Quality Systems, Inc. Reports Record Fiscal 2011 Third Quarter Results; Increases Quarterly Dividend

Company Well Positioned as First Year of Stimulus Incentives Kick in

IRVINE, Calif.--(BUSINESS WIRE)--Quality Systems, Inc. (NASDAQ:QSII) announced today the results of operations for its fiscal 2011 third quarter ended December 31, 2010.

The Company reported record net revenues of $91.9 million for the fiscal 2011 third quarter, an increase of 23 percent from the $75.0 million reported in the same period a year ago. The Company reported net income of $17.5 million, up 33 percent versus net income of $13.2 million for the comparable period last year. Fully diluted earnings per share were $0.60 in the fiscal 2011 third quarter; rising 33 percent when compared with $0.46 fully diluted earnings per share for the third quarter of fiscal 2010.

Quality Systems, Inc. also announced that the Company’s Board of Directors increased the cash dividend by five cents ($0.05), or 17 percent, to Thirty-Five Cents ($0.35) per share on the Company’s outstanding shares of Common Stock, payable to shareholders of record as of March 17, 2011, with an anticipated distribution date of April 5, 2011. The $0.35 per share cash dividend is pursuant to the Company’s current policy to pay a regular quarterly dividend on the Company’s outstanding shares of Common Stock, subject to further Board review and approval, and establishment of record and distribution dates by the Board prior to the declaration and payment of each such quarterly dividend.

“We are very pleased with the Company’s third quarter performance. Our entire organization has worked very hard preparing for the first year of incentives provided under The American Recovery and Reinvestment Act (ARRA). The team is ready to witness the fruits of their labor,” noted Steven T. Plochocki, Quality Systems’ chief executive officer.

“As we said for the past 22 months since the bill was first introduced, there were levels of uncertainty and speculation, but once certification was announced in October 2010 and the regulations for Stage 1 Meaningful Use were finalized, the path became very clear. We are in a very positive position to take advantage of the benefits stemming from the first year of the stimulus incentives. Additionally, the Board’s declaration to increase our quarterly dividend is indicative of the Company’s strength in the marketplace and optimism about the future. We remain very encouraged by the industry opportunity before us, and confident in the certified electronic health solutions we bring to the physician, dental and hospital marketplaces,” Plochocki concluded.

Quality Systems, Inc. will host a conference call to discuss its fiscal 2011 third quarter results on Friday, January 28, 2011 at 10:00 AM ET (7:00 AM PT). All participants should dial 866-225-8754 at least ten minutes prior to the start of the call. International callers should dial 480-629-9692. To hear a live Web simulcast or to listen to the archived webcast following completion of the call, please visit the company website at www.qsii.com, click on the "Investors” tab, then select "Conference Calls," to access the link to the call. To listen to a telephone replay of the conference call, please dial 1-800-406-7325 or 303-590-3030 and enter reservation identification number 4403880. The replay will be available from approximately 12:00 PM ET on Friday, January 28, 2011, through 11:59 PM ET on Friday, February 4, 2011.

A transcript of the conference call will be made available on the Company’s website at www.qsii.com.

About Quality Systems, Inc.

Irvine, Calif.-based Quality Systems, Inc. and its NextGen Healthcare subsidiary develop and market computer-based practice management, electronic health records and revenue cycle management applications as well as connectivity products and services for medical and dental group practices and small hospitals. Visit www.qsii.com and www.nextgen.com for additional information.

SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS

This news release may contain forward-looking statements within the meaning of the federal securities laws. Statements regarding future events, developments, the Company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future (including, without limitation, statements concerning revenue and net income), are forward-looking statements within the meaning of these laws and involve a number of risks and uncertainties. Management believes that these forward-looking statements are reasonable and are based on reasonable assumptions and forecasts, however, undue reliance should not be placed on such statements that speak only as of the date hereof. Moreover, these forward-looking statements are subject to a number of risks and uncertainties, some of which are outlined below. As a result, actual results may vary materially from those anticipated by the forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: the volume and timing of systems sales and installations; length of sales cycles and the installation process; the possibility that products will not achieve or sustain market acceptance; seasonal patterns of sales and customer buying behavior; the development by competitors of new or superior technologies; the timing, cost and success or failure of new product and service introductions, development and product upgrade releases; undetected errors or bugs in software; product liability; changing economic, political or regulatory influences in the health-care industry; changes in product-pricing policies; availability of third-party products and components; competitive pressures including product offerings, pricing and promotional activities; the Company's ability or inability to attract and retain qualified personnel; possible regulation of the Company's software by the U.S. Food and Drug Administration; uncertainties concerning threatened, pending and new litigation against the Company including related professional services fees; uncertainties concerning the amount and timing of professional fees incurred by the Company generally; changes of accounting estimates and assumptions used to prepare the prior periods' financial statements; general economic conditions; and the risk factors detailed from time to time in the Company’s periodic reports and registration statements filed with the Securities and Exchange Commission.

A significant portion of the Company's quarterly sales of software product licenses and computer hardware is concluded in the last month of the fiscal quarter, generally with a concentration of such revenues earned in the final ten business days of that month. Due to these and other factors, the Company's revenues and operating results are very difficult to forecast. A major portion of the Company's costs and expenses, such as personnel and facilities, are of a fixed nature and, accordingly, a shortfall or decline in quarterly and/or annual revenues typically results in lower profitability or losses. As a result, comparison of the Company's period-to-period financial performance is not necessarily meaningful and should not be relied upon as an indicator of future performance. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

QUALITY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
	Three Months Ended December 31,				Nine Months Ended December 31,
		2010		2009		2010		2009
Revenues:
Software, hardware and supplies	$	29,675	$	24,346	$	74,806	$	64,978
Implementation and training services		4,262		3,313		13,069		10,150
System sales		33,937		27,659		87,875		75,128
Maintenance		27,908		22,139		80,973		65,254
Electronic data interchange services		10,360		8,897		30,266		25,855
Revenue cycle management and related services		11,496		9,602		33,443		27,482
Other services		8,170		6,665		23,698		19,579
Maintenance, EDI, RCM and other services		57,934		47,303		168,380		138,170
Total revenues		91,871		74,962		256,255		213,298
Cost of revenue:
Software, hardware and supplies		5,667		2,810		16,575		9,251
Implementation and training services		3,677		2,898		10,142		9,075
Total cost of system sales		9,344		5,708		26,717		18,326
Maintenance		3,381		3,392		10,073		9,672
Electronic data interchange services		6,908		6,525		20,390		18,579
Revenue cycle management and related services		8,715		7,124		25,082		20,502
Other services		3,981		5,560		12,054		15,430
Total cost of maintenance, EDI, RCM and other services		22,985		22,601		67,599		64,183
Total cost of revenue		32,329		28,309		94,316		82,509
Gross profit		59,542		46,653		161,939		130,789
Operating expenses:
Selling, general and administrative		27,958		21,574		79,025		61,728
Research and development costs		5,358		3,954		16,046		12,277
Amortization of acquired intangible assets		445		377		1,237		1,101
Total operating expenses		33,761		25,905		96,308		75,106
Income from operations		25,781		20,748		65,631		55,683
Interest income		55		43		244		180
Other income, net		-		136		59		194
Income before provision for income taxes		25,836		20,927		65,934		56,057
Provision for income taxes		8,305		7,775		22,881		20,739
Net income	$	17,531	$	13,152	$	43,053	$	35,318
Net income per share:
Basic	$	0.60	$	0.46	$	1.49	$	1.24
Diluted	$	0.60	$	0.46	$	1.48	$	1.23
Weighted-average shares outstanding:
Basic		28,978		28,667		28,936		28,586
Diluted		29,140		28,833		29,091		28,755
Dividends declared per common share	$	0.30	$	0.30	$	0.90	$	0.90

QUALITY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
	December 31,		March 31,
	2010		2010
ASSETS
Current assets:
Cash and cash equivalents	$	118,221	$	84,611
Restricted cash		2,956		2,339
Marketable securities		-		7,158
Accounts receivable, net		123,196		107,458
Inventories		1,942		1,340
Income taxes receivable		-		2,953
Deferred income taxes, net		5,470		5,678
Other current assets		7,356		8,684
Total current assets		259,141		220,221
Equipment and improvements, net		10,940		8,432
Capitalized software costs, net		14,931		11,546
Intangibles, net		17,720		20,145
Goodwill		46,189		46,189
Other assets		4,576		3,647
Total assets	$	353,497	$	310,180
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,525	$	3,342
Deferred revenue		71,897		64,109
Accrued compensation and related benefits		9,322		8,951
Income taxes payable		1,157		-
Dividends payable		8,693		8,664
Other current liabilities		20,955		16,220
Total current liabilities		117,549		101,286
Deferred revenue, net of current		870		474
Deferred income taxes, net		10,108		10,859
Deferred compensation		2,240		1,883
Other noncurrent liabilities		10,747		7,389
Total liabilities		141,514		121,891
Commitments and contingencies
Shareholders' equity:
Common stock
$0.01 par value; authorized 50,000 shares; issued and outstanding 28,976 and 28,879 shares at December 31, 2010 and March 31, 2010, respectively		290		289
Additional paid-in capital		128,964		122,271
Retained earnings		82,729		65,729
Total shareholders' equity		211,983		188,289
Total liabilities and shareholders' equity	$	353,497	$	310,180