A month has gone by since the last earnings report for Quality Systems, Inc. (QSII - Free Report) . Shares have lost about 10.5% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Irvine, CA-based Quality Systems Inc. (QSII - Free Report) reported first-quarter fiscal 2018 adjusted earnings of 17 cents per share, exceeding the Zacks Consensus Estimate by a penny.
Revenues totaled $130.9 million, outpacing the Zacks Consensus Estimate of $127 million. Revenues also increased 7.4% on a year-over-year basis.
Segment Details:Total software, hardware and related revenues increased 5.9% to $36.7 million, primarily driven by a 20.3% rise in Software-related subscription services. However, massive growth at this section was partially offset by lower software license and hardware sales, which fell almost 13.4% in the quarter. The company expects software license and hardware revenues to remain under pressure for the remainder of the fiscal.
Subscription revenues in the quarter were $23.9 million, up 20% on a year-over-year basis. Revenue growth at this segment was driven by strength in the Entrada, MediTouch and Mirth platforms.
Support and maintenance revenues increased 8.2% on a year-over-year basis to $41.1 million. Professional services increased 31.9% to almost $8.4 million. Coming to Electronic data interchange (EDI) services, revenues increased 5.4% on a year-over-year basis to almost $23.3 million. Meanwhile, the company’s Revenue Cycle Management (RCM) business improved 1.7% to $21.4 million.
Solid Recurring Revenue Base:Quality System’s recurring revenues comprised contributions from subscription, support and maintenance, RCM and EDI. In the first quarter, recurring revenues of $109.7 million reached a record level of 84% of total revenue. This marks an increase of 9% on a year-over-year basis.
Bookings Update: Quality Systems registered bookings worth $23.5 million in the reported quarter, down by $1.4 million year over year. Per management, the delay in the launch of streamlined and simplified business model of Quality Systems impeded bookings growth in the first quarter.
Margin Details:Quality Systems’ gross margin expanded 130 basis points (bps) to $71.8 million in the reported quarter.
Coming to operating expenses, the company recorded selling general & administrative (SG&A) expenses of $43 million, up from $40.6 million a year ago. Expenses increased on incremental personnel costs and debt expenses.
Meanwhile, research and development (R&D) costs totaled $20 million, up from $18.2 million a year ago. R&D expenses rose in the first quarter on the back of the Entrada acquisition and the latest NGA product launch.
For fiscal 2018, the company projects revenues in the band of $512 million to $530 million.
Adjusted earnings per share are projected in the range of $0.62 to $0.70, down from the previously issued band of $0.66 to $0.74. Management slashed the earnings guidance for incremental investments related to the newly acquired EagleDream Health platform. Furthermore, the company expects sluggishness in its RCM suite of solutions owing to contraction in its customer base.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been three revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been six moves down in the last two months. In the past month, the consensus estimate has shifted lower by 5.4% due to these changes.
At this time, Quality Systems' stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, 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.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.