Document





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 8-K
______________
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report
(Date of earliest event reported):
January 24, 2017
______________
QUALITY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of
incorporation)
001-12537
(Commission File Number)
95-2888568
(IRS Employer
Identification Number)

18111 Von Karman, Suite 800
Irvine, California 92612
(Address of Principal Executive Offices)
(949) 255-2600
(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))









Item 2.02    Results of Operations and Financial Condition.
On January 25, 2017, Quality Systems, Inc. (the “Company”) issued a press release announcing its financial performance for the period ended December 31, 2016. A copy of the press release is attached to this Form 8-K as Exhibit 99.1, and is incorporated herein by reference.
The information in this Item 2.02 of this Form 8-K, as well as Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 5.02         Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On January 24, 2017, John K. Stumpf informed the Board of Directors (the “Board”) of the Company that he will resign as the Company’s Executive Vice President, Finance and Principal Accounting Officer, effective February 10, 2017.  Mr. Stumpf is leaving to join another local company.  The Company wishes him well in his future endeavors.  On January 24, 2017, the Board appointed James R. Arnold, the Company’s Executive Vice President and Chief Financial Officer, to serve in the additional role of the Company’s Principal Accounting Officer, effective February 10, 2017.

Item 9.01    Financial Statements and Exhibits.
(d) Exhibits
Exhibit No.
 
Description
99.1
 
Press Release dated January 25, 2017

2



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: January 25, 2017
QUALITY SYSTEMS, INC.
 
By:
/s/ James R. Arnold
 
 
James R. Arnold
 
 
Chief Financial Officer



3



EXHIBITS ATTACHED TO THIS REPORT ON FORM 8-K

Exhibit No.
 
Description
99.1
 
Press Release dated January 25, 2017


4
Exhibit


https://cdn.kscope.io/701004011ea33417204bc1ccc1b9898b-qsilogoa10.jpg


For Further Information, Contact:
Quality Systems, Inc.
18111 Von Karman Avenue, Suite 800
Irvine, CA 92612
Phone: (949) 255-2600
Jamie Arnold, Chief Financial Officer
JArnold@nextgen.com

FOR IMMEDIATE RELEASE
January 25, 2017

Quality Systems, Inc. Reports Fiscal 2017 Third Quarter Results
IRVINE, Calif. - (January 25, 2017) - Quality Systems, Inc. (NASDAQ: QSII) announced today results for its fiscal 2017 third quarter ended December 31, 2016.
“We’ve seen a number of promising trends throughout the business this year, and I’m pleased with our fiscal third quarter results, as well as with the continued progress we’re making on our strategic initiatives. In addition to improving our customer attrition rates, we’ve also made great strides in customer satisfaction over the last several quarters. During the first 75 days since our new software release, we’ve seen significant interest and already have nearly 500 customers signed up to upgrade,” commented Rusty Frantz, president and chief executive officer of Quality Systems, Inc.
Mr. Frantz continued, “Through our restructuring, we’ve also identified meaningful RCM and EDI cross-selling opportunities within our existing customer base and hope to capitalize on them through the efforts of our newly reinvigorated salesforce. That said, given the uncertainty surrounding the ACA and the lengthy RCM sales cycle, we believe it will take some time before new bookings translate into top line growth.  At this point in the year, I remain confident in delivering on the commitments we made in July.”
Revenues for the fiscal 2017 third quarter of $127.9 million compared to $117.0 million a year-ago. On a GAAP basis, net income for the 2017 third quarter was $10.5 million, compared with net income of $7.3 million in the 2016 third quarter. Non-GAAP net income for the 2017 third quarter was $14.4 million compared with non-GAAP net income of $10.0 million in the 2016 third quarter.
On a GAAP basis, fully diluted earnings per share was $0.17 in the fiscal 2017 third quarter compared with $0.12 earnings per share for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2017 third quarter was $0.23 versus $0.16 reported in the third quarter a year ago.










Conference Call Information
Quality Systems will host a conference call to discuss its fiscal 2017 third quarter results on Wednesday, January 25, 2017 at 5:00 PM ET (2:00 PM 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 56791651 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 investor.qsii.com. After the conference call, a replay will be available until February 1, 2017 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 56791651.
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 www.qsii.com and www.nextgen.com for additional information.

Investor Contact:
Bob East or Asher Dewhurst
Westwicke Partners
443-213-0500


SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS
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 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; 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.


USE OF NON-GAAP FINANCIAL MEASURES
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, loss on disposition, 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.


FINANCIAL TABLES ATTACHED







QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Software license and hardware
$
16,995

 
$
16,150

 
$
48,966

 
$
52,026

Software related subscription services
22,546

 
11,705

 
63,911

 
36,388

Total software, hardware and related
39,541

 
27,855

 
112,877

 
88,414

Support and maintenance
39,924

 
39,519

 
116,905

 
125,408

Revenue cycle management and related services
20,048

 
21,594

 
62,037

 
62,630

Electronic data interchange and data services
21,790

 
20,643

 
65,527

 
61,413

Professional services
6,565

 
7,421

 
19,893

 
26,700

Total revenues
127,868

 
117,032

 
377,239

 
364,565

Cost of revenue:
 
 
 
 
 
 
 
Software license and hardware
5,680

 
6,530

 
19,227

 
20,149

Software related subscription services
9,345

 
5,533

 
27,107

 
17,454

Total software, hardware and related
15,025

 
12,063

 
46,334

 
37,603

Support and maintenance
7,299

 
7,537

 
20,903

 
23,874

Revenue cycle management and related services
13,462

 
14,381

 
42,052

 
43,573

Electronic data interchange and data services
12,662

 
12,437

 
38,232

 
37,302

Professional services
5,904

 
7,367

 
19,643

 
24,008

Total cost of revenue
54,352

 
53,785

 
167,164

 
166,360

Gross profit
73,516

 
63,247

 
210,075

 
198,205

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
37,542

 
39,395

 
120,913

 
115,962

Research and development costs, net
19,714

 
14,518

 
56,230

 
49,584

Amortization of acquired intangible assets
2,568

 
897

 
7,889

 
2,692

Restructuring costs
231

 

 
4,685

 

Total operating expenses
60,055

 
54,810

 
189,717

 
168,238

Income from operations
13,461

 
8,437

 
20,358

 
29,967

Interest income

 
60

 
9

 
406

Interest expense
(629
)
 
(11
)
 
(2,445
)
 
(14
)
Other expense, net
(4
)
 
(43
)
 
(146
)
 
(147
)
Income before provision for income taxes
12,828

 
8,443

 
17,776

 
30,212

Provision for income taxes
2,342

 
1,141

 
3,950

 
8,233

Net income
$
10,486

 
$
7,302

 
$
13,826

 
$
21,979

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.17

 
$
0.12

 
$
0.22

 
$
0.36

Diluted
$
0.17

 
$
0.12

 
$
0.22

 
$
0.36

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
62,093

 
60,867

 
61,645

 
60,548

Diluted
62,093

 
61,279

 
61,900

 
61,190

Dividends declared per common share
$

 
$
0.175

 
$

 
$
0.525








QUALITY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

 
December 31, 2016
 
March 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
23,994

 
$
27,176

Restricted cash and cash equivalents
4,647

 
5,320

Marketable securities

 
9,297

Accounts receivable, net
75,516

 
94,024

Inventory
252

 
555

Income taxes receivable
14,481

 
32,709

Prepaid expenses and other current assets
15,944

 
14,910

Total current assets
134,834

 
183,991

Equipment and improvements, net
26,097

 
25,790

Capitalized software costs, net
12,995

 
13,250

Deferred income taxes, net
9,780

 
8,198

Intangibles, net
74,722

 
91,675

Goodwill
185,888

 
188,837

Other assets
18,703

 
19,049

Total assets
$
463,019

 
$
530,790

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
5,223

 
$
11,126

Deferred revenue
49,763

 
57,935

Accrued compensation and related benefits
18,620

 
18,670

Income taxes payable
8

 
91

Other current liabilities
44,338

 
50,238

Total current liabilities
117,952

 
138,060

Deferred revenue, net of current
1,312

 
1,335

Deferred compensation
6,738

 
6,357

Line of credit
25,000

 
105,000

Other noncurrent liabilities
14,267

 
10,661

Total liabilities
165,269

 
261,413

Commitments and contingencies
 
 
 
Shareholders' equity:
 
 
 
Common stock
 
 
 
$0.01 par value; authorized 100,000 shares; issued and outstanding 62,437 and 60,978 shares at December 31, 2016 and March 31, 2016, respectively
624

 
610

Additional paid-in capital
225,967

 
211,262

Accumulated other comprehensive loss
(653
)
 
(481
)
Retained earnings
71,812

 
57,986

Total shareholders' equity
297,750

 
269,377

Total liabilities and shareholders' equity
$
463,019

 
$
530,790







QUALITY SYSTEMS, INC.
NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)

RECONCILIATION OF NON-GAAP DILUTED EARNINGS PER SHARE
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2016
 
2015
 
2016
 
2015
Income before provision for income taxes - GAAP
$
12,828

 
$
8,443

 
$
17,776

 
$
30,212

Non-GAAP adjustments:

 

 

 

Acquisition and disposition costs, net
(1,337
)
 
4,451

 
5,147

 
5,743

Amortization of acquired intangible assets
5,575

 
1,800

 
16,953

 
5,402

Amortization of deferred debt issuance costs
269

 

 
807

 

Loss on disposition of Hospital Solutions Division and related costs

 
1,753

 

 
1,753

Restructuring costs
231

 

 
4,685

 

Securities litigation defense costs, net of insurance
356

 
(3,075
)
 
1,483

 
(281
)
Share-based compensation
2,001

 
743

 
5,067

 
2,328

Other non-run-rate expenses*
739

 
335

 
2,865

 
1,722

Total adjustments to GAAP income before provision for income taxes:
7,834

 
6,007

 
37,007

 
16,667

Income before provision for income taxes - Non-GAAP
20,662

 
14,450

 
54,783

 
46,879

Provision for income taxes
6,302

 
4,407

 
16,709

 
14,298

Net income - Non-GAAP
$
14,360

 
$
10,043

 
$
38,074

 
$
32,581

Diluted net income per share - Non-GAAP
$
0.23

 
$
0.16

 
$
0.62

 
$
0.53

Weighted-average shares outstanding (diluted):
62,093

 
61,279

 
61,900

 
61,190


* For the three months ended December 31, 2016, other non-run-rate expenses consist primarily of professional services costs not related to core operations. Other non-run-rate expenses for the nine months ended December 31, 2016 consists primarily of professional services costs not related to core operations and $191 of executive hiring costs.

For the three months ended December 31, 2015, other non-run-rate expenses consists of non-recurring severance and other employee-related costs incurred in connection with the Hospital disposition. Other non-run-rate expenses for the nine months ended December 31, 2015 includes $449 in certain professional services costs not related to core operations, non-recurring severance and other employee-related costs incurred in connection with the Hospital disposition, and $938 of incremental costs related to the change in the Company's Chief Executive Officer, including recruitment fees and severance payments.