Quality Systems, Inc. (QSII)

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Quality Systems, Inc (QSII)

F3Q 2013 Earnings Call

January 24, 2013 10:00 am ET


Steven Plochocki – Chief Executive Officer

Paul Holt – Chief Financial Officer

Dan Morefield – EVP, Chief Operating Officer

Donn Neufeld – SVP, General Manager

Monte Sandler – EVP, NextGen Practice Solutions


Michael Cherny – ISI Group

Ricky Goldwasser – Morgan Stanley

Charles Rhyee – Cowen & Company

Gavin Weiss – JP Morgan

Jamie Stockton – Wells Fargo

Greg Bolan – Sterne Agee

Andy O’Hara – William Blair

Bret Jones – Oppenheimer

Richard Close – Avondale Partners

George Hill – Citigroup

Sean Daj – Jefferies



Welcome to the Quality Systems Fiscal 2013 Third Quarter Results Conference Call. (Operator Instructions) This conference is being recorded today, Thursday, January 24, 2013. At this time, I would like to turn the conference over to Steven Plochocki, CEO, of Quality Systems. Please go ahead, sir.

Steven Plochocki

Thank you, Tadeo, and welcome, everyone, to the Quality Systems 2013 Fiscal Third Quarter Results Call. With me this morning are Paul Holt, our CFO; Dan Morefield, our Chief Operating Officer; Steve Puckett, Executive Vice President of NextGen Hospital Solutions and our CTO; Donn Neufeld, Executive Vice President of Dental and EDI; and Monte Sandler, Executive Vice President of RCM Services.

Please note that the comments made on this call may include statements that are forward-looking within the meaning of securities laws, including without limitation, statements related to anticipated industry trends, the company’s plans, products, perspective and strategies, preliminary and projected, and capital equity initiatives to the implementation of potential impacts of legal, regulatory or accounting principles.

I’ll provide some opening comments and then turn it over to the team.

We continue to execute on the restructuring plan we laid out and began in October, 2012 which included the centralization of our sales and marketing efforts, as well as the business development and technology functions of the organization. In addition, we’ve been strengthening our operational structure under the direction of recently-appointed Chief Operating Officer, Dan Morefield.

All these initiatives are starting to gain traction. We are confident in the anticipated benefits of these organization changes and their impact on top line, in our cost structure, and then that translation into the bottom line. Albeit early, we are beginning to see some impact from our reorganization as we continue to maximize and leverage our multi-product offering within the Healthcare Information Technology marketplace.

We have set a new date for our analyst’s day. Originally scheduled to be held in November, 2012 but postponed due to Hurricane Sandy, the meeting has been rescheduled for Monday, May 6, 2013 at the Le Parker Meridien Hotel in New York City. More details will follow.

We also announced that the company’s board of directors declared a quarterly cash dividend of $0.1750 per share on the company’s outstanding shares of common stock. Payment to the shareholders of record, as of March 15, 2013, with an anticipated distribution date of April 5, 2013. The $0.1750 per share cash dividend is pursuant to the company’s current policy to pay a regular quarterly dividend on the company’s outstanding shares of common stock, subject to further board review and approval and establishment of record and distribution dates by the board prior to declaration and payment of each such quarterly dividend.

Our strategy to capture market opportunities for continued revenue and earnings growth in our marketplace is sound. We will continue to pursue significant opportunities to sell our Electronic Health Record and complementary solutions. Industry estimates indicate that the addressable market for the HR solution is 35% for physicians and hospitals on a greenfield basis. We are in the third year of government incentive payments to physicians and hospitals and we anticipate continued opportunity in this market as incentive payments drive further adoption.

NextGen’s Ambulatory EHR currently is fourth out of 400 competitors and Medicare attestations showing its strength in enabling our customers to demonstrate Meaningful Use. As the government’s requirements for achieving Meaningful Use and receiving incentive payments become ever more stringent, with Stage 2 certification and ICD-10 coding compliance, we believe proven vendors like NextGen will separate from the pack as physician groups replace systems by vendors that simply cannot meet these requirements. We see significant potential for cross selling new solutions to our existing customer base and bundling multiple solutions for sales to new customers. This will continue to be a major emphasis for the company.

Over the last several years we have established four business units led by experienced managers to provide focused leadership, to develop business plans, technology infrastructure required to successfully introduce new complementary software and services. At the same time we have worked to tightly integrate many of these new solutions with our existing software to further strengthen our ability to cross sell within our existing customer base for each of our product lines and win multi-solution deals with new customers.

QSI is that the forefront of enabling the new Healthcare delivery models that are rapidly emerging, namely the Accountable Care Organizations. Our New Patient Population Management Solution allows physicians to monitor patient compliance with treatment plans and to track, capture and process revenue associated with proactive patient communication and care. Our Performance Management Suite provides sophisticated self-service analytics to keep Healthcare organizations meeting reporting needs for regulatory clinical and key financial performance indicators.

We see opportunity to grow our RCM service business as the industry seeks to reduce costs by outsourcing billing and collection activities. Management is actively looking to capitalize on the growth and potential we see in this line of business, in particular by extending our current RCM capabilities into the Dental and hospital markets of which we are actively pursuing at this moment. This will clearly be a fast growing segment for us and a major emphasis in the upcoming fiscal year.

With nine acquisitions in the last four years we continually evaluate acquisition opportunities of all sizes. Our core part of the acquisition strategy is to use bolt-on acquisitions to fill a strategic gap or kick start an entree into a newer business line. For example we recently acquired Matrix Management Solutions to expand our RCM offering. And we acquired The Poseidon Group to expand the emergency department capabilities of our Hospital Solution customers. We also have considered and will continue to consider larger, more-transformative transactions. Regardless of the size of the transaction, we will continue to focus on those deals that will provide strategic benefits to the company and make financial sense for our shareholders.

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