Auxilio Inc. Reports Third Quarter 2014 Financial Results

The nation’s pioneer and leading Managed Print Services (MPS) and IT Advisory company for the healthcare industry, today reported financial results for the three and nine months ended September 30, 2014.

Third Quarter and Subsequent Highlights:
• Third quarter 2014 revenues increased 4.2% to $11.3 million; Gross margins increased 2 percentage points to 22.6%.
• Added $0.9 million in recurring MPS revenues from new contracts and $0.4 million in Advisory, Managed Services and software subscription revenue from the Delphiis acquisition.
• Third quarter 2014 net income of $0.7 million and earnings per share of $0.03.
• Generated $1.0 million of cash flows from operations during the nine months ended September 30, 2014.
• Announced new IT service contracts with 2 leading Academic Medical Centers for Risk and Security Advisory Services. Additional services for existing customers will provide approximately $1.2 million in incremental revenue through the end of 2015 with further expansion potential.
• Adding two full-time sales representatives, one dedicated to our Security Solutions Group and the other located in the Midwest, along with a Director of Corporate Marketing.

“We continue to scale and operate our core MPS to deliver on our promise of saving customers money, making their businesses more efficient and having an organization which can scale to meet their needs as further industry consolidation occurs,” said Joseph J. Flynn, President and CEO. “Our ability to provide additional services to existing clients while attracting new clients through sound references and case studies speaks to this value proposition,” continued Mr. Flynn.

“I am pleased to report that we are in the final stages of negotiating MPS agreements that, if secured, will expand the number of hospitals we serve nationally, provide incremental recurring revenue and further elevate our position as a Tier 1 healthcare service provider,” continued Flynn. “After completing our first quarter of integration with Delphiis, I am also pleased to report we are ahead of expectations. The team has recently booked over $1.2 million in new contracts, with significant upside potential, from existing customers, which is a testament to our ability to effectively implement comprehensive risk and information security programs that solve a critical problem. The proliferation of data in every aspect of the healthcare industry and scrutiny over regulatory requirements surrounding the maintenance, safekeeping, transfer and security of patient and hospital data are strong business drivers which we plan to capitalize on by marketing to our MPS customers,” continued Mr. Flynn.

Financial Results for the three months ended September 30, 2014
For the three months ended September 30, 2014, the Company reported revenues of $11.3 million, an increase of 4.2% when compared to $10.8 million in the same period in 2013. Services revenue increased approximately $0.7 million as equipment revenues decreased by $0.3 million, compared to the same period in 2013. Contributing to the year-over-year increase in services revenue was approximately $0.3 million of net new recurring services revenue and $0.4 million from the acquisition of Delphiis.

Cost of revenue was $8.7 million compared to $8.6 million in 2013. Gross profit for the third quarter of 2014 was $2.5 million, or 22.6% of revenues, compared to $2.2 million or 20.6% for the same period in 2013. Margins were positively impacted from newer accounts that came on board over the last couple years and from higher volume that comes from favorable seasonality.

Operating expenses for the third quarter were $1.7 million, an increase of 25.0% from $1.4 million in the third quarter of 2013. Sales and marketing expenses increased by 11.1% due to higher staffing costs related to expanding our sales efforts. General and administrative expenses increased 32.2% to $1.2 million and included professional fees related to the acquisition of Delphiis and the additional ongoing operating expenses and amortization of the intangible assets associated with the Delphiis business. The Company generated $0.8 million of operating income in the third quarter of 2014 compared to $0.9 million in the third quarter of 2013.

Net income for the three months ended September 30, 2014 was $0.7 million, or $0.03 per share, compared to net income of $0.8 million or $0.04 per share, in the same period of 2013. Excluding $76,000 in charges related to stock based compensation and $53,000 from the amortization of intangible assets, we achieved positive adjusted income from operations of $1.0 million in the third quarter of 2014 compared to $0.9 million after excluding charges of $93,000 related to stock-based compensation for the same period last year.

At September 30, 2014, the Company had $4.3 million of cash and cash equivalents with working capital of $2.1 million. Cash provided by operating activities for the first nine months of 2014 was $1.0 million compared to a cash flow of $1.1 million during the same period in 2013. The Company maintains a $2.0 million accounts receivable line of credit with a commercial bank.

Financial Results for the nine months ended September 30, 2014
For the nine months ended September 30, 2014, the Company reported revenues of $31.9 million, an increase of 3.8% when compared to $30.7 million in the same year ago period. Net service revenues increased $2.4 million, which included $3.1 million in new contracts and the addition of Delphiis, partially offset by $0.7 million from a non-renewing contract, lower volume with some existing customers due to the consolidation of operations and the impact from the severe storms that hit the east coast at the beginning of 2014. In addition, equipment sales dropped $1.2 million year-over-year to $1.8 million for the first nine months of 2014 with fluctuations occurring periodically due to customer equipment fleet refresh cycles.

Gross profit for the first nine months of 2014 was $6.0 million, or 18.8% of sales, compared to $5.4 million, or 17.8% of sales, for the first nine months of 2013. Operating expenses for the first nine months of 2014 were $5.1 million, compared to $4.5 million in the prior year period. Net income for the first nine months of 2014 was $0.7 million, or $0.03 per share, compared to $0.7 million or $0.03 per share, in the same period in 2013.

Excluding $0.3 million in charges related to stock-based compensation and $53,000 from the amortization of intangible assets, we achieved adjusted income from operations of $1.3 million for the first nine months of 2014, compared to an adjusted income from operations of $1.6 million after excluding charges of $0.4 million related to stock-based compensation and $0.2 million in charges related to stock granted for marketing activities for the same period in 2013.

Paul Anthony, CFO of Auxilio, explained: “We enjoyed an uptick in recurring services revenues and margin improvement during the quarter. The contribution of Advisory revenues, Managed Services and software subscription revenue from our newly acquired security business is anticipated to provide incremental growth going forward.”

Consistent with Auxilio’s business model, long-term contracts generate improving margins as the implementation phase turns into ongoing maintenance. The Company’s value proposition of saving customers money has proven itself consistently, and as such we tend to lower volumes over time by eliminating waste. While this can also lower revenues over time, it has allowed the Company to expand its customer base, both within existing customers who are consolidating and with new customers who see this value proposition as a means to material cost savings. As our MPS business ramps, we will also need to invest dollars and resources to get these projects implemented. Management believes that the Company is adequately capitalized from a working capital perspective to meet these needs. More information will be forthcoming as we report on our progress,” Anthony stated.

Business Updates
The pipeline of MPS opportunities continues to expand, and the opportunity to grow revenues with existing customers also provides advantages to our business model from an operating perspective. Consolidation across the healthcare industry has created much larger opportunities but also with longer sales cycles as contracts of this nature go to executive review. We believe this creates another barrier to entry for competitors, and an advantage to Auxilio going forward.

On July 8, 2014, the Company announced the acquisition of Delphiis, an information security company focused on healthcare security breaches and HIPAA compliance for hospitals. Implementation of the Delphiis acquisition has gone extremely well, and growth is ahead of expectations as the team has signed renewals and expansion contracts with existing customers. Management anticipates that future growth will come as a result of the introduction of new services, further marketing to prospective customers and cross-marketing opportunities with Auxilio’s installed MPS customer base, which have commenced. The introduction of Printer Fleet Security Services, which target a high-risk asset, is an excellent example of the team’s ability to target MPS customers with relevant, value-added offerings. Demand for Security Program Development is benefiting from executive level and board interest in the need to create a repeatable process to report metrics aligned with business objectives. Lastly, the HIPAA Omnibus Final Rule implemented a year ago, which requires hospitals to perform an assessment around breaches relating to protected health information to prove a low risk of patient health information (PHI) has been compromised, is creating an additional business for the Company’s services.

Conference Call Information
CEO Joe Flynn and CFO Paul Anthony will host a conference call with investors to discuss its third quarter 2014 earnings results.

Date: Friday, August 14, 2014
Time: 12:00 pm ET
US: 1-888-503-8175
International: 1-719-325-2354
Conference ID: 5172558
Webcast: http://public.viavid.com/index.php?id=111908

A replay of the call will be available from 3:00 pm ET on November 14, 2014 to 11:59 pm ET on November 28, 2014. To access the replay, please dial 1-877-870-5176 from the U.S. and 1-858-384-5517 from outside the U.S. The PIN is 5172558.

About Auxilio, Inc.
Since 2004, Auxilio has led the Managed Print Services industry by offering an innovative and customer driven approach for healthcare organizations. Auxilio takes full responsibility for healthcare customers’ on-site print environment through situation assessment, process analysis, strategy development and program implementation. Hospitals and health systems benefit from streamlined and aligned processes and infrastructure that result in print management programs that reduce cost, increase employee productivity and meet and exceed patient care standards.

Auxilio, through its recent acquisition of Delphiis, an Information Security company providing IT Advisory and Managed Services, in addition to Risk Management SaaS technology solution, brings a unique offering to the marketplace to ensure enterprise-wide security and improve patient experience through cost-efficient print and digital information technology solutions.

Auxilio serves a national portfolio of over 120 hospital campuses and manages over 1.3 billion documents annually from over 60,000 devices supporting over 250,000 caregivers. Auxilio’s Managed Print Services’ business model is vendor neutral, provides full-time, on-site customer service and technical experts and is exclusive to the healthcare industry.

For more information about Auxilio, visit http://www.auxilioiinc.com.

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,” “plans,” “may” or similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties, including uncertainties relating to product/services development, revenue growth, business growth and 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.

CONTACT:

Investor Relations:
MZ North America
Matthew Selinger, Senior Vice President
Direct: 619-272-4212
mselinger@mzgroup.us
http://www.mzgroup.us

Media Relations:
Auxilio Inc.
Carrie Mulcahy, Director of Corporate Marketing
Direct: (949) 310-2548
carrie.mulcahy@auxilioinc.com
http://www.auxilioinc.com