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13.08.2020 22:05:00
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CynergisTek Reports Second Quarter 2020 Financial Results
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 |
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June 30, 2020 (unaudited) |
December 31, 2019 |
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ASSETS |
|
|
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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: |
|
|
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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 |
|
|
|
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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 |
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RECONCILIATION OF GAAP LOSS FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EBITDA FROM CONTINUING OPERATIONS |
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(UNAUDITED) |
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|
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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20200813005757/en/
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