A month has gone by since the last earnings report for Quality Systems, Inc. QSII . Shares have added about 9.3% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Irvine, CA-based Quality Systems Inc. (QSII) reported third-quarter fiscal 2017 adjusted earnings of $0.21 per share, exceeding the Zacks Consensus Estimate of $0.18.
Furthermore, earnings improved 40% on a year-over-year basis, courtesy of impressive revenue growth.
Coming to third-quarter revenues, Quality Systems posted revenues of $127.9 million, surpassing the Zacks Consensus Estimate of $125 million. Revenues also increased 9.3% on a year-over-year basis.
Total software, hardware and related revenues increased 42% to $39.5 million, primarily driven by a 92.6% surge in Software-related subscription services.
However, massive growth at this section was partially offset by lower software license and hardware sales, which grew a modest 5.2% in the quarter
Support and maintenance revenues increased 1% on a year-over-year basis to $39.9 million.
Revenues from Professional services declined 11.5% to $6.5 million. Per management, lower revenues at the segment were primarily because of the unimpressive performance of the new software platform in the preceding quarters. Furthermore, strategic initiatives to enhance customer satisfaction at low cost resulted in the lower revenues.
Coming to Electronic data interchange (EDI) services, revenues increased 5.6% on a year-over-year basis to almost $21.6 million.
Meanwhile, the company's Revenue Cycle Management (RCM) business improved 0.7% to $21.7 million.
Quality Systems registered bookings worth $32.5 million in the reported quarter, down by $3.2 million from the year-ago quarter.
Furthermore, bookings in the quarter were lower than the second quarter's $33.4 million.
As a percentage of revenues, total software and hardware-related expenses rose 140 basis points (bps).
Quality Systems' expenses on support and maintenance, revenue cycle management and professional services decreased 70 bps, 180 bps and 70 bps, respectively. However, due to a change in the mix of revenue and lower amortization of capitalized software development costs, gross margin witnessed a robust 350 bps expansion.
Coming to operating expenses, selling, general and administrative (SG&A) expenses, as a percentage of revenues, contracted a massive 430 bps.
However, research and development (R&D) costs scaled a substantial 300 bps. As a result, operating margin (excluding amortization of acquired intangible assets and impairment of assets) rose 330 bps to 10.5% in the quarter.
For fiscal 2017, Quality Systems projects revenues in the band of $501 million to $507 million, compared to the previous $494 million to $510 million.
However, adjusted earnings are forecasted in the upper end of the previously estimated band of $0.75--$0.81 per share.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
Quality Systems, Inc. Price and Consensus | Quality Systems, Inc. Quote
At this time, Quality Systems' stock has a strong score of 'A' on both growth and momentum front. Following the exact same course, the stock was allocated also 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 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for growth, value and momentum investors.
The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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