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, 2021.
Q2 2021 Operational Highlights
- First Authorized Certified Third-Party Assessor Organization
approved to provide CMMC assessments. CynergisTek also recently
certified as a Licensed Training Provider.
- CynergisTek’s revenue pipeline strengthened with bookings
increasing 70% over prior year and 24% sequentially
- Gross margin improved to 33% from cost reduction initiatives
(46% including benefit of the Employee Retention Tax Credit).
- Net loss improved year over year to $0.1 million ($0.00 per
share) from $2.5 million ($0.23 per share).
- Adjusted EBITDA improved to a loss of $0.6 million from $1.3
million.
“Looking ahead, the Cynergistek team is squarely focused on
growth, building on our position as the trusted healthcare partner,
and expanding the addressable market for our cybersecurity
services. We are rebuilding our revenue pipeline with our sales
team back at full strength and healthcare providers beginning to
return to more normal buying patterns to address critical cyber
concerns that have been deferred during Covid. We also have a
first-mover advantage with our recent approvals in CMMC,
significantly expanding our potential addressable market,” said Mac
McMillan, President and CEO of CynergisTek, Inc.
“The recent wins with larger healthcare and university
customers, as well as a pipeline that is expanding to include
additional large institutions and Fortune 500 companies, are key
indicators of our progress. We also have several small wins related
to CMMC assessments, with such wins poised to expand as the
Department of Defense begins to require assessments for all
vendors.”
For the Three Months Ended June 30, 2021, as Compared to the
Three Months Ended June 30, 2020
Revenue was $3.9 million for the three months ended June 30,
2021, as compared to $4.6 million for the same period in 2020.
Managed Services revenue decreased for the three months ended June
30, 2021, by $0.8 million to $2.2 million, due to the impact of
some customers canceling or delaying renewals largely because of
the impact from COVID-19. Consulting and professional services
revenue was $1.7 million for the three months ended June 30, 2021,
as compared to $1.6 million for the same period in 2020, due to the
start of a rebound in our healthcare cybersecurity business.
Gross margin was 46% of revenue due in part to the positive
impact of the Employee Retention Tax Credit. Excluding the Employee
Retention Tax Credit, gross margin was 33% for the three months
ended June 30, 2021, as compared to 27% for the same period in
2020. This increase was a direct result of expense reductions and
operational efficiencies.
SG&A expenses decreased for the three months ended June 30,
2021 by $0.8 million to $2.7 million, as compared to the same
period in 2020, primarily due to a $0.6 million reduction in
payroll and benefit costs because of headcount reductions,
decreases in travel because of COVID-19, and a $0.2 million benefit
from the Employee Retention Tax Credit.
GAAP net loss for the three months ended June 30, 2021, was $0.1
million, or $0.00 per basic and diluted share, as compared to a net
loss of $2.5 million, or $0.23 per basic and diluted share, for the
same period of 2020.
Non-GAAP adjusted EBITDA loss was $0.6 million for the three
months ended June 30, 2021, compared to a loss of $1.3 million for
the same period in 2020.
The reconciliation of GAAP to non-GAAP information can be found
in the table at the end of this release, which provides the details
of CynergisTek, Inc.’s non-GAAP disclosures and the reconciliation
of non-GAAP information.
Use of Non-GAAP Measures
CynergisTek, Inc. (“CynergisTek” or the “Company”) 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 (“Adjusted
EBITDA”), which differs from the commonly-used “EBITDA.” In
addition to adjusting net income (loss) to exclude income taxes,
interest, 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 as 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
net-cash-used-in-operating-activities as measures of operating
results or liquidity. The Company’s 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 it in isolation, or as a substitute for
analysis of the Company’s results as reported under GAAP. Some of
these limitations are (i) it does not reflect the Company’s cash
expenditures, or future requirements for capital expenditures or
contractual commitments, (ii) it does not reflect changes in, or
cash requirements for, the Company’s working capital needs, (iii)
Adjusted EBITDA does not reflect interest expense, or the cash
requirements necessary to service interest or principal payments,
on the Company’s 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
does 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 the Company’s statements of cash flows, (vi) it
does not reflect the impact of earnings or charges resulting from
matters the Company considers not to be indicative of its ongoing
operations, and (vii) other companies in the same industry may
calculate this measure differently than the Company does, limiting
its usefulness as a comparative measure.
Management believes 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). Management also presents Adjusted EBITDA
because (i) management believes this measure is frequently used by
securities analysts, investors and other interested parties to
evaluate companies in the same industry, (ii) management believes
investors will find this measure useful in assessing the Company’s
ability to service or incur indebtedness, and (iii) management uses
Adjusted EBITDA internally as a benchmark to evaluate the Company’s
operating performance or compare the Company’s performance to that
of its competitors.
Conference Call Information Date: Monday August 16, 2021
Time: 4:30 pm ET / 1:30 pm PT U.S.: 1-866-269-4262 International:
1-786-204-3977 Conference ID: 1559900 Webcast:
http://public.viavid.com/index.php?id=146073
A replay of the call will be available from Monday August 16,
2021, 7:30 PM ET to Monday August 23, 2021, 11:59 PM ET. To access
the replay, please dial 1-844-512-2921 if from the U.S. or
1-412-317-6671 if from outside the U.S. The PIN is 1559900.
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 that the company’s 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 the Company’s 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 the Company’s 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
CONDENSED CONSOLIDATED BALANCE
SHEETS
June 30, 2021
(unaudited)
December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
$
4,025,827
$
5,613,654
Accounts receivable, net of allowance for
doubtful accounts
1,970,557
2,063,136
Unbilled services
549,031
566,713
Prepaid and other current assets
1,670,699
2,032,420
Income taxes receivable
1,917,456
1,680,866
Total current assets
10,133,570
11,956,789
Property and equipment, net
301,324
541,525
Deposits
47,376
64,586
Deferred income taxes
5,025,545
4,959,125
Intangible assets, net
5,382,561
6,063,617
Goodwill
8,394,483
8,394,483
Total assets
$
29,284,859
$
31,980,125
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
861,445
$
1,326,919
Accrued compensation and benefits
502,713
814,830
Deferred revenue
1,525,021
1,265,864
Current portion of promissory note to
related party
421,875
562,500
Current portion of operating lease
liability
91,503
252,398
Total current liabilities
3,402,557
4,222,511
Long-term liabilities:
Earnout liability
-
1,300,000
Promissory note to related party, less
current portion
-
140,625
Paycheck Protection Program loan
2,825,500
2,825,500
Current portion of operating lease
liability
-
40,031
Total long-term liabilities
2,825,500
4,306,156
Commitments and contingencies
Stockholders’ equity:
Common stock, par value at $0.001,
33,333,333 shares authorized, 12,120,698 shares issued and
outstanding at June 30, 2021, and 12,024,967 shares issued and
outstanding at December 31, 2020
12,120
12,024
Additional paid-in capital
39,131,133
38,564,520
Accumulated deficit
(16,086,451
)
(15,125,086
)
Total stockholders’ equity
23,056,802
23,451,458
Total liabilities and stockholders’
equity
$
29,284,859
$
31,980,125
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June
30,
Six Months Ended June
30,
2021
2020
2021
2020
Net revenues
$
3,875,143
$
4,557,571
$
8,048,664
$
9,673,398
Cost of revenues
2,083,056
3,346,497
4,173,890
6,770,028
Gross profit
1,792,087
1,211,074
3,874,774
2,903,370
Operating expenses:
Sales and marketing
1,242,240
1,677,484
2,454,620
3,164,831
General and administrative
1,470,593
1,796,488
3,147,251
3,901,332
Change in valuation of contingent
earnout
(1,300,000
)
-
(1,300,000
)
-
Depreciation
48,186
45,772
95,882
93,372
Amortization of acquisition-related
intangibles
340,528
416,191
681,056
832,382
Finance cost for equity commitment
-
390,000
-
390,000
Total operating expenses
1,801,547
4,325,935
5,078,809
8,381,917
Loss from operations
(9,460
)
(3,114,861
)
(1,204,035
)
(5,478,547
)
Other income (expense):
Other income
11
-
11
-
Interest income
-
1,608
-
7,675
Interest expense
(17,339
)
(27,320
)
(37,340
)
(51,607
)
Total other income (expense)
(17,328
)
(25,712
)
(37,329
)
(43,932
)
Loss before provision for income
taxes
(26,788
)
(3,140,573
)
(1,241,364
)
(5,522,479
)
Income tax (expense) benefit
(20,100
)
685,912
279,999
1,217,195
Net loss
(46,888
)
(2,454,661
)
(961,365
)
(4,305,284
)
Deemed dividends from warrant
anti-dilution provision
-
-
(5,834
)
-
Net loss attributable to common
shareholders
$
(46,888
)
$
(2,454,661
)
$
(967,199
)
$
(4,305,284
)
Net loss per share:
Basic
$
(0.00
)
$
(0.23
)
$
(0.08
)
$
(0.41
)
Diluted
$
(0.00
)
$
(0.23
)
$
(0.08
)
$
(0.41
)
Number of weighted average shares
outstanding:
Basic
12,120,698
10,495,700
12,081,328
10,432,443
Diluted
12,120,698
10,495,700
12,081,328
10,432,443
CYNERGISTEK, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP LOSS
FROM OPERATIONS TO NON-GAAP ADJUSTED EBITDA
(UNAUDITED)
Three Months Ended June
30,
2021
2020
GAAP loss from operations
$
(9,460
)
$
(3,114,861
)
Adjustments:
Stock based compensation
338,272
606,265
Change in valuation of contingent
earnout
(1,300,000
)
-
Non-recurring restructuring and legal
costs
-
350,000
Depreciation
48,186
45,772
Amortization of acquisition-related
intangibles
340,528
416,191
Finance cost for equity commitment
-
390,000
Non-GAAP adjusted EBITDA
$
(582,474
)
$
(1,306,633
)
Non-GAAP adjusted EBITDA per
share:
Basic
$
(0.05
)
$
(0.12
)
Diluted
$
(0.05
)
$
(0.12
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210816005619/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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