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Quality Systems, Inc. Reports Fiscal 2017 Fourth Quarter and Year-End Results

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.

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.

     

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 other 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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