BusinessWire

CynergisTek Reports Second Quarter 2020 Financial Results

Supporting Healthcare with Essential Cybersecurity and Privacy Services

AUSTIN, Texas--(BUSINESS WIRE)--$CTEK #CTEK--CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in cybersecurity, privacy, and compliance, today announced financial results for the three and six months ended June 30, 2020.


Recent Operational Focus due to COVID-19 Includes:

  • Won two large Fortune 1,000 and Global 500 contract renewals.
  • Managed Services revenue levels consistent with prior year.
  • Achieved additional permanent annualized expense reductions of over $3.3 million.
  • New partnership with Awake Security to offer AI-powered Compromise Assessments, identifying issues with hastily deployed telemedicine, remote work and surge facilities.

“Our revenue and operating results were negatively impacted for the current quarter as our hospital customers appropriately diverted their attention and resources to crisis management in the face of COVID-19,” said Caleb Barlow, President and CEO of CynergisTek. “We took decisive actions to reduce our operating expenses and to preserve liquidity, and are pleased that our recurring managed services revenues continue to hold up well through the pandemic. We are actively engaging with our customers and expanding our capabilities to help address healthcare’s changing cybersecurity needs surrounding telemedicine and remote work.”

For the Three Months Ended June 30, 2020, Compared to the Three Months Ended June 30, 2019

Revenue decreased $0.5 million to $4.6 million for the three months ended June 30, 2020, as compared to the same period in 2019. Managed Services revenue increased slightly to $2.9 million. Consulting and professional services revenue decreased $1.3 million due to lower revenue from two customers who had large non-recurring remediation contracts that we completed in the first half of last year. This was offset by $0.8 million in new consulting and professional services revenues from the acquisition of Backbone, which was also impacted by COVID-19.

Gross margin was 27% of revenue for the three months ended June 30, 2020, and 41% for the same period in 2019. This decrease was a result of continued lower revenue in legacy CynergisTek consulting and professional services revenue along with lower margins this quarter from Backbone due in part to COVID-19, additional costs from obtaining talented cyber security employees and costs associated with new managed services. We are continuing to take actions to reduce expenses to better position the Company for the current environment.

Sales and marketing expenses increased $0.4 million to $1.7 million for the three months ended June 30, 2020 due to an increase in headcount to grow revenue and additional systems cost to support automation. General and administrative expenses increased $0.3 million to $1.8 million for the three months ended June 30, 2020. The increase is due to a one-time $0.4 million charge in severance related costs to improve operating margins, $0.1 million in additional stock-based compensation, $0.2 million in costs for Backbone, offset by approximately $0.4 million in spend reductions associated with the reductions in force we started in December of 2019.

GAAP net loss from continuing operations for the three months ended June 30, 2020 was $2.5 million, or $0.23 per basic and diluted share compared to a net loss of $0.9 million, or $0.10 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 and restructuring costs, was $1.3 million for the three months ended June 30, 2020, compared to a loss of $0.4 million after adding back stock-based compensation for the same period in 2019.

The reconciliation of GAAP to non-GAAP information can be found in the table at the end of this release and provides the detail of the Company’s non-GAAP disclosures and the reconciliation of non-GAAP information.

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

June 30, 2020 (unaudited)

December 31, 2019

ASSETS

 

 

Current assets:

 

 

Cash and cash equivalents

$

5,407,443

 

$

5,328,726

Accounts receivable

 

1,962,597

 

 

3,210,726

Unbilled services

 

699,173

 

 

539,535

Prepaid and other current assets

 

1,826,129

 

 

1,205,769

Income taxes receivable

 

1,082,010

 

 

-

Total current assets

 

10,977,352

 

 

10,284,756

 

 

 

Property and equipment, net

 

853,622

 

 

946,219

Deposits

 

64,586

 

 

72,486

Deferred income taxes

 

1,918,508

 

 

1,836,258

Intangible assets, net

 

7,753,500

 

 

8,585,882

Goodwill

 

23,983,483

 

 

23,983,483

Total assets

$

45,551,051

 

$

45,709,084

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Accounts payable and accrued expenses

$

1,186,567

 

$

638,864

Accrued compensation and benefits

 

500,523

 

 

1,066,770

Deferred revenue

 

1,800,416

 

 

1,437,859

Income taxes payable

 

-

 

 

31,976

Current portion of promissory note to related parties

 

562,500

 

 

562,500

Current portion of Paycheck Protection Program loan

 

1,241,530

 

 

-

Current portion of operating lease

 

482,995

 

 

533,371

Total current liabilities

 

5,774,531

 

 

4,271,340

 

 

 

Long-term liabilities:

 

 

Earnout liability

 

2,400,000

 

 

2,400,000

Promissory note to related parties, less current portion

 

421,875

 

 

703,125

Paycheck Protection Program loan, less current portion

 

1,583,970

 

 

-

Operating lease, less current portion

 

93,063

 

 

158,995

Total long-term liabilities

 

4,498,908

 

 

3,262,120

 

 

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

Common stock, par value at $0.001, 33,333,333 shares authorized, 10,597,024 shares issued and outstanding at June 30, 2020, and 10,359,164 shares issued and outstanding at December 31, 2019

 

10,596

 

 

10,359

Additional paid-in capital

 

36,228,898

 

 

34,821,863

(Accumulated deficit) Retained earnings

 

(961,882

)

 

3,343,402

Total stockholders’ equity

 

35,277,612

 

 

38,175,624

Total liabilities and stockholders’ equity

$

45,551,051

 

$

45,709,084

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

Three Months Ended June 30,

Six Months Ended June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net revenues

$

4,557,571

 

$

5,057,460

 

$

9,673,398

 

$

10,831,117

 

Cost of revenues

 

3,346,497

 

 

2,963,636

 

 

6,770,028

 

 

6,448,275

 

Gross profit

 

1,211,074

 

 

2,093,824

 

 

2,903,370

 

 

4,382,842

 

 

Operating expenses:

 

 

 

 

Sales and marketing

 

1,677,484

 

 

1,335,732

 

 

3,164,831

 

 

2,817,115

 

General and administrative

 

1,796,488

 

 

1,465,144

 

 

3,901,332

 

 

3,118,777

 

Depreciation

 

45,772

 

 

49,115

 

 

93,372

 

 

88,100

 

Amortization of acquisition-related intangibles

 

416,191

 

 

452,734

 

 

832,382

 

 

905,468

 

Finance cost for equity commitment

 

390,000

 

 

-

 

 

390,000

 

 

-

 

Total operating expenses

 

4,325,935

 

 

3,302,725

 

 

8,381,917

 

 

6,929,459

 

Loss from operations

 

(3,114,861

)

 

(1,208,901

)

 

(5,478,547

)

 

(2,546,618

)

 

Other income (expense):

 

 

 

 

Other income

 

-

 

 

17

 

 

-

 

 

26

 

Interest income

 

1,608

 

 

16,638

 

 

7,675

 

 

16,638

 

Interest expense

 

(27,320

)

 

(113,545

)

 

(51,607

)

 

(409,450

)

Total other income (expense)

 

(25,712

)

 

(96,890

)

 

(43,932

)

 

(392,786

)

 

 

 

 

 

Loss before provision for income taxes

 

(3,140,573

)

 

(1,305,791

)

 

(5,522,479

)

 

(2,939,404

)

Income tax benefit

 

685,912

 

 

366,524

 

 

1,217,195

 

 

510,738

 

Net loss from continuing operations

 

(2,454,661

)

 

(939,267

)

 

(4,305,284

)

 

(2,428,666

)

(Loss) income from discontinued operations, including gain on sale, net of tax

 

 

 

-

 

 

 

 

 

(152,181

 

)

 

 

 

-

 

 

 

 

 

18,884,649

 

 

Net (loss) income

$

(2,454,661

)

$

(1,091,448

)

$

(4,305,284

)

$

16,455,983

 

 

 

 

 

 

Net (loss) income per share:

 

 

 

 

From continuing operations:

 

 

 

 

Basic

$

(0.23

)

$

(0.10

)

$

(0.41

)

$

(0.25

)

Diluted

$

(0.23

)

$

(0.10

)

$

(0.41

)

$

(0.24

)

 

 

 

 

 

From discontinued operations:

 

 

 

 

Basic

$

-

 

$

(0.02

)

$

-

 

$

1.94

 

Diluted

$

-

 

$

(0.02

)

$

-

 

$

1.90

 

 

 

 

 

 

Net (loss) income:

 

 

 

 

Basic

$

(0.23

)

$

(0.11

)

$

(0.41

)

$

1.69

 

Diluted

$

(0.23

)

$

(0.11

)

$

(0.41

)

$

1.66

 

 

 

 

 

 

Number of weighted average shares outstanding:

 

 

 

 

Basic

 

10,495,700

 

 

9,791,744

 

 

10,432,443

 

 

9,732,991

 

Diluted

 

10,495,700

 

 

9,791,744

 

 

10,432,443

 

 

9,911,140

 

 

CYNERGISTEK, INC. AND SUBSIDIARIES

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

(UNAUDITED)

 

Three Months Ended June 30,

 

 

2020

 

 

2019

 

GAAP loss from continuing operations

$

(3,114,861

)

$

(1,208,901

)

Adjustments:

 

 

Depreciation

 

45,772

 

 

49,115

 

Amortization of acquisition-related intangibles

 

416,191

 

 

452,734

 

Finance cost for equity commitment

 

390,000

 

 

-

 

Non-recurring severance related restructuring and legal costs

 

350,000

 

 

-

 

Stock-based compensation

 

606,265

 

 

281,162

 

Non-GAAP adjusted EBITDA

$

(1,306,633

)

$

(425,890

)

Non-GAAP adjusted EBITDA per share

 

 

Basic

$

(0.12

)

$

(0.02

)

Diluted

$

(0.12

)

$

(0.02

)

Conference Call Information
Date: Thursday, August 13th, 2020
Time: 4:30 pm ET / 1:30 pm PT
U.S.: 1-800-437-2398
International: 1-786-204-3966
Conference ID: 6817215
Webcast: http://public.viavid.com/index.php?id=140942

A replay of the call will be available from Thursday August 13, 2020, 7:30 PM ET to Thursday August 20, 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 6817215.

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:
Paul Anthony
(949) 382-1419
InvestorRelations@CynergisTek.com

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