CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in
cybersecurity, privacy, and compliance, today announced financial
results for the three and nine months ended September 30, 2020.
Recent Operational Highlights
- Won three significant new managed service contracts in the
third quarter
- Large west coast State Department of Public Health diversifying
our managed services beyond providers
- Several recent renewals with existing customers for expanded
services
- Two new hospital systems - Fairview Health Services and Valley
Health System
- Overall sales trends began to strengthen at the end of Q3
- Expense reduction, delivery efficiency and restructuring
initiatives drove improvements in operating results despite
COVID-19 headwinds
- Sequentially for Q3 versus Q2, gross margins improved to 35%
from 27%; net loss improved by $1.2 million and Adjusted EBITDA
improved by $0.6 million
- Q3 Net loss and EPS remained flat compared with prior year
“We continued to execute on our plans to streamline the
organization, improve delivery efficiency and reduce operating
expenses through the quarter and those efforts are reflected in the
improvements from the second quarter to the third quarter,” said
Caleb Barlow, President and CEO of CynergisTek.
“As the headwinds of COVID-19 continue to impact the healthcare
industry, we are pleased to see positive results from our
investments in sales and marketing, as evidenced by the new wins in
the third quarter, improvements in our pipeline and positive sales
momentum as we near the end of the year.”
For the Three Months Ended September 30, 2020, Compared to
the Three Months Ended September 30, 2019
Revenue was $4.5 million for the three months ended September
30, 2020, as compared to $4.8 million in the same period in 2019.
Managed Services revenue decreased $0.4 million to $2.7 million due
to the impact of some customers canceling or delaying renewals and
a slowdown in net new customers due to healthcare providers
responding to the negative impact from and uncertainty surrounding
the impact from COVID-19. Consulting and professional services
revenue increased $0.1 million to $1.8 million due to $0.8 million
in new consulting and professional services revenues from the
acquisition of Backbone.
Gross margin was 35% of revenue for the three months ended
September 30, 2020, compared to 34% for the same period in 2019.
This increase was a result staff and expense reductions we made
over the last couple quarters in reaction to lower revenue.
Sales and marketing expenses increased to $1.3 million for the
three months ended September 30, 2020 due to the addition of
Backbone. General and administrative expenses decreased $0.2
million to $1.5 million for the three months ended September 30,
2020. The decrease is due to $0.4 million in expense reductions
enacted to improve operating margins offset by the additional costs
from Backbone.
GAAP net loss from continuing operations for the three months
ended September 30, 2020 was $1.3 million, or $0.12 per basic and
diluted share compared to a net loss of $1.3 million, or $0.13 per
basic and diluted share for the same period of 2019.
Non-GAAP adjusted EBITDA loss was $0.8 million for the three
months ended September 30, 2020, compared to a loss of $0.4 million
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.
Use of Non-GAAP Measures
CynergisTek, Inc. prepares its consolidated financial statements
in accordance with generally accepted accounting principles
(“GAAP”). In addition to disclosing financial results prepared in
accordance with GAAP, the Company discloses information regarding
Adjusted EBITDA, which differs from the term EBITDA as it is
commonly used. In addition to adjusting net income (loss) to
exclude income taxes, interest, and depreciation and amortization,
Adjusted EBITDA also excludes share-based compensation, impairment
charges, fair value adjustments, severance, and other cash and
non-cash charges and gains.
Adjusted EBITDA is not a measure of performance defined in
accordance with GAAP. However, Adjusted EBITDA is used internally
in planning and evaluating the Company’s operating performance.
Accordingly, management believes that disclosure of this metric
offers investors, bankers and other stakeholders an additional view
of the Company’s operations that, when coupled with the GAAP
results, provides a more complete understanding of the Company’s
financial results.
Adjusted EBITDA should not be considered as an alternative to
loss from continuing operations or to net cash used in operating
activities as measures of operating results or liquidity. Our
calculation of Adjusted EBITDA may not be comparable to similarly
titled measures used by other companies, and the measures exclude
financial information that some may consider important in
evaluating the Company’s performance.
Adjusted EBITDA has limitations as analytical tools, and you
should not consider them in isolation, or as substitutes for
analysis of our results as reported under GAAP. Some of these
limitations are (i) it does not reflect our cash expenditures, or
future requirements for capital expenditures or contractual
commitments, (ii) it does not reflect changes in, or cash
requirements for, our working capital needs, (iii) Adjusted EBITDA
does not reflect interest expense, or the cash requirements
necessary to service interest or principal payments, on our debt,
(iv) although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized will often have to be
replaced in the future, and Adjusted EBITDA do not reflect any cash
requirements for such replacements, (v) it does not adjust for all
non-cash income or expense items that are reflected in our
statements of cash flows, (vi) it does not reflect the impact of
earnings or charges resulting from matters we consider not to be
indicative of our ongoing operations, and (vii) other companies in
our industry may calculate this measure differently than we do,
limiting its usefulness as a comparative measure.
We believe Adjusted EBITDA facilitates operating performance
comparisons from period to period by isolating the effects of some
items that vary from period to period without any correlation to
core operating performance or that vary widely among similar
companies. These potential differences may be caused by variations
in capital structures (affecting interest expense), tax positions
(such as the impact on periods or companies of changes in effective
tax rates or net operating losses) and the age and book
depreciation of facilities and equipment (affecting relative
depreciation expense). We also present Adjusted EBITDA because (i)
we believe this measures is frequently used by securities analysts,
investors and other interested parties to evaluate companies in our
industry, (ii) we believe investors will find this measure useful
in assessing our ability to service or incur indebtedness, and
(iii) we use Adjusted EBITDA internally as a benchmark to evaluate
our operating performance or compare our performance to that of our
competitors.
Conference Call Information
Date: Thursday, November 12th, 2020 Time: 4:30 pm ET / 1:30 pm
PT
U.S.: 1-866-269-4260 International: 1-786-204-3977 Conference
ID: 8233178 Webcast:
http://public.viavid.com/index.php?id=142245
A replay of the call will be available from Thursday November
12, 2020, 7:30 PM ET to Thursday November 19, 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 8233178.
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.
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
September 30, 2020
(unaudited)
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$ 4,287,162
$ 5,328,726
Accounts receivable
1,898,434
3,210,726
Unbilled services
697,322
539,535
Prepaid and other current assets
1,377,628
1,205,769
Income taxes receivable
1,478,933
-
Total current assets
9,739,479
10,284,756
Property and equipment, net
710,949
946,219
Deposits
64,586
72,486
Deferred income taxes
1,949,716
1,836,258
Intangible assets, net
7,337,308
8,585,882
Goodwill
23,983,483
23,983,483
Total assets
$ 43,785,521
$ 45,709,084
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable and accrued expenses
$ 802,002
$ 638,864
Accrued compensation and benefits
544,412
1,066,770
Deferred revenue
1,555,277
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
1,714,946
-
Current portion of operating lease
370,565
533,371
Total current liabilities
5,549,702
4,271,340
Long-term liabilities:
Earnout liability
2,400,000
2,400,000
Promissory note to related parties, less
current portion
281,250
703,125
Paycheck Protection Program loan, less
current portion
1,110,554
-
Operating lease, less current portion
64,725
158,995
Total long-term liabilities
3,856,529
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 September 30, 2020, and 10,359,164 shares issued and
outstanding at December 31, 2019
10,596
10,359
Additional paid-in capital
36,606,975
34,821,863
(Accumulated deficit) Retained
earnings
(2,238,281)
3,343,402
Total stockholders’ equity
34,379,290
38,175,624
Total liabilities and stockholders’
equity
$ 43,785,521
$ 45,709,084
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Net revenues
$ 4,502,909
$ 4,766,000
$ 14,176,307
$ 15,597,117
Cost of revenues
2,909,788
3,165,502
9,679,816
9,613,777
Gross profit
1,593,121
1,600,498
4,496,491
5,983,340
Operating expenses:
Sales and marketing
1,325,965
1,090,733
4,490,797
3,907,847
General and administrative
1,480,597
1,689,012
5,381,929
4,807,789
Change in valuation of contingent
earnout
-
(178,269)
-
(178,269)
Depreciation
48,296
47,775
141,668
135,875
Amortization of acquisition-related
intangibles
416,191
452,734
1,248,574
1,358,202
Finance cost for equity commitment
-
-
390,000
-
Total operating expenses
3,271,049
3,101,985
11,652,968
10,031,444
Loss from operations
(1,677,928)
(1,501,487)
(7,156,477)
(4,048,104)
Other income (expense):
Other income
-
-
-
26
Interest income
1,868
41,438
9,543
58,076
Interest expense
(26,046)
(30,459)
(77,654)
(439,909)
Loss on disposition of fixed assets
(2,188)
(2,188)
Total other (expense) income
(24,179)
8,791
(68,110)
(383,995)
Loss before provision for income
taxes
(1,702,107)
(1,492,696)
(7,224,586)
(4,432,099)
Income tax benefit
425,708
236,040
1,642,902
746,778
Net loss from continuing
operations
(1,276,399)
(1,256,656)
(5,581,684)
(3,685,321)
(Loss) income from discontinued
operations, including gain on sale, net of tax
-
(6,500)
-
18,878,149
Net (loss) income
$ (1,276,399)
$ (1,263,156)
$ (5,581,684)
$ 15,192,828
Net (loss) income per share:
From continuing operations:
Basic
$ (0.12)
$ (0.13)
$ (0.53)
$ (0.38)
Diluted
$ (0.12)
$ (0.13)
$ (0.53)
$ (0.38)
From discontinued operations:
Basic
$ -
$ -
$ -
$ 1.94
Diluted
$ -
$ -
$ -
$ 1.90
Net (loss) income:
Basic
$ (0.12)
$ (0.13)
$ (0.53)
$ 1.56
Diluted
$ (0.12)
$ (0.13)
$ (0.53)
$ 1.53
Number of weighted average shares
outstanding:
Basic
10,597,024
9,795,147
10,486,334
9,754,014
Diluted
10,597,024
9,795,147
10,486,334
9,910,107
CYNERGISTEK, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP LOSS
FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EBITDA FROM
CONTINUING OPERATIONS
(UNAUDITED)
Three Months Ended September
30,
2020
2019
GAAP loss from continuing
operations
$ (1,677,928)
$ (1,501,486)
Adjustments:
Depreciation
48,296
47,775
Amortization of acquisition-related
intangibles
416,191
452,734
Non-recurring restructuring and legal
costs
79,000
300,000
Stock-based compensation
378,077
325,600
Non-GAAP adjusted EBITDA
$ (756,364)
$ (375,377)
Non-GAAP adjusted EBITDA per
share
Basic
$ (0.07)
$ (0.04)
Diluted
$ (0.07)
$ (0.04)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201112005994/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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