CynergisTek Reports Full-Year 2019 Financial Results

CynergisTek, Inc. (NYSE AMERICAN: CTEK), a leader in healthcare cybersecurity, privacy, and compliance, today announced financial results for the fourth quarter and twelve months ended December 31, 2019.

Recent Operational Highlights Include:

• Expanded partnership with a multi-year engagement for Managed Security Services (MSS) as well as remediation services totaling over $1 million in additional business.
• Bolstered sales team by adding six experts in cybersecurity, healthcare IT, and privacy.
• Expanded relationship with one of the world’s leading public research university systems with a six-figure contract with the firm’s Compliance Assist Partnership Program and Medical Device Security Assessment.
• Strengthened board expertise in IT security, healthcare, public company, business development, and C-suite leadership with the addition of three new members.

Recent Financial Results (Compared to Prior Periods):

• Revenues for the full-year 2019 increased by $0.1 million to $21.4 million.
  • Managed services, including equipment and software, revenue was $11.9 million, an increase of 10%, compared to $10.8 million for the same period of 2018. This increase was due to new multi-year managed services contracts.
  • Professional and consulting services revenues were down by $1.0 million to $9.5 million, compared to $10.5 million for the same period of 2018. This decrease was due to $0.6 million from the addition of the Backbone Consultants business offset by $1.6 million in lower revenues from consulting and professional services, primarily due to the completion of a large, non-recurring remediation contract for one of its largest customers.
• Gross margin was 39% for 2019, and 48% for the same period in 2018. The reduction in gross margin is reflective of our investment in attracting talented cybersecurity employees, costs associated with ramping up our new managed services offerings, and the lower than expected consulting and professional services revenue from new and existing customers.
• GAAP net loss from continuing operations for the twelve months ended December 31, 2019 was $(5.4) million, or $(0.55) per basic and diluted share compared to a net loss of $(4.0) 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 twelve months of 2019, compared to breakeven for the same period in 2018.
• Received a $2.5 million commitment from a current investor for equity financing to support current operations

"Over the last eight months I have been focused on the fundamentals of the business,” said Caleb Barlow, president and CEO of CynergisTek. "Strengthening the sales team, improving operational efficiencies, and positioning the company for growth. The hard work and dedication by our employees has started to pay off as you can see with our recent large contract announcements. We will work to continue this momentum into 2020.”

For the 12 Months Ended December 31, 2019, Compared to the 12 Months Ended December 31, 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 was $21.4 million for the year ended December 31, 2019, as compared to $21.3 million for the same period in 2018. Managed services revenue was $11.9 million an increase of 10%, compared to $10.8 million for the same period of 2018. Professional and consulting services revenues were $9.5 million, a decrease of $1.0 million, compared to $10.5 million for the same period of 2018.

Gross margin was 39% of revenue for the year ended December 31, 2019, and 48% for the same period in 2018.

Sales and marketing expenses were $5.3 million for the year ended December 31, 2019, as compared to $5.2 million for the same period in 2018. General and administrative expenses increased by $0.5 million to $6.9 million for the year ended December 31, 2019, as compared to $6.4 million for the same period in 2018. The increase in general and administrative expenses is attributed to 1) $0.9 million in non-recurring expenses related to the onboarding of our new CEO while our outgoing CEO remained as part of the transition, severance related costs associated with targeted cost reductions and transaction fees associated with the Backbone acquisition; and 2) $0.3 million in software subscriptions and support costs for streamlining operations and business tracking. These additional costs were primarily offset by lower costs of $0.6 million in severance paid to a departed executive in 2018. The company is continuing to look at additional areas where it might be able to further reduce costs.

GAAP net loss from continuing operations for the year ended December 31, 2019 was $(5.4) million, or $(0.55) per basic and diluted share compared to a net loss of $(4.0) million, or $(0.41) per basic and diluted share for the same period of 2018. GAAP net income for the year ended December 31, 2019, after adjustment for income from discontinued operations, was $14.9 million, or $1.51 per basic and $1.49 per diluted share compared to $1.9 million, or $0.20 per basic and $0.19 per diluted share for the same period of 2018.

Non-GAAP adjusted EBITDA loss from continuing operations, after adding back stock-based compensation, CEO transition related costs, restructuring costs related to a reduction in workforce at the end of the year, and transaction expenses related to the Backbone Consultants acquisition, was $(1.4) million for the year ended December 31, 2019, compared to breakeven after adding back stock-based compensation, change in valuation of earnout, non-recurring charges related to debt refinancing, and the departure of a senior executive for the same period in 2018.

The Company recently received a $2.5 million commitment from a current investor for equity financing to support current operations. The deal has a one-year term. The company is not obligated to sell any shares pursuant to the Equity Commitment. The purchase price of the shares will be at a discount to the market price and will include an initial warrant along with additional warrants if and when the company sells shares to the investor. The company is still finalizing the specific terms related to share purchases.

Conference Call Information
Date: Monday, March 30, 2020
Time: 4:30 pm Eastern Time / 1:30 pm Pacific Time
U.S.: 1-888-204-4368
International: 1-786-789-4797
Conference ID: 9062180
Webcast: http://public.viavid.com/index.php?id=138537

A replay of the call will be available from 7:30 pm ET on March 30, 2020 to 11:59 pm ET on April 6, 2020.
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 9062180.

About CynergisTek, Inc.

CynergisTek is a top-ranked cybersecurity firm dedicated to serving the information assurance needs of 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 recognized by KLAS as a top performing firm in healthcare cybersecurity and was awarded the 2019 Top Healthcare Cybersecurity Consultants in Black Book IT Advisory Outcomes Survey.

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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