NextGen Healthcare's boardroom spat heats up as founder launches proxy campaign

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The spate has become very public as the two sides have issued a flurry of press releases accusing the other of trying to gain board control of NextGen Healthcare. (Getty/Paul Taylor)

NextGen Healthcare board members continue to spar in a very public "tit for tat" as the company's founder, Sheldon Razin, launched a proxy campaign for an alternative slate of director candidates for board seats.

At issue is an upcoming election to put new directors on the board. Razin is looking to elect an alternate slate of directors in an effort to shake up the leadership, citing the company's poor financial performance under the direction of Chairman Jeffrey Margolis.

To a greater degree, what's at stake is the future direction of the ambulatory technology company. NextGen Healthcare's annual meeting of shareholders is scheduled for Oct. 13.

Razin, who sits on the board, and fellow Director Lance Rosenzweig accuse Margolis and his allies on the board of establishing an "imperial boardroom culture" that has effectively taken control of the board. 

The pair said NextGen's board, under Margolis' direction, has been unwilling to take the steps necessary to reverse the company's "anemic growth, deteriorating margins, poor hiring and operational practices, and wasteful capital allocation policy," they wrote in an open letter to shareholders last month.

They argue that NextGen needs boardroom changes as the company's shares have dramatically underperformed the broader market and the balance sheet has deteriorated due to "debt-fueled acquisitions." The company has been slow to embrace diversity across leadership roles, they said.

RELATED: NextGen Healthcare founder Razin looks to shake up board to improve company's performance

NextGen's other board members, in turn, accused the pair of trying to obstruct board operations and pushing their own agenda. "When Sheldon Razin’s role as Board Chair concluded, NextGen Healthcare was a deteriorating business with unproductive R&D investments and a disenfranchised customer base," the board members wrote in an open letter to shareholders.

As board chair, Razin's capital allocation plan prioritized $400 million in dividends that thwarted sustainable high growth and largely benefited him personally, they wrote.

Margolis assumed the board chair role in November 2015. Share price has increased 8% in that time versus the Nasdaq’s 191% gain.

NextGen President and CEO Rusty Frantz left the company by mutual agreement in June 2021. An executive search for his replacement is underway.

The spate has become very public as the two sides have issued a flurry of press releases accusing the other of trying to gain board control.

In mid-August, NextGen Healthcare announced it was appointing two new members to its board: Geraldine McGinty, M.D., and Pamela Puryear, Ph.D., citing the healthcare leaders' experience in strategy and operations.

On Thursday, Razin and Rosenzweig filed a revised preliminary proxy statement with the U.S. Securities and Exchange Commission to elect four individuals to the company’s nine-member board of directors—two new candidates, Kenneth Fearn, founder and current managing partner of Integrated Capital and Ruby Sharma, managing partner of RNB Strategic Advisors, as well as themselves.

With that slate of director candidates, the pair are looking to replace four incumbent directors: Craig Barbarosh, George Bristol, Jeffrey Margolis and Morris Panner.

"This election contest should come down to which slate of director candidates is more aligned, more credible and more capable in the healthcare services and technology verticals," the pair wrote in the revised proxy statement. Meaningful board change is the key to putting NextGen Healthcare back on a path to market leadership and organic growth, they said.

The pair says it, along with the nominees, owns approximately 15.2% of the outstanding common shares of NextGen Healthcare.

War of words

As part of recent governance proposals, the company wants to eliminate cumulative voting at this year’s annual meeting in favor of a majority vote standard in the election of directors in uncontested director elections.

They are also proposing to reincorporate NextGen Healthcare in Delaware as that move "promotes shareholder-friendly corporate governance," the board members stated in an open letter to shareholders that was made public in an Aug. 23 press release.

RELATED: NextGen Healthcare reports $557M in 2020 revenue with strong bookings growth in Q4

However, Razin and Rosenzweig contested these moves, accusing Margolis and the company's leadership of "entrenchment maneuvers and manipulations of the corporate machinery." Eliminating cumulative voting will reduce the voting power of large shareholders, the pair wrote in a press release in response to the board's letter to shareholders.

They also say the company's proposals will make it significantly harder for shareholders to call a special meeting by increasing the threshold from 10% of outstanding shares to 25% of outstanding shares. 

To further demonstrate that the pair are trying to obstruct board operations, the company published excerpts from an email from the chair of NextGen's nominating committee, Morris Panner, to Rosenzweig and Razin suggesting that they did not make their director candidates available for interviews with the board, according to a company press release.

"It is clear who is imperious and who wants control—it is the 47-year board member, Sheldon Razin, who is unwavering in his unwarranted, disruptive, costly proxy contest, which he initiated to advance his own interests—preserving his seat on the Board, as he has said, forever," the board members wrote in a press release.

Razin and Rosenzweig then fired back that the company cherry-picked excerpts from an email exchange.

In its latest response, board members said the pair are misleading shareholders as part of their "costly and disruptive proxy campaign."

"At its core, this election contest should come down to which slate of director candidates is more aligned, more credible and more capable in the healthcare services and technology verticals," Rosenzweig and Razin wrote in the most recent press release they issued.

RELATED: NextGen Healthcare's Q3 results beat Wall Street forecasts with strong growth in bookings

"While the current Board wastes shareholders’ capital on numerous high-priced advisors to fight change, our slate looks forward to conducting thoughtful analysis and preparing an operating plan that can create long-term value for investors, providers and patients," they said in a statement.

NextGen Healthcare wrapped up its 2021 fiscal year with $557 million in revenue, up 3% from $540 million a year ago.

The company brought in profits of $9.5 million for the full year ending March 31, or 14 cents per share, compared to $7.5 million in profits in its 2020 fiscal year.

The company projected full-year revenue between $574 million and $584 million, or 3% to 5% growth over fiscal 2021.