CynergisTek Reports Fourth Quarter and Full-Year 2020 Financial Results

AUSTIN, Texas--()--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

)

 

Contacts

Investor Relations Contact:
Paul Anthony
(949) 382-1419
InvestorRelations@CynergisTek.com

Media Contact:
Allison + Partners
Jaime Tero
415-755-8639
jaime.tero@allisonpr.com

Release Summary

Financial results for the three and twelve months ended December 31, 2020, including increased year-end presold revenue by 10% compared to Q3 2020.

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Contacts

Investor Relations Contact:
Paul Anthony
(949) 382-1419
InvestorRelations@CynergisTek.com

Media Contact:
Allison + Partners
Jaime Tero
415-755-8639
jaime.tero@allisonpr.com