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 months ended March 31, 2020.
“As the COVID-19 pandemic continues to impact our clients, the
cyber threat environment remains very active,” said Caleb Barlow,
President and CEO of CynergisTek. “Revenue declined due to the
impact of the two large professional services contracts we
completed last year. Managed services revenue was up 7% on the
quarter. With our recent operational modifications and the sales
team now fully on board, we believe we are well positioned to
manage through this crisis and continue to be the trusted advisor
our clients have come to expect. Combined with steps taken in 2019,
we have reduced operating spend by more than $3.0 million, ensuring
improved cash flow on a go-forward basis.”
Recent Operational Focus Due to COVID-19 Includes:
- Moved to 100% remote workforce with continued improvements and
efficiencies under a non-travel environment.
- Completed onboarding of remaining additions to sales staff.
Experienced two large contract wins in Q1.
- Strengthened collaboration between sales and delivery to drive
a growing pipeline of follow-on opportunities from security
assessments.
- Enacted temporary adjustments starting in Q1 to compensation,
travel, and discretionary spending that will provide an opportunity
to save between $150,000-$250,000 each month going forward.
- Initiated permanent and targeted expense reductions of
approximately $170,000 per month, addressing reduced utilization we
saw in Q1. These reductions resulted in one-time charges of
approximately $40,000 in Q1 and a projected $280,000 in Q2.
For the Three Months Ended March 31, 2020, Compared to the
Three Months Ended March 31, 2019
Financial results are from the company’s continuing operations
related to security services, unless specifically noted that they
include discontinued operations related to the sale of the managed
print services business.
Revenue decreased $0.7 million to $5.1 million for the three
months ended March 31, 2020, as compared to the same period in
2019. Managed services revenue increased 7% to $3.0 million from
sales of our newer managed services offerings. Consulting and
professional services decreased $0.8 million to $2.1 million
primarily due to lower revenue from two customers who had large
non-recurring remediation contracts that completed most of the work
in Q1 last year. This includes $1.1 million in revenues from the
addition of the Backbone Consultants business.
Gross margin was 33% of revenue for the three months ended March
31, 2020, and 40% for the same period in 2019. The margin reduction
is due to higher labor costs as a percentage of revenue due to
costs of attracting and retaining cybersecurity employees and costs
associated with ramping new managed services. Sales and marketing
expenses were flat at $1.5 million for the three months ended March
31, 2020 and 2019. General and administrative expenses increased
$0.4 million to $2.1 million for the three months ended March 31,
2020 compared to $1.7 million for the three months ended March 31,
2019. The increase is due to $0.1 million in additional stock-based
compensation, $0.1 million in additional costs for Backbone
Consultants and $0.2 million in additional costs related to
professional services and recruiting costs.
GAAP net loss from continuing operations for the three months
ended March 31, 2020 was $(1.9) million, or $(0.18) per basic and
diluted share compared to a net loss of $(1.4) million, or $(0.15)
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, restructuring costs related
to a reduction in workforce, was $(1.4) million for the three
months ended March 31, 2020, compared to $(0.2) million after
adding back stock-based compensation, CEO transition related costs,
for the same period in 2019.
We continue to take actions to reduce expenses to restore gross
margins and operating margins to better position the company for
the current challenging economic environment and uncertainties in
the healthcare market related to COVID-19.
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
March 31, 2020
(unaudited)
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
3,065,728
$
5,328,726
Accounts receivable
3,331,826
3,210,726
Unbilled services
617,186
539,535
Prepaid and other current assets
1,653,405
1,205,769
Income taxes receivable
456,128
-
Total current assets
9,124,273
10,284,756
Property and equipment, net
995,623
946,219
Deposits
72,486
72,486
Deferred income taxes
1,858,064
1,836,258
Intangible assets, net
8,169,691
8,585,882
Goodwill
23,983,483
23,983,483
Total assets
$
44,203,620
$
45,709,084
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
675,814
$
638,864
Accrued compensation and benefits
453,586
1,066,770
Deferred revenue
2,087,906
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
liabilities
580,591
533,371
Total current liabilities
4,360,397
4,271,340
Long-term liabilities:
Earnout liability
2,400,000
2,400,000
Promissory note to related parties, less
current portion
562,500
703,125
Operating lease liability, less current
portion
144,715
158,995
Total long-term liabilities
3,107,215
3,262,120
Commitments and contingencies
Stockholders’ equity:
Common stock, par value at $0.001,
33,333,333 shares authorized, 10,379,164 shares issued and
outstanding at March 31, 2020, and 10,359,164 shares issued and
outstanding at December 31, 2019
10,379
10,359
Additional paid-in capital
35,232,850
34,821,863
Retained earnings
1,492,779
3,343,402
Total stockholders’ equity
36,736,008
38,175,624
Total liabilities and stockholders’
equity
$
44,203,620
$
45,709,084
CYNERGISTEK, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March
31,
2020
2019
Net revenues
$
5,115,827
$
5,773,657
Cost of revenues
3,423,532
3,484,639
Gross profit
1,692,295
2,289,018
Operating expenses:
Sales and marketing
1,487,347
1,481,383
General and administrative expenses
2,104,844
1,653,633
Depreciation
47,600
38,985
Amortization of acquisition-related
intangibles
416,191
452,734
Total operating expenses
4,055,982
3,626,735
Loss from operations
(2,363,687
)
(1,337,717
)
Other income (expense):
Other income
-
9
Interest income
6,068
-
Interest expense
(24,288
)
(295,905
)
Total other income (expense)
(18,220
)
(295,896
)
Loss before provision for income
taxes
(2,381,907
)
(1,633,613
)
Income tax benefit
531,284
144,214
Net loss from continuing
operations
(1,850,623
)
(1,489,399
)
Income from discontinued operations,
including gain on sale, net of tax
-
19,036,830
Net (loss) income
$
(1,850,623
)
$
17,547,431
Net (loss) income per share:
From continuing operations:
Basic
$
(0.18
)
$
(0.15
)
Diluted
$
(0.18
)
$
(0.15
)
From discontinued operations:
Basic
$
-
$
1.97
Diluted
$
-
$
1.92
Net (loss) income:
Basic
$
(0.18
)
$
1.81
Diluted
$
(0.18
)
$
1.77
Number of weighted average shares
outstanding:
Basic
10,374,497
9,673,689
Diluted
10,374,497
9,931,048
CYNERGISTEK, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP LOSS
FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EBITDA FROM
CONTINUING OPERATIONS
(UNAUDITED)
Three Months Ended March
31,
2020
2019
GAAP loss from continuing
operations
$
(2,363,687
)
$
(1,337,717
)
Adjustments:
Depreciation
47,600
38,985
Amortization of acquisition-related
intangibles
416,191
452,734
One-time restructuring and legal fees
43,000
350,000
Stock-based compensation
411,007
282,344
Non-GAAP adjusted EBITDA
$
(1,445,889
)
$
(213,655
)
Non-GAAP adjusted EBITDA per
share
Basic
$
(0.14
)
$
(0.02
)
Diluted
$
(0.14
)
$
(0.02
)
Conference Call Information
Date: Thursday, May 14, 2020 Time: 4:30 pm ET / 1:30 pm PT U.S.:
1-800-458-4121 International: 1-786-789-4772 Conference ID: 1127577
Webcast: http://public.viavid.com/index.php?id=139667
A replay of the call will be available from Thursday May 14,
2020, 7:30 pm ET to Thursday May 21, 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 1127577.
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/20200514005656/en/
Investor Relations Contact: Bryan Flynn (949) 382-1419
InvestorRelations@CynergisTek.com
Media Contact: Allison + Partners Jaime Tero 415-755-8639
jaime.tero@allisonpr.com
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