Quality Systems, Inc. Reports Fiscal 2015 Third Quarter Results

Company Sees Improvement across Several Key Areas including Revenue, Earnings and Pipeline

IRVINE, Calif.--(BUSINESS WIRE)-- Quality Systems, Inc. (NASDAQ:QSII) announced today results for its fiscal 2015 third quarter ended December 31, 2014.

Revenues for the fiscal 2015 third quarter reached $123.4 million, an increase of 13 percent when compared with $108.9 million reported for the fiscal 2014 third quarter. Net income for the 2015 third quarter was $6.7 million versus a net loss of $12.6 million in the 2014 third quarter, when the Company recorded an impairment charge in its Hospital Solutions division.

On a GAAP basis, fully diluted earnings per share was $0.11 in the fiscal 2015 third quarter compared with fully diluted loss per share of $0.21 for the comparable period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2015 third quarter was $0.16, an increase of 45 percent from $0.11 reported in the fiscal 2014 third quarter.

During the quarter, the Company's pipeline grew to $162.3 million, demonstrating yet another quarter of improvement. At quarter-end, the Company's liquidity position was strong, with $124.8 million of cash and investments.

"We are pleased that this quarter's financial performance clearly demonstrates the progress the Company is making across all fronts of our business. The momentum we have been building over the past several quarters resulted in increases in both revenue and earnings, primarily driven by tailwinds from our Revenue Cycle Management Services division and broader adoption of our Mirth-based interoperability products. This, coupled with wider acceptance of our population health and EDI solutions, all contributed to the improvements we saw this quarter," noted Steven T. Plochocki, president and chief executive officer.

"We believe our recent growth is the cumulative effect of our comprehensive product portfolio, which now spans 32 products. This full spectrum offering is generating a more diversified revenue stream, reaping stronger, steady growth. We expect this pattern to continue as we help our clients navigate the ever-changing healthcare landscape, and prepare them to adapt to what lies beyond the horizon. We are continuously helping guide them through the movement towards value-based healthcare by creating, strengthening and introducing an extensive product and services offering that arms providers with all the tools they need to deliver exceptional, patient-centric, cost-effective care," Plochocki concluded.

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 March 13, 2015 with an anticipated distribution date of April 3, 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 2015 third quarter results on Thursday, January 22, 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 #66989201. 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 #66989201. The replay will be available from approximately 1:00 PM ET on Thursday, January 22, 2015, through 11:59 PM ET on Thursday, January 29, 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, 2014, 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. The non-GAAP provision for income taxes is calculated by excluding the income tax effect of the non-GAAP adjustments.

QUALITY SYSTEMS, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
				Three Months Ended December 31,												Nine Months Ended December 31,
				2014						2013						2014						2013
Revenues:
Software and hardware				$	16,339					$	14,114					$	45,312					$	45,648
Implementation and training services					3,658						5,046						16,964						19,430
System sales					19,997						19,160						62,276						65,078
Maintenance					43,045						39,763						125,985						118,684
Electronic data interchange services					19,051						16,637						56,276						49,874
Revenue cycle management and related services					20,392						16,178						54,517						47,660
Other services					20,939						17,116						62,783						48,168
Maintenance, EDI, RCM and other services					103,427						89,694						299,561						264,386
Total revenues					123,424						108,854						361,837						329,464
Cost of revenue:
Software and hardware					6,127						27,398						19,289						37,111
Implementation and training services					4,584						7,466						18,423						21,572
Total cost of system sales					10,711						34,864						37,712						58,683
Maintenance					7,365						5,642						21,064						16,206
Electronic data interchange services					11,956						10,276						35,970						31,722
Revenue cycle management and related services					14,246						11,736						40,154						34,144
Other services					10,082						8,537						32,423						26,054
Total cost of maintenance, EDI, RCM and other services					43,649						36,191						129,611						108,126
Total cost of revenue					54,360						71,055						167,323						166,809
Gross profit					69,064						37,799						194,514						162,655
Operating expenses:
Selling, general and administrative					41,482						36,864						116,893						110,538
Research and development costs					18,468						13,175						51,602						26,404
Amortization of acquired intangible assets					904						1,219						2,795						3,673
Impairment of goodwill and other assets					-						5,873						-						5,873
Total operating expenses					60,854						57,131						171,290						146,488
Income (loss) from operations					8,210						(19,332	)					23,224						16,167
Interest income (expense), net					(82	)					121						41						(53	)
Other income (expense), net					-						18						(17	)					(391	)
Income (loss) before income taxes					8,128						(19,193	)					23,248						15,723
Provision for (benefit of) income taxes					1,452						(6,606	)					6,659						5,244
Net income (loss)				$	6,676					$	(12,587	)				$	16,589					$	10,479
Net income (loss) per share:
Basic				$	0.11					$	(0.21	)				$	0.28					$	0.18
Diluted				$	0.11					$	(0.21	)				$	0.27					$	0.17
Weighted-average shares outstanding:
Basic					60,272						60,173						60,250						59,823
Diluted					60,855						60,173						60,813						59,984
Dividends declared per common share				$	0.175					$	0.175					$	0.525					$	0.525

QUALITY SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
				December 31,											March 31,
				2014											2014
ASSETS
Current assets:
Cash and cash equivalents				$	113,640										$	103,145
Restricted cash and cash equivalents					2,330											4,351
Marketable securities					11,182											10,656
Accounts receivable, net					105,879											110,181
Inventories					665											834
Income taxes receivable					3,391											8,366
Deferred income taxes, net					11,751											11,690
Other current assets					12,160											11,135
Total current assets					260,998											260,358
Equipment and improvements, net					21,636											22,801
Capitalized software costs, net					38,497											39,152
Intangibles, net					27,645											33,016
Goodwill					72,804											72,804
Other assets					17,671											16,927
Total assets				$	439,251										$	445,058
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable				$	6,962										$	7,888
Deferred revenue					67,756											71,077
Accrued compensation and related benefits					19,588											15,953
Dividends payable					10,697											10,686
Other current liabilities					33,906											18,282
Total current liabilities					138,909											123,886
Deferred revenue, net of current					1,611											2,187
Deferred compensation					5,477											4,809
Other noncurrent liabilities					10,753											19,086
Total liabilities					156,750											149,968
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 60,285 and 60,206 shares at December 31, 2014 and March 31, 2014, respectively					603											602
Additional paid-in capital					197,727											194,739
Accumulated other comprehensive loss					(265	)										(182	)
Retained earnings					84,436											99,931
Total shareholders' equity					282,501											295,090
Total liabilities and shareholders' equity				$	439,251										$	445,058

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,
				2014					2013						2014					2013
Income before provision for income taxes - GAAP				$	8,128				$	(19,193	)				$	23,248				$	15,723
Plus items included in cost of revenue:
Amortization of acquired software technology					858					1,060						2,575					2,668
Impairment of other assets*					-					20,098						-					20,098
Share-based compensation					104					90						282					253
Total adjustments to cost of revenue					962					21,248						2,857					23,019
Plus items included in operating expenses:
Acquisition costs					738					108						2,482					602
Amortization of acquired intangible assets					904					1,219						2,795					3,673
Impairment of goodwill and other assets					-					5,873						-					5,873
Securities litigation defense costs					1,173					-						2,460					1,721
Share-based compensation					865					617						2,344					1,579
Other non-run-rate expenses					-											315					-
Total adjustments to operating expenses					3,680					7,817						10,396					13,448
Total adjustments to GAAP income before provision for income taxes:					4,642					29,065						13,253					36,467
Income before provision for income taxes - Non-GAAP					12,770					9,872						36,501					52,190
Provision for income taxes					3,074					3,141						11,294					17,518
Net income - Non-GAAP				$	9,696				$	6,731					$	25,207				$	34,672
Diluted net income per share - Non-GAAP				$	0.16				$	0.11					$	0.41				$	0.58
Weighted-average shares outstanding (diluted):					60,855					60,546						60,813					59,984

* Relates to the impairment of acquired software technology and capitalized software costs in the Hospital Solutions Division

Quality Systems, Inc.
Susan J. Lewis
(954) 389-3700
[email protected]
or
Paul Holt, EVP/CFO
(949) 255-2600
[email protected]

Source: Quality Systems, Inc.

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