CynergisTek, Inc. (NYSE AMERICAN: CTEK) (the “Company” or
“CynergisTek”), a leader in cybersecurity, privacy, and compliance,
today announced financial results for the three and nine months
ended September 30, 2021.
Q3 2021 Operational Highlights
- Bookings for the quarter up 16% from prior year and 24% year to
date.
- 17 new customers added during the quarter.
- After a Q3 raise of $1.4 million Company suspended and is in
the process of terminating the ATM equity distribution agreement in
light of progress with recent post-pandemic growth
initiatives.
“It has been a busy few months since my return with the roll out
of our Resilience Partner Program that added six new multiyear
clients, including two outside of the healthcare industry. Our
consulting service has seen recent growth in our technical testing,
certification, and privacy services with 200% growth in the number
of contracts year-over-year and our best quarter this year in
adding new customers with a total of 17,” said Mac McMillan,
President and CEO of CynergisTek.
“The need for our core products and services is bigger now than
it has ever been. The Healthcare Task Force has said that
healthcare cybersecurity is in critical condition. Nearly 90% of
hospitals are reporting major breaches and the average cost of a
breach has risen to over $9 million. On top of that, cyber insurers
are making it harder to get covered, making building resilience in
these organizations more important than ever.”
For the Three Months Ended September 30, 2021, as Compared to
the Three Months Ended September 30, 2020
Revenue was $3.8 million for the three months ended September
30, 2021, as compared to $4.5 million for the same period in 2020.
Managed Services revenue decreased for the three months ended
September 30, 2021, by $0.5 million to $2.2 million, due to the
impact of the pandemic and some short-term delays in beginning work
at a couple recently signed contracts. Consulting and professional
services revenue was $1.6 million for the three months ended
September 30, 2021, as compared to $1.8 million for the same period
in 2020, due to underperformance in our Backbone business unit,
which we expect to recover in Q4 2021 and in to 2022.
Gross margin was 48% of revenue due in part to the positive
impact of the Employee Retention Tax Credit. Excluding the Employee
Retention Tax Credit, gross margin was 35% for the three months
ended September 30, 2021, comparable to the same period in
2020.
SG&A expenses increased for the three months ended September
30, 2021, by $0.9 million to $3.7 million, as compared to the same
period in 2020, primarily due to severance costs associated with
the departure of our former CEO.
GAAP net income for the three months ended September 30, 2021,
was $1.2 million, or $0.10 per basic and diluted share, as compared
to a net loss of $1.3 million, or $0.12 per basic and diluted
share, for the same period of 2020. This includes income of $2.9
million from the forgiveness of the full principal balance and
related interest of the PPP Loan.
Non-GAAP adjusted EBITDA loss was $0.6 million for the three
months ended September 30, 2021, compared to a loss of $0.8 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’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: Thursday November 11, 2021 Time: 4:30 pm ET / 1:30 pm PT
U.S.: 1-866-269-4260 International: 786-204-3977 Conference ID:
8966580 Webcast:
https://viavid.webcasts.com/starthere.jsp?ei=1510488&tp_key=2205529a4d
A replay of the call will be available from Thursday November
11, 2021, 7:30 PM ET to Thursday November 18, 2021, 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 8966580.
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 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
September 30, 2021
(unaudited)
December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
$
5,088,141
$
5,613,654
Accounts receivable, net of allowance for
doubtful accounts
1,773,227
2,063,136
Unbilled services
648,968
566,713
Prepaid and other current assets
1,392,791
2,032,420
Income taxes receivable
1,845,502
1,680,866
Total current assets
10,748,629
11,956,789
Property and equipment, net
283,966
541,525
Deposits
34,310
64,586
Deferred income taxes
6,003,866
4,959,125
Intangible assets, net
5,042,021
6,063,617
Goodwill
8,394,483
8,394,483
Total assets
$
30,507,275
$
31,980,125
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
766,006
$
1,326,919
Accrued compensation and benefits
1,153,093
814,830
Deferred revenue
1,671,922
1,265,864
Current portion of earnout liability
200,000
562,500
Current portion of promissory note to
related party
281,250
562,500
Current portion of operating lease
liability
84,009
252,398
Total current liabilities
4,156,280
4,222,511
Long-term liabilities:
Earnout liability, less current
portion
50,000
1,300,000
Promissory note to related party, less
current portion
-
140,625
Paycheck Protection Program loan
-
2,825,500
Operating lease liability, less current
portion
-
40,031
Total long-term liabilities
50,000
4,306,156
Commitments and contingencies
Stockholders’ equity:
Common stock, par value at $0.001,
33,333,333 shares authorized, 12,882,997 shares issued and
outstanding at September 30, 2021, and 12,024,967 shares issued and
outstanding at December 31, 2020
12,883
12,024
Additional paid-in capital
41,154,149
38,564,520
Accumulated deficit
(14,866,037
)
(15,125,086
)
Total stockholders’ equity
26,300,995
23,451,458
Total liabilities and stockholders’
equity
$
30,507,275
$
31,980,125
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September
30,
Nine Months Ended September
30,
2021
2020
2021
2020
Net revenues
$
3,825,679
$
4,502,909
$
11,874,343
$
14,176,307
Cost of revenues
1,972,545
2,909,788
6,146,436
9,679,816
Gross profit
1,853,134
1,593,121
5,727,907
4,496,491
Operating expenses:
Sales and marketing
1,092,906
1,325,965
3,547,525
4,490,797
General and administrative
2,646,064
1,480,597
5,793,316
5,381,929
Change in valuation of contingent
earnout
250,000
-
(1,050,000
)
-
Depreciation
48,383
48,296
144,265
141,668
Amortization of acquisition-related
intangibles
340,539
416,191
1,021,596
1,248,574
Finance cost for equity commitment
-
-
-
390,000
Total operating expenses
4,377,892
3,271,049
9,456,702
11,652,968
Loss from operations
(2,524,758
)
(1,677,928
)
(3,728,795
)
(7,156,477
)
Other income (expense):
Gain on forgiveness of PPP loan and other
income and expense
2,843,254
-
2,843,266
-
Interest income
-
1,867
-
9,545
Interest expense
(9,982
)
(26,046
)
(47,322
)
(77,654
)
Total other income (expense)
2,833,272
(24,179
)
2,795,944
(68,109
)
Income (loss) before provision for
income taxes
308,514
(1,702,107
)
(932,851
)
(7,224,586
)
Income tax benefit
911,900
425,708
1,191,900
1,642,902
Net income (loss)
1,220,414
(1,276,399
)
259,049
(5,581,684
)
Deemed dividends from warrant
anti-dilution provisions
(8,343
)
-
(14,177
)
-
Net income (loss) attributable to
common shareholders
$
1,212,071
$
(1,276,399
)
$
244,872
$
(5,581,684
)
Net income (loss) per share:
Basic
$
0.10
$
(0.12
)
$
0.02
$
(0.53
)
Diluted
$
0.10
$
(0.12
)
$
0.02
$
(0.53
)
Number of weighted average shares
outstanding:
Basic
12,141,088
10,597,024
12,101,466
10,486,334
Diluted
12,610,443
10,597,024
12,573,978
10,486,334
CYNERGISTEK, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP LOSS
FROM OPERATIONS TO NON-GAAP ADJUSTED EBITDA
(UNAUDITED)
Three Months Ended September
30,
2021
2020
GAAP loss from operations
$
(2,525,000
)
$
(1,678,000
)
Adjustments:
Stock based compensation
672,000
378,000
Change in valuation of contingent
earnout
250,000
-
Non-recurring severance, restructuring and
legal costs
587,000
79,000
Depreciation
48,000
48,000
Amortization of acquisition-related
intangibles
341,000
416,000
Non-GAAP adjusted EBITDA
$
(627,000
)
$
(757,000
)
Non-GAAP adjusted EBITDA per
share:
Basic
$
(0.05
)
$
(0.07
)
Diluted
$
(0.05
)
$
(0.07
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211111006022/en/
Investor Relations Contact: Bryan Flynn (512) 402-8550 x7
InvestorRelations@cynergistek.com
Media Contact: Allison + Partners Jaime Tero (415)
755-8639 jaime.tero@allisonpr.com
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