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Quality Systems (QSII) Up 20.8% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Quality Systems, Inc. (QSII - Free Report) . Shares have added about 20.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Quality Systems Beats Q4 Earnings, Issues FY18 View

Irvine, CA-based Quality Systems Inc. (QSII - Free Report) reported fourth-quarter fiscal 2017 adjusted earnings of $0.18 per share, exceeding the Zacks Consensus Estimate by $0.01. Earnings remained flat on a year-over-year basis.

Coming to fourth-quarter revenues, Quality Systems posted revenues of $132.4 million, surpassing the Zacks Consensus Estimate of $128 million. Revenues also increased 3.5% on a year-over-year basis.

Segment Details

Total software, hardware and related revenues increased 5.9% to $39.7 million, primarily driven by a 21.7% surge in Software-related subscription services.

However, massive growth at this section was partially offset by lower software license and hardware sales, which decreased almost 10.3% in the quarter.

Support and maintenance revenues increased 5.3% on a year-over-year basis to $41.9 million.

Professional services declined 26.6% to $6.8 million. Per management, the decline in revenues at the segment was primarily because of a tough comparison with the year-earlier quarter and unimpressive performance by the new software platform in recent quarters.

Coming to Electronic data interchange (EDI) services, revenues increased 11.9% on a year-over-year basis to almost $23.4 million.

Meanwhile, the company’s Revenue Cycle Management (RCM) business improved 0.7% to $20.5 million.

Bookings

Quality Systems registered bookings worth $33.8 million in the reported quarter, down by $6.1 million from the year-ago quarter.

Margin Details

Per management, Quality Systems’ gross margin expanded by 200 basis points (bps) and increased its percentage of recurring revenue by 400 bps.

Coming to operating expenses, the company recorded selling general & administrative (SG&A) expenses of $42.7 million, reflecting a rise of $6.1 million year over year. As a percentage of total revenue, SG&A expenses were 32.3% of revenues in the quarter, up 80 bps on a year-over-year basis.

Meanwhile, research and development (R&D) costs totaled $22.1 million, up from $16.1 million a year ago.

Guidance

Quality Systems provided an initial outlook for fiscal 2018.

For fiscal 2018, the company projects revenues in the band of $512 million to $530 million.

Adjusted earnings are forecasted in the range of $0.66 and $0.74 per share.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend for fresh estimates. There have been six revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been seven moves down in the last two months. In the past month, the consensus estimate has shifted downward by 18.7% due to these changes.

Quality Systems, Inc. Price and Consensus

 

Quality Systems, Inc. Price and Consensus | Quality Systems, Inc. Quote

VGM Scores

At this time, Quality Systems' stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for value and to a lesser degree momentum.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are expecting a below average return from the stock in the next few months.




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