Dominant Quarter at Auxilio
By Ken Nagy, CFA
On August 14, 2012,
Auxilio, Inc. (
AUXO
)
, the Mission Viejo, California based Managed Print Services
(MPS) company for the health care industry, reported financial
results for its fiscal 2012 second quarter and six months, ended
June 30, 2012.
A strong quarter resulted in a nearly 123 percent year over year
jump in sales, with revenue expanding $5.918 million to $10.722
million from $4.803 million for the second quarter ended June 30,
2011.
Auxilio's strength in its year over year revenues was primarily
driven by to the contribution from the four new accounts signed
during the July 2011 to April 2012 period and the high equipment
revenue related to the fleet refresh.
Furthermore, management expects continued revenue growth throughout
2012 as a result of new contracts signed.
Still, cost of revenue during the second quarter, which consists of
document imaging equipment, parts, supplies and salaries and
expenses of field services personnel, jumped to $9.323 million for
the three months ended June 30, 2012, as compared to $4.019 million
for the same period in 2011.
This resulted in gross margin for the quarter falling year over
year to 13.1 percent from 16.3 percent for the three months ended
June 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.
However, Auxilio reported a net loss of $26,818, which was a year
over year improvement of $542,878 from a net loss of $569,696
during the three months ended June 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 19.568 million shares, basic and diluted net loss per
share resulted in a net loss of $0.00 per basic and diluted share
during the second quarter ended June 30, 2012. This compares
to a basic and diluted net loss per share of $0.03 on a weighted
average number of basic and diluted shares of 19.336 million shares
during the three months ended June 30, 2011.
Revenues for the six months ended June 30, 2012 were $17.260
million, nearly an 82 percent or $7.773 million year over year
increase when compared to revenues of $9.486 million for the first
half of 2011.
Still, net loss for the six months ended June 30, 2012 increased
year over year by $212,305 to a net loss of $1.646 million compared
to a net loss of $1.433 million for the first half of 2011.
The increase in year over year net loss for the first half of 2012
was primarily a result of lower gross margin and increased interest
expense offset by slightly lower total operating expenses.
Gross margin for the first half of 2012 fell to 10.1 percent
compared to 11.9 percent for the first six months of 2011.
Based on the weighted average number of basic and diluted common
shares of 19.509 million shares, basic and diluted net loss per
share resulted in a net loss of $0.08 per basic and diluted share
during the six months ended June 30, 2012. This compares to a
basic and diluted net loss per share of $0.07 on a weighted average
number of basic and diluted shares of 19.336 million shares during
the first half of 2011.
As of June 30, 2012, Auxilio had $1.581 million in cash and
equivalents and a working capital deficit of $708,426. This
compares to $1.031 million in cash and equivalents and a working
capital deficit of $703,508 as of March 31, 2012.
Still, by adding new accounts and expanding existing accounts and
driving contracts toward profitability, the Company has made
significant progress on its growth objectives.
Looking ahead, management is focused on building Auxillio's
awareness in the healthcare industry to add new accounts with large
healthcare systems, expanding geographic presence domestically and
renewing existing accounts to three to five year terms as well as
moving all new accounts toward profitability.
While the number of health systems has decreased as a result of
industry consolidation the size of individual systems has
increased.
Auxillio has responded by targeting these larger health systems and
generating a strong pipeline of sizable customers.
The success of capturing these larger systems is demonstrated by
the recent large customer wins which include the $40 million five
year program with Catholic Health East (CHE), the $35 million five
year contract with Bon Secours Health System (BSHS) as well as the
$10 million five year agreement with Sharp HealthCare.
While the bulk of the implementation and startup costs for CHE
occurred in the first quarter of 2012, the Company has integrated
the majority of CHE operations into its systems of Print Management
and expects to have CHE fully integrated by end of third quarter.
Similarly, management anticipates completing the implementation and
fully integrating the BSHS system by the end of this year while the
target date to complete implementation and full system integration
for Sharp HealthCare is the middle of next year.
Still, although the Company's initiatives include the targeting of
larger health systems, Auxillio has been able to leverage and turn
strong relationships with existing accounts into opportunities to
expand its reach.
For example during the second quarter John Hopkins Health Systems
expanded its MPS program to include Suburban Hospital in Montgomery
County, Maryland.
Auxillio 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 80 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.
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.
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