Quality Systems, Inc. Reports Fiscal 2018 Third Quarter Results

IRVINE, Calif.--(BUSINESS WIRE)-- Quality Systems, Inc. (NASDAQ: QSII), known to its clients as NextGen Healthcare, announced today results for its fiscal 2018 third quarter ended December 31, 2017.

"Our fiscal third quarter marked one of solid financial results and continued demonstration of execution on our strategic plan. I believe the structural changes we've put in place, including the new additions to our sales team, allow for greater predictability in our business and I'm pleased to report a sequential increase in bookings and great receptivity to Eagle Dream during the quarter. The positive indications we're seeing in cross-selling are still early, but I believe the new solutions we've added have greatly helped to develop our well-rounded platform. This continued progress makes us confident in our outlook for the longer-term as we continue to deliver value for our clients and position ourselves to deliver future growth," commented Rusty Frantz, President and Chief Executive Officer of Quality Systems, Inc.

Revenues for the fiscal 2018 third quarter of $131.7 million compared to $127.9 million a year-ago. On a GAAP basis, net income for the 2018 third quarter was $1.5 million, compared with $10.5 million in the 2017 third quarter. Non-GAAP net income for the 2018 third quarter was $9.4 million compared with non-GAAP net income of $14.4 million in the 2017 third quarter.

On a GAAP basis, fully diluted earnings per share was $0.02 in the fiscal 2018 third quarter compared with $0.17 per share for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2018 third quarter was $0.15 versus $0.23 reported in the third quarter a year ago.

Fiscal 2018 Financial Outlook

For the fiscal year 2018, the Company is reiterating its revenue outlook of a range of $522 million to $530 million. The Company is also reiterating its non-GAAP EPS from a range of $0.64 and $0.68.

Conference Call Information

Quality Systems will host a conference call to discuss its fiscal 2018 third quarter results on Thursday, January 25, 2018 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 866-750-8947 or 720-405-1352 for international callers, and referencing participant code 9176097 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 8, 2018 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 9176097.

About Quality Systems, Inc.

Quality Systems, Inc., known to its clients as NextGen Healthcare, provides a range of software, services, and analytics solutions to medical and dental group practices. The company's portfolio delivers foundational capabilities to empower physician success, enrich the patient care experience, and 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 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; uncertainties related to the future impact of U.S. tax reform; the impact of governmental and regulatory agency investigations; 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 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 2017 and each quarter of fiscal 2018 through December 31, 2017 is 30.5%. The determination of this rate is based on the consideration of both historic and projected financial results. The Company has not adjusted its non-GAAP tax rate for the three and nine months ended December 31, 2017 following the enactment of the new tax reform legislation on December 22, 2017. We have not yet fully assessed the impact of the tax reform legislation on the fiscal 2018 non-GAAP tax rate and may adjust it in the fiscal 2018 fourth quarter as additional information becomes available and further analysis is completed based on the expected long-term impact of the tax reform legislation in conjunction with any other significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other 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 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,
		2017				2016					2017				2016
Revenues:
Software license and hardware		$	13,131			$	16,995				$	40,198			$	48,966
Software related subscription services			24,690				22,546					73,584				63,911
Total software, hardware and related			37,821				39,541					113,782				112,877
Support and maintenance			40,362				39,924					123,171				116,905
Revenue cycle management and related services			21,922				20,048					64,327				62,037
Electronic data interchange and data services			23,136				21,790					69,446				65,527
Professional services			8,474				6,565					24,518				19,893
Total revenues			131,715				127,868					395,244				377,239
Cost of revenue:
Software license and hardware			5,726				5,680					15,947				19,227
Software related subscription services			11,693				9,345					32,822				27,107
Total software, hardware and related			17,419				15,025					48,769				46,334
Support and maintenance			7,525				7,299					22,583				20,903
Revenue cycle management and related services			15,401				13,462					45,615				42,052
Electronic data interchange and data services			13,581				12,662					40,313				38,232
Professional services			7,708				5,904					22,278				19,643
Total cost of revenue			61,634				54,352					179,558				167,164
Gross profit			70,081				73,516					215,686				210,075
Operating expenses:
Selling, general and administrative			43,563				37,542					127,517				120,913
Research and development costs, net			20,645				19,714					60,161				56,230
Amortization of acquired intangible assets			1,956				2,568					6,015				7,889
Restructuring costs			130				231					130				4,685
Total operating expenses			66,294				60,055					193,823				189,717
Income from operations			3,787				13,461					21,863				20,358
Interest income			15				-					36				9
Interest expense			(733	)			(629	)				(2,250	)			(2,445	)
Other expense, net			(41	)			(4	)				(48	)			(146	)
Income before provision for income taxes			3,028				12,828					19,601				17,776
Provision for income taxes			1,487				2,342					6,134				3,950
Net income		$	1,541			$	10,486				$	13,467			$	13,826
Net income per share:
Basic		$	0.02			$	0.17				$	0.21			$	0.22
Diluted		$	0.02			$	0.17				$	0.21			$	0.22
Weighted-average shares outstanding:
Basic			63,706				62,093					63,287				61,645
Diluted			63,708				62,093					63,296				61,900

QUALITY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
		December 31, 2017				March 31, 2017
ASSETS
Current assets:
Cash and cash equivalents		$	23,359			$	37,673
Restricted cash and cash equivalents			3,393				4,916
Accounts receivable, net			79,416				83,407
Inventory			154				158
Income taxes receivable			4,082				2,679
Prepaid expenses and other current assets			17,944				17,969
Total current assets			128,348				146,802
Equipment and improvements, net			27,137				27,426
Capitalized software costs, net			23,209				13,607
Deferred income taxes, net			7,197				11,265
Intangibles, net			80,663				69,213
Goodwill			216,530				185,898
Other assets			18,299				19,010
Total assets		$	501,383			$	473,221
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	3,069			$	4,618
Deferred revenue			52,843				52,383
Accrued compensation and related benefits			21,898				24,513
Income taxes payable			—				405
Other current liabilities			30,153				46,775
Total current liabilities			107,963				128,694
Deferred revenue, net of current			853				1,394
Deferred compensation			6,473				6,629
Line of credit			39,000				15,000
Other noncurrent liabilities			16,354				16,461
Total liabilities			170,643				168,178
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 63,712 and 62,455 shares at December 31, 2017 and March 31, 2017, respectively			637				625
Additional paid-in capital			240,584				228,549
Accumulated other comprehensive loss			(235	)			(358	)
Retained earnings			89,754				76,227
Total shareholders' equity			330,740				305,043
Total liabilities and shareholders' equity		$	501,383			$	473,221

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,
			2017			2016					2017			2016
Income before provision for income taxes - GAAP			$	3,028		$	12,828				$	19,601		$	17,776
Non-GAAP adjustments:
Acquisition and disposition costs, net				387			(1,337	)				1,569			5,147
Amortization of acquired intangible assets				6,083			5,575					17,351			16,953
Amortization of deferred debt issuance costs				269			269					807			807
Restructuring costs				130			231					130			4,685
Securities litigation defense costs, net of insurance				152			356					716			1,483
Share-based compensation				3,453			2,001					8,585			5,067
Other non-run-rate expenses*				-			739					263			2,865
Total adjustments to GAAP income before provision for income taxes:				10,474			7,834					29,421			37,007
Income before provision for income taxes - Non-GAAP				13,502			20,662					49,022			54,783
Provision for income taxes				4,118			6,302					14,952			16,709
Net income - Non-GAAP			$	9,384		$	14,360					34,070		$	38,074
Diluted net income per share - Non-GAAP			$	0.15		$	0.23				$	0.54		$	0.62
Weighted-average shares outstanding (diluted):				63,708			62,093					63,296			61,900
* Other non-run-rate expenses consist primarily of professional services costs not related to core operations.

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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

Source: Quality Systems, Inc.

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