Firm Continues to Expand Managed Services
Contracts and Positions Itself for Future Growth
CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in healthcare
cybersecurity, privacy, and compliance, today announced financial
results for the second quarter ended June 30, 2019.
Financial Highlights for the Second Quarter 2019
Include:
Financials represent business from continuing operations.
Discontinued operations have been isolated.
- Revenues from continuing operations for the second quarter were
$5.1 million, an increase of 17%, compared to $4.3 million for the
same period of 2018.
- Managed services revenue, from continuing operations, was $2.8
million an increase of 13%, compared to $2.5 million for the same
period of 2018.
- Professional and Consulting services revenues, from continuing
operations, were $2.2 million an increase of 23%, compared to $1.8
million for the same period of 2018.
- Non-GAAP adjusted EBITDA loss from continuing operations, after
adding back stock-based compensation, was $(0.4) million in the
second quarter of 2019, compared to $(0.8) million after adding
back stock-based compensation for the same period in 2018.
- Non-GAAP adjusted loss from continuing operations per share for
the second quarter 2019 was ($0.05) per basic and diluted share,
compared to ($0.11) per basic and diluted share for the same period
of 2018.
Recent Operational Highlights Include:
- Announcement of Caleb Barlow, globally recognized security
professional as new President and Chief Executive Officer.
- Continued to drive expansion of managed services offerings into
existing client base increasing accounts with multiple managed
services.
- Addition of Carrie Whysall, a healthcare veteran with over 20
years’ experience in IT leadership to accelerate growth in Managed
Service offerings; Vendor Security Management (VSM), Managed
Security Services (MSS), and Medical Device Security.
“CynergisTek has just marked its tenth consecutive quarter of
year-over-year revenue growth in security,” said Mac McMillan, CEO
Emeritus of CynergisTek. “The evolving security threat landscape
and several new privacy regulations at the state level have been
key factors contributing to the increased demand for our managed
services. Like this quarter, we will continue to focus on expanding
our newer managed services into our growing client base.”
“CynergisTek has seen continued success in the highly regulated
healthcare industry,” said Caleb Barlow, President and CEO of
CynergisTek. “CynergisTek has all the components in place to take
advantage of the evolving threat landscape and I see tremendous
opportunity to expand on what they have built by adding another
layer to the assessments and managed services that help clients be
more resilient in a cybersecurity incident.”
For the Three Months Ended June 30, 2019 Compared to the
Three Months Ended June 30, 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 increased by approximately
$0.7 million to $5.1 million for the three months ended June 30,
2019, as compared to the same period in 2018.
Cost of revenue was $3.0 million for the three months ended June
30, 2019, as compared to $2.5 million for the same period in 2018.
This increase was due to increased headcount in order to provide
services to a larger customer base, support new services, and
efforts to augment the employee salary and benefit offerings to
attract and retain talent.
Gross margin was 41% of revenue for the three months ended June
30, 2019 and 43% for the same period in 2018. The slight decline in
gross margin is reflective of investment in attracting and
retaining talented cyber security employees and costs associated
with ramping up new services.
Sales and marketing expenses were $1.3 million for the three
months ended June 30, 2019, as compared to $1.3 million for the
same period in 2018. General and administrative (G&A) expenses
increased to $1.5 million for the three months ended June 30, 2019,
as compared to $1.4 million for the same period in 2018. The
increase in G&A is due to an increase in salaries and related
costs primarily as a result of the issuance of restricted stock
units to key employees and board members and software subscriptions
for business tracking.
On March 20, 2019, CynergisTek sold the MPS business. The
adjustments to the gain on the sale of this business together with
the charges from these discontinued operations totaled $0.2 million
for the three months ended June 30, 2019. Earnings from these
discontinued operations in the second quarter of 2018 totaled $1.8
million.
GAAP net loss from continuing operations for the second quarter
was $(0.9) million, or $(0.10) per basic and diluted share compared
to a net loss of $(1.7) million, or $(0.17) per basic and diluted
share for the same period of 2018. GAAP net loss for the second
quarter, after adjustment from income from discontinued operations,
including gain on sale, net of tax, was $(1.1) million, or $(0.11)
per basic and diluted share compared to net income after adjustment
from income from discontinued operations, net of tax of $0.1
million, or $0.1 per basic and diluted share for the same period of
2018.
For the Six Months Ended June 30, 2019, Compared to the Six
Months Ended June 30, 2018
Revenue increased by approximately $2.1 million to $10.8 million
for the six months ended June 30, 2019, as compared to the same
period in 2018 due to increased sales efforts, expansion of service
offerings and benefitted from current customers’ need for
additional managed services. This increase is a result of an
approximately $0.8 million increase in multi-year managed service
revenues and approximately $1.3 million in additional revenues from
consulting and professional services provided to new and existing
customers.
Cost of revenue was $6.4 million for the six months ended June
30, 2019, as compared to $4.9 million for the same period in 2018.
CynergisTek incurred approximately $1.1 million more in salaries
and related costs, approximately $0.2 million more in stock
compensation, and approximately $0.3 million more in contract
labor. These increases were due to increased headcount in order to
provide services to a larger customer base to support new services
and the efforts to augment the employee salary and benefit
offerings to attract and retain talent.
Gross margin was 40% of revenue for the six months ended June
30, 2019, and 44% for the same period in 2018. The decline in gross
margin is reflective of the Company’s investment in attracting and
retaining talented cybersecurity employees and costs associated
with ramping up new services. Over the next few quarters, it is
expected for gross margins to improve as the Company looks to grow
cybersecurity consulting services.
Sales and marketing expenses were $2.8 million for the six
months ended June 30, 2019, as compared to $2.7 for the same period
in 2018. The increase is primarily a result of a broad array of
additional marketing expenses incurred in an effort to increase
sales. General and administrative expenses decreased by $0.4
million to $3.1 million for the six months ended June 30, 2019, as
compared to $3.5 million for the same period in 2018 which includes
$0.6 million of severance expense related to a departed
executive.
GAAP net loss from continuing operations for the six months
ended June 30, 2019 was $(2.4) million, or $(0.25) per basic and
diluted share compared to a net loss of $(3.5) million, or $(0.37)
per basic and diluted share for the same period of 2018. GAAP net
income for the six months ended June 30, 2019, after adjustment
from income from discontinued operations, including gain on sale,
net of tax, was $16.5 million, or $1.69 per basic and $1.66 per
diluted share compared to a net loss after adjustment from income
from discontinued operations, net of tax of $(0.6) million, or
$(0.06) per basic and diluted share for the same period of
2018.
The reconciliation of GAAP to non-GAAP information can be found
in the tables at the end of this release and provide the details of
the Company’s non-GAAP disclosures and the reconciliation of
non-GAAP information.
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
June 30, 2019
(unaudited)
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
10,845,464
$
6,571,381
Accounts receivable, net
4,810,332
5,572,467
Prepaid and other current assets
3,511,465
1,425,858
Refundable income taxes
-
472,059
Current assets held for sale
201,965
8,427,408
Total current assets
19,369,226
22,469,173
Property and equipment, net
818,842
887,874
Deposits
79,710
87,778
Deferred income taxes
1,615,173
2,146,020
Intangible assets, net
8,184,521
9,089,989
Goodwill
17,008,189
17,008,189
Noncurrent assets held for sale
-
1,844,349
Total assets
$
47,075,661
$
53,533,372
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
432,679
$
1,370,336
Accrued compensation and benefits
1,022,593
1,592,765
Deferred revenue
1,649,026
918,165
Income taxes payable
4,253,173
-
Note payable
-
343,750
Current portion of long-term
liabilities
866,995
3,271,052
Current liabilities held for sale
70,000
7,299,561
Total current liabilities
8,294,467
14,795,629
Long-term liabilities:
Term loan, less current portion
-
12,851,617
Promissory notes to related parties, less
current portion
984,375
5,015,625
Capital lease obligations, less current
portion
-
1,570
Operating lease liability, less current
portion
268,343
436,805
Noncurrent liabilities held for sale
-
58,967
Total long-term liabilities
1,252,718
18,364,584
Commitments and contingencies
Stockholders’ equity:
Common stock, par value at $0.001,
33,333,333 shares authorized, 9,795,147 shares issued and
outstanding at June 30, 2019, and 9,630,050 shares issued and
outstanding at December 31, 2018
9,795
9,630
Additional paid-in capital
32,610,001
31,910,831
Accumulated earnings (deficit)
4,908,681
(11,547,302
)
Total stockholders’ equity
37,528,477
20,373,159
Total liabilities and stockholders’
equity
$
47,075,661
$
53,533,372
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Net revenues
$
5,057,460
$
4,308,015
$
10,831,117
$
8,682,584
Cost of revenues
2,963,636
2,476,264
6,448,275
4,885,044
Gross profit
2,093,824
1,831,751
4,382,842
3,797,540
Operating expenses:
Sales and marketing
1,335,732
1,324,198
2,817,115
2,692,069
General and administrative
1,465,144
1,368,233
3,118,777
3,537,524
Depreciation
49,115
35,915
88,100
70,979
Amortization of acquisition-related
intangibles
452,734
452,734
905,468
905,468
Total operating expenses
3,302,725
3,181,080
6,929,459
7,206,040
Loss from operations
(1,208,901
)
(1,349,329
)
(2,546,618
)
(3,408,500
)
Other income (expense):
Other income
17
9
26
29
Interest income
16,638
-
16,638
-
Interest expense
(113,545
)
(341,579
)
(409,450
)
(741,312
)
Total other income (expense)
(96,890
)
(341,570
)
(392,786
)
(741,283
)
(Loss) before provision for income
taxes
(1,305,791
)
(1,690,899
)
(2,939,404
)
(4,149,783
)
Income tax benefit
366,524
16,532
510,738
619,004
Net loss from continuing
operations
(939,267
)
(1,674,367
)
(2,428,666
)
(3,530,779
)
Income (loss) from discontinued
operations, including gain on sale, net of tax
(152,181
)
1,795,500
18,884,649
2,944,569
Net income (loss)
$
(1,091,448
)
$
121,133
$
16,455,983
$
(586,210
)
Net income (loss) per share:
From continuing operations:
Basic
$
(0.10
)
$
(0.17
)
$
(0.25
)
$
(0.37
)
Diluted
$
(0.10
)
$
(0.17
)
$
(0.24
)
$
(0.37
)
From discontinued operations:
Basic
$
(0.02
)
$
0.19
$
1.94
$
0.31
Diluted
$
(0.02
)
$
0.18
$
1.90
$
0.31
Net income:
Basic
$
(0.11
)
$
0.01
$
1.69
$
(0.06
)
Diluted
$
(0.11
)
$
0.01
$
1.66
$
(0.06
)
Number of weighted average shares
outstanding:
Basic
9,791,744
9,613,566
9,732,991
9,600,120
Diluted
9,791,744
9,827,686
9,931,281
9,600,120
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,
Six Months, Ended June
30,
2019
2018
2019
2018
GAAP loss from continuing
operations
$
(1,208,901
)
$
(1,349,329
)
$
(2,546,618
)
$
(3,408,500
)
Adjustments:
Depreciation
49,115
35,915
88,100
70,979
Amortization of acquisition-related
intangibles
452,734
452,734
905,468
905,468
One-time restructuring and legal fees
-
-
-
735,183
Stock-based compensation
281,162
105,211
563,506
283,658
Non-GAAP adjusted EBITDA
$
(425,890
)
$
(755,469
)
$
(989,543
)
$
(1,413,212
)
Non-GAAP adjusted EBITDA per
share
Basic
$
(0.04
)
$
(0.08
)
$
(0.10
)
$
(0.15
)
Diluted
$
(0.04
)
$
(0.08
)
$
(0.10
)
$
(0.15
)
RECONCILIATION OF GAAP NET
LOSS FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EARNINGS FROM
CONTINUING OPERATIONS (UNAUDITED)
Three Months, Ended June
30,
Six Months, Ended June
30,
2019
2018
2019
2018
GAAP net loss from continuing
operations
$
(939,267
)
$
(1,674,367
)
$
(2,428,666
)
$
(3,530,779
)
Adjustments:
Non-Cash Income Tax Adjustment
(366,524
)
(16,532
)
(510,738
)
(619,004
)
Other Expense
-
(9
)
(26
)
(29
)
Depreciation
49,115
35,915
88,100
70,979
Amortization of acquisition-related
intangibles
452,734
452,734
905,468
905,468
One-time restructuring and legal fees
-
-
-
735,183
Stock-based compensation
281,162
105,211
563,506
283,658
Non-GAAP adjusted earnings
$
(522,780
)
$
(1,097,048
)
$
(1,382,355
)
$
(2,154,524
)
Non-GAAP adjusted earnings per
share
Basic
$
(0.05
)
$
(0.11
)
$
(0.14
)
$
(0.22
)
Diluted
$
(0.05
)
$
(0.11
)
$
(0.14
)
$
(0.22
)
Conference Call Information Date: Wednesday, August 14,
2019 Time: 2:00 pm Eastern Time / 11:00 am Pacific Time U.S.:
1-800-458-4148 International: 1-323-794-2597 Conference ID: 1876799
Webcast: http://public.viavid.com/player/index.php?id=135679
A replay of the call will be available from 5:00 pm ET on August
14, 2019 to 11:59 pm ET on August 21, 2019. 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 1876799.
About CynergisTek, Inc.
CynergisTek is a top-ranked cybersecurity and information
management consulting firm dedicated to serving 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 named in numerous research
reports as one of the top firms that provider organizations turn to
for privacy and security, and won the 2017 Best in KLAS award for
Cyber Security Advisory Services.
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190813005682/en/
Investor Relations Contact: Bryan Flynn (512) 402-8550
ext. 8 InvestorRelations@CynergisTek.com
Media Contact: Danielle Johns Senior Account Executive
Aria Marketing (617) 332-9999 x241 djohns@ariamarketing.com
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