Cybersecurity Experienced Accelerated Growth
Year Over Year
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, 2019Time: 2:00 PM EDTU.S.:
1-888-220-8474 International: 1-323-794-2588Conference ID:
2251350Webcast: 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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version on businesswire.com: https://www.businesswire.com/news/home/20190327005795/en/
Investor Relations Contact:Bryan Flynn(512) 402-8550 ext.
8InvestorRelations@CynergisTek.com
Media Contact:Danielle JohnsSenior Account ExecutiveAria
Marketing(617) 332-9999 x241djohns@ariamarketing.com
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