QSII

Quality Systems, Inc. (QSII)

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Quality Systems Inc. (QSII)

F3Q08 (Qtr End 12/31/07) Earnings Call

February 05, 2008 4:30 pm ET

Executives

Louis Silverman - President and CEO

Paul Holt - CFO

Pat Cline - President of NextGen Healthcare Information Systems Division

Analysts

Brett Jones

Mike

Sean Wieland

Richard Close

Andy Draper

Chris Sassouni

Atif Rahim

Presentation

Operator

Good afternoon. My name is Jonathan and I will be your conference operator today. At this time I would like to welcome everyone to the fiscal third quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Silverman, you may begin your conference.

Louis Silverman

Thank you, Jonathan. Welcome everyone to the Quality Systems third quarter fiscal 2008 earnings call. Paul Holt, our CFO; and Pat Cline, President of our NextGen Healthcare Information Systems Division, join me as participants on this afternoon's call.

Please note that the comments made on this call may include 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, prospectus and strategies, preliminary and/or projected operating results, capital and equity initiatives, and the implementation of or potential impact of legal, regulatory and accounting requirements.

Actual events or results may differ materially from our expectations and projections, and you should refer to our prior SEC filings, including our Forms 8-K, 10-K and 10-Q, for discussions of the risk factors, management discussion and analysis and other information that could impact our actual performance. We undertake no obligation to update any projections or forward-looking statements in the future.

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

For the quarter, the company recorded revenue of $48.1 million, which is a new record for the company. On a year-over-year basis, total company revenue increased approximately 25%.

NextGen's revenue for the quarter was a record $44 million up 29% over the prior year. The QSI high division recorded $4.1 million which was down approximately 4.6% over the prior year fully diluted earnings per share for the quarter.

The record $0.40 per share was up from $0.32 in the year ago quarter. Note that the quarter's financial performance is impacted by a net $0.03 per share increase as result of life insurance proceeds and associated compensation expenses related to the recent passing of Mr. Greg Flynn, our former Executive Vice President and General Manager.

To take care of a couple of housekeeping items relevant to the QSI division, divisional sales staffing is at for FTEs and the division sales pipeline is approximately $3.9 million. As a reminder the QSI division's pipeline is defined as sales situations where QSI is included among the final three purchase choices and where we believe that the sale will occur within 180 days.

As previously announced our Board approved another quarterly $0.25 per share dividend to be paid to shareholders of record as of March 14, 2008, with an anticipated distribution date of April 7, 2008.

Regarding investor conferences, during the quarter the company presented at the Piper Jaffray and CIBC conferences and in January the company presented at the J.P. Morgan conference in San Francisco. During the remainder of the current quarter the company has scheduled to present at the UBS, Raymond James and Sidoti conferences.

Regarding acquisitions, we continue to review potentially interesting acquisition opportunities that come to our attention.

In closing my prepared comments for this call, I want to again clearly point out that there are no guarantees that the company or either of its divisions will meet or exceed past, present or expected levels of performance in future. It is possible that investors or analysts will set new short, medium or long-term expectations for the company.

In response to this possibility, please continue to note that we do not give our financial guidance to the investments community and we do not comment on guidance advanced by members of the financial community.

I will now turn things over to Paul Holt, our CFO.

Paul Holt

Thanks Lou and hello everyone. Consolidated system sales of $23.7 million this quarter represents an increase of 25% compared to $19 million in the prior year quarter. Our consolidated maintenance EDI and other services revenue rose 25% to $24.4 million compared to $19.5 million in the year ago quarter.

Consolidated gross profit margin this quarter came in at 66.4%, down slightly from 67% a year ago. The decrease in our gross margin over last year was due primarily to a relatively larger amount of hardware and third-party software as a percentage of system sales.

Our total SG&A expenses increased by approximately $2.7 million to $13.3 million in the quarter that compares to $10.6 million a year ago. The increase in SG&A expenses compared to the prior year was primarily due to $1.9 million in higher compensation expenses due to increased headcounts, $0.6 million in increased selling-related expenses, $0.5 million in higher corporate expenses and that was offset by a decline of $0.3 million in other general and administrative expenses.

SG&A expenses, as a percentage of revenue this quarter increased to 27.6%. That's roughly unchanged but slightly higher compared to the year-ago quarter which was 27.5%.

Interest income in the three months ended December 31, 2007 decreased to $710,000 compared to $935,000 in the year ago quarter. Interest income this quarter was declined primarily due to a greater portion of funds invested in tax-favored auction-rate securities, which offer lower interest rates but higher after-tax yields compared to money market or short-term US Treasuries.

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