CynergisTek Reports Second Quarter 2019 Financial Results

Firm Continues to Expand Managed Services Contracts and Positions Itself for Future Growth 

AustinTexas – (August 132019) – CynergisTek, Inc. (NYSE AMERICAN:CTEK)a leader in healthcare cybersecurity, privacy, and compliance, today announced financial results for the second quarter ended June 30, 2019. 

Financial Highlights for the Second Quarter 2019 Include:  

Financials represent business from continuing operationsDiscontinued operations have been isolated. 

  • Revenues from continuing operations for the second quarter were $5.1 million, an increase of 17%, compared to $4.3 million for the same period of 2018.  
  • Managed services revenue, from continuing operations, was $2.8 million an increase of 13%, compared to $2.5 million for the same period of 2018. 
  • Professional and Consulting services revenues, from continuing operations, were $2.2 million an increase of 23%, compared to $1.8 million for the same period of 2018. 
  • Non-GAAP adjusted EBITDA loss from continuing operations, after adding back stock-based compensation, was $(0.4) million in the second quarter of 2019, compared to $(0.8) million after adding back stock-based compensation for the same period in 2018 
  • Non-GAAP adjusted loss from continuing operations per share for the second quarter 2019 was ($0.05) per basic and diluted share, compared to ($0.11) per basic and diluted share for the same period of 2018.  

Recent Operational Highlights Include: 

CynergisTek has just marked its tenth consecutive quarter of yearoveryear revenue growth in security,” said Mac McMillan, CEO Emeritus of CynergisTekThe evolving security threat landscape and several new privacy regulations at the state level have been key factors contributing to the increased demand for our managed servicesLike this quarter, we will continue to focus on expanding our newer managed services into our growing client base. 

CynergisTek has seen continued success in the highly regulated healthcare industry,” said Caleb Barlow, President and CEO of CynergisTek. CynergisTek has all the components in place to take advantage of the evolving threat landscape and I see tremendous opportunity to expand on what they have built by adding another layer to the assessments and managed services that help clients be more resilient in a cybersecurity incident.” 

For the Three Months Ended June 30, 2019 Compared to the Three Months Ended June 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 increased by approximately $0.7 million to $5.1 million for the three months ended June 30, 2019, as compared to the same period in 2018 

Cost of revenue was $3.0 million for the three months ended June 30, 2019, as compared to $2.5 million for the same period in 2018This increase was due to increased headcount in order to provide services to a larger customer base, support new services, and efforts to augment the employee salary and benefit offerings to attract and retain talent. 

Gross margin was 41% of revenue for the three months ended June 30, 2019 and 43% for the same period in 2018. The slight decline in gross margin is reflective of investment in attracting and retaining talented cyber security employees and costs associated with ramping up new services. 

Sales and marketing expenses were $1.3 million for the three months ended June 30, 2019, as compared to $1.3 million for the same period in 2018General and administrative (G&A) expenses increased to $1.5 million for the three months ended June 30, 2019, as compared to $1.4 million for the same period in 2018The increase in G&A is due to an increase in salaries and related costs primarily as a result of the issuance of restricted stock units to key employees and board members and software subscriptions for business tracking. 

On March 20, 2019, CynergisTek sold the MPS businessThe adjustments to the gain on the sale of this business together with the charges from these discontinued operations totaled $0.2 million for the three months ended June 30, 2019. Earnings from these discontinued operations in the second quarter of 2018 totaled $1.8 million. 

GAAP net loss from continuing operations for the second quarter was $(0.9) million, or $(0.10) 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 2018GAAP net loss for the second quarter, after adjustment from income from discontinued operations, including gain on sale, net of taxwas $(1.1) million, or $(0.11) per basic and diluted share compared to net income after adjustment from income from discontinued operations, net of tax of $0.1 million, or $0.1 per basic and diluted share for the same period of 2018 

For the Six Months Ended June 30, 2019, Compared to the Six Months Ended June 30, 2018 

Revenue increased by approximately $2.1 million to $10.8 million for the six months ended June 30, 2019, as compared to the same period in 2018 due to increased sales efforts, expansion of service offerings and benefitted from current customers need for additional managed services. This increase is a result of an approximately $0.8 million increase in multi-year managed service revenues and approximately $1.3 million in additional revenues from consulting and professional services provided to new and existing customers. 

Cost of revenue was $6.4 million for the six months ended June 30, 2019, as compared to $4.9 million for the same period in 2018. CynergisTek incurred approximately $1.million more in salaries and related costs, approximately $0.2 million more in stock compensation, and approximately $0.3 million more in contract labor. These increases were due to increased headcount in order to provide services to a larger customer base to support new services and the efforts to augment the employee salary and benefit offerings to attract and retain talent. 

Gross margin was 40% of revenue for the six months ended June 30, 2019, and 44% for the same period in 2018. The decline in gross margin is reflective of the Company’s investment in attracting and retaining talented cybersecurity employees and costs associated with ramping up new services. Over the next few quarters, it is expected for gross margins to improve as the Company looks to grow cybersecurity consulting services. 

Sales and marketing expenses were $2.million for the six months ended June 30, 2019, as compared to $2.7 for the same period in 2018. The increase is primarily a result of a broad array of additional marketing expenses incurred in an effort to increase salesGeneral and administrative expenses decreased by $0.4 million to $3.1 million for the six months ended June 30, 2019, as compared to $3.5 million for the same period in 2018 which includes $0.6 million of severance expense related to a departed executive. 

GAAP net loss from continuing operations for the six months ended June 30, 2019 was $(2.4) million, or $(0.25) per basic and diluted share compared to a net loss of $(3.5) million, or $(0.37) per basic and diluted share for the same period of 2018GAAP net income for the six months ended June 30, 2019, after adjustment from income from discontinued operations, including gain on sale, net of tax, was $16.5 million, or $1.69 per basic and $1.66 per diluted share compared to a net loss after adjustment from income from discontinued operations, net of tax of $(0.6) million, or $(0.06) per basic and diluted share for the same period of 2018 

The reconciliation of GAAP to non-GAAP information can be found in the tables at the end of this release and provide the details of the Company’s non-GAAP disclosures and the reconciliation of non-GAAP information. 

CYNERGISTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

CYNERGISTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

CYNERGISTEK, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP LOSS FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EBITDA FROM CONTINUING OPERATIONS (UNAUDITED)

Conference Call Information
Date: Wednesday, August 14, 2019
Time: 2:00 pm Eastern Time / 11:00 am Pacific Time
U.S.: 1-800-458-4148
International: 1-323-794-2597
Conference ID: 1876799
Webcast: http://public.viavid.com/player/index.php?id=135679

A replay of the call will be available from 5:00 pm ET on August 14, 2019 to 11:59 pm ET on August 21, 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 1876799.

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.

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Investor Relations Contact:
Bryan Flynn
(512) 402-8550 x8
InvestorRelations@cynergistek.com 

Media Contact:
Danielle Johns
Senior Account Executive
Aria Marketing

(617) 332-9999 x241
djohns@ariamarketing.com 

August 13th, 2019|

About the Author:

Jana Langhorne
Jana Langhorne is the senior director of marketing for CynergisTek, Inc. She manages all of CynergisTek’s marketing and PR efforts, provides support to the sales teams and provides administrative leadership for the executive team. Jana has over thirteen years of combined experience in marketing, sales support and project management.