nxgn-ex991

NextGen Healthcare, Inc. Reports Fiscal 2019 Fourth Quarter and Year-End Results

IRVINE, Calif. – (BUSINESS WIRE) – NextGen Healthcare, Inc. (NASDAQ: NXGN), a leading provider of ambulatory-focused healthcare technology solutions, announced today its fiscal 2019 fourth quarter and year end March 31, 2019 operating results.

"The hallmarks of our FY’19 performance were: 1) significant bookings growth and deal-size growth, 2) Best-in-KLAS industry recognition for our practice management solution, 3) the launch of our integrated ambulatory care platform at our User Group Meeting, and 4) continued growth in client satisfaction,” commented Rusty Frantz, president and chief executive officer of NextGen Healthcare. “While we encountered some market headwinds in the second half that impacted top line revenue performance, we’re pleased to deliver EPS at the high end of our FY19 range. We remain confident in our growth strategy, the market opportunity, and our plan to deliver 20% operating margin in the next three years.”

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 fourth quarter and fiscal year 2019 results under ASC 606 to the fourth quarter and fiscal year 2018 results under the legacy revenue guidance (“ASC 605”). A reconciliation of fourth quarter and fiscal year results for fiscal 2019 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 fourth quarter was $134.8 million compared to $135.8 million a year-ago. On a pro forma basis under ASC 605, revenue for the fiscal 2019 fourth quarter was $134.3 million.

On a GAAP basis, net income for the fiscal 2019 fourth quarter was $3.9 million, compared with net loss of $11.0 million in the fiscal 2018 fourth quarter. On a pro forma basis under ASC 605, net income for the fiscal 2019 fourth quarter was $1.3 million.

On a GAAP basis, fully diluted net income per share was $0.06 in the fiscal 2019 fourth quarter compared to a loss of $0.17 per share for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2019 fourth quarter was $0.23 versus $0.16 reported in the fourth quarter a year ago. On a pro forma non-GAAP basis, under ASC 605, fully diluted earnings per share for the fiscal 2019 fourth quarter was $0.19.

For the fiscal year ended March 31, 2019, revenue on a GAAP basis was $529.2 million compared to $531.0 million a year-ago. On a pro forma basis under ASC 605, revenue for the fiscal year 2019 was $527.3 million.

On a GAAP basis, net income for the fiscal year 2019 was $24.5 million, compared with net income of $2.4 million in fiscal year 2018. On a pro forma basis under ASC 605, net income for the fiscal year 2019 was $17.7 million.

On a GAAP basis, fully diluted net income per share was $0.38 in the fiscal year 2019 compared to earnings of $0.04 per share for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal year 2019 was $0.86 versus $0.70 reported a year ago. On a pro forma non-GAAP basis, under ASC 605, fully diluted earnings per share for the fiscal year 2019 was $0.76.

NextGen Healthcare will host a conference call to discuss its fiscal 2019 fourth quarter and year-end results on Tuesday, May 28, 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 9175604 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 June 4, 2019 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 9175604.

In addition, NextGen Healthcare will hold its 2019 Annual Shareholders' Meeting on Thursday, August 15, 2019 at 9:00 a.m. Pacific time. The meeting will be held at the Marriott Hotel, 18000 Von Karman Avenue, Irvine, California 92612. Shareholders of record as of June 17, 2019 are eligible to vote and attend. Proxy materials and the 2019 Annual Report will be made available to shareholders of record and will also be posted on the Company's website.

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, impairment of assets, 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 March 31,						Fiscal Year Ended March 31,
	2019			2018			2019			2018
Revenues:
Recurring	$	120,151		$	118,598		$	473,921		$	476,214
Software, hardware, and other non-recurring		14,634			17,177			55,252			54,805
Total revenues		134,785			135,775			529,173			531,019
Cost of revenue:
Recurring		48,174			48,856			191,496			194,360
Software, hardware, and other non-recurring		5,959			6,775			26,711			25,085
Amortization of capitalized software costs and acquired intangible assets		7,924			6,346			28,490			22,090
Total cost of revenue		62,057			61,977			246,697			241,535
Gross profit		72,728			73,798			282,476			289,484
Operating expenses:
Selling, general and administrative		44,710			65,709			164,879			193,226
Research and development costs, net		19,813			21,098			80,994			81,259
Amortization of acquired intangible assets		1,028			1,795			4,344			7,810
Impairment of assets		—			3,757			—			3,757
Restructuring costs		640			481			640			611
Total operating expenses		66,191			92,840			250,857			286,663
Income (loss) from operations		6,537			(19,042	)		31,619			2,821
Interest income		103			19			216			55
Interest expense		(595	)		(1,073	)		(2,814	)		(3,323	)
Other income (expense), net		(117	)		85			267			37
Income (loss) before provision for (benefit of) income taxes		5,928			(20,011	)		29,288			(410	)
Provision for (benefit of) income taxes		2,000			(8,964	)		4,794			(2,830	)
Net income (loss)	$	3,928		$	(11,047	)	$	24,494		$	2,420
Net income (loss) per share:
Basic	$	0.06		$	(0.17	)	$	0.38		$	0.04
Diluted	$	0.06		$	(0.17	)	$	0.38		$	0.04
Weighted-average shares outstanding:
Basic		64,749			63,888			64,417			63,435
Diluted		64,917			63,888			64,600			63,440

	March 31, 2019			March 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	33,079		$	28,845
Restricted cash and cash equivalents		1,443			2,373
Accounts receivable, net		87,459			84,962
Contract assets		13,242			—
Inventory		120			180
Income taxes receivable		3,682			8,122
Prepaid expenses and other current assets		20,826			17,180
Total current assets		159,851			141,662
Equipment and improvements, net		21,404			26,795
Capitalized software costs, net		37,855			26,318
Deferred income taxes, net		6,194			9,219
Contract assets, net of current		3,747			—
Intangibles, net		52,595			74,091
Goodwill		218,771			218,875
Other assets		32,478			18,795
Total assets	$	532,895		$	515,755
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,432		$	4,213
Contract liabilities		56,009			54,079
Accrued compensation and related benefits		25,663			27,910
Income taxes payable		64			73
Other current liabilities		41,064			48,317
Total current liabilities		128,232			134,592
Contract liabilities, net of current		—			1,173
Deferred compensation		5,905			6,086
Line of credit		11,000			37,000
Other noncurrent liabilities		11,812			13,494
Total liabilities		156,949			192,345
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 64,838 and 63,995 shares at March 31, 2019 and March 31, 2018, respectively		648			640
Additional paid-in capital		264,908			244,462
Accumulated other comprehensive loss		(1,231	)		(400	)
Retained earnings ⁽¹⁾		111,621			78,708
Total shareholders' equity		375,946			323,410
Total liabilities and shareholders' equity	$	532,895		$	515,755

	Three Months Ended March 31,						Fiscal Year Ended March 31,
	2019			2018			2019			2018
Income before provision for income taxes - GAAP	$	5,928		$	(20,011	)	$	29,288		$	(410	)
Non-GAAP adjustments:
Acquisition costs, net		1,010			339			3,068			1,908
Amortization of acquired intangible assets		5,316			6,029			21,496			23,380
Amortization of deferred debt issuance costs		178			803			710			1,610
Restructuring costs		640			481			640			611
Securities litigation defense costs and settlement, net of insurance		202			19,984			(5,205	)		20,700
Share-based compensation		4,153			3,611			16,102			12,196
Impairment of assets		—			3,757			—			3,757
Other non-run-rate expenses*		1,492			—			5,471			263
Total adjustments to GAAP income before provision for income taxes:		12,991			35,004			42,282			64,425
Income before provision for income taxes - Non-GAAP		18,919			14,993			71,570			64,015
Provision for income taxes		4,161			4,573			15,745			19,525
Net income - Non-GAAP	$	14,758		$	10,420		$	55,825		$	44,490
Diluted net income per share - Non-GAAP	$	0.23		$	0.16		$	0.86		$	0.70
Weighted-average shares outstanding (diluted):		64,917			63,888			64,600			63,440


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

Income before provision for income taxes - Non-GAAP		18,919						71,570
Adjustments due to adoption of ASC 606		(3,100	)					(8,799	)
Income before provision for income taxes - Non-GAAP under ASC 605		15,819						62,771
Provision for income taxes		3,481						13,810
Net income - Non-GAAP under ASC 605	$	12,338					$	48,961
Diluted net income per share - Non-GAAP under ASC 605	$	0.19					$	0.76
Weighted-average shares outstanding (diluted):		64,917						64,600

* Other non-run-rate expenses consist primarily of severance and other employee-related costs and 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 months and fiscal year ended March 31, 2019, assuming that the previous revenue recognition guidance had been in effect, is summarized as follows:

	Three Months Ended March 31, 2019
	As reported under			Adjustments due to			As disclosed under
	ASC 606			adoption of ASC 606			ASC 605
Revenues:
Subscription services	$	29,884		$	(2,039	)	$	27,845
Support and maintenance		40,242			(1,473	)		38,769
Managed services		24,155			3,770			27,925
Electronic data interchange and data services		25,870			(25	)		25,845
Total recurring revenues		120,151			233			120,384
Software license and hardware		9,109			(662	)		8,447
Other non-recurring services		5,525			(82	)		5,443
Total software, hardware, and other non-recurring revenues		14,634			(744	)		13,890
Total revenue		134,785			(511	)		134,274
Total cost of revenue		62,057			30			62,087
Gross profit		72,728			(541	)		72,187
Operating expenses:
Selling, general and administrative		44,710			2,559			47,269
Research and development costs, net		19,813			—			19,813
Amortization of acquired intangibles		1,028			—			1,028
Restructuring costs		640			—			640
Total operating expenses		66,191			2,559			68,750
Income from operations		6,537			(3,100	)		3,437
Interest and other income, net		(609	)		—			(609	)
Income before provision for income taxes		5,928			(3,100	)		2,828
Provision for income taxes		2,000			(432	)		1,568
Net income	$	3,928		$	(2,668	)	$	1,260

	Fiscal Year Ended March 31, 2019
	As reported under			Adjustments due to			As disclosed under
	ASC 606			adoption of ASC 606			ASC 605
Revenues:
Subscription services	$	117,502		$	(7,548	)	$	109,954
Support and maintenance		160,798			(5,262	)		155,536
Managed services		98,203			12,516			110,719
Electronic data interchange and data services		97,418			(136	)		97,282
Total recurring revenues		473,921			(430	)		473,491
Software license and hardware		35,122			(1,830	)		33,292
Other non-recurring services		20,130			382			20,512
Total software, hardware, and other non-recurring revenues		55,252			(1,448	)		53,804
Total revenue		529,173			(1,878	)		527,295
Total cost of revenue		246,697			159			246,856
Gross profit		282,476			(2,037	)		280,439
Operating expenses:
Selling, general and administrative		164,879			6,762			171,641
Research and development costs, net		80,994			—			80,994
Amortization of acquired intangibles		4,344			—			4,344
Restructuring costs		640			—			640
Total operating expenses		250,857			6,762			257,619
Income from operations		31,619			(8,799	)		22,820
Interest and other income, net		(2,331	)		—			(2,331	)
Income before provision for income taxes		29,288			(8,799	)		20,489
Provision for income taxes		4,794			(1,982	)		2,812
Net income	$	24,494		$	(6,817	)	$	17,677