CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in
cybersecurity, privacy, and compliance, today announced financial
results for the three and twelve months ended December 31,
2020.
Recent Operational Highlights
- Increased year-end presold revenue by 10% to $17.2 million when
compared to Q3 2020.
- Q4 gross margins improved to 37%, a 200 bps improvement over Q3
2020.
- Diversification efforts started to show momentum
- Added a new University customer in Ball State and expanded
services within an existing large University System
- Announced expansion of our services to provide consulting and
assessments as part of the Cybersecurity Maturity Model
Certification (CMMC) for the 300,000 suppliers to the Defense
Industrial Base under our RedSpin brand. We are one of the first 20
certified third-party assessment organizations and have started
closing deals to do CMMC readiness evaluations.
- Market conditions and CynergisTek’s recent service enhancements
resulted in increased professional services work as demonstrated by
the recent announcement of a large $700,000 deal with a new health
system client.
“We continue to see progress executing our strategy to ramp up
growth, focused on solidifying our market leading position in
healthcare, while actively pursuing margin enhancement
opportunities and diversification steps to target other highly
regulated industries,” said Caleb Barlow, President and CEO of
CynergisTek.
“New offerings and the associated strategy have started to show
results with a 10% increase in presold revenue, largest quarterly
security bookings in over two years and a pipeline that is starting
to be more balanced and representative of where we see future
growth in and outside of healthcare.”
For the Three Months Ended December 31, 2020, Compared to the
Three Months Ended December 31, 2019
Revenue was $4.7 million for the three months ended December 31,
2020, as compared to $5.8 million in the same period in 2019.
Managed Services revenue decreased $0.3 million to $2.8 million due
to the impact of some customers canceling or delaying renewals and
a slowdown in net new customers due largely to healthcare providers
responding to the negative impact from, and uncertainty
surrounding, the impact of COVID-19. Consulting and professional
services revenue decreased $0.8 million to $1.9 million, due in
part to lower revenue from legacy CynergisTek business affected by
to COVID-19, partially offset by new consulting and professional
services revenues from the acquisition of Backbone.
Gross margin was 37% of revenue for the three months ended
December 31, 2020, compared to 40% for the same period in 2019.
This decrease was a direct result of the drop in revenue partially
offset by expense reductions and operational efficiencies we made
over the last couple of quarters in reaction.
SG&A expenses decreased $1.3 million for the three months
ended December 31, 2020, due primarily to lower payroll related
expenses as we looked to rebuild part of the sales team, lower
stock base compensation due to the reduction of sales headcount and
administrative expense reduction efforts taken to improve operating
margins for 2020, partially offset by the addition of Backbone.
GAAP net loss from continuing operations for the three months
ended December 31, 2020 was $12.9 million, or $1.18 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 2019. During the
quarter the Company recorded a non-cash impairment to goodwill and
intangibles amounting to $16.5 million.
Non-GAAP adjusted EBITDA loss was $0.3 million for the three
months ended December 31, 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 an analytical tool, 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, March 25th,
2021 Time: 4:30 p.m. ET / 1:30 p.m. PT U.S.: 1-800-430-8332
International: 1-786-204-3977 Conference ID: 1886683 Webcast:
http://public.viavid.com/index.php?id=143905
A replay of the call will be available from Thursday, March 25,
2021, 7:30 p.m. ET to Thursday, April 1, 2021, 11:59 p.m. 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 1886683.
About CynergisTek, Inc.
CynergisTek is a top-ranked cybersecurity consulting firm
helping organizations in highly-regulated industries, including
those in healthcare, government, and finance navigate emerging
security and privacy issues. CynergisTek combines intelligence,
expertise, and a distinct methodology to validate a company's
security posture and ensure the team is rehearsed, prepared, and
resilient against threats. Since 2004, CynergisTek has been
dedicated to hiring and retaining experts who bring real-life
experience and hold advanced certifications to support and educate
the industry by contributing to relevant industry associations. For
more information, visit www.cynergistek.com or follow us on Twitter
or Linkedin.
Cautionary Note Regarding Forward Looking Statements
This release contains certain forward-looking statements
relating to the business of CynergisTek. These forward-looking
statements are 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”) and can be identified by the use of forward-looking
terminology such as “believes,” “expects,” “anticipates,” “would,”
“could,” “intends,” “may,” “will,” or similar expressions. Such
forward-looking statements involve known and unknown risks and
uncertainties, including but not limited to uncertainties relating
to product/services development; long and uncertain sales cycles;
the ability to obtain or maintain proprietary intellectual property
protection; future capital requirements; competition from other
providers; the ability of our vendors to continue supplying the
company with supplies and services at comparable terms and prices;
the Company’s ability to successfully compete and introduce
enhancements and new features that achieve market acceptance and
that keep pace with technological developments; the Company’s
ability to maintain its brand and reputation and retain or replace
its significant customers; cybersecurity risks and risks of damage
and interruptions of information technology systems; the Company’s
ability to retain key members of management and successfully
integrate new executives; the Company’s ability to complete
acquisitions, strategic investments, entry into new lines of
business, divestitures, mergers or other transactions on acceptable
terms, or at all; potential risks and uncertainties relating to the
existing and ultimate impact of COVID-19, including the geographic
spread, the severity of the virus, 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.
Given the risks and uncertainties, readers should not place undue
reliance on any forward-looking statement and should recognize that
the statements are predictions of future results which may not
occur as anticipated. Many of the risks listed above have been, and
may further be, exacerbated by the COVID-19 pandemic, including its
impact on the healthcare industry. Actual results could differ
materially from those anticipated in the forward-looking statements
and from historical results, due to the risks and uncertainties
described herein, as well as others not now anticipated.
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
CONSOLIDATED BALANCE
SHEETS
December 31, 2020
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
5,613,654
$
5,328,726
Accounts receivable, net of allowance for
doubtful accounts
2,063,136
3,210,726
Unbilled services
566,713
539,535
Prepaid and other current assets
2,032,420
1,205,769
Income taxes receivable
1,680,866
-
Total current assets
11,956,789
10,284,756
Property and equipment, net
541,525
946,219
Deposits
64,586
72,486
Deferred income taxes
4,959,125
1,836,258
Intangible assets, net
6,063,617
8,585,882
Goodwill
8,394,483
23,983,483
Total assets
$
31,980,125
$
45,709,084
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
1,326,919
$
638,864
Accrued compensation and benefits
814,830
1,066,770
Deferred revenue
1,265,864
1,437,859
Income taxes payable
-
31,976
Current portion of promissory note to
related parties
562,500
562,500
Current portion of operating lease
252,398
533,371
Total current liabilities
4,222,511
4,271,340
Long-term liabilities:
Earnout liability
1,300,000
2,400,000
Promissory note to related parties, less
current portion
140,625
703,125
Paycheck Protection Program loan
2,825,500
-
Operating lease liability, less current
portion
40,031
158,995
Total long-term liabilities
4,306,156
3,262,120
Commitments and contingencies
Stockholders’ equity:
Common stock, par value at $0.001,
33,333,333 shares authorized, 12,024,967 shares issued and
outstanding at December 31, 2020, and 10,359,164 shares issued and
outstanding at December 31, 2019
12,024
10,359
Additional paid-in capital
38,564,520
34,821,863
Accumulated (deficit) earnings
(15,125,086
)
3,343,402
Total stockholders’ equity
23,451,458
38,175,624
Total liabilities and stockholders’
equity
$
31,980,125
$
45,709,084
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
Unaudited
Three Months Ended December
31,
Year Ended December
31,
2020
2019
2020
2019
Net revenues
$
4,695,929
$
5,767,694
$
18,872,235
$
21,364,810
Cost of revenues
2,944,573
3,404,896
12,624,389
13,018,673
Gross profit
1,751,356
2,362,798
6,247,846
8,346,137
Operating expenses:
Sales and marketing expenses
1,076,563
1,439,974
5,567,360
5,347,822
General and administrative
1,130,679
2,083,458
6,512,607
6,891,245
Change in valuation of contingent
earnout
(1,100,000
)
-
(1,100,000
)
(178,269
)
Depreciation
47,970
46,323
189,638
182,198
Amortization of acquisition-related
intangibles
416,191
531,896
1,664,765
1,890,098
Impairment of intangible assets and
goodwill
16,446,500
614,010
16,446,500
614,010
Finance cost for equity commitment
-
-
390,000
-
Total operating expenses
18,017,903
4,715,661
29,670,870
14,747,104
Loss from operations
(16,266,547
)
(2,352,863
)
(23,423,024
)
(6,400,967
)
Other income (expense):
Interest and other income
457
19,172
10,001
77,274
Interest expense
(23,060
)
(177,401
)
(100,714
)
(617,310
)
Loss on disposition of fixed assets
-
-
-
(2,188
)
Total other (expense) income
(22,603
)
(158,229
)
(90,713
)
(542,224
)
Loss before income tax benefit
(16,289,150
)
(2,511,092
)
(23,513,737
)
(4,432,099
)
Income tax benefit
3,402,346
782,032
5,045,249
1,528,808
Net loss from continuing
operations
(12,886,804
)
(1,729,060
)
(18,468,488
)
(5,414,383
)
Income from discontinued operations,
including gain on sale, net of tax
-
1,426,938
-
20,305,087
Net (loss) income
$
(12,886,804
)
$
(302,122
)
$
(18,468,488
)
$
14,890,704
Net (loss) income per share:
From continuing operations:
Basic
$
(1.18
)
$
(0.17
)
$
(1.75
)
$
(0.55
)
Diluted
$
(1.18
)
$
(0.17
)
$
(1.75
)
$
(0.55
)
From discontinued operations:
Basic
$
-
$
0.14
$
-
$
2.06
Diluted
$
-
$
0.14
$
-
$
2.03
Net (loss) income:
Basic
$
(1.18
)
$
(0.03
)
$
(1.75
)
$
1.51
Diluted
$
(1.18
)
$
(0.03
)
$
(1.75
)
$
1.49
Number of weighted average shares
outstanding:
Basic
10,884,284
10,171,754
10,573,123
9,858,562
Diluted
10,884,284
10,294,487
10,486,334
10,000,507
CYNERGISTEK, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP LOSS
FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EBITDA FROM
CONTINUING OPERATIONS
Unaudited
Three Months Ended December
31,
Year Ended December
31,
2020
2019
2020
2019
GAAP loss from operations
$
(16,266,547
)
$
(2,352,863
)
$
(23,423,024
)
$
(6,400,967
)
Adjustments:
Stock based compensation
115,583
409,825
1,510,931
1,298,931
Non-recurring restructuring and legal
costs
-
368,157
472,000
1,018,157
Change in valuation of contingent
earnout
(1,100,000
)
-
(1,100,000
)
(178,269
)
Depreciation
47,970
46,323
189,638
182,198
Amortization of acquisition-related
intangibles
416,191
531,896
1,664,765
1,890,098
Impairment of intangible assets and
goodwill
16,446,500
614,010
16,446,500
614,010
Finance cost for equity commitment
-
-
390,000
-
Non-GAAP adjusted EBITDA
$
(340,303
)
$
(382,652
)
$
(3,849,190
)
$
(1,575,842
)
Non-GAAP adjusted EBITDA per
share:
Basic
$
(0.03
)
$
(0.04
)
$
(0.36
)
$
(0.16
)
Diluted
$
(0.03
)
$
(0.04
)
$
(0.36
)
$
(0.16
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210325005280/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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