Why Is Quality Systems (QSII) Down 7.5% Since Its Last Earnings Report?

A month has gone by since the last earnings report for Quality Systems, Inc. (NASDAQ:QSII) . Shares have lost about 7.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is QSII due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

Quality Systems reported fiscal third-quarter 2018 adjusted earnings per share of 15 cents, in line with the Zacks Consensus Estimate. However, adjusted earnings per share declined 34.8% on a year-over-year basis.

Revenues for third-quarter fiscal 2018 totaled $131.7 million, which marginally beat the Zacks Consensus Estimate of $131 million. Additionally, revenues increased 3% on a year-over-year basis.

Segment Details

Total Software, Hardware and Related: Revenues in this segment declined 4.3% on a year-over-year basis, amounting to $37.82 million. Subscription revenues of $24.7 million increased 10% year over year.

Support and Maintenance: Revenues improved 1.1% on a year-over-year basis, to $40.36 million. However, the figure declined sequentially.

Professional Services: Revenues in this segment increased 29% on a year-over-year basis to $8.5 million.

Electronic Data Interchange: Revenues in this segment grew 6.2% year over year to $23.1 million.

Revenue Cycle Management: Revenues in this segment increased 9.3% year over year to $21.9 million. In the reported quarter, nine new RCM deals were signed, of which two were entirely new clients to the company as a whole.

Quarter Highlights

EagleDream Acquisition: A Major Positive

Recently, Quality Systems acquired EagleDream, a software analytics solutions company. It was incorporated in the company’s operations in the third quarter of fiscal 2018. During the quarter, the company closed 10 deals across a broad product spectrum of accounts, both by specialty and geography. It has also led to a swift uptake in interest from the company’s user base around EagleDream. Thus, Quality Systems witnesses deal flow and significant interest from the integration of EagleDream.

Bookings Strengthen

A sequential 17% increase in bookings majorly drove sales in the reported quarter, which amounted to 30.5 million.

Interoperability Framework

The company’s framework is suitable for its software to exchange and make use of the information. Per management, the company had more than 100 clients integrated into the national care quality framework for interoperability, as of Dec 31. Further, more clients are being added each month post the upgrade. It ensures that patient data is transportable not just within the company database, but also across the industry.

Margin Details

Gross profit for the third quarter totaled $70.1 billion and gross margin is at 53.2%. Gross margin declined 429 basis points on a year-over-year basis. The decline is mainly due to a general shift to lower margin subscription revenues.

RCM margins are too compressed as the company invested for future efficiencies and witnessed some headwinds this quarter from personnel expenses.

Operating expenses surged due to investment in sale and marketing as well as acquisitions, partially.

Financial Condition

The company exited the third quarter with 23.4 million in cash and equivalents and 39 million in outstanding against revolving credit agreement at the end of the quarter. Quality Systems continues to be well positioned in terms of financial flexibility with 189 million available in total liquidity.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last month as none of them issued any earnings estimate revisions.

Quality Systems, Inc. Price and Consensus

Quality Systems, Inc. Price and Consensus | Quality Systems, Inc. Quote

VGM Scores

Currently, QSII has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

QSII has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.