CynergisTek Reports Second Quarter 2020 Financial Results

August 13, 2020 CynergisTek, Inc.

Supporting Healthcare with Essential Cybersecurity and Privacy Services

Austin, Texas – (August 13, 2020) – 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.

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

 

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

 

About the Author

CynergisTek, Inc.

CynergisTek is a top-ranked cybersecurity consulting firm dedicated to serving the information assurance needs of healthcare. CynergisTek offers specialized services and solutions to help organizations achieve privacy, security, and compliance goals. The company has been recognized by KLAS in the 2016 and 2018 Cybersecurity reports as a top performing firm in healthcare cybersecurity, as well as the 2017 Best in KLAS winner for Cybersecurity Advisory Services.

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