Quality Systems, Inc. Reports Fiscal 2016 Third Quarter Results

IRVINE, Calif.--(BUSINESS WIRE)--Quality Systems, Inc. (NASDAQ:QSII) announced today results for its fiscal 2016 third quarter and nine months ended December 31, 2015.

Revenues for the three months ended December 31, 2015, on a pro forma basis to exclude the Hospital Solutions Division which the Company sold on October 22, 2015, were $116.4 million, versus $118.4 million for the three months ended December 31, 2014, on the same basis, reflecting a reduction in system sales and related maintenance, offset by increases in revenue cycle management services and electronic data interchange services. Reported revenues, including the Hospital Solutions Division, for the three months ended December 31, 2015 were $117.0 million, compared with $123.4 million reported for the three months ended December 31, 2014, largely reflecting a decline of $4.4 million in revenues associated with the disposition of the Hospital Solutions Division.

Recurring revenues in the third quarter of fiscal 2016 increased to approximately 80 percent of total revenues.

On a non-GAAP basis, fully diluted earnings per share was $0.16 for both the three months ended December 31, 2015 and 2014. On a GAAP basis, fully diluted earnings per share was $0.12 for the three months ended December 31, 2015 versus $0.11 for the comparable period a year ago.

Revenues for the nine months ended December 31, 2015, on a pro forma basis to exclude the Hospital Solutions Division, were $357.1 million, up two percent when compared with revenues of $348.5 million for the nine months ended December 31, 2014, on the same basis. Reported revenues, including the Hospital Solutions Division, for the nine months ended December 31, 2015 were $364.6 million, compared with $361.8 million reported for the nine months ended December 31, 2014.

On a non-GAAP basis, fully diluted earnings per share for the nine months ended December 31, 2015 was $0.53 versus $0.41 in the comparable period a year ago. On a GAAP basis, fully diluted earnings per share was $0.36 for the nine months ended December 31, 2015 versus $0.27 for the comparable period a year ago.

Gross margin for the three months ended December 31, 2015 was 54 percent, compared with 56 percent for the three months ended December 31, 2014.

Operating expenses, consisting of selling, general and administrative and research and development costs, declined 10 percent for the three months ended December 31, 2015, compared with the same period a year ago. This decline reflects a year-over-year decrease in both corporate selling, general and administrative and research and development costs.

Rusty Frantz, president and chief executive officer, commenting on the results, stated: “I am pleased with our progress as we continue to transform our business while being a good steward of the cost line to enhance EPS levels.”

At quarter-end, the Company’s liquidity position remained strong with $104.8 million of cash and investments.

Subsequent to the closing of the fiscal 2016 third quarter, the Company completed its previously announced acquisition of HealthFusion Holdings, Inc. on January 4^th, 2016 and entered into a $250 million revolving credit facility.

In addition, as previously announced, the Company had been seeking to fill the role of chief technology officer. To this end, David A. Metcalfe was named to the post, effective February 1, 2016. Prior to joining QSI, Metcalfe, 52, served as vice president of R&D at Becton, Dickinson & Company (BD), a leading worldwide medical technology company, from March 2015 to January 2016. Previously, Metcalfe was vice president of product development at CareFusion Corp., a global medical technology company servicing the critical care market from September 2012 to March 2015, at which time CareFusion was acquired by BD. From 2008 to 2012, Metcalfe was vice president of development for Allscripts Healthcare Solutions, a provider of healthcare information technology (HCIT) solutions.

“We are pleased to fill the CTO role with David Metcalfe, a seasoned technology and software expert. David brings significant, relevant experience to our Company, having worked at several healthcare technology companies and also within the HCIT space,” Frantz noted.

“As Quality Systems works to improve the quality of our client experience, our current growth strategy is centered on our transition to the cloud and the role our recent acquisition of HealthFusion plays, along with a strong focus on our core ambulatory business and pursuit of opportunities within the population health arena as the market shifts to the delivery of value-based care. Furthermore, we are restructuring the sales organization and re-engineering sales processes to enable cross-selling amongst our large installed ambulatory base. We also are more effectively using capital to strengthen and grow our business to meet the changing needs of the HCIT marketplace. The foundation we have laid during the past few months well positions the Company for the direction in which the future of healthcare is headed,” Frantz concluded.

Quality Systems will host a conference call to discuss its fiscal 2016 third quarter results on Thursday, January 28, 2016 at 5:00 PM ET (2:00 PM PT). All participants should dial 1-866-900-9499 at least 10 minutes prior to the start of the call and reference conference ID #29627511. 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 #29627511. The replay will be available from approximately 8:00 PM ET on Thursday, January 28, 2016, through 11:59 PM ET on Thursday, February 4, 2016.

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. (QSI) and its subsidiary, NextGen Healthcare Information Systems, develop and provide a range of software and services for medical and dental group practices, including practice management and electronic health record applications, patient portal, interoperability and connectivity products, and population health management and analytics offerings. Services include managed cloud services, revenue cycle management, claims clearinghouse, data interchange and value-add consulting. The Company’s solution portfolio is readily integrated and collectively positioned to drive low total cost of ownership for its client partners, as well as enable the transition to value-based 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 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 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. 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, losses related to the disposition of a business segment, 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.

* The loss on disposition of Hospital Solutions Division includes $387 in direct incremental costs related to the disposition.

** For the three months ended December 31, 2015, the $335 of other non-run-rate expenses consists of non-recurring severance and other employee-related costs incurred in connection with the Hospital disposition. Other non-run-rate expenses for the nine months ended December 31, 2015 also includes $449 in certain non-recurring professional services costs not related to ongoing core operations and non-recurring severance costs plus $938 of non-recurring incremental costs related to the change in the Company's Chief Executive Officer, including recruitment fees and severance payments.