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Quality Systems, Inc. Reports Fiscal 2017 Second Quarter Results
October 27, 2016 at 5:00 AM EDT

IRVINE, Calif.--(BUSINESS WIRE)-- Quality Systems, Inc. (NASDAQ: QSII) announced today results for its fiscal 2017 second quarter ended September 30, 2016.

"I'm very pleased with our performance during the second quarter. The strategic investments we've made and the measures we've taken to integrate and streamline the business are starting to pay off," commented Rusty Frantz, president and chief executive officer of Quality Systems, Inc. "Furthermore, our reinvigorated sales efforts coupled with our focus on customer relations have resulted in increased rates of customer satisfaction and favorably impacted our customer retention."

Mr. Frantz continued, "Our financial results in the first half of fiscal 2017, as well as the progress we made in the second quarter, lead us to feel confident about the remainder of the year and reaffirm the guidance we provided on our last call."

Revenues for the fiscal 2017 second quarter of $127.2 million compared to $125.4 million a year-ago. On a GAAP basis, net income for the 2017 second quarter was $4.0 million, compared with net income of $8.3 million in the 2016 second quarter. Non-GAAP net income for the 2017 second quarter was $14.4 million compared with non-GAAP net income of $13.0 million in the 2016 second quarter.

On a GAAP basis, fully diluted earnings per share was $0.06 in the fiscal 2017 second quarter compared with $0.14 earnings per share for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2017 second quarter was $0.23 versus $0.21 reported in the second quarter a year ago.

Fiscal 2017 Financial Outlook

The company is reaffirming outlook for the remainder of 2017 and expects:

  • Revenue of between $494 million and $510 million
  • Non-GAAP EPS of between $0.75 and $0.81

Conference Call Information

Quality Systems will host a conference call to discuss its fiscal 2017 second quarter results on Thursday, October 27, 2016 at 8:30 AM ET (5:30 AM PT). Shareholders and interested participants may listen to a live broadcast of the conference call by dialing 866-900-9499 or 937-502-2136 for international callers, and referencing participant code 95129126 approximately 15 minutes prior to the call. A live webcast of the conference call will be available on the investor relations section of the company's web site and an audio file of the call will also be archived for 90 days at After the conference call, a replay will be available until November 3, 2016 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 95129126.

About Quality Systems, Inc.

Irvine, Calif.-based Quality Systems, Inc. (QSI) and its subsidiary, NextGen Healthcare Information Systems, develop and provide a range of software and services for medical and dental group practices, including practice management and electronic health record applications, patient portal, interoperability and connectivity products, and population health management and analytics offerings. Services include managed cloud services, revenue cycle management, claims clearinghouse, data interchange and value-add consulting. The Company's solution portfolio is readily integrated and collectively positioned to drive low total cost of ownership for its client partners, as well as enable the transition to value-based healthcare. 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, 2016 and subsequently filed Quarterly Reports on Form 10-Q, 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 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; disruptions caused by acquisitions of companies, products, or technologies; 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. These forward-looking statements speak only as of the date hereof. 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 presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. The Company calculates non-GAAP diluted earnings per share by excluding net acquisition and disposition costs, amortization of acquired intangible assets, amortization of deferred debt issuance costs, restructuring costs, net securities litigation defense costs, share-based compensation, and other non-run-rate expenses from GAAP income before provision for income taxes. The Company utilizes a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of the Company's longer-term operations. The normalized non-GAAP tax rate applied to each quarter of fiscal year 2016 and expected to be applied for each quarter of fiscal year 2017 period is 30.5%. The determination of this rate is based on the consideration of both historic and projected financial results. The Company intends to re-evaluate this normalized non-GAAP tax rate on an annual basis or more frequently if any significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or changes in expectations regarding tax regulations.

The Company's future period guidance in this release includes adjustments for items not indicative of the Company's core operations. Such adjustments are generally expected to be of a nature similar to those adjustments applied to the Company's historic GAAP financial results in the determination of the Company's non-GAAP diluted earnings per share. Such adjustments, however, may be affected by changes in ongoing assumptions and judgments as to the items that are excluded in the calculation of non-GAAP adjusted net income and adjusted diluted earnings per share, as described in this release. The exact amount and probable significance of these adjustments, including net acquisition and disposition costs, net securities litigation defense costs, and other non-run-rate expenses, are not currently determinable without unreasonable efforts, but may be significant. These items cannot be reliably quantified or forecasted due to the combination of their historic and expected variability. It is therefore not practicable to reconcile this non-GAAP guidance to the most comparable GAAP measures.


(In thousands, except per share data)


Three Months Ended September 30, Six Months Ended September 30,
2016   2015 2016   2015
Software license and hardware $ 17,182 $ 19,687 $ 31,971 $ 35,876
Software related subscription services 21,490   12,437   41,365   24,683  
Total software, hardware and related 38,672 32,124 73,336 60,559
Support and maintenance 38,974 42,176 76,981 85,889
Revenue cycle management and related services 20,936 20,793 41,989 41,036
Electronic data interchange and data services 21,613 20,581 43,737 40,770
Professional services 6,971   9,695   13,328   19,279  

Total revenues

127,166   125,369   249,371   247,533  
Cost of revenue:
Software license and hardware 6,427 6,578 13,547 13,619
Software related subscription services 8,675   5,963   17,762   11,921  
Total software, hardware and related 15,102 12,541 31,309 25,540
Support and maintenance 7,036 8,394 13,604 16,337
Revenue cycle management and related services 14,359 14,680 28,590 29,192
Electronic data interchange and data services 12,807 12,539 25,570 24,865
Professional services 6,693   8,444   13,739   16,641  
Total cost of revenue 55,997   56,598   112,812   112,575  
Gross profit 71,169 68,771 136,559 134,958
Operating expenses:
Selling, general and administrative 42,790 37,396 83,371 76,567
Research and development costs, net 18,292 17,981 36,516 35,066
Amortization of acquired intangible assets 2,617 898 5,321 1,795
Restructuring costs 701     4,454    
Total operating expenses 64,400   56,275   129,662   113,428  
Income from operations 6,769 12,496 6,897 21,530
Interest income 1 44 9 346
Interest expense (803 ) (3 ) (1,816 ) (3 )
Other expense, net (55 ) (54 ) (142 ) (104 )
Income before provision for income taxes 5,912 12,483 4,948 21,769
Provision for income taxes 1,925   4,168   1,608   7,092  
Net income $ 3,987   $ 8,315   $ 3,340   $ 14,677  
Net income per share:
Basic $ 0.06 $ 0.14 $ 0.05 $ 0.24
Diluted $ 0.06 $ 0.14 $ 0.05 $ 0.24
Weighted-average shares outstanding:
Basic 61,658 60,461 61,420 60,387
Diluted 62,052 61,194 61,704 61,129
Dividends declared per common share $ $ 0.175 $ $ 0.35

(In thousands, except per share data)


September 30, 2016 March 31, 2016
Current assets:
Cash and cash equivalents $ 26,246 $ 27,176
Restricted cash and cash equivalents 4,458 5,320
Marketable securities 9,297
Accounts receivable, net 78,406 94,024
Inventory 353 555
Income taxes receivable 15,276 32,709
Prepaid expenses and other current assets 18,519   14,910  
Total current assets 143,258 183,991
Equipment and improvements, net 25,985 25,790
Capitalized software costs, net 13,750 13,250
Deferred income taxes, net 8,018 8,198
Intangibles, net 80,297 91,675
Goodwill 188,555 188,837
Other assets 19,025   19,049  
Total assets $ 478,888   $ 530,790  
Current liabilities:
Accounts payable $ 5,438 $ 11,126
Deferred revenue 52,295 57,935
Accrued compensation and related benefits 15,192 18,670
Income taxes payable 185 91
Other current liabilities 50,734   50,238  
Total current liabilities 123,844 138,060
Deferred revenue, net of current 1,403 1,335
Deferred compensation 6,794 6,357
Line of credit 48,000 105,000
Other noncurrent liabilities 13,376   10,661  
Total liabilities 193,417 261,413
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 62,094 and 60,978 shares at September 30, 2016 and March 31, 2016, respectively 621 610
Additional paid-in capital 224,089 211,262
Accumulated other comprehensive loss (565 ) (481 )
Retained earnings 61,326   57,986  
Total shareholders' equity 285,471   269,377  
Total liabilities and shareholders' equity $ 478,888   $ 530,790  

(In thousands, except per share data)




Three Months Ended September 30, Six Months Ended September 30,
2016   2015 2016   2015
Income before provision for income taxes - GAAP $ 5,912 $ 12,483 $ 4,948 $ 21,769
Non-GAAP adjustments:
Acquisition and disposition costs, net 3,748 775 6,484 1,292
Amortization of acquired intangible assets 5,646 1,802 11,378 3,602
Amortization of deferred debt issuance costs 269 538
Restructuring costs 701 4,454
Securities litigation defense costs, net of insurance 763 2,256 1,127 2,794
Share-based compensation 1,910 901 3,066 1,585
Other non-run-rate expenses* 1,725   449   2,126   1,387
Total adjustments to GAAP income before provision for income taxes: 14,762   6,183   29,173   10,660
Income before provision for income taxes - Non-GAAP 20,674 18,666 34,121 32,429
Provision for income taxes 6,306   5,693   10,407   9,891
Net income - Non-GAAP $ 14,368   $ 12,973   $ 23,714   $ 22,538
Diluted net income per share - Non-GAAP $ 0.23 $ 0.21 $ 0.38 $ 0.37
Weighted-average shares outstanding (diluted): 62,052 61,194 61,704 61,129

* For the three months ended September 30, 2016, other non-run-rate expenses consist of $1,419 of professional services costs not related to ongoing core operations and $191 of executive hiring costs. For the six months ended September 30, 2016, other non-run-rate expenses consist of $1,820 of professional services costs not related to ongoing core operations and $191 of executive hiring costs.

Quality Systems, Inc.
Jamie Arnold, Chief Financial Officer
Investor Contact:
Westwicke Partners
Bob East or Asher Dewhurst

Source: Quality Systems, Inc.

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