Quality Systems, Inc. Discontinues NextGen Now in Favor of MediTouch Platform

IRVINE, Calif.–(BUSINESS WIRE)– 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

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.