Service Development and Market Needs Drive
Company Growth
CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in
healthcare cybersecurity and information management, today
announced financial results for the fourth quarter and full year
ended December 31, 2017.
Financial highlights for the fourth quarter and full year of
2017 include:
- Revenues for the fourth quarter were
$18.7 million, an increase of 15 percent from $16.2 million in the
fourth quarter of 2016. Revenues for the full year 2017 were $71.6
million, an increase of 19 percent from $60.2 million for the same
period in 2016.
- Gross Margins for the fourth quarter
2017 were 31 percent of revenue compared to 23 percent of revenue
for the same period in 2016. Gross Margins for the full year 2017
were 29 percent compared to 20 percent of revenue for the same
period in 2016.
- GAAP net loss for the fourth quarter
was $(1.6) million, or $(0.17) per basic and diluted share compared
to net income of $3.8 million, or $0.47 per basic and $0.46 per
diluted share in the same period of 2016. GAAP net loss for the
full year 2017 was $(0.4) million, or $(0.05) per basic and diluted
share compared to net income of $5.0 million, or $0.61 per basic
and $0.60 per diluted share in the same period of 2016.
- Non-GAAP adjusted EBITDA was $2.5
million in the fourth quarter of 2017, compared to $1.5 million for
the same period in 2016. Non-GAAP adjusted EBITDA was $7.8 million
for the full year 2017, compared to $3.6 million for the same
period in 2016.
- Non-GAAP adjusted earnings per share
for the fourth quarter 2017 was $0.21 per basic and diluted share
compared to $0.18 per basic and $0.17 per diluted share for the
same period of 2016. Non-GAAP adjusted earnings per share for the
full year 2017 was $0.64 per basic share and $0.63 per diluted
share compared to $0.41 per basic share and $0.40 per diluted share
for the same period of 2016.
Recent operational highlights include:
- Completed the acquisition and
integration of CTEK Security, Inc. (formerly CynergisTek,
Inc.).
- Completed development and went to
market with four new managed security service offerings: Incident
Response, Vendor Security Management, Patient Privacy Monitoring
and Endpoint/ Internet Connected devices (IoT) Security solutions
for printers and medical devices.
- Expanded sales reach to drive growth
and increase penetration within existing accounts.
“We made a great deal of progress throughout 2017,” said Mac
McMillan, President and CEO of CynergisTek. “We came together as
the new CynergisTek. We did this by strengthening our leadership
team, diversifying our board, expanding our services to meet market
needs, and by starting to cross-pollinate our managed print
business with our cybersecurity business. I am very pleased with
how well we came together last year and am excited for the
accomplishments and growth we are poised to achieve in 2018.”
Financial results for the three and twelve months ended
December 31, 2017
Revenue increased by approximately $11.4 million to $71.6
million for the year ended December 31, 2017, as compared to the
same period in 2016. This increase is largely attributable to the
growth in our cybersecurity professional services as a result of
the acquisition of CTEK Security, Inc. (formerly CynergisTek, Inc.)
(“CTEK Security”) in January 2017. Revenues from services were
approximately $66.6 million in 2017 compared to $56.6 million in
2016. Equipment sales for 2017 were approximately $5.0 million as
compared to approximately $3.6 million in 2016.
Cost of revenue was $50.7 million for the year ended December
31, 2017, as compared to $47.9 million for the same period in 2016.
We incurred approximately $5.2 million in additional costs as a
result of the acquisition of CTEK Security. Our service and supply
costs decreased approximately $3.9 million as a result of the
reduction in document solution services revenue and lower supply
cost. Equipment costs increased by approximately $1.5 million in
2017 as a result of the increase in equipment revenues.
Gross margin increased to 29 percent of revenue for the year
ended December 31, 2017 as compared to 20 percent for the same
period in 2016 due to higher gross margins from professional
services rendered though CTEK Security and the benefit from the
maturation of a couple of 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 security related services.
Sales and marketing expenses were $5.7 million for the year
ended December 31, 2017, as compared to $2.7 million for the same
period in 2016. The increase is attributable to the addition of the
CTEK Security sales and marketing teams. We incurred a nonrecurring
charge of approximately $0.1 million in severance pay for a
terminated sales executive related to the integration of CTEK
Security.
General and administrative expenses increased by $1.5 million to
$7.7 million for the year ended December 31, 2017, as compared to
$6.2 million for the same period in 2016. The increase is primarily
attributable to $1.3 million increase in staffing, travel, rent,
insurance and office expenses as a result of the acquisition of
CTEK Security and approximately $0.1 million as part of the up
listing to the NYSE MKT (now NYSE American).
In 2017, we recognized an impairment charge of $0.2 million
related to the identified intangible assets we acquired from
Delphiis, Inc. and Redspin as a result of the acquisition with CTEK
Security, while in 2016, we recognized an impairment charge of $2.6
million related to the identified intangible assets and goodwill
for these same entities.
Amortization expense increased by $1.5 million due to the
amortization of the identified intangibles acquired from CTEK
Security.
Interest expense for the year ended December 31, 2017 was $1.5
million compared to $0.1 million for the same period in 2016. The
increase is due to interest incurred on the term loan and
promissory notes used to finance the acquisition of CTEK
Security.
At December 31, 2017 we revalued the contingent earn-out
liability in connection with the acquisition of CTEK Security. This
resulted in an additional charge of $1.4 million.
Income tax expense was $2.4 million for the year ended December
31, 2017 as compared to a tax benefit for the year ended December
31, 2016 of $5.1 million. In 2017, income tax expense is comprised
of the charges related to the current year taxable income as well
as a $1.5 million discrete charge resulting from the revaluation of
deferred taxes due to the change in tax law.
In 2016, the income tax benefit is primarily a result of the
removal of a previously recorded valuation allowance against our
deferred tax assets from NOL carryforwards. Management removed the
valuation allowance given four consecutive years of earnings and
its determination that it is more likely than not that such assets
will be realized in future periods.
Net loss was $(0.4) million for the year ended December 31,
2017, or $(0.05) per basic and diluted share, compared to net
income of $5 million, or $0.61 per basic and $0.60 per 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
compensation expense was $7.8 million for the year ended December
31, 2017, compared to $3.6 million for the same period in 2016.
Non-GAAP adjusted earnings for the year ended December 31, 2017
was $6.1 million or $0.64 per basic share and $0.63 per diluted
share after adjusting for non-cash income tax expense, an
adjustment in contingent consideration from acquisition,
amortization and impairment of intangibles, stock-based
compensation and depreciation of $6.5 million, compared to $3.3
million or $0.41 per basic share and $0.40 per diluted share after
adjusting for non-cash income tax expense , amortization and
impairment of intangibles, stock-based compensation and
depreciation of $(1.7) million, for the same period of 2016.
For the three months ended December 31, 2017, the Company’s
revenues increased by approximately $2.5 million to $18.7 million,
as compared to the same period in 2016. Equipment sales for the
fourth quarter of 2017 were approximately $2.6 million as compared
to approximately $2.0 million in 2016.
Cost of revenue was $12.9 million for the three months ended
December 31, 2017, as compared to $12.5 million for the same period
in 2016. Gross margin increased to 31 percent of revenue for the
three months ended December 31, 2017 as compared to 23 percent for
the same period in 2016.
Sales and marketing expenses were $1.7 million for the three
months ended December 31, 2017, as compared to $0.6 million for the
same period in 2016. The increase is attributable to the CTEK
Security 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.
Net loss was $(1.6) million for the three months ended December
31, 2017, or $(0.17) per basic and diluted share, compared to net
income of $3.8 million, or $0.47 per basic and $0.46 per 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
compensation expense was $2.5 million in the fourth quarter of
2017, compared to $1.5 million for the same period in 2016.
Non-GAAP adjusted earnings for the fourth quarter of 2017 was
$2.0 million or $0.21 per basic and diluted share after adjusting
for non-cash income tax expense , an adjustment in contingent
consideration from acquisition, amortization and impairment of
intangibles, stock-based compensation and depreciation of $3.7
million, compared $1.4 million or $0.18 per basic and $.017 per
diluted share after adjusting for non-cash income tax expense,
amortization and impairment of intangibles, stock-based
compensation and depreciation of $(2.4) million, for the same
period of 2016.
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2017
2016
ASSETS
Current assets: Cash and cash equivalents $ 4,252,060 $
6,090,844 Accounts receivable, net 13,264,323 9,614,486 Prepaid and
other current assets 557,426 438,140 Supplies
1,156,005 1,087,318
Total current assets
19,229,815 17,230,788
Property and equipment, net 831,784
689,418
Deposits 87,376 41,522
Deferred income taxes
3,120,310 5,282,531
Intangible assets, net 10,900,924
1,112,395
Goodwill 18,525,206
2,109,143 Total assets
$ 52,695,415 $
26,465,797 LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Accounts payable and accrued
expenses $ 9,631,634 $ 7,736,207 Accrued compensation and benefits
3,711,551 2,495,156 Deferred revenue 1,425,821 562,679 Current
portion of long-term liabilities
5,494,837
606,686 Total current
liabilities 20,263,843
11,400,728 Long-term liabilities: Term
loan, less current portion 9,438,333 750,000 Promissory notes to
related parties, less current portion 6,000,000 - Capital lease
obligations, less current portion
147,861
199,644 Total long-term
liabilities 15,586,194
949,644 Commitments and contingencies
Stockholders’ equity:
Common stock, par value at $0.001,
33,333,333 shares authorized,9,576,029 shares issued and
outstanding at December 31, 2017and 8,185,936 shares issued and
outstanding at December 31,2016
9,576 8,186 Additional paid-in capital 31,156,362 27,985,448
Accumulated deficit
(14,320,560 )
(13,878,209 )
Total stockholders’ equity
16,845,378 14,115,425
Total liabilities and stockholders’ equity
$ 52,695,415 $
26,465,797
CYNERGISTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Twelve Months
Ended December 31, Ended December 31,
2017 2016 2017
2016 Net revenues $ 18,688,270 $
16,196,292 $ 71,638,947 $ 60,200,383
Cost of revenues
12,892,221 12,529,067
50,739,359 47,888,296 Gross profit
5,796,049 3,667,225
20,899,588 12,312,087
Operating expenses:
Sales and marketing 1,676,993 645,368 5,747,758 2,723,735 General
and administrative expenses 1,785,591 1,551,235 7,662,486 6,174,083
Depreciation 95,692 42,140 383,419 211,654
Amortization of
acquisition-relatedintangibles
520,030
135,417
2,080,746
541,667
Impairment of goodwill andintangible
assets
180,726
2,633,701
180,726
2,633,701
Total operating expenses 4,259,032
5,007,861 16,055,135
12,284,840
Income from operations 1,537,017
(1,340,636 ) 4,844,453
27,247
Other income (expense):
Interest expense (364,364 ) (20,917 ) (1,526,653 ) (91,885 ) Change
in valuation of contingent earn-out
(1,394,000
)
-
(1,394,000
)
-
Other expense (2,558 ) -
(675 ) - Total other income (expense)
(1,760,922 ) (20,917 ) (2,921,328 )
(91,885 )
(Loss) income before provision for
income taxes
(223,905
)
(1,361,553
)
1,923,125
(64,638
)
Income tax (expense) benefit (1,388,578 )
5,202,552 (2,365,476 ) 5,074,439
Net (loss) income $ (1,612,483 ) $ 3,840,999
$ (442,351 ) $ 5,009,801
Net (loss)
income per share: Basic $ (0.17 ) $ 0.47 $ (0.05 ) $ 0.61
Diluted $ (0.17 ) $ 0.46 $ (0.05 ) $ 0.60
Number of weighted average shares
outstanding:
Basic 9,538,075 8,173,203 9,425,281 8,173,203 Diluted 9,538,075
8,283,862 9,425,281 8,283,862
Reconciliation of GAAP Income from
Operations to Non-GAAP Adjusted EBITDA Three
Months Twelve Months Ended December 31, Ended
December 31, 2017
2016 2017
2016 GAAP Income from operation $ 1,537,017 $
(1,340,636 ) $ 4,844,453 $ 27,247
Adjustments: Depreciation
95,692 42,140 383,419 211,654 Amortization and impairment 700,756
2,769,118 2,261,472 3,175,368 Stock-Based Compensation
160,533 76,527 333,853
226,970
Non-GAAP Adjusted EBITDA
$ 2,493,998 $ 1,547,149 $ 7,823,197
$ 3,641,239
Non-GAAP Adjusted EBITDA
pershare
Basic $ 0.26 $ 0.19 $ 0.83 $ 0.45 Diluted $ 0.26 $ 0.19
$ 0.81 $ 0.44
Reconciliation
of GAAP Net Income to Non-GAAP Adjusted Earnings Three
Months Twelve Months Ended December 31, Ended
December 31, 2017 2016
2017 2016 GAAP
Net Income $ (1,612,482 ) $ 3,840,999 $ (442,351 ) $ 5,009,801
Adjustments: Non-Cash Income Tax Adjustment 1,302,173
(5,294,515 ) 2,146,563 (5,294,515 ) Other Expense 2,559 - 675 -
Adjustment in Contingent Consideration from Acq. 1,394,000 -
1,394,000 - Depreciation 95,692 42,140 383,419 211,654 Amortization
and impairment 700,756 2,769,118 2,261,472 3,175,368 Stock-Based
Compensation 160,533 76,527
333,853 226,970
Non-GAAP adjusted earnings $ 2,043,231 $
1,434,269 $ 6,077,631 $ 3,329,278
Non-GAAP adjusted earnings
pershare
Basic $ 0.21 $ 0.18 $ 0.64 $ 0.41 Diluted $ 0.21 $
0.17 $ 0.63 $ 0.40
Conference Call InformationDate: Monday, March 26,
2018Time: 9:00am PT, 12:00 pm ETU.S.: 1-800-756-4697International:
1-412-317-6671Conference ID: 9976306
Webcast: http://public.viavid.com/index.php?id=128643
A replay of the call will be available from 3:00 p.m. ET on
March 26, 2018 to 11:59 p.m. ET on April 9, 2018. 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 9976306.
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 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: https://www.businesswire.com/news/home/20180326005287/en/
Investor Relations Contact:CynergisTek, Inc.Bryan Flynn,
(949) 357-3914InvestorRelations@CynergisTek.comorMedia
Contact:Aria MarketingDanielle Johns, (617) 332-9999 x241Senior
Account Executivedjohns@ariamarketing.com
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