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Quality Systems (QSII) Lags Q1 Earnings, Issues FY17 View

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Quality Systems Inc. reported first-quarter 2017 adjusted earnings of 14 cents per share, below the Zacks Consensus Estimate of 18 cents. Meanwhile, earnings dropped 6.7% on a year-over-year basis.

Notably, Quality Systems posted revenues of $122 million, which also lagged the Zacks Consensus Estimate of $126 million and remained flat on a year-over-year basis.

Segment Details

Total software, hardware and related revenues increased 21.9% to $34.6 million, primarily driven by a 62.3% surge in Software related subscription services. However, massive growth at this section was partially offset by lower software license and hardware sales, which declined 8.6% in the quarter


Support and maintenance revenues fell 13.1% on a year-over-year basis to $38 million. Revenues from Professional services also declined 33.7% to $6.3 million.

However, revenues from Electronic data interchange (EDI) services increased 4.2% on a year-over-year basis to almost $21 million.

Meanwhile, the company’s Revenue cycle management (RCM) business continued its strong performance, raking in a 4% increase in revenues to $21 million.

QUALITY SYS Price, Consensus and EPS Surprise

QUALITY SYS Price, Consensus and EPS Surprise | QUALITY SYS Quote

Margin Details

As a percentage of revenues, Quality Systems’ expenses on support and maintenance, revenue cycle management and professional services decreased 110 basis points (bps), 20 bps and 90 bps, respectively.

However, expenses on software license and hardware, software related subscription services and EDI rose 10 bps, 260 bps and 40 bps, respectively. This caused a 70 bps contraction in gross margin.

Operating expenses (excluding amortization of acquired intangible assets and restructuring costs), as a percentage of revenues, surged 210 bps to 48.1%.

Selling, general and administrative (SG&A) expenses, as a percentage of revenues, rose 110 bps, while research and development costs (R&D) increased 90 bps.

As a result, operating margin (excluding amortization of acquired intangible assets and impairment of assets) contracted 270 bps to 5.4% in the quarter.

Guidance

Quality Systems issued its guidance for fiscal 2017. Revenues are projected in the range of $494--$510 million while adjusted earnings are estimated in the band of 75--81 cents per share.

Zacks Rank & Key Picks

Currently, Quality Systems carries a Zacks Rank #2 (Buy).

Other favorably ranked stocks in the medical sector are AAC Holdings Inc (AAC - Free Report) , ABIOMED Inc (ABMD - Free Report) and Align Technology Inc (ALGN - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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