CTEK CynergisTek Inc

Company Assists Leading Healthcare Organizations in Building Cybersecurity and Privacy Programs

CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in healthcare cybersecurity and information management, today announced financial results for the first quarter that ended March 31, 2018.

Financial highlights for the first quarter 2018 include:

• Revenues for the first quarter were $16.4 million, a decrease of 10 percent from $18.3 million in the first quarter of 2017.
• Gross margins for the first quarter 2018 were 25 percent compared to 25 percent for the same period in 2017.
• GAAP net loss for the first quarter was $(0.7) million, or $(0.07) per basic and diluted share compared to net income of $0.01 million, or $0.00 per basic and diluted share in the same period of 2017.
• Non-GAAP adjusted EBITDA and Non-GAAP adjusted earnings exclude non-recurring charges related to our recent debt refinancing and the departure of a senior executive, totaling $0.7 million.
• Non-GAAP adjusted EBITDA was $0.9 million in the first quarter of 2018, compared to $1.1 million for the same period in 2017.
• Non-GAAP adjusted earnings per share for the first quarter 2018 was $0.06 per basic and $0.05 per diluted share, compared to $0.07 per basic and diluted share for the same period of 2017.

Recent operational highlights include:

• Announced the first full-service managed print service contract that includes an integrated print security assessment component.
• Expanded managed services cross-selling efforts by successfully adding a three-year CAPP contract to our newest managed print service client.
• Maintained a 95 percent client renewal rate for the quarter.
• Grew the pipeline for both new and existing managed services, particularly Patient Privacy Monitoring, Incident Response, and Biomedical Device Security.

“In Q1, our focus was to strengthen relationships with our clients, grow the managed services pipeline, and develop and improve our services offerings to better meet existing and emergent client needs,” said Mac McMillan, President and CEO of CynergisTek. “I am pleased with the progression we made in all three of those areas. This focus reiterates that we are here to help our clients build cybersecurity and privacy programs during a time where healthcare continues to experience an increase of cyber attacks.”

Financial results for the three months ended March 31, 2018

Revenue decreased by approximately $1.9 million to $16.4 million for the three months ended March 31, 2018, as compared to the same period in 2017. This decrease is a result of approximately $2.5 million less in managed service revenues due to approximately $3.8 million in non-renewals of long-term contracts, partially offset by approximately $1.3 million in additional revenues from the expansion of existing customers and contracts from new customers; approximately $0.8 million in additional revenues from consulting and professional services provided to new and existing customers; and approximately $0.2 million less in equipment revenues in 2018.

Cost of revenue was $12.2 million for the three months ended March 31, 2018, as compared to $13.7 million for the same period in 2017. We incurred approximately $0.2 million less in staffing costs, and approximately $1.0 million less in supplies and third-party services, largely as a result of the net reduction in managed services contracts. Equipment costs decreased by approximately $0.2 million in 2018.

Gross margin remained at 25 percent of revenue for the three months ended March 31, 2018 as compared to 2017. We were successful in adjusting our staffing to be reflective of our current service activity. Over the second half of 2018 and into next year, we expect gross margins to improve as we look to increase growth in our cybersecurity services.

Sales and marketing expenses were $1.5 million for the three months ended March 31, 2018, as compared to $1.4 million for the same period in 2017. Our tradeshow and forum related marketing expenses were approximately $0.1 million more in 2018 as we actively pursue new business.

General and administrative expenses increased to $2.6 million for the three months ended March 31, 2018, as compared to $2.2 million for the three months ended March 31, 2017. The increase is attributed to approximately $0.6 million in severance paid to a departed executive offset by a decrease in professional fees and travel costs in 2018, where 2017 included higher costs in connection with the acquisition and integration of CTEK Security.

Income tax benefit for the three months ended March 31, 2018 was $0.2 million compared to income tax expense of $0.01 million for the same period in 2017. The 2018 benefit is based on an estimated annual income tax expense rate we anticipate for the year as we expect to be in a tax expense position by year-end. The 2017 expense was based on similar terms and was influenced by state minimum tax charges.

Net loss was $(0.7) million for the three months ended March 31, 2018, or $(0.07) per basic and diluted share, compared to net income of $0.01 million, or $0.00 per basic and diluted share in 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.

Non-GAAP adjusted EBITDA, when adding back stock-based compensation, non-recurring charges related to our recent debt refinancing and the departure of a senior executive was $0.9 million in the first quarter of 2018, compared to $1.1 million for the same period in 2017.

Non-GAAP adjusted earnings for the first quarter of 2018 was $0.5 million, or $0.06 per basic and $0.05 per diluted share after adjusting for non-cash income tax benefit, non-recurring charges related to our recent debt refinancing and the departure of a senior executive, amortization of intangibles, stock-based compensation and depreciation, with all adjustments totaling $1.2 million, compared to $0.6 million or $0.07 per basic and diluted share after adjusting for non-cash income tax expense, amortization of intangibles, stock-based compensation and depreciation, with all adjustments totaling $0.6 million, for the same period of 2017.

       

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

March 31, 2018(unaudited)

    December 31, 2017 ASSETS Current assets: Cash and cash equivalents $ 3,409,293 $ 4,252,060 Accounts receivable, net 10,577,287 13,264,323 Prepaid and other current assets 1,590,277 557,426 Supplies   1,085,762         1,156,006   Total current assets   16,662,619         19,229,815     Property and equipment, net 766,476 831,784 Deposits 87,778 87,376 Deferred income taxes 3,350,310 3,120,310 Intangible assets, net 10,448,190 10,900,924 Goodwill   18,525,206         18,525,206   Total assets $ 49,840,579       $ 52,695,415   LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 5,171,719 $ 9,631,634 Accrued compensation and benefits 2,715,474 3,711,551 Deferred revenue 1,035,470 1,425,821 Note payable 343,750 - Current portion of long-term liabilities   3,130,230         5,494,837   Total current liabilities   12,396,643         20,263,843     Long-term liabilities: Term loan, less current portion 14,676,081 9,438,333 Promissory notes to related parties, less current portion 5,437,500 6,000,000 Capital lease obligations, less current portion   124,392         147,861   Total long-term liabilities   20,237,973         15,586,194   Commitments and contingencies Stockholders’ equity: Common stock, par value at $0.001, 33,333,333 shares authorized, 9,592,547 shares issued and outstanding at March 31, 2018 and 9,576,028 shares issued and outstanding at December 31, 2017 9,593 9,576 Additional paid-in capital 31,344,607 31,156,362 Accumulated deficit   (14,148,237 )       (14,320,560 ) Total stockholders’ equity   17,205,963         16,845,378   Total liabilities and stockholders’ equity $ 49,840,579       $ 52,695,415        

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

  Three Months Ended March 31, 2018       2017 Net revenues $ 16,383,317     $ 18,254,689 Cost of revenues   12,237,865         13,667,541   Gross profit   4,145,452         4,587,148    

Operating expenses:

Sales and marketing 1,499,047 1,369,008 General and administrative expenses 2,635,547 2,174,435 Depreciation 91,583 91,224 Amortization of acquisition-related intangibles   452,734         520,343   Total operating expenses   4,678,911         4,155,010   (Loss) income from operations   (533,459 )       432,138    

Other income (expense):

Other income 19 19 Interest expense   (403,461 )       (412,334 ) Total other income (expense)   (403,442 )       (412,315 )   (Loss) Income before provision for income taxes (936,901 ) 19,823 Income tax benefit (expense)   229,558         (13,539 ) Net (loss) income $ (707,343 )     $ 6,284     Net (loss) income per share: Basic $ (0.07 )     $ 0.00   Diluted $ (0.07 )     $ 0.00     Number of weighted average shares outstanding: Basic   9,586,608         9,216,719   Diluted   9,586,608         9,615,285             CYNERGISTEK, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP (LOSS) INCOME FROM OPERATIONS TO NON-GAAP ADJUSTED EBITDA (UNAUDITED)   Three Months Ended March 31, 2018       2017 GAAP (loss) income from operations $ (533,459 ) $ 432,138 Adjustments: Depreciation 91,583 91,224 Amortization 452,734 520,343 Onetime restructuring and legal fees 735,183 - Stock-based compensation   188,262         24,659   Non-GAAP adjusted EBITDA $ 934,303       $ 1,068,364     Non-GAAP adjusted EBITDA per share Basic $ 0.10       $ 0.12   Diluted $ 0.09       $ 0.11     CYNERGISTEK, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP NET (LOSS) INCOME TO NON-GAAP ADJUSTED EARNINGS (UNAUDITED)   Three Months Ended March 31, 2018       2017 GAAP Net (loss) income $ (707,343 ) $ 6,284 Adjustments: Cash tax adjustment (229,558 ) 1,908 Other expense (19 ) (19 ) Onetime restructuring and legal fees 735,183 - Depreciation 91,583 91,224 Amortization 452,734 520,343 Stock-based compensation   188,262         24,659   Non-GAAP adjusted earnings $ 530,842       $ 644,399     Non-GAAP adjusted earnings per share Basic $ 0.06       $ 0.07   Diluted $ 0.05       $ 0.07    

Conference Call InformationDate: Monday, May 14Time: 12 pm Eastern Time / 9 am Pacific TimeU.S.: 1-888-394-8218International: 1-323-701-0225Conference ID: 8561147

Webcast: http://public.viavid.com/index.php?id=129443

A replay of the call will be available from 3 pm ET on May 14, to 11:59 pm ET on May 21. 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 8561147.

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/service 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. Some 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20180514005206/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