UPDATE: Contract delays lower Orion Health full-year guidance; shares fall

Monday 3rd April 2017

(Updates share price, adds broker comment in lede and throughout)

April 3 (BusinessDesk) - Orion Health shares dropped 12 percent after the healthcare software developer said full-year sales fell but it still expects to post a narrower loss and be profitable in 2018. It has been in talks with potential investors in the business.

Operating revenue in the 12 months ended March 31 was probably between $194 million and $200 million, down from $207 million a year earlier, chief executive Ian McCrae said in a statement. The net loss was between $32 million and $38 million, compared to a loss of $54.4 million in 2016, it said. The shares fell as low as $1.62, almost matching the record low $1.56 they plumbed in December, and were recently down 23 cents to $1.70.

"A number of contracts that were expected to close before the end of FY2017 did not do so but remain in progress," said McCrae. "Management takes full responsibility for not executing as efficiently on the sales pipeline as had been forecast. The delay in the finalisation of contracts is not attributable to a specific factor as every potential customer situation is unique. Improved sales processes and forecasting are core areas of focus."

The company's closing cash position for the year is now projected to be between $2 million and $6 million and Orion said it has embarked on a strategic review that includes "discussions with a number of parties over the past quarter that may result in a partnership or minority investment in the company."

The talks were "preliminary and non-conclusive at this stage," the Auckland-based company's statement to the NZX said.

At Sept. 30, Orion's cash balance stood at $24 million.

Grant Williamson, a director of Christchurch-based broking firm Hamilton Hindin Greene, said the long lead-in times on some contracts delaying revenue had become an ongoing issue for the company.

"They're running short of cash now and are talking to other people and other parties," Williamson said. "It's a disappointment, particularly on the back of Wynyard," he said, referring to the listed intelligence software developer that went to the wall late last year.

Orion is 50.6 percent owned by McCrae, who said that as the majority shareholder "I am directly aligned with all shareholders and this is not the outturn we had targeted."

"We have been taking, and continue to take, direct measures to right-size our costs with our revenue growth and despite the slippage, we remain on track with our profitability objective," he said. "The board and I remain focused on long-term shareholder value and will evaluate the merits of any partnerships or minority investments to help Orion Health achieve its potential.”

Williamson said McCrae's close alignment to shareholders meant he will likely be "very focused on regaining the value".

The company said it was on track to turn a profit in 2018, a target it also affirmed at its annual meeting in September, when it noted that it was facing the headwinds of a strong kiwi dollar and burning through cash at a faster rate than expected.

The shares first traded at $6.50 in their NZX debut on Nov. 26, 2014, up from its $5.70 offer price, and valuing the company at $1.04 billion. The slumping share price now values Orion Health at $271.8 million, and Williamson said the benefit of hindsight had shown the IPO was overpriced.

"When these stocks are flavour of the month, fundamentals go out the window," Williamson said.

(BusinessDesk)

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