Quality Systems Stock Plummets 24.5%

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Quality Systems Inc.’s shares tumbled 24.5% Wednesday after an analyst, citing slower-than-expected sales growth, cut earnings estimates for the health-care software company through early 1998.

Fred Toney, an analyst at Pacific Growth Equities in San Francisco, said sales from a company acquired by Quality Systems earlier this year haven’t panned out as expected. He trimmed his earnings estimate for the fiscal year ending next March to 56 cents a share from 65 cents, and pared his estimate for the following year to 90 cents from $1.04.

The Tustin company, which makes software used by physicians to manage their health-care information, bought Pennsylvania-based Clinitec International Inc. in May to add a line of software for keeping patient records.


But the company’s new Clinitec division has discovered that its customers, such as large physician practices and practice management companies, want to test the system before converting an entire office, Toney said. As a result, the company is booking limited revenue from sales of its patient-record systems, he said.

The company learned after acquiring Clinitec that its customers buy on a piecemeal basis, said Robert McGraw, Quality Systems’ chief financial officer. “It’s relatively universal among the customers,” he noted. “They are testing it first with a pilot.”

Shares of the Tustin company fell by $3.125 a share to $7.625 in early Nasdaq trading--a decline of 29%--then recovered to close at $8.125, down 24.5% for the day.

The stock is a far cry from the $22.25 price paid by investors in the company’s 1-million-share stock sale last March to finance the Clinitec purchase. At the time of the offering, the company’s chief executive, Sheldon Razin, sold 451,000 of his own shares, worth $10 million.

The stock moved up to a record $35.25 in May before slipping along with other stocks in the industry in June and July.

Toney noted that investors have gladly paid handsomely for attractive, rapidly growing companies such as Quality Systems. But “when there’s a disappointment, Wall Street is relatively unforgiving,” he added.


Razin wasn’t available for comment.

However, McGraw said Toney’s analysis was based on information provided analysts during an Aug. 12 conference call, adding that nothing has changed in the company’s outlook since then.

McGraw said it’s too early to predict when and how the customers will expand their purchases of Clinitec systems.