Quality Systems, Inc. Reports Fiscal 2018 Fourth Quarter and Year-End Results

Quality Systems, Inc. QSII, known to its clients as NextGen Healthcare, announced today its fiscal 2018 fourth quarter and year end March 31, 2018 operating results.

"We closed fiscal 2018 with a strong quarter delivering at or above the commitments we made to our investors. We're seeing great growth in our RCM pipeline, as well as continuing success with our NextGen Population Health Analytics Suite and NextGen Mobile Platform, formerly Eagle Dream and Entrada. We executed on our commitment to drive bookings growth in the back half of the fiscal year, with 9% actual and 5.5% pro forma year over year growth in the fourth quarter," commented Rusty Frantz, president and chief executive officer of NextGen Healthcare.

Mr. Frantz continued, "The successes we've seen over the course of fiscal 2018, particularly the sales performance during the fourth quarter, maintains our confidence in our long-term targets."

Fiscal 2018 Fourth Quarter and Year-End Highlights

Notable for the results in the fourth quarter, subsequent to the quarter-end, was an agreement-in-principle to settle the Federal Securities Class action litigation. As a result, we recorded a charge of $19 million, which is included in our quarterly GAAP results.

Revenues for the fiscal 2018 fourth quarter of $135.8 million compared to $132.4 million a year-ago. On a GAAP basis, net loss for the 2018 fourth quarter was $11.0 million, compared with net income of $4.4 million in the 2017 fourth quarter. Non-GAAP net income for the 2018 fourth quarter was $10.4 million compared with non-GAAP net income of $12.7 million in the 2017 fourth quarter.

On a GAAP basis, fully diluted loss per share was $0.17 in the fiscal 2018 fourth quarter compared with earnings per share of $0.07 for the same period a year ago. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2018 fourth quarter was $0.16 versus $0.21 reported in the fourth quarter a year ago.

For the fiscal year ended March 31, 2018, revenues reached $531.0 million, compared with $509.6 million for the 2017 fiscal year. GAAP net income for fiscal 2018 was $2.4 million, versus $18.2 million reported in fiscal 2017. Non-GAAP net income for fiscal year 2018 was $44.5 million compared to non-GAAP net income for fiscal year 2017 of $50.8 million.

On a GAAP basis, fully diluted earnings per share for the 2018 fiscal year was $0.04, compared with $0.29 reported in the 2017 fiscal year. On a non-GAAP basis, fully diluted earnings per share for fiscal year 2018 was $0.70 versus $0.82 reported in the prior year.

Fiscal 2019 Financial Outlook

The company is providing initial outlook for fiscal 2019 and expects:

Revenue of between $532 million and $548 million
Non-GAAP EPS of between $0.70 and $0.78

Conference Call Information

NextGen Healthcare will host a conference call to discuss its fiscal 2018 fourth quarter and year-end results on Thursday, May 24, 2018 at 5:00 PM ET (2:00 PM PT). Shareholders and interested participants may listen to a live broadcast of the conference call by dialing 866-750-8947 or 720-405-1352 for international callers, and referencing participant code 4669876 approximately 15 minutes prior to the call. A live webcast of the conference call will be available on the investor relations section of the company's web site and an audio file of the call will also be archived for 90 days at investor.qsii.com. After the conference call, a replay will be available until June 8, 2018 and can be accessed by dialing 800-585-8367 or 404-537-3406 for international callers, and referencing participant code 4669876.

2018 Annual Shareholders' Meeting

In addition, the Company will hold its 2018 Annual Shareholders' Meeting on Tuesday, August 14, 2018 at 9:00 AM local time. The meeting will be held at the Marriott Hotel, 18000 Von Karman Avenue, Irvine, California 92612. Holders of record as of June 18, 2018 are eligible to vote and attend. Proxy materials and the 2018 Annual Report will be made available to shareholders of record and will also be posted on the Company's website.

About Quality Systems, Inc.

Quality Systems, Inc., known to its clients as NextGen Healthcare, provides a range of software, services, and analytics solutions to medical and dental group practices. The company's portfolio delivers foundational capabilities to empower physician success, enrich the patient care experience, and enable the transition to value-based healthcare. Visit www.qsii.com and www.nextgen.com for additional information.

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). 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 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; uncertainties related to the future impact of U.S. tax reform; the impact of governmental and regulatory agency investigations; the development by competitors of new or superior technologies; the timing, cost and success or failure of new product and 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. 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. 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 net acquisition costs, amortization of acquired intangible assets, amortization of deferred debt issuance costs, restructuring costs, net securities litigation defense costs and settlement, share-based compensation, and other non-run-rate expenses from GAAP income before provision for income taxes. The Company utilizes 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 fiscal years 2018 and 2017 is 30.5%. The determination of this rate is based on the consideration of both historic and projected financial results. The Company has not adjusted its non-GAAP tax rate for fiscal year 2018 following the enactment of the new tax reform legislation on December 22, 2017. The Company may adjust its non-GAAP tax rate in fiscal 2019 as additional information becomes available and further analysis is completed based on the expected long-term impact of the tax reform legislation in conjunction with any other significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or other 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 release. The exact amount and probable significance of these adjustments, including net acquisition costs, net securities litigation defense costs and settlement, and other non-run-rate expenses, are not currently determinable without unreasonable efforts, but may be significant. These items cannot be reliably quantified or forecasted due to the combination of their historic and expected variability. It is therefore not practicable to reconcile this non-GAAP guidance to the most comparable GAAP measures.


QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

	Three Months Ended March 31,						Year Ended March 31,
	2018			2017			2018			2017
Revenues:
Software license and hardware	$	15,378		$	16,581		$	55,576		$	65,547
Software related subscription services		25,963			23,139			99,547			87,050
Total software, hardware and related		41,341			39,720			155,123			152,597
Support and maintenance		40,634			41,898			163,805			158,803
Revenue cycle management and related services		19,669			20,515			83,996			82,552
Electronic data interchange and data services		23,327			23,424			92,773			88,951
Professional services		10,804			6,828			35,322			26,721
Total revenues		135,775			132,385			531,019			509,624
Cost of revenue:
Software license and hardware		5,720			5,427			21,667			24,654
Software related subscription services		11,673			9,637			44,495			36,744
Total software, hardware and related		17,393			15,064			66,162			61,398
Support and maintenance		7,349			7,414			29,932			28,317
Revenue cycle management and related services		15,290			14,318			60,905			56,370
Electronic data interchange and data services		13,702			12,870			54,015			51,102
Professional services		8,243			6,304			30,521			25,947
Total cost of revenue		61,977			55,970			241,535			223,134
Gross profit		73,798			76,415			289,484			286,490
Operating expenses:
Selling, general and administrative		65,709			42,710			193,226			163,623
Research and development costs, net		21,098			22,111			81,259			78,341
Amortization of acquired intangible assets		1,795			2,546			7,810			10,435
Impairment of other assets		3,757			—			3,757			—
Restructuring costs		481			2,393			611			7,078
Total operating expenses		92,840			69,760			286,663			259,477
Income (loss) from operations		(19,042	)		6,655			2,821			27,013
Interest income		19			5			55			14
Interest expense		(1,073	)		(711	)		(3,323	)		(3,156	)
Other income (expense), net		85			(116	)		37			(262	)
Income (loss) before provision for (benefit of) income taxes		(20,011	)		5,833			(410	)		23,609
Provision for (benefit of) income taxes		(8,964	)		1,418			(2,830	)		5,368
Net income (loss)	$	(11,047	)	$	4,415		$	2,420		$	18,241
Net income (loss) per share:
Basic	$	(0.17	)	$	0.07		$	0.04		$	0.30
Diluted	$	(0.17	)	$	0.07		$	0.04		$	0.29
Weighted-average shares outstanding:
Basic		63,888			62,345			63,435			61,818
Diluted		63,888			62,348			63,440			62,010


QUALITY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

	March 31, 2018			March 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	28,845		$	37,673
Restricted cash and cash equivalents		2,373			4,916
Accounts receivable, net		84,962			83,407
Inventory		180			158
Income taxes receivable		8,122			2,679
Prepaid expenses and other current assets		17,180			17,969
Total current assets		141,662			146,802
Equipment and improvements, net		26,795			27,426
Capitalized software costs, net		26,318			13,607
Deferred income taxes, net		9,219			11,265
Intangibles, net		74,091			69,213
Goodwill		218,875			185,898
Other assets		18,795			19,010
Total assets	$	515,755		$	473,221
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,213		$	4,618
Deferred revenue		54,079			52,383
Accrued compensation and related benefits		27,910			24,513
Income taxes payable		73			405
Other current liabilities		48,317			46,775
Total current liabilities		134,592			128,694
Deferred revenue, net of current		1,173			1,394
Deferred compensation		6,086			6,629
Line of credit		37,000			15,000
Other noncurrent liabilities		13,494			16,461
Total liabilities		192,345			168,178
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 100,000 shares; issued and outstanding 63,995 and 62,455 shares at March 31, 2018 and 2017, respectively		640			625
Additional paid-in capital		244,462			228,549
Accumulated other comprehensive loss		(400	)		(358	)
Retained earnings		78,708			76,227
Total shareholders' equity		323,410			305,043
Total liabilities and shareholders' equity	$	515,755		$	473,221


QUALITY SYSTEMS, INC.
NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)


RECONCILIATION OF NON-GAAP DILUTED EARNINGS PER SHARE

	Three Months Ended March 31,					Year Ended March 31,
	2018			2017		2018			2017
Income (loss) before provision for income taxes - GAAP	$	(20,011	)	$	5,833	$	(410	)	$	23,609
Non-GAAP adjustments:
Acquisition and disposition costs, net		339			1,376		1,908			6,523
Amortization of acquired intangible assets		6,029			5,508		23,380			22,461
Amortization of deferred debt issuance costs		803			269		1,610			1,076
Restructuring costs		481			2,393		611			7,078
Securities litigation defense costs and settlement, net of insurance		19,984			315		20,700			1,798
Share-based compensation		3,611			2,430		12,196			7,497
Impairment of assets		3,757			—		3,757			—
Other non-run-rate expenses*		—			144		263			3,009
Total adjustments to GAAP income before provision for income taxes:		35,004			12,435		64,425			49,442
Income before provision for income taxes - Non-GAAP		14,993			18,268		64,015			73,051
Provision for income taxes		4,573			5,572		19,525			22,281
Net income - Non-GAAP	$	10,420		$	12,696	$	44,490		$	50,770
Diluted net income per share - Non-GAAP	$	0.16		$	0.21	$	0.70		$	0.82
Weighted-average shares outstanding (diluted):		63,888			62,348		63,440			62,010

* Other non-run-rate expenses consist primarily of professional services costs not related to core operations.