Quality Systems, Inc. (QSII)

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Quality Systems Inc. (QSII)

F3Q09 Earnings Call

January 30, 2009; 4:30 pm ET


Steven Plochocki - President and Chief Executive Officer

Paul Holt - Chief Financial Officer

Pat Cline - President of NextGen Division

Donn Neufeld - Senior Vice President of QSI Division


Charles Rhyee - Oppenheimer & Company

Ross Muken - Deutsche Bank

Newton Juhng - BB&T Capital Markets

Constantine Davides - JMP Securities

Atif Rahim - J.P. Morgan

Richard Close - Jefferies & Company

Sean Wieland - Piper Jaffray

Sandy Draper - Raymond James

Leo Carpio - Caris & Company

Eugene Mannheimer - Auriga



Ladies and gentlemen and welcome to the Quality Systems 2009 Third Quarter Results Conference Call on the 30 January, 2009. Throughout today’s recorded presentation all participants will be in a listen-only mode. (Operator Instructions) I will now hand the conference over to Steven Plochocki, please go ahead sir.

Steven Plochocki

Thank you very much and welcome everyone to the Quality Systems third quarter fiscal 2009 earnings call. Paul Holt, our CFO; Pat Cline, the President of our NextGen Division and Donn Neufeld, the Senior Vice President of our QSI Division, join me this morning as participants.

Please note that the comments made on this call may includes statements that are forward-looking within the meaning of the securities laws, including without limitation statements related to anticipated industry trends, the Company’s plans, products, perspectives and strategies, preliminary and/or projected and then capital equity initiatives, and the implementation of or potential impact legal of regulatory or accounting requirements.

I will now provide some summary comments on the quarter and then Paul, Donn and Pat will follow with additional details.

For the quarter, the company recorded revenue of $65.5 million this represents 36% growth versus prior year quarter. NextGen’s revenue for the quarter was a record $61.5 million up 40% over the prior year.

Aggregate NextGen operating income was up 28% over the prior year. The QSI Division reported revenue of $4 million and Donn will share with you more in terms of the continued progress of our joint marketing efforts with NextGen with federally qualified healthcare clinics.

Our corporate expenses came in at about $3.6 million down from $4.3 million in prior quarter, which included proxy related expenses if you remember, that were associated with our summer proxy content. Fully diluted earnings per share for the quarter were $0.46 per share up 15% over year ago.

Over the past quarter the company presented at the JMP Securities Conference, at Oppenheimer’s Conference and the Piper Jaffray as well. Two weeks from now, we will be presenting at the UBS Conference in New York City.

I will now turn it over to Paul and Paul can you take us through some of the financial information.

Paul Holt

Sure, thanks Steve. Hello everyone, as Steve mentioned, we’re pleased to report our consolidated revenue at $55.5 million representing a 36% increase over the prior year.

Our consolidated revenue growth not including our recent acquisitions of HSI and PMP was 21% on a year-over-year basis. Earnings per share of $0.46 and 15% above the $0.40 we reported a year ago. Consolidated system sales represent a 6% increase compared to the $23.7 million in our prior year quarter.

Consolidated maintenance EDI, revenue cycle management and other services revenue rose 66% to $40.5 million compared to $24.4 million in the prior year quarter. Excluding the revenue from a recently acquired revenue cycle management acquisitions, as categorical revenue rose 36% compared to the prior year. Total revenue in this category accounted for 62% of our total revenue this quarter versus 51% a year ago.

Our consolidated gross profit margin this quarter came in at 64.7% that’s down from 66.4% a year ago, the decrease in our gross margin over the last year was due primarily to the increase in our revenue cycle management services at lower margins as well as a proportional increase in the [annual] services and the percentage of our total revenue, these services carried lower margins compared to system sales.

Total SG&A expense increased by approximately $5.3 million to $18.6 million in the quarter compared to $13.3 million a year ago. Primary drivers of the increase included SG&A expenses associated with the new acquisitions of HSI and PMP, other SG&A expenses in the NextGen Division as well as higher year-over-year corporate expenses.

Interest income for the three months ended December 31, 2008 decreased to 328,000 compared to 710,000 a year ago. Our interest income this quarter was impacted by much lower interest rates earned under the cash investment. As of December, we had approximately $10.6 million in auction rate securities versus $12.7 million at the end of the last quarter. We are very happy to see a couple of auction rates sold this past quarter.

The Company’s effective income tax rate increased just slightly this quarter versus last year at 35.8%. The effective tax rate for this quarter was impacted primarily by the reenactment of the R&D tax credit statutes, which allowed us to record benefit for R&D tax credit.

Moving onto divisional performance system sales in the NextGen Division rose 7% to $24.4 million compared to $22.8 million a year ago. Continued growth in NextGen space of installed users, continued add-on purchases of licenses from existing customers as well as recent acquisitions of HSI and PMP continue to drive higher maintenance EDI and other revenue in that division.

Read the rest of this transcript for free on seekingalpha.com