Quality Systems, Inc. Reports Fiscal 2016 First Quarter Results

IRVINE, Calif.--(BUSINESS WIRE)-- Quality Systems, Inc. (NASDAQ:QSII) announced today results for its fiscal 2016 first quarter ended June 30, 2015.

Revenues for the fiscal 2016 first quarter reached $122.2 million, an increase of four percent, versus $117.9 million reported in the fiscal 2015 first quarter.

Net income for the 2016 first quarter was $6.4 million, increasing 23 percent when compared with $5.2 million for the same period a year ago.

On a GAAP basis, fully diluted earnings per share was $0.10 in the fiscal 2016 first quarter versus $0.08 in the comparable period last year. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2016 first quarter was $0.16 compared with $0.13 reported in the fiscal 2015 first quarter.

At quarter-end, the Company's liquidity position remained strong with $116.8 million of cash and investments.

"As we kick off fiscal 2016 and I begin to settle into my new role, my immediate priority is centered on Quality Systems' clients and our employees, as previously stated. To this end, during my first few weeks on the job, I have spent the majority of my time meeting with clients to ensure we are delivering a positive, productive and effective experience for them. I have also visited with many of our employees at QSI offices throughout the country. These initiatives have allowed me to quickly gain a keener understanding of the culture and communication - both internal and external - here at Quality Systems. I believe this is critical to the process involved in moving this Company forward in the dynamic healthcare environment in which we operate," explained Rusty Frantz, president and chief executive officer, who officially began his employment with the Company in this capacity on July 1, 2015.

"Having one of the largest installed user bases in the healthcare information technology space affords us the chance to make a significant impact on our clients' abilities to navigate changing healthcare models. I am gratified to learn that we are continuing to make progress in the Company's efforts to enhance the client experience and bring new capabilities and solutions that enable them to stay relevant and flourish, both today and into the future," Frantz said.

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 September 11, 2015 with an anticipated distribution date of October 5, 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 2016 first quarter results on Thursday, July 23, 2015 at 10:00 AM ET (7:00 AM PT). All participants should dial 1-866-900-9499 at least ten minutes prior to the start of the call and reference conference ID #80827836. 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 www.qsii.com, 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 #80827836. The replay will be available from approximately 1:00 PM ET on Thursday, July 23, 2015, through 11:59 PM ET on Thursday, July 30, 2015.

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

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 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 for the fiscal year ended March 31, 2015, 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.

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 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. Historically, the Company calculated a non-GAAP effective tax rate each quarter, based on non-GAAP pre-tax income (or loss) for the period, to determine the corresponding non-GAAP provision for (benefit of) income taxes. Beginning in the first quarter of fiscal year 2016, the Company began utilizing 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 expected to be applied to each quarter of fiscal year 2016 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.

QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
			Three Months Ended June 30,
			2015					2014
Revenues:
Software license and hardware			$	16,189				$	19,761
Software related subscription services				12,246					9,715
Total software, hardware and related				28,435					29,476
Support and maintenance				43,713					40,805
Revenue cycle management and related services				20,243					16,693
Electronic data interchange and data services				20,189					18,319
Professional services				9,584					12,601
Total revenues				122,164					117,894
Cost of revenue:
Software license and hardware				7,041					7,556
Software related subscription services				5,958					4,451
Total software, hardware and related				12,999					12,007
Support and maintenance				7,943					6,914
Revenue cycle management and related services				14,512					12,706
Electronic data interchange and data services				12,326					11,999
Professional services				8,197					12,564
Total cost of revenue				55,977					56,190
Gross profit				66,187					61,704
Operating expenses:
Selling, general and administrative				39,171					36,730
Research and development costs				17,085					16,236
Amortization of acquired intangible assets				897					983
Total operating expenses				57,153					53,949
Income from operations				9,034					7,755
Interest income, net				302					54
Other income (expense), net				(50	)				9
Income before provision for income taxes				9,286					7,818
Provision for income taxes				2,924					2,655
Net income			$	6,362				$	5,163
Net income per share:
Basic			$	0.11				$	0.09
Diluted			$	0.10				$	0.08
Weighted-average shares outstanding:
Basic				60,312					60,230
Diluted				61,064					60,770
Dividends declared per common share			$	0.175				$	0.175

QUALITY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
			June 30,					March 31,
			2015					2015
ASSETS
Current assets:
Cash and cash equivalents			$	104,859				$	118,993
Restricted cash and cash equivalents				3,765					2,419
Marketable securities				11,938					11,592
Accounts receivable, net				99,974					107,669
Inventories				647					622
Income taxes receivable				2,662					3,147
Deferred income taxes, net				24,078					24,080
Other current assets				11,357					11,535
Total current assets				259,280					280,057
Equipment and improvements, net				22,055					20,807
Capitalized software costs, net				41,593					40,397
Intangibles, net				25,889					27,689
Goodwill				73,571					73,571
Other assets				18,501					18,000
Total assets			$	440,889				$	460,521
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable			$	11,095				$	10,018
Deferred revenue				61,863					66,343
Accrued compensation and related benefits				15,645					24,051
Income taxes payable				2,686					10,048
Dividends payable				10,703					10,700
Other current liabilities				37,026					33,924
Total current liabilities				139,018					155,084
Deferred revenue, net of current				1,272					1,349
Deferred compensation				6,385					5,750
Other noncurrent liabilities				14,260					14,798
Total liabilities				160,935					176,981
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 60,317 and 60,303 shares at June 30, 2015 and March 31, 2015, respectively				603					603
Additional paid-in capital				199,481					198,650
Accumulated other comprehensive loss				(268	)				(192	)
Retained earnings				80,138					84,479
Total shareholders' equity				279,954					283,540
Total liabilities and shareholders' equity			$	440,889				$	460,521

QUALITY SYSTEMS, INC.
NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
RECONCILIATION OF NON-GAAP DILUTED EARNINGS PER SHARE
			Three Months Ended June 30,
			2015				2014
Income before provision for income taxes - GAAP			$	9,286			$	7,818
Plus items included in cost of revenue:
Amortization of acquired software technology				903				858
Share-based compensation				97				86
Total adjustments to cost of revenue				1,000				944
Plus items included in operating expenses:
Acquisition costs				517				1,123
Amortization of acquired intangible assets				897				983
Securities litigation defense costs				538				278
Share-based compensation				587				704
Other non-run-rate expenses*				938				-
Total adjustments to operating expenses				3,477				3,088
Total adjustments to GAAP income before provision for income taxes:				4,477				4,032
Income before provision for income taxes - Non-GAAP				13,763				11,850
Provision for income taxes				4,198				4,061
Net income - Non-GAAP			$	9,565			$	7,789
Diluted net income per share - Non-GAAP			$	0.16			$	0.13
Weighted-average shares outstanding (diluted):				61,064				60,770

* For the three months ended June 30, 2015, the $938 of other non-run-rate expenses consists of non-recurring incremental costs related to the change in the Company's Chief Executive Officer, including recruitment fees and severance payments.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150723005435/en/

Quality Systems, Inc.
John Stumpf, Interim Chief Financial Officer
Phone: (949) 255-2600
[email protected]
or
Susan J. Lewis
Phone: (954) 389-3700
[email protected]

Source: Quality Systems, Inc.

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