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Quality Systems, Inc.$15.49($.04)(.26%)

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 Quality Systems, Inc. Reports Fiscal 2017 Second Quarter Results
   Thursday, October 27, 2016 5:00:00 AM ET

Quality Systems, Inc. (QSII ) announced today results for its fiscal 2017 second quarter ended September 30, 2016.

"I’m very pleased with our performance during the second quarter. The strategic investments we’ve made and the measures we’ve taken to integrate and streamline the business are starting to pay off," commented Rusty Frantz, president and chief executive officer of Quality Systems, Inc. "Furthermore, our reinvigorated sales efforts coupled with our focus on customer relations have resulted in increased rates of customer satisfaction and favorably impacted our customer retention."

Mr. Frantz continued, "Our financial results in the first half of fiscal 2017, as well as the progress we made in the second quarter, lead us to feel confident about the remainder of the year and reaffirm the guidance we provided on our last call."

Revenues for the fiscal 2017 second quarter of $127.2 million compared to $125.4 million a year-ago. On a GAAP basis, net income for the 2017 second quarter was $4.0 million, compared with net income of $8.3 million in the 2016 second quarter. Non-GAAP net income for the 2017 second quarter was $14.4 million compared with non-GAAP net income of $13.0 million in the 2016 second quarter.

On a GAAP basis, fully diluted earnings per share was $0.06 in the fiscal 2017 second quarter compared with $0.14 earnings per share for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2017 second quarter was $0.23 versus $0.21 reported in the second quarter a year ago.

Fiscal 2017 Financial Outlook

The company is reaffirming outlook for the remainder of 2017 and expects:

-- Revenue of between $494 million and $510 million

-- Non-GAAP EPS of between $0.75 and $0.81

Conference Call Information

Quality Systems will host a conference call to discuss its fiscal 2017 second quarter results on Thursday, October 27, 2016 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 95129126 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 November 3, 2016 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 95129126.

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, 2016 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 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, 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 September 30,                                                                                         Six Months Ended September 30,
                                                                      ---------------------------------------------------------------------------------------------------                     ---------------------------------------------------------------------------------------------------
                                                                                        2016                                     2015                                                        2016                                     2015
                                                                      -----------------------------------------                     -------------------------------------                     -----------------------------------------                     -------------------------------------
Revenues:
   Software license and hardware                                         $         17,182                                                 $  19,687                                              $         31,971                                                 $  35,876
   Software related subscription services                                          21,490                                 12,437                                     41,365                                 24,683  
                                                                      ----------------------------------------                      ------------------------------------                      ----------------------------------------                      ------------------------------------
      Total software, hardware and related                                         38,672                                                    32,124                                                        73,336                                                    60,559
   Support and maintenance                                                         38,974                                                    42,176                                                        76,981                                                    85,889
   Revenue cycle management and related services                                   20,936                                                    20,793                                                        41,989                                                    41,036
   Electronic data interchange and data services                                   21,613                                                    20,581                                                        43,737                                                    40,770
   Professional services                                                            6,971                                  9,695                                     13,328                                 19,279  
                                                                      ----------------------------------------                      ------------------------------------                      ----------------------------------------                      ------------------------------------
                                                                                  127,166                                125,369                                    249,371                                247,533  
       Total revenues
                                                                      ------------------  --------------------                      --------------  --------------------                      ------------------  --------------------                      --------------  --------------------
Cost of revenue:
   Software license and hardware                                                    6,427                                                     6,578                                                        13,547                                                    13,619
   Software related subscription services                                           8,675                                  5,963                                     17,762                                 11,921  
                                                                      ----------------------------------------                      ------------------------------------                      ----------------------------------------                      ------------------------------------
      Total software, hardware and related                                         15,102                                                    12,541                                                        31,309                                                    25,540
   Support and maintenance                                                          7,036                                                     8,394                                                        13,604                                                    16,337
   Revenue cycle management and related services                                   14,359                                                    14,680                                                        28,590                                                    29,192
   Electronic data interchange and data services                                   12,807                                                    12,539                                                        25,570                                                    24,865
   Professional services                                                            6,693                                  8,444                                     13,739                                 16,641  
                                                                      ----------------------------------------                      ------------------------------------                      ----------------------------------------                      ------------------------------------
       Total cost of revenue                                                       55,997                                 56,598                                    112,812                                112,575  
                                                                      ----------------------------------------                      ------------------------------------                      ----------------------------------------                      ------------------------------------
        Gross profit                                                               71,169                                                    68,771                                                       136,559                                                   134,958
Operating expenses:
   Selling, general and administrative                                             42,790                                                    37,396                                                        83,371                                                    76,567
   Research and development costs, net                                             18,292                                                    17,981                                                        36,516                                                    35,066
   Amortization of acquired intangible assets                                       2,617                                                       898                                                         5,321                                                     1,795
   Restructuring costs                                                                701                         --                                      4,454                         --  
                                                                      ----------------------------------------                      ------------------------------------                      ----------------------------------------                      ------------------------------------
      Total operating expenses                                                     64,400                                 56,275                                    129,662                                113,428  
                                                                      ----------------------------------------                      ------------------------------------                      ----------------------------------------                      ------------------------------------
        Income from operations                                                      6,769                                                    12,496                                                         6,897                                                    21,530
Interest income                                                                         1                                                        44                                                             9                                                       346
Interest expense                                                                     (803 )                                                      (3 )                                                      (1,816 )                                                      (3 )
Other expense, net                                                                    (55 )                                                     (54 )                                                        (142 )                                                    (104 )
                                                                      ----------------------------------------                      ------------------------------------                      ----------------------------------------                      ------------------------------------
Income before provision for income taxes                                            5,912                                                    12,483                                                         4,948                                                    21,769
Provision for income taxes                                                          1,925                                  4,168                                      1,608                                  7,092  
                                                                      ----------------------------------------                      ------------------------------------                      ----------------------------------------                      ------------------------------------
      Net income                                                         $          3,987                              $   8,315                           $          3,340                              $  14,677  
                                                                      ==== ============== ====================                      ======= ======= ====================                      ==== ============== ====================                      ======= ======= ====================
Net income per share:
  Basic                                                                  $           0.06                                                 $    0.14                                              $           0.05                                                 $    0.24
  Diluted                                                                $           0.06                                                 $    0.14                                              $           0.05                                                 $    0.24
Weighted-average shares outstanding:
  Basic                                                                            61,658                                                    60,461                                                        61,420                                                    60,387
  Diluted                                                                          62,052                                                    61,194                                                        61,704                                                    61,129
Dividends declared per common share                                      $ --                                                 $   0.175                                              $ --                                                 $    0.35
                                                                                                             
                                                                                  QUALITY SYSTEMS, INC.
                                                                               CONSOLIDATED BALANCE SHEETS
                                                                          (In thousands, except per share data)
                                                                                       (Unaudited)
                                                                                                                                                     
                                                                                                   September 30, 2016                                          March 31, 2016
                                                                                          -------------------------------------                     ------------------------------------
ASSETS
Current assets:
   Cash and cash equivalents                                                                    $  26,246                                                $  27,176
   Restricted cash and cash equivalents                                                             4,458                                                    5,320
   Marketable securities                                                                   --                                                    9,297
   Accounts receivable, net                                                                        78,406                                                   94,024
   Inventory                                                                                          353                                                      555
   Income taxes receivable                                                                         15,276                                                   32,709
   Prepaid expenses and other current assets                                                       18,519                                14,910  
                                                                                          ------------------------------------                      -----------------------------------
      Total current assets                                                                        143,258                                                  183,991
Equipment and improvements, net                                                                    25,985                                                   25,790
Capitalized software costs, net                                                                    13,750                                                   13,250
Deferred income taxes, net                                                                          8,018                                                    8,198
Intangibles, net                                                                                   80,297                                                   91,675
Goodwill                                                                                          188,555                                                  188,837
Other assets                                                                                       19,025                                19,049  
                                                                                          ------------------------------------                      -----------------------------------
      Total assets                                                                              $ 478,888                             $ 530,790  
                                                                                          ======= ======= ====================                      ====== ======= ====================
                                                                                                                                                     
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
   Accounts payable                                                                             $   5,438                                                $  11,126
   Deferred revenue                                                                                52,295                                                   57,935
   Accrued compensation and related benefits                                                       15,192                                                   18,670
   Income taxes payable                                                                               185                                                       91
   Other current liabilities                                                                       50,734                                50,238  
                                                                                          ------------------------------------                      -----------------------------------
      Total current liabilities                                                                   123,844                                                  138,060
Deferred revenue, net of current                                                                    1,403                                                    1,335
Deferred compensation                                                                               6,794                                                    6,357
Line of credit                                                                                     48,000                                                  105,000
Other noncurrent liabilities                                                                       13,376                                10,661  
                                                                                          ------------------------------------                      -----------------------------------
      Total liabilities                                                                           193,417                                                  261,413
Commitments and contingencies
Shareholders’ equity:
  Common stock
  $0.01 par value; authorized 100,000 shares; issued and outstanding                                  621                                                      610
  62,094 and 60,978 shares at September 30, 2016 and March 31, 2016,
  respectively
  Additional paid-in capital                                                                      224,089                                                  211,262
  Accumulated other comprehensive loss                                                               (565 )                                                   (481 )
  Retained earnings                                                                                61,326                                57,986  
                                                                                          ------------------------------------                      -----------------------------------
      Total shareholders’ equity                                                                  285,471                               269,377  
                                                                                          ------------------------------------                      -----------------------------------
      Total liabilities and shareholders’ equity                                                $ 478,888                             $ 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 September 30,                                                                          Six Months Ended September 30,
                                                                                         -------------------------------------------------------------------------------------------                     -----------------------------------------------------------------------------
                                                                                                       2016                                 2015                                                     2016                          2015
                                                                                         ---------------------------------                     -------------------------------------                     ----------------------------------                     ----------------------
Income before provision for income taxes - GAAP                                             $  5,912                                                 $  12,483                                               $  4,948                                                    $     21,769
Non-GAAP adjustments:
  Acquisition and disposition costs, net                                                       3,748                                                       775                                                  6,484                                                           1,292
  Amortization of acquired intangible assets                                                   5,646                                                     1,802                                                 11,378                                                           3,602
  Amortization of deferred debt issuance costs                                                   269                                            --                                                    538                                                  --
  Restructuring costs                                                                            701                                            --                                                  4,454                                                  --
  Securities litigation defense costs, net of insurance                                          763                                                     2,256                                                  1,127                                                           2,794
  Share-based compensation                                                                     1,910                                                       901                                                  3,066                                                           1,585
  Other non-run-rate expenses*                                                                 1,725                                    449                               2,126                                        1,387
                                                                                         --------------------------------                      ------------------------------------                      ---------------------------------                      ----------------------
Total adjustments to GAAP income before provision for income taxes:                           14,762                                  6,183                              29,173                                       10,660
                                                                                         --------------------------------                      ------------------------------------                      ---------------------------------                      ----------------------
Income before provision for income taxes - Non-GAAP                                           20,674                                                    18,666                                                 34,121                                                          32,429
Provision for income taxes                                                                     6,306                                  5,693                              10,407                                        9,891
                                                                                         --------------------------------                      ------------------------------------                      ---------------------------------                      ----------------------
   Net income - Non-GAAP                                                                    $ 14,368                              $  12,973                            $ 23,714                                 $     22,538
                                                                                         ==== ====== ====================                      ======= ======= ====================                      ===== ====== ====================                      ========== ==========
Diluted net income per share - Non-GAAP                                                     $   0.23                                                 $    0.21                                               $   0.38                                                    $       0.37
Weighted-average shares outstanding (diluted):                                                62,052                                                    61,194                                                 61,704                                                          61,129
                                                                                                                                                                                                                                                                 

* For the three months ended September 30, 2016, other non-run-rate expenses consist of $1,419 of professional services costs not related to ongoing core operations and $191 of executive hiring costs. For the six months ended September 30, 2016, other non-run-rate expenses consist of $1,820 of professional services costs not related to ongoing core operations and $191 of executive hiring costs.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20161027005390r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20161027005390/en/

SOURCE: Quality Systems, Inc.

Quality Systems, Inc. 
Jamie Arnold, Chief Financial Officer 
949-255-2600 
JArnold@nextgen.com 
or 
Investor Contact: 
Westwicke Partners 
Bob East or Asher Dewhurst 
443-213-0500


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