Recent Operational Highlights Include:
- Acquisition of Backbone Consultants, adding multi-year contracts with a diverse and growing customer base in both healthcare and non-healthcare, including two Fortune 1,000 EHR vendors and one of the largest medical device manufacturers in the market.
- Announced partnership with LogicGate to elevate Vendor Security Management service, adding strength to the five managed service offerings.
- Black Book Market Research identified CynergisTek as the top cybersecurity advisory and consulting firm servicing the healthcare Industry.
Recent Financial Results (Compared to Prior Periods):
- Revenues for the nine months for 2019 increased by 9% or $1.3 million to $15.6 million.
- Managed services revenue was $8.7 million, an increase of 15%, compared to $7.5 million for the same period of 2018.
- Professional and consulting services revenues were slightly down by $0.1 million to $6.8 million, compared to $6.7 million for the same period of 2018.
- Managed services grew due to new multi-year managed service contracts while professional and consulting services were lower due to less revenue from the Company’s largest professional services client as it gets close to the completion of the large remediation project that started in 2018.
- Gross margin was 38% of revenue for the nine months ended September 30, 2019, and 46% for the same period in 2018. The reduction in gross margin is reflective of the Company’s investment in attracting talented cybersecurity employees, costs associated with ramping up new services, and the lower than anticipated professional services revenue experienced during this period.
- GAAP net loss from continuing operations for the nine months ended September 30, 2019 was $(3.7) million, or $(0.38) per basic and diluted share, compared to a net loss of $(3.9) million, or $(0.41) per basic and diluted share, for the same period of 2018.
- Non-GAAP adjusted EBITDA was $(1.4) million for the nine months of 2019, compared to $(1.0) million for the same period in 2018.
- Non-GAAP adjusted loss from continuing operations per share for the nine months of 2019 was ($0.18) per basic and diluted share, compared to ($0.22) per basic and diluted share for the same period of 2018.
“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