Shareholders of the Irvine, Calif.-based ambulatory services technology company NextGen Healthcare Inc. will take sides in a bitter board battle Wednesday, when they will vote on whether to continue with what the company says is a “significant transformation and the momentum underway” or whether disgruntled founder Sheldon Razin will add board power through his own slate of director candidates.
Razin founded NextGen as Quality Systems Inc. in 1974, led it for 25 years and still owns about 15 percent of the company. He remained chairman of its board until 2015 and has in recent years pushed for fellow director Lance Rosenzweig, a veteran of business the process outsourcing sector, to be named its CEO. Thwarted and aggrieved by what he calls the excessive control and influence of Chairman Jeffrey Margolis and others on the board – who have proposed candidates to fill his and Rosenzweig’s seat – Razin this summer proposed an alternate slate of board candidates. (Read his most recent filing here.) That group, he says, will “refresh and reinvigorate” the group of directors and initially consisted of six members – NextGen’s board comprises nine people in all – before shrinking to four.
Margolis and his allied board members and candidates also are speaking of a reinvigoration of NextGen, which employs about 2,600 people and posted a net profit of $9.5 million on $557 million in revenues in its fiscal 2021. But they claim to be working to move on from Razin’s legacy, which they say long hamstrung NextGen’s ability to invest in growth and innovate even as it was losing customers. Among their talking points are noting that 10 of the company’s 12 top executives – including newly named President and CEO and former Teladoc COO David Sides – have come aboard since 2016 and saying that research and development as well as strategic M&A are again priorities.
The Margolis group has received notable backing from three well-known firms that advise large investors on how to vote their shares. Analysts at Institutional Shareholder Services, Glass Lewis and Egan-Jones all have recommended that investors support the company’s board slate, with the ISS team noting that NextGen’s recent changes have put it in a better position to grow again.
“The support from ISS, Glass Lewis and Egan-Jones as well as from independent sell-side analysts, employees and clients validates our success in reinvigorating the Company,” the Margolis-led slate said in a statement late last week. “Recurring revenue and subscription revenue streams are growing and will support margin expansion. We have strong operating cash flow and no debt. We are achieving significant new clients wins again and again, with new clients representing approximately 25 percent of our bookings.”
Investors on Wednesday also will vote this week on related proposals to reincorporate the company in Delaware and to end cumulative voting. NextGen is today incorporated in California; leaders say the idea of moving to Delaware has been in the works for a while and will put NextGen in line with most of corporate America when it comes to governance practices.
Shares of NextGen (Ticker: NXGN) have lost more than 25 percent of their value this year, lowering the company’s market capitalization to about $1 billion. The boardroom battle hasn’t reversed their downward trend; they are essentially flat since the day before Razin went public with his dissident push.
