BusinessWire

CynergisTek Reports First Quarter 2020 Financial Results

Supporting Healthcare with Essential Cybersecurity and Privacy Services

AUSTIN, Texas--(BUSINESS WIRE)--$CTEK #cybersecurity--CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in cybersecurity, privacy, and compliance, today announced financial results for the three months ended March 31, 2020.


“As the COVID-19 pandemic continues to impact our clients, the cyber threat environment remains very active,” said Caleb Barlow, President and CEO of CynergisTek. “Revenue declined due to the impact of the two large professional services contracts we completed last year. Managed services revenue was up 7% on the quarter. With our recent operational modifications and the sales team now fully on board, we believe we are well positioned to manage through this crisis and continue to be the trusted advisor our clients have come to expect. Combined with steps taken in 2019, we have reduced operating spend by more than $3.0 million, ensuring improved cash flow on a go-forward basis.”

Recent Operational Focus Due to COVID-19 Includes:

  • Moved to 100% remote workforce with continued improvements and efficiencies under a non-travel environment.
  • Completed onboarding of remaining additions to sales staff. Experienced two large contract wins in Q1.
  • Strengthened collaboration between sales and delivery to drive a growing pipeline of follow-on opportunities from security assessments.
  • Enacted temporary adjustments starting in Q1 to compensation, travel, and discretionary spending that will provide an opportunity to save between $150,000-$250,000 each month going forward.
  • Initiated permanent and targeted expense reductions of approximately $170,000 per month, addressing reduced utilization we saw in Q1. These reductions resulted in one-time charges of approximately $40,000 in Q1 and a projected $280,000 in Q2.

For the Three Months Ended March 31, 2020, Compared to the Three Months Ended March 31, 2019

Financial results are from the company’s continuing operations related to security services, unless specifically noted that they include discontinued operations related to the sale of the managed print services business.

Revenue decreased $0.7 million to $5.1 million for the three months ended March 31, 2020, as compared to the same period in 2019. Managed services revenue increased 7% to $3.0 million from sales of our newer managed services offerings. Consulting and professional services decreased $0.8 million to $2.1 million primarily due to lower revenue from two customers who had large non-recurring remediation contracts that completed most of the work in Q1 last year. This includes $1.1 million in revenues from the addition of the Backbone Consultants business.

Gross margin was 33% of revenue for the three months ended March 31, 2020, and 40% for the same period in 2019. The margin reduction is due to higher labor costs as a percentage of revenue due to costs of attracting and retaining cybersecurity employees and costs associated with ramping new managed services. Sales and marketing expenses were flat at $1.5 million for the three months ended March 31, 2020 and 2019. General and administrative expenses increased $0.4 million to $2.1 million for the three months ended March 31, 2020 compared to $1.7 million for the three months ended March 31, 2019. The increase is due to $0.1 million in additional stock-based compensation, $0.1 million in additional costs for Backbone Consultants and $0.2 million in additional costs related to professional services and recruiting costs.

GAAP net loss from continuing operations for the three months ended March 31, 2020 was $(1.9) million, or $(0.18) per basic and diluted share compared to a net loss of $(1.4) million, or $(0.15) per basic and diluted share for the same period of 2019.

Non-GAAP adjusted EBITDA loss from continuing operations, after adding back stock-based compensation, restructuring costs related to a reduction in workforce, was $(1.4) million for the three months ended March 31, 2020, compared to $(0.2) million after adding back stock-based compensation, CEO transition related costs, for the same period in 2019.

We continue to take actions to reduce expenses to restore gross margins and operating margins to better position the company for the current challenging economic environment and uncertainties in the healthcare market related to COVID-19.

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

March 31, 2020 (unaudited)

December 31, 2019

ASSETS

 

 

Current assets:

 

 

Cash and cash equivalents

$

3,065,728

$

5,328,726

Accounts receivable

 

3,331,826

 

3,210,726

Unbilled services

 

617,186

 

539,535

Prepaid and other current assets

 

1,653,405

 

1,205,769

Income taxes receivable

 

456,128

 

-

Total current assets

 

9,124,273

 

10,284,756

 

 

 

Property and equipment, net

 

995,623

 

946,219

Deposits

 

72,486

 

72,486

Deferred income taxes

 

1,858,064

 

1,836,258

Intangible assets, net

 

8,169,691

 

8,585,882

Goodwill

 

23,983,483

 

23,983,483

Total assets

$

44,203,620

$

45,709,084

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Accounts payable and accrued expenses

$

675,814

$

638,864

Accrued compensation and benefits

 

453,586

 

1,066,770

Deferred revenue

 

2,087,906

 

1,437,859

Income taxes payable

 

-

 

31,976

Current portion of promissory note to related parties

 

562,500

 

562,500

Current portion of operating lease liabilities

 

580,591

 

533,371

Total current liabilities

 

4,360,397

 

4,271,340

 

 

 

Long-term liabilities:

 

 

Earnout liability

 

2,400,000

 

2,400,000

Promissory note to related parties, less current portion

 

562,500

 

703,125

Operating lease liability, less current portion

 

144,715

 

158,995

Total long-term liabilities

 

3,107,215

 

3,262,120

 

 

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

Common stock, par value at $0.001, 33,333,333 shares authorized, 10,379,164 shares issued and outstanding at March 31, 2020, and 10,359,164 shares issued and outstanding at December 31, 2019

 

10,379

 

10,359

Additional paid-in capital

 

35,232,850

 

34,821,863

Retained earnings

 

1,492,779

 

3,343,402

Total stockholders’ equity

 

36,736,008

 

38,175,624

Total liabilities and stockholders’ equity

$

44,203,620

$

45,709,084

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

Net revenues

$

5,115,827

 

$

5,773,657

 

Cost of revenues

 

3,423,532

 

 

3,484,639

 

Gross profit

 

1,692,295

 

 

2,289,018

 

 

Operating expenses:

 

 

Sales and marketing

 

1,487,347

 

 

1,481,383

 

General and administrative expenses

 

2,104,844

 

 

1,653,633

 

Depreciation

 

47,600

 

 

38,985

 

Amortization of acquisition-related intangibles

 

416,191

 

 

452,734

 

Total operating expenses

 

4,055,982

 

 

3,626,735

 

Loss from operations

 

(2,363,687

)

 

(1,337,717

)

 

Other income (expense):

 

 

Other income

 

-

 

 

9

 

Interest income

 

6,068

 

 

-

 

Interest expense

 

(24,288

)

 

(295,905

)

Total other income (expense)

 

(18,220

)

 

(295,896

)

 

 

 

Loss before provision for income taxes

 

(2,381,907

)

 

(1,633,613

)

Income tax benefit

 

531,284

 

 

144,214

 

Net loss from continuing operations

 

(1,850,623

)

 

(1,489,399

)

Income from discontinued operations, including gain on sale, net of tax

 

-

 

 

19,036,830

 

Net (loss) income

$

(1,850,623

)

$

17,547,431

 

 

 

 

Net (loss) income per share:

 

 

From continuing operations:

 

 

Basic

$

(0.18

)

$

(0.15

)

Diluted

$

(0.18

)

$

(0.15

)

 

 

 

From discontinued operations:

 

 

Basic

$

-

 

$

1.97

 

Diluted

$

-

 

$

1.92

 

 

 

 

Net (loss) income:

 

 

Basic

$

(0.18

)

$

1.81

 

Diluted

$

(0.18

)

$

1.77

 

 

 

 

Number of weighted average shares outstanding:

 

 

Basic

 

10,374,497

 

 

9,673,689

 

Diluted

 

10,374,497

 

 

9,931,048

 

CYNERGISTEK, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP LOSS FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EBITDA FROM CONTINUING OPERATIONS

(UNAUDITED)

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

GAAP loss from continuing operations

$

(2,363,687

)

$

(1,337,717

)

Adjustments:

 

 

Depreciation

 

47,600

 

 

38,985

 

Amortization of acquisition-related intangibles

 

416,191

 

 

452,734

 

One-time restructuring and legal fees

 

43,000

 

 

350,000

 

Stock-based compensation

 

411,007

 

 

282,344

 

Non-GAAP adjusted EBITDA

$

(1,445,889

)

$

(213,655

)

 

 

 

Non-GAAP adjusted EBITDA per share

 

 

Basic

$

(0.14

)

$

(0.02

)

Diluted

$

(0.14

)

$

(0.02

)

Conference Call Information

Date: Thursday, May 14, 2020
Time: 4:30 pm ET / 1:30 pm PT
U.S.: 1-800-458-4121
International: 1-786-789-4772
Conference ID: 1127577
Webcast: http://public.viavid.com/index.php?id=139667

A replay of the call will be available from Thursday May 14, 2020, 7:30 pm ET to Thursday May 21, 2020, 11:59 pm ET. 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 1127577.

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 as a top performing firm in healthcare cybersecurity and was awarded the 2019 Top Healthcare Cybersecurity Consultants in Black Book IT Advisory Outcomes Survey.

Cautionary Note Regarding Forward Looking Statements

This release contains certain forward-looking statements relating to the business of CynergisTek. These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) 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, potential risks and uncertainties relating to the ultimate impact of COVID-19, including the geographic spread, the severity of the disease, the duration of the COVID-19 outbreak, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact, and the potential negative impacts of COVID-19 on the global economy and financial markets, 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.


Contacts

Investor Relations Contact:
Bryan Flynn
(949) 382-1419
InvestorRelations@CynergisTek.com

Media Contact:
Allison + Partners
Jaime Tero
415-755-8639
jaime.tero@allisonpr.com