Update: Orion Health seeks up to $150mln, eschews forecasts

Update: Orion Health seeks up to $150 million, but offers no forecasts

By Fiona Rotherham

Oct. 28 (BusinessDesk) - Orion Health Group, which develops software systems for patient health management, wants to raise up to $150 million in new capital in an initial public offer but says it won't offer earnings forecast because of the "lumpy" nature of the group's revenues and it feared misleading investors as a result.

The IPO would value the firm at almost a billion dollars and give public investors up to 17.4 percent of the company.

The Auckland-based company plans to sell between 21.9 million and 29.1 million shares at between $4.30 and $5.70 apiece, raising between $125 million and $150 million of new capital, according to its prospectus. That would value the company at between $720 million and $915 million by market value.

Alongside the new capital, chief executive and founder Ian McCrae is selling up to $5 million into the float. Existing shareholders are estimated to keep between 82.6 percent and 86.3 percent of Orion after the float, with McCrae holding around 50 percent.

Chairman Andrew Ferrier said the company was in a sweet spot to take advantage of a transformational change in health care. “While our traditional software business continues to grow, a new category of customers, US health insurers (payers) are now keen to investigate software solutions like ours to help tackle the unsustainable costs of healthcare at the same time as individuals are demanding greater control over their own health,” he said.

McCrae described it as the biggest opportunity the company has faced in its 21-year history. The new funds will be used to double the existing 40 R&D teams to accelerate its existing solutions and to undertake blue sky research on its big data analytics and predictive modelling software. The money will also go to improve implementation and delivery capability, and provide additional financial liquidity.

No financial forecasts were included in the prospectus filed today because of the lumpy nature of its revenue. Ferrier said the board had agonised over the decision and while he “wasn’t comfortable” not being able to provide them, it was better not to deliver forecasts that could end up not being meaningful. “Investors will just to have to look at our track record,” he said.

The company has had an annualised growth rate of 26 percent over the past 10 years. It posted a loss of $14.8 million in the six months ended Sept. 30, 2014 on sales of $80.5 million but Ferrier said the loss had been planned for.

“We’ve been tilting in this direction for a couple of years as the organisation had the chance to move ahead of the curve and have ramped up our research and development investment.” The software developer has reinvested most of its recent cashflow into new hires, with total staff numbers now at 1,100 worldwide.

Chief operating officer Graeme Wilson, one of several senior executive appointments made in the past year, said the company also stumbled on its implementation margins when dealing with 40 percent growth in North America in the last financial year but the problem was now fixed.

Gaining 15 new major customers in the health information exchange area had added to the value of the business but was yet to substantially deliver on the bottom line because of a shift from licence fees to recurring software as a service revenue, he said. For example, Orion Health had carried the cost of doing the year-long development work for insurer Blue Shield in the US. That won’t be recouped until the software system is implemented just before Christmas and it starts paying a price per member fee for the millions of patients involved.

Annualised recurring revenue, the favoured sales measure of software as a service firms, rose to $52.1 million in the first half of the 2015 year from $44.2 million as at March 31. It currently accounts for 29 percent of revenue and is forecast to reach 50 percent within five years.

A final price is expected to be set on Nov. 7, with a dual-listing on the NZX and ASX scheduled for Nov. 26. The offer opens on Nov. 10 and closes on Nov. 21 and there will be no public pool.

The company raised $26 million mid-year from private investors, including Ferrier, with the shares priced at $4 per share.

(BusinessDesk)

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