A 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
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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