nxgn-ex991

IRVINE, Calif. – (BUSINESS WIRE) – NextGen Healthcare, Inc. (NASDAQ: NXGN) announced today its fiscal 2019 third quarter ended December 31, 2018 operating results.

"We are pleased with our year to date bookings growth of over 20%, our attrition rate ticking down sequentially in the quarter and the progress we have made in terms of new client wins. Our fully integrated solution continues to resonate with both existing and new clients, we continue to improve client satisfaction, and we are managing our expenses and investments effectively. Based on our progress, we remain confident that we are on track to meet our multi-year growth targets,” commented Rusty Frantz, president and chief executive officer of NextGen Healthcare.

As a result of the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASC 606”), the GAAP comparisons below compare fiscal 2019 third quarter results under ASC 606 to the fiscal 2018 third quarter results under the legacy revenue guidance (“ASC 605”). A reconciliation of fiscal 2019 third quarter results from ASC 606 to ASC 605 can be found in the tables at the end of the press release.

On a GAAP basis, revenue for the fiscal 2019 third quarter was $130.9 million compared to $131.7 million a year-ago. On a pro forma basis under ASC 605, revenue for the fiscal 2019 third quarter was $130.3 million.

On a GAAP basis, net income for the fiscal 2019 third quarter was $4.8 million, compared with net income of $1.5 million in the fiscal 2018 third quarter. On a pro forma basis under ASC 605, net income for the fiscal 2019 third quarter was $3.8 million.

On a GAAP basis, fully diluted net income per share was $0.07 in the fiscal 2019 third quarter compared with earnings per share of $0.02 for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2019 third quarter was $0.20 versus $0.15 reported in the third quarter a year ago. On a pro forma non-GAAP basis, under ASC 605, fully diluted earnings per share for the fiscal 2019 third quarter was $0.18.

NextGen Healthcare will host a conference call to discuss its fiscal 2019 third quarter results on Wednesday, January 23, 2019 at 5:00 PM ET (2:00 PM PT). Shareholders and interested participants may listen to a live broadcast of the conference call by dialing 866-750-8947 or 720-405-1352 for international callers, and referencing participant code 3208647 approximately 15 minutes prior to the call. A live webcast of the conference call will be available on the investor relations section of the company’s web site and an audio file of the call will also be archived for 90 days at investor.nextgen.com. After the conference call, a replay will be available until January 27, 2019 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 3208647.

NextGen Healthcare is enabling the transformation of ambulatory care by providing a range of software, services, and analytics solutions to medical and dental group practices. The company's portfolio delivers foundational capabilities to empower physician success, enrich the patient care experience, and enable the transition to value-based healthcare. Visit www.nextgen.com for additional information.

Media Contact:
NextGen Healthcare
Cynthia Ragland, (949) 255-2600 x75416
cragland@nextgen.com

This news release may contain forward-looking statements within the meaning of the federal securities laws, including but not limited to, statements regarding future events, developments in the healthcare sector and regulatory framework, the Company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future (including, without limitation, statements concerning revenue, net income, and earnings per share). Risks and uncertainties exist that may cause the results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements and additional risks and uncertainties are set forth in Part I, Item A of our most recent Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q, including but not limited to: the volume and timing of systems sales and installations; length of sales cycles and the installation process; the possibility that products will not achieve or sustain market acceptance; seasonal patterns of sales and customer buying behavior; impact of incentive payments under The American Recovery and Reinvestment Act on sales and the ability of the Company to meet continued certification requirements; uncertainties related to the future impact of U.S. tax reform; the impact of governmental and regulatory agency investigations; the development by competitors of new or superior technologies; the timing, cost and success or failure of new product and service introductions, development and product upgrade releases; undetected errors or bugs in software; product liability; changing economic, political or regulatory influences in the health-care industry; changes in product-pricing policies; availability of third-party products and components; competitive pressures including product offerings, pricing and promotional activities; the Company's ability or inability to attract and retain qualified personnel; possible regulation of the Company's

software by the U.S. Food and Drug Administration; changes of accounting estimates and assumptions used to prepare the prior periods' financial statements; disruptions caused by acquisitions of companies, products, or technologies; and general economic conditions. A significant portion of the Company's quarterly sales of software product licenses and computer hardware is concluded in the last month of a fiscal quarter, generally with a concentration of such revenues earned in the final ten business days of that month. Due to these and other factors, the Company's revenues and operating results are very difficult to forecast. A major portion of the Company's costs and expenses, such as personnel and facilities, are of a fixed nature and, accordingly, a shortfall or decline in quarterly and/or annual revenues typically results in lower profitability or losses. As a result, comparison of the Company's period-to-period financial performance is not necessarily meaningful and should not be relied upon as an indicator of future performance. These forward-looking statements speak only as of the date hereof. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures, which are provided only as supplemental information. Investors should consider these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. These non-GAAP measures are not in accordance with or a substitute for U.S. GAAP. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying financial tables. Other companies may calculate non-GAAP measures differently than NextGen Healthcare, Inc., which limits comparability between companies. The Company believes that its presentation of non-GAAP diluted earnings per share provides useful supplemental information to investors and management regarding the Company's financial condition and results. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. The Company calculates non-GAAP diluted earnings per share by excluding net acquisition costs, amortization of acquired intangible assets, amortization of deferred debt issuance costs, restructuring costs, net securities litigation defense costs and settlement, share-based compensation, and other non-run-rate expenses from GAAP income before provision for income taxes. The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations.

The normalized non-GAAP tax rate applied to fiscal year 2019 was 22.0%, compared to 30.5% for fiscal year 2018, which was updated as a result of the enactment of the new tax reform legislation on December 22, 2017. The determination of this rate is based on the consideration of both historic and projected financial results. The Company may adjust its non-GAAP tax rate as additional information becomes available and in conjunction with any other significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other changes in expectations regarding tax regulations.

The Company’s future period guidance in this release includes adjustments for items not indicative of the Company’s core operations. Such adjustments are generally expected to be of a nature similar to those adjustments applied to the Company’s historic GAAP financial results in the determination of the Company’s non-GAAP diluted earnings per share. Such adjustments, however, may be affected by changes in ongoing assumptions and judgments as to the items that are excluded in the calculation of non-GAAP adjusted net income and adjusted diluted earnings per share, as described in this release. The exact amount and probable significance of these adjustments, including net acquisition costs, net securities litigation defense costs, and other non-run-rate expenses, are not currently determinable without unreasonable efforts, but may be significant. These items cannot

be reliably quantified or forecasted due to the combination of their historic and expected variability. It is therefore not practicable to reconcile this non-GAAP guidance to the most comparable GAAP measures.

	Three Months Ended December 31,						Nine Months Ended December 31,
	2018			2017			2018			2017
Revenues:
Recurring	$	117,446		$	118,997		$	353,770		$	357,616
Software, hardware, and other non-recurring		13,421			12,718			40,618			37,628
Total revenues		130,867			131,715			394,388			395,244
Cost of revenue:
Recurring		47,997			49,347			143,322			145,504
Software, hardware, and other non-recurring		6,576			6,323			20,752			18,310
Amortization of capitalized software costs and acquired intangible assets		7,098			5,964			20,566			15,744
Total cost of revenue		61,671			61,634			184,640			179,558
Gross profit		69,196			70,081			209,748			215,686
Operating expenses:
Selling, general and administrative		41,304			43,563			120,169			127,517
Research and development costs, net		20,682			20,645			61,181			60,161
Amortization of acquired intangible assets		1,027			1,956			3,316			6,015
Restructuring costs		—			130			—			130
Total operating expenses		63,013			66,294			184,666			193,823
Income from operations		6,183			3,787			25,082			21,863
Interest income		44			15			113			36
Interest expense		(720	)		(733	)		(2,219	)		(2,250	)
Other income (expense), net		(227	)		(41	)		384			(48	)
Income before provision for income taxes		5,280			3,028			23,360			19,601
Provision for income taxes		456			1,487			2,794			6,134
Net income	$	4,824		$	1,541		$	20,566		$	13,467
Net income per share:
Basic	$	0.07		$	0.02		$	0.32		$	0.21
Diluted	$	0.07		$	0.02		$	0.32		$	0.21
Weighted-average shares outstanding:
Basic		64,637			63,706			64,308			63,287
Diluted		64,776			63,708			64,499			63,296

	December 31, 2018			March 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	30,054		$	28,845
Restricted cash and cash equivalents		7,389			2,373
Accounts receivable, net		84,360			84,962
Contract assets		11,281			—
Inventory		129			180
Income taxes receivable		6,061			8,122
Prepaid expenses and other current assets		18,505			17,180
Total current assets		157,779			141,662
Equipment and improvements, net		23,169			26,795
Capitalized software costs, net		33,468			26,318
Deferred income taxes, net		6,417			9,219
Contract assets, net of current		3,608			—
Intangibles, net		57,911			74,091
Goodwill		218,771			218,875
Other assets		29,620			18,795
Total assets	$	530,743		$	515,755
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	3,611		$	4,213
Contract liabilities		50,449			54,079
Accrued compensation and related benefits		24,179			27,910
Income taxes payable		47			73
Other current liabilities		41,610			48,317
Total current liabilities		119,896			134,592
Contract liabilities, net of current		—			1,173
Deferred compensation		5,564			6,086
Line of credit		27,000			37,000
Other noncurrent liabilities		12,913			13,494
Total liabilities		165,373			192,345
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 64,704 and 63,995 shares at December 31, 2018 and March 31, 2018, respectively		647			640
Additional paid-in capital		258,311			244,462
Accumulated other comprehensive loss		(1,281	)		(400	)
Retained earnings ⁽¹⁾		107,693			78,708
Total shareholders' equity		365,370			323,410
Total liabilities and shareholders' equity	$	530,743		$	515,755

	Three Months Ended December 31,					Nine Months Ended December 31,
	2018			2017		2018			2017
Income before provision for income taxes - GAAP	$	5,280		$	3,028	$	23,360		$	19,601
Non-GAAP adjustments:
Acquisition costs, net		109			387		2,058			1,569
Amortization of acquired intangible assets		5,315			6,083		16,180			17,351
Amortization of deferred debt issuance costs		177			269		532			807
Restructuring costs		—			130		—			130
Securities litigation defense costs and settlement, net of insurance		29			152		(5,407	)		716
Share-based compensation		4,698			3,453		11,949			8,585
Other non-run-rate expenses*		1,340			—		3,979			263
Total adjustments to GAAP income before provision for income taxes:		11,668			10,474		29,291			29,421
Income before provision for income taxes - Non-GAAP		16,948			13,502		52,651			49,022
Provision for income taxes		3,729			4,118		11,584			14,952
Net income - Non-GAAP	$	13,219		$	9,384	$	41,067		$	34,070
Diluted net income per share - Non-GAAP	$	0.20		$	0.15	$	0.64		$	0.54
Weighted-average shares outstanding (diluted):		64,776			63,708		64,499			63,296


RECONCILIATION OF NON-GAAP DILUTED EARNINGS PER SHARE UNDER ASC 605

Income before provision for income taxes - Non-GAAP		16,948					52,651
Adjustments due to adoption of ASC 606		(1,610	)				(5,699	)
Income before provision for income taxes - Non-GAAP under ASC 605		15,338					46,952
Provision for income taxes		3,374					10,329
Net income - Non-GAAP under ASC 605	$	11,964				$	36,623
Diluted net income per share - Non-GAAP under ASC 605	$	0.18				$	0.57
Weighted-average shares outstanding (diluted):		64,776					64,499

* Other non-run-rate expenses for the three and nine months ended December 31, 2018 consist primarily of severance and other employee-related costs not related to core operations. Other non-run-rate expenses for the nine months ended December 31, 2017 consist primarily of professional services costs not related to core operations.

We adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASC 606”) and all related amendments as of April 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. Results for reporting periods beginning after April 1, 2018 are presented under ASC 606, while prior period comparative information has not been adjusted and continue to be reported under the accounting standards in effect for those prior periods.

The impact of the adoption of ASC 606 on our consolidated statements of net income for the three and nine months ended December 31, 2018, assuming that the previous revenue recognition guidance had been in effect, is summarized as follows:

	Three Months Ended December 31, 2018
	As reported under			Adjustments due to			As disclosed under
	ASC 606			adoption of ASC 606			ASC 605
Revenues:
Subscription services	$	30,035		$	(1,557	)	$	28,478
Support and maintenance		39,714			(1,620	)		38,094
Managed services		24,251			2,646			26,897
Electronic data interchange and data services		23,446			(26	)		23,420
Total recurring revenues		117,446			(557	)		116,889
Software license and hardware		9,217			(325	)		8,892
Other non-recurring services		4,204			358			4,562
Total software, hardware, and other non-recurring revenues		13,421			33			13,454
Total revenue		130,867			(524	)		130,343
Total cost of revenue		61,671			36			61,707
Gross profit		69,196			(560	)		68,636
Operating expenses:
Selling, general and administrative		41,304			1,050			42,354
Research and development costs, net		20,682			—			20,682
Amortization of acquired intangibles		1,027			—			1,027
Total operating expenses		63,013			1,050			64,063
Income from operations		6,183			(1,610	)		4,573
Interest and other income, net		(903	)		—			(903	)
Income before provision for income taxes		5,280			(1,610	)		3,670
Provision for income taxes		456			(553	)		(97	)
Net income	$	4,824		$	(1,057	)	$	3,767

	Nine Months Ended December 31, 2018
	As reported under			Adjustments due to			As disclosed under
	ASC 606			adoption of ASC 606			ASC 605
Revenues:
Subscription services	$	87,618		$	(5,509	)	$	82,109
Support and maintenance		120,556			(3,789	)		116,767
Managed services		74,048			8,746			82,794
Electronic data interchange and data services		71,548			(111	)		71,437
Total recurring revenues		353,770			(663	)		353,107
Software license and hardware		26,013			(1,168	)		24,845
Other non-recurring services		14,605			464			15,069
Total software, hardware, and other non-recurring revenues		40,618			(704	)		39,914
Total revenue		394,388			(1,367	)		393,021
Total cost of revenue		184,640			130			184,770
Gross profit		209,748			(1,497	)		208,251
Operating expenses:
Selling, general and administrative		120,169			4,202			124,371
Research and development costs, net		61,181			—			61,181
Amortization of acquired intangibles		3,316			—			3,316
Total operating expenses		184,666			4,202			188,868
Income from operations		25,082			(5,699	)		19,383
Interest and other income, net		(1,722	)		—			(1,722	)
Income before provision for income taxes		23,360			(5,699	)		17,661
Provision for income taxes		2,794			(1,550	)		1,244
Net income	$	20,566		$	(4,149	)	$	16,417