CTEK CynergisTek Inc

Leading Cybersecurity Firm Experiences Strong Bookings and Revenue Growth

CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in healthcare cybersecurity and information assurance, today announced its financial results for the third quarter that ended September 30, 2018.

Financial Highlights for the Third Quarter 2018 Include:

• Revenues for the third quarter were $19.2 million, an increase of 7 percent from $17.9 million for the same period of 2017.
• GAAP net income for the third quarter was $1.2 million, or $0.12 per basic and diluted share compared to $1.1 million, or $0.11 per basic and diluted share for the same period of 2017.
• Non-GAAP adjusted EBITDA was $2.8 million in the third quarter of 2018, compared to $3.0 million for the same period in 2017.
• Non-GAAP adjusted earnings per share for the third quarter 2018 was $0.24 per basic and $0.23 per diluted share, compared to $0.27 per basic and $0.26 per diluted share for the same period of 2017.

Recent Operational Highlights Include:

• Signed more than 15 security managed service contracts in Q3 while growing security bookings by more than 35 percent year-to-date when compared to 2017.
• Doubled the number of new security clients signed bringing the total to 40 year to date.
• Professional Services and Consulting revenue grew by 39 percent year to date when compared to 2017.
• Managed Print Services has now extended seven existing contracts year to date while rolling out an enhanced toner program with Hewlett-Packard.

“I am pleased with the performance across the board,” said Mac McMillan, President and CEO of CynergisTek. “Everyone on the management team, Sales, and Delivery have worked tirelessly to provide both new and current customers with superior service and help improve their security, privacy, and compliance programs while reducing inefficiencies and unnecessary spend.”

For the Three Months Ended September 30, 2018 Compared to the Three Months Ended September 30, 2017

Revenue increased by approximately $1.3 million to $19.2 million for the three months that ended September 30, 2018, as compared to the same period in 2017.

Cost of revenue was $13.4 million for the three months ended September 30, 2018, as compared to $11.7 million for the same period in 2017. Equipment costs increased by approximately $1.7 million in 2018, directly as a result of the increase in equipment revenues from copier fleet refresh activities.

Gross margin was 30 percent for the three months ended September 30, 2018 compared to 34 percent for same period in 2017. This decrease was largely due to the higher equipment revenue this quarter which carries lower gross margins.

Sales & marketing and general & administrative expenses were $3.1 million for the three months ended September 30, 2018, compared to $3.2 million for the same period in 2017.

Net income was $1.2 million for the three months ended September 30, 2018, or $0.12 per basic and diluted share, compared to net income of $1.1 million, or $0.11 per basic and diluted share in the same period of 2017.

Non-GAAP adjusted EBITDA, when adding back stock-based compensation was $2.8 million for the three months ended September 30, 2018, compared to $3.0 million for the same period in 2017.

Non-GAAP adjusted earnings for the three months ended September 30, 2018 was $2.3 million, or $0.24 per basic and $0.23 diluted share, compared to $2.6 million or $0.27 per basic and $0.26 per diluted share for the same period of 2017.

For the Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017

Revenue decreased by approximately $0.4 million to $52.5 million for the nine months ended September 30, 2018, as compared to the same period in 2017.

Cost of revenue was $38.1 million for the nine months ended September 30, 2018, as compared to $37.8 million for the same period in 2017. Equipment costs increased by approximately $3.0 million in 2018.

Gross margin was 27 percent for the nine months ended September 30, 2018 as compared to 29 percent for the same period in 2017.

Sales & marketing expenses were $4.3 million for the nine months ended September 30, 2018, as compared to $4.1 million for the same period in 2017. General & administrative expenses increased by $0.5 million to $6.4 million for the nine months ended September 30, 2018, as compared to $5.9 million for the nine months ended September 30, 2017.

Net income was $0.6 million for the nine months ended September 30, 2018, or $0.06 per basic and diluted share, compared to net income of $1.2 million, or $0.12 per basic and diluted share in the same period of 2017.

Non-GAAP adjusted EBITDA for the nine months ended September 30, 2018, when adding back stock-based compensation, restructuring and legal fees was $4.9 million, compared to $5.3 million for the same period in 2017.

Non-GAAP adjusted earnings for the nine months ended September 30, 2018 was $3.6 million, or $0.37 per basic and $0.36 per diluted share, compared to $4.0 million or $0.43 per basic and $0.41 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.

“We delivered strong results this quarter,” said Paul Anthony, CFO of CynergisTek. “The team’s efforts focusing on customer retention and sales growth allowed us to exceed our projected gross margins and sets us up nicely for the rest of the year.”

CYNERGISTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS        

September 30, 2018

(unaudited)

  December 31, 2017 ASSETS   Current assets: Cash and cash equivalents $ 6,355,427 $ 4,252,060 Accounts receivable, net 9,389,407 13,264,323 Prepaid and other current assets 1,583,463 557,426 Supplies   1,043,964       1,156,006   Total current assets   18,372,261       19,229,815     Property and equipment, net 648,895 831,784 Deposits 87,778 87,376 Deferred income taxes 2,930,051 3,120,310 Intangible assets, net 9,542,722 10,900,924 Goodwill   18,525,206       18,525,206   Total assets $ 50,106,913     $ 52,695,415   LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 3,639,637 $ 9,631,634 Accrued compensation and benefits 3,792,516 3,711,551 Deferred revenue 1,144,555 1,425,821 Note payable 343,750 - Current portion of long-term liabilities   3,120,504       5,494,837   Total current liabilities   12,040,962       20,263,843     Long-term liabilities: Term loan, less current portion 14,075,843 9,438,333 Promissory notes to related parties, less current portion 5,156,250 6,000,000 Capital lease obligations, less current portion   77,500       147,861   Total long-term liabilities   19,309,593       15,586,194   Commitments and contingencies Stockholders’ equity: Common stock, par value at $0.001, 33,333,333 shares authorized, 9,616,133 shares issued and outstanding at September 30, 2018 and 9,576,028 shares issued and outstanding at December 31, 2017 9,616 9,576 Additional paid-in capital 31,619,720 31,156,362 Accumulated deficit   (12,872,978 )     (14,320,560 ) Total stockholders’ equity   18,756,358       16,845,378   Total liabilities and stockholders’ equity $ 50,106,913     $ 52,695,415     CYNERGISTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)    

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

  2018       2017     2018       2017   Net revenues $ 19,216,066   $ 17,897,076 $ 52,536,317   $ 52,950,678 Cost of revenues   13,428,831       11,743,838     38,131,617       37,847,138   Gross profit   5,787,235       6,153,238     14,404,700       15,103,540    

Operating expenses:

Sales and marketing 1,313,388 1,329,909 4,288,893 4,070,765 General and administrative 1,789,959 1,849,164 6,405,355 5,876,895 Depreciation 84,840 97,568 265,424 287,727 Amortization of acquisition-related intangibles   452,734       520,030     1,358,201       1,560,716   Total operating expenses   3,640,921       3,796,671     12,317,873       11,796,103   Income from operations   2,146,314       2,356,567     2,086,827       3,307,437    

Other income (expense):

Other income 17 1,862 44 1,884 Interest expense   (348,480 )     (373,408 )   (1,103,592 )     (1,162,289 ) Total other income (expense)   (348,463 )     (371,546 )   (1,103,548 )     (1,160,405 )   Income before provision for income taxes 1,797,851 1,985,021 983,279 2,147,032 Income tax expense   (643,725 )     (895,360 )   (415,363 )     (976,899 ) Net income $ 1,154,126     $ 1,089,661   $ 567,916     $ 1,170,133     Net income per share: Basic $ 0.12     $ 0.11   $ 0.06     $ 0.12   Diluted $ 0.12     $ 0.11   $ 0.06     $ 0.12     Number of weighted average shares outstanding: Basic   9,616,133       9,501,760     9,605,536       9,387,264   Diluted   9,762,370       9,881,236     9,813,098       9,835,428     CYNERGISTEK, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP INCOME FROM OPERATIONS TO NON-GAAP ADJUSTED EBITDA (UNAUDITED)     Three Months Ended Sept 30,   Nine Months Ended Sept 30, 2018   2017   2018   2017 GAAP income from operations $ 2,146,314   $ 2,356,567   $ 2,086,827   $ 3,307,437 Adjustments: Depreciation 84,840 97,568 265,424 287,727 Amortization 452,734 520,030 1,358,201 1,560,716 Restructuring and legal fees - - 735,183 - Stock-based compensation   161,264     69,872     463,398     173,320 Non-GAAP adjusted EBITDA $ 2,845,152   $ 3,044,037   $ 4,909,033   $ 5,329,200   Non-GAAP adjusted EBITDA per share Basic $ 0.30   $ 0.32   $ 0.51   $ 0.57 Diluted $ 0.29   $ 0.31   $ 0.50   $ 0.54   CYNERGISTEK, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EARNINGS (UNAUDITED)   Three Months Ended Sept 30,   Nine Months Ended Sept 30, 2018   2017   2018   2017 GAAP Net income $ 1,154,126 $ 1,089,661 $ 567,916 $ 1,170,133 Adjustments: Cash tax adjustment 420,259 795,922 190,259 844,390 Restructuring and legal fees - - 735,183 - Depreciation 84,840 97,568 265,424 287,727 Amortization 452,734 520,030 1,358,201 1,560,716 Stock-based compensation   161,264     69,872     463,398     173,320 Non-GAAP adjusted earnings $ 2,273,223   $ 2,573,053   $ 3,580,381   $ 4,036,286   Non-GAAP adjusted earnings per share Basic $ 0.24   $ 0.27   $ 0.37   $ 0.43 Diluted $ 0.23   $ 0.26   $ 0.36   $ 0.41

Conference Call InformationDate: Thursday, November 8, 2018Time: 1:00 pm Eastern Time / 10:00 am Pacific TimeU.S.: 1-888-220-8474International: 1-323-794-2590Conference ID: 4074902Webcast: http://public.viavid.com/index.php?id=131821

A replay of the call will be available from 4:00 pm ET on November 8, 2018 to 11:59 pm ET on November 15, 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 replay PIN is 4074902.

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, compliance, and document output 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/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.

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Investor Relations Contact:Bryan FlynnCynergisTek(949) 357-3914InvestorRelations@cynergistek.comorMedia Contact:Danielle JohnsSenior Account ExecutiveAria Marketing(617) 332-9999 x241djohns@ariamarketing.com