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 Quality Systems, Inc. Reports Fiscal 2017 Third Quarter Results
   Wednesday, January 25, 2017 4:15:03 PM ET

Quality Systems, Inc. (QSII ) announced today results for its fiscal 2017 third quarter ended December 31, 2016.

"We’ve seen a number of promising trends throughout the business this year, and I’m pleased with our fiscal third quarter results, as well as with the continued progress we’re making on our strategic initiatives. In addition to improving our customer attrition rates, we’ve also made great strides in customer satisfaction over the last several quarters. During the first 75 days since our new software release, we’ve seen significant interest and already have nearly 500 customers signed up to upgrade," commented Rusty Frantz, president and chief executive officer of Quality Systems, Inc.

Mr. Frantz continued, "Through our restructuring, we’ve also identified meaningful RCM and EDI cross-selling opportunities within our existing customer base and hope to capitalize on them through the efforts of our newly reinvigorated salesforce. That said, given the uncertainty surrounding the ACA and the lengthy RCM sales cycle, we believe it will take some time before new bookings translate into top line growth. At this point in the year, I remain confident in delivering on the commitments we made in July."

Revenues for the fiscal 2017 third quarter of $127.9 million compared to $117.0 million a year ago. On a GAAP basis, net income for the 2017 third quarter was $10.5 million, compared with net income of $7.3 million in the 2016 third quarter. Non-GAAP net income for the 2017 third quarter was $14.4 million compared with non-GAAP net income of $10.0 million in the 2016 third quarter.

On a GAAP basis, fully diluted earnings per share was $0.17 in the fiscal 2017 third quarter compared with $0.12 earnings per share for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2017 third quarter was $0.23 versus $0.16 reported in the third quarter a year ago.

Conference Call Information

Quality Systems will host a conference call to discuss its fiscal 2017 third quarter results on Wednesday, January 25, 2017 at 5:00 PM ET (2:00 PM 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 56791651 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 February 1, 2017 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 56791651.

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 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; 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, loss on disposition, 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 December 31,                                                                                                               Nine Months Ended December 31,
                                                                      -------------------------------------------------------------------------------------------------------------------------                     -------------------------------------------------------------------------------------------------------------------------
                                                                                             2016                                                                   2015                                                                   2016                                                                   2015
                                                                      --------------------------------------------------                     --------------------------------------------------                     --------------------------------------------------                     --------------------------------------------------
Revenues:
   Software license and hardware                                                         $  16,995                                                              $  16,150                                                              $  48,966                                                              $  52,026
   Software related subscription services                                22,546                           11,705                           63,911                           36,388  
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total software, hardware and related                                                 39,541                                                                 27,855                                                                112,877                                                                 88,414
   Support and maintenance                                                                  39,924                                                                 39,519                                                                116,905                                                                125,408
   Revenue cycle management and related services                                            20,048                                                                 21,594                                                                 62,037                                                                 62,630
   Electronic data interchange and data services                                            21,790                                                                 20,643                                                                 65,527                                                                 61,413
   Professional services                                                  6,565                            7,421                           19,893                           26,700  
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total revenues                                                   127,868                          117,032                          377,239                          364,565  
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
Cost of revenue:
   Software license and hardware                                                             5,680                                                                  6,530                                                                 19,227                                                                 20,149
   Software related subscription services                                 9,345                            5,533                           27,107                           17,454  
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total software, hardware and related                                                 15,025                                                                 12,063                                                                 46,334                                                                 37,603
   Support and maintenance                                                                   7,299                                                                  7,537                                                                 20,903                                                                 23,874
   Revenue cycle management and related services                                            13,462                                                                 14,381                                                                 42,052                                                                 43,573
   Electronic data interchange and data services                                            12,662                                                                 12,437                                                                 38,232                                                                 37,302
   Professional services                                                  5,904                            7,367                           19,643                           24,008  
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total cost of revenue                                             54,352                           53,785                          167,164                          166,360  
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
         Gross profit                                                                       73,516                                                                 63,247                                                                210,075                                                                198,205
Operating expenses:
   Selling, general and administrative                                                      37,542                                                                 39,395                                                                120,913                                                                115,962
   Research and development costs, net                                                      19,714                                                                 14,518                                                                 56,230                                                                 49,584
   Amortization of acquired intangible assets                                                2,568                                                                    897                                                                  7,889                                                                  2,692
   Restructuring costs                                                      231                                -                            4,685                                -  
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total operating expenses                                          60,055                           54,810                          189,717                          168,238  
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
         Income from operations                                                             13,461                                                                  8,437                                                                 20,358                                                                 29,967
Interest income                                                                                  -                                                                     60                                                                      9                                                                    406
Interest expense                                                           (629 )                                               (11 )                                            (2,445 )                                               (14 )
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
Other expense, net                                                           (4 )                                               (43 )                                              (146 )                                              (147 )
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
Income before provision for income taxes                                                    12,828                                                                  8,443                                                                 17,776                                                                 30,212
Provision for income taxes                                                2,342                            1,141                            3,950                            8,233  
                                                                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
       Net income                                                                        $  10,486                                           $   7,302                                           $  13,826                                           $  21,979  
                                                                      ==================== ======= ====================                      ==================== ======= ====================                      ==================== ======= ====================                      ==================== ======= ====================
Net income per share:
   Basic                                                                                 $    0.17                                                              $    0.12                                                              $    0.22                                                              $    0.36
   Diluted                                                                               $    0.17                                                              $    0.12                                                              $    0.22                                                              $    0.36
Weighted-average shares outstanding:
   Basic                                                                                    62,093                                                                 60,867                                                                 61,645                                                                 60,548
   Diluted                                                                                  62,093                                                                 61,279                                                                 61,900                                                                 61,190
Dividends declared per common share                                                      $       -                                                              $   0.175                                                              $       -                                                              $   0.525
                                                                                                                                                                                                                                                                                            
 
                                                                                               QUALITY SYSTEMS, INC.
                                                                                            CONSOLIDATED BALANCE SHEETS
                                                                                       (In thousands, except per share data)
                                                                                                    (Unaudited)
                                                                                                                          
                                                                                                                                                                  
                                                                                                           December 31, 2016                                                       March 31, 2016
                                                                                          --------------------------------------------------                     --------------------------------------------------
ASSETS
Current assets:
   Cash and cash equivalents                                                                                 $  23,994                                                              $  27,176
   Restricted cash and cash equivalents                                                                          4,647                                                                  5,320
   Marketable securities                                                                                             -                                                                  9,297
   Accounts receivable, net                                                                                     75,516                                                                 94,024
   Inventory                                                                                                       252                                                                    555
   Income taxes receivable                                                                                      14,481                                                                 32,709
   Prepaid expenses and other current assets                                                 15,944                           14,910  
                                                                                          -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total current assets                                                                                    134,834                                                                183,991
Equipment and improvements, net                                                                                 26,097                                                                 25,790
Capitalized software costs, net                                                                                 12,995                                                                 13,250
Deferred income taxes, net                                                                                       9,780                                                                  8,198
Intangibles, net                                                                                                74,722                                                                 91,675
Goodwill                                                                                                       185,888                                                                188,837
Other assets                                                                                 18,703                           19,049  
                                                                                          -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total assets                                                                                          $ 463,019                                           $ 530,790  
                                                                                          ==================== ======= ====================                      ==================== ======= ====================
                                                                                                                                                                  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
   Accounts payable                                                                                              5,223                                                                 11,126
   Deferred revenue                                                                                             49,763                                                                 57,935
   Accrued compensation and related benefits                                                                    18,620                                                                 18,670
   Income taxes payable                                                                                              8                                                                     91
   Other current liabilities                                                                 44,338                           50,238  
                                                                                          -------------------- ------- --------------------                      -------------------- ------- --------------------
                                                                                                               117,952                                                                138,060
       Total current liabilities
Deferred revenue, net of current                                                                                 1,312                                                                  1,335
Deferred compensation                                                                                            6,738                                                                  6,357
Line of credit                                                                                                  25,000                                                                105,000
Other noncurrent liabilities                                                                 14,267                           10,661  
                                                                                          -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total liabilities                                                                                       165,269                                                                261,413
Commitments and contingencies
Shareholders’ equity:
  Common stock
  $0.01 par value; authorized 100,000 shares; issued and outstanding                                               624                                                                    610
  62,437 and 60,978 shares at December 31, 2016 and March 31, 2016,
  respectively
  Additional paid-in capital                                                                                   225,967                                                                211,262
  Accumulated other comprehensive loss                                                                            (653 )                                                                 (481 )
  Retained earnings                                                                          71,812                           57,986  
                                                                                          -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total shareholders’ equity                                                           297,750                          269,377  
                                                                                          -------------------- ------- --------------------                      -------------------- ------- --------------------
       Total liabilities and shareholders’ equity                                                            $ 463,019                                           $ 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 December 31,                                                                                                    Nine Months Ended December 31,
                                                                                            -------------------------------------------------------------------------------------------------------------------------                     --------------------------------------------------------------------------------------------------
                                                                                                                   2016                                                                   2015                                                        2016                                                       2015
                                                                                            ---------------------------------------------------                     -------------------------------------------------                     ----------------------------                     -------------------------------------------------
Income before provision for income taxes - GAAP                                                                $   12,828                                                              $  8,443                                                              $ 17,776                                         $ 30,212
Non-GAAP adjustments:
  Acquisition and disposition costs, net                                                                           (1,337 )                                                               4,451                                                                 5,147                                            5,743
  Amortization of acquired intangible assets                                                                        5,575                                                                 1,800                                                                16,953                                            5,402
  Amortization of deferred debt issuance costs                                                                        269                                                                     -                                                                   807                                                -
  Loss on disposition of Hospital Solutions Division and related costs                                                  -                                                                 1,753                                                                     -                                            1,753
  Restructuring costs                                                                                                 231                                                                     -                                                                 4,685                                                -
  Securities litigation defense costs, net of insurance                                                               356                                                                (3,075 )                                                               1,483                                             (281 )
  Share-based compensation                                                                                          2,001                                                                   743                                                                 5,067                                            2,328
  Other non-run-rate expenses*                                                                     739                             335                           2,865                         1,722  
                                                                                            -------------------- -------- --------------------                      -------------------- ------ --------------------                      -------------------- ------                      -------------------- ------ --------------------
Total adjustments to GAAP income before provision for income taxes:                              7,834                           6,007                          37,007                        16,667  
                                                                                            -------------------- -------- --------------------                      -------------------- ------ --------------------                      -------------------- ------                      -------------------- ------ --------------------
Income before provision for income taxes - Non-GAAP                                                                20,662                                                                14,450                                                                54,783                                           46,879
Provision for income taxes                                                                       6,302                           4,407                          16,709                        14,298  
                                                                                            -------------------- -------- --------------------                      -------------------- ------ --------------------                      -------------------- ------                      -------------------- ------ --------------------
    Net income - Non-GAAP                                                                                      $   14,360                                           $ 10,043                                           $ 38,074                                         $ 32,581  
                                                                                            ==================== ======== ====================                      ==================== ====== ====================                      ==================== ======                      ==================== ====== ====================
Diluted net income per share - Non-GAAP                                                                        $     0.23                                                              $   0.16                                                              $   0.62                                         $   0.53
Weighted-average shares outstanding (diluted):                                                                     62,093                                                                61,279                                                                61,900                                           61,190
                                                                                                                                                                                                                                                                                            
 
* For the three months ended December 31, 2016, other non-run-rate
expenses consist primarily of professional services costs not
related to core operations. Other non-run-rate expenses for the nine
months ended December 31, 2016 consists primarily of professional
services costs not related to core operations and $191 of executive
hiring costs.
 
For the three months ended December 31, 2015, 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 includes $449 in certain professional services
costs not related to core operations, non-recurring severance and
other employee-related costs incurred in connection with the
Hospital disposition, and $938 of incremental costs related to the
change in the Company’s Chief Executive Officer, including
recruitment fees and severance payments.
 

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170125006155r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20170125006155/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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