Cloud Strategy to be based on Acquired
MediTouch Platform;Corporate Structure Streamlined for Client
Responsiveness and Efficiency; and, Annual Financial Guidance
Initiated.
Conference Call Scheduled for April 28, 2016
9:00 am EDT (6:00 am PDT)
Quality Systems, Inc. (NASDAQ:QSII) announced today its Board of
Directors approved management’s recommendations for several
strategic initiatives, the Company’s updated cloud strategy, a
corporate restructuring and the initiation of financial
guidance.
MediTouch® Based Cloud Strategy
Following several months of assessment of both the recently
acquired MediTouch platform and the Company’s NextGen Now platform
in development, management concluded that the MediTouch platform
offers the most efficient path to providing a high-quality, robust,
cloud-based solution for ambulatory care. As a result, the Company
will cease further investment in NextGen Now and immediately
discontinue all efforts to use or repurpose the NextGen Now
platform. This assessment was conducted under the technology
leadership of David Metcalfe, who joined the Company on February 1,
2016 as chief technology officer.
“The acquisition of the MediTouch platform accelerates our
time-to-market with a cloud-based platform that already meets the
needs of smaller practices. Our focus now will be to scale this
solution to address the needs of enterprise-level organizations and
larger practices,” stated Metcalfe.
As a result of this decision, Quality Systems’ fiscal fourth
quarter and full-year results will reflect a pre-tax charge of
approximately $32 million, relating to the impairment of the
Company’s previously capitalized investment in NextGen Now. This
charge did not result in, nor is it expected to result in, any
additional cash expenditures.
Streamlined Corporate
Structure
The Company also announced a restructuring plan, which will
eliminate its business units in favor of a streamlined,
functional-based organizational structure. This new structure will
enable a more efficient, integrated and client-centered delivery of
the holistic solutions ambulatory care organizations need.
“We are realigning the organization to remove silos and be
better positioned to serve our clients, as they pursue population
health and value-based reimbursement initiatives. It will also
reduce our cost structure and make the organization more nimble,”
explained Rusty Frantz, president and chief executive officer.
This organizational realignment is expected to result in
approximately $4 million of restructuring-related charges,
consisting principally of severance and other one-time termination
benefits. The restructuring costs are expected to be primarily
incurred and funded in the first and second quarters of fiscal year
2017. In connection with such charges, the Company estimates that
it will reduce its headcount by approximately 150 employees,
approximately six percent of its U.S.-based workforce. The Company
expects $14 million to $16 million of personnel-related savings in
fiscal year 2017, excluding the restructuring charge.
Fiscal Year 2017 Guidance and
Preliminary & Unaudited Fiscal Year 2016 Results
Effective in fiscal year 2017, the Company will begin providing
annual guidance for certain financial metrics. For fiscal year
2017, the Company anticipates revenues of $508 million to $522
million and non-GAAP diluted earnings per share of $0.78 to $0.86.
This fiscal year 2017 guidance reflects the anticipated full year
contribution from the acquisition of HealthFusion as well as the
impact of the corporate restructuring. The Company expects to
update this guidance, as appropriate, in its fourth quarter 2016
earnings announcement, scheduled for May 19, 2016.
To provide context for the fiscal year 2017 guidance, the
Company also reported that, based upon preliminary financial data,
it expects total revenue of $491 million to $493 million for fiscal
year 2016 and $126 million to $128 million for its fourth quarter
ended March 31, 2016, which are modestly below analysts’ consensus.
The Company also expects to report non-GAAP diluted earnings per
share of $0.70 to $0.72 for fiscal year 2016 and $0.17 to $0.19 for
the fourth quarter, in line or slightly above analysts’ consensus.
The Company expects GAAP earnings per share of $0.08 to $0.10 for
fiscal year 2016 and a GAAP loss per share of ($0.28) to ($0.26)
for the fourth quarter, largely due to the aforementioned
impairment charge.
These preliminary, unaudited results are subject to the
completion of the Company's customary accounting and auditing
procedures. Final adjustments and other developments may arise
between the date of this press release and the dates on which the
Company announces its 2016 fourth quarter and audited year-end
results and files its Annual Report on Form 10-K with the
Securities and Exchange Commission, that may cause actual results
to materially differ.
Conference Call
Quality Systems will host a conference call to discuss its
business strategy review on Thursday, April 28, 2016 at 9:00 AM ET
(6:00 AM PT). All participants should dial 1-866-900-9499 at least
ten minutes prior to the start of the call and reference conference
ID #1292427. International callers should dial 1-937-502-2136. To
hear a live Web simulcast or to listen to the archived webcast
following completion of the call, please visit the Company’s
website at www.qsii.com, click on the "Investors” tab, then select
"Conference Calls," to access the link to the call. To listen to a
telephone replay of the conference call, please dial 800-585-8367
or 404-537-3406 and enter conference ID #1292427. The replay will
be available from approximately 8:00 PM ET on Thursday, April 28,
2016, through 11:59 PM ET on Saturday, April 30, 2016.
A transcript of the conference call will be made available on
the Company’s website at www.qsii.com.
About Quality Systems, Inc.
Irvine, Calif.-based Quality Systems, Inc. (QSI) and its
subsidiary, NextGen Healthcare Information Systems, develop and
provide a range of software and services for medical and dental
group practices, including practice management and electronic
health record applications, patient portal, interoperability and
connectivity products, and population health management and
analytics offerings. Services include managed cloud services,
revenue cycle management, claims clearinghouse, data interchange
and value-add consulting. The Company’s solution portfolio is
readily integrated and collectively positioned to drive low total
cost of ownership for its client partners, as well as enable the
transition to value-based healthcare. Visit www.qsii.com and
www.nextgen.com for additional information.
® Marks owned by Quality Systems, Inc.
SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS
This news release may contain forward-looking statements within
the meaning of the federal securities laws, including but not
limited to, statements regarding future events, developments in the
healthcare sector and regulatory framework, the Company's future
performance, as well as management's expectations, beliefs,
intentions, plans, estimates or projections relating to the future
(including, without limitation, statements concerning revenue, net
income, and earnings per share). The Company’s preliminary,
unaudited results reported in this news release are based on
management’s initial review of operations for the quarter and year
ended March 31, 2016 and remain subject to the completion of the
Company’s customary annual closing and review procedures. Final
adjustments and other material developments may arise between the
date of this news release and the dates the Company announces final
results for the period. The preliminary results in this news
release represent the Company’s initial estimates and are subject
to the risk of being inaccurate because of the preliminary nature
of the forecasts, the possibility of further adjustment, or other
unanticipated issues. Risks and uncertainties exist that may cause
the results to differ materially from those set forth in these
forward-looking statements. Factors that could cause the
anticipated results to differ from those described in the
forward-looking statements and additional risks and uncertainties
are set forth in Part I, Item A of our most recent Annual Report on
Form 10-K for the fiscal year ended March 31, 2015 and subsequently
filed Quarterly Reports on Form 10-Q, including but not limited to:
the volume and timing of systems sales and installations; length of
sales cycles and the installation process; the possibility that
products will not achieve or sustain market acceptance; seasonal
patterns of sales and customer buying behavior; impact of incentive
payments under The American Recovery and Reinvestment Act on sales
and the ability of the Company to meet continued certification
requirements; the development by service introductions, development
and product upgrade releases; undetected errors or bugs in
software; product liability; changing economic, political or
regulatory influences in the health-care industry; changes in
product-pricing policies; availability of third-party products and
components; competitive pressures including product offerings,
pricing and promotional activities; the Company's ability or
inability to attract and retain qualified personnel; possible
regulation of the Company's software by the U.S. Food and Drug
Administration; changes of accounting estimates and assumptions
used to prepare the prior periods' financial statements;
disruptions caused by acquisitions of companies, products, or
technologies; and general economic conditions. A significant
portion of the Company's quarterly sales of software product
licenses and computer hardware is concluded in the last month of a
fiscal quarter, generally with a concentration of such revenues
earned in the final ten business days of that month. Other risks
and uncertainties may arise in connection with the Company’s
impairment charge announced in this news release, including,
without limitation, finalization of the accounting impacts of the
impairment. Additional risks and uncertainties may arise relating
to the Company’s restructuring announced in this news release,
including, without limitation, whether the Company will be able to
implement the restructuring program as planned, whether the
expected costs associated with the restructuring will differ in
amount or timing from the Company’s estimates, whether the Company
will be able to realize the full amount of estimated savings and
benefits from the restructuring program, and finalization of
severance and personnel transition arrangements and finalization of
the accounting impacts of these actions. Due to these and other
factors, the Company's revenues and operating results are very
difficult to forecast. A major portion of the Company's costs and
expenses, such as personnel and facilities, are of a fixed nature
and, accordingly, a shortfall or decline in quarterly and/or annual
revenues typically results in lower profitability or losses. As a
result, comparison of the Company's period-to-period financial
performance is not necessarily meaningful and should not be relied
upon as an indicator of future performance. These forward-looking
statements speak only as of the date hereof. The Company undertakes
no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or
otherwise.
USE OF NON-GAAP FINANCIAL MEASURES
This news release contains certain non-GAAP (Generally Accepted
Accounting Principles) financial measures, which are provided only
as supplemental information. Investors should consider these
non-GAAP financial measures only in conjunction with the comparable
GAAP financial measures, in context of the Company’s preliminary
financial results provided for its fiscal 2016 periods. These
non-GAAP measures are not in accordance with or a substitute for
U.S. GAAP. Pursuant to the requirements of Regulation G, the
Company has provided a reconciliation of non-GAAP financial
measures to the most directly comparable financial measure in the
accompanying financial tables. Other companies may calculate
non-GAAP measures differently than Quality Systems, which limits
comparability between companies. The Company believes that its
presentation of non-GAAP diluted earnings per share provides useful
supplemental information to investors and management regarding the
Company's financial condition and results. The presentation of
non-GAAP financial information is not intended to be considered in
isolation or as a substitute for, or superior to, financial
information prepared and presented in accordance with GAAP. The
Company calculates non-GAAP diluted earnings per share by excluding
acquisition costs, losses related to the disposition of a business
segment, amortization of acquired intangible assets, certain
acquisition-related fair value adjustments, impairment of goodwill
and other assets, securities litigation defense costs, share-based
compensation, and other non-run-rate expenses from GAAP income
before provision for income taxes. Beginning in the first quarter
of fiscal year 2016, the Company began utilizing a normalized
non-GAAP tax rate to provide better consistency across the interim
reporting periods within a given fiscal year, by eliminating the
effects of non-recurring and period-specific items which can vary
in size and frequency, and which are not necessarily reflective of
the Company’s longer-term operations. The normalized non-GAAP tax
rate applied to each quarter of fiscal year 2016 and expected to be
applied for the fiscal 2017 period is 30.5%. The determination of
this rate is based on the consideration of both historic and
projected financial results. The Company intends to re-evaluate
this normalized non-GAAP tax rate on an annual basis or more
frequently if any significant events occur that may materially
affect this rate, such as merger and acquisition activity, changes
in business outlook, or changes in expectations regarding tax
regulations.
The Company’s future period guidance in this release includes
adjustments for items not indicative of the Company’s core
operations. Such adjustments are generally expected to be of a
nature similar to those adjustments applied to the Company’s
historic GAAP financial results in the determination of the
Company’s non-GAAP diluted earnings per share. Such adjustments,
however, may be affected by changes in ongoing assumptions and
judgments as to the items that are excluded in the calculation of
non-GAAP adjusted net income and adjusted diluted earnings per
share, as described in this press release. The exact amount of
these adjustments are not currently determinable, but may be
significant. It is therefore not practicable to reconcile this
non-GAAP guidance to the most comparable GAAP measures.
FINANCIAL TABLES ATTACHED
QUALITY SYSTEMS, INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
RECONCILIATION OF
PRELIMINARY NON-GAAP DILUTED EARNINGS PER SHARE
Three MonthsEnded 3/31/2016Preliminary
Estimate
Fiscal YearEnded 3/31/2016Preliminary
Estimate
Diluted net income (loss) per share - GAAP ($0.28) to
($0.26) $0.08 to $0.10 Adjustments: Acquisition costs
$0.00 $0.06 Amortization of acquired intangible assets $0.06 $0.13
Loss on disposition of Hospital Solutions Division and related
costs $0.00 $0.02 Securities litigation defense costs, net of
insurance
($0.02)
($0.02)
Share-based compensation $0.01 $0.04 Write-off of capitalized
software costs and related wind-down costs $0.37 $0.37 Other
non-run-rate expenses * $0.03 $0.05 Effect of difference between
GAAP and Non-GAAP effective tax rates
($0.01)
($0.03)
Total adjustments to GAAP diluted net loss per share ** $0.45 $0.62
Diluted net income per share - Non-GAAP $0.17 to $0.19
$0.70 to $0.72
* For the three months ended 3/31/2016, other non-run-rate
expenses consist of $0.01 per share of professional services costs
not related to ongoing core operations, $0.01 per share of
incremental costs related to the transition of Company executive
officers, and $0.01 per share of severance, retention, and other
employee-related costs.
For the fiscal year ended 3/31/2016, other non-run-rate expenses
consist of $0.02 per share of professional services costs not
related to ongoing core operations, $0.02 per share of incremental
costs related to the transition of Company executive officers, and
$0.02 per share of severance, retention, and other employee-related
costs.
** Total adjustments may not foot due to rounding of per share
amounts.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160427006634/en/
Quality Systems, Inc.Mark Davis, 949-265-6928EVP, Corp
Development and IRmdavis@nextgen.comorSusan J. Lewis,
303-766-4343slewis@qsii.com
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