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Quality Systems (QSII) Up 6.4% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Quality Systems . Shares have added about 6.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Quality Systems due for a pullback? 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.

Recent Earnings

Quality Systems reported first-quarter fiscal 2019 adjusted earnings of 19 cents, which beat the Zacks Consensus Estimate by a penny. However, earnings rose 11.8% year over year.

Revenue in Detail

Revenues in the fiscal first quarter totaled $133.2 million, which edged past the Zacks Consensus Estimate of $133 million. Revenues also rose 1.7% on a year-over-year basis.

Per management, the company saw continued momentum in quarterly bookings, which rose 23% year over year to $29.1 million in the reported quarter. Management further stated that the company’s growing pipeline and coveted RCM (Revenue Cycle Management) services platform mainly drove bookings.

Segment Details

The company reported fiscal first-quarter 2019 revenues under the following segments:

Total recurring revenues grossed $120 million, up 0.7% from the year-ago quarter.

Total software, hardware and other non-recurring revenues came in at $13.2 million, up 12.3% on a year-over-year basis driven by large professional consulting engagements.

Per management, the company’s professional services revenues grew on the back of their flagship NextGen Mobile solution. Moreover, the NextGen Office solution and earlier acquisitions have continued to drive subscription revenues.

Margins

In the quarter under review, gross profit totaled $71.3 million, down 0.6% from the prior-year quarter.

Gross margin in the quarter was 53.6%, down 120 basis points (bps).

Operating income totaled $3.4 million, which declined a significant 49.3%. Operating margin was 2.6%, down 250 bps in the quarter.

Guidance

For fiscal 2019, Quality Systems expects revenues within $532 million to $548 million.

Full-year earnings per share are expected between 70 cents and 78 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.83% due to these changes.

VGM Scores

Currently, Quality Systems has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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 momentum investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Quality Systems has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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