Quality Systems, Inc. (NASDAQ:QSII)

CAPS Rating: 4 out of 5

The Company develops and markets healthcare information systems that automate aspects of medical and dental practices, networks of practices and management service organizations, ambulatory care centers, medical and dental schools.

Recs

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Player Avatar Treborn822 (85.25) Submitted: 1/3/2013 7:19:52 PM : Outperform Start Price: $16.52 QSII Score: -43.71

Value Pick

Member Avatar LarryMDR (< 20) Submitted: 1/22/2013 2:24:21 AM
Recs: 0

Some Thoughts on QSII from a Previous Stockholder

I owned Quality System shares starting from March 2009 until May 2011 and was very happy with the results during those years. Obama's stimulus put $36-billion (or so) to encourage hospitals, doctors and medical groups/clinics to adopt software for purposes of medical diagnosis, billing, etc. QSII was growing rapidly as a result of that stimulus as were 4 or 5 other companies like Cerner. Over the years of owning QSII I learned that their software was designed primarily for the independent doctors office, but not great (didn't scale that well) for bigger medical businesses like clinics, medical center or hospitals. Cerner was and still is the main supplier of software to hospitals and medical groups. Sales to hospitals are $1-million+ deals, while individual doctor offices would pay $30,000 to $50,000. As I recall doctors were offered a $40,000 tax credit for buying a certified system.

QSII is located in Irvine not far from Los Angeles where I live. I attended 2 share holders meetings during the 2 years I owned the QSII. I have to say that I was less than impressed with the board and particularly the CEO at the time. The CEO was a business man who knew little about QSII's business. I spoke with him after the 2nd stockholder meeting for about 15-minutes and was unimpressed that he could not answer basic questions about their business. I forget the issue now, but I knew more about a number of QSII sales issues than he did. He told me, he'd get someone over to answer my questions, and never did. A nice guy, but .....

I finally sold my stock, because I lost confidence in management in spite of the fact QSII had appreciated 35% to 50%/year during the 2-year period. And I'm glad I did. Another thing that struck me is how geographically dispersed all their technical capabilities were at the time because most had brought aboard through acquisitions and were located through the east coast. From experience, I can tell you this makes software development and maintenance quite a bit more difficult than if they are fewer technical centers. Note: My day job is as a software developer.

Companies change, and I have had no first hand experience with QSII in over a year. But I will speculate that the less than stellar management decisions taken 1 and 2 years ago are showing up in the lack of sales and profit growth today.

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