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NextGen Healthcare Information Systems, a full subsidiary of Quality Systems (QSII - Analyst Report), recently revealed an agreement with Nipro Diagnostics to integrate its own NextGen Ambulatory EHR with the latter’s TRUEresult blood glucose monitoring system. 

The Nipro Diagnostic Blood Glucose system extracts readings (as obtained by the Trueresult offering) of glucose in the blood stream into NextGen Healthcare’s Ambulatory EHR. With this agreement, NextGen Ambulatory EHR customers will get quick access to information provided by patients, using the TRUEresult blood glucose monitoring system at their residence.

In other words, under the new relationship, medical practitioners may utilize one program to view blood glucose levels as gauged by the TRUEresult system.  

Quality Systems runs a pure-play business model in an attractive industry with a large number of catalysts, which provoke frequent speculation about mergers and acquisitions. On the positive side, we observe the high proportion of recurring revenues. Of late, however, growth of its pipeline metric has seen a falling trend along with progressively lower number of signed deals on a quarterly basis.

Furthermore, greenfield opportunities are shrinking. The company is faced with the loss of a critical customer in the replacement market.

The company has made multiple acquisitions to bolster organic growth with acquisitions expected to facilitate its entry in the small hospital segment. We are concerned about execution risk emanating from Quality Systems’ entry into the rural inpatient market.

Moreover, competition is intense from well regarded players such as Athenahealth (ATHN - Analyst Report), Allscripts Healthcare Solutions (MDRX - Analyst Report), Cerner Corporation (CERN - Analyst Report) and others. Price discounting is frequent, particularly on the lower end, and Software as a Service (SaaS)-based model appears to have exacerbated pricing pressure.

Quality Systems has traditionally focused on providing solutions for physician practices. However, core ambulatory EHR providers such as Quality Systems, will see opportunities shrinking for product sales as physician groups are increasingly absorbed into hospitals.

Nipro Diagnostics has a core competence in managing diabetes. Its offerings are co-branded under the title of TRUE.

Our Underperform recommendation for Quality Systems is supported by a short-term Zacks #5 Rank (Strong Sell).

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