On Jun 10, we have updated our research report on
Quality Systems Inc.
). Quality Systems continues to report a fall in earnings and
revenues but we are still optimistic about the company given the
continued strength in its NextGen subsidiary as well as the
expected benefit from its Mirth acquisition.
In the recently completed fiscal 2014, Quality Systems' earnings
plunged 40.0% to 66 cents per share while revenues fell 3.4% to
$444.7 million. In the fiscal fourth quarter, adjusted earnings per
share of 11 cents also missed the Zacks Consensus Estimate by 5
cents but revenues of $115.2 million rose 3.5% and beat the Zacks
Consensus Estimate by roughly $3 million.
Adjusted gross profit fell 1.5% to $62.7 million in the fourth
quarter of fiscal 2014, primarily due to reduction in the
higher-margin software sales. Consequently, adjusted gross margin
contracted 280 basis points (bps) to 54.4% from 57.2% in the
year-ago period. Adjusted operating earnings decreased 44.5% to
$9.8 million while adjusted operating margin contracted 730 bps to
8.5% from 15.8% in the prior-year quarter.
Despite sluggish growth, revenues of the company continue to be
largely boosted by the strength of the NextGen subsidiary. The
NextGen Ambulatory EHR 5.8 and NextGen Practice Management 5.8 will
help the company's clients meet ICD-10 and Meaningful Use Stage 2
Quality Systems is also benefiting from its acquisition of Mirth
Corporation. Mirth's revenue streams include software license fees,
maintenance fees, implementation and training fees, as well as
hosting services. The acquisition would help the company develop
advanced technologies and products, which could attract new clients
looking for advanced connectivity solutions.
Currently, Quality Systems retains a Zacks Rank #4 (Sell). Some
better-ranked stocks in the broader healthcare sector include
Eagle Pharmaceuticals Inc.
). All of them carry a Zacks Rank #2 (Buy).
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