Auxilio Inc. Reports Record Revenue for the First Quarter 2015

MISSION VIEJO, CA--(Marketwired - May 15, 2015) - Auxilio, Inc. (OTCQB: AUXO) ("Auxilio" or "the Company"), a leading provider of Managed Print Services (MPS) and IT Security for the healthcare industry, today announced financial results for the first quarter ended March 31, 2015.

2015 First Quarter and Subsequent Highlights:

• Revenues increased 35% to $13.8 million, a Company record, driven by $1.0 million in new recurring service revenue, $1.2 million in security solutions revenue and $1.8 million in equipment revenues.
• Generated $0.4 million of cash flows from operations during the first quarter of 2015 and ended March 31, 2015 with $5.1 million in cash and cash equivalents.
• Signed a five-year contract for MPS with one of the largest health systems in the United States, covering 21 states including a significant presence in the Midwest, that is expected to generate more than $50 million in revenue over the next five years.
• Launched a Five Step Security Program Development Framework and a Business Associate Framework that provides a roadmap for healthcare executives to follow best practices in protecting patient health information (PHI).
• Acquired Redspin, Inc. on April 7, 2015 to complement its end-to-end enterprise wide Healthcare IT Security Offering. Carpinteria, CA based Redspin provides HIPAA security risk assessments, ongoing penetration testing and compliance to safeguard protected health information (PHI) and improve efficiency across the health system.

"We are pleased to see the initial stages of a new growth trend from both MPS and our Security Solutions Group and expect continued momentum through 2015. Our MPS business has created trusted partnerships with some of the largest healthcare systems in the country. While we continue to see excellent growth opportunities for expanding the MPS business, we are also witnessing C-level executives make security and HIPAA compliance a priority as highly publicized breaches continue to occur. Every one of our 220 current MPS hospital customers' needs a broad range of security services, many of which are not being adequately addressed," elaborated Joseph J. Flynn, President and CEO.

"With that in mind, we are pleased to complete the acquisition of Redspin, Inc.," said Mr. Flynn. "Redspin is a respected industry player servicing over 135 hospitals. When integrated with our Security Solutions Group, our enhanced business platform will offer healthcare customers a robust information security diagnostic, assessment and compliance services solution. This transaction is another step toward our vision of becoming the dominant player in Healthcare Information Security," Mr. Flynn went on to say.

"Our goal is to invest in areas of our business where we can garnish the best returns, including business with shorter sales cycles and recurring, higher margin revenues. We see tremendous cross-selling opportunities across our organization which now collectively encompasses over 220 hospitals," concluded Mr. Flynn.

Financial Results for the three months ended March 31, 2015

For the three months ended March 31, 2015, the Company reported revenues of $13.8 million, an increase of 35% when compared to $10.2 million reported in the first quarter of 2014. The Company added approximately $1.0 million in new recurring service revenue, $1.2 million in security solutions consulting and software revenues, in addition to an increase of $1.4 million in equipment revenue, compared to the same period in 2014.

Cost of revenue was $11.7 million compared to $8.5 million in 2014. Gross profit for the first quarter of 2015 was $2.1 million, or 15% of revenues, compared to $1.7 million or 17% for the same period in 2014. Margins were negatively impacted due to the implementation phase of bringing new MPS customers online.

Operating expenses for the first quarter were $2.1 million, an increase of 24% from $1.7 million in the first quarter of 2014. Sales and marketing expenses increased by 46% due to increased headcount as the Company increased its sales effort expanding in to the Midwest and building the sales organization's security offering. General and administrative expenses increased 15% to $1.4 million and included professional fees and amortization of intangible assets related to the acquisition of Delphiis. The Company generated a negligible amount of operating income in the first quarter of 2015 compared to $0.03 million in the first quarter of 2014.

Net loss for the three months ended March 31, 2015 was $33,000, or $0.00 per basic and diluted share, compared to a net loss of $71,000 or $0.00 per basic share and $0.01 per diluted share in the same period of 2014. Excluding $79,000 in charges related to stock based compensation and $53,000 from the amortization of intangible assets, the Company achieved positive adjusted income from operations of $0.1 million in the first quarter of 2015 compared to $0.2 million after excluding $0.2 million in charges related to stock-based compensation for the same period last year.

At March 31, 2015 the Company had $5.1 million of cash and cash equivalents and working capital of $2.9 million. Cash provided by operating activities for the first three months of 2015 was $0.4 million compared to $0.1 million during the same period in 2014. The Company maintains a line of credit with a commercial bank for up to $2 million.

Business Updates

On March 31, 2015, the Company signed a definitive agreement to acquire Redspin, Inc., a trusted advisor to the healthcare industry and leading provider of HIPAA security risk assessments and penetration testing services. Staffed by a world-class team of security experts, Redspin helps its clients better safeguard protected health information (PHI) by protecting their IT infrastructure from malicious attackers and improving the security awareness of their workforce. In recent news, security experts expect phishing attacks to be a leading cause of HIPAA breaches in 2015. The recent breach at Partners Health System was caused by a phishing attack as more than 3,000 employees fell prey to these malicious emails. Redspin's security experts assimilate phishing and spear phishing attacks to educate hospital staff on preventing future attempts from hackers using emails as an approach to gain access into the hospital's environment. The company's diverse customer base includes over 135 hospitals, including a top 5 academic medical center, over 1,000 clinics, and many large business associates.

The acquisition was completed on April 7, 2015. Consideration included $2,050,000 in cash, less an indemnification holdback of $200,000, in addition to 452,284 shares of Auxilio's restricted common stock. Additional consideration to be paid of up to $1,200,000 in cash and up to 226,142 shares of Auxilio restricted stock is contingent on earnings and revenues performance targets of the new business over the first twelve months of operations.

In March 2015, the Company launched a five-step approach, designed to provide guidance for healthcare organizations looking to develop best practice security programs. The Security Program Development framework is the first of its kind to be released to healthcare organizations with a detailed step by step approach. The framework is generated from the methodology outlined in the CISO Handbook, co-written by Mike Gentile and includes executive contributions from many of the nation's leading hospitals who have experience building security programs. 

The Company began implementation of the five-year, $18 million MPS contract with the largest region of a Top 10 Health System. In addition, the Company is preparing for the first phase of implementation on its five-year $50 million contract with one of the largest health systems in the United States. Initial work under this agreement commenced in the Michigan region and is expected to take 18 months to implement.

Conference Call Information

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

Date: Monday, May 18th
Time: 4:30pm ET
US: 1-888-523-1228
International: 1-719-325-2144
Conference ID: 1086227
Webcast: http://public.viavid.com/index.php?id=114457

A replay of the call will be available from 7:30 pm ET on May 18, 2015 to 11:59 pm ET on June 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 1086227.

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 over 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, Auxilio and Redspin provide 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, penetration testing, security program development, incident response and forensics, vulnerability management and remediation, and a SaaS technology solution, Delphiis ™ IT Risk Manager to more than 135 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 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
				MARCH 31, 2015				DECEMBER 31, 2014
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	5,105,615			$	4,743,395
	Accounts receivable, net				7,304,223				6,808,183
	Supplies				1,095,430				1,066,132
	Prepaid and other current assets				409,506				214,105
		Total current assets			13,914,774				12,831,815
Property and equipment, net					273,720				215,747
Deposits					34,413				34,413
Intangible assets, net					1,212,500				1,265,000
Goodwill					2,473,656				2,473,656
		Total assets		$	17,909,063			$	16,820,631
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses			$	8,677,621			$	7,417,361
	Accrued compensation and benefits				1,299,932				1,447,132
	Line of credit				200,000				200,000
	Deferred revenue				807,512				921,771
	Current portion of capital lease obligations				75,209				55,546
		Total current liabilities			11,060,274				10,041,810
Long-term liabilities:
	Notes payable to related parties, net of discount of $3,701 and $30,189 at March 31, 2015 and December 31, 2014, respectively				49,243				333,534
	Capital lease obligations less current portion				99,488				49,822
		Total long-term liabilities			148,731				383,356
Commitments and contingencies
Stockholders' equity:
	Common stock, par value at $0.001, 33,333,333 shares authorized, 23,752,536 and 23,623,619 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively				23,754				23,625
	Additional paid-in capital				26,913,512				26,576,506
	Accumulated deficit				(20,237,208	)			(20,204,666	)
		Total stockholders' equity			6,700,058				6,395,465
		Total liabilities and stockholders' equity		$	17,909,063			$	16,820,631

AUXILIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
				Three Months Ended March 31,
				2015				2014
Revenues				$	13,847,915			$	10,244,574
Cost of revenues					11,715,594				8,504,940
Gross profit					2,132,321				1,739,634
Operating expenses:
	Sales and marketing				742,071				508,210
	General and administrative expenses				1,386,343				1,201,874
		Total operating expenses			2,128,414				1,710,084
Income from operations					3,907				29,550
Other income (expense):
	Interest expense				(34,049	)			(98,823	)
		Total other income (expense)			(34,049	)			(98,823	)
Loss before provision for income taxes					(30,142	)			(69,273	)
Income tax expense					2,400				1,600
Net loss				$	(32,542	)		$	(70,873	)
Net loss per share:
		Basic		$	(0.00	)		$	(0.00	)
		Diluted		$	(0.00	)		$	(0.01	)
Number of weighted average shares:
		Basic			23,681,559				20,658,573
		Diluted			23,681,559				22,258,573

AUXILIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2015
(UNAUDITED)
							Additional							Total
		Common Stock					Paid-in			Accumulated				Stockholders'
		Shares		Amount			Capital			Deficit				Equity
Balance at December 31, 2014		23,623,619		$	23,625		$	26,576,506		$	(20,204,666	)		$	6,395,465
Stock compensation expense for options and warrants granted to employees and directors		-			-			53,922			-				53,922
Stock compensation expense for restricted stock issued to key employee		-			-			25,378			-				25,378
Conversion of note payable to common stock		128,917			129			257,706			-				257,835
Net loss		-			-			-			(32,542	)			(32,542	)
Balance at March 31, 2015		23,752,536		$	23,754		$	26,913,512		$	(20,237,208	)		$	6,700,058

AUXILIO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
				Three Months Ended March 31,
				2015				2014
Cash flows from operating activities:
	Net loss			$	(32,542	)		$	(70,873	)
Adjustments to reconcile net loss to net cash provided byoperating activities:
	Depreciation				35,772				24,169
	Amortization of intangible assets				52,500				-
	Stock compensation expense for warrants and options issued to employees and directors				53,922				200,602
	Stock compensation expense for restricted stock issued to key employee				25,378				-
	Interest expense related to accretion of debt discount costs				26,488				35,250
	Interest expense related to amortization of loan acquisition costs				-				21,926
Changes in operating assets and liabilities:
	Accounts receivable				(496,040	)			264,602
	Supplies				(29,298	)			(72,034	)
	Prepaid and other current assets				(195,401	)			(13,100	)
	Accounts payable and accrued expenses				1,260,260				174,051
	Accrued compensation and benefits				(147,200	)			(425,588	)
	Deferred revenue				(114,259	)			(19,789	)
		Net cash provided by operating activities			439,580				119,216
Cash flows from investing activities:
	Purchases of property and equipment				-				(14,682	)
		Net cash used for investing activities			-				(14,682	)
Cash flows from financing activities:
	Payments on capital leases				(24,416	)			(20,839	)
	Payments on notes payable to related parties				(52,944	)			-
		Net cash used for financing activities			(77,360	)			(20,839	)
Net increase in cash and cash equivalents					362,220				83,695
Cash and cash equivalents, beginning of period					4,743,395				4,668,624
Cash and cash equivalents, end of period				$	5,105,615			$	4,752,319