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Orion Health disappoints as contracts remain unsigned

Company delivers bad news for 2017, but stands by 2018 forecast.
Orion Health CEO Ian McCrae says 2017 performance is not as expected or forecast.

Orion Health CEO Ian McCrae says 2017 performance is not as expected or forecast.

New Zealand health software developer Orion Health is considering seeking a minority investor after sales faltered in the second half of 2017.

Cash is also forecast to run low by the end of the year, but the company currently carries very little debt.

Listed on both the NZX and ASX, Orion this morning provided an update on revenue, earnings and cash, saying it remained committed to reaching profitability during the 2018 financial year.

However, Orion told investors a number of contracts that were expected to close before the end of the 2017 year did not do so. These negotiations remain in progress.

Orion said its full year net loss before tax is expected to be between $32 million and $38 million, an improvement of around $20 million from 2016. It will end the year with around $2 million to $6 million in cash, down from $24 million at the end of September 2016.

Orion's share price plummeted 28c, or 14.5%, by 10.30am to trade at $1.65.

A strategic review is underway, the company said.

"As part of this process the company has been in discussions with a number of parties over the past quarter that may result in a partnership or minority investment in the company. These discussions are preliminary and non-conclusive at this stage."

Forecast 2017 operating revenue is now between $194 million and $200 million, a decrease on FY2016 in GAAP accounting terms, but still expected to grow modestly in constant currency terms.

CEO Ian McCrae, the majority shareholder, said he "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.”

Orion Health said management took full responsibility for not executing as efficiently on the sales pipeline as had been forecast.

"The company’s pipeline remains strong but as contract values move into higher dollar brackets we are finding contracting periods have extended. 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 lower revenue is not due to loss of customers, the company said. Opportunities are still in progress and if finalised will contribute to 2018.

Orion Health's guidance for 2018 remains unchanged. It said its working capital facilities remain in place with ASB.

Orion negotiated variations to its bank facility during November 2016 providing an extension of the term of its standby facility and the relaxation of what it described as a key financial covenant.

Orion has been migrating its systems to the cloud, announcing in February that 110 million records held in its Amadeus platform had been migrated to AWS.