NextGen Healthcare, Inc. Reports Fiscal 2021 Second Quarter Results

Rhea-AI Summary

NextGen Healthcare, a leader in ambulatory-focused healthcare technology, reported strong fiscal 2021 second quarter results. Revenue reached $140.0 million, up from $134.3 million year-over-year. GAAP net income increased to $10.5 million or $0.16 per share, compared to $6.1 million and $0.09 per share in the prior year. Non-GAAP EPS was $0.30, up from $0.24. Operating cash flow was $30.4 million, with free cash flow at $23.7 million. The company reinstated its annual guidance, expecting revenue between $535 million and $551 million.

Positive

• Revenue increased to $140.0 million, a 4.9% year-over-year growth.
• GAAP net income rose to $10.5 million, from $6.1 million in Q2 2020.
• Non-GAAP EPS improved to $0.30 compared to $0.24 in the same quarter last year.
• Operating cash flow increased to $30.4 million, up from $23.8 million.
• Free cash flow rose to $23.7 million, compared to $17.1 million a year ago.
• Annual guidance reinstated with revenue expectations of $535 to $551 million.

Negative

• None.

IRVINE, Calif.--(BUSINESS WIRE)--NextGen Healthcare, Inc. (Nasdaq: NXGN), a leading provider of ambulatory-focused healthcare technology solutions, today announced its fiscal 2021 second quarter ended September 30, 2020 operating results.

Fiscal 2021 Second Quarter Highlights

Revenue for the fiscal 2021 second quarter was $140.0 million compared to $134.3 million a year-ago. On a GAAP basis, net income for the fiscal 2021 second quarter was $10.5 million compared to $6.1 million in the fiscal 2020 second quarter. On a GAAP basis, fully diluted net income per share was $0.16 in the fiscal 2021 second quarter compared to $0.09 per share for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2021 second quarter was $0.30 versus $0.24 reported in the second quarter a year ago.

Cash flow from operations was $30.4 million in the fiscal 2021 second quarter compared to $23.8 million for the same period a year ago. Free cash flow was $23.7 million compared to $17.1 million in the same period a year ago. The ending cash balance was $103.4 million with $64.0 million outstanding against the revolving credit facility.

“We delivered strong Q2 performance across almost every operational metric and showed solid growth in subscription services,” said Rusty Frantz, president and chief executive officer of NextGen Healthcare. “NextGen Healthcare offers a premium client experience in the independent ambulatory market and this differentiator is showing up in our commercial wins both inside and outside the base. We intend to further capitalize on the success of our integrated solution by migrating our client base onto our Spring ‘21 release which leverages our new patient experience platform – opening up additional long-term market opportunities. With better visibility and confidence in the back half of the year, we are resuming annual guidance.”

Fiscal 2021 Financial Outlook

Based on improved market conditions, the Company is reinstating annual guidance. For fiscal 2021, the Company now expects revenue of between $535 and $551 million and non-GAAP earnings per share between $0.83 and $0.93.

Conference Call Information

NextGen Healthcare will host a conference call to discuss its fiscal 2021 second quarter operating results on Thursday, Oct. 22, 2020 at 5:00 p.m. Eastern time (2:00 p.m. Pacific time). 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 1092337 approximately 15 minutes prior to the call. A recording of the live webcast will be available on investor.nextgen.com after the call. It will be archived for 90 days until January 20, 2021.

About NextGen Healthcare, Inc.

We empower the transformation of ambulatory care—partnering with medical, behavioral and oral health providers in their journey to value-based care to make healthcare better for everyone. We go beyond EHR and PM. Our integrated solutions help increase clinical productivity, enrich the patient experience, and ensure healthy financial outcomes. We believe in better. Learn more at nextgen.com, and follow us on Facebook, Twitter, LinkedIn, YouTube and Instagram.

SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS

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 including but not limited to the COVID-19 pandemic, 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: volatility and uncertainty in the global economy and financial markets in light of the evolving COVID-19 pandemic; 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; the extent to which the COVID-19 pandemic and measures taken in response thereto could adversely affect our financial condition and results of operations; 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.

USE OF NON-GAAP FINANCIAL MEASURES

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 free cash flow by as total net cash provided by operating activities, net of cash used for the additions of capitalized software costs and equipment and improvements. 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, impairment of assets, 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 each quarter of fiscal year 2020 was 22.0%. The normalized non-GAAP tax rate expected to be applied to each quarter of fiscal year 2021 is 20.0%. 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, impairment of assets, restructuring 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.

NEXTGEN HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
		Three Months Ended September 30,								Six Months Ended September 30,
		2020				2019				2020				2019
Revenues:
Recurring		$	125,691			$	120,589			$	245,213			$	240,036
Software, hardware, and other non-recurring			14,311				13,667				25,668				26,081
Total revenues			140,002				134,256				270,881				266,117
Cost of revenue:
Recurring			52,906				50,328				103,335				100,868
Software, hardware, and other non-recurring			6,083				6,563				12,124				12,841
Amortization of capitalized software costs and acquired intangible assets			9,961				8,843				19,860				17,256
Total cost of revenue			68,950				65,734				135,319				130,965
Gross profit			71,052				68,522				135,562				135,152
Operating expenses:
Selling, general and administrative			41,950				39,046				82,687				79,174
Research and development costs, net			17,692				19,789				35,914				41,840
Amortization of acquired intangible assets			1,112				865				2,224				1,730
Impairment of assets			—				1,916				—				2,405
Restructuring costs			—				175				2,562				1,882
Total operating expenses			60,754				61,791				123,387				127,031
Income from operations			10,298				6,731				12,175				8,121
Interest income			12				36				18				115
Interest expense			(1,135	)			(387	)			(2,242	)			(859	)
Other income (expense), net			(18	)			210				(2	)			77
Income before provision for (benefit of) income taxes			9,157				6,590				9,949				7,454
Provision for (benefit of) income taxes			(1,298	)			509				318				129
Net income		$	10,455			$	6,081			$	9,631			$	7,325
Net income per share:
Basic		$	0.16			$	0.09			$	0.14			$	0.11
Diluted		$	0.16			$	0.09			$	0.14			$	0.11
Weighted-average shares outstanding:
Basic			66,688				65,401				66,493				65,209
Diluted			66,689				65,560				66,493				65,445

NEXTGEN HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
		September 30, 2020				March 31, 2020
ASSETS
Current assets:
Cash and cash equivalents		$	103,440			$	138,012
Restricted cash and cash equivalents			5,405				2,307
Accounts receivable, net			75,102				80,006
Contract assets			15,714				12,529
Income taxes receivable			1,900				856
Prepaid expenses and other current assets			23,361				26,305
Total current assets			224,922				260,015
Equipment and improvements, net			16,720				19,836
Capitalized software costs, net			39,234				37,004
Operating lease assets			30,804				31,004
Deferred income taxes, net			10,647				10,620
Contract assets, net of current			2,303				3,007
Intangibles, net			45,577				57,809
Goodwill			267,212				267,165
Other assets			34,993				33,656
Total assets		$	672,412			$	720,116
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	6,822			$	10,521
Contract liabilities			48,442				56,786
Accrued compensation and related benefits			32,140				23,792
Income taxes payable			50				148
Operating lease liabilities			11,061				10,619
Other current liabilities			38,887				41,352
Total current liabilities			137,402				143,218
Deferred compensation			6,140				5,300
Line of credit			64,000				129,000
Operating lease liabilities, net of current			36,380				38,823
Other noncurrent liabilities			8,899				3,281
Total liabilities			252,821				319,622
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 66,734 and 66,134 shares at September 30, 2020 and March 31, 2020, respectively			667				661
Additional paid-in capital			292,228				282,857
Accumulated other comprehensive loss			(2,054	)			(2,143	)
Retained earnings			128,750				119,119
Total shareholders' equity			419,591				400,494
Total liabilities and shareholders' equity		$	672,412			$	720,116

NEXTGEN HEALTHCARE, INC.
NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
RECONCILIATION OF NON-GAAP DILUTED EARNINGS PER SHARE
	Three Months Ended September 30,							Six Months Ended September 30,
	2020			2019				2020			2019
Income before provision for income taxes - GAAP	$	9,157		$	6,590			$	9,949		$	7,454
Non-GAAP adjustments:
Acquisition costs, net		142			739				262			739
Amortization of acquired intangible assets		5,984			5,152				12,232			10,305
Amortization of deferred debt issuance costs		178			178				355			355
Impairment of assets		—			1,916				—			2,405
Restructuring costs		—			175				2,562			1,882
Securities litigation defense costs and settlement, net of insurance		3,233			339				4,259			376
Share-based compensation		5,437			4,316				10,830			9,207
Other non-run-rate expenses*		1,154			815				2,465			905
Total adjustments to GAAP income before provision for income taxes:		16,128			13,630				32,965			26,174
Income before provision for income taxes - Non-GAAP		25,285			20,220				42,914			33,628
Provision for income taxes		5,057			4,448				8,583			7,398
Net income - Non-GAAP	$	20,228		$	15,772			$	34,331		$	26,230
Diluted net income per share - Non-GAAP	$	0.30		$	0.24			$	0.52		$	0.40
Weighted-average shares outstanding (diluted):		66,689			65,560				66,493			65,445
* Other non-run-rate expenses for the three months ended September 30, 2020 consist primarily of $664 excess lease-related expense for vacated facilities and other costs, including retention bonuses, related to the restructuring plan, $462 of professional services costs not related to core operations, and $28 of incremental costs and penalties primarily due to the cancellation of certain events directly associated with the COVID-19 pandemic. Other non-run-rate expenses for the six months ended September 30, 2020 consist primarily of $1,427 excess lease-related expense for vacated facilities and other costs, including retention bonuses, related to the restructuring plan, $939 of professional services costs not related to core operations, and $99 of incremental costs and penalties primarily due to the cancellation of certain events directly associated with the COVID-19 pandemic.   Other non-run-rate expenses for the three and six months ended September 30, 2019 consist primarily of excess lease-related expense for vacated facilities and other costs, including retention bonuses, related to the restructuring plan.