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ITEM 1. |
Quality Systems, Inc., The Company also provides revenue cycle management (“RCM”) services through the Practice Solutions Division.
operating divisions: QSI Dental Division and NextGen Division. Through our acquisitions of HSI and PMP in 2008, we continued to strengthen our RCM service offerings. During fiscal year 2010, as a result of certain organizational changes, the composition of the Company’s NextGen Division was revised to exclude the former NextGen Practice Solutions unit and the Company’s RCM entities (HSI and PMP), both of which are now administered and aggregated in the Company’s Practice Solutions Division. Following the reorganization, the Company now operates three reportable operating segments (not including Corporate), comprised of the NextGen Division, the QSI Dental Division and the Practice Solutions Division. As a result, our fiscal year 2010 and 2009 results have beenre-casted to reflect this change.
2008:
| Segment Revenue Breakdown | Segment Revenue Growth | |||||||||||||||||||||||
| for the Year Ended March 31, | for the Year Ended March 31, | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
| QSI Dental Division | 5.9 | % | 6.5 | % | 8.6 | % | 8.1 | % | (1.2 | )% | (3.3 | )% | ||||||||||||
| NextGen Division | 79.4 | % | 83.1 | % | 91.4 | % | 13.6 | % | 19.6 | % | 21.3 | % | ||||||||||||
| Practice Solutions Division | 14.7 | % | 10.4 | % | 0.0 | % | 67.5 | % | N/A | N/A | ||||||||||||||
| Consolidated | 100.0 | % | 100.0 | % | 100.0 | % | 18.9 | % | 31.6 | % | 18.7 | % | ||||||||||||
The NextGen Division, with headquarters in Horsham, Pennsylvania,product and Software as a second significant location in Atlanta, Georgia, focuses principally on developingService, or SaaS model, based NextDDS financial and marketing products and services for medical practices.
Both divisions develop and market practice management software that is designed to automate and streamline a number of the administrative functions required for operating a medical or dental practice. Examples of practice management software functions include scheduling and billing capabilities. It is important to note that in both the medical and dental environments, practice
clinical software.
management software systems have already been implemented by the vast majority of practices. Therefore, we actively compete for the replacement market. In addition, both divisions develop and market software that automates the patient record. Adoption rates for this software, commonly referred to as clinical software, are relatively low. Therefore, we are typically competing to replace paper-based patient record alternatives as opposed to replacing previously purchased systems.
Electronic Data Interchange (EDI)/connectivity products are intended to automate a number of manual, often paper-based or telephony intensive communications between patients and/or providers and/or payors. Two of the more common EDI services are forwarding insurance claims electronically from providers to payors and assisting practices with issuing statements to patients. Most client practices utilize at least some of these services from us or one of our competitors. Other EDI/connectivity services are used more sporadically by client practices. We typically compete to displace incumbent vendors for claims and statements accounts, and attempt to increase usage of other elements in our EDI/connectivity product line. In general, EDI services are only sold to those accounts utilizing software from one of our divisions.
The NextGen Division also offers Revenue Cycle Management (RCM) services under the Practice Solutions name. Services provided through the Practice Solutions/RCM unit consist primarily of billing and collections services for medical practices. The Practice Solutions unit utilizes NextGen EPM software to a significant extent.
The QSI Dental Division’s practice management software suite utilizes a UNIX operating system. Its Clinical Product Suite (CPS)(“CPS”) utilizes a Windows NT2 operating system and can be fully integrated with the practice management software from each division.Division. CPS incorporates a wide range of clinical tools including, but not limited to, periodontal charting and digital imaging of X-ray and inter-oral camera images as part of the electronic patient record. The divisionDivision develops, markets, and manages our EDI/Electronic Data Interchange (“EDI”)/connectivity applications. The QSInet Application Service Provider (ASP/Internet)(“ASP/Internet”) offering is also developed and marketed by the Division.
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Our
| • | NextGen ambulatory product suite that integrates as one system to streamline patient care with standardized, real-time clinical and administrative workflow through the practice, which consists of: |
| ○ | NextGen Electronic Health Records (“NextGenehr”) to ensure complete, accurate documentation to manage patient care electronically and to improve clinical processes and patient outcomes with electronic charting at the point of care; and | |
| ○ | NextGen Enterprise Practice Management (“NextGenepm”) to automate business processes, from front-end scheduling to back-end collections and financial and administrative processes for increased performance and efficiencies. |
| • | NextGen inpatient products that deliver secure, highly adaptable, and easy to use applications to patient centered hospitals and health systems, which consists of: |
| ○ | NextGen Clinicals, which resides on an advanced truly active web 2.0 platform — and is designed to initiate widespread work efficiency and communication, reduce errors andtime-to-chart, and improve care; and | |
| ○ | NextGen Financials, which is a financial and administrative system that helps hospitals significantly improve the smart operations and financial and regulatory management of their facilities. |
| • | NextGen Community Connectivity, which consists of: |
| ○ | NextGen Health Information Exchange (“HIE”), formerly Community Health Solution, to exchange patient data securely with community healthcare organizations; | |
| ○ | NextGen Patient Portal (“NextMD.com”) to communicate with patients online and import information directly into NextGenehr; and | |
| ○ | NextGen Health Quality Measures (“HQM”) to allow seamless quality measurement and reporting for practice and physician performance initiatives. |
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| • | EDI services that are intended to automate a number of manual, often paper-based or telephony intensive communications between patientsand/or providersand/or payors; | |
| • | Hosting services that allow practices seeking the benefits of IT automation but not the maintenance of in-house hardware and networking; | |
| • | NextGuard — Data Protection services that provide an off-site, data archiving, restoration, and disaster recovery preparedness solution for practices to protect clinical and financial data; | |
| • | Consulting services, such as data conversions or interface development, that allow practices to build custom add-on features; and | |
| • | Physician Resources services that allow practices to consult with the NextGen Division’s physician team. |
Inclusive of divisional EDI revenue,
In addition to the aforementioned software solutions whicheconomic cycles, we offer through our two divisions, each division offers comprehensive hardware and software installation services, maintenance and support services, and system training services.
On May 20, 2008, the Company acquired Lackland Acquisition II, LLC dba Healthcare Strategic Initiatives (HSI). The acquisition resulted in HSI becoming a wholly owned subsidiary of QSI. We plan to operate HSI as a stand alone Company within the NextGen Division.
3 NextGen is a registered trademark
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4 NextMD is a registered trademarkhealth care information technology. While we are unsure of NextGen Healthcare Information Systems, Inc.
HSI is a full-service healthcare revenue management company servicing the revenue cycle management needs of physician groups and a variety of other healthcare clients. HSI has historically and primarily focused on assisting its clients in increasingimmediate impact from the accuracy and speed of client billing and collections activities.
Industry Background
ToARRA, the long-term potential could be significant.
| • | Continued development and enhancement of select software solutions in target markets; |
| • | Continued investments in our infrastructure including, but not limited to, product development, sales, marketing, implementation, and support; |
| • | Continued efforts to make infrastructure investments within an overall context of maintaining reasonable expense discipline; |
| • | Addition of new customers through maintaining and expanding sales, marketing and product development activities; |
| • | Expanding our relationship with existing customers through delivery of |
| • | Continuing our gold standard commitment of service in support of our customers. |
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comprehensive systems implementation, maintenance and support services. Any single transaction may or may not include software, hardware or services.
The QSI Division’s character-based practice management system is available We offer both standard licenses and SaaS arrangements in both dental and medical versions and primarily uses the IBM RS6000[5] central processing unit and IBM’S AIX[6] version of the UNIX operating system as a platform for our application software enabling a wide range of flexible and functional systems. The hardware components, as well as the requisite operating system licenses, are purchased from manufacturers or distributors of those components.
We configure and test the hardware components and incorporate our software and other third party packages into completed systems. We continually evaluate third party hardware components with a view toward utilizing hardware that is functional, reliable and cost-effective.
offerings; although to date, SaaS arrangements have represented less than 5% of our arrangements.
We also offer practice management solutions for both dental and medical practices through the Internet. These products are marketed under the QSINet and NextGen WEB trade names, respectively.
Clinical Systems. Our dental charting software system, the Clinical Product Suite (CPS),epm product is a comprehensivehighly configurable, cost-effective proven solution designed specifically forthat enables the dental group practice environment. CPS integrates the dental practiceeffective management product with a computer-based clinical information system that incorporates a wide range of clinical tools, including:
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both single and multi-practice settings.
CPS incorporates Windows-based client-server technology consisting of one or more file servers together with any combination of one or more desktop, laptop, or pen-based PC workstations. The file server(s) used in connection with CPS utilize(s) a Windows NT or Windows 2000 or Windows XP operating system and the hardware is typically a Pentium[7]-based single or multi-processor platform. Based on the server configuration chosen, CPS is scalable from one to hundreds of workstations. A typical configuration may also include redundant disk storage, magnetic tape units, intra- and extra-oral cameras, digital X-ray components, digital scanners, conventional and flat screen displays, and printers. The hardware components, including the requisite operating system licenses, are purchased from third party manufacturers or distributors either directly by the customer or by us for resale to the customer.
6 AIX is a registered trademark of International Business Machines Corporation.
7 Pentium is a registered trademark of Intel Corporation.
8 Microsoft and SQL Server is a registered trademark of Microsoft Corporation.
9 Oracle is a registered trademark of Oracle Corporation.
NextGen Division provides clinical software applications that are complementary to, and are integrated with, our medical practice management offerings and interface with many of the other leading practice management software systems on the market. The applications incorporated into our practice management solutions and others such as scheduling, eligibility, billing and claims processing are augmented by clinical information captured by NextGen EMR,ehr, including services rendered and diagnoses used for billing purposes. We believe that we currently provide a comprehensive information management solution for the medical marketplace.
NextGen EMRehr stores and maintains clinical data including:
| • | Data captured using user-customizable input “templates”; |
| • | Scanned or electronically acquired images, including X-rays and photographs; |
| • | Data electronically acquired through interfaces with clinical instruments or external systems; |
| • | Other records, documents or notes, including electronically captured handwriting and annotations; and |
| • | Digital voice recordings. |
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| • | Electronic claims submission service that submits Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) compliant insurance claims electronically to insurance payers; | |
| • | Electronic remittance and payment posting service that uses NextGen Document Management system to link an image of each explanation of benefit (“EOB”) to the corresponding encounter at the time of payment posting to minimizes the need for storage of paper EOBs; and | |
| • | Accounts receivablefollow-up methodology that allows practices to establish parameters, adjustment rules and standards for account elevation. |
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| • | Electronic claims submission through our relationships with a number of payors and national claims clearinghouses; | |
| • | Electronic patient statement processing, appointment reminder cards and calls, recall cards, patient letters, and other correspondence; | |
| • | Electronic insurance eligibility verification; and | |
| • | Electronic posting of remittances from insurance carriers into the accounts receivable application. |
NextGen also markets revenue cycle management services through our Practice Solutions unit. This service provides billing services to solo and group practices.
Connectivity Services. We make available EDI capabilities and connectivity services to our customers. The EDI/connectivity capabilities encompass direct interfaces between our products and external third party systems, as well as transaction-based services. Services include:
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Revenue Cycle Management Services Our Nextgen Practice Solutions unit offers revenue cycle management services to physicians. On May 20, 2008, we acquired HSI, a full-service healthcare revenue management company servicing the revenue cycle management needs of physician groups and a variety of other healthcare clients. HSI has historically and primarily focused on assisting its clients in increasing the accuracy and speed of client billing and collections activities.
Internet Applications. Our NextGen Division maintains an Internet-based patient health portal, NextMD®. NextMDNextMD.com. NextMD.com is a vertical portal for the healthcare industry, linking patients with their physicians, while providing a centralized source of health-oriented information for both consumers and medical professionals. Patients whose physicians are linked to the portal are able to request appointments, send appointment changes or cancellations, receive test results on-line, request prescription refills, viewand/or pay their statements, and communicate with their physicians, all in a secure, on-line environment. Our NextGen suite of information systems are or can be linked to NextMD,NextMD.com, integrating a number of these features with physicians’ existing systems.
2008.
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MSO’s, PHO’s
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ITEM 1A. |
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Our software products are generally shipped as orders are received and accordingly, we have historically operated with a minimal backlog of license fees. As a result, revenue in any quarter is dependent on orders booked and shipped in that quarter and is not predictable with any degree of certainty. Furthermore, our systems can be relatively large and expensive and
individual systems sales can represent a significant portion of our revenue and profits for a quarter such that the loss or deferral of even one such sale can adversely affect our quarterly revenue and profitability.
Clients often defer systems purchases until our quarter end, so quarterly results generally cannot be predicted and frequently are not known until after the quarter has concluded.
Our sales are dependent upon clients’ initial decisions to replace or substantially modify their existing information systems, and subsequently a decision as to which products and services to purchase. These are major decisions for healthcare providers, and accordingly, the sales cycle for our systems can vary significantly and typically ranges from six to twenty four months from initial contact to contract execution/shipment.
Because a significant percentage of our expenses are relatively fixed, a variation in the timing of systems sales, implementations, and installations can cause significant variations in operating results from quarter to quarter. As a result, we believe that interim period-to-period comparisons of ourbusiness, results of operations are not necessarily meaningful and should notfinancial condition may be relied upon as indicationsadversely affected. The software market generally is characterized by rapid technological change, changing customer needs, frequent new product introductions, and evolving industry standards. The introduction of future performance. Further,products incorporating new technologies and the emergence of new industry standards could render our historical operating results are not necessarily indicative of future performance for any particular period.
We currently recognize revenue pursuant to Statement of Position (SOP) 97-2, as modified by SOP 98-9existing products obsolete and Staff Accounting Bulletin (SAB) 104. SAB 104 summarizes the staff’s views in applying generally accepted accounting principles to revenue recognition in financial statements.
unmarketable. There can be no assurance that applicationwe will be successful in developing and subsequent interpretationsmarketing new products that respond to technological changes or evolving industry standards. New product development depends upon significant research and development expenditures which depend ultimately upon sales growth. Any material shortfall in revenue or research
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| • | potentially dilutive issuances of our securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets, which could adversely affect our results of operations and financial condition; | |
| • | use of cash as acquisition currency may adversely affect interest or investment income, thereby potentially adversely affecting our earnings and /or earnings per share; | |
| • | difficulty in effectively integrating any acquired technologies or software products into our current products and technologies; | |
| • | difficulty in predicting and responding to issues related to product transition such as development, distribution and customer support; | |
| • | the possible adverse effect of such acquisitions on existing relationships with third party partners and suppliers of technologies and services; | |
| • | the possibility that staff or customers of the acquired company might not accept new ownership and may transition to different technologies or attempt to renegotiate contract terms or relationships, including maintenance or support agreements; | |
| • | the possibility that the due diligence process in any such acquisition may not completely identify material issues associated with product quality, product architecture, product development, intellectual property issues, key personnel issues or legal and financial contingencies, including any deficiencies in internal controls and procedures and the costs associated with remedying such deficiencies; |
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| • | difficulty in integrating acquired operations due to geographical distance, and language and cultural differences; and | |
| • | the possibility that acquired assets become impaired, requiring us to take a charge to earnings which could be significant. |
customers, our vendors and us to accurately forecast and plan future business activities, and they could cause constrained spending on our products and services,and/or delay and lengthen sales cycles.
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Our common stock price has been volatile, which could result in substantial losses for investors purchasing shares of our common stock and in litigation against us. Volatility may be caused by a number of factors including but not limited to:
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Furthermore, the stock market in general, and the market for software, healthcare and high technology companies in particular, has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of actual operating performance.
Moreover, in the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources.
Two of our directors are significant shareholders, which makes it possible for them to have significant influence over the outcome of all matters submitted to our shareholders for approval and which influence may be alleged to conflict with our interests and the interests of our other shareholders. Two of our directors and principal shareholders beneficially owned an aggregate of approximately 36% of the outstanding shares of our common stock at March 31, 2008. Our Bylaws permit our shareholders to cumulate their votes, the effect of which is to provide shareholders with sufficiently large concentrations of our shares the opportunity to assure themselves one or more seats on our Board. The amounts required to assure a Board position can vary based upon the number of shares outstanding, the number of shares voting, the number of directors to be elected, the number of “broker non-votes”, and the number of shares held by the shareholder exercising cumulative voting rights. In the event that cumulative voting is invoked, it is likely that the two of our directors holding an aggregate of approximately 36% of the outstanding shares of our common stock at March 31, 2008 will each have sufficient votes to assure themselves of one or more seats on our Board. With or without cumulative voting, these shareholders will have significant influence over the outcome of all matters submitted to our shareholders for approval, including the election of our directors and other corporate actions. In addition, such influence by one or both of these affiliates could have the effect of discouraging others from attempting to purchase us, take us over, and/or reducing the market price offered for our common stock in such an event.
from traditional software license, implementation and training fees, as well as the resale of computer hardware. Today, the majority of our customers pay an initial license fee for the use of our products, in addition to a periodic maintenance fee. While the intent of the new subscription based delivery model is to further penetrate the smaller practice market, there can be no assurance that this delivery model will not become increasingly popular with both small and large customers. If the marketplace increasingly demands subscription pricing, we may be forced to further adjust our sales, marketing and pricing strategies accordingly, by offering a higher percentage of our products and services through these means. Shifting to a significantly greater degree of subscription pricing could adversely affect our financial condition, cash flows and quarterly and annual revenue and results of operations, as our revenue would initially decrease substantially. There can be no assurance that the marketplace will not increasingly embrace subscription pricing.Many of our competitors have greater resources than we do. In order to compete successfully, we must keep pace with our competitors in anticipating and responding to the rapid changes involving the industry in which we operate, or our business, results of operations and financial condition may be adversely affected. The software market generally is characterized by rapid technological change, changing customer needs, frequent new product introductions, and evolving industry standards. The introduction of products incorporating new technologies and the emergence of new industry standards could render our existing products obsolete and unmarketable. There can be no assurance that we will be successful in developing and marketing new products that respond to technological changes or evolving industry standards. New product development depends upon significant research and development expenditures which depend ultimately upon sales growth. Any material shortfall in revenue or research funding could impair our ability to respond to technological advances or opportunities in the marketplace and to remain competitive. If we are unable, for technological or other reasons, to develop and introduce new products in a timely manner in response to changing market conditions or customer requirements, our business, results of operations and financial condition may be adversely affected.In response to increasing market demand, we are currently developing new generations of certain of our software products. There can be no assurance that we will successfully develop these new software products or that these products will operate successfully, or that any such development, even if successful, will be completed concurrently with or prior to introduction of competing products. Any such failure or delay could adversely affect our competitive position or could make our current products obsolete.We face risk and/or the possibility of claims from activities related to strategic partners, which could be expensive and time-consuming, divert personnel and other resources from our business and result in adverse publicity that could harm our business. We rely on third parties to provide services that affect our business. For example, we use national clearinghouses in the processing of some insurance claims and we outsource some of our hardware maintenance services and the printing and delivery of patient statements for our customers. These third parties could raise their prices and/or be acquired by competitors of our which could potentially create short and long-term disruptions to our business negatively impacting our revenue, profit and/or stock price. We also have relationships with certain third parties where these third parties serve as sales channels through which we generate a portion of our revenue. Due to these third-party relationships, we could be subject to claims as a result of the activities, products, or services of these third-party service providers even though we were not directly involved in the circumstances leading to those claims. Even if these claims do not result in liability to us, defending and investigating these claims could be expensive and time-consuming, divert personnel and other resources from our business and result in adverse publicity that could harm our business.website,Web site content, which may cause us expense and management distraction.distraction. We could be subject to third party claims based on the nature and content of information supplied on our websiteWeb site by us or third parties, including content providers or users. We could also be subject to
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A failuredevelopment and maintenance of the Internet infrastructure, which is not within our control, and which may diminish Internet usage and availability as well as access to successfully integrate acquired businessesour Web site
| • | state and federal privacy and confidentiality laws; | |
| • | our contracts with customers and partners; | |
| • | state laws regulating healthcare professionals; | |
| • | Medicaid laws; | |
| • | the HIPAA and related rules proposed by the Health Care Financing Administration; and | |
| • | Health Care Financing Administration standards for Internet transmission of health data. |
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There is significant uncertainty in the healthcare industry in which we operate, and we are subject to the possibility of changing government regulation, which may adversely impact our business, financial condition and results of operations.The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement processes and operation of healthcare facilities. During the past several years, the healthcare industry has been subject to an increase in governmental regulation of, among other things, reimbursement rates and certain capital expenditures.–— even if we are ultimately successful in the defense of such matters. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provide products or services. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for our products or services will be available on commercially reasonable terms, or at all.shipments.shipments. We depend upon licenses for some of the technology used in our products as well as other services from third-party vendors. Most of these arrangements can be continued/renewed only by mutual consent and may be terminated for any number of reasons. We may not be able to continue using the products or services made available to us under these arrangements on commercially reasonable terms or at all. As a result, we may have to discontinue, delay or reduce product shipments or services provided until we can obtain equivalent technology or services. Most of our third-party licenses are non-exclusive. Our competitors may obtain the right to use any of the business elements covered by these arrangements and use these elements to compete directly with us. In addition, if our vendors choose to discontinue providing their technology or services in the future or are unsuccessful in their continued research and development efforts, we may not be able to modify or adapt our own products.We face the possibility of damages resulting from internal and external security breaches, and viruses. In the course of our business operations, we compile and transmit confidential information, including patient health information, in our processing centers and other facilities. A breach of security in any of these facilities could damage our reputation and result in damages being assessed against us. In addition, the other systems with which we may interface, such as the Internet and related systems may be vulnerable to security breaches, viruses, programming errors, or similar disruptive problems. The effect of these security breaches and related issues could disrupt our ability to perform certain key business functions and could potentially reduce demand for our services. Accordingly, we have expended significant resources toward establishing and enhancing the security of our related infrastructures, although no assurance can be given that they will be entirely free from potential breach. Maintaining and enhancing our infrastructure security may require us to expend significant capital in the future.The success of our strategy to offer our EDI services and Internet solutions depends on the confidence of our customers in our ability to securely transmit confidential information. Our EDI services and Internet solutions rely on encryption, authentication and other security technology licensed from third parties to achieve secure transmission of confidential information. We may not be able to stop unauthorized attempts to gain access to or disrupt the transmission of communications by our customers. Anyone who is able to circumvent our security measures could misappropriate confidential user information or interrupt our, or our customers’ operations. In addition, our EDI and Internet solutions may be vulnerable to viruses, physical or electronic break-ins, and similar disruptions.Any failure to provide secure infrastructure and/or electronic communication services could result in a lack of trust by our customers causing them to seek out other vendors, and/or, damage our reputation in the market making it difficult to obtain new customers.We are subject to the development and maintenance of the Internet infrastructure, which is not within our control, and which may diminish Internet usage and availability as well as access to our website. We deliver Internet-based services and, accordingly, we are dependent on the maintenance of the Internet by third parties. The Internet infrastructure may be unable to support the demands placed on it and our performance may decrease if the Internet continues to experience it’s historic trend of expanding usage. As a result of damage to portions of its infrastructure, the Internet has experienced a variety of performance problems which may continue into the foreseeable future. Such Internet related problems may diminish Internet usage and availability of the Internet to us for transmittal of our Internet-based services. In addition, difficulties, outages, and delays by Internet service providers, online service providers andother website operators may obstruct or diminish access to our website by our customers resulting in a loss of potential or existing users of our services.Our failure to manage growth could harm our business, results of operations and financial condition. We have in the past experienced periods of growth which have placed, and may continue to place, a significant strain on our non-cash resources. We also anticipate expanding our overall software development, marketing, sales, client management and training capacity. In the event we are unable to identify, hire, train and retain qualified individuals in such capacities within a reasonable timeframe, such failure could have an adverse effect on us. In addition, our ability to manage future increases, if any, in the scope of our operations or personnel will depend on significant expansion of our research and development, marketing and sales, management, and administrative and financial capabilities. The failure of our management to effectively manage expansion in our business could have an adverse effect on our business, results of operations and financial condition.Our operations are dependent upon our key personnel. If such personnel were to leave unexpectedly, we may not be able to execute our business plan. Our future performance depends in significant part upon the continued service of our key technical and senior management personnel, many of whom have been with us for a significant period of time. These personnel have acquired specialized knowledge and skills with respect to our business. We maintain key man life insurance on only one of our employees. Because we have a relatively small number of employees when compared to other leading companies in our industry, our dependence on maintaining our relationships with key employees is particularly significant. We are also dependent on our ability to attract high quality personnel, particularly in the areas of sales and applications development.The industry in which we operate is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. There can be no assurance that our current employees will continue to work for us. Loss of services of key employees could have an adverse effect on our business, results of operations and financial condition. Furthermore, we may need to grant additional equity incentives to key employees and provide other forms of incentive compensation to attract and retain such key personnel. Failure to provide such types of incentive compensation could jeopardize our recruitment and retention capabilities.Our products may be subject to product liability legal claims, which could have an adverse effect on our business, results of operations and financial condition. Certain of our products provide applications that relate to patient clinical information. Any failure by our products to provide accurate and timely information could result in claims against us. In addition, a court or government agency may take the position that our delivery of health information directly, including through licensed practitioners, or delivery of information by a third party site that a consumer accesses through our Web sites, exposes us to assertions of malpractice, other personal injury liability, or other liability for wrongful delivery/handling of healthcare services or erroneous health information. We maintain insurance to protect against claims associated with the use of our products as well as liability limitation language in our end-user license agreements, but there can be no assurance that our insurance coverage or contractual language would adequately cover any claim asserted against us. A successful claim brought against us in excess of or outside of our insurance coverage could have an adverse effect on our business, results of operations and financial condition. Even unsuccessful claims could result in our expenditure of funds for litigation and management time and resources.•Certain healthcare professionals who use our Internet-based products will directly enter health information about their patients including information that constitutes a record under applicable law that we may store on our computer systems. Numerous federal and state laws and regulations, the common law, and contractual obligations, govern collection, dissemination, use and confidentiality of patient-identifiable health information, including:•state and federal privacy and confidentiality laws;•our contracts with customers and partners;•state laws regulating healthcare professionals;•Medicaid laws;•the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and related rules proposed by the Health Care Financing Administration; and•Health Care Financing Administration standards for Internet transmission of health data.The Health Insurance Portability and Accountability Act of 1996 establishes elements including, but not limited to, federal privacy and security standards for the use and protection of Protected Health Information. Any failure by us or by our personnel or partners to comply with applicable requirements may result in a material liability to us.Although we have systems and policies in place for safeguarding Protected Health Information from unauthorized disclosure, these systems and policies may not preclude claims against us for alleged violations of applicable requirements. Also, third party sites and/or links that consumers may access through our web sites may not maintain adequate systems to safeguard this information, or may circumvent systems and policies we have put in place. In addition, future laws or changes in current laws may necessitate costly adaptations to our policies, procedures, or systems.There can be no assurance that we will not be subject to product liability claims, that such claims will not result in liability in excess of our insurance coverage, that our insurance will cover such claims or that appropriate insurance will continue to be available to us in the future at commercially reasonable rates. Such product liability claims could adversely affect our business, results of operations and financial condition.We are subject to the effect of payor and provider conduct which we cannot control and accordingly, there is no assurance that revenues for our services will continue at historic levels. We offer certain electronic claims submission products and services as part of our product line. While we have implemented certain product features designed to maximize the accuracy and completeness of claims submissions, these features may not be sufficient to prevent inaccurate claims data from being submitted to payors. Should inaccurate claims data be submitted to payors, we may be subject to liability claims.Electronic data transmission services are offered by certain payors to healthcare providers that establish a direct link between the provider and payor. This process reduces revenue to third party EDI service providers such as us. As a result of this, or other market factors, we are unable to ensure that we will continue to generate revenue at or in excess of prior levels for such services.A significant increase in the utilization of direct links between healthcare providers and payors could adversely affect our transaction volume and financial results. In addition, we cannot provide assurance that we will be able to maintain our existing links to payors or develop new connections on terms that are economically satisfactory to us, if at all.
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In addition, developments
In addition, our
operations.operations. Based on our reading and interpretations of relevant guidance, principles or
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price.
| • | the size and timing of orders from clients; | |
| • | the specific mix of software, hardware, and services in client orders; | |
| • | the length of sales cycles and installation processes; | |
| • | the ability of our clients to obtain financing for the purchase of our products; | |
| • | changes in pricing policies or price reductions by us or our competitors; | |
| • | the timing of new product announcements and product introductions by us or our competitors; | |
| • | changes in revenue recognition or other accounting guidelines employed by usand/or established by the Financial Accounting Standards Board or other rule-making bodies; | |
| • | accounting policies concerning the timing of the recognition of revenue; | |
| • | the availability and cost of system components; |
22
Continuing worldwide political
| • | the financial stability of clients; | |
| • | market acceptance of new products, applications and product enhancements; | |
| • | our ability to develop, introduce and market new products, applications and product enhancements; | |
| • | our success in expanding our sales and marketing programs; | |
| • | deferrals of client orders in anticipation of new products, applications, product enhancements, or public/private sector initiatives; | |
| • | execution of or changes to our strategy; | |
| • | personnel changes; and | |
| • | general market/economic factors. |
Our future policy concerning stock splits is uncertain. While we effectedcycle for our systems can vary significantly and typically ranges from six to twenty four months from initial contact to contract execution/shipment.
| • | actual or anticipated quarterly variations in operating results; | |
| • | rumors about our performance, software solutions, or merger and acquisition activity; | |
| • | changes in expectations of future financial performance or changes in estimates of securities analysts; | |
| • | governmental regulatory action; | |
| • | health care reform measures; |
23
| • | client relationship developments; | |
| • | purchases or sales of company stock; | |
| • | activities by one or more of our major shareholders concerning our policies and operations; | |
| • | changes occurring in the markets in general; | |
| • | macroeconomic conditions, both nationally and internationally; and | |
| • | other factors, many of which are beyond our control. |
ITEM 1B. |
24
| |
ITEM 2. |
lease for approximately 24,000 square feet where our principal administrative, accounting and QSI Division operations will reside after May 2008. This lease expires in May 2013.
In September 2005, we executed a lease for approximately 3,300 square feet of space in a building adjacent to our corporate office in Irvine to house additional corporate staff and NextGen training operations. This lease originally expires in January 2011, however, this lease will terminate early in December 2008 and the NextGen training center along with the additional corporate staff will move to the new corporate headquarters described above.
We lease approximately 78,000 square feet of space for the principal office of our NextGen Division in Horsham, Pennsylvania. This lease expires in March 2011. In January 2007, we executed a new lease for approximately 35,000 square feet of space for the NextGen Division in Atlanta, Georgia. This lease expires in October 2011. In May 2006, we executed a lease for approximately 3,000 square feet of space in Dallas, Texas for NextGen staff and a new NextGen training facility. In addition, we lease approximately 6,000 square feet of space in Santa Ana, California, to house our assembly and warehouse operations of the QSI Division. We also have an aggregate of approximately 3,000 square feet of space in Minnesota, Utah, Wisconsin, and Washington to house additional sales, training, development and service operations. These leases, excluding options, have expiration dates ranging from month-to-month to October 2011.California. Should we continue to grow, we may be required to lease additional space. We believe that suitable additional or substitute space is available, if needed, at market rates.
| Square Feet | ||||
| QSI Dental Division | ||||
| Irvine, California — Corporate Headquarters | 24,000 | |||
| Other U.S. locations | 5,000 | |||
| NextGen Division | ||||
| Horsham, Pennsylvania | 98,000 | |||
| Austin, Texas | 39,000 | |||
| Atlanta, Georgia | 35,000 | |||
| Laguna Hills, California | 4,500 | |||
| Practice Solutions Division | ||||
| St. Louis, Missouri | 66,500 | |||
| Hunt Valley, Maryland | 33,500 | |||
| Total leased properties | 305,500 | |||
| ITEM 3. |
ITEM 4. |
No matter was submitted to a vote of security holders during the fourth quarter of fiscal year 2008.
ITEM 5. | MARKET FOR REGISTRANT’S COMMON |
| High | Low | |||||||
| Quarter Ended | ||||||||
| June 30, 2008 | $ | 35.97 | $ | 29.00 | ||||
| September 30, 2008 | $ | 47.94 | $ | 27.34 | ||||
| December 31, 2008 | $ | 44.98 | $ | 25.70 | ||||
| March 31, 2009 | $ | 48.46 | $ | 34.26 | ||||
| June 30, 2009 | $ | 62.00 | $ | 43.44 | ||||
| September 30, 2009 | $ | 64.16 | $ | 50.87 | ||||
| December 31, 2009 | $ | 65.98 | $ | 57.63 | ||||
| March 31, 2010 | $ | 68.59 | $ | 51.30 | ||||
25
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Quarter Ended |
| High |
| Low |
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June 30, 2006 |
| $ | 38.27 |
| $ | 28.30 |
|
September 30, 2006 |
| $ | 42.00 |
| $ | 30.43 |
|
December 31, 2006 |
| $ | 43.68 |
| $ | 34.75 |
|
March 31, 2007 |
| $ | 45.44 |
| $ | 36.85 |
|
June 30, 2007 |
| $ | 42.44 |
| $ | 36.96 |
|
September 30, 2007 |
| $ | 45.35 |
| $ | 32.37 |
|
December 31, 2007 |
| $ | 38.99 |
| $ | 26.08 |
|
March 31, 2008 |
| $ | 36.30 |
| $ | 26.90 |
|
On January 30, 2008, the Board approved a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of March 14, 2008 and was distributed to shareholders on or about April 7, 2008.
On October 25, 2007, the Board approved a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of December 14, 2007 and was distributed to shareholders on or about January 7, 2008.
On July 31, 2007, our Board of Directors approved a regular quarterly dividend of $0.25 per share payable on its outstanding shares of common stock. The cash dividend record date was September 14, 2007 and was distributed to shareholders on or about October 5, 2007.
On May 31, 2007, the Board declared a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of June 15, 2007 and was distributed to shareholders on July 5, 2007.
In February 2007, we paid a $1.00 per share dividend on shares of our common stock. The record date for the dividend was February 13, 2007.
In March 2006, we paid a $0.875 per share dividend on shares of our common stock. The record date for
In January 2006, we announced that our Board of Directors had declaredapproved a 2-for-1 stock split with respect toquarterly cash dividend of $0.30 per share on our outstanding shares of common stock, forpayable to shareholders of record as of June 17, 2010 with an expected distribution date on March 3, 2006. or about July 6, 2010.
In March 2005, we paid a one-time dividend on shares of our common stock equal to $0.75 per share. The record date for the dividend was February 24, 2005. The dividend per share amount has been adjusted to reflect the stock split noted above.
In February 2005, we announced that our Board of Directors declared a 2-for-1 stock split with respect to our outstanding shares of common stock. The stock split record date was March 4, 2005 and the stock began trading post split on March 28, 2005.
dates indicated:
| Record | Payment | Dividend | ||||||
Board Approval Date | Date | Date | Amount | |||||
Fiscal year 2010 | ||||||||
| January 27, 2010 | March 23, 2010 | April 5, 2010 | $ | 0.30 | ||||
| October 28, 2009 | December 23, 2009 | January 5, 2010 | 0.30 | |||||
| July 23, 2009 | September 25, 2009 | October 5, 2009 | 0.30 | |||||
| May 27, 2009 | June 12, 2009 | July 6, 2009 | 0.30 | |||||
Fiscal year 2009 | ||||||||
| January 28, 2009 | March 11, 2009 | April 3, 2009 | $ | 0.30 | ||||
| October 30, 2008 | December 15, 2008 | January 5, 2009 | 0.30 | |||||
| August 4, 2008 | September 15, 2008 | October 1, 2008 | 0.30 | |||||
| May 29, 2008 | June 15, 2008 | July 2, 2008 | 0.25 | |||||
Fiscal year 2008 | ||||||||
| January 30, 2008 | March 14, 2008 | April 7, 2008 | $ | 0.25 | ||||
| October 25, 2007 | December 14, 2007 | January 7, 2008 | 0.25 | |||||
| July 31, 2007 | September 14, 2007 | October 5, 2007 | 0.25 | |||||
| May 31, 2007 | June 15, 2007 | July 5, 2007 | 0.25 | |||||
26
Among Quality Systems, Inc., The NASDAQ Composite Index
And The NASDAQ Computer & Data Processing Index
| |
|
27
Recent Sales of Unregistered Securities
We did not make any unregistered sales of our common stock during the fourth quarter of 2008.
ITEM 6. |
| Year Ended March 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
| Statements of Income Data: | ||||||||||||||||||||
| Revenue | $ | 291,811 | $ | 245,515 | $ | 186,500 | $ | 157,165 | $ | 119,287 | ||||||||||
| Cost of revenue | 110,807 | 88,890 | 62,501 | 50,784 | 39,828 | |||||||||||||||
| Gross profit | 181,004 | 156,625 | 123,999 | 106,381 | 79,459 | |||||||||||||||
| Selling, general and administrative expenses | 86,951 | 69,410 | 53,260 | 45,337 | 35,554 | |||||||||||||||
| Research and development costs | 16,546 | 13,777 | 11,350 | 10,166 | 8,087 | |||||||||||||||
| Amortization of acquired intangible assets | 1,783 | 1,035 | — | — | — | |||||||||||||||
| Income from operations | 75,724 | 72,403 | 59,389 | 50,878 | 35,818 | |||||||||||||||
| Interest income | 226 | 1,203 | 2,661 | 3,306 | 2,108 | |||||||||||||||
| Other income (expense) | 268 | (279 | ) | 953 | — | — | ||||||||||||||
| Income before provision for income taxes | 76,218 | 73,327 | 63,003 | 54,184 | 37,926 | |||||||||||||||
| Provision for income taxes | 27,839 | 27,208 | 22,925 | 20,952 | 14,604 | |||||||||||||||
| Net income | $ | 48,379 | $ | 46,119 | $ | 40,078 | $ | 33,232 | $ | 23,322 | ||||||||||
| Basic net income per share | $ | 1.69 | $ | 1.65 | $ | 1.47 | $ | 1.24 | $ | 0.88 | ||||||||||
| Diluted net income per share | $ | 1.68 | $ | 1.62 | $ | 1.44 | $ | 1.21 | $ | 0.85 | ||||||||||
| Basic weighted average shares outstanding | 28,635 | 28,031 | 27,298 | 26,882 | 26,413 | |||||||||||||||
| Diluted weighted average shares outstanding | 28,796 | 28,396 | 27,770 | 27,550 | 27,356 | |||||||||||||||
| Dividends declared per common share | $ | 1.20 | $ | 1.15 | $ | 1.00 | $ | 1.00 | $ | 0.875 | ||||||||||
| March 31, | March 31, | March 31, | March 31, | March 31, | ||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Balance Sheet Data: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 84,611 | $ | 70,180 | $ | 59,046 | $ | 60,028 | $ | 57,255 | ||||||||||
| Working capital | $ | 118,935 | $ | 98,980 | $ | 79,932 | $ | 76,616 | $ | 61,724 | ||||||||||
| Total assets | $ | 310,180 | $ | 242,101 | $ | 187,908 | $ | 150,681 | $ | 122,247 | ||||||||||
| Total liabilities | $ | 121,891 | $ | 86,534 | $ | 74,203 | $ | 59,435 | $ | 49,838 | ||||||||||
| Total shareholders’ equity | $ | 188,289 | $ | 155,567 | $ | 113,705 | $ | 91,246 | $ | 72,409 | ||||||||||
28
(In Thousands, Except Per Share Data)
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| Year ended March 31, |
| |||||||||||||
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|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| |||||
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|
| ||||||||||||||
| ||||||||||||||||
Statements of Income Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 186,500 |
| $ | 157,165 |
| $ | 119,287 |
| $ | 88,961 |
| $ | 70,934 |
|
Cost of revenue |
|
| 62,501 |
|
| 50,784 |
|
| 39,828 |
|
| 32,669 |
|
| 28,673 |
|
|
|
| ||||||||||||||
Gross profit |
|
| 123,999 |
|
| 106,381 |
|
| 79,459 |
|
| 56,292 |
|
| 42,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 53,260 |
|
| 45,337 |
|
| 35,554 |
|
| 24,776 |
|
| 19,482 |
|
Research and development costs |
|
| 11,350 |
|
| 10,166 |
|
| 8,087 |
|
| 6,903 |
|
| 6,139 |
|
|
|
| ||||||||||||||
Income from operations |
|
| 59,389 |
|
| 50,878 |
|
| 35,818 |
|
| 24,613 |
|
| 16,640 |
|
Interest income |
|
| 2,661 |
|
| 3,306 |
|
| 2,108 |
|
| 876 |
|
| 386 |
|
Other income |
|
| 953 |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
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| ||||||||||||||
| ||||||||||||||||
Income before provision for income taxes |
|
| 63,003 |
|
| 54,184 |
|
| 37,926 |
|
| 25,489 |
|
| 17,026 |
|
Provision for income taxes |
|
| 22,925 |
|
| 20,952 |
|
| 14,604 |
|
| 9,380 |
|
| 6,626 |
|
|
|
| ||||||||||||||
Net income |
| $ | 40,078 |
| $ | 33,232 |
| $ | 23,322 |
| $ | 16,109 |
| $ | 10,400 |
|
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|
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|
|
|
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|
Basic net income per share |
| $ | 1.47 |
| $ | 1.24 |
| $ | 0.88 |
| $ | 0.63 |
| $ | 0.42 |
|
Diluted net income per share |
| $ | 1.44 |
| $ | 1.21 |
| $ | 0.85 |
| $ | 0.61 |
| $ | 0.40 |
|
Basic weighted average shares outstanding |
|
| 27,298 |
|
| 26,882 |
|
| 26,413 |
|
| 25,744 |
|
| 24,872 |
|
Diluted weighted average shares outstanding |
|
| 27,770 |
|
| 27,550 |
|
| 27,356 |
|
| 26,406 |
|
| 25,932 |
|
|
|
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|
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|
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|
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|
Balance Sheet Data (at end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 59,046 |
| $ | 60,028 |
| $ | 57,255 |
| $ | 51,157 |
| $ | 51,395 |
|
Working capital |
| $ | 79,932 |
| $ | 76,616 |
| $ | 61,724 |
| $ | 55,111 |
| $ | 53,415 |
|
Total assets |
| $ | 187,908 |
| $ | 150,681 |
| $ | 122,247 |
| $ | 99,442 |
| $ | 86,678 |
|
Total liabilities |
| $ | 74,203 |
| $ | 59,435 |
| $ | 49,838 |
| $ | 36,711 |
| $ | 25,673 |
|
Total shareholders’ equity |
| $ | 113,705 |
| $ | 91,246 |
| $ | 72,409 |
| $ | 62,731 |
| $ | 61,005 |
|
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The
| • | 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 2 to the Consolidated Financial Statements included in this Report. | |
| • | 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 and discussions of our contractual obligations and commitments as of March 31, 2010. | |
| • | 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. |
29
30
We believe revenue recognition, valuation of marketable securities, the allowance for doubtful accounts, capitalized software costs, share-based compensation and income taxes are among the most critical accounting policies that affect our consolidated financial statements.
Revenue Recognition. We currently recognize revenue pursuant to SOP 97-2, as amended by SOP 98-9. We generate revenue from the sale of licensing rights to use our software products sold directly to end-users and value-added resellers (VARs). We also generate revenue from sales of hardware and third party software, and implementation, training, software customization, EDI, post-contract support (“maintenance”) and other services performed for customers who license our products.
A typical system contract contains multiple elements of the above items. SOP 97-2, as amended, requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of those elements. The fair value of an element must be based on vendor specific objective evidence (VSOE). We limit our assessment of VSOE for each element to either the price charged when the same element is sold separately (using a rolling average of stand alone transactions) or the price established by management having the relevant authority to do so, for an element not yet sold separately. VSOE calculations are updated and reviewed at the end of each quarter or annually depending on the nature of the product or service.
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, provided for under SOP 98-9, is used. Under the residual method, we defer revenue related to the undelivered elements in a system sale based on VSOE of fair value of each of the undelivered elements, and allocate the remainder of the contract price net of all discounts to revenue
recognized from the delivered elements. Undelivered elements of a system sale may include implementation and training services, hardware and third party software, maintenance, future purchase discounts, or other services. 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.
We bill for the entire contract amount upon contract execution except for maintenance which is billed separately. Amounts billed in excess of the amounts contractually due are recorded in accounts receivable as advance billings. Amounts are contractually due when services are performed or in accordance with contractually specified payment dates. Provided the fees are fixed and determinable and collection is considered probable, revenue from licensing rights and sales of hardware and third party software is generally recognized upon shipment and transfer of title. In certain transactions whose collections risk is high, the cash basis method is used to recognize revenue. 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 of 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 our arrangements must includebelieve the following characteristics:
| ||
| Revenue Recognition | Judgments and Uncertainties | |
| We generate revenue from the sale of licensing rights to use our software products sold directly to end-users and value-added resellers, or VARs. We also generate revenue from sales of hardware and third party software, implementation, training, software customization, EDI, post-contract support (maintenance) and other services, including RCM services, performed for customers who license our products. Revenue from implementation and training services is recognized as the corresponding services are performed. Maintenance revenue is recognized ratably over the contractual maintenance period. RCM revenue is derived from services fees, which include amounts charged for ongoing billing and other related services and are generally billed to the customer as a percentage of total collections. We do not recognize revenue for services fees until these collections are made as the services fees are not fixed or determinable until such time. | A typical system contract contains multiple elements of the above items. FASB ASC Topic 985-605-25,Software, Revenue Recognition, Multiple Elements,or ASC 985-605-25, requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of those elements. The fair value of an element must be based on vendor specific objective evidence (“VSOE”). We limit our assessment of VSOE for each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not yet sold separately. VSOE calculations are updated and reviewed at the end of each quarter or annually depending on the nature of the product or service. We have established VSOE for the related undelivered elements based on the bell-shaped curve method. Maintenance VSOE for our largest customers is based on stated renewal rates only if the rate is determine d to be substantive and falls within our customary pricing practices. When evidence of fair value exists for the undelivered elements only, the residual method, provided for under ASC 985-605, is used. Under the residual method, we defer revenue related to the undelivered elements in a system sale based on VSOE of fair value of each of the undelivered elements, and allocate the remainder of the contract price net of all discounts to revenue recognized from the delivered elements. Undelivered elements of a system sale may include implementation and training services, hardware and third party software, maintenance, future purchase discounts, or other services. 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. We bill for the entire system sales contract amount upon contract execution, except for maintenance which is billed separately. Amounts billed in excess of the amounts contractually due are recorded in accounts receivable as advance billings. Amounts are contractually due when services are performed or in accordance with contractually specified payment dates. 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 shipment and transfer of title. In certain transactions whose collections risk is high, the cash basis method is used to recognize revenue. 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 of 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 our arrangements must include the following characteristics: | |
| • 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 | ||
| • Payment terms must not be considered extended. If a significant portion of the fee is due more than 12 months after delivery or after the expiration of the license, the fee is presumed not fixed |
Revenue from implementation and training services is recognized as the corresponding services are performed. Maintenance revenue is recognized ratably over the contractual maintenance period.
31
Contract accounting is applied where services include significant software modification, development or customization. In such instances, the arrangement fee is accounted for in accordance with Statement of Position No. 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (SOP 81-1).
Pursuant to SOP 81-1, we use the percentage of completion method provided all of the following conditions exist:
| ||
| Revenue Recognition (continued) | Effect if Actual Results Differ from Assumptions | |
| Although we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in revenue that could be material. | ||
Valuation of Marketable Securities and ARS Put Option Rights Our investments at March 31, 2010 and 2009 are in tax exempt municipal ARS which are classified as either current or non-current marketable securities on our Consolidated Balance Sheets, depending on the liquidity and timing of expected realization of such securities. Our ARS are held by UBS Financial Services Inc.. On November 13, 2008, we entered into an Auction Rate Security Rights Agreement with UBS, whereby the we accepted UBS’s offer to purchase the Company’s ARS investments at any time during the period of June 30, 2010 through July 2, 2012. As a result, we had obtained an asset, ARS put option rights, whereby the we have a right to “put” the ARS back to UBS. We expect to exercise its ARS put option rights and put its ARS back to UBS on June 30, 2010, the earliest date allowable under the Rights Agreement. | Judgments and Uncertainties Marketable securities are recorded at fair value, based on quoted market rates or on valuation analysis when appropriate. The The fair value of our marketable securities has been estimated by management based on certain assumptions of what market participants would use in pricing the asset in a current transaction, or level 3 — unobservable inputs in accordance with FASB ASC Topic 820-10,Fair Value Measurements and Disclosures-Overall, or ASC 820-10. Management used a model to estimate the fair value of these securities that Effect if Actual Results Differ from Assumptions Although we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or | |
| Allowance for Doubtful Accounts | Judgments and Uncertainties | |
| We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We perform credit evaluations of our customers and maintain reserves for estimated credit losses. Reserves for potential credit losses are determined by establishing both specific and general reserves. | Specific reserves are based on management’s estimate of the probability of collection for certain troubled accounts. General reserves are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances net of deferred revenue and specifically reserved accounts. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances would be required. Effect if Actual Results Differ from Assumptions Although we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in required reserves that could be material. |
32
| Software Development Costs | Judgments and Uncertainties | |
| Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. After technological feasibility is established with the completion of a working model of the enhancement or product, any additional development costs are capitalized in accordance with FASB ASC Topic985-20,Software, Costs of Computer Software to be | We perform an annual review of the recoverability of such capitalized software costs. At the time a determination is made that capitalized amounts are not recoverable based on the estimated cash flows to be Effect if Actual Results Differ from Assumptions Although we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in revenue that could be material. | |
| Goodwill | Judgments and Uncertainties | |
| Goodwill is related to the NextGen Division and the | In accordance with FASB ASC Topic 350-20,Intangibles — Goodwill and Other, Goodwill, or ASC 350-20, we test goodwill for impairment annually at the end of | |
|
| Effect if Actual Results Differ from Assumptions |
| We | |
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| The carrying values of |
We measure completion using labor input hours. Costs of providing services, including services accounted for in accordance with SOP 81-1, are expensed as incurred.
If a situation occurs in which a contract is so short term that the consolidated financial statements would not vary materially from using the percentage-of-completion method or in which we are unable to make reliable estimates of progress of completion of the contract, the completed contract method is utilized.
Product returns are estimated in accordance with Statement of Financial Accounting Standards No. 48, “Revenue Recognition When Right of Return Exists” (SFAS 48). The Company also ensures that the other criteria in SFAS 48 have been met prior to recognition of revenue:
| goodwill at March 31, 2010 were $46.2 million. We have determined that there was no risk of impairment to our goodwill as of March 31, 2010. | ||
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33
Business Combinations — Purchase Price Allocations During the last three fiscal years, we completed three significant acquisitions: In February 2010, we acquired Opus for $20.6 million. In October 2008, we acquired PMP for $19.7 million, including transaction costs. In May 2008, we acquired HSI for $15.6 million, including transaction costs. | Judgments and Uncertainties In accordance with business combination accounting under FASB ASC Topic 805,Business Combinations, or ASC 805, we allocate the purchase price of | |
|
| Effect if Actual Results Differ from Assumptions |
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| |
| We do not | |
| Intangible Assets | Judgments and Uncertainties | |
| Intangible assets consist of capitalized software costs, customer relationships, trade names and certain intellectual property. Intangible assets related to customer relationships and trade names arose in connection with the acquisition of HSI, PMP, Opus, and Sphere. | These intangible assets were recorded at fair value and are stated net of accumulated amortization and impairments. Intangible assets are amortized over their remaining estimated useful lives, ranging from 3 to 9 years. Our amortization policy for | |
| Effect if Actual Results Differ from Assumptions | ||
| Although we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to decreases in the fair value of our intangible assets, resulting in impairment charges that could be material. | ||
| Share-Based Compensation | Judgments and Uncertainties | |
| We have a stock-based compensation plan, which includes stock options and restricted stock units. See Note 2, “Summary of Significant Accounting Policies,” and Note 13, Consolidated Financial Statements of this Report for a complete discussion of our stock-based compensation programs. | We apply the provisions of FASB ASC Topic 718,Compensation — Stock Compensation,or ASC 718, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. ASC 718 requires us to estimate the fair value of “Share-Based Awards,” to the share-based payment awards on the date of grant using an option-pricing model. We estimate the expected term of the option using historical exercise experience. We estimate volatility by using the |
34
| Share-Based Compensation (continued) | Effect if Actual Results Differ from Assumptions | |
| We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material. | ||
| Self-Insured Liabilities | Judgments and Uncertainties | |
| Effective January 1, 2010, the Company became self-insured with respect to healthcare claims, subject to stop-loss limits. The Company accrues for estimated self-insurance costs and uninsured exposures based on claims filed and an estimate of claims incurred but not reported as of each balance sheet date. However, it is possible that recorded accruals may not be adequate to cover the future payment of claims. Adjustments, if any, to estimated accruals resulting from ultimate claim payments will be reflected in earnings during the periods in which such adjustments are determined. | Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported at the balance sheet date. Effect if Actual Results Differ from Assumptions We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our self-insured liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. |
We have historically offered short-term rights of return of less than 30 days in certain sales arrangements. If we are able to estimate returns for these types of arrangements, revenue is recognized and these arrangements are recorded in the consolidated financial statements. If we are unable to estimate returns for these types of arrangements, revenue is not recognized in our consolidated financial statements until the rights of return expire.
Revenue related to sales arrangements which include the right to use software stored on the Company’s hardware are accounted for under the Emerging Issues Task Force Issue No. 00-3 “Application of AICPA Statement of Position 97-2 to arrangements that include the right to use software stored on another entity’s hardware”. EITF No. 00-3 requires that for software licenses and related implementation services to continue to fall under SOP No. 97-2, the customer must have the contractual right to take possession of the software without incurring a significant penalty and it must be feasible for the customer to either host the software themselves or through another third party. If an arrangement is not deemed to be accounted for under SOP 97-2, the entire arrangement is accounted for as a service contract in accordance with EITF Issue No. 00-21 “Revenue arrangements with multiple deliverables”. In that instance, the entire arrangement would be recognized as the hosting services are being performed.
From time to time, we offer future purchase discounts on our products and services as part of our sales arrangements. Pursuant to AICPA TPA 5100.51, discounts which are incremental to the range of discounts reflected in the pricing of the other elements of the arrangement, which are incremental to the range of discounts typically given in comparable transactions, and which 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 is divided into two categories, “system sales” and “maintenance, EDI 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 purchase of the Company’s software systems. The majority of the revenue in the system sales category is related to the sale of software. Revenue in the maintenance, EDI and other services category includes, maintenance, EDI, follow on training and implementation services, annual third party license fees and other revenue.
Overview of Our Results • 35Valuation of marketable securities. Marketable securities are classified as available-for-sale and accordingly are recorded at fair value, based on quoted market rates or on valuation analysis when appropriate, with unrealized gains and losses reflected as a separate component of shareholders’ equity titled accumulated other comprehensive income (loss), net of tax, until realized or until a determination is made that an other-than-temporary decline in market value has occurred. Factors considered in assessing whether an other-than-temporary impairment has occurred include: the nature of the investment; whether the decline in fair value is attributable to specific adverse conditions affecting the investment; the financial condition of the investee; the severity and the duration of the impairment; and whether the Company has the ability to hold the investment to maturity. When it is determined that an other-than-temporary impairment has occurred, the investment is written down to its market value at the end of the period in which it is determined that an other-than-temporary decline has occurred. The cost of marketable securities sold is based upon the specific identification method. In addition, the Company classifies marketable securities as current or non-current based upon whether such assets are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. Realized gains or losses and other-than-temporary declines in the fair value of marketable securities are determined on a specific identification basis and reported in interest and other income, net, as incurred.Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We perform credit evaluations of our customers and maintain reserves for estimated credit losses. Reserves for potential credit losses are determined by establishing both specific and general reserves. Specific reserves are based on management’s estimate of the probability of collection for certain troubled accounts. General reserves are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances net of deferred revenue and specifically reserved accounts. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances would be required.Software Development Costs. Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. After technological feasibility is established with the completion of a working model of the enhancement or product, any additional developmentcosts are capitalized in accordance with Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (SFAS 86). Such capitalized costs are amortized on a straight line basis over the estimated economic life of the related product, which is generally three years. We perform an annual review of the recoverability of such capitalized software costs. At the time 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.Share-Based Compensation. On April 1, 2006, we adopted Statement of Financial Accounting Standard No. 123R, “Share-Based Payment” (SFAS 123R) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123R supersedes our previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). SFAS 123R requires us to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. During fiscal year 2007 and 2008, we used the simplified method for estimating expected term equal to the midpoint between the vesting period and the contractual term. Prior to using the simplified method, we estimated the expected term of an option. We estimate volatility by using the weighted average historical volatility of our common stock, which we believe 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. Those inputs are then entered into the Black Scholes model to determine the estimated fair value. The value of the portion of the award that is expected to vest is recognized as expense over the requisite service period in our consolidated statement of income.Research and Development Tax Credits. Management’s treatment of research and development tax credits represented a significant estimate which affected the effective income tax rate for the Company for the year ended March 31, 2008 and 2007. Research and development credits taken by the Company involve certain assumptions and judgments regarding qualified expenses under Internal Revenue Code Section 41. These credits are subject to examination by the federal and state taxing authorities.During each of the years ended March 31, 2008 and 2007, we recognized approximately $0.8 million in credits related to research and development. The Company expects to capture this benefit on its tax returns.Qualified Production Activities Deduction. Management’s treatment of this deduction represented an estimate that affected the effective income tax rate for the Company for the years ended March 31, 2008 and 2007. The deduction taken by the Company involved certain assumptions and judgments regarding the allocation of indirect expenses as prescribed under Internal Revenue Code Section 199.During the years ended March 31, 2008 and 2007, we recognized approximately $3.1 million and $1.5 million, respectively, in deductions related to the qualified production activities deduction (QPAD) under Internal Revenue Code (IRS). The QPAD calculation was determined using interim guidance provided by proposed IRS Regulations and Notices. The Company expects to capture this benefit on its tax returns.•Total Company• Our total revenue increased 18.7%18.9% and income from operations grew 16.7%4.6% on a consolidated basis for the year ended March 31, 2008. This performance2010. Revenue was drivenpositively impacted by growth in our NextGen Division,recurring revenue, including maintenance, EDI and RCM revenue, which grew 22.4%, 18.7% and 71.1% respectively, offset by decreaseshigher corporate expenses.• Uncertainty over the final rules regarding incentive payments tied to the ARRA continued to negatively impact system sales revenue in revenue and operating incomefiscal year 2010. We have made investments in our QSI Divisionsales and higher corporate expenses.marketing areas in anticipation of receiving the final rules related to the ARRA.•The• Our year over year growth in revenue and operating income for the company during the year ended March 31, 2008 trailed2010 was partially attributable to the growth rates achieved duringHSI and PMP acquisitions. HSI and PMP combined generated $42.7 million of revenue for fiscal year 2010 as compared to a total of $24.4 million of revenue for the ten and five months of respective results in fiscal year ended March 31, 2007 due in part to2009.• Operating income was negatively impacted by a shift in revenue mix with an increased share of hardware, EDI, and RCM revenue, resulting in a decline in our gross profit margin. We also experienced higher selling, general and administrative expenses primarily due to higher selling related expenses incurred in preparation for the year, with hardware and EDI revenue accounting for a comparativelyARRA, which was enacted in February 2009, as well as higher percentage of revenue and system sales accounting for a comparatively lower percentage of revenue than the year prior.corporate related expenses.•We do not believe the revenue mix changes noted above represent a change in the overall purchasing environment. WeOn top of the potential benefits from the ARRA, we have benefited and hope to continue to benefit from the increased demands on healthcare providers for greater efficiency and lower costs, as well as increased adoption rates offor electronic medical records and other technology in the healthcare arena.• While we expect to benefit from the increasing demands for greater efficiency as well as government support for increased adoption of electronic health records, the current economic environment, combined with unpredictability of the federal government’s plans to promote increased adoption of electronic medical records, makes the near term achievement of such benefits and, ultimately, their impact on system sales, uncertain.
• • • • •NextGen Division revenue grew 21.3%increased 13.6% in the year ended March 31, 2010 and divisional operating income (excluding unallocated corporate expenses) increased 8.3% from operations increased 18.2%the year ended March 31, 2009. Organic revenue growth in the NextGen Division was 11.6% and 20.4% for the years ended March 31, 2010 and 2009, respectively.• The acquisitions of Opus and Sphere in fiscal year 2010 added approximately $2.9 million in revenue for the year ended March 31, 2008.2010 and $0.7 million in additional operating income in the same period a year ago.•The Divisions’• Recurring revenue, consisting of maintenance and EDI revenue, represented $111.9 million and accounted for 48.3% of total NextGen Division revenue during fiscal year over2010. In the same period a year growth inago, recurring revenue and operating income for the Company duringrepresented 44.3% of total NextGen Division revenue, or $90.3 million.• During the year ended March 31, 2008 trailed the growth rates achieved during the year ended March 31, 2007 due in part to a shift in the revenue mix for the year, with hardware and EDI revenue accounting for a comparatively higher percentage of revenue and new systems sales accounting for a comparatively lower percentage of revenue than in the year prior.•Divisional headcount additions drove selling, general and administrative expenses to increase at a slightly faster pace than revenue as2010, we added staffing resources to departments including sales, marketing, support, software development, and administration andin anticipation of future growth from the ARRA. We intend to docontinue doing so in fiscal year 2009, as business conditions andfuture periods to maximize our opportunities from the hiring environment allow.•Our goals include taking maximum advantage of future benefits related to the ARRA and continuing to further enhance and expand the marketing and sales of our existing products, developing new products for targeted markets, continuing to add new customers, selling additional software and services to existing customers, and expanding penetration of connectivity and other services to new and existing customers.customers, and capitalizing on growth and cross selling opportunities within the Practice Solutions Division and the recently acquired acute care software product lines.•QSI Dental Division revenue decreased 3.3%increased 8.1% in the year ended March 31, 20082010 and Divisionaldivisional operating income decreased 16.6% (excluding unallocated corporate expenses) increased 2.2% from the year ended March 31, 2007. Divisional revenue and operating income performance for the Division, while below fiscal year 2007 levels, were within the Division’s historical performance range.2009.•A drop• An increase in annualsystem sales revenue slight changesoffset by an increase in the Division’s sales mix in favor of lower margin hardwareselling, general and EDI products, and additional compensationadministrative expenses related to the passing of the Division’s lead executive were the chief contributors to the operating income decline.results in fiscal year 2010.•In July 2009, we licensed source code from PlanetDDS, Inc. that will allow us to deliver hosted, web-based SaaS practice management and clinical software solutions to the dental industry. The software solution will be marketed primarily to the multi-location dental group practice market in which the Division has historically been a dominant player. This new software solution (NextDDS) brings the QSI Dental Division to the forefront of the emergence of internet based applications and cloud computing and represents a significant growth opportunity for us to sell both to our existing customer base as well as new customers. • Our goalsgoal for the QSI Dental Division include maximizing revenue andis to maximize profit performance given the constraints presentrepresented by a relatively weak purchasing environment in the dental group practice market while taking advantage of opportunities with the new NextDDS product. The QSI Dental Division also intends to leverage the NextGen Division’s target market.sales force to sell its dental electronic medical records software to practices that provide both medical and dental services such as Federal Qualified Health Centers, which are receiving grants as part of the ARRA.• Practice Solutions Division revenue increased 67.5% in the year ended March 31, 2010 and divisional operating income (excluding unallocated corporate expenses) decreased 5.7% from the year ended March 31, 2009. A significant driver of the increase in revenue was that fact that fiscal year 2010 included a full year of results for HSI and PMP versus approximately ten and five months of respective results in fiscal year 2009. The Practice Solutions Division also benefited from organic growth achieved through cross selling RCM services to existing NextGen Division customers.
36
| • | Operating income as a percentage of revenue declined to approximately 5.4% of revenue versus 9.5% of revenue primarily as a result of a smaller amount of software sales to RCM customers compared to the prior year as well as costs related to transitioning to the NextGen platform including training of staff and initial set up and other costs related to achieving higher production volumes. |
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(Unaudited) |
| Year Ended March 31, |
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| 2008 |
| 2007 |
| 2006 |
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Revenues: |
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Software, hardware and supplies |
| 40.9 | % | 43.8 | % | 46.0 | % |
Implementation and training services |
| 7.2 |
| 7.8 |
| 9.5 |
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System sales |
| 48.1 |
| 51.6 |
| 55.5 |
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Maintenance |
| 30.3 |
| 26.7 |
| 26.1 |
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Electronic data interchange services |
| 12.0 |
| 10.8 |
| 11.1 |
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Other services |
| 9.6 |
| 10.9 |
| 7.3 |
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Maintenance, EDI and other services |
| 51.9 |
| 48.4 |
| 44.5 |
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Total revenue |
| 100.0 |
| 100.0 |
| 100.0 |
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Cost of revenue: |
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Software, hardware and supplies |
| 5.8 |
| 5.4 |
| 6.8 |
|
Implementation and training services |
| 5.5 |
| 5.5 |
| 6.8 |
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Total cost of system sales |
| 11.3 |
| 10.9 |
| 13.6 |
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Maintenance |
| 6.7 |
| 7.5 |
| 9.2 |
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Electronic data interchange services |
| 8.5 |
| 7.7 |
| 7.2 |
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Other services |
| 7.0 |
| 6.2 |
| 3.4 |
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Total cost of maintenance, EDI and other services |
| 22.2 |
| 21.4 |
| 19.8 |
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Total cost of revenue |
| 33.5 |
| 32.3 |
| 33.4 |
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Gross profit |
| 66.5 |
| 67.7 |
| 66.6 |
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Selling, general and administrative |
| 28.6 |
| 28.8 |
| 29.8 |
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Research and development |
| 6.1 |
| 6.5 |
| 6.8 |
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Income from operations |
| 31.8 |
| 32.4 |
| 30.0 |
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Interest income |
| 1.4 |
| 2.1 |
| 1.8 |
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Other income |
| 0.5 |
| 0.0 |
| 0.0 |
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Income before provision for income taxes |
| 33.7 |
| 34.5 |
| 31.8 |
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Provision for income taxes |
| 12.3 |
| 13.3 |
| 12.2 |
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Net income |
| 21.4 | % | 21.1 | %* | 19.6 | % |
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* doesIncome (certain percentages below may not footsum due to roundingrounding):
| Year Ended March 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (Unaudited) | ||||||||||||
| Revenues: | ||||||||||||
| Software, hardware and supplies | 30.8 | % | 34.8 | % | 40.9 | % | ||||||
| Implementation and training services | 4.9 | 5.4 | 7.2 | |||||||||
| System sales | 35.7 | 40.2 | 48.1 | |||||||||
| Maintenance | 30.6 | 29.7 | 30.3 | |||||||||
| Electronic data interchange services | 12.0 | 12.0 | 12.0 | |||||||||
| Revenue cycle management and related services | 12.6 | 8.7 | 0.5 | |||||||||
| Other services | 9.2 | 9.3 | 9.1 | |||||||||
| Maintenance, EDI, RCM and other services | 64.3 | 59.8 | 51.9 | |||||||||
| Total revenues | 100.0 | 100.0 | 100.0 | |||||||||
| Cost of revenue: | ||||||||||||
| Software, hardware and supplies | 4.2 | 5.4 | 5.8 | |||||||||
| Implementation and training services | 4.1 | 4.2 | 5.5 | |||||||||
| Total cost of system sales | 8.3 | 9.6 | 11.4 | |||||||||
| Maintenance | 4.6 | 4.8 | 6.7 | |||||||||
| Electronic data interchange services | 8.7 | 8.7 | 8.5 | |||||||||
| Revenue cycle management and related services | 9.5 | 6.0 | 0.3 | |||||||||
| Other services | 7.0 | 7.1 | 6.7 | |||||||||
| Total cost of maintenance, EDI, RCM and other services | 29.7 | 26.6 | 22.1 | |||||||||
| Total cost of revenue | 38.0 | 36.2 | 33.5 | |||||||||
| Gross profit | 62.0 | 63.8 | 66.5 | |||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | 29.8 | 28.3 | 28.6 | |||||||||
| Research and development costs | 5.7 | 5.6 | 6.1 | |||||||||
| Amortization of acquired intangible assets | 0.6 | 0.4 | 0.0 | |||||||||
| Total operating expenses | 36.1 | 34.3 | 34.6 | |||||||||
| Income from operations | 25.9 | 29.5 | 31.8 | |||||||||
| Interest income | 0.1 | 0.5 | 1.4 | |||||||||
| Other income (expense) | 0.1 | (0.1 | ) | 0.5 | ||||||||
| Income before provision for income taxes | 26.1 | 29.9 | 33.8 | |||||||||
| Provision for income taxes | 9.5 | 11.1 | 12.3 | |||||||||
| Net income | 16.6 | % | 18.8 | % | 21.5 | % | ||||||
37
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| an 18.9% increase in consolidated |
| • | a |
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| an increase of recurring revenue, including RCM, maintenance, and EDI revenue, offset by |
| • | an increase in selling, general and administrative expenses as a percentage of | |
| • | a decrease in |
The above increases to net income were offset by a decline in gross profit margin resulting from a greater proportion of revenue being derived from hardware and EDI revenue which have relatively lower gross margin percentages. The gross profit margin declined to 66.5% in the year ended March 31, 2008 versus 67.7% in the prior year period.
Practice Solutions Division revenue was impacted positively in fiscal year 2010 as a result of including a full year of results versus approximately ten and five months of results for HSI and PMP, respectively, in fiscal year 2009. training services.20082010 increased 18.7%18.9% to $186.5$291.8 million from $157.2$245.5 million for the year ended March 31, 2007. Revenue for2009. NextGen Division revenue increased 13.6% to $231.6 million from $204.0 million in the year ended March 31, 2007 increased 31.8% to $157.2 million from $119.3 million for the year ended March 31, 2006. NextGen2009 while QSI Dental Division revenue increased 21.3% from $140.6 million to approximately $170.5 million in the period ended March 31, 2008, while QSI Division revenue decreased by 3.3%8.1% during that same period to $17.1 million from $16.6$15.9 million and Practice Solutions Division revenue increased 67.5% during that same period to $16.0$43.1 million from $25.7 million.services”.services.” Revenue in the system sales category includes software license fees, third party hardware and software, and implementation and training services related to purchase of the Company’sour software systems. The majority of the revenue in the system sales category is related to the sale of software. Revenue in the maintenance, EDI, RCM and other services category includes maintenance, EDI, RCM, follow-on training and implementation services, annual third party license fees, hosting and other services revenue. Maintenance revenue includes amounts initially deferred in conjunction with new customer arrangements and subsequently amortized and billings to existing customers.SalesSales.. Revenue earned from Company-wide sales of systems for the year ended March 31, 20082010 increased 10.8%5.4% to $89.8$104.1 million from $81.0$98.8 million in the prior year.12.2%5.1% increase in category revenue at our NextGen Division whose sales in this category grew from $77.7$93.3 million during the year ended March 31, 20072009 to $87.1$98.1 million during the year ended March 31, 2008.2010. This increase was driven primarily by higher sales of NextGenemrambulatory practice management and NextGenepmhealth records software to both new and existing clients, as well as an increaseincreases in the delivery ofrevenue related to implementation services offset by a decline in the sale of related hardware, third party software and supplies.decreasedincreased to approximately $2.6$3.9 million in the year ended March 31, 20082010 from $3.4$3.0 million in the year ended March 31, 2007.2009 while systems sales revenue in the Practice Solutions Division decreased to approximately $2.1 million in the year ended March 31, 2010 from $2.4 million in the year ended March 31, 2009. Systems sales in the QSI Dental Division was positively impacted by greater joint sales of dental and medical software to Federally Qualified Health Centers.
38
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Year ended March 31, 2008 |
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QSI Division |
| $ | 360 |
| $ | 1,134 |
| $ | 1,154 |
| $ | 2,648 |
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NextGen Division |
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| 69,276 |
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| 5,593 |
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| 12,252 |
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| 87,121 |
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Consolidated |
| $ | 69,636 |
| $ | 6,727 |
| $ | 13,406 |
| $ | 89,769 |
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Year ended March 31, 2007 |
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QSI Division |
| $ | 355 |
| $ | 2,356 |
| $ | 655 |
| $ | 3,366 |
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NextGen Division |
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| 62,957 |
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| 3,203 |
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| 11,522 |
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| 77,682 |
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Consolidated |
| $ | 63,312 |
| $ | 5,559 |
| $ | 12,177 |
| $ | 81,048 |
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| Hardware, Third | Implementation | |||||||||||||||
| Party Software | and Training | Total System | ||||||||||||||
| Software | and Supplies | Services | Sales | |||||||||||||
| Year ended March 31, 2010 | ||||||||||||||||
| QSI Dental Division | $ | 1,699 | $ | 1,409 | $ | 825 | $ | 3,933 | ||||||||
| NextGen Division | 79,832 | 4,944 | 13,284 | 98,060 | ||||||||||||
| Practice Solutions Division | 1,877 | — | 267 | 2,144 | ||||||||||||
| Consolidated | $ | 83,408 | $ | 6,353 | $ | 14,376 | $ | 104,137 | ||||||||
| Year ended March 31, 2009 | ||||||||||||||||
| QSI Dental Division | $ | 915 | $ | 1,171 | $ | 938 | $ | 3,024 | ||||||||
| NextGen Division | 74,128 | 6,775 | 12,437 | 93,340 | ||||||||||||
| Practice Solutions Division | 2,397 | — | — | 2,397 | ||||||||||||
| Consolidated | $ | 77,440 | $ | 7,946 | $ | 13,375 | $ | 98,761 | ||||||||
Sales of additional licenses2010, compared to existing customers grew to $31.3 million79.4% during the year ended March 31, 2008 compared2009. Software license revenue growth continues to $23.3be an area of primary emphasis for the NextGen Division. The Opus acquisition contributed approximately $0.9 million to the NextGen Division’s software license revenue during the prior year as an increasing number of customers who expanded their use of our software in their practices and purchased additional licenses.
ended March 31, 2010.
customers. The inclusion of hardware and third party software in the Division’s sales arrangements is typically at the request of the customer and is not a priority focus for us.
39
Practice Solutions Division is composed of sales to existing RCM customers only.
|
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| |||||||||||
|
| Maintenance |
| EDI |
| Other |
| Total |
| ||||
|
|
|
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|
| ||||||||
Year ended March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
QSI Division |
| $ | 7,186 |
| $ | 4,564 |
| $ | 1,639 |
| $ | 13,389 |
|
NextGen Division |
|
| 49,269 |
|
| 17,886 |
|
| 16,187 |
|
| 83,342 |
|
|
|
|
|
|
| ||||||||
Consolidated |
| $ | 56,455 |
| $ | 22,450 |
| $ | 17,826 |
| $ | 96,731 |
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| ||||||||
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Year ended March 31, 2007 |
|
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|
|
|
|
QSI Division |
| $ | 7,081 |
| $ | 4,529 |
| $ | 1,615 |
| $ | 13,225 |
|
NextGen Division |
|
| 34,867 |
|
| 12,520 |
|
| 15,505 |
|
| 62,892 |
|
|
|
|
|
|
| ||||||||
Consolidated |
| $ | 41,948 |
| $ | 17,049 |
| $ | 17,120 |
| $ | 76,117 |
|
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|
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|
|
| ||||||||
2009:
| Revenue Cycle | ||||||||||||||||||||
| Maintenance | EDI | Management | Other | Total | ||||||||||||||||
| Year ended March 31, 2010 | ||||||||||||||||||||
| QSI Dental Division | $ | 7,217 | $ | 5,038 | $ | — | $ | 940 | $ | 13,195 | ||||||||||
| NextGen Division | 81,867 | 29,997 | — | 21,697 | 133,561 | |||||||||||||||
| Practice Solutions Division | 108 | — | 36,665 | 4,145 | 40,918 | |||||||||||||||
| Consolidated | $ | 89,192 | $ | 35,035 | $ | 36,665 | $ | 26,782 | $ | 187,674 | ||||||||||
| Year ended March 31, 2009 | ||||||||||||||||||||
| QSI Dental Division | $ | 7,167 | $ | 4,766 | $ | — | $ | 894 | $ | 12,827 | ||||||||||
| NextGen Division | 65,559 | 24,756 | — | 20,299 | 110,614 | |||||||||||||||
| Practice Solutions Division | 136 | — | 21,431 | 1,746 | 23,313 | |||||||||||||||
| Consolidated | $ | 72,862 | $ | 29,522 | $ | 21,431 | $ | 22,939 | $ | 146,754 | ||||||||||
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| |||||||||||||||||
|
| NextGen |
| QSI |
| Consolidated |
| ||||||||||||
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| |||||||||||||||
|
| Maintenance |
| EDI |
| Maintenance |
| EDI |
| Maintenance |
| EDI |
| ||||||
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|
March 31, 2007 |
|
| 982 |
|
| 769 |
|
| 257 |
|
| 173 |
|
| 1,239 |
|
| 942 |
|
Billing sites added |
|
| 194 |
|
| 289 |
|
| 9 |
|
| 29 |
|
| 203 |
|
| 318 |
|
Billing sites removed |
|
| (47 | ) |
| (65 | ) |
| (15 | ) |
| (37 | ) |
| (62 | ) |
| (102 | ) |
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|
March 31, 2008 |
|
| 1,129 |
|
| 993 |
|
| 251 |
|
| 165 |
|
| 1,380 |
|
| 1,158 |
|
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|
| ||||||||||||
revenue.Revenue. Cost of revenue for the year ended March 31, 20082010 increased 23.1%24.7% to $62.5$110.8 million from $50.8$88.9 million for the year ended March 31, 2007, while2009 and the cost of revenue as a percentage of net revenue increased to 33.5%38.0% from 32.3%. Our consolidated gross profit is affected by the level of hardware content included in system sales, the percentage of EDI revenue in our overall sales mix, and certain headcount expenses directly related36.2% due to the fact that the rate of growth in cost of delivering our products and services. Consolidated gross profitrevenue grew faster than the aggregate revenue growth rate for fiscal year 2008 was impacted by the decline in gross profit percentage at the NextGen Division, offset by a slight increase in gross profit percentage at the QSI Division.Company.
40
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| |||||||||||
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| Year Ended March 31, |
| ||||||||||
|
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| |||||||||||
|
| 2008 |
| % |
| 2007 |
| % |
| ||||
|
|
|
|
|
| ||||||||
QSI Division |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 16,037 |
|
| 100.0 | % | $ | 16,589 |
|
| 100.0 | % |
Cost of revenue |
|
| 7,545 |
|
| 47.0 | % |
| 7,847 |
|
| 47.3 | % |
|
|
|
|
|
| ||||||||
Gross profit |
| $ | 8,492 |
|
| 53.0 | % | $ | 8,742 |
|
| 52.7 | % |
|
|
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|
|
| ||||||||
|
|
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|
|
|
|
|
|
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|
|
NextGen Division |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 170,463 |
|
| 100.0 | % | $ | 140,576 |
|
| 100.0 | % |
Cost of revenue |
|
| 54,956 |
|
| 32.2 | % |
| 42,937 |
|
| 30.5 | % |
|
|
|
|
|
| ||||||||
Gross profit |
| $ | 115,507 |
|
| 67.8 | % | $ | 97,639 |
|
| 69.5 | % |
|
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| ||||||||
|
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|
|
Consolidated |
|
|
|
|
|
|
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|
|
|
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|
|
Revenue |
| $ | 186,500 |
|
| 100.0 | % | $ | 157,165 |
|
| 100.0 | % |
Cost of revenue |
|
| 62,501 |
|
| 33.5 | % |
| 50,784 |
|
| 32.3 | % |
|
|
|
|
|
| ||||||||
Gross profit |
| $ | 123,999 |
|
| 66.5 | % | $ | 106,381 |
|
| 67.7 | % |
|
|
|
|
|
| ||||||||
2009:
| Year Ended March 31, | ||||||||||||||||
| 2010 | % | 2009 | % | |||||||||||||
| QSI Dental Division | ||||||||||||||||
| Revenue | $ | 17,128 | 100.0 | % | $ | 15,851 | 100.0 | % | ||||||||
| Cost of revenue | 7,788 | 45.5 | % | 7,582 | 47.8 | % | ||||||||||
| Gross profit | $ | 9,340 | 54.5 | % | $ | 8,269 | 52.2 | % | ||||||||
| NextGen Division | ||||||||||||||||
| Revenue | $ | 231,621 | 100.0 | % | $ | 203,954 | 100.0 | % | ||||||||
| Cost of revenue | 73,534 | 31.7 | % | 65,311 | 32.0 | % | ||||||||||
| Gross profit | $ | 158,087 | 68.3 | % | $ | 138,643 | 68.0 | % | ||||||||
| Practice Solutions Division | ||||||||||||||||
| Revenue | $ | 43,062 | 100.0 | % | $ | 25,710 | 100.0 | % | ||||||||
| Cost of revenue | 29,485 | 68.5 | % | 15,997 | 62.2 | % | ||||||||||
| Gross profit | $ | 13,577 | 31.5 | % | $ | 9,713 | 37.8 | % | ||||||||
| Consolidated | ||||||||||||||||
| Revenue | $ | 291,811 | 100.0 | % | $ | 245,515 | 100.0 | % | ||||||||
| Cost of revenue | 110,807 | 38.0 | % | 88,890 | 36.2 | % | ||||||||||
| Gross profit | $ | 181,004 | 62.0 | % | $ | 156,625 | 63.8 | % | ||||||||
revenue versus the prior year as well as costs related to transitioning to the NextGen Division platform and otherramp-up costs.
| Hardware, | Payroll and | |||||||||||||||||||||||
| Third Party | Related | Total Cost of | Gross | |||||||||||||||||||||
| Software | Benefits | EDI | Other | Revenue | Profit | |||||||||||||||||||
| Year ended March 31, 2010 | ||||||||||||||||||||||||
| QSI Dental Division | 8.5 | % | 13.8 | % | 16.0 | % | 7.2 | % | 45.5 | % | 54.5 | % | ||||||||||||
| NextGen Division | 2.5 | % | 13.2 | % | 9.5 | % | 6.5 | % | 31.7 | % | 68.3 | % | ||||||||||||
| Practice Solutions Division | 0.5 | % | 43.6 | % | 1.1 | % | 23.3 | % | 68.5 | % | 31.5 | % | ||||||||||||
| Consolidated | 2.5 | % | 17.7 | % | 8.7 | % | 9.1 | % | 38.0 | % | 62.0 | % | ||||||||||||
| Year ended March 31, 2009 | ||||||||||||||||||||||||
| QSI Dental Division | 7.6 | % | 19.8 | % | 17.1 | % | 3.3 | % | 47.8 | % | 52.2 | % | ||||||||||||
| NextGen Division | 3.9 | % | 11.0 | % | 9.1 | % | 8.0 | % | 32.0 | % | 68.0 | % | ||||||||||||
| Practice Solutions Division | 0.2 | % | 45.0 | % | 0.0 | % | 17.0 | % | 62.2 | % | 37.8 | % | ||||||||||||
| Consolidated | 3.7 | % | 15.1 | % | 8.4 | % | 9.0 | % | 36.2 | % | 63.8 | % | ||||||||||||
41
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|
| Hardware, |
| Payroll and |
| Other |
| Total Cost |
| Gross Profit |
| |||||||||||||||
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| ||||||||||||||||||||
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Year ended March 31, 2008 |
|
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|
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|
|
|
|
|
|
|
|
|
QSI Division |
|
|
| 8.0 | % |
|
|
| 19.1 | % |
|
|
| 20.0 | % |
|
|
| 47.0 | % |
|
|
| 53.0 | % |
|
NextGen Division |
|
|
| 3.8 | % |
|
|
| 11.2 | % |
|
|
| 17.3 | % |
|
|
| 32.2 | % |
|
|
| 67.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Consolidated |
|
|
| 4.2 | % |
|
|
| 11.8 | % |
|
|
| 17.5 | % |
|
|
| 33.5 | % |
|
|
| 66.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||||
|
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|
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|
|
|
|
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|
|
|
Year ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QSI Division |
|
|
| 10.0 | % |
|
|
| 17.3 | % |
|
|
| 20.0 | % |
|
|
| 47.3 | % |
|
|
| 52.7 | % |
|
NextGen Division |
|
|
| 3.1 | % |
|
|
| 11.9 | % |
|
|
| 15.5 | % |
|
|
| 30.5 | % |
|
|
| 69.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Consolidated |
|
|
| 3.8 | % |
|
|
| 12.4 | % |
|
|
| 16.1 | % |
|
|
| 32.3 | % |
|
|
| 67.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
the years ended March 31, 2010 and 2009, respectively.
We do not currently intend to make any significant changes to related headcount at the QSI Division.
“Other”, which consists of outside service costs, amortization of software development costs, hosting service costs and other service costs, increased to 17.5% of revenue during the year ended March 31, 2008 from 16.1% during the year ended March 31, 2007.
Should the NextGen Division continue to represent a major and or increasing share of our revenue, our consolidated gross margin percentages should move in concert with those of the NextGen Division.
| • | $9.9 million increase in salaries and related expenses in the NextGen Division primarily as a result of headcount additions; | |
| • | $2.5 million increase in marketing and trade shows in the NextGen Division; | |
| • | $1.5 million increase from the acquisition of Sphere and Opus; | |
| • | $3.3 million increase in corporate related expenses, primarily as a result of headcount additions, and | |
| • | $0.4 million increase in other selling and administrative expenses. |
42
The application of SFAS 123R in fiscal year 2008 and 2007 added approximately $2.5 million in compensation expense to consolidated selling, general and administrative expenses and is included in the aforementioned amounts.
2010.
failures in the ARS market. Our Board of Directors continues to review alternate uses for our cash including, but not limited to, payment of a special dividend, initiation of a stock buyback program, an expansion of our investment policy to include investments with longer maturities of greater than 90 days, or other items. Additionally, it is possible that we will utilize some or all of our cash to fund acquisitions or other similar business activities. Any or all of these programs could significantly impact our investment income in future periods.
approximately $0.3 million.
and a decrease in the state income tax expense.
and development credits and the qualified production activities income deduction taken by us involve certain assumptions and judgments regarding qualification of expenses under the relevant tax code provision.
43
| • | a |
| • | a |
| • | a shift in revenue mix with increased maintenance, EDI and RCM revenue resulting in a decline in our gross profit margin; |
| • | an increase in | |
| • | a decrease in interest income primarily due a greater proportion of funds invested in short-term U.S Treasuries and tax free money market accounts which returned significantly lower interest rates as compared to the prior year. |
20072009 increased 31.8%31.6% to $157.2$245.5 million from $119.3$186.5 million for the year ended March 31, 2006.2008. NextGen Division revenue increased 35.5%34.7% to $229.7 million from $103.7 million to approximately $140.6$170.5 million in the period,year ended March 31, 2008, while QSI Dental Division revenue increaseddecreased by 6.7%1.2% during thethat same period, to $15.9 million from $15.5$16.0 million. NextGen Division revenue is inclusive of approximately $15.6 million to $16.6 million.Revenue is dividedin revenue from HSI and $8.6 million in revenue from PMP, our two fiscal year 2009 RCM acquisitions.services”.services.” Revenue in the system sales category includes software license fees, third party hardware and software, and implementation and training services related to purchase of the Company’sour software systems. The majority of the revenue in the system sales category is related to the sale of software. Revenue in the maintenance, EDI, RCM and other services category includes maintenance, EDI, follow onRCM, follow-on training and implementation services, annual third party license fees, hosting and other services revenue.SalesSales.. Revenue earned from Company-wide sales of systems for the year ended March 31, 20072009 increased 22.4%10.0% to $81.0$98.8 million from $66.2$89.8 million in the prior year.21.7%9.9% increase in category revenue at our NextGen Division whose sales in this category grew from $63.8$87.1 million during the year ended March 31, 20062008 to $77.7$95.7 million during the year ended March 31, 2007.2009. This increase was driven primarily by higher sales of NextGenemrehr and NextGenepm software to both new and existing clients, as well as an increaseincreases in the deliverysales of related implementation services offset by a decline in the sale of related hardware, third party software and supplies.supplies and implementation and training services.
44
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| Software |
| Hardware, |
| Implementation |
| Total |
| ||||
|
| ||||||||||||
Year ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
QSI Division |
| $ | 355 |
| $ | 2,356 |
| $ | 655 |
| $ | 3,366 |
|
NextGen Division |
|
| 62,957 |
|
| 3,203 |
|
| 11,522 |
|
| 77,682 |
|
|
|
|
|
|
| ||||||||
Consolidated |
| $ | 63,312 |
| $ | 5,559 |
| $ | 12,177 |
| $ | 81,048 |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
QSI Division |
| $ | 984 |
| $ | 1,013 |
| $ | 411 |
| $ | 2,408 |
|
NextGen Division |
|
| 48,847 |
|
| 4,094 |
|
| 10,882 |
|
| 63,823 |
|
|
|
|
|
|
| ||||||||
Consolidated |
| $ | 49,831 |
| $ | 5,107 |
| $ | 11,293 |
| $ | 66,231 |
|
|
|
|
|
|
| ||||||||
| Hardware, Third | Implementation | |||||||||||||||
| Party Software | and Training | Total System | ||||||||||||||
| Software | and Supplies | Services | Sales | |||||||||||||
| Year ended March 31, 2009 | ||||||||||||||||
| QSI Dental Division | $ | 915 | $ | 1,171 | $ | 938 | $ | 3,024 | ||||||||
| NextGen Division | 76,525 | 6,775 | 12,437 | 95,737 | ||||||||||||
| Consolidated | $ | 77,440 | $ | 7,946 | $ | 13,375 | $ | 98,761 | ||||||||
| Year ended March 31, 2008 | ||||||||||||||||
| QSI Dental Division | $ | 360 | $ | 1,134 | $ | 1,154 | $ | 2,648 | ||||||||
| NextGen Division | 69,276 | 5,593 | 12,252 | 87,121 | ||||||||||||
| Consolidated | $ | 69,636 | $ | 6,727 | $ | 13,406 | $ | 89,769 | ||||||||
Sales of additional licenses2009, compared to existing customers grew to $23.3 million79.5% during the year ended March 31, 2007 compared to $9.7 million during the prior year as a result of both an increasing number of customers who are expanding their use of our software in their practices and are purchasing additional licenses. Software revenue from VARs totaled approximately $13.6 million during the year ended March 31, 2007 compared to $7.0 million in the prior year. The increase in VAR revenue was affected in part by revenue from sales to Siemens Medical Solutions.
The increase in software’s share of systems sales was not the result of any change in emphasis on our part relative to software sales.2008. Software license revenue growth continues to be an area of primary emphasis for the NextGen Division and management was pleased with the NextGen Division’s performance in this area.
Division.
45
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|
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|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| Maintenance |
| EDI |
| Other |
| Total |
| ||||
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
QSI Division |
| $ | 7,081 |
| $ | 4,529 |
| $ | 1,615 |
| $ | 13,225 |
|
NextGen Division |
|
| 34,867 |
|
| 12,520 |
|
| 15,505 |
|
| 62,892 |
|
|
|
|
|
|
| ||||||||
Consolidated |
| $ | 41,948 |
| $ | 17,049 |
| $ | 17,120 |
| $ | 76,117 |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
QSI Division |
| $ | 6,939 |
| $ | 4,673 |
| $ | 1,524 |
| $ | 13,136 |
|
NextGen Division |
|
| 24,185 |
|
| 8,583 |
|
| 7,152 |
|
| 39,920 |
|
|
|
|
|
|
| ||||||||
Consolidated |
| $ | 31,124 |
| $ | 13,256 |
| $ | 8,676 |
| $ | 53,056 |
|
|
|
|
|
|
| ||||||||
2008:
| Revenue Cycle | ||||||||||||||||||||
| Maintenance | EDI | Management | Other | Total | ||||||||||||||||
| Year ended March 31, 2009 | ||||||||||||||||||||
| QSI Dental Division | $ | 7,167 | $ | 4,766 | $ | — | $ | 894 | $ | 12,827 | ||||||||||
| NextGen Division | 65,695 | 24,756 | 21,431 | 22,045 | 133,927 | |||||||||||||||
| Consolidated | $ | 72,862 | $ | 29,522 | $ | 21,431 | $ | 22,939 | $ | 146,754 | ||||||||||
| Year ended March 31, 2008 | ||||||||||||||||||||
| QSI Dental Division | $ | 7,186 | $ | 4,564 | $ | — | $ | 1,639 | $ | 13,389 | ||||||||||
| NextGen Division | 49,269 | 17,886 | 871 | 15,316 | 83,342 | |||||||||||||||
| Consolidated | $ | 56,455 | $ | 22,450 | $ | 871 | $ | 16,955 | $ | 96,731 | ||||||||||
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| NextGen |
| QSI |
| Consolidated |
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| |||||||||||||||
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| Maintenance |
| EDI |
| Maintenance |
| EDI |
| Maintenance |
| EDI |
| ||||||
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March 31, 2006 |
|
| 831 |
|
| 567 |
|
| 275 |
|
| 189 |
|
| 1,106 |
|
| 756 |
|
Billing sites added |
|
| 178 |
|
| 232 |
|
| 4 |
|
| 11 |
|
| 182 |
|
| 243 |
|
Billing sites removed |
|
| (27 | ) |
| (30 | ) |
| (22 | ) |
| (27 | ) |
| (49 | ) |
| (57 | ) |
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| |||||||||||||||
March 31, 2007 |
|
| 982 |
|
| 769 |
|
| 257 |
|
| 173 |
|
| 1,239 |
|
| 942 |
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customer bases.
Company.
| Year Ended March 31, | ||||||||||||||||
| 2009 | % | 2008 | % | |||||||||||||
| QSI Dental Division | ||||||||||||||||
| Revenue | $ | 15,851 | 100.0 | % | $ | 16,037 | 100.0 | % | ||||||||
| Cost of revenue | 7,582 | 47.8 | % | 7,545 | 47.0 | % | ||||||||||
| Gross profit | $ | 8,269 | 52.2 | % | $ | 8,492 | 53.0 | % | ||||||||
| NextGen Division | ||||||||||||||||
| Revenue | $ | 229,664 | 100.0 | % | $ | 170,463 | 100.0 | % | ||||||||
| Cost of revenue | 81,308 | 35.4 | % | 54,956 | 32.2 | % | ||||||||||
| Gross profit | $ | 148,356 | 64.6 | % | $ | 115,507 | 67.8 | % | ||||||||
| Consolidated | ||||||||||||||||
| Revenue | $ | 245,515 | 100.0 | % | $ | 186,500 | 100.0 | % | ||||||||
| Cost of revenue | 88,890 | 36.2 | % | 62,501 | 33.5 | % | ||||||||||
| Gross profit | $ | 156,625 | 63.8 | % | $ | 123,999 | 66.5 | % | ||||||||
46
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| Year ended March 31, |
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| 2007 |
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| 2006 |
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QSI Division |
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Revenue |
| $ | 16,589 |
|
| 100.0 | % | $ | 15,544 |
|
| 100.0 | % |
Cost of revenue |
|
| 7,847 |
|
| 47.3 |
|
| 7,765 |
|
| 50.0 |
|
|
|
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| ||||||||
Gross profit |
| $ | 8,742 |
|
| 52.7 | % | $ | 7,779 |
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| 50.0 | % |
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NextGen Division |
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Revenue |
| $ | 140,576 |
|
| 100.0 | % | $ | 103,743 |
|
| 100.0 | % |
Cost of revenue |
|
| 42,937 |
|
| 30.5 |
|
| 32,063 |
|
| 30.9 |
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| ||||||||
Gross profit |
| $ | 97,639 |
|
| 69.5 | % | $ | 71,680 |
|
| 69.1 | % |
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Consolidated |
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|
Revenue |
| $ | 157,165 |
|
| 100.0 | % | $ | 119,287 |
|
| 100.0 | % |
Cost of revenue |
|
| 50,784 |
|
| 32.3 |
|
| 39,828 |
|
| 33.4 |
|
|
|
|
|
|
| ||||||||
Gross profit |
| $ | 106,381 |
|
| 67.7 | % | $ | 79,459 |
|
| 66.6 | % |
|
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|
|
| ||||||||
relative level of applicable headcount expense associated with delivering our products and services.
| Hardware, | Payroll and | |||||||||||||||||||||||
| Third Party | Related | Total Cost of | Gross | |||||||||||||||||||||
| Software | Benefits | EDI | Other | Revenue | Profit | |||||||||||||||||||
| Year ended March 31, 2009 | ||||||||||||||||||||||||
| QSI Dental Division | 7.6 | % | 19.8 | % | 17.1 | % | 3.3 | % | 47.8 | % | 52.2 | % | ||||||||||||
| NextGen Division | 3.5 | % | 14.8 | % | 7.8 | % | 9.3 | % | 35.4 | % | 64.6 | % | ||||||||||||
| Consolidated | 3.7 | % | 15.1 | % | 8.4 | % | 9.0 | % | 36.2 | % | 63.8 | % | ||||||||||||
| Year ended March 31, 2008 | ||||||||||||||||||||||||
| QSI Dental Division | 8.0 | % | 19.1 | % | 15.7 | % | 4.2 | % | 47.0 | % | 53.0 | % | ||||||||||||
| NextGen Division | 3.8 | % | 11.2 | % | 7.5 | % | 9.7 | % | 32.2 | % | 67.8 | % | ||||||||||||
| Consolidated | 4.2 | % | 11.8 | % | 8.2 | % | 9.3 | % | 33.5 | % | 66.5 | % | ||||||||||||
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| Hardware, |
| Payroll |
| Outside |
| Total Cost |
| Gross |
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Year ended March 31, 2007 |
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QSI Division |
|
|
| 10.0 | % |
|
|
| 17.3 | % |
|
|
| 20.0 | % |
|
|
| 47.3 | % |
|
|
| 52.7 | % |
|
NextGen Division |
|
|
| 3.1 |
|
|
|
| 11.9 |
|
|
|
| 15.5 |
|
|
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| 30.5 |
|
|
|
| 69.5 |
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| |||||
Consolidated |
|
|
| 3.8 | % |
|
|
| 12.4 | % |
|
|
| 16.1 | % |
|
|
| 32.3 | % |
|
|
| 67.7 | % |
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Year ended March 31, 2006 |
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QSI Division |
|
|
| 9.8 | % |
|
|
| 19.1 | % |
|
|
| 21.1 | % |
|
|
| 50.0 | % |
|
|
| 50.0 | % |
|
NextGen Division |
|
|
| 4.6 |
|
|
|
| 11.8 |
|
|
|
| 14.5 |
|
|
|
| 30.9 |
|
|
|
| 69.1 |
|
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|
| |||||
Consolidated |
|
|
| 5.3 | % |
|
|
| 12.7 | % |
|
|
| 15.4 | % |
|
|
| 33.4 | % |
|
|
| 66.6 | % |
|
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| |||||
the year ended March 31, 2008 is primarily attributable to an increase in RCM revenue, which carries higher payroll and related benefits as a percentage of revenue and higher EDI costs in both divisions, offset by a decrease in hardware and third party software, and other expense as a percentage of revenue. Other expense, which consists of outside service costs, amortization of software development costs and other costs, decreased to 9.0% of total revenue during the year ended March 31, 2009 from 9.3% of total revenue during the year ended March 31, 2008.
We anticipate continued additions to headcount in the NextGen Division in areas related to delivering products and services in future periods, but due to the uncertainties in the timing of our sales arrangements, our sales mix, the acquisition and training of qualified personnel, and other issues, we cannot accurately predict if related headcount expense as a percentage of revenue will increase or decrease in the future.
We do not currently intend to make any significant changes to related headcount at the QSI Division.
“Other”, which consists of outside service costs, amortization of software development costs and other costs, increased to 16.1% of revenue during the year ended March 31, 2007 from 15.4% during2009 and 2008, respectively. The application of ASC 718 added approximately $0.2 million and $0.5 million in compensation expense to cost of revenue in the yearyears ended March 31, 2006.
Should the NextGen Division continue to represent an increasing share of our revenue2009 and should the NextGen Division continue to carry higher gross margins than the QSI Division, our consolidated gross margin percentages should increase to match more closely those of the NextGen Division.
2008, respectively.
20072009 increased 27.5%32.3% to $45.3$70.4 million as compared to $35.6$53.3 million for the year ended March 31, 2006.2008. The increase in these expenses resulted primarily from increases of $5.1 million in compensation expense and benefit expense in the NextGen Division, $0.9 million in commission expense in the NextGen Division, $1.9 million in other general and administrative expenses primarily in the NextGen Division and $1.8 million in increased corporate expenses. a:• $2.7 million increase in legal expenses in the NextGen Division; • $1.7 million increase in compensation expense in the NextGen Division;
47
| • | $1.2 million increase in outside services and consulting services in the NextGen Division; | |
| • | $0.9 million increase in advertising in the NextGen Division; | |
| • | $6.7 million increase in other selling, general and administrative expenses in the NextGen Division; and | |
| • | $3.9 million increase in corporate related expenses. |
increase.
Selling, general and administrative expenses as a percentage of revenue decreased to 28.9%increased slightly from 28.6% in the fiscal year ended March 31, 2007 from 29.8%2008 to 28.7% in the fiscal periodyear ended March 31, 2006 due to revenue growing at a faster rate than selling, general and administrative expenses.
We anticipate increased expenditures for trade shows, advertising and staff additions at the NextGen Division. We also anticipate increased expenditures at the corporate level related to headcount additions, compensation and professional service fees. While we expect selling, general and administrative expenses to increase on an absolute basis, we cannot accurately predict the effect these additional expenditures will have on selling, general, and administrative expenses as a percentage of revenue.
2009.
PMP during fiscal year 2009.
| • | a lower amount of investments held in ARS when compared to the prior year; | |
| • | larger amounts invested in money market accounts which earned significantly lower interest rates as compared to the prior year; and | |
| • | overall comparatively lower amounts of funds available for investment during the year due to payments of $8.2 million and $17.0 million, respectively, for the Company’s acquisitions of HSI and PMP and increased quarterly dividend payments. |
the year ended March 31, 2008.
48
a decrease in qualified production activities deduction and an increase in state income tax expense.
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended March 31, |
| |||||||
|
|
| ||||||||
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
|
|
| |||||||
Cash and cash equivalents |
| $ | 59,046 |
| $ | 60,028 |
| $ | 57,225 |
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
| $ | (982 | ) | $ | 2,803 |
| $ | 6,068 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 40,078 |
| $ | 33,232 |
| $ | 23,322 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations during the year |
| $ | 43,599 |
| $ | 29,570 |
| $ | 30,678 |
|
|
|
|
|
|
|
|
|
|
|
|
Number of days of sales outstanding |
|
| 136 |
|
| 129 |
|
| 115 |
|
2008:
| Year Ended March 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Cash and cash equivalents | $ | 84,611 | $ | 70,180 | $ | 59,046 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | 14,431 | $ | 11,134 | $ | (982 | ) | |||||
| Net income | $ | 48,379 | $ | 46,119 | $ | 40,078 | ||||||
| Net cash provided by operating activities | $ | 55,220 | $ | 48,712 | $ | 43,599 | ||||||
| Number of days of sales outstanding | 125 | 125 | 136 | |||||||||
deferred taxes.
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended March 31, |
| |||||||
|
|
| ||||||||
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
|
|
| |||||||
Net income |
| $ | 40,078 |
| $ | 33,232 |
| $ | 23,322 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash expenses |
|
| 11,299 |
|
| 8,977 |
|
| 4,140 |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on life insurance proceeds, net |
|
| (755 | ) |
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from exercise of stock options, net |
|
| 65 |
|
| 167 |
|
| 4,831 |
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred revenue |
|
| 5,447 |
|
| 3,532 |
|
| 10,439 |
|
|
|
|
|
|
|
|
|
|
|
|
Change in accounts receivable |
|
| (13,811 | ) |
| (20,760 | ) |
| (12,484 | ) |
|
|
|
|
|
|
|
|
|
|
|
Change in other assets and liabilities |
|
| 1,276 |
|
| 4,422 |
|
| 430 |
|
|
|
|
|
| ||||||
Net cash provided by operating activities |
| $ | 43,599 |
| $ | 29,570 |
| $ | 30,678 |
|
|
|
|
|
| ||||||
2008:
| Year Ended March 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Net income | $ | 48,379 | $ | 46,119 | $ | 40,078 | ||||||
| Non-cash expenses | 16,152 | 17,719 | 11,299 | |||||||||
| Gain on life insurance proceeds, net | — | — | (755 | ) | ||||||||
| Tax benefit from exercise of stock options, net | — | 1 | 65 | |||||||||
| Change in deferred revenue | 12,528 | 3,130 | 5,447 | |||||||||
| Change in accounts receivable | (18,944 | ) | (11,369 | ) | (13,811 | ) | ||||||
| Change in other assets and liabilities | (2,895 | ) | (6,888 | ) | 1,276 | |||||||
| Net cash provided by operating activities | $ | 55,220 | $ | 48,712 | $ | 43,599 | ||||||
49
debt, offset by a decrease of $5.2 million in deferred income tax expense.
respectively.
$12.5 million for the year ended March 31, 20082010 versus growth of $3.5$3.1 million and $5.4 million for the yearyears ended March 31, 2007,2009 and 2008, resulting in increases to cash provided by operating activities for the respective periods.
| • | NextGen Division revenue grew |
| • | Turnover of accounts receivable is generally slower in the NextGen Division due to the fact that the systems sales related revenue have longer payment terms, generally up to one year, which historically have accounted for a major portion of NextGen Division sales; |
| • | The Opus acquisition added approximately $2.1 million of accounts receivable as of March 31, 2010; and | |
| • | We experienced an increase in the volume of undelivered services billed in advance by the NextGen Division which were unpaid as of the end of each period and included in accounts receivable. This resulted in an increase in both deferred revenue and accounts receivable of approximately | |
|
|
prior year.
Net cash used in investing activities for the year ended March 31, 2008, 2007 and 2006 was $30.2 million, $8.3 million and $5.7 million, respectively. The increase in cash used in investing activities is a result of the Company’s net purchases of current investments in ARS of approximately $22.6 million, net of unrealized loss of $0.3 million as of March 31, 2008. These ARS are classified as current and non current investments on the accompanying Consolidated Balance Sheets. In addition to purchases and sales of marketable securities, net cash used in investing activities for the year ended March 31, 2008 consisted of additions to equipment and improvements and capitalized software.
50
of Directors pursuant to this policy, would likely be distributable on or about the fifth day of each of the months of October, January, April and July.
On July 31, 2007, our Board of Directors approved a quarterly dividend of twenty-five cents ($0.25) per share payable on its outstanding shares of common stock. The cash dividend record date was September 14, 2007 and was distributed to shareholders on or about October 5, 2007.
On October 25, 2007, the Board approved a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of December 14, 2007 with an expected distribution date on or about January 7, 2008.
On January 30, 2008, the Board approved a quarterly cash dividend of $0.25 per share on our outstanding shares of common stock, payable to shareholders of record as of March 14, 2008 with an expected distribution date on or about April 7, 2008.
On May 20, 2008, the Company acquired HSI. The acquisition resulted in HSI becoming a wholly owned subsidiary of QSI. The purchase price consists of approximately $15.4 million plus up to approximately $1.6 million in incentives tied to future performance. The $15.4 million consists of approximately equal parts of cash and restricted QSI common stock, subject to restrictions on resale lapsing over a two year period.
On May 29, 2008, the Board approved a quarterly cash dividend of $0.25$0.30 per share on our outstanding shares of common stock, payable to shareholders of record as of June 13, 200817, 2010 with an expected distribution date on or about July 2, 2008.6, 2010.
51
| Dividend | ||||||||
Board Approval Date | Record Date | Payment Date | Amount | |||||
Fiscal year 2010 | ||||||||
| January 27, 2010 | March 23, 2010 | April 5, 2010 | $ | 0.30 | ||||
| October 28, 2009 | December 23, 2009 | January 5, 2010 | 0.30 | |||||
| July 23, 2009 | September 25, 2009 | October 5, 2009 | 0.30 | |||||
| May 27, 2009 | June 12, 2009 | July 6, 2009 | 0.30 | |||||
Fiscal year 2009 | ||||||||
| January 28, 2009 | March 11, 2009 | April 3, 2009 | $ | 0.30 | ||||
| October 30, 2008 | December 15, 2008 | January 5, 2009 | 0.30 | |||||
| August 4, 2008 | September 15, 2008 | October 1, 2008 | 0.30 | |||||
| May 29, 2008 | June 15, 2008 | July 2, 2008 | 0.25 | |||||
Fiscal year 2008 | ||||||||
| January 30, 2008 | March 14, 2008 | April 7, 2008 | $ | 0.25 | ||||
| October 25, 2007 | December 14, 2007 | January 7, 2008 | 0.25 | |||||
| July 31, 2007 | September 14, 2007 | October 5, 2007 | 0.25 | |||||
| May 31, 2007 | June 15, 2007 | July 5, 2007 | 0.25 | |||||
year 2011.
|
|
|
|
|
Contractual Obligations – Non-cancelable lease obligations |
| (in thousands) |
| |
|
|
| ||
|
|
|
|
|
Year Ending March 31, |
|
|
|
|
2009 |
| $ | 3,156 |
|
2010 |
| $ | 3,131 |
|
2011 |
| $ | 3,164 |
|
2012 |
| $ | 1,716 |
|
2013 and beyond |
| $ | 942 |
|
|
|
| ||
|
| $ | 12,109 |
|
|
|
| ||
| Year Ended March 31, | ||||
| 2011 | $ | 4,413 | ||
| 2012 | 4,565 | |||
| 2013 | 4,577 | |||
| 2014 | 3,963 | |||
| 2015 and beyond | 7,215 | |||
| $ | 24,733 | |||
In May 2008, the FASB issued Statement
In April 2008, the FASB finalized Staff Position (FSP) No. 142-3, “Determination of the Useful Life of Intangible Assets”. The position amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB SFAS No. 142, Goodwill and Other Intangible Assets. The position applies to intangible assets that are acquired individually or with a group of other assets and both intangible assets acquired in business combinations and asset acquisitions. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Management is currently evaluating the impact of the pending adoption of FSP 142-3 on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (SFAS 141R). SFAS 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. In addition, SFAS 141(R) requires expensing of acquisition-related and restructure-related costs, remeasurement of earn out provisions at fair value, measurement of equity securities issued for purchase at the date of close of the transaction and non-expensing of in-process research and development related intangibles. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. This pronouncement will be applied by the Company when it becomes effective and when or if the Company effectuates a business combination, otherwise there is no impact on the Company’s financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of SFAS No. 115”, (SFAS 159) which applies to all entities with available-for-sale and trading securities. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, “Fair Value Measurements”. The Company plans to adopt SFAS 159 effective April 1, 2008 and is in the process of determining the effect, if any, the adoption of SFAS 159 will have on its consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of this standard will have on its consolidated financial statements.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE |
52
ITEM 8. |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. |
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2008, there were no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
accordance with generally accepted accounting principles.
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53
Our independent registered public accounting firm
ITEM 9B. |
We have experienced legal claims by parties asserting that we have infringed their intellectual property rights. We believe that these claims are without merit and intend to defend against them vigorously; however, we could incur substantial costs and diversion of management resources defending any infringement claim – even if we are ultimately successful in the defense of such matter. Litigation is inherently uncertain and always difficult to predict. We refer you to the discussion of infringement and litigation risks in our Risk Factors section of this Report.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 11. EXECUTIVE COMPENSATION
| ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
54
ITEM 15. |
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INDEX TO EXHIBITS
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| • Schedule II — Valuation and Qualifying Accounts | 98 |
55
| Exhibit | ||||
Number | Description | |||
| 3 | .1 | Restated Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California on September 8, 1989, are hereby incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement onForm S-1 (RegistrationNo. 333-00161) filed January 11, 1996. | ||
| 3 | .2 | Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective March 4, 2005, is hereby incorporated by reference to Exhibit 3.1.1 of the registrant’s Annual Report onForm 10-K for the year ended March 31, 2005. | ||
| 3 | .3 | Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective October 6, 2005 is hereby incorporated by reference to Exhibit 3.01 of the registrant’s Current Report onForm 8-K filed October 11, 2005. | ||
| 3 | .4 | Certificate of Amendment to Articles of Incorporation of Quality Systems, Inc. filed with the Secretary of State of California effective March 3, 2006 is hereby incorporated by reference to Exhibit 3.1 of the registrant’s Current Report onForm 8-K filed March 6, 2006. | ||
| 3 | .5 | Amended and Restated Bylaws of Quality Systems, Inc., effective October 30, 2008, are hereby incorporated by reference to Exhibit 3.1 of the registrant’s Current Report onForm 8-K filed October 31, 2008. | ||
| 10 | .1* | Amended and Restated 1998 Stock Option Plan is hereby incorporated by reference to Exhibit 10.10.1 of the registrant’s Annual Report onForm 10-K for the year ended March 31, 2005. | ||
| 10 | .2* | Form of Incentive Stock Option Agreement for Amended and Restated 1998 Stock Option Plan is hereby incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2004. | ||
| 10 | .3* | Form of Non-Qualified Stock Option Agreement for Amended and Restated 1998 Stock Option Plan is hereby incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10Q for the quarter ended September 20, 2004. | ||
| 10 | .4* | 2005 Stock Option and Incentive Plan is incorporated by reference to Exhibit 10.01 to the registrant’s Current Report onForm 8-K filed October 5, 2005. | ||
| 10 | .5* | Form of Nonqualified Stock Option Agreement for 2005 Stock Incentive Plan is incorporated by reference to Exhibit 10.2 to the registrant’s Current Report onForm 8-K filed June 5, 2007. | ||
| 10 | .6* | Form of Incentive Stock Option Agreement for 2005 Stock Incentive Plan is incorporated by reference to Exhibit 10.3 to the registrant’s Current Report onForm 8-K filed June 5, 2007. | ||
| 10 | .7* | 1993 Deferred Compensation Plan is hereby incorporated by reference to Exhibit 10.5 to the registrant’s Annual Report onForm 10-KSB for the year ended March 31, 1994. | ||
| 10 | .8* | 1998 Employee Stock Contribution Plan is hereby incorporated by reference to Exhibit 4.1 to the registrant’s Registration Statement onForm S-8 (RegistrationNo. 333-63131). | ||
| 10 | .9* | Form of Second Amended and Restated Indemnification Agreement for directors and executive officers is hereby incorporated by reference to Exhibit 10.3 of the registrant’s Current Report onForm 8-K filed on February 2, 2010. | ||
| 10 | .10 | Lease Agreement between Company and Tower Place, L.P. dated November 15, 2000, commencing February 5, 2001 is hereby incorporated by reference to Exhibit 10.14 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2001. | ||
| 10 | .11 | Fourth Amendment to lease agreement between the Company and Tower Place, L.P. dated September 22, 2005 is incorporated by reference to Exhibit 10.24 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2006. | ||
| 10 | .12 | Fifth Amendment to lease agreement between the Company and Tower Place, L.P. dated January 31, 2007 is incorporated by reference to Exhibit 10.13 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2007. | ||
| 10 | .13 | Lease Agreement between the Company and HUB Properties LLC dated May 8, 2002 is hereby incorporated by reference to Exhibit 10.18 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2003. | ||
56
| Exhibit | ||||
Number | Description | |||
| 10 | .14 | Second Amendment to Office Lease agreement between the Company and HUB Properties LLC dated February 14, 2006 is incorporated by reference to Exhibit 10.25 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2006. | ||
| 10 | .15 | Amended and Restated Second Amendment to Office Lease agreement between the Company and HUB Properties LLC dated May 31, 2006 is incorporated by reference to Exhibit 10.17 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2007. | ||
| 10 | .16 | Lease agreement between the Company and Von Karman Michelson Corporation dated September 6, 2005 is incorporated by reference to Exhibit 10.23 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2006. | ||
| 10 | .17 | Office lease between the Company and SLTS Grand Avenue, L.P. dated May 3, 2006 is incorporated by reference to Exhibit 10.20 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2007. | ||
| 10 | .18* | Board Service Agreement between the Company and Patrick Cline is incorporated by reference to Exhibit 10.2.1 to the registrant’s Current Report onForm 8-K dated May 31, 2005. | ||
| 10 | .19* | Director Compensation Program is incorporated by reference to Exhibit 10.1 to the registrant’s Current Report onForm 8-K filed February 2, 2010. | ||
| 10 | .20 | Settlement Agreement dated as of August 8, 2006 between the registrant and Ahmed Hussein is incorporated by reference to Exhibit 10.1 to the registrant’s Current Report onForm 8-K filed August 9, 2006. | ||
| 10 | .21* | Description of Compensation Program for Named Executive Officers for Fiscal Year Ended March 31, 2010 is incorporated by reference to Exhibit 10.1 to the registrant’s Current Report onForm 8-K filed June 1, 2009. | ||
| 10 | .22 | Agreement and Plan of Merger dated May 16, 2008 by and among Quality Systems, Inc., Bud Merger Sub, LLC and Lackland Acquisition II, LLC, is incorporated by reference to Exhibit 10.27 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2008. | ||
| 10 | .23 | Office lease between the Company and Lakeshore Towers Limited Partnership Phase II, a California limited partnership, dated October 18, 2007, is incorporated by reference to Exhibit 10.28 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2008. | ||
| 10 | .24 | Standard Service Center Lease Agreement between the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated November 28, 2001, is incorporated by reference to Exhibit 10.29 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2008. | ||
| 10 | .25 | First Amendment to Standard Service Center Lease Agreement between the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated August 17, 2005, is incorporated by reference to Exhibit 10.30 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2008. | ||
| 10 | .26 | Standard Service Center Lease Agreement between the Lincoln National Life Insurance Company and InfoNow Solutions of St. Louis, LLC, dated November 28, 2001, is incorporated by reference to Exhibit 10.31 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2008. | ||
| 10 | .27 | Second Amendment to Service Center Lease Agreement between the TM Properties, LLC, successor to the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated August 17, 2005, is incorporated by reference to Exhibit 10.32 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2008. | ||
| 10 | .28 | Assignment of Lease between InfoNow Solutions of St. Louis, Lackland Acquisition II, LLC and TM Properties, LLC dated August 17, 2005, is incorporated by reference to Exhibit 10.33 to the registrant’s Annual Report onForm 10-K for the year ended March 31, 2008. | ||
| 10 | .29 | Agreement and Plan of Merger dated October 15, 2008 by and among (i) Quality Systems, Inc. (ii) NextGen Healthcare Information Systems, Inc. (iii) Ruth Merger Sub, Inc. (iv) Practice Management Partners, Inc. and (v) certain shareholders set forth therein, is incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report onForm 10-Q for the quarter ended December 31, 2008. | ||
57
| Exhibit | ||||
Number | Description | |||
| 10 | .30 | First Amendment to Lease Agreement between Hill Management Services, Inc. and Practice Management Partners, Inc., dated January 15, 2008, is incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report onForm 10-Q for the quarter ended December 31, 2008. | ||
| 10 | .31 | First Amendment to Sublease Agreement between RehabCare Group, Inc. and Practice Management Partners Inc., dated January 15 2008, is incorporated by reference to Exhibit 10.3 to the registrant’s Quarterly Report onForm 10-Q for the quarter ended December 31, 2008. | ||
| 10 | .32 | Third Amendment to Lease Agreement between Pinecrest LLC and Practice Management Partners, Inc., dated April 30, 2007, is incorporated by reference to Exhibit 10.4 to the registrant’s Quarterly Report onForm 10-Q for the quarter ended December 31, 2008. | ||
| 10 | .33* | Employment Agreement dated August 11, 2008 between Quality Systems, Inc., and Steven Plochocki, is incorporated by reference to Exhibit 10.1 to the registrant’s Current Report onForm 8-K filed on August 12, 2008. | ||
| 10 | .34* | Outside Directors Amended and Restated Restricted Stock Agreement is incorporated by reference to Exhibit 10.2 to the Company’s Current Report onForm 8-K filed February 9, 2010. | ||
| 10 | .35* | Employment Offer and Terms of Employment dated September 17, 2009, between Quality Systems, Inc. and Philip N. Kaplan, is incorporated by reference to Exhibit 10.1 to the registrant’s Current Report onForm 8-K filed on September 21, 2009. | ||
| 10 | .36** | Agreement and Plan of Merger dated February 10, 2010, by and among Quality Systems, Inc., OHS Merger Sub, Inc., Opus Healthcare Solutions, Inc., and the Shareholders of Opus Healthcare Solutions, Inc. | ||
| 10 | .37** | Sixth Amendment to Lease Agreement between the Company and Tower Place, L.P. dated April 1, 2010. | ||
| 10 | .38** | Third Amendment to Office Lease agreement between the Company and HUB Properties LLC dated January 1, 2010. | ||
| 10 | .39** | Fourth Amendment to Office Lease agreement between the Company and HUB Properties LLC dated March 17, 2010. | ||
| 10 | .40** | Third Amendment to Service Center Lease Agreement between the TM Properties, LLC, successor to the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated March 15, 2010. | ||
| 10 | .41** | Second Amendment to Lease Agreement between Hill Management Services, Inc. and Practice Management Partners, Inc., dated November 1, 2009. | ||
| 10 | .42** | Modification of Lease #1 between Olen Commercial Realty Corp. and NXG Acute Care LLC, dated October 13, 2009. | ||
| 10 | .43** | Lease between Olen Commercial Realty Corp. and NXG Acurate Care LLC, dated October 1, 2009. | ||
| 10 | .44** | Sublease Agreement between Centex Homes and Opus Healthcare Solutions, Inc., dated February , 2009. | ||
| 21 | ** | List of subsidiaries. | ||
| 23 | .1** | Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP. | ||
| 23 | .2** | Consent of Independent Registered Public Accounting Firm — Grant Thornton LLP. | ||
| 31 | .1** | Certification of Principal Executive Officer Required byRule 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 byRule 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. | ||
* | This exhibit is a management contract or a compensatory plan or arrangement. | |
** | Filed herewith. |
58
By: | ||
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May 26, 2010
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/s/ Sheldon Razin |
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Chairman of the Board and Director | May 26, 2010 | ||||||
/s/ Steven T. Plochocki |
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| May 26, 2010 | ||||||
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/s/ Paul A. Holt Paul A. Holt | Chief Financial Officer |
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| May 26, 2010 | ||||||
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/s/ Patrick B. Cline |
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Patrick B. Cline |
| May 26, 2010 | |||||
/s/ Murray Brennan Murray Brennan | Director | May 26, 2010 | |||||
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/s/ George Bristol George Bristol | Director | May 26, 2010 | |||||
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Ahmed Hussein | Director | ||||||
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Joseph Davis | Director | ||||||
/s/ Craig Barbarosh Craig Barbarosh | Director | May 26, 2010 | |||||
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/s/ Russell Pflueger |
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Director | ||||
| May | |||
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59
We have audited the accompanying consolidated balance sheets of Quality Systems, Inc. as of March 31, 2008 and 2007, and,
integrated audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
60
As discussed
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Quality Systems, Inc.’s internal control over financial reporting as of March 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission15 and our report dated June 5, 2008, expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Irvine, CaliforniaJune 5, 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and ShareholdersQuality Systems, Inc.
We have audited Quality Systems, Inc.’s internal control over financial reporting as of March 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Quality Systems, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Quality Systems, Inc. Management’s Report on Internal Control Over Financial Reporting. Our responsibility is toaccordingly, we do not express an opinion on Quality Systems, Inc.’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standardsor any other form of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingsuch adjustments are appropriate and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing suchhave been properly applied. Those adjustments were audited by other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Quality Systems, Inc. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Quality Systems, Inc. as of March 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years ended March 31, 2008, and our report dated June 5, 2008 expressed an unqualified opinion.
auditors.
June 5, 200861
CONSOLIDATED BALANCE SHEETS
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| March 31, 2008 |
| March 31, 2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 59,046 |
| $ | 60,028 |
|
Marketable securities |
|
| 2,500 |
|
| — |
|
Accounts receivable, net |
|
| 76,585 |
|
| 63,945 |
|
Inventories, net |
|
| 1,024 |
|
| 1,175 |
|
Net current deferred tax assets |
|
| 6,397 |
|
| 3,443 |
|
Other current assets |
|
| 4,596 |
|
| 4,507 |
|
|
|
|
| ||||
Total current assets |
|
| 150,148 |
|
| 133,098 |
|
|
|
|
|
|
|
|
|
Marketable securities |
|
| 20,124 |
|
| — |
|
Equipment and improvements, net |
|
| 4,773 |
|
| 5,029 |
|
Capitalized software costs, net |
|
| 8,852 |
|
| 6,982 |
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Net deferred tax assets |
|
| — |
|
| 1,180 |
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Goodwill |
|
| 1,840 |
|
| 1,840 |
|
Other assets |
|
| 2,171 |
|
| 2,552 |
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|
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| ||||
Total assets |
| $ | 187,908 |
| $ | 150,681 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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|
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Accounts payable |
| $ | 4,685 |
| $ | 5,246 |
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Deferred revenue |
|
| 44,389 |
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| 38,774 |
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Accrued compensation and related benefits |
|
| 8,346 |
|
| 6,521 |
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Income taxes payable |
|
| 1,541 |
|
| 315 |
|
Dividends payable |
|
| 6,861 |
|
| — |
|
Other current liabilities |
|
| 4,394 |
|
| 5,626 |
|
|
|
|
| ||||
Total current liabilities |
|
| 70,216 |
|
| 56,482 |
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|
|
|
|
|
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Deferred revenue, net of current |
|
| 506 |
|
| 674 |
|
Net deferred tax liabilities |
|
| 1,575 |
|
| — |
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Deferred compensation |
|
| 1,906 |
|
| 2,279 |
|
|
|
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| ||||
Total liabilities |
|
| 74,203 |
|
| 59,435 |
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Commitments and contingencies |
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Shareholders’ equity: |
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Common stock |
|
|
|
|
|
|
|
$0.01 par value; authorized 50,000 shares; issued and outstanding 27,448 and 27,123 shares at March 31, 2008 and March 31, 2007, respectively |
|
| 274 |
|
| 271 |
|
Additional paid-in capital |
|
| 75,556 |
|
| 65,666 |
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Retained earnings |
|
| 38,071 |
|
| 25,309 |
|
Accumulated other comprehensive loss |
|
| (196 | ) |
| — |
|
|
|
|
| ||||
Total shareholders’ equity |
|
| 113,705 |
|
| 91,246 |
|
|
|
|
| ||||
Total liabilities and shareholders’ equity |
| $ | 187,908 |
| $ | 150,681 |
|
|
|
|
| ||||
| March 31, | March 31, | |||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 84,611 | $ | 70,180 | ||||
| Restricted cash | 2,339 | 1,303 | ||||||
| Marketable securities | 7,158 | — | ||||||
| Accounts receivable, net | 107,458 | 90,070 | ||||||
| Inventories, net | 1,340 | 1,125 | ||||||
| Income taxes receivable | 2,953 | 5,605 | ||||||
| Net current deferred tax assets | 5,678 | 3,994 | ||||||
| Other current assets | 8,684 | 6,312 | ||||||
| Total current assets | 220,221 | 178,589 | ||||||
| Marketable securities | — | 7,395 | ||||||
| Equipment and improvements, net | 8,432 | 6,756 | ||||||
| Capitalized software costs, net | 11,546 | 9,552 | ||||||
| Intangibles, net | 20,145 | 8,403 | ||||||
| Goodwill | 46,189 | 28,731 | ||||||
| Other assets | 3,647 | 2,675 | ||||||
| Total assets | $ | 310,180 | $ | 242,101 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,342 | $ | 5,097 | ||||
| Deferred revenue | 64,109 | 47,584 | ||||||
| Accrued compensation and related benefits | 8,951 | 9,511 | ||||||
| Dividends payable | 8,664 | 8,529 | ||||||
| Other current liabilities | 16,220 | 8,888 | ||||||
| Total current liabilities | 101,286 | 79,609 | ||||||
| Deferred revenue, net of current | 474 | 521 | ||||||
| Net deferred tax liabilities | 10,859 | 4,566 | ||||||
| Deferred compensation | 1,883 | 1,838 | ||||||
| Other noncurrent liabilities | 7,389 | — | ||||||
| Total liabilities | 121,891 | 86,534 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity: | ||||||||
| Common Stock | ||||||||
| $0.01 par value; authorized 50,000 shares; issued and | ||||||||
| outstanding 28,879 and 28,447 shares at March 31, 2010 | ||||||||
| and March 31, 2009, respectively | 289 | 284 | ||||||
| Additional paid-in capital | 122,271 | 103,524 | ||||||
| Retained earnings | 65,729 | 51,759 | ||||||
| Total shareholders’ equity | 188,289 | 155,567 | ||||||
| Total liabilities and shareholders’ equity | $ | 310,180 | $ | 242,101 | ||||
of these
62
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal Year Ended |
| |||||||
|
|
| ||||||||
|
| March 31, 2008 |
| March 31, 2007 |
| March 31, 2006 |
| |||
|
|
|
|
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
Software, hardware and supplies |
| $ | 76,363 |
| $ | 68,871 |
| $ | 54,938 |
|
Implementation and training services |
|
| 13,406 |
|
| 12,177 |
|
| 11,293 |
|
|
|
|
|
| ||||||
System sales |
|
| 89,769 |
|
| 81,048 |
|
| 66,231 |
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance |
|
| 56,455 |
|
| 41,948 |
|
| 31,124 |
|
Electronic data interchange services |
|
| 22,450 |
|
| 17,049 |
|
| 13,256 |
|
Other services |
|
| 17,826 |
|
| 17,120 |
|
| 8,676 |
|
|
|
|
|
| ||||||
Maintenance, EDI and other services |
|
| 96,731 |
|
| 76,117 |
|
| 53,056 |
|
|
|
|
|
| ||||||
Total revenue |
|
| 186,500 |
|
| 157,165 |
|
| 119,287 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
Software, hardware and supplies |
|
| 10,887 |
|
| 8,453 |
|
| 8,148 |
|
Implementation and training services |
|
| 10,341 |
|
| 8,535 |
|
| 8,088 |
|
|
|
|
|
| ||||||
Total cost of system sales |
|
| 21,228 |
|
| 16,988 |
|
| 16,236 |
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance |
|
| 12,446 |
|
| 11,834 |
|
| 9,330 |
|
Electronic data interchange services |
|
| 15,776 |
|
| 12,181 |
|
| 8,569 |
|
Other services |
|
| 13,051 |
|
| 9,781 |
|
| 5,693 |
|
|
|
|
|
| ||||||
Total cost of maintenance and other services |
|
| 41,273 |
|
| 33,796 |
|
| 23,592 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
| 62,501 |
|
| 50,784 |
|
| 39,828 |
|
|
|
|
|
| ||||||
Gross profit |
|
| 123,999 |
|
| 106,381 |
|
| 79,459 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 53,260 |
|
| 45,337 |
|
| 35,554 |
|
Research and development costs |
|
| 11,350 |
|
| 10,166 |
|
| 8,087 |
|
|
|
|
|
| ||||||
Total operating expenses |
|
| 64,610 |
|
| 55,503 |
|
| 43,641 |
|
|
|
|
|
| ||||||
Income from operations |
|
| 59,389 |
|
| 50,878 |
|
| 35,818 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 2,661 |
|
| 3,306 |
|
| 2,108 |
|
Other income |
|
| 953 |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Income before provision for income taxes |
|
| 63,003 |
|
| 54,184 |
|
| 37,926 |
|
Provision for income taxes |
|
| 22,925 |
|
| 20,952 |
|
| 14,604 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 40,078 |
| $ | 33,232 |
| $ | 23,322 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 1.47 |
| $ | 1.24 |
| $ | 0.88 |
|
Diluted |
| $ | 1.44 |
| $ | 1.21 |
| $ | 0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 27,298 |
|
| 26,882 |
|
| 26,413 |
|
Diluted |
|
| 27,770 |
|
| 27,550 |
|
| 27,356 |
|
Dividends declared per common share |
| $ | 1.00 |
| $ | 1.00 |
| $ | 0.875 |
|
| Fiscal Year Ended | ||||||||||||
| March 31, | March 31, | March 31, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands, except per share data) | ||||||||||||
| Revenues: | ||||||||||||
| Software, hardware and supplies | $ | 89,761 | $ | 85,386 | $ | 76,363 | ||||||
| Implementation and training services | 14,376 | 13,375 | 13,406 | |||||||||
| System sales | 104,137 | 98,761 | 89,769 | |||||||||
| Maintenance | 89,192 | 72,862 | 56,455 | |||||||||
| Electronic data interchange services | 35,035 | 29,522 | 22,450 | |||||||||
| Revenue cycle management and related services | 36,665 | 21,431 | 871 | |||||||||
| Other services | 26,782 | 22,939 | 16,955 | |||||||||
| Maintenance, EDI, RCM and other services | 187,674 | 146,754 | 96,731 | |||||||||
| Total revenues | 291,811 | 245,515 | 186,500 | |||||||||
| Cost of revenue: | ||||||||||||
| Software, hardware and supplies | 12,115 | 13,184 | 10,887 | |||||||||
| Implementation and training services | 11,983 | 10,286 | 10,341 | |||||||||
| Total cost of system sales | 24,098 | 23,470 | 21,228 | |||||||||
| Maintenance | 13,339 | 11,859 | 12,446 | |||||||||
| Electronic data interchange services | 25,262 | 21,374 | 15,776 | |||||||||
| Revenue cycle management and related services | 27,715 | 14,674 | 558 | |||||||||
| Other services | 20,393 | 17,513 | 12,493 | |||||||||
| Total cost of maintenance, EDI, RCM and other services | 86,709 | 65,420 | 41,273 | |||||||||
| Total cost of revenue | 110,807 | 88,890 | 62,501 | |||||||||
| Gross profit | 181,004 | 156,625 | 123,999 | |||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | 86,951 | 69,410 | 53,260 | |||||||||
| Research and development costs | 16,546 | 13,777 | 11,350 | |||||||||
| Amortization of acquired intangible assets | 1,783 | 1,035 | — | |||||||||
| Total operating expenses | 105,280 | 84,222 | 64,610 | |||||||||
| Income from operations | 75,724 | 72,403 | 59,389 | |||||||||
| Interest income | 226 | 1,203 | 2,661 | |||||||||
| Other income (expense) | 268 | (279 | ) | 953 | ||||||||
| Income before provision for income taxes | 76,218 | 73,327 | 63,003 | |||||||||
| Provision for income taxes | 27,839 | 27,208 | 22,925 | |||||||||
| Net income | $ | 48,379 | $ | 46,119 | $ | 40,078 | ||||||
| Net income per share: | ||||||||||||
| Basic | $ | 1.69 | $ | 1.65 | $ | 1.47 | ||||||
| Diluted | $ | 1.68 | $ | 1.62 | $ | 1.44 | ||||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 28,635 | 28,031 | 27,298 | |||||||||
| Diluted | 28,796 | 28,396 | 27,770 | |||||||||
| Dividends declared per common share | $ | 1.20 | $ | 1.15 | $ | 1.00 | ||||||
of these
63
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| |||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
| Total |
| |||||||
|
|
|
|
|
| Retained |
| Deferred |
|
|
| |||||||||||
|
| Shares |
| Amount |
| APIC |
|
|
|
|
| |||||||||||
|
| |||||||||||||||||||||
Balance, March 31, 2005 |
|
| 26,222 |
| $ | 262 |
| $ | 44,368 |
| $ | 19,213 |
| $ | (1,112 | ) | $ | — |
| $ | 62,731 |
|
Exercise of stock options |
|
| 489 |
|
| 5 |
|
| 4,476 |
|
| — |
|
| — |
|
| — |
|
| 4,481 |
|
Tax benefit resulting from exercise of stock options |
|
| — |
|
| — |
|
| 4,831 |
|
| — |
|
| — |
|
| — |
|
| 4,831 |
|
Stock based compensation |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 428 |
|
| — |
|
| 428 |
|
Dividends declared |
|
| — |
|
| — |
|
| — |
|
| (23,384 | ) |
| — |
|
| — |
|
| (23,384 | ) |
Net income |
|
| — |
|
| — |
|
| — |
|
| 23,322 |
|
| — |
|
| — |
|
| 23,322 |
|
|
| |||||||||||||||||||||
Balance, March 31, 2006 |
|
| 26,711 |
|
| 267 |
|
| 53,675 |
|
| 19,151 |
|
| (684 | ) |
| — |
|
| 72,409 |
|
| ||||||||||||||||||||||
Reclass of deferred compensation upon adoption of SFAS 123R |
|
| — |
|
| — |
|
| (684 | ) |
| — |
|
| 684 |
|
| — |
|
| — |
|
Exercise of stock options |
|
| 412 |
|
| 4 |
|
| 6,058 |
|
| — |
|
| — |
|
| — |
|
| 6,062 |
|
Tax benefit resulting from exercise of stock options |
|
| — |
|
| — |
|
| 2,694 |
|
| — |
|
| — |
|
| — |
|
| 2,694 |
|
Stock based compensation |
|
| — |
|
| — |
|
| 3,923 |
|
| — |
|
| — |
|
| — |
|
| 3,923 |
|
Dividends declared |
|
| — |
|
| — |
|
| — |
|
| (27,074 | ) |
| — |
|
| — |
|
| (27,074 | ) |
Net income |
|
| — |
|
| — |
|
| — |
|
| 33,232 |
|
| — |
|
| — |
|
| 33,232 |
|
|
| |||||||||||||||||||||
Balance, March 31, 2007 |
|
| 27,123 |
|
| 271 |
|
| 65,666 |
|
| 25,309 |
|
| — |
|
| — |
|
| 91,246 |
|
| ||||||||||||||||||||||
Exercise of stock options |
|
| 325 |
|
| 3 |
|
| 4,757 |
|
| — |
|
| — |
|
| — |
|
| 4,760 |
|
Tax benefit resulting from exercise of stock options |
|
| — |
|
| — |
|
| 1,376 |
|
| — |
|
| — |
|
| — |
|
| 1,376 |
|
Stock based compensation |
|
| — |
|
| — |
|
| 3,757 |
|
| — |
|
| — |
|
| — |
|
| 3,757 |
|
Dividends declared |
|
| — |
|
| — |
|
| — |
|
| (27,316 | ) |
| — |
|
| — |
|
| (27,316 | ) |
Net income |
|
| — |
|
| — |
|
| — |
|
| 40,078 |
|
| — |
|
| — |
|
| 40,078 |
|
| ||||||||||||||||||||||
Unrealized loss on marketable securities, net of tax |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (196 | ) |
| (196 | ) |
|
| |||||||||||||||||||||
Balance, March 31, 2008 |
|
| 27,448 |
| $ | 274 |
| $ | 75,556 |
| $ | 38,071 |
| $ | — |
| $ | (196 | ) | $ | 113,705 |
|
|
| |||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Balance, March 31, 2007 | 27,123 | $ | 271 | $ | 65,666 | $ | 25,309 | $ | — | $ | 91,246 | |||||||||||||
| Exercise of stock options | 325 | 3 | 4,757 | — | — | 4,760 | ||||||||||||||||||
| Tax benefit resulting from exercise of stock options | — | — | 1,376 | — | — | 1,376 | ||||||||||||||||||
| Stock-based compensation | — | — | 3,757 | — | — | 3,757 | ||||||||||||||||||
| Dividends declared | — | — | — | (27,316 | ) | — | (27,316 | ) | ||||||||||||||||
| Net income | — | — | — | 40,078 | — | 40,078 | ||||||||||||||||||
| Unrealized loss on marketable securities, net of tax | — | — | — | — | (196 | ) | (196 | ) | ||||||||||||||||
| Balance, March 31, 2008 | 27,448 | 274 | 75,556 | 38,071 | (196 | ) | 113,705 | |||||||||||||||||
| Exercise of stock options | 697 | 7 | 12,512 | — | — | 12,519 | ||||||||||||||||||
| Tax benefit resulting from exercise of stock options | — | — | 3,382 | — | — | 3,382 | ||||||||||||||||||
| Stock-based compensation | — | — | 1,977 | — | — | 1,977 | ||||||||||||||||||
| Common stock issued for acquisitions | 302 | 3 | 10,097 | — | — | 10,100 | ||||||||||||||||||
| Dividends declared | — | — | — | (32,431 | ) | — | (32,431 | ) | ||||||||||||||||
| Net income | — | — | — | 46,119 | — | 46,119 | ||||||||||||||||||
| Reclassification of unrealized loss on marketable securities, net of tax | — | — | — | — | 196 | 196 | ||||||||||||||||||
| Balance, March 31, 2009 | 28,447 | 284 | 103,524 | 51,759 | — | 155,567 | ||||||||||||||||||
| Exercise of stock options | 238 | 3 | 5,852 | — | — | 5,855 | ||||||||||||||||||
| Tax benefit resulting from exercise of stock options | — | — | 1,576 | — | — | 1,576 | ||||||||||||||||||
| Stock-based compensation | — | — | 2,073 | — | — | 2,073 | ||||||||||||||||||
| Stock-based compensation related to acquisitions | — | — | 433 | — | — | 433 | ||||||||||||||||||
| Common stock issued for acquisitions | 194 | 2 | 8,813 | — | — | 8,815 | ||||||||||||||||||
| Dividends declared | — | — | — | (34,409 | ) | — | (34,409 | ) | ||||||||||||||||
| Net income | — | — | — | 48,379 | — | 48,379 | ||||||||||||||||||
| Balance, March 31, 2010 | 28,879 | $ | 289 | $ | 122,271 | $ | 65,729 | $ | — | $ | 188,289 | |||||||||||||
of these
64
| Fiscal Year Ended | ||||||||||||
| March 31, | March 31, | March 31, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 48,379 | $ | 46,119 | $ | 40,078 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation | 3,663 | 2,911 | 2,369 | |||||||||
| Amortization of capitalized software costs | 5,927 | 5,163 | 4,149 | |||||||||
| Amortization of other intangibles | 1,783 | 1,034 | — | |||||||||
| Gain on life insurance proceeds, net | — | — | (755 | ) | ||||||||
| Provision for bad debts | 3,465 | 2,089 | 1,171 | |||||||||
| Provision (recovery) for inventory obsolescence | 27 | (13 | ) | 52 | ||||||||
| Share-based compensation | 2,073 | 1,977 | 3,757 | |||||||||
| Deferred income tax (benefit) expense | (786 | ) | 4,462 | (199 | ) | |||||||
| Tax benefit from exercise of stock options | 1,576 | 3,382 | 1,376 | |||||||||
| Excess tax benefit from share-based compensation | (1,576 | ) | (3,381 | ) | (1,311 | ) | ||||||
| Loss on disposal of equipment and improvements | — | 96 | — | |||||||||
| Changes in assets and liabilities, net of amounts acquired: | ||||||||||||
| Accounts receivable | (18,944 | ) | (11,369 | ) | (13,811 | ) | ||||||
| Inventories | (238 | ) | (88 | ) | 99 | |||||||
| Income taxes receivable | 3,875 | (5,433 | ) | — | ||||||||
| Other current assets | (2,310 | ) | (1,202 | ) | (89 | ) | ||||||
| Other assets | (894 | ) | (448 | ) | 381 | |||||||
| Accounts payable | (1,810 | ) | (299 | ) | (561 | ) | ||||||
| Deferred revenue | 12,528 | 3,130 | 5,447 | |||||||||
| Accrued compensation and related benefits | (1,006 | ) | 136 | 1,825 | ||||||||
| Income taxes payable | (1,404 | ) | (1,541 | ) | 1,226 | |||||||
| Other current liabilities | 846 | 2,055 | (1,232 | ) | ||||||||
| Deferred compensation | 46 | (68 | ) | (373 | ) | |||||||
| Net cash provided by operating activities | 55,220 | 48,712 | 43,599 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Additions to capitalized software costs | (7,921 | ) | (5,863 | ) | (6,019 | ) | ||||||
| Additions to equipment and improvements | (4,935 | ) | (3,218 | ) | (2,113 | ) | ||||||
| Proceeds from sale of marketable securities | 425 | 14,825 | 91,825 | |||||||||
| Purchases of marketable securities | — | — | (114,645 | ) | ||||||||
| Proceeds from life insurance policy, net | — | — | 755 | |||||||||
| Cash acquired from purchase of Opus | 2,036 | — | — | |||||||||
| Purchase of Opus | (250 | ) | — | — | ||||||||
| Purchase of Sphere | (300 | ) | — | — | ||||||||
| Purchase of PMP, including direct transaction costs | — | (16,950 | ) | — | ||||||||
| Purchase of HSI, including direct transaction costs | — | (8,241 | ) | — | ||||||||
| Payment of contingent consideration related to purchase of PMP | (3,000 | ) | — | — | ||||||||
| Net cash used in investing activities | (13,945 | ) | (19,447 | ) | (30,197 | ) | ||||||
65
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal Year Ended |
| |||||||
|
|
| ||||||||
|
| March 31, 2008 |
| March 31, 2007 |
| March 31, 2006 |
| |||
|
|
|
|
| ||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 40,078 |
| $ | 33,232 |
| $ | 23,322 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 2,369 |
|
| 1,950 |
|
| 1,368 |
|
Amortization of capitalized software costs |
|
| 4,149 |
|
| 3,231 |
|
| 2,460 |
|
Gain on life insurance proceeds, net |
|
| (755 | ) |
| — |
|
| — |
|
Provision for bad debts |
|
| 1,171 |
|
| 1,480 |
|
| 1,181 |
|
Provision for inventory obsolescense |
|
| 52 |
|
| 35 |
|
| 179 |
|
Non-cash stock-based compensation |
|
| 3,757 |
|
| 3,923 |
|
| 428 |
|
Deferred income taxes |
|
| (199 | ) |
| (1,642 | ) |
| (1,476 | ) |
Tax benefit from exercise of stock options |
|
| 1,376 |
|
| 2,694 |
|
| 4,831 |
|
Excess tax benefit from share-based compensation |
|
| (1,311 | ) |
| (2,527 | ) |
| — |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (13,811 | ) |
| (20,760 | ) |
| (12,484 | ) |
Inventories |
|
| 99 |
|
| (649 | ) |
| 220 |
|
Income tax receivable |
|
| — |
|
| 1,195 |
|
| (1,180 | ) |
Other current assets |
|
| (89 | ) |
| (1,595 | ) |
| (1,235 | ) |
Other assets |
|
| 381 |
|
| (594 | ) |
| (354 | ) |
Accounts payable |
|
| (561 | ) |
| 2,312 |
|
| 650 |
|
Deferred revenue |
|
| 5,447 |
|
| 3,532 |
|
| 10,439 |
|
Accrued compensation and related benefits |
|
| 1,825 |
|
| 1,031 |
|
| 2,054 |
|
Income taxes payable |
|
| 1,226 |
|
| 315 |
|
| — |
|
Other current liabilities |
|
| (1,232 | ) |
| 1,814 |
|
| (209 | ) |
Deferred compensation |
|
| (373 | ) |
| 593 |
|
| 484 |
|
|
|
|
|
| ||||||
Net cash provided by operating activities |
|
| 43,599 |
|
| 29,570 |
|
| 30,678 |
|
|
|
|
|
| ||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Additions to capitalized software costs |
|
| (6,019 | ) |
| (5,042 | ) |
| (3,297 | ) |
Additions to equipment and improvements |
|
| (2,113 | ) |
| (3,240 | ) |
| (2,410 | ) |
Purchases of marketable securities |
|
| 91,825 |
|
| — |
|
| — |
|
Sales of marketable securities |
|
| (114,645 | ) |
| — |
|
| — |
|
Proceeds from life insurance policy, net |
|
| 755 |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Net cash used in investing activities |
|
| (30,197 | ) |
| (8,282 | ) |
| (5,707 | ) |
|
|
|
|
| ||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
| (20,455 | ) |
| (27,074 | ) |
| (23,384 | ) |
Excess tax benefit from share-based compensation |
|
| 1,311 |
|
| 2,527 |
|
| — |
|
Proceeds from the exercise of stock options |
|
| 4,760 |
|
| 6,062 |
|
| 4,481 |
|
|
|
|
|
| ||||||
Net cash used in financing activities |
|
| (14,384 | ) |
| (18,485 | ) |
| (18,903 | ) |
|
|
|
|
| ||||||
Net (decrease) increase in cash and cash equivalents |
|
| (982 | ) |
| 2,803 |
|
| 6,068 |
|
| ||||||||||
Cash and cash equivalents at beginning of year |
|
| 60,028 |
|
| 57,225 |
|
| 51,157 |
|
|
|
|
|
| ||||||
Cash and cash equivalents at end of year |
| $ | 59,046 |
| $ | 60,028 |
| $ | 57,225 |
|
|
|
|
|
| ||||||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes, net of refunds |
| $ | 20,546 |
| $ | 18,360 |
| $ | 11,022 |
|
|
|
|
|
| ||||||
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities |
| $ | (326 | ) | $ | — |
| $ | — |
|
|
|
|
|
| ||||||
Dividends declared and accrued |
| $ | 6,861 |
| $ | — |
| $ | — |
|
|
|
|
|
| ||||||
| Fiscal Year Ended | ||||||||||||
| March 31, | March 31, | March 31, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
| Cash flows from financing activities: | ||||||||||||
| Excess tax benefit from share-based compensation | 1,576 | 3,381 | 1,311 | |||||||||
| Proceeds from exercise of stock options | 5,855 | 12,519 | 4,760 | |||||||||
| Dividends paid | (34,275 | ) | (30,763 | ) | (20,455 | ) | ||||||
| Loan repayment | — | (3,268 | ) | — | ||||||||
| Net cash used in financing activities | (26,844 | ) | (18,131 | ) | (14,384 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | 14,431 | 11,134 | (982 | ) | ||||||||
| Cash and cash equivalents at beginning of year | 70,180 | 59,046 | 60,028 | |||||||||
| Cash and cash equivalents at end of year | $ | 84,611 | $ | 70,180 | $ | 59,046 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Cash paid during the period for income taxes, net of refunds | $ | 24,506 | $ | 26,455 | $ | 20,546 | ||||||
| Non-cash investing and financing activities: | ||||||||||||
| Unrealized gain (loss) on marketable securities, net of tax | $ | — | $ | 196 | $ | (196 | ) | |||||
| Issuance of stock options with fair value of $433 in connection with the purchase of PMP | $ | 433 | $ | — | $ | — | ||||||
| Effective February 10, 2010, the Company acquired Opus in a transaction summarized as follows: | ||||||||||||
| Fair value of net assets acquired | $ | 32,209 | $ | — | $ | — | ||||||
| Cash paid | (250 | ) | — | — | ||||||||
| Common stock issued for Opus stock | (8,815 | ) | — | — | ||||||||
| Fair value of contingent consideration | (11,516 | ) | — | — | ||||||||
| Liabilities assumed | $ | 11,628 | $ | — | $ | — | ||||||
| Effective August 12, 2009, the Company acquired Sphere in a transaction summarized as follows: | ||||||||||||
| Fair value of net assets acquired | $ | 1,453 | $ | — | $ | — | ||||||
| Cash paid | (300 | ) | — | — | ||||||||
| Fair value of contingent consideration | (1,074 | ) | — | — | ||||||||
| Liabilities assumed | $ | 79 | $ | — | $ | — | ||||||
| Effective October 28, 2008, the Company acquired PMP in a transaction summarized as follows: | ||||||||||||
| Fair value of net assets acquired | $ | — | $ | 23,875 | $ | — | ||||||
| Cash paid | — | (16,950 | ) | — | ||||||||
| Common stock issued for PMP stock | — | (2,750 | ) | — | ||||||||
| Liabilities assumed | $ | — | $ | 4,175 | $ | — | ||||||
| Effective May 20, 2008, the Company acquired HSI in a transaction summarized as follows: | ||||||||||||
| Fair value of net assets acquired | $ | — | $ | 20,609 | $ | — | ||||||
| Cash paid | — | (8,241 | ) | — | ||||||||
| Common stock issued for HSI stock | — | (7,350 | ) | — | ||||||||
| Liabilities assumed | $ | — | $ | 5,018 | $ | — | ||||||
of these
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
(
| 1. | Organization of Business |
67
On January 31, 2006, the Board
References to share and per share data contained in the consolidated financial statements and notes to the consolidated financial statements have been retroactively adjusted to reflect the stock splits.
2. Summary of Significant Accounting Policies
NextGen Division.
| 2. | Summary of Significant Accounting Policies |
America (“GAAP”).
68
The Company has established VSOE for the related undelivered elements based on the bell-shaped curve method. Maintenance VSOE for the Company’s largest customers is based on stated renewal rates only if the rate is determined to be substantive and falls within the Company’s customary pricing practices.
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.
| • | 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. |
| • | Payment terms must not be considered extended. If a significant portion of the fee is due more than 12 months after delivery or after the expiration of the license, the fee is presumed not fixed |
| • | the contract includes provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement; |
| • | the customer can be expected to satisfy its obligations under the contract; |
| • | the Company can be expected to perform its contractual obligations; and |
| • | reliable estimates of progress towards completion can be made. |
69
Individual product
| • | 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. |
unable to estimate returns for these types of arrangements, revenue is not recognized in the consolidated financial statementsConsolidated Financial Statements until the rights of return expire.
70
appropriate.
In February 2008, the Company began to experience failed auctions on its ARS.
71
periodically assess the economic ability of UBS to meet that obligation in assessing the fair value of the ARS put option rights.
| Computers and electronic test equipment | 3-5 years | ||
| Furniture and fixtures | 5-7 years | ||
| Leasehold improvements | lesser of lease term or estimated useful life of asset |
Statement of Financial Accounting Standards No. 86, “Accounting for theFASB ASC Topic985-20,Software, Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (SFAS 86).Marketed,orASC 985-20. Such capitalized costs are amortized on a straight-line basis over the estimated economic life of the related product, ofwhich is typically three years. The Company provides support services on the current and prior two versions of its software. Management performs an annual review of the estimated economic life and the
72
intangible assets are consumed.
impairment to such value has occurred and has determined that there was no impairment atto its long-lived assets as of March 31, 2008.
2010. In addition to the recoverability assessment, the Company routinely reviews the remaining estimated lives of its long-lived assets.
73
11.
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended March 31, |
| |||||||
|
|
| ||||||||
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 40,078 |
| $ | 33,232 |
| $ | 23,322 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities, net of tax |
|
| (196 | ) |
| — |
|
| — |
|
|
|
|
|
| ||||||
Comprehensive income |
| $ | 39,882 |
| $ | 33,232 |
| $ | 23,322 |
|
|
|
|
|
| ||||||
2010 or 2009.
| Year Ended March 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Net income | $ | 48,379 | $ | 46,119 | $ | 40,078 | ||||||
| Other comprehensive income: | ||||||||||||
| Unrealized loss on marketable securities, net of tax | — | — | (196 | ) | ||||||||
| Comprehensive income | $ | 48,379 | $ | 46,119 | $ | 39,882 | ||||||
74
|
|
|
|
|
|
|
|
|
|
|
|
| Year ended March 31, |
| |||||||
|
|
| ||||||||
|
| 2008 |
| 2007 |
| 2006 |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 40,078 |
| $ | 33,232 |
| $ | 23,322 |
|
Basic net income per common share: |
|
|
|
|
|
|
|
|
|
|
Weighted average of common shares outstanding |
|
| 27,298 |
|
| 26,882 |
|
| 26,413 |
|
|
|
|
|
| ||||||
Basic net income per common share |
| $ | 1.47 |
| $ | 1.24 |
| $ | 0.88 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 40,078 |
| $ | 33,232 |
| $ | 23,322 |
|
Diluted net income per common share: |
|
|
|
|
|
|
|
|
|
|
Weighted average of common shares outstanding |
|
| 27,298 |
|
| 26,882 |
|
| 26,413 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of potentially dilutive securities (options) |
|
| 472 |
|
| 668 |
|
| 943 |
|
|
|
|
|
| ||||||
Weighted average of common shares outstanding - diluted |
|
| 27,770 |
|
| 27,550 |
|
| 27,356 |
|
| ||||||||||
|
|
|
|
| ||||||
Diluted net income per common share |
| $ | 1.44 |
| $ | 1.21 |
| $ | 0.85 |
|
|
|
|
|
| ||||||
Year Ended March 31, 2010 2009 2008 Net income $ 48,379 $ 46,119 $ 40,078 Basic net income per share: Weighted average shares outstanding — Basic 28,635 28,031 27,298 Basic net income per common share $ 1.69 $ 1.65 $ 1.47 Net income $ 48,379 $ 46,119 $ 40,078 Diluted net income per share: Weighted average shares outstanding — Basic 28,635 28,031 27,298 Effect of potentially dilutive securities 161 365 472 Weighted average shares outstanding — Diluted 28,796 28,396 27,770 Diluted net income per common share $ 1.68 $ 1.62 $ 1.44
The Company adopted SFAS 123R using the modified prospective transition method, which requires the application of the accounting standard as of April 1, 2006, the first day of the Company’s fiscal year 2007. The Company’s Consolidated Statements of Income for the years ended March 31, 2008 and 2007 reflect the impact of SFAS 123R. In accordance with the modified prospective transition method, the Company’s Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. Share-based compensation expense recognized under SFAS 123R for the years ended March 31, 2008 and 2007 was $3,757 and $3,923, respectively, which consisted of stock-based compensation expense related to employee and director stock options and included $430 expensed under APB 25 for “in the money” options issued prior to the adoption of SFAS 123R. Excess tax benefits from share-based compensation are presented as cash outflows from operating activities and cash inflows from financing activities. The Company has elected to adopt the alternative transition method provided in FASB Staff Position No. SFAS 123R-3 (FSP 123(R)-3) for calculating the tax effects of share-based compensation pursuant to SFAS 123R. The alternative transition method includes a simplified method to establish the beginning balance of the additional paid-in capital (APIC pool) related to the tax effects of employee and director stock-based compensation, and to determine the subsequent impact on the APIC pool and the consolidated statement of cash flows of the tax effects of employee and director share-based awards that are outstanding upon adoption of SFAS 123R.
SFAS 123RCompensation,or ASC 718, requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. Expected term is estimated using historical exercise experience. 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. Those inputs are then entered into the Black Scholes model to determine the estimated fair value. The 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 StatementStatements of Income. Prior to the adoption of SFAS 123R, the Company applied the intrinsic-value-based method of accounting prescribed by APB 25 to account for its fixed-plan stock options. Under this method, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. As previously allowed under SFAS 123, the Company only adopted the disclosure requirements of SFAS 123, which established a fair-value-based method of accounting for share-based employee compensation plans. The following is a reconciliation of reported net earnings to adjusted net earnings had the Company recorded compensation expense based on the fair value at the grant date for its stock options under SFAS 123 for the year ended March 31, 2006.
|
|
|
|
|
|
| Year Ended |
| |
|
|
| ||
|
|
|
| |
Reported net earnings |
| $ | 23,322 |
|
Add: Option compensation expense, net of tax |
|
| 262 |
|
Less: Share-based compensation expense determined under fair value-based method for all awards |
|
| (3,280 | ) |
|
|
| ||
Pro forma net earnings |
| $ | 20,304 |
|
|
|
| ||
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
Reported |
| $ | 0.88 |
|
|
|
| ||
Pro forma |
| $ | 0.77 |
|
|
|
| ||
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
Reported |
| $ | 0.85 |
|
|
|
| ||
Pro forma |
| $ | 0.74 |
|
|
|
| ||
In arriving at the stock-based compensation expense reported in the table above, the Company utilized the Black-Scholes valuation model for estimating fair value with the following assumptions: expected life – 48 - 57 months from the date of the grant; stock volatility – 47.7 – 57.0%, risk free interest rate of 3.0 - 3.7% and no dividends during the expected term. For stock options issued subsequent to March 31, 2006, the Company used the simplified method for estimating expected term, which derives a term equal to the midpoint between the vesting period and the contractual term as allowed by SAB 107. Prior to using the simplified method, the Company estimated the expected life of an option. The Company estimates volatility by using the weighted average historical volatility of the Company’s common stock which the Company believes 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 life input to the Black Scholes model. Although the Company announced a one-time $0.75 per share dividend on January 31, 2005, no commitment to any future dividends was made at the time the dividend was announced and no commitment to any future dividends existed at the time when the February 11, 2005 options were granted. The Company had not paid a dividend to its shareholders prior to the one-time dividend announced on January 31, 2005. On January 31, 2006, the Company announced a one-time dividend of $0.875 per share. This dividend was announced subsequent to the options granted in fiscal year 2006 and was not considered in the fair value calculations of such options. Therefore, management believes that using a zero dividend rate in the valuation of the stock options granted during fiscal year 2006 was appropriate. The above pro forma disclosure was not presented for the years ended March 31, 2008 and 2007 because stock-based compensation has been accounted under SFAS 123R for these years.
|
|
|
|
|
|
|
|
|
| Year Ended |
| Year Ended |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
Cost of revenue |
| $ | 496 |
| $ | 524 |
|
Research and development |
|
| 800 |
|
| 870 |
|
Selling, general and administrative |
|
| 2,461 |
|
| 2,529 |
|
|
|
|
| ||||
Total share-based compensation |
| $ | 3,757 |
| $ | 3,923 |
|
Amounts capitalized in software development costs |
|
| (39 | ) |
| (38 | ) |
|
|
|
| ||||
Amounts charged against earnings, before income tax benefit |
| $ | 3,718 |
| $ | 3,885 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Amount of related income tax benefit recognized in earnings |
| $ | 969 |
| $ | 910 |
|
|
|
|
| ||||
respectively:
| Year Ended March 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Costs and expenses: | ||||||||||||
| Cost of revenue | $ | 85 | $ | 195 | $ | 496 | ||||||
| Research and development | 108 | 242 | 800 | |||||||||
| Selling, general and administrative | 1,880 | 1,540 | 2,461 | |||||||||
| Total share-based compensation | 2,073 | 1,977 | 3,757 | |||||||||
| Amounts capitalized in software development costs | (27 | ) | (21 | ) | (39 | ) | ||||||
| Amounts charged against earnings, before income tax benefit | $ | 2,046 | $ | 1,956 | $ | 3,718 | ||||||
| Related income tax benefit | (608 | ) | (549 | ) | (969 | ) | ||||||
| Decrease in net income | $ | 1,438 | $ | 1,407 | $ | 2,749 | ||||||
75
the Company’s Consolidated Financial Statements.
76
2008.
In February 2007,period the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of SFAS No. 115”, (SFAS 159) which applies to all entities with available-for-sale and trading securities. This Statement permits entities to choose to measure many financial instruments and certain other items at fairasset diminishes in value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, “Fair Value Measurements”. The Company plans to adopt SFAS 159 effective April 1, 2008 and is in the process of determining the effect, if any, the adoption of SFAS 159 will have on its consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statementASC 350-30-55 is effective for fiscal years beginning after NovemberDecember 15, 2007.2008, with early adoption prohibited. The adoption ofASC 350-30-55 did not have a material impact on the Company’s Consolidated Financial Statements.
77
evaluating the impact if any,that the adoption of this standardthese ASUs will have on its consolidated financial statements.
3. Cash and Cash Equivalents
Consolidated Financial Statements.
| 3. | Cash and Cash Equivalents |
78
| 4. | Fair Value Measurements |
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | |||||||||||||||
| Balance at | Markets for | Observable | Unobservable | |||||||||||||
| March 31, | Identical Assets | Inputs | Inputs | |||||||||||||
| 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Cash and cash equivalents | $ | 84,611 | $ | 84,611 | $ | — | $ | — | ||||||||
| Restricted cash | 2,339 | 2,339 | — | — | ||||||||||||
| Marketable securities(1) | 7,158 | — | — | 7,158 | ||||||||||||
| ARS put option rights(2) | 548 | — | — | 548 | ||||||||||||
| $ | 94,656 | $ | 86,950 | $ | — | $ | 7,706 | |||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | |||||||||||||||
| Balance at | Markets for | Observable | Unobservable | |||||||||||||
| March 31, | Identical Assets | Inputs | Inputs | |||||||||||||
| 2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Cash and cash equivalents | $ | 70,180 | $ | 70,180 | $ | — | $ | — | ||||||||
| Restricted cash | 1,303 | 1,303 | — | — | ||||||||||||
| Marketable securities(1) | 7,395 | — | — | 7,395 | ||||||||||||
| ARS put option rights(3) | 468 | — | — | 468 | ||||||||||||
| $ | 79,346 | $ | 71,483 | $ | — | $ | 7,863 | |||||||||
| (1) | Marketable securities consist of ARS | |
| (2) | ARS put option rights are included on the accompanying Consolidated Balance Sheets in other current assets as of March 31, 2010. | |
| (3) | ARS put option rights are included on the accompanying Consolidated Balance Sheets in other assets as of March 31, 2009. | |
| The fair value of the Company’s ARS, including the Company’s ARS put option rights, has been estimated by management based on its assumptions of what market participants would use in pricing the asset in a current transaction, or Level 3 — unobservable inputs, in accordance with ASC 820, and represents $7,706 and $7,863 or |
79
| 8.1% and 9.9%, of total financial assets measured at fair value in accordance with ASC 820 at March 31, 2010 and 2009, respectively. Management used a model to estimate the fair value of these securities that included certain Level 2 inputs as well as assumptions, such as a liquidity discount and credit rating of the issuers, based on management’s judgment, which are highly subjective and therefore considered Level 3 inputs in the fair value hierarchy. The estimate of the fair value of the ARS could change based on market conditions. For additional information on cash and cash equivalents, restricted cash or marketable securities, see Note 2. |
| Balance at March 31, 2009 | $ | 7,863 | ||
| Transfer in/(out) of Level 3 | — | |||
| Proceeds from sale (at par) | (425 | ) | ||
| Recognized gain | 268 | |||
| Balance at March 31, 2010 | $ | 7,706 | ||
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
| Year Ended |
| Year Ended |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | 1,444 |
| $ | 3,306 |
| $ | 2,108 |
|
|
|
|
|
| ||||||
4. Marketable Securities
At March 31, 2008, the cost and estimated fair values of the Company’s marketable securities in ARS were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost |
| Gross |
| Gross |
| Fair Value/ |
| ||||
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities |
| $ | 2,500 |
| $ | — |
| $ | (50 | ) | $ | 2,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities |
|
| 20,450 |
|
| — |
|
| (276 | ) |
| 20,174 |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities |
| $ | 22,950 |
| $ | — |
| $ | (326 | ) | $ | 22,624 |
|
|
|
|
|
|
| ||||||||
At March 31, 2007, the Company did not have investments in marketable securities.
Interest income related to marketable securities for each of the three years ended March 31, 2010 is as follows:
| Year Ended March 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Interest Income | $ | 226 | $ | 1,203 | $ | 2,661 | ||||||
| 5. | Business Combinations |
80
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
| Year Ended |
| Year Ended |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | 1,217 |
| $ | — |
| $ | — |
|
|
|
|
|
| ||||||
5. Intangible Assets – Capitalized Software Costs
As
| Cash paid | $ | 300 | ||
| Contingent consideration | 1,074 | |||
| Total purchase price | $ | 1,374 | ||
| August 12, | ||||
2009 | ||||
| Fair value of the net tangible assets acquired and liabilities assumed: | ||||
| Current assets (consisting of accounts receivable only) | $ | 158 | ||
| Current liabilities, including long-term debt due within one year | (79 | ) | ||
| Total tangible assets acquired and liabilities assumed | 79 | |||
| Fair value of identifiable intangible assets acquired: | ||||
| Customer relationships | 156 | |||
| Software technology | 119 | |||
| Goodwill (including assembled workforce of $84) | 1,020 | |||
| Total identifiable intangible assets acquired | 1,295 | |||
| Total purchase price | $ | 1,374 | ||
81
| Cash paid | $ | 250 | ||
| Common stock issued at fair value | 8,815 | |||
| Contingent consideration | 11,516 | |||
| Total purchase price | $ | 20,581 | ||
| February 10, | ||||
| 2010 | ||||
| Fair value of the net tangible assets acquired and liabilities assumed: | ||||
| Cash and cash equivalents | $ | 2,036 | ||
| Current assets (including accounts receivable of $1,753) | 3,435 | |||
| Equipment and improvements and other long-term assets | 483 | |||
| Accounts payable and accrued liabilities | (7,678 | ) | ||
| Deferred revenues | (3,950 | ) | ||
| Total tangible assets acquired and liabilities assumed | (5,674 | ) | ||
| Fair value of identifiable intangible assets acquired: | ||||
| Customer relationships | 1,250 | |||
| Software technology | 12,000 | |||
| Goodwill (including assembled workforce of $1,000) | 13,005 | |||
| Total identifiable intangible assets acquired | 26,255 | |||
| Total purchase price | $ | 20,581 | ||
| 6. | Goodwill |
82
| Balance at | Balance at | |||||||||||
| March 31, | Additions to | March 31, | ||||||||||
| 2009 | Goodwill | 2010 | ||||||||||
| NextGen Division | ||||||||||||
| Opus Healthcare Solutions, Inc. | $ | — | $ | 13,005 | $ | 13,005 | ||||||
| NextGen Sphere, LLC | — | 1,020 | 1,020 | |||||||||
| NextGen Healthcare Information Systems, Inc. | 1,840 | — | 1,840 | |||||||||
| Total NextGen Division goodwill | 1,840 | 14,025 | 15,865 | |||||||||
| Practice Solutions Division | ||||||||||||
| Practice Management Partners, Inc. | 16,052 | 3,433 | 19,485 | |||||||||
| Healthcare Strategic Initiatives | 10,839 | — | 10,839 | |||||||||
| Total Practice Solutions Division goodwill | 26,891 | 3,433 | 30,324 | |||||||||
| Total goodwill | $ | 28,731 | $ | 17,458 | $ | 46,189 | ||||||
| 7. | Intangible Assets |
|
|
|
|
|
|
|
| ||||||||||||||||
|
| March 31, 2008 |
| March 31, 2007 |
| Customer | Trade | Software | |||||||||||||||
|
|
|
| Relationships | Name | Technology | Total | ||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||
Gross carrying amount |
| $ | 27,645 |
| $ | 21,626 |
| $ | 10,206 | $ | 637 | $ | 12,119 | $ | 22,962 | ||||||||
Accumulated amortization |
| (18,793 | ) |
| (14,644 | ) | (2,357 | ) | (269 | ) | (191 | ) | (2,817 | ) | |||||||||
|
|
|
| ||||||||||||||||||||
Net capitalized software development |
| $ | 8,852 |
| $ | 6,982 |
| ||||||||||||||||
| Net intangible assets | $ | 7,849 | $ | 368 | $ | 11,928 | $ | 20,145 | |||||||||||||||
|
|
|
| ||||||||||||||||||||
Aggregate amortization expense during the year |
| $ | 4,149 |
| $ | 3,231 |
| $ | 1,434 | $ | 158 | $ | 191 | $ | 1,783 | ||||||||
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| March 31, 2008 |
| March 31, 2007 |
| ||
|
|
|
| ||||
Beginning of the year |
| $ | 6,982 |
| $ | 5,171 |
|
Capitalization |
|
| 6,019 |
|
| 5,042 |
|
Amortization |
|
| (4,149 | ) |
| (3,231 | ) |
|
|
|
| ||||
End of the year |
| $ | 8,852 |
| $ | 6,982 |
|
|
|
|
| ||||
| Customer | Trade | Software | ||||||||||||||
| Relationships | Name | Technology | Total | |||||||||||||
| Balance as of April 1, 2009 | $ | 7,877 | $ | 526 | $ | — | $ | 8,403 | ||||||||
| Acquisition | 1,406 | — | 12,119 | 13,525 | ||||||||||||
| Amortization | (1,434 | ) | (158 | ) | (191 | ) | (1,783 | ) | ||||||||
| Balance as of March 31, 2010 | $ | 7,849 | $ | 368 | $ | 11,928 | $ | 20,145 | ||||||||
| For the year ended March 31, | ||||
| 2011 | $ | 3,255 | ||
| 2012 | 3,320 | |||
| 2013 | 3,184 | |||
| 2014 | 3,055 | |||
| 2015 and beyond | 7,331 | |||
| Total | $ | 20,145 | ||
83
|
|
|
|
|
For the year ending March 31, |
|
|
|
|
2009 |
| $ | 4,381 |
|
2010 |
|
| 3,212 |
|
2011 |
|
| 1,259 |
|
|
|
| ||
Total |
| $ | 8,852 |
|
|
|
|
| 8. | Capitalized Software Costs |
March 31, 2010 and 2009, the Company had the following amounts related to capitalized software costs:
| March 31, | March 31, | |||||||
| 2010 | 2009 | |||||||
| Gross carrying amount | $ | 41,429 | $ | 33,508 | ||||
| Accumulated amortization | (29,883 | ) | (23,956 | ) | ||||
| Net capitalized software costs | $ | 11,546 | $ | 9,552 | ||||
| Aggregate amortization expense during the year | $ | 5,927 | $ | 5,163 | ||||
| Year Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
| Beginning of the year | $ | 9,552 | $ | 8,852 | ||||
| Capitalization | 7,921 | 5,863 | ||||||
| Amortization | (5,927 | ) | (5,163 | ) | ||||
| End of the year | $ | 11,546 | $ | 9,552 | ||||
| For the year ended March 31, | ||||
| 2011 | $ | 5,729 | ||
| 2012 | 3,783 | |||
| 2013 | 1,768 | |||
| 2014 | 266 | |||
| 2015 and beyond | — | |||
| Total | $ | 11,546 | ||
| 9. | Composition of Certain Financial Statement Captions |
| March 31, | March 31, | |||||||
| 2010 | 2009 | |||||||
| Accounts receivable, excluding undelivered software, maintenance and services | $ | 72,500 | $ | 64,003 | ||||
| Undeliverable software, maintenance and implementation services billed in advance, included in deferred revenue | 39,447 | 29,944 | ||||||
| Accounts receivable, gross | 111,947 | 93,947 | ||||||
| Allowance for doubtful accounts | (4,489 | ) | (3,877 | ) | ||||
| Accounts receivable, net | $ | 107,458 | $ | 90,070 | ||||
84
|
|
|
|
|
|
|
|
|
| March 31, 2008 |
| March 31, 2007 |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Accounts receivable, excluding undelivered software, maintenance and services |
| $ | 50,417 |
| $ | 42,574 |
|
Undelivered software, maintenance and implementation services billed in advance, included in deferred revenue |
|
| 28,696 |
|
| 23,809 |
|
|
|
|
| ||||
Accounts receivable, gross |
|
| 79,113 |
|
| 66,383 |
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
| (2,528 | ) |
| (2,438 | ) |
|
|
|
| ||||
Accounts receivable, net |
| $ | 76,585 |
| $ | 63,945 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| March 31, 2008 |
| March 31, 2007 |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Computer systems and components, net of reserve for obsolescence of $223 and $324, respectively |
| $ | 992 |
| $ | 1,147 |
|
Miscellaneous parts and supplies |
|
| 32 |
|
| 28 |
|
|
|
|
| ||||
Inventories, net |
| $ | 1,024 |
| $ | 1,175 |
|
|
|
|
| ||||
March 31, March 31, 2010 2009 Computer systems and components, net of reserve for obsolescence of $237 and $210, respectively $ 1,322 $ 1,105 Miscellaneous parts and supplies 18 20 Inventories, net $ 1,340 $ 1,125
| March 31, | March 31, | |||||||
| 2010 | 2009 | |||||||
| Computer and electronic test equipment | $ | 18,599 | $ | 15,384 | ||||
| Furniture and fixtures | 5,136 | 3,520 | ||||||
| Leasehold improvements | 1,969 | 1,595 | ||||||
| 25,704 | 20,499 | |||||||
| Accumulated depreciation and amortization | (17,272 | ) | (13,743 | ) | ||||
| Equipment and improvements, net | $ | 8,432 | $ | 6,756 | ||||
| March 31, | March 31, | |||||||
| 2010 | 2009 | |||||||
| Payroll, bonus and commission | $ | 4,185 | $ | 5,768 | ||||
| Vacation | 4,766 | 3,743 | ||||||
| Accrued compensation and related benefits | $ | 8,951 | $ | 9,511 | ||||
| March 31, | March 31, | |||||||
| 2010 | 2009 | |||||||
| Maintenance | $ | 13,242 | $ | 8,776 | ||||
| Implementation services | 38,137 | 28,631 | ||||||
| Annual license services | 8,214 | 7,988 | ||||||
| Undelivered software and other | 4,516 | 2,189 | ||||||
| Deferred revenue | $ | 64,109 | $ | 47,584 | ||||
| Deferred revenue, net of current | $ | 474 | $ | 521 | ||||
85
|
|
|
|
|
|
|
|
|
| March 31, 2008 |
| March 31, 2007 |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Computer and electronic test equipment |
| $ | 11,454 |
| $ | 9,801 |
|
Furniture and fixtures |
|
| 2,975 |
|
| 2,845 |
|
Leasehold improvements |
|
| 1,259 |
|
| 929 |
|
|
|
|
| ||||
|
|
| 15,688 |
|
| 13,575 |
|
Accumulated depreciation and amortization |
|
| (10,915 | ) |
| (8,546 | ) |
|
|
|
| ||||
Equipment and improvements, net |
| $ | 4,773 |
| $ | 5,029 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Accrued compensation and related benefits are summarized as follows: |
| ||||||
|
|
|
|
|
|
|
|
|
| March 31, 2008 |
| March 31, 2007 |
| ||
|
|
|
| ||||
| |||||||
Bonus and commission |
| $ | 5,443 |
| $ | 4,158 |
|
Vacation |
|
| 2,903 |
|
| 2,363 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Accrued compensation and related benefits |
| $ | 8,346 |
| $ | 6,521 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Short and long-term deferred revenue are summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2008 |
| March 31, 2007 |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Maintenance |
| $ | 10,175 |
| $ | 10,241 |
|
Implementation services |
|
| 25,929 |
|
| 24,246 |
|
Annual license services |
|
| 6,532 |
|
| 2,219 |
|
Undelivered software and other |
|
| 2,259 |
|
| 2,742 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Deferred Revenue |
| $ | 44,895 |
| $ | 39,448 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Other current liabilities are summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2008 |
| March 31, 2007 |
| ||
|
|
|
| ||||
| |||||||
Sales tax payable |
| $ | 765 |
| $ | 805 |
|
Customer deposits |
|
| 621 |
|
| 703 |
|
Deferred rent |
|
| 607 |
|
| 652 |
|
Professional fees |
|
| 600 |
|
| 425 |
|
Commission payable |
|
| 346 |
|
| 767 |
|
Accrued EDI expenses |
|
| — |
|
| 613 |
|
Accrued royalties |
|
| 216 |
|
| 463 |
|
Other accrued expenses |
|
| 1,239 |
|
| 1,198 |
|
|
|
|
| ||||
Other current liabilities |
| $ | 4,394 |
| $ | 5,626 |
|
|
|
|
| ||||
On September 26, 2007, Mr. Gregory Flynn, Executive Vice Presidentcurrent liabilities are summarized as follows:
| March 31, | March 31, | |||||||
| 2010 | 2009 | |||||||
| Contingent consideration related to acquisition | $ | 5,275 | $ | — | ||||
| Care services liabilities | 2,336 | 1,303 | ||||||
| Accrued EDI expense | 2,000 | 1,258 | ||||||
| Customer deposits | 1,036 | 674 | ||||||
| Accrued royalties | 926 | 933 | ||||||
| Deferred rent | 641 | 782 | ||||||
| Self insurance reserve | 516 | — | ||||||
| Sales tax payable | 506 | 602 | ||||||
| Commission payable | 468 | 385 | ||||||
| Professional services | 391 | 409 | ||||||
| Other accrued expenses | 2,125 | 2,542 | ||||||
| Other accrued liabilities | $ | 16,220 | $ | 8,888 | ||||
| 10. | Other Income (Expense) |
8. Income Taxes
| 11. | Income Taxes |
86
| Year Ended March 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Current: | ||||||||||||
| Federal taxes | $ | 23,750 | $ | 18,818 | $ | 18,120 | ||||||
| State taxes | 5,043 | 4,992 | 4,348 | |||||||||
| 28,793 | 23,810 | 22,468 | ||||||||||
| Deferred: | ||||||||||||
| Federal taxes | (768 | ) | 2,802 | 333 | ||||||||
| State taxes | (186 | ) | 596 | 124 | ||||||||
| (954 | ) | 3,398 | 457 | |||||||||
| Total | $ | 27,839 | $ | 27,208 | $ | 22,925 | ||||||
| Year Ended March 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Current: | ||||||||||||
| Federal income tax statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| Increase (decrease) resulting from: | ||||||||||||
| State income taxes, net of Federal benefit | 4.3 | 5.2 | 4.8 | |||||||||
| Research and development tax credits | (0.9 | ) | (1.3 | ) | (1.3 | ) | ||||||
| Qualified production activities income deduction | (2.0 | ) | (1.4 | ) | (1.8 | ) | ||||||
| Other | 0.1 | (0.4 | ) | (0.3 | ) | |||||||
| Effective income tax rate | 36.5 | % | 37.1 | % | 36.4 | % | ||||||
87
|
|
|
|
|
|
|
|
|
|
| |
|
| Year ended March 31, |
| ||||||||
|
|
| |||||||||
|
| 2008 |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||
Current: |
|
|
|
|
|
|
|
|
|
| |
Federal taxes |
| $ | 18,120 |
| $ | 18,106 |
| $ | 12,824 |
| |
State taxes |
|
| 4,348 |
|
| 4,488 |
|
| 3,256 |
| |
|
|
|
|
| |||||||
Total |
|
| 22,468 |
|
| 22,594 |
|
| 16,080 |
| |
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
| |
Deferred: |
|
|
|
|
|
|
|
|
|
| |
Federal taxes |
|
| 333 |
|
| (1,347 | ) |
| (1,168 | ) | |
State taxes |
|
| 124 |
|
| (295 | ) |
| (308 | ) | |
|
|
|
|
| |||||||
Total |
|
| 457 |
|
| (1,642 | ) |
| (1,476 | ) | |
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
| |
Total |
| $ | 22,925 |
| $ | 20,952 |
| $ | 14,604 |
| |
|
|
|
|
| |||||||
| |||||||||||
The provision for income taxes differs from the amount computed at the federal statutory rate as follows: | |||||||||||
| |||||||||||
|
| Year ended March 31, |
| ||||||||
|
|
| |||||||||
|
| 2008 |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||
Current: |
|
|
|
|
|
|
|
|
|
| |
Federal income tax statutory rate |
|
| 35.0 | % |
| 35.0 | % |
| 35.0 | % | |
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
| |
State income taxes, net of Federal benefit |
|
| 4.8 |
|
| 5.0 |
|
| 5.0 |
| |
Research and development tax credits |
|
| (1.3 | ) |
| (1.7 | ) |
| (2.3 | ) | |
Qualified Production Activities Income Deduction |
|
| (1.8 | ) |
| (0.9 | ) |
| (0.8 | ) | |
Other |
|
| (0.3 | ) |
| 1.3 |
|
| 1.6 |
| |
|
|
|
|
| |||||||
Effective income tax rate |
|
| 36.4 | % |
| 38.7 | % |
| 38.5 | % | |
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
| March 31, 2008 |
| March 31, 2007 |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
Deferred revenue and allowance for doubtful accounts |
| $ | 4,534 |
| $ | 4,528 |
|
Inventory valuation |
|
| 137 |
|
| 206 |
|
Purchased in-process research and development |
|
| 1,187 |
|
| 1,490 |
|
Intangibles assets |
|
| 102 |
|
| 100 |
|
Accrued compensation and benefits |
|
| 1,701 |
|
| 917 |
|
Deferred compensation |
|
| 806 |
|
| 975 |
|
State income taxes |
|
| 92 |
|
| 55 |
|
Compensatory stock option expense |
|
| 1,139 |
|
| 707 |
|
Unrealized loss on marketable securities |
|
| 130 |
|
| — |
|
Other |
|
| 801 |
|
| 387 |
|
|
|
|
| ||||
Total deferred tax assets |
|
| 10,629 |
|
| 9,365 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
Accelerated depreciation |
|
| (545 | ) |
| (387 | ) |
Capitalized software |
|
| (3,746 | ) |
| (2,955 | ) |
Prepaid expense |
|
| (1,516 | ) |
| (1,400 | ) |
|
|
|
| ||||
Total deferred tax liabilities |
|
| (5,807 | ) |
| (4,742 | ) |
|
|
|
| ||||
Deferred tax assets, net |
| $ | 4,822 |
| $ | 4,623 |
|
|
|
|
| ||||
| March 31, | March 31, | |||||||
| 2010 | 2009 | |||||||
| Deferred tax assets: | ||||||||
| Deferred revenue and allowance for doubtful accounts | $ | 5,577 | $ | 3,271 | ||||
| Inventory valuation | 115 | 100 | ||||||
| Purchased in-process research and development | 601 | 912 | ||||||
| Accrued compensation and benefits | 2,325 | 1,955 | ||||||
| Deferred compensation | 783 | 789 | ||||||
| State income taxes | 640 | 185 | ||||||
| Compensatory stock option expense | 252 | 125 | ||||||
| Other | 125 | 779 | ||||||
| Total deferred tax assets | 10,418 | 8,116 | ||||||
| Deferred tax liabilities: | ||||||||
| Accelerated depreciation | (1,529 | ) | (1,114 | ) | ||||
| Capitalized software | (4,806 | ) | (4,126 | ) | ||||
| Intangibles assets | (6,938 | ) | (1,412 | ) | ||||
| Prepaid expense | (2,326 | ) | (2,036 | ) | ||||
| Total deferred tax liabilities | (15,599 | ) | (8,688 | ) | ||||
| Deferred tax assets (liabilities), net | $ | (5,181 | ) | $ | (572 | ) | ||
On April 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (FIN 48) an interpretation of FASB Statement No. 109 (SFAS 109).” The adoption of the provisions of FIN 48 had no material effect on the consolidated financial statements. As a result, there was no cumulative effect related to adopting FIN 48. However, certain amounts have been reclassified in the Company’s Consolidated Balance Sheets in order to comply with the requirements of the statement. At adoption, the Company had $394 of unrecognized
|
|
|
|
|
Balance as of April 1, 2007 |
| $ | 394 |
|
Additions for prior year tax positions |
|
| 307 |
|
Reductions for prior year tax positions |
|
| (88 | ) |
|
|
| ||
Balance at March 31, 2008 |
| $ | 613 |
|
|
|
|
| Balance at March 31, 2008 | $ | 613 | ||
| Additions for prior year tax positions | 15 | |||
| Reductions for prior year tax positions | (561 | ) | ||
| Balance at March 31, 2009 | $ | 67 | ||
| Additions for prior year tax positions | 598 | |||
| Reductions for prior year tax positions | (9 | ) | ||
| Balance at March 31, 2010 | $ | 656 | ||
$656.
88
unrecognized tax benefit balance as of March 31, 2008 by $561 with no impact on the tax provision.
9. Employee Benefit Plans
| 12. | Employee Benefit Plans |
| 13. | Share-Based Awards |
89
2005 Plan awards expire no later than ten years from the grant date. Options granted will generally become exercisable in accordance with the terms of the agreement pursuant to which they were granted. Upon an acquisition of the Company by merger or asset sale, each outstanding awardoption may be subject to accelerated vesting under certain circumstances. The 2005 Plan terminates on May 25, 2015, unless sooner terminated earlier by the Board.Board of Directors. At March 31, 2008, 2,375,0002010, 1,771,185 shares were available for future grant under the 2005 Plan. As of March 31, 2008,2010, there were 25,000570,501 outstanding options related to this Plan.
| Weighted | ||||||||||||||||
| Weighted | Average | Aggregate | ||||||||||||||
| Average | Remaining | Intrinsic | ||||||||||||||
| Exercise | Contractual | Value | ||||||||||||||
| Number of Shares | Price | Life | (In thousands) | |||||||||||||
| Outstanding, March 31, 2007 | 1,461,950 | $ | 18.46 | |||||||||||||
| Granted | 225,500 | $ | 38.78 | |||||||||||||
| Exercised | (325,266 | ) | $ | 14.64 | $ | 4,955 | ||||||||||
| Forfeited/Canceled | (58,450 | ) | $ | 21.12 | ||||||||||||
| Outstanding, March 31, 2008 | 1,303,734 | $ | 22.81 | |||||||||||||
| Granted | 298,331 | $ | 38.71 | |||||||||||||
| Exercised | (697,083 | ) | $ | 17.96 | $ | 17,182 | ||||||||||
| Forfeited/Canceled | (84,900 | ) | $ | 25.93 | ||||||||||||
| Outstanding, March 31, 2009 | 820,082 | $ | 32.39 | 3.63 | ||||||||||||
| Granted | 289,484 | $ | 58.44 | 7.75 | ||||||||||||
| Exercised | (237,603 | ) | $ | 24.64 | 2.49 | $ | 8,254 | |||||||||
| Forfeited/Canceled | — | |||||||||||||||
| Outstanding, March 31, 2010 | 871,963 | $ | 43.15 | 4.51 | $ | 15,945 | ||||||||||
| Vested and expected to vest, March 31, 2010 | 861,701 | $ | 43.10 | 4.50 | $ | 15,806 | ||||||||||
| Exercisable, March 31, 2010 | 261,127 | $ | 31.92 | 2.49 | $ | 7,708 | ||||||||||
90
| Year Ended March 31, | ||||||
| 2010 | 2009 | 2008 | ||||
| Expected life | 4.42 - 4.75 years | 4.01 years | 3.75 - 4.01 years | |||
| Expected volatility | 45.49% - 47.65% | 42.00% - 46.70% | 42.37% - 44.81% | |||
| Expected dividends | 1.90% - 2.20% | 2.90% - 3.50% | 2.67% - 3.38% | |||
| Risk-free rate | 0.82% - 2.41% | 1.07% - 3.40% | 2.46% - 5.09% | |||
December 7, 2017.
2013.
On June 12, 2007,18, 2008, the Board of Directors granted a total of 159,50050,000 options under a previously approved performance-based equity incentive program for selected employees based on fiscal year 2007 performance. These shares were issued under the Company’s 1998 Stock Option2005 Plan to an employee at an exercise price equal to the market price of the Company’s common stock on the date of grant ($38.8340.08 per share). The options vest in four equal annual installments beginning June 12, 2008August 18, 2009 and expire on June 12, 2012.August 18, 2013.
91
On August 11, 2006, the Board of Directors granted a total of 40,000 options under the Company’s 19982005 Plan to selected employees at an exercise price equal to the market price of the Company’s common stock on the date of the grant ($37.0940.71 per share). The options vest in four equal annual installments beginning August 11, 20072009 and expire on August 11, 2011.
2013.
On October 5, 2005, the Board of Directors granted a total of 124,000 stock optionsawards under the Company’s 1998 Plan to non-management directors pursuant to the Company’s previously announced compensation2010 incentive plan for non-management directors, at an exercise price equal to the market price of the Company’s common stock on the date of the grant ($34.065 per share). The options fully vested on January 5, 2006 and expire on October 5, 2012.
On August 8, 2005, the Board of Directors granted 19,000 options under the Company’s 1998 Plan to selected employees at an exercise price equal to the market price of the Company’s common stock on the date of the grant ($32.445 per share). The options vest in four equal annual installments beginning August 8, 2006 and expire on August 8, 2012.
A summary of stock option transactions during the years ended March 31, 2008, 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of |
| Weighted |
| Weighted |
| Aggregate |
| ||||||||
|
|
|
|
|
| ||||||||||||
Outstanding, March 31, 2005 |
|
| 2,169,444 |
|
| $ | 13.89 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 143,000 |
|
| $ | 33.85 |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
| (486,772 | ) |
| $ | 9.20 |
|
|
|
|
|
|
| $ | 11,169 |
|
Forfeited/Canceled |
|
| (27,300 | ) |
| $ | 12.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Outstanding, March 31, 2006 |
|
| 1,798,372 |
|
| $ | 16.78 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 75,000 |
|
| $ | 38.36 |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
| (411,414 | ) |
| $ | 14.74 |
|
|
|
|
|
|
| $ | 10,393 |
|
Forfeited/Canceled |
|
| (8 | ) |
| $ | 3.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Outstanding, March 31, 2007 |
|
| 1,461,950 |
|
| $ | 18.46 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 225,500 |
|
| $ | 38.78 |
|
|
|
| 4.31 |
|
|
|
|
|
Exercised |
|
| (325,266 | ) |
| $ | 14.64 |
|
|
|
| 2.48 |
|
| $ | 4,955 |
|
Forfeited/Canceled |
|
| (58,450 | ) |
| $ | 21.12 |
|
|
|
| 3.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Outstanding, March 31, 2008 |
|
| 1,303,734 |
|
| $ | 22.81 |
|
|
|
| 3.40 |
|
| $ | 12,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Vested and expected to vest, March 31, 2008 |
|
| 1,293,863 |
|
| $ | 22.79 |
|
|
|
| 3.40 |
|
| $ | 12,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2006 |
|
| 471,297 |
|
| $ | 20.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Exercisable, March 31, 2007 |
|
| 520,650 |
|
| $ | 20.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Exercisable, March 31, 2008 |
|
| 654,298 |
|
| $ | 19.90 |
|
|
|
| 3.26 |
|
| $ | 7,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
The Company continues to utilize the Black-Scholes valuation model for estimating the fair value of share-based compensation after the adoption of SFAS 123R with the following assumptions:
|
| ||||||
|
|
| |||||
|
|
| |||||
|
|
| |||||
|
|
| |||||
During the year ended March 31, 2008, 25,000 options were granted under the 2005 Plan and 200,500 were granted under the 1998 Plan. During the year ended March 31, 2007, 75,000 options were granted under the 1998 Plan. The Company issues new shares to satisfy2010:
| Year Ended | ||
| March 31, 2010 | ||
| Expected life | 4.42 years | |
| Expected volatility | 45.49% | |
| Expected dividends | 2.20% | |
| Risk-free rate | 2.32% |
Non-vested stock award activity includingperformance-based awards, for the year ended March 31, 20082010, is summarized as follows:
|
|
|
|
|
|
|
|
|
| Non-vested |
| Weighted-Average |
| ||
|
| ||||||
Non-vested, April 1, 2007 |
|
| 941,300 |
| $ | 7.89 |
|
Granted |
|
| 225,500 |
| $ | 12.41 |
|
Vested |
|
| (458,914 | ) | $ | 2.93 |
|
Forfeited/Canceled |
|
| (58,450 | ) | $ | 9.16 |
|
|
|
|
|
| |||
Non-vested, March 31, 2008 |
|
| 649,436 |
| $ | 9.57 |
|
|
|
|
|
| |||
| Weighted | ||||||||
| Non-Vested | Average | |||||||
| Number of | Fair Value | |||||||
| Shares | Price | |||||||
| Outstanding, April 1, 2009 | 465,345 | $ | 11.74 | |||||
| Granted | 289,484 | $ | 19.30 | |||||
| Vested | (143,993 | ) | $ | 12.03 | ||||
| Forfeited/Canceled | — | |||||||
| Outstanding, March 31, 2010 | 610,836 | $ | 15.26 | |||||
92
11. Commitments and Contingencies
Litigation. The Company has experienced legal claims by parties asserting2010.
year ended March 31, 2010, no restricted stock units became vested.
| 14. | Commitments, Guarantees and Contingencies |
|
|
|
|
|
Year Ending March 31, |
|
|
|
|
|
|
|
| |
| ||||
2009 |
| $ | 3,156 |
|
2010 |
|
| 3,131 |
|
2011 |
|
| 3,164 |
|
2012 |
|
| 1,716 |
|
2013 and beyond |
|
| 942 |
|
|
|
| ||
|
| $ | 12,109 |
|
|
|
|
| Year Ended March 31, | ||||
| 2011 | $ | 4,413 | ||
| 2012 | 4,565 | |||
| 2013 | 4,577 | |||
| 2014 | 3,963 | |||
| 2015 and beyond | 7,215 | |||
| $ | 24,733 | |||
93
the rights of return expire, provided also, that all other criteria of revenue recognition have been met.
From time to time, the Company offers future purchase discounts on its products and services as part of its sales arrangements. Discounts which are incremental to the range of discounts reflected in the pricing of the other elements of the arrangement, which are incremental to the range of discounts typically given in comparable transactions, and which 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.
Marketable securities are recordedCompany. However, at fair value, based on quoted market rates or on valuation analysis when appropriate,this time it is not possible to estimate with unrealized gains and losses reflectedreasonable certainty what amount, if any, may be incurred as a separate componentresult of shareholders’ equity titled accumulated other comprehensive income (loss), net of tax, until realized or until a determinationsettlement. Litigation is made that an other-than-temporary decline in market value has occurred (see also Notes 2inherently uncertain and 4).
13. Operating Segment Information
always difficult to predict.
| 15. | Operating Segment Information |
The two divisions operate largely as stand-alone operations, with each division maintaining its own distinct product lines, product platforms, development, implementation and support teams, sales staffing, and branding. The two divisions share the resources of
NextGen Division.
94
|
corporate overhead costs, such as executive and accounting department personnel-related expenses, are not allocated to the individual segments by management. Management evaluates performance based on stand-alone segment operating income. Because the Company does not evaluate performance based on return on assets at the operating segment level, assets are not tracked internally by segment. Therefore, segment asset information is not presented.
| March 31, | March 31, | March 31, | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Revenue: | ||||||||||||
| QSI Dental Division | $ | 17,128 | $ | 15,851 | $ | 16,037 | ||||||
| NextGen Division | 231,621 | 203,954 | 170,463 | |||||||||
| Practice Solutions Division | 43,062 | 25,710 | — | |||||||||
| Consolidated revenue | $ | 291,811 | $ | 245,515 | $ | 186,500 | ||||||
| Operating income: | ||||||||||||
| QSI Dental Division | $ | 3,460 | $ | 3,385 | $ | 3,662 | ||||||
| NextGen Division | 88,108 | 81,323 | 66,558 | |||||||||
| Practice Solutions Division | 2,314 | 2,455 | — | |||||||||
| Unallocated corporate expense | (18,158 | ) | (14,760 | ) | (10,831 | ) | ||||||
| Consolidated operating income | $ | 75,724 | $ | 72,403 | $ | 59,389 | ||||||
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| QSI Division |
| NextGen |
| Unallocated |
| Consolidated |
| ||||
|
|
|
|
|
| ||||||||
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
| $ | 16,037 |
| $ | 170,463 |
| $ | — |
| $ | 186,500 |
|
Operating income (loss): |
|
| 3,662 |
|
| 66,558 |
|
| (10,831 | ) |
| 59,389 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
| 16,589 |
|
| 140,576 |
|
| — |
|
| 157,165 |
|
Operating income (loss): |
|
| 4,391 |
|
| 56,317 |
|
| (9,830 | ) |
| 50,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
| 15,544 |
|
| 103,743 |
|
| — |
|
| 119,287 |
|
Operating income (loss): |
| $ | 3,610 |
| $ | 40,245 |
| $ | (8,037 | ) | $ | 35,818 |
|
14. Customer Concentration
No customer represented more than 10% of gross accounts receivable as of March 31, 2008. One customer represented approximately 12.5% of total gross accounts receivable as of March 31, 2007.
15. Subsequent Events
| 16. | Subsequent Events |
On May 29, 2008,26, 2010, the Board declaredof Directors approved a quarterly cash dividend of $0.25$0.30 per share on the Company’s outstanding shares of common stock, payable to shareholders of record as of June 13, 200817, 2010 with an anticipatedexpected distribution date of July 2, 2008. The Company anticipates that future quarterly dividends, if and when declared by the Board pursuant to this policy, would likely be distributable on or about the fifth day of each of the months of October, January, April and July subject to review by the Board of Directors.
16. Selected Quarterly Operating Results (unaudited)
6, 2010.
| 17. | Selected Quarterly Operating Results (unaudited) |
| Quarter Ended | ||||||||||||||||||||||||||||||||
| 06/30/08 | 09/30/08 | 12/31/08 | 03/31/09 | 06/30/09 | 09/30/09 | 12/31/09 | 03/31/10 | |||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Software, hardware and supplies | $ | 21,369 | $ | 21,297 | $ | 22,336 | $ | 20,384 | $ | 17,776 | $ | 22,856 | $ | 24,346 | $ | 24,783 | ||||||||||||||||
| Implementation and training services | 3,585 | 3,486 | 2,675 | 3,629 | 3,457 | 3,380 | 3,313 | 4,226 | ||||||||||||||||||||||||
| System sales | 24,954 | 24,783 | 25,011 | 24,013 | 21,233 | 26,236 | 27,659 | 29,009 | ||||||||||||||||||||||||
| Maintenance | 17,136 | 17,234 | 19,152 | 19,340 | 21,640 | 21,475 | 22,139 | 23,938 | ||||||||||||||||||||||||
| Electronic data interchange services | 6,670 | 6,985 | 8,008 | 7,859 | 8,161 | 8,796 | 8,897 | 9,181 | ||||||||||||||||||||||||
| Revenue cycle management and related services | 1,957 | 4,527 | 6,835 | 8,112 | 8,992 | 8,888 | 9,602 | 9,183 | ||||||||||||||||||||||||
| Other services | 4,507 | 5,452 | 6,473 | 6,507 | 6,612 | 6,303 | 6,665 | 7,202 | ||||||||||||||||||||||||
| Maintenance, EDI, RCM and other services | 30,270 | 34,198 | 40,468 | 41,818 | 45,405 | 45,462 | 47,303 | 49,504 | ||||||||||||||||||||||||
| Total revenues | 55,224 | 58,981 | 65,479 | 65,831 | 66,638 | 71,698 | 74,962 | 78,513 | ||||||||||||||||||||||||
| Cost of revenue: | ||||||||||||||||||||||||||||||||
| Software, hardware and supplies | 3,486 | 3,395 | 3,030 | 3,273 | 2,704 | 3,737 | 2,810 | 2,864 | ||||||||||||||||||||||||
| Implementation and training services | 3,015 | 2,626 | 2,143 | 2,502 | 2,881 | 3,296 | 2,898 | 2,908 | ||||||||||||||||||||||||
| Total cost of system sales | 6,501 | 6,021 | 5,173 | 5,775 | 5,585 | 7,033 | 5,708 | 5,772 | ||||||||||||||||||||||||
| Maintenance | 3,082 | 2,947 | 2,826 | 3,004 | 3,025 | 3,255 | 3,392 | 3,667 | ||||||||||||||||||||||||
| Electronic data interchange services | 4,891 | 5,256 | 5,541 | 5,686 | 5,890 | 6,164 | 6,525 | 6,683 | ||||||||||||||||||||||||
| Revenue cycle management and related services | 1,305 | 3,132 | 4,475 | 5,762 | 6,522 | 6,856 | 7,124 | 7,213 | ||||||||||||||||||||||||
| Other services | 3,448 | 3,866 | 5,085 | 5,114 | 4,867 | 5,003 | 5,560 | 4,963 | ||||||||||||||||||||||||
| Total cost of maintenance, EDI, RCM and other services | 12,726 | 15,201 | 17,927 | 19,566 | 20,304 | 21,278 | 22,601 | 22,526 | ||||||||||||||||||||||||
| Total cost of revenue | 19,227 | 21,222 | 23,100 | 25,341 | 25,889 | 28,311 | 28,309 | 28,298 | ||||||||||||||||||||||||
| Gross profit | 35,997 | 37,759 | 42,379 | 40,490 | 40,749 | 43,387 | 46,653 | 50,215 | ||||||||||||||||||||||||
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended (Unaudited) |
| ||||||||||||||||||||||
|
|
| |||||||||||||||||||||||
|
| 6/30/2006 |
| 9/30/2006 |
| 12/31/2006 |
| 3/31/2007 |
| 6/30/2007 |
| 9/30/2007 |
| 12/31/2007 |
| 3/31/2008 |
| ||||||||
|
|
| |||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software, hardware and supplies |
| $ | 15,029 |
| $ | 16,737 |
| $ | 16,088 |
| $ | 21,017 |
| $ | 16,739 |
| $ | 18,514 |
| $ | 20,591 |
| $ | 20,519 |
|
Implementation and training |
|
| 2,954 |
|
| 2,848 |
|
| 2,885 |
|
| 3,490 |
|
| 3,248 |
|
| 3,182 |
|
| 3,115 |
|
| 3,861 |
|
|
|
| |||||||||||||||||||||||
Total System sales |
|
| 17,983 |
|
| 19,585 |
|
| 18,973 |
|
| 24,507 |
|
| 19,987 |
|
| 21,696 |
|
| 23,706 |
|
| 24,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance |
|
| 9,399 |
|
| 9,639 |
|
| 11,069 |
|
| 11,841 |
|
| 12,559 |
|
| 13,442 |
|
| 14,861 |
|
| 15,593 |
|
EDI |
|
| 3,977 |
|
| 4,066 |
|
| 4,290 |
|
| 4,716 |
|
| 5,024 |
|
| 5,406 |
|
| 5,739 |
|
| 6,281 |
|
Other services |
|
| 4,715 |
|
| 4,169 |
|
| 4,164 |
|
| 4,072 |
|
| 4,462 |
|
| 4,602 |
|
| 3,784 |
|
| 4,978 |
|
|
|
| |||||||||||||||||||||||
Total Maintenance, EDI and Other services |
|
| 18,091 |
|
| 17,874 |
|
| 19,523 |
|
| 20,629 |
|
| 22,045 |
|
| 23,450 |
|
| 24,384 |
|
| 26,852 |
|
|
|
| |||||||||||||||||||||||
Total revenue |
|
| 36,074 |
|
| 37,459 |
|
| 38,496 |
|
| 45,136 |
|
| 42,032 |
|
| 45,146 |
|
| 48,090 |
|
| 51,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software, hardware and supplies |
|
| 1,689 |
|
| 1,723 |
|
| 1,798 |
|
| 3,243 |
|
| 2,488 |
|
| 2,477 |
|
| 2,984 |
|
| 2,938 |
|
Implementation and training |
|
| 1,963 |
|
| 2,154 |
|
| 2,169 |
|
| 2,249 |
|
| 2,409 |
|
| 2,423 |
|
| 2,638 |
|
| 2,871 |
|
|
|
| |||||||||||||||||||||||
Total cost of system sales |
|
| 3,652 |
|
| 3,877 |
|
| 3,967 |
|
| 5,492 |
|
| 4,897 |
|
| 4,900 |
|
| 5,622 |
|
| 5,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance |
|
| 3,137 |
|
| 2,792 |
|
| 3,058 |
|
| 2,847 |
|
| 3,127 |
|
| 3,033 |
|
| 3,131 |
|
| 3,155 |
|
EDI |
|
| 2,780 |
|
| 2,926 |
|
| 3,144 |
|
| 3,331 |
|
| 3,509 |
|
| 3,742 |
|
| 4,162 |
|
| 4,363 |
|
Other services |
|
| 1,888 |
|
| 2,238 |
|
| 2,528 |
|
| 3,127 |
|
| 3,009 |
|
| 3,100 |
|
| 3,233 |
|
| 3,709 |
|
|
|
| |||||||||||||||||||||||
Total cost of Maintenance, EDI and Other services |
|
| 7,805 |
|
| 7,956 |
|
| 8,730 |
|
| 9,305 |
|
| 9,645 |
|
| 9,875 |
|
| 10,526 |
|
| 11,227 |
|
|
|
| |||||||||||||||||||||||
Total cost of revenue |
|
| 11,457 |
|
| 11,833 |
|
| 12,697 |
|
| 14,797 |
|
| 14,542 |
|
| 14,775 |
|
| 16,148 |
|
| 17,036 |
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 24,617 |
|
| 25,626 |
|
| 25,799 |
|
| 30,339 |
|
| 27,490 |
|
| 30,371 |
|
| 31,942 |
|
| 34,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 10,200 |
|
| 9,994 |
|
| 10,593 |
|
| 14,550 |
|
| 12,643 |
|
| 13,188 |
|
| 13,283 |
|
| 14,146 |
|
Research and development |
|
| 2,318 |
|
| 2,591 |
|
| 2,601 |
|
| 2,656 |
|
| 2,800 |
|
| 2,688 |
|
| 2,874 |
|
| 2,988 |
|
|
|
| |||||||||||||||||||||||
Income from operations |
|
| 12,099 |
|
| 13,041 |
|
| 12,605 |
|
| 13,133 |
|
| 12,047 |
|
| 14,495 |
|
| 15,785 |
|
| 17,062 |
|
Interest income |
|
| 667 |
|
| 819 |
|
| 935 |
|
| 885 |
|
| 739 |
|
| 645 |
|
| 710 |
|
| 567 |
|
Other income |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 953 |
|
| — |
|
|
|
| |||||||||||||||||||||||
Income before provision for income taxes |
|
| 12,766 |
|
| 13,860 |
|
| 13,540 |
|
| 14,018 |
|
| 12,786 |
|
| 15,140 |
|
| 17,448 |
|
| 17,629 |
|
Provision for income taxes |
|
| 5,097 |
|
| 5,523 |
|
| 4,819 |
|
| 5,513 |
|
| 4,846 |
|
| 5,468 |
|
| 6,234 |
|
| 6,377 |
|
|
|
| |||||||||||||||||||||||
Net income |
| $ | 7,669 |
| $ | 8,337 |
| $ | 8,721 |
| $ | 8,505 |
| $ | 7,940 |
| $ | 9,672 |
| $ | 11,214 |
| $ | 11,252 |
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share – basic* |
| $ | 0.29 |
| $ | 0.31 |
| $ | 0.32 |
| $ | 0.31 |
| $ | 0.29 |
| $ | 0.35 |
| $ | 0.41 |
| $ | 0.41 |
|
Net income per share – diluted* |
| $ | 0.28 |
| $ | 0.30 |
| $ | 0.32 |
| $ | 0.31 |
| $ | 0.29 |
| $ | 0.35 |
| $ | 0.40 |
| $ | 0.41 |
|
Weighted average shares outstanding – basic |
|
| 26,714 |
|
| 26,802 |
|
| 26,966 |
|
| 27,049 |
|
| 27,134 |
|
| 27,287 |
|
| 27,362 |
|
| 27,408 |
|
Weighted average shares outstanding – diluted |
|
| 27,232 |
|
| 27,380 |
|
| 27,507 |
|
| 27,600 |
|
| 27,657 |
|
| 27,718 |
|
| 27,696 |
|
| 27,712 |
|
| Quarter Ended | ||||||||||||||||||||||||||||||||
| 06/30/08 | 09/30/08 | 12/31/08 | 03/31/09 | 06/30/09 | 09/30/09 | 12/31/09 | 03/31/10 | |||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | 15,182 | 18,000 | 18,276 | 17,952 | 20,093 | 20,061 | 21,574 | 25,223 | ||||||||||||||||||||||||
| Research and development costs | 3,119 | 3,342 | 3,624 | 3,692 | 3,977 | 4,346 | 3,954 | 4,269 | ||||||||||||||||||||||||
| Amortization of acquired intangible assets | 70 | 283 | 325 | 357 | 357 | 367 | 377 | 682 | ||||||||||||||||||||||||
| Total operating expenses | 18,371 | 21,625 | 22,225 | 22,001 | 24,427 | 24,774 | 25,905 | 30,174 | ||||||||||||||||||||||||
| Income from operations | 17,626 | 16,134 | 20,154 | 18,489 | 16,322 | 18,613 | 20,748 | 20,041 | ||||||||||||||||||||||||
| Interest income | 374 | 340 | 328 | 161 | 78 | 59 | 43 | 46 | ||||||||||||||||||||||||
| Other income | — | — | — | (279 | ) | 58 | — | 136 | 74 | |||||||||||||||||||||||
| Income before provision for income taxes | 18,000 | 16,474 | 20,482 | 18,371 | 16,458 | 18,672 | 20,927 | 20,161 | ||||||||||||||||||||||||
| Provision for income taxes | 6,886 | 5,975 | 7,332 | 7,015 | 6,112 | 6,852 | 7,775 | 7,100 | ||||||||||||||||||||||||
| Net income | $ | 11,114 | $ | 10,499 | $ | 13,150 | $ | 11,356 | $ | 10,346 | $ | 11,820 | $ | 13,152 | $ | 13,061 | ||||||||||||||||
| Net income per share: | ||||||||||||||||||||||||||||||||
| Basic* | $ | 0.40 | $ | 0.38 | $ | 0.46 | $ | 0.40 | $ | 0.36 | $ | 0.41 | $ | 0.46 | $ | 0.45 | ||||||||||||||||
| Diluted* | $ | 0.40 | $ | 0.37 | $ | 0.46 | $ | 0.40 | $ | 0.36 | $ | 0.41 | $ | 0.46 | $ | 0.45 | ||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||
| Basic | 27,465 | 27,930 | 28,340 | 28,393 | 28,492 | 28,597 | 28,667 | 28,784 | ||||||||||||||||||||||||
| Diluted | 27,771 | 28,211 | 28,473 | 28,526 | 28,635 | 28,742 | 28,833 | 28,929 | ||||||||||||||||||||||||
| Dividends declared per common share | $ | 0.25 | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | ||||||||||||||||
* |
| Quarterly EPS will not |
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
| Balance at |
| Additions |
| Deductions |
| Balance at End |
| ||||
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
| $ | 2,438 |
| $ | 1,171 |
| $ | (1,081 | ) | $ | 2,528 |
|
March 31, 2007 |
| $ | 2,556 |
| $ | 1,480 |
| $ | (1,598 | ) | $ | 2,438 |
|
March 31, 2006 |
| $ | 1,837 |
| $ | 1,181 |
| $ | (462 | ) | $ | 2,556 |
|
| Balance at | Additions | Balance at | ||||||||||||||
| Beginning of | Charged to Costs | End of | ||||||||||||||
| Year | and Expenses | Deductions | Year | |||||||||||||
| (In thousands) | ||||||||||||||||
| For the Year Ended | ||||||||||||||||
| March 31, 2010 | $ | 3,877 | $ | 3,465 | $ | (2,853 | ) | $ | 4,489 | |||||||
| March 31, 2009 | $ | 2,528 | $ | 2,089 | $ | (740 | ) | $ | 3,877 | |||||||
| March 31, 2008 | $ | 2,438 | $ | 1,171 | $ | (1,081 | ) | $ | 2,528 | |||||||
| Balance at | Additions | Balance at | ||||||||||||||
| Beginning of | Charged to Costs | End of | ||||||||||||||
| Year | and Expenses | Deductions | Year | |||||||||||||
| (In thousands) | ||||||||||||||||
| For the Year Ended | ||||||||||||||||
| March 31, 2010 | $ | 210 | $ | 27 | $ | — | $ | 237 | ||||||||
| March 31, 2009 | $ | 223 | $ | — | $ | (13 | ) | $ | 210 | |||||||
| March 31, 2008 | $ | 324 | $ | 52 | $ | (153 | ) | $ | 223 | |||||||
(in thousands)98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
| Balance at |
| Additions |
| Deductions |
| Balance at End |
| ||||
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
| $ | 324 |
| $ | 52 |
| $ | (153 | ) | $ | 223 |
|
March 31, 2007 |
| $ | 304 |
| $ | 35 |
| $ | (15 | ) | $ | 324 |
|
March 31, 2006 |
| $ | 146 |
| $ | 179 |
| $ | (21 | ) | $ | 304 |
|
| Exhibit | ||||
Number | Description | |||
| 10 | .36 | Agreement and Plan of Merger dated February 10, 2010, by and among Quality Systems, Inc., OHS Merger Sub, Inc., Opus Healthcare Solutions, Inc., and the Shareholders of Opus Healthcare Solutions, Inc. | ||
| 10 | .37 | Sixth Amendment to Lease Agreement between the Company and Tower Place, L.P. dated April 1, 2010. | ||
| 10 | .38 | Third Amendment to Office Lease agreement between the Company and HUB Properties LLC dated January 1, 2010. | ||
| 10 | .39 | Fourth Amendment to Office Lease agreement between the Company and HUB Properties LLC dated March 17, 2010. | ||
| 10 | .40 | Third Amendment to Service Center Lease Agreement between the TM Properties, LLC, successor to the Lincoln National Life Insurance Company and Lackland Acquisition II, LLC, dated March 15, 2010. | ||
| 10 | .41 | Second Amendment to Lease Agreement between Hill Management Services, Inc. and Practice Management Partners, Inc., dated November 1, 2009. | ||
| 10 | .42 | Modification of Lease #1 between Olen Commercial Realty Corp. and NXG Acute Care LLC, dated October 13, 2009. | ||
| 10 | .43 | Lease between Olen Commercial Realty Corp. and NXG Acurate Care LLC, dated October 1, 2009. | ||
| 10 | .44 | Sublease Agreement between Centex Homes and Opus Healthcare Solutions, Inc., dated February , 2009. | ||
| 21 | List of subsidiaries. | |||
| 23 | .1 | Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP. | ||
| 23 | .2 | Consent of Independent Registered Public Accounting Firm — Grant Thornton LLP. | ||
| 31 | .1 | Certification of Principal Executive Officer Required byRule 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 byRule 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. | ||
99
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