CISO Global, Inc. (formerly Cerberus Cyber Sentinel Corporation) — Q3 2022 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited quarter and nine months ended September 30, 2022. The company provides cybersecurity and compliance services, including managed security, security operations center services, vCISO, compliance, incident response, forensics, assessments, training, and related professional services.
During 2022, the company continued an acquisition-led expansion strategy, completing acquisitions of True Digital, Creatrix, CyberViking, CUATROi, and NLT Secure, among others. The filing identifies the registrant as Cerberus Cyber Sentinel Corporation; the request identifies the company as CISO Global, Inc.
Financial performance and liquidity
| Metric | Three months ended September 30, 2022 | Three months ended September 30, 2021 | Nine months ended September 30, 2022 | Nine months ended September 30, 2021 |
|---|---|---|---|---|
| Total revenue | $11.3 million | $3.7 million | $31.8 million | $9.3 million |
| Gross profit | $0.9 million | $0.5 million | $1.7 million | $1.8 million |
| Gross margin | 8.2% | 12.1% | 5.5% | 19.2% |
| Loss from operations | $(8.4) million | $(3.2) million | $(23.7) million | $(6.9) million |
| Net loss | $(8.5) million | $(2.3) million | $(23.9) million | $(6.1) million |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(7.9) million | $(4.3) million |
- Third-quarter revenue increased $7.5 million, or 200%, primarily from acquisitions and growth in existing and new customers. Security managed services revenue increased 225%; professional services revenue increased 85%.
- Nine-month revenue increased $22.6 million, or 244%. Security managed services represented approximately 90% of revenue.
- Gross profit increased in the third quarter but declined slightly for the nine-month period. Margin pressure reflected higher managed-services costs, payroll, and stock-based compensation.
- Stock-based compensation totaled $2.6 million in the third quarter and $11.6 million for the nine months, including amounts recorded in cost of revenue and operating expenses.
- Cash and cash equivalents were $4.9 million at September 30, 2022, compared with $2.7 million at December 31, 2021. Current assets were $14.9 million versus current liabilities of $18.2 million, producing a working-capital deficit of $3.3 million.
- Total debt, including loans and convertible notes, was approximately $14.3 million at September 30, 2022, excluding lease liabilities. Current loans and convertible notes totaled approximately $8.3 million.
- Total assets increased to $101.5 million from $35.8 million at year-end 2021, mainly due to acquisitions and goodwill. Goodwill increased to $74.1 million from $16.8 million.
- Net cash used in investing activities was $6.0 million, principally reflecting cash paid for acquisitions. Financing activities provided $16.0 million, including equity proceeds and bridge-loan borrowings.
Material changes versus the prior comparable period
- Revenue growth was substantial, but operating losses widened to $8.4 million in the quarter and $23.7 million for the nine months.
- Quarterly gross margin declined to 8.2% from 12.1%; nine-month gross margin declined to 5.5% from 19.2%.
- Operating expenses increased 159% in the third quarter and 193% for the nine months, driven primarily by acquired headcount, higher general and administrative costs, professional fees, and stock-based compensation.
- Net loss increased to $23.9 million for the nine months from $6.1 million. The prior-year period included $0.98 million of PPP loan forgiveness, which did not recur.
- Shares outstanding increased to 145.9 million at September 30, 2022 from 125.9 million at December 31, 2021, reflecting equity financing, acquisitions, option exercises, and stock-based compensation.
- Foreign-currency translation produced a $2.2 million loss for the nine months, primarily associated with international operations.
Guidance, outlook, risks, contingencies, and unusual items
- Management stated that it expected to incur additional losses through the end of 2022 and had not demonstrated sustained profitability.
- Management believed liquidity and capital resources were sufficient for at least the next 12 months from the filing date, while noting that additional equity, equity-linked, or debt financing may be required. The company disclosed approximately $298.9 million of remaining availability under its $300 million S-3 registration statement.
- A $5.0 million asset-secured bridge-loan facility entered into in June 2022 matured on December 14, 2022. The filing does not state the subsequent repayment or refinancing outcome.
- A $1.5 million convertible note was amended after quarter-end to extend its maturity from January 27, 2022 to December 31, 2023. A separate $1.0 million convertible note issued in June 2022 matures in June 2023.
- Preliminary purchase-price allocations for CUATROi and NLT Secure remained subject to measurement-period adjustments. Goodwill could change based on final valuations.
- The company expects to recognize approximately $1.2 million of amortization related to acquired tradenames being phased out as part of rebranding, with integration expected to be completed by June 30, 2024.
- Management disclosed material weaknesses in internal control over financial reporting related to risk-assessment procedures and documentation of critical policies and procedures. Disclosure controls were therefore concluded to be ineffective as of September 30, 2022.
- Key risks include acquisition integration, achieving profitability, raising capital, dilution, retaining cybersecurity personnel, goodwill and intangible-asset impairment, economic and capital-market volatility, inflation, interest rates, geopolitical disruption, foreign-currency exposure, and changing cybersecurity and indirect-tax regulations.
- The filing states that there were no material pending legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the company achieved the stated liquidity objective and how the December 2022 bridge-loan maturity was resolved.
- Current cash balances, debt maturities, interest rates, covenant compliance, and any subsequent financing or equity issuance.
- Whether acquisitions are producing sustainable organic growth and improved gross margins rather than primarily increasing low-margin revenue.
- The status of remediation of the disclosed material weaknesses in internal control over financial reporting.
- Final purchase-price allocations and impairment testing for goodwill and acquired intangible assets.
- The level and future impact of stock-based compensation, option dilution, and shares outstanding.
- Whether the company has progressed toward profitability and positive operating cash flow, given management’s expectation of continued losses through year-end 2022.