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):
May 18, 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 May 19, 2017, Quality Systems, Inc. (the “Company”) issued a press release announcing its financial performance for the period ended March 31, 2017. 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 8.01    Other Events.
Annual Meeting
On May 18, 2017, the Company's Board of Directors set August 22, 2017 as the date of the Company’s 2017 Annual Shareholders’ Meeting (the “Annual Meeting”). The Annual Meeting will be held at 9:00 a.m. Pacific time at the Marriott Hotel, 18000 Von Karman Avenue, Irvine, California 92612. Shareholders of record as of June 23, 2017 are eligible to vote and attend the Annual Meeting.

Item 9.01    Financial Statements and Exhibits.
(d) Exhibits
Exhibit No.
 
Description
99.1
 
Press Release dated May 19, 2017







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.

 
QUALITY SYSTEMS, INC.
 
 
 
Date: May 19, 2017
By:
/s/ James R. Arnold
 
 
James R. Arnold
 
 
Chief Financial Officer







EXHIBITS ATTACHED TO THIS REPORT ON FORM 8-K

Exhibit No.
 
Description
99.1
 
Press Release dated May 19, 2017



Exhibit


https://cdn.kscope.io/c528a35e090a8c94a9f43efdbec49b7d-qsilogoa06.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
May 19, 2017

Quality Systems, Inc. Reports Fiscal 2017 Fourth Quarter and Year-End Results
IRVINE, Calif. - (May 19, 2017) - Quality Systems, Inc. (NASDAQ: QSII) announced today results for its fiscal 2017 fourth quarter and fiscal year ended March 31, 2017.
“We delivered another solid performance this quarter resulting in full year achievements that confirms our confidence in our organizational capabilities to deliver financial results. In addition, we continued to execute on our strategic agenda, which is driving satisfaction in our clients and confidence in our employees. As we look ahead, we plan to accelerate investments in our R&D and commercial capacities this fiscal year to enhance our market position and capitalize on opportunities to drive near term bookings and longer term revenue growth,” commented Rusty Frantz, president and chief executive officer of Quality Systems, Inc.
Revenues for the fiscal 2017 fourth quarter of $132.4 million compared to $127.9 million a year-ago. On a GAAP basis, net income for the 2017 fourth quarter was $4.4 million, compared with net loss of $16.3 million in the 2016 fourth quarter. Non-GAAP net income for the 2017 fourth quarter was $12.7 million compared with non-GAAP net income of $11.5 million in the 2016 fourth quarter.
On a GAAP basis, fully diluted earnings per share was $0.07 in the fiscal 2017 fourth quarter compared with a loss per share of $0.27 for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2017 fourth quarter was $0.21 versus $0.19 reported in the fourth quarter a year ago.
For the fiscal year ended March 31, 2017, revenues reached $509.6 million, compared with $492.5 million for the 2016 fiscal year. The recurring revenue base, which includes software-related subscription services, support and maintenance, RCM, and EDI, reached $417.4 million and represented approximately 82 percent of total revenues for the fiscal year ended 2017. GAAP net income for fiscal 2017 was $18.2 million, versus $5.7 million reported in fiscal 2016. Non-GAAP net income for fiscal year 2017 was $50.8 million compared to non-GAAP net income for fiscal year 2016 of $44.1 million.
On a GAAP basis, fully diluted earnings per share for the 2017 fiscal year was $0.29, compared with $0.09 reported in the 2016 fiscal year. On a non-GAAP basis, fully diluted earnings per share for fiscal year 2017 was $0.82 versus $0.72 reported in the prior year.





Fiscal 2018 Financial Outlook
The company is providing initial outlook for fiscal 2018 and expects:
Revenue of between $512 million and $530 million
Non-GAAP EPS of between $0.66 and $0.74

Conference Call Information
Quality Systems will host a conference call to discuss its fiscal 2017 fourth quarter and year-end results on Friday, May 19, 2017 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 10080033 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 May 26, 2017 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 10080033.

2017 Annual Shareholders' Meeting
In addition, the Company will hold its 2017 Annual Shareholders' Meeting on Tuesday, August 22, 2017 at 9:00 AM local time. The meeting will be held at the Marriott Hotel, 18000 Von Karman Avenue, Irvine, California 92612. Holders of record as of June 23, 2017 are eligible to vote and attend. Proxy materials and the 2017 Annual Report will be made available to shareholders of record and will also be posted on the Company's website at www.qsii.com.

About Quality Systems, Inc.
Quality Systems, Inc., known to our clients as NextGen Healthcare, provides software, services and analytics solutions to the ambulatory care market. We are a healthcare information technology and services company that delivers the foundational capabilities to organizations that want to promote healthy communities. Our technology provides a customizable platform that empowers physician practice success, enriches the patient care experience and lowers the cost of 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 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 March 31,
 
Fiscal Year Ended March 31,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Software license and hardware
$
16,581

 
$
18,497

 
$
65,547

 
$
70,523

Software related subscription services
23,139

 
19,015

 
87,050

 
55,403

Total software, hardware and related
39,720

 
37,512

 
152,597

 
125,926

Support and maintenance
41,898

 
39,792

 
158,803

 
165,200

Revenue cycle management and related services
20,515

 
20,376

 
82,552

 
83,006

Electronic data interchange and data services
23,424

 
20,930

 
88,951

 
82,343

Professional services
6,828

 
9,302

 
26,721

 
36,002

Total revenues
132,385

 
127,912

 
509,624

 
492,477

Cost of revenue:
 
 
 
 
 
 
 
Software license and hardware
5,427

 
7,357

 
24,654

 
27,506

Software related subscription services
9,637

 
9,168

 
36,744

 
26,622

Total software, hardware and related
15,064

 
16,525

 
61,398

 
54,128

Support and maintenance
7,414

 
7,455

 
28,317

 
31,329

Revenue cycle management and related services
14,318

 
14,018

 
56,370

 
57,591

Electronic data interchange and data services
12,870

 
12,851

 
51,102

 
50,153

Professional services
6,304

 
8,406

 
25,947

 
32,414

Total cost of revenue
55,970

 
59,255

 
223,134

 
225,615

Gross profit
76,415

 
68,657

 
286,490

 
266,862

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
42,710

 
40,272

 
163,623

 
156,234

Research and development costs, net
22,111

 
16,077

 
78,341

 
65,661

Amortization of acquired intangible assets
2,546

 
2,675

 
10,435

 
5,367

Impairment of assets

 
32,238

 

 
32,238

Restructuring costs
2,393

 

 
7,078

 

Total operating expenses
69,760

 
91,262

 
259,477

 
259,500

Income from operations
6,655

 
(22,605
)
 
27,013

 
7,362

Interest income
5

 
27

 
14

 
428

Interest expense
(711
)
 
(1,295
)
 
(3,156
)
 
(1,304
)
Other expense, net
(116
)
 
(19
)
 
(262
)
 
(166
)
Income before provision for income taxes
5,833

 
(23,892
)
 
23,609

 
6,320

Provision for income taxes
1,418

 
(7,570
)
 
5,368

 
663

Net income (loss)
$
4,415

 
$
(16,322
)
 
$
18,241

 
$
5,657

Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.07

 
$
(0.27
)
 
$
0.30

 
$
0.09

Diluted
$
0.07

 
$
(0.27
)
 
$
0.29

 
$
0.09

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
62,345

 
60,899

 
61,818

 
60,635

Diluted
62,348

 
60,899

 
62,010

 
61,233

Dividends declared per common share
$

 
$

 
$

 
$
0.525





QUALITY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)

 
March 31,
 
March 31,
 
2017
 
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
37,673

 
$
27,176

Restricted cash and cash equivalents
4,916

 
5,320

Marketable securities

 
9,297

Accounts receivable, net
83,407

 
94,024

Inventory
158

 
555

Income taxes receivable
2,679

 
32,709

Prepaid expenses and other current assets
17,969

 
14,910

Total current assets
146,802

 
183,991

Equipment and improvements, net
27,426

 
25,790

Capitalized software costs, net
13,607

 
13,250

Deferred income taxes, net
11,265

 
8,198

Intangibles, net
69,213

 
91,675

Goodwill
185,898

 
188,837

Other assets
19,010

 
19,049

Total assets
$
473,221

 
$
530,790

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
4,618

 
$
11,126

Deferred revenue
52,383

 
57,935

Accrued compensation and related benefits
24,513

 
18,670

Income taxes payable
405

 
91

Other current liabilities
46,775

 
50,238

Total current liabilities
128,694

 
138,060

Deferred revenue, net of current
1,394

 
1,335

Deferred compensation
6,629

 
6,357

Line of credit
15,000

 
105,000

Other noncurrent liabilities
16,461

 
10,661

Total liabilities
168,178

 
261,413

Commitments and contingencies
 
 
 
Shareholders’ equity:
 
 
 
Common stock
 
 
 
$0.01 par value; authorized 100,000 shares; issued and outstanding 62,455 and 60,978 shares at March 31, 2017 and March 31, 2016, respectively
625

 
610

Additional paid-in capital
228,549

 
211,262

Accumulated other comprehensive loss
(358
)
 
(481
)
Retained earnings
76,227

 
57,986

Total shareholders' equity
305,043

 
269,377

Total liabilities and shareholders' equity
$
473,221

 
$
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 March 31,
 
Fiscal Year Ended March 31,
 
2017
 
2016
 
2017
 
2016
Income before provision for income taxes - GAAP
$
5,833

 
$
(23,892
)
 
$
23,609

 
$
6,320

Non-GAAP adjustments:
 
 
 
 
 
 
 
Acquisition and disposition costs, net
1,376

 
(95
)
 
6,523

 
5,648

Amortization of acquired intangible assets
5,508

 
5,612

 
22,461

 
11,014

Amortization of deferred debt issuance costs
269

 
258

 
1,076

 
258

Loss on disposition of Hospital Solutions division and related costs

 
311

 

 
2,064

Restructuring costs
2,393

 

 
7,078

 

Securities litigation defense costs, net of insurance
315

 
(1,866
)
 
1,798

 
(2,147
)
Share-based compensation
2,430

 
967

 
7,497

 
3,295

Impairment of assets

 
32,832

 

 
32,832

Other non-run-rate expenses*
144

 
2,477

 
3,009

 
4,199

Total adjustments to GAAP income before provision for income taxes:
12,435

 
40,496

 
49,442

 
57,163

Income before provision for income taxes - Non-GAAP
18,268

 
16,604

 
73,051

 
63,483

Provision for income taxes
5,572

 
5,064

 
22,281

 
19,362

Net income - Non-GAAP
$
12,696

 
$
11,540

 
$
50,770

 
$
44,121

Diluted net income per share - Non-GAAP
$
0.21

 
$
0.19

 
$
0.82

 
$
0.72

Weighted-average shares outstanding (diluted):
62,348

 
61,375

 
62,010

 
61,233



* For the three months ended March 31, 2017, other non-run-rate expenses consist primarily of professional services costs not related to core operations. For the three months ended March 31, 2016, other non-run-rate expenses consist of $1,145 professional services costs not related to core operations, $474 costs related to the transition of Company executive officers, and $858 employee-related costs, such as severance and retention.

For the fiscal year ended March 31, 2017, other non-run-rate expenses consist primarily of professional services costs not related to core operations and $191 of executive hiring costs. For the fiscal year ended March 31, 2016, other non-run-rate expenses consist of $1,417 professional services costs not related to core operations, $1,412 costs related to the transition of Company executive officers, and $1,370 employee-related costs, such as severance and retention.


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