Irvine, CA-based Quality Systems Inc. QSII reported second-quarter 2017 adjusted earnings of 21 cents per share, exceeding the Zacks Consensus Estimate of 18 cents. Meanwhile, earnings improved 5% on a year-over-year basis, courtesy of impressive revenue growth.
Further, revenues of $127.2 million surpassed the Zacks Consensus Estimate of $125 million and increased 1.4% on a year-over-year basis.
Coming to the share price, Quality Systems lost approximately 1% to close at $12.38 following the earnings release.
Of late, the market sentiments for Quality Systems have not been very impressive, as the company represents a negative one-year return of 13.4%, comparing unfavourably with the S&P 500’s 2.4% over the same time frame.
Total software, hardware and related revenues increased 20.4% to $38.6 million, primarily driven by a 72.8% surge in Software-related subscription services. However, massive growth at this section was partially offset by lower software license and hardware sales, which declined 12.7% in the quarter
Support and maintenance revenues fell 7.6% on a year-over-year basis to $38.9 million. Revenues from Professional services also declined 28.1% to $6.9 million.
However, revenues from Electronic data interchange (EDI) services increased 5% on a year-over-year basis to almost $21.6 million.
Meanwhile, the company’s Revenue cycle management (RCM) business improved 0.7% to $20.9 million.
Quality Systems has been a pioneer in the recent past in sales force reorganization efforts. In September, the company held its second companywide sales force training session.
Quality Systems has registered bookings worth $36 million in the reported quarter, down by $1 million from the year-ago quarter.
However, this marked a $7 million increase from the first quarter of fiscal 2017. In the HealthFusion platform, bookings were $4.9 million and the revenue contribution was around $10 million.
As a percentage of revenues, expenses on software-related subscription services and EDI rose 210 basis points (bps) and 10 bps, respectively.
However, Quality Systems’ expenses on software license and hardware, support and maintenance, revenue cycle management and professional services decreased 20 bps, 120 bps, 40 bps and 150 bps, respectively. This caused a 110 bps expansion in the gross margin.
Coming to operating expenses, selling, general and administrative (SG&A) expenses, as a percentage of revenues, scaled a massive 380 bps.
However research and development costs (R&D) remained flat on a year-over-year basis. As a result, operating margin (excluding amortization of acquired intangible assets and impairment of assets) contracted 280 bps to 7.9% in the quarter.
QUALITY SYS Price, Consensus and EPS Surprise
QUALITY SYS Price, Consensus and EPS Surprise | QUALITY SYS Quote
Quality Systems maintained its guidance for fiscal 2017. Revenues are projected in the range of $494--$510 million while adjusted earnings are estimated in the band of 75--81 cents per share.
For the coming quarters, the company aims to have additional capabilities both in the NextGen ambulatory EHR and the MediTouch platform.
Zacks Rank & Key Picks
Currently, Quality Systems carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the broader medical sector are Intuitive Surgical Inc. ISRG, AngioDynamics Inc. ANGO and Glaukos Corporation GKOS. Notably, AngioDynamics and Glaukos sport a Zacks Rank #1 (Strong Buy) while Intuitive Surgical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical has a long-term expected earnings growth rate of approximately 11.35%. The stock represents an impressive one-year return of 35.6%.
AngioDynamics has a long-term expected earnings growth rate of 15.00%. The company posted a solid one-year return of almost 25.8%.
Glaukos Corporation recorded a stellar one-year return of almost 66.09%. Notably, the company posted positive surprises in the past four quarters, the average being 110.93%.
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