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 and will continue to have a significant impact on
the United States economy and it is anticipated that its negative impact to the
Company's financial condition and results of operations will 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.
Equipment orders in our professional sales service segment have been negatively
impacted, and we do anticipate continued negative impact in all our businesses
during the remainder of 2021, in particular in our professional sales service
segment for the diagnostic imaging equipment. Moreover, we have also 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 impact our operations beyond the first nine months of 2021,
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. Many of our employees have been working remotely and we are
implementing plans to reopen our work sites consistent with the guidelines
promulgated by the CDC and respective state governments. In addition, the
Company received a $3.6 million loan under the Paycheck Protection Program of
the CARES Act. This loan was used to principally cover our payroll costs for a
period of time as specified by the rules, thereby allowing us to maintain our
workforce and continue to provide services and solutions to our clients. In June
2021, the loan, as well as accrued interest, was forgiven in its entirety by the
Small Business Administration.
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, operating through a wholly-owned subsidiary
VasoMedical, Inc., primarily focuses on the design, manufacture, sale and
service of proprietary medical devices.
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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, 2020 as filed with the SEC on May 5, 2021.
Prior Periods' Financial Statement Revision
Certain prior period amounts have been revised to reflect the impact of
corrections of misstatements and to correct the timing of previously recorded
out-of-period adjustments. Refer to Note B in the Notes to Condensed
Consolidated Financial Statements for more information.
Results of Operations - For the Three Months Ended September 30, 2021 and 2020
Revenues
Total revenue for the three months ended September 30, 2021 and 2020 was
$18,429,000 and $17,434,000, respectively, representing an increase of $995,000,
or 6% year-over-year. On a segment basis, revenue in the IT and equipment
segments decreased $153,000 and $297,000, respectively, while revenue in the
professional sales services segment increased $1,445,000.
Revenue in the IT segment for the three months ended September 30, 2021 was
$10,580,000 compared to $10,733,000 for the three months ended September 30,
2020, a decrease of $153,000, or 1%, of which $692,000 resulted from lower
NetWolves revenues, offset by $539,000 higher revenues in the healthcare IT
business. Our monthly recurring revenue in the IT segment accounted for
$9,561,000 or 90% of the segment revenue in the third quarter of 2021, and
$10,083,000 or 94% of the segment revenue for the same quarter last year (see
Note C).
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Commission revenues in the professional sales service segment were $7,246,000 in
the third quarter of 2021, an increase of $1,445,000, or 25%, as compared to
$5,801,000 in the same quarter of 2020. The increase in commission revenues was
due primarily to an increase in the volume of underlying equipment delivered by
GEHC during the period, partially offset by a lower 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 September 30, 2021,
$20,174,000 in deferred commission revenue was recorded in the Company's
condensed consolidated balance sheet, of which $6,814,000 was long-term. As of
September 30, 2020, $16,634,000 in deferred commission revenue was recorded in
the Company's condensed consolidated balance sheet, of which $7,250,000 was
long-term. The increase in deferred revenue is principally due to an increase in
new orders booked.
Revenue in the equipment segment decreased by $297,000, or 33%, to $603,000 for
the three-month period ended September 30, 2021 from $900,000 for the same
period of the prior year, principally due to lower deliveries in our China
operations.
Gross Profit
Gross profit for the three months ended September 30, 2021 and 2020 was
$10,260,000, or 56% of revenue, and $9,779,000, or 56% of revenue, respectively,
representing an increase of $481,000, or 5% year-over-year. On a segment basis,
gross profit in the IT and equipment segments decreased $144,000, or 3%, and
$220,000, or 32%, respectively, while gross profit in the professional sales
service segment increased $845,000, or 18%.
IT segment gross profit for the three months ended September 30, 2021 was
$4,239,000, or 40% of the segment revenue, compared to $4,383,000, or 41% of the
segment revenue for the three months ended September 30, 2020. The
year-over-year decrease of $144,000, or 3%, was primarily a result of lower
sales volume in the NetWolves business, partially offset by higher sales volume
and a higher margin sales mix in the healthcare IT business.
Professional sales service segment gross profit was $5,554,000, or 77% of
segment revenue, for the three months ended September 30, 2021 as compared to
$4,709,000, or 81% of the segment revenue, for the three months ended September
30, 2020, reflecting an increase of $845,000, or 18%. The increase in absolute
dollars was due to higher commission revenue as a result of a higher blended
commission rate and higher volume of GEHC equipment delivered during the third
quarter of 2021 than in the same period last year, partially offset by higher
commission expenses. Cost of commissions in the professional sales service
segment of $1,692,000 and $1,092,000, for the three months ended September 30,
2021 and 2020, 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 $467,000, or 77% of segment
revenues, for the third quarter of 2021 compared to $687,000, or 76% of segment
revenues, for the same quarter of 2020. The $220,000, or 32%, decrease in gross
profit was primarily the result of lower sales during the quarter.
Operating Income
Operating income for the three months ended September 30, 2021 was $636,000
compared to $1,110,000 for the same quarter in 2020, representing a decrease of
$474,000, or 43%, as operating costs (below) increased much more than gross
profit, year-over-year. On a segment basis, the IT segment recorded an operating
loss of $77,000 in the third quarter of 2021 as opposed to operating income of
$15,000 in the same period of 2020; the equipment segment recorded an operating
loss of $96,000 in the third quarter of 2021 as opposed to operating income of
$142,000 in the same period of 2020; and the professional sales service segment
recorded operating income of $1,091,000 in the third quarter of 2021 as opposed
to operating income of $1,161,000 in the same period of 2020.
Operating loss in the IT segment increased to $77,000 for the three-month period
ended September 30, 2021 as compared to operating income of $15,000 in the same
period of 2020, due to lower gross profit, partially offset by lower research
and development ("R&D") costs. Operating income in the professional sales
service segment decreased $70,000 in the three-month period ended September 30,
2021 as compared to operating income in the same period of 2020, due to higher
SG&A costs partially offset by higher gross profit. The equipment segment
reported an operating loss of $96,000 in the third quarter of 2021, compared to
operating income of $142,000 in the third quarter 2020, a decrease of $238,000.
The decrease was primarily due to lower gross profit.
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SG&A costs for the three months ended September 30, 2021 and 2020 were
$9,501,000 and $8,495,000, respectively, representing an increase of $1,006,000,
or 12% year-over-year. On a segment basis, SG&A costs in the IT segment
increased by $10,000 in the third quarter of 2021 from the same quarter of the
prior year due to higher travel costs; SG&A costs in the professional sales
service segment increased $917,000 due mainly to higher travel, as travel in the
third quarter of 2020 was unusually low due to COVID-19 restrictions, and higher
personnel costs due to increased headcount and increased bonuses due to improved
order booking; and SG&A costs in the equipment segment increased $6,000 due
mainly to higher consulting costs. Corporate costs not allocated to segments
increased $73,000 due mainly to higher investor relations and director fees.
Research and development expenses were $123,000, or 1% of revenues, for the
third quarter of 2021, a decrease of $51,000, or 29%, from $174,000, or 1% of
revenues, for the third quarter of 2020. The decrease is primarily attributable
to lower product development expenses 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 income (loss) to Adjusted EBITDA is set forth below:
(in thousands)
Three months ended September 30,
2021 2020
(unaudited) (unaudited)
Net income $ 651 $ 1,002
Interest expense (income), net 62 133
Income tax expense 19 11
Depreciation and amortization 624 610
Share-based compensation 8 15
Adjusted EBITDA $ 1,364 $ 1,771
Adjusted EBITDA decreased by $407,000, to $1,364,000 in the quarter ended
September 30, 2021 from $1,771,000 in the quarter ended September 30, 2020. The
decrease was primarily attributable to decreases in net income and interest
expense.
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Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended September 30,
2021 was $34,000 as compared to $(97,000) for the corresponding period of 2020.
The change in interest and other income (expense) was due primarily to lower
interest expense resulting from repayments of notes payable and lines of credit.
Income Tax Expense
For the three months ended September 30, 2021, we recorded income tax expense of
$19,000 as compared to $11,000 for the corresponding period of 2020. The $8,000
increase arose mainly from higher state tax expense.
Net Income
Net income for the three months ended September 30, 2021 was $651,000 as
compared to net income of $1,002,000 for the three months ended September 30,
2020, representing a decrease of $351,000. Income per share of $0.00 and $0.01
was recorded in the three-month periods ended September 30, 2021 and 2020,
respectively. The principal cause of the decrease in net income is the increase
in SG&A costs, partially offset by the increase in gross profit.
Results of Operations - For the Nine Months Ended September 30, 2021 and 2020
Revenues
Total revenue for the nine months ended September 30, 2021 and 2020 was
$51,079,000 and $50,957,000, respectively, representing an increase of $122,000,
or less than 1% year-over-year. On a segment basis, revenue in the IT and
equipment segments decreased $517,000 and $545,000, respectively, while revenue
in the professional sales service segment increased $1,184,000.
Revenue in the IT segment for the nine months ended September 30, 2021 was
$32,275,000 compared to $32,792,000 for the nine months ended September 30,
2020, a decrease of $517,000, or 2%, of which $1,133,000 resulted from lower
NetWolves revenue, offset by a $616,000 increase in the operations of the
healthcare IT business. Our monthly recurring revenue in the IT segment
accounted for $28,831,000 or 89% of the segment revenue in the first nine months
of 2021, and $30,340,000 or 93% of the segment revenue for the same period last
year (see Note C).
Commission revenues in the professional sales service segment were $16,872,000
in the first nine months of 2021, an increase of $1,184,000, or 8%, as compared
to $15,688,000 in the first nine months of 2020. The increase in commission
revenues was due primarily to an increase in the volume of underlying equipment
delivered by GEHC during the period, partially offset by a lower blended
commission rate applicable to such deliveries. The Company 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 September
30, 2021, $20,174,000 in deferred commission revenue was recorded in the
Company's condensed consolidated balance sheet, of which $6,814,000 was
long-term. As of September 30, 2020, $16,634,000 in deferred commission revenue
was recorded in the Company's condensed consolidated balance sheet, of which
$7,250,000 was long-term. The increase in deferred revenue is principally due to
an increase in new orders booked.
Revenue in the equipment segment decreased by $545,000, or 22%, to $1,932,000
for the nine-month period ended September 30, 2021 from $2,477,000 for the same
period of the prior year, principally due to the deconsolidation of EECP
operations after the sale of equity in the EECP business in the second quarter
of 2020. On a proforma basis, with EECP operations also excluded from the
financial statements for the first nine months of 2020, revenue in the equipment
segment would decrease by $125,000, or 6%.
Gross Profit
Gross profit for the nine months ended September 30, 2021 and 2020 was
$27,459,000, or 54% of revenue, and $27,293,000, or 54% of revenue,
respectively, representing an increase of $166,000, or 1% year-over-year. On a
segment basis, gross profit in the IT and equipment segments decreased $241,000,
or 2%, and $162,000, or 10%, respectively, while gross profit in the
professional sales service segment increased $569,000, or 5%.
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IT segment gross profit for the nine months ended September 30, 2021 was
$12,739,000, or 39% of the segment revenue, compared to $12,980,000, or 40% of
the segment revenue for the nine months ended September 30, 2020. The
year-over-year decrease of $241,000, or 2%, was primarily a result of lower
revenue at NetWolves and lower margin product sales mix in the healthcare IT
business.
Professional sales service segment gross profit was $13,195,000, or 78% of
segment revenue, for the nine months ended September 30, 2021 as compared to
$12,626,000, or 80% of the segment revenue, for the nine months ended September
30, 2020, reflecting an increase of $569,000, or 5%. The increase in absolute
dollars was primarily due to higher commission revenue as a result of a higher
volume of GEHC equipment delivered, partially offset by a lower blended
commission rate during the first nine months of 2021 than in the same period
last year. Cost of commissions in the professional sales service segment of
$3,677,000 and $3,062,000, for the nine months ended September 30, 2021 and
2020, 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 $1,525,000, or 79% of segment
revenues, for the first nine months of 2021 compared to $1,687,000, or 68% of
segment revenues, for the same period in 2020. The $162,000, or 10%, decrease in
gross profit was primarily the result of lower revenue due to exclusion of EECP
business in the financials for the first nine months of 2021, partially offset
by higher gross profit margin of non-EECP products sold during the first nine
months of 2021.
Operating Loss
Operating loss for the nine months ended September 30, 2021 and 2020 was
$624,000 and $882,000, respectively, representing an improvement of $258,000, or
29%, as gross profit increased $166,000 and operating costs (below) decreased
$92,000, year-over-year. On a segment basis, the IT segment recorded an
operating loss of $254,000 in the first nine months of 2021 as compared to an
operating loss of $1,272,000 in the same period of 2020; the equipment segment
recorded an operating loss of $212,000 in the first nine months of 2021 as
compared to an operating loss of $1,000 in the same period of 2020; and
operating income in the professional sales service segment decreased by
$329,000, from $1,038,000 in the first nine months of 2020 to $709,000 in the
same period of 2021.
Operating loss in the IT segment decreased to $254,000 for the nine-month period
ended September 30, 2021 as compared to an operating loss of $1,272,000 in the
same period of 2020, due primarily to lower selling, general, and administrative
("SG&A") costs partially offset by lower gross profit. Operating income in the
professional sales service segment decreased $329,000 in the nine-month period
ended September 30, 2021 as compared to operating income in the same period of
2020, due to higher SG&A costs offset by higher gross profit. The equipment
segment reported an operating loss of $212,000 in the first nine months of 2021,
compared to an operating loss of $1,000 in the first nine months of 2020, an
increase of $211,000. The increase in loss was due to lower gross profit as well
as higher SG&A and R&D costs.
SG&A costs for the nine months ended September 30, 2021 and 2020 were
$27,646,000 and $27,636,000, respectively, representing an increase of $10,000,
or less than 1% year-over-year. On a segment basis, SG&A costs in the IT segment
decreased by $1,122,000 in the first nine months of 2021 from the same period of
the prior year due mainly to reduced personnel and third-party commission costs;
SG&A costs in the professional sales service segment increased by $900,000 due
to higher travel and personnel costs; and SG&A costs in the equipment segment
increased slightly by $13,000. Corporate costs not allocated to segments
increased $220,000 due mainly to higher accounting and director fees.
Research and development ("R&D") expenses were $437,000, or 1% of revenues, for
the first nine months of 2021, a decrease of $102,000, or 19%, from $539,000, or
1% of revenues, for the first nine months of 2020. The decrease is primarily
attributable to lower product development expenses in the IT segment.
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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 income (loss) to Adjusted EBITDA is set forth below:
(in thousands)
Nine months ended September 30,
2021 2020
(unaudited) (unaudited)
Net income (loss) $ 2,788 $ (1,170 )
Interest expense (income), net 261 546
Income tax expense (benefit) 87 (97 )
Depreciation and amortization 1,748 1,861
Share-based compensation 25 69
Adjusted EBITDA $ 4,909 $ 1,209
Adjusted EBITDA increased by $3,700,000 to $4,909,000 in the period ended
September 30, 2021 from $1,209,000 in the period ended September 30, 2020. The
increase was primarily attributable to the $3,646,000 gain on PPP loan
forgiveness in the nine months ended September 30, 2021, partially offset by
lower interest expense and lower depreciation and amortization.
Interest and Other Income (Expense)
Interest and other income (expense) for the nine months ended September 30, 2021
was $3,499,000 as compared to $(385,000) for the corresponding period of 2020.
The increase in interest and other income was due primarily to the $3.6 million
PPP loan forgiveness and $291,000 lower interest expense in the nine months
ended September 30, 2021.
Income Tax (Expense) Benefit
For the nine months ended September 30, 2021, we recorded income tax expense of
$(87,000) as compared to income tax benefit of $97,000 for the corresponding
period of 2020. The change from benefit to expense arose mainly from the
reversal of a deferred tax liability in our China operations in the first nine
months of 2020.
Net Income (Loss)
Net income for the nine months ended September 30, 2021 was $2,788,000 as
compared to net loss of $(1,170,000) for the nine months ended September 30,
2020, representing an improvement of $3,958,000, or 338%. Income per share of
$0.02 and loss per share of $0.01 was recorded in the nine-month periods ended
September 30, 2021 and 2020, respectively. The principal cause of the
improvement is the forgiveness of the PPP loan, as well as the reduction in
operating expenses and interest expense in the nine months ended September 30,
2021.
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Liquidity and Capital Resources
Cash and Cash Flow
We have financed our operations from working capital. At September 30, 2021, we
had cash and cash equivalents of $6,190,000 and negative working capital of
$10,189,00 0, compared to cash and cash equivalents of $6,819,000 and negative
working capital of $9,431,000 at December 31, 2020. $10,421,000 in negative
working capital at September 30, 2021 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. Excluding these
non-cash items, working capital would be $232,000 at September 30, 2021.
Cash provided by operating activities was $5,444,000, which consisted of net
income after adjustments to reconcile net income to net cash of $1,777,000 and
cash provided by operating assets and liabilities of $3,667,000, during the nine
months ended September 30, 2021, compared to cash provided by operating
activities of $4,734,000 for the same period in 2020. The changes in the account
balances primarily reflect a decrease in accounts and other receivables of
$2,669,000 and increases in accrued expenses and deferred revenue of $2,388,000
and $2,480,000, respectively, partially offset by a decrease in accounts payable
of $3,569,000.
Cash used in investing activities during the nine-month period ended September
30, 2021 was $212,000 attributed to $367,000 used for the purchase of equipment
and software, offset by the redemption of $155,000 in short-term investments.
Cash used in financing activities during the nine-month period ended September
30, 2021 was $5,848,000 resulting from the repayment of $3,025,000 of lines of
credit and $2,823,000 in 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 quarter of 2021, depending on the
duration of the pandemic and the timing and success of the reopening of the
economy.
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Vaso Corporation and Subsidiaries© Edgar Online, source Glimpses
VASO CORPORATION 
