Auxilio is in the Sweet Spot of the Health Care
Ken Nagy, CFA
AUXILIO INC (AUXO): Free Stock Analysis Report
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On May 15, 2012,
Auxilio, Inc. (
, the Mission Viejo, California based Managed Print Services
(MPS) company for the health care industry, reported financial
results for its fiscal 2012 first quarter, ended March 31, 2012.
A strong quarter resulted in a nearly 40 percent year over year
increase in sales, with revenue expanding $1.854 million to $6.537
million from $4.683 million for the first quarter ended March 31,
Auxilio's strength in its year over year revenues was primarily
driven by traction gained from the addition of nine new or expanded
contracts that began since the fourth quarter of 2010 as well as
the Company's recurring revenue base that reflects its 100 percent
customer retention rate. Still, while no customers were lost,
some of the recurring revenues were negotiated at lower rates.
Similarly, it should be noted that management expects continued
revenue growth in 2012 as a result of the new contracts signed in
Likewise, the Company has retained 100 percent of its hospital
partnerships since its launch and currently has a national
portfolio of 35 long-term contracts representing hospitals, health
care systems and affiliated clinical and administrative support
offices that consist of over 100 facilities.
Still, Cost of revenue during the first quarter, which consists of
document imaging equipment, parts, supplies and salaries and
expenses of field services personnel, jumped to $6.188 million for
the three months ended March 31, 2012, as compared to $4.339
million for the same period in 2011, resulting in gross margin
falling year over year to 5.4 percent from 7.3 percent for the
three months ended March 31, 2011.
It should be noted that gross margin was negatively impacted from
increased costs related to the implementation of Auxilio's new
contract with Catholic Health East (CHE), a multi-institutional
Catholic health system.
During the first quarter, Auxilio began implementing its MPS
program for CHE. The new contract which was signed late in 2011 is
a five year, $40 million agreement and the single largest contract
in Auxilio's history.
It's also 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
Along the same lines, it should further be noted that all accounts
signed since the fourth quarter of 2010 moved toward profitability
in the first quarter.
Auxilio recently made several key operational enhancements
including scaling sales and business development efforts to build
on its foundation in preparation for strong growth.
Over the past year, the Company has trained upwards of 50 new
employees as its hospital portfolio grew and as a result management
believes it is well positioned to scale its business appropriately
to meet the evolving us healthcare industry acceleration.
Similarly, as a result of increases in Auxilio's staffing headcount
to handle the increased size of its business, its general and
administrative expenses increased by $43,596 to $888,236 for the
three months ended March 31, 2012, as compared to $844,640 for the
three months ended March 31, 2011.
However, Auxilio reported a net loss of $1.619 million, a year over
year increase of $755,182 from a net loss of $864,121 during the
three months ended March 31, 2011.
The increase in net loss was primarily a result of an increase in
total operating expenses as well as slightly higher total operating
Based on the weighted average number of basic and diluted common
shares of 19.449 million shares, basic and diluted net loss per
share resulted in a net loss of $0.08 per basic and diluted share
during the first quarter ended March 31, 2012. This compared
to a basic and diluted net loss per share of $0.04 on a weighted
average number of basic and diluted shares of 19.336 million shares
during the three months ended March 31, 2011.
As of March 31, 2012, Auxilio had $1.031 million in cash and
equivalents and a working capital deficit of $703,508. This
compares to $1.832 million in cash and equivalents and a working
capital surplus of $370,638 as of December 31, 2011.
Still, cash used for operating activities amounted to $780,239
during the three months ended March 31, 2012, as compared to
$820,809 used for the comparable period of 2011.
Furthermore, the Company recently secured a $2 million line of
credit with Avidbank, providing Auxilio with the flexibly to fund
its accelerated growth.
The Company remains focused on building awareness in the healthcare
industry to add new accounts with large healthcare systems,
expanding its geographic presence domestically, renewing existing
accounts for three to five year terms, and moving all new accounts
Along the same lines, it should be noted that in the second quarter
fiscal 2011, Auxilio secured an expanded marketing alliance with
Sodexo, a leading provider of comprehensive service solutions.
The Company expects the expanded relationship with Sodexo to
further advance sales progress as well as expand the ability to
attract and sign new customer contracts.
The strategic relationship with Sodexo promotes Auxilio's managed
print solutions and leverages Sodexo's customer pipeline by
providing crucial, C-suite access to over 1,300 U.S. hospitals in
the $22 billion market in which Auxilio competes.
As a result of the expanded marketing alliance and increase in the
Company's staffing headcount, Auxilio expects to close additional
recurring revenue contracts to new customers throughout 2012.
Subsequently, Auxilio signed a five year contract in April 2012,
with Wentworth-Douglass Hospital, one of the largest acute care and
multi-specialty hospitals in the Seacoast region of New Hampshire
and Southern Maine, to cut costs and improve efficiencies through
its Managed Print Services.
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
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
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.