AUXO: Margin Expansion at AUXILIO

Zacks Small Cap Research

By Ken Nagy, CFA

On August 13, 2013, Auxilio, Inc. (AUXO), the Mission Viejo, California based Managed Print Services (MPS) company for the health care industry, reported its second quarter and six month financial results for the period ended June 30, 2013.

Second quarter revenues declined year over year by $921,136 to $9.801 million during the second quarter ended June 30, 2013. The decline in year over year revenues was primarily a result of lower equipment revenue.

Recurring service revenues increased by $1.4 million or 20 percent year over year as a result of new contracts closed between May 2012 and April 2013.

Additionally, cost of revenue for the year, which consists of document imaging equipment, parts, supplies and salaries and expenses of field services personnel, fell to $8.157 million for the for the quarter ended June 30, 2013 as compared to $9.323 million for the same period of 2012. 

As a result, second quarter gross margin jumped year over year to 16.8 percent from 13.1 percent for the comparable quarter of 2012.

The jump in margins reflects the large growth in new facilities added in 2012 coupled with the reduction in costs as Auxilio’s program matures within these new 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. 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 declined year over year by $75,626 to $1.438 million compared to $1.514 million during the second quarter fiscal 2012.

As a result, income from operations during the second quarter was $204,647 compared to a loss from operations of $114,895 for the three months ended June 30, 2012.

The tremendous growth in new business that the company experienced over the last two years has resolved within Auxilio crossing over to profitability and achieving positive income from operations for the last three consecutive quarters. Furthermore, management expects this trend to continue.

Net income for the quarter was $97,493 which was a year over year improvement of $124,311 from a net loss of $26,818 during the second quarter, ended June 30, 2012.

Based on a weighted average number of diluted common shares of 20.987 million shares, diluted net income per share resulted in net income of $0.00 per diluted share for the second quarter ended June 30, 2013.  This compares to a diluted net loss per share of $0.00 on a weighted average number of diluted shares of 19.568 million during the three months ended June 30, 2012.

The company’s balance sheet was flat with Auxilio having $2.030 million of cash and equivalents, a working capital deficit of $135,406 and $500,000 borrowed against its line of credit during the period ended June 30, 2013.  This compares to cash and equivalents of $2.190 million, a working capital deficit of $25,084 and $528,000 borrowed against its line of credit at the quarter ended December 31, 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.

A copy of the full research report can be downloaded here >> 
 Auxilio Report

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