Quality Systems, Inc. Reports Fiscal 2014 First Quarter Results

Quality Systems, Inc. Reports Fiscal 2014 First Quarter Results

Lead Generation Increases 172 Percent Year-over-Year;
Pipeline Jumps Six Percent to $150.1 Million Quarter-over-Quarter


IRVINE, Calif.--(BUSINESS WIRE)-- Quality Systems, Inc. (NAS: QSII) announced today results for its fiscal 2014 first quarter ended June 30, 2013.

The Company reported revenues of $109.5 million for the first quarter ended June 30, 2013, a decrease of seven percent when compared with $118.3 million for the 2013 first quarter. Net income for the fiscal 2014 first quarter was $12.9 million, a decrease of 16 percent versus net income of $15.5 million for the first quarter of fiscal 2013. Fully diluted earnings per share for the fiscal 2014 first quarter was $0.22, a decline of 15 percent from $0.26 reported in the first quarter of the last fiscal year.

During the quarter, the Company saw considerable advancement in lead generation, which grew 172 percent year-over-year. Additionally, Quality Systems is seeing significant growth in its sales pipeline for the first time in several quarters, which jumped to $150.1 million, a six percent improvement versus the prior quarter. These two key metrics, along with a reduction in total operating expenses, are signs that the restructuring efforts the Company implemented in late fiscal 2013 -- which included consolidation of its sales and marketing efforts, cross selling of services and solutions as well as the centralization of shared services -- are beginning to show positive momentum. Revenue from the Company's Revenue Cycle Management (RCM) and Electronic Data Interface (EDI) services grew 11 percent and 21 percent, respectively, in the fiscal 2014 first quarter compared with the same period last year, as clients continue to recognize the benefits of such services amid changing healthcare models and healthcare reform.

"Our management team is greatly encouraged that our restructuring plan is beginning to bear fruit. The bottom line is that our leads are up, our pipeline is up and our operating expenses are down," explained Steven T. Plochocki, Quality Systems' President and Chief Executive Officer.

"As the healthcare information technology sector continues to rapidly evolve and new models arise, we play a key role in helping our clients adapt. Quality Systems is now the only company to have achieved Stage 2 Meaningful Use (MU) certification for physicians, dentists and hospitals. In fact, the Company ranks among the top four for MU attestations for physicians, and is one of only four organizations in the top 12 for attestations for both the inpatient and ambulatory markets. Moreover, according to CMS, in the first quarter of this calendar year, NextGen Healthcare ranked number one in terms of improvement for new physicians reaching attestation, and also ranked number one in client retention rate, at 87 percent. We are leading the way in the marketplace by assisting our clients in reaching important industry milestones necessary to their success. Our efforts in this area continue to be a priority for our entire organization," 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 September 13, 2013 with an anticipated distribution date of October 4, 2013. The $0.175 per share cash dividend is pursuant to the Company's current policy to pay a regular quarterly dividend on the Company's outstanding shares of Common Stock, subject to further 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 2014 first quarter results on Thursday, July 25, 2013 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 # 21310368. 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 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 # 21310368. The replay will be available from approximately 1:00 PM ET on Thursday, July 25, 2013, through 11:59 PM ET on Thursday, August 1, 2013.

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, 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 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, 2013, 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 measures, such as Days Sales Outstanding ("DSO"), provide useful supplemental information to investors and management regarding the Company's financial condition and results.The Company calculates DSO as follows: net revenue for the quarter is annualized (multiplied by four) and then divided by 365 days to yield an average daily sales amount. The balance of accounts receivable, net of any reserves for bad debts, is then divided by that average daily sales amount resulting in the DSO.

QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

Three Months Ended June 30,

2013

2012

Revenues:

Software and hardware

$

15,972

$

25,844

Implementation and training services

6,575

12,046

System sales

22,547

37,890

Maintenance

38,608

38,568

Electronic data interchange services

16,692

13,823

Revenue cycle management and related services

16,015

14,401

Other services

15,667

13,614

Maintenance, EDI, RCM and other services

86,982

80,406

Total revenues

109,529

118,296

Cost of revenue:

Software and hardware

4,934

5,771

Implementation and training services

7,134

9,145

Total cost of system sales

12,068

14,916

Maintenance

5,302

4,811

Electronic data interchange services

10,796

9,248

Revenue cycle management and related services

11,401

10,870

Other services

8,505

8,550

Total cost of maintenance, EDI, RCM and other services

36,004

33,479

Total cost of revenue

48,072

48,395

Gross profit

61,457

69,901

Operating expenses:

Selling, general and administrative

35,096

36,681

Research and development costs

5,614

8,576

Amortization of acquired intangible assets

1,194

1,137

Total operating expenses

41,904

46,394

Income from operations

19,553

23,507

Interest income, net

31

35

Other expense, net

(254

)

(213

)

Income before provision for income taxes

19,330

23,329

Provision for income taxes

6,385

7,832

Net income

$

12,945

$

15,497

Net income per share:

Basic

$

0.22

$

0.26

Diluted

$

0.22

$

0.26

Weighted average shares outstanding:

Basic

59,559

59,281

Diluted

59,572

59,388

Dividends declared per common share

$

0.175

$

0.175

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

June 30

March 31,

2013

2013

ASSETS

Current assets:

Cash and cash equivalents

$

118,212

$

105,999

Restricted cash

3,647

5,488

Marketable securities

11,814

12,012

Accounts receivable, net

138,949

148,257

Inventories

983

710

Deferred income tax assets, net

12,140

12,140

Other current assets

10,561

12,720

Total current assets

296,306

297,326

Equipment and improvements, net

21,825

21,887

Capitalized software costs, net

44,402

39,781

Intangibles, net

25,684

27,550

Goodwill

45,761

45,761

Other assets

10,843

10,750

Total assets

$

444,821

$

443,055

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

7,440

$

11,501

Deferred revenue

62,725

65,207

Accrued compensation and related benefits

12,073

11,915

Income taxes payable

5,550

1,480

Dividends payable

10,426

10,418

Other current liabilities

26,477

26,508

Total current liabilities

124,691

127,029

Deferred revenue, net of current

1,285

1,219

Deferred compensation

3,950

3,809

Other noncurrent liabilities

4,791

3,949

Total liabilities

134,717

136,006

Commitments and contingencies

Shareholders' equity:

Common stock

$0.01 par value; authorized 100,000 shares; issued and
outstanding 59,588 and 59,543 shares at June 30, 2013
and March 31, 2013, respectively

596

595

Additional paid-in capital

180,450

179,743

Accumulated other comprehensive loss

(184

)

(11

)

Retained earnings

129,242

126,722

Total shareholders' equity

310,104

307,049

Total liabilities and shareholders' equity

$

444,821

$

443,055

QUALITY SYSTEMS, INC.
NON-GAAP FINANCIAL MEASURES

DAYS SALES OUTSTANDING CALCULATION

(IN THOUSANDS, EXCEPT NUMBER OF DAYS)

June 30, 2013

Quarterly Revenue

$

109,529

Times four (4)

x

4

Equals Annualized Revenue

438,116

Divided by 365 days

÷

365

Equals Average Daily Revenue

=

$

1,200

Net Accounts Receivable

$

138,949

Divided by Average Daily Revenue

÷

1,200

Equals Days Sales Outstanding

=

116



Quality Systems, Inc.
Susan J. Lewis,303-804-0494
slewis@qsii.com
or
Paul Holt, CFO, 949-255-2600
pholt@qsii.com

KEYWORDS: United States North America California

INDUSTRY KEYWORDS:

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