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CynergisTek Reports Third Quarter 2019 Financial Results

November 11, 2019

AUSTIN, Texas--(BUSINESS WIRE)--Nov 11, 2019--

CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in healthcare cybersecurity, privacy, and compliance, today announced financial results for the third quarter and nine months ended September 30, 2019.

Recent Operational Highlights Include:

Recent Financial Results (Compared to Prior Periods):

“CynergisTek saw 15% growth year-over-year in its core managed service offerings and completed the acquisition of Backbone Consultants,” said Caleb Barlow, President and CEO of CynergisTek. “Both of these accomplishments help CynergisTek maintain its market leading position; however, my focus in the coming month will be on the five strategic imperatives, building the team, and our go-to-market strategy to drive additional revenue growth.”

For the Three Months Ended September 30, 2019, Compared to the Three Months Ended September 30, 2018

Financial results are from the Company’s continuing operations related to security services unless specifically noted that it includes discontinued operations related to the sale of the managed print services (MPS) business. Revenue decreased by approximately $0.9 million to $4.8 million for the three months ended September 30, 2019, as compared to the same period in 2018. Managed services revenue was $3.0 million, an increase of 14%, compared to $2.7 million for the same period of 2018. Professional and consulting services revenues were $1.7 million, a decrease of 43%, compared to $2.9 million for the same period of 2018 due to the near completion of a large professional services contract with a major customer that CynergisTek started in 2018. Going into 2020, CynergisTek expects revenue growth to improve as the Company benefits from its recent acquisition of Backbone. In addition, CynergisTek expects to see growth from its new service offerings and the changes being made to the sales and marketing organizations led by the Company’s new CEO.

Gross margin was 34% of revenue for the three months ended September 30, 2019 and 49% for the same period in 2018. The reduction in gross margin is reflective of the investment in attracting talented cybersecurity employees, significant increase in spending to develop new services, and the lower professional services revenue experienced this quarter. Over the next few quarters, CynergisTek expects gross margins to improve as it grows revenue, targets cost reductions, and better utilizes its workforce.

Sales and marketing expenses were $1.1 million for the three months ended September 30, 2019, as compared to $1.2 million for the same period in 2018. General and administrative (G&A) expenses increased to $1.7 million for the three months ended September 30, 2019, as compared to $1.4 million for the same period in 2018. The increase in G&A is attributable to $0.3 million in non-recurring expenses related to the onboarding of the Company’s new CEO in August 2019, while its outgoing CEO remains with the Company to assist with the transition through the end of 2019. CynergisTek expects lower G&A expenses going into next year when the transition is complete, and it has implemented some targeted cost reductions the Company recently initiated to right size the support organization with the divestiture of the managed print services (MPS) business earlier this year.

On March 20, 2019, CynergisTek sold the net assets of its MPS business. Additional charges from these discontinued operations totaled $6,500 for the three months ended September 30, 2019. This compares to the earnings from these discontinued operations in the third quarter of 2018 totaling $1.6 million.

GAAP net loss from continuing operations for the third quarter was $(1.3) million, or $(0.13) per basic and diluted share, compared to a net loss of $(0.4) million, or $(0.04) per basic and diluted share, for the same period of 2018. GAAP net loss for the third quarter, after adjustment from income or loss from discontinued operations, was $(1.3) million, or $(0.13) per basic and diluted share, compared to net income after adjustment from income from discontinued operations, net of tax of $1.2 million, or $0.12 per basic and diluted share, for the same period of 2018.

Non-GAAP adjusted EBITDA loss from continuing operations, after adding back stock-based compensation and CEO transition related costs, was $(0.4) million in the third quarter of 2019, compared to income of $0.4 million, after adding back stock-based compensation for the same period in 2018.

Non-GAAP adjusted loss from continuing operations per share for the third quarter 2019 was $(0.04) per basic and diluted share, compared to breakeven or $0.00 per basic and diluted share for the same period of 2018.

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

   

 

 

September 30, 2019

(unaudited)

 

December 31, 2018

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

10,183,214

 

$

6,571,381

 

Accounts receivable, net

 

 

3,485,943

 

 

5,572,467

 

Prepaid and other current assets

 

 

4,058,218

 

 

1,425,858

 

Refundable income taxes

 

 

-

 

 

472,059

 

Current assets held for sale

 

 

201,965

 

 

8,427,408

 

Total current assets

 

 

17,929,340

 

 

22,469,173

 

 

 

 

 

 

Property and equipment, net

 

 

757,066

 

 

887,874

 

Deposits

 

 

79,710

 

 

87,778

 

Deferred income taxes

 

 

1,615,173

 

 

2,146,020

 

Intangible assets, net

 

 

7,731,787

 

 

9,089,989

 

Goodwill

 

 

17,008,189

 

 

17,008,189

 

Noncurrent assets held for sale

 

 

-

 

 

1,844,349

 

Total assets

 

$

45,121,265

 

$

53,533,372

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable and accrued expenses

 

$

215,631

 

$

1,370,336

 

Accrued compensation and benefits

 

 

920,014

 

 

1,592,765

 

Deferred revenue

 

 

1,468,472

 

 

918,165

 

Income taxes payable

 

 

4,016,534

 

 

-

 

Note payable

 

 

-

 

 

343,750

 

Current portion of long-term liabilities

 

 

866,594

 

 

3,271,052

 

Current liabilities held for sale

 

 

-

 

 

7,299,561

 

Total current liabilities

 

 

7,487,245

 

 

14,795,629

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

Term loan, less current portion

 

 

-

 

 

12,851,617

 

Promissory notes to related parties, less current portion

 

 

843,750

 

 

5,015,625

 

Capital lease obligations, less current portion

 

 

-

 

 

1,570

 

Operating lease liability, less current portion

 

 

199,349

 

 

436,805

 

Noncurrent liabilities held for sale

 

 

-

 

 

58,967

 

Total long-term liabilities

 

 

1,043,099

 

 

18,364,584

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock, par value at $0.001, 33,333,333 shares authorized, 9,795,147 shares issued and outstanding at September 30, 2019, and 9,630,050 shares issued and outstanding at December 31, 2018

 

 

9,795

 

 

9,630

 

Additional paid-in capital

 

 

32,935,601

 

 

31,910,831

 

Accumulated earnings (deficit)

 

 

3,645,525

 

 

(11,547,302

)

Total stockholders’ equity

 

 

36,590,921

 

 

20,373,159

 

Total liabilities and stockholders’ equity

 

$

45,121,265

 

$

53,533,372

 

CYNERGISTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

 

2019

 

2018

 

2019

 

2018

Net revenues

 

$

4,766,000

 

 

$

5,655,738

 

 

$

15,597,117

 

 

$

14,338,322

 

Cost of revenues

 

 

3,165,502

 

 

 

2,898,273

 

 

 

9,613,777

 

 

 

7,783,317

 

Gross profit

 

 

1,600,498

 

 

 

2,757,465

 

 

 

5,983,340

 

 

 

6,555,005

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

1,090,732

 

 

 

1,193,878

 

 

 

3,907,847

 

 

 

3,885,948

 

General and administrative

 

 

1,689,012

 

 

 

1,350,855

 

 

 

4,807,789

 

 

 

4,888,377

 

Change in valuation of contingent earn-out

 

 

(178,269

)

 

 

-

 

 

 

(178,269

)

 

 

-

 

Depreciation

 

 

47,775

 

 

 

36,853

 

 

 

135,875

 

 

 

107,833

 

Amortization of acquisition-related intangibles

 

 

452,734

 

 

 

452,734

 

 

 

1,358,202

 

 

 

1,358,202

 

Total operating expenses

 

 

3,101,984

 

 

 

3,034,320

 

 

 

10,031,444

 

 

 

10,240,360

 

Loss from operations

 

 

(1,501,486

)

 

 

(276,855

)

 

 

(4,048,104

)

 

 

(3,685,355

)

 

Other income (expense):

 

 

 

 

 

 

 

 

Other income

 

 

-

 

 

 

18

 

 

 

26

 

 

 

47

 

Interest income

 

 

41,438

 

 

 

-

 

 

 

58,076

 

 

 

-

 

Interest expense

 

 

(30,459

)

 

 

(352,754

)

 

 

(439,909

)

 

 

(1,094,066

)

Loss on disposition of fixed assets

 

 

(2,188

)

 

 

-

 

 

 

(2,188

)

 

 

-

 

Total other income (expense)

 

 

8,791

 

 

 

(352,736

)

 

 

(383,995

)

 

 

(1,094,019

)

 

 

 

 

 

 

 

 

 

(Loss) before benefit for income taxes

 

 

(1,492,695

)

 

 

(629,591

)

 

 

(4,432,099

)

 

 

(4,779,374

)

Income tax benefit

 

 

236,040

 

 

 

225,426

 

 

 

746,778

 

 

 

844,430

 

Net loss from continuing operations

 

 

(1,256,655

)

 

 

(404,165

)

 

 

(3,685,321

)

 

 

(3,934,944

)

Income (loss) from discontinued operations, including gain on sale, net of tax

 

 

 

 

(6,500

 

)

 

 

 

 

1,558,291

 

 

 

 

 

 

18,878,149

 

 

 

 

 

 

4,502,860

 

 

Net income (loss)

 

$

(1,263,155

)

 

$

1,154,126

 

 

$

15,192,828

 

 

$

567,916

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

From continuing operations:

 

 

 

 

 

 

 

 

Basic

 

$

(0.13

)

 

$

(0.04

)

 

$

(0.38

)

 

$

(0.41

)

Diluted

 

$

(0.13

)

 

$

(0.04

)

 

$

(0.38

)

 

$

(0.41

)

 

 

 

 

 

 

 

 

 

From discontinued operations:

 

 

 

 

 

 

 

 

Basic

 

$

(0.00

)

 

$

0.16

 

 

$

1.94

 

 

$

0.47

 

Diluted

 

$

(0.00

)

 

$

0.16

 

 

$

1.90

 

 

$

0.46

 

 

 

 

 

 

 

 

 

 

Net income: (loss)

 

 

 

 

 

 

 

 

Basic

 

$

(0.13

)

 

$

0.12

 

 

$

1.56

 

 

$

0.06

 

Diluted

 

$

(0.13

)

 

$

0.12

 

 

$

1.53

 

 

$

0.06

 

 

 

 

 

 

 

 

 

 

Number of weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

9,795,147

 

 

 

9,616,133

 

 

 

9,754,014

 

 

 

9,605,536

 

Diluted

 

 

9,795,147

 

 

 

9,762,370

 

 

 

9,910,107

 

 

 

9,813,098

 

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,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

GAAP loss from continuing operations

 

$

(1,501,486

)

 

$

(276,855

)

 

$

(4,048,104

)

 

$

(3,685,355

)

Adjustments:

 

 

 

 

 

 

 

 

Depreciation

 

 

47,775

 

 

 

36,853

 

 

 

135,875

 

 

 

107,833

 

Amortization of acquisition-related intangibles

 

 

452,734

 

 

 

452,734

 

 

 

1,358,202

 

 

 

1,358,202

 

One-time restructuring and legal fees

 

 

300,000

 

 

 

-

 

 

 

300,000

 

 

 

735,183

 

Stock-based compensation

 

 

325,377

 

 

 

161,265

 

 

 

889,106

 

 

 

444,923

 

Non-GAAP adjusted EBITDA (loss), from continuing operations

 

$

(375,377

)

 

$

373,997

 

 

$

(1,364,920

)

 

$

(1,039,214

)

 

 

 

 

 

 

 

 

 

Non-GAAP adjusted EBITDA (loss), from continuing operations per share

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

 

$

0.04

 

 

$

(0.14

)

 

$

(0.11

)

Diluted

 

$

(0.04

)

 

$

0.04

 

 

$

(0.14

)

 

$

(0.11

)

     

CYNERGISTEK, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET LOSS FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EARNINGS (LOSS) FROM CONTINUING OPERATIONS

(UNAUDITED)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2019

 

2018

 

2019

 

2018

GAAP net loss from continuing operations

 

$

(1,256,655

)

 

$

(400,165

)

 

$

(3,685,321

)

 

$

(3,934,944

)

Adjustments:

 

 

 

 

 

 

 

 

Non-Cash Income Tax Adjustment

 

 

(236,040

)

 

 

(225,426

)

 

 

(746,778

)

 

 

(844,430

)

Other Expense

 

 

-

 

 

 

(18

)

 

 

(26

)

 

 

(47

)

Depreciation

 

 

47,775

 

 

 

36,853

 

 

 

135,875

 

 

 

107,833

 

Amortization of acquisition-related intangibles

 

 

452,734

 

 

 

452,734

 

 

 

1,358,202

 

 

 

1,358,202

 

One-time restructuring and legal fees

 

 

300,000

 

 

 

-

 

 

 

300,000

 

 

 

735,183

 

Stock-based compensation

 

 

325,377

 

 

 

161,265

 

 

 

889,106

 

 

 

444,923

 

Non-GAAP adjusted net earnings (loss), from continuing operations

 

$

(366,586

)

 

$

21,243

 

 

$

(1,748,941

)

 

$

(2,133,280

)

 

 

 

 

 

 

 

 

 

Non-GAAP adjusted net earnings (loss), from continuing operations per share

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

 

$

0.00

 

 

$

(0.18

)

 

$

(0.22

)

Diluted

 

$

(0.04

)

 

$

0.00

 

 

$

(0.18

)

 

$

(0.22

)

Conference Call Information

Date: Monday, November 11, 2019
Time: 11:00 am Eastern Time / 8:00 am Pacific Time
U.S.: 1-888-394-8218
International: 1-323-794-2588
Conference ID: 2789768
Webcast: http://public.viavid.com/index.php?id=136715

A replay of the call will be available from 2:00 pm ET on November 11, 2019 to 11:59 pm ET on November 18, 2019. 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 2789768.

About CynergisTek, Inc.

CynergisTek is a top-ranked cybersecurity and information management consulting firm dedicated to serving 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 named in numerous research reports as one of the top firms that provider organizations turn to for privacy and security, and won the 2017 Best in KLAS award for Cyber Security Advisory Services.

Forward-Looking Statements

This release contains certain forward-looking statements relating to the business of CynergisTek that 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 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/20191111005167/en/

CONTACT: Investor Relations Contact:

Bryan Flynn

(949) 382-1419

InvestorRelations@CynergisTek.comMedia Contact:

Danielle Johns

Senior Account Executive

Aria Marketing

(617) 332-9999 x241

djohns@ariamarketing.com

KEYWORD: UNITED STATES NORTH AMERICA TEXAS

INDUSTRY KEYWORD: MANAGED CARE OTHER HEALTH GENERAL HEALTH NETWORKS PROFESSIONAL SERVICES DATA MANAGEMENT TECHNOLOGY HOSPITALS SECURITY PRACTICE MANAGEMENT OTHER TECHNOLOGY HEALTH CONSULTING

SOURCE: CynergisTek, Inc.

Copyright Business Wire 2019.

PUB: 11/11/2019 07:00 AM/DISC: 11/11/2019 07:01 AM

http://www.businesswire.com/news/home/20191111005167/en