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Quality Systems (QSII) Q4 Earnings Beat, Bookings Rise Y/Y

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Quality Systems, Inc. reported fourth-quarter fiscal 2018 adjusted earnings of 16 cents per share, beating the Zacks Consensus Estimate by 23.1%. However, adjusted earnings declined 23.8% on a year-over-year basis.

Meanwhile, shares of Quality Systems have rallied 4.8% against the industry’s decline of 0.8% in the past six months.

Quality Systems, also known as NextGen Healthcare, currently carries a Zacks Rank #3 (Hold).

Revenue in Detail

Revenues in the fiscal fourth quarter totaled $135.8 million, which also beat the Zacks Consensus Estimate by 3%. Revenues rose 2.6% from the year-ago quarter.

Per management, year-over-year bookings totaled $36.8 million in the fourth quarter, up 5% at constant currency (cc).

Notably, the company’s flagship NextGen mobile platform saw the best quarter so far in terms of bookings, securing a large client base.

Segment Details

Quality Systems reported fiscal fourth-quarter revenues in the following segments:

Total software, hardware and related: This segment registered revenues worth $41.3 million, up 4.1% year over year. The upside can be attributed to a surge in software-related subscription services, which rose 12.2% to $26 million.

Per management, growth was driven by the NextGen office solution, formerly known as MediTouch, along with contributions from analytics and mobile solution.

Quality Systems, Inc. Price, Consensus and EPS Surprise

 

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

Support and maintenance: This segment saw a soft quarter, with revenues declining 3% to $40.6 million from a year ago.

Revenue cycle management (RCM) and related services: Revenues in this segment came in at $19.7 million, down 4.1% on a year-over-year basis. However, per management, the RCM pipeline has solid long-term prospects.

Electronic data interchange and data services: Revenues in the segment fell a marginal 0.4% to $23.4 million.

Professional services: This segment grossed revenues of $10.8 million, which increased a whopping 58.2% from the prior-year quarter on transcription revenues from the Entrada acquisition.

Margins

Gross profit in the reported quarter declined 3.4% year over year to $73.8 million. Gross margin contracted 330 basis points (bps) to 54.4%.

Operating loss was $19 million in the quarter.

Operating expenses shot up 33.1% to $92.8 million driven by surging SG&A (selling, general and administrative) expenses, which totaled $65.7 million, up a huge 53.8% on a year-over-year basis.

However, research and development (R&D) expenses contracted 4.6% to $21.1 million in the quarter.

Balance Sheet Details

The company exited fiscal 2018 with cash and cash equivalents of $258.8 million.

Fiscal 2018 at a Glance

On a full-year basis, adjusted earnings per share came in at 70 cents, which beat the Zacks Consensus Estimate of 67 cents. However, earnings deteriorated 14.6% from a year ago.

Full-year revenues totaled $531 million, which also beat the Zacks Consensus Estimate of $527.2 million. Notably, revenues rose 4.2% from the prior-year figure.

Guidance

The company provided an initial view for fiscal 2019.

Revenues are projected in the range of $532-$548 million. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $541.9 million, which lies within the given range.

Adjusted earnings are expected within 70-78 cents for fiscal 2019. The Zacks Consensus Estimate for fiscal 2019 earnings is pinned at 76 cents, which again is within the range.

Our Take

Quality Systems exited the fiscal fourth quarter on a solid note. Management foresees solid growth prospects in the RCM pipeline, while the acquisitions of Entrada and Eagle Dream have proven accretive. Moreover, the NextGen population health analytics suite and NextGen mobile platform registered significant growth in the fourth quarter. The company witnessed solid bookings growth, both on a sequential and year-over-year basis. A solid guidance for fiscal 2019 also holds promise.

On the flip side, dull performance in the RCM and Electronic data interchange segments are the major headwinds at the moment. Further, contracting gross margins and surging operating expenses raise concern. The company’s R&D expenses have contracted which indicates reduced focus on innovation. Quality Systems also is broadly exposed to integration risks, while cutthroat competition in the niche space adds to the woes.

Key Picks

A few better-ranked stocks which reported solid results this earnings season are Intuitive Surgical (ISRG - Free Report) , Abiomed, Inc. (ABMD - Free Report) and Varian Medical Systems (VAR - Free Report) . While Intuitive Surgical and Abiomed sport a Zacks Rank #1 (Strong Buy), Varian Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abiomed reported fourth-quarter fiscal 2018 earnings per share of 80 cents, which beat the Zacks Consensus Estimate by 25%. Revenues were $174.4 million, surpassing the consensus estimate by 6.3%.

Varian Medical reported second-quarter fiscal 2018 adjusted earnings per share of $1.15, which beat the Zacks Consensus Estimate of $1.06. Revenues totaled $729.9 million, which surpassed the Zacks Consensus Estimate of $659.6 million.

Intuitive Surgical reported first-quarter 2018 adjusted earnings per share of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus mark by 10.6%.

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