(QSII) Quality Systems Earnings Beat Expectations on Record Revenues

Quality Systems (QSII) reported first-quarter fiscal 2012 (ended June 30) earnings per share of 65 cents, beating the Zacks Consensus Estimates of 62 cents and surpassing the corresponding year-ago earnings of 42 cents. Net income jumped 57% year over year to $19 million in the reported quarter buttressed by higher revenues and backed by a moderate increase in selling, general and administrative (SG&A) expense.

Revenues

Sales aggregated to a record $100.4 million in the first quarter, up 21% year over year, beating the Zacks Consensus Estimate of $99 million.

Segment-wise Results

System sales amounted to $34.4 million, up 18.3% year over year. Sales from the two subcomponents were $28.9 million (up 16.8% year over year) from Software, Hardware and Supplies and $5.5 million (up 27%) from Implementation and Training Services.

Maintenance, EDI, Revenue Cycle Management and other Services revenue was $66.1 million, a 22.6% year-over-year increase. Segment revenues were reported under four headings. Maintenance charges were $31.5 million, higher 23.4%. Electronic data interchange services sales were $12.1 million, an increase of 23.8%. Revenue Cycle Management sales of $11.9 million leaped 10.3%, and the “Other” sub-segment stood at $10.6 million, up 35.8%.

Margin

Gross margin was 65.2% in the first quarter, higher than 61.6% achieved in the prior-year quarter. Operating margin was 28.7%, greater than 22.9% in the year-ago quarter.

Balance Sheet

Cash, cash equivalents and marketable securities were $125.2 million at the end of the fourth quarter, up 24% year over year.

Other

Quality Systems announced that, on July 27, 2011, its board of directors approved a two-for-one split of its common stock. The new shares will be distributed on October 26, 2011.

Our Take

Quality Systems runs a pure-play business model, in an attractive industry, with a large number of catalysts, which provoke frequent speculation about mergers and acquisition. The company continues to grow recurring revenues. In recent times, Quality Systems has not only well managed its ambulatory clinical deals but, in addition, it has nicely executed several enterprise contracts.

Quality Systems continues to benefit from the federal Stimulus to promote usage of Electronic Health Record (EHR). However, the company continues to face stiff competition across all of its operating platforms with established Health IT players such as Cerner Corporation (CERN), Allscripts Healthcare Solutions (MDRX) and Athenahealth (ATHN) posing a threat to the company.

In the end, we believe that Quality Systems is one of the more expensive names in the healthcare IT universe. We currently have a Neutral recommendation on the stock.

ATHENAHEALTH IN (ATHN): Free Stock Analysis Report

CERNER CORP (CERN): Free Stock Analysis Report

ALLSCRIPTS HLTH (MDRX): Free Stock Analysis Report

QUALITY SYS (QSII): Free Stock Analysis Report

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