Quality Systems Inc.
) reported first-quarter fiscal 2014 (ended Jun 30) earnings per
share of 22 cents, down 15.4% year over year. However, results
met the Zacks Consensus Estimate. Net income declined 16.8% in
the quarter to $12.9 million.
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Revenues decreased 7% year over year to $109.5 million in the
first quarter. The company's revenues also missed the Zacks
Consensus Estimate of $116 million.
On an encouraging note, lead generation jumped 172% in the
quarter. Moreover, sales pipeline grew 6% on a sequential basis
to $150.1 million, the first time in several quarters.
System sales amounted to $22.5 million, down about 40.6% year
over year. However, on a sequential basis, the rate of decline in
system sales slowed 7%. Revenues from the two subcomponents were
$16.0 million (down 38% year over year) from Software and
Hardware and $6.6 million (down 45% on a year-over-year basis)
from Implementation and Training Services.
Revenues from Maintenance, Electronic Data Interchange Services
(EDI), Revenue Cycle Management and other Services amounted to
$87 million, up 8.2% year over year. Maintenance revenues came in
at $38.6 million, flat year over year. Electronic data
interchange services revenues were $16.7 million, up 21.0% year
over year. Revenue Cycle Management sales increased 11.1% year
over year to $16.0 million and revenues from other services
amounted to $15.7 million, up 15.4% year over year.
Gross margin dropped 290 basis points (bps) year over year in the
fiscal first quarter to 56.2%. Selling, general and
administrative expenses dipped 4.4% year over year to $35.1
million in the quarter and research and development expenditure
declined a whopping 34.9% year over year to $5.6 million.
Although reported operating expense declined 9.7% year over year
to $41.9 million in the quarter, adjusted operating margin
(excluding amortization-related expenses) contracted 190 bps year
over year to 18.9%.
Quality Systems ended the quarter with cash, cash equivalents and
marketable securities of $130.0 million, up 10.2% sequentially.
We are disappointed with Quality Systems' first-quarter results
with both earnings and revenues missing the year-ago level. The
core Systems business continues to face significant headwinds but
the rate of decline seems to have eased somewhat. Moreover, the
company continues to refrain from providing guidance due to
ongoing restructuring efforts and uncertainty regarding future
pipeline adoption. Although there were certain positive
developments in the quarter, such as pipeline growth, lead
generation and lower operating expenses, management needs to
address a number of operational issues to bring the company back
Moreover, competition is intense from well regarded players such
). Price discounting is frequent, particularly at the lower end,
and Software as a Service (SaaS) based model appears to have
exacerbated pricing pressure.
The stock carries a Zacks Rank #5 (Strong Sell). While we
strongly recommend to avoid this stock until we see clear signs
of improvement, medical information services provider
), carrying an Zacks Rank #1 (Strong Buy), is worth