Quality Systems' Prelim Results - Analyst Blog

Quality Systems (QSII) reported preliminary unaudited results for the fourth-quarter and fiscal year. For the fourth quarter, the company expects revenues in a band of $107 and $111 million while revenues for the fiscal year are pegged in the region of $428 million to $431 million.

Earnings per share for the fourth quarter are expected to be in the region of 24 cents to 27 cents while that for the fiscal year should be about $1.27 to $1.30.

Results for the fiscal fourth quarter were negatively impacted by delays in recognition of sales to a large client as well as lags in closing deals.

The company issued guidance for fiscal 2013. It expects revenues to grow 20% to 24% and earnings per share to rise 20% to 25%.     

Quality Systems runs a pure-play business model, in an attractive industry, with a large number of catalysts, which provoke frequent speculation about mergers and acquisition. In recent times, the company has not only well managed its ambulatory clinical deals but, in addition, has nicely executed several enterprise contracts. Also, on the positive side, we derive comfort from the high proportion of recurring revenues and steady growth in its NextGen pipeline.

However, competition is intense from well regarded players such as Athenahealth (ATHN), Allscripts Healthcare Solutions (MDRX), Cerner Corporation (CERN) and others. Price discounting is frequent, particularly on the lower end, and Software as a Service (SaaS) based model appears to have exacerbated pricing pressure.

Quality Systems has traditionally focused on providing solutions for physician practices. However, core ambulatory EHR providers, such as Quality Systems, will see opportunities shrinking for selling their products as physician groups are increasingly getting absorbed into hospitals.

We are currently Neutral on the stock, supported by a short-term Zacks #3 Rank (Hold).