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Quality Systems Beats Q2 Earnings & Revenue Estimates

Quality Systems Inc.QSII reported adjusted earnings per share (EPS) of 20 cents in the second quarter of fiscal 2016, which beat the Zacks Consensus Estimate of 13 cents. On a year-over-year basis, earnings surged 66.7% on strong revenue growth and margin expansion.

Revenues increased about 4% year over year to $125.4 million and also came marginally ahead of the Zacks Consensus Estimate of $125 million.

The year-over-year growth was primarily driven by a 19% improvement in revenue cycle management (RCM) business, 28% growth in recurring subscription services, and 10.8% increase in software, hardware and related sales. Revenues from Electronic data interchange services increased 9% on a year-over-year basis. These increases managed to offset almost a 25.7% decline in professional services sales.

Total bookings in the reported quarter amounted to $60 million.

A Look at Margins

Gross margin expanded 200 basis points (bps) year over year to 54.9% primarily owing to better revenue mix.

Operating margin expanded 400 bps to almost 10% on the back of improved gross margin and lower operating expenses.

Other Financial Aspects

Quality Systems exited the second quarter of fiscal 2016 with cash and cash equivalents of $98.6 million.

The company also declared a quarterly cash dividend of 17.5 cents per share, payable to shareholders of record as of Dec 11, 2015.

Our Take

We believe that an expanding RCM pipeline, new product launches and strategic partnerships will drive meaningful growth in the future. The recently announced divesture of Hospital Solutions Division under its NextGen Healthcare subsidiary will help the company focus on its core ambulatory business.

However, we view the growing saturation within the traditional ambulatory EHR as a concern. Also, a sluggish global economy and a strict regulatory environment are potent headwinds.

Zacks Rank and Key Picks

Currently, Quality Systems carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector are Masimo MASI , Natus Medical BABY and NuVasive NUVA . All the stocks sport a Zacks Rank #1 (Strong Buy).

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QUALITY SYS (QSII): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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