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CynergisTek Reports Second Quarter 2018 Financial Results

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Managed Services and Professional Services Continue to be in High
Demand for Healthcare

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

Financial Highlights for the Second Quarter 2018 Include:

  • Revenues for the second quarter were $16.9 million, an increase of 1
    percent from $16.8 million in the second quarter of 2017.
  • Gross margins were comparable at 26 percent for the second quarter
    2018 compared to the same period in 2017.
  • GAAP net income for the second quarter was $0.1 million, or $0.01 per
    basic and diluted share compared to net income of $0.07 million, or
    $0.01 per basic and diluted share in the same period of 2017.
  • Non-GAAP adjusted EBITDA was $1.1 million in the second quarter of
    2018, compared to $1.2 million for the same period in 2017.
  • Non-GAAP adjusted earnings per share for the second quarter 2018 was
    $0.08 per basic and diluted share, compared to $0.09 per basic and
    $0.08 per diluted share for the same period of 2017.

Recent Operational Highlights Include:

  • Experienced an increase in demand for new professional services while
    increasing the number of new managed security services clients.
  • Continued to maintain a 95 percent client renewal rate for the quarter
    and, 20 percent of renewals expanded contracts with additional
    services.
  • Announced MPS early renewal of contract for large academic medical
    center.
  • Rated as the top comprehensive cybersecurity firm by KLAS and named to
    "20 Most Promising Managed Print Solution Providers 2018" List by
    CIOReview.

"In Q2, we experienced some significant achievements," said Mac
McMillan, President and CEO of CynergisTek. "It was an honor to receive
such high ratings from KLAS and experience milestones with contract
renewals and expansions on both security and managed print service
lines. Managed security services and professional services continues to
be a need for healthcare IT."

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

Revenue increased by approximately $0.1 million to $16.9 million for the
three months ended June 30, 2018, as compared to the same period in 2017.

Cost of revenue was flat at $12.5 million for the three months ended
June 30, 2018 compared to the same period in 2017. Equipment costs
increased by approximately $1.4 million to $1.9 million in 2018,
directly as a result of the increase in equipment revenues from copier
fleet refresh activities.

Gross margin remained flat at 26 percent of revenue for the three months
ended June 30, 2018 compared to the same period in 2017.

Sales and marketing expenses were $1.5 million for the three months
ended June 30, 2018, as compared to $1.4 million for the same period in
2017. General and administrative expenses increased by $0.2 million to
$2.0 million for the three months ended June 30, 2018, as compared to
the three months ended June 30, 2017.

Net income was $0.1 million for the three months ended June 30, 2018, or
$0.01 per basic and diluted share, compared to net income of $0.1
million, or $0.01 per basic and diluted share in the same period of 2017.

Non-GAAP adjusted EBITDA, when adding back stock-based compensation was
$1.1 million in the second quarter of 2018, compared to $1.2 million for
the same period in 2017.

Non-GAAP adjusted earnings for the second quarter of 2018 was $0.8
million, or $0.08 per basic and diluted share, compared $0.8 million or
$0.09 per basic and $0.08 per diluted share for the same period of 2017.

For the Six Months Ended June 30, 2018 Compared to the Six Months
Ended June 30, 2017

Revenue decreased by approximately $1.7 million to $33.3 million for the
six months ended June 30, 2018, as compared to the same period in 2017.

Cost of revenue was $24.7 million for the six months ended June 30,
2018, as compared to $26.1 million for the same period in 2017.
Equipment costs increased by approximately $1.3 million to $2.9 million
in 2018, directly as a result of the increase in equipment revenues from
copier fleet refresh activities.

Gross margin was 26 percent of revenue for the six months ended June 30,
2018 as compared to 25 percent for the same period in 2017.

Sales and marketing expenses were $3.0 million for the six months ended
June 30, 2018, as compared to $2.7 million for the same period in 2017.
General and administrative expenses increased to $4.6 million for the
six months ended June 30, 2018, as compared to $4.0 million for the six
months ended June 30, 2017.

Net loss was $(0.6) million for the six months ended June 30, 2018, or
$(0.06) per basic and diluted share, compared to net income of $0.1
million, or $0.01 per basic and diluted share in the same period of 2017.

Non-GAAP adjusted EBITDA for the six months ended June 30, 2018, when
adding back stock-based compensation, onetime restructuring and legal
fees was $2.1 million, compared to $2.3 million for the same period in
2017.

Non-GAAP adjusted earnings for the six months ended June 30, 2018 was
$1.3 million, or $0.14 per basic and $0.13 per diluted share, compared
to $1.5 million or $0.16 per basic and $0.15 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
CONDENSED CONSOLIDATED BALANCE SHEETS
               
June 30, 2018      
(unaudited)       December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 5,001,649 $ 4,252,060
Accounts receivable, net 9,940,312 13,264,323
Prepaid and other current assets 1,569,870 557,426
Supplies   970,926           1,156,006  
Total current assets   17,482,757           19,229,815  
 
Property and equipment, net 732,178 831,784
Deposits 87,778 87,376
Deferred income taxes 3,350,310 3,120,310
Intangible assets, net 9,995,456 10,900,924
Goodwill   18,525,206           18,525,206  
Total assets $ 50,173,685         $ 52,695,415  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,944,546 $ 9,631,634
Accrued compensation and benefits 2,874,392 3,711,551
Deferred revenue 2,366,975 1,425,821
Note payable 343,750 -
Current portion of long-term liabilities   3,121,773           5,494,837  
Total current liabilities   12,651,436           20,263,843  
 
Long-term liabilities:
Term loan, less current portion 14,683,998 9,438,333
Promissory notes to related parties, less current portion 5,296,875 6,000,000
Capital lease obligations, less current portion   100,408           147,861  
Total long-term liabilities   20,081,281           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 June 30, 2018 and
9,576,028 shares issued and outstanding at December 31, 2017
9,616 9,576
Additional paid-in capital 31,458,456 31,156,362
Accumulated deficit   (14,027,104 )         (14,320,560 )
Total stockholders' equity   17,440,968           16,845,378  
Total liabilities and stockholders' equity $ 50,173,685         $ 52,695,415  
 
 
CYNERGISTEK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
      Three Months Ended June 30,       Six Months Ended June 30,
  2018       2017     2018       2017  
Net revenues $ 16,936,934   $ 16,798,912 $ 33,320,251   $ 35,053,601
Cost of revenues   12,458,301       12,458,921     24,702,786       26,126,127  
Gross profit   4,478,633       4,339,991     8,617,465       8,927,474  
 

Operating expenses:

Sales and marketing 1,476,458 1,369,401 2,975,505 2,737,383
General and administrative expenses 1,986,467 1,832,581 4,615,396 4,008,377
Depreciation 89,002 98,935 180,584 190,159
Amortization of acquisition-related intangibles   452,734       520,343     905,467       1,040,686  
Total operating expenses   4,004,661       3,821,260     8,676,952       7,976,605  
Income (loss) from operations   473,972       518,731     (59,487 )     950,869  
 

Other income (expense):

Other income 8 3 27 22
Interest expense   (351,651 )     (376,547 )   (755,112 )     (788,881 )
Total other income (expense)   (351,643 )     (376,544 )   (755,085 )     (788,859 )
 
Income (loss) before provision for income taxes 122,329 142,187 (814,572 ) 162,010
Income tax benefit (expense)   (1,196 )     (68,000 )   228,362       (81,539 )
Net income (loss) $ 121,133     $ 74,187   $ (586,210 )   $ 80,471  
 
Net income (loss) income per share:
Basic $ 0.01     $ 0.01   $ (0.06 )   $ 0.01  
Diluted $ 0.01     $ 0.01   $ (0.06 )   $ 0.01  
 
Number of weighted average shares outstanding:
Basic   9,613,566       9,438,990     9,600,120       9,328,759  
Diluted   9,827,686       10,281,042     9,600,120       10,038,271  
 
                       
CYNERGISTEK, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP INCOME (LOSS) FROM OPERATIONS TO NON-GAAP
ADJUSTED EBITDA
(UNAUDITED)
 
Three Months Ended June 30,       Six Months Ended June 30,
2018       2017       2018       2017
GAAP income (loss) from operations $ 473,972 $ 518,731 $ (59,487 ) $ 950,869
Adjustments:
Depreciation 89,002 98,935 180,584 190,159
Amortization 452,734 520,343 905,467 1,040,686
Restructuring and legal fees - - 735,183 -
Stock-based compensation   113,873         78,789         302,134           103,448
Non-GAAP adjusted EBITDA $ 1,129,581       $ 1,216,798       $ 2,063,881         $ 2,285,162
 
Non-GAAP adjusted EBITDA per share
Basic $ 0.12       $ 0.13       $ 0.21         $ 0.24
Diluted $ 0.11       $ 0.12       $ 0.21         $ 0.23
 
CYNERGISTEK, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP ADJUSTED
EARNINGS
(UNAUDITED)
 
Three Months Ended June 30,       Six Months Ended June 30,
2018       2017       2018       2017
GAAP Net income (loss) $ 121,133 $ 74,187 $ (586,210 ) $ 80,471
Adjustments:
Cash tax adjustment 1,196 46,561 (228,362 ) 48,469
Restructuring and legal fees - - 735,183 -
Depreciation 89,002 98,935 180,584 190,159
Amortization 452,734 520,343 905,467 1,040,686
Stock-based compensation   113,873         78,789         302,134           103,448
Non-GAAP adjusted earnings $ 777,938       $ 818,815       $ 1,308,796         $ 1,463,233
 
Non-GAAP adjusted earnings per share
Basic $ 0.08       $ 0.09       $ 0.14         $ 0.16
Diluted $ 0.08       $ 0.08       $ 0.13         $ 0.15
 

Conference Call Information
Date: Thursday, August 9,
2018
Time: 2:00 pm Eastern Time / 11:00 am Pacific Time
U.S.:
1-888-224-1005
International: 1-323-794-2551
Conference ID:
3874636
Webcast: http://public.viavid.com/index.php?id=130693

A replay of the call will be available from 5:00 pm ET on August 9, 2018
to 11:59 pm ET on August 16, 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 3874636.

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.

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