Investor Again Hoping to Cash In on Quality Systems

From Dow Jones News Service

Distressed-investment specialist Andrew Shapiro is back for a second go-round with Quality Systems Inc., a Tustin maker of dental and medical software.

This week, Shapiro’s Lawndale Capital Management LLC filed documents with the Securities and Exchange Commission disclosing a 5.1% stake in Quality Systems.

Shapiro, a shareholder activist who typically buys large positions in broken-down securities, made a killing in Quality Systems’ stock in 1995, buying a huge block of the stock on Valentine’s Day at $2 a share. Shapiro cashed in later that year, at an average price of $22 to $25 a share.

He paid about $350,000 total for Quality Systems’ stock, including the Valentine’s Day block and earlier purchases, selling it later in 1995 for about $3.5 million.

This time around, Shapiro again sees a compelling opportunity, though he doesn’t expect to repeat 1995’s windfall. Quality Systems’ stock has languished for more than a year after it failed to live up to lofty revenue-growth expectations. At current prices, Shapiro said, it’s trading at a nearly 50% discount to its asset value.


“The historical core business, in my opinion, I’m getting for free,” said Shapiro, who believes Quality “has been and will again evolve into a growth story.”

According to the regulatory filings, Lawndale Capital bought 76,700 shares in Quality Systems from Oct. 15 to Dec. 19, at prices ranging from $5.82 to $7.91 each. The purchases brought Lawndale Capital’s total holding to 304,400 shares, or a 5.1% stake. The stock closed Wednesday at $6.13, unchanged, on the Nasdaq market.

He estimated that the core dental practice management system, the dominant product in its field, is worth about $3 to $5 a Quality Systems share. Add it all together with about $3 a share in cash, $3 a share in value for Clinitech, a 1996 acquisition that develops electronic medical records systems, and $1 a share for MicroMed Healthcare Information Systems Inc., a medical practice-management software business, and the stock’s asset value is about $10 to $12 a share, in Shapiro’s estimation.