CynergisTek Reports Fourth Quarter and Full-Year 2020 Financial Results
CynergisTek, Inc. (CTEK) reported its financial results for Q4 and 2020, revealing a 10% increase in presold revenue to $17.2 million. Q4 gross margins improved to 37%, a 200bps uptick from Q3 2020. However, Q4 revenue was $4.7 million, dropping from $5.8 million in 2019, largely due to COVID-19 impacts, with managed services revenue falling to $2.8 million. The company recorded a significant GAAP net loss of $12.9 million, driven by a $16.5 million non-cash impairment charge. Despite challenges, the firm aims to enhance growth and diversify its offerings.
- 10% increase in presold revenue to $17.2 million compared to Q3 2020.
- Gross margins improved to 37%, a 200bps increase over Q3 2020.
- Expansion into consulting for Cybersecurity Maturity Model Certification (CMMC).
- Secured a $700,000 deal with a new health system client.
- Q4 revenue decreased to $4.7 million from $5.8 million in 2019.
- Managed Services revenue fell to $2.8 million due to customer cancellations and delays.
- GAAP net loss surged to $12.9 million from a loss of $1.7 million in 2019.
- Recorded a non-cash impairment of $16.5 million.
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
For the Three Months Ended December 31, 2020, Compared to the Three Months Ended December 31, 2019
Revenue was
Gross margin was
SG&A expenses decreased
GAAP net loss from continuing operations for the three months ended December 31, 2020 was
Non-GAAP adjusted EBITDA loss was
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,
|
December 31,
|
|||||
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 |
|
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
|
Year Ended
|
||||||||||||||
|
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 |
|
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FAQ
What are CynergisTek's financial results for Q4 2020?
In Q4 2020, CynergisTek reported revenue of $4.7 million, down from $5.8 million in Q4 2019.
How did CynergisTek's gross margins perform in Q4 2020?
Gross margins improved to 37% in Q4 2020, a 200 basis points increase from Q3 2020.
What caused the net loss reported by CynergisTek?
CynergisTek reported a GAAP net loss of $12.9 million, largely due to a $16.5 million impairment charge.
What is the presold revenue figure for CynergisTek?
CynergisTek reported a 10% increase in presold revenue to $17.2 million compared to the previous quarter.
What new contracts did CynergisTek secure recently?
CynergisTek secured a notable $700,000 deal with a new health system client.
CTEK
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