NextGen Healthcare parent Quality Systems falls 33% on earnings shortfall

Tom Paine

Quality Systems, Inc., the Orange County, California-based corporation which derives over 90% of its revenue from Horsham-based EHR (electronic healthcare record) provider NextGen Healthcare, had been a high-flying stock, with its shares lifted higher by the potential of the federal subsidy program designed to push healthcare practices to adopt EHRs and achieve the magical "meaningful use" designation. That picture had been deteriorating for a while, though, and today fell to earth as Quality pulled its full-year outlook after a below expectations beginning to its fiscal year. Quality (NASDAQ:QSII) closed the day down 33%. It shares are down 64% over the past year, and its market cap is now under $1 billion down from around $3 billion at its peak.

Quality Systems said today that its profit in its April-June quarter fell 18 percent to $15.5 million, or 26 cents per share, while sales rose 18 percent to $118.3 million. Software sales fell 11 percent to $25.8 million, but Reuters cites analysts who believe some software revenue may have been pulled in from the next quarter, understating the extent of the decline. Analysts differed on whether some of its problems were specific to Quality or due to more generic industry issues, but some believe Quality could be losing market share to competitors such as Cerner Corp and Athenahealth Inc.

Quality's CEO, Steven Plochocki, told the Wall Street Journal that most of the company's shortfall could be attributed to three big deals that failed to close in the quarter.

Board member and dissident shareholder Ahmed D. Hussein, who has been battling Chairman of the Board Sheldon Razin for years, is mounting a proxy contest to support the election of his seven board nominees at Quality's annual shareholder meeting to be held in mid-August, and issued a letter on that subject yesterday. Among his nominees is the well-respected Partrick B. Cline, who co-founded Clinitec, which grew to become NextGen Healthcare. Cline retired as President of Quality Systems at the end of 2011.



Related:
FRIDAY, JULY 29, 2011: Quality Systems, QlikTech earnings reports


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