California (State or other jurisdiction of incorporation or organization) 18111 Von Karman Avenue, Suite 700, Irvine, California (Address of principal executive offices) | 95-2888568 (IRS Employer Identification No.) 92612 (Zip Code) |
(949) 255-2600 (Registrant’s telephone number, including area code) |
Large accelerated filer þ | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Small reporting company o |
Item | Page | |
PART I. FINANCIAL INFORMATION | ||
Item 1. | Financial Statements (Unaudited) | |
Consolidated Balance Sheets as of June 30, 2013 and March 31, 2013 | ||
Consolidated Statements of Comprehensive Income for the three months ended June 30, 2013 and 2012 | ||
Consolidated Statements of Cash Flows for the three months ended June 30, 2013 and 2012 | ||
Notes to Consolidated Financial Statements | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
Item 3. | Quantitative and Qualitative Disclosures about Market Risks | |
Item 4. | Controls and Procedures | |
PART II. OTHER INFORMATION | ||
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Unregistered Sales of Equity Securities and Use of Proceeds | ||
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine and Safety Disclosure | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
Signatures |
June 30, 2013 | March 31, 2013 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 118,212 | $ | 105,999 | |||
Restricted cash | 3,647 | 5,488 | |||||
Marketable securities | 11,814 | 12,012 | |||||
Accounts receivable, net | 138,949 | 148,257 | |||||
Inventories | 983 | 710 | |||||
Deferred income taxes, net | 12,140 | 12,140 | |||||
Other current assets | 10,561 | 12,720 | |||||
Total current assets | 296,306 | 297,326 | |||||
Equipment and improvements, net | 21,825 | 21,887 | |||||
Capitalized software costs, net | 44,402 | 39,781 | |||||
Intangibles, net | 25,684 | 27,550 | |||||
Goodwill | 45,761 | 45,761 | |||||
Other assets | 10,843 | 10,750 | |||||
Total assets | $ | 444,821 | $ | 443,055 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 7,440 | $ | 11,501 | |||
Deferred revenue | 62,725 | 65,207 | |||||
Accrued compensation and related benefits | 12,073 | 11,915 | |||||
Income taxes payable | 5,550 | 1,480 | |||||
Dividends payable | 10,426 | 10,418 | |||||
Other current liabilities | 26,477 | 26,508 | |||||
Total current liabilities | 124,691 | 127,029 | |||||
Deferred revenue, net of current | 1,285 | 1,219 | |||||
Deferred compensation | 3,950 | 3,809 | |||||
Other noncurrent liabilities | 4,791 | 3,949 | |||||
Total liabilities | 134,717 | 136,006 | |||||
Commitments and contingencies (Note 11) | |||||||
Shareholders’ equity: | |||||||
Common stock $0.01 par value; authorized 100,000 shares; issued and outstanding 59,588 and 59,543 shares at June 30, 2013 and March 31, 2013, respectively | 596 | 595 | |||||
Additional paid-in capital | 180,450 | 179,743 | |||||
Accumulated other comprehensive loss | (184 | ) | (11 | ) | |||
Retained earnings | 129,242 | 126,722 | |||||
Total shareholders’ equity | 310,104 | 307,049 | |||||
Total liabilities and shareholders’ equity | $ | 444,821 | $ | 443,055 |
Three Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Revenues: | |||||||
Software and hardware | $ | 15,972 | $ | 25,844 | |||
Implementation and training services | 6,575 | 12,046 | |||||
System sales | 22,547 | 37,890 | |||||
Maintenance | 38,608 | 38,568 | |||||
Electronic data interchange services | 16,692 | 13,823 | |||||
Revenue cycle management and related services | 16,015 | 14,401 | |||||
Other services | 15,667 | 13,614 | |||||
Maintenance, EDI, RCM and other services | 86,982 | 80,406 | |||||
Total revenues | 109,529 | 118,296 | |||||
Cost of revenue: | |||||||
Software and hardware | 4,934 | 5,771 | |||||
Implementation and training services | 7,134 | 9,145 | |||||
Total cost of system sales | 12,068 | 14,916 | |||||
Maintenance | 5,302 | 4,811 | |||||
Electronic data interchange services | 10,796 | 9,248 | |||||
Revenue cycle management and related services | 11,401 | 10,870 | |||||
Other services | 8,505 | 8,550 | |||||
Total cost of maintenance, EDI, RCM and other services | 36,004 | 33,479 | |||||
Total cost of revenue | 48,072 | 48,395 | |||||
Gross profit | 61,457 | 69,901 | |||||
Operating expenses: | |||||||
Selling, general and administrative | 35,096 | 36,681 | |||||
Research and development costs | 5,614 | 8,576 | |||||
Amortization of acquired intangible assets | 1,194 | 1,137 | |||||
Total operating expenses | 41,904 | 46,394 | |||||
Income from operations | 19,553 | 23,507 | |||||
Interest income, net | 31 | 35 | |||||
Other expense, net | (254 | ) | (213 | ) | |||
Income before provision for income taxes | 19,330 | 23,329 | |||||
Provision for income taxes | 6,385 | 7,832 | |||||
Net income | $ | 12,945 | $ | 15,497 | |||
Other comprehensive income (loss): | |||||||
Foreign currency translation (net of $0 tax) | (173 | ) | (57 | ) | |||
Comprehensive income | $ | 12,772 | $ | 15,440 | |||
Net income per share: | |||||||
Basic | $ | 0.22 | $ | 0.26 | |||
Diluted | $ | 0.22 | $ | 0.26 | |||
Weighted-average shares outstanding: | |||||||
Basic | 59,559 | 59,281 | |||||
Diluted | 59,572 | 59,388 | |||||
Dividends declared per common share | $ | 0.175 | $ | 0.175 |
Three Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 12,945 | $ | 15,497 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | 1,897 | 1,617 | |||||
Amortization of capitalized software costs | 2,679 | 2,462 | |||||
Amortization of other intangibles | 1,866 | 1,817 | |||||
Provision for bad debts | 1,805 | 1,428 | |||||
Provision for inventory obsolescence | (137 | ) | (126 | ) | |||
Share-based compensation | 541 | 964 | |||||
Deferred income tax (benefit) expense | 517 | (10 | ) | ||||
Excess tax benefit from share-based compensation | (50 | ) | — | ||||
Change in fair value of contingent consideration | 46 | 185 | |||||
Changes in assets and liabilities, net of amounts acquired: | |||||||
Accounts receivable | 7,503 | (7,492 | ) | ||||
Inventories | (136 | ) | (387 | ) | |||
Income taxes receivable | — | 2,628 | |||||
Other current assets | 4,025 | (838 | ) | ||||
Other assets | (610 | ) | (579 | ) | |||
Accounts payable | (4,061 | ) | 7,249 | ||||
Deferred revenue | (2,416 | ) | (12,677 | ) | |||
Accrued compensation and related benefits | 158 | (690 | ) | ||||
Income taxes payable | 3,823 | 4,413 | |||||
Other current liabilities | 149 | 5,669 | |||||
Deferred compensation | 141 | (571 | ) | ||||
Other non-current liabilities | 842 | (679 | ) | ||||
Net cash provided by operating activities | 31,527 | 19,880 | |||||
Cash flows from investing activities: | |||||||
Additions to capitalized software costs | (7,300 | ) | (4,333 | ) | |||
Additions to equipment and improvements | (1,835 | ) | (3,349 | ) | |||
Purchase of Poseidon | — | (2,033 | ) | ||||
Purchase of Matrix | — | (5,073 | ) | ||||
Net cash used in investing activities | (9,135 | ) | (14,788 | ) | |||
Cash flows from financing activities: | |||||||
Excess tax benefit from share-based compensation | 50 | — | |||||
Proceeds from exercise of stock options | 250 | 763 | |||||
Dividends paid | (10,417 | ) | (10,354 | ) | |||
Payment of contingent consideration related to acquisitions | (62 | ) | (39 | ) | |||
Net cash used in financing activities | (10,179 | ) | (9,630 | ) | |||
Net increase (decrease) in cash and cash equivalents | 12,213 | (4,538 | ) | ||||
Cash and cash equivalents at beginning of period | 105,999 | 134,444 | |||||
Cash and cash equivalents at end of period | $ | 118,212 | $ | 129,906 |
Three Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Supplemental disclosures of cash flow information: | |||||||
Cash paid during the period for income taxes, net of refunds | $ | 2,032 | $ | 821 | |||
Effective May 1, 2012, the Company acquired Poseidon in a transaction summarized as follows: | |||||||
Fair value of assets acquired | $ | 2,551 | |||||
Cash paid | (2,033 | ) | |||||
Purchase price holdback | (500 | ) | |||||
Liabilities assumed | $ | 18 | |||||
Effective April 16, 2012, the Company acquired Matrix in a transaction summarized as follows: | |||||||
Fair value of assets acquired | $ | 14,587 | |||||
Cash paid | (5,073 | ) | |||||
Common stock issued at fair value | (3,953 | ) | |||||
Purchase price holdback | (853 | ) | |||||
Fair value of contingent consideration | (2,862 | ) | |||||
Fair value of non-compete agreement (liability) | (1,100 | ) | |||||
Liabilities assumed | $ | 746 |
▪ | The fee must be negotiated at the outset of an arrangement and generally be based on the specific volume of products to be delivered without being subject to change based on variable pricing mechanisms such as the number of units copied or distributed or the expected number of users. |
▪ | the price is fixed or determinable; |
▪ | the customer is obligated to pay and there are no contingencies surrounding the obligation or the payment; |
▪ | the customer's obligation would not change in the event of theft or damage to the product; |
▪ | the customer has economic substance; |
▪ | the amount of returns can be reasonably estimated; and |
▪ | the Company does not have significant obligations for future performance in order to bring about resale of the product by the customer. |
Three Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Costs and expenses: | |||||||
Cost of revenue | $ | 74 | $ | 76 | |||
Research and development costs | 42 | 59 | |||||
Selling, general and administrative | 425 | 829 | |||||
Total share-based compensation | 541 | 964 | |||||
Income tax benefit | (168 | ) | (320 | ) | |||
Decrease in net income | $ | 373 | $ | 644 |
Balance at | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||
June 30, 2013 | |||||||||||||||
ASSETS | |||||||||||||||
Cash and cash equivalents (1) | $ | 118,212 | $ | 118,212 | $ | — | $ | — | |||||||
Restricted cash | 3,647 | 3,647 | — | — | |||||||||||
Marketable securities (2) | 11,814 | 11,814 | — | — | |||||||||||
$ | 133,673 | $ | 133,673 | $ | — | $ | — | ||||||||
LIABILITIES | |||||||||||||||
Contingent consideration related to acquisitions | $ | 5,320 | $ | — | $ | — | $ | 5,320 | |||||||
$ | 5,320 | $ | — | $ | — | $ | 5,320 |
Balance at | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||
March 31, 2013 | |||||||||||||||
ASSETS | |||||||||||||||
Cash and cash equivalents (1) | $ | 105,999 | $ | 105,999 | $ | — | $ | — | |||||||
Restricted cash | 5,488 | 5,488 | — | — | |||||||||||
Marketable securities (2) | 12,012 | 12,012 | — | — | |||||||||||
$ | 123,499 | $ | 123,499 | $ | — | $ | — | ||||||||
LIABILITIES | |||||||||||||||
Contingent consideration related to acquisitions | $ | 5,336 | $ | — | $ | — | $ | 5,336 | |||||||
$ | 5,336 | $ | — | $ | — | $ | 5,336 |
Total Liabilities | ||||
Balance as of April 1, 2013 | $ | 5,336 | ||
Acquisitions | — | |||
Earnout payments | (62 | ) | ||
Fair value adjustments | 46 | |||
Balance as of June 30, 2013 | $ | 5,320 |
March 31, 2013 | Acquisitions | June 30, 2013 | |||||||||
QSI Dental Division (1) | $ | 7,289 | $ | — | $ | 7,289 | |||||
NextGen Division | 1,840 | — | 1,840 | ||||||||
Hospital Solutions Division | 4,342 | — | 4,342 | ||||||||
RCM Services Division | 32,290 | — | 32,290 | ||||||||
Total goodwill | $ | 45,761 | $ | — | $ | 45,761 |
June 30, 2013 | |||||||||||||||
Customer Relationships | Trade Name & Contracts | Software Technology | Total | ||||||||||||
Gross carrying amount | $ | 23,156 | $ | 2,018 | $ | 20,509 | $ | 45,683 | |||||||
Accumulated amortization | (11,082 | ) | (1,192 | ) | (7,725 | ) | (19,999 | ) | |||||||
Net intangible assets | $ | 12,074 | $ | 826 | $ | 12,784 | $ | 25,684 |
March 31, 2013 | |||||||||||||||
Customer Relationships | Trade Name & Contracts | Software Technology | Total | ||||||||||||
Gross carrying amount | $ | 23,156 | $ | 2,018 | $ | 20,509 | $ | 45,683 | |||||||
Accumulated amortization | (10,028 | ) | (1,112 | ) | (6,993 | ) | (18,133 | ) | |||||||
Net intangible assets | $ | 13,128 | $ | 906 | $ | 13,516 | $ | 27,550 |
Customer Relationships | Trade Name & Contracts | Software Technology | Total | ||||||||||||
Balance as of April 1, 2013 | $ | 13,128 | $ | 906 | $ | 13,516 | $ | 27,550 | |||||||
Acquisition | — | — | — | — | |||||||||||
Amortization (1) | (1,054 | ) | (80 | ) | (732 | ) | (1,866 | ) | |||||||
Balance as of June 30, 2013 | $ | 12,074 | $ | 826 | $ | 12,784 | $ | 25,684 |
Customer Relationships | Trade Name & Contracts | Software Technology | Total | ||||||||||||
Balance as of April 1, 2012 | $ | 7,805 | $ | 162 | $ | 15,292 | $ | 23,259 | |||||||
Acquisition | 9,450 | 1,250 | 1,150 | 11,850 | |||||||||||
Amortization (1) | (967 | ) | (127 | ) | (723 | ) | (1,817 | ) | |||||||
Balance as of June 30, 2012 | $ | 16,288 | $ | 1,285 | $ | 15,719 | $ | 33,292 |
For the year ended March 31, | |||
2014 (remaining nine months) | $ | 5,527 | |
2015 | 6,335 | ||
2016 | 5,998 | ||
2017 | 5,228 | ||
2018 and beyond | 2,596 | ||
Total | $ | 25,684 |
June 30, 2013 | March 31, 2013 | ||||||
Gross carrying amount | $ | 101,976 | $ | 94,676 | |||
Accumulated amortization | (57,574 | ) | (54,895 | ) | |||
Net capitalized software costs | $ | 44,402 | $ | 39,781 |
2013 | 2012 | ||||||
Balance as of April 1 | $ | 39,781 | $ | 19,994 | |||
Capitalized | 7,300 | 4,333 | |||||
Amortization | (2,679 | ) | (2,462 | ) | |||
Balance as of June 30 | $ | 44,402 | $ | 21,865 |
For the year ended March 31, | |||
2014 (remaining nine months) | $ | 10,603 | |
2015 | 17,503 | ||
2016 | 10,386 | ||
2017 | 3,061 | ||
2018 and beyond | 2,849 | ||
Total | $ | 44,402 |
June 30, 2013 | March 31, 2013 | ||||||
Accounts receivable, gross | $ | 149,794 | $ | 160,080 | |||
Allowance for doubtful accounts | (10,845 | ) | (11,823 | ) | |||
Accounts receivable, net | $ | 138,949 | $ | 148,257 |
June 30, 2013 | March 31, 2013 | ||||||
Computer systems and components | $ | 983 | $ | 710 | |||
Inventories | $ | 983 | $ | 710 |
June 30, 2013 | March 31, 2013 | ||||||
Computer equipment | $ | 32,043 | $ | 31,633 | |||
Furniture and fixtures | 8,522 | 8,416 | |||||
Leasehold improvements | 8,444 | 7,125 | |||||
49,009 | 47,174 | ||||||
Accumulated depreciation and amortization | (27,184 | ) | (25,287 | ) | |||
Equipment and improvements, net | $ | 21,825 | $ | 21,887 |
June 30, 2013 | March 31, 2013 | ||||||
Maintenance | $ | 11,135 | $ | 12,085 | |||
Implementation services | 36,955 | 36,899 | |||||
Annual license services | 10,366 | 9,906 | |||||
Undelivered software and other | 4,269 | 6,317 | |||||
Deferred revenue | $ | 62,725 | $ | 65,207 | |||
Deferred revenue, net of current | $ | 1,285 | $ | 1,219 |
June 30, 2013 | March 31, 2013 | ||||||
Payroll, bonus and commission | $ | 3,510 | $ | 3,842 | |||
Vacation | 8,563 | 8,073 | |||||
Accrued compensation and related benefits | $ | 12,073 | $ | 11,915 |
June 30, 2013 | March 31, 2013 | ||||||
Contingent consideration and other liabilities related to acquisitions | $ | 8,244 | $ | 8,426 | |||
Care services liabilities | 3,647 | 5,488 | |||||
Accrued EDI expense | 3,205 | 1,452 | |||||
Accrued Consulting | 2,383 | 2,602 | |||||
Self insurance reserve | 1,377 | 1,336 | |||||
Accrued royalties | 1,208 | 1,331 | |||||
Users Group Meeting deposits | 1,015 | — | |||||
Sales tax payable | 743 | 869 | |||||
Deferred rent | 478 | 689 | |||||
Outside commission payable | 375 | 461 | |||||
Accrued travel | 361 | 384 | |||||
Customer deposits | 44 | 262 | |||||
Other accrued expenses | 3,397 | 3,208 | |||||
Other current liabilities | $ | 26,477 | $ | 26,508 | |||
Deferred rent | $ | 4,159 | $ | 2,448 | |||
Contingent consideration and other liabilities related to acquisitions | 520 | 1,382 | |||||
Other liabilities | 112 | 119 | |||||
Other non-current liabilities | $ | 4,791 | $ | 3,949 |
Three Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Net income | $ | 12,945 | $ | 15,497 | |||
Basic net income per share: | |||||||
Weighted-average shares outstanding — Basic | 59,559 | 59,281 | |||||
Basic net income per common share | $ | 0.22 | $ | 0.26 | |||
Net income | $ | 12,945 | $ | 15,497 | |||
Diluted net income per share: | |||||||
Weighted-average shares outstanding — Basic | 59,559 | 59,281 | |||||
Effect of potentially dilutive securities | 13 | 107 | |||||
Weighted-average shares outstanding — Diluted | 59,572 | 59,388 | |||||
Diluted net income per common share | $ | 0.22 | $ | 0.26 |
Number of Shares | Weighted- Average Exercise Price per Share | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value (in thousands) | ||||||||||
Outstanding, April 1, 2013 | 1,159,183 | $ | 30.54 | 5.5 | |||||||||
Granted | 356,000 | 17.95 | 7.9 | ||||||||||
Exercised | (15,214 | ) | 16.40 | 0.0 | $ | 35 | |||||||
Forfeited/Canceled | (90,360 | ) | 32.04 | 5.4 | |||||||||
Outstanding, June 30, 2013 | 1,409,609 | $ | 27.85 | 6.0 | $ | 282 | |||||||
Vested and expected to vest, June 30, 2013 | 1,330,741 | $ | 27.91 | 6.0 | $ | 259 | |||||||
Exercisable, June 30, 2013 | 440,349 | $ | 29.95 | 4.1 | $ | — |
Three Months Ended June 30, 2013 | Three Months Ended June 30, 2012 | |||
Expected life | 4.9 years | 5.0 years | ||
Expected volatility | 43.7% | 41.3% | ||
Expected dividends | 3.9% | 2.4% | ||
Risk-free rate | 1.0% | 0.7% - 0.8% |
Number of | Vesting | ||||||||||
Option Grant Date | Shares | Exercise Price | Terms (1) | Expires | |||||||
May 29, 2013 | 356,000 | $ | 17.95 | Five years | May 29, 2021 | ||||||
Fiscal year 2014 option grants | 356,000 | ||||||||||
January 23, 2013 | 40,000 | $ | 19.00 | Five years | January 23, 2021 | ||||||
November 5, 2012 | 5,000 | $ | 17.68 | Five years | November 5, 2020 | ||||||
September 25, 2012 | 20,000 | $ | 18.42 | Five years | September 25, 2020 | ||||||
May 24, 2012 | 346,000 | $ | 29.17 | Five years | May 24, 2020 | ||||||
May 24, 2012 | 30,000 | $ | 29.17 | Four years | May 24, 2020 | ||||||
May 23, 2012 | 115,500 | $ | 29.45 | Five years | May 23, 2020 | ||||||
Fiscal year 2013 option grants | 556,500 |
Three Months Ended June 30, 2013 | Three Months Ended June 30, 2012 | ||
Expected life | 4.9 years | 5.0 years | |
Expected volatility | 43.5% | 41.7% | |
Expected dividends | 3.7% | 2.5% | |
Risk-free rate | 1.4% | 0.7% |
Non-Vested Number of Shares | Weighted- Average Grant-Date Fair Value per Share | ||||||
Outstanding, April 1, 2013 | 804,340 | $ | 9.89 | ||||
Granted | 356,000 | 4.87 | |||||
Vested | (100,720 | ) | 10.49 | ||||
Forfeited/Canceled | (90,360 | ) | 10.05 | ||||
Outstanding, June 30, 2013 | 969,260 | $ | 7.97 |
Number of Shares | Weighted- Average Grant-Date Fair Value per Share | ||||||
Outstanding, April 1, 2013 | 30,385 | $ | 27.09 | ||||
Granted | 23,516 | 20.60 | |||||
Vested | (566 | ) | 34.80 | ||||
Canceled | (3,000 | ) | 24.81 | ||||
Outstanding, June 30, 2013 | 50,335 | $ | 22.96 |
Three Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
Revenue: | ||||||||
QSI Dental Division | $ | 5,151 | $ | 4,953 | ||||
NextGen Division | 81,535 | 86,192 | ||||||
Hospital Solutions Division | 5,467 | 11,365 | ||||||
RCM Services Division | 17,376 | 15,786 | ||||||
Consolidated revenue | $ | 109,529 | $ | 118,296 | ||||
Operating income (loss): | ||||||||
QSI Dental Division | $ | 955 | $ | 469 | ||||
NextGen Division | 29,568 | 28,840 | ||||||
Hospital Solutions Division | (2,594 | ) | 2,347 | |||||
RCM Services Division | 2,840 | 1,853 | ||||||
Unallocated corporate expense | (11,216 | ) | (10,002 | ) | ||||
Consolidated operating income | $ | 19,553 | $ | 23,507 |
• | Management Overview. This section provides a general description of our Company and operating segments, a discussion as to how we derive our revenue, background information on certain trends and developments affecting our Company, a summary of our acquisition transactions and a discussion on management’s strategy for driving revenue growth. |
• | Critical Accounting Policies and Estimates. This section discusses those accounting policies that are considered important to the evaluation and reporting of our financial condition and results of operations, and whose application requires us to exercise subjective or complex judgments in making estimates and assumptions. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 1, “Summary of Significant Accounting Policies,” of our notes to consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. |
• | Company Overview. This section provides a more detailed description of our Company, its operating segments, and the products and services we offer. |
• | Overview of Results of Operations and Results of Operations by Operating Divisions. These sections provide our analysis and outlook for the significant line items on our consolidated statements of income, as well as other information that we deem meaningful to understand our results of operations on both a consolidated basis and an operating division basis. |
• | Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows. |
• | New Accounting Pronouncements. This section provides a summary of the most recent authoritative accounting standards and guidance that have either been recently adopted by our Company or may be adopted in the future. |
Segment Revenue Breakdown | ||||||
Three Months Ended June 30, | ||||||
2013 | 2012 | |||||
QSI Dental Division | 4.7 | % | 4.2 | % | ||
NextGen Division | 74.4 | % | 72.9 | % | ||
Hospital Solutions Division | 5.0 | % | 9.6 | % | ||
RCM Services Division | 15.9 | % | 13.3 | % | ||
Consolidated | 100.0 | % | 100.0 | % |
Segment Revenue Growth | ||||||
Three Months Ended June 30, | ||||||
2013 | 2012 | |||||
QSI Dental Division | 4.0 | % | (2.8 | )% | ||
NextGen Division | (5.4 | )% | 15.5 | % | ||
Hospital Solutions Division | (51.9 | )% | 55.9 | % | ||
RCM Services Division | 10.1 | % | 17.5 | % | ||
Consolidated | (7.4 | )% | 17.8 | % |
• | Consolidated revenue decreased 7.4% in the three months ended June 30, 2013 as compared to the prior year period. The decrease reflects a 40.5% decline in system sales revenue, mitigated by 8.2% growth in recurring services revenue (i.e. maintenance, EDI, RCM and other services revenues). |
• | Consolidated gross profit as a percentage of revenue decreased to 56.1% for the three months ended June 30, 2013 compared to 59.1% in the prior year period. The decline was attributable to a shift in the mix of revenue towards recurring services and a decline in the profit margin on system sales revenue. For the three months ended June 30, 2013, recurring services revenue comprised 79.4% of consolidated revenue, as compared to 68.0% in the prior year period. |
• | Consolidated operating income decreased 16.8% in the three months ended June 30, 2013 as compared to the prior year period primarily due to a 12.1% decrease in consolidated gross profit mitigated by a 9.7% reduction in total operating expenses. |
• | Total cash and cash equivalents plus marketable securities increased by $12.0 million to $130.0 million as of June 30, 2013, as compared to $118.0 million as of March 31, 2013. Contributing to this increase was significant cash inflows from operating activities for the three months ended June 30, 2013 of $31.5 million (as compared to $19.9 million of net cash inflows from operating activities for the prior year period). |
• | QSI Dental Division revenue increased 4.0% in the three months ended June 30, 2013 and divisional operating income (excluding unallocated corporate expenses) increased 103.5% as compared to the same prior year period. The increase in operating income is primarily the result of an increase in total revenue in the current period. It should be noted that the QSI Dental Division's new software solution (“QSIDental™ Web”) is being sold as a SaaS solution which spreads revenue over a longer period of time rather than being recognized upfront. Revenue recognized from QSIDental Web was not significant in the three months ended June 30, 2013. |
• | 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 maximize profit performance given the constraints represented by a relatively weak purchasing environment in the dental group practice market while taking advantage of opportunities with the new QSIDental™ Web product. |
• | NextGen Division revenue decreased 5.4% in the three months ended June 30, 2013, as compared to the same prior year period. NextGen revenue was positively impacted by 12.3% growth in service revenue, which was offset by a 37.5% decline in system sales revenue. Recurring revenue, which consists primarily of maintenance and EDI revenue, increased 11.4% to $48.9 million and accounted for 60.0% of |
• | NextGen Division operating income (excluding unallocated corporate expenses) grew 2.5% in the three months ended June 30, 2013, as compared to the same prior year period. The increase in operating income is primarily the result of a 16.5% decrease in total operating expenses in the current period, partially offset by a decrease in total revenue. |
• | Our goals include taking maximum advantage of benefits related to the ARRA and continuing to further enhance our existing products, including continued efforts to maintain our status as a qualified vendor under the ARRA, expanding our software and service offerings supporting pay-for-performance initiatives around accountable care organizations, bringing greater ease of use and intuitiveness to our software products, expanding our interoperability capabilities, integrating our inpatient and ambulatory software products and further development and enhancements of our portfolio of specialty focused templates within our EHR software. We intend to remain at the forefront of upcoming new regulatory requirements, including ICD-10 and meaningful use requirements for stimulus payments. 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 and the Hospital Solutions Division. |
• | The NextGen Division’s growth is attributed to a strong brand name and reputation within a growing marketplace for electronic health records and investments in sales and marketing activities, including new marketing campaigns, trade show attendance and other expanded advertising and marketing expenditures. We have also recently expanded our relationship with certain value added resellers with significant resources both domestically and internationally. |
• | Hospital Solutions Division revenue decreased 51.9% in the three months ended June 30, 2013. Revenue was negatively impacted by a 64.7% decline in system sales, as well as lower maintenance revenue and higher accruals for anticipated sales returns. The decline in maintenance revenue relates to a scheduled run-off related to a specific legacy customer of one of the acquired entities of the division. |
• | Divisional operating income/(loss) (excluding unallocated corporate expenses) was $(2.6) million for the three months ended June 30, 2013 as compared to $2.3 million for the same prior year period. Operating income was negatively impacted by significantly lower revenue during the period, partially offset by a decrease in total operating expenses. |
• | The Hospital Solutions Division has benefited from being able to offer both financial and CCHIT® certified clinical software, which has been packaged together, and in May 2013, the division's NextGen® Inpatient Clinicals software was certified for stage two of meaningful use. The Hospital Solutions Division has also benefited from cross sell opportunities with existing NextGen Division customers, including hospitals that are owned or affiliated with physician offices. |
• | The Hospital Solutions Division has incurred losses in the last several quarters and is expected to continue to incur losses for the foreseeable future while we continue to invest in implementation and training, support, and development to support our growing customer base and maximize customer satisfaction. We continue to believe in the long term opportunity in the small hospital market in spite of the recent losses which we have incurred. |
• | RCM Services Division revenue increased 10.1% in the three months ended June 30, 2013. The RCM Services Division benefited from organic growth achieved through cross selling RCM services to existing NextGen Division clients and well as new clients added during the three months ended June 30, 2013. |
• | Operating income as a percentage of revenue increased to approximately 16.3% of revenue in the three months ended June 30, 2013 versus 11.7% of revenue in the same prior year period primarily as a result of an increase in the RCM Services Division's revenue and gross profit compared to the prior year period. |
• | The Company believes that a significant opportunity exists to cross sell revenue cycle management services to existing NextGen Division customers. The portion of existing NextGen Division customers who are using the RCM Services Division's RCM services is less than 10%. We also believe that the increased complexity related to the billing and collections process, which goes into effect with ICD-10 in October of 2014, will create additional opportunities for our RCM Services Division. |
• | There is also a significant opportunity to expand the RCM Services Division's services into the Hospital Solution and Dental Division's customers as well. Management is actively pursuing efforts to achieve faster growth from expanded efforts to leverage the existing NextGen Division's sales force towards selling RCM services. |
• | Actual and expected customer turnover may impact short term revenue for the division. However, we are encouraged by increased sales activity and a growing sales pipeline of RCM services. |
Three Months Ended June 30, | ||||||
(Unaudited) | 2013 | 2012 | ||||
Revenues: | ||||||
Software and hardware | 14.6 | % | 21.8 | % | ||
Implementation and training services | 6.0 | 10.2 | ||||
System sales | 20.6 | 32.0 | ||||
Maintenance | 35.2 | 32.6 | ||||
Electronic data interchange services | 15.2 | 11.7 | ||||
Revenue cycle management and related services | 14.6 | 12.2 | ||||
Other services | 14.3 | 11.5 | ||||
Maintenance, EDI, RCM and other services | 79.4 | 68.0 | ||||
Total revenues | 100.0 | 100.0 | ||||
Cost of revenue: | ||||||
Software and hardware | 4.5 | 4.9 | ||||
Implementation and training services | 6.5 | 7.7 | ||||
Total cost of system sales | 11.0 | 12.6 | ||||
Maintenance | 4.8 | 4.1 | ||||
Electronic data interchange services | 9.9 | 7.8 | ||||
Revenue cycle management and related services | 10.4 | 9.2 | ||||
Other services | 7.8 | 7.2 | ||||
Total cost of maintenance, EDI, RCM and other services | 32.9 | 28.3 | ||||
Total cost of revenue | 43.9 | 40.9 | ||||
Gross profit | 56.1 | 59.1 | ||||
Operating expenses: | ||||||
Selling, general and administrative | 32.0 | 31.0 | ||||
Research and development costs | 5.1 | 7.2 | ||||
Amortization of acquired intangible assets | 1.1 | 1.0 | ||||
Total operating expenses | 38.2 | 39.2 | ||||
Income from operations | 17.9 | 19.9 | ||||
Interest income, net | 0.0 | 0.0 | ||||
Other expense, net | (0.2) | (0.2) | ||||
Income before provision for income taxes | 17.7 | 19.7 | ||||
Provision for income taxes | 5.8 | 6.6 | ||||
Net income | 11.9 | % | 13.1 | % |
• | a decline in consolidated gross profit of $8.4 million (12.1%) resulting from a 54.4% decrease in consolidated system sales gross profit, mitigated by 8.6% growth in gross profit from recurring services revenue. The decline in consolidated system sales gross profit reflects both the decline in this category of revenue, as well as lower profit margins on the revenue. The increase in gross profit from recurring services revenue reflects growth in this category of revenue. |
• | a $4.5 million (9.7%) reduction in total operating expenses compared to the prior year period. This decrease principally reflects a reduction in selling, general and administrative and research and development expenses driven by various cost saving initiatives enacted by the Company. |
• | a reduction of $1.4 million in the provision for income taxes, principally reflecting a lower level of taxable income in the current period. |
Software | Hardware, Third Party Software | Implementation and Training Services | Total System Sales | |||||||||||||
Three Months Ended June 30, 2013 | ||||||||||||||||
QSI Dental Division | $ | 551 | $ | 391 | $ | 277 | $ | 1,219 | ||||||||
NextGen Division | 13,496 | 1,398 | 4,297 | 19,191 | ||||||||||||
Hospital Solutions Division | (40 | ) | 83 | 2,001 | 2,044 | |||||||||||
RCM Services Division | 93 | — | — | 93 | ||||||||||||
Consolidated | $ | 14,100 | $ | 1,872 | $ | 6,575 | $ | 22,547 | ||||||||
Three Months Ended June 30, 2012 | ||||||||||||||||
QSI Dental Division | $ | 480 | $ | 390 | $ | 390 | $ | 1,260 | ||||||||
NextGen Division | 20,693 | 1,265 | 8,715 | 30,673 | ||||||||||||
Hospital Solutions Division | 2,496 | 417 | 2,882 | 5,795 | ||||||||||||
RCM Services Division | 99 | 4 | 59 | 162 | ||||||||||||
Consolidated | $ | 23,768 | $ | 2,076 | $ | 12,046 | $ | 37,890 |
Maintenance | EDI | RCM | Other | Total | ||||||||||||||||
Three Months Ended June 30, 2013 | ||||||||||||||||||||
QSI Dental Division | $ | 2,111 | $ | 1,406 | $ | — | $ | 415 | $ | 3,932 | ||||||||||
NextGen Division | 33,707 | 15,236 | — | 13,401 | 62,344 | |||||||||||||||
Hospital Solutions Division | 2,582 | 37 | — | 804 | 3,423 | |||||||||||||||
RCM Services Division | 208 | 13 | 16,015 | 1,047 | 17,283 | |||||||||||||||
Consolidated | $ | 38,608 | $ | 16,692 | $ | 16,015 | $ | 15,667 | $ | 86,982 | ||||||||||
Three Months Ended June 30, 2012 | ||||||||||||||||||||
QSI Dental Division | $ | 1,961 | $ | 1,385 | $ | — | $ | 347 | $ | 3,693 | ||||||||||
NextGen Division | 31,684 | 12,254 | — | 11,581 | 55,519 | |||||||||||||||
Hospital Solutions Division | 4,747 | — | — | 823 | 5,570 | |||||||||||||||
RCM Services Division | 176 | 184 | 14,401 | 863 | 15,624 | |||||||||||||||
Consolidated | $ | 38,568 | $ | 13,823 | $ | 14,401 | $ | 13,614 | $ | 80,406 |
Three Months Ended June 30, | ||||||||||||||
2013 | % | 2012 | % | |||||||||||
QSI Dental Division | ||||||||||||||
Revenue | $ | 5,151 | 100.0 | % | $ | 4,953 | 100.0 | % | ||||||
Cost of revenue | 2,598 | 50.4 | % | 2,428 | 49.0 | % | ||||||||
Gross profit | $ | 2,553 | 49.6 | % | $ | 2,525 | 51.0 | % | ||||||
NextGen Division | ||||||||||||||
Revenue | $ | 81,535 | 100.0 | % | $ | 86,192 | 100.0 | % | ||||||
Cost of revenue | 28,678 | 35.2 | % | 29,497 | 34.2 | % | ||||||||
Gross profit | $ | 52,857 | 64.8 | % | $ | 56,695 | 65.8 | % | ||||||
Hospital Solutions Division | ||||||||||||||
Revenue | $ | 5,467 | 100.0 | % | $ | 11,365 | 100.0 | % | ||||||
Cost of revenue | 4,242 | 77.6 | % | 4,542 | 40.0 | % | ||||||||
Gross profit | $ | 1,225 | 22.4 | % | $ | 6,823 | 60.0 | % | ||||||
RCM Services Division | ||||||||||||||
Revenue | $ | 17,376 | 100.0 | % | $ | 15,786 | 100.0 | % | ||||||
Cost of revenue | 11,883 | 68.4 | % | 11,246 | 71.2 | % | ||||||||
Gross profit | $ | 5,493 | 31.6 | % | $ | 4,540 | 28.8 | % | ||||||
Unallocated cost of revenue | $ | 671 | N/A | $ | 682 | N/A | ||||||||
Consolidated | ||||||||||||||
Revenue | $ | 109,529 | 100.0 | % | $ | 118,296 | 100.0 | % | ||||||
Cost of revenue | 48,072 | 43.9 | % | 48,395 | 40.9 | % | ||||||||
Gross profit | $ | 61,457 | 56.1 | % | $ | 69,901 | 59.1 | % |
Hardware, Third Party Software | Payroll and Related Benefits | EDI | Other | Total Cost of Revenue | Gross Profit | |||||||||||||
Three Months Ended June 30, 2013 | ||||||||||||||||||
QSI Dental Division | 6.1 | % | 19.7 | % | 14.3 | % | 10.3 | % | 50.4 | % | 49.6 | % | ||||||
NextGen Division | 1.5 | % | 12.4 | % | 11.4 | % | 9.9 | % | 35.2 | % | 64.8 | % | ||||||
Hospital Solutions Division | 0.7 | % | 40.9 | % | 0.4 | % | 35.6 | % | 77.6 | % | 22.4 | % | ||||||
RCM Services Division | 0.0 | % | 42.9 | % | 0.9 | % | 24.6 | % | 68.4 | % | 31.6 | % | ||||||
Consolidated | 1.5 | % | 19.0 | % | 9.3 | % | 14.1 | % | 43.9 | % | 56.1 | % | ||||||
Three Months Ended June 30, 2012 | ||||||||||||||||||
QSI Dental Division | 5.3 | % | 19.3 | % | 14.0 | % | 10.4 | % | 49.0 | % | 51.0 | % | ||||||
NextGen Division | 1.4 | % | 11.5 | % | 9.0 | % | 12.3 | % | 34.2 | % | 65.8 | % | ||||||
Hospital Solutions Division | 4.4 | % | 18.3 | % | 0.0 | % | 17.3 | % | 40.0 | % | 60.0 | % | ||||||
RCM Services Division | 0.0 | % | 45.0 | % | 1.3 | % | 24.9 | % | 71.2 | % | 28.8 | % | ||||||
Consolidated | 1.6 | % | 16.9 | % | 7.3 | % | 15.1 | % | 40.9 | % | 59.1 | % |
• | $1.1 million decrease in salaries and related benefit expenses, attributable to cost control initiatives |
• | $0.6 million decrease in sales commissions, reflecting the lower level of revenues |
• | $0.3 million decrease in acquisition related expenses, including fair value adjustments; partially offset by a |
• | $0.4 million increase in bad debt expense |
Three Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Cash and cash equivalents and marketable securities | $ | 130,026 | $ | 134,896 | |||
Net increase (decrease) in cash and cash equivalents and marketable securities | $ | 12,015 | $ | (4,535 | ) | ||
Net income | $ | 12,945 | $ | 15,497 | |||
Net cash provided by operating activities | $ | 31,527 | $ | 19,880 | |||
Number of days of sales outstanding (1) | 116 | 118 |
Three Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
Net income | $ | 12,945 | $ | 15,497 | ||||
Non-cash expenses | 9,164 | 8,337 | ||||||
Change in deferred revenue | (2,416 | ) | (12,677 | ) | ||||
Cash from net income, as adjusted | 19,693 | 11,157 | ||||||
Change in accounts receivable | 7,503 | (7,492 | ) | |||||
Change in other assets and liabilities | 4,331 | 16,215 | ||||||
Net cash provided by operating activities | $ | 31,527 | $ | 19,880 |
Declaration Date | Record Date | Payment Date | Per Share Dividend | |||||
May 22, 2013 | June 14, 2013 | July 5, 2013 | $ | 0.175 | ||||
Fiscal year 2014 | $ | 0.175 | ||||||
May 24, 2012 | June 15, 2012 | July 3, 2012 | $ | 0.175 | ||||
July 25, 2012 | September 14, 2012 | October 5, 2012 | $ | 0.175 | ||||
October 25, 2012 | December 14, 2012 | December 28, 2012 | $ | 0.175 | ||||
January 23, 2013 | March 15, 2013 | April 5, 2013 | $ | 0.175 | ||||
Fiscal year 2013 | $ | 0.700 |
For the year ended March 31, | ||||||||||||||||||
Contractual Obligations | Total | 2014 (remaining nine months) | 2015 | 2016 | 2017 | 2018 and beyond | ||||||||||||
Operating lease obligations | $ | 30,895 | $ | 6,047 | $ | 7,043 | $ | 6,520 | $ | 4,595 | $ | 6,690 | ||||||
Contingent consideration and other acquisition related liabilities | 2,644 | 1,373 | 646 | 313 | 312 | — | ||||||||||||
Total | $ | 33,539 | $ | 7,420 | $ | 7,689 | $ | 6,833 | $ | 4,907 | $ | 6,690 |
Exhibit Number | Description |
10.1 | Agreement by and among Quality Systems, Inc., the Clinton Group, Inc. and certain of its affiliates, dated as of July 17, 2013 (incorporated by reference from Exhibit 10.1 of the registrant's Current Report on Form 8-K filed July 17, 2013). |
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. |
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. |
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. |
101.INS** | XBRL Instance |
101.SCH** | XBRL Taxonomy Extension Schema |
101.CAL** | XBRL Taxonomy Extension Calculation |
101.LAB** | XBRL Taxonomy Extension Label |
101.PRE** | XBRL Taxonomy Extension Presentation |
* Filed herewith. ** 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. |
QUALITY SYSTEMS, INC. | |||
Date: | July 30, 2013 | By: | /s/ Steven T. Plochocki |
Steven T. Plochocki | |||
Chief Executive Officer (Principal Executive Officer) | |||
Date: | July 30, 2013 | By: | /s/ Paul A. Holt |
Paul A. Holt | |||
Chief Financial Officer (Principal Accounting Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Quality Systems, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 30, 2013 | By: /s/ Steven T. Plochocki |
Steven T. Plochocki | |
Chief Executive Officer | |
(Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Quality Systems, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 30, 2013 | By: /s/ Paul A. Holt |
Paul A. Holt | |
Chief Financial Officer | |
(Principal Accounting Officer) |
1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | July 30, 2013 | By: | /s/ Steven T. Plochocki |
Steven T. Plochocki | |||
Chief Executive Officer (Principal Executive Officer) | |||
Date: | July 30, 2013 | By: | /s/ Paul A. Holt |
Paul A. Holt | |||
Chief Financial Officer (Principal Accounting Officer) |
Commitments, Guarantees and Contingencies
|
3 Months Ended |
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Jun. 30, 2013
|
|
Commitments and Contingencies Disclosure [Abstract] | |
Commitments, Guarantees and Contingencies | Commitments, Guarantees and Contingencies Commitments and Guarantees The Company's software license agreements include a performance guarantee that the Company's software products will substantially operate as described in the applicable program documentation for a period of 365 days after delivery. To date, the Company has not incurred any significant costs associated with its performance guarantee or other related warranties and does not expect to incur significant warranty costs in the future. Therefore, no accrual has been made for potential costs associated with these warranties. Certain arrangements also include performance guarantees related to response time, availability for operational use, and other performance-related guarantees. Certain arrangements also include penalties in the form of maintenance credits should the performance of the software fail to meet the performance guarantees. To date, the Company has not incurred any significant costs associated with these warranties and does not expect to incur significant warranty costs in the future. Therefore, no accrual has been made for potential costs associated with these warranties. The Company has historically offered short-term rights of return in certain sales arrangements. If the Company is able to estimate returns for these types of arrangements and all other criteria for revenue recognition have been met, revenue is recognized and these arrangements are recorded in the consolidated financial statements. If the Company is unable to estimate returns for these types of arrangements, revenue is not recognized in the consolidated financial statements until the rights of return expire, provided also, that all other criteria of revenue recognition have been met. Certain standard sales agreements contain a money back guarantee providing for a performance guarantee that is already part of the software license agreement as well as training and support. The money back guarantee also warrants that the software will remain robust and flexible to allow participation in the federal health incentive programs. The specific elements of the performance guarantee pertain to aspects of the software, which the Company has already tested and confirmed to consistently meet using the Company's existing software without any modifications or enhancements. To date, the Company has not incurred any costs associated with this guarantee and does not expect to incur significant costs in the future. Therefore, no accrual has been made for potential costs associated with this guarantee. The Company's standard sales agreements contain an indemnification provision pursuant to which it shall indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any United States patent, any copyright or other intellectual property infringement claim by any third-party with respect to its software. As the Company has not incurred any significant costs to defend lawsuits or settle claims related to these indemnification agreements, the Company believes that its estimated exposure on these agreements is currently minimal. Accordingly, the Company has no liabilities recorded for these indemnification obligations. |
Subsequent Events (Details) (Dividend Declared [Member], USD $)
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Jul. 25, 2012
|
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Dividend Declared [Member]
|
|
Subsequent Event [Line Items] | |
Cash dividend (in usd per share) | $ 0.175 |
Intangible Assets
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Jun. 30, 2013
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets | Intangible Assets The Company’s definite-lived intangible assets, other than capitalized software development costs, are summarized as follows:
Activity related to the intangible assets for the three months ended June 30, 2013 and 2012 is summarized as follows:
_____________________________ (1) Amortization of the customer relationships and the trade name & contracts intangible assets is included in operating expenses and amortization of the software technology intangible assets is included in cost of revenue for software and hardware. The following table represents the remaining estimated amortization of definite-lived intangible assets as of June 30, 2013:
|
Intangible Assets (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets, other than capitalized software development costs | The Company’s definite-lived intangible assets, other than capitalized software development costs, are summarized as follows:
|
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Activity related to the intangible assets | Activity related to the intangible assets for the three months ended June 30, 2013 and 2012 is summarized as follows:
_____________________________ (1) Amortization of the customer relationships and the trade name & contracts intangible assets is included in operating expenses and amortization of the software technology intangible assets is included in cost of revenue for software and hardware. |
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Estimated amortization of intangible assets with determinable lives | The following table represents the remaining estimated amortization of definite-lived intangible assets as of June 30, 2013:
|
Operating Segment Information
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Segment Information | Operating Segment Information The Company has four reportable segments that are evaluated regularly by its chief decision making group (Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) in deciding how to allocate resources and in assessing performance. Operating segment data is as follows:
Management evaluates performance based upon stand-alone segment operating income. Because the Company does not evaluate performance based upon return on assets at the operating segment level, assets are not tracked internally by segment. Therefore, segment asset information is not presented. Effective April 1, 2013, the Company reorganized certain overhead related departments to unallocated corporate expense from the operating segments in an effort to centralize shared services functions and to be consistent with the basis in which the decision making group disaggregates financial information. The Company concluded the impact of the reorganization to prior year operating income was not material to the operating segments or unallocated corporate expense and are therefore not restated. |
Share Based Awards (Details 4) (USD $)
|
3 Months Ended |
---|---|
Jun. 30, 2013
|
|
Schedule of Employee Stock Options and Performance Based Awards by Nonvested Stock Options | |
Non-Vested Number of Shares Outstanding Beginning Balance | 804,340 |
Weighted Average Fair Value Price per Share Outstanding Beginning Balance | $ 9.89 |
Non-Vested Number of Shares Granted | 356,000 |
Weighted Average Fair Value per Share Price Granted | $ 4.87 |
Non-Vested Number of Shares Vested | (100,720) |
Weighted Average Fair Value per Share Price Vested | $ 10.49 |
Non-Vested Number of Shares Forfeited | (90,360) |
Weighted Average Fair Value per Share Price Forfeited | $ 10.05 |
Non-Vested Number of Share Outstanding Ending Balance | 969,260 |
Weighted Average Fair Value per Share Price Outstanding Ending Balance | $ 7.97 |
Capitalized Software Costs (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Mar. 31, 2013
|
Jun. 30, 2012
|
Mar. 31, 2011
|
---|---|---|---|---|
Capitalized software development costs | ||||
Gross carrying amount | $ 101,976 | $ 94,676 | ||
Accumulated amortization | (57,574) | (54,895) | ||
Net capitalized software costs | $ 44,402 | $ 39,781 | $ 21,865 | $ 19,994 |
Earnings Per Share (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted-average shares outstanding for basic and diluted net income per share | The Company provides presentation of “basic” and “diluted” earnings per share (“EPS”). Shares discussed below are in thousands.
|
Composition of Certain Financial Statement Captions (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Accounts Receivable |
|
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Summary of Inventories | Inventories are summarized as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Equipment and improvements | Equipment and improvements are summarized as follows:
|
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Summary of Current and non-current deferred revenue | Current and non-current deferred revenue are summarized as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Accrued compensation and related benefits | Accrued compensation and related benefits are summarized as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Other current liabilities | Other current and non-current liabilities are summarized as follows:
|
Share Based Awards (Details 2) (USD $)
|
3 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2013
|
||||
Summary of stock options granted | ||||
Number of Share Granted | 356,000 | |||
Exercise Price Granted (in usd per share) | $ 17.68 | |||
Exercise of option grants | 5 years | [1] | ||
Option Grants Expires | Nov. 05, 2020 | |||
Two Thousand Five Stock Options Plan [Member] | May 29, 2013 [Member]
|
||||
Summary of stock options granted | ||||
Option Grant Date | May 29, 2013 | |||
Number of Share Granted | 356,000 | |||
Exercise Price Granted (in usd per share) | $ 17.95 | |||
Exercise of option grants | 5 years | [1] | ||
Option Grants Expires | May 29, 2021 | |||
Two Thousand Five Stock Options Plan [Member] | November 5, 2012 [Member]
|
||||
Summary of stock options granted | ||||
Option Grant Date | November 5, 2012 | |||
Number of Share Granted | 5,000 | |||
Two Thousand Five Stock Options Plan [Member] | September 25, 2012 [Member]
|
||||
Summary of stock options granted | ||||
Option Grant Date | September 25, 2012 | |||
Number of Share Granted | 20,000 | |||
Exercise Price Granted (in usd per share) | $ 18.42 | |||
Exercise of option grants | 5 years | [1] | ||
Option Grants Expires | Sep. 25, 2020 | |||
Two Thousand Five Stock Options Plan [Member] | Fiscal year 2013 option grants [Member]
|
||||
Summary of stock options granted | ||||
Option Grant Date | Fiscal year 2014 option grants | |||
Number of Share Granted | 356,000 | |||
Two Thousand Five Stock Options Plan [Member] | January 23, 2013 [Member]
|
||||
Summary of stock options granted | ||||
Option Grant Date | January 23, 2013 | |||
Number of Share Granted | 40,000 | |||
Exercise Price Granted (in usd per share) | $ 19 | |||
Exercise of option grants | 5 years | [1] | ||
Option Grants Expires | Jan. 23, 2021 | |||
Two Thousand Five Stock Options Plan [Member] | May 24, 2012 [Member]
|
||||
Summary of stock options granted | ||||
Option Grant Date | May 24, 2012 | |||
Number of Share Granted | 346,000 | |||
Exercise Price Granted (in usd per share) | $ 29.17 | |||
Exercise of option grants | 5 years | [1] | ||
Option Grants Expires | May 24, 2020 | |||
Two Thousand Five Stock Options Plan [Member] | May 24, 2012 (Second Stated Grant) [Member]
|
||||
Summary of stock options granted | ||||
Option Grant Date | May 24, 2012 | |||
Number of Share Granted | 30,000 | |||
Exercise Price Granted (in usd per share) | $ 29.17 | |||
Exercise of option grants | 4 years | [1] | ||
Option Grants Expires | May 24, 2020 | |||
Two Thousand Five Stock Options Plan [Member] | May 23, 2012 [Member]
|
||||
Summary of stock options granted | ||||
Option Grant Date | May 23, 2012 | |||
Number of Share Granted | 115,500 | |||
Exercise Price Granted (in usd per share) | $ 29.45 | |||
Exercise of option grants | 5 years | [1] | ||
Option Grants Expires | May 23, 2020 | |||
Two Thousand Five Stock Options Plan [Member] | Fiscal year 2013 option grants [Member]
|
||||
Summary of stock options granted | ||||
Number of Share Granted | 556,500 | |||
|
Goodwill (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended |
---|---|
Jun. 30, 2013
|
|
Goodwill [Roll Forward] | |
Goodwill, beginning of period | $ 45,761 |
Acquisitions | 0 |
Goodwill, end of period | 45,761 |
QSI Dental Division [Member]
|
|
Goodwill [Roll Forward] | |
Goodwill, beginning of period | 7,289 |
Acquisitions | 0 |
Goodwill, end of period | 7,289 |
NextGen Division [Member]
|
|
Goodwill [Roll Forward] | |
Goodwill, beginning of period | 1,840 |
Acquisitions | 0 |
Goodwill, end of period | 1,840 |
Hospital Solutions Division [Member]
|
|
Goodwill [Roll Forward] | |
Goodwill, beginning of period | 4,342 |
Acquisitions | 0 |
Goodwill, end of period | 4,342 |
RCM Services Division [Member]
|
|
Goodwill [Roll Forward] | |
Goodwill, beginning of period | 32,290 |
Acquisitions | 0 |
Goodwill, end of period | $ 32,290 |
Share Based Awards (Details 5) (Restricted Stock Units Award [Member], USD $)
|
3 Months Ended |
---|---|
Jun. 30, 2013
|
|
Restricted Stock Units Award [Member]
|
|
Restricted stock units award activity | |
Number of Shares Outstanding Beginning Balance | 30,385 |
Weighted average Grant Date Fair value Per Share Outstanding Beginning Balance | $ 27.09 |
Number of Shares Granted | 23,516 |
Weighted average Grant Date Fair value Per Share Granted | $ 20.60 |
Number of Shares Vested | (566) |
Weighted average Grant Date Fair value Per Share Vested | $ 34.80 |
Number of Shares Canceled | (3,000) |
Weighted-Average Grant-Date Fair Value per Share Canceled | $ 24.81 |
Number of Shares Outstanding Ending Balance | 50,335 |
Weighted average Grant Date Fair value Per Share Outstanding Ending Balance | $ 22.96 |
Fair Value Measurements (Details) (Fair Value, Measurements, Recurring [Member], USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Mar. 31, 2013
|
||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Cash and cash equivalents | $ 118,212 | [1] | $ 105,999 | [1] | ||||
Restricted cash | 3,647 | 5,488 | ||||||
Marketable securities | 11,814 | [2] | 12,012 | [2] | ||||
Total | 133,673 | 123,499 | ||||||
LIABILITIES | ||||||||
Contingent consideration related to acquisitions | 5,320 | 5,336 | ||||||
Total | 5,320 | 5,336 | ||||||
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
||||||||
ASSETS | ||||||||
Cash and cash equivalents | 118,212 | [1] | 105,999 | [1] | ||||
Restricted cash | 3,647 | 5,488 | ||||||
Marketable securities | 11,814 | [2] | 12,012 | [2] | ||||
Total | 133,673 | 123,499 | ||||||
LIABILITIES | ||||||||
Contingent consideration related to acquisitions | 0 | 0 | ||||||
Total | 0 | 0 | ||||||
Significant Other Observable Inputs (Level 2)
|
||||||||
ASSETS | ||||||||
Cash and cash equivalents | 0 | [1] | 0 | [1] | ||||
Restricted cash | 0 | 0 | ||||||
Marketable securities | 0 | [2] | 0 | [2] | ||||
Total | 0 | 0 | ||||||
LIABILITIES | ||||||||
Contingent consideration related to acquisitions | 0 | 0 | ||||||
Total | 0 | 0 | ||||||
Unobservable Inputs (Level 3)
|
||||||||
ASSETS | ||||||||
Cash and cash equivalents | 0 | [1] | 0 | [1] | ||||
Restricted cash | 0 | 0 | ||||||
Marketable securities | 0 | [2] | 0 | [2] | ||||
Total | 0 | 0 | ||||||
LIABILITIES | ||||||||
Contingent consideration related to acquisitions | 5,320 | 5,336 | ||||||
Total | $ 5,320 | $ 5,336 | ||||||
|
Earnings Per Share (Details Textual)
|
3 Months Ended | |
---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Earning Per Share (Textual) [Abstract] | ||
Options excluded from the computation of diluted net income per share | 1,227 | 692 |
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