Except for historical information contained in this report, the matters
discussed are forward-looking statements that involve risks and uncertainties.
When used in this report, words such as "anticipates", "believes", "could",
"estimates", "expects", "may", "plans", "potential" and "intends" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Among the factors
that could cause actual results to differ materially are the following: the
effect of business and economic conditions, including the current COVID-19
pandemic which has already adversely affected operating results; the effect of
the dramatic changes taking place in IT and healthcare; the impact of
competitive procedures and products and their pricing; medical insurance
reimbursement policies; unexpected manufacturing or supplier problems;
unforeseen difficulties and delays in product development programs; the actions
of regulatory authorities and third-party payers in the United States and
overseas; continuation of the GEHC agreement and the risk factors reported from
time to time in the Company's SEC reports, including its recent report on Form
10-K. The Company undertakes no obligation to update forward-looking statements
as a result of future events or developments.
Unless the context requires otherwise, all references to "we", "our", "us",
"Company", "registrant", "Vaso" or "management" refer to Vaso Corporation and
its subsidiaries
General Overview
COVID-19 pandemic
The COVID-19 pandemic has had a significant impact on the world economy and it
is possible that some negative impact to the Company's financial condition and
results of operations may continue. At this time, we cannot reasonably estimate
what the total impact may be. The pandemic has resulted in workforce and travel
restrictions and created business disruptions in supply chain, production and
demand across many business sectors. The pandemic continues to cause materials
shortage and delivery delay in the diagnostic imaging business and our equipment
segment. In addition, we have experienced the negative impact in the recurring
revenue business in our IT segment as some of our customers have been adversely
affected by the shutdown, and new business in this segment appears to be slower
as well. The pandemic also may have a negative impact on our cash receipts as
some customers request forbearance or a delay in their payments to us.
The pandemic may continue to impact our operations in 2022, depending on the
duration of the pandemic and the timing and success of the reopening of the
economy.
We have taken significant steps in our efforts to protect our workforce and our
clients. Most of our employees have been working at least partially remotely and
we have reopened our work sites consistent with the guidelines promulgated by
the CDC and respective state governments.
Our Business Segments
Vaso Corporation ("Vaso") was incorporated in Delaware in July 1987. We
principally operate in three distinct business segments in the healthcare and
information technology industries. We manage and evaluate our operations, and
report our financial results, through these three business segments.
· IT segment, operating through a wholly-owned subsidiary VasoTechnology,
Inc., primarily focuses on healthcare IT and managed network technology
services;
· Professional sales service segment, operating through a wholly-owned
subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses
on the sale of healthcare capital equipment for GEHC into the healthcare
provider middle market; and
· Equipment segment, primarily focuses on the design, manufacture, sale and
service of proprietary medical devices and software, operating through a
wholly-owned subsidiary VasoMedical, Inc., which in turn operates through
Vasomedical Solutions, Inc. for domestic business and Vasomedical Global
Corp. for international business, respectively.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon the accompanying unaudited condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States ("U.S. GAAP"). The preparation of
financial statements in conformity with U.S. GAAP requires management to make
judgments, estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, expenses, and the related disclosures at the date of the
financial statements and during the reporting period. Although these estimates
are based on our knowledge of current events, our actual amounts and results
could differ from those estimates. The estimates made are based on historical
factors, current circumstances, and the experience and judgment of our
management, who continually evaluate the judgments, estimates and assumptions
and may employ outside experts to assist in the evaluations.
Certain of our accounting policies are deemed "critical", as they are both most
important to the financial statement presentation and require management's most
difficult, subjective or complex judgments as a result of the need to make
estimates about the effect of matters that are inherently uncertain. For a
discussion of our critical accounting policies, see Note B to the condensed
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K
for the year ended December 31, 2021 as filed with the SEC on March 31, 2022.
Results of Operations - For the Three Months Ended March 31, 2022 and 2021
Revenues
Total revenue for the three months ended March 31, 2022 and 2021 was $17,009,000
and $16,519,000, respectively, representing an increase of $490,000, or 3%
year-over-year. On a segment basis, revenue in the professional sales service
segment increased $1,952,000 while revenue in the IT and equipment segments
decreased $1,250,000 and $212,000, respectively.
Revenue in the IT segment for the three months ended March 31, 2022 was
$10,003,000 compared to $11,253,000 for the three months ended March 31, 2021, a
decrease of $1,250,000, or 11%, of which $1,090,000 resulted from lower
NetWolves revenue, due primarily to lower professional services and
COVID-related customer attrition, and $160,000 from lower healthcare IT revenue,
due primarily to lower software sales. Our monthly recurring revenue in the IT
segment accounted for $9,234,000 or 92% of the segment revenue in the first
quarter of 2022, and $10,025,000 or 89% of the segment revenue for the same
quarter last year (see Note C).
Commission revenues in the professional sales service segment were $6,607,000 in
the first quarter of 2022, an increase of $1,952,000, or 42%, as compared to
$4,655,000 in the same quarter of 2021. The increase in commission revenues was
due primarily to an increase in the volume of underlying equipment delivered by
GEHC during the period as well as a higher blended commission rate applicable to
such deliveries. The Company only recognizes commission revenue when the
underlying equipment has been accepted at the customer site in accordance with
the specific terms of the sales agreement. Consequently, amounts billable, or
billed and received, under the agreement with GE Healthcare prior to customer
acceptance of the equipment are recorded as deferred revenue in the condensed
consolidated balance sheet. As of March 31, 2022, $26,945,000 in deferred
commission revenue was recorded in the Company's condensed consolidated balance
sheet, of which $8,975,000 was long-term. At March 31, 2021, $18,472,000 in
deferred commission revenue was recorded in the Company's condensed consolidated
balance sheet, of which $6,090,000 was long-term. The increase in deferred
revenue is principally due to an increase in new orders booked in the first
quarter 2022.
Revenue in the equipment segment decreased by $212,000, or 35%, to $399,000 for
the three-month period ended March 31, 2022 from $611,000 for the same period of
the prior year, principally due to lower deliveries in our China operations as a
result of COVID lockdowns in China.
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Gross Profit
Gross profit for the three months ended March 31, 2022 and 2021 was $9,767,000,
or 57% of revenue, and $8,559,000, or 52% of revenue, respectively, representing
an increase of $1,208,000, or 14% year-over-year. On a segment basis, gross
profit in the professional sales service segment increased $1,641,000, or 45%,
while gross profit in the IT and equipment segments decreased $272,000, or 6%;
and $161,000, or 33%, respectively.
IT segment gross profit for the three months ended March 31, 2022 was
$4,134,000, or 41% of the segment revenue, compared to $4,406,000, or 39% of the
segment revenue for the three months ended March 31, 2021. The year-over-year
decrease of $272,000, or 6%, was primarily a result of lower sales volume at
NetWolves partially offset by higher margin product sales mix in the healthcare
IT business.
Professional sales service segment gross profit was $5,306,000, or 80% of
segment revenue, for the three months ended March 31, 2022 as compared to
$3,665,000, or 79% of the segment revenue, for the three months ended March 31,
2021, reflecting an increase of $1,641,000, or 45%. The increase in absolute
dollars was primarily due to higher commission revenue as a result of higher
blended commission rate and higher volume of GEHC equipment delivered during the
first quarter of 2022 than in the same period last year. Cost of commissions in
the professional sales service segment of $1,301,000 and $990,000, for the three
months ended March 31, 2022 and 2021, respectively, reflected commission expense
associated with recognized commission revenues.
Commission expense associated with short-term deferred revenue is recorded as
short-term deferred commission expense, or with long-term deferred revenue as
part of other assets, on the balance sheet until the related commission revenue
is recognized.
Equipment segment gross profit decreased to $327,000, or 82% of segment
revenues, for the first quarter of 2022 compared to $488,000, or 80% of segment
revenues, for the same quarter of 2021. The $161,000, or 33%, decrease in gross
profit was the result of lower revenue in our China operations due to reduced
delivery volume for the first quarter of 2022, partially offset by higher gross
profit margin product mix during the quarter.
Operating Loss
Operating loss for the three months ended March 31, 2022 and 2021 was $354,000
and $539,000, respectively, representing an improvement of $185,000, or 34%, due
primarily to higher gross profit. On a segment basis, the professional sales
service segment recorded operating income of $237,000 in the first quarter of
2022 as opposed to an operating loss of $336,000 in the same period of 2021; the
IT segment recorded an operating loss of $139,000 in the first quarter of 2022
as opposed to operating income of $69,000 in the same period of 2021; and the
equipment segment recorded an operating loss of $79,000 in the first quarter of
2022 as opposed to operating income of $13,000 in the same period of 2021.
Operating loss in the IT segment was $139,000 for the three-month period ended
March 31, 2022, a net change of $208,000 from operating income of $69,000 in the
same period of 2021, due to lower gross profit partially offset by lower
selling, general, and administrative ("SG&A") and research and development
("R&D") costs. The professional sales service segment reporting operating income
of $237,000 in the three-month period ended March 31, 2022 as compared to an
operating loss of $336,000 in the same period of 2021, an improvement of
$573,000. The improvement was due to higher gross profit partially offset by
higher SG&A costs. The equipment segment reported an operating loss of $79,000
in the first quarter of 2022, compared to operating income of $13,000 in the
first quarter 2021, a decrease of $92,000. The decrease was due to lower gross
profit partially offset by lower SG&A costs.
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SG&A costs for the three months ended March 31, 2022 and 2021 were $9,999,000
and $8,954,000, respectively, representing an increase of $1,045,000, or 12%
year-over-year. On a segment basis, SG&A costs in the IT segment decreased by
$14,000 in the first quarter of 2022 from the same quarter of the prior year due
to reduced third-party commissions partially offset by higher personnel costs;
SG&A costs in the professional sales service segment increased $1,069,000 due
mainly to cost of national sales meeting (which was held online last year), and
higher travel and personnel costs; and SG&A costs in the equipment segment
decreased $97,000 due mainly to lower personnel costs. Corporate costs not
allocated to segments increased $88,000 to $373,000 in the three months ended
March 31, 2022 from $285,000 for the same period in 2021 due mainly to higher
accounting and insurance costs.
Research and development ("R&D") expenses were $122,000, or 1% of revenues, for
the first quarter of 2022, a decrease of $22,000, or 15%, from $144,000, or 1%
of revenues, for the first quarter of 2021. The decrease is primarily
attributable to lower product development expenses and a reduction in technical
staff in the IT segment.
Adjusted EBITDA
We define Adjusted EBITDA (earnings (loss) before interest, taxes, depreciation
and amortization), which is a non-GAAP financial measure, as net income (loss),
plus interest expense (income), net; tax expense; depreciation and amortization;
and non-cash expenses for share-based compensation. Adjusted EBITDA is a metric
that is used by the investment community for comparative and valuation purposes.
We disclose this metric in order to support and facilitate the dialogue with
research analysts and investors.
Adjusted EBITDA is not a measure of financial performance under U.S. GAAP and
should not be considered a substitute for operating income, which we consider to
be the most directly comparable U.S. GAAP measure. Adjusted EBITDA has
limitations as an analytical tool, and when assessing our operating performance,
you should not consider Adjusted EBITDA in isolation, or as a substitute for net
income or other consolidated income statement data prepared in accordance with
U.S. GAAP. Other companies may calculate Adjusted EBITDA differently than we do,
limiting its usefulness as a comparative measure.
A reconciliation of net loss to Adjusted EBITDA is set forth below:
(in thousands)
Three months ended March 31,
2022 2021
(unaudited) (unaudited)
Net loss $ (344 ) $ (643 )
Interest expense (income), net 19 121
Income tax expense 12 18
Depreciation and amortization 453 596
Share-based compensation 7 9
Adjusted EBITDA $ 147 $ 101
Adjusted EBITDA increased by $46,000, to $147,000 in the quarter ended March 31,
2022 from $101,000 in the quarter ended March 31, 2021. The increase was
attributable to the decrease in net loss, partially offset primarily by the
decrease in depreciation and amortization and interest expense.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended March 31, 2022
was $22,000 as compared to $(86,000) for the corresponding period of 2021. The
increase in interest and other income (expense) was due primarily to lower
interest expense due to principal payments against the line of credit and other
notes payable.
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Income Tax Expense
For the three months ended March 31, 2022, we recorded income tax expense of
$12,000 as compared to income tax expense of $18,000 for the corresponding
period of 2021. The decrease was due mainly from lower state income taxes.
Net Loss
Net loss for the three months ended March 31, 2022 was $344,000 as compared to
$643,000 for the three months ended March 31, 2021, representing an improvement
of $299,000, or 47%. Loss per share of $0.00 was recorded in both the
three-month periods ended March 31, 2022 and 2021. The principal cause of the
decrease in net loss is the change from operating loss to operating income in
the professional sales service segment, an improvement of $573,000, as well as
lower interest expense, partially offset by lower gross profit in the IT and
equipment segments.
Liquidity and Capital Resources
Cash and Cash Flow
We have financed our operations from working capital. At March 31, 2022, we had
cash and cash equivalents of $4,971,000 and negative working capital of
$3,100,000, compared to cash and cash equivalents of $6,025,000 and negative
working capital of $3,197,000 at December 31, 2021. $14,451,000 in negative
working capital at March 31, 2022 is attributable to the net balance of deferred
commission expense and deferred revenue. These are non-cash expense and revenue
items and have no impact on future cash flows.
Cash used in operating activities during the three months ended March 31, 2022
was $625,000, which consisted of net loss after adjustments to reconcile net
loss to net cash of $251,000 and cash used by operating assets and liabilities
of $876,000, compared to cash provided by operating activities of $5,475,000
for the same period in 2021. The $6,100,000 decrease in cash provided by
operating activities was due to the late arrival of a commission payment of
$7,747,000 that was scheduled for March 2022 and the Company received in April
2022. The changes in the account balances primarily reflect decreases in accrued
commissions and accrued expenses and other liabilities of $1,174,000 and
$1,026,000, respectively, partially offset by an increase in deferred revenue of
$1,989,000 and a decrease in accounts and other receivables of $563,000.
Cash used in investing activities during the three-month period ended March 31,
2022 was $195,000 for the purchase of equipment and software and $158,000 for
the purchase of short-term investments.
Cash used in financing activities during the three-month period ended March 31,
2022 was $62,000 resulting from repayments of notes payable and finance lease
obligations.
Liquidity
The Company expects to generate sufficient cash flow from operations to satisfy
its obligations for the next twelve months.
It is anticipated that the COVID-19 pandemic may continue to adversely impact
our operations during and beyond the remaining quarters of 2022, depending on
the duration of the pandemic and the timing and success of the reopening of the
economy.
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