CEO Ian McCrae says since delisting from the NZX, Orion Health has "de-corporatised" and returned to its startup roots. Photo / Michael Craig
Many businesses have been laid low by the pandemic. But for Auckland software company Orion Health, it's helped fuel a renaissance.
Founder, chief executive and owner Ian McCrae says Orion has just made an annual profit of around $5 million. Revenue is undisclosed, but it increased by about 10 per cent.
And McCrae - already notably chirpier than he was in the final couple years of his company's 2014-19 NZX listing - sees even brighter times ahead.
He details some huge deals, driven by healthcare providers' new sense of urgency amid the outbreak.
And he highlights Orion's newly found nimble approach and structure, which he says make it more competitive as it chases the new opportunities.
"There's been a major transformation," says McCrae. Essentially, we've gone back to being an entrepreneurial startup.
"We've de-corporatised. We call it Orion 2.0. We've halved our costs by way of staff costs, premise costs, lots of areas, we've grown revenue and we're back in profit, which is a big turnaround. We reported losses of $50m and $70m [towards the end of Orion's NZX listing] and now we're making a profit this year. Everyone's happy they're getting paid the bonuses, which is something we haven't been able to do until recently."
Today Orion has 560 staff, compared to about 1200 in 2018. Some departed when the company sold its Rhapsody data-integration unit to UK firm HG Capital at the time of its delisting, but McCrae says the company has also moved away from a management-heavy "inverted pyramid" structure, to effectively breaking Orion into "a series of small startups".
The complex Rhapsody sale initially saw Orion retain a 25 per cent stake in its sold-off unit, while HG in turn held a small stake in Orion's remaining business. But the arrangement only lasted months, with each party buying the other out for 100 per cent control after McCrae and HG agreed to disagree over the investment firm's plan to merge Rhapsody with a US firm called Corepoint in July 2019.
In late 2018, as investors voted on the Rhapsody sell-off, many saw it as Orion selling its only profit-making unit - the "golden goose" of Rhapsody, while keeping its "lame ducks", the loss-making population health and hospital divisions. But many took a pragmatic approach, including the NZ Shareholders' Association, which joined the majority voting in favour of the Rhapsody deal and a parallel proposal for McCrae to buy back shares in the rest of the business. Orion needed cash, and Rhapsody was the only asset that would fetch a good price. And by that point, McCrae's indicative offer of $1.18 to $1.26 per share for the rest of the business was the best outcome on offer.
McCrae - who three years later can now argue that he was right - responded that Rhapsody was the right unit to sell: it had peaked in value, and as a data integration engine, it would ultimately have its lunch eaten by the likes of Amazon Web Services. The rest of the business, meanwhile, was more early-stage, with growth and profit ahead of it.
Pandemic restrictions on travel have also forced Orion to develop the capability to manage customers 100 per cent remotely, and to land new ones without jumping on a plane. It's been a tricky transition, but also one that's contributed to the big reduction in costs.
Leaving the NZX behind has helped, McCrae says.
"Being delisted, it's just a much simpler company to run. The various committees, the extra effort, the time it took up just being a listed business. I now have far more hours in the day for products and selling."
Orion's planning horizon is longer. The CEO does not have to dread facing a roomful of angry shareholders if a big deal slips into the next financial period. And McCrae can now be more flexible.
The re-tooling seems to have worked.
McCrae reveals that Orion has been awarded a 10-year contract with Oklahoma's state government worth some US$100 million ($135m) as the sole vendor to create a new health information exchange (HIE) for the southern US state, which has a population of around 4 million.
The Oklahoma project is due to launch in the second half of this year.
Orion won a global tender to win the deal. While there's recently been tub-thumping here about our Government's $38m vaccine register system going to a system built on software and systems from US giants Salesforce and Amazon, the boot was on the other foot in Oklahoma. There, a Tulsa newspaper bemoaned the fact that a local contender had been overlooked in favour of a Kiwi invader. (McCrae is not parochial, but has angrily identified flaws in our Government's vaccine software push)
The Oklahoma deal follows recent major US and Middle East contract wins. And McCrae says Orion is on the shortlist to provide an HIE (essentially, a system for sharing and managing patient records online) for a larger state, with a $300m contract.
"We'll be announcing more over the next few weeks. They'll be coming thick and fast," he says.
Veteran Orion watchers will know the company has been here before. Around the time of its 2014 initial public offer, it was winning HIE deals by the hatful in the US as billions in "Obamacare" spending went to states to create new, digitised systems for sharing patient records.
Orion's shares hit $6.27 in November 2014, giving the company a $1 billion market capitalisation and valuing McCrae's stake at some $530m.
But then came a crash in revenue and a cash crunch.
Shares fell to as low as 79c, with McCrae ultimately mopping up the remaining investors for $1.22 a share with the delisting (today he owns 85 per cent of Orion, with most of the balance owned by staff).
McCrae would later call it a perfect storm. Analysts saw Orion was spending heavily on moving its software to the cloud just as the Trump era of uncertainty over healthcare spending began in the US, which has always been the source of most of Orion's revenue. But today, looking back, the key problem was that the Obama-era HIE projects weren't financially sustainable after the federal stimulus health spending dried up. There was just no ongoing funding model.
Now, the Orion boss says, the pandemic has given health agencies a new focus.
"Around the world, countries have been putting in health information exchanges, just like the Oklahoma project, but Covid has really sped things up."
The pandemic has highlighted the need for these systems to support better clinical decision-making and ultimately get citizens more involved in their own healthcare, McCrae says.
"For the likes of Oklahoma, storing and aggregating vast volumes of different clinical data, and surfacing it in data analytics, brings them a step closer to delivering the right care, for the right patient, at the right time and in the right place," he says.
"Up until recently, all the spend has been on hospital automation; half-a-billion-dollar projects to a hospital that haven't made a lot of difference to the healthcare of citizens.
"Now with Covid, the big trend now is to tie everything together and make [patient records] available to physicians and to citizens themselves for public health reasons. So we're going to see a wave of these projects come out. They're going to be big projects."
How big? McCrae says Orion now has a $500m pipeline.
"We're seeing an increasing number of these tenders around the globe and our win rate has been over 60 per cent. We now provide services across most of Scotland, large parts of the UK, as well as other parts of the US and Continental Europe. We're also receiving significant interest out of the Middle East as that part of the world tackles how to leverage data to drive better health outcomes for its citizens," the Orion CEO says.
"It's a global movement that our recalibrated business is well placed to leverage."
And Orion will do it without angry shareholders watching McCrae's every move. That seems to be a welcome change. The CEO looks like he's had the weight of the world taken off his shoulders.
Industrial projects dominate new supply, the study found, comprising 65% of new stock.