Taps Industry Veterans to Drive Growth
CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in
healthcare cybersecurity and information management, today
announced financial results for the third quarter ended September
30, 2017.
Financial and operational highlights for the third quarter of
2017 include:
- Revenues for the third quarter were
$17.9 million, an increase of 25% from $14.3 million in the third
quarter of 2016.
- GAAP net income for the third quarter
was $1.1 million, or $0.11 per basic and diluted share compared to
net income of $0.7 million, or $0.08 per basic and diluted share in
the same period of 2016.
- Non-GAAP adjusted earnings per share
for the third quarter was $0.26 per basic share and $0.25 per
diluted share compared to $0.11 per basic and diluted share for the
same period of 2016.
- Non-GAAP adjusted EBITDA was $3.0
million in the third quarter of 2017, compared to $1 million for
the same period in 2016.
Recent operational highlights include:
- Experienced demand for new professional
services offerings, including adding resources in hospitals for
short and long-term remediation and program development
projects.
- Announced multi-million-dollar managed
document services (MDS) contract with a prestigious southern
children’s hospital.
- Realized first cross-selling revenues
since merger integration efforts initiated; currently in proposal
stage for long-term MDS contract with security customer.
- Strengthened senior operations team
with additions of newly appointed Executive VP of Operations,
Angela Rivera, formerly with Computer Task Group, Inc.; and
Executive VP of Strategic Innovation, David Finn, formerly with
Symantec.
- Created an enhanced vendor security
management offering with the integration of RiskSonar, a risk
assessment tool from the Delphiis acquisition.
“We made a great deal of progress during the quarter as we
continued our expansion of high margin security services with the
addition of several new lines, restructured our pricing model
within our MDS business with the goal of enhancing future
profitability, generated our first cross-selling revenues, and of
greatest importance, made several high-profile additions to our
management team,” said Mac McMillan, President and CEO of
CynergisTek. “We continue diversifying our revenue base and
performing profitability enhancing measures across the enterprise,
which will partially offset client turnover we have experienced
recently in our MDS offering. Client turnover is a normal part of
the MDS business and traditionally this would not be an issue, but
with the uncertainty in Washington regarding the Affordable Care
Act, we continue to see extended sales cycles in that segment. We
are adjusting to these challenges by restructuring the way we
deliver these services to customers with the goal of enhancing
profitability through more efficient delivery processes. Our goal
is to maximize the shareholder value of this business model and we
continue to make considerable progress doing exactly that while
working through some short-term variability in our financial
results.”
Financial results for the three and nine months ended
September 30, 2017
For the three months ended September 30, 2017, the Company’s
revenues increased by approximately $3.6 million to $17.9 million,
as compared to the same period in 2016. This increase is largely
attributable to the growth in our professional services as a result
of the acquisition of CynergisTek in January 2017. Equipment sales
for the third quarter of 2017 were approximately $0.7 million as
compared to approximately $0.2 million in 2016. Equipment revenues
are primarily from copier fleet refresh activities at customers.
These fleet refreshes are sporadic since they are typically done
every five years at any one customer facility.
Cost of revenue consists of salaries and expenses of direct
labor and indirect support staff as well as document imaging
equipment, parts and supplies. Cost of revenue was $11.7 million
for the three months ended September 30, 2017, as compared to $11.1
million for the same period in 2016. Gross margin increased to 34%
of revenue for the three months ended September 30, 2017 as
compared to 23% for the same period in 2016. The increase is
attributable to higher gross margins attained from professional
services rendered through the newly acquired CynergisTek business
and the benefit from the maturation of a couple large managed
document services accounts. Over the next few quarters we expect
gross margins to come down due to the recent turnover we
experienced in managed document services with partial offset as we
grow professional services.
Sales and marketing expenses were $1.3 million for the three
months ended September 30, 2017, as compared to $0.6 million for
the same period in 2016. The increase is attributable to the
CynergisTek acquisition and building out of the sales and marketing
teams which is expected to continue into 2018. General and
administrative expenses increased by $0.2 million to $1.8 million
for 2017, as compared to $1.6 million for the previous year. The
increase in G&A was also attributed to the CynergisTek
acquisition, and the absorption of this business. Amortization of
acquisition-related intangibles increased to $0.5 for the three
months ended September 30, 2017 compared to $0.1 million for the
same period in 2016 due to the acquisition of CynergisTek.
The Company reported income from operations of $2.4 million for
the three months ended September 30, 2017 compared to $0.8 million
in the same period of the prior year.
Net income was $1.1 million for the three months ended September
30, 2017, or $0.11 per basic and diluted share, compared to net
income of $0.7 million, or $0.08 per basic and diluted share in the
same period of 2016.
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.
Non-GAAP adjusted EBITDA, when adding back stock-based comp was
$3.0 million in the third quarter of 2017, compared to $1 million
for the same period in 2016.
Non-GAAP adjusted earnings for the third quarter of 2017 was
$2.4 million or $0.26 per basic and $0.25 per diluted share after
adjusting for estimated cash tax adjustment, amortization of
intangibles, stock based compensation and depreciation of $1.3
million, compared $0.9 million or $0.11 per basic and diluted share
after adjusting for amortization of intangibles, stock based
compensation and depreciation of $0.2 million, for the same period
of 2016.
For the nine months ended September 30, 2017, the Company
reported revenues of $53.0 million, an increase of 20% compared to
$44.0 million reported in the same period of 2016.
Cost of revenue for the nine months ended September 30, 2017 was
$37.8 million compared to $35.4 million in 2016, representing an
increase of $2.4 million. Gross profit for the nine months ended
September 30, 2017 was $15.1 million, or 29% of revenues, compared
to $8.6 million, or 20% of revenues, for the same period in
2016.
Operating expenses for the nine months ended September 30, 2017
was $11.8 million, an increase of 62% from $7.3 million in the same
period of 2016.
Net income for the nine months ended September 30, 2017 was $1.2
million, or $0.12 per basic and diluted share, compared to net
income of $1.2 million, or $0.14 per basic and diluted share, in
the same period of 2016. Non-GAAP adjusted earnings for the nine
months ended September 30, 2017 was $3.9 million or $0.42 per basic
share and $0.40 per diluted share after adjusting for estimated
cash tax adjustment, amortization of intangibles, stock based
compensation, and depreciation of $2.7 million, compared to $1.9
million or $0.23 per basic and diluted share after adjusting for
amortization of intangibles, stock based compensation, and
depreciation of $0.7 million for the same period of 2016.
The Company had $2.7 million of cash and cash equivalents at the
end of the quarter. The Company maintains a line of credit with a
commercial bank for up to $5 million subject to borrowing base
limitations. The credit line currently has no outstanding
balance.
“We are happy with the 34% margin achievement this quarter and
we expected some margin improvement year over year with the
addition of CynergisTek’s business,” said Paul Anthony, CFO for
CynergisTek. “This quarter we also got a lift from a couple of
large accounts nearing finalization of their implementations. We
don’t expect to maintain this margin percentage over the next few
quarters due to the recent turnover in the MDS offering. As we grow
the professional services offerings we do expect to see margins
rebound.”
CYNERGISTEK, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS September
30, 2017
December 31, 2016
(unaudited) ASSETS Current assets: Cash
and cash equivalents $ 2,749,220 $ 6,090,844 Accounts receivable,
net 12,727,078 9,614,486 Supplies 974,449 1,087,318 Prepaid and
other current assets 1,343,523 438,140
Total current assets 17,794,270
17,230,788
Property and equipment, net 900,268
689,418
Deposits 87,376 41,522
Deferred income taxes
4,556,273 5,282,531
Intangible assets, net 11,601,679
1,112,395
Goodwill 18,525,206 2,109,143
Total assets $ 53,465,072 $ 26,465,797
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable and accrued expenses $
7,817,439 $ 7,736,207 Accrued compensation and benefits 3,494,310
2,495,156 Deferred revenue 2,137,918 562,679 Current portion of
long-term liabilities 4,758,458 606,686
Total current liabilities 18,208,125
11,400,728
Long-term liabilities: Term loan,
less current portion 10,033,333 750,000 Promissory notes to related
parties, less current portion 6,750,000 - Capital lease
obligations, less current portion 176,285
199,644
Total long-term liabilities 16,959,618
949,644
Total liabilities
35,167,743 12,350,372
Commitments
and contingencies Stockholders' equity: Common
stock, par value at $0.001, 33,333,333 shares authorized, 9,501,970
and 8,185,936 shares issued and outstanding at September 30, 2017
and December 31, 2016 9,502 8,186 Additional paid-in capital
30,995,903 27,985,448 Accumulated deficit (12,708,076 )
(13,878,209 )
Total stockholders’ equity
18,297,329 14,115,425
Total liabilities and
stockholders’ equity $ 53,465,072 $ 26,465,797
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
Three Months Nine Months Ended September 30,
Ended September 30, 2017
2016 2017
2016 Revenues $
17,897,076 $ 14,326,382 $ 52,950,678 $ 44,004,091
Cost of
revenues 11,743,838
11,082,739 37,847,138
35,359,229 Gross
profit 6,153,238
3,243,643 15,103,540
8,644,862 Operating
expenses: Sales and marketing 1,329,909 636,120 4,070,765
1,981,282 General and administrative expenses 1,849,164 1,624,259
5,876,895 4,719,933 Depreciation 97,568 111,827 287,727 302,014
Amortization of acquisition-related intangibles
520,030 91,250
1,560,716 273,750
Total operating expenses
3,796,671 2,463,456
11,796,103 7,276,979
Income from operations
2,356,567 780,187
3,307,437 1,367,883
Other income (expense): Other income 1,862 -
1,884 - Interest expense
(373,408
) (21,714 )
(1,162,289 ) (70,968
) Total other income (expense)
(371,546 ) (21,714
) (1,160,405 )
(70,968 ) Income before
provision for income taxes 1,985,021 758,473 2,147,032
1,296,915
Income tax expense
(895,360 ) (84,113
) (976,899 )
(128,113 ) Net income
$ 1,089,661 $
674,360 $ 1,170,133
$ 1,168,802 Net
income per share: Basic $ .11
$ .08 $
.12 $ .14
Diluted $ .11
$ .08 $
.12 $ .14
Number of weighted average shares: Basic
9,501,760 8,185,741
9,387,264
8,168,978 Diluted
9,881,236 8,272,202
9,835,428 8,287,664
Reconciliation
of GAAP Income from Operations to Non-GAAP Adjusted EBITDA
Three Months Nine Months Ended September 30,
Ended September 30, 2017 2016 2017
2016 GAAP Income from operation $ 2,356,567 $ 780,187
$ 3,307,437 $ 1,367,883
Adjustments: Depreciation 97,568
111,827 287,727 302,014 Amortization 520,030 91,250 1,560,716
273,750 Stock-Based Compensation 69,872 48,251
173,320 150,443
Non-GAAP Adjusted EBITDA $ 3,044,037
$ 1,031,515 $ 5,329,200 $ 2,094,090
Non-GAAP Adjusted
EBITDA per share Basic $ 0.32 $ 0.13 $ 0.57 $ 0.26 Diluted $
0.31 $ 0.12 $ 0.54 $ 0.25
Reconciliation of GAAP Net
Income to Non-GAAP Adjusted Earnings Three Months
Nine Months Ended September 30, Ended September
30, 2017 2016 2017 2016 GAAP Net
Income $ 1,089,661 $ 674,360 $ 1,170,133 $ 1,168,802
Adjustments: Cash Tax Adjustment 665,360 - 725,899 -
Depreciation 97,568 111,827 287,727 302,014 Amortization 520,030
91,250 1,560,716 273,750 Stock-Based Compensation 69,872
48,251 173,320 150,443
Non-GAAP adjusted
earnings $ 2,442,491 $ 925,687 $ 3,917,795 $ 1,895,009
Non-GAAP adjusted earnings per share Basic $ 0.26 $ 0.11 $
0.42 $ 0.23 Diluted $ 0.25 $ 0.11 $ 0.40 $ 0.23
Conference Call InformationDate: Thursday, November 9,
2017Time: 1:30 pm PT, 4:30 pm
ETUS: 1-800-756-4697International: 1-913-905-3180Conference
ID: 7935223Webcast: http://public.viavid.com/index.php?id=126985
A replay of the call will be available from 7:30 pm ET on
November 9, 2017 to 11:59 pm ET on November 23, 2017. 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 7935223.
About CynergisTek, Inc.
CynergisTek is a top-ranked cybersecurity and information
management consulting firm dedicated to serving the healthcare
industry. CynergisTek offers specialized services and solutions to
help organizations achieve privacy, security, compliance, and
document output management 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 named in
numerous research reports as one of the top firms that provider
organizations turn to for privacy and security, and won the 2017
Best in KLAS award for Cyber Security 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 patent or other 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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version on businesswire.com: http://www.businesswire.com/news/home/20171109006404/en/
Investor Relations Contact:CynergisTek Inc.Bryan
Flynn(949) 357-3914InvestorRelations@CynergisTek.comorMedia
Contact:Aria MarketingDanielle JohnsSenior Account
Executive(617) 332-9999 x241djohns@ariamarketing.com
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