Quality Systems (QSII) reported third-quarter fiscal 2012 (ended December 31) earnings per share of 36 cents, meeting the Zacks Consensus Estimate and surpassing the year-ago earnings of 30 cents per share. Net income climbed 20.4% year over year to $21.1 million in the reported quarter riding on higher revenues.
Revenues
Revenues stood at $112.8 million in the third quarter, up 22.7% year over year, beating the Zacks Consensus Estimate of $111 million.
Segment-wise Results
System sales totaled $41.6 million, up 22.7% year over year. Revenues from the two subcomponents were $35.1 million (higher 18.2% year over year) from Software, Hardware and Supplies and $6.6 million (higher 53.8%) from Implementation and Training Services.
Maintenance, EDI, Revenue Cycle Management and other Services revenues amounted to $71.1 million, a growth of 22.8% year over year. Segment sales were reported under four headings. Maintenance charges were $36.2 million, up 29.9%. Electronic data interchange services sales were $12.1 million, up 16.8%. Revenue Cycle Management sales of $11.1 million were down 3% and the “Other” sub-segment stood at $11.6 million, up 42.5%.
Gross margin was 66% in the third quarter, higher than 64.8% achieved in the prior-year quarter. Operating margin was 28.8%, slightly greater than 28.1% in the year-ago quarter.
Balance Sheet
Cash, cash equivalents and marketable securities were $132.3 million at the end of the third quarter, up 9.2% year over year.
Other
Quality Systems announced a quarterly cash dividend of 17.5 cents per share on its outstanding common stock, payable to shareholders of record as of March 20, 2012. The distribution date is expected to be April 5, 2012. The cash dividend per share is in line with the company’s present policy of paying a regular dividend on a quarterly basis.
Our Take
Quality Systems runs a pure-play business model, in an attractive industry, with a large number of catalysts, which provoke frequent speculation about mergers and acquisition. In recent times, the company has not only well managed its ambulatory clinical deals but, in addition, has nicely executed several enterprise contracts. Also, on the positive side, we derive comfort from the high proportion of recurring revenues and steady growth in its NextGen pipeline.
However, competition is intense from well regarded players such as Athenahealth (ATHN), Allscripts Healthcare Solutions (MDRX), Cerner Corporation (CERN) and others. Price discounting is frequent, particularly on the lower end, and Software as a Service (SaaS) based model appears to have exacerbated pricing pressure.
Quality Systems has traditionally focused on providing solutions for physician practices. However, core ambulatory EHR providers, such as Quality Systems, will see opportunities shrinking for selling their products as physician groups are increasingly getting absorbed into hospitals.
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