Orion Health first-half loss narrows as sales rise, expenses fall; shares drop

Orion Health chief executive Ian McCrae. Photo / Greg Bowker

Orion Health, the health software developer that gets two-thirds of its income in US dollars, narrowed its first-half loss after boosting sales of perpetual licences in North America and cutting operating costs such as administration, and sales and marketing.

The loss was $18 million in the six months ended September 30 from a loss of $26.9m a year earlier, the Auckland-based company said in a statement. Sales rose to $104.2m from $101.7m.

The company affirmed at its annual meeting in September that it is still on track to return to profit in 2018, although it was facing the headwinds of strong kiwi dollar and burning through cash at a faster rate than expected. It is chasing global growth in favour of profits after listing in 2014 and said today that the number of patient health records it manages has risen above 110 million.

Its shares dropped 9.6 per cent to $2.26 on the NZX today and have declined 24 per cent this year, while the S&P/NZX 50 Index has gained 9.2 per cent.

The narrower loss "reflects a big step up in performance in North America, a levelling off of investment in research & development at $32m, while at the same time managing overheads," said chief executive Ian McCrae. "After two challenging years in the US there is clear evidence of business improvement with a return to growth and a significant increase in contribution."

He said overall, "our outlook remains positive, although we are operating in a period of some uncertainty in the US as the Trump administration prepares to take office" with some commentators pointing to changes in the US healthcare regulatory environment with Donald Trump in the White House.

Sales in North America rose to $69.7 million in the first half from $62.3m a year earlier. Europe, Middle East and Africa posted a drop in sales to $17.9m from $22.8m, while the Asia-Pacific region was little changed at $16.2m.

By revenue type, managed services showed the strongest revenue growth, rising to $25.8m from $21.7m, while perpetual licenses increased to $26m from $22.8m. Implementation services, its biggest revenue generator, fell to $31.2m from $36.3m and support services was little changed at $19.9m from $19.8m.

The gain in North American revenue "was primarily as a result of strong perpetual license sales and steady growth in managed services," the company said. "Our perpetual revenue growth was driven by a strong performance by our Rhapsody activities where demand continues to increase and was assisted by the new agreement with Philips, a leader in healthcare technology."

Rhapsody is Orion's 'foundation' product and is an engine for exchange and acquisition of health data, it says.

As at September 30, its cash balance stood at $24m and its net cash outflow was $33m, reflecting the operating loss and an "unusually large" movement in working capital items. Orion had cash and equivalents of $58.9m as at March 31.