Transcript
from interview with The Wall Street Transcript
Taken
from the Roth Capital Partners Growth Special
February, 2001
TWST:
Lou, we'd like to begin with a brief historical sketch of the
company, followed by a profile of what you are right now.
Mr.
Silverman: QSI was founded in 1974, went public in 1982 as a dental
practice management software company. At that time the company
was an early pioneer in advancing the state of practice management
software, and the company grew from that starting point to hold
a leadership position in serving the healthcare information technology
needs of many of the large and most prestigious dental practices,
practice management companies and dental schools in the US. In
the mid-1990s, the company made a couple of acquisitions which
are now known as our MicroMed division, and these acquired companies
were part of a catalyst for extending the companies' pres�ence
in the medical practice management business, along with the electronic
medical records market. Today, QSI is a $40 million rev�enue player
in medical and dental practice management and the in-formation
technology markets. The company has extended its services to include,
in addition to our practice management suites, electronic connectivity
services, which is the facilitation of electronic communications
between practices, payors, and patients; in essence a three-way
connection that runs from the physician office out to the payors,
and then from the physician office out to patients.
Our
medical division has grown to a point where it now represents
in excess of 50% of the companies' revenues. The MicroMed
division, which is our medical division, in the quarter ended
in December of 2000, had 45% year-over-year revenue growth, and
we enjoy a very strong and growing reputation in the enterprise
practice management and emerging electronic medical records market.
Our connectivity business, which I just described, is growing
in excess of 30% a year, and our dental business contin�ues to
hold a very significant share in the large dental consolidator
market. We're profitable. We've got no debt on our balance sheet,
and we reinvest about 10% of our revenues in research and new
product development.
TWST:
Are there significant differences between what you do and what
other companies do?
Mr.
Silverman: There are a lot of differences. I'll start on the dental
side of our business, and in this space, we have strong business
relationships with most of the large dental consolidators. Those
are companies that buy up smaller practices and roll them up under
a consolidated operating philosophy and bring economies of scale
to the acquired practices. We've earned our position in this market
based on the strength of our product, the flexibility of our product,
and the attention we give to the specific needs of our clients
in that segment.
On
the MicroMed side of our business, we go to market with software
that is absolutely current, state-of-the-art technology, very
robust, and extremely flexible. We are entrepreneurs who love
to work with our clients and take a good new idea and go the extra
mile to build that new idea into our product. As I mentioned earlier,
we're profitable. Many of our competitors are not. We have a debt-free
balance sheet. Many of our competitors do not. And those two things,
combined with our long track record in business, give our current
and prospective clients confidence that they're investing their
time and money in a product and with a company that's going to
be around for the long haul.
TWST:
Now I think you used the word "flexible," you mentioned
being responsive to good, new ideas. Does this mean that a client
could say to you, "Well, I don�t know, there's a thing I'd
like to straighten out here, I can't quite put my finger on it"'
Can you, then, respond to those kinds of needs?
Mr.
Silverman: The short answer is absolutely "yes." We
continue to grow our client support units to keep pace with the
growth in our client base. We have one client service unit that's
ded�icated to users of our dental practice management software,
another unit that's dedicated to users of our medical practice
management software, and a third unit that's dedicated to supporting
clients that use our electronic medical records software. Clearly,
part of what we sell is the service that's in back of those products,
and we take very seriously our obligations on the back end of
the sale; to help people using our software to maximize the benefits
they derive from using our software.
TWST:
I was going to ask you about educating the client' Then do you
step in and try to do something for them that way?
Mr.
Silverman: We absolutely do that. The other part of your question
had to do with the issue of a client saying, "Gee, your product,
if it did X a little differently, that would work for us."
We try to be as flexible and as accommodating as we can on as
many of those requests as we can. Clearly we're not able to act
on 100% of them, but we're very much in partnership with our customers,
and many of the requests turn out to be of benefit to all of our
clients. We think in terms of having a community of users. We
have user group meetings multiple times a year across our different
product lines, and, again, there is great sharing of information
from our company and developers out to our clients and users and
also among the users themselves. We obviously work to put our
own very best ideas into our product, and certainly keep our ears
open for the good ideas that our users feed to us.
TWST:
What is the practical range and size of your clients? Can you
handle n very small account as well as a large one?
Mr.
Silverman: Yes, we have clients that will range from one or two
practitioner practices all the way up into the several hun�dreds
of practitioners. We serve the entire range. Our sweet spot his�torically
has been with the larger practices. We have Internet-based offerings
that are of growing interest to all practice sizes, though most
particularly the smaller practices.
TWST:
Now, are your clients able to say "Yes, we have saved X amount
of money this year because of this service," or "We've
made more money." I mean, can it be pinpointed?
Mr.
Silverman: We regularly give to our clients return on investment
analyses that are tailored to the specific details or ele�ments
of their practice and for some people that's a very compelling
part of the purchase process. We can show them that there are
com�pelling economic returns from using our various software suites.
There's another group of our clients who simply believe that using
technology for automating the patient management and patient records
processes simply leads to better patient outcomes, better medicine
if you will, which is a very powerful though somewhat non-quantifiable
return on investment.
Additionally,
there are studies that have come out fairly recently that have
linked somewhere on the order of 100,000 deaths a year to an inability
to accurately read or retrieve patient records, prescription of
contraindicating medication, etc. There are a num�ber of states,
I think it's 39, that are considering legislation against medical
errors that may positively impact our marketplace. This, again,
would support the notion that practice management and med�ical
records software and related services will yield better outcomes
for patients. Bottom line, there are absolutely quantifiable rationale
for purchasing our product. There are also some extremely com�pelling
less quantifiable reasons to use our products and services such
as they aid providers in achieving better medical outcomes. Lastly,
there may be some "legislated" reasons for people to
be in�terested in the things that we're providing.
TWST:
By the way, how many states are your clients located in?
Mr.
Silverman: We're national. We have clients all across the country
and in fact we have some clients that are inter�national as well.
The bulk of our business, however, is domestic.
TWST:
I see. And what is your potential? Do you think you'll be able
to increase the size of the whole thing over the next couple of
years?
Mr.
Silverman: Oh, we sure hope so. We very much have both top-line
and bottom-line growth as our key goals. We certainly wouldn't
be in this business if we didn't believe it had a lot of up�side
potential.
Interestingly,
the electronic medical record market is in its very much emerging
stages, the data that I've seen out there sug�gests that it's
less than 10% penetrated and perhaps significantly less than 10%
penetrated, so there's a lot of upside in that business. The opportunities
to enhance provider-payor-patient connectivity are just scratching
the surface. Certainly with in excess of a half-million doctors
and 160,000 dentists out there, we feel like we con�tinue to have
a lot of running room to grow our business by a significant amount.
TWST:
Yes, you mentioned 39 states as considering, or already having
legislation in your favor. Is it correct to say, then, that the
social and political trends are on your side?
Mr.
Silverman: I think that they're likely to be helping us along.
It's a little early to know for certain what's going to happen,
given that some of these states are only considering legislation.
Another point that comes in here is the HIPAA legislation that
many people in the medical arena are spending a lot of time talking
about That's another example where we believe, as do our competitors,
that it's likely that legislation will give us a nudge in the
right direc�tion. Whether it's a small nudge or a big nudge is
still yet to be seen.
TWST:
What is that legislation you're talking about?
Mr.
Silverman: It's the Health Insurance Portability and Accountability
Act, and that particular legislation details standards for electronic
healthcare data transactions, patient records security, and patient
record privacy, all things that our products can assist our clients
with.
TWST:
Yes, can you comment further on technologi�cal changes that are
going to take place, and the part that you'll be playing in that?
Mr.
Silverman: I think that HIPAA is a very good exam�ple of a place
where technology not only changes the rules of the game, but also
helps people play by the new rules. We are, and plan to continue
playing a leadership role in being at the forefront of technical
innovation in the medical practice management, records management
and connectivity sectors.
TWST:
You hear people talk about having an entire medical record on
a card that somebody could keep in their wallet' Is that becoming
real?
Mr.
Silverman: It may become real down the road, but it doesn't appear
to us that that is on the very near-term radar screen.
TWST:
I see, well tell me what is on the radar screen, then. In other
words, what do you hope to accomplish over the next two years,
and where would you like to be with the com�pany in the year 2003?
Mr.
Silverman: From a product perspective we want to continue to bring
quality and innovation to all of our markets. Toward that end
I'd like to look back over a two - to three - year period and
see that we were right about the potential of the products that
we have in our R&D departments today. We certainly want to
generate an industry-leading return for our shareholders. As I
men�tioned, our MicroMed division had very impressive 45% growth,
year-over-year, in the December quarter. It grew 30% for us last
year. We'd love to see those kinds of numbers continue in the
near-term and would love to see them increase.
Our
EDI and connectivity businesses, albeit off of a bit of a smaller
base, grew in excess of 30% and we'd love to see that con�tinue
and grow even faster than that in the next couple or three years.
As I mentioned, our dental business is feeling some of the softness
that exists in the dental consolidator market right now, and although
that hasn't caused any erosion in our position in that specific
market�place, we certainly wouldn't want that to continue down
the road.
One
of the ways I think about what I'd like to accomplish over the
next two or three years is to put myself in the shoes of our investors
and say if our investors can look back over two or three years
and say that Quality Systems was a very good investment for them,
I and we will have done a very good job.
TWST:
Apropos of all this, perhaps you can comment on the expertise
of the people in the company, first the top man�agement and then
perhaps you can tell me about what you do to get good people at
all levels.
Mr.
Silverman: Sure. We are very proud of the manage�ment team that
we have at Quality Systems today. As I mentioned, we have a couple
of different divisions. Both of those divisions have teams of
people who have accumulated a great deal of domain expertise.
In addition to experience I think it's safe to say that we have
a great deal of entrepreneurial energy in the company. We're,
after all, a $40 million company in revenues. That's bigger than
a great many of our competitors, but small enough to require that
we retain the entrepreneurial flair of a small company. We do,
and we hope always to be able to say that. In terms of attracting
new peo�ple we feel like we have a great story to tell.
If
you look at the performance of the company against our competitors,
again, we're growing, we're profitable, we have a track record
that suggests both quality of execution and staying power. We
have a strong management team in place that is delivering those
results. We're reinvesting in the company. We're not giving away
our products. We have enough fun projects to tackle so that everyone
has the oppor�tunity to be challenged, learn and experience what
it's like to make a tangible contribution to a growing company.
For current team members as well as candidates who are considering
joining the company, we're able to tell them absolutely a great
story, and it's all the truth.
TWST:
Now apropos of your management team, what about you, yourself?
What in your background led you to have the ideas and the vision
that you have today?
Mr.
Silverman: I've been with QSI for the past five months. I came
from the position of COO at a public company that is roughly five
times larger than QSI in a related field. I played a key role
in growing a company of approximately QSI's size to something
far larger. As COO, I've seen it; I've lived it, and as CEO I'm
here to help QSI to cross the $100 million a year line in rev�enues,
cross the $200 million a year line in revenues, and put the systems,
the philosophies, and the perspectives in place, and help us run
our race from the head of the pack.
TWST:
I see. Are there negatives in this situation, or things for you
to worry about? Not so much within the general economy, but maybe
more specifically?
Mr.
Silverman: Sure. Among the things I worry about are ensuring that
we continue to take our obligations to our customers very seriously,
from a product development and support perspective. As our software
and services get more and more sophisticated, we need to make
sure that the size and the skill of our service staff is ever
growing. I worry about so-called irrational competitors giving
products away for free in the name of building market share. I
also worry about striking an appropriate balance between running
a dis�ciplined company that provides appropriate near-term rewards
for all of our constituencies and maintaining and enhancing the
entre�preneurial spirit that will bring us longer term success.
TWST:
The last part of what you just said now antic�ipates my next question.
You've just about answered two-thirds of it' I was going to ask
you, since you've only been there six months, obviously it's a
strong company, but is there anything inside the company that
you'd like to emphasize, focus on, or make stronger? Let's put
it that way.
Mr.
Silverman: I think that what we're looking to do here is to make
sure that we keep our focus. As a small company with a lot of
good ideas, a lot of interested customers, well posi�tioned in
what I think are the best niches in our space, it's easy to find
too many great projects to work on. We are working very hard to
regularly check and re check our compasses to make sure that we're
focused on the right things so that we can deliver what our customers
are expecting us to deliver, from a product perspective and what
our shareholders expect us to deliver, from a return per�spective.
Maintaining our focus, ensuring that we continue to be comfortable
with our focus, and staying nimble enough to change directions
as and if necessary is what we need to continue to em�phasize.
It's not so much something that needs to be changed, as it is
something that we need to just continue to maintain really a high
level of vigilance on.
TWST:
Perhaps you could crystallize what you've been saying by giving
us the two or three best reasons why the long-term investor should
be seriously interested in your com�pany.
Mr.
Silverman: A QSI investor is investing in three things: the industry,
the products, and the management team. Relative to the industry,
we're in the largest sector in the economy, which is health care.
We are in parts of the market that are projected to grow quickly,
so our industry context is good. From a product per�spective,
our products are very competitive in the markets that we serve.
I've gone through the fact that our dental product has a dom�inant
position in its space. Our electronic medical records product
is doing very, very nicely, is very well regarded in that emerging
mar�ket, which is not highly penetrated at this point, and is
in the early stages of its product lifecycle. Our practice management
suites on the medical side, again, are very solid, high functionality
products.
The
third element is our management team. In my view, our management
team stacks up extremely well to any of our competitors, on any
scale you want to use. There is no debt on our balance sheet.
We're profitable. If you compare our financial performance to
those of some of the competitors, I think a long-term investor
would feel that this is a very good place to make an investment.
TWST:
What about the human side of medicine? Does what you're doing
set the doctor free? I'm not saying every doc�tor's going to do
it' but does it set him free to concentrate on pa�tient relations
more?
Mr.
Silverman: We think so, and we feel like that's one of the big
advantages of moving into an electronic environment, be it on
the practice management side, or the medical records side, or
both.
At
the HIMMS conference, which is one of the largest in�dustry conferences
of the year, and which is taking place in New Orleans in the early
part of February, we'll be showing, for the first time, our handheld
wireless product, which is another step in the di�rection of freeing
up the medical practitioner to focus more on the patient and less
on administrative process. Our current products and those in our
future are all about allowing more data to be more portable and
more doctor time to be spent addressing the specific, individualized
needs of patients of their practice.
TWST:
Thank you.
LOUIS
E. SILVERMAN
President & CEO
Quality Systems, Inc.
18191 Von Karman, Suite 450
Irvine, CA 92612
(949) 255-2600
FAX (949) 255-2605
www.qsii.com
Each
Executive who is the featured subject of a TWST Interview is offered
the opportunity to include an Investors Brief or other high�light
material to be provided and sponsored by and for the company.
