Auxilio Inc. Reports Second Quarter 2015 Results

MISSION VIEJO, CA--(Marketwired - Aug 17, 2015) - Auxilio, Inc. (OTCQB: AUXO), a leading provider of Managed Print Services (MPS) and IT Security for the healthcare industry, today announced financial results for the second quarter ended June 30, 2015.

2015 Year-To-Date, Second Quarter and Subsequent Highlights:

• Acquired Redspin, Inc. on April 7, 2015, to complement Auxilio's end-to-end enterprise wide Healthcare IT Security offering. Carpinteria, California-based Redspin provides HIPAA security risk assessments and ongoing penetration testing and compliance to safeguard protected health information (PHI) and improve efficiency across the health system.
  
  
• Quarterly Revenues increased 50.5% to a record $15.6 million, driven by $1.6 million in service revenues and software subscriptions from the Company's Redspin and Delphiis IT Security offerings, in addition to an increase of $2.1 million in equipment revenue, compared to the same period in 2014.
  
  
• Redspin announced that during the first six months of 2015, it has serviced more healthcare Business Associates (BAs) than during all of 2014. Redspin management attributes the increased demand to the HIPAA Omnibus Rule requiring compliance with security regulations.
  
  
• Generated $0.5 million of cash flows from operations during the first six months of 2015, and ended June 30, 2015, with $5.1 million in cash and cash equivalents.
  
  
• Signed a five-year contract for MPS with Yale-New Haven Health System, covering over 300 locations in the Northeast, which is expected to generate more than $16 million in revenue over the next five years.
  
  
• Signed an estimated $6 million MPS expansion contract with the fourth region of a Top 10 US health system.
  
  

"We continue to be pleased with growth in both our MPS and Security Solutions Group offerings. We expect continued momentum through 2015 as implementations for large scale MPS projects accelerate and our security business capitalizes on increased demand driven by recent high profile security breaches and greater HIPPA compliance requirements," stated Joseph J. Flynn, President and CEO.

"With the acquisition of Redspin, Inc., we have greatly enhanced our IT Security platform and solidified our position as a fully integrated, end-to-end provider. This includes offering healthcare customers a robust security diagnostic, assessment and compliance services solution. Aligned with our goal to invest in areas that will generate the best returns and our vision to become a recognized player in Healthcare Information Security, we plan to continue to grow this vertical framework both organically and through complementary acquisitions. We expect cross-selling across our installed MPS base to also yield positive results during the balance of the year," Mr. Flynn went on to say.

Financial Results for the three months ended June 30, 2015

For the three months ended June 30, 2015, the Company reported revenues of $15.6 million, an increase of 50.5% when compared to $10.4 million reported in the second quarter of 2014. Approximately $1.5 million of the increase is a result of the addition of new recurring service revenue contracts. The Company added approximately $1.6 million in service revenues and software subscriptions from the Company's IT Security Solutions offerings, in addition to an increase of $2.1 million in equipment revenue, compared to the same period in 2014.

Cost of revenue was $13.5 million, compared to $8.7 million in 2014. The increase in the cost of revenues in the second quarter of 2015 is primarily attributable to the addition of new recurring service revenue contracts, incurring approximately $1.8 million in additional staffing costs, including contract labor, approximately $0.2 million of additional travel costs, and approximately $0.9 million in additional service and supply costs, principally as a result of implementation work for new contracts. Gross profit for the second quarter of 2015 was $2.1 million, or 13.6% of revenues, compared to $1.7 million or 16.6% of revenues, for the same period in 2014. As the implementation phase for many of these large contracts is completed and transfers into full service phase during the next twelve months, margins are expected to improve.

Operating expenses for the second quarter were $2.7 million, an increase of $1.6 million compared to the second quarter of 2014. Sales and marketing expenses increased by 38.9% due to increased headcount and marketing expenses as the Company increased its sales effort, including the support of the IT Security platform. General and administrative expenses increased 84.1% to $1.9 million due to integration efforts initiated with the two recent acquisitions and increased expenses associated with the recently acquired Redspin business. The Company reported an operating loss of $0.6 million in the second quarter of 2015 compared to operating income of $0.09 million in the second quarter of 2014.

Net loss for the three months ended June 30, 2015, was $0.6 million, or $0.03 per basic and diluted share, compared to a net loss of $0.01 million, or $0.00 per basic and diluted share, in the same period of 2014. Excluding $0.1 million in charges related to stock based compensation and $0.1 million in amortization of intangibles, we achieved an adjusted loss from operations of $0.3 million in the second quarter of 2015, compared to positive adjusted income from operations of $0.1 million, after excluding charges of $0.05 million related to stock-based compensation, for the same period last year.

At June 30th, 2015, the Company had $5.1 million of cash and cash equivalents and working capital of $1.2 million. Cash provided by operating activities for the six months ended June 30, 2015, was $0.5 million compared to $0.5 million during the same period in 2014. The Company maintains a line of credit with a commercial bank for up to $2 million along with a term loan capacity allowing for an additional $2 million.

"This was an extremely busy quarter with new implementations within the MPS segment at record highs, and as expected, the Company realized the temporary margin dip associated with the implementation phase of these new contracts," stated Paul Anthony, CFO. Anthony continued, "The Company also absorbed several expenses associated with the expansion and integration of our Security Solutions Group. During the quarter, the Company had $0.3 million of integration and severance related expenses, and $0.1 million in acquisition related expenses which accounted for the adjusted loss from operations."

Financial Results for the six months ended June 30, 2015

For the six months ended June 30, 2015, the Company reported revenues of $29.5 million, an increase of 42.9% when compared to $20.6 million reported in the same period of 2014. Approximately $2.5 million of the increase is a result of the addition of new recurring service revenue contracts. The Company added approximately $2.8 million in service revenues and software subscriptions from the Company's IT Security Solutions offerings, in addition to an increase of $3.5 million in equipment revenue, compared to the same period in 2014.

Cost of revenue was $25.2 million compared to $17.2 million in 2014. Gross profit for the six months ended June 30, 2015, was $4.2 million, or 14.4% of revenues, compared to $3.5 million, or 16.8% of revenues, for the same period in 2014.

Operating expenses for the six months ended June 30, 2015, were $4.9 million, an increase of 45.6% from $3.3 million in the same period of 2014. Sales and marketing expenses increased by 42.2% due to increased headcount and marketing expenses as the Company increased its sales effort including the support of the IT Security platform. General and administrative expenses increased 47.3% to $3.3 million due to the integration and expansion of our Security Solutions Group. The Company reported an operating loss of $0.6 million for the six months ended June 30, 2015, compared to operating income of $0.1 million in the same period of 2014.

Net loss for the six months ended June 30, 2015 was $0.7 million, or $0.03 per basic and diluted share, compared to a net loss of $0.08 million, or $0.00 per basic and diluted share, in the same period of 2014. Excluding $0.2 million in charges related to stock based compensation and $0.2 million in amortization of intangibles, we achieved an adjusted loss from operations of $0.2 million for the six months ended June 30, 2015, compared to positive adjusted income from operations of $0.4 million, after excluding charges of $0.3 million related to stock-based compensation, for the same period last year.

Business Updates

In July 2015, we signed an estimated five-year, $16 million contract for Managed Print Services with Yale-New Haven Health System (YNHHS). This MPS contract covers more than 7,400 devices, including copiers/MFD printers, fax, thermal and label printers and scanners across more than 300 locations.

In August, the Company won an estimated $6 million MPS expansion contract with the fourth region of a Top 10 US health system. In 2005, Auxilio first implemented its MPS program in one of the local hospitals of the system and has grown to now serve four of the health system's five regions, representing over 5,000 beds and more than 50,000 employees.

Both contracts demonstrate the growing demand for Auxilio's unique MPS programs in large multi-location health systems.

Redspin announced that during the first six months of 2015, it has helped more healthcare Business Associates (BAs) than during all of 2014. The demand is attributed to the HIPAA Omnibus Rule requirement for BAs and their subcontractors to fully comply with HIPAA security regulations. A Business Associate is defined as any organization that has access to the protected health information (PHI) of a Covered Entity or healthcare provider. Redspin reports that BAs are now looking more deeply at their overall security risk exposure, in part in response to the 1,282 major health data breaches affecting a total of 143.3 million individuals since September 2009, according to the U.S. Department of Health and Human Services. Redspin is now seeing added demand from BAs for penetration testing and web application security services. The Department of Health and Human Services estimates that there are 1-2 million BAs, creating an excellent market to drive further growth.

Conference Call Information

CEO Joe Flynn and CFO Paul Anthony will host a conference call with investors to discuss its second quarter 2015 earnings results.

Date: Monday, August 17, 2015
Time: 4:30 pm ET
US: 1-888-438-5535
International: 1-719-457-2083
Conference ID: 2799500
Webcast: http://public.viavid.com/index.php?id=115896

A replay of the call will be available from 7:30 pm ET on August 17, 2015 to 11:59 pm ET on September 1, 2015. 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 2799500.

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 serves a national portfolio of nearly 220 hospital campuses and manages over 1.5 billion documents annually from over 90,000 devices supporting over 280,000 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.

Through its Security Solutions Group, Redspin provides an end-to-end security offering that specifically addresses hospital security challenges or when a breach has occurred. The fully comprehensive portfolio of services and technology include HIPAA security risk assessments, vulnerability management, information security program development and a SaaS technology solution, Delphiis ™ IT Risk Manager to more than 140 hospitals. This complete service offering is unique to the marketplace to ensure enterprise-wide security and improve patient experience through its ability to mitigate risk and improve efficiency across the hospital or health system.

For more information about Auxilio, visit http://www.auxilioinc.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," "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, expectations relating to momentum of the business, expectations of increased demand for Auxilio's services, growth of Auxilio's vertical framework, anticipated results from cross-selling efforts, growing demand for Auxilio's MPS programs, 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.