QSII

Quality Systems, Inc. (QSII)

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Quality Systems, Inc. (QSII)

F2Q13 Earnings Call

October 26, 2012 10:00 am ET

Executives

Steve K. Puckett – Executive Vice President-Inpatient Solutions

Daniel J. Morefield – Executive Vice President and Chief Operating Officer

Steven Plochocki – Chief Executive Officer

Paul A. Holt – Chief Financial Officer

Analysts

Gregory T. Bolan – Sterne Agee & Leach Inc.

Ricky Goldwasser – Morgan Stanley & Co. LLC

Charles Rhyee – Cowen and Company, LLC

Michael Cherny – ISI Group

Andrew O'Hara – William Blair & Co. LLC

Eric Coldwell – Robert W. Baird & Co

George Hill – Citigroup

Bret D. Jones – Oppenheimer & Co. Inc.

Sean W. Wieland – Piper Jaffray

Steven Halper – Lazard Capital Markets

David Larsen – Leerink Swann

Richard C. Close – Avondale Partners, LLC

David H. Windley – Jefferies & Company, Inc.

Presentation

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Quality Systems Fiscal 2013 Second Quarter Results Conference Call. At this time, all participations are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Friday, October 26, 2012 at 7:00 am Pacific Standard Time.

I would now like to turn the conference over to your host, Mr. Steven Plochocki, CEO. Please go ahead, sir.

Steven Plochocki

Thank you, Ron, and welcome everyone to the Quality Systems 2013 Fiscal Second Quarter Results call. With me this morning are Paul Holt, our CFO; Dan Morefield, our Chief Operating Officer. Welcome, Dan, to the company in your first earnings call.

Daniel J. Morefield

Thank you. I’m happy to be here.

Steven Plochocki

Donn Neufeld, our Executive Vice President of EDI and Dental; Steve Puckett, our Executive Vice President of NextGen Hospital Solutions and our new Chief Technology Officer; 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 and accounting principles. I’ll provide some opening comments and then turn it over to the team.

Company reported a $116.1 million for the fiscal 2013 second quarter in terms of revenue, an increase of 8% versus a $107.6 million for fiscal 2012 second quarter. Net income for the fiscal 2013 second quarter was $15.7 million, down 23% when compared with net income of $20.5 million for the comparable period last year.

Fully diluted earnings per share for the fiscal 2013 second quarter was $0.26, a 26% decrease from $0.35 for the fiscal 2012 second quarter. While revenues increased slightly in the quarter, we are moving forward by continuing to recognize the company in a manner to the better lines, with the changing healthcare information technology sector in which we now operator.

This will allow us to further leverage our four business units throughout the marketplace, which includes Dental EDI, revenue cycle management services, hospital solutions, and ambulatory. To this end, thus far we have appointed a seasoned technology executive in Dan Morefield, who serve as our Chief Operating Officer.

We restructured our sales and marketing functions to report to Gary Voydanoff, one of veteran senior sales executive and created a chief technology roll under Steve Puckett to consolidate our software development efforts. We believe these initiatives position the company to take advantage of future opportunities as the sector remains in the very early stages of not just EHR adoption but also healthcare reform and it prepares us for future accountable care modeling which is now evolving.

Also, the Board of Directors declared a quarterly cash dividend of $0.175 per share on the company's outstanding shares of common stock payable to shareholders of record as of December 14, 2012 with an anticipated distribution date of January 4, 2013. The $0.175 per share dividend is consistent with the company's current policy to pay a regular quarterly dividend on the company's outstanding shares of common stock, subject to Board review and approval.

In other views, we are proud to announce that Mark Davis was appointed to the Board of Directors effective October 25, 2012. Mark fills the seat vacated by Maureen Spivack, who resigned due to a conflict of interest relating to a new employment position she recently accepted. Mark will also be appointed to serve on the Board's Audit Committee and Transaction Committee. Davis is a Managing Director at B. Riley & Co, LLC, an investment firm specializing in research, sales trading and corporate finance. He brings more than 20 years of experience advising and financing technology companies, including software, cloud infrastructure and information technology firms, to the Quality Systems Board. In addition, he is a certified public accountant whose financial expertise and knowledge will provide beneficial acumen to the Board efforts.

Previous, Mark served as the head of technology investment banking at Cantor Fitzgerald, managing director at Macquarie Capital, an Australian merchant and investment banking firm, and managing director as well as in other senior leadership roles at Citigroup. Earlier in his career, he was an Audit Senior with Price Waterhouse. He holds a Master's of Public Administration from Wharton at the University of Pennsylvania, and a Bachelors degree in Accounting from the University of Maryland.

We welcome Mark to the Board. His two decades of experience advising and financing technology related businesses, coupled with his public accounting background, will provide the Board with insights and expertise in terms of technology and finance. We look forward to the guidance bring to Board and contributions he will make to the company, and the management team.

Our strategy to capture significant opportunities for continued revenue and earnings growth in this marketplace is sound. We will continue to pursue significant opportunities to sell our electronic health record and complementary solutions. Industry estimates indicate that addressable market for EHR solutions is 40% for physicians and hospitals combined. We are only in the second 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 ERH currently is 4th out of 400 competitors in Medicare attestations, and also ranks 4th in REC application of software showing our 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, we believe the 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 sale to our customers as well.

Over the last several years we have established four business units led by experienced managers to provide focused leadership, to develop the 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 the 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 to win multi-solution deals with new customers.

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