Auxilio Crosses into Profitability

Zacks Small Cap Research

By Ken Nagy, CFA

On November 14, 2013, Auxilio, Inc.(AUXO), the Mission Viejo, California based Managed Print Services (MPS) company for the health care industry, reported its third quarter and nine month financial results for the period ended September 30, 2013.

Auxilio reported solid financial results, crossing over into profitability with increased recurring service revenue as a result of its growth over last two years and improved margins in new and existing accounts.

Revenues for the third quarter jumped year over year by over 23 percent or $2.024 million to $10.806 million for the third quarter ended September 30, 2013. Sequentially, Revenues improved by $1.005 million from $9.801 million for the second quarter ended June 30, 2013.

Cost of revenue for the year, which consists of document imaging equipment, parts, supplies and salaries and expenses of field services personnel, was $8.577 million for the quarter ended September 30, 2013 as compared to $7.430 million for the same period of 2012.

The increase in the cost of revenues for the third quarter of 2013 is attributed primarily to the service cost to support the new recurring service contracts and expanded support areas among existing contracts, as well as the increase in new equipment placed.

Third quarter gross margin jumped year over year to 20.6 percent from 15.4 percent for the comparable quarter of 2012. Sequentially, gross margin was up from 16.8 percent for the three months ended June 30, 2013. The jump in margins reflects the increase in recurring service revenue and margin improvements from existing accounts.

Although gross margin improved year over year, 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. 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 declined year over year by $317,798 to $1.373 million compared to $1.691 million during the third quarter fiscal 2012.This drop was due to lower sales commission as a result of fewer hospitals going live this quarter compared to the same quarter last year.

As a result, income from operations during the third quarter was $856,353 compared to a loss from operations of $339,128 for the three months ended September 30, 2012. Sequentially, income from operations jumped from $204,647 for the second quarter 2013.

Net income for the quarter was $811,466 which was a year over year improvement of $1.471 million from a net loss of $660,008 during the third quarter, ended September 30, 2012. Sequentially, Net income grew by $713,973 from $97,493 for the second quarter of fiscal 2013.

Based on a weighted average number of diluted common shares of 21.073 million shares, diluted net income per share resulted in net income of $0.04 per diluted share for the third quarter ended September 30, 2013.  This compares to a diluted net loss per share of $0.03 on a weighted average number of diluted shares of 19.595 million for the three months ended September 30, 2012. Sequentially, net income per share grew from net income of $0.00 per diluted share on 20.987 million shares for the three months ended June 30, 2013.

While the Company crossed over to profitability, management doesn’t expect earnings to be as high over the next couple of quarters due to anticipated new account implementations. Still, the company continues to expand within its current customer accounts, which is indicative of the effectiveness of its Managed Print Services program and the continued need to reduce costs by healthcare organizations.

The company’s balance sheet was mixed with Auxilio having $3.101 million of cash and equivalents and a working capital deficit of $841,203 during the period ended September 30, 2013.  This compares to cash and equivalents of $2.030 million and a working capital deficit of $135,406 at the quarter ended June 30, 2012. Similarly, during the nine months ended September 30, 2013, Auxilio’s cash provided by operating activities amounted to $1.1 million, as compared to $1.0 million used for operating activities for the same period in 2012.

Auxilio recently entered into a strategic alliance with Aramark Healthcare Technologies, a leading independent provider of medical equipment management to over 1,000 hospitals in the United States. The relationship will help offer the hospital partner an option to manage all print-related expenses and increase efficiency related to the production of documents, including: services, supplies, equipment, legacy service agreements, parts, finance charges and labor.

By adding new accounts and expanding existing accounts and driving contracts toward profitability, the company has made significant progress on its growth objectives. As a result, the company is seeing a reduction in its start up costs per hospital and an improvement in its margins.

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. 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.

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 Auxilio Report

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