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CareCloudA Higher IQ for Healthcare IT 2004 ANNUAL REPORT Corporate Profile Quality Systems, Inc. and its NextGen Healthcare Information Systems subsidiary develop and market computer-based practice management systems, electronic patient records systems, and connectivity applications for medical and dental group practices. Products are marketed under the QSI and NextGen(cid:2) product names. Visit www.qsii.com and www.nextgen.com for additional information. 2004 Annual Report 1 President’s Letter Dear Fellow Shareholders, Clients and Associates Net income increased by 48% to $10.4 million, while earn- ings per share increased 45%. The NextGen division accounted for 77% of FY 2004 Company revenue. I am pleased to report that FY 2004 was another year of progress for your Company. On the financial front, total revenue for the year was $70.9 million, an increase of 30% over last year. Net income increased by 48% to $10.4 million, while earnings per share increased 45% to $1.60 as compared to $1.10 in the prior year. The NextGen Healthcare Information Systems unit was responsible for the majority of this growth as the division posted a 46% increase in revenue and a 77% increase in operating income for the year. The NextGen division accounted for 77% of FY 2004 Company revenue. The Company set new revenue and profit records in each quarter of the year. At fiscal year end, we had $51.4 million in cash, up from $36.4 million at the end of last year. During Fiscal 2004, Pat Cline, President of the NextGen Healthcare Information Systems division, and Greg Flynn, Executive Vice President and General Manager of the QSI division continued to ably lead their teams. These experienced executives are valued and capable operators who continue to perform well for both our clients and our shareholders, while providing enlightened and effective leadership within our divisions. My thanks go out to them. Within the corporate office, our staff worked diligently throughout the year on a number of value-added projects. We have and will continue to invest in this area. My thanks go out to these dedicated professionals as well. The Company’s strong performance was not limited to the financial arena. During the year, QSI was #36 on the Forbes Magazine list of The 200 Best Small Companies in America. This was the third consecutive year we have been recognized by Forbes. Our growth has also been recently recognized by Business Week and Fortune magazines, which included the Company in their publications’ lists of high performing growth companies. NextGen’s flagship EPM and EMR products earned first prize honors for the second consecutive year at the 2004 HIMSS/MS–HUG software competition— our industry’s Academy Awards(cid:2)—and was named as a three category finalist for the 2004 TEPR software competition. 30% total revenue growth 2 Quality Systems, Inc. Looking back, FY 2004 was a successful year for the Company. In a year where many were talking about the so-called “jobless recovery,” we increased the size of our team by just over 20%. The majority of this increase was in our NextGen division. As for our more tenured employees, two staff members celebrated their 20th anniversary with the Company in 2004, bringing to nine the number of current team members who have invested in excess of twenty years with the Company—equal parts a tribute to their loyalty to the Company, their continued willingness and ability to perform, and the Company’s endurance in the often volatile HCIT arena. To all team members who were with us throughout the fiscal year, many thanks for your contributions. To our new(er) additions, I thank you for your contributions to date, and know that you will join our “veterans” in seeking and implementing ways to work even smarter and harder during FY 2005. While we were fortunate in FY 2004 to count many more achievements than disappointments, I regret that our acquisition search process did not yield any tangible results during the year, and that the acquisition pipeline was (and is) less robust than I would have hoped for. While there was (and is) no shortage of acquisition candidates in the marketplace, interesting acquisition candidates were fewer and further between than I had anticipated. Another area where our performance was less than I had hoped for was in the growth of the NextGen sales staff. During the course of the fiscal year, our complement of quota carrying sales reps increased, but more growth would have been optimal. However, the team that we had in place during the course of the year turned in an outstanding performance. Looking back, FY 2004 was a successful year for the Company. Looking forward, our team remains enthusiastic about its ability to compete effectively in our market(s). On behalf of our entire team, I thank you for the confidence you have placed in us. We hope to continue to earn your trust. Louis Silverman President & Chief Executive Officer 45% growth in earnings per share 2004 Annual Report 3 Awards Fiscal 2005 (to date) The Medical Records Institute/TEPR First Honors (Tie) NextGenEMR EHR Systems for Small/Solo Practices Second Honors NextGenEMR EHR Systems for Medium/Large Practices First Honors NextGenEPM Practice Management Systems AC Group First Place NextGenEMR Top Overall EMR Application; Functionality Report Business Week #43 of 100 Quality Systems, Inc. 100 Hot Growth Companies Business 2.0 #21 of 100 Quality Systems, Inc. Fastest Growing Tech Companies Fortune Magazine #15 of 100 Quality Systems, Inc. America’s Fastest Growing Small Public Companies Fiscal 2004 The Medical Records Institute/TEPR First Place NextGenEMR Medical Records; Medium/Large Practices First Place NextGenEPM Practice Management Systems—Physicians’ Offices Microsoft Healthcare Users Group NextGenEMR First Place Ambulatory Care; Clinical/Patient Information Systems First Place NextGenEPM Administrative/Financial Systems AC Group First Place Forbes #36 of 200 Business 2.0 #9 of 100 NextGenEMR Top Overall EMR Application, Functionality Report Quality Systems, Inc. 200 Best Small Companies in America Quality Systems, Inc. Fastest Growing Tech Companies Fiscal 2003 The Medical Records Institute / TEPR First Place NextGenEMR Medical Records; Comprehensive Ambulatory First Place Second Place NextGenEMR NextGenEPM Medical Records; Specialty or Department Practice Management; Comprehensive Ambulatory Microsoft Healthcare Users Group NextGenEMR First Place Ambulatory Care; Clinical/Patient Information Systems First Place NextGenEPM Administrative/Financial Systems Forbes #77 of 200 Quality Systems, Inc. 200 Best Small Companies in America Note: EMR = Electronic Medical Records / EPM = Enterprise Practice Management 4 Quality Systems, Inc. Financial Highlights We’re pleased to highlight a few elements of the Company’s financial perform- ance. Additional financial information is available in the accompanying SEC Form 10-K. Revenue has increased steadily during the FY ’01 through FY ’04 period, fueled by the growth in the Company’s NextGen division. During these years, NextGen revenue increased by 20%, 37% and 46% sequen- tially. During FY ’04, NextGen accounted for 77% of total Company revenue. Investors focused on profitability and profit growth will likely be pleased by the increases in Operating Income and Earnings per Share. Operating Income increased 58% during FY ’02, 35% during FY ’03 and 55% during FY ’04. As noted in our external communications, both the QSI and the NextGen divisions contributed to these results. The aforementioned increases in Operating Income fueled the Earnings per Share performance turned in by the Company. Cash and Cash Equivalents have increased significantly during this period, to the point where at March 31, 2004, cash stood at $51.4 million, or $8.14 per share. We believe that the Company’s financial performance compares favorably to other companies in our market sector. We will continue to strive for financial performance worth highlighting. Revenues dollars in millions Operating Income dollars in millions Cash and Cash Equivalents dollars in millions Earnings Per Share fully diluted, in dollars . 9 0 7 . 8 4 5 4 . 4 4 . 9 9 3 6 . 6 1 . 7 0 1 . 4 1 5 . 4 6 3 0 6 . 1 0 1 . 1 9 7 . 0 5 . 4 . 5 2 . 5 8 1 4 8 0 . 7 5 0 . ’01 ’03 ’02 QSI Division NextGen ’04 ’01 ’02 ’03 ’04 ’01 ’02 ’03 ’04 ’01 ’02 ’03 ’04 Corporate Information Officers of the Company Legal Counsel Louis Silverman Rutan & Tucker LLP President & Chief Executive Officer Costa Mesa, California Independent Auditors Grant Thornton LLP Irvine, California Registrar and Transfer Agent U.S. Stock Transfer Corp. Glendale, California Investor Relations Consultants Coffin Communications Group Sherman Oaks, California 818.789.0100 Form 10-K A copy of the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, is available on the Company’s website at www.qsii.com or by contacting the Company at our Company headquarters. Patrick Cline President NextGen Healthcare Information Systems Division Greg Flynn Executive Vice President & General Manager QSI Division Paul Holt Chief Financial Officer Directors of the Company Sheldon Razin Chairman of the Board Dale Hanson Chief Executive Officer American Partners Consulting Group Ahmed Hussein Director Frank Meyer Director William Small Independent Management Consultant Mohammed Tawfick El-Bardai Chief Executive Officer National Telecommunications Corporation Emad Zikry President Vanderbilt Capital Advisors m o c . s r o n n o c - n a r r u c . w w w / . c n I , s r o n n o C & n a r r u C y b d e n g s e D i Corporate/QSI Division Headquarters 18191 Von Karman Avenue, Suite 450 Irvine, California 92612 949.255.2600 www.qsii.com Division Locations 795 Horsham Road, Second Floor Horsham, Pennsylvania 19044 215.657.7010 3340 Peachtree Road, Suite 450 Atlanta, Georgia 30326 404.467.1500 www.nextgen.com
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