CynergisTek Reports First Quarter 2020 Financial Results

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.

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.

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