Except for the historical information contained herein, the matters discussed in this management's discussion and analysis of financial condition and results of operations ("MD&A"), including discussions of our product development plans, business strategies and market factors influencing our results, may include forward-looking statements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, both foreseen and unforeseen, including, but not limited to, the impact of the COVID-19 pandemic and measures taken in response thereto, as well as our ability to continue to develop new products and increase systems sales in markets characterized by rapid technological evolution, consolidation and competition from larger, better-capitalized competitors. Many other economic, competitive, governmental and technological factors could affect our ability to achieve our goals and interested persons are urged to review any risks that may be described in Item 1A., "Risk Factors" as set forth herein, as well as in our other public disclosures and filings with theSecurities and Exchange Commission ("SEC"). This MD&A is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K ("Report") in order to enhance your understanding of our results of operations and financial condition and should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and related notes thereto included elsewhere in this Report. Historical results of operations, percentage margin fluctuations and any trends that may be inferred from the discussion below are not necessarily indicative of the operating results for any future period. For information regarding the year endedMarch 31, 2018 , including a year-to-year comparison of our financial condition and results of operations for the years endedMarch 31, 2019 andMarch 31, 2018 , refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedMarch 31, 2019 , filed with theSEC onMay 29, 2019 .
Company Overview
NextGen Healthcare is a leading provider of software and services that empower ambulatory healthcare practices to manage the risk and complexity of delivering care in the rapidly evolvingU.S. healthcare system. Our combination of technological breadth, depth and domain expertise makes us a preferred solution provider and trusted advisor for our clients. In addition to highly configurable core clinical and financial capabilities, our portfolio includes tightly integrated solutions that deliver on ambulatory healthcare imperatives including: population health, care management, patient outreach, telemedicine and nationwide clinical information exchange. We serve clients across all 50 states. Our approximately 100,000 providers deliver care in nearly every medical specialty in a wide variety of practice models including accountable care organizations ("ACOs"), independent physician associations ("IPAs"), managed service organizations ("MSOs"), Veterans Service Organizations ("VSOs"), and Dental Service Organizations ("DSOs"). Our clients include some of the largest and most progressive multi-specialty groups in the country. With the recent addition of behavioral health to our strong medical and oral health capabilities, we continue to extend our share not only in Federally Qualified Health Centers ("FQHCs"), but also in the emerging integrated care market.NextGen Healthcare has historically enhanced our offering through both organic and inorganic activities. InOctober 2015 , we divested our former Hospital Solutions division to focus exclusively on the ambulatory marketplace. InJanuary 2016 , we acquiredHealthFusion Holdings, Inc. and its cloud-based electronic health record and practice management solution. InApril 2017 , we acquiredEntrada, Inc. and its cloud-based, mobile platform for clinical documentation and collaboration. InAugust 2017 , we acquiredEagleDream Health, Inc. and its cloud-based population health analytics solution. InJanuary 2018 , we acquired Inforth Technologies for its specialty-focused clinical content. InOctober 2019 , we acquiredTopaz Information Systems, LLC for its behavioral health solutions. InDecember 2019 , we acquiredMedfusion, Inc. for its Patient Experience Platform (i.e., patient portal, self-scheduling, and patient pay) capabilities andOTTO Health, LLC for its integrated virtual care solutions, notably telemedicine. The integration of these acquired technologies has madeNextGen Healthcare's solutions among the most comprehensive and powerful in the market.
Our company was incorporated in
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Industry Background, Regulatory Environment, and Market Opportunity
We believe that the trends and events described below have contributed to our consolidated results of operations and may continue to impact our future results.
Over the last decade, the ambulatory healthcare market has experienced significant regulatory change, which has driven the need for improved technology to enable practice transformation. Recognizing it was imperative to digitize the American health system to stem the escalating cost of healthcare and improve the quality of care being delivered,Congress enacted the Health Information Technology for Economic and Clinical Health Act in 2009 ("HITECH Act"). The legislation stimulated healthcare organizations to not only adopt electronic health records, but to use them to collect discrete data that could be used to drive quality care. This standardization supported early pay-for-reporting and pay-for-performance programs. In 2010, the Affordable Care Act ("ACA") established the roadmap for shifting American healthcare from volume (fee-for-service) to a value-based care ("VBC") system that rewards improved outcomes at lower costs (fee-for-value). This was followed by the Medicare Access and CHIP Reauthorization Act of 2015 ("MACRA"), bipartisan legislation that further changed the way Medicare rewards clinicians for value vs. volume. Initially focused on government-funded care, the domain of theCenters for Medicare & Medicaid Services ("CMS"), these programs are now firmly established on the commercial insurance side of the industry as well. VBC created the need for a new category of healthcare information technology ("HIT") tools that could be used to identify and treat groups of patients, or cohorts, based on risk. Population Health Management ("PHM") tools support these needs by identifying patient risk, engaging patients, coordinating care, and determining when interventions are needed to improve clinical and financial outcomes. According to estimates fromFrost & Sullivan inMay 2020 , the United States PHM market is expected to reach$9.4 billion in total revenue by 2022, representing a compound annual growth rate ("CAGR") of 28% from 2017. Importantly, the introduction of VBC programs was only an element of the broader approach to reducing healthcare expenditure. It was also accompanied by significant reductions in Medicare spending with a projected reduction of$253 billion in payments by 2029, as reported by RevCycle Intelligence inOctober 2019 . The drive to reduce costs initially led to consolidation in the healthcare system that was followed by a significant shift of care from the inpatient to lower cost outpatient setting. Ambulatory surgery centers (ASCs) have become an essential component of comprehensive, low cost distributed care. According to anOctober 2019 report from ResearchandMarkets, ASCs continue to perform more than half of allU.S. outpatient surgical procedures and are expected to see greater volumes as the number of outpatient procedures increases by an estimated 15% by 2028. From 2015 to 2022, the proportion of outpatient cases performed in ASCs is expected to increase across most service lines with the largest jump (10%) to occur in spine procedures. Among other factors, consumerism is set to play a major role in driving ASC volume increases, as procedures performed in ASCs cost an average of 58% less than the same procedure in a hospital outpatient department. The need to sustain revenue has made it extremely important for practices to secure their patient market share, elevating patient loyalty to a significant determinant of provider success. In addition to being loyal, groups participating in value-based contracts realized that patients also needed to be engaged in their care and interested in improving their own health. The need to attract, retain and engage patients has made patient experience one of the most important aspects of evolving care delivery inthe United States . Capturing patient market share and thriving in a market driven by VBC requires both an integrated platform and a full view of the patient population's clinical and cost data, neither of which could be accomplished without new technologies to collect and analyze multi-sourced patient data. Effectively implemented, these new technologies allow organizations to enhance financial viability while exercising the freedom to join, affiliate, integrate or interoperate in ways that maximize strategic control. Although the HITECH Act led to the successful adoption of electronic health records, many in the healthcare industry were dissatisfied with the level of exchange of health information between different providers and across different software platforms. With the passing of the MACRA law in 2015, theU.S. Congress declared it a national objective to achieve widespread exchange of health information through interoperable certified EHR technology. Then, inDecember 2016 , the 21st Century Cures Act ("Cures Act") was passed and signed into law. Among many other policies, the law includes numerous provisions intended to encourage nationwide interoperability. InMarch 2020 , theHHS Office of the National Coordinator for Health Information Technology ("ONC") released a final regulation which implements the key interoperability provisions included in the Cures Act. The rule calls on developers of certified EHRs to adopt standardized application programming interfaces ("APIs") and to meet a list of other new certification and maintenance of certification requirements in order to maintain approved federal government certification status. The ONC rule also implements the information blocking provisions of the Cures Act, including identifying reasonable and necessary activities that do not constitute information blocking. Under the Cures Act, HHS has the regulatory authority to investigate and assess civil monetary penalties of up to$1,000,000 against certified health IT developers found to be in violation of "information blocking." The new regulations will require significant compliance efforts for healthcare providers, information networks, exchanges, and HIT companies. However, CURES also creates opportunities for improving care delivery and outcomes through increased data exchange between providers, and easier patient access to their own health information. Key to unlocking these benefits is the introduction of new Fast Healthcare Interoperability Resources ("FHIR") standards. ONC's goal is for certified HIT companies 34
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to adopt FHIR-based API standards. Meanwhile, CMS is requiring hospitals to provide electronic admission, discharge and transfer notification to other healthcare facilities, providers and designated care team members.
Through the expansion of our NextGen® Share interoperability services platform and API partner marketplace, we will address the increased demand for moving and sharing patient data from the EHR easily, quickly and securely. Interoperability improves patient experience and care coordination, enhances patient safety, and reduces costs. We are also expanding resources such as educational webinars, blogs and videos on interoperability to help educate and support healthcare providers. In recent years, there has been incremental investment to improve the delivery of behavioral healthcare. One of the central drivers of this investment has been the opioid epidemic which claims more than 70,000 lives a year inthe United States . The integrated care model previously prevalent mainly in FQHCs, a model which calls for integration of behavioral health and primary care in single care settings, has also gained momentum. Both behavioral health and the integrated care workflows require broad, purpose built, tailored HIT capabilities, many of which are supported by the NextGen platform.
Based on these trends, successful clients must undertake the following imperatives:
1. Manage patient experience and engagement 2. Align incentives and energize clinicians 3. Maximize and shape financial outcomes 4. Assume risk and drive commercial advantage 5. Optimize workflows with data exchange
Our Strategy
We empower the accelerating transformation of ambulatory care by delivering solutions that enable groups to be successful under all models of care, including emerging value-based care in which providers assume risk while minimizing risk. We primarily serve groups that focus on delivering care in ambulatory settings, and do so across diverse practice sizes, specialties, and business constructs. In addition to traditional medical specialties, we participate actively with groups that deliver oral (dental) and behavioral healthcare, and with those that combine these in the emerging model for integrated care.
Our configurability enables groups to drive commercial advantage with creative workflows for patient access, patient-provider interactions, clinical workflows and care coordination. At the same time, our automation helps drive variability and cost out of the back office by accommodating exacting regulatory, billing and reporting requirements. We embrace both the art and science of delivering healthcare in the transformingU.S. healthcare system. We believe that the ability to interoperate in a complex, heterogeneous healthcare ecosystem is one of the keys to providing great care and healthy financial outcomes. Because we interoperate with the major stakeholders across theU.S. healthcare system and power many of the nation's Health Information Exchanges ("HIEs"), we help keep patient data more secure, promote continuity of care, lower the cost of care delivery and perhaps most importantly improve the patient experience. We recognize that patient experience drives patient engagement and that engaged patients have better outcomes. Consequently, much of our activity over the last few years has been informed by the emergence of the patient as an active, involved consumer. Our solutions help our clients create a holistic, personalized care experience that drive loyalty and satisfaction. We surround our technical solutions with implementation and optimization services and provide business process outsourcing with managed hosting and revenue cycle management services. With some of our most sophisticated clients, we have been asked to share the breadth of our experience as they shape their strategies. We believe that this sort of engagement, acting as a virtual extension of our clients' leadership teams, is an important step along our journey to becoming a trusted advisor.
As one of the leading healthcare information technology players in the
• Be a learning organization and transform ahead of the industry • Be a trusted advisor for our customers and prospects • Deliver breadth, depth and configurability to enable our clients to effectively execute their strategies
• Use automation to drive variability and cost from our clients' operations
• Drive real innovation in patient experience and patient-provider interactions
• Help our clients be recognized as interoperability leaders in their regions
and areas of specialty
• Integrate new capabilities (whether organic or inorganic) more quickly and
successfully than others. 35
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Table of Contents COVID-19 Update In late 2019, the emergence of a novel coronavirus, or COVID-19, was reported and inJanuary 2020 , theWorld Health Organization ("WHO"), declared it a Public Health Emergency of International Concern. InMarch 2020 , the WHO escalated COVID-19 as a pandemic. We proactively responded to the pandemic by creating an executive task force to monitor the COVID-19 situation daily and immediately restricted non-essential travel and migrated to a fully remote workforce while maintaining complete operational effectiveness. Shortly thereafter, and in line with guidance provided by government agencies and international organizations, we restricted all travel, mandated a work-from-home policy across our global workforce, and moved all in-person client-facing events to virtual ones. According toJohns Hopkins University , as ofMay 29, 2020 , more than 5.9 million cases of COVID-19 have been reported in over 188 countries with more than 364,000 deaths. In addition to the socioeconomic disruption caused by the pandemic, both treatment and suppression measures stressed the very fabric of theU.S. healthcare system in some geographies, exacerbating some of the existing challenges with capacity, balance and reimbursement. Among the measures to slow the spread of the disease and flatten the curve in line with healthcare system capacity was social/physical distancing. The need to access care while still social distancing was addressed early on with the limited use of virtual visits and was energized when the federal government reduced regulatory barriers and addressed payment parity between virtual and in-person visits. With these tailwinds, telemedicine quickly became regarded as a safer way for patients and providers to engage each other while also relieving economic pressure on the medical practice. We believe that the uptake of telemedicine will transcend COVID-19 and that virtual visits will become a permanent and important change in the way care is delivered. Keeping patients out of the transit system, out of the waiting room and away from other sick patients is simply good medicine. We also believe that ambulatory practices will emerge from the pandemic with a clearer appreciation of the importance of business continuity and will turn to NextGen more often for managed services. Consequently, we expect to see increased subscription of our revenue cycle management services, managed hosting, and our emerging capabilities for managed clinical and administrative services. Since themid-March 2020 timing of government orders to shelter in place and restrict non-essential medical services, the COVID-19 pandemic has caused declines in patient volume. This has negatively impacted our revenue in the fourth quarter of 2020, most notably for purchases of software and hardware. The impact of the disruption will continue to heavily impact the first half of fiscal 2021 primarily in managed services and EDI, which are volume driven, and purchases of software and hardware due to client management being focused on business continuity. Assuming the impact of the pandemic and related restrictive measures begin to subside late in the fiscal first half, we expect that patient volume and thus revenue will likely return to more normal levels throughout late fiscal 2021. Based on our overall financial health and the opportunity in front of us, we have made some important decisions on how to approach the first two quarters of fiscal 2021, which include executing cost reductions with a primary goal of mitigating COVID-19 based impacts to earnings. Most of these cost reductions are temporary as we believe that preserving our employee base, organizational momentum, and robust capabilities for the near future will be a win for the Company and our shareholders. The net effect of the aforementioned actions will result in earnings being down markedly and negative free cash flow (calculated as net cash provided by operating activities, less net of cash used for the additions of capitalized software costs and equipment and improvements) in the first half of the fiscal year. We believe we will be well positioned to weather the initial storm and increase earnings, revenue, and opportunity as volume begins to return in the second half of the year. The broader implications of the global emergence of COVID-19 on our business, operating results, and overall financial performance remain uncertain and it depends on certain developments, including the duration and spread of the outbreak, impact on our clients and our sales cycles, impact on our partners or employees, and impact on the economic environment and financial markets, all of which are uncertain and cannot be predicted. We are conducting business as usual with certain modifications to employee travel, employee work locations, and marketing events, among other modifications. We have observed other companies taking precautionary and preemptive actions to address COVID-19, and the effects it has had and is expected to have on business and the economy. We expect that our customers and potential customers will take actions to reduce operating expenses and moderate cash flows, including by delaying sales and requesting extended billing and payment terms. We will continue to actively monitor the situation and may take further actions that we determine are in the best interests of our employees, customers, partners, suppliers, and shareholders. 36
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Table of Contents Results of Operations The following table sets forth the percentage of revenue represented by each item in our consolidated statements of net income and comprehensive income for the years endedMarch 31, 2020 and 2019 (certain percentages below may not sum due to rounding): Fiscal Year Ended March 31, 2020 2019 Revenues: Recurring 90.6 % 89.6 % Software, hardware, and other non-recurring 9.4 10.4 Total revenues 100.0 100.0 Cost of revenue: Recurring 38.0 36.2 Software, hardware, and other non-recurring 5.0
5.0
Amortization of capitalized software costs and acquired intangible assets 6.6 5.4 Total cost of revenue 49.5 46.6 Gross profit 50.5 53.4 Operating expenses: Selling, general and administrative 30.6
31.2
Research and development costs, net 15.4
15.3
Amortization of acquired intangible assets 0.8 0.8 Impairment of assets 2.3 0.0 Restructuring costs 0.5 0.1 Total operating expenses 49.5 47.4 Income from operations 0.9 6.0 Interest income 0.0 0.0 Interest expense (0.4 ) (0.5 ) Other income, net 0.2 0.1 Income before provision for (benefit of) income taxes 0.8
5.5
Provision for (benefit of) income taxes (0.6 ) 0.9 Net income 1.4 % 4.6 % Revenues
The following table presents our consolidated revenues for the years ended
Fiscal Year Ended March 31, 2020 2019 Recurring revenues: Subscription services$ 127,602 $ 117,502 Support and maintenance 158,619 160,798 Managed services 104,549 98,203 Electronic data interchange and data services 98,543 97,418 Total recurring revenues 489,313 473,921
Software, hardware, and other non-recurring revenues: Software license and hardware
27,270 35,122 Other non-recurring services 23,656 20,130 Total software, hardware and other non-recurring revenues 50,926 55,252 Total revenues$ 540,239 $ 529,173 Recurring revenues as a percentage of total revenues 90.6 % 89.6 %
We generate revenue from sales of licensing rights and subscriptions to our software solutions, hardware and third-party software products, support and maintenance, managed services, electronic data interchange ("EDI") and data services, and other non-recurring services, including implementation, training, and consulting services performed for clients who use our products.
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Consolidated revenue for the year endedMarch 31, 2020 increased$11.1 million compared to the prior year due to a$15.4 million increase in recurring revenues, partially offset by a$4.3 million decrease in software, hardware and other non-recurring revenues. The increase in recurring revenues was primarily due to$10.1 million higher subscription services driven by incremental revenue related to our acquisitions of Topaz andMedfusion and growth in subscriptions associated with our population health and analytics, core NextGen, and NextGen Office cloud-based solutions,$6.3 million higher managed services revenue related to recent growth in RCM and managed cloud services bookings and incremental patient pay services related to theMedfusion acquisition, and$1.1 million higher EDI and data services associated with growth in EDI transaction volume from the addition of new clients and further penetration of our existing client base, for which growth in revenue was partially muted by incremental revenues recognized in the prior year from the sales of certain clinical data. The increase in recurring revenues was partially offset by$2.2 million lower support and maintenance revenue from client attrition. The decrease in software, hardware, and other non-recurring revenues was primarily due to a$7.9 million decline in software license and hardware revenue from lower software bookings, including the impact from COVID-19 in our fiscal fourth quarter, partially offset by a$3.5 million increase in professional services. Bookings reflect the estimated annual value of our executed contracts, which we believe may provide a broad indicator of the general direction and progress of the business. Total bookings on a comparable basis, adjusted to include the effect of pre-acquisition bookings, were$130.9 million for the year endedMarch 31, 2020 compared to$135.6 million in the prior year, primarily reflecting a decline in software bookings, partially offset by higher bookings of subscriptions and EDI services. Total bookings for the year endedMarch 31, 2018 were$120.5 million . InMay 2020 , we also announced a move to reduce our perpetual license revenue in favor of recurring subscription revenue.
Cost of Revenue and Gross Profit
The following table presents our consolidated cost of revenue and gross profit
for the years ended
Fiscal Year Ended March 31, 2020 2019 Cost of revenue: Recurring$ 205,057 $ 191,496 Software, hardware, and other non-recurring 26,904
26,711
Amortization of capitalized software costs and acquired intangible assets 35,478 28,490 Total cost of revenue$ 267,439 $ 246,697 Gross profit$ 272,800 $ 282,476 Gross margin % 50.5 % 53.4 % Cost of revenue consists primarily of compensation expense, including share-based compensation, for personnel that deliver our products and services. Cost of revenue also includes amortization of capitalized software costs and acquired technology, third party consultant and outsourcing costs, costs associated with our EDI business partners and clearinghouses, hosting service costs, third party software costs and royalties, and other costs directly associated with delivering our products and services. Refer to Note 8, "Intangible Assets" and Note 9, "Capitalized Software Costs" of our notes to consolidated financial statements included elsewhere in this Report for additional information on current period amortization of capitalized software costs and acquired technology and an estimate of future expected amortization. As noted above, we announced inMay 2020 a move to reduce our perpetual license revenue in favor of recurring subscription revenue, which will impact our gross margin percentages as we will book less high-margin perpetual licenses than we have historically, but ultimately it will produce high-margin recurring revenue. When combined with incremental amortization of capitalized software costs and acquired intangible assets, it will further reduce our expected gross margin percentage.
Share-based compensation expense included in cost of revenue was
Gross profit for the year endedMarch 31, 2020 decreased$9.7 million compared to the prior year and gross margin percentage decreased to 50.5% for the year endedMarch 31, 2020 compared to 53.4% in the prior year period. The declines in gross profit and gross margin were primarily attributable to a decline in higher margin software license revenue as noted above, combined with$7.0 million higher amortization of previously capitalized software development costs and higher amortization of software technology intangible assets associated with the recent acquisitions ofMedfusion , OTTO, Topaz, Inforth, EagleDream, and Entrada, partially offset by higher recurring revenues. 38
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Selling, General and Administrative Expense
The following table presents our consolidated selling, general and administrative expense for the years endedMarch 31, 2020 and 2019 (in thousands): Fiscal Year Ended March 31, 2020 2019 Selling, general and administrative$ 165,174 $ 164,879 Selling, general and administrative, as a percentage of revenue 30.6 % 31.2 % Selling, general and administrative expense consist of compensation expense, including share-based compensation, for management and administrative personnel, selling and marketing expense, facilities costs, depreciation, professional service fees, including legal and accounting services, legal settlements, acquisition and transaction-related costs, and other general corporate and administrative expenses. Share-based compensation expense included in selling, general and administrative expenses was$13.8 million and$11.9 million for the years endedMarch 31, 2020 and 2019, respectively. The increase in share-based compensation expense for the year endedMarch 31, 2020 compared to the prior years is due to increased utilization of share-based awards to incentivize our executives and employees. Refer to Note 14, "Share-Based Awards" of our notes to consolidated financial statements included elsewhere in this Report for additional information on equity award grants. Selling, general and administrative expenses increased$0.3 million for the year endedMarch 31, 2020 compared to the prior year primarily due to lower bad debt and depreciation expense, lower payroll costs associated with our restructuring plans, and lower spend related to conferences, travel, marketing, and communications, offset by the impact of a$5.7 million net benefit recorded in the prior year from insurance recoveries related to the settlement of the Federal Securities Class Action complaint and higher share-based compensation expenses noted above.
Research and Development Costs, net
The following table presents our consolidated net research and development
costs, capitalized software costs, and gross expenditures prior to
capitalization, for the years ended
Fiscal Year Ended March 31, 2020 2019 Gross expenditures$ 102,727 $ 101,565 Capitalized software costs (19,432 ) (20,571 ) Research and development costs, net$ 83,295
Research and development costs, as a percentage of revenue
15.4 % 15.3 % Capitalized software costs as a percentage of gross expenditures 18.9 % 20.3 % Gross research and development expenditures, including costs expensed and costs capitalized, consist of compensation expense, including share-based compensation for research and development personnel, certain third-party consultant fees, software maintenance costs, and other costs related to new product development and enhancement to our existing products. The healthcare information systems and services industry is characterized by rapid technological change, requiring us to engage in continuing investments in our research and development to update, enhance and improve our systems. This includes expansion of our software and service offerings that support pay-for-performance initiatives around accountable care organizations, bringing greater ease of use and intuitiveness to our software products, enhancing our managed cloud and hosting services to lower our clients' total cost of ownership, expanding our interoperability and enterprise analytics capabilities, and furthering development and enhancements of our portfolio of specialty-focused templates within our electronic health records software. The capitalization of software development costs results in a reduction to our reported net research and development costs. Our software capitalization rate, or capitalized software costs as a percentage of gross expenditures, has varied historically and may continue to vary based on the nature and status of specific projects and initiatives in progress. Although changes in software capitalization rates have no impact on our overall cash flows, it results in fluctuations in the amount of software development costs being expensed up front and the amount of net research and development costs reported in our consolidated statement of net income and comprehensive income.
Share-based compensation expense included in research and development costs was
Net research and development costs for the year endedMarch 31, 2020 increased$2.3 million compared to the prior year due to a$1.2 million increase in our gross expenditures and$1.1 million lower capitalization of software costs. The increase in gross expenditures is primarily the result of incremental costs incurred for the development of the next versions of our software solutions and enhancements to our existing solutions, including increased hosting fees, higher utilization of ourBangalore 39
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development center resources, and increased share-based compensation expense, partially offset by lower consulting and outside services costs and lower US-based payroll costs due to reductions in our headcount.
Our software capitalization rate fluctuates due to differences in the nature and status of our projects and initiatives during a given year, which affects the amount of development costs that may be capitalized and ultimately also affects the future amortization of our previously capitalized software development costs.
Amortization of Acquired Intangible Assets
The following table presents our amortization of acquired intangible assets for
the years ended
Fiscal Year EndedMarch 31, 2020 2019
Amortization of acquired intangible assets
Amortization of acquired intangible assets included in operating expense consist of the amortization related to our customer relationships and trade names intangible assets acquired as part of our business combinations. Refer to Note 8, "Intangible Assets" of our notes to consolidated financial statements included elsewhere in this Report for an estimate of future expected amortization. Amortization of acquired intangible assets for the year endedMarch 31, 2020 decreased$0.2 million , compared to the prior year period due to certain acquired intangible assets becoming fully amortized, partially offset by additional amortization of the customer relationships and trade names intangible assets acquired fromMedfusion .
Impairment of Assets
During the year endedMarch 31, 2020 , we recorded impairments of$9.4 million to our operating right-of-use assets and certain related fixed assets associated with the vacated locations, or portions thereof, in North Canton,San Diego , Horsham,St. Louis ,Irvine ,Atlanta ,Brentwood , andPhoenix , in connection with our restructuring plans, based on projected sublease rental income and estimated sublease commencement dates. We are actively marketing each of these vacated locations for sublease. The impairment analysis was performed at the asset group level and the impairment charge was estimated by comparing the fair value of each asset group based on the expected cash flows to its respective book value. We determined the discount rate for each asset group based on the approximate interest rate on a collateralized basis with similar remaining terms and payments as of the impairment date. Significant judgment was required to estimate the fair value of each asset group and actual results could vary from the estimates, resulting in potential future adjustments to amounts previously recorded.
During the year ended
Restructuring Costs InJune 2019 , we implemented a business restructuring plan as part of our continued efforts to preserve and grow the value of the Company through client-focused innovations while reducing our cost structure. As part of the restructuring, we reduced our total workforce by approximately 4% primarily within the research and development function and intend to expand on our research and development resources inIndia . We recorded$2.5 million of restructuring costs in the year endedMarch 31, 2020 within operating expenses in our consolidated statements of comprehensive income. The restructuring costs consisted primarily of payroll-related costs, such as severance, outplacement costs, and continuing healthcare coverage, associated with the involuntary separation of employees pursuant to a one-time benefit arrangement. During the year endedMarch 31, 2019 , we recorded$0.6 million of restructuring costs related to adjustments to the estimated fair value of remaining lease obligations for vacated properties associated with our prior restructuring plan. The restructuring costs were comprised of facilities-related costs associated with accruals for the remaining lease obligations at certain locations, includingSolana Beach ,Costa Mesa , and a portion of Horsham with contractual lease terms ending betweenJanuary 2018 andSeptember 2023 . We estimated the remaining lease obligations at fair value as of the cease-use date for each location based on the future contractual lease obligations, reduced by projected sublease rentals that could be reasonably obtained for the locations after a period of marketing, and adjusted for the effect deferred rents that have been recognized under the lease. The effect of discounting future cash flows using a credit-adjusted risk free rate was not significant. Sublease income and commencement dates were estimated based on data available from rental activity in the local markets. As ofMarch 31, 2019 , the remaining lease obligation, net of estimated projected sublease rentals, was$1.8 million . Refer to Note 5, "Leases," of our notes to consolidated financial statements included elsewhere in this Report for estimated timing of payments related to remaining lease obligations. 40
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Table of Contents Interest Expense
The following table presents our interest expense for the years ended
Fiscal Year Ended March 31, 2020 2019 Interest income $ 256 $ 216 Interest expense (1,955 ) (2,814 ) Other income, net 846 267 Interest expense relates to our revolving credit agreement and the related amortization of deferred debt issuance costs. Refer to Note 10, "Line of Credit" of our notes to consolidated financial statements included elsewhere in this Report for additional information. Interest expense for the year endedMarch 31, 2020 decreased$0.9 million compared to the prior year. The changes in interest expense is primarily caused by fluctuations in outstanding balances under our revolving credit agreement and the related amortization of debt issuance costs. As ofMarch 31, 2020 , we had$129.0 million in outstanding loans under the revolving credit agreement. Other income for the year endedMarch 31, 2020 increased$0.6 million compared to the prior year, which was primarily associated with fluctuations in theIndia foreign exchange rates.
Provision for (Benefit of) Income Taxes
The following table presents our provision for (benefit of) income taxes for the
years ended
Fiscal Year EndedMarch 31, 2020 2019
Provision for (benefit of) income taxes
-76.1 % 16.4 % The change in the effective tax rate for the year endedMarch 31, 2020 compared to the prior year period was driven primarily by a decrease in pretax income for the current year. The effective tax rate for the year endedMarch 31, 2020 also benefitted from a release of uncertain tax position reserves on prior year tax settlements, certain return to provision adjustments, and state income taxes, which was partially offset by nondeductible expenses for the year endedMarch 31, 2020 . The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), signed into law onMarch 27, 2020 , has resulted in significant changes to theU.S. federal corporate tax law. Additionally, several state and foreign jurisdictions have enacted additional legislation and or comply with federal changes. As the enactment dates of this law was prior to the end of our reporting period, we have considered the applicable tax law changes in our current and deferred income tax expense as ofMarch 31, 2020 . We will continue analyzing the applications of the CARES Act and include the material impact to future income tax provisions, if applicable.
Net Income
The following table presents our net income (in thousands) and net income per
share and for the years ended
Fiscal Year Ended March 31, 2020 2019 Net income$ 7,498 $ 24,494 Net income per share: Basic$ 0.11 $ 0.38 Diluted$ 0.11 $ 0.38 As a result of the foregoing changes in revenue and expense, net income for the fiscal year endedMarch 31, 2020 decreased$17.0 million compared to the prior year period. 41
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Liquidity and Capital Resources
The following table presents selected financial statistics and information for
the years ended
Fiscal Year Ended March 31, 2020 2019 Cash and cash equivalents$ 138,012 $ 33,079 Unused portion of revolving credit agreement (1) 171,000 289,000 Total liquidity$ 309,012 $ 322,079 Net income$ 7,498 $ 24,494 Net cash provided by operating activities$ 85,601 $ 50,475
(1) As of
our
Our outstanding borrowings under our revolving credit agreement was
Our principal sources of liquidity are our cash generated from operations, driven mostly by our net income and working capital management, our cash and cash equivalents, and our revolving credit agreement.
We believe that our cash and cash equivalents on hand atMarch 31, 2020 , together with our cash flows from operating activities and liquidity provided by our revolving credit agreement, will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months. Due to the ongoing uncertainties of the impact of the COVID-19 pandemic on the industry in which we operate, we proactively implemented certain precautionary measures, including cost containment and strengthening our cash position by increasing the outstanding borrowings under our revolving credit agreement during the year endedMarch 31, 2020 and borrowing an additional$50.0 million inApril 2020 . The impact of COVID-19 is rapidly evolving and widespread, and therefore, it is not possible to fully identify, measure, and predict the various impacts that COVID-19 may have on our financial condition, results of operations, cash flows, and liquidity requirements. We will continue to assess the potential effects of the COVID-19 pandemic on our business and actively manage our response accordingly.
Cash and Cash Equivalents
As of
We may continue to use a portion of our funds as well as available financing from our revolving credit agreement for future acquisitions or other similar business activities, although the specific timing and amount of funds to be used is not currently determinable. We intend to expend some of our available funds for the development of products complementary to our existing product line as well as new versions of certain of our products. These developments are intended to take advantage of more powerful technologies and to increase the integration of our products. Our investment policy is determined by our Board of Directors. Excess cash, if any, may be invested in very liquid short term assets including tax exempt and taxable money market funds, certificates of deposit and short term municipal bonds with average maturities of 365 days or less at the time of purchase. Our Board of Directors continues to review alternate uses for our cash including an expansion of our investment policy and other items. Any or all of these programs could significantly impact our investment income in future periods.
Cash Flows from Operating Activities
The following table summarizes our consolidated statements of cash flows for the
years ended
Fiscal Year Ended March 31, 2020 2019 Net income$ 7,498 $ 24,494 Non-cash expenses 85,902 66,662 Cash from net income, as adjusted$ 93,400 $
91,156
Change in contract assets and liabilities, net 1,325 (4,943 ) Change in accounts receivable 4,937 (6,178 ) Change in other assets and liabilities (14,061 ) (29,560 ) Net cash provided by operating activities$ 85,601 $ 50,475 42
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For the year endedMarch 31, 2020 , cash provided by operating activities increased$35.1 million compared to the prior year, consisting of$15.5 million increase from net changes in other assets and liabilities,$17.4 million increase from net changes in accounts receivable and contract balances, and$2.2 million increase from higher net income, as adjusted for non-cash expenses. Cash from operating activities benefited from changes in other assets and liabilities due to payments in the prior year related to the$19.0 million settlement of the Federal Securities Class Action complaint, which was partially offset by the impact of operating lease liabilities from the adoption of ASC 842 (refer to Note 5, "Leases" of our notes to consolidated financial statements included elsewhere in this Report for additional information) and net decreases in cash from changes in income taxes receivable and payable. Net changes to accounts receivable and contract balances resulted in a benefit to cash from operating activities as we continue to focus our efforts on collections and resolution of aged balances. Non-cash expenses increased primarily due to higher amortization of operating lease assets, higher amortization of previously capitalized software costs, impairment charges related to our vacated lease locations and capitalized software costs, as described above, higher share-based compensation expenses, and changes in deferred taxes, while net income for the year endedMarch 31, 2020 decreased$17.0 million compared to the prior year, as described above.
Cash Flows from Investing Activities
Net cash used in investing activities for the years endedMarch 31, 2020 and 2019 was$96.1 million and$25.5 million , respectively. The$70.6 million net increase in cash used in investing activities compared to the prior year is primarily due to cash payments for our acquisitions of Topaz,Medfusion and OTTO, net of cash acquired, of$71.7 million and$2.5 million higher additions to equipment and improvements, offset by$2.5 million of proceeds from over-funded corporate-owned life insurance policies and$1.1 million lower capitalization of software development costs.
Cash Flows from Financing Activities
Net cash provided by financing activities for the year endedMarch 31, 2020 was$116.3 million compared to net cash used in financing activities of$21.6 million in the prior year. The increase in cash from financing activities is due to$118.0 million of net borrowings against our revolving credit facility, comprised of$137.0 million of additional borrowings and$19.0 million of principal repayments and$2.4 million of net proceeds from the issuance of shares under employee plans, partially offset by$4.1 million of payments for taxes related to net share settlement of equity awards. In comparison, during the prior year, net payments on our revolving credit facility were$26.0 million , consisting of$52.0 million of principal repayments and$26.0 million of additional borrowings and$3.2 million of payments for taxes related to net share settlement of equity awards, partially offset by$7.5 million of net proceeds from the issuance of shares under employee plans.
Contractual Obligations
As of
The following table summarizes our other significant contractual obligations atMarch 31, 2020 and the effect that such obligations are expected to have on our liquidity and cash in future periods (in thousands): For the year ended March 31, 2026 and Contractual Obligations Total 2021 2022 2023 2024 2025 beyond Operating lease obligations$ 43,017 $ 9,408 $ 9,186 $ 9,248 $ 7,955 $ 5,948 $ 1,272 Remaining lease obligations for vacated properties (1) 11,898 3,182 2,935 2,255 1,677 1,337 512 Line of credit obligations (Note 10) 129,000 - - 129,000 - - - Total$ 183,915 $ 12,590 $ 12,121 $ 140,503 $ 9,632 $ 7,285 $ 1,784
(1) Remaining lease obligations for vacated properties relates to remaining lease
obligations at certain locations, including
Louis, that we have vacated and are actively marketing the locations for
sublease as part of our reorganization efforts. Refer to Note 16,
"Restructuring Plan" of our notes to consolidated financial statements
included elsewhere in this Report for additional information. Total
obligations have not been reduced by projected sublease rentals or by minimum
sublease rentals of
subleases.
The deferred compensation liability as ofMarch 31, 2020 was$5.3 million , which is not included in the table above as the timing of future benefit payments to employees is not determinable.
The uncertain tax position liability as of
New Accounting Pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies" of our notes to consolidated financial statements included elsewhere in this Report for a discussion of new accounting standards.
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Critical Accounting Policies and Estimates
The discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors we believe to be reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. On a regular basis, we review the accounting policies and update our assumptions, estimates, and judgments, as needed, to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. Actual results could differ materially from our estimates under different assumptions or conditions. To the extent that there are material differences between our estimates and actual results, our financial condition or results of operations will be affected. Our significant accounting policies, as described in Note 2, "Summary of Significant Accounting Policies" of our notes to consolidated financial statements included elsewhere in this Report, should be read in conjunction with management's discussion and analysis of financial condition and results of operations. We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results because application of such policies require significant judgment regarding the effects of matters that are inherently uncertain and that affect our consolidated financial statements.
Revenue Recognition
Application of the revenue recognition guidance requires a significant amount of judgments and estimates, which may impact the amount and timing of revenue recognition and related disclosures. Refer to Note 3, "Revenue from Contracts with Customers" of our notes to consolidated financial statements included elsewhere in this Report for additional information regarding our revenue recognition policies, significant judgements, and estimates.
Software Development Costs
Software development costs, consisting primarily of employee salaries and benefits and certain third party costs, incurred in the development of new software solutions and enhancements to existing software solutions for external sale are expensed as incurred, and reported as net research and development costs in the consolidated statements of net income and comprehensive income, until technological feasibility has been established. After technological feasibility is established, any additional software development costs are capitalized. Amortization of capitalized software is recorded on straight-line basis over the estimated economic life of the related product, which is typically three years. The total of capitalized software costs incurred in the development of products for external sale are reported as capitalized software costs within our consolidated balance sheets. We also incur costs related to the development of software applications for our internal-use and for the development of software-as-a-service ("SaaS") based solutions sold to our clients. The development costs of our SaaS-based solutions are considered internal-use for accounting purposes. Our internal-use capitalized development costs are stated at cost and amortized on a straight-line basis over the estimated useful lives of the assets, which is typically three years. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs related to the preliminary project stage and post-implementation activities are expensed as incurred. Costs of significant upgrades and enhancements that result in additional functionality are also capitalized, whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized software costs for the development of SaaS-based solutions are reported as capitalized software costs within our consolidated balance sheets and capitalized software costs for the development of our internal-use software applications are reported as equipment and improvements within our consolidated balance sheets. We periodically reassess the estimated economic life and the recoverability of our capitalized software costs. If we determine that capitalized amounts are not recoverable based on the expected net cash flows to be generated from sales of the applicable software solutions, the amount by which the unamortized capitalized costs exceed the net realizable value is written off as a charge to earnings. The net realizable value is the estimated as the expected future gross revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance and client support required to satisfy our responsibility at the time of sale. In addition to the assessment of net realizable value, we review and adjust the remaining estimated lives of our capitalized software costs, if necessary. We also perform a periodic review of our software solutions and dispose of fully amortized capitalized software costs after such products are determined to be no longer used by our clients.
Although we currently 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.
Business Combinations
During the year endedMarch 31, 2020 , we completed the acquisitions of Topaz,Medfusion , and OTTO, and during the year endedMarch 31, 2018 , we completed the acquisitions of Entrada, EagleDream and Inforth. We accounted for the acquisitions as purchase business combinations using the acquisition method of accounting. 44
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In accordance with the acquisition method of accounting for business combinations, we allocated the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values. Our purchase price allocation methodology contains uncertainties because it requires us to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities, including, but not limited to, intangible assets, goodwill, and contingent consideration liabilities. We estimate the fair value of assets and liabilities based upon the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses depending on the nature of the assets being sold. We estimate the fair value of the contingent consideration liabilities, as needed, based on our projection of expected results and the estimated probability of achievement. The process to develop the estimate of fair values in many cases requires the use of significant estimates, assumptions and judgments, including determining the timing and estimates of future cash flows and developing appropriate discount rates. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies. We finalize the purchase price allocation as soon as practicable within the measurement period, but not later than one year following the acquisition date. Any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements of net income and comprehensive income.Goodwill Goodwill acquired in a business combination is measured as the excess of the purchase price, or consideration transferred, over the net acquisition date fair values of the assets acquired and the liabilities assumed.Goodwill is not amortized as it has been determined to have an indefinite useful life. As part of our annual goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conduct a two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their carrying values. If the carrying amount of the reporting unit exceeds the reporting unit's fair value, we perform the second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. We test goodwill for impairment annually during our first fiscal quarter, referred to as the annual test date. Based on our qualitative assessment for the current fiscal year, we have determined that there was no impairment to our goodwill as ofJune 30, 2019 . We will also test for impairment between annual test dates if an event occurs or circumstances change that would indicate the carrying amount may be impaired. During the years endedMarch 31, 2020 andMarch 31, 2019 , we did not identify any events or circumstances that would require an interim goodwill impairment test. We currently also do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to future impairment charges that could be material.
Intangible Assets
Intangible assets consist of trade names, customer relationships, and software technology, all of which are associated with our acquisitions.
The intangible assets are recorded at fair value and are reported net of accumulated amortization. We currently amortize the intangible assets over periods ranging from 5 to 10 years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed. We assess the recoverability of intangible assets at least annually or whenever adverse events or changes in circumstances indicate that impairment may have occurred. If the future undiscounted cash flows expected to result from the use of the related assets are less than the carrying value of such assets, impairment is deemed to have occurred and a loss is recognized to reduce the carrying value of the intangible assets to fair value, which is determined by discounting estimated future cash flows. In addition to the impairment assessment, we routinely review the remaining estimated lives of our intangible assets and record adjustments, if deemed necessary. 45
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Although currently 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. We test intangible assets for impairment if we believe indicators of impairment exist.
Share-Based Compensation
We record share-based compensation related to share-based awards granted under our employee stock options and incentive plans. See Note 14, "Share-Based Awards," of our notes to consolidated financial statements included elsewhere in this Report for a complete discussion of our stock-based compensation plans. Share-based compensation expense associated with stock options granted under our equity incentive plans is based on the number of options that ultimately vest and adjusted, if needed, as forfeitures occur. We estimate the fair value of stock options on the date of grant using the Black Scholes option-pricing model based on required inputs, including expected term, volatility, risk-free rate, and expected dividend yield. Expected term is estimated based upon the historical exercise behavior and represents the period of time that options granted are expected to be outstanding and therefore the proportion of awards that is expected to vest. Volatility is estimated by using the weighted-average historical volatility of our common stock, which approximates expected volatility. The risk-free rate is the implied yield available on theU.S. Treasury zero-coupon issues with remaining terms equal to the expected term. The expected dividend yield is the average dividend rate during a period equal to the expected term of the option. The fair value vest is recognized ratably as expense over the requisite service period in our consolidated statements of net income and comprehensive income. Share-based compensation expense associated with restricted stock awards is estimated using the market price of the common stock on the date of grant. Share-based compensation expense associated with restricted performance stock awards and units are based on the grant date fair value measured at the underlying closing share price on the date of grant using aMonte Carlo -based valuation model. We currently do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine share-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-based compensation expense that could be material.
Reserves on Accounts Receivable
We maintain reserves for potential sales returns and uncollectible accounts receivable. Accounts receivable are reported net of uncollectible accounts receivable our consolidated balance sheets.
Our standard contracts generally do not contain provisions for clients to return products or services. However, we historically have accepted sales returns under limited circumstances. We estimate expected sales returns and other forms of variable consideration considering our customary business practice and contract-specific facts and circumstances, and we consider such estimated potential returns as variable consideration when allocating the transaction price to the extent it is probable that there will not be a significant reversal of cumulative revenue recognized. Allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from our clients' inability to make required payments are established based on our assessment of the collectability of client accounts, including review of our historical experience of bad debt expense and the aging of our accounts receivable balances, net of specifically reserved accounts and amounts billed prior to revenue recognition. Specific reserves are based on our estimate of the probability of collection for certain accounts. We regularly review the adequacy of these allowances by considering internal factors such as historical experience, credit quality and age of the client receivable balances as well as external factors such as economic conditions that may affect a client's ability to pay and review of major third-party credit-rating agencies, as needed. Accounts are written off as uncollectible only after we have expended extensive collection efforts. If a major client's creditworthiness or financial condition were to deteriorate, if actual defaults are higher than our historical experience, or if other circumstances arise, our estimates of the recoverability of amounts due to us could be overstated, and additional allowances could be required, which could have an adverse impact on our operating results.
Although we currently 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.
Leases
We adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) and its subsequent amendments (together "ASC 842") during the quarter endedJune 30, 2019 using the transition approach provided for under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allowed us to apply the new lease standard as ofApril 1, 2019 , rather than the beginning of the earliest period presented. ASC 842 supersedes ASC 840 and requires the recognition of leased arrangements on the balance sheet as right-of-use assets and liabilities pertaining to the rights and obligations created by the leased assets. Refer to Note 5, "Leases" of our notes to consolidated financial statements included elsewhere in this Report for additional information regarding our adoption of ASC 842. 46
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