Summary of Significant Accounting Policies (Policies)

12 Months Ended

Mar. 31, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of Consolidation. The consolidated financial statements include the accounts of Quality Systems, Inc. and its wholly-owned subsidiaries, which consists of NextGen Healthcare Information Systems, LLC (“NextGen”), NextGen RCM Services, LLC, QSI Management, LLC, Quality Systems India Healthcare Private Limited (“QSIH”), ViaTrack Systems, LLC (“ViaTrack”), Matrix Management Solutions, LLC ("Matrix"), Mirth LLC and Mirth Limited ("Mirth"), and Gennius, Inc. ("Gennius") (collectively, the “Company”). Gennius is included in the consolidated financial statements from the date of acquisition (March 11, 2015). All intercompany accounts and transactions have been eliminated.

Business Segments

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 14.

Basis of Presentation

Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

References to amounts in the consolidated financial statement sections are in thousands, except shares and per share data, unless otherwise specified.

Revision [Text Block]

Revision. The accompanying consolidated statements of cash flows for the years ended March 31, 2014 and 2013 have been retrospectively revised to reflect proceeds from sales and maturities of marketable securities and purchases of marketable securities as investing activities rather than operating activities, which resulted in a decrease of $89 in cash provided by operating activities for the year ended March 31, 2014 and a corresponding decrease in cash used in investing activities and an increase of $24 in cash provided by operating activities for the year ended March 31, 2013 and a corresponding increase in cash used in investing activities. The Company has evaluated the impact of the revision and determined that it did not have a material impact on any of its prior period annual and interim consolidated financial statements.

The accompanying consolidated balance sheet and notes to the consolidated financial statements as of and for the year ended March 31, 2014 have been retrospectively revised to correct the immaterial misclassification of certain noncurrent deferred income taxes, previously reported within other assets, as current deferred income taxes, and other noncurrent liabilities, which resulted in a $3,206 increase in total assets with a corresponding $3,206 increase to total liabilities. In addition, the Company has retrospectively revised the accompanying consolidated balance sheet, consolidated statement of cash flows, and notes to the consolidated financial statements as of and for the year ended March 31, 2014 for certain immaterial misclassifications affecting accounts receivable and other current liabilities. As a result, total assets and total liabilities increased by $3,087 on the consolidated balance sheet as of March 31, 2014. The revision had no net impact on cash provided by operating activities on the consolidated statement of cash flows for the year ended March 31, 2014. The Company has evaluated the impact of the revision and determined that it did not have a material impact on any of its prior period annual and interim consolidated financial statements.

Revenue Recognition

Revenue Recognition. The Company generates revenue from the sale of licensing rights to its software products directly to end-users and value-added resellers. The Company also generates revenue from sales of hardware and third party software, implementation and training, electronic data interchange (“EDI”), revenue cycle management ("RCM"), maintenance, and other services, including subscriptions, consulting, and hosting services, performed for customers who license its products.

A typical system contract contains multiple elements of the above items. Revenue earned on software arrangements involving multiple elements is allocated to each element based on the relative fair values of those elements. The fair value of an element is based on vendor-specific objective evidence (“VSOE”). The Company limits its assessment of VSOE for each element to the price charged when the same element is sold separately. VSOE calculations are updated and reviewed quarterly or annually depending on the nature of the product or service. The Company generally establishes VSOE for the related undelivered elements based on the bell-shaped curve method. VSOE is established on maintenance for the Company's largest customers based on stated renewal rates only if the rate is determined to be substantive and falls within the Company's customary pricing practices.

When evidence of fair value exists for the delivered and undelivered elements of a transaction, then discounts for individual elements are aggregated and the total discount is allocated to the individual elements in proportion to the elements' fair value relative to the total contract fair value.

When evidence of fair value exists for the undelivered elements only, the residual method is used. Under the residual method, the Company defers revenue related to the undelivered elements in a system sale based on VSOE of fair value of each of the undelivered elements and allocates the remainder of the contract price net of all discounts to revenue recognized from 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.

Provided the fees are fixed or determinable and collection is considered probable, revenue from licensing rights and sales of hardware and third party software is generally recognized upon physical or electronic shipment and transfer of title. 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. Fees which are considered fixed or determinable at the inception of the Company's arrangements 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 Company ensures that the following criteria have been met prior to recognition of revenue:


▪	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.

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, revenue is recognized, net of an allowance for returns, 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 until the rights of return expire, provided also, that all other criteria for revenue recognition have been met.

Revenue related to sales arrangements that include hosting or the right to use software stored on the Company's hardware is recognized in accordance to the same revenue recognition criteria discussed above only if the customer has the contractual right to take possession of the software without incurring a significant penalty and it is feasible for the customer to either host the software themselves 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 performed.

From time to time, the Company offers future purchase discounts on its products and services as part of its sales 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 treated as an additional element of the contract to be deferred. Amounts deferred related to future purchase options are not recognized until either the customer exercises the discount offer or the offer expires.

Revenue from services are recognized as the corresponding services are performed. Maintenance revenue is recognized ratably over the contractual maintenance period. Revenue from EDI and other transaction processing services are recognized at the time services are provided and billed to customers. RCM service revenue is derived from services fees, which include amounts charged for ongoing billing, collections, and other related services, and are generally billed to the customer as a percentage of total customer collections. The Company does not recognize revenue for services fees until these collections are made by the customer as the services fees are not fixed or determinable until such time.

Revenue is divided into two categories, “system sales” and “maintenance, EDI, RCM and other services.” Revenue in the system sales category includes software license fees, third party hardware and software and implementation and training services related to the purchase of the Company's software systems. Revenue in the maintenance, EDI, RCM and other services category includes maintenance, EDI, RCM services, consulting services, annual third party license fees, subscriptions, hosting services, SaaS fees and other services revenue.

Cash and Cash Equivalents

Cash and Cash Equivalents. Cash and cash equivalents generally consist of cash, money market funds and short-term U.S. Treasury securities with maturities of 90 days or less at the time of purchase. The Company had cash deposits at U.S. banks and financial institutions at March 31, 2015 of which $117,909 was in excess of the Federal Deposit Insurance Corporation insurance limit of $250 per owner. The Company is exposed to credit loss for amounts in excess of insured limits in the event of nonperformance by the institutions; however, the Company does not anticipate nonperformance by these institutions.

The money market fund in which the Company holds a portion of its cash invests in only investment grade money market instruments from a variety of industries, and therefore bears relatively low market risk.

Restricted Cash

Restricted Cash and Cash Equivalents. Restricted cash and cash equivalents consist of cash which is being held by the Company acting as an agent for the disbursement of certain state social services programs. The Company records an offsetting “Care Services liability” (see also Note 9) when it initially receives such cash from the government social service programs and relieves both restricted cash and cash equivalents and the Care Services liability when amounts are disbursed. The Company earns an administrative fee which is based on a percentage of funds disbursed on behalf of certain government social service programs.

Marketable Securities

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).

Allowance for Doubtful Accounts

. The Company maintains reserves for potential sales returns and other uncollectible accounts receivable. In aggregate, such reserves reduce the Company's gross accounts receivable to its estimated net realizable value.

Sales return reserves, which include reserves for returns and other credits, are established based upon the rate of historical returns by revenue type in relation to the corresponding gross revenues. Allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from customers’ inability to make required payments are established based on our historical experience of bad debt expense and the aging of accounts receivable balances, net of deferred revenue and specifically reserved accounts. Specific reserves are based on an estimate of the probability of collection for certain troubled accounts. Accounts are written off as uncollectible only after the Company has expended extensive collection efforts.

Inventories

Inventories. Inventories consist of hardware for specific customer orders and spare parts and are valued at lower of cost (first-in, first-out) or market. The Company provides a reserve to reduce inventory to its net realizable value.

Equipment and Improvements

Equipment and Improvements. Equipment and improvements are stated at cost less accumulated depreciation and amortization. Repair and maintenance costs that do not improve service potential or extend economic life are expensed as incurred. Depreciation and amortization of equipment and improvements are recorded over the estimated useful lives of the assets, or the related lease terms if shorter, by the straight-line method. Useful lives generally have the following ranges:



l	Computer equipment	3-5 years
l	Furniture and fixtures	3-7 years
l	Leasehold improvements	lesser of lease term or estimated useful life of asset

Costs incurred to develop internal-use software during the application development stage are capitalized, 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 of significant upgrades and enhancements that result in additional functionality are also capitalized, whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred.

Software Development Costs

Software Development Costs. Development costs, consisting primarily of employee salaries and benefits, incurred in the research and development of new software products and enhancements to existing software products for external use are expensed as incurred 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 Company provides support services on the current and prior two versions of its software. The Company performs ongoing reviews of the estimated economic life and the recoverability of such capitalized software costs. If a determination is made that capitalized amounts are not recoverable based on the estimated cash flows to be generated from the applicable software, any remaining capitalized amounts are written off. In addition to the recoverability assessment, the Company routinely reviews the remaining estimated lives of its capitalized software costs.

Business Combinations

Business Combinations. In accordance with the accounting for business combinations, the Company allocates the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation methodology contains uncertainties because it requires the Company 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. The Company estimates 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. The Company estimates the fair value of the contingent consideration liabilities based on the probability of achieving certain business milestones and/or management's forecast of expected results. 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.

Goodwill

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. The Company tests goodwill for impairment annually during its first fiscal quarter, referred to as the annual test date, and determined that there was no impairment to its goodwill as of June 30, 2014. The Company 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. An impairment loss would generally be recognized when the carrying amount of the reporting unit's net assets exceeds the estimated fair value of the reporting unit.

During the year ended March 31, 2015, the Company has not identified any events or circumstances that would require an interim goodwill impairment test. See Note 6.

Intangible Assets

Intangible Assets. Intangible assets consist of customer relationships, trade names and contracts and certain software technology. These intangible assets are recorded at fair value and are stated net of accumulated amortization. The Company currently amortizes the intangible assets over periods ranging from six months to ten years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed. The Company assesses 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 has been incurred 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, the Company routinely reviews the remaining estimated lives of its intangible assets.

The Company has determined that there was no impairment to its intangible assets during the year ended March 31, 2015

Long-Lived Assets

Long-Lived Assets. The Company assesses the recoverability of long-lived assets at least annually or whenever adverse events or changes in circumstances indicate that impairment may have occurred. If the future undiscounted cash flows expected to result from the use of the related assets are less than the carrying value of such assets, impairment has been incurred and a loss is recognized to reduce the carrying value of the long-lived assets to fair value, which is determined by discounting estimated future cash flows. In addition to the impairment assessment, the Company routinely reviews the remaining estimated lives of its long-lived assets.

The Company has determined that there was no impairment to its long-lived assets during the year ended March 31, 2015.

Income Taxes

Income Taxes. Income taxes are provided based on current taxable income and the future tax consequences of temporary differences between the basis of assets and liabilities for financial and tax reporting. The deferred income tax assets and liabilities represent the future state and federal tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred income taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future income taxes. At each reporting period, the Company assesses the realizable value of deferred tax assets based on, among other things, estimates of future taxable income and adjusts the related valuation allowance as necessary. The Company makes 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 the Company operates as well as current tax regulations. Accruals are established for estimates of tax effects for certain transactions and future projected profitability based on the Company's interpretation of existing facts and circumstances.

Advertising Costs

Advertising Costs. Advertising costs are charged to operations as incurred. The Company does not have any direct-response advertising. Advertising costs, which include trade shows and conventions, were approximately $7,079, $5,600 and $6,499 for the years ended March 31, 2015, 2014 and 2013, respectively, and were included in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income.

Earnings Per Share

Earnings per Share. The Company provides dual presentation of “basic” and “diluted” earnings per share (“EPS”). Shares below are in thousands.



	Fiscal Year Ended March 31,
	2015		2014		2013
Net income	$	27,332	$	15,680	$	42,724
Basic net income per share:
Weighted-average shares outstanding — Basic	60,259		59,918		59,392
Basic net income per common share	$	0.45	$	0.26	$	0.72
Net income	$	27,332	$	15,680	$	42,724
Diluted net income per share:
Weighted-average shares outstanding — Basic	60,259		59,918		59,392
Effect of potentially dilutive securities	590		216		70
Weighted-average shares outstanding — Diluted	60,849		60,134		59,462
Diluted net income per common share	$	0.45	$	0.26	$	0.72

The computation of diluted net income per share does not include 1,656, 1,355 and 966 options for the years ended March 31, 2015, 2014 and 2013, respectively, because their inclusion would have an anti-dilutive effect on net income per share.

Share-Based Compensation

Share-Based Compensation. The Company estimates the fair value of stock options on the date of grant using the Black Scholes option-pricing model. Expected term is estimated based upon the historical exercise behavior and represents the period of time that options granted are expected to be outstanding. Volatility is estimated by using the weighted-average historical volatility of the Company’s 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 Black Scholes model utilizes those inputs to determine the estimated fair value. The fair value of the portion of the award that is ultimately expected to vest is recognized ratably as expense over the requisite service period in the Company’s 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, 2015, 2014 and 2013 was not significant.

Share-based compensation expense associated with the 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 12 for additional details regarding the Company's share-based awards.

Sales Taxes

Sales Taxes. The Company records revenue net of sales tax obligation in the consolidated statements of income.

Use of Estimates

Use of Estimates. The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, VSOE, accounts receivable reserves, software development costs, contingent consideration liabilities, goodwill, intangible assets, and income taxes and related credits and deductions. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

New Accounting Standards

New Accounting Standards. New accounting pronouncements implemented by the Company during the current year or requiring implementation in future periods are discussed below or in the notes, where applicable.

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, 2016, including interim periods within that reporting period. Companies are permitted to adopt this new guidance following either a full retrospective or modified retrospective approach. ASU 2014-09 is effective for the Company in the first quarter of fiscal 2018. The Company is currently evaluating the potential impact of implementation of this updated authoritative guidance on its consolidated financial statements.

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 the Company for fiscal year ending March 31, 2017. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial statements.