Q4 2018 Earnings Call Transcript

Published: 28 Mar 2019

[Operator:]

Good day and welcome to the CynergisTek, Inc. Fourth Quarter and Full Year 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Bryan Flynn, CynergisTek Investor Relations. Please go ahead.

[Bryan Flynn:]

Thank you, operator. I want to welcome everyone to CynergisTek's fourth quarter and full year 2018 earnings call. Joining us today from the Company includes Mr. Mac McMillan, President and Chief Executive Officer; and Mr. Paul Anthony, Chief Financial Officer. Before we begin the formal presentation, I'd like to remind everyone that some statements made on the call and webcast including those regarding future financial results and industry prospects among others are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the conference call. Certain of these risks and uncertainties are or will be described in greater detail in the Company's SEC filings. CynergisTek is under no obligation and expressly disclaims any such obligations to update or alter its forward-looking statements whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to our CEO, Mac McMillan.

[Mac McMillan:]

Thank you, Bryan, and good afternoon, everyone. We are pleased to highlight our fourth quarter and full-year results for 2018 as we continue to experience strong organic growth from security and an improved sales mix. Over the last two years, CynergisTek has made a significant investment in cybersecurity that provides new strategic opportunities for our clients. We remained focused on CynergisTek strategies to drive growth and long-term value creation. Some of our recent activities were done to monetize one of our larger assets with recently announced sale of our Managed Print Service, MPS business for $30 million. The agreement with Vereco, Inc., a leading independent provider of managed document services to the healthcare industry is expected to provide net cash proceeds in the range of $22 million to $23 million. The proceeds will be used to substantially reduce the debt on the business. This sale is an important step in our ongoing progress towards positioning ourselves as a leading innovator in cybersecurity management. This transaction strengthens our balance sheet and allows us to focus energy on growing our cybersecurity business through expansion of services and product offerings, expanding our reach to other industries, and potential M&A opportunities to take advantage of the growth -- growing demand for cybersecurity services in the marketplace. As part of the transaction, we also entered into a strategic partnership with Vereco where CynergisTek has the opportunity to provide cybersecurity assessment and managed services to Vereco’s current and future clients. Paul will go into more details regarding the Vereco transaction as part of his prepared remarks. As I begin to talk about our fourth quarter results, I'd like to remind everyone that the sale of the MPS business was not a change in direction but an opportunity that supports the execution of the plan that we put in place nearly two years ago. In 2017, our focus was on stabilizing the two companies after the acquisition. 2018 was the year of execution; in 2019, our focus is on growth. Healthcare remained one of the most attacked industries in 2018 as bad actors continued to find healthcare organizations highly attractive targets due to the growing complexity of the health IT environment, healthcare’s broadening attack surface, and a growing range of threats that have proven successful. We met our objectives in 2018 by continuing to focus on being that trusted partner that assists clients in protecting their critical information assets and meeting our business goals by increasing revenues and market share by providing relevant and value-based solutions and services. CynergisTek reinforced its market-leading position as the number one trusted healthcare cybersecurity company in the industry by ranking as the top comprehensive firm by KLAS, one of the 50 most trustworthy companies of the year by Silicon Review Magazine, and were listed as one of the top 10 best cybersecurity firms of 2018 by CIO Bulletin. CynergisTek subject matter experts spoke at over 100 healthcare and business-focused conferences and symposia, and our thought leaders recorded over 900 times in healthcare, IT and security related publications. While phenomenal by itself, this represents a 22% increase from 2017 and reinforced our focus on continuing to be a trusted source for many of the top IT healthcare publications on cybersecurity and privacy issues. More and more healthcare leaders are turning to CynergisTek for help in their organization’s fight against cyber attacks and more solution vendors are looking to partner with us for the same reason as they look to penetrate the healthcare market. We increased the number of managed security services we offer this year to meet market demand. We entered into two new partnerships to strengthen our key service lines, medical device security management and patient privacy monitoring services. As I stated in Q3, having a broad portfolio of healthcare differentiated security offerings is resonating with both our new and existing customers, allowing us to create more opportunities in the pipeline and expand our penetration in the market. This board portfolio of security offerings led to a 19% increase in overall new clients for 2018, bringing our active client count to well over 250 health systems and business associates. We also had another strong quarter, capping an overall good year financially, and I would like to point out some of the highlights. We saw overall security services revenue grow 20% this year, which was a result of the hard work and dedication of our employees. Our professional and consulting services grew at an impressive 40%, demonstrating that there is still a high demand for cybersecurity resources due to the industry-wide labor shortage. We also maintained strong gross margins, above 45% for all security-related services. As we all know, the cybersecurity landscape is constantly changing with every new technology, every new connection and every new partnership, introducing a new security or privacy risk. According to the 2018 Symantec executive summary for healthcare professionals, the problem is not just that the number of breach incidents continue to grow at about 10% each year, it’s also the emergence of a new class of attacks, which has the potential to inflict great damage. With no clear end in sight, healthcare facilities must be prepared to handle the weak spots within their IT environment. As we look into 2019, there is more trouble on the horizon and two important emerging security threats that healthcare organizations will face moving forward. This translates to greater opportunity for us to provide services and solutions to assist our clients in meeting these new challenges. The first is supply chain or third-party service provider attacks, which exploit the network of an organization’s suppliers. Healthcare organizations have increased their risks with the expansion of their reliance on third-party providers for services, infrastructure and cloud-based applications. In late 2017, we relaunched our vendor security management program as a full-service, SaaS-based solution designed to evaluate and monitor vendors on a regular and ongoing basis and hold them accountable to the hospitals they serve for requirements identified or assigned as remediation. Analysis of the hundreds of vendor assessments we perform demonstrates the need for due diligence in assessing third-party service providers as many fail to provide evidence of even the most basic ability to assess or quantify their risk. Vendors accounted for their fair share of the breaches to healthcare entities and their patient data in 2018, serving as a constant reminder that the responsibility for security extends beyond the four walls of any institution. CynergisTek's VSM solution provides our clients with the confidence that someone is asking, collecting and evaluating the information necessary to better understand that third-party risk. Second is the growing range of nontraditional endpoint devices, IoT or industrial control systems, being connected to healthcare's networks. According to Symantec’s 28 [ph] study again, medical devices and industrial systems typically are not part of an organization's core IT infrastructure. But, once they are on the network, they are exposed to a whole range of exploits. The Internet Security Threat Report notes as 600% increase of attacks on IoT devices, and a 29% increase in attacks involving industrial control systems. A very important subset of these devices in healthcare are all of the biomedical solutions that are in integral part of care operations and critical to patient safety. As we saw this trend start to develop, we created our managed medical device security offering, which includes program, technical and risk assessments using new technologies developed by leading software providers, like assembly and order. As the first to do this in the industry, we applied our knowledge of process and healthcare operations, combining knowledge of the needs of both clinical engineering and IT to make these solutions more effective for our clients and provide the full solution that they needed to manage this critical operational security challenge. This becomes our fifth core managed security service for healthcare designed to address both the IoT and the medical device security threats. These are just two examples of ongoing innovations we continue to pursue to make sure our solutions and services remain relevant in meeting the needs of our clients. Many of our CIOs report challenges managing and getting value from the magnitude or multitude of endpoint solutions, applications and cloud-based solutions that they now have in their enterprises. We continue to seek new strategic partnerships and solutions to help organizations manage their security assets more effectively through services. As you may have seen in recent press release just yesterday, we added a new suite of managed security services to our portfolio to assist organizations with monitoring, threat detection, incident response and compliance, management of ongoing cybersecurity risks. This new service will have proactive and comprehensive security monitoring of network devices endpoints and cloud in SaaS-based environments such as Office 365, Okta and Salesforce. Leveraging extensive healthcare industry knowledge, we will tailor this service line to address the unique concerns and lack of resources in healthcare, as well as provide visibility of threats in near real time. This is our sixth managed service and we now offer the total landscape of services needed for healthcare organizations to be better informed as to the vulnerabilities and risks targeting them while assisting them in developing an effective security program. These services will open new revenue opportunities as we have already seen demand within our current client base. Our focus going into 2019 will be to continue to generate growth within our new service offerings, particularly medical device security, professional services and other managed security areas, continue with our land and expand strategy by increasing the breadth of services that each of our existing clients have today, continue to improve on our customer service and continue to invest in our employees and their professional development. We will also look to include additional growth and expansion through new strategic partnerships and potential M&A opportunities. Let me stop here and hand it off to Paul to review the financial highlights for the fourth quarter and full-year 2018. Please go ahead, Paul.

[Paul Anthony:]

Thanks, Mac. Good afternoon, everyone. We achieved our main goal financially for 2018, maintaining strong earnings and increasing adjusted EBITDA to increased revenues from our higher-margin security business, offsetting declining revenues experienced from the MPS business, coupled with overhead cost controls. Revenue for the quarter was flat at $18.6 million. Breaking down the revenue for Q4 2018 versus 2017, managed services revenue was $13.6 million, an increase of 2%; security managed services increased 14% to $2.9 million while managed print services decreased by 2%. Consulting and professional services, most of which is generated from security, increased 43% to $3.8 million. Equipment, hardware and software resells decreased to $1.3 million compared to $2.7 million for 2017. Gross margins increased to 35% for the fourth quarter of 2018 compared to 31% in 2017. The increase was due to the increase in the higher-margin security revenue, coupled with the drop in lower margin equipment revenue. Non-GAAP adjusted EBITDA after adjustments was $3.7 million or 20% of revenues for the fourth quarter of 2018 compared to $2.5 million or 13% of revenues for 2017. Non-GAAP adjusted earnings after adjustments was $3.3 million or $0.34 per basic and $0.33 per diluted share for the fourth quarter of 2018, compared to $2 million or $0.21 per basic and $0.20 per diluted share for 2017. Looking at the full-year highlights. Revenues remained flat year-over-year at $71.1 million compared to $71.6 for 2017. MPS-related revenues decreased 12% to $49.8 million compared to an increase in security-related revenues of 22%, totaling $21.3 million. Gross margin remained flat at 29% of revenues. Non-GAAP adjusted EBITDA after adjustments increased to $8.6 million or 12% of revenues for 2018 compared to $7.8 million or 11% of revenue for 2017. Non-GAAP adjusted earnings after adjustments was $6.9 million or $0.72 per basic and $0.70 per diluted share for 2018, compared to $6.1 million or $0.64 per basic and $0.60 per diluted for 2017. The Company had $6.6 million cash, cash equivalents, and $21.4 million in debt at the end of the year, which does not reflect the sale of the MPS business and subsequent debt pay down. The full financials and reconciliation of GAAP to non-GAAP information can be found in the earnings release that came out yesterday. As Mac mentioned earlier, we completed the sale of our MPS business this month. $30 million sale includes an initial upfront cash inflow of $24.4 million, $1.5 million tied to a short-term earn-out related to our pipeline and $3.5 million tied to standard working capital and indemnification escrow holdbacks. We expect one-time legal and banking fees of approximately $350,000 and approximately $100,000 of one-time compensation-related items for this transaction. Effective tax rate is between 19.5% and 20% since we used a large portion of our NOLs on recent positive earnings. We immediately paid off $20 million of our debt and we expect to pay off the remainder by the end of 2019. After taxes we expected net cash increase to the balance sheet of $1 million to $3 million. After stripping out the MPS operations, we may report a loss for this year, given the transaction costs related to the MPS sale, our recent investments in expanding our services, the investments we made in the sales organization last year, although we scaled back considerably after the sale the overhead necessary to support the public entity. However, losses should be short-lived as we continue to target double-digit revenue growth coming off our strong 2018 security revenue growth. Additionally, we feel the infrastructure we maintained is sufficient to support the Company over the next couple years in its growth, allowing for maximum benefit from new sales activity for the foreseeable future. Additional pro forma information was provided in our recent 8-K release, issued earlier this week. This concludes our prepared remarks. Operator, please open the floor for questions.

[Operator:]

[Operator Instructions] We will now take our first question from Matt Hewitt of Craig-Hallum Capital. Please go ahead.

[Matt Hewitt:]

Good afternoon, gentlemen. And thank you for taking the questions. I want to dig in on a couple of your prepared remarks, Mac. First on the penetration, you've got the six core offerings now on the cybersecurity side. How -- when you look at your customer base of over 250 hospital sale systems, how many of those have more than one of the offerings? I'm just trying to get a sense for how much opportunity you have within the current installed base versus having to go out on the Greenfield side?

[Mac McMillan:]

Sure. So, that’s a great question. If you recall, one of the things I've talked about previously is that last year we began that land and expand strategy to try to increase the number of services that individual clients had. And at that time, I think when we first looked at it almost two years ago, we were somewhere in the neighborhood of less than 20% of our customers had more than one of our managed services. And I think at the end of 2018, what I was reported that we had roughly over 40% of our customers that now have at least two or more of our managed services. So, we made great progress in 2018, and that's still a huge focus for 2019 and going forward.

[Matt Hewitt:]

And then, regarding the relationship with Asimily, it's been making the news here in Minnesota recently with the Medtronic. I'm curious, have you made any progress or are there any sales or any opportunities in the pipeline that you could speak to regarding some of those implantable devices or maybe even outside of body but some of the big device companies?

[Mac McMillan:]

Sure. So, there is couple. And if you recall, too, when we started talking about medical device security, we talked about it in terms of three different avenues. One is news directly to providers to help them manage their medical device fleets; second one was through those companies like GE Healthcare et cetera that manage those devices on behalf of providers, and we are working with a couple of them. And then, thirdly, was working directly with the medical device manufacturers themselves. And we now have several of those folks that we’re working with the people who are interested in actually being proactive about addressing security on their medical devices. So, we have -- we actually have a growing pipeline on the medical device security side. We have done -- we have performed several assessments for different customers. And we are now -- we now have several medical device security managed proposals out to some of those folks as well. So, yes, pipeline is growing with respect to that.

[Matt Hewitt:]

And then, maybe one last one for me and I'll hop back in the queue. And thank you for the 8-K with the nine months and the fiscal 2017 pro forma numbers. Will you be providing a quarterly breakdown, just so that we can build our models up and when we're looking at Q1, we can talk about apples-to-apples?

[Paul Anthony:]

Yes. On a go forward basis, we will provide that information. We will try to strip out just security. Because I think in the ongoing reporting requirements, the disc op, we’ll end up reporting the MPS sales at disc op, so end up pulling the information down into that single line item, allowing for comparatives on a quarter-over-quarter basis -- or year-over-year basis by quarter.

[Operator:]

We will now take our next question from Andrew D'Silva of B. Riley FBR. Please go ahead.

[Andrew D'Silva:]

Just a couple of quick follow-ups. Just related to the actual sale of the MPS business. First of all, it’s correct that the equipment side of the business is completely tied to MPS; there isn’t some overlapped where there is security equipment or other sales that are recognized in that line item. Is that a fair assumption?

[Paul Anthony:]

There is potentially -- Andrew, there is some small amount that could show up in there. There are some tools and other applications that CynergisTek has provided on a historical basis to customers, so there could be some amount that may come back in there. But, we don't expect them to be material, at least at this point.

[Andrew D'Silva:]

Okay. And then, looking at the 8-K and checking out the expenses that you’ve allocated to each segment, it seems like the overwhelming majority of variable expenses below the gross profit line are actually going to be tied to CynergisTek. Is that a fair assumption of how we should think about modeling as we go into 2019, or is there some give or take there as we think about OpEx?

[Paul Anthony:]

From the sales perspective, definitely, most of that expense came over. There is a portion of the G&A that will get segregated out. So, there is somewhere in the ballpark of about hundred plus thousand a month that would have been sitting in that pro forma for G&A that will get pulled out of -- that won’t come over to the CynergisTek.

[Andrew D'Silva:]

And then, the last part related to the acquisition, [ph] concentration risk from a customer standpoint, I’m assuming is significantly less at this point than ever before. Is that a fair assessment? Is there any large customer concentration that we should expect going forward?

[Paul Anthony:]

There is still one customer that represents about 20% of the business on a go forward basis, though they we will continue to decline.

[Andrew D'Silva:]

Okay. All right. And then, just couple more just macro question from an M&A standpoint point. Can you maybe point us in the direction of types of solutions that would make a lot of sense for you to have integrated into your company right now? Obviously, in your prepared remarks, you mentioned been better positioned to capitalize in M&A now that this transaction is completed.

[Mac McMillan:]

Yes. So, we’re looking at several different opportunities out there, different types of technologies. Now that we have an offering on the MSS side, certainly at some point we will want to look at licensing and/or creating our own integration or collaboration engine for providing a dashboard if you will or single pane of glass for our customers to look at. Typically what you do is you license some of these solutions and then you write your unique way of using it on top of that. There is also -- we’re still looking at solutions that fit into our other offerings, things that are complementary to what we deliver from a service perspective that we can build in or bolt on, if you will, to what we do to provide a more turnkey solution. So, we’re still looking at the patient privacy monitoring space, we’re still looking at the medical device security space as it relates to the technologies that are out there that do those sort of things. So, it's just -- it's really what we're doing is we’re looking for -- on the technology side, especially those things that are complementary to the service offerings that we have or perhaps at some point, something that's more forward-looking with respect to some of the threats that are coming down the road or that are going to be in front of us, say in the next 5 to 10 years. But we’re being very -- obviously being very careful and very selective in terms of what we're looking at, we’re being very conscious of what the valuations are on all of those companies and what makes sense for us to entertain at this juncture, but primarily focused on our organic growth.

[Andrew D'Silva:]

And just a couple of more tied to the macro. Is it really just healthcare-related or is it industry-wide when you're talking about having issues with customers being able to find the appropriate employees that fill the services that CynergisTek offers on the security of the business? Basically, is there enough opportunity for you to pick-up employees in the market and the issue is that those particular employees or consultants don't actually want to be employed under a healthcare banner or is it just more systemic across the entire industry where there aren’t enough cyber security professionals available at all?

[Mac McMillan:]

So, the shortage of cyber security expertise is systemic across all markets and it's -- and that growth is getting larger, not smaller at the moment. But we are still -- we are hiring folks from essentially all over. I mean, we bring people in from the military, we bring them in from the finance sector, we bring them in from the tech sector. We’re -- a lot of these folks that are in organizations today are what we’re finding is that they're not being challenged enough in a day-to-day role and they're looking for more challenging positions, more interesting positions, and they tend to find that with companies like ours where they’re in a consulting role or they are walking into many different environments throughout the year, many different problems, many different solutions; their workload is much more varied, it's much more interesting for them. And that’s actually making it a lot easier for the folks like us to be able to recruit those people and to be able to fill those roles. That also makes it harder for those folks who are trying to fill those roles to be able to recruit and retain them, which is why they then turnaround, turn to us and say could you provide these people. So, it's kind of a cyclical thing. But at the end of the day, there are only so many values to go around. But, when you're looking at the folks that are out there today, most of these people that are in the cybersecurity world today, don't want to be in one job forever. They like being able to be mobile, they like being able to move around, they like being able to take on different challenges. They enjoy learning, learning new things and having varied experiences. And so, that's making it easier for us at the moment to recruit, making it harder for the folks that have the day-to-day jobs to recruit. But, that’s turning around and also opening up opportunities for us to go back and put those people in there for six months to a year or what have you, and then move them to another site, another set of problems. And it just kind of works for all the way around in that ecosystem.

[Andrew D'Silva:]

Sorry for all the questions, but the final part and just a good segue into that. Maybe just discuss the competitive landscape within healthcare right now, if it’s changed over the last 12 months or so? And also, what kind of mobility do you have right now to pursue other verticals outside healthcare?

[Mac McMillan:]

We still have -- I think, the playing field in terms of competition is still pretty much the same as it has been. There are a few companies that focus on healthcare as we do. Majority of companies though focus on multiple vertical markets. And what we have found is typically our ability to compete against those that have that multimarket focus, if you will, tends to be very positive. We still don’t see the big guys, so to speak, unless we’re talking about the really large enterprise-level clients. But, when you go to an enterprise-level client, you’re going to start running into the Deloittes or PwCs and that sort of thing. But for the most part, the majority of the competition that we see is typically regional as it relates to those that work exclusively in healthcare. And it’s the same players that we’ve been seeing. So, it really hasn't changed much at all. A lot -- I was going to say, a lot of folks -- it is changing a bit because some of the folks that are out there are being bought now -- bought by PE firms and their focus is a lot different. And we’ll have to see how that changes some of the landscape in terms of how those folks fair under that new leadership model.

[Operator:]

We will now take our next question from William Gibson of Roth Capital Partners. Please go ahead.

[William Gibson:]

You mentioned putting up the operations quarterly as we do the pro forma or the MPS and continued. But, this is just more of a statement. If you could put out the fourth quarter, when you report your first quarter results, that would really help a lot I think going forward. And then, secondly, is there going to be a seasonality here, in other words, people -- customer spend in the fourth quarter and spend their budget and that backs off in the first? I know, last year, the IT business gained momentum as the year went along.

[Mac McMillan:]

Yes. That’s been a standard cycle, if you will, in healthcare, at least for the 18 years that I’ve been associated with. Typically it starts off slow at the beginning of the year and builds throughout the year. And usually, the third and fourth quarter tend to be stronger only because you’ve got folks in terms of their budget cycles and end of year dollars et cetera, plus you’ve got folks that for whatever reason, will tend to wait until the latter part of the year to do some of the things that they needed to do, and they just put them off until the end. But yes, it always seems to be cyclical. Usually the fourth quarter -- or excuse me, the first quarter, it's slower and then it gets -- it builds as the year goes on.

[William Gibson:]

And then, on bio device security, I assume revenue was nominal in the fourth quarter. And, when does that get meaningful enough to -- that we need to start -- or how do we think about that in terms of building the model for this year?

[Mac McMillan:]

Yes. So, I'm going to let Paul way in. I mean, I don’t know that we report based on individual managed service lines. It’s all part of that managed services. So, Paul, do you want to…

[Paul Anthony:]

Yes. We're not going to be breaking -- we wouldn’t be breaking that out separately. It is still a relatively new service. So, it will be more about just keeping you up to speed on kind of the installed-base and how we’re tracking on the pipeline. But, we don’t anticipate providing any specific details related to that single service line.

[Operator:]

[Operator Instructions] We will now take our next question from Jeff Bash of General Pacific Partners. Please go ahead.

[Jeff Bash:]

Great execution, guys, both on the MPS side and fourth quarter. Paul, you reported $16.8 million gain on the sale. What's the cash tax consequences? Do we wipe out the NOLs and have to pay some cash and then pay the statutory rate going forward or what?

[Paul Anthony:]

Exactly right. Yes. We're going to come into the transaction with a couple million in offset. So, we're going to look at an effective rate of around 19.5% against the proceeds. And then, on a go forward basis, we will look at that same 24.8% tax rate.

[Jeff Bash:]

So, we might pay, $5 million or $6 million in taxes or something like that?

[Paul Anthony:]

Yes. I think, I’m closer to 6 to 7, but yes.

[Jeff Bash:]

Okay. With respect to the $1.5 million contingent sales pipeline payment, how good you think the chances are of getting it?

[Paul Anthony:]

I mean, again, this is an account that was one of the pipeline deals the Mac had mentioned that we are hoping would have closed here in the fourth quarter and into the first quarter. So, we feel strong about it. We are waiting for the customer to finalize to have some other demands on their time, but we do still feel pretty confident.

[Jeff Bash:]

Now, as the acknowledge healthcare cybersecurity leader and a pure play with the valuation pretty far below peers, I presume you realize that you may now have a target on your own back, how do you feel about that?

[Mac McMillan:]

Jeff, I've never worried about being a target or being a leader. So, I think, our focus is going to continue to be on the business and on growing the business. And, as things unfold, obviously, we will entertain whatever comes our way. But, that isn't something we’re focusing on right now or worried about.

[Jeff Bash:]

And finally, with the major structural change in the Company, will you review Board membership for suitability with respect to the new streamlined company?

[Mac McMillan:]

So, that's actually more a question for J.D., who is the Chairman of our Board. But I can tell you that being a member of the Board, it’s something that we talk about frequently and it’s something that we are always looking at in terms of do we have the right folks, do we need other expertise. And it is something that we’ll continue to look at in terms of how this changes the business and where we go going forward. So, those are discussions that we always have. And the good news is that they are, in my opinion, very healthy conversations about what does the Company need.

[Operator:]

We will now take our next question from Avi Fisher of Long Cast Advisers. Please go ahead.

[Avi Fisher:]

Jeff asked my question. So, I’m just going to make a quick comment about it, then ask a different one. First of all, thanks for taking the steps to realign the Company. You’ve talked about the cost structure and the need to align sales around S&M and G&A, you’ve talked about growth by acquisition, as Jeff mentioned, it strikes me that a PE acquirer would happily pay a premium under gross profit to bug in to their cost structure, and that would be an option. I’m curious a little more about how management of Board makes these decisions, but I don’t think you’d answer that any differently than you answered Jeff. If you have any color on that I would love to hear it. More specifically -- very specifically and a simple question, I'm curious how seasonality is likely -- looks like as a pure play? Do you still see there, strong 4Q, weak 1Q? Can you just talk about seasonality?

[Mac McMillan:]

Sure. Yes, the seasonality doesn’t really change at all between where we are and where we’re going. The one exception to that might be down the road, and what I mean by that is, if you all recall, we do have that non-healthcare part of our business, which is growing. And it represents today I think about 20% of our customers and about 10% of our revenues. If that continues to grow, that business tends to be less seasonal. And so, as that part of the business continues to grow and we do anticipate that it will, and we are consciously taking the services that we have developed on the healthcare side and repackaging them and positioning them to sell to those non-healthcare customers as well. So, that may at some point begin to help with some of that seasonality. But, the seasonality at this point is really connected to the healthcare industry and how they typically buy. So, that’s not going to change I think in the short run.

[Paul Anthony:]

Yes. And, Avi, with the recent increase in the professional services side of the business, which does have some seasonality associated with healthcare tied to it, we are experiencing some of that. But, if we can start to drive those managed services and continue to grow that side of the business to be a larger percentage, then that should help. But, again, professional services right now is in such high demand that as that continues to be a large portion of the business, we will see need for resources or the customers backing off a little bit potentially in the front half of the year than picking up as we hit the back end.

[Operator:]

There are no further questions at this time. I’d like to hand the call back to Mr. Mac McMillan for any additional or closing remarks.

[Mac McMillan:]

Thank you, operator. And thank you for joining us today, everyone. Keep an eye out of our annual State of Cybersecurity report coming out in the next few weeks. Paul and I look forward to speaking with all of you in the future. Thank you and have a great day.

[Operator:]

Ladies and gentleman, this concludes today’s conference call. Thank you for your participation. You may now disconnect.