Quality Systems (QSII) reported fourth-quarter and fiscal 2011 (ended March 31) earnings per share of 64 cents and $2.12, respectively, beating the Zacks Consensus Estimates of 61 cents and $2.09, respectively, and surpassing the corresponding year-ago figures of 45 cents and $1.68. Net income shot up 42% year over year to $18.6 million in the reported quarter riding on higher revenues, aided by a modulated increase in selling, general and administrative (SG&A) expense.
Revenues
Revenues amounted to a record $97.1 million in the fourth quarter, up 23.7% year over year, beating the Zacks Consensus Estimate of $95 million. Revenues were $353.4 million in the fiscal year, up 21.1%, surpassing the Zacks Consensus Estimate of $351 million.
Segment-wise Results
System sales were $36.7 million, up 26.4% year over year. Revenues from the two subcomponents were $31.7 million (up 27.9% year over year) from Software, Hardware and Supplies and $4.9 million (up 17%) from Implementation and Training Services.
Maintenance, EDI, Revenue Cycle Management and other Services sales were $60.5 million, a 22.1% year-over-year increase. Segment revenues were reported under four heads. Maintenance charges were $29 million, up 21.3%. Electronic data interchange services sales stood at $10.8 million, an increase of 17.2%. Revenue Cycle Management delivered sales of $11.6 million, leaping 26.6%, and the “Other” sub-segment stood at $9 million, up 25.4%.
Margin
Gross margin was 65.8% in the fourth quarter, above 64% achieved in the prior-year quarter. Operating margin was 29.3%, higher than 25.5% in the year-ago quarter.
Balance Sheet
Cash, cash equivalents and marketable securities were $117.7 million at the end of the fourth quarter, up 28.3% year over year.
Outlook
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 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 and may provide a moderate upside to investor expectations. We currently have a Neutral recommendation on the stock.
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