By Ken Nagy, CFA On November 15, 2012, Auxilio, Inc. (OTC Markets:AUXO), the Mission Viejo, California based Managed Print Services (MPS) company for the health care industry, reported financial results for its fiscal 2012 third quarter and nine months, ended September 30, 2012.
A strong quarter resulted in a 31.6 percent year over year jump in sales, with revenue expanding $2.108 million to $8.782 million from $6.674 million for the third quarter ended September 30, 2011.
Auxilio’s strength in its year over year revenues was primarily a result of approximately $3.0 million from the addition of six new recurring revenue contracts between February 2012 and August 2012 which was offset by lower equipment sales, which management expects will continue to fluctuate.
As a result of substantial growth in new customer accounts since January 2012, which management projects will exceed $50 million in new revenue for the Company, along with completing the implementation of its MPS program in 15 new customer hospitals during the third quarter, management expects to reach cash flow positive from operations during 2013 due to recurring revenue growth and improved margins.
What’s more, these 15 new customer hospitals represent the Company’s largest number of hospital implementation executed at the same time in Auxilio’s history.
Still, cost of revenue during the third quarter, which consists of document imaging equipment, parts, supplies and salaries and expenses of field services personnel, jumped to $7.430 million for the three months ended September 30, 2012 as compared to $5.403 million for the same period in 2011.
This resulted in gross margin for the quarter falling year over year to 15.4 percent from 19 percent for the three months ended September 30, 2011.
It’s important to note that gross margin is negatively impacted by new contracts, which at the onset, translate to higher costs associated with absorbing new customer’s legacy contracts in advance of anticipated revenue. As Auxilio implements its programs, it attempts to improve upon these contracts, therefore reducing costs over the term of the contract. Again, while the upfront costs associated with bringing on new accounts will continue, management expects to partially offset those costs with accelerated growth and quicker ramp up of new accounts.
Total operating expenses increased year over year by $409,335 to $1.691 million but remained flat as a percentage of revenues at 19.3 percent.
Still, Auxilio reported a net loss of $660,008, which was a year over year increase in net loss of $612,681 from a net loss of $47,327 during the three months ended September 30, 2011.
The decrease in net loss was primarily a result of higher revenues offset by lower gross margin as well as slightly higher total operating expenses.
Based on the weighted average number of basic and diluted common shares of 19.595 million shares, basic and diluted net loss per share resulted in a net loss of $0.03 per basic and diluted share during the third quarter ended September 30, 2012. This compares to a basic and diluted net loss per share of $0.00 on a weighted average number of basic and diluted shares of 19.395 million shares during the three months ended September 30, 2011.
As of September 30, 2012, Auxilio had $1.323 million of cash and equivalents and a working capital deficit of $944,977. This compares to cash and equivalents of $1.581 million and a working capital deficit of $708,426 for the quarter ended June 30, 2012.
By adding new accounts and expanding existing accounts and driving contracts toward profitability, the Company has made significant progress on its growth objectives.
Over a 12 month period, Auxilio will have implemented its print services program in over 30 new hospitals and hundreds of their affiliated entities; grown its hospital portfolio by over 50% and now manages the process and production of over 1.5 billion documents per year for more than 250,000 caregivers, physicians and health care employees across the country.
As a result of these implementations, the Company is seeing a reduction in its start up costs per hospital and an improvement in its margins which will support the Company’s efforts to reach positive cash flow from operations in 2013.
Similarly, Auxilio is on track to complete the implementation of Catholic Health East, Bon Secours Health System, and Sharp HealthCare by the first quarter of 2013.
This is significant as this new revenue adds to the cash flow from the Company’s legacy accounts moving Auxilio that much closer to cash flow positive from operations.
Auxilio now operates on-site in 22 states throughout the nation representing more than 26,000 patient beds in over 80 hospitals.
Likewise, the Company has retained 100 percent of its hospital partnerships since its launch and currently has a national portfolio of long-term contracts representing hospitals, health care systems and affiliated clinical and administrative support offices that consist of over 100 facilities.
Along the same lines the Company’s MPS offerings continue to be in high demand as health care systems and hospitals increasingly search for solutions to reduce costs and enhance efficiencies.
With its exclusive focus on the healthcare industry, the Healthcare Information Technology (HITECH) portion of the American Recovery and Reinvestment Act of 2009 (ARRA) offers Auxilio a unique growth opportunity.
The HITECH portion of the bill includes nearly $20 billion of reimbursement incentives to those providers achieving “Meaningful Use” for the implementation of an Electronic Medical Record System.
The funding begins in 2012 for those who achieved “Meaningful Use” in 2011 and Medicare will begin applying penalties to hospital and physicians who fail to adopt Electronic Medical Record Systems starting in 2015.
Auxilio’s unshared position as the only managed print service provider in the U.S. dedicated exclusively to the health care industry and hospitals allows it to tap into HITECH incentives indirectly by bringing a unique exposure and knowledge in assisting customers in the preparation of electronic records management and the complex compliance requirements of the ‘meaningful use’ criteria federal mandates.
As Hospitals and IT departments are pressured to further reduce cost and enhance efficiencies as well as act quickly on cost cutting measures to comply with these EHR (Electronic Health Records) mandates, it leads to shorter sales cycles for Auxilio.
Similarly, the continued trend of high levels of consolidation within the healthcare industry should work to the Company’s advantage.
As healthcare systems consolidate and become larger, the need to streamline cost and increase efficiencies also grows, presenting a strong demand driver for Auxilio’s MPS solutions.
To access a free copy of the most recent AUXO research report, please visit Ken Nagy's coverage page at scr.zacks.com.
By Ken Nagy, CFA
On November 15, 2012, Auxilio, Inc. (OTC Markets:AUXO), the Mission Viejo, California based Managed Print Services (MPS) company for the health care industry, reported financial results for its fiscal 2012 third quarter and nine months, ended September 30, 2012.
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