CynergisTek Reports Fourth Quarter and Full Year 2018 Financial Results

Mar 27, 2019 04:30 pm
AUSTIN, Texas -- 

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

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.

Investor Relations Contact:
Bryan Flynn
(512) 402-8550 ext. 8
[email protected]

Media Contact:
Danielle Johns
Senior Account Executive
Aria Marketing
(617) 332-9999 x241
[email protected]