Orion Health first-half loss widens in line with expectations as revenue climbs 26%, bolstered by weak kiwi

Wednesday 25th November 2015

Orion Health Group, the healthcare system software developer, posted a wider first-half loss it said was in line with expectations, while a weaker kiwi dollar and recurring revenue in North America lifted sales by 26 percent.

The loss was $26.9 million, or 16.9 cents per share, in the six months ended Sept. 30, from a loss of $14.8 million, or 10.9 cents, a year earlier, the Christchurch based company said in a statement. Orion Health is forgoing short-term profits in a bid to build a global business of scale, and as part of that strategy the company is trying to shift more revenue into a recurring sales model, from the traditional perpetual licences it has previously sold.

Revenue rose to $101.7 million in the period, from $80.5 million a year earlier, bolstered by an 8.7 percent drop in the kiwi dollar on a trade-weighted basis over that period, lifting the value of offshore sales. Had the exchange rate remained unchanged, revenue would have been $13 million lower, Orion said.

Recurring revenue from subscriptions accounted for 41 percent of sales, up from 30 percent in 2014. Annualised recurring revenue, a preferred measure for software-as-a-service companies, was $86 million as at Sept. 30, up from $63 million a year earlier.

"The healthcare industry is quickly transforming and changing to keep up with technological and consumer demand," chief executive Ian McCrae said. "Increasingly, the focus is moving from treating conditions, to treating individuals and when it does Orion Health will have the modern, scalable technology to deliver and enable it."

When Orion Health listed on the stock exchange last year it didn't provide forecasts, saying recurring revenues represented less than a third of sales at the time and there was too much uncertainty about if and when subscription contracts would be signed.

The company's managed services revenue, which covers its recurring subscriber customer base, more than doubled to $21.7 million, driven by sales in North America, the company's biggest market. Perpetual license revenue advanced 15 percent to $22.8 million, while support services sales from perpetual licence holders climbed 38 percent to $19.8 million. Implementation services revenue edged up to $36.3 million.

Orion Health spent $32 million on research and development in the half, up from $23 million a year earlier, largely on an increased headcount and related staff costs. The company has been expanding the capabilities of its existing software, and wants to support new cloud-based service models.

"Research remains critical for Orion Health," the company said in its report. "We have for some time been aware that it is necessary to invest in applied research to investigate and develop net intellectual property to support the transformation of healthcare in our markets around the world."

Orion Health had cash and equivalents of $77 million as at Sept. 30, reporting an operational cash outflow of $19.4 million in the half, up from $13.6 million a year earlier. The company raised $120 million of new capital in its initial public offering last year, when it sold shares at $5.70 apiece.

The stock last traded at $3.78, and have dropped 36 percent this year.

BusinessDesk.co.nz

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