AUXO - Auxilio

[Guest Schwab711]

https://seekingalpha.com/filing/3484950

 

I'd write up more but the above filing is as much as anyone really knows at the moment.

 

Auxilio provides managed print services (annoyingly called PRaaS), which is a solid business. Despite the move towards "paper-free hospitals" with enterprise EMR there is still a ton of printing done in hospitals. Much of the printing is mandatory at the state (sometimes local) and federal level, from my understanding. This is a fairly stable business with a long runway. AUXO just purchased CynergisTek, which is the reason I finally bought a stake. Now seeing the numbers, I wish I owned more but it's a roughly 20% stake at the moment. CynergisTek is the bees knees of hospital IT security. They are recommended by every IT company I know in the industry.

 

There was a new director announce today, so share count should be roughly 9.463m. With recent research reports released, we should have the following. I think it is still relatively cheap considering how great of a business CynergisTek is.

 

Multiples:

MC: $56.8m

EV: $80.7m

17E EBITDA: $8m (10.1x)

18E EBITDA: $9m (9.0x)

17E EBIT: $5m (11.4x)

18E EBIT: $6m (9.5x)

 

 

Would be great to hear any insights from anyone in the industry.

[Guest Schwab711]

I think healthcare cyber security is on-track to be one of the next big issues to be addressed and AUXO stands to be one of the single biggest beneficiaries of this shift (if it continues to be more highly prioritized).

 

http://healthitsecurity.com/news/cybersecurity-attacks-hit-87-of-organizations-in-2016

http://www.healthcareitnews.com/news/hackers-hit-320-more-healthcare-providers-2016-2015-hhs-data

 

CynergisTek comments on the broad issues here:

http://www.govinfosecurity.com/onc-seeks-help-measuring-interoperability-progress-a-9879

 

AUXO's recent press release summarizes how CynergisTek is already benefiting from shift towards prioritizing healthcare cyber security:

http://www.businesswire.com/news/home/20170424005311/en/Auxilio-Subsidiary-CynergisTek-Adds-Multiple-Customers-Recurring

 

[Jurgis]

Another crickets thread.  8)

 

I am listening.  8)

 

© NSA  8)

[Jurgis]

What is their competition? How big/branded is the competition and how big/branded is CynergisTek? Are they competing with small fry companies or are there whales in this area?

 

I don't have a back channel into this industry, so I don't know jack.

 

Print services from what I've heard is possibly stable with some lock in, but also somewhat crappy business. I'm not sure there's expansion runway. Probably not something to get excited about.

[Scuttlebutt Plunger]

Nice contract win in March that grows 2016 revenue base by ~20%.  What indicates there will be more contracts available?

 

According to their 10-k, they compete against some fierce competition (bigger companies with scale), but advantage may be able to secure contracts for printing and the IT side of the business.

[KJP]

Schwab and others who are invested in this:  What are your current thoughts in light of the hiccups both business units have had so far this year?

 

Also, Flynn is out and the pre-acquisition Cynergistek management is now in charge of the entire company.  If they thought Cynergistek's prospects were very good and they intended to stick around, why did they take most of their compensation for selling the business in cash + cash earnout rather than stock in the new, combined business?

[Jurgis]

The thread name should be changed to CTEK, since they changed ticker and name.

 

I agree with KJP: Mac McMillan did well for himself: first he sold CynergisTek to Auxilio and then became CEO of new Auxilio/CynergisTek. Maybe he can repeat this again (couple more times  ::) )? Although I guess he'd need to get a bunch of options/shares for himself first.

 

Looking at Q3/9mo results https://www.sec.gov/cgi-bin/viewer?action=view&cik=1011432&accession_number=0001445866-17-001573&xbrl_type=v#

, it's a mixed bag. Balance sheet levered with tons of goodwill and intangibles. Tangible book is negative. Earnings are hit by acquisition-related intangibles, but can we really discount this as non-cash when they paid a ton for CynergisTek? With that non-cash charge, you'd think they have great OCF, but OCF is negative... mostly due to AR increase? Maybe that AR is all nice and cool, IDK.

 

It could do OK/well based on the security scare in healthcare especially. Also it could be bought (again) by some larger co. And it could run up tons on speculation, pump&pump, etc. even if does not do great on business side. So there are attractive sides possibly. I don't think they are attractive enough for me, but maybe I'm not looking at it in a right way.

 

Overall, I'm not that interested. It was mentioned on SI, so I took another look. I don't own shares at this time.

[Guest Schwab711]

This is what I have right now for Legacy CynergisTek (CTEK Security) and the simple valuation for the Combined CynergisTek.

 

I need a little more data before I can say much more on this. I think Jurgis covered the risks and upsides pretty well for the moment.

 

Is the new CEO properly incentivized in the long-term will be a big factor on the ultimate outcome given CTEK Security's influence on the bottom line.

 

CTEK the stock was a good value (imo) at $2.80 and is probably closer to fairly valued at $4.00. However, even at $4.00, there is certainly upside if CTEK Security can maintain current profitability or grow at similar margins.

 

For the attached, the cells highlighted yellow are best on broad Rev/Adj Operating Income estimates for CTEK Security (8-k, filed 3/28/2017). I added back the former CEO's compensation (Approx. $300/yr). Everything else should be labeled and comes from 10-k's, 10-q's, or 8-k's.

 

For normalized valuation section, I used average Legacy AUXO EBITDA, less 10%, and Adjusted TTM CTEK EBITDA. I think the normalized valuation should be fairly conservative.