BusinessWire

CynergisTek Reports Full-Year 2019 Financial Results

Driving Market Demand with Bolstered Sales Team

AUSTIN, Texas--(BUSINESS WIRE)--$CTEK #cybersecurity--CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in healthcare cybersecurity, privacy, and compliance, today announced financial results for the fourth quarter and twelve months ended December 31, 2019.


Recent Operational Highlights Include:

  • Expanded partnership with a multi-year engagement for Managed Security Services (MSS) as well as remediation services totaling over $1 million in additional business.
  • Bolstered sales team by adding six experts in cybersecurity, healthcare IT, and privacy.
  • Expanded relationship with one of the world’s leading public research university systems with a six-figure contract with the firm’s Compliance Assist Partnership Program and Medical Device Security Assessment.
  • Strengthened board expertise in IT security, healthcare, public company, business development, and C-suite leadership with the addition of three new members.

Recent Financial Results (Compared to Prior Periods):

  • Revenues for the full-year 2019 increased by $0.1 million to $21.4 million.
    • Managed services, including equipment and software, revenue was $11.9 million, an increase of 10%, compared to $10.8 million for the same period of 2018. This increase was due to new multi-year managed services contracts.
    • Professional and consulting services revenues were down by $1.0 million to $9.5 million, compared to $10.5 million for the same period of 2018. This decrease was due to $0.6 million from the addition of the Backbone Consultants business offset by $1.6 million in lower revenues from consulting and professional services, primarily due to the completion of a large, non-recurring remediation contract for one of its largest customers.
  • Gross margin was 39% for 2019, and 48% for the same period in 2018. The reduction in gross margin is reflective of our investment in attracting talented cybersecurity employees, costs associated with ramping up our new managed services offerings, and the lower than expected consulting and professional services revenue from new and existing customers.
  • GAAP net loss from continuing operations for the twelve months ended December 31, 2019 was $(5.4) million, or $(0.55) per basic and diluted share compared to a net loss of $(4.0) million, or $(0.41) per basic and diluted share for the same period of 2018.
  • Non-GAAP adjusted EBITDA, was $(1.4) million for the twelve months of 2019, compared to breakeven for the same period in 2018.
  • Received a $2.5 million commitment from a current investor for equity financing to support current operations

“Over the last eight months I have been focused on the fundamentals of the business,” said Caleb Barlow, president and CEO of CynergisTek. “Strengthening the sales team, improving operational efficiencies, and positioning the company for growth. The hard work and dedication by our employees has started to pay off as you can see with our recent large contract announcements. We will work to continue this momentum into 2020.”

For the 12 Months Ended December 31, 2019, Compared to the 12 Months Ended December 31, 2018

Financial results are from the company’s continuing operations related to security services unless specifically noted that it includes discontinued operations related to the sale of the managed print services (MPS) business.

Revenue was $21.4 million for the year ended December 31, 2019, as compared to $21.3 million for the same period in 2018. Managed services revenue was $11.9 million an increase of 10%, compared to $10.8 million for the same period of 2018. Professional and consulting services revenues were $9.5 million, a decrease of $1.0 million, compared to $10.5 million for the same period of 2018.

Gross margin was 39% of revenue for the year ended December 31, 2019, and 48% for the same period in 2018.

Sales and marketing expenses were $5.3 million for the year ended December 31, 2019, as compared to $5.2 million for the same period in 2018. General and administrative expenses increased by $0.5 million to $6.9 million for the year ended December 31, 2019, as compared to $6.4 million for the same period in 2018. The increase in general and administrative expenses is attributed to 1) $0.9 million in non-recurring expenses related to the onboarding of our new CEO while our outgoing CEO remained as part of the transition, severance related costs associated with targeted cost reductions and transaction fees associated with the Backbone acquisition; and 2) $0.3 million in software subscriptions and support costs for streamlining operations and business tracking. These additional costs were primarily offset by lower costs of $0.6 million in severance paid to a departed executive in 2018. The company is continuing to look at additional areas where it might be able to further reduce costs.

GAAP net loss from continuing operations for the year ended December 31, 2019 was $(5.4) million, or $(0.55) per basic and diluted share compared to a net loss of $(4.0) million, or $(0.41) per basic and diluted share for the same period of 2018. GAAP net income for the year ended December 31, 2019, after adjustment for income from discontinued operations, was $14.9 million, or $1.51 per basic and $1.49 per diluted share compared to $1.9 million, or $0.20 per basic and $0.19 per diluted share for the same period of 2018.

Non-GAAP adjusted EBITDA loss from continuing operations, after adding back stock-based compensation, CEO transition related costs, restructuring costs related to a reduction in workforce at the end of the year, and transaction expenses related to the Backbone Consultants acquisition, was $(1.4) million for the year ended December 31, 2019, compared to breakeven after adding back stock-based compensation, change in valuation of earnout, non-recurring charges related to debt refinancing, and the departure of a senior executive for the same period in 2018.

The Company recently received a $2.5 million commitment from a current investor for equity financing to support current operations. The deal has a one-year term. The company is not obligated to sell any shares pursuant to the Equity Commitment. The purchase price of the shares will be at a discount to the market price and will include an initial warrant along with additional warrants if and when the company sells shares to the investor. The company is still finalizing the specific terms related to share purchases.

 

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

As of December 31,

 

 

2019

 

 

2018

 

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

5,328,726

 

$

6,571,381

 

Accounts receivable

 

3,210,726

 

 

5,572,467

 

Prepaid and other current assets

 

1,205,769

 

 

1,425,858

 

Refundable income taxes

 

-

 

 

472,059

 

Current assets held for sale

 

-

 

 

8,427,408

 

Total current assets

 

9,745,221

 

 

22,469,173

 

 

 

 

 

Property and equipment, net

 

946,219

 

 

1,403,525

 

Deposits

 

72,486

 

 

87,778

 

Deferred income taxes

 

1,836,258

 

 

2,146,020

 

Intangible assets, net

 

8,585,882

 

 

9,089,989

 

Goodwill

 

23,983,483

 

 

17,008,189

 

Noncurrent assets held for sale

 

-

 

 

1,844,349

 

Total assets

$

45,169,549

 

$

54,049,023

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

638,864

 

$

932,067

 

Accrued compensation and benefits

 

1,066,770

 

 

1,592,765

 

Deferred revenue

 

898,324

 

 

918,165

 

Income taxes payable

 

31,976

 

 

-

 

Note payable

 

-

 

 

343,750

 

Current portion of term loan

 

-

 

 

2,464,286

 

Current portion of promissory note to related party

 

562,500

 

 

562,500

 

Current portion of operating lease liability

 

533,371

 

 

576,082

 

Current liabilities held for sale

 

-

 

 

7,299,561

 

Total current liabilities

 

3,731,805

 

 

14,689,176

 

 

 

 

 

Long-term liabilities:

 

 

 

Term loan, less current portion

 

-

 

 

12,851,617

 

Promissory notes to related parties, less current portion

 

703,125

 

 

5,015,625

 

Capital lease obligations

 

-

 

 

1,570

 

Earnout liability

 

2,400,000

 

 

438,269

 

Operating lease liability, less current portion

 

158,995

 

 

620,640

 

Noncurrent liabilities held for sale

 

-

 

 

58,967

 

Total long-term liabilities

 

3,262,120

 

 

18,986,688

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Common stock, par value at $0.001, 33,333,333 shares authorized,

10,359,164 shares issued and outstanding at December 31, 2019 and

9,630,050 shares issued and outstanding at December 31, 2018

 

10,359

 

 

9,630

 

Additional paid-in capital

 

34,821,863

 

 

31,910,831

 

Accumulated earnings (deficit)

 

3,343,402

 

 

(11,547,302

)

Total stockholders’ equity

 

38,175,624

 

 

20,373,159

 

Total liabilities and stockholders’ equity

$

45,169,549

 

$

54,049,023

 

 

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

Year Ended December 31,

 

 

2019

 

 

2018

 

Net revenues

$

 

21,364,810

 

$

 

21,311,717

 

Cost of revenues

 

13,018,673

 

 

11,122,433

 

Gross profit

 

8,346,137

 

 

10,189,284

 

 

Operating expenses:

 

 

Sales and marketing

 

5,347,822

 

 

5,185,334

 

General and administrative expenses

 

6,891,245

 

 

6,437,316

 

Change in valuation of contingent earnout

 

(178,269

)

 

438,269

 

Depreciation

 

182,198

 

 

147,553

 

Amortization of acquisition-related intangibles

 

1,890,098

 

 

1,810,935

 

Impairment of intangible assets

 

614,010

 

 

-

 

Total operating expenses

 

14,747,104

 

 

14,019,407

 

Loss from operations

 

(6,400,967

)

 

(3,830,123

)

 

Other income (expense):

 

 

Other income

 

26

 

 

53

 

Interest income

 

77,248

 

 

-

 

Interest expense

 

(617,310

)

 

(1,437,862

)

Loss on disposition of property and equipment

 

(2,188

)

 

-

 

Total other expense

 

(542,224

)

 

(1,437,809

)

 

 

 

Loss before benefit for income taxes

 

(6,943,191

)

 

(5,267,932

)

Income tax benefit

 

1,528,808

 

 

1,305,534

 

Net loss from continuing operations

 

(5,414,383

)

 

(3,962,398

)

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

 

 

 

20,305,087

 

 

 

 

 

5,855,990

 

 

Net income

$

 

14,890,704

 

$

 

1,893,592

 

 

 

 

Net income (loss) per share:

 

 

From continuing operations:

 

 

Basic

$

 

(0.55

)

$

 

(0.41

)

Diluted

$

 

(0.55

)

$

 

(0.41

)

 

 

 

From discontinued operations:

 

 

Basic

$

 

2.06

 

$

 

0.61

 

Diluted

$

 

2.03

 

$

 

0.59

 

 

 

 

Net income:

 

 

Basic

$

 

1.51

 

$

 

0.20

 

Diluted

$

 

1.49

 

$

 

0.19

 

 

 

 

Number of weighted average shares outstanding:

 

 

Basic

 

9,858,562

 

 

9,608,312

 

Diluted

 

10,000,507

 

 

9,873,011

 

CYNERGISTEK, INC. AND SUBSIDIARIES

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

(UNAUDITED)

 

 

Three Months Ended December 31,

12 Months Ended December 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

GAAP loss from continuing operations

$

(2,352,864

)

$

(144,768

)

$

(6,400,967

)

$

(3,830,123

)

Adjustments:

 

 

 

 

Depreciation

 

46,323

 

 

39,720

 

 

182,199

 

 

147,553

 

Amortization of acquisition-related intangibles

 

531,896

 

 

452,733

 

 

1,890,098

 

 

1,810,935

 

Impairment of intangible assets

 

614,010

 

 

-

 

 

614,010

 

 

-

 

One-time restructuring and legal fees

 

368,157

 

 

438,269

 

 

1,051,568

 

 

1,173,452

 

Stock-based compensation

 

409,825

 

 

704,352

 

 

1,298,931

 

 

704,352

 

Non-GAAP adjusted EBITDA (loss)

$

(382,653

)

$

1,490,306

 

$

(1,364,162

)

$

6,169

 

Non-GAAP adjusted EBITDA (loss) per share

 

 

 

Basic

$

(0.04

)

$

0.15

 

$

(0.14

)

$

0.00

 

Diluted

$

(0.04

)

$

0.15

 

$

(0.14

)

$

0.00

 

Conference Call Information
Date: Monday, March 30, 2020
Time: 4:30 pm Eastern Time / 1:30 pm Pacific Time
U.S.: 1-888-204-4368
International: 1-786-789-4797
Conference ID: 9062180
Webcast: http://public.viavid.com/index.php?id=138537

A replay of the call will be available from 7:30 pm ET on March 30, 2020 to 11:59 pm ET on April 6, 2020.
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 9062180.

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.

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/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 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:
Bryan Flynn
(949) 382-1419
InvestorRelations@CynergisTek.com

Media:
Danielle Johns
Senior Account Executive
Aria Marketing
(617) 332-9999 x241
djohns@ariamarketing.com