Shares in New Zealand based health software company Orion Health plunged 20.4% in Australia (18% in NZ) to a record low, yesterday after a less than convincing interim result for the six months to September 30.
The weak result and higher cash burn raised questions about whether the company would have enough money to survive into 2018 – although management said it would.
But it’s not the first time the market has been surprised by questions over the cash reserves held by Orion. In February 2015, the shares fell 10% on one day after it revealed lower cash inflows. That was only moths after listing.
The company then said it had received less cash than expected due to “slower contract closures and billings in North America“. Orion also reported that customer receipts were negatively impacted by a shift from continuous licencing, to subscription contracts.
The shares ended around $A5 after that big one day fall – yesterday they ended 60% lower than that level as the same questions about cash inflow continue to be asked after the latest results.
The drop to $A1.99 ($NZ2.05) a share knocked $NZ70 million off Orion’s market value and means investors are down by $NZ583 million on paper since the company floated at $NZ5.70 a share in late 2014 ($5.80 on the ASX).
The latest share price drop came after Orion reported a reduced loss of $NZ18 million in the six months to September 30. Of more concern to investors was that it used $NZ33 million of cash leaving it with a cash balance of $NZ24 million.
The company attributed the cash outflow to its $NZ17 million operating loss and “abnormally large timing differences in receipts from customers”.
But CEO Ian McCrae said the company had enough cash and credit see it through to profitability, which he expected at the start of its 2018 financial year, which judging by the market reaction yesterday is not the view many investors have.
“The outlook for continuing revenue growth and improved EBIT is such that we believe that the company has sufficient cash and facilities to execute its strategy until profit is generated, which we expect to occur in FY2018,” Mr McCrae said in yesterday’s statement.
Mr McCrae said Orion’s software was now being used to manage more than 110 million patient health records around the world (including in Australia).
He says "the company is on track to achieve profitability during fiscal year 2018. It is managing its cost base prudently and, coupled with increasing revenues, it has achieved margin improvement in implementation, support and managed services.”
Recurring revenue of $NZ46 million rose to 44% of Operating Revenue, “ensuring the company is ahead of schedule in achieving its goal of exceeding 50% recurring revenue in the next four years,” according to Orion.
Operating Loss for the six months of $NZ17 million, was a $NZ10 million improvement from the first half of the 2016 year. "This reflects a big step up in performance in North America, a levelling off of investment in Research and Development at $32m, while at the same time managing overheads.
“1H2017 is the strongest EBIT performance over a six month period since the company’s IPO two years ago. Despite revenue being challenged by foreign exchange headwinds, we are on track to achieve good revenue growth and deliver further improvement in EBIT this fiscal year,” Mr McCrae says.
“After two challenging years in the United States there is clear evidence of business improvement with a return to growth and a significant increase in contribution. Overall our outlook remains positive, although we are operating in a period of some uncertainty in the United States as the Trump administration prepares to take office.”
Orion’s revenues for the six month period were up 2 per cent to $NZ104 million.
NZ broker, Forsyth Barr analyst Blair Galpin said it was the cash flow position that was weighing on investors.
The company had reiterated its confidence it wouldn’t need to go back to shareholders for more money, but it had a "lumpy" sales pipeline "so obviously there are some risks around that," he said.
"You can always raise more money. It is a question of at what price." Orion had a $NZ40 million bank facility which it saw as an alternative, Mr Galpin told NZ media.
