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Quality Systems, Inc. Reports Fiscal 2015 Second Quarter Results
October 23, 2014 at 5:00 AM EDT


Revenue Grows Nine Percent, Reaching Record Levels while Pipeline Expands for Eighth Consecutive Quarter

IRVINE, Calif.--(BUSINESS WIRE)-- Quality Systems, Inc. (NASDAQ:QSII) announced today results for its fiscal 2015 second quarter ended September 30, 2014.

Revenues for the fiscal 2015 second quarter reached a record $120.5 million, an increase of nine percent when compared with $111.1 million reported in the same period last year. Net income for the 2015 second quarter was $4.8 million versus $10.1 million, a decrease of $5.3 million from the 2014 second quarter.

On a GAAP basis, fully diluted earnings per share was $0.08 in the fiscal 2015 second quarter versus fully diluted earnings per share of $0.17 for the comparable period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2015 second quarter was $0.13, a decline from $0.22 reported in the fiscal 2014 second quarter.

During the quarter, the Company's pipeline grew to $161.8 million, improving for the eighth consecutive quarter. At quarter-end, the Company's liquidity position was strong, with $123.5 million of cash and investments.

"During the fiscal 2015 second quarter, we saw marked improvement across all fronts within the organization. The significant progress we are making is having a cumulative effect, which is creating positive momentum in our business and our results," noted Steven T. Plochocki, president and chief executive officer.

"We continue to realize benefits from the initiatives we have put into place over the past year, including the restructuring of our functional organizations, the cross selling of our products and services and the release of new solutions that cater to the evolving healthcare marketplace. Revenue Cycle Management, population health and interoperability are all among the key areas that are impacting the Company's sales and marketing efforts, in terms of both net new deals as well as cross selling into our growing client base. All of this strengthens our position as we head into the second half of this fiscal year," added Plochocki.

Quality Systems also announced that its Board of Directors declared a quarterly cash dividend of seventeen and one-half cents ($0.175) per share on the Company's outstanding shares of common stock, payable to shareholders of record as of December 12, 2014 with an anticipated distribution date of January 2, 2015. The $0.175 per share cash dividend is pursuant to the Company's current practice to pay a regular quarterly dividend on the Company's outstanding shares of common stock, subject to Board review and approval, and establishment of record and distribution dates by the Board prior to the declaration and payment of each such quarterly dividend.

Quality Systems will host a conference call to discuss its fiscal 2015 second quarter results on Thursday, October 23, 2014 at 10:00 AM ET (7:00 AM PT). All participants should dial 866-900-9499 at least ten minutes prior to the start of the call and reference conference ID  #15061060. International callers should dial 1-937-502-2136. To hear a live Web simulcast or to listen to the archived webcast following completion of the call, please visit the Company's website at, click on the "Investors" tab, then select "Conference Calls," to access the link to the call. To listen to a telephone replay of the conference call, please dial 800-585-8367 or 404-537-3406 and enter conference ID #15061060. The replay will be available from approximately 1:00 PM ET on Thursday, October 23, 2014, through 11:59 PM ET on Thursday, October 30, 2014.

A transcript of the conference call will be made available on the Company's website at

About Quality Systems, Inc.

Irvine, Calif.-based Quality Systems, Inc. and its NextGen Healthcare subsidiary develop and market computer-based practice management, electronic health records and revenue cycle management applications as well as connectivity products and services for medical and dental group practices and small hospitals. Visit and for additional information.


This news release may contain forward-looking statements within the meaning of the federal securities laws, including but not limited to, statements regarding future events, developments in the healthcare sector and regulatory framework, the Company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future (including, without limitation, statements concerning revenue, net income, and earnings per share). Risks and uncertainties exist that may cause the results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements and additional risks and uncertainties are set forth in Part I, Item A of our most recent Annual Report on Form 10-K for the fiscal year ended March 31, 2014, including but not limited to: the volume and timing of systems sales and installations; length of sales cycles and the installation process; the possibility that products will not achieve or sustain market acceptance; seasonal patterns of sales and customer buying behavior; impact of incentive payments under The American Recovery and Reinvestment Act on sales and the ability of the Company to meet continued certification requirements; the development by competitors of new or superior technologies; the timing, cost and success or failure of new product and service introductions, development and product upgrade releases; undetected errors or bugs in software; product liability; changing economic, political or regulatory influences in the health-care industry; changes in product-pricing policies; availability of third-party products and components; competitive pressures including product offerings, pricing and promotional activities; the Company's ability or inability to attract and retain qualified personnel; possible regulation of the Company's software by the U.S. Food and Drug Administration; changes of accounting estimates and assumptions used to prepare the prior periods' financial statements; and general economic conditions. A significant portion of the Company's quarterly sales of software product licenses and computer hardware is concluded in the last month of a fiscal quarter, generally with a concentration of such revenues earned in the final ten business days of that month. Due to these and other factors, the Company's revenues and operating results are very difficult to forecast. A major portion of the Company's costs and expenses, such as personnel and facilities, are of a fixed nature and, accordingly, a shortfall or decline in quarterly and/or annual revenues typically results in lower profitability or losses. As a result, comparison of the Company's period-to-period financial performance is not necessarily meaningful and should not be relied upon as an indicator of future performance. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.


This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures, which are provided only as supplemental information. Investors should consider these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. These non-GAAP measures are not in accordance with or a substitute for U.S. GAAP. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying financial tables. Other companies may calculate non-GAAP measures differently than Quality Systems, which limits comparability between companies.

The Company believes that its presentation of non-GAAP diluted earnings per share provides useful supplemental information to investors and management regarding the Company's financial condition and results. The Company calculates non-GAAP diluted earnings per share by excluding acquisition costs, amortization of acquired intangible assets, impairment of goodwill and other assets, securities litigation defense costs, share-based compensation, and other non-run-rate expenses from GAAP income before provision for income taxes. The non-GAAP provision for income taxes is calculated by excluding the income tax effect of the non-GAAP adjustments.






      Three Months Ended September 30,       Six Months Ended September 30,
        2014       2013           2014       2013  
Software and hardware     $ 14,230     $ 15,562         $ 28,973     $ 31,534  
Implementation and training services       7,040       7,809           13,306       14,384  
System sales       21,270       23,371           42,279       45,918  
Maintenance       42,135       40,313           82,940       78,921  
Electronic data interchange services       18,906       16,545           37,225       33,237  
Revenue cycle management and related services       17,432       15,467           34,125       31,482  
Other services       20,776       15,385           41,844       31,052  
Maintenance, EDI, RCM and other services       99,249       87,710           196,134       174,692  
Total revenues       120,519       111,081           238,413       220,610  
Cost of revenue:                      
Software and hardware       6,521       4,779           13,162       9,713  
Implementation and training services       6,688       6,972           13,839       14,106  
Total cost of system sales       13,209       11,751           27,001       23,819  
Maintenance       6,785       5,262           13,699       10,564  
Electronic data interchange services       12,015       10,650           24,014       21,446  
Revenue cycle management and related services       13,202       11,007           25,908       22,408  
Other services       11,562       9,012           22,341       17,517  
Total cost of maintenance, EDI, RCM and other services       43,564       35,931           85,962       71,935  
Total cost of revenue       56,773       47,682           112,963       95,754  
Gross profit       63,746       63,399           125,450       124,856  
Operating expenses:                      
Selling, general and administrative       38,681       38,578           75,411       73,674  
Research and development costs       16,898       7,615           33,134       13,229  
Amortization of acquired intangible assets       908       1,260           1,891       2,454  
Total operating expenses       56,487       47,453           110,436       89,357  
Income from operations       7,259       15,946           15,014       35,499  
Interest income (expense), net       69       (205 )         123       (174 )
Other expense, net       (26 )     (155 )         (17 )     (409 )
Income before income taxes       7,302       15,586           15,120       34,916  
Provision for income taxes       2,552       5,465           5,207       11,850  
Net income     $ 4,750     $ 10,121         $ 9,913     $ 23,066  
Net income per share:                      
Basic     $ 0.08     $ 0.17         $ 0.16     $ 0.39  
Diluted     $ 0.08     $ 0.17         $ 0.16     $ 0.39  
Weighted-average shares outstanding:                      
Basic       60,247       59,734           60,238       59,647  
Diluted       60,788       59,751           60,782       59,663  
Dividends declared per common share     $ 0.175     $ 0.175         $ 0.35     $ 0.35  





      September 30,   March 31,
        2014       2014  
Current assets:          
Cash and cash equivalents     $ 114,980     $ 103,145  
Restricted cash       2,445       4,351  
Marketable securities       8,536       10,656  
Accounts receivable, net       106,652       110,181  
Inventories       745       834  
Income taxes receivable       3,698       8,366  
Deferred income taxes, net       11,754       11,690  
Other current assets       9,780       11,135  
Total current assets       258,590       260,358  
Equipment and improvements, net       23,193       22,801  
Capitalized software costs, net       38,404       39,152  
Intangibles, net       29,408       33,016  
Goodwill       72,804       72,804  
Other assets       17,708       16,927  
Total assets     $ 440,107     $ 445,058  
Current liabilities:          
Accounts payable     $ 8,965     $ 7,888  
Deferred revenue       69,627       71,077  
Accrued compensation and related benefits       15,949       15,953  
Dividends payable       10,697       10,686  
Other current liabilities       31,413       18,282  
Total current liabilities       136,651       123,886  
Deferred revenue, net of current       1,813       2,187  
Deferred compensation       5,312       4,809  
Other noncurrent liabilities       10,950       19,086  
Total liabilities       154,726       149,968  
Commitments and contingencies          
Shareholders' equity:          
Common stock          
$0.01 par value; authorized 100,000 shares; issued          
and outstanding 60,269 and 60,206 shares at          
September 30, 2014 and March 31, 2014, respectively       603       602  
Additional paid-in capital       196,552       194,739  
Accumulated other comprehensive loss       (232 )     (182 )
Retained earnings       88,458       99,931  
Total shareholders' equity       285,381       295,090  
Total liabilities and shareholders' equity     $ 440,107     $ 445,058  






      Three Months Ended September 30,     Six Months Ended September 30,
        2014       2013       2014       2013
Income before provision for income taxes - GAAP     $ 7,302     $ 15,586     $ 15,120     $ 34,916
Plus items included in cost of revenue:                        
Amortization of acquired software technology       859       936       1,717       1,608
Share-based compensation       92       89       178       163
Total adjustments to cost of revenue       951       1,025       1,895       1,771
Plus items included in operating expenses:                        
Acquisition costs       621       429       1,744       494
Amortization of acquired intangible assets       908       1,260       1,891       2,454
Securities litigation defense costs       1,009       1,721       1,287       1,721
Share-based compensation       775       495       1,479       962
Other non-run-rate expenses       315       -       315       -
Total adjustments to operating expenses       3,628       3,905       6,716       5,631
Total adjustments to GAAP income before provision for income taxes:       4,579       4,930       8,611       7,402
Income before provision for income taxes - Non-GAAP       11,881       20,516       23,731       42,318
Provision for income taxes       4,159       7,160       8,220       14,377
Net income - Non-GAAP     $ 7,722     $ 13,356     $ 15,511     $ 27,941
Diluted net income per share - Non-GAAP     $ 0.13     $ 0.22     $ 0.26     $ 0.47
Weighted-average shares outstanding (diluted):       60,788       59,751       60,782       59,663


Quality Systems, Inc.
Paul Holt, 949-255-2600
Susan J. Lewis, 954-389-3700

Source: Quality Systems, Inc.



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