.0 million on our line of credit during the year ended March 31, 2017. In addition, we received $4.0 million from the issuance of shares under employee stock plans, net of taxes paid for the net share settlement of equity awards. The increase in cash provided by financing activities was partially offset by the payment of $18.8 million for the settlement of our contingent consideration liability and payments of $1.1 million in debt issuance costs. Contractual Obligations As of March 31, 2019, we had minimum purchase commitments of $30.4 million related to payments due under certain non-cancelable agreements to purchase goods and services. The following table summarizes our other significant contractual obligations at March 31, For the year ended March 31, Contractual Obligations Total 2020 2021 2022 2023 2024 2025 and beyond Operating lease obligations $ 53,477 $ 9,615 $ 9,781 $ 9,503 $ 9,194 $ 7,438 $ 7,946 Remaining lease obligations for vacated properties (1) 3,383 896 920 658 466 292 151 Line of credit obligations (Note 9) 11,000 — — — 11,000 — — Total $ 67,860 $ 10,511 $ 10,701 $ 10,161 $ 20,660 $ 7,730 $ 8,097 (1) Remaining lease obligations for vacated properties relates to remaining lease obligations at certain locations, including Austin, Solana Beach, and portions of Horsham and St. Louis, that we have vacated and are actively marketing the locations for sublease as part of our reorganization efforts. Refer to Note 15, "Restructuring Plan" of our notes to consolidated financial statements included elsewhere in this Report for additional information. Total obligations have not been reduced by projected sublease rentals or by minimum sublease rentals of $0.3 million due in future periods under non-cancelable subleases. The deferred compensation liability as of March 31, The uncertain tax position liability as of March 31, New Accounting Pronouncements Refer to Note 2, “Summary of Significant Accounting Policies” of our notes to consolidated financial statements included elsewhere in this Report for a discussion of new accounting standards. As of March 31, As of March 31, As of March 31, See our consolidated financial statements identified in the Index to Financial Statements appearing under “Item 15. Exhibits and Financial Statement Schedules” of this Report. None. Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer (principal executive officer) and Chief Financial Officer Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision and with the participation of our management, including our principal executive officer, principal financial officer and principal Our internal control over financial reporting is supported by written policies and procedures, that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and 41 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, The effectiveness of the Company’s internal control over financial reporting as of March 31, Changes in Internal Control over Financial Reporting During the quarter ended March 31, None. The information required by Item 10 is incorporated herein by reference from our definitive proxy statement for our The information required by Item 11 is incorporated herein by reference from our definitive proxy statement for our The information required by Item 12 is incorporated herein by reference from our definitive proxy statement for our The information required by Item 13 is incorporated herein by reference from our definitive proxy statement for our The information required by Item 14 is incorporated herein by reference from our definitive proxy statement for our (a) Documents filed as part of this Annual Report on Form 10-K: Page (1) Index to Financial Statements: 49 Consolidated Balance Sheets as of March 31, 50 Consolidated Statements of Net Income and Comprehensive Income — Years Ended March 31, 51 Consolidated Statements of Shareholders’ Equity — Years Ended March 31, 52 Consolidated Statements of Cash Flows — Years Ended March 31, 53 54 (2) The following supplementary financial statement schedule of 81 Schedules other than that listed above have been omitted since they are either not required, not applicable, or because the information required is included in the Consolidated Financial Statements or the notes thereto. (3) The exhibits listed in the Index to Exhibits hereof are attached hereto or incorporated herein by reference and filed as a part of this Report. 45 None. 44 Incorporated by Reference Exhibit Number Exhibit Description Filed Herewith Form Exhibit Filing Date 3.1 S-1 3.1 11-Jan-96 3.2 10-K 3.1.1 14-Jun-05 3.3 8-K 3.01 11-Oct-05 3.4 8-K 3.1 6-Mar-06 3.5 8-K 3.1 6-Oct-11 3.6 8-K 2.1 10-Sep-18 3.7 Amended and Restated Bylaws of Quality Systems, Inc., effective October 30, 2008 8-K 3.1 31-Oct-08 3.8 Amended and Restated Bylaws of NextGen Healthcare, Inc., effective September 6, 2018 8-K 3.2 10-Sep-18 10.1 8-K 2.1 10-Sep-18 10.2 8-K 2.1 30-Oct-15 10.3 8-K 2.1 12-Apr-17 10.4 8-K 2.1 1-Aug-17 10.5 10-Q 10.1 29-Jan-16 10.6 8-K 10.1 4-Apr-18 45 Incorporated by Reference Exhibit Number Exhibit Description Filed Herewith Form Exhibit Filing Date 10.7* Second Amended and Restated 2005 Stock Option and Incentive Plan DEF14A Appendix I 1-Jul-11 10.8* Form of Incentive Stock Option Agreement for 2005 Stock Incentive Plan 8-K 10.3 5-Jun-07 10.9* Form of Nonqualified Stock Option Agreement for 2005 Stock Incentive Plan 8-K 10.2 5-Jun-07 10.10* 8-K 10.1 15-Aug-11 10.11* 8-K 10.2 28-May-13 10.12* 10-K 10.17 29-May-14 10.13* 8-K 10.2 2-Feb-10 10.14* 8-K 10.1 14-Aug-15 10.15* 8-K 10.1 23-Aug-17 10.16* 8-K 10.4 14-Aug-15 10.17* 8-K 10.2 14-Aug-15 10.18* 8-K 10.3 14-Aug-15 10.19* 8-K 10.2 3-Jan-17 10.20* 8-K 10.3 3-Jan-17 10.21* DEF14A Annex A 27-Jun-14 10.22* Executive Employment Agreement, dated June 3, 2015, between Quality Systems, Inc. and John R. Frantz 8-K 10.1 4-Jun-15 10.23* 8-K 10.1 23-Jan-19 10.24* Employment Offer Letter, dated January 27, 2016, between David Metcalfe and Quality Systems, Inc. 8-K 10.1 28-Jan-16 46 Incorporated by Reference Exhibit Number Exhibit Description Filed Herewith Form Exhibit Filing Date 10.25* Employment Offer Letter, dated February 16, 2016, between James R. Arnold and Quality Systems, Inc. 8-K 10.1 18-Feb-16 10.26* 8-K 10.1 1-Dec-17 10.27* 8-K 10.1 3-Jan-17 10.28* 8-K 10.2 23-Jan-19 10.29* 8-K 10.1 16-Aug-18 10.30* 8-K 10.1 28-Jan-13 10.31* 2009 Quality Systems, Inc. Amended and Restated Deferred Compensation Plan. 10-K 10.8 30-May-13 10.32* 8-K 10.1 17-Jul-13 21 X 23.1 Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP. X 31.1 X 31.2 X 32.1 X 101.INS** XBRL Instance 101.SCH** XBRL Taxonomy Extension Schema 101.CAL** XBRL Taxonomy Extension Calculation 101.DEF** XBRL Taxonomy Extension Definition 101.LAB** XBRL Taxonomy Extension Label 101.PRE** XBRL Taxonomy Extension Presentation * This exhibit is a management contract or a compensatory plan or arrangement. ** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities and Exchange Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. By: /s/ John R. Frantz John R. Frantz Chief Executive Officer (Principal Executive Officer) By: /s/ James R. Arnold James R. Arnold Chief Financial Officer (Principal Financial Date: May KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below hereby constitutes and appoints John R. Frantz and James R. Arnold, Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed by the following persons on our behalf in the capacities and on the dates indicated. Signature Title Date /s/ Jeffrey H. Margolis Chairman of the Board and Director May Jeffrey H. Margolis /s/ Craig A. Barbarosh Vice Chairman of the Board and Director May Craig A. Barbarosh /s/ John R. Frantz Chief Executive Officer (Principal Executive Officer) and Director May John R. Frantz /s/ James R. Arnold Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) May James R. Arnold /s/ George H. Bristol Director May George H. Bristol /s/ Julie D. Klapstein Director May 28, 2019 Julie D. Klapstein /s/ James C. Malone Director May James C. Malone /s/ Morris Panner Director May Morris Panner /s/ Sheldon Razin Chairman Emeritus and Director May Sheldon Razin /s/ Lance E. Rosenzweig Director May Lance E. Rosenzweig Tothe Board of Directors and Shareholders of Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of NextGen Healthcare, Inc.and its subsidiaries(the “Company”) as of March 31, 2019 and 2018, and the related consolidated statements of net income and comprehensive income, statements of shareholders’ equity, and In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 2 to the Basis for Opinions The Company's management is responsible for these consolidatedfinancial statements, We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence Definition and Limitations of A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Irvine, California May 28, 2019 We have 49 (In thousands, except per share data) March 31, 2019 March 31, 2018 ASSETS Current assets: Cash and cash equivalents $ 33,079 $ 28,845 Restricted cash and cash equivalents 1,443 2,373 Accounts receivable, net 87,459 84,962 Contract assets 13,242 — Inventory 120 180 Income taxes receivable 3,682 8,122 Prepaid expenses and other current assets 20,826 17,180 Total current assets 159,851 141,662 Equipment and improvements, net 21,404 26,795 Capitalized software costs, net 37,855 26,318 Deferred income taxes, net 6,194 9,219 Contract assets, net of current 3,747 — Intangibles, net 52,595 74,091 Goodwill 218,771 218,875 Other assets 32,478 18,795 Total assets $ 532,895 $ 515,755 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,432 $ 4,213 Contract liabilities 56,009 54,079 Accrued compensation and related benefits 25,663 27,910 Income taxes payable 64 73 Other current liabilities 41,064 48,317 Total current liabilities 128,232 134,592 Contract liabilities, net of current — 1,173 Deferred compensation 5,905 6,086 Line of credit 11,000 37,000 Other noncurrent liabilities 11,812 13,494 Total liabilities 156,949 192,345 Commitments and contingencies (Note 14) Shareholders' equity: Common stock $0.01 par value; authorized 100,000 shares; issued and outstanding 64,838 and 63,995 shares at March 31, 2019 and March 31, 2018, respectively 648 640 Additional paid-in capital 264,908 244,462 Accumulated other comprehensive loss (1,231 ) (400 ) Retained earnings (1) 111,621 78,708 Total shareholders' equity 375,946 323,410 Total liabilities and shareholders' equity $ 532,895 $ 515,755 (1) Includes cumulative effect adjustment related to the adoption of ASC 606, as defined in Note 3. See Note 3 for additional details. The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME (In thousands, except per share data) Fiscal Year Ended March 31, 2019 2018 2017 Revenues: Recurring $ 473,921 $ 476,214 $ 448,325 Software, hardware, and other non-recurring 55,252 54,805 61,299 Total revenues 529,173 531,019 509,624 Cost of revenue: Recurring 191,496 194,360 179,245 Software, hardware, and other non-recurring 26,711 25,085 26,109 Amortization of capitalized software costs and acquired intangible assets 28,490 22,090 17,780 Total cost of revenue 246,697 241,535 223,134 Gross profit 282,476 289,484 286,490 Operating expenses: Selling, general and administrative 164,879 193,226 163,623 Research and development costs, net 80,994 81,259 78,341 Amortization of acquired intangible assets 4,344 7,810 10,435 Impairment of assets — 3,757 — Restructuring costs 640 611 7,078 Total operating expenses 250,857 286,663 259,477 Income from operations 31,619 2,821 27,013 Interest income 216 55 14 Interest expense (2,814 ) (3,323 ) (3,156 ) Other income (expense), net 267 37 (262 ) Income (loss) before provision for (benefit of) income taxes 29,288 (410 ) 23,609 Provision for (benefit of) income taxes 4,794 (2,830 ) 5,368 Net income $ 24,494 $ 2,420 $ 18,241 Other comprehensive income: Foreign currency translation, net of tax (831 ) (42 ) 80 Unrealized gain on marketable securities, net of tax — — 43 Comprehensive income $ 23,663 $ 2,378 $ 18,364 Net income per share: Basic $ 0.38 $ 0.04 $ 0.30 Diluted $ 0.38 $ 0.04 $ 0.29 Weighted-average shares outstanding: Basic 64,417 63,435 61,818 Diluted 64,600 63,440 62,010 The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) Accumulated Additional Other Total Common Stock Paid-in Retained Comprehensive Shareholders' Shares Amount Capital Earnings Loss Equity Balance, March 31, 2016 60,978 610 211,262 57,986 (481 ) 269,377 Common stock issued under stock plans, net of shares withheld for taxes 1,043 11 1,299 — — 1,310 Common stock issued for earnout settlement 434 4 9,269 — — 9,273 Tax benefit related to stock options — — (879 ) — — (879 ) Stock-based compensation — — 7,598 — — 7,598 Components of other comprehensive income: Unrealized gain on marketable securities — — — — 43 43 Translation adjustments — — — — 80 80 Net income — — — 18,241 — 18,241 Balance, March 31, 2017 62,455 625 228,549 76,227 (358 ) 305,043 Common stock issued under stock plans, net of shares withheld for taxes 1,540 15 3,818 — — 3,833 Stock-based compensation — — 12,196 — — 12,196 Cumulative effect adjustment related to the adoption of ASU 2016-09 — — (101 ) 61 — (40 ) Components of other comprehensive income: Translation adjustments — — — — (42 ) (42 ) Net income — — — 2,420 — 2,420 Balance, March 31, 2018 63,995 640 244,462 78,708 (400 ) 323,410 Common stock issued under stock plans, net of shares withheld for taxes 843 8 4,344 — — 4,352 Stock-based compensation — — 16,102 — — 16,102 Cumulative effect adjustment related to the adoption of ASC 606 (1) — — — 8,419 — 8,419 Components of other comprehensive income: Translation adjustments — — — — (831 ) (831 ) Net income — — — 24,494 — 24,494 Balance, March 31, 2019 64,838 $ 648 $ 264,908 $ 111,621 $ (1,231 ) $ 375,946 (1) Includes cumulative effect adjustment related to adoption of ASC 606, as defined in Note 3. See Note 3 for additional details. The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Fiscal Year Ended March 31, 2019 2018 2017 Cash flows from operating activities: Net income $ 24,494 $ 2,420 $ 18,241 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 10,298 10,498 10,080 Amortization of capitalized software costs 11,338 6,518 7,892 Amortization of other intangibles 21,496 23,380 22,462 Amortization and write-off of debt issuance costs 710 1,610 1,076 Provision for bad debts 5,644 5,913 5,082 Provision for (recovery of) inventory obsolescence (10 ) 51 418 Share-based compensation 16,102 12,297 7,598 Deferred income taxes 245 312 (129 ) Excess tax deficiency (benefit) from share-based compensation (365 ) 328 — Change in fair value of contingent consideration 1,000 — 4,247 Restructuring costs, net of amounts paid — — 2,891 Impairment of assets — 3,757 — Loss on disposal of equipment and improvements 194 169 530 Changes in assets and liabilities, net of amounts acquired: Accounts receivable (6,178 ) (5,409 ) 5,535 Contract assets (812 ) — — Inventory 70 (73 ) (21 ) Accounts payable 1,070 (1,232 ) (6,590 ) Contract liabilities (4,131 ) 847 (5,493 ) Accrued compensation and related benefits (2,992 ) 2,228 5,237 Income taxes 4,049 (8,530 ) 34,740 Deferred compensation (181 ) (543 ) 272 Other assets and liabilities (31,566 ) 19,502 (3,880 ) Net cash provided by operating activities 50,475 74,043 110,188 Cash flows from investing activities: Additions to capitalized software costs (20,571 ) (18,865 ) (8,249 ) Additions to equipment and improvements (4,952 ) (9,801 ) (12,165 ) Proceeds from sales and maturities of marketable securities — — 9,291 Payments for acquisitions, net of cash acquired — (62,867 ) — HealthFusion working capital adjustment payment — — (282 ) Net cash used in investing activities (25,523 ) (91,533 ) (11,405 ) Cash flows from financing activities: Proceeds from line of credit 26,000 50,000 — Repayments on line of credit (52,000 ) (28,000 ) (90,000 ) Payment of debt issuance costs — (1,105 ) — Payment of contingent consideration related to acquisitions — (18,817 ) — Proceeds from issuance of shares under employee plans 7,533 4,889 1,310 Payments for taxes related to net share settlement of equity awards (3,181 ) (848 ) — Net cash provided by (used in) financing activities (21,648 ) 6,119 (88,690 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 3,304 (11,371 ) 10,093 Cash, cash equivalents, and restricted cash at beginning of period 31,218 42,589 32,496 Cash, cash equivalents, and restricted cash at end of period $ 34,522 $ 31,218 $ 42,589 Supplemental disclosures of cash flow information: Cash paid for income taxes $ 1,570 $ 6,379 $ 4,800 Cash refunds from income taxes 675 1,874 29,575 Cash paid for interest 1,819 1,953 1,958 Common stock issued for settlement of share-based contingent consideration — — 9,273 Non-cash investing and financing activities: Non-cash additions to capitalized software $ 2,304 $ — $ — Accrued purchases of equipment and improvements 149 72 82 The accompanying notes are an integral part of these consolidated NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except shares and per share data) Description of Business NextGen Healthcare Our clients span the ambulatory care market from small single specialty practices to larger multi-specialty organizations. We have fully integrated our solutions so that our clients are able to provide their patients with comprehensive services utilizing a single platform. Our highly interoperable platform allows ambulatory practices to thrive especially in complex, heterogeneous healthcare communities where frictionless clinical data exchange is required to coordinate and NextGen Healthcare has historically enhanced our solutions through The Company was incorporated in California in 1974. Previously named Quality Systems, Inc., the Company changed its corporate name to NextGen Healthcare, Inc. in September 2018. Our principal offices are located at 18111 Von Karman Ave., Suite 800, Irvine, California, Principles of Consolidation. Business Segments. We determined that the Company operates in one segment as of June 30, 2017 and continues to operate in one segment through the Previously, through the end of fiscal year 2017, we operated under two reportable segments, consisting of the Software and Related Solutions segment and the RCM and Related Services segment, which was consistent with the disaggregated financial information used and evaluated by our CODM to assess performance and make decisions about the allocation of resources. However, as part of our reorganization efforts that were substantially complete as of the end of fiscal year 2017, our internal organizational structure whereby certain functions that formerly existed within each individual operating segment has continued to evolve. Our former Chief Operating Officer was previously responsible for leading the operations of our former RCM and Related Services business while our former Chief Client Officer led our client success organization, consisting of the Software and Related Solutions business and other functions, such as sales and marketing. Upon the resignation of our former Chief Operating Officer in April 2017 and concurrent appointment of our former Chief Client Officer as Chief Operating Officer, our entire portfolio of software and services were aligned under our new Chief Operating Officer in an effort to provide our clients with an even more simplified experience and more effectively deliver a consolidated financial 54 Basis of Presentation. Use of Estimates. Revenue Recognition.We adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASC 606”) and all related amendments as of April 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. ASC 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition Cash and Cash Equivalents. Cash and cash equivalents Money market funds in which we hold a portion of our excess cash Restricted Cash and Cash Equivalents. Accounts Receivable Reserves. 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 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 Inventory. Equipment and Improvements. Computer equipment - 3 to 5 years 55 • Leasehold improvements - lesser of lease term or estimated useful life of asset Depreciation expense related to our equipment and improvements was $10,298, $10,498, and $10,080 for the years ended March 31, 2019, 2018, and 2017, respectively. Capitalized Software Costs. Software development costs, consisting primarily of employee salaries and benefits and certain third party costs, 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 net income and 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 also incur costs to develop software applications for our internal-use and costs for the development of We periodically reassess the 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 Goodwill. We test goodwill for impairment annually during our first fiscal quarter, referred to as the annual test date. 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 56 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. Intangible Assets. Long-Lived Assets. Income Taxes. Advertising Costs. Earnings per Share. Fiscal Year Ended March 31, 2019 2018 2017 Earnings per share — Basic: Net income $ 24,494 $ 2,420 $ 18,241 Weighted-average shares outstanding — Basic 64,417 63,435 61,818 Net income per common share — Basic $ 0.38 $ 0.04 $ 0.30 Earnings per share — Diluted: Net income $ 24,494 $ 2,420 $ 18,241 Weighted-average shares outstanding 64,417 63,435 61,818 Effect of potentially dilutive securities 183 5 192 Weighted-average shares outstanding — Diluted 64,600 63,440 62,010 Net income per common share — Diluted $ 0.38 $ 0.04 $ 0.29 The computation of diluted net income per share does not include 57 Share-Based Compensation. Fiscal Year Ended March 31, 2019 2018 2017 Costs and expenses: Cost of revenue $ 1,252 $ 938 $ 514 Research and development costs 2,919 2,038 973 Selling, general and administrative 11,931 9,220 6,111 Total share-based compensation 16,102 12,196 7,598 Income tax benefit (3,859 ) (4,125 ) (2,637 ) Decrease in net income $ 12,243 $ 8,071 $ 4,961 Recently Adopted Accounting Pronouncements. In March 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, to add various SEC paragraphs pursuant to the issuance of Staff Accounting Bulletin No. 118 (“SAB 118”) to Accounting Standards Codification 740. SAB 118 was issued by the SEC in December 2017 to provide immediate guidance for accounting implications of the United States Tax Reform under the Tax Cuts and Jobs Act (“TCJA”). We have evaluated the potential impacts of SAB 118 and have applied this guidance to our consolidated financial statements and related disclosures (see Note 11). In May 2017, FASB issued Accounting Standards Update (“ASU”) 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"). ASU 2017-09 clarifies the changes to terms or conditions of a share-based payment award that require an entity to apply modification accounting. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application is permitted and prospective application is required. ASU 2017-09 was effective for us in the first quarter of fiscal 2019. The adoption of this new standard did not have a material impact on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted in two scenarios as identified in the new standard. ASU 2017-01 was effective for us in the first quarter of fiscal 2019. The adoption of this new standard did not have a material impact on our consolidated financial statements. In November 2016, the FASB issued Accounting Standards Update In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 is intended to add and clarify guidance on the classification of certain cash receipts and cash payments in the statement of cash flows to eliminate diversity in practice related to how such cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. ASU 2016-15 was effective for us in the first quarter of fiscal 2019. The adoption of this new standard did not have a material impact on our consolidated financial statements. In May 2014, the FASB, along with 58 Recent Accounting Standards Not Yet Adopted. Recent accounting pronouncements requiring implementation in current or future periods are discussed below or in the notes, where applicable. In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. ASU 2018-15 is effective for us in the first quarter of fiscal 2021. We are currently in the process of evaluating the potential impact of adoption of this updated authoritative guidance on our consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement In January 2017, the FASB issued ASU 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of Step two of the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. ASU 2017-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, and early adoption is permitted on goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 is effective for us in the first quarter of fiscal 2021, and we currently do not expect the adoption of this new standard to have a material impact on our consolidated financial statements. In February 2016, the FASB issued We are currently in the process of evaluating the potential impact of adoption 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. Revenue from Contracts with Customers Adoption of ASC 606 In May 2014, the FASB issued ASC 606, which supersedes the revenue recognition requirements in ASC 605 and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance provides a five-step process for determining the amount and timing of revenue recognition and establishes disclosure requirements to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. It also provides guidance on the accounting treatment for the incremental costs of obtaining a contract that would not have been incurred had the contract not been obtained. 59 The adjustments to reflect the cumulative effect of the changes to the balances of our previously reported consolidated balance sheet as of March 31, As Reported ASC 606 Transition Adjusted March 31, 2018 Adjustments April 1, 2018 ASSETS Accounts receivable, net $ 84,962 $ 2,380 $ 87,342 Contract assets — 13,446 13,446 Prepaid expenses and other current assets 17,180 (223 ) 16,957 Deferred income taxes, net 9,219 (2,884 ) 6,335 Contract assets, net of current — 2,731 2,731 Other assets 18,795 6,679 25,474 LIABILITIES Contract liabilities 54,079 4,174 58,253 Accrued compensation and related benefits 27,910 745 28,655 Other current liabilities 48,317 9,964 58,281 Contract liabilities, net of current 1,173 (1,173 ) — SHAREHOLDERS' EQUITY Retained earnings 78,708 8,419 87,127 We recorded a net increase to retained earnings of $8,419 as of April 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to (i) revenue cycle management (“RCM”) and related services revenue whereby revenue recognition may be accelerated under ASC 606 for software, subscriptions, support and maintenance, and professional services included with RCM arrangements as the timing of revenue recognition is based upon the transfer of value of the promised goods or services to our clients, which may occur prior to the time that client collections occur, (ii) the amortization of capitalized direct sales commissions costs over a longer period of time under ASC 606, and (iii) the income tax impact of the cumulative transition adjustment. Further, we recorded reclassifications to present certain unbilled amounts as contract assets and sales returns reserves and certain customer liabilities as other current liabilities, which were both previously recorded within accounts receivables on our consolidated balance sheets. We applied the practical expedient permitting the recognition of revenue in the amount to which the entity has a right to invoice based on the actual usage by the customers for our electronic data interchange (“EDI”) services and other transaction-based services. We have reflected the aggregate effect of all contract modifications occurring prior to the ASC 606 adoption date when (i) identifying the satisfied and unsatisfied performance obligations, (ii) determining the transaction price, and (iii) allocating the transaction price to the satisfied and unsatisfied performance obligations. The adoption of ASC 606 had no transition impact on cash provided by or used in operating, financing or investing activities reported in our consolidated statement of cash flows. 60 The impact of the adoption of ASC 606 on our consolidated balance sheet and consolidated statements of net income and comprehensive income for the year ended March 31, March 31, 2019 As reported under Adjustments due to As disclosed under ASC 606 adoption of ASC 606 ASC 605 ASSETS Accounts receivable, net $ 87,459 $ 1,220 $ 88,679 Contract assets 13,242 (13,242 ) — Income taxes receivable 3,682 409 4,091 Prepaid expenses and other current assets 20,826 692 21,518 Deferred income taxes, net 6,194 4,457 10,651 Contract assets, net of current 3,747 (3,747 ) — Other assets 32,478 (12,611 ) 19,867 LIABILITIES Contract liabilities 56,009 (1,348 ) 54,661 Accrued compensation and related benefits 25,663 712 26,375 Other current liabilities 41,064 (7,838 ) 33,226 Contract liabilities, net of current — 888 888 SHAREHOLDERS' EQUITY Retained earnings 111,621 (15,236 ) 96,385 Fiscal Year Ended March 31, 2019 As reported under Adjustments due to As disclosed under ASC 606 adoption of ASC 606 ASC 605 Revenues: Recurring $ 473,921 $ (430 ) $ 473,491 Software, hardware, and other non-recurring 55,252 (1,448 ) 53,804 Total revenue 529,173 (1,878 ) 527,295 Total cost of revenue 246,697 159 246,856 Gross profit 282,476 (2,037 ) 280,439 Operating expenses: Selling, general and administrative 164,879 6,762 171,641 Research and development costs, net 80,994 — 80,994 Amortization of acquired intangibles 4,344 — 4,344 Restructuring costs 640 — 640 Total operating expenses 250,857 6,762 257,619 Income from operations 31,619 (8,799 ) 22,820 Interest and other income, net (2,331 ) — (2,331 ) Income before provision for income taxes 29,288 (8,799 ) 20,489 Provision for income taxes 4,794 (1,982 ) 2,812 Net income $ 24,494 $ (6,817 ) $ 17,677 As of March 31, 2019, the reported balances include the cumulative effect adjustments of adopting ASC 606. Revenue Recognition and Performance Obligations We generate revenue from sales of licensing rights and subscriptions to our software solutions, hardware and third-party software products, support and maintenance, managed services (formerly referred to as revenue cycle management and related services), EDI, and other non-recurring services, including implementation, training, and consulting services. Our contracts with customers may include multiple performance obligations that consist of various combinations of our software solutions and related services, which are generally capable of being distinct and accounted for as separate performance obligations. 61 The total transaction price is allocated to each performance obligation within an arrangement based on estimated standalone selling prices.We generally determine standalone selling prices based on the prices charged to customers, except for certain software licenses that are based on the residual approach because their standalone selling prices are highly variable and certain maintenance customers that are based on substantive renewal rates. In instances where standalone selling price is not observable, such as software licenses included in our RCM arrangements, we Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services. We expect that the new revenue guidance in ASC 606 will result in additional complexity to our revenue recognition, including the use of an increased amount of significant judgments and estimates, particularly as it relates to our RCM services revenue. We exclude sales tax from the measurement of the transaction price and record revenue net of taxes collected from customers and subsequently remitted to governmental authorities. The following table presents our revenues disaggregated by our major revenue categories and by occurrence: Fiscal Year Ended March 31, 2019 2018 2017 Recurring revenues: Subscription services $ 117,502 $ 106,325 $ 94,118 Support and maintenance 160,798 163,805 158,802 Managed services 98,203 113,311 106,454 Electronic data interchange and data services 97,418 92,773 88,951 Total recurring revenues 473,921 476,214 448,325 Software, hardware, and other non-recurring revenues: Software license and hardware 35,122 34,017 44,145 Other non-recurring services 20,130 20,788 17,154 Total software, hardware and other non-recurring revenues 55,252 54,805 61,299 Total revenues $ 529,173 $ 531,019 $ 509,624 Recurring revenues consists of subscription services, support and maintenance, managed services, and EDI and data services. Software, hardware, and other non-recurring consists of revenue from sales of software license and hardware and certain non-recurring services, such as implementation, training, and consulting performed for clients who use our products. Generally, we recognize revenue under ASC 606 for our most significant performance obligations as follows: Subscription services. Performance obligations involving subscription services, which include annual licenses, are satisfied over time as the customer simultaneously receives and consumes the benefits of the services throughout the contract period. We recognize revenue related to these services ratably over the respective noncancelable contract term. Support and maintenance. Performance obligations involving support and maintenance are satisfied over time as the customer simultaneously receives and consumes the benefits of the maintenance services provided. Our support and maintenance services may consist of separate performance obligations, such as unspecified upgrades or enhancements and technical support, which are considered stand-ready in nature and can be offered at various points during the service period. Since the efforts associated with the combined support and maintenance services are rendered concurrently and provided evenly throughout the service period, we consider the series of support and maintenance services to be a single performance obligation. Therefore, we recognize revenue related to these services ratably over the respective noncancelable contract term. Managed services. Managed services consist primarily of RCM and related services, but also includes transcription services and certain other recurring services. Performance obligations associated with RCM services are satisfied over time as the customer simultaneously receives and consumes the benefits of the services executed throughout the contract period. The majority of service fees under our RCM arrangements are variable consideration contingent upon collections by our clients. We estimate the variable consideration which we expect to be entitled to over the noncancelable contract term associated with our RCM service arrangements. The estimate of variable consideration included in the transaction price typically involves estimating the amounts we will ultimately collect on behalf of our clients and the relative fee we charge that is generally calculated as a percentage of those collections. Inputs to these estimates include, but are not limited to, historical service fees and collections amounts, timing of historical collections relative to the timing of when claims are submitted by our clients to their respective payers, macroeconomic trends, and anticipated changes in the number of providers. Significant judgement is required when estimating the total transaction price based on the variable consideration. We may apply certain constraints, when appropriate and permitted under ASC 606, to our estimates around our variable consideration in order to ensure that our estimates do not pose a risk of significantly misstating our revenue in any reporting period. RCM and related services may not be rendered evenly over the contract period as the timing of services are based on customer collections, which may vary 62 throughout the service period. We recognize revenue for RCM based on the amount of collections received throughout the contract term as it most closely depicts our efforts to transfer our service obligations to the customer. Performance obligations related to the transcription services and other recurring services are generally satisfied as the corresponding services are provided and revenue is recognized as such services are rendered. Electronic data interchange and data services. Performance obligations related to EDI and other transaction processing services are satisfied at the point in time the services are rendered. The transfer of control occurs when the transaction processing services are delivered and the customer receives the benefits from the services provided. Software license and hardware. Software license and hardware are considered point-in-time performance obligations as control is transferred to customers upon the delivery of the software license and hardware. Our software licenses are considered functional licenses, and revenue recognition generally occurs on the date of contract execution as the customer is provided with immediate access to the license. We generally determine the amount of consideration allocated to the software license performance obligation using the residual approach, except for certain RCM arrangements where the amount allocated to the software license performance obligation is determined based on estimated relative standalone selling prices. For hardware, we recognize revenue upon transfer of such hardware or devices to the customer. Other non-recurring services. Performance obligations related to other non-recurring services, including implementation, training, and consulting services, are generally satisfied as the corresponding services are provided. Once the services have been provided to the customer, the transfer of control has occurred. Therefore, we recognize revenue as such services are rendered. Transaction Price Allocated to Remaining Performance Obligations As of March 31, 2019, the aggregate amount of transaction price related to remaining unsatisfied or partially unsatisfied performance obligations over the respective noncancelable contract term was approximately $451,100, of which we expect to recognize approximately 10% as services are rendered or goods are delivered, 45% over the next 12 months, and the remainder thereafter. Contract Balances Contract balances result from the timing differences between our revenue recognition, invoicing, and cash Our contracts with customers do not include any major financing components. Costs to Obtain or Fulfill a Contract ASC 606 requires the capitalization of all incremental costs of obtaining a contract with a customer to the extent that such costs are directly related to a contract and expected to be recoverable. Our sales commissions and related sales incentives are considered incremental costs requiring capitalization. Capitalized contract costs are amortized to expense utilizing a method that is consistent with the transfer of the related goods or services to the customer. The amortization period ranges from less than Capitalized commissions costs were $19,597 as of March 31, 2019, of which $4,816 is current and included as prepaid expenses and other current assets and $14,781 is long-term and included within other assets on our consolidated balance sheets, based on the expected timing of expense recognition. During the year ended March 31, 2019, we recognized $6,292 of commissions expense primarily related to the amortization of capitalized commissions costs, which is included as a selling, general and administrative expense in the consolidated statement of comprehensive income. 63 The following tables set forth by level within the fair value hierarchy Balance At Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Unobservable Inputs March 31, 2019 (Level 1) (Level 2) (Level 3) ASSETS Cash and cash equivalents (1) $ 33,079 $ 33,079 $ — $ — Restricted cash and cash equivalents 1,443 1,443 — — $ 34,522 $ 34,522 $ — $ — LIABILITIES Contingent consideration related to acquisitions $ 1,000 $ — $ — $ 1,000 $ 1,000 $ — $ — $ 1,000 Balance At Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Unobservable Inputs March 31, 2018 (Level 1) (Level 2) (Level 3) ASSETS Cash and cash equivalents (1) $ 28,845 $ 28,845 $ — $ — Restricted cash and cash equivalents 2,373 2,373 — — $ 31,218 $ 31,218 $ — $ — (1) Cash equivalents consist primarily of money market funds. The following table presents activity in Total Liabilities Balance at March 31, 2018 $ — Fair value adjustments 1,000 Balance at March 31, 2019 $ 1,000 The contingent liability as of We believe that the fair value Non-Recurring Fair Value Measurements We have certain assets, including goodwill and other intangible assets, which are measured at fair value on a non-recurring basis and are adjusted to fair value only if an impairment charge is recognized. The categorization of the framework used to measure fair value of the assets is considered to be within the Level 3 valuation hierarchy due to the subjective nature of the unobservable inputs used. During the year ended March 31, 64 On January 31, 2018, we completed the acquisition of On August 16, 2017, we completed the acquisition of EagleDream Health, Inc. ("EagleDream") pursuant to the Agreement and Plan of Merger, dated July 31, 2017. Headquartered in Rochester, NY, EagleDream provides cloud-based analytics that drives meaningful insight across clinical, financial and administrative data to optimize practice performance. The On April 14, 2017, we completed our acquisition of Entrada, Inc. ("Entrada") pursuant to the terms of the Agreement and Plan of Merger, dated April 11, 2017. Based in Nashville, TN, Entrada is a We accounted for the The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their 65 Table of The Inforth EagleDream Entrada Initial purchase price $ 4,000 $ 26,000 $ 34,000 Settlement of pre-existing net liabilities 337 — — Working capital and other adjustments — (391 ) (42 ) Total purchase price $ 4,337 $ 25,609 $ 33,958 Fair value of the net tangible assets acquired and liabilities assumed: Acquired cash and cash equivalents $ 25 $ 573 $ 102 Accounts receivable 6 217 1,836 Prepaid expense and other current assets — 20 145 Equipment and improvements — — 163 Capitalized software costs — — 364 Deferred income tax asset — — 117 Accounts payable — (115 ) (639 ) Accrued compensation and related benefits (49 ) (691 ) (120 ) Deferred revenues — (394 ) (234 ) Deferred income tax liability — (1,707 ) — Other liabilities (22 ) (122 ) (444 ) Total net tangible assets acquired and liabilities assumed (40 ) (2,219 ) 1,290 Fair value of identifiable intangible assets acquired: Goodwill 1,177 14,428 17,268 Software technology 3,200 12,800 10,500 Customer relationships — 600 3,300 Trade name — — 1,600 Total identifiable intangible assets acquired 4,377 27,828 32,668 Total purchase price $ 4,337 $ 25,609 $ 33,958 As noted in the During the year ended March 31, The We test goodwill for impairment annually during our first fiscal quarter, referred to as the annual test date. Based on our qualitative assessment for the current fiscal year, we have determined that there was no impairment to our goodwill as of June 30, 2018. 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. During the years ended March 31, 2019 and March 31, 2018, we did not identify any events or circumstances that would require an interim goodwill impairment test. We do not amortize goodwill as it has been determined to have an indefinite useful life. 66 During the year ended March 31, 2018, we recorded an impairment Our definite-lived intangible assets, other than capitalized March 31, 2019 Customer Software Relationships Technology Total Gross carrying amount $ 54,450 $ 94,310 $ 148,760 Accumulated amortization (39,875 ) (56,290 ) (96,165 ) Net intangible assets $ 14,575 $ 38,020 $ 52,595 March 31, 2018 Customer Software Relationships Technology Total Gross carrying amount $ 54,450 $ 94,310 $ 148,760 Accumulated amortization (35,531 ) (39,138 ) (74,669 ) Net intangible assets $ 18,919 $ 55,172 $ 74,091 Amortization expense related to customer relationships and contracts recorded as operating expenses in the The following table Estimated Remaining Amortization Expense Operating Expense Cost of Revenue Total For the year ended March 31, 2020 $ 3,460 $ 17,151 $ 20,611 2021 2,803 13,268 16,071 2022 2,273 5,480 7,753 2023 1,866 1,761 3,627 2024 1,548 180 1,728 2025 and beyond 2,625 180 2,805 Total $ 14,575 $ 38,020 $ 52,595 Our capitalized software costs are summarized as follows: March 31, 2019 March 31, 2018 Gross carrying amount $ 59,782 $ 50,361 Accumulated amortization (21,927 ) (24,043 ) Net capitalized software costs $ 37,855 $ 26,318 During the year ended March 31, 2019, we retired $13,453 of fully amortized capitalized software costs that are no longer being utilized by our client base. Amortization expense related to capitalized software costs was $11,338, $6,518, and $7,892 for the years ended March 31, 2019, 2018, and 2017, respectively, and is recorded as cost of revenue in the consolidated statements of net income and comprehensive income. 67 The following table presents the remaining estimated amortization of capitalized software costs as of March 31, For the year ended March 31, 2020 $ 19,000 2021 11,800 2022 6,300 2023 755 Total $ 37,855 9. Line of Credit On The Credit Agreement matures on The revolving loans under the Credit Agreement bear interest at our option of either, (a) for base rate loans, a base rate based on the highest of (i) 0%, (ii) the rate of interest The revolving loans under the Credit Agreement 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 net leverage ratio of As of March 31, During the years ended March 31, 2019, 2018, and 2017 we recorded $2,055, $1,812, and $1,899 of interest expense (excluding amortization of deferred debt issuance costs), respectively, and the weighted average interest As of March 31, Subsequent to the adoption of ASC 606 as of April 1, 2018, accounts receivable includes billed amounts where the right to receive payment is unconditional and only subject to the passage of time, and sales return reserves are now classified as other current liabilities on our consolidated balance sheets. As of March 31, 2018, accounts receivable may include amounts invoiced March 31, 2019 March 31, 2018 Accounts receivable, gross $ 93,513 $ 94,358 Sales return reserve — (5,520 ) Allowance for doubtful accounts (6,054 ) (3,876 ) Accounts receivable, net $ 87,459 $ 84,962 Inventory is Prepaid expenses and other current assets are summarized as follows: March 31, 2019 March 31, 2018 Prepaid expenses $ 15,548 $ 13,865 Capitalized commissions costs 4,816 2,828 Other current assets 462 487 Prepaid expenses and other current assets $ 20,826 $ 17,180 Equipment and improvements are summarized as follows: March 31, 2019 March 31, 2018 Computer equipment $ 28,923 $ 27,347 Internal-use software 17,084 15,804 Furniture and fixtures 11,660 11,432 Leasehold improvements 15,150 16,016 Equipment and improvements, gross 72,817 70,599 Accumulated depreciation and amortization (51,413 ) (43,804 ) Equipment and improvements, net $ 21,404 $ 26,795 Other assets are summarized as follows: March 31, 2019 March 31, 2018 Capitalized commission costs $ 14,781 $ 1,394 Deposits 5,318 4,666 Debt issuance costs 2,834 3,544 Other noncurrent assets 9,545 9,191 Other assets $ 32,478 $ 18,795 Accrued compensation and related benefits are summarized as follows: March 31, 2019 March 31, 2018 Payroll, bonus and commission $ 15,770 $ 18,120 Vacation 9,893 9,790 Accrued compensation and related benefits $ 25,663 $ 27,910 69 Other current and March 31, 2019 March 31, 2018 Sales returns reserves and other customer liabilities (1) $ 7,838 $ — Accrued hosting costs 4,674 1,600 Customer credit balances and deposits 3,988 4,287 Accrued consulting and outside services 3,874 4,428 Accrued royalties 3,090 1,400 Accrued employee benefits and withholdings 2,426 1,636 Accrued self insurance expense 2,225 2,145 Accrued outsourcing costs 2,128 2,898 Accrued EDI expense 2,037 2,310 Care services liabilities 1,443 2,373 Deferred rent 1,414 1,594 Contingent consideration and other liabilities related to acquisitions 1,000 — Remaining lease obligations 782 672 Accrued legal expense 699 1,793 Sales tax payable 509 499 Accrued securities litigation settlement — 19,000 Other accrued expenses 2,937 1,682 Other current liabilities $ 41,064 $ 48,317 Deferred rent $ 8,947 $ 9,902 Uncertain tax positions 1,677 2,419 Remaining lease obligations 980 962 Other liabilities 208 211 Other noncurrent liabilities $ 11,812 $ 13,494 (1) Subsequent to the adoption of ASC 606 as of April 1, 2018, sales return reserves and certain customer liabilities, which were previously recorded within accounts receivable, are now classified as other current liabilities on our consolidated balance sheets. 11. Income The provision for (benefit of) income taxes consists of the following components: Fiscal Year Ended March 31, 2019 2018 2017 Current: Federal taxes $ 1,159 $ (2,788 ) $ 3,443 State taxes (238 ) (1,073 ) 1,556 Foreign taxes 744 678 498 Total current taxes 1,665 (3,183 ) 5,497 Deferred: Federal taxes $ 3,752 $ 2,949 $ 824 State taxes (428 ) (2,510 ) (879 ) Foreign taxes (195 ) (86 ) (74 ) Total deferred taxes 3,129 353 (129 ) Provision for (benefit of) income taxes $ 4,794 $ (2,830 ) $ 5,368 70 Fiscal Year Ended March 31, 2019 2018 2017 Tax expense at United States federal statutory rate (1) $ 6,150 $ (129 ) $ 8,263 Items affecting federal income tax rate: Research and development tax credits (4,647 ) (4,179 ) (2,276 ) Impact of foreign operations (304 ) (365 ) (402 ) Compensation (169 ) 620 192 Return to provision true-ups (149 ) (2,229 ) (300 ) Impact of valuation allowance (33 ) (101 ) (212 ) Acquisition expenses (2 ) 304 1,336 Qualified production activities income deduction — (4 ) (763 ) Impact of deferred adjustments 132 415 (490 ) Non-deductible expenses 140 98 (7 ) Foreign transition tax - Tax Reform 210 1,381 — Revaluation of deferred tax balances - Tax Reform 231 2,328 — Impact of uncertain tax positions 375 (2,884 ) 311 Impact of amended returns 391 196 (1,530 ) Impact of audit settlements 967 428 — State income taxes 1,502 1,291 1,246 Provision for (benefit of) income taxes $ 4,794 $ (2,830 ) $ 5,368 (1) Federal statutory rate was 21.0%, 31.5% and 35.0% for March 31, 2019, 2018 and 2017, respectively. The net deferred tax assets and liabilities in the accompanying consolidated balance sheets consist of the following: March 31, 2019 March 31, 2018 Deferred tax assets: Compensation and benefits $ 10,707 $ 8,023 Research and development credit 10,089 5,368 Deferred revenue 7,171 4,918 Net operating losses 5,320 9,729 Deferred rent 3,143 3,364 Allowance for doubtful accounts 2,156 2,267 Foreign deferred taxes 1,455 1,259 Accrued legal settlement — 4,906 Other 690 580 Total deferred tax assets 40,731 40,414 Deferred tax liabilities: Intangibles assets $ (15,806 ) $ (17,323 ) Prepaid expense (6,407 ) (1,217 ) Capitalized software (4,900 ) (4,854 ) Accounts receivable (2,255 ) (3,340 ) Accelerated depreciation (1,606 ) (1,568 ) Total deferred tax liabilities (30,974 ) (28,302 ) Valuation allowance (3,563 ) (2,893 ) Deferred tax assets, net $ 6,194 $ 9,219 The deferred tax assets and liabilities have been shown net in the accompanying consolidated balance sheets as noncurrent. As of March 31, As of March 31, 71 We expect to receive the full benefit of the deferred tax assets recorded with the exception of certain state credits and Notwithstanding the United States taxation of the deemed repatriated foreign earnings as a result of the one-time Transition Tax, we intend to continue investing these earnings indefinitely outside of the United States. If we determine that all or a portion of our foreign earnings are no longer to be indefinitely reinvested, we may be subject to additional foreign withholding taxes and state income taxes in the United States beyond the Tax Reform’s one-time Transition Tax. In the event that we distribute the foreign earnings to the United States, we will incur and record foreign withholding related taxes and U.S. state taxes of approximately $2,440 and $500, respectively. 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 as of March 31, 2017 $ 4,762 Additions for current year tax positions 217 Reductions for prior year tax positions (2,560 ) Balance as of March 31, 2018 2,419 Additions for prior year tax positions 1,405 Reductions for prior year tax positions (930 ) Balance as of March 31, 2019 $ 2,894 During the year ended March 31, Our practice is to recognize interest related to income tax matters as interest expense in the consolidated statements of comprehensive income. We had approximately We are no longer subject to United States Tax Reform On December 22, 2017, the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform”). This new tax legislation, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant changes to existing United States tax law, including various provisions, such as Establishes a flat corporate income tax rate of 21% on United States earnings Imposes a one-time tax on unremitted cumulative non-United States earnings of foreign subsidiaries (“Transition Tax”) Imposes a new minimum tax on certain non-United States earnings, irrespective of the territorial system of taxation, and generally allows for the repatriation of future earnings of foreign subsidiaries without incurring additional United States taxes by transitioning to a territorial system of taxation (Global Intangible Low-Taxed Income or “GILTI Tax”) Subjects certain payments made by a United States company to a related foreign company to certain minimum taxes, Base Erosion Anti-Abuse Tax (“BEAT”), and allows a related United States deduction of foreign activities or Foreign Derived Intangible Income Deduction (“FDII”) Eliminates certain prior tax incentives for manufacturing in the United States and creates an incentive for United States companies to sell, lease or license goods and services abroad by allowing for a reduction in taxes owed on earnings from such sales Allows the cost of investments in certain depreciable assets acquired and placed in service after September 27, 2017 to be immediately expensed Reduces deductions with respect to certain compensation paid to specified executive officers 72 Due to the complexities involved in accounting for the enactment of the Tax Reform, Staff Accounting Bulletin No. 118 (”SAB 118”) allowed us to record provisional amounts in earnings for the year ended March 31, 2018. SAB 118 provides that where reasonable estimates can be made, the provisional accounting should be based on such estimates and when no reasonable estimate can be made, the provisional accounting may be based on the tax law in effect before the Tax Reform. SAB 118 allowed a measurement period of up to one year from the enactment date to identify Tax Reform impacts. During the fiscal year ended March 31, 2019, we completed our analysis of the Tax Reform on our consolidated financial statements and recorded a net tax benefit in the tax provision. Additionally, our United States tax returns for the period ended March 31, 2018 were filed in December 2018 and any changes to the tax positions for temporary differences compared to the estimates used resulted in an adjustment of the estimated tax expense recorded as of March 31, 2018. As a result, the Company’s accounting for the ultimate income tax effects of the Tax Act has been finalized and the measurement period under SAB 118 ended during the nine months ended December 31, 2018. Despite the completion of our accounting for the Tax Reform under SAB 118, many aspects of the law remain unclear and we expect ongoing guidance to be issued at both the federal and state levels. We will continue to monitor and assess the impact of any new developments. The Tax Reform also required a one-time Transition Tax based on total post-1986 foreign cumulative earnings and profits previously deferred from United States federal taxation, which was reasonably estimated and recorded as a one-time income tax expense of $1,381 at March 31, 2018. During fiscal year ended March 31, 2019, we completed our accounting analysis of the cumulative foreign earnings and Transitional Tax liability under the Tax Reform. A net reduction of $793 to the provisional transition tax amounts previously reported under SAB 118 was included during the nine months ended December 31, 2018. The Transition Tax amount of $8,345 for the cumulative undistributed earnings of our foreign subsidiary has been included in our computation of the Transition Tax. The net reduction of Transition Tax was due primarily to the utilization of additional foreign tax credits. We filed our corporate tax returns during the quarter and utilized available net operating losses to fully offset the Transition Tax. The Tax Reform also includes a GILTI Tax, requiring inclusion of certain non-United States earnings effective April 1, 2018. The GILTI inclusion has been estimated and included in the effective tax rate used for the tax provision recorded for fiscal year ended March 31, 2019. As there are substantial uncertainties in the interpretations of GILTI and other related new tax reform, BEAT and FDII, we will continue to evaluate the impact of the GILTI provisions under the Tax Reform, which are complex and subject to continuing regulatory interpretation by the United States Internal Revenue Service. We are required to make an accounting policy election of either (1) treating taxes due on future United States inclusions in taxable income related to GILTI as a current period expense when incurred or (2) factoring such amounts into our measurement of deferred taxes. The Company made an accounting policy election to account for GILTI as a component of tax expense in the period in which we are subject and therefore will not provide any deferred tax impacts of GILTI in our consolidated financial statements for the year ended March 31, 2019. The Company has concluded on the policy of tax law ordering for reflecting the realization of the net operating losses related to GILTI as a permanent adjustment. The BEAT provisions eliminate the deduction of certain base-erosion payments made to related foreign corporations and impose a minimum tax if greater than regular tax. The Company does not presently expect that it will be subject to the minimum tax imposed by the BEAT. The Tax Reform legislation includes various other provisions with effective dates beginning April 1, 2018 and beyond. For other changes that impact business related income, exclusions, deductions and credits with effective dates for our fiscal year beginning after April 1, 2019, we will continue to account for those items based on our existing accounting under ASC 740 and the provisions of the tax laws that were in effect immediately prior to the enactment of the Tax Reform. 12. Employee Benefit Plans We provide a 401(k) plan to substantially all of our employees. Participating employees may defer up to the 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 73 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 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 In August 2015, our shareholders approved a stock option and incentive plan (the “2015 Plan”) under which 11,500,000 shares of common stock were reserved for the issuance of awards, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards, performance stock awards and other share-based awards. In August 2017, our shareholders approved an amendment to the 2015 Plan, (the “Amended 2015 Plan”), to, among other items, increase the number of shares of common stock reserved for issuance thereunder by 6,000,000. The Amended 2015 Plan provides that our employees and directors may, at the discretion of the Board The following table summarizes the stock option transactions during the years ended March 31, Weighted- Weighted- Average Average Aggregate Exercise Remaining Intrinsic Employee Stock Options Summary Number of Price Contractual Value Shares per Share Life (years) (in thousands) Outstanding, March 31, 2016 2,447,286 $ 19.55 6.3 $ 574 Granted 1,146,500 11.30 7.2 Forfeited/Canceled (708,371 ) 16.86 3.4 Outstanding, March 31, 2017 2,885,415 15.41 6.2 $ 3,150 Granted 1,479,000 14.56 7.5 Exercised (216,405 ) 16.62 5.8 $ 119 Forfeited/Canceled (477,840 ) 18.90 3.1 Outstanding, March 31, 2018 3,670,170 15.51 6.2 $ 766 Granted 326,130 16.40 6.8 Exercised (375,645 ) 15.49 4.7 $ 1,589 Forfeited/Canceled (451,730 ) 18.00 4.9 Expired (2,400 ) 28.15 Outstanding, March 31, 2019 3,166,525 $ 15.36 5.5 $ 7,040 Vested and expected to vest, March 31, 2019 2,856,491 $ 15.43 5.5 $ 6,352 Exercisable, March 31, 2019 1,320,670 $ 16.22 4.7 $ 2,942 Share-based compensation expense related to stock options was $3,936, $2,953, and $3,496 for the years ended March 31, 2019, 2018, and 2017, respectively. 74 We utilize the Black-Scholes valuation model for estimating the fair value of Year Ended Year Ended Year Ended March 31, 2019 March 31, 2018 March 31, 2017 Expected term 6.1 - 6.3 years 5.6 - 6.1 years 6.0 - 6.6 years Expected volatility 34.6% - 36.8% 37.0% - 37.7% 36.9% - 37.4% Expected dividends 0.0% 0.0% 0.0% Risk-free rate 2.8% - 3.1% 1.9% - 2.2% 1.2% - 2.1% During the years ended March 31, Option Grant Date Number of Shares Exercise Price Vesting Terms (1) Expiration January 31, 2017 90,000 $ 15.01 Four years January 31, 2025 November 1, 2016 50,000 $ 12.71 Four years November 1, 2024 July 11, 2016 150,000 $ 12.60 Four years July 11, 2024 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 Fiscal year 2017 grants 1,146,500 June 13, 2017 249,000 $ 16.37 Four Years June 13, 2025 May 24, 2017 60,000 $ 14.57 Four Years May 24, 2025 August 4, 2017 25,000 $ 16.13 Four Years August 4, 2025 October 31, 2017 915,000 $ 14.07 Four Years October 31, 2025 December 4, 2017 230,000 $ 14.38 Four Years December 4, 2025 Fiscal year 2018 grants 1,479,000 May 30, 2018 241,130 $ 16.83 Four Years June 1, 2026 August 3, 2018 60,000 $ 21.27 Four Years August 3, 2026 November 2, 2018 25,000 $ 15.09 Four Years November 2, 2026 Fiscal year 2019 grants 326,130 (1) Unless otherwise indicated, options vest in equal annual installments on each grant anniversary date commencing one year following the date of The weighted-average grant date fair value of stock options granted during the years ended March 31, 2019, 2018, and 2017 was $7.18, $5.59, and $5.00 per share, respectively. 75 Non-vested stock option award activity during the years ended March 31, 2019, 2018, and 2017 is summarized as follows: Weighted- Average Grant-Date Non-Vested Stock Option Award Summary Number of Fair Value Shares per Share Outstanding, March 31, 2016 1,859,750 $ 4.67 Granted 1,146,500 5.00 Vested (540,595 ) 3.87 Forfeited/Canceled (392,360 ) 4.50 Outstanding, March 31, 2017 2,073,295 $ 5.09 Granted 1,479,000 5.59 Vested (621,440 ) 4.92 Forfeited/Canceled (273,850 ) 4.57 Outstanding, March 31, 2018 2,657,005 $ 5.18 Granted 326,130 7.18 Vested (778,900 ) 5.12 Forfeited/Canceled (358,380 ) 5.36 Outstanding, March 31, 2019 1,845,855 $ 5.52 As of March 31, 2019, $8,074 of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted-average period of 2.3 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 years ended March 31, 2019, 2018, and 2017 was $3,985, $3,059, and $2,090, respectively. Restricted stock awards activity during the years ended March 31, 2019, 2018, and 2017 is summarized as follows: Weighted- Average Grant-Date Restricted Stock Number of Fair Value Shares per Share Outstanding, March 31, 2016 191,247 $ 14.44 Granted 909,456 12.93 Vested (92,543 ) 15.25 Canceled (105,212 ) 13.00 Outstanding, March 31, 2017 902,948 $ 12.92 Granted 1,424,441 15.00 Vested (386,226 ) 14.26 Canceled (120,253 ) 14.29 Outstanding, March 31, 2018 1,820,910 $ 14.52 Granted 885,845 18.14 Vested (642,695 ) 14.63 Canceled (348,102 ) 14.79 Outstanding, March 31, 2019 1,715,958 $ 16.29 Share-based compensation expense related to restricted stock awards was $10,875, $8,536, and $3,691 for the years ended March 31, 2019, 2018, and 2017, respectively. The weighted-average grant date fair value for the restricted stock awards was estimated using the market price of the common stock on the date of grant. The fair value of the restricted stock awards is amortized on a straight-line basis over the vesting period, which is between one and four years. As of March 31, 2019, $19,962 of total unrecognized compensation costs related to restricted stock awards is expected to be recognized over a weighted-average period of 1.8 years. This amount does not include the cost of new restricted stock awards that may be granted in future periods. 76 On December 29, 2016, the Compensation Committee of the Board granted 123,082 performance stock awards to certain executive officers, of which 46,374 shares are currently outstanding. The performance stock awards vest in four equal increments on each of the first four anniversaries of the grant date, subject in each case to the executive officer’s continued service and achievement of certain performance goals, including strong stock price performance. Share-based compensation expense related to the performance stock awards was $276 for the fiscal year ended March 31, 2019. As of March 31, 2019, $425 of total unrecognized compensation costs related to performance stock awards is expected to be recognized over a weighted-average period of 1.8 years. This amount does not include the cost of new performance stock awards that may be granted in future periods. On October 23, 2018, the Compensation Committee of the Board approved 248,140 performance stock unit awards to be granted to certain executives and non-executive members of the executive leadership team, which vest only in the event certain performance goals are achieved and with continuous service through the date the goals are certified. Approximately 34% of the performance stock units are tied to our cumulative 3-year total shareholder return, 33% are tied to our fiscal year 2021 revenue, and 33% are tied to our fiscal year 2021 adjusted earnings per share goals, each as specifically defined in the equity award agreements. The number of shares to be issued may vary between 50% and 200% of the number of performance stock units depending on performance, and no such shares will be issued if threshold performance is not achieved. Share-based compensation expense related to the performance stock unit awards was $534 for the year ended March 31, 2019. Employee Share Purchase Plan On August 11, 2014, Share-based compensation expense recorded for the employee share purchase plan was 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, The following table summarizes our significant contractual obligations at March 31, For the year ended March 31, Contractual Obligations Total 2020 2021 2022 2023 2024 2025 and beyond Operating lease obligations $ 53,477 $ 9,615 $ 9,781 $ 9,503 $ 9,194 $ 7,438 $ 7,946 Remaining lease obligations for vacated properties (1) 3,383 896 920 658 466 292 151 Line of credit obligations (Note 9) 11,000 — — — 11,000 — — Total $ 67,860 $ 10,511 $ 10,701 $ 10,161 $ 20,660 $ 7,730 $ 8,097 (1) Remaining lease obligations for vacated properties relates to remaining lease obligations at certain locations, including Austin, Solana Beach, and portions of Horsham and St. Louis, that we have vacated and are actively marketing the locations for sublease as part of our reorganization efforts. Refer to Note 15 for additional details. Total obligations have not been reduced by projected sublease rentals or by minimum sublease rentals of $282 due in future periods under non-cancelable subleases. The deferred compensation liability as of March 31, The uncertain tax position liability as of March 31, 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 We have historically offered short-term rights of return Our standard sales agreements contain an indemnification provision pursuant to which 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 78 Shareholder Derivative Litigation On Other Regulatory Matters Commencing in April 2017, we have received requests for documents and information from the United States Attorney's Office for the District of Vermont and other government agencies in connection with an investigation concerning the certification we obtained for our software under the United States Department of Health and Human Services' Electronic Health Record (EHR) Incentive Program. The requests for information relate to, among other things: (a) data used to determine objectives and measures under the Meaningful Use (MU) and the Physician Quality Reporting System (PQRS) programs, (b) EHR software code used in certifying our software and information, and (c) payments provided for the referral of EHR business. We continue to cooperate in this investigation. Requests and investigations of this nature may lead to future requests for information and ultimately the assertion of claims or the commencement of legal proceedings against us, as well as other material liabilities. In addition, our responses to these and any future requests require time and effort, which can result in additional cost to us. At this time, we are unable to estimate the probability or the amount of liability, if any, related to this matter. Given the highly-regulated nature of our industry, we may, from time to time, be subject to subpoenas, requests for information, or investigations from various government agencies. It is our practice to respond to such matters in a cooperative, thorough and timely manner. At this time, we are unable to estimate the probability or the amount of liability, if any, related to this matter. During the year ended March 31, 2017, as part of our corporate restructuring plan, we recorded $7,078 of restructuring costs within operating expenses in our consolidated statements of net income and comprehensive income. The restructuring costs consisted primarily of payroll-related costs, such as severance, outplacement costs, and continuing healthcare coverage, associated with the involuntary separation of employees pursuant to a one-time benefit arrangement, which were accrued when it was probable that the benefits would be paid and the amounts were reasonably estimable. As of March 31, Also included in 79 Table of The following table presents quarterly unaudited consolidated financial information for the eight quarters preceding March 31, Quarter Ended 3/31/19 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 9/30/17 6/30/17 Revenues: Recurring $ 120,151 $ 117,446 $ 116,317 $ 120,007 $ 118,598 $ 118,997 $ 119,441 $ 119,178 Software, hardware, and other non-recurring 14,634 13,421 14,004 13,193 17,177 12,718 13,166 11,744 Total revenues 134,785 130,867 130,321 133,200 135,775 131,715 132,607 130,922 Cost of revenue: Recurring 48,174 47,997 47,172 48,153 48,856 49,347 47,699 48,458 Software, hardware, and other non-recurring 5,959 6,576 7,022 7,154 6,775 6,323 5,947 6,040 Amortization of capitalized software costs and acquired intangible assets 7,924 7,098 6,924 6,544 6,346 5,964 5,109 4,671 Total cost of revenue 62,057 61,671 61,118 61,851 61,977 61,634 58,755 59,169 Gross profit 72,728 69,196 69,203 71,349 73,798 70,081 73,852 71,753 Operating expenses: Selling, general and administrative 44,710 41,304 34,229 44,636 65,709 43,563 40,977 42,977 Research and development costs, net 19,813 20,682 18,371 22,128 21,098 20,645 19,527 19,989 Amortization of acquired intangible assets 1,028 1,027 1,121 1,168 1,795 1,956 2,012 2,047 Impairment of assets (1) — — — — 3,757 — — — Restructuring costs 640 — — — 481 130 — — Total operating expenses 66,191 63,013 53,721 67,932 92,840 66,294 62,516 65,013 Income (loss) from operations 6,537 6,183 15,482 3,417 (19,042 ) 3,787 11,336 6,740 Interest income 103 44 40 29 19 15 12 9 Interest expense (595 ) (720 ) (769 ) (730 ) (1,073 ) (733 ) (840 ) (677 ) Other income (expense), net (117 ) (227 ) 237 374 85 (41 ) 15 (22 ) Income (loss) before provision for (benefit of) income taxes 5,928 5,280 14,990 3,090 (20,011 ) 3,028 10,523 6,050 Provision for (benefit of) income taxes 2,000 456 1,896 442 (8,964 ) 1,487 2,493 2,154 Net income (loss) $ 3,928 $ 4,824 $ 13,094 $ 2,648 $ (11,047 ) $ 1,541 $ 8,030 $ 3,896 Net income (loss) per share: Basic (2) $ 0.06 $ 0.07 $ 0.20 $ 0.04 $ (0.17 ) $ 0.02 $ 0.13 $ 0.06 Diluted (2) $ 0.06 $ 0.07 $ 0.20 $ 0.04 $ (0.17 ) $ 0.02 $ 0.13 $ 0.06 Weighted-average shares outstanding: Basic 64,749 64,637 64,265 64,019 63,888 63,706 63,513 62,636 Diluted 64,917 64,776 64,857 64,054 63,888 63,708 63,530 62,643 (1) Impairment of assets for the quarter ended 3/31/2018 relates to the impairment of our acquired trade names intangible assets, which was the result of the elimination of certain legacy brand and trade names due to the launching of our new branding, identity, and corporate logo intended to reflect our expanded health technology portfolio following years of recent acquisitions. Refer to Note 7 for additional details. (2) Quarterly net income (loss) per share may not sum to annual net income (loss) per share due to rounding. 80 SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS Sales Return Reserve (in thousands) For the year ended Balance at Beginning of Year Additions Charged Against Revenue Deductions Balance at End of Year March 31, 2019 $ 5,520 $ 4,969 $ (5,730 ) $ 4,759 March 31, 2018 $ 7,213 $ 3,964 $ (5,657 ) $ 5,520 March 31, 2017 $ 7,541 $ 11,330 $ (11,658 ) $ 7,213 Allowance for Doubtful Accounts (in thousands) For the year ended Balance at Beginning of Year Additions Charged to Costs and Expenses Deductions Balance at End of Year March 31, 2019 $ 3,876 $ 5,644 $ (3,466 ) $ 6,054 March 31, 2018 $ 2,757 $ 5,913 $ (4,794 ) $ 3,876 March 31, 2017 $ 2,902 $ 5,082 $ (5,227 ) $ 2,757 Valuation Allowance for Deferred Taxes (in thousands) For the year ended Balance at Beginning of Year Additions Charged to Costs and Expenses Acquisition Related Additions Deductions Balance at End of Year March 31, 2019 $ 2,893 $ 708 $ — $ (38 ) $ 3,563 March 31, 2018 $ 2,073 $ — $ 922 $ (102 ) $ 2,893 March 31, 2017 $ 2,551 $ — $ (267 ) $ (211 ) $ 2,073 81our common stock on each of March 31, 2012, 2013, 2014, 2015 and 2016 was published by NASDAQ and, accordingly for the periods ended March 31, 2012, 2013, 2014, 2015 and 2016, the reported last trade price was utilized to compute the total cumulative return for our common stock for the respective periods then ended. Shareholder returns over the indicated periods should not be considered indicative of future stock prices or shareholder returns.20162019 and the consolidated balance sheets data as of the end of each such fiscal year, are not necessarily indicative of results of future operations and should be read in conjunction with our consolidated financial statements and the related notes thereto and Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Report. Fiscal Year Ended March 31, 2016 2015 2014 2013 2012 Statements of comprehensive income data: Revenue $ 492,477 $ 490,225 $ 444,667 $ 460,229 $ 429,835 Cost of revenue 225,615 223,164 220,163 189,652 151,223 Gross profit 266,862 267,061 224,504 270,577 278,612 Selling, general and administrative 156,234 158,172 149,214 148,353 128,846 Research and development costs, net 65,661 69,240 41,524 30,865 31,369 Amortization of acquired intangible assets 5,367 3,693 4,805 4,859 2,198 Impairment of assets 32,238 — 5,873 17,400 — Income from operations 7,362 35,956 23,088 69,100 116,199 Interest income 428 111 269 76 247 Interest expense (1,304 ) (341 ) — (183 ) — Other expense, net (166 ) (62 ) (356 ) (79 ) (139 ) Income before provision for income taxes 6,320 35,664 23,001 68,914 116,307 Provision for income taxes 663 8,332 7,321 26,190 40,650 Net income $ 5,657 $ 27,332 $ 15,680 $ 42,724 $ 75,657 Basic net income per share $ 0.09 $ 0.45 $ 0.26 $ 0.72 $ 1.29 Diluted net income per share $ 0.09 $ 0.45 $ 0.26 $ 0.72 $ 1.28 Basic weighted average shares outstanding 60,635 60,259 59,918 59,392 58,729 Diluted weighted average shares outstanding 61,233 60,849 60,134 59,462 59,049 Dividends declared per common share $ 0.525 $ 0.70 $ 0.70 $ 0.70 $ 0.70 March 31,
2016 March 31,
2015 March 31,
2014 March 31,
2013 March 31,
2012Balance sheet data: $ 36,473 $ 130,585 $ 113,801 $ 118,011 $ 139,431 $ 45,931 $ 100,893 $ 124,782 $ 158,156 $ 173,150 $ 530,790 $ 460,521 $ 451,351 $ 452,126 $ 448,838 $ 105,000 $ — $ — $ — $ — $ 261,413 $ 176,981 $ 156,261 $ 145,077 $ 153,661 Total shareholders’ equity $ 269,377 $ 283,540 $ 295,090 $ 307,049 $ 295,177 _______________________(1) Working capital as
ContentsBalance Sheet Classification of Deferred Taxes ("ASU 2015-17"). Refer to Note 2, "Summary of Significant Accounting Policies" of our notes to consolidated financial statements included elsewhere in this Report for additional details. The retrospective adoption of ASU 2015-17 resulted in the reclassification, for presentation purposes only, of current deferred tax assets to noncurrent deferred tax assets in our consolidated balance sheets as of March 31, 2015, 2014, 2013, and 2012. As a result of such reclassification, working capital decreased by $24,080, $21,531, $23,413, and $18,613 as of March 31, 2015, 2014, 2013, and 2012, respectively.(2) During the year ended March 31, 2015, our cash, cash equivalents, and marketable securities, working capital, total assets, long-term line of credit and total liabilities were impacted by certain transactions, including the acquisition of HealthFusion, revolving credit agreement, and impairment of our previously capitalized software costs. Refer Note 5, "Business Combinations and Disposals," Note 9, "Line of Credit," and Note 8, "Capitalized Software Costs" of our notes to consolidated financial statements included elsewhere in this Report for additional details.Quality Systems, Inc., primarily through its subsidiary, providesis a leading provider of ambulatory-focused healthcare software and services solutions. In pursuit of our mission to empower the transformation of ambulatory care, we provide innovative technology-based solutions that help our clients succeed while they are managing more complexity and services toassuming greater financial risk.in the United States. Ourfrom small single specialty practices to larger multi-specialty organizations. We have fully integrated our solutions provideso that our clients are able to provide their patients with the abilitycomprehensive services utilizing a single platform. Our highly interoperable platform allows ambulatory practices to redesignthrive especially in complex, heterogeneous healthcare communities where frictionless clinical data exchange is required to coordinate and optimize 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 sellcare. a dedicated sales forceboth organic and to a much lesser extent, through resellers. Our clients include single and small practice physicians, 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, 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.inorganic activities. In October 2015, we divested our former Hospital Solutions Division.Quality Systems,division to focus exclusively on the ambulatory marketplace. In January 2016, we acquired HealthFusion Holdings, Inc. and its cloud-based electronic health record and practice management solution. In April 2017, we acquired Entrada, Inc. and its cloud-based, mobile platform for clinical documentation and collaboration. In August 2017, we acquired EagleDream Health, Inc. and its cloud-based population health analytics solution. In January 2018, we acquired Inforth Technologies for its specialty-focused clinical content. The integration of these acquired technologies have made NextGen Healthcare’s solutions among the most comprehensive and powerful in the market. 92612. Our92612, and our principal website is located at www.Nextgen.com.www.nextgen.com. We operate on a fiscal year ending on March 31.generate revenueadopted Accounting Standards Update No. 2014-09, Revenue from salesContracts with Customers: Topic 606 (“ASC 606”) and all related amendments as 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, suchApril 1, 2018 using the modified retrospective method for all contracts not completed 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 applicationdate 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 toadoption. ASC 606 supersedes the revenue recognition criteria described above only if the client has the contractual rightrequirements in Accounting Standards Codification Topic 605, Revenue Recognition (“ASC 605”), and requires entities to take possessionrecognize revenue when control of the softwarepromised goods or services is transferred to customers at any time without incurring a significant penalty, and it is feasible foran amount that reflects the clientconsideration 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 timeentity expects to time, we offer future purchase discounts on our products and services as partbe entitled to in exchange for those goods or services. Refer to Note 3, "Revenue from Contracts with Customers" of our arrangements. Such discounts that are incrementalnotes to the range of discounts reflectedconsolidated financial statements included elsewhere 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 anthis Report for 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.The amount and timing of revenue recognized in a given period is affected byinformation regarding our judgment as to whether an arrangement includes multiple elements and if so, the allocation of revenue to each element. We generally apply the residual method for the revenue recognition of our multiple element arrangements and estimate the fair value of the undelivered elements based on VSOE. Establishing VSOE on our undelivered elements requires judgment. We establish VSOE for each undelivered element as the price charged when the same element is sold separately and generally evidenced when a substantial majority of historical standalone transactions fall within a reasonably narrow range using the bell-shaped curve method. In our determination of VSOE, we also consider service type, client type, and other variables. Our revenue recognition is based on our ability to maintain VSOE. Although not currently expected, certain events may occur, such as modification to or lack of consistency in our selling and pricing practices that could result in changes to our determination of VSOE. VSOE calculations are updated and reviewed on a quarterly or annual basis, depending on the nature of the product or service.We also must apply judgment in determining the appropriate timing and recognition of certain revenue deferrals. In certain transactions where collection risk is high, 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.Although we currently believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in revenue that could be material.In aggregate, such reserves reduce our grossAccounts receivable are reported net of uncollectible accounts receivable our consolidated balance sheets. Subsequent to its estimated net realizable value.the rateour review of historical returns by revenue type in relation to the corresponding gross revenuescustomer-specific facts and circumstances, including aged receivable balances, 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.collectibilitycollectability 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. If a major client’s creditworthiness or financial condition were to deteriorate, if actual defaults are higher than our historical experience, or if other circumstances arise, our estimates of the recoverability of amounts due to us could be overstated, and additional allowances could be required, which could have an adverse impact on our operating results.Software as a Servicesoftware-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 preliminaryFor In addition to the year ended March 31, 2016,assessment of net realizable value, we determined thatroutinely review and adjust, if necessary, the remaining estimated lives of our previouslycapitalized software costs. Additionally, we perform a periodic review of our clients’ usage of our software products and dispose of fully amortized capitalized software costs relatedafter such products are determined to be no longer used by our NextGen Now development project was not recoverable and recorded a $32.2 million non-cash impairment charge. Refer to the "Impairment of Assets" section below for additional information.During the last three fiscal years, weHealthFusion, Gennius,Entrada, EagleDream and Mirth, eachInforth during the year ended March 31, 2018, all of which were accounted for as a purchase business combinationcombinations using the acquisition method of accounting.allocateallocated the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. Our purchase price allocation methodology contains uncertainties because it requires us to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities, including, but not limited to, intangible assets, goodwill, and contingent consideration liabilities. We estimate the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses depending on the nature of the assets being sold. We estimate the fair value of the contingent consideration liabilities based on the probability of achieving certain business milestones and/or management's forecastour projection of expected results.results, as needed. The process for estimating fair values in many cases requires the use of significant estimates, assumptions and judgments, including determining the timing and estimates of future cash flows and developing appropriate discount rates. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies. We expect to finalize the purchase price allocation as soon as practicable within the measurement period, but not later than one year following the acquisition date.Any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements of net income and comprehensive income.We currently do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to complete theallocationallocations of the Entrada, EagleDream and estimate the fair value of acquired assets and liabilities. However, if actual resultsInforth acquisitions are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be materialWe 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.shares under our executive compensation plans.stock awards and shares. See Note 13, “Share-Based Awards,” of our notes to consolidated financial statements included elsewhere in this Report for a complete discussion of our stock-based compensation plans. 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.Share-based compensation expense associated with the options under our equity incentive plans 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.following trends and events as described below have contributed to our consolidated results of operations and may continue to impact our future results.We believeis more heavily influenced bymarket has experienced significant regulatory change, which has driven practice transformation and nationaltechnology advancements. Recognizing that it was imperative to digitize the American health projects than bysystem to stem the cyclesescalating cost of our economy. The healthcare industry has been significantly impacted byand improve the Obama Administration's broad healthcare reform efforts, includingquality of care being delivered, Congress enacted the Health Information Technology for Economic and Clinical Health portion ofAct in 2009 (“HITECH Act”). The legislation stimulated healthcare organizations to not only adopt electronic health records, but to use them to collect discrete data that could be used to drive quality care. This standardization supported early pay for reporting and pay-for-performance programs. American Recovery and Reinvestment Act of 2009 ("HITECH Act") and the Patient Protection and Affordable Care Act ("ACA"(“ACA”) established the roadmap for shifting American healthcare from volume (fee-for-service) to a value-based care (“VBC”) system that provided significant incentives to health care organizations for "Meaningful Use" adoption and interoperable electronic health record solutions.We also believe that healthcare reform, including the repeal of the sustainable growth rate (SGR) formula as part ofrewards improved outcomes at lower costs (fee-for-value). This was followed by the Medicare Access and CHIP Reauthorization Act of 2015 ("MACRA"(“MACRA”), bipartisan legislation that further changed the way Medicare rewards clinicians for value vs. volume. Initially focused on government-funded care, the domain of the Centers for Medicare & Medicaid Services (“CMS”), these programs are now firmly established on the commercial insurance side of the industry as well.movement towards a value-based, pay-for-performance modelfull view of the patient population’s clinical and quality initiative efforts will stimulatecost data neither of which could be accomplished without new technologies to collect and analyze multi-sourced patient data. Effectively implemented, these new technologies allow organizations to enhance financial viability while exercising the freedom to join, affiliate, integrate or interoperate in ways that maximize strategic control.robust electronicmanaged services, including revenue cycle management services (“RCMS”), hosting, transcription and scribe services, aligned and integrated with clinical technology solutions, will increase in the coming years.record solutionstools that consume multi-sourced agnostic data, including adjudicated claims and risk stratification, care management tools, cost and utilization reporting, as well as newquality measurement and reporting tools. Population health information technology solutions from bundled billing capabilities to patient engagementinsights are delivered in core clinical and population health management. We believe MACRA may be the most important of the three regulations for our market because it permanently changes how ambulatory healthcare providers are reimbursed by Medicare. It offers certainty and a timeline for the market’s move away from volume-based, fee-for-service models to value-based payment models that reward the delivery of lower cost, high quality care.While we expect to benefit from the increasing demands for greater efficiency as well as government support for increased adoption of electronic health records, the market for physician based electronic health records software is becoming increasingly saturated while physician group practices are rapidly being consolidated by hospitals, insurance payers and other entities. Hospital software providers are leveraging their position with their hospital clients to gain market share with hospital owned physician practices. Insurance providers and large physician groups are also consolidating physician offices creating additional opportunity for ambulatory software providers like us. Our strategy is to focus on addressing the growing needs of accountablefinancial workflows enabling care organizations around interoperability, patient engagements, population health, and data analytics.We believe that our core strength lies in the central role our software products and services play in the delivery of healthcare by the primary physician in an ambulatory setting. We intend to remain at the forefront of upcoming new regulatory requirements and meaningful use requirements for stimulus payments. We intend to continue the development and enhancement of our software solutions to support healthcare reform, such as the recently enacted MACRA, which promotes the transition from fee-for-service to value-based, pay-for-performance and patient-centric and quality initiatives such as accountable care organizations. Key elements of our future software development will be to expand our interoperability capabilities enhancing the competitiveness of our software offerings, make our products more intuitive and easy to use, and to enhance the capability of our MediTouch® Platform to allow us to deliver our software over the cloud to larger ambulatory care practices.In addition to the activities described above, mergers and acquisitions have been important to our development. In September 2013 we acquired Mirth Corporation ("Mirth"), a global leader in health information technology that helps clients achieve interoperability. In April 2015, we acquired Gennius, Inc. ("Gennius"), a population health analytics company which we believe enhances and leverages our acquisition of Mirth by broadening our business intelligence capabilities in the growing population health and value based care areas.On October 22, 2015, we divested our Hospital Solutions Division in order to focus our efforts and resources on our core ambulatory business.In January 2016, we completed the acquisition of HealthFusion Holdings, Inc. ("HealthFusion"), a cloud-based healthcare information technology (“HCIT”) company providing electronic health record (“EHR”) and practice management (“PM”) software primarily to the one-to-ten physician size market. We entered into a revolving credit agreement to fund the transaction. We believe the acquisition provided us with access to a market we were not in and provides us with technology that will accelerate our transition to the cloud.We continue to evaluate the organizational structure of our company with the objective of achieving greater synergies and further integration of our products and services, in support of our business strategies. In fiscal 2016, we initiated a three-phase plangivers to better position our organization for future success. In the first phase, we redesigned the organization to more effectively support the executionengage their patients.We are now beginning phase two of the plan, which includes building and enhancing the capabilities that will drive future revenue growth. The third phase of the plan will consist of developing the services and solutions to accelerate revenue growth.Under our reorganization plan, we expect to reduce our domestic headcount by approximately 150 employees, or approximately six percent of our U.S.-based workforce. We expect to incur approximately $4.0 million of reorganization-related charges, consisting principally of severance and other one-time termination benefits, during the first and second quarters of fiscal year 2017. We also expect approximately $14.0 million to $16.0 million of personnel-related savings in fiscal year 2017, excluding the reorganization-related charge.We have and intend to continue investments in our infrastructure, including but not limited to maintaining and expanding sales, marketing and product development activities to improve patient care and reduce healthcare costs, providing industry-leading, integrated clinical and administrative healthcare data systems, services, and expertise to clinical, medical, technology, and healthcare business professionals while continuing our strong commitment of service in support of our client satisfaction programs. These investments in our infrastructure will continue while maintaining reasonable expense discipline. We strive to add new clients and expand our relationship with existing clients through delivery of add-on and complementary products and services and believe that our client base that is using our software on a daily basis is a strategic asset. We intend to leverage this strategic asset by expanding our product and service offerings towards this client base.Led by our vision and mission, we are resetting our strategy and structure to deliver value to our clients. To achieve a lower-cost, increased capability structure, our new management team is building what we believe is an aligned, client-focused organization, supported by a recurring revenue stream and a large and diverse existing client base.We strive to be the trusted partner for clients of all size, integrating services, software and analytics into a consolidated solution. The opportunity to increase value and quality of our client experience is addressed in our five key strategic priorities, including (i) cloud transition, (ii) focus on the ambulatory client segment, (iii) solutions selling, (iv) more effective use of capital, and (v) population health software and services. Refer to “Item 1. Business” included elsewhere in this Report for additional information on each of our key strategic priorities.As a healthcare information technology and services company, we plan to continue investing in our current capabilities as well as building and/or acquiring new capabilities as we guide our clients from fee-for-service to fee-for-value payer reimbursement models. With approximately 90,000 providers using our solutions, we are enabling care and believe we can truly transform the delivery of care.Executive Overview of Our ResultsThe following are our key financial results for the fiscal year ended March 31, 2016. Refer to the discussion and analysis of our results in the sections below for additional details.Recurring services revenue, consisting of consisting of software related subscription services, support and maintenance, RCM and related services, and EDI and data services, comprised approximately 78% of consolidated revenueConsolidated gross profit was $266.9 million, or 54.2% as a percentage of revenueCost of revenue was $225.6 millionSelling, general and administrative expenses were $156.2 millionNet research and development costs were $65.7 millionAmortization of acquired intangible assets were $5.4 millionNon-cash impairment charge of $32.2 million was recorded related to the write-off of capitalized software development costsIncome from operations income was $7.4 millionEffective tax rate was 10.5%, impacted by permanent items such as the federal research and development tax credit, in relation to our pre-tax net incomeNet income was $5.7 million, or $0.09 per share on both a basic and fully diluted basisOperating cash flow was $40.8 million2016, 2015,2019, 2018, and 20142017 (certain percentages below may not sum due to rounding): Fiscal Year Ended March 31, 2016 2015 2014 Revenues: Software license and hardware 14.3 % 16.7 % 17.8 % Software related subscription services 11.2 9.1 6.1 Total software, hardware and related 25.6 25.8 24.0 Support and maintenance 33.5 34.5 36.0 Revenue cycle management and related services 16.9 15.1 14.2 Electronic data interchange and data services 16.7 15.6 15.1 Professional services 7.3 9.0 10.7 Total revenues 100.0 100.0 100.0 Cost of revenue: Software license and hardware 5.6 5.9 11.1 Software related subscription services 5.4 4.2 2.8 Total software, hardware and related 11.0 10.1 13.9 Support and maintenance 6.4 5.9 5.1 Revenue cycle management and related services 11.7 11.1 10.4 Electronic data interchange and data services 10.2 9.8 9.6 Professional services 6.6 8.6 10.6 Total cost of revenue 45.8 45.5 49.5 Gross profit 54.2 54.5 50.5 Operating expenses: Selling, general and administrative 31.7 32.3 33.6 Research and development costs, net 13.3 14.1 9.3 Amortization of acquired intangible assets 1.1 0.8 1.1 Impairment of assets 6.5 0.0 1.3 Total operating expenses 52.7 47.1 45.3 Income from operations 1.5 7.3 5.2 Interest income 0.0 0.0 0.0 Interest expense (0.3) (0.1) 0.0 Other expense, net 0.0 0.0 (0.1) Income before provision for income taxes 1.3 7.3 5.2 Provision for income taxes 0.1 1.7 1.6 Net income 1.1 % 5.6 % 3.5 % 2016, 2015,2019, 2018, and 20142017 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Revenues: Software license and hardware $ 70,523 $ 81,649 $ 79,366 Software related subscription services 55,403 44,592 27,335 Total software, hardware and related 125,926 126,241 106,701 Support and maintenance 165,200 169,219 160,060 Revenue cycle management and related services 83,006 74,237 62,976 Electronic data interchange and data services 82,343 76,358 67,295 Professional services 36,002 44,170 47,635 Total revenues $ 492,477 $ 490,225 $ 444,667 products,solutions, hardware and third partythird-party software products, support and maintenance, managed services (formerly referred to as revenue cycle management and related services ("RCM")services), electronic data interchange and data services (“EDI”), and professionalother non-recurring services, such asincluding implementation, training, and consulting services performed for clients who use our products.2016 increased $2.32019 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 software relatedsubscriptions 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, RCM,support and EDImaintenance, 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, licensehardware, and hardware, professional services,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 support and maintenance revenue. The acquisition of HealthFusion in January 2016 contributed revenues of $8.8 millionrelated implementation services.2016. Revenue for the Hospital Solutions Division decreased $10.52018 increased $21.4 million compared to the prior year primarilyended March 31, 2017, due to its dispositiona $27.9 million increase in October 2015.The $11.1 million decline in software license and hardware revenue compared to the prior year reflects the increasingly saturated end-market for electronic health records software and the disposition of the Hospital Solutions Division, which contributed to $1.9 million of the total decrease in software license and hardware revenue. Software related subscription services revenue increased $10.8 million compared to the prior year primarily due to additionalrecurring revenues, from the acquisition of HealthFusion, combined with growth in subscriptions related to our interoperability, patient portal, and QSIDental Web product offerings as we continue to expand our client base, offset by a $1.9$6.5 million decrease primarily relatedin non-recurring revenues. The increase in recurring revenues was due to the disposition of Hospital Solutions Division. Support and maintenancea $12.2 million increase in subscription services, $6.9 million increase in managed services revenue, decreased $4.0$5.0 million which consists of a $4.9 million decrease related to the Hospital Solutions Division, partially offset by growthincrease in support and maintenance, relatedand $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 interoperabilityexisting 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 other ambulatory software products. RCM andgrowth in EDI revenue grew by $8.8 million and $6.0 million, respectively, comparedtransaction volume due to the prior year due to addition of new clients and further penetration of our existing client base. The acquisition of HealthFusion also partially contributed to the increasedecrease in EDI revenues. Professional servicesnon-recurring revenue decreased $8.2 million compared to the prior yearwas due to the recent decline in system sales, resulting in lower client demand for our core software products and related implementation, training, and consulting services. The disposition of the Hospital Solutions Division also contributed to $1.7 million of the decrease in professional services revenue.Consolidated revenue for the year ended March 31, 2015 increased $45.6 million compared to the year ended March 31, 2014 due to a $17.3 million increase in software related subscription services revenue, a $9.2 million increase in support and maintenance, an $11.3 million increase in RCM, a $9.1 million increase in EDI, and a $2.3 million increase software license and hardware revenue, partially offset by a $3.5 million decline in professional services revenue. Thean increase in software related subscription services and support and maintenance is partially due to a full year contribution of revenues for the year ended March 31, 2015 from Mirth, which was acquired in September 2013. Software related subscription services revenue also increased due to growth in our interoperability and patient portal subscriptions while support and maintenance, RCM and EDI revenues benefited from both organic growth and the addition of new clients.other non-recurring services. The growthdecline in software license and hardware revenue comparedreflects lower recent bookings associated with the increasingly saturated end-market for electronic health records software and our transition to the year ended March 31, 2014 wasa recurring subscription-based model. The increase in other non-recurring services is primarily due to lower sales returnsan increase in consulting service and related reserves at the Hospital Solutions Division. Professionalother professional services decreased due to lowerbased on demand for related system sales.Recurring service revenue, consistingfrom our customers.software related subscription services, supportRevenue and maintenance, RCM, and EDI, represents 78%, 74%, and 71% of total revenue for the years ended March 31, 2016, 2015 and 2014, respectively.We expect to benefit from the growth of a replacement market driven by an expected consolidation of electronic health records vendors. We also anticipate the creation of new opportunities in connection with the evolution of healthcare from a fee-for-services reimbursement model to a pay-for-performance model around the management of patient populations. Our acquisitions of Gennius and Mirth provided us with new products and services around population health, collaborative care management, interoperability and enterprise analytics to address these market dynamics. While it remains difficult to assess the relative impact or the timing of positive and negative trends affecting the aforementioned market opportunities, we believe we are well positioned to remain a leader in serving the evolving market needs for healthcare information technology.2016, 20152019, 2018, and 20142017 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Total cost of revenue $ 225,615 $ 223,164 $ 220,163 Gross profit 266,862 267,061 224,504 Gross margin % 54.2 % 54.5 % 50.5 % amortization of capitalized software costs.approximately $0.4$1.3 million, $0.4$0.9 million, and $0.3$0.5 million for the years ended March 31, 2016, 2015,2019, 2018, and 2014,2017, respectively, and is included in the amounts in the table above. decreased $0.2 million for the year ended March 31, 20162019 decreased $7.0 million compared to the prior year due to the $1.8 million lower revenues discussed above, combined with an increase of $5.2 million in cost of revenue. The increase in cost of revenue is primarily to a decline in high-marginthe result of $6.4 million higher amortization of previously capitalized software license salesdevelopment costs and highermarket saturation noted aboveacquisitions of EagleDream in August 2017 and a declineInforth in gross profit associated with the dispositionJanuary 2018 and higher costs of Hospital Solutions Division, offset by increases in gross profitsoftware, hardware and other non-recurring revenues due to increased third party and consulting costs associated with higher softwarerelated revenues, which was partially offset by lower cost of recurring revenue due to lower headcount associated with delivering our support and related subscription services, RCM, and EDI revenues and contributionsmaintenance services. Our gross margin percentage decreased to gross profit from the acquisition of HealthFusion.Gross profit increased $42.6 million53.4% for the year ended March 31, 20152019 compared to 54.5% in the prior year period primarily due to the higher amortization of previously capitalized software development costs and higher amortization of the software technology intangible assets described above.2014 primarily reflecting a $20.12017 due to the $21.4 million impairment charge on certain long-term assetshigher revenues discussed above, combined with an increase of the Hospital Solutions Division recorded to$18.4 million in cost of revenue. The increase in cost of revenue is primarily the result of higher costs associated with the acquisitions of Entrada in April 2017 and EagleDream in August 2017, higher amortization of the year ended March 31, 2014software technology intangible assets associated with our recent acquisitions, higher EDI vendor costs associated with higher transaction volumes, and growthhigher personnel costs associated with delivering our support and maintenance and managed services, partially offset by lower amortization of previously capitalized software development cost. The decrease in revenues noted above.For the year ended March 31, 2016,our gross margin remained relatively consistent at 54.2% comparedpercentage to 54.5% for the year ended March 31, 2015. Gross margin was 50.5% for2018 compared to 56.2% in the year ended March 31, 2014, which decrease2017 primarily as a result ofreflects the Hospital Solutions Division impairment charge that was recorded to cost ofdecline in our high margin software revenue as noted above, partially offset by improvements in the profitability of our professional services driven by the growth in sales described above.2016, 2015,2019, 2018, and 20142017 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Selling, general and administrative $ 156,234 $ 158,172 $ 149,214 Selling, general and administrative, as a percentage of revenue 31.7 % 32.3 % 33.6 % approximately $2.6$11.9 million, $2.7$9.2 million, and $1.8$6.1 million for the years ended March 31, 2016, 2015,2019, 2018, and 2014,2017, respectively, and is included in the amounts in the table above.2016 decreased $1.9 million 2019 compared to the prior year primarily due to a $6.3$5.7 million decreasenet benefit recorded in legal expenses associated mostly with shareholder litigation defense costs (net ofthe current year from insurance recoveries), a $2.1 million decrease in sales commissionsrecoveries related to the decline in new system sales, a $1.5 million decrease in equipment and software maintenance expense, and a $0.7 million decrease in facilities and utilities expense, offset by a $2.7 million increase in bad debt expense, a $2.7 million increase in salaries and benefits, $2.3 million higher transaction costs associated mostly with the acquisition of HealthFusion and a $1.8 million loss on the dispositionsettlement of the Hospital Solutions Division (including related incremental direct costs)Federal Securities Class Action complaint, compared to $19.0 million accrued at the end of the prior year for the preliminary settlement of the complaint (refer to Note 14, “Commitments, Guarantees and Contingencies” of our notes to consolidated financial statements included elsewhere in this Report for additional information).2015 increased $9.0 million2018 compared to the year ended March 31, 2014. The increase is due2017 primarily to a $4.6 million increase in salaries and benefits due to increased overall headcount and higher bonus expense, a $2.2 million increaseincremental costs associated with our acquisitions of Entrada in legal expenses due mostly toApril 2017 EagleDream in August 2017, higher personnel costs, for shareholder litigation defense, a $1.5 million increase in advertising costs as a result of our increased focus on heightened brand awareness plus added utilization of onlineincluding share-based compensation, higher advertising and media placement,marketing expense related to our rebranding efforts, higher consulting costs associated with our adoption of the new revenue standard, higher legal expense, and a $1.5an accrual of $19.0 million increase in acquisition costs due mostly topost-acquisitionfor the preliminary settlement of the Federal Securities Class Action complaint, offset by $3.8 million of fair value adjustments related to the HealthFusion contingent consideration related to Mirth, offset by a $0.6 million decreaserecorded in bad debt expense and $0.2 million net decrease in other selling and administrative expenses.2016, 2015,2019, 2018, and 20142017 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Gross expenditures $ 80,336 $ 83,841 $ 62,308 Capitalized software costs (14,675 ) (14,601 ) (20,784 ) Research and development costs, net $ 65,661 $ 69,240 $ 41,524 Research and development costs, net, as a percentage of revenue 13.3 % 14.1 % 9.3 % Capitalized software costs as a percentage of gross expenditures 18.3 % 17.4 % 33.4 % net research and development costs was approximately $0.3$2.9 million, $0.4$2.0 million, and $0.3$1.0 million for the years ended March 31, 2016, 2015,2019, 2018, and 2014,2017, respectively, and is included in the amounts in the table above.20162019 decreased $3.6$0.3 million compared to the prior year primarily due to lowera $1.4 million increase in our gross expenditures, relatedoffset by $1.7 million in higher capitalization of software costs. The increase in gross expenditures is primarily the result of incremental costs incurred for the development of the next versions of our software products and enhancements to our NextGen Nowexisting products, including increased hosting fees, higher utilization of our Bangalore development project. 20152018 increased $27.7$2.9 million compared to the year ended March 31, 20142017 due to ana $13.5 million increase in our gross expenditures, as well asoffset by $10.6 million in higher capitalization of software costs. The increase in both gross expenditures and capitalization of software costs are related to the development of the next major versions of our core software products and enhancements to our existing products, for which we incurred a decline in the software capitalization rate. Grosshigher personnel and third party development costs. Additionally, gross expenditures increased due to the inclusionincremental costs associated with the acquisition of a full year impact of Mirth related costsEntrada in April 2017 and increased investmentgrowth in theour research and development of new products, enhancements to our specialty templates, and other enhancements to our existing products and preparation for ICD-10 requirements that were forthcoming at that time. The reduction in the software capitalization rate to 17.4% compared to 33.4% in the year ended March 31, 2014 reflects a trend towards a more agile development approach that inherently shortened the time frame during which development costs may be capitalized.2016, 2015,2019, 2018, and 20142017 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Amortization of acquired intangible assets $ 5,367 $ 3,693 $ 4,805 2016 increased $1.72019 decreased $3.5 million, compared to the prior year period due to additionalcertain acquired intangible assets becoming fully amortized during the year and decreased amortization as a result of the customer relationships andimpairment of our acquired trade namenames intangible assets related toin the acquisitionprior year, as described further within the “Impairment of HealthFusion. Assets” section below. 20152018 decreased $1.1$2.6 million, compared to the year ended March 31, 2014 primarily2017 due to the full impairment ofcertain acquired intangible assets related tobeing fully amortized during the Hospital Solutions Division recorded inyear, partially offset by the incremental amortization associated with intangible assets acquired from Inforth, EagleDream and Entrada.20142018, we recorded an impairment of $3.8 million to our acquired trade names intangible assets that is reflected within the impairment of assets caption in our consolidated statements of net income and resulting cessationcomprehensive income. The impairment was the result of the elimination of certain legacy brand and trade names due to the launching of our new branding, identity, and corporate logo intended to reflect our expanded health technology portfolio following years of recent acquisitions. amortization.with the involuntary separation of employees pursuant to a one-time benefit arrangement, which were accrued when it was probable that the benefits would be paid and the amounts were reasonably estimable. The restructuring plan was substantially completed by the end of fiscal 2017. Refer to Note 5, "BusinessCombinations and Disposals"15, "Restructuring Plan" of our notes to consolidated financial statements included elsewhere in this Report for additional information.ImpairmentAssetsfollowing table presents our impairmenteffect of assets fordiscounting future cash flows using a credit-adjusted risk free rate was not significant. Sublease income and commencement dates were estimated based on data available from rental activity in the local markets. Significant judgment was required to estimate the remaining lease obligations at fair value and actual results could vary from the estimates, resulting in potential future adjustments to amounts previously recorded.2016, 2015,2019 and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Impairment of assets $ 32,238 $ — $ 5,873 During the year ended2018. As of March 31, 2016, we recorded a non-cash impairment charge of $32.2 million 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 project2019, 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. During the year ended March 31, 2014, we recorded a $26.0 million impairment charge on certain long-term assets, including goodwill, intangible assets, and capitalized software costs, of the Hospital Solutions Division, of which $20.1 million was recorded to cost of revenue, as noted above, and2018, the remaining $5.9lease obligation, net of estimated projected sublease rentals, was $1.8 million is reflected as impairmentand $1.6 million, respectively. Refer to Note 14, "Commitments, Guarantees, and Contingencies," of assetsour notes to consolidated financial statements included elsewhere in our consolidated statementsthis Report for estimated timing of comprehensive income.and Other Income and Expense2016, 2015,2019, 2018, and 20142017 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Interest income $ 428 $ 111 $ 269 Interest expense (1,304 ) (341 ) — Other expense, net (166 ) (62 ) (356 ) Interest income relates primarily to our marketable securities. that was entered into in January 2016 and the related amortization of deferred debt issuance costs. Refer to Note 9, “Line of Credit” of our notes to consolidated financial statements included elsewhere in this Report for additional information. Other expense and income relates primarily to net realized gains and losses on our marketable securities.2016 increased $1.02019 decreased $0.5 million compared to the prior year. Interest expense for the year ended March 31, 2018 increased $0.2 million compared to the year ended March 31, 2017. The increasechanges in interest expense is primarily related to the interest expense associated withcaused by fluctuations in outstanding balances under our revolving credit agreement and the related amortization of deferred debt issuance costs.2016,2019, we had $105.0$11.0 million in outstanding loans under the revolving credit agreement.All other fluctuations in interest and other income and expense are not deemed significant.2016, 2015,2019, 2018, and 20142017 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Provision for income taxes $ 663 $ 8,332 $ 7,321 Effective tax rate 10.5 % 23.4 % 31.8 % effective tax rate for the year ended March 31, 2016 decreased compared to the prior year primarily as a result of favorable tax benefits from the federal research and development tax credit and other permanent items having a more significant effective tax rate impact due to lower income before taxes for the year ended March 31, 2016. The Internal Revenue Service statute related to research and development credits expired on December 31, 2014 and was retroactively reinstated and made permanent in December 2015. The research and development credits claimed for the year ended March 31, 2016 represent credits for the twelve-month period.The effective tax rate for the year ended March 31, 2015 decreased compared to the year ended March 31, 2014 primarily due to an increase in benefit from the federal research and development tax credit and an increase in the qualified production activities deduction. In addition, the year ended March 31, 2014 included a non-deductible expense related to the Hospital Solutions Division impairment charge, resulting in an incremental decreasechange in the effective tax rate for the year ended March 31, 2015.“Income Tax”"Income Taxes" of our notes to consolidated financial statements included elsewhere in this Report for more information.reconciliationdecrease in pretax income. The effective tax rate for the year ended March 31, 2018 also benefitted from an increase in the research and development tax credit, the release of uncertain tax position reserves, and a benefit from the lower federal tax rate, which was partially offset by the tax reform’s elimination of the federal statutory incomequalified production activities deduction, effective April 1, 2018, and a one-time revaluation of deferred taxes and a foreign transition tax rate to our effectiveresulting from the tax rate.2016, 2015,2019, 2018, and 2014 (in thousands):2017: Fiscal Year Ended March 31, 2016 2015 2014 Net income $ 5,657 $ 27,332 $ 15,680 Net income per share: Basic $ 0.09 $ 0.45 $ 0.26 Diluted $ 0.09 $ 0.45 $ 0.26 2016 decreased $21.72019 increased $22.1 million compared to the prior year. The significant decrease is primarily due to the $32.2 million impairment of previously capitalized software costs, offset by a decrease in provision for income taxes asyear period.lower pre-taxthe foregoing changes in revenue and expense, net income.Net income for the fiscal year ended March 31, 2015 increased $11.72018 decreased $15.8 million compared to the year ended March 31, 2014 primarily due to the $26.0 million impairment charge on certain long-term assets of the Hospital Solutions Division during the year ended March 31, 2014 and higher revenues during the year ended March 31, 2015, offset by an increase in selling, general, and administrative expense and net research and development costs.Operating Segment InformationOur business divisions consist of the NextGen Division, the RCM Services Division, the QSI Dental Division, and the former Hospital Solutions Division that was divested in October 2015. Our divisions share the resources of our “corporate office,” which includes a variety of accounting, finance and other administrative functions.The following table presents an overview of our operating results by segment for the years ended March 31, 2016, 2015, and 2014 (in thousands): 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 NextGen DivisionNextGen Division revenue for the year ended March 31, 2016 increased $2.0 million and divisional operating income increased $0.2 million compared to the prior year. The increase in revenue was driven largely by growth in our recurring services revenue, including a $12.2 million increase in software related subscription services, a $4.9 million increase in EDI revenue, and $1.2 million increase in support and maintenance, offset by a $9.2 million decrease in software license and hardware revenue and a $7.1 million decrease in professional services. The growth in software related subscription services was driven by additional revenues from the acquisition of HealthFusion in January 2016, combined with growth in subscriptions related to our interoperability and patient portal product offerings as we continue to expand our client base. The increase in EDI revenue comes from the addition of new clients and further penetration of our existing client base, and the increase in support and maintenance is related to our interoperability solutions and other ambulatory software products. The decline in software license and hardware revenue and professional services revenue compared to the prior year reflects the increasingly saturated end-market for electronic health records software, resulting in lower client demand for our core software products and related implementation, training, and consulting services. The increase in divisional operating income is primarily due to lower operating expenses, which was partially offset by lower divisional gross profit caused by the decline in high-margin software license sales.NextGen Division revenue for the year ended March 31, 2015 increased $32.6 million and divisional operating income increased $19.4 million compared to the year ended March 31, 2014. The increase in revenue was driven largely by growth in our recurring services revenue, including a $16.1 million increase in software related subscription services, $9.4 million increase in support and maintenance, and an $8.9 million increase in EDI revenue, offset by a $2.2 million decrease in software license and hardware revenue. The increase in software related subscription services was driven by growth in subscriptions related to our interoperability and patient portal product offerings. The increase in support and maintenance is related to our interoperability solutions and other ambulatory software products, and the increase in EDI revenue comes from the addition of new clients and further penetration of our existing client base. The decline in software license and hardware revenue reflects the increasingly saturated end-market for electronic health records software. The increase in divisional operating income is primarily the result of higher gross profit from the aforementioned increases in revenue, combined with a net decline in overall operating expenses, including decreases in sales commissions related to a the change in revenue mix towards recurring service revenue, which has a lower commissions rate than system sales, and a decrease in bad debt expense as a result of improved collections from greater emphasis on working capital management.Our goals for the NextGen Division include further enhancement of our existing products, including expansion of our software and service offerings that support pay-for-performance initiatives around accountable care organizations, bringing greater ease of use and intuitiveness to our software products, enhancing our managed cloud and hosting services to lower our clients' total cost of ownership, expanding our interoperability and enterprise analytics capabilities, and further development and enhancements of our portfolio of specialty focused templates within our electronic health records software. We intend to remain at the forefront of upcoming new regulatory requirements, including meaningful use requirements for stimulus payments and recent healthcare reform that is driving the transition towards pay-for-performance, value-based reimbursement models. We believe that the expanded requirements for continued eligibility for incentive payments under meaningful use rules will result in an expanded replacement market for electronic health records software. We also intend to continue selling additional software and services to existing clients, expanding penetration of connectivity and other services to new and existing clients, and capitalizing on growth and cross selling opportunities within the RCM Services Division. Our acquisition of HealthFusion will allow us expand our client base and cloud-based solution capabilities in the ambulatory market and meet the needs of practices of increasing size and complexity. Our acquisitions of Mirth and Gennius improve our competitiveness in the markets and provide new clients and expanded markets for the NextGen Division and also support our strategy to focus on accountable care organizations around interoperability, patient engagements, population health and collaborative care management, and enterprise analytics. We believe we are well-positioned within the evolving healthcare market to deliver products and services that address the growing importance of quality collaborative care and shift from fee-for-service to value-based, pay-for-performance care.We believe that the NextGen Division’s results are attributed to a strong brand name and reputation within the marketplace for healthcare information technology software and services and investments in sales and marketing activities, including new marketing campaigns, Internet advertising investments, tradeshow attendance and other expanded advertising and marketing expenditures.RCM Services DivisionRCM Services Division revenue for the year ended March 31, 2016 increased $9.8 million and divisional operating income increased $3.7 million compared to the prior year. The increase in RCM revenue was driven by the addition of new clients during the year, organic growth achieved through cross selling RCM services to NextGen Division clients, and the ramping up of services provided to our existing RCM services clients. The increase in divisional operating income primarily reflects the increase in revenues and improved profit margin due to a reduction in our third party outsource costs, offset by higher sales commissions and other general and administrative compensation expense.RCM Services Division revenue for the year ended March 31, 2015 increased $11.9 million and divisional operating income increased $2.2 million compared to the year ended March 31, 2014. The increase in RCM revenue for the year ended March 31, 2015 was also due to the addition of new clients during the year, organic growth achieved through cross selling RCM services to NextGen Division clients, and the ramping up of services provided to our existing RCM services clients. The increase indivisional operating income primarily reflects the increase in revenues. Divisional gross profit margin remained consistent in the year ended March 31, 2015 compared to the year ended March 31, 2014.We believe that a significant opportunity exists to continue cross selling RCM services to existing clients. The portion of existing NextGen clients who are using the RCM Services Division's services is approximately 10%. We are actively pursuing efforts to achieve faster growth from expanded efforts to leverage the existing NextGen Division's sales force towards selling RCM services. We also believe that ongoing increases in the complexity of medical billing and collections processes, including the migration to value-based reimbursement models, will create additional opportunities for our RCM Services Division.QSI Dental DivisionQSI Dental Division revenue for the year ended March 31, 2016 increased $0.9 million and divisional operating income increased $0.9 million compared to the prior year. The increase in revenue was driven by growth in our recurring QSIDental Web subscriptions and EDI revenue and a decrease in sales returns and related reserves compared to the prior year. The increase in divisional operating income is attributed mostly to the increase in revenues.QSI Dental Division revenue for the year ended March 31, 2015 decreased $1.4 million and divisional operating income decreased $1.0 million compared to the year ended March 31, 2014. The decrease in revenue was primarily the result of lower software license sales and lower support and maintenance due to transition of sales to QSIDental Web subscriptions. Software related subscription services increased $0.1 million for the year ended March 31, 2015 compared to the year end March 31, 2014. The decrease in divisional operating income is attributed mostly to the decline in revenues, offset by lower sales commissions and other operating expenses.We believe that the QSI Dental Division is well-positioned to sell to the FQHCs market and intends to continue leveraging the NextGen Division's sales force to sell its dental electronic medical records software to practices that provide both medical and dental services, such as FQHCs, which are receiving grants as part of the ARRA. Our goal for the QSI Dental Division is to continue to invest in the new cloud-based QSIDental Web platform while aggressively marketing QSIDental Web to both new and existing clients.Hospital Solutions DivisionHospital Solutions Division revenue for the year ended March 31, 2016 decreased $10.5 million and divisional operating loss decreased $0.4 million compared to the prior year. The decrease in revenue was primarily due to the disposition of the division in October 2015 and lower demand for our hospital-related products. The reduction in divisional operating loss and improvement in operating results is due mostly to a decrease in selling, general and administrative expenses associated with a decline in divisional headcount.Hospital Solutions Division revenue for the year ended March 31, 2015 increased $2.4 million and divisional operating income increased $5.9 million compared to the year ended March 31, 2014. Revenue was positively impacted by an increase in software license and hardware revenue related to lower sales returns and related reserves related to our significant efforts to successfully resolve certain product-related issues with our clients. The increase in divisional operating income is primarily related to an improvement in gross margins to 27.1% in the year ended March 31, 2015 compared to (10.1%) negative gross margins in the year ended March 31, 2014, which is attributed mostly reductions in professional services headcount and associated compensation expense.Corporate and unallocatedThe major components of the corporate and unallocated amounts are summarized in the table below (in thousands): 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 chiefdecision 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.Corporate and unallocated expense for the year ended March 31, 2016 increased $33.9 million compared to the prior year. The net increase in corporate and unallocated expense is due to a $1.6 million increase in marketing expense, a $1.4 million loss on the disposition of the Hospital Solutions Division, a $32.2 million impairment charge related to previously capitalized software development costs for the NextGen Now development project, and a $5.2 million increase in other corporate and overhead costs, offset by a $3.6 million decrease in net research and development costs and a $2.9 million decrease in amortization of capitalized software costs. The increase in marketing is due to higher cost associated with conferences and conventions and increased utilization of online advertising and media placement services. The increase in other corporate and overhead costs is primarily due an increase in amortization of acquired intangible assets and transaction costs associated with the acquisition of HealthFusion, an increase selling, general, and administrative salaries and benefits, and higher bad debt expense and corporate consulting costs, offset by a decrease in legal expenses associated mostly with shareholder litigation defense costs (net of insurance recoveries).Corporate and unallocated expense for the year ended March 31, 2015 increased $13.6 million compared to the year ended March 31, 2014. The net increase in corporate and unallocated expense is due to a $27.7 million increase in net research and development costs, a $0.5 million increase in amortization of capitalized software costs, a $1.8 million increase in marketing expense, and a $9.6 million decrease in other corporate and overhead costs, offset by the $26.0 million Hospital Solutions Division impairment charge recorded in the year ended March 31, 2014. The increase in marketing is due to higher headcount and associated compensation expense and increased utilization of online advertising and media placement services. The increase in other corporate and overhead costs is primarily due higher in salaries and benefits, legal expense related to shareholder litigation defense, and acquisition related costs. As noted above, we experienced a significant increase in bad debt expense for the year ended March 31, 2016 because our aggressive working capital management and improved collections in the prior year resulted in a significant decrease to accounts receivable, a decline in DSO, and lower bad debt expense in the prior year relative to previous periods.Refer to the "Research and Development, net" section above for further discussion and analysis on research and development costs and amortization of capitalized software costs.2016, 20152019, 2018, and 20142017 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Cash and cash equivalents and marketable securities $ 36,473 $ 130,585 $ 113,801 $ 145,000 $ — $ — Total liquidity $ 181,473 $ 130,585 $ 113,801 Net income $ 5,657 $ 27,332 $ 15,680 Net cash provided by operating activities $ 40,796 $ 82,758 $ 104,051 ___________________________(1) AsMarch 31, 2016, we hadliquidity are our outstanding loans of $105.0 million under our $250.0 million revolving credit agreement.Cash Flowscash generated from Operating ActivitiesThe following table summarizes our consolidated statements of cash flows for the years ended March 31, 2016, 2015 and 2014 (in thousands): Fiscal Year Ended March 31, 2016 2015 2014 Net income $ 5,657 $ 27,332 $ 15,680 Non-cash expenses 81,013 23,546 54,791 Cash from net income (as adjusted) 86,670 50,878 70,471 Change in assets and liabilities (45,874 ) 31,880 33,580 Net cash provided by operating activities $ 40,796 $ 82,758 $ 104,051 Refer to the "Net Income" section above for additional details regarding the fluctuations in net income. Also, as noted above we recorded non-cash impairment charges of $32.2 million and $26.0 million in the years ended March 31, 2016 and March 31, 2014, respectively, which were the primary drivers of the changes in non-cash expenses shown in the table above.For the year ended March 31, 2016, cash provided by operating activities declined $42.0 million compared to prior year, which was caused by a $77.8 million decline attributed to changes in assets and liabilities, partially offset by an increase of $35.8 million in cash flows due to higher net income, excluding non-cash expenses. The reduction in cash flows due to changes in assets and liabilities isoperations, driven mostly attributed to payments of income taxes during the period and payments of accrued bonuses in the current fiscal year related to the fiscal 2015 incentive compensation plans.Although net cash provided by operating activities for the year ended March 31, 2016 declined compared to the prior year, cash provided by operating activities has historically been, and is expected to continue to be, our primary source of cash, driven by our net income and working capital management.Netmanagement, our cash provided by operating activities for the year ended March 31, 2015 decreased by $21.3 million as compared to the year ended March 31, 2014. The decrease was primarily due to a $32.8 million decline in cash attributable to changes in accounts receivable resulting from a substantial decline in accounts receivable in the prior year due to improved collections and aggressive working capital management and a $19.6 million decline in cash attributable to net income excluding non-cash expenses resulting mostly from the Hospital Solutions Division impairment charge recorded in the prior year period, offset by changes in income taxes receivable and payable.Cash Flows from Investing ActivitiesNet cash used in investing activities for the years ended March 31, 2016, 2015 and 2014 was $190.4 million, $24.5 million and $63.7 million, respectively. The $165.9 million increase in net cash used in investing activities for the year ended March 31, 2016 compared to the prior year is primarily due to the $163.8 million of cash paid (net of cash acquired) for the acquisition of HealthFusion in January 2016, a $7.5 million increase in additions to equipment and improvements, $0.1 million increase in additions to capitalized software, offset by a $3.2 million net increase in cash due to purchases, sales, and maturities of marketable securities and $2.3 million in cash paid for the acquisition of Gennius in the prior year.The $39.1 million decrease in net cash used in investing activities for the year ended March 31, 2015 as compared to the prior year period is primarily due to the $35.0 million of cash paid for the acquisition of Mirth in the prior year, a $6.2 million decrease in additions to capitalized software, a $3.3 million decrease in purchases of marketable securities, partially offset by a $4.4 million decrease in proceeds from the sales and maturities of marketable securities.Cash Flows from Financing ActivitiesNet cash provided by financing activities for the year ended March 31, 2016 was $57.8 million, and cash used in financing activities for the year ended March 31, 2015equivalents, and 2014 was $42.4 million and $43.2 million, respectively. The increase in cash flows from financing activities during the year ended March 31, 2016 compared to the prior year is primarily related to our revolving credit agreement, in which we received proceedsagreement.In addition, during the year ended March 31, 2016, we received proceeds of $1.0 million from issuance of shares under employee plans and paid $42.9 million in dividends to shareholders. In comparison, we received proceeds of $0.4 million from issuance of shares under employee plans and paid $42.8 million in dividends to shareholders during the year ended March 31, 2015 compared to proceeds of $2.2 million from issuance of shares under employee plans, payment of $42.2 million in dividends to shareholders, and payment of $3.4 million in contingent consideration during the year ended March 31, 2014.2016,2019, our combined cash and cash equivalents and marketable securities balance of $36.5$33.1 million reflects a $94.1 million decrease comparedcompares to the $130.6 million comparable balance as of the prior year. This decrease primarily reflects: a) principal repayments on our revolving credit agreement; b) significant cash payments made in the current fiscal year related to fiscal 2015 accruals for incentive compensation plans and income taxes owing from such year; c) significant increases in cash used for investing activities, including cash paid for the acquisition of HealthFusion and additions to capitalized software costs and equipment and improvements; and d) our dividend payments during the year.On January 4, 2016, we entered into a $250.0 million revolving credit agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as administrative agent, U.S. Bank National Association, as syndication agent, and certain other lenders. The initial draw down on the Credit Agreement was approximately $173.5 million and primarily used for the purposes of funding our acquisition of HealthFusion that was completed on the same date. Our outstanding loans under the Credit Agreement was $105.0$28.8 million as of March 31, 2016, reflecting subsequent principal repayments from2018.cash on hand.the Credit Agreementour revolving credit agreement for future acquisitions or other similar business activities, although the specific timing and amount of funds to be used is not currently determinable. Our principal sources of liquidity are our cash, cash equivalents, and marketable securities, the Credit Agreement, as well as our cash generated from operations. We intend to expend some of our available funds for the development of products complementary to our existing product line as well as new versions of certain of our products. These developments are intended to take advantage of more powerful technologies and to increase the integration of our products.We currently maintain ourExcess cash, if any, may be invested in very liquid short term assets including tax exempt and taxable money market funds, certificates of deposit and short term municipal bonds with average maturities of 365 days or less at the time of purchase. Our Board of Directors continues to review alternate uses for our cash including an expansion of our investment policy and other items. Any or all of these programs could significantly impact our investment income in future periods.Our future practice concerning the payment of dividends is uncertain. The Credit Agreement contains restrictions on our ability to declare and pay dividends. Accordingly, we suspended payment of dividends following our previously declared January 4, 2016 dividend payment, and we announced that we do not expect to pay dividends for at least the next twelve months from that time. The payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including without limitation, our credit agreement, operating cash flows, financial condition, operating results, and sufficiency of funds based on our then-current and anticipated cash needs and capital requirements.2016,2019, together with our cash flows from operations and liquidity provided by the Credit Agreement,our revolving credit agreement, will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months.Contractual Obligations20162019 and the effect that such obligations are expected to have on our liquidity and cash in future periods:periods (in thousands): 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 $ 27,030 105,000 — — — — 105,000 — 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, "Line of Credit" of our notes to consolidated financial statements included elsewhere in this Report 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.20162019 was $6.4$5.9 million, which is not included in the table above as the timing of future benefit payments to employees is not readily determinable.20162019 was $4.0$2.9 million, which is not included in the table above as the timing of expected payments is not readily determinable.20162019 and March 31, 2015,2018, we were subject to minimal market risk on our cash and investmentscash equivalents as we maintained our balances in very liquid short term assets, including tax exempt and taxable money market funds certificates of deposit and short term municipal bonds with average maturities of 36590 days or less at the time of purchase.2016,2019 and March 31, 2018, we had $105.0$11.0 million and $37.0 million, respectively, in outstanding loansborrowings under our revolving credit agreement. The revolving loansborrowings under theour revolving credit agreement bear interest at our option of either, (a) for base rate loans, a base rate based on the highest of (i) 0%, (ii) the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A.,the administrative agent as its prime rate (ii) the greater of (A) the federal funds effective rate and (B)in effect at its principal office in New York City, (iii) the overnight bank funding rate (as(not to be less than zero) as determined by the Federal Reserve Bank of New York)York plus 0.50% or (iv) the LIBOR-based rate for one, two, three or six months Eurodollar deposits plus 1%, and (iii)(b) for Eurodollar loans, the one-month British Bankers Association London Interbank Offered Rate ("LIBOR")LIBOR-based rate for one, two, three or six months (as selected by us) Eurodollar deposits plus 1.00%), plus, in each case, an applicable margin based on our total leverage ratio from time to time, ranging from 0.50% to 1.50%, or (b) a LIBOR-based for base rate (subject to a floor of 0.00%) plus an applicable margin based on our leverage ratio from time to time, rangingloans, and from 1.50% to 2.50%. for Eurodollar loans. Accordingly, we are exposed to interest rate risk, primarily changes in LIBOR, due to our loans under the revolving credit agreement. A one hundred basis point (1.00%) change in the interest rate on our outstanding loans as of March 31, 20162019 would result in a corresponding change in our annual interest expense of approximately $1.1$0.1 million. Refer to Note 9, “Line of Credit” of our notes to consolidated financial statements included elsewhere in this Report for additional information.20162019 and March 31, 2015,2018, we had foreigninternational operations in India that exposed us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. However, the impact of foreign currency fluctuations has not been material to our financial position or operating results.(our principal executive(principal financial officer and principal financial officer, respectively)accounting officer) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Security Exchange Act of 1934, as amended, the "Exchange Act") as of March 31, 2016,2019, the end of the period covered by this Report (the “Evaluation Date”). They have concluded that, as of the Evaluation Date, these disclosure controls and procedures were effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities and would be disclosed on a timely basis. The Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the rules and forms of the SEC.Securities and Exchange Commission. They have also concluded that the our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act are accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.On January 4, 2016, we completed our acquisition of HealthFusion Holdings, Inc. ("HealthFusion"), now a wholly-owned subsidiary. In conducting our evaluation of the effectiveness of our internal controls over financial reporting as of March 31, 2016, we have elected to exclude HealthFusion from our evaluation for fiscal year 2016 as permitted under current SEC rules and regulations. HealthFusion assets and revenues not included in our evaluation represents 1.5% of consolidated assets and 1.8% of consolidated revenues as of and for the year ended March 31, 2016. We are currently in the process of integrating HealthFusion's historical internal controls over financial reporting with the rest of our company. The integration may lead to changes in future periods, but we do not expect these changes to materially affect our internal controls over financial reporting. We expect to complete this integration in fiscal year 2017.financialaccounting officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.(1)(2)20162019 in making our assessment of internal control over financial reporting, management used the criteria set forth in 2016.20162019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report contained in Item 1515(a)(1) of Part IV of this Report, "Exhibits and Financial Statement Schedules."2016,2019, there were no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.20162019 Annual Shareholders’ Meeting to be filed with the Securities and Exchange Commission.20162019 Annual Shareholders’ Meeting to be filed with the Securities and Exchange Commission.20162019 Annual Shareholders’ Meeting to be filed with the Securities and Exchange Commission.20162019 Annual Shareholders’ Meeting to be filed with the Securities and Exchange Commission.20162019 Annual Shareholders’ Meeting to be filed with the Securities and Exchange Commission.Page20162019 and 20152016, 20152019, 2018 and 20142016, 20152019, 2018 and 20142016, 20152019, 2018 and 2014Quality Systems,NextGen Healthcare, Inc., required to be included in Item 15(a)(2) on Form 10-K is filed as part of this Report. Incorporated by Reference Exhibit Number Exhibit Description Filed Herewith Form Exhibit Filing Date 3.1 Restated Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California on September 8, 1989(Registration No. 333-00161) S-1 3.1 January 11, 1996 3.2 Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective March 4, 2005 10-K 3.1.1 June 14, 2005 3.3 Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective October 6, 2005 8-K 3.01 October 11, 2005 3.4 Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective March 3, 2006 8-K 3.1 March 6, 2006 3.5 Amended and Restated Bylaws of Quality Systems, Inc., effective October 30, 2008 8-K 3.1 October 31, 2008 3.6 Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective October 6, 2011 8-K 3.1 October 6, 2011 10.1 * Form of Non-Qualified Stock Option Agreement for Amended and Restated 1998 Stock Option Plan 10-Q 10.2 December 23, 2004 10.2 * Form of Incentive Stock Option Agreement for Amended and Restated 1998 Stock Option Plan 10-Q 10.1 December 23, 2004 10.3 * Amended and Restated 1998 Stock Option Plan 10-K 10.10.1 June 14, 2005 10.4 * Second Amended and Restated 2005 Stock Option and Incentive Plan DEF14A Appendix I July 1, 2011 10.5 * Form of Nonqualified Stock Option Agreement for 2005 Stock Incentive Plan 8-K 10.2 June 5, 2007 10.6 * Form of Incentive Stock Option Agreement for 2005 Stock Incentive Plan 8-K 10.3 June 5, 2007 10.7 * 2009 Quality Systems, Inc. Amended and Restated Deferred Compensation Plan. 10-K 10.8 May 30, 2013 10.8 * Form of Outside Directors Amended and Restated Restricted Stock Agreement 8-K 10.2 February 2, 2010 10.9 * Form of Outside Director's Restricted Stock Unit Agreement 8-K 10.1 August 15, 2011 10.10 * Employment Arrangement dated September 19, 2012 between Quality Systems, Inc., and Daniel Morefield 8-K 10.1 September 25, 2012 10.11 * Form of Indemnification Agreement 8-K 10.1 January 28, 2013 10.12 * Form of Executive Officer Restricted Stock Agreement 8-K 10.2 May 28, 2013 10.13 * Description of 2014 Director Compensation Program 8-K 10.3 May 28, 2013 10.14 * Agreement by and among Quality Systems, Inc., the Clinton Group, Inc. and certain of its affiliates, dated as of July 17, 2013 8-K 10.1 July 17, 2013 10.15 * Share Purchase Agreement by and among Quality Systems, Inc., each of the shareholders of Mirth Corporation identified on Annex A thereto, and Jon Teichrow dated as of September 9, 2013 10-Q 2.1 October 31, 2013 10.16 * Form of Performance-Based Restricted Stock Unit Agreement. 10-K 10.17 May 29, 2014 10.17 * Quality Systems, Inc. 2014 Employee Share Purchase Plan DEF14A Annex A June 27, 2014 10.18 * Executive Employment Agreement, dated June 3, 2015, between Quality Systems, Inc. and John R. Frantz 8-K 10.1 June 4, 2015 10.19 * Separation Agreement and General Release, dated June 24, 2015, between Quality Systems, Inc. and Steven Plochocki 8-K 10.1 June 24, 2015 10.20 * Quality Systems, Inc. 2015 Equity Incentive Plan 8-K 10.1 August 14, 2015 10.21 * Form of Employee Restricted Stock Award Grant Notice and Restricted Stock Award Agreement for 2015 Equity Incentive Plan 8-K 10.2 August 14, 2015 10.22 * Form of Outside Director Restricted Stock Award Grant Notice and Restricted Stock Award Agreement for 2015 Equity Incentive Plan 8-K 10.3 August 14, 2015 10.23 * Form of Stock Option Grant Notice, Option Agreement and Notice of Exercise for 2015 Equity Incentive Plan 8-K 10.4 August 14, 2015 10.24 * Agreement and Plan of Merger, dated October 30, 2015, by and among Quality Systems, Inc., Ivory Merger Sub, Inc., HealthFusion Holdings, Inc. and Seth Flam, Sol Lizerbram, and Jonathan Flam, as the Securityholder Representative Committee. 8-K 2.1 October 30, 2015 10.25 Description of 2016 Director Compensation Program 8-K 10.1 December 8, 2015 10.26 * Credit Agreement, dated as of January 4, 2016, among Quality Systems, Inc., JPMorgan Chase Bank, N.A., as administrative agent, U.S. Bank National Association, as syndication agent, and Bank of the West, KeyBank National Association and Wells Fargo Bank, National Association, as co-documentation agents 10-Q 10.1 January 29, 2016 10.27 * Employment Offer Letter, dated January 27, 2016, between David Metcalfe and Quality Systems, Inc. 8-K 10.1 January 28, 2016 10.28 * Employment Offer Letter, dated February 16, 2016, between James R. Arnold and Quality Systems, Inc. 8-K 10.1 February 18, 2016 21 List of subsidiaries. X 23.1 Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP. X 31.1 Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 101.INS ** XBRL Instance 101.SCH ** XBRL Taxonomy Extension Schema 101.CAL ** XBRL Taxonomy Extension Calculation 101.DEF ** XBRL Taxonomy Extension Definition 101.LAB ** XBRL Taxonomy Extension Label 101.PRE ** XBRL Taxonomy Extension Presentation ____________________***section.sections.By: Officer)By: /s/ John K. StumpfJohn K. StumpfOfficer and Principal Accounting OfficerOfficer)25, 2016 and John K. Stumpf, each of them acting individually, as his attorney-in-fact, each with the full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming our signatures as they may be signed by our said attorney-in-fact and any and all amendments to this Annual Report on Form 10-K.SignatureTitleDate25, 201628, 201925, 201628, 201925, 201628, 201925, 201628, 2019��/s/ John K. StumpfPrincipal Accounting OfficerMay 25, 2016John K. Stumpf25, 201628, 201925, 201628, 201925, 201628, 2019/s/ D. Russell PfluegerDirector May 25, 2016D. Russell Pflueger25, 201628, 201925, 201628, 2019Quality Systems,NextGen Healthcare, Inc.In our opinion,cash flows present fairly, in all material respects, the financial positionstatements of Quality Systems, Inc. and its subsidiaries at March 31, 2016 and March 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2016 2019, including the related notes and financial statement schedule listed in the accompanying index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of March 31, 2019, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2)presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016,2019, based on criteria established in Internal Control - Integrated Framework (2013)Committee of Sponsoring Organizations ofCOSO.Treadway Commission (COSO). consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in fiscal 2019 and the manner in which it accounts for restricted cash in 2018. and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A.9A. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordanceare a public accounting firm registered with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.supportingregarding the amounts and disclosures in the consolidatedfinancial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidatedfinancial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.As discussed in Recent Accounting Standards in Note 2 to the consolidated financial statements, the Company changed the manner in which it classifies deferred taxes in the consolidated balance sheets due to the adoptionAccounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes.As described in Item 9A - Management’s Report on Internal Control over Financial Reporting, management has excluded HealthFusion Holdings, Inc. (“HealthFusion”), from its assessment of internal control over financial reporting as of March 31, 2016 because it was acquired by the Company in a purchase business combination during 2016. also excluded HealthFusion from our auditserved as the Company’s auditor since 2009./s/ PricewaterhouseCoopers LLPOrange County, CaliforniaQUALITY SYSTEMS, INC. March 31,
2016 March 31,
2015ASSETS Current assets: Cash and cash equivalents $ 27,176 $ 118,993 Restricted cash and cash equivalents (Note 2) 5,320 2,419 Marketable securities 9,297 11,592 Accounts receivable, net (Note 10) 94,024 107,669 Inventory 555 622 Income taxes receivable 32,709 3,147 Prepaid expenses and other current assets 14,910 11,535 Total current assets 183,991 255,977 Equipment and improvements, net 25,790 20,807 Capitalized software costs, net 13,250 40,397 Deferred income taxes, net 8,198 30,197 Intangibles, net 91,675 27,689 Goodwill 188,837 73,571 Other assets 19,049 11,883 Total assets $ 530,790 $ 460,521 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 11,126 $ 10,018 Deferred revenue 57,935 66,343 Accrued compensation and related benefits 18,670 24,051 Income taxes payable 91 10,048 Dividends payable — 10,700 Other current liabilities 50,238 33,924 Total current liabilities 138,060 155,084 Deferred revenue, net of current 1,335 1,349 Deferred compensation 6,357 5,750 Line of credit 105,000 — Other noncurrent liabilities 10,661 14,798 Total liabilities 261,413 176,981 Commitments and contingencies (Note 14) Shareholders’ equity: Common stock $0.01 par value; authorized 100,000 shares; issued and outstanding 60,978 and 60,303 shares at March 31, 2016 and 2015, respectively 610 603 Additional paid-in capital 211,262 198,650 Accumulated other comprehensive loss (481 ) (192 ) Retained earnings 57,986 84,479 Total shareholders’ equity 269,377 283,540 Total liabilities and shareholders’ equity $ 530,790 $ 460,521 Fiscal Year Ended March 31, 2016 2015 2014 Revenues: Software license and hardware $ 70,523 $ 81,649 $ 79,366 Software related subscription services 55,403 44,592 27,335 Total software, hardware and related 125,926 126,241 106,701 Support and maintenance 165,200 169,219 160,060 Revenue cycle management and related services 83,006 74,237 62,976 Electronic data interchange and data services 82,343 76,358 67,295 Professional services 36,002 44,170 47,635 Total revenues 492,477 490,225 444,667 Cost of revenue: Software license and hardware 27,506 28,803 49,272 Software related subscription services 26,622 20,672 12,374 Total software, hardware and related 54,128 49,475 61,646 Support and maintenance 31,329 28,866 22,590 Revenue cycle management and related services 57,591 54,406 46,203 Electronic data interchange and data services 50,153 48,244 42,567 Professional services 32,414 42,173 47,157 Total cost of revenue 225,615 223,164 220,163 Gross profit 266,862 267,061 224,504 Operating expenses: Selling, general and administrative 156,234 158,172 149,214 Research and development costs, net 65,661 69,240 41,524 Amortization of acquired intangible assets 5,367 3,693 4,805 Impairment of assets 32,238 — 5,873 Total operating expenses 259,500 231,105 201,416 Income from operations 7,362 35,956 23,088 Interest income 428 111 269 Interest expense (1,304 ) (341 ) — Other expense, net (166 ) (62 ) (356 ) Income before provision for income taxes 6,320 35,664 23,001 Provision for income taxes 663 8,332 7,321 Net income $ 5,657 $ 27,332 $ 15,680 Other comprehensive income: Foreign currency translation, net of tax (382 ) (117 ) (107 ) Unrealized gain (loss) on marketable securities, net of tax 93 107 (64 ) Comprehensive income $ 5,368 $ 27,322 $ 15,509 Net income per share: Basic $ 0.09 $ 0.45 $ 0.26 Diluted $ 0.09 $ 0.45 $ 0.26 Weighted-average shares outstanding: Basic 60,635 60,259 59,918 Diluted 61,233 60,849 60,134 Dividends declared per common share $ 0.525 $ 0.70 $ 0.70 Common Stock Accumulated Other Comprehensive Loss Shares Amount Balance, March 31, 2013 59,543 $ 595 $ 179,743 $ 126,722 $ (11 ) $ 307,049 Common stock issued under stock plans, net of shares withheld for employee taxes 167 2 2,199 — — 2,201 Common stock issued for earnout settlement 62 1 1,375 — — 1,376 Common stock issued for acquisitions 434 4 9,269 — — 9,273 Tax deficiency resulting from exercise of stock options — — (337 ) — — (337 ) Stock-based compensation — — 2,490 — — 2,490 Dividends declared — — — (42,471 ) — (42,471 ) Components of other comprehensive loss: Unrealized loss on marketable securities — — — — (64 ) (64 ) Translation adjustments — — — — (107 ) (107 ) Net income — — — 15,680 — 15,680 Balance, March 31, 2014 60,206 602 194,739 99,931 (182 ) 295,090 Common stock issued under stock plans, net of shares withheld for employee taxes 79 1 383 — — 384 Common stock issued for earnout settlement 18 — 284 — — 284 Tax deficiency resulting from exercise of stock options — — (228 ) — — (228 ) Stock-based compensation — — 3,472 — — 3,472 Dividends declared — — — (42,784 ) — (42,784 ) Components of other comprehensive loss: Unrealized gain on marketable securities — — — — 107 107 Translation adjustments — — — — (117 ) (117 ) Net income — — — 27,332 — 27,332 Balance, March 31, 2015 60,303 603 198,650 84,479 (192 ) 283,540 Common stock issued under stock plans, net of shares withheld for employee taxes 241 3 989 — — 992 Common stock issued for settlement of contingent consideration 434 4 9,269 — — 9,273 Tax deficiency resulting from exercise of stock options — — (941 ) — — (941 ) Stock-based compensation — — 3,295 — — 3,295 Dividends declared — — — (32,150 ) — (32,150 ) Components of other comprehensive loss: Unrealized gain on marketable securities — — — — 93 93 Translation adjustments — — — — (382 ) (382 ) Net income — — — 5,657 — 5,657 Balance, March 31, 2016 60,978 $ 610 $ 211,262 $ 57,986 $ (481 ) $ 269,377 Fiscal Year Ended March 31, 2016 2015 2014 Cash flows from operating activities: Net income $ 5,657 $ 27,332 $ 15,680 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 8,834 9,323 8,069 Amortization of capitalized software costs 9,891 12,817 12,338 Amortization of other intangibles 11,014 7,127 8,330 Amortization of debt issuance costs 258 — — Loss on disposal of equipment and improvements 205 51 192 Provision for bad debts 3,573 855 1,467 Provision for inventory obsolescence 48 25 — Share-based compensation 3,295 3,472 2,490 Deferred income taxes 10,030 (12,061 ) (3,984 ) Excess tax benefit from share-based compensation — — (183 ) Change in fair value of contingent consideration 261 1,937 101 Loss on disposition of Hospital Solutions Division 1,366 — — Impairment of assets 32,238 — 25,971 Changes in assets and liabilities, net of amounts acquired: Accounts receivable 9,929 4,744 37,461 Inventory 17 187 (81 ) Accounts payable (271 ) 1,281 (4,170 ) Deferred revenue (8,390 ) (5,610 ) 1,036 Accrued compensation and related benefits (5,914 ) 8,098 4,038 Income taxes (40,471 ) 18,178 (9,227 ) Deferred compensation 607 941 1,000 Other assets and liabilities (1,381 ) 4,061 3,523 Net cash provided by operating activities 40,796 82,758 104,051 Cash flows from investing activities: Additions to capitalized software costs (14,675 ) (14,601 ) (20,784 ) Additions to equipment and improvements (14,013 ) (6,531 ) (7,934 ) Proceeds from sales and maturities of marketable securities 8,795 11,077 15,475 Purchases of marketable securities (6,637 ) (12,123 ) (15,386 ) Purchase of Mirth — — (35,033 ) Purchase of Gennius — (2,345 ) — Purchase of HealthFusion, net of cash acquired (163,843 ) — — Net cash used in investing activities (190,373 ) (24,523 ) (63,662 ) Cash flows from financing activities: Proceeds from line of credit 173,509 — — Principal repayments on line of credit (68,509 ) — — Excess tax benefit from share-based compensation — — 183 Proceeds from issuance of shares under employee plans 992 383 2,200 Dividends paid (42,850 ) (42,770 ) (42,203 ) Payment of debt issuance costs (5,382 ) — — Payment of contingent consideration related to acquisitions — — (3,423 ) Net cash provided by (used in) financing activities 57,760 (42,387 ) (43,243 ) Net increase (decrease) in cash and cash equivalents (91,817 ) 15,848 (2,854 ) Cash and cash equivalents at beginning of period 118,993 103,145 105,999 Cash and cash equivalents at end of period $ 27,176 $ 118,993 $ 103,145 QUALITY SYSTEMS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)(In thousands) Fiscal Year Ended March 31, 2016 2015 2014 Supplemental disclosures of cash flow information: Cash paid during the period for income taxes, net of refunds $ 30,902 $ 2,523 $ 20,443 Cash paid for interest 781 — — Common stock issued for settlement of share-based contingent consideration $ 9,273 $ — $ — Non-cash investing and financing activities: Tenant improvement allowance from landlord $ 2,933 $ — $ — Dividends declared but not paid $ — $ 10,700 $ 10,686 Unpaid additions to equipment and improvements 295 849 419 On January 4, 2016, we acquired HealthFusion in a transaction summarized as follows: Fair value of net assets acquired $ 198,258 $ — $ — Cash paid, net of cash acquired (163,843 ) — — Unpaid portion of purchase price (282 ) — — Fair value of contingent consideration (16,700 ) — — Liabilities assumed $ 17,433 $ — $ — On March 11, 2015, we acquired Gennius in a transaction summarized as follows: Fair value of net assets acquired $ — $ 2,571 $ — Cash paid — (2,345 ) — Liabilities assumed $ — $ 226 $ — On September 9, 2013, we acquired Mirth in a transaction summarized as follows: Fair value of net assets acquired $ — $ — $ 62,787 Cash paid — — (35,033 ) Common stock issued at fair value — — (7,882 ) Fair value of contingent consideration — — (13,307 ) Liabilities assumed $ — $ — $ 6,565 financial statements.MARCH 31, 2016 and 2015Quality Systems, Inc., primarily through its 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 facilitationis a leading provider 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 marketingambulatory-focused healthcare software and services solutions. In pursuit of our mission to empower the transformation of ambulatory care, we provide innovative technology-based solutions that automate certain aspects of practice management (“PM”)help our clients succeed while they are managing more complexity and electronic health records (“EHR”) for medicalassuming greater financial risk.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 selloptimize patient care. a dedicated sales forceboth organic 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.inorganic activities. In October 2015, we divested our former Hospital Solutions Division.Quality Systems,division to focus exclusively on the ambulatory marketplace. In January 2016, we acquired HealthFusion Holdings, Inc. and its cloud-based electronic health record and practice management solution. In April 2017, we acquired Entrada, Inc. and its cloud-based, mobile platform for clinical documentation and collaboration. In August 2017, we acquired EagleDream Health, Inc. and its cloud-based population health analytics solution. In January 2018, we acquired Inforth Technologies for its specialty-focused clinical content. The integration of these acquired technologies have made NextGen Healthcare’s solutions among the most comprehensive and powerful in the market. 92612. Our92612, and our principal website is located at www.Nextgen.com.www.nextgen.com. We operate on a fiscal year ending on March 31.Quality Systems,NextGen Healthcare, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). Each of the terms “NextGen Healthcare,” “NextGen,” “we,” “us,” or “our” as used herein refers collectively to the Company, unless otherwise stated. All intercompany balancesaccounts and transactions have been eliminated. HealthFusion is includedaccompanyingend of the fiscal year ended March 31, 2019. We made such determination by first identifying our Chief Executive Officer as our chief operating decision maker ("CODM") and considering the measures used by our CODM to allocate resources. Our CODM utilizes consolidated revenue and consolidated operating results to assess performance and make decisions about allocation of resources.statements fromsolution to our clients, rather than components of a solution. As a result of such changes in our internal organization structure, the dateCODM now operates the Company as a single functional organization. The CODM measures company-wide performance by reviewing consolidated revenue and operating results and evaluates the impact of acquisition. Hospital Solutions Division is included in the accompanyingallocating resources to overall profit and margins on a consolidated financial statements through the datebasis.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.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: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.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.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.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.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.. 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”ASC 605”), and professional services, such as implementation, training, and consulting performed for clients who use our products.We generallyrequires entities to recognize revenue provided that persuasive evidence of an arrangement exists, fees are considered fixed or determinable, deliverywhen control of the productpromised goods or service has occurred, and collectionservices is considered probable. Revenuetransferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Refer to Note 3, "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 otherContracts with Customers" for additional information regarding our 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.generally consist primarily of cash and money market funds and short-term U.S. Treasury securities with original maturities of less than 90 days or less at the timedays. At March 31, 2019 and March 31, 2018, we had cash and cash equivalents of purchase.$33,079 and $28,845, respectively. We also had cash deposits held at U.S.United States banks and financial institutions at March 31, 20162019 of which $26,017$32,746 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 moneyinvestare invested in only very high grade commercial and governmental instruments, and therefore bear low market risk.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).In aggregate, such reserves reduce our grossAccounts receivable are reported net of uncollectible accounts receivable on our consolidated balance sheets. Subsequent to estimated net realizable value.the adoption of ASC 606 as of April 1, 2018, sales return reserves are classified as other current liabilities on our consolidated balance sheets.the rateour review of historical returns by revenue type in relation to the corresponding gross revenuescustomer-specific facts and circumstances, including aged receivable balances, 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.collectibilitycollectability 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.lComputer equipment3-5 yearsl3-7 - 3 to 7 yearslLeasehold improvementslesser of lease term or estimated useful life of assetWe 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.Software as a Servicesoftware-as-a-service ("SaaS") based products sold to our clients. The development costs of our SaaS-based products are considered internal-use forto seven years. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs related to the preliminaryForyear ended March 31, 2016,estimated economic life and the recoverability of our capitalized software costs. If a determination is made that capitalized amounts are not recoverable based on the estimated net cash flows to be generated from sales of the applicable software product, the amount by which the unamortized capitalized costs of a software product exceed the net realizable value is written off as a charge to earnings. The net realizable value is the estimated future gross revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance and client support required to satisfy our responsibility at the time of sale. In addition to the assessment of net realizable value, we determined thatroutinely review and adjust, if necessary, the remaining estimated lives of our previouslycapitalized software costs. Additionally, we perform a periodic review of our clients’ usage of our software products and dispose of fully amortized capitalized software costs relatedafter such products are determined to be no longer used by our NextGen Now development project was not recoverable and recorded a $32,238 non-cash impairment charge. Refer to Note 8 for additional information.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. We expect to finalize the purchase price allocation as soon as practicable within the measurement period, but not later than one year following the acquisition date. Any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements of net income and comprehensive income. 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.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.7 months3 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.the recoverability ofour long-lived assets at least annuallyfor potential impairment periodically or whenever adverse events or changes in circumstances indicate that impairment may have occurred. If necessary, recoverability of the assets is evaluated based on the future undiscounted cash flows expected to result from the use of the related assets are less thancompared to the carrying value of such assets,assets. If 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 the estimated future cash flows. In addition to the impairment assessment, we routinely review the remaining estimated lives of our long-lived assets and record adjustments, if deemed necessary.adjustsadjust 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.$7,890, $7,079$8,226, $9,073, and $5,600$7,111 for the years ended March 31, 2016, 20152019, 2018, and 2014,2017, respectively, and were included in selling, general and administrative expenses in the accompanying consolidated statements of net income and comprehensive income. Fiscal Year Ended March 31, 2016 2015 2014 Earnings per share — Basic: 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: 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 Weighted-average shares outstanding — Diluted 61,233 60,849 60,134 Net income per common share — Diluted $ 0.09 $ 0.45 $ 0.26 1,926, 1,6561,963, 2,984 and 1,3552,999 options for the years ended March 31, 2016, 20152019, 2018, and 2014,2017, respectively, because their inclusion would have an anti-dilutive effect on net income per share. 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.yearsthe fiscal year ended March 31, 2016, 2019, 2018, and 2017:2015and 2014: Fiscal Year Ended March 31, 2016 2015 2014 Costs and expenses: 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 Recent Accounting Standards. RecentRecently adopted accounting pronouncements implemented during the current year or requiring implementation in future periods are discussed below or in the notes, where applicable.No. 2016-09, "Compensation - Stock CompensationStatement of Cash Flows (Topic 718)230): Improvements to Employee Share-Based Payment AccountingRestricted Cash" (" (“ASU 2016-09"2016-18”). ASU 2016-09 simplifies2016-18 provides guidance on the accounting for and reporting on share-based payment transactions, including the income tax consequences, classification of awardsrestricted cash and cash equivalents in the statement of cash flows. Although it does not provide a definition of restricted cash or restricted cash equivalents, it states that amounts generally described as either equity or liabilities,restricted cash and classificationrestricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of period total amounts shown on the statement of cash flows. ASU 2016-092016-18 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The adoption of this new standard resulted in a decrease to net cash provided by operating activities of $930 and $2,543 for the years ended March 31, 2019 and 2018, respectively.early adoption permitted. Thethe International Accounting Standards Board, issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 ("ASC 606"), which supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition (“ASC 605”). We adopted ASC 606 and all related amendments in this update are to be applied differently upon adoption with certain amendments being applied prospectively, retrospectively and under aas of April 1, 2018 using the modified retrospective transition method.method for all contracts not completed as of the date of adoption (see Note 3).Accounting Standards Update No.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 assetslessees 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. 2020.In November 2015, We expect to implement 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 thatnew lease guidance, including 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 isrelated updates, when it becomes effective for us foron April 1, 2019 using 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 inventorycumulative-effect adjustment transition 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 materiallymodified, 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 thatadditional transition method described within ASU 2015-03 did not provide direct, authoritative guidance related to accounting for debt issuance costs associated with line-of-credit arrangements, the FASB2018-11, Leases (Topic 842): Targeted Improvements, 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.July 2018. We are currently in the process of implementing changes to our policies, processes, and internal controls over financial reporting to meet the requirements under the new guidance related to identifying and measuring right-of-use assets and lease liabilities, including related disclosures. In addition to evaluating each of our existing facility lease arrangements, we have also reviewed other contractual arrangements to determine if any other leases exist within the potentialscope of the new lease guidance or whether our arrangements contain any embedded leases. While we continue to assess the impact of implementation of this updated authoritativethe new lease guidance on our consolidated financial statements.3. CashWe adopted ASC 606 and Cash EquivalentsAtall related amendments as of April 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. Results for reporting periods beginning after April 1, 2018 are presented under ASC 606, while prior period comparative information has not been adjusted and continues to be reported under the accounting standards in effect for those prior periods. We have also implemented changes to our processes, policies, and internal controls over financial reporting to address the impacts of the new revenue recognition standard on our consolidated financial statements and related disclosures.20162018 for the adoption of ASC 606 are summarized as follows:2015,2019, assuming that the previous revenue recognition guidance in ASC 605 had been in effect, is summarized as follows:had cashestimate standalone selling price utilizing an expected cost plus a margin approach. When standalone selling prices are not observable, significant judgment is required in estimating the standalone selling price for each performance obligation.equivalentscollections. Such contract balances include accounts receivables, contract assets and liabilities, and other customer deposits and liabilities balances. Accounts receivable includes invoiced amounts where the right to receive payment is unconditional and only subject to the passage of $27,176time. Contract assets include amounts where revenue recognized exceeds the amount invoiced to the customer and $118,993, respectively. Cashthe right to payment is not solely subject to the passage of time. Contract assets are generally associated with our sales of software licenses, but may also be associated with other performance obligations such as subscription services, support and cash equivalentsmaintenance, annual licenses, and professional services, where control has been transferred to our customers but the associated payments are based on future customer collections (in the case of our RCM service arrangements) or based on future milestone payment due dates. In such instances, the revenue recognized may exceed the amount invoiced to the customer and such balances are included in contract assets since our right to receive payment is not unconditional, but rather is conditional upon customer collections or the continued functionality of the software and our ongoing support and maintenance obligations. Contract liabilities consist mainly of cash, money market fundsfees invoiced or paid by our clients for which the associated services have not been performed and short-term U.S. Treasury securitiesrevenues have not been recognized. Contract assets and contract liabilities are reported in a net position on an individual contract basis at the end of each reporting period. Contract assets are classified as current or long-term on our consolidated balance sheets based on the timing of when we expect to complete the related performance obligations and invoice the customer. Contract liabilities are classified as current on our consolidated balance sheets since the revenue recognition associated with original maturitiesthe related customer payments and invoicing is expected to occur within the next 12 months.90 days.the Company'sour financial assets and liabilities that were accounted for at fair value on a recurring basis at March 31, 20162019 and March 31, 2015:2018: Balance at March 31, 2016 ASSETS $ 27,176 $ 27,176 $ — $ — Restricted cash and cash equivalents 5,320 5,320 — — 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 ASSETS $ 118,993 $ 118,993 $ — $ — Restricted cash and cash equivalents 2,419 2,419 — — 11,592 11,592 — — $ 133,004 $ 133,004 $ — $ — LIABILITIES Contingent consideration related to acquisitions $ 16,155 $ — $ — $ 16,155 $ 16,155 $ — $ — $ 16,155 ____________________(1)(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 Company'sour 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 Duringand for the year ended March 31, 2016, we issued shares2019: common stockMarch 31, 2019 relates to settle $9,273 inthe acquisition of Inforth Technologies (see Note 5). The categorization of the framework used to measure fair value of the contingent consideration liabilities relatedliability was considered to Mirth.be within the Level 3 valuation hierarchy due to the subjective nature of the unobservable inputs used. We also recordedhad assessed the fair value of the contingent consideration liability on a recurring basis and any adjustments to fair value subsequent to the measurement period were reflected in the consolidated statements of net income and comprehensive income. Key assumptions included probability-adjusted achievement estimates of applicable bookings targets that were not observable in the market. The fair value adjustments to contingent consideration liabilities are included as a component of $261, consistingselling, general and administrative expense in the consolidated statements of $1,961 innet income and comprehensive income.adjustments relatedof other financial assets and liabilities, including accounts receivable, accounts payable, and line of credit, approximate their respective carrying values due to Mirth, offset by a $1,700 decrease in fair value related to HealthFusion.The Company has2016,2018, we recorded a $58 adjustmentan impairment of $3,757 to Gennius goodwill based on additional information that became available duringour acquired trade names intangible assets, which was the result of the elimination of certain legacy brand and trade names due to the launching of our new branding, identity, and corporate logo intended to reflect our expanded health technology portfolio following years of recent acquisitions. During the years ended March 31, 2019 and 2018, we also recorded certain measurement period about certain liabilities that had existed asadjustments to goodwill (see Note 5).HealthFusion (see Note 5).5. Business Combinations and DisposalsAcquisition of HealthFusionOn January 4, 2016, we completed our acquisition of HealthFusion Holdings, Inc.Inforth Technologies, LLC ("HealthFusion"Inforth") pursuant to the Membership Interest Purchase Agreement, dated January 31, 2018. Headquartered in Traverse City, MI, Inforth was one of our premier clinical content and Plan of Merger (the “Merger Agreement"), dated October 30, 2015. HealthFusion provides Web-based, cloud computing softwaretechnical services partners specializing in comprehensive solutions 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 purchase price of Inforth totaled $4,337 and was funded by cash flows from operations. 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 ofInforth also included contingent consideration relatedup to an additional $25,000$4,000 of cash in the form of an earnout, subject to HealthFusionInforth achieving certain revenueapplicable bookings targets through DecemberMarch 31, 2016.2020. The initial estimated fair value of the contingent consideration of $16,700 was estimated usingzero based on a Monte Carlo-based valuation model that considered, among other assumptions and inputs, our estimate of projected HealthFusion revenues.acquisitionpurchase price of EagleDream totaled $25,609, which included certain working capital and other customary adjustments, and was initiallypartially funded by a draw against theour revolving credit agreement (see Note 9),.portionleading provider of cloud-based solutions that are reshaping the way care is delivered by leveraging the power of mobile whenever and wherever care happens. Entrada’s best-in-class mobile application integrates with multiple clinical platforms and all major electronic health record systems. Entrada enables organizations to maximize their existing technology investments while simultaneously enhancing physician and staff productivity. The acquisition of Entrada and its cloud-based, mobile application is part of our commitment to deliver systematic solutions that meet its clients' transforming work requirements to become increasingly nimble and mobile. The purchase price of Entrada totaled $33,958, which included certain working capital and other customary adjustments and was subsequently repaid from existing cash on hand.HealthFusion acquisitionacquisitions noted above as a purchase business combinationcombinations using the acquisition method of accounting. The preliminarypurchase price allocations of the Inforth, EagleDream, and Entrada acquisitions are considered final.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 goodwilldates. 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 asInforth is considered deductible for tax purposes, and goodwill arising from the excessacquisitions of the preliminary purchase price over the net acquisition date fair values of the acquired assetsEagleDream and the liabilities assumed, and isEntrada are 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 statementscomprehensive income for the year ended March 31, 2016.total preliminaryfinal purchase price for the HealthFusion acquisition isacquisitions of Inforth, EagleDream, and Entrada are 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 Includingeffecttable above, we recorded $3,200 of certain acquisition-related fair value adjustments, amortization of acquiredInforth intangible assets related to software technology, which is being amortized over 5 years. We recorded $13,400 of EagleDream intangible assets related to customer relationships and interest expense associated with the revolving credit agreement, the acquisition of HealthFusion contributed revenues of $8,781software technology, which are being amortized over 8 years and estimated net loss of $1,149 to our consolidated results5 years, respectively. The weighted average amortization period for the year ended March 31, 2016.The following table presents unaudited supplemental pro forma consolidated revenue and net income as if the acquisitionacquired EagleDream intangible assets is 5.1 years. We also recorded $15,400 of HealthFusion had occurred on April 1, 2014 (the beginning of the comparable prior annual reporting period). 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 adjustmentsEntrada intangible assets related to customer relationships, trade names, and software technology, which are being amortized over 10 years, 5 years, and 5 years, respectively. The weighted average amortization period for the amortization of acquired Entrada 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 DispositionOn 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 losswas 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 GenniusOn 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.2016,2018, we recorded a $58measurement period adjustment of $274 to EagleDream goodwill related to liabilities which existed at the time of acquisition, partially offset by changes in deferred taxes based on additional information that became available during the filing of tax returns, and a measurement period about certain liabilities that had existed asadjustment of $924 to Entrada goodwill related to changes in deferred taxes based on the acquisition date.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 daterevenues, earnings, and pro forma effects of the Gennius acquisitionInforth, EagleDream, and Entrada acquisitions would not have been material to our results of operations, individually and in aggregate, and are therefore not presented.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 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 AssetsIn 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 totalcarrying 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 Trade Name and Contracts 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 Trade Name and Contracts 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 assetsgoodwill 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 CostsOur capitalized software development costs are summarized2019 was $218,771. The carrying amount of goodwill as follows: March 31,
2016 March 31,
2015Gross 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.2016,2018, we recorded a non-cashcertain measurement period adjustments to goodwill (see Note 5).charge of $32,238$3,757 to our acquired trade names intangible assets that is reflected within the impairment of assets caption in our consolidated statements of net income and comprehensive income. The impairment relateswas the result of the elimination of certain legacy brand and trade names due to the launching of our previouslynew branding, identity, and corporate logo intended to reflect our expanded health technology portfolio following years of recent acquisitions.investmentsoftware development costs, are summarized as follows:NextGen Now development project, which we deemedconsolidated statements of net income and comprehensive income was $4,344, $7,810, and $10,435 for the years ended March 31, 2019, 2018 and 2017, respectively. Amortization expense related 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 assessmentsoftware technology recorded as cost of revenue was $17,152, $15,570, and $12,027 for the NextGen Now development projectyears ended March 31, 2019, 2018, 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. representssummarizes the remaining estimated amortization of definite-lived intangible assets as of March 31, 2019:2016.2019. 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 January 4, 2016,March 29, 2018, we entered into a $250,000$300,000 amended and restated revolving credit agreement (“Credit(the “Credit Agreement”) with JP MorganJPMorgan Chase Bank, N.A., as administrative agent, U.S. Bank National Association, as syndication agent, and certain other agents and lenders. The Credit Agreement replaces our prior $250,000 revolving credit agreement is secured by substantially all of our existing and future property and material domestic subsidiaries. originally entered into on January 4, 2016 (“Original Credit Agreement”). The Credit Agreement provides a subfacility of up to $10,000 for letters of credit and a subfacility of up to $10,000 for swing-line loans. loans and also includes a $100,000 accordion feature that provides us with the ability to obtain up to $400,000 in the aggregate of revolving credit commitments and/or term loans upon satisfaction of certain conditions.January 4, 2021March 29, 2023 and the full balance of the revolving loans and all other obligations under the agreement must be paid at that time.per annum publicly announced from time to time by JPMorgan Chase Bank, N.A.,the administrative agent as its prime rate (ii) the greater of (A) the federal funds effective rate and (B)in effect at its principal office in New York City, (iii) the overnight bank funding rate (as(not to be less than zero) as determined by the Federal Reserve Bank of New York)York plus 0.50% or (iv) the LIBOR-based rate for one, two, three or six months Eurodollar deposits plus 1%, and (iii)(b) for Eurodollar loans, the one-month British Bankers Association London Interbank Offered Rate ("LIBOR")LIBOR-based rate for one, two, three or six months (as selected by us) Eurodollar deposits plus 1.00%), plus, in each case, an applicable margin based on our total leverage ratio from time to time, ranging from 0.50% to 1.50%, or (b) a LIBOR-based for base rate (subject to a floor of 0.00%) plus an applicable margin based on our leverage ratioloans, and from time to time, ranging from. for Eurodollar loans. 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 total leverage ratio from time to time.(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 loansWe were in compliance with all financial and non-financial covenants under the Credit Agreement will be available for lettersas of credit, working capital and general corporate purposes.2016,2019, we had $105,000$11,000 in outstanding loans and $145,000$289,000 of unused credit under the Credit Agreement. Total interest expense incurred during the year endedAs of March 31, 2016 was $969.2018, we had $37,000 in outstanding loans and $263,000 of unused credit under the Original Credit Agreement. The interest raterates as of March 31, 20162019 and 2018 was approximately 2.4%4.0% and 3.1%, respectively.rate for the year endedrates were approximately 3.7%, 2.8%, and 2.4% respectively.2016 was approximately 3.2%.Debt Issuance CostsDebt2019, total unamortized debt issuance costs and other relatedwere $2,834. Costs incurred in connection with securing the Credit Agreement, including fees paid to legal advisors and third parties, in connection with securingare deferred and amortized to interest expense over the term of the Credit Agreement totaled $5,382. The deferredAgreement. Deferred debt issuance costs are reported as a component of other assets on the consolidated balance sheet and are being amortizedsheets. As of March 31, 2018, total unamortized debt issuance costs were $3,549, which included $1,105 of additional costs related to interest expense over the term of the Credit Agreement, and net of $536 unamortized debt issuance costs that were written off in connection with amending the Original Credit Agreement. TotalDuring the years ended March 31, 2019, 2018, and 2017, we recorded $710, $1,610, and $1,076, respectively, in amortization of deferred debt issuance costs for the year ended March 31, 2016 was $258.Accountsbut not yet renderedfor undelivered products and services at each period end. Undelivered products and services are included as a component of the deferred revenuecontract liabilities balance on the accompanying consolidated balance sheets. March 31,
2016 March 31,
2015Accounts 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 summarized as follows: March 31,
2016 March 31,
2015Computer systems and components $ 555 $ 622 March 31,
2016 March 31,
2015Prepaid expenses $ 11,804 $ 9,941 Other current assets 3,106 1,594 Prepaid expenses and other current assets $ 14,910 $ 11,535 March 31,
2016 March 31,
2015Computer 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 March 31,
2016 March 31,
2015Cash 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,
2015Professional 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 March 31,
2016 March 31,
2015Payroll, bonus and commission $ 9,683 $ 13,505 Vacation 8,987 10,546 Accrued compensation and related benefits $ 18,670 $ 24,051 non-currentnoncurrent liabilities are summarized as follows: March 31,
2016 March 31,
2015Contingent 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 Tax 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 TheThe provision for (benefit of) 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 % March 31,
2016 March 31,
2015Deferred 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 20162019 and March 31, 2015,2018, we had federal net operating loss (“NOL”) carryforwards of $45,202$17,419 and $1,464,$36,395, respectively. The federal NOL carryforwards were inherited in connection with our acquisitionacquisitions 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, 20162015, Entrada in April 2017, and may change based upon the filing of the final tax returns for HealthFusion.EagleDream in August 2017. The NOL carryforwards expireinon 2029 for both federal and state tax purposes. As of March 31, 2016,2019, 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$1,662 (tax effected), related to the HealthFusion, acquisitionEntrada, and EagleDream acquisitions 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.20162019 and March 31, 2015,2018, the research and development tax credit carryforward available to offset future federal and state taxes was $3,611$11,072 and $1,988$5,368 respectively. The credits expire in various amounts starting in fiscal 2019.state NOL carryforwards for which we have recorded a valuation allowance.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 2016,2019, we recorded additional net liabilities of $235 mostly$475 related to various federal and state tax planning benefits recorded in the current year for prior year tax positions. TheIf recognized, the total amount of unrecognized tax benefit that if recognized, would decrease the income tax provision is $3,955.$129$209 and $332$213 of accrued interest related to income tax matters as of March 31, 20162019 and 2015,2018, respectively. We recognized $57$19, $86, and $309$57 of interest related to income tax matters in the consolidated statements of net income and comprehensive income in the years ended March 31, 20162019, 2018 and 2015, respectively, and an insignificant amount in the year ended March 31, 2014.2017, respectively. No penalties related to income tax matters were accrued or recognized in our consolidated financial statements for all periods presented.U.S.United States federal income tax examinations for tax years before 2012.fiscal year ended 2014. With a few exceptions, we are no longer subject to state or local income tax examinations for tax years before 2011.fiscal year ended 2014. 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.IRSInternal Revenue Service limit per year based on the IRC.Internal Revenue Code. The annual contribution is determined by a formula set by our Board of Directors ("Board") and may include matching and/or discretionary contributions. The amount of the Company match is discretionary and subject to change. The retirement plans may be amended or discontinued at the discretion of the Board of Directors.Board. Contributions of $1,063, $949$5,206, $4,205 and $820$2,735 were made by the Company to the 401(k) plan for the years ended March 31, 2016, 20152019, 2018, and 2014,2017, respectively.$6,357$5,905 and $5,750$6,086 at March 31, 20162019 and 2015,2018, respectively. To offset this liability, we have purchased life insurance policies on some of the participants. The Company is the owner and beneficiary of$7,155$9,546 and $6,004$8,890 at March 31, 20162019 and 2015,2018, 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$71, $66 and $62$65 to the Deferral Plan for the years ended March 31, 2016, 20152019, 2018, and 2014,2017, respectively.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 expiresexpire 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, 2016,2019, there were 1,447,286349,320 outstanding options and 25,613 outstanding shares of restricted stock, restricted stock units and performance based restricted stock under the 2005 Plan. of Directors or a duly designated compensation committee, be granted certain share-based awards. In the case of option awards granted under the Amended 2015 Plan, the exercise price of each option is determined based on the date of grant and expire no later than 10 years from the date of grant. Awards granted pursuant to the Amended 2015 Plan are subject to the vesting schedule or performance metrics set forth in the agreements pursuant to which they are granted. Upon a change of control of our Company, as such term is defined in the Amended 2015 Plan, awards under the Amended 2015 Plan will fully vest under certain circumstances. As of March 31, 2016,2019, there were 1,000,0002,817,205 outstanding options, 165,6341,715,958 outstanding shares of restricted stock awards, 46,374 outstanding shares of performance stock awards, and 10,624,0056,110,719 shares available for future grant under the Amended 2015 Plan.A summary of2016, 20152019, 2018, and 2014 is as follows:2017: 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 utilizesstock options and related share-based compensation with the following assumptions:Year EndedYear EndedYear EndedMarch 31, 2016March 31, 2015March 31, 2014Expected term3.8 - 3.9 years4.8 years4.9 yearsExpected volatility38.3% - 41.1%36.1% - 36.6%43.4% - 43.7%Expected dividends0.0% - 5.3%4.3% - 4.4%3.1% - 3.9%Risk-free rate1.1% - 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.2016, 20152019, 2018, and 2014,2017, a total of 1,414,000, 469,650326,130, 1,479,000, and 469,0001,146,500 options, respectively, to purchase shares of common stock were granted under the 2005 andAmended 2015 PlansPlan at an exercise price equal to the market price of the Company’sour common stock on the date of grant. A summary of stock options granted during the years ended March 31, 2016, 2015 and 2014 isgrant, as follows:summarized below:Option Grant Date Number of Shares Exercise Price 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)Optionsgrant.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.the Company’sour 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 has2019, we have issued 114,620464,608 shares under the Purchase Plan and 3,885,3803,535,392 shares are available for future issuance.$291 for the year ended March 31, 2016$481, $362, and $116 for the year ended March 31, 2015.Performance-Based AwardsOn 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 theProgram 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 EndedMarch 31, 2016Year EndedMarch 31, 2015Year EndedMarch 31, 2014Expected life 3.8 - 4.0 years 4.8 years 4.9 yearsExpected volatility37.7% - 40.8%35.9% - 36.5%36.9% - 43.5%Expected dividends0.0% - 5.5%4.3% - 5.0%3.2% - 4.1%Risk-free rate1.0% - 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$359 for the years ended March 31, 2016, 20152019, 2018, and 2014,2017, 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: 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 AwardsOn 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: 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 weighted-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.2016, 20152019, 2018, and 20142017 was $7,309, $7,416$8,174, $7,551 and $7,604,$8,610, respectively.20162019 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 $ 27,030 105,000 — — — — 105,000 — 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.20162019 was $6,357,$5,905, which is not included in the table above as the timing of future benefit payments to employees is not readily determinable.20162019 was $3,955,$2,894, which is not included in the table above as the timing of expected payments is not readily determinable.itsour performance guarantee or other related warranties and doesdo 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 doesdo 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 toproducts or services. However, we historically have acceptedin certain 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.arrangements. If we are unableable to estimate the returns revenue recognition may be delayed until the rightsfor these types of return period lapses, provided also, thatarrangements and all other criteria for revenue recognition have been met.Certain standard sales agreements contain a money back guarantee providing for a performance guarantee thatmet, revenue is already part of the software license agreement as well as trainingrecognized and support. The money back guarantee also warrants that the software will remain robust and flexible to allow participationthese arrangements are recorded in the federal health incentive programs. The specific elementsconsolidated financial statements. If we are unable to estimate returns for these types 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 havearrangements, revenue is not incurred any costs associated with this guarantee and do not expect to incur significant costsrecognized in the future. Therefore, no accrual hasconsolidated financial statements until the rights of return expire, provided also, that all other criteria of revenue recognition have been made for potential costs associated with this guarantee.itwe shall indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any U.S.United States patent, any copyright or other intellectual property infringement claim by any third partythird-party with respect to itsour 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.courtCourt 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 courtCourt 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,Hussein, alleging that the plaintiffhe breached fiduciary duties owed to ourthe Company, Mr. Razin and Mr. Plochocki. Mr. Razin and Mr. Plochocki have dismissed their claims against Hussein, leaving the Company as the sole plaintiff in the cross-complaint. On June 26, 2015, we filed a motion for summary judgment with respect to Hussein’s claims, which the courtCourt granted on September 16, 2015, dismissing all of Hussein’s claims against us. On September 23, 2015, the plaintiffHussein filed an application for reconsideration of the Court's summary judgment order, which the courtCourt denied. Hussein filed a renewed application for reconsideration of the Court’s summary judgment order on August 3, 2017. The Court again denied Hussein’s application. On October 28, 2015, the plaintiffMay 9, 2016, and August 5, 2016, Hussein filed a motion for summary judgment, motion for summary adjudication, and motion for judgment on the pleadings, respectively, seeking to dismiss our cross-complaint. The Court denied each motion. Trial on our cross-complaint whichbegan June 12, 2017. On July 26, 2017, the court denied on March 3, 2016. On May 9, 2016, the plaintiff filedCourt issued a statement of decision granting Hussein’s motion for summary adjudication, seeking to again dismissjudgment on our cross-complaint. TheFinal judgment over Hussein’s claims and our cross-claims was entered on January 9, 2018. Hussein has noticed his appeal of the order granting summary judgment over his claims, and we noticed a cross-appeal on the court’s statement of decision granting Hussein’s motion for judgment on our cross-complaint. Briefing on the cross-appeals was completed in fall 2018. A hearing foron the motion is set for July 28, 2016. We believe that plaintiff’s claims are without merit and continues to defend against them vigorously.cross-appeals has not yet been set. At this time, we are unable to estimate the probability or the amount of liability, if any, related to this claim.Federal Securities Class ActionNovember 19, 2013,September 28, 2017, a putative class action complaint was filed on behalf of the shareholders of our Company other than the defendants against our Company and certain of our current and former 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 financialcondition 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 LitigationOn 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,Kusumam Koshy, derivatively on behalf of himself and all others similarly situated,Quality Systems Inc. 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, Paul A. Holt, and Quality Systems, Inc., No. SACV14-00110-DOC-JPPx,8:17-cv-01694, by Timothy J. Foss,Kusumam Koshy, a purported shareholder of our Company.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 and abuse of control, and gross mismanagement by our directors, in addition toas well as unjust enrichment and insider selling by individual directors.directors arising out of the allegations described above under the caption “Hussein Litigation” and a related, now-settled, federal securities class action, as well as the Company’s adoption of revised indemnification agreements, and the resignation of certain officers of the Company. The complaint seeks compensatory damages, restitution and disgorgement, of all profits, court costs and attorneys’ fees, and implementation of enhanced corporate governance reforms and internal control procedures. The parties have agreedOn January 12, 2018, Defendants filed a motion to stay this litigation untildismiss the derivative complaint. On July 25, 2018, the Court dismissed the complaint with prejudice. On August 24, 2018, the plaintiff filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit issues a rulingand filed her opening brief on January 23, 2019. We filed our response on March 25, 2019, and the pending appeal described above under the caption “Federal Securities Class Action.”plaintiff’s reply is due this spring. We believe that the plaintiff’s claims areappeal is without merit and intendsintend to defend against themit vigorously. At this time, we are unable to estimate the probability or the amount of liability, if any, related to this claim.2016, we have three reportable segments that are evaluated regularly2017, the remaining restructuring liability associated with payroll-related costs was $606, which was settled in the first quarter of fiscal 2018. The restructuring plan was substantially complete by our chief decision making group (consistingthe end of our Chief Executive Officer)fiscal 2017.deciding how to allocate resources and in assessing performance. Hospital Solutions Division operating segment datarestructuring costs were certain facilities-related costs associated with accruals for the remaining lease obligations at certain locations, including Solana Beach, Costa Mesa, and a portion of Horsham with contractual lease terms ending between January 2018 and September 2023. We have vacated each of the locations or portions thereof and are actively marketing the locations for sublease. We estimated the remaining lease obligations at fair value as of the cease-use date for each location based on the future contractual lease obligations, reduced by projected sublease rentals that could be reasonably obtained for the locations after a period of marketing, and adjusted for the effect deferred rents that have been recognized under the lease. The effect of discounting future cash flows using a credit-adjusted risk free rate was not significant. Sublease income and commencement dates were estimated based on data available from rental activity in the local markets. Significant judgment was required to estimate the remaining lease obligations at fair value and actual results could vary from the estimates, resulting in potential future adjustments to amounts previously recorded. For the year endended March 31, 2016 are reflected through2019 and March 31, 2018, we recorded $640 and $611, respectively, of restructuring costs related to adjustments to the October 22, 2015 dateestimated fair value 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 groupremaining lease obligations. As of March 31, 2019 and March 31, 2018, the remaining lease obligation, net of estimated projected sublease rentals, was $1,762 and $1,623, respectively. Refer to allocate resources orNote 14 for estimated timing of payments related to assess performance, and thus not included in the table above.The major componentsremaining lease obligations.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 EventsOn 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.17.16. Selected Quarterly Operating Results2016.2019. 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: 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 — — — — — — — 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: $ 0.09 $ 0.08 $ 0.11 $ 0.18 $ 0.11 $ 0.14 $ 0.12 $ (0.27 ) $ 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(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 Sales Return Reserve Balance at Beginning of Year Additions Charged Against Revenue Deductions Balance at End of Year March 31, 2016 $ 8,835 $ 6,737 $ (8,031 ) $ 7,541 March 31, 2015 $ 10,530 $ 8,038 $ (9,733 ) $ 8,835 March 31, 2014 $ 6,506 $ 17,966 $ (13,942 ) $ 10,530 Allowance for Doubtful Accounts Balance at Beginning of Year Additions Charged to Costs and Expenses Deductions Balance at End of Year March 31, 2016 $ 3,303 $ 3,573 $ (3,974 ) $ 2,902 March 31, 2015 $ 6,295 $ 855 $ (3,847 ) $ 3,303 March 31, 2014 $ 11,823 $ 1,467 $ (6,995 ) $ 6,295 Valuation Allowance on Deferred Tax Assets Balance at Beginning of Year Additions Charged to Costs and Expenses Acquisition-related Additions Deductions Balance at End of Year March 31, 2016 $ 1,840 $ 112 $ 599 $ — $ 2,551 March 31, 2015 $ 2,288 $ — $ — $ (448 ) $ 1,840 March 31, 2014 $ 2,003 $ 285 $ — $ — $ 2,288 INDEX TO EXHIBITS ATTACHED TO THIS REPORTExhibitNumberDescription21List of subsidiaries.23.1Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP.31.1Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INS*XBRL Instance101.SCH*XBRL Taxonomy Extension Schema101.CAL*XBRL Taxonomy Extension Calculation101.DEF*XBRL Taxonomy Extension Definition101.LAB*XBRL Taxonomy Extension Label101.PRE*XBRL Taxonomy Extension Presentation____________________*XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities and Exchange Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these section.86