CynergisTek,
Inc. (NYSE AMERICAN: CTEK), a leader in healthcare cybersecurity,
privacy and compliance, today announced financial results for the fourth
quarter and full year ended December 31, 2018.
Financial Highlights for the Fourth Quarter and Full Year of 2018
Include:
-
Revenues for the fourth quarter were $18.6 million, compared to $18.7
million for the same period of 2017. Revenues for the full year were
$71.1 million compared to $71.6 million for the same period of 2017. -
GAAP net income for the fourth quarter was $1.3 million, or $0.14 per
basic and $0.13 per diluted share compared to a net loss of $(1.6)
million, or $(0.17) per basic and diluted share for the same period of
2017. GAAP net income for the full year was $1.9 million, or $0.20 per
basic and $0.19 per diluted share compared to a net loss of $(0.4)
million, or $(0.05) per basic and diluted share for the same period of
2017. -
Non-GAAP adjusted EBITDA, after adding back stock-based compensation
and change in valuation of earnout, was $3.7 million in the fourth
quarter of 2018, compared to $2.5 million for the same period in 2017.
Non-GAAP adjusted EBITDA, after adding back stock-based compensation,
change in valuation of earnout and non-recurring charges related to
our debt refinancing and the departure of a senior executive was $8.6
million in the full year of 2018, compared to $7.8 million for the
same period in 2017 after adding back stock-based compensation and
change in valuation of earnout. -
Non-GAAP adjusted earnings per share for the fourth quarter 2018 was
$0.34 per basic and $0.33 per diluted share, compared to $0.21 per
basic and $0.20 per diluted share for the same period of 2017.
Non-GAAP adjusted earnings per share for the full year 2018 was $0.72
per basic and $0.70 per diluted share, compared to $0.64 per basic and
$0.60 per diluted share for the same period of 2017.
Recent Operational Highlights Include:
-
Sold Managed Print Service division on March 20, 2019 for $30 million
allowing CynergisTek to become pure play cybersecurity company - Accelerated Security revenue with growth of 20 percent year over year
-
Created three new strategic partnerships with software vendors focused
on generating new service offerings and revenue growth
“2018 was another successful year for CynergisTek where we strived to be
the trusted partner in healthcare security, privacy, and compliance,”
said Mac McMillan, President and CEO of CynergisTek. “We attribute the
growth in cybersecurity services to the increasing security threat
landscape and incidents occurring in healthcare. The significant growth
in professional services is due to the cybersecurity workforce shortage
that exists across all industries but even more so in healthcare. 2019
we will continue to see the market demand increase for these types of
services, as healthcare cannot find and retain the necessary resources
to keep up with increased security threats. Our growth was only possible
because of the dedication of our staff from the back of the house to the
front of the house.”
For the Three Months Ended December 31, 2018 Compared to the Three
Months Ended December 31, 2017
Revenue decreased by approximately $0.1 million to $18.6 million for the
three months that ended December 31, 2018, as compared to the same
period in 2017. Security related revenue increased 30% to $7.0 million
offset by a 13% reduction in managed print related services related
revenue to $11.6 million.
Cost of revenue was $12.1 million for the three months ended December
31, 2018, as compared to $12.9 million for the same period in 2017.
Payroll and benefits related to the increased Security revenues offset
equipment costs that decreased by approximately $1.6 million in 2018,
directly as a result of the decrease in equipment revenues from copier
fleet refresh activities.
Gross margin was 35 percent for the three months ended December 31, 2018
compared to 31 percent for same period in 2017. This increase was
largely due to the additional contribution from the higher margin
security revenue this quarter.
Sales and marketing, and general and administrative expenses were
comparable year over year at $3.1 million for the three months ended
December 31, 2018, compared to $3.5 million for the same period in 2017.
Net income was $1.3 million for the three months ended December 31,
2018, or $0.14 per basic and $0.13 per diluted share. The 2018 net
income includes a $0.4 million charge for the revalued contingent
earn-out liability in connection with the acquisition of CTEK Security,
Inc. This compares to a net loss of $(1.6) million, or $(0.17) per basic
and diluted share in the same period of 2017. The 2017 net loss included
the $1.4 million charge for the revalued contingent earn-out liability
in connection with the acquisition of CTEK Security, Inc. and an income
tax expense of $1.5 million related to the revaluation of deferred taxes
due to the change in tax law.
Non-GAAP adjusted earnings for the three months ended December 31, 2018
was $3.3 million, or $0.34 per basic and $0.33 per diluted share,
compared to $2.0 million or $0.21 per basic and $0.20 per diluted share
for the same period of 2017.
For the 12 Months Ended December 31, 2018 Compared to the 12 Months
Ended December 31, 2017
Revenue decreased by approximately $0.5 million to $71.1 million for the
12 months ended December 31, 2018, as compared to the same period in
2017. We increased our cybersecurity services revenues by approximately
$3.5 million as expected. Our office equipment, hardware & software
resales grew by approximately $1.9 million due to customer needs to
refresh their print equipment. Offsetting these increases, managed
service revenues were approximately $5.9 lower in 2018 due primarily to
nonrenewal of long-term managed print related contracts.
Cost of revenue was $50.2 million for the 12 months ended December 31,
2018, as compared to $50.7 million for the same period in 2017.
Gross margin percentage remained steady at 29% of revenue for both 2018
and 2017. The negative impact from the lower managed print service
revenue was offset by the benefit from the increased security related
services revenue which carries a higher margin.
Sales and marketing, and general and administrative expenses were $13.8
million for the 12 months ended December 31, 2018, as compared to $13.4
million for the same period in 2017.
Net income was $1.9 million for the 12 months ended December 31, 2018,
or $0.20 per basic and $0.19 per diluted share. The 2018 net income
includes a charge of $0.4 million from the revalued contingent earn-out
liability in connection with the acquisition of CTEK Security, Inc. and
$0.7 million in non-recurring charges related to our debt refinancing
and the departure of a senior executive. This compares to a net loss of
$(0.4) million, or $(0.05) per basic and diluted share in the same
period of 2017. The 2017 net loss included the charge of $1.4 million
from the revalued contingent earn-out liability in connection with the
acquisition of CTEK Security, Inc. and an income tax expense of $1.5
million related to the revaluation of deferred taxes due to the change
in tax law.
Non-GAAP adjusted earnings for the 12 months ended December 31, 2018 was
$6.9 million, or $0.72 per basic and $0.70 per diluted share, compared
to $6.1 million or $0.64 per basic and $0.60 per diluted share for the
same period of 2017.
The reconciliation of GAAP to non-GAAP information can be found in the
tables at the end of this release and provide the details of the
Company’s non-GAAP disclosures and the reconciliation of non-GAAP
information.
|
CYNERGISTEK, INC. AND SUBSIDIARIES |
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|
CONSOLIDATED BALANCE SHEETS |
||||||||
| As of December 31, | ||||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 6,571,381 | $ | 4,252,060 | ||||
| Accounts receivable, net | 10,696,738 | 13,264,323 | ||||||
| Prepaid and other current assets | 3,544,521 | 557,426 | ||||||
| Supplies | 1,184,474 | 1,156,006 | ||||||
| Total current assets | 21,997,114 | 19,229,815 | ||||||
| Property and equipment, net | 636,227 | 831,784 | ||||||
| Deposits | 87,778 | 87,376 | ||||||
| Deferred income taxes | 2,146,020 | 3,120,310 | ||||||
| Intangible assets, net | 9,089,989 | 10,900,924 | ||||||
| Goodwill | 18,525,206 | 18,525,206 | ||||||
| Total assets | $ | 52,482,334 | $ | 52,695,415 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 6,098,548 | $ | 9,631,634 | ||||
| Accrued compensation and benefits | 2,817,823 | 3,711,551 | ||||||
| Deferred revenue | 1,806,632 | 1,425,821 | ||||||
| Note payable | 343,750 | – | ||||||
| Current portion of long-term liabilities | 3,114,643 | 5,494,837 | ||||||
| Total current liabilities | 14,181,396 | 20,263,843 | ||||||
| Long-term liabilities: | ||||||||
| Term loan, less current portion | 12,851,617 | 9,438,333 | ||||||
| Promissory notes, less current portion | 5,015,625 | 6,000,000 | ||||||
| Capital lease obligations, less current portion | 60,537 | 147,861 | ||||||
| Total long-term liabilities | 17,927,779 | 15,586,194 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
|
Common stock, par value at $0.001, 33,333,333 shares authorized, 9,630,050 shares issued and outstanding at December 31, 2018 and 9,576,028 shares issued and outstanding at December 31, 2017 |
9,630 | 9,576 | ||||||
| Additional paid-in capital | 31,910,831 | 31,156,362 | ||||||
| Accumulated deficit | (11,547,302 | ) | (14,320,560 | ) | ||||
| Total stockholders’ equity | 20,373,159 | 16,845,378 | ||||||
| Total liabilities and stockholders’ equity | $ | 52,482,334 | $ | 52,695,415 | ||||
| CYNERGISTEK, INC. AND SUBSIDIARIES | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
| Three Months | Twelve Months | |||||||||||||||
| Ended December 31, | Ended December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net revenues | $ | 18,570,142 | $ | 18,688,270 | $ | 71,106,459 | $ | 71,638,947 | ||||||||
| Cost of revenues | 12,102,219 | 12,892,221 | 50,233,836 | 50,739,359 | ||||||||||||
| Gross profit | 6,467,923 | 5,796,049 | 20,872,623 | 20,899,588 | ||||||||||||
|
Operating expenses: |
||||||||||||||||
| Sales and marketing | 1,431,528 | 1,679,725 | 5,720,421 | 5,747,758 | ||||||||||||
| General and administrative expenses | 1,669,198 | 1,782,859 | 8,074,553 | 7,662,486 | ||||||||||||
| Change in valuation of contingent earn-out | 438,269 | 1,394,000 | 438,269 | 1,394,000 | ||||||||||||
| Depreciation | 83,209 | 95,692 | 348,633 | 383,419 | ||||||||||||
| Amortization of acquisition-related intangibles | 452,734 | 520,030 | 1,810,935 | 2,080,746 | ||||||||||||
| Impairment of goodwill and intangible assets | – | 180,726 | – | 180,726 | ||||||||||||
| Total operating expenses | 4,074,938 | 5,653,032 | 16,392,811 | 17,449,135 | ||||||||||||
| Income from operations | 2,392,985 | 143,017 | 4,479,812 | 3,450,453 | ||||||||||||
|
Other income (expense): |
||||||||||||||||
| Interest expense | (346,271 | ) | (364,364 | ) | (1,449,863 | ) | (1,526,653 | ) | ||||||||
| Loss on disposition of fixed assets | (4,244 | ) | – | (4,244 | ) | – | ||||||||||
| Other income/(expense) | 8 | (2,559 | ) | 53 | (675 | ) | ||||||||||
| Total other income (expense) | (350,506 | ) | (366,923 | ) | (1,454,054 | ) | (1,527,328 | ) | ||||||||
| Income (loss) before provision for income taxes | 2,042,478 | (233,906 | ) | 3,025,758 | 1,923,125 | |||||||||||
| Income tax expense | (716,802 | ) | (1,388,577 | ) | (1,132,166 | ) | (2,365,476 | ) | ||||||||
| Net income (loss) | $ | 1,325,677 | $ | (1,612,483 | ) | $ | 1,893,592 | $ | (442,351 | ) | ||||||
| Net income (loss) per share: | ||||||||||||||||
| Basic | $ | 0.14 | $ | (0.17 | ) | $ | 0.20 | $ | (0.05 | ) | ||||||
| Diluted | $ | 0.13 | $ | (0.17 | ) | $ | 0.19 | $ | (0.05 | ) | ||||||
| Number of weighted average shares outstanding: | ||||||||||||||||
| Basic | 9,608,312 | 9,538,075 | 9,608,312 | 9,425,281 | ||||||||||||
| Diluted | 9,873,011 | 9,538,075 | 9,873,011 | 9,425,281 | ||||||||||||
|
Reconciliation of GAAP Income from Operations to Non-GAAP Adjusted EBITDA |
||||||||||||||
| Three Months | Twelve Months | |||||||||||||
| Ended December 31, | Ended December 31, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||
| GAAP income from operations | $ | 2,392,985 | $ | 143,017 | $ | 4,479,812 | $ | 3,450,453 | ||||||
| Adjustments: | ||||||||||||||
| Depreciation | 83,209 | 95,692 | 348,633 | 383,419 | ||||||||||
| Amortization of acquisition-related intangibles | 452,734 | 520,030 | 1,810,935 | 2,080,746 | ||||||||||
| Impairment of goodwill and intangible assets | – | 180,726 | – | 180,726 | ||||||||||
| Adjustment in contingent consideration from acquisition | 438,269 | 1,394,000 | 438,269 | 1,394,000 | ||||||||||
| One-time restructuring and legal fees | – | – | 735,183 | – | ||||||||||
| Stock-based compensation | 291,124 | 160,533 | 754,522 | 333,853 | ||||||||||
| Non-GAAP adjusted EBITDA | $ | 3,658,321 | $ | 2,493,998 | $ | 8,567,354 | $ | 7,823,200 | ||||||
| Non-GAAP adjusted EBITDA per share | ||||||||||||||
| Basic | $ | 0.38 | $ | 0.26 | $ | 0.89 | $ | 0.83 | ||||||
| Diluted | $ | 0.37 | $ | 0.24 | $ | 0.87 | $ | 0.77 | ||||||
|
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted Earnings |
||||||||||||||
| Three Months | Twelve Months | |||||||||||||
| Ended December 31, | Ended December 31, | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||
| GAAP Net Income (Loss) | $ | 1,325,677 | $ | (1,612,482 | ) | $ | 1,893,592 | $ | (442,351 | ) | ||||
| Adjustments: | ||||||||||||||
| Non-Cash Income Tax Adjustment | 716,802 | 1,302,173 | 907,062 | 2,146,563 | ||||||||||
| Other Expense | – | 2,559 | – | 675 | ||||||||||
| Adjustment in contingent consideration from acquisition | 438,269 | 1,394,000 | 438,269 | 1,394,000 | ||||||||||
| Depreciation | 83,209 | 95,692 | 348,633 | 383,419 | ||||||||||
| Amortization of acquisition-related intangibles | 452,734 | 520,030 | 1,810,935 | 2,080,746 | ||||||||||
| Impairment of goodwill and intangible assets | – | 180,726 | – | 180,726 | ||||||||||
| One-time restructuring and legal fees | – | – | 735,183 | – | ||||||||||
| Stock-based compensation | 291,124 | 160,533 | 754,522 | 333,853 | ||||||||||
| Non-GAAP adjusted earnings | $ | 3,307,815 | $ | 2,043,231 | $ | 6,888,196 | $ | 6,077,631 | ||||||
| Non-GAAP adjusted earnings per share | ||||||||||||||
| Basic | $ | 0.34 | $ | 0.21 | $ | 0.72 | $ | 0.64 | ||||||
| Diluted | $ | 0.33 | $ | 0.20 | $ | 0.70 | $ | 0.60 | ||||||
Conference Call Information
Date: Thursday March 28, 2019
Time: 2:00 PM EDT
U.S.:
1-888-220-8474 International: 1-323-794-2588
Conference ID: 2251350
Webcast: http://public.viavid.com/index.php?id=133590
A replay of the call will be available from 5:00 p.m. ET on March 28,
2019 to 11:59 PM on April 4, 2019. To access the replay, please dial
1-844-512-2921 from the U.S. and 1-412-317-6671 from outside the U.S.
The PIN is 2251350.
About CynergisTek, Inc.
CynergisTek is a top-ranked cybersecurity firm dedicated to serving the
information assurance needs of the healthcare industry. CynergisTek
offers specialized services and solutions to help organizations achieve
privacy, security, and compliance goals. Since 2004, the company has
served as a partner to hundreds of healthcare organizations and is
dedicated to supporting and educating the industry by contributing to
relevant industry associations. The company has been recognized by KLAS
in the 2016 and 2018 Cybersecurity reports as a top performing firm in
healthcare cybersecurity, as well as the 2017 Best in KLAS winner for
Cybersecurity Advisory Services.
Forward-Looking Statements
This release contains certain forward-looking statements relating to the
business of CynergisTek 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 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.
CynergisTek 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.
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