Supporting Healthcare with Essential
Cybersecurity and Privacy Services
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200813005757/en/
Investor Relations Contact: Paul Anthony (949) 382-1419
InvestorRelations@CynergisTek.com
Media Contact: Allison + Partners Jaime Tero 415-755-8639
jaime.tero@allisonpr.com
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