J.P. Morgan Healthcare Conference January 2011 Safe Harbor Provisions
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J.P. Morgan Healthcare Conference January 2011 Safe Harbor Provisions 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, 2010, 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, 2010, as well as in our other public disclosures and filings with the Commission. 2 Company Overview • Quality Systems, Inc. and its NextGen Healthcare subsidiary develop and provide a broad range of computer-based business applications for U.S. medical and dental groups practices. These include practice management, electronic health records, revenue cycle management and e-business applications. – Revenue primarily derived from physician group businesses that utilize the company’s high functionality practice management suites – Focus is on growing organically with a strong emphasis on reinvestment in new product and service development initiatives – Acquisitions of complimentary business lines also contribute to growth 3 Organizational Timeline Entered Dental Entered Ambulatory Entered Revenue Cycle Entered Inpatient Market Market Management Market Market (1973) (1996) (2008) (2009) QSI Opus QSI Dental Merges w/ Launched Healthcare Formed Micromed HSI NextDDS Solutions (1973) (1997) (2008) (2009) (2010) Sphere NextGen PMP Clinitec Healthcare Healthcare (2008) (1996) Formed (2009) (2001) 4 Organization Corporate Headquarters Irvine, CA Corporate NextGen NextGen Practice QSI Dental Admin. Healthcare Solutions 78 Employees 80 Employees 883 Employees 484 Employees Opus HSI PMP Horsham, PA Atlanta, GA St. Louis, MO Baltimore, MD (Acquired 1996) (Acquired 1997) Austin, TX (Acquired 2010) (Acquired 2008) (Acquired 2008) 5 Quality Systems Product Offerings Product Ambulatory Inpatient Community Connectivity Offerings: • Practice Management (EPM) • Inpatient Financials • Health Information Exchange (HIE) • Electronic Health Records • Inpatient Clinicals • Health Quality Measures (HQM) (EHR) • NextGen Patient Portal • NextGen EHR Mobile • NextGen Dashboard • NextGen ePrescribing Product Dentists Service Physicians Offerings: • Revenue Cycle Management Offerings: • Dental Practice Management • Billing and Collections • Clinical Product Suite (CPS) • Electronic Claims Submission • Electronic Dental Records (EDR) • Electronic Remittance & Payment Posting • Accounts Receivable Follow-up • Next DDS (SaaS Practice Management Offering) • Customer Service • Account Management 6 Vendors There are over 1.1 million staffed hospital beds in the United States <300 Bed Hospitals 300+ Bed Hospitals 5,424 hospitals 1,173 hospitals (553,277 beds) (585,771 beds) 17 Certified EHR products * 6 Vendors Serving Rural * 1 with ’08 CCHIT Certification® 7 Quality Systems Today September 30, 2010 TTM Revenue: $317.9mm EPS: $1.78 TTM Revenue: $253.2mm (80% of total) TTM Revenue: $19.0mm (6% of total) TTM Revenue: $45.7mm (14% of total) Markets Physicians Markets Dentists Markets Physicians Served: • Practice Management Served: • Practice Management Served: • Revenue Cycle • EHR • EPR Management • EDI • EDI Horsham, PA; Atlanta, Irvine, CA; Santa Ana, St. Louis, MO; Hunt Locations: GA; Dallas, TX; Austin, Locations: Locations: TX; Laguna Hills, CA CA Valley, MD Employees Employees Employees 888 78 480 (9/30/10): (9/30/10): (9/30/10): 8 Experienced Management Team 9 Solution Evolution Enterprise Electronic Community Revenue Acute Practice Health Health Cycle Solutions Management Records Solutions Management 10 Product / Market Dynamics RCM EHR HighGrowth Clinical Dental EDI Growth MPM Dental PM LowGrowth High Penetration Penetration Opportunity Low Penetration 11 New vs. Recurring Revenue Company NextGen New New 35% 41% Recurring Recurring 59% 65% QSI - Dental NextGen Practice Solutions New 5% New 29% Recurring Recurring 71% 95% *For the trailing twelve months ended 9/30/2010 12 Current State of Adoption 5% Complete 1% Complete 10% Complete 5% Partial 10% Partial 49% Partial 90% Paper 80% Paper 50% Paper Hospital Small Large Critical Outpatient Inpatient Practices Practices Departments Care Source: The Coker Group – 8/1/08 13 Market Drivers • American Recovery and Re-investment Act (ARRA) – 2/09 – Over $60 billion in incentive and grant money to stimulate HIT adoption. – Stringent rules for providers to qualify for funds known as “meaningful use” – First time that state based Medicaid programs and Departments of Health have become major purchasers of health care information technology – Regional Extension Center initiative promoting large scale HIT adoption • “Stark” law exception stimulating health system ambulatory strategies • Pay-for-performance (P4P) programs, patient centered medical home, and other quality initiatives • Consumerism and Personal Health Records (PHR) • Interoperability and community-based data exchange • Market mindset has moved to “when” not “if” • IT Certification Process- CCHIT (Government-supported Certification Commission for Healthcare Information Technology, and other certifying bodies) 14 Competitive Advantages Functionality Assessment of EHR Solutions 10-24 25-99 100+ Ranking Physicians Ranking Physicians Ranking Physicians 1 NextGen Healthcare 1 NextGen Healthcare 1 NextGen Healthcare Medical Medical 2 2 2 Epic Communications Communications 3 eClinicalWorks 3 eClinicalWorks 3 eClinicalWorks 4 Practice Partner 4 Practice Partner 4 Sage Software 5 GEMMS 5 GE Centricity 5 Allscripts Enterprise GE Healthcare 6 Pulse Systems 6 Pulse Systems 6 Flowcast 7 E-MDs 7 Allscripts Enterprise 7 N/A 8 Greenway Medical 8 Greenway Medical 8 N/A Source: The AC Group – 12/09 15 Representative Customers 16 Historical Performance FYE 03/31/10 Revenue Operating Income (US $ mm) (US $ mm) $300 $291.8 $80 $75.7 $72.4 $70 $250 $245.5 $59.7 $60 $200 $186.5 $50.9 $50 $157.2 $150 $40 $35.8 $119.3 $30 $100 $20 $50 $10 $0 $0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 17 Financial Highlights Fiscal year ended March 31, 2010 2009 2008 2007 2006 Revenue $ 291,810 $ 245,515 $ 186,500 $ 157,165 $ 119,287 Net income 48,379 46,119 40,078 33,232 23,322 Diluted earnings per share $1.68 $1.62 $1.44 $1.21 $0.85 Cash dividends declared per share $1.20 $1.15 $1.00 $1.00 $0.875 Total shareholders’ equity $ 188,289 $ 155,567 $ 113,705 $ 91,246 $ 72,409 (in thousands, except per share amounts) 18 Equity Profile as of 09/30/10 • Recent Price $66.31/share • Book Value $7.67/share • Cash & Marketable Securities $3.76/share • P/E – LTM 37.25 – Incl. Cash & Marketable Securities • P/E – LTM 35.14 – Excl. Cash & Marketable Securities • Market Cap $1.9B • Shares Outstanding (FD) 29.0M 19 Third-Party Recognition • Forbes ranked QSI one of the 200 Best Small Companies for the ninth consecutive year – #3 in 2009 • Forbes ranked QSI #23 in 2009 of 25 Fastest Growing Technology Companies • Fortune ranked QSI #52 in 2008 list of 100 Fastest Growing Small Public Companies • Business Week named QSI to 100 Hot Growth Companies list #19 in 2007 • 2009 Awards • Innovation Award Winners - MS-HUG Clinical Care – NextGen EHR • Award Partner: Elmhurst Clinic, Elmhurst Memorial Healthcare • 2008 Awards • Innovation Award Winners - MS-HUG Disease Surveillance – NextGen EMR • Award Partner: St. Joseph Family Medicine Residency, Medical College of Wisconsin • Finalist - MS-HUG Innovation Award Outcomes Reporting – NextGen EMR/EPM • Award Partner: Medical Clinic of North Texas 20 Why Quality Systems? • Proven track record of organic growth and profitability – Five-year revenue CAGR of 25% and Net Income CAGR of 21% Proven Growth – Most profitable company in market segment with 30%+ EBITDA margins and Profitability • Self-funded, highly profitable growth strategy – Recurring