QSII Quality Systems, Inc. (delisted)

Revenues and Net Income Increase; Company’s Divestiture of Hospital Solutions Division Enables Focus on Core Competency

Quality Systems, Inc. (NASDAQ:QSII) announced today results for its fiscal 2016 second quarter ended September 30, 2015.

Revenues for the fiscal 2016 second quarter reached $125.4 million, up four percent when compared with $120.5 million for the fiscal 2015 second quarter.

Net income for the 2016 second quarter reached $8.3 million, versus $4.8 million for the comparable period last year, an increase of 75 percent.

On a GAAP basis, fully diluted earnings per share was $0.14 in the second quarter of 2016 compared with $0.08 for the same period last year. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2016 second quarter was $0.21 versus $0.13 reported in the fiscal 2015 second quarter.

At quarter-end, the Company’s liquidity position remained strong with $110.8 million of cash and investments.

“As part of our ongoing strategy, we remain focused on further expanding upon the Company’s leadership position in the ambulatory space by delivering the client experience, software and services that help our clients navigate the transition to a value-based healthcare economy. The just-announced divestiture of our Hospital Solutions division helps pave a clearer path for our commitment to our core ambulatory business,” explained Rusty Frantz, president and chief executive officer.

“We are also pleased to show continued progress again this quarter in terms of improving the Company’s financial performance as well as demonstrating the benefits of our increased focus on cost containment initiatives. These efforts aid in ensuring availability of continued capital to reinvest in the growth and future of our business and platform,” Frantz said.

Quality Systems also announced that its Board of Directors declared a quarterly cash dividend of seventeen and one-half cents ($0.175) per share on the Company’s outstanding shares of common stock, payable to shareholders of record as of December 11, 2015 with an anticipated distribution date of January 4, 2016. The $0.175 per share cash dividend is pursuant to the Company’s current practice to pay a regular quarterly dividend on the Company’s outstanding shares of common stock, subject to Board review and approval, and establishment of record and distribution dates by the Board prior to the declaration and payment of each such quarterly dividend.

Quality Systems will host a conference call to discuss its fiscal 2016 second quarter results on Thursday, October 22, 2015 at 5:00 PM ET (2:00 PM PT). All participants should dial 1-866-900-9499 at least ten minutes prior to the start of the call and reference conference ID #58999378. International callers should dial 1-937-502-2136. To hear a live Web simulcast or to listen to the archived webcast following completion of the call, please visit the Company’s website at www.qsii.com, click on the "Investors” tab, then select "Conference Calls," to access the link to the call. To listen to a telephone replay of the conference call, please dial 800-585-8367 or 404-537-3406 and enter conference ID #58999378. The replay will be available from approximately 8:00 PM ET on Thursday, October 22, 2015, through 11:59 PM ET on Thursday, October 29, 2015.

A transcript of the conference call will be made available on the Company’s website at www.qsii.com.

About Quality Systems, Inc.

Irvine, Calif.-based Quality Systems, Inc. and its NextGen Healthcare subsidiary develop and market computer-based practice management, electronic health records and revenue cycle management applications as well as connectivity products and services for medical and dental group practices and small hospitals. Visit www.qsii.com and www.nextgen.com for additional information.

SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS

This news release may contain forward-looking statements within the meaning of the federal securities laws, including but not limited to, statements regarding future events, developments in the healthcare sector and regulatory framework, the Company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future (including, without limitation, statements concerning revenue, net income, and earnings per share). Risks and uncertainties exist that may cause the results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements and additional risks and uncertainties are set forth in Part I, Item A of our most recent Annual Report on Form 10-K for the fiscal year ended March 31, 2015, including but not limited to: the volume and timing of systems sales and installations; length of sales cycles and the installation process; the possibility that products will not achieve or sustain market acceptance; seasonal patterns of sales and customer buying behavior; impact of incentive payments under The American Recovery and Reinvestment Act on sales and the ability of the Company to meet continued certification requirements; the development by 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. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

USE OF NON-GAAP FINANCIAL MEASURES

This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures, which are provided only as supplemental information. Investors should consider these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. These non-GAAP measures are not in accordance with or a substitute for U.S. GAAP. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measure in the accompanying financial tables. Other companies may calculate non-GAAP measures differently than Quality Systems, which limits comparability between companies. The Company believes that its presentation of non-GAAP diluted earnings per share provides useful supplemental information to investors and management regarding the Company's financial condition and results. The Company calculates non-GAAP diluted earnings per share by excluding acquisition costs, amortization of acquired intangible assets, impairment of goodwill and other assets, securities litigation defense costs, share-based compensation, and other non-run-rate expenses from GAAP income before provision for income taxes. Historically, the Company calculated a non-GAAP effective tax rate each quarter, based on non-GAAP pre-tax income (or loss) for the period, to determine the corresponding non-GAAP provision for (benefit of) income taxes. Beginning in the first quarter of fiscal year 2016, the Company began utilizing a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year, by eliminating the effects of non-recurring and period-specific items which can vary in size and frequency, and which are not necessarily reflective of the Company’s longer-term operations. The normalized non-GAAP tax rate expected to be applied to each quarter of fiscal year 2016 is 30.5%. The determination of this rate is based on the consideration of both historic and projected financial results. The Company intends to re-evaluate this normalized non-GAAP tax rate on an annual basis or more frequently if any significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or changes in expectations regarding tax regulations.

 

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

    Three Months Ended September 30, Six Months Ended September 30, 2015   2014 2015   2014   Revenues: Software license and hardware $ 19,687 $ 19,316 $ 35,876 $ 39,077 Software related subscription services   12,437   9,687   24,683   19,402  

Total software, hardware and related

32,124 29,003 60,559 58,479   Support and maintenance 42,176 42,135 85,889 82,940 Revenue cycle management and related services 20,793 17,432 41,036 34,125 Electronic data interchange and data services 20,581 18,906 40,770 37,225 Professional services   9,695   13,043   19,279   25,644  

Total revenues

  125,369   120,519   247,533   238,413   Cost of revenue: Software license and hardware 6,578 7,475 13,619 15,031 Software related subscription services   5,963   5,384   11,921   9,835   Total software, hardware and related 12,541 12,859 25,540 24,866   Support and maintenance 8,394 6,785 16,337 13,699 Revenue cycle management and related services 14,680 13,202 29,192 25,908 Electronic data interchange and data services 12,539 12,015 24,865 24,014 Professional services   8,444   11,912   16,641   24,476   Total cost of revenue   56,598   56,773   112,575   112,963   Gross profit 68,771 63,746 134,958 125,450   Operating expenses: Selling, general and administrative 37,396 38,681 76,567 75,411 Research and development costs 17,981 16,898 35,066 33,134 Amortization of acquired intangible assets   898   908   1,795   1,891   Total operating expenses   56,275   56,487   113,428   110,436   Income from operations 12,496 7,259 21,530 15,014   Interest income, net 41 69 343 123 Other expense, net   (54)   (26)   (104)   (17)   Income before provision for income taxes 12,483 7,302 21,769 15,120 Provision for income taxes   4,168   2,552   7,092   5,207   Net income $ 8,315 $ 4,750 $ 14,677 $ 9,913   Net income per share: Basic $ 0.14 $ 0.08 $ 0.24 $ 0.16 Diluted $ 0.14 $ 0.08 $ 0.24 $ 0.16   Weighted average shares outstanding: Basic 60,461 60,247 60,387 60,238 Diluted 61,194 60,788 61,129 60,782   Dividends declared per common share $ 0.175 $ 0.175 $ 0.35 $ 0.35  

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

  September 30, March 31, 2015 2015   ASSETS Current assets: Cash and cash equivalents $ 98,647 $ 118,993 Restricted cash and cash equivalents 3,982 2,419 Marketable securities 12,130 11,592 Accounts receivable, net 98,393 107,669 Inventories 649 622 Income taxes receivable 5,077 3,147 Deferred income taxes, net 24,074 24,080 Other current assets   12,955     11,535     Total current assets 255,907 280,057   Equipment and improvements, net 22,537 20,807 Capitalized software costs, net 42,155 40,397 Intangibles, net 24,088 27,689 Goodwill 73,571 73,571 Other assets   17,884     18,000     Total assets $ 436,142   $ 460,521     LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,965 $ 10,018 Deferred revenue 57,683 66,343 Accrued compensation and related benefits 16,321 24,051 Income taxes payable 61 10,048 Dividends payable 10,722 10,700 Other current liabilities   37,593     33,924    

Total current liabilities

133,345 155,084   Deferred revenue, net of current 1,163 1,349 Deferred compensation 6,325 5,750 Other noncurrent liabilities   7,812     14,798     Total liabilities 148,645 176,981   Commitments and contingencies   Shareholders' equity: Common stock 609 603

$0.01 par value; authorized 100,000 shares; issued andoutstanding 60,863 and 60,303 shares at September 30,2015 and March 31, 2015, respectively

Additional paid-in capital 209,638 198,650 Accumulated other comprehensive loss (481 ) (192 ) Retained earnings   77,731     84,479     Total shareholders' equity   287,497     283,540     Total liabilities and shareholders' equity $ 436,142   $ 460,521    

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, 2015 2014 2015 2014   Income before provision for income taxes - GAAP $ 12,483 $ 7,302 $ 21,769 $ 15,120   Plus items included in cost of revenue: Amortization of acquired software technology 904 859 1,807 1,717 Share-based compensation   102   92   199   178 Total adjustments to cost of revenue 1,006 951 2,006 1,895   Plus items included in operating expenses: Acquisition costs 775 621 1,292 1,744 Amortization of acquired intangible assets 898 908 1,795 1,891 Securities litigation defense costs 2,256 1,009 2,794 1,287 Share-based compensation 799 775 1,386 1,479 Other non-run-rate expenses*   449   315   1,387   315 Total adjustments to operating expenses 5,177 3,628 8,654 6,716         Total adjustments to GAAP income before provision for income taxes:   6,183   4,579   10,660   8,611   Income before provision for income taxes - Non-GAAP 18,666 11,881 32,429 23,731 Provision for income taxes   5,693   4,159   9,891   8,220   Net income - Non-GAAP $ 12,973 $ 7,722 $ 22,538 $ 15,511   Diluted net income per share - Non-GAAP $ 0.21 $ 0.13 $ 0.37 $ 0.26   Weighted-average shares outstanding (diluted): 61,194 60,788 61,129 60,782  

* For the three months ended September 30, 2015, the $449 of other non-run-rate expenses consists of certain non-recurring professional services costs not related to ongoing core operations and non-recurring severance costs. Other non-run-rate expenses for the six months ended September 30, 2015 also includes $938 of non-recurring incremental costs related to the change in the Company's Chief Executive Officer, including recruitment fees and severance payments.

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Quality Systems, Inc.John Stumpf, 949-255-2600Interim Chief Financial Officerjstumpf@qsii.comorSusan J. Lewis, 954-389-3700slewis@qsii.com