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Auxilio Inc. Reports Second Quarter 2017 Financial Results
[August 10, 2017]

Auxilio Inc. Reports Second Quarter 2017 Financial Results


Auxilio, Inc. (NYSE MKT: AUXO), a leading provider of enterprise security and document workflow solutions for the healthcare industry, today announced financial results for the second quarter ended June 30, 2017.

Financial and operational highlights for the second quarter of 2017 include:

  • Revenues for the second quarter were $16.8 million, an increase of 10% from $15.2 million in the second quarter of 2016
  • Gross margin for the second quarter was 26%, as compared to 20% for the same period in 2016, with the increase primarily a result of the CynergisTek acquisition
  • GAAP income from operations for the second quarter was $0.5 million, a decrease from $0.7 million in the prior year
  • GAAP net income for the second quarter was $0.1 million, or $0.01 per basic and diluted share, compared to net income of $0.6 million, or $0.08 per basic and diluted share in the same period of 2016
  • Non-GAAP adjusted earnings per share for the second quarter was $0.08 per basic and diluted share after adjusting for amortization of intangibles, stock based compensation and depreciation of $0.7 million, compared to $0.11 per basic and diluted share after adjusting for amortization of intangibles, stock based compensation and depreciation of $0.2 million for the same period of 2016
  • Adjusted EBITDA, when adding back stock-based comp was $1.2 million in the second quarter of 2017, compared to $1 million for the same period in 2016
  • At June 30, 2017, the Company had $2.8 million of cash and cash equivalents
  • Auxilio maintains a line of credit with a commercial bank for up to $5.0 million, which is subject to borrowing base limitations; the credit line currently has no outstanding balance

Recent operational highlights include:

  • Expanded service offerings at CynergisTek to include; Strategic Remediation Services, HIPAA Research Program Assessments and Compliance Program Effectiveness Assessments
  • New Strategic Remediation Services Division announced its first contract win, a multi-year, multi-million dollar contract with a national health system
  • Announced double digit new client wins or expanded contracts at CynergisTek, representing unprecedented growth
  • Expanded Document Services to include Assessments for Efficiency and Savings, Program Maturity and Print Security, and diversifying the levels of Managed Print Services, comprising of Basic, Standard and Elite. Announced first Efficiency and Savings Assessment win with long time CynergisTek client.

"Auxilio's second quarter was one of strategic execution, and great progress was made. We continue making considerable investments to expand our service offering platform and bolster our sales and marketing capabilities in both Security and Managed Document Solutions. It is great to see that effort translating into new contract wins like those recently announced, and we expect the benefits of these investments to become increasingly apparent through the balance of the year," stated Joseph J. Flynn, CEO of Auxilio. "While the legislative uncertainty in Washington and status of the Affordable Care Act has created a new dynamic for the industry to contend with, it also provides an unfiltered view of where our healthcare customer's budget priorities lie. While we did see some delivery delays during the quarter in non-core areas, it was increasingly apparent that security is viewed as an absolute necessity regardless of extraneous factors such as those in Washington. There is undoubtedly an urgent need to better protect patient health information as it is travels across the enterprise, and we are well positioned to provide an efficient and secure solution to our customers."

Financial Results for the three and six months ended June 30, 2017

For the three months ended June 30, 2017, the Company reported revenues of $16.8 million, an increase of 10% when compared to $15.2 million reported in the second quarter of 2016.

Cost of revenue for the second quarter of 2017 was $12.4 million, compared to $12.1 million in 2016. Overall, the Company incurred approximately $1.2 million in additional professional services staffing costs. Gross profit for the second quarter of 2017 was $4.4 million, or 26% of revenues, compared to $3.1 million or 20% of revenues, for the same period in 2016. The increase in gross margin is due to higher gross margins from professional services delivered by CynergisTek.

Operating expenses for the second quarter were $3.8 million, an increase from $2.4 million in the second quarter of 2016. Sales and marketing expenses increased by 88% in the second quarter to $1.4 million due to the addition of the CynergisTek's sales and marketing teams. General and administrative expenses increased 50% to $2.5 million. The increase in G&A was primarily attributed to approximately $0.2 million in staffing costs, $0.1 million in rent, $0.1 million in professional fees, $0.4 million in amortization of intangibles; most of which are directly related to the CynergisTek acquisition. Operating expenses for the quarter included approximately $0.2 million of non-recurring expenses for severance, integration and acquisition related expenses.

Income from operations was $0.5 million for the three months ended June 30, 2017 compared to operating income of $0.7 million in the second quarter of 2016.

For the three months ended June 30, 2017, the Company reported net income of $0.1 million, or $0.01 per basic and diluted share, compared to net income of $0.6 million, or $0.08 per basic and diluted share, in the same period of 2016.

Non-GAAP adjusted earnings per share for the second quarter was $0.08 per basic and diluted share after adjusting for amortization of intangibles, stock based compensation and depreciation of $0.7 million, compared to $0.11 per basic and diluted share after adjusting for amortization of intangibles, stock based compensation and depreciation of $0.2 million for the same period of 2016.

For the six months ended June 30, 2017, the Company reported revenues of $35.1 million, an increase of 18% compared to $29.7 million reported in the same period of 2016.

Cost of revenue was $26.1 million compared to $24.3 million in 2016 representing an increase of $1.8 million. Gross profit for the six months ended June 30, 2017, was $9.0 million, or 26% of revenues, compared to $5.4 million, or 18% of revenues, for the same period in 2016.

Operating expenses for the six months ended June 30, 2017, were $8.0 million, an increase of 66% from $4.8 million in the same period of 2016. Operating expenses for the six months included approximately $0.4 million of non-recurring expenses for severance, integration and acquisition related expenses.

Net income for the six months ended June 30, 2017 was $0.1 million, or $0.01 per basic and diluted share, compared to net income of $0.5 million, or $0.06 per basic and diluted share, in the same period of 2016. Non-GAAP adjusted earnings per share for the six months ended June 30, 2017 was $0.15 per basic and $0.14 per diluted share after adjusting for amortization of intangibles, stock based compensation and depreciation expense of $1.3 million, compared to $0.12 per basic and diluted share after adjusting for amortization of intangibles, stock based compensation and depreciation expense of $0.5 million for the same period of 2016.

At June 30, 2017, the Company had $2.8 million of cash and cash equivalents. The Company maintains a line of credit, which was recently amended and increased to $5.0 million, subject to borrowing base limitations.

Conference Call Information
Date: Friday, August 11, 2017
Time: 9:30am PT, 12:30 pm ET
US: 1-800-406-5345
International: 1-913-312-1458
Conference ID: 9500978
Webcast: http://public.viavid.com/index.php?id=125736

A replay of the call will be available from 3:30 pm ET on August 11, 2017 to 11:59 pm ET on August 25, 2017. To access the replay, please dial 1-844-512-2921 from the U.S. and 1-412-317-6671 from outside the U.S. The PIN is 9500978.

About Auxilio, Inc.

Auxilio (www.auxilioinc.com) is a leading provider bundling best of breed IT security and workflow solutions into its managed document services program designed exclusively for the healthcare industry. Since 2004, the company has saved more than $80 million for its clients by providing a vendor neutral program that enhances security of printed, stored data and digital documents while driving out costs and inefficiencies within the patient information logistical chain. The company's document management best practices and intelligent workflow automation suite transforms printed documents to digital workflows, reducing waste and improving end-user satisfaction.

About CynergisTek

CynergisTek, an Auxilio company, (www.cynergistek.com) is a top-ranked cybersecurity, privacy and compliance consulting firm. The company offers solutions to help organizations measure privacy, security and compliance programs against regulatory requirements and assists in developing risk management best practices. Since 2004 the company has served as a partner to hundreds in the healthcare industry and is dedicated to supporting and educating the industry by contributing to relevant industry associations. The company has been named in numerous research reports as one of the top firms that provider organizations turn to for privacy and security, and won the 2017 Best in KLAS award for Cyber Security Advisory Services.

Forward Looking Statements

This release contains certain forward-looking statements relating to the business of Auxilio, Inc. that can be identified by the use of forward-looking terminology such as "believes," "expects," "anticipates," "may" or similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties, including uncertainties relating to product/services development, long and uncertain sales cycles, the ability to obtain or maintain patent or other proprietary intellectual property protection, market acceptance, future capital requirements, competition from other providers, the ability of our vendors to continue supplying the company with equipment, parts, supplies and services at comparable terms and prices and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our Form 10-K and Form 10-Q filings with the Securities and Exchange Commission, which are available at http://www.sec.gov. Auxilio, Inc. is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.



 
AUXILIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
  June 30, 2017  

DECEMBER 31, 2016

(unaudited)
 
ASSETS
Current assets:
Cash and cash equivalents $ 2,834,859 $ 6,090,844
Accounts receivable 11,286,721 9,614,486
Supplies 1,073,091 1,087,318
Prepaid and other current assets   1,514,589     438,140  
  Total current assets   16,709,260     17,230,788  
 
Property and equipment, net 940,906 689,418
Deposits 87,376 41,522
Deferred income taxes 5,282,531 5,282,531
Intangible assets, net 12,121,709 1,112,395
Goodwill   18,525,206     2,109,143  
Total assets $ 53,666,988   $ 26,465,797  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable and accrued expenses $ 9,647,313 $ 7,736,207
Accrued compensation and benefits 2,890,213 2,495,156
Deferred revenue 1,653,904 562,679
Current portion of long-term liabilities   4,022,339     606,686  
Total current liabilities   18,213,769     11,400,728  
 
Long-term liabilities:
Term loan, less current portion 10,628,333 750,000
Promissory notes to related parties, less current portion 7,500,000 -
Capital lease obligations, less current portion   187,091     199,644  
Total long-term liabilities   18,315,424     949,644  
Total liabilities   36,529,193     12,350,372  
 
Commitments and contingencies
 
Stockholders' equity:
Common stock, par value at $0.001, 33,333,333 shares authorized, 9,499,016 and 8,185,936 shares issued and outstanding at June 30, 2017 and December 31, 2016 9,499 8,186
Additional paid-in capital 30,926,034 27,985,448
Accumulated deficit   (13,797,738 )   (13,878,209 )
Total stockholders' equity   17,137,795     14,115,425  
Total liabilities and stockholders' equity $ 53,666,988   $ 26,465,797  
 

 
AUXILIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Six Months
Ended June 30, Ended June 30,
  2017       2016     2017       2016  
Revenues $ 16,798,912 $ 15,162,070 $ 35,053,601 $ 29,677,709
Cost of revenues   12,435,758     12,070,163     26,103,300     24,276,490  
 
Gross profit   4,363,154     3,091,907     8,950,301     5,401,219  
 
Operating expenses:
Sales and marketing 1,371,847 730,149 2,740,855 1,401,496
General and administrative expenses   2,472,576     1,649,006     5,258,577     3,412,027  
 
Total operating expenses   3,844,423     2,379,155     7,999,432     4,813,523  
 
Income from operations   518,731     712,752     950,869     587,696  
 
Other income (expense):
Other income 3 - 22 -
Interest expense   (376,547 )   (23,554 )   (788,881 )   (49,254 )
 
Total other income (expense)   (376,544 )   (23,554 )   (788,859 )   (49,254 )
 
Income before provision for income taxes 142,187 689,198 162,010 538,442
 
Income tax expense   (68,000 )   (41,600 )   (81,539 )   (44,000 )
 
Net income $ 74,187   $ 647,598   $ 80,471   $ 494,442  
 
Net income per share:
Basic $ .01   $ .08   $ .01   $ .06  
Diluted $ .01   $ .08   $ .01   $ .06  
 
Number of weighted average shares:
Basic   9,438,990     8,170,328     9,328,759     8,160,457  
Diluted   10,281,042     8,270,914     10,038,271     8,302,490  
 
         
AUXILIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2017
(UNAUDITED)
 
Additional Total
Common Stock Paid (News - Alert)-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity

Balance at December 31, 2016

8,185,936

$

8,186

$ 27,985,448 $ (13,878,209 ) $ 14,115,425
Stock compensation expense for options and warrants granted to employees and directors - - 59,265 - 59,265
Stock compensation expense for restricted stock units granted to employees - - 44,183 - 44,183
Common stock issued in connection with the acquisition of CynergisTek, Inc. 1,166,666 1,166 2,770,833 - 2,771,999
Stock options and warrants exercised 146,204 31 66,421 - 66,452
Reverse stock split round-up shares issued 210 116 (116 ) - -
Net income -   -   -     80,471     80,471
Balance at June 30, 2017 9,499,016 $ 9,499 $ 30,926,034   $ (13,797,738 ) $ 17,137,795
 
 
AUXILIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Six Months Ended June 30,
  2017       2016  
Cash flows from operating activities:
Net income $ 80,471 $ 494,442
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation 190,159 101,854
Amortization of intangible assets 1,040,686 270,833
Stock compensation expense for warrants and options granted to employees and directors 59,265 102,192
Stock compensation expense for restricted stock units granted to employees 44,183 -
Changes in operating assets and liabilities:
Accounts receivable 54,163 (1,314,263 )
Supplies 14,227 131,845
Prepaid and other current assets (730,009 ) 135,374
Deposits (45,854 ) 16,596
Accounts payable and accrued expenses (1,104,097 ) (550,036 )
Accrued compensation and benefits (640,465 ) (689,213 )
Deferred revenue   (287,087 )   (314,332 )
Net cash used for operating activities   (1,324,358 )   (1,614,708 )
Cash flows from investing activities:
Purchases of property and equipment (220,126 ) (128,184 )
Amount paid to purchase CynergisTek, net of cash received   (13,448,522 )   -  
Net cash used for investing activities   (13,668,648 )   (128,184 )
Cash flows from financing activities:
Proceeds from term loan 14,000,000 -
Payments on term loans (2,241,667 ) (250,000 )
Payments on capital leases (87,764 ) (54,978 )
Proceeds from issuance of common stock through stock options   66,452     60,151  
Net cash provided by (used for) financing activities   11,737,021     (244,827 )
Net decrease in cash and cash equivalents (3,255,985 ) (1,987,719 )
Cash and cash equivalents, beginning of period   6,090,844     6,436,732  
Cash and cash equivalents, end of period $ 2,834,859   $ 4,449,013  
 
 
AUXILIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
 
Six Months Ended June 30,
  2017     2016
Supplemental disclosure of cash flow information:
Interest paid $ 547,672 $ 49,254
Income taxes paid $ 178,950 $ 71,703

Non-cash investing and financing activities:

Property and equipment acquired through capital leases $ 110,864 $ 22,170
Common stock issued in connection with the acquisition of CynergisTek, Inc. $ 2,772,000 $ -
Promissory notes issued in connection with the acquisition of CynergisTek, Inc. $ 9,000,000 $ -
Fair value of earn-out liability in connection with the acquisition of CynergisTek, Inc. $ 2,356,000 $ -


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