Quality Systems, Inc. (QSII), known to its clients as NextGen
Healthcare, announced today its fiscal 2019 first quarter ended
June 30, 2018 operating results.
"We are pleased with continuing progress executing our plan, as
illustrated by our team’s delivery of another solid performance in
the first quarter of fiscal 2019 with revenue and EPS in-line with
our expectations. Most importantly, we saw continued momentum in
quarterly bookings with first quarter bookings up 23% year over
year, which marks our second consecutive quarter of growth. Based
on these results, we remain confident in the current year guidance
and committed to our multi-year growth targets,”
commented Rusty Frantz, president and chief executive officer
of NextGen Healthcare.
Fiscal 2019 First Quarter Highlights
As a result of the adoption of Accounting Standards Update No.
2014-09, Revenue from Contracts with Customers: Topic 606 (“ASC
606”), the GAAP comparisons below compare fiscal 2019 first quarter
results under ASC 606 to the fiscal 2018 first quarter results
under ASC 605. A reconciliation of fiscal 2019 first quarter
results from ASC 606 to ASC 605 can be found in the tables at the
end of the press release.
On a GAAP basis, revenue for the fiscal 2019 first quarter
of $133.2 million compared to $130.9 million a
year-ago. On a pro forma basis under ASC 605, revenue for the
fiscal 2019 first quarter was also $133.2 million.
On a GAAP basis, net income for the fiscal 2019 first quarter
was $2.6 million, compared with net income of $3.9
million in the fiscal 2018 first quarter. On a pro forma basis
under ASC 605, net income for the fiscal 2019 first quarter
was $1.7 million.
On a GAAP basis, fully diluted net income per share
was $0.04 in the fiscal 2019 first quarter compared with
earnings per share of $0.06 for the same period a year ago. On
a non-GAAP basis, fully diluted earnings per share for the fiscal
2019 first quarter was $0.19 versus $0.17 reported in the first
quarter a year ago. On a pro forma non-GAAP basis under ASC 605,
fully diluted earnings per share for the fiscal 2019 first quarter
was $0.18.
Fiscal 2019 Financial Outlook
The company is reiterating its outlook for fiscal 2019 and
expects:
- Revenue of between $532
million and $548 million
- Non-GAAP EPS of
between $0.70 and $0.78
Conference Call Information
NextGen Healthcare will host a conference call to discuss
its fiscal 2019 first quarter results on Tuesday, July 31,
2018 at 5:00 PM ET (2:00 PM PT). Shareholders and
interested participants may listen to a live broadcast of the
conference call by dialing 866-750-8947 or 720-405-1352 for
international callers, and referencing participant code 2995586
approximately 15 minutes prior to the call. A live webcast of the
conference call will be available on the investor relations section
of the company’s web site and an audio file of the call will also
be archived for 90 days at investor.qsii.com. After the conference
call, a replay will be available until August 14, 2018 and can be
accessed by dialing 800-585-8367 or 404-537-3406 for international
callers, and referencing participant code 2995586.
2018 Analyst Day Meeting
The Company will host an Analyst Day Meeting on Friday,
September 7, 2018 at 9:00 AM ET in New York, NY. To RSVP or for
further information, please contact Jordan Kohnstam at
Jordan.Kohnstam@westwicke.com or 443-450-4189.
About Quality Systems, Inc.
Quality Systems, Inc., known to its clients as NextGen
Healthcare, provides a range of software, services, and analytics
solutions to medical and dental group practices. The company's
portfolio delivers foundational capabilities to empower physician
success, enrich the patient care experience, and enable the
transition to value-based healthcare. Visit www.qsii.com and
www.nextgen.com for additional information.
SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS
This news release may contain forward-looking statements within
the meaning of the federal securities laws, including but not
limited to, statements regarding future events, developments in the
healthcare sector and regulatory framework, the Company's future
performance, as well as management's expectations, beliefs,
intentions, plans, estimates or projections relating to the future
(including, without limitation, statements concerning revenue, net
income, and earnings per share). Risks and uncertainties exist that
may cause the results to differ materially from those set forth in
these forward-looking statements. Factors that could cause the
anticipated results to differ from those described in the
forward-looking statements and additional risks and uncertainties
are set forth in Part I, Item A of our most recent Annual Report on
Form 10-K and subsequently filed Quarterly Reports on Form 10-Q,
including but not limited to: the volume and timing of systems
sales and installations; length of sales cycles and the
installation process; the possibility that products will not
achieve or sustain market acceptance; seasonal patterns of sales
and customer buying behavior; impact of incentive payments under
The American Recovery and Reinvestment Act on sales and the ability
of the Company to meet continued certification requirements;
uncertainties related to the future impact of U.S. tax reform; the
impact of governmental and regulatory agency investigations; the
development by competitors of new or superior technologies; the
timing, cost and success or failure of new product and service
introductions, development and product upgrade releases; undetected
errors or bugs in software; product liability; changing economic,
political or regulatory influences in the health-care industry;
changes in product-pricing policies; availability of third-party
products and components; competitive pressures including product
offerings, pricing and promotional activities; the Company's
ability or inability to attract and retain qualified personnel;
possible regulation of the Company's software by the U.S. Food and
Drug Administration; changes of accounting estimates and
assumptions used to prepare the prior periods' financial
statements; disruptions caused by acquisitions of companies,
products, or technologies; and general economic conditions. A
significant portion of the Company's quarterly sales of software
product licenses and computer hardware is concluded in the last
month of a fiscal quarter, generally with a concentration of such
revenues earned in the final ten business days of that month. Due
to these and other factors, the Company's revenues and operating
results are very difficult to forecast. A major portion of the
Company's costs and expenses, such as personnel and facilities, are
of a fixed nature and, accordingly, a shortfall or decline in
quarterly and/or annual revenues typically results in lower
profitability or losses. As a result, comparison of the Company's
period-to-period financial performance is not necessarily
meaningful and should not be relied upon as an indicator of future
performance. These forward-looking statements speak only as of the
date hereof. The Company undertakes no obligation to publicly
update any forward-looking statements, whether as a result of new
information, future events or otherwise.
USE OF NON-GAAP FINANCIAL MEASURES
This news release contains certain non-GAAP (Generally Accepted
Accounting Principles) financial measures, which are provided only
as supplemental information. Investors should consider these
non-GAAP financial measures only in conjunction with the comparable
GAAP financial measures. These non-GAAP measures are not in
accordance with or a substitute for U.S. GAAP. Pursuant to the
requirements of Regulation G, the Company has provided a
reconciliation of non-GAAP financial measures to the most directly
comparable financial measure in the accompanying financial tables.
Other companies may calculate non-GAAP measures differently than
Quality Systems, which limits comparability between companies. The
Company believes that its presentation of non-GAAP diluted earnings
per share provides useful supplemental information to investors and
management regarding the Company's financial condition and results.
The presentation of non-GAAP financial information is not intended
to be considered in isolation or as a substitute for, or superior
to, financial information prepared and presented in accordance with
GAAP. The Company calculates non-GAAP diluted earnings per share by
excluding net acquisition costs, amortization of acquired
intangible assets, amortization of deferred debt issuance costs,
restructuring costs, net securities litigation defense costs and
settlement, share-based compensation, and other non-run-rate
expenses from GAAP income before provision for income taxes. The
Company utilizes a normalized non-GAAP tax rate to provide better
consistency across the interim reporting periods within a given
fiscal year by eliminating the effects of non-recurring and
period-specific items, which can vary in size and frequency, and
which are not necessarily reflective of the Company’s longer-term
operations.
The normalized non-GAAP tax rate applied to fiscal year 2019 was
22.0%, compared to 30.5% for fiscal year 2018, which was updated as
a result of the enactment of the new tax reform legislation on
December 22, 2017. The determination of this rate is based on the
consideration of both historic and projected financial results. The
Company may adjust its non-GAAP tax rate as additional information
becomes available and in conjunction with any other significant
events occur that may materially affect this rate, such as merger
and acquisition activity, changes in business outlook, or other
changes in expectations regarding tax regulations.
The Company’s future period guidance in this release includes
adjustments for items not indicative of the Company’s core
operations. Such adjustments are generally expected to be of a
nature similar to those adjustments applied to the Company’s
historic GAAP financial results in the determination of the
Company’s non-GAAP diluted earnings per share. Such adjustments,
however, may be affected by changes in ongoing assumptions and
judgments as to the items that are excluded in the calculation of
non-GAAP adjusted net income and adjusted diluted earnings per
share, as described in this release. The exact amount and probable
significance of these adjustments, including net acquisition costs,
net securities litigation defense costs, and other non-run-rate
expenses, are not currently determinable without unreasonable
efforts, but may be significant. These items cannot be reliably
quantified or forecasted due to the combination of their historic
and expected variability. It is therefore not practicable to
reconcile this non-GAAP guidance to the most comparable GAAP
measures.
TABLE
#1
QUALITY SYSTEMS, INC. CONSOLIDATED STATEMENTS OF
INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended June 30, 2018
2017 Revenues: Recurring $ 120,007 $ 119,178 Software,
hardware, and other non-recurring 13,193 11,744 Total
revenues 133,200 130,922 Cost of revenue: Recurring 48,153 48,458
Software, hardware, and other non-recurring 7,154 6,040
Amortization of capitalized software costs and acquired intangible
assets 6,544 4,671 Total cost of revenue
61,851 59,169 Gross profit 71,349 71,753 Operating expenses:
Selling, general and administrative 44,636 42,977 Research and
development costs, net 22,128 19,989 Amortization of acquired
intangible assets 1,168 2,047 Total operating
expenses 67,932 65,013 Income from operations 3,417
6,740 Interest income 29 9 Interest expense (730 ) (677 ) Other
income (expense), net 374 (22 ) Income before
provision for income taxes 3,090 6,050 Provision for income taxes
442 2,154 Net income $ 2,648 $ 3,896 Net income per
share: Basic $ 0.04 $ 0.06 Diluted $ 0.04 $ 0.06 Weighted-average
shares outstanding: Basic 64,019 62,636 Diluted 64,054 62,643
TABLE
#2
QUALITY SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
June 30, 2018 March 31, 2018 ASSETS Current
assets: Cash and cash equivalents $ 26,544 $ 28,845 Restricted cash
and cash equivalents 7,520 2,373 Accounts receivable, net 86,064
84,962 Contract assets 10,448 — Inventory 161 180 Income taxes
receivable 7,677 8,122 Prepaid expenses and other current assets
17,397 17,180 Total current assets 155,811 141,662
Equipment and improvements, net 26,567 26,795 Capitalized software
costs, net 28,846 26,318 Deferred income taxes, net 6,249 9,219
Contract assets, net of current 2,768 — Intangibles, net 68,636
74,091 Goodwill 218,875 218,875 Other assets 27,383
18,795 Total assets $ 535,135 $ 515,755 LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,133
$ 4,213 Contract liabilities 52,196 54,079 Accrued compensation and
related benefits 17,567 27,910 Income taxes payable 111 73 Other
current liabilities 62,067 48,317 Total current
liabilities 135,074 134,592 Contract liabilities, net of current —
1,173 Deferred compensation 5,937 6,086 Line of credit 44,000
37,000 Other noncurrent liabilities 13,232 13,494
Total liabilities 198,243 192,345 Commitments and contingencies
Shareholders' equity: Common stock $0.01 par value; authorized
100,000 shares; issued and outstanding 64,220 and 63,995 shares at
June 30, 2018 and March 31, 2018, respectively 642 640 Additional
paid-in capital 247,374 244,462 Accumulated other comprehensive
loss (899 ) (400 ) Retained earnings (1) 89,775
78,708 Total shareholders' equity 336,892 323,410
Total liabilities and shareholders' equity $ 535,135 $ 515,755
_____________
(1) Includes cumulative effect adjustment related to the
adoption of ASC 606.
TABLE
#3
QUALITY SYSTEMS, INC. NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
RECONCILIATION OF
NON-GAAP DILUTED EARNINGS PER SHARE
Three Months Ended June 30, 2018
2017 Income before provision for income taxes - GAAP $ 3,090
$ 6,050 Non-GAAP adjustments: Acquisition costs, net 1,634 549
Amortization of acquired intangible assets 5,456 5,448 Amortization
of deferred debt issuance costs 177 269 Securities litigation
defense costs, net of insurance 279 446 Share-based compensation
3,116 2,041 Other non-run-rate expenses* 1,948 263
Total adjustments to GAAP income before provision for income taxes:
12,610 9,016 Income before provision for income taxes
- Non-GAAP 15,700 15,066 Provision for income taxes 3,454
4,595 Net income - Non-GAAP $ 12,246 $ 10,471 Diluted net
income per share - Non-GAAP $ 0.19 $ 0.17 Weighted-average shares
outstanding (diluted): 64,054 62,643
RECONCILIATION OF
NON-GAAP DILUTED EARNINGS PER SHARE UNDER ASC 605
Income before provision for income taxes - Non-GAAP 15,700
Adjustments due to adoption of ASC 606 (1,191 ) Income
before provision for income taxes - Non-GAAP under ASC 605 14,509
Provision for income taxes 3,192 Net income - Non-GAAP under
ASC 605 $ 11,317 Diluted net income per share - Non-GAAP under ASC
605 $ 0.18 Weighted-average shares outstanding (diluted): 64,054
* Other non-run-rate expenses for the three months ended
June 30, 2018 consist primarily of severance and other
employee-related costs not related to core operations. Other
non-run-rate expenses for the three months ended June 30, 2017
consist primarily of professional services costs not related to
core operations.
We adopted Accounting Standards Update No. 2014-09, Revenue from
Contracts with Customers: Topic 606 (“ASC 606”) and all related
amendments as of April 1, 2018 using the modified retrospective
method for all contracts not completed as of the date of adoption.
Results for reporting periods beginning after April 1, 2018 are
presented under ASC 606, while prior period comparative information
has not been adjusted and continue to be reported under the
accounting standards in effect for those prior periods. We have
also implemented changes to our processes, policies, and internal
controls over financial reporting to address the impacts of the new
revenue recognition standard on our consolidated financial
statements and related disclosures.
The adjustments to reflect the cumulative effect of the changes
to the balances of our previously reported consolidated balance
sheet as of March 31, 2018 for the adoption of ASC 606 are
summarized as follows:
TABLE #4 – ASC 606 CUMULATIVE EFFECT
ADJUSTMENT
As Reported ASC 606
Transition Adjusted March 31, 2018
Adjustments April 1, 2018 ASSETS Accounts receivable,
net $ 84,962 $ 2,380 $ 87,342 Contract assets — 13,446 13,446
Prepaid expenses and other current assets 17,180 (223 ) 16,957
Deferred income taxes, net 9,219 (2,884 ) 6,335 Contract assets,
net of current — 2,731 2,731 Other assets 18,795 6,679 25,474
LIABILITIES Contract liabilities 54,079 4,174 58,253 Accrued
compensation and related benefits 27,910 745 28,655 Other current
liabilities 48,317 9,964 58,281 Contract liabilities, net of
current 1,173 (1,173 ) — SHAREHOLDERS' EQUITY Retained
earnings 78,708 8,419 87,127
The impact of the adoption of ASC 606 on our consolidated
balance sheet and consolidated statements of net income and
comprehensive income as of and for the three months ended June 30,
2018, assuming that the previous revenue recognition guidance in
ASC 605 had been in effect, is summarized as follows:
TABLE #5 – ASC 606 IMPACT OF ADOPTION –
BALANCE SHEET
June 30, 2018 As reported under
Adjustments due to As disclosed under ASC
606 adoption of ASC 606 ASC 605 ASSETS Accounts
receivable, net $ 86,064 $ 6,685 $ 92,749 Contract assets 10,448
(10,448 ) — Income taxes receivable 7,677 246 7,923 Prepaid
expenses and other current assets 17,397 344 17,741 Deferred income
taxes, net 6,249 2,884 9,133 Contract assets, net of current 2,768
(2,768 ) — Other assets 27,383 (7,703 ) 19,680 LIABILITIES
Contract liabilities 52,196 6,241 58,437 Accrued compensation and
related benefits 17,567 (158 ) 17,409 Other current liabilities
62,067 (8,658 ) 53,409 Contract liabilities, net of current — 1,179
1,179 SHAREHOLDERS' EQUITY Retained earnings 89,775 (9,364 )
80,411
TABLE #6 – ASC 606 IMPACT OF ADOPTION –
INCOME STATEMENT
Three Months Ended June 30, 2018 As reported
under Adjustments due to As disclosed
under ASC 606 adoption of ASC 606 ASC 605
Revenues: Subscription services $ 28,328 $ (1,575 ) $ 26,753
Support and maintenance 41,248 (698 ) 40,550 Managed services
26,270 3,033 29,303 Electronic data interchange and data services
24,161 (73 ) 24,088 Total recurring revenues
120,007 687 120,694 Software license and hardware 7,443 (567 )
6,876 Other non-recurring services 5,750 (74 )
5,676 Total software, hardware, and other non-recurring revenues
13,193 (641 ) 12,552 Total revenue 133,200 46
133,246 Total cost of revenue 61,851 40 61,891
Gross profit 71,349 6 71,355 Operating expenses: Selling, general
and administrative 44,636 1,197 45,833 Research and development
costs, net 22,128 — 22,128 Amortization of acquired intangibles
1,168 — 1,168 Total operating expenses 67,932
1,197 69,129 Income from operations 3,417 (1,191 ) 2,226 Interest
and other income, net (327 ) — (327 ) Income
before provision for income taxes 3,090 (1,191 ) 1,899 Provision
for income taxes 442 (246 ) 196 Net income $
2,648 $ (945 ) $ 1,703
The following table presents our revenues disaggregated by our
major revenue categories and by occurrence on a pro forma basis
under ASC 605:
TABLE #7 – PRO FORMA REVENUES UNDER ASC
605
Three Months Ended, June 30,
September 30, December 31,
March 31, June 30, 2017
2017 2017 2018 2018 Recurring revenues:
Subscription services $ 25,575 $ 26,788 $ 26,596 $ 27,366 $ 26,753
Support and maintenance 41,116 41,693 40,362 40,634 40,550 Managed
services 29,175 27,962 28,903 27,271 29,303 Electronic data
interchange and data services 23,312 22,998
23,136 23,327 24,088 Total recurring revenues 119,178
119,441 118,997 118,598 120,694 Software, hardware, and
other non-recurring revenues: Software license and hardware 7,420
8,853 7,759 9,985 6,876 Other non-recurring services 4,324
4,313 4,959 7,192 5,676 Total software,
hardware and other non-recurring revenues 11,744 13,166 12,718
17,177 12,552
Total revenues $ 130,922 $ 132,607 $ 131,715 $
135,775 $ 133,246
Effective April 1, 2018, in addition to the adoption of ASC 606,
we changed the presentation of revenue on our consolidated
statements of comprehensive income. The following table presents a
mapping of our revenues as previously reported and on a pro forma
basis under ASC 605:
TABLE #8 – IMPACT OF INCOME STATEMENT
RECLASSIFICATION
Three Months Ended, June 30,
September 30, December 31, March
31, June 30, 2017 2017 2017
2018 2018 Revenues: Software license and hardware -
As previously reported $ 12,800 $ 14,267 $ 13,131 $ 15,378 $ 12,388
Annual licenses - reclassified to 'Subscription services'
(5,380 ) (5,414 ) (5,372 ) (5,393 )
(5,512 ) Software license and hardware 7,420 8,853 7,759 9,985
6,876 Software related subscription services - As previously
reported 23,906 24,988 24,690 25,963 25,622 Annual licenses -
reclassified from 'Software license and hardware' 5,380 5,414 5,372
5,393 5,512 Managed cloud services - reclassified to 'Managed
services' (3,711 ) (3,614 ) (3,466 )
(3,990 ) (4,381 ) Subscription services 25,575 26,788 26,596
27,366 26,753 Revenue cycle management and related services
- As previously reported 21,403 21,002 21,922 19,669 21,323 Managed
cloud services - reclassified from 'Software related subscription
services' 3,711 3,614 3,466 3,990 4,381 Transcription and other
recurring services - reclassified from 'Professional services'
4,061 3,346 3,515 3,612 3,599
Managed services 29,175 27,962 28,903 27,271 29,303
Professional services - As previously reported 8,385 7,659 8,474
10,804 9,275 Transcription and other recurring services -
reclassified to 'Professional services' (4,061 )
(3,346 ) (3,515 ) (3,612 ) (3,599 ) Other
non-recurring services 4,324 4,313 4,959 7,192 5,676
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version on businesswire.com: https://www.businesswire.com/news/home/20180731005905/en/
Quality Systems, Inc.Media Contact:Jennifer Cohen,
949-255-2600x74334jecohen@nextgen.comorInvestor
Contact:Westwicke PartnersBob East or Asher
Dewhurst443-213-0500
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