JMP Securities Healthcare Conference October 7, 2008
SAFE HARBOR PROVISIONS FOR FORWARD‐LOOKING STATEMENTS:
Statements made during this presentation, the proxy statements filed with the Securities and Exchange Commission (“Commission”), communications to shareholders, press releases and oral statements made by our representatives that are not historical in nature, or that state our or management’s intentions, hopes, beliefs, expectations or predictions of the future, may constitute “forward‐looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended. Forward‐looking statements can often be identified by the use of forward‐looking terminology, such as “could,” “should,” “will,” “will be,” “will lead,” “will assist,” “intended,” “continue,” “believe,” “may,” “expect,” “hope,” “anticipate,” “goal,” “forecast,” “plan,” or “estimate” or variations thereof or similar expressions. Forward‐looking statements are not guarantees of future performance. Forward‐looking statements involve risks, uncertainties and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward‐looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the risk factors discussed under “Risk Factors” in our Annual Report on Form 10‐K for fiscal year ended March 31, 2008, as well as factors discussed elsewhere in other reports and documents we file with the Commission. Other unforeseen factors not identified herein could also have such an effect. We undertake no obligation to update or revise forward‐looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time unless required by law. Interested persons are urged to review the risks described under “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10‐K for fiscal year ended March 31, 2008, as well as in our other public disclosures and filings with the Commission.
Quality Systems: Company Snapshot
Through our NextGen and QSI divisions, we develop and provide computer‐based practice management, medical records, and e‐ business applications for U.S. medical and dental group practices The company derives most of its revenue and growth from physician group business and its high functionality practice management suites Quality Systems is managed with an eye toward pursuing organic growth, while concurrently maintaining a strategy of aggressive reinvestment in new product and service development initiatives Quality Systems has an industry‐leading track record of strong financial and shareholder returns, and a dedication to the highest corporate governance standards
A Track Record of Success
The growth strategy developed by the Quality Systems management team has delivered results:
We believe the company has been growing at a faster rate than the industry average and taking market share from our competitors Our revenue stream is diversified, with two‐thirds of sales to mid‐sized and large customers and the rest to smaller customers The company has successfully leveraged its strength in the practice management business into the emerging medical record market
○ Currently 75% of our customers buy products in both categories
By investing in new products and services, we can anticipate customers’ unique needs and provide the solutions they demand
A Track Record of Success
The results are evident in our ongoing financial performance and track record of delivering shareholder value:
A nearly 400% stock price increase the past five years Financial results that rank Quality Systems among the most profitable companies and strongest cash flow generators in its sector during the same period Solid first‐quarter FY’09 earnings that included a 31% jump in net revenues and 40% increase in net income A corporate governance record predicated on pro‐shareholder policies
Industry Growth Drivers
Growth Drivers
Public Sector Initiatives HIPAA State / Local CCHIT Certification P4P Incentives Relaxation of Stark Regulations
Technology Flexibility ROI Personal Health Records (PHR)
Purchaser Influence Payors Employers Quality Incentives Group Initiatives
Organizational Map
Corporate Headquarters Irvine, CA
NextGen Division 794 Employees
Corporate Admin. 44 Employees
QSI Division 69 Employees
Horsham, PA (Acq’d 1996)
Atlanta, GA (Acq’d 1997)
HSI St. Louis, MO (Acq’d 2008)
Software Irvine, CA
Depot Santa Ana, CA
Experienced Management Team
Title Steven Plochocki Chief Executive Officer, Quality Systems, Inc. Patrick Cline President, NextGen Healthcare, Quality Systems, Inc. Paul Holt Chief Financial Officer, Quality Systems, Inc. Donn Neufeld Executive Vice President and General Manager, Quality Systems, Inc. Fred Neufeld Executive Vice President and General Manager, NextGen Healthcare Scott Decker Senior Vice President, NextGen Healthcare Tim Eggena Executive Vice President, NextGen Practice Solutions, NextGen Healthcare Years of Industry Experience 36
27
13
28
30
12
15
Quality Systems Today
June 30, 2008 TTM Revenue: $199.7mm EPS: $1.55
TTM Revenue: Markets Served:
$183.6mm (92% of total) Physicians • Practice Management • EMR • EDI • Revenue Cycle Management 1,160 Horsham, PA; Atlanta, GA; St. Louis, MO; Dallas, TX 794
TTM Revenue: Markets Served:
$16.1mm (8% of total) Dentists • Practice Management • EPR • EDI 249 Irvine, CA; Santa Ana, CA 69
Billing Sites (6/30/08): Locations: Employees (6/30/08):
Billing Sites (6/30/08): Locations: Employees (6/30/08):
Product / Market Dynamics
High Growth
EMR Clinical Dental
Growth
EDI/ Connectivity
MPM
Low Growth
Dental PM
High Penetration
Penetration Opportunity
Low Penetration
New vs. Recurring Revenue
QSI Division
New 25% Recurring 75%
NextGen Division
Recurring 43%
New 57%
Company
Recurring 46%
New 54%
NextGen Healthcare Current State of Adoption
5% Complete 5% Partial
10% Complete 10% Partial
1% Complete
49% Partial
90% Paper
80% Paper
50% Paper
Small Practices
Large Practices
Hospital Outpatient Depts
Inpatient
Critical Care
Ambulatory Care
Acute Care Source: The Coker Group – 8/1/08
Quarterly Results – Revenue/EPS
Note: Charges for adoption of SFAS 123R began in June 2006 quarter
Our Strategy Is Working
Revenue
$200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 Revenue (in thousands)
3/31/03
3/31/04
3/31/05
3/31/06
3/31/07
3/31/08
Earnings Per Share
$1.60 $1.40 $1.20 $1.00 EPS $0.80 $0.60 $0.40 $0.20 $0.00 3/31/2003 3/31/2004 3/31/05 3/31/2006 3/31/2007 3/31/2008
Our Strategy is Working
Cash Flow from Operations
$45 Cash Flow from Ops (in thousands) $40 $35 $30 $25 $20 $15 $10 $5 $0 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08
Net Income Margin
25.0% Net Income Margin 20.0% 15.0% 10.0% 5.0% 0.0%
3/31/03
3/31/04
3/31/05
3/31/06
3/31/07
3/31/08
Ongoing Strong Financial Performance
Maintenance Revenues
$60 $50
Maintenance (in thousands)
$40 $30 $20 $10 $0 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08
System Sales
$90 $80
System Sales (in thousands)
$70 $60 $50 $40 $30 $20 $10 $0 3/31/03 3/31/04 3/31/05 3/31/06 3/31/07 3/31/08
We Are Generating Meaningful Results for Shareholders
Awards & Honors
• Forbes named QSI to the 200 Best Small Companies list for seven consecutive years – #5 in 2007
Quality Systems Highlights
• Fortune list of 100 Fastest Growing Small Public Companies – #41 in 2007 • Business Week’s list of 100 Hot Growth Companies – #19 in 2007 • Business 2.0 list of 100 Fastest Growing Technology Companies – #78 in 2007
• #1 Rating – 2007/2008 -AC Group – EMR/EHR for multi-specialty, community health, FQHC’s, large, mid-size, and small practice categories • TEPR awards at 2001, 2002, 2003, 2004 conferences
NextGen Highlights
• HIMSS/HUG awards at 2003, 2004, 2005, 2006, 2007 and 2008 conferences
— — — — Administrative / Financial Systems Clinical / Patient Information Systems Interoperability / RHIO Disease Surveillance
• Expanded trade journal coverage: Healthcare Informatics, Health Data Management, Health Management Technology, Modern Healthcare
Future Vision
Maximize top/bottom line growth at NextGen and EDI/Connectivity Maximize profit at QSI Division Stepped investments in Sales, Marketing, Implementation, Support and Development Continued improvements – compensation and process HSI acquisition expands revenue cycle management division service capabilities Prioritize organic growth – selectively evaluate inbound acquisition opportunities Market share Niche products Channel expansion
Investment Highlights
Proven Growth and Profitability
• Track record of organic growth and profitability – 5 year revenue CAGR of 28% and Net Income CAGR of 42% – most profitable company in market segment with 30%+ EBITDA margins • Self-funded, highly profitable growth strategy – recurring revenue base provides stable cash flow • Forbes list of Best 200 Small Companies seven consecutive years • $85 million NextGen sales pipeline @ 6/30/08
Robust Sales Pipeline
Substantial Customer Base
• Over 1,400 billing sites • Substantial cross-selling opportunities • Relationships with key health care institutions • NextGen products awarded top honors at HIMSS and TEPR trade shows • Ranked highly by AC Group and KLAS • Scalable technology platform with significant adoption in mid/large physician practices • Increasing focus on technology benefits in healthcare • Stark law relaxation • Pay for Performance initiatives • 7+ years working collaboratively as a management team
Leading Suite of HCIT Products
Positive HCIT Industry Trends
Experienced Management Team
Equity Profile (NASDAQ: QSII) as of 6/30/08
Recent Price Book Value Cash & marketable securities P/E – LTM Incl. cash & marketable securities P/E – LTM Excl. cash & marketable securities Market cap Shares Outstanding (FD) $1.1B 27.8M 24.0 $40.00/share $4.57/share $2.86/share 25.8